As filed with the Securities and Exchange Commission on April 30, 2010
No. 333-164906
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Express Parent LLC*
(Exact name of registrant as specified in its charter)
Delaware | 5600 | 26-2828128 | ||
(State or other jurisdiction of incorporation
or organization) |
(Primary Standard Industrial
Classification Code Number) |
(I.R.S. Employer Identification No.) |
One Limited Parkway
Columbus, Ohio 43230
(614) 415-4000
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Matthew C. Moellering
Executive Vice President, Chief Administrative Officer, Chief Financial Officer, Treasurer and Secretary
Express Parent LLC
One Limited Parkway
Columbus, Ohio 43230
(614) 415-4000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies of all communications, including communications sent to agent for service, should be sent to:
Approximate date of commencement of proposed sale to the public : As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box: ¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller reporting company ¨ | |||
(Do not check if a smaller reporting company) |
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered |
Proposed Maximum Aggregate
Offering Price(1)(2) |
Amount of
Registration Fee(2)(3) |
||||
Common Stock, $0.01 par value per share |
$ | 350,000,000 | $ | 24,955 |
(1) | Includes shares of common stock that the underwriters may purchase (including pursuant to the option to purchase additional shares) from us and the selling stockholders. |
(2) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. |
(3) | Of this amount, $14,260 was previously paid in connection with the initial filing of this registration statement and $10,695 has been paid in connection with this filing. |
* | P rior to the effectiveness of this Registration Statement, a reorganization will be effected and the issuer of the common stock to be registered pursuant to this registration statement will be a Delaware corporation named Express, Inc. |
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. |
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion.
Preliminary Prospectus dated April 30, 2010.
PROSPECTUS
16,000,000 Shares
Express, Inc.
Common Stock
This is an initial public offering of shares of common stock of Express, Inc.
Express is offering 10,500,000 of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional 5,500,000 shares. Express will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.
Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $18.00 and $20.00. Express has applied to list the common stock on the New York Stock Exchange under the symbol EXPR.
Investing in the common stock involves risks that are described in the Risk Factors section beginning on page 13 of this prospectus.
Per Share |
Total |
|||
Public offering price |
$ | $ | ||
Underwriting discount |
$ | $ | ||
Proceeds, before expenses, to Express, Inc. |
$ | $ | ||
Proceeds, before expenses, to the selling stockholders |
$ | $ |
To the extent that the underwriters sell more than 16,000,000 shares of common stock, the underwriters have the option to purchase up to an additional 2,400,000 shares from the selling stockholders at the initial public offering price less the underwriting discount. Express will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
The shares will be ready for delivery on or about , 2010.
BofA Merrill Lynch | Goldman, Sachs & Co. |
Morgan Stanley | ||||||
Barclays Capital | Piper Jaffray | UBS Investment Bank | Stephens Inc. |
The date of this prospectus is , 2010.
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Selected Historical Consolidated Financial and Operating Data |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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Material U.S. Federal Income Tax Considerations to Non-U.S. Holders |
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F-1 |
No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
i
We use a 52-53 week fiscal year ending on the Saturday closest to January 31. Fiscal years are identified in this prospectus according to the calendar year prior to the calendar year in which they end. For example, references to 2009, fiscal 2009, fiscal year 2009 or similar references refer to the fiscal year ended January 30, 2010.
On July 6, 2007, investment funds managed by Golden Gate Private Equity, Inc. (Golden Gate) acquired 75% of the equity interests in our business from Limited Brands, Inc. (Limited Brands). As a result of the acquisition (the Golden Gate Acquisition), a new basis of accounting was created beginning July 7, 2007. The periods prior to the Golden Gate Acquisition are referred to as the Predecessor periods and the periods after the Golden Gate Acquisition are referred to as the Successor periods in this prospectus. The Predecessor periods presented in this prospectus include the period from February 4, 2007 through July 6, 2007, reflecting 22 weeks of operations, and the Successor periods presented in this prospectus include the period from July 7, 2007 through February 2, 2008, reflecting 30 weeks of operations. Due to the Golden Gate Acquisition, the financial statements for the Successor periods are not comparable to those of the Predecessor periods presented in this prospectus. Prior to the Golden Gate Acquisition, our consolidated financial statements were prepared on a carve-out basis from Limited Brands. The carve-out consolidated financial statements include allocations of certain costs of Limited Brands. In the Successor periods we no longer incur these allocated costs, but do incur certain expenses as a standalone company for similar functions, including for certain support services provided by Limited Brands under the Limited Brands Transition Services Agreements, which are discussed further in the section entitled Certain Relationships and Related Party Transactions. These allocated costs were based upon various assumptions and estimates and actual results may differ from these allocated costs, assumptions and estimates. Accordingly, the carve-out consolidated financial statements may not be a comparable presentation of our financial position or results of operations as if we had operated as a standalone entity during the Predecessor periods. See Risk FactorsWe have a limited operating history as a standalone company, which may make it difficult to compare our current operating results to prior periods.
In the section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations, we have presented pro forma consolidated financial data for the fiscal year ended February 2, 2008, which gives effect to the Golden Gate Acquisition as if such transaction had occurred on February 4, 2007, in addition to the Predecessor and Successor periods. We believe that presenting the discussion and analysis of the results of operations in this manner promotes the overall usefulness of the comparison given the complexities involved with comparing two significantly different periods.
Prior to the completion of this offering, we intend to convert to a Delaware corporation. See Certain Relationships and Related Party TransactionsReorganization as a Corporation. On the day following this conversion, (i) Express Investment Corp. (EIC), the holding company that holds 67.3% of the equity interests in us on behalf of certain investment funds managed by Golden Gate and (ii) the holding companies that directly or indirectly hold 6.1% of the equity interests in us on behalf of certain members of management (the Management Holding Companies) will be merged with and into us. EIC does not have any independent operations or any significant assets or liabilities and does not comprise a business. Accordingly, this legal merger represents in substance a reorganization and transfer of EICs income tax payables or receivables between entities under common control. Accordingly, for financial reporting purposes, the transaction will be reflected as a contribution of certain of EICs income tax payables or receivables to us, in exchange for a net receivable or payable of equal amount with an affiliate of Golden Gate. See Unaudited Pro Forma Condensed Consolidated Financial Data.
ii
We obtained the industry, market and competitive position data throughout this prospectus from our own internal estimates and research as well as from industry and general publications and research, surveys and studies conducted by third parties. Industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that each of these studies and publications is reliable, we have not independently verified market and industry data from third-party sources. While we believe our internal company research is reliable and the definitions of our market and industry are appropriate, neither such research nor these definitions have been verified by any independent source. Certain industry, market and competitive position data presented in this prospectus was obtained from a survey conducted by e-Rewards, Inc. in April 2007 that was commissioned by Golden Gate prior to the Golden Gate Acquisition in connection with their evaluation of our business. We refer to this survey throughout this prospectus as the 2007 Market Survey.
This prospectus includes our trademarks such as Express, which are protected under applicable intellectual property laws and are the property of Express Parent LLC or its subsidiaries. This prospectus also contains trademarks, service marks, trade names and copyrights, of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names.
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This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider in making your investment decision. You should read the following summary together with the entire prospectus, including the more detailed information regarding our company, the common stock being sold in this offering and our consolidated financial statements and the related notes appearing elsewhere in this prospectus. You should carefully consider, among other things, our consolidated financial statements and the related notes thereto included elsewhere in this prospectus and the matters discussed in the sections entitled Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations in this prospectus before deciding to invest in our common stock. Some of the statements in this prospectus constitute forward-looking statements. See Forward-Looking Statements.
Except where the context otherwise requires or where otherwise indicated, the terms Express, we, us, our, our company and our business refer, prior to the Reorganization discussed below, to Express Parent LLC and, after the Reorganization, to Express, Inc., in each case together with its consolidated subsidiaries as a combined entity. The term Express Parent refers, prior to the Reorganization, to Express Parent LLC and, after the Reorganization, to Express, Inc. The term Express Topco refers to Express Topco LLC and Express Holding refers to Express Holding, LLC, each of which is a wholly-owned subsidiary of Express Parent, and in each case not to any of their subsidiaries.
Company Overview
Express is the sixth largest specialty retail apparel brand in the United States. With 30 years of experience offering a distinct combination of style and quality at an attractive value, we believe we are a core shopping destination for our customers and that we have developed strong brand awareness and credibility with them. We target an attractive and growing demographic of women and men between 20 and 30 years old. We offer our customers an edited assortment of fashionable apparel and accessories to address fashion needs across multiple aspects of their lifestyles, including work, casual and going-out occasions. Since we became an independent company in 2007, we have made several significant changes to our business model, including completing the conversion of our stores to a dual-gender format, re-designing our go-to-market strategy and launching our e-commerce platform, all of which we believe have improved our operating profits and positioned us well for future growth and profitability.
As of January 30, 2010, we operated 573 stores. Our stores are located primarily in high-traffic shopping malls, lifestyle centers and street locations across the United States, and average approximately 8,700 square feet. We also sell our products through our e-commerce website, express.com. Our stores and website are designed to create an exciting shopping environment that reflects the sexy, sophisticated and social brand image that we seek to project. Our product offering includes both womens and mens apparel and accessories, of which womens represented 67% of our net sales and mens represented 33% of our net sales during fiscal 2009. Our product assortment is a mix of core styles balanced with the latest fashions, a combination we believe our customers look for and value in our brand. For fiscal 2009, we generated net sales, net income and Adjusted EBITDA of $1,721.1, $75.3 and $229.8 million, respectively. Our Adjusted EBITDA increased 168% from $85.9 million in fiscal 2006 to $229.8 million in fiscal 2009. See Summary Historical and Pro Forma Consolidated Financial and Operating Data for a discussion of Adjusted EBITDA, an accompanying presentation of the most directly comparable GAAP financial measure and a reconciliation of the differences between Adjusted EBITDA and the most directly comparable GAAP financial measure, net income.
1
Company History and Recent Accomplishments
We opened our first store in 1980, in Chicago, Illinois as a division of Limited Brands, Inc., and launched our mens apparel line in 1987, which we rebranded under the name Structure in 1989. In the mid 1990s, we experienced a period of rapid expansion, resulting in our operation of over 1,000 stores by 2000, including in many cases a womens and mens store in the same shopping center. In 2001, we began to consolidate our separate womens and mens stores into combined dual-gender stores under the Express brand. In 2007, we began to operate as a standalone company and have since implemented and completed numerous initiatives to strengthen our business, including:
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Transitioned to Standalone Company. As a standalone company, we have made a number of changes to improve our organization, reinvest in our business and align incentives with our performance. Among these, we rehired Michael Weiss as our President and CEO in July 2007. We have also worked to build depth in our organization, including by strengthening our merchandising and design teams and improving the processes by which we make product decisions. |
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Completed Dual-Gender Store Conversion. During the last nine years, we have significantly improved the efficiency of our store base by consolidating separate womens and mens stores that were located in the same shopping center into combined dual-gender stores. Over this time period, this conversion has allowed us to reduce our total gross square footage by approximately 30%. We believe our converted store model has resulted in higher store productivity and lower store expenses, leading to increased profitability. |
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Redesigned Go-To-Market Strategy. Since 2007, we have revised the process by which we design, source and merchandise our product assortment. We now design a greater number of styles, colors and fits of key items for each season and test approximately three-quarters of our product early in each season at a select group of stores before ordering for our broader store base. We believe the results of these changes are higher product margins from reduced markdowns, lower inventory risk and a more relevant product offering for our customers. |
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Reinvested in Our Business to Support Growth. Over the past three years, we have expanded several of our key functional departments and shifted our marketing focus to better position our company for long-term growth. In addition, we have placed increased focus on long-term brand-building initiatives. |
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Launched Express.com. We launched our e-commerce website, express.com, in July 2008, offering our customers a new channel to access our products. We believe our e-commerce platform has improved the efficiency of our business by allowing us to monitor real-time customer feedback, enhancing our product testing capabilities, expanding our advertising reach and providing us with a merchandise clearance channel. |
Competitive Strengths
We attribute our success to the following competitive strengths:
Established Lifestyle Brand. With 30 years of brand heritage, we have developed a distinct and widely recognized brand that we believe fosters loyalty and credibility among our customers who look to us to provide the latest fashions and quality at an attractive value. We are the sixth largest specialty retail apparel brand in the United States in terms of 2008 sales and we believe we are the largest specialty lifestyle brand focused on the 20 to 30 year old customer demographic.
2
Attractive Market and Customer Demographic . According to The NPD Group (NPD Group), in the twelve months ended June 30, 2009, our brand represented approximately 5% of the $20 billion upscale specialty apparel market for 18 to 30 year old women and men in the United States. Our customer demographic is a growing segment of the United States population, and we believe that the Express brand appeals to a particularly attractive subset of this group.
Sophisticated Design, Sourcing and Merchandising Model. We believe that we have an efficient, diversified and flexible supply chain that allows us to quickly identify and respond to trends and to bring a tested assortment of products to our stores. We believe our model allows us to better meet customer needs and enables us to reduce inventory risk and improve product margins from reduced markdowns. Our product testing processes early in the season allow us to test approximately three-quarters of our merchandise in select stores before placing orders for our broader store base. In addition, we assess sales data and new product development on a weekly basis in order to make in-season inventory adjustments where possible and to allow us to respond to the latest trends.
Optimized Real Estate Portfolio. During the last nine years we have completed the conversion of our store base into dual-gender stores from separate womens and mens stores, which has reduced our total square footage by approximately 30%. We believe that over this period, this conversion has brought our average store size in-line with other specialty retailers, has contributed to improved per store sales and profitability and has positioned us to drive improvement in store sales and margins.
Proven and Experienced Team. Michael Weiss, our President and Chief Executive Officer, has more than 40 years of experience in the fashion industry and has served as our President for over 20 years. In addition, our senior management team has an average of 25 years of experience across a broad range of disciplines in the specialty retail industry, including design, sourcing, merchandising and real estate. Experience and tenure with Express extends deep into our organization. For example, our district managers and store managers have been with Express for an average of ten years and seven years, respectively.
Business Strategy
Key elements of our business and growth strategies include the following:
Improve Productivity of Our Retail Stores. We believe that the efforts we have taken over the last several years to optimize our store base through conversion to dual-gender stores and to improve our go-to-market strategy have positioned us well for future growth. We seek to grow our comparable store sales and operating margins by executing the following initiatives:
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Continuing to Refine Our Go-to-Market Strategy. As we increase testing and refine our go-to-market strategy, we believe our in-store product assortment will be more appealing to our customers and will help us to decrease markdowns and to increase sales and product margins; |
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Recapture Market Share in Our Core Product Categories. Approximately five years ago we shifted our product mix, which included a high percentage of tops, casual bottoms and denim, to increase our focus on a more premium wear to work assortment. Based on our historical peak sales levels across product categories, we believe there is opportunity for us to recapture sales as our customers re-discover Express in certain product categories, specifically in casual and party tops, dresses and denim; and |
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Improve Profit Margins. We believe we have the opportunity to continue to improve margins through further efficiencies in sourcing and continued refinement of our merchandising strategy. We plan to leverage our infrastructure, corporate overhead and fixed costs through our converted dual-gender store format. |
3
Expand Our Store Base. While there has been significant growth in retail shopping centers during the last decade, we have focused on converting our existing store base to a dual-gender format and have opened few new stores over this time period. As a result, we believe there are numerous attractive, high-traffic locations that present opportunities for us to expand our store base. We currently plan to open an average of 30 new stores across the United States and Canada over each of the next five years, representing annual store growth of approximately 5%.
Expand Our e-Commerce Platform. In July 2008, we launched our e-commerce platform at express.com, providing us with a direct-to-consumer sales channel. In fiscal 2009, our e-commerce sales increased 231% relative to fiscal 2008 but still only represented approximately 5% of our net sales in fiscal 2009.
International Expansion with Development Partners.
We believe Express has the potential to be a successful global brand. There are
currently four Express stores in the Middle East, which were constructed through a development agreement with Alshaya Trading Co. Over the next five years, we believe there are additional opportunities to expand the Express brand internationally
Summary Risk Factors
We are subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows and prospects. You should carefully consider these risks, including the risks discussed in the section entitled Risk Factors, before investing in our common stock. Risks relating to our business include, among others:
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our business is sensitive to consumer spending and general economic conditions, and therefore a continued or further economic slowdown could adversely affect our financial performance; |
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our business is highly dependent upon our ability to identify and respond to new and changing fashion trends, customer preferences and other related factors; |
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our sales and results of operations fluctuate quarterly and are affected by a variety of factors, including fashion trends, changes in our merchandise mix, the effectiveness of our inventory management, actions of competitors or mall anchor tenants, holiday or seasonal periods, changes in general economic conditions and consumer spending patterns, the timing of promotional events and weather conditions; |
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the clothing retail market in the United States is highly competitive, and we face substantial competition from numerous retailers, including major specialty retailers, department stores, regional retail chains, web-based retail stores and other direct retailers; |
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our ability to attract customers to our stores that are located in malls or other shopping centers depends heavily on the success of these malls and shopping centers; |
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we depend upon third parties for the manufacture of all of the products that we sell, the transportation of these products to and from all of our stores and the operation of our distribution facilities; |
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we may not be able to carry out our growth strategy in a manner that is profitable, and the expansion of our business will place increased demands on our financial, operational, managerial and administrative resources; and |
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as of January 30, 2010, we had $416.8 million of outstanding indebtedness and minimum annual rental obligations under long-term leases of $155.2 million for 2010, and this substantial indebtedness and these lease obligations have significant effects on our business. |
4
Reorganization as a Corporation
Prior to completion of this offering, we intend to convert to a Delaware corporation and change our name from Express Parent LLC to Express, Inc. In connection with this conversion, all of the equity interests in Express Parent LLC will be converted into shares of common stock of Express, Inc. On the day following this conversion, (1) EIC, the holding company that holds 67.3% of the equity interests in us on behalf of certain investment funds managed by Golden Gate and (2) the Management Holding Companies that directly or indirectly hold 6.1% of the equity interests in us on behalf of certain members of management will be merged with and into us.
In connection with these mergers, Golden Gate (indirectly through a limited liability company) and certain members of our management will receive, in exchange for their equity interests in the entities being merged into us, the number of shares of our common stock that they would have held had they held our equity interests directly. After our conversion to a corporation and these mergers, but prior to the completion of this offering, (1) Golden Gate (indirectly through a limited liability company) will hold 67.3% of our common stock, (2) Limited Brands (indirectly through a wholly-owned subsidiary) will hold 22.4% of our common stock and (3) members of management will hold 10.3% of our common stock. The terms of our common stock following the Reorganization will reflect the description thereof set forth in the section entitled Description of Capital Stock.
In this prospectus, we refer to all of these events as the Reorganization. See Certain Relationships and Related Party TransactionsReorganization as a Corporation.
Recent Developments
On March 5, 2010, Express, LLC and Express Finance Corp., each of which is an indirect wholly-owned subsidiary of ours, jointly issued, in a private placement, $250.0 million of 8¾% senior notes due 2018 (the Senior Notes) at an offering price of 98.599% of the face value of the Senior Notes. The proceeds from the offering of Senior Notes of $246.5 million, together with cash on hand of $153.8 million, were used to (1) prepay all of the Term C Loans outstanding under the term loan facility (the Topco credit facility) of our wholly-owned subsidiary, Express Topco, plus accrued and unpaid interest and prepayment penalties, in an aggregate amount equal to $154.9 million, (2) make a distribution to the equity holders of Express Parent in an aggregate amount equal to $230.0 million and (3) pay related transaction fees and expenses, including discounts and commissions to the initial purchasers of the Senior Notes, in an aggregate amount equal to $15.4 million. An affiliate of Golden Gate purchased $50.0 million of the Senior Notes in the offering. In this prospectus, we refer to these transactions as the 2010 Refinancing Transactions.
We currently expect net sales for the fiscal quarter ended May 1, 2010 to be approximately 11% to 13% higher than the net sales for the fiscal quarter ended May 2, 2009. We currently expect comparable store sales for the fiscal quarter ended May 1, 2010 to increase by approximately 10% to 12%, with e-Commerce sales growth of approximately 50% to 60% compared to the same period last year. Consistent with fiscal 2009 results, we believe that our sales in the first quarter of fiscal 2010 continue to benefit from our refined go-to-market strategy which we believe delivers a product assortment that is more appealing to our customers and helps to decrease markdowns and increase sales.
The fiscal quarter ended May 1, 2010 has not yet concluded and accordingly our results of operations for the fiscal quarter ended May 1, 2010 are not yet available. Our expected results above reflect our current estimates for such period. We believe that the estimated net sales data, even when unaccompanied by estimated net income data that is not yet available, is important to an investors understanding of our performance. The estimates set forth above are based solely on currently available information and our actual results for the fiscal quarter ended
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May 1, 2010 may vary materially from our estimates. For example, we have not begun our financial statement closing process for the fiscal quarter ended May 1, 2010. During the course of that process we may identify items that would require us to make adjustments, which may be material, to the results described above. As a result, this discussion constitutes forward-looking statements and is subject to risks and uncertainties, including possible adjustments to our estimated results for the fiscal quarter ended May 1, 2010.
The preliminary financial data set forth above has been prepared by, and is the responsibility of, management of Express. PricewaterhouseCoopers LLP has not audited, reviewed, compiled or performed any procedures with respect to such preliminary financial data. Accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto.
Our Equity Sponsor
Golden Gate Private Equity, Inc. is a San Francisco-based private equity investment firm with approximately $8 billion of assets under management. Golden Gate is dedicated to partnering with world class management teams and targets investments in situations where there is a demonstrable opportunity to significantly enhance a companys value. The principals of Golden Gate have a long history of investing with management partners across a wide range of industries and transaction types, including leveraged buyouts and recapitalizations, corporate divestitures and spin-offs, build-ups and venture stage investing. Over the last five years, Golden Gate has invested in numerous brands in the specialty retail and apparel sectors, including Eddie Bauer, J. Jill and Orchard Brands, a multi-brand direct marketer which owns brands such as Appleseeds, Blair, Drapers and Damons, Haband and Norm Thompson.
Golden Gate acquired a 75% interest in our business from an affiliate of Limited Brands on July 6, 2007 for aggregate cash payments of $484.9 million. In addition, on the closing of the Golden Gate Acquisition, we distributed to an affiliate of Limited Brands $117.0 million in loan proceeds (which amount includes an expense reimbursement paid to Limited Brands) from a $125.0 million term loan facility that is entered into in connection with the Golden Gate Acquisition. See Certain Relationships and Related Party TransactionsPurchase Agreement.
Corporate Information
Express, Inc., the issuer of the common stock in this offering, will be a Delaware corporation. Our corporate headquarters is located at One Limited Parkway, Columbus, Ohio 43230. Our telephone number is (614) 415-4000. Our website address is express.com. The information on our website is not deemed to be part of this prospectus.
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Corporate Structure
The following chart summarizes our corporate structure and principal indebtedness as of April 3, 2010, after giving effect to the Reorganization and the completion of this offering. See Reorganization as a Corporation and Use of Proceeds.
(1) | Prior to the completion of this offering, we will reorganize our existing corporate structure such that the issuer of our common stock will be a Delaware corporation named Express, Inc. and certain entities through which our existing equity holders currently hold their equity in us will be merged with and into Express, Inc. so that those existing equity holders will directly hold our common stock. See Reorganization as a Corporation. |
(2) | As of April 3, 2010, Express, LLC had $139.6 million available for borrowing under the Opco revolving credit facility and no borrowings were then outstanding. |
(3) | Express Finance Corp. is a co-issuer of our Senior Notes and guarantor of our credit facilities. Express Finance Corp. conducts no other business operations. |
(4) |
Express LLC and Express Finance Corp. co-issued $250.0 million of 8 3 / 4 % senior notes due 2018. A portion of the proceeds received from the issuance of Senior Notes were used to prepay the $150.0 million Term C Loan, including accrued interest and prepayment penalties. |
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The Offering
Common stock offered by us |
10,500,000 shares |
Common stock offered by the selling stockholders |
5,500,000 shares |
Common stock to be outstanding immediately after this offering |
88,735,895 shares |
We will not receive any proceeds from the sale of shares by the selling stockholders. |
We intend to use the net proceeds from the sale of common stock by us in this offering to prepay all of the Term B Loans outstanding under the Topco credit facility, to pay accrued and unpaid interest and prepayment penalties, and to pay other fees and expenses incurred in connection with this offering. We will use any remaining net proceeds from this offering for general corporate purposes. See Use of Proceeds. |
Dividend policy |
We currently expect to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness and therefore we do not anticipate paying any cash dividends in the foreseeable future. Our ability to pay dividends on our common stock is limited by our existing credit agreements, and may be further restricted by the terms of any of our future debt or preferred securities. See Dividend Policy. |
Risk Factors |
Investing in our common stock involves a high degree of risk. See Risk Factors beginning on page 14 of this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock. |
Proposed symbol for trading on the New York Stock Exchange |
EXPR |
Unless otherwise indicated, all information in this prospectus relating to the number of shares of our common stock to be outstanding immediately after this offering:
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excludes 1,315,500 shares of our common stock issuable upon the exercise of options and 12,500 shares of common stock subject to restricted stock units that we expect to grant in connection with this offering under our 2010 Incentive Compensation Plan, which we plan to adopt in connection with this offering; and |
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excludes 13,672,000 shares of our common stock that will be reserved for future issuance under our 2010 Incentive Compensation Plan, excluding the option grant and restricted stock unit issuance described above. |
Unless otherwise indicated, all information in this prospectus assumes the completion of the Reorganization occurred prior to the effectiveness of this registration statement as described in the section entitled Reorganization as a Corporation and assumes (1) no exercise by the underwriters of their option to purchase up to 2,400,000 additional shares from the selling stockholders and (2) an initial public offering price of $19.00 per share, the midpoint of the initial public offering price range indicated on the cover of this prospectus.
8
Summary Historical and Pro Forma Consolidated Financial and Operating Data
The following tables summarize our consolidated financial and operating data as of the dates and for the periods indicated. We have derived the summary consolidated financial data for the periods ended July 6, 2007 and February 2, 2008 from our consolidated financial statements for such periods, which were audited by Ernst & Young LLP, an independent registered public accounting firm. We have derived the summary consolidated financial data as of January 30, 2010 and for the fiscal years ended January 31, 2009 and January 30, 2010 from our consolidated financial statements as of and for such fiscal years, which were audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm. Our audited consolidated financial statements as of January 31, 2009 and January 30, 2010 and for the fiscal years or periods, as applicable, ended July 6, 2007, February 2, 2008, January 31, 2009 and January 30, 2010 have been included in this prospectus.
On July 6, 2007, investment funds managed by Golden Gate acquired 75% of the interest in our business from Limited Brands. As a result of the Golden Gate Acquisition, a new basis of accounting was created beginning July 7, 2007 for the Successor periods ending after such date. Prior to the Golden Gate Acquisition, our consolidated financial statements were prepared on a carve-out basis from Limited Brands. The carve-out consolidated financial statements include allocations of certain costs of Limited Brands. In the Successor periods we no longer incur these allocated costs, but do incur certain expenses as a standalone company for similar functions, including support services provided by Limited Brands under the Limited Brands Transition Services Agreements, which are discussed in the section entitled Certain Relationships and Related Party Transactions. These allocated costs were based on various assumptions and estimates and actual results may differ from these allocated costs, assumptions and estimates. Accordingly, the carve-out consolidated financial information may not be a comparable presentation of our financial position or results of operations as if we had operated as a standalone entity during the Predecessor period from February 4, 2007 through July 6, 2007. See Risk FactorsWe have a limited operating history as a standalone company, which may make it difficult to compare our current operating results to prior periods.
9
The summary historical and pro forma consolidated data presented below should be read in conjunction with the sections entitled Risk Factors, Selected Historical Consolidated Financial and Operating Data, Unaudited Pro Forma Condensed Consolidated Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and the related notes thereto and other financial data included elsewhere in this prospectus.
Predecessor | Successor | |||||||||||||||||
Period from
February 4, 2007 through July 6, 2007 |
Period from
July 7, 2007 through February 2, 2008 |
|||||||||||||||||
Year Ended | ||||||||||||||||||
January 31,
2009 |
January 30,
2010 |
|||||||||||||||||
(dollars in thousands, excluding net sales per gross
square foot data) |
||||||||||||||||||
Statement of Operations Data: |
||||||||||||||||||
Net sales |
$ | 659,019 | $ | 1,137,327 | $ | 1,737,010 | $ | 1,721,066 | ||||||||||
Cost of goods sold, buying and occupancy costs |
451,514 | 890,063 | 1,280,018 | 1,175,088 | ||||||||||||||
Gross profit |
207,505 | 247,264 | 456,992 | 545,978 | ||||||||||||||
General, administrative, and store operating expenses |
170,100 | 275,150 | 447,071 | 409,198 | ||||||||||||||
Other operating expense, net |
302 | 5,526 | 6,007 | 9,943 | ||||||||||||||
Operating income (loss) |
37,103 | (33,412 | ) | 3,914 | 126,837 | |||||||||||||
Interest expense |
| 6,978 | 36,531 | 53,222 | ||||||||||||||
Interest income |
| (5,190 | ) | (3,527 | ) | (484 | ) | |||||||||||
Other expense (income), net |
| 4,712 | (300 | ) | (2,444 | ) | ||||||||||||
Income (loss) before income taxes |
37,103 | (39,912 | ) | (28,790 | ) | 76,543 | ||||||||||||
Provision for income taxes |
7,161 | 487 | 246 | 1,236 | ||||||||||||||
Net income (loss) |
$ | 29,942 | $ | (40,399 | ) | $ | (29,036 | ) | $ | 75,307 | ||||||||
Pro forma net income per share(1): |
||||||||||||||||||
Basic |
$ | 0.73 | ||||||||||||||||
Diluted |
$ | 0.72 | ||||||||||||||||
Pro forma basic and diluted weighted average shares(1): |
||||||||||||||||||
Basic |
86,302 | |||||||||||||||||
Diluted |
86,945 | |||||||||||||||||
Statement of Cash Flows Data: |
||||||||||||||||||
Net cash provided by (used in): |
||||||||||||||||||
Operating activities |
$ | 45,912 | $ | 282,192 | $ | 35,234 | $ | 200,721 | ||||||||||
Investing activities |
(22,888 | ) | (15,258 | ) | (51,801 | ) | (26,873 | ) | ||||||||||
Financing activities |
(29,939 | ) | 39,361 | (127,347 | ) | (115,559 | ) | |||||||||||
Other Financial and Operating Data: |
||||||||||||||||||
Comparable store sales change(2) |
6 | % | 12 | % | (3 | )% | (6 | )% | ||||||||||
Net sales per gross square foot(3) |
$ | 118 | $ | 213 | $ | 337 | $ | 321 | ||||||||||
Total gross square feet (in thousands) (average) |
5,604 | 5,348 | 5,060 | 5,033 | ||||||||||||||
Number of stores (at period end) |
622 | 587 | 581 | 573 | ||||||||||||||
Capital expenditures |
22,888 | 15,258 | 50,551 | 26,853 | ||||||||||||||
EBITDA(4) |
62,154 | 10,071 | 83,514 | 198,949 | ||||||||||||||
Adjusted EBITDA(4) |
62,154 | 115,272 | 137,198 | 229,750 |
|
As of January 30, 2010
|
|
||||||||||
Actual |
|
Pro
Forma(6) |
|
|
Pro Forma
As Adjusted(6) |
|
||||||
(unaudited) | ||||||||||||
Balance Sheet Data (at end of period): |
||||||||||||
Cash and cash equivalents |
$ | 234,404 | $ | 86,139 | $ | 86,139 | ||||||
Working capital (excluding cash and cash equivalents)(5) |
(65,794 | ) | (27,284 | ) | (27,284 | ) | ||||||
Total assets |
869,554 | 773,127 | 773,127 | |||||||||
Total debt (including current portion) |
416,763 | 368,372 | 368,372 | |||||||||
Total members/stockholders equity |
141,453 | 108,993 | 108,993 |
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(1) | Unaudited pro forma net income (loss) per share gives effect to the 2010 Refinancing Transactions and the Reorganization and also includes 10,500,000 shares expected to be issued in this offering, whose proceeds will be used to prepay all of the Term B Loans plus accrued and unpaid interest and prepayment penalties. See Unaudited Pro Forma Condensed Consolidated Financial Data. |
(2) | Comparable store sales have been calculated based upon stores that were open at least thirteen full fiscal months as of the end of the reporting period. |
(3) | Net sales per gross square foot is calculated by dividing net sales for the applicable period by the average gross square footage during such period. For the purpose of calculating net sales per gross square foot, e-commerce sales and other revenues are excluded from net sales. |
(4) | EBITDA and Adjusted EBITDA have been presented in this prospectus and are supplemental measures of financial performance that are not required by, or presented in accordance with, generally accepted accounting principles in the United States (GAAP). EBITDA is defined as consolidated net income (loss) before depreciation and amortization, interest expense (net) and amortization of debt issuance costs and discounts and provision for income taxes. Adjusted EBITDA is calculated in accordance with our existing credit agreements, and is defined as EBITDA adjusted to exclude the items set forth in the table below. |
EBITDA is included in this prospectus because it is a key metric used by management to assess our operating performance. Adjusted EBITDA is included in this prospectus because it is a measure by which our lenders evaluate our covenant compliance. The Topco credit facility contains a leverage ratio covenant and an interest coverage ratio covenant that are calculated based on our Adjusted EBITDA. The Opco term loan contains a leverage ratio covenant and the Opco revolving credit facility contains a fixed charge coverage ratio covenant that we must meet if we do not meet the excess availability requirement under the Opco revolving credit facility, and are calculated based on Adjusted EBITDA, without the adjustment for management bonuses paid in connection with our distribution to equity holders in 2008. See Certain Relationships and Related Party Transactions2008 Corporate Reorganization. Non-compliance with the financial ratio covenants contained in the Opco term loan and the Opco revolving credit facility could result in the acceleration of our obligations to repay all amounts outstanding under those agreements. The applicable interest rates on the Opco term loan and the Opco revolving credit facility are also based in part on our leverage ratio and excess availability, respectively. In addition, the Opco term loan, the Opco revolving credit facility and the indenture governing the Senior Notes contain covenants that restrict, subject to certain exceptions, our ability to incur additional indebtedness or make restricted payments, such as dividends, based, in some cases, on our ability to meet leverage ratios or fixed charge coverage ratios. Adjusted EBITDA is a material component of these ratios. |
EBITDA and Adjusted EBITDA are not measures of our financial performance or liquidity under GAAP and should not be considered as alternatives to net income as a measure of operating performance, cash flows from operating activities as a measure of liquidity, or any other performance measure derived in accordance with GAAP. Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow for managements discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements. EBITDA and Adjusted EBITDA contain certain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized, and exclude certain non-recurring charges that may recur in the future. Management compensates for these limitations by relying primarily on our GAAP results and by using EBITDA and Adjusted EBITDA only supplementally. Our measures of EBITDA and Adjusted EBITDA are not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation. |
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The following table sets forth a reconciliation of net income (loss), the most directly comparable GAAP financial measure, to EBITDA and Adjusted EBITDA. |
Predecessor | Successor | |||||||||||||||
Period from
February 4, 2007 through July 6, 2007 |
Period from
July 7, 2007 through February 2, 2008 |
Year Ended | ||||||||||||||
January 31,
2009 |
January 30,
2010 |
|||||||||||||||
(dollars in thousands) | ||||||||||||||||
Net income (loss) |
$ | 29,942 | $ | (40,399 | ) | $ | (29,036 | ) | $ | 75,307 | ||||||
Depreciation and amortization |
25,051 | 48,195 | 79,105 | 69,668 | ||||||||||||
Interest expense, net(a) |
| 1,788 | 33,199 | 52,738 | ||||||||||||
Provision for income taxes |
7,161 | 487 | 246 | 1,236 | ||||||||||||
EBITDA |
62,154 | 10,071 | 83,514 | 198,949 | ||||||||||||
Non-cash deductions, losses, charges(b) |
9,780 | 21,112 | 12,128 | |||||||||||||
Non-recurring expenses(c) |
86,886 | 18,660 | 5,908 | |||||||||||||
Transaction expenses(d) |
766 | 3,596 | 1,656 | |||||||||||||
Permitted Advisory Agreement fees and expenses(e) |
3,882 | 4,238 | 7,153 | |||||||||||||
Non-cash expense related to equity incentives |
1,233 | 2,069 | 2,052 | |||||||||||||
Other adjustments allowable under our existing credit agreements(f) |
2,654 | 4,009 | 1,904 | |||||||||||||
Adjusted EBITDA |
$ | 62,154 | $ | 115,272 | $ | 137,198 | $ | 229,750 | ||||||||
(a) | Includes interest income at Express Parent in the year ended January 31, 2009 and also includes the amortization of debt issuance costs and amortization of debt discount. |
(b) | Adjustments made to reflect the net impact of non-cash expense items such as non-cash rent and expense associated with the change in the fair value of our interest rate swap. |
(c) | Primarily includes an $86.9 million non-cash cost of goods sold charge associated with the allocation of purchase price adjustments to inventory in the 30 weeks ended February 2, 2008, a one-time management bonus paid in the first quarter of fiscal 2008 and expenses related to the development of standalone IT systems in anticipation of the termination of our transition services agreement with Limited Brands. |
(d) | Represents costs incurred related to items such as the issuance of stock, recapitalizations and the incurrence of permitted indebtedness. |
(e) | Golden Gate provides us with on-going consulting and management services pursuant to the advisory agreement entered into in connection with the Golden Gate Acquisition (Advisory Agreement). See Certain Relationships and Related Party TransactionsGolden Gate Advisory Agreement. |
(f) | Reflects adjustments permitted under our existing credit agreements, including advisory fees paid to Limited Brands. |
(5) | Working capital is defined as current assets, less cash and cash equivalents, less current liabilities excluding the current portion of long-term debt. |
(6) | Pro forma balance sheet data reflects (A) the Reorganization, as described under Reorganization as a Corporation, (B) the 2010 Refinancing Transactions, as described under Recent Developments, (C) the use of $169.2 million of the proceeds of this offering to prepay all of the Term B Loans outstanding under our Topco credit facility plus accrued and unpaid interest and prepayment penalties and (D) the use of $30.3 million of the proceeds of this offering to pay fees and expenses incurred in connection with this offering, including underwriting discounts and payments to Golden Gate and Limited Brands. Accrued and unpaid interest of $10.2 million on the Term B Loans as of January 30, 2010 was paid on February 1, 2010 and we estimate that as of May 11, 2010 we will have $5.5 million of accrued and unpaid interest outstanding under our Term B Loans. Pro forma as adjusted balance sheet data reflects the use of any remaining proceeds of this offering for general corporate purposes. See, Use of Proceeds and Unaudited Pro Forma Condensed Consolidated Financial Data. |
12
This offering and an investment in our common stock involve a high degree of risk. You should carefully consider the risks described below, together with the financial and other information contained in this prospectus, before you decide to purchase shares of our common stock. If any of the following risks actually occurs, our business, financial condition, results of operations, cash flow and prospects could be materially and adversely affected. As a result, the trading price of our common stock could decline and you could lose all or part of your investment in our common stock.
Risks Related to Our Business
Our business is sensitive to consumer spending and general economic conditions, and a continued or further economic slowdown could adversely affect our financial performance.
Consumer purchases of discretionary retail items, including our products, generally decline during recessionary periods and other periods where disposable income is adversely affected. Our performance is subject to factors that affect domestic and worldwide economic conditions, including employment, consumer debt, reductions in net worth based on recent severe market declines, residential real estate and mortgage markets, taxation, fuel and energy prices, interest rates, consumer confidence, value of the United States dollar versus foreign currencies and other macroeconomic factors. For example, our net sales declined by 1% in fiscal 2009 compared to fiscal 2008, primarily due to the global economic recession. Further deterioration in economic conditions or increasing unemployment levels, may continue to reduce the level of consumer spending and inhibit consumers use of credit, which may continue to adversely affect our revenues and profits. In recessionary periods, we may have to increase the number of promotional sales or otherwise dispose of inventory for which we have previously paid to manufacture, which could further adversely affect our profitability. Our financial performance is particularly susceptible to economic and other conditions in regions or states where we have a significant number of stores. Current economic conditions and further slowdown in the economy could further adversely affect shopping center traffic and new shopping center development and could materially adversely affect us.
In addition, the current economic environment and future recessionary periods may exacerbate some of the risks noted below, including consumer demand, strain on available resources, store growth, interruption of the flow of merchandise from key vendors and foreign exchange rate fluctuations. The risks could be exacerbated individually or collectively.
Our business is highly dependent upon our ability to identify and respond to new and changing fashion trends, customer preferences and other related factors, and our inability to identify and respond to these new trends may lead to inventory markdowns and writeoffs, which could adversely affect us and our brand image.
Our focus on fashion conscious young women and men means that we have a target market of customers whose preferences cannot be predicted with certainty and are subject to change. Our success depends in large part upon our ability to effectively identify and respond to changing fashion trends and consumer demands, and to translate market trends into appropriate, saleable product offerings. Our failure to identify and react appropriately to new and changing fashion trends or tastes or to accurately forecast demand for certain product offerings could lead to, among other things, excess inventories, markdowns and write-offs, which could materially adversely affect our business and our brand image. Because our success depends significantly on our brand image, damage to our brand image as a result of our failure to respond to changing fashion trends could have a negative impact on us.
We often enter into agreements for the manufacture and purchase of merchandise well ahead of the season in which that merchandise will be sold. Therefore we are vulnerable to changes in consumer preference and demand between the time we design and order our merchandise and the season in which this merchandise will
13
be sold. There can be no assurance that our new product offerings will have the same level of acceptance as our product offerings in the past or that we will be able to adequately and timely respond to the preferences of our customers. The failure of any new product offerings to appeal to our customers could have a material adverse effect on our business, results of operations and financial condition.
Our sales and profitability fluctuate on a seasonal basis and are affected by a variety of other factors.
Our sales and results of operations are affected by a variety of factors, including fashion trends, changes in our merchandise mix, the effectiveness of our inventory management, actions of competitors or mall anchor tenants, holiday or seasonal periods, changes in general economic conditions and consumer spending patterns, the timing of promotional events and weather conditions. As a result, our results of operations fluctuate on a quarterly basis and relative to corresponding periods in prior years, and any of these factors could adversely affect our business and could cause our results of operations to decline. For example, our third and fourth quarter net sales are impacted by early Fall shopping trends and the holiday season. Likewise, we typically experience lower net sales in the first fiscal quarter relative to other quarters. Any significant decrease in net sales during the early Fall selling period or the holiday season would have a material adverse effect on us. In addition, in order to prepare for these seasons, we must order and keep in stock significantly more merchandise than we carry during other parts of the year. This inventory build-up may require us to expend cash faster than we generate by our operations during this period. Any unanticipated decrease in demand for our products during these peak shopping seasons could require us to sell excess inventory at a substantial markdown, which could have a material adverse effect on our business, profitability, ability to repay any indebtedness and our brand image with customers.
We could face increased competition from other retailers that could adversely affect our ability to generate higher net sales and our ability to obtain favorable store locations.
We face substantial competition in the specialty retail apparel industry. We compete on the basis of a combination of factors, including among others, price, breadth, quality and style of merchandise offered, in-store experience, level of customer service, ability to identify and offer new and emerging fashion trends and brand image. We compete with a wide variety of large and small retailers for customers, vendors, suitable store locations and personnel. We face competition from major specialty retailers that offer their own private label assortment, department stores, regional retail chains, web-based retail stores and other direct retailers that engage in the retail sale of apparel accessories, footwear and similar merchandise to fashion-conscious young women and men.
Some of our competitors have greater financial, marketing and other resources available. In many cases, our competitors sell their products in stores that are located in the same shopping malls or lifestyle centers as our stores. In addition to competing for sales, we compete for favorable site locations and lease terms in shopping malls and lifestyle centers and our competitors may be able to secure more favorable locations than us as a result of their relationships with, or appeal to, landlords. Our competitors may also sell substantially similar products at reduced prices through the Internet or through outlet centers or discount stores, increasing the competitive pricing pressure for those products. We cannot assure you that we will continue to be able to compete successfully against existing or future competitors. Our expansion into markets served by our competitors and entry of new competitors or expansion of existing competitors into our markets could have a material adverse effect on us.
Our ability to attract customers to our stores that are located in malls or other shopping centers depends heavily on the success of these malls and shopping centers, and any decrease in customer traffic in these malls or shopping centers could cause our net sales to be less than expected.
A significant number of our stores are located in malls and other shopping centers. Sales at these stores are dependent, to a significant degree, upon the volume of traffic in those shopping centers and the surrounding area. Our stores benefit from the ability of a shopping centers other tenants, particularly anchor stores, such as department stores, to generate consumer traffic in the vicinity of our stores and the continuing popularity of the
14
shopping center as a shopping destination. Our sales volume and traffic generally may be adversely affected by, among other things, a decrease in popularity of malls or other shopping centers in which our stores are located, the closing of anchor stores important to our business, a decline in popularity of other stores in the malls or other shopping centers in which our stores are located or a deterioration in the financial condition of shopping center operators or developers which could, for example, limit their ability to finance tenant improvements for us and other retailers. A reduction in consumer traffic as a result of these or any other factors, or our inability to obtain or maintain favorable store locations within malls or other shopping centers could have a material adverse effect on us. Although we do not have specific information with respect to the malls and other shopping centers in which we locate or plan to locate our stores, we believe mall and other shopping center vacancy rates have been rising and mall and other shopping center traffic has been decreasing nationally, as a result of the current economic downturn which could reduce traffic to our stores.
We do not own or operate any manufacturing facilities and therefore depend upon independent third parties for the manufacture of all of our merchandise, and any inability of a manufacturer to ship goods to our specifications or to operate in compliance with applicable laws could negatively impact our business.
We do not own or operate any manufacturing facilities. As a result, we are dependent upon our timely receipt of quality merchandise from third-party manufacturers. A manufacturers inability to ship orders to us in a timely manner or meet our quality standards could cause delays in responding to consumer demands and negatively affect consumer confidence in the quality and value of our brand or negatively impact our competitive position, all of which could have a material adverse effect on our financial condition or results of operations. Furthermore, we are susceptible to increases in sourcing costs, which we may not be able to pass on to customers, and changes in payment terms from manufacturers, which could adversely affect our financial condition or results of operations.
Failure by our manufacturers to comply with our guidelines also exposes us to various risks, including with respect to use of acceptable labor practices and compliance with applicable laws. We do not independently investigate whether our vendors and manufacturers use acceptable labor practices and comply with applicable laws, such as child labor and other labor laws, and instead rely on audits performed by several unrelated third party auditors. Our business may be negatively impacted should any of our manufacturers experience an interruption in operations, including due to labor disputes and failure to comply with laws, and our business may suffer from negative publicity for using manufacturers that do not engage in acceptable labor practices and comply with applicable law. Any of these results could harm our brand image and have a material adverse effect on our business and growth.
The interruption of the flow of merchandise from international manufacturers could disrupt our supply chain.
We purchase the majority of our merchandise outside of the United States through arrangements with approximately 90 vendors, utilizing approximately 350 foreign manufacturing facilities located throughout the world, primarily in Asia and Central and South America. Political, social or economic instability in Asia, Central or South America, or in other regions in which our manufacturers are located, could cause disruptions in trade, including exports to the United States. Other events that could also cause disruptions to exports to the United States include:
|
the imposition of additional trade law provisions or regulations; |
|
the imposition of additional duties, tariffs and other charges on imports and exports; |
|
quotas imposed by bilateral textile agreements; |
|
foreign currency fluctuations; |
|
restrictions on the transfer of funds; |
|
the financial instability or bankruptcy of manufacturers; and |
|
significant labor disputes, such as dock strikes. |
15
We cannot predict whether the countries in which our merchandise is manufactured, or may be manufactured in the future, will be subject to new or additional trade restrictions imposed by the United States or other foreign governments, including the likelihood, type or effect of any such restrictions. Trade restrictions, including new or increased tariffs or quotas, embargos, safeguards and customs restrictions against apparel items, as well as United States or foreign labor strikes and work stoppages or boycotts, could increase the cost or reduce the supply of apparel available to us and adversely affect our business, financial condition or results of operations.
If we encounter difficulties associated with our distribution facilities or if they were to shut down for any reason, we could face shortages of inventory, delayed shipments to our online customers and harm to our reputation. Any of these issues could have a material adverse effect on our business operations.
Our distribution facilities are operated by third parties. Our Columbus, Ohio facility operates as our central distribution facility and supports our entire business, as all of our merchandise is shipped to the central distribution facility from our vendors, and is then packaged and shipped to our stores or our e-commerce distribution facility for further distribution to our online customers. The success of our stores and the satisfaction of our online customers depend on their timely receipt of merchandise. The efficient flow of our merchandise requires that the third parties who operate our facilities have adequate capacity in both of our distribution facilities to support our current level of operations, and any anticipated increased levels that may follow from the growth of our business. If we encounter difficulties associated with our distribution facilities or in our relationships with the third parties who operate our facilities or if either facility were to shut down for any reason, including as a result of fire or other natural disaster, we could face shortages of inventory, resulting in out of stock conditions in our stores, incur significantly higher costs and longer lead times associated with distributing our products to both our stores and online customers and experience dissatisfaction from our customers. We expect that in the Fall of 2010, our e-commerce distribution facility will be moved from Warren, Pennsylvania to a facility located in Groveport, Ohio, and we may encounter difficulties and unanticipated costs in transitioning our e-commerce fulfillment operations to this facility. Any of these issues could have a material adverse effect on our business and harm our reputation.
We rely upon independent third-party transportation providers for substantially all of our product shipments and are subject to increased shipping costs as well as the potential inability of our third-party transportation providers to deliver on a timely basis.
We currently rely upon independent third-party transportation providers for substantially all of our product shipments, including shipments to and from all of our stores. Our utilization of these delivery services for shipments is subject to risks, including increases in fuel prices, which would increase our shipping costs, and employee strikes and inclement weather which may impact a shipping companys ability to provide delivery services that adequately meet our shipping needs. If we change the shipping companies we use, we could face logistical difficulties that could adversely affect deliveries and we would incur costs and expend resources in connection with such change. Moreover, we may not be able to obtain terms as favorable as those received from independent third-party transportation providers which in turn would increase our costs.
Our growth strategy, including our international expansion plan, is dependent on a number of factors, any of which could strain our resources or delay or prevent the successful penetration into new markets.
Our growth strategy is partially dependent on opening new stores across North America, remodeling existing stores in a timely manner and operating them profitably. Additional factors required for the successful implementation of our growth strategy include, but are not limited to, obtaining desirable store locations, negotiating acceptable leases, completing projects on budget, supplying proper levels of merchandise and successfully hiring and training store managers and sales associates. In order to optimize profitability for new stores, we must secure desirable retail lease space when opening stores in new and existing markets. We must choose store sites, execute favorable real estate transactions on terms that are acceptable to us, hire competent personnel and effectively open and operate these new stores. We historically have received landlord allowances for store build outs, which offset certain capital expenditures we must make to open a new store. If landlord allowances cease to be
16
available to us in the future or are decreased, opening new stores would require more capital outlay, which could adversely affect our ability to continue opening new stores.
To the extent we open new stores in markets where we have existing stores, our existing stores in those markets may experience reduced net sales. Our planned growth will also require additional infrastructure for the development, maintenance and monitoring of those stores. In addition, if our current management systems and information systems are insufficient to support this expansion, our ability to open new stores and to manage our existing stores would be adversely affected. If we fail to continue to improve our infrastructure, we may be unable to implement our growth strategy or maintain current levels of operating performance in our existing stores.
Additionally, we plan to expand outside of North America through development agreements with third parties and these plans could be negatively impacted by a variety of factors. We may be unable to find acceptable partners with whom we can enter into joint development agreements, negotiate acceptable terms for franchise and development agreements and gain acceptance from consumers outside of North America. Our planned usage of development agreements outside of North America also creates the inherent risk if such third parties are able to both effectively operate the businesses and appropriately project our brand image in their respective markets. Ineffective or inappropriate operation of our partners businesses or projection of our brand image could create difficulties in the execution of our international expansion plans.
Our domestic growth plans and our international expansion plan will place increased demands on our financial, operational, managerial and administrative resources. These increased demands may cause us to operate our business less efficiently, which in turn could cause deterioration in the performance of our existing stores. Furthermore, relating to our international expansion, our ability to conduct business in international markets may be affected by legal, regulatory, political and economic risks, including our unfamiliarity with local business and legal environments in other areas of the world. Our international expansion strategy and success could also be adversely impacted by the global economy, as well as by fluctuations in the value of the dollar against foreign currencies.
Our business depends in part on a strong brand image, and if we are not able to maintain and enhance our brand, particularly in new markets where we have limited brand recognition, we may be unable to attract sufficient numbers of customers to our stores or sell sufficient quantities of our products.
Our ability to maintain our reputation is critical to our brand image. Our reputation could be jeopardized if we fail to maintain high standards for merchandise quality and integrity. Any negative publicity about these types of concerns may reduce demand for our merchandise. Failure to maintain high ethical, social and environmental standards for all of our operations and activities or adverse publicity regarding our responses to these concerns could also jeopardize our reputation. Failure to comply with local laws and regulations, to maintain an effective system of internal controls or to provide accurate and timely financial statement information could also hurt our reputation. Damage to our reputation or loss of consumer confidence for any of these reasons could have a material adverse effect on our business, financial condition and results of operations, as well as require additional resources to rebuild our reputation.
We are subject to risks associated with leasing substantial amounts of space, including future increases in occupancy costs.
We lease all of our store locations, our corporate headquarters and our central distribution facility. We typically occupy our stores under operating leases with terms of ten years, with options to renew for additional multi-year periods thereafter. In the future, we may not be able to negotiate favorable lease terms. Our inability to do so may cause our occupancy costs to be higher in future years or may force us to close stores in desirable locations.
Some of our leases have early cancellation clauses, which permit the lease to be terminated by us or the landlord if certain sales levels are not met in specific periods or if the center does not meet specified occupancy
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standards. In addition to future minimum lease payments, some of our store leases provide for additional rental payments based on a percentage of net sales, or percentage rent, if sales at the respective stores exceed specified levels, as well as the payment of common area maintenance charges, real property insurance and real estate taxes. Many of our lease agreements have defined escalating rent provisions over the initial term and any extensions. As we expand our store base, our lease expense and our cash outlays for rent under the lease terms will increase.
We depend on cash flow from operations to pay our lease expenses. If our business does not generate sufficient cash flow from operating activities to fund these expenses, we may not be able to service our lease expenses, which could materially harm our business.
If an existing or future store is not profitable, and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. Moreover, even if a lease has an early cancellation clause, we may not satisfy the contractual requirements for early cancellation under that lease. Our inability to enter into new leases or renew existing leases on terms acceptable to us or be released from our obligations under leases for stores that we close could materially adversely affect us.
Our failure to find store employees that reflect our brand image and embody our culture could adversely affect our business.
Our success depends in part upon our ability to attract, motivate and retain a sufficient number of store employees, including store managers, who understand and appreciate our corporate culture and customers, and are able to adequately and effectively represent this culture and establish credibility with our customers. The store employee turnover rate in the retail industry is generally high. Excessive store employee turnover will result in higher employee costs associated with finding, hiring and training new store employees. If we are unable to hire and retain store personnel capable of consistently providing a high level of customer service, as demonstrated by their enthusiasm for our culture, understanding of our customers and knowledge of the merchandise we offer, our ability to open new stores may be impaired, the performance of our existing and new stores could be materially adversely affected and our brand image may be negatively impacted. Competition for such qualified individuals could require us to pay higher wages to attract a sufficient number of employees. Additionally, our labor costs are subject to many external factors, including unemployment levels, prevailing wage rates, minimum wage laws, potential collective bargaining arrangements, health insurance costs and other insurance costs and changes in employment and labor legislation or other workplace regulation (including changes in entitlement programs such as health insurance and paid leave programs). Such increase in labor costs may adversely impact our profitability, or if we fail to pay such higher wages we could suffer increased employee turnover.
We are also dependent upon temporary personnel to adequately staff our stores and distribution facilities, with heightened dependence during busy periods such as the holiday season and when multiple new stores are opening. There can be no assurance that we will receive adequate assistance from our temporary personnel, or that there will be sufficient sources of suitable temporary personnel to meet our demand. Any such failure to meet our staffing needs or any material increases in employee turnover rates could have a material adverse effect on our business or results of operations.
We depend on key executive management and may not be able to retain or replace these individuals or recruit additional personnel, which could harm our business.
We depend on the leadership and experience of our key executive management. The loss of the services of any of our executive management members could have a material adverse effect on our business and prospects, as we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all. We believe that our future success will depend greatly on our continued ability to attract
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and retain highly skilled and qualified personnel. There is a high level of competition for experienced, successful personnel in the retail industry. Our inability to meet our staffing requirements in the future could impair our growth and harm our business.
We work with Limited Brands to provide us with certain key services for our business. If Limited Brands fails to perform its obligations to us or if we do not find appropriate replacement services, we may be unable to provide these services or implement substitute arrangements on a timely and cost-effective basis on terms favorable to us.
Limited Brands, our former parent and a current equity holder, provides certain services to us under various agreements. Limited Brands has provided us, under the transition services agreement, with support services in various administrative and operational areas. Most of the services provided to us under this agreement have expired, and with respect to those services we have either developed our own capabilities or engaged another third party service provider. The transition services agreement requires us to purchase a minimum percentage of our product through MAST Industries, Inc. (MAST), an affiliate of Limited Brands, until July 2010. The only other material services still provided by Limited Brands under the transition services agreement are information technology and customer marketing services. Both of these services expire in July 2010. Under the logistics services agreement with Limited Brands that was entered into on October 5, 2009 and took effect in February 2010, Limited Brands has agreed to provide certain inbound and outbound transportation and delivery services, distribution services, customs and brokerage services and rental of warehouse/distribution space. The logistics services agreement ends on April 30, 2016. The agreement will continue thereafter unless it is terminated by either party on no less than 24 months prior notice. Notwithstanding the foregoing, we have the right to terminate the agreement on 24 months prior notice, which may be given any time after February 1, 2011. In no event may the termination of the agreement occur between October 1 of any calendar year and the last day of February of the next calendar year. If Limited Brands fails to perform its obligations under either the transition services agreement, logistics services agreement or other agreements we may be unable to obtain substitute arrangements in a timely and cost-effective manner. In addition, we may be unable to obtain replacement services as these agreements expire, or may be required to incur additional costs and may experience delays or business interruptions as a result of our transition to other service providers, which could have a material adverse effect on our business. See Certain Relationships and Related Party Transactions.
We rely significantly on information systems and any failure, inadequacy, interruption or security failure of those systems could harm our ability to effectively operate our business.
Our ability to effectively manage and maintain our inventory, and to ship products to our stores and our customers on a timely basis, depends significantly on our information systems. To manage the growth of our operations, personnel and real estate portfolio, we will need to continue to improve and expand our operational and financial systems, real estate management systems, transaction processing, internal controls and business processes; in doing so, we could encounter implementation issues and incur substantial additional expenses. The failure of our information systems to operate effectively, problems with transitioning to upgraded or replacement systems or expanding them into new stores, or a breach in security of these systems could adversely impact the promptness and accuracy of our merchandise distribution, transaction processing, financial accounting and reporting, the efficiency of our operations and our ability to properly forecast earnings and cash requirements. We could be required to make significant additional expenditures to remediate any such failure, problem or breach. Such events may have a material adverse effect on us.
We sell merchandise over the Internet through our website, express.com. Our Internet operations may be affected by our reliance on third-party hardware and software providers, technology changes, risks related to the failure of computer systems that operate the Internet business, telecommunications failures, electronic break-ins and similar disruptions. Furthermore, our ability to conduct business on the Internet may be affected by liability for on-line content and state and federal privacy laws.
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In addition, we may now and in the future implement new systems to increase efficiencies and profitability. To manage growth of our operations and personnel, we will need to continue to improve and expand our operational and financial systems, transaction processing, internal controls and business processes. When implementing or changing existing processes, we may encounter transitional issues and incur substantial additional expenses.
System security risk issues could disrupt our internal operations or information technology services, and any such disruption could harm our net sales, increase our expenses and harm our reputation.
Experienced computer programmers and hackers, or even internal users, may be able to penetrate our network security and misappropriate our confidential information or that of third parties, including our customers, create system disruptions or cause shutdowns. In addition, employee error, malfeasance or other errors in the storage, use or transmission of any such information could result in a disclosure to third parties outside of our network. As a result, we could incur significant expenses addressing problems created by any such inadvertent disclosure or any security breaches of our network. This risk is heightened because we collect and store customer information, including credit card information, and use certain customer information for marketing purposes. Any compromise of customer information could subject us to customer or government litigation and harm our reputation, which could adversely affect our business and growth. Moreover, we could incur significant expenses or disruptions of our operations in connection with system failures or breaches. In addition, sophisticated hardware and operating system software and applications that we procure from third parties may contain defects in design or manufacture, including bugs and other problems that could unexpectedly interfere with the operation of the systems. The costs to us to eliminate or alleviate security problems, viruses and bugs, or any problems associated with the outsourced services, could be significant, and the efforts to address these problems could result in interruptions, delays or cessation of service that may impede our sales, distribution or other critical functions.
There are claims made against us from time to time that can result in litigation or regulatory proceedings which could distract management from our business activities and result in significant liability.
We face the risk of litigation and other claims against us. Litigation and other claims may arise in the ordinary course of our business and include commercial disputes, intellectual property issues, product-oriented allegations and slip and fall claims. In addition, we could face a wide variety of employee claims against us, including general discrimination, privacy, labor and employment, ERISA and disability claims. For example, Express, LLC is named as a defendant in a purported class action lawsuit alleging various California state labor law violations. See BusinessLegal Proceedings. Any claims could result in litigation against us and could also result in regulatory proceedings being brought against us by various federal and state agencies that regulate our business, including the United States Equal Employment Opportunity Commission. Often these cases raise complex factual and legal issues, which are subject to risks and uncertainties and which could require significant management time. Litigation and other claims and regulatory proceedings against us could result in unexpected expenses and liability, and could also materially adversely affect our operations and our reputation.
In addition, we may be subject to liability if we infringe the trademarks or other intellectual property rights of third parties. If we were to be found liable for any such infringement, we could be required to pay substantial damages and could be subject to injunctions preventing further infringement. Such infringement claims could subject us to boycotts by our customers and harm to our brand image. In addition, any payments we are required to make and any injunctions we are required to comply with as a result of such infringement actions could adversely affect our financial results.
Changes in laws, including employment laws and laws related to our merchandise, could make conducting our business more expensive or otherwise change the way we do business.
We are subject to numerous regulations, including labor and employment, customs, truth-in-advertising, consumer protection and zoning and occupancy laws and ordinances that regulate retailers generally and/or
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govern the importation, promotion and sale of merchandise and the operation of stores and warehouse facilities. If these regulations were to change or were violated by our management, employees, vendors, buying agents or trading companies, the costs of certain goods could increase, or we could experience delays in shipments of our goods, be subject to fines or penalties, or suffer reputational harm, which could reduce demand for our merchandise and hurt our business and results of operations.
In addition to increased regulatory compliance requirements, changes in laws could make ordinary conduct of our business more expensive or require us to change the way we do business. For example, changes in federal and state minimum wage laws could raise the wage requirements for certain of our employees, which would likely cause us to reexamine our entire wage structure for stores. Other laws related to employee benefits and treatment of employees, including laws related to limitations on employee hours, supervisory status, leaves of absence, mandated health benefits or overtime pay, could also negatively impact us, such as by increasing compensation and benefits costs for overtime and medical expenses.
Moreover, changes in product safety or other consumer protection laws could lead to increased costs to us for certain merchandise, or additional labor costs associated with readying merchandise for sale. It is often difficult for us to plan and prepare for potential changes to applicable laws and future actions or payments related to such changes could be material to us.
We may be unable to protect our trademarks or other intellectual property rights, which could harm our business.
We rely on certain trademark registrations and common law trademark rights to protect the distinctiveness of our brand. However, there can be no assurance that the actions we have taken to establish and protect our trademarks will be adequate to prevent imitation of our trademarks by others or to prevent others from claiming that sales of our products infringe, dilute or otherwise violate third party trademarks or other proprietary rights in order to block sales of our products.
The laws of certain foreign countries may not protect the use of unregistered trademarks to the same extent as do the laws of the United States. As a result, international protection of our brand image may be limited and our right to use our trademarks outside the United States could be impaired. Other persons or entities may have rights to trademarks that contain portions of our marks or may have registered similar or competing marks for apparel and/or accessories in foreign countries in which our vendors source our merchandise. There may also be other prior registrations of trademarks identical or similar to our trademarks in other foreign countries of which we are not aware. Accordingly, it may be possible for others to prevent the manufacture of our branded goods in certain foreign countries or the sale or exportation of our branded goods from certain foreign countries to the United States. If we were unable to reach a licensing arrangement with these parties, our vendors may be unable to manufacture our products in those countries. Our inability to register our trademarks or purchase or license the right to use the relevant trademarks or logos in these jurisdictions could limit our ability to obtain supplies from less costly markets or penetrate new markets in jurisdictions outside the United States.
Litigation may be necessary to protect our trademarks and other intellectual property rights, to enforce these rights or to defend against claims by third parties alleging that we infringe, dilute or violate third party trademark or other intellectual property rights. Any litigation or claims brought by or against us, whether with or without merit, or whether successful or not, could result in substantial costs and diversion of our resources, which could have a material adverse effect on our business, financial condition, results of operations or cash flows. Any intellectual property litigation or claims against us could result in the loss or compromise of our intellectual property rights, could subject us to significant liabilities, require us to seek licenses on unfavorable terms, if available at all, prevent us from manufacturing or selling certain products and/or require us to redesign or relabel our products or rename our brand, any of which could have a material adverse effect on our business, financial condition, results of operations or cash flows.
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We have a limited operating history as a standalone company, which may make it difficult to compare our current operating results to prior periods.
On July 6, 2007, investment funds managed by Golden Gate acquired 75% of the equity interest in our business from Limited Brands. As a result of the Golden Gate Acquisition, a new basis of accounting was created beginning July 7, 2007 for the Successor periods ending after such date. Prior to the Golden Gate Acquisition, our consolidated financial statements were prepared on a carve-out basis from Limited Brands. The carve-out consolidated financial statements include allocations of certain costs of Limited Brands. In the Successor periods we no longer incur these allocated costs, but do incur certain expenses as a standalone company for similar functions, including for certain support services provided by Limited Brands under the Limited Brands transition services agreement, which are discussed further in the section entitled Certain Relationships and Related Party Transactions. These allocated costs were based upon various assumptions and estimates and actual results may differ from these allocated costs, assumptions and estimates. Accordingly, the carve-out consolidated financial statements may not provide a comparable presentation of our financial position or results of operations as if we had operated as a standalone entity during the Predecessor periods.
Our substantial indebtedness and lease obligations could adversely affect our financial flexibility and our competitive position.
We have, and we will continue to have, a significant amount of indebtedness. As of January 30, 2010, we had $416.8 million of outstanding indebtedness (net of unamortized original issue discounts of $5.1 million). As of April 3, 2010, we had no borrowings outstanding and $139.6 million available under our revolving credit facility. On a pro forma as adjusted basis giving effect to the 2010 Refinancing Transactions and the use of proceeds from this offering, we had $368.4 million of outstanding indebtedness (net of unamortized original issue discounts of $3.5 million) as of January 30, 2010. Our substantial level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness. We also have, and will continue to have, significant lease obligations. As of January 30, 2010, our minimum annual rental obligations under long-term operating leases for fiscal 2010 and 2011 are $155.2 million and $129.5 million, respectively. Our substantial indebtedness and lease obligations could have other important consequences to you and significant effects on our business. For example, it could:
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increase our vulnerability to adverse changes in general economic, industry and competitive conditions; |
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require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness and leases, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes; |
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limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; |
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restrict us from exploiting business opportunities; |
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make it more difficult to satisfy our financial obligations, including payments on our indebtedness; |
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place us at a disadvantage compared to our competitors that have less debt and lease obligations; and |
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limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes. |
In addition, the agreements governing our existing credit agreements and the indenture governing the Senior Notes contain, and the agreements evidencing or governing other future indebtedness may contain, restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness.
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Our indebtedness may restrict our current and future operations, which could adversely affect our ability to respond to changes in our business and to manage our operations.
Our existing credit agreements and the indenture governing the Senior Notes contain financial restrictions on us and our restricted subsidiaries, including restrictions on our or our restricted subsidiaries ability to, among other things:
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place liens on our or our restricted subsidiaries assets; |
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make investments other than permitted investments; |
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incur additional indebtedness; |
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prepay or redeem certain indebtedness; |
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merge, consolidate or dissolve; |
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sell assets; |
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engage in transactions with affiliates; |
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change the nature of our business; |
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change our or our subsidiaries fiscal year or organizational documents; and |
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make restricted payments (including certain equity issuances). |
In addition, we are required to maintain compliance with various financial ratios in the agreement governing our Opco credit facilities, including:
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pursuant to our Opco revolving credit facility, a fixed charge coverage ratio of 1.00 to 1.00, if excess availability plus eligible cash collateral is less than $30.0 million; and |
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pursuant to our Opco term loan facility, a leverage ratio of not more than 2.25 to 1.00 at the end of the fourth quarter of 2009, 2.00 to 1.00 at the end of the first and second quarters of 2010 and 1.75 to 1.00 thereafter. |
A failure by us or our subsidiaries to comply with the covenants or to maintain the required financial ratios contained in the agreements governing our indebtedness could result in an event of default under such indebtedness, which could adversely affect our ability to respond to changes in our business and manage our operations. Additionally, a default by us under one agreement covering our indebtedness may trigger cross-defaults under other agreements covering our indebtedness. Upon the occurrence of an event of default or cross-default under any of the agreements governing our indebtedness, the lenders could elect to declare all amounts outstanding to be due and payable and exercise other remedies as set forth in the agreements. If any of our indebtedness were to be accelerated, there can be no assurance that our assets would be sufficient to repay this indebtedness in full, which could have a material adverse effect on our ability to continue to operate as a going concern. See Description of Certain Indebtedness.
Our results may be adversely affected by fluctuations in energy costs.
Energy costs have fluctuated dramatically in the past. These fluctuations may result in an increase in our transportation costs for distribution, utility costs for our retail stores and costs to purchase product from our manufacturers. A continual rise in energy costs could adversely affect consumer spending and demand for our products and increase our operating costs, both of which could have a material adverse effect on our financial condition and results of operations.
Changes in taxation requirements or the results of tax audits could adversely affect our financial results.
Upon completion of the Reorganization, we will be treated as a corporation under Subchapter C of Chapter 1 of the Internal Revenue Code which will subject us to additional taxes and risks, including tax on our income. As a result of the Reorganization, we expect to record a net deferred tax asset of approximately $35.0 million and
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a one-time, non-cash tax benefit of approximately $35.0 million. Dividends, if any, distributed to our stockholders will be subject to double taxation after the election. In addition, we may be subject to periodic audits by the Internal Revenue Service and other taxing authorities. These audits may challenge certain of our tax positions, such as the timing and amount of deductions and allocations of taxable income to the various jurisdictions. These additional taxes and the results of any tax audits could adversely affect our financial results.
In addition, we are subject to income tax in numerous jurisdictions, and in the future as a result of our expansion we may be subject to additional jurisdictions, including international and domestic locations. Our products are subject to import and excise duties and/or sales or value-added taxes in many jurisdictions. Fluctuations in tax rates and duties could have a material adverse effect on our financial condition, results of operations or cash flows.
We may recognize impairment on long-lived assets.
Our long-lived assets, primarily stores and intangible assets, are subject to periodic testing for impairment. Store assets are reviewed using factors including, but not limited to, our future operating plans and projected future cash flows. Failure to achieve our future operating plans or generate sufficient levels of cash flow at our stores could result in impairment charges on long-lived assets, which could have a material adverse effect on our financial condition or results of operations.
If we fail to establish and maintain adequate internal controls over financial reporting, we may not be able to report our financial results in a timely and reliable manner, which could harm our business and impact the value of our securities.
We depend on our ability to produce accurate and timely financial statements in order to run our business. If we fail to do so, our business could be negatively affected and our independent registered public accounting firm may be unable to attest to the accuracy of our financial statements and effectiveness of our internal controls.
We restated our 2007 Successor and fiscal 2008 financial statements 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. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. See Managements Discussion and Analysis of Financial Condition and Results of OperationsInternal Control Over Financial Reporting.
We have remediated the material weakness associated with accounting for deferred taxes as a result of expanding our senior level resources in our tax, accounting and financial reporting groups in fiscal 2008. While we are still in the process of remediating the material weakness associated with accounting for complex agreements arising from transactions unrelated to the our core business operations, we have developed and are implementing a plan to remediate this material weakness by, among other things, establishing an internal committee of accounting, legal and internal audit personnel to review our policies and accounting treatment of all complex agreements and monitor ongoing compliance with such agreements. This committee has already established a charter, selected members, has held meetings, and intends to hold, at a minimum, monthly meetings on an on-going basis. In addition, we have also hired a director of external reporting to expand our financial reporting resources in conjunction with this offering.
If we fail to fully remediate this material weakness or 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.
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Risks Related to this Offering and Ownership of Our Common Stock
An active public market for our common stock may not develop following this offering, which could limit your ability to sell your shares of our common stock at an attractive price, or at all.
Prior to this offering, there has been no public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market in our common stock or how liquid that market might become. An active public market for our common stock may not develop or be sustained after the offering. If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at a price that is attractive to you, or at all.
We are a controlled company, controlled by Golden Gate and Limited Brands whose interests in our business may be different from yours.
Upon completion of this offering, Golden Gate will own approximately 48.8 million shares, or 55%, of our outstanding common stock, and Limited Brands will own approximately 16.3 million shares, or 18%, of our outstanding common stock. Accordingly, Golden Gate, acting alone or together with Limited Brands, will be 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.
Pursuant to a Stockholders Agreement to be entered into by Golden Gate and Limited Brands in connection with this offering, Golden Gate will have 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 this offering, 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 completion of this offering. Limited Brands will have 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 completion of this offering, 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 completion of this offering. The Stockholders Agreement will require 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. Accordingly, Golden Gate and Limited Brands, acting together, will be able to control the election of a majority of our 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.
Because of the equity ownership of Golden Gate and Limited Brands, we will be considered a controlled company for purposes of the NYSE listing requirements. As such, we will be exempt from the NYSE corporate governance requirements that our board of directors meet the standard of independence established by those corporate governance requirements and exempt from the requirements that we have separate Compensation and Nominating and Corporate Governance Committees made up entirely of directors who meet such independence standards. The NYSE independence standards are intended to ensure that directors who meet the independence standard are free of any conflicting interest that could influence their actions as directors. It is possible that the interests of Golden Gate and Limited Brands may in some circumstances conflict with our interests and the interests of our other stockholders, including you.
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Our stock price may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.
After this offering, the market price for our common stock is likely to be volatile, in part because our shares have not been traded publicly. In addition, the market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including:
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quarterly variations in our operating results compared to market expectations; |
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changes in preferences of our customers; |
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announcements of new products or significant price reductions by us or our competitors; |
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size of the public float; |
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stock price performance of our competitors; |
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fluctuations in stock market prices and volumes; |
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default on our indebtedness or foreclosure of our properties; |
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actions by competitors or other shopping center tenants; |
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changes in senior management or key personnel; |
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changes in financial estimates by securities analysts; |
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negative earnings or other announcements by us or other retail apparel companies; |
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downgrades in our credit ratings or the credit ratings of our competitors; |
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issuances of capital stock; and |
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global economic, legal and regulatory factors unrelated to our performance. |
Numerous factors affect our business and cause variations in our operating results and affect our net sales and comparable store sales, including consumer preferences, buying trends and overall economic trends; our ability to identify and respond effectively to fashion trends and customer preferences; actions by competitors and other shopping center tenants; changes in our merchandise mix; pricing; the timing of our releases of new merchandise and promotional events; the level of customer service that we provide in our stores; changes in sales mix among sales channels; our ability to source and distribute products effectively; inventory shrinkage; weather conditions, particularly during the holiday season; and the number of stores we open, close and convert in any period.
The initial public offering price of our common stock will be determined by negotiations between us and the underwriters based upon a number of factors and may not be indicative of prices that will prevail following the consummation of this offering. Volatility in the market price of our common stock may prevent investors from being able to sell their common stock at or above the initial public offering price. As a result, you may suffer a loss on your investment.
In addition, stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many retail companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from our business.
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Future sales of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price.
Sales of substantial amounts of our common stock in the public market after this offering, or the perception that these sales could occur, could adversely affect the price of our common stock and could impair our ability to raise capital through the sale of additional shares. Upon completion of this offering, we will have 88.7 million shares of common stock outstanding. The shares of common stock offered in this offering will be freely tradable without restriction under the Securities Act, except for any shares of our common stock that may be held or acquired by our directors, executive officers and other affiliates, as that term is defined in the Securities Act, which will be restricted securities under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available.
We, each of our officers and directors and the selling stockholders have agreed, subject to certain exceptions, with the underwriters not to dispose of or hedge any of the shares of common stock or securities convertible into or exchangeable for, or that represent the right to receive, shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman, Sachs & Co. See Underwriting.
All of our shares of common stock outstanding as of the date of this prospectus may be sold in the public market by existing stockholders 180 days after the date of this prospectus, subject to applicable limitations imposed under federal securities laws. See Shares Eligible for Future Sale for a more detailed description of the restrictions on selling shares of our common stock after this offering.
In the future, we may also issue our securities if we need to raise capital in connection with a capital raise or acquisitions. The amount of shares of our common stock issued in connection with a capital raise or acquisition could constitute a material portion of our then-outstanding shares of our common stock.
Anti-takeover provisions in our charter documents and Delaware law might discourage or delay acquisition attempts for us that you might consider favorable.
Our certificate of incorporation and bylaws will contain provisions that may make the acquisition of our company more difficult without the approval of our board of directors. These provisions:
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establish a classified board of directors so that not all members of our board of directors are elected at one time; |
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authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders of common stock; |
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prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; |
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provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws; and |
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establish advance notice requirements for nominations for elections to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings. |
Our certificate of incorporation will also contain a provision that provides us with protections similar to Section 203 of the Delaware General Corporate Law, and will prevent us from engaging in a business combination with a person who acquires at least 15% of our common stock for a period of three years from the date such person acquired such common stock, except for Golden Gate and, in certain instances, persons who purchase common stock from Golden Gate and unless board or stockholder approval is obtained prior to the
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acquisition. These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our company, even if doing so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.
If you purchase shares of common stock sold in this offering, you will incur immediate and substantial dilution.
If you purchase shares of common stock in this offering, you will incur immediate and substantial dilution in the amount of $20.11 per share, because the initial public offering price of $19.00 is substantially higher than the pro forma net tangible book value per share of our outstanding common stock. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares, and as of April 3, 2010 have received an aggregate of $687.6 million of cash distributions (which includes $507.0 million distributed to Golden Gate), other than tax distributions, from us since the Golden Gate Acquisition. In addition, you may also experience additional dilution upon future equity issuances or the exercise of stock options to purchase common stock granted to our employees, consultants and directors under our stock option and equity incentive plans. See Dilution.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.
We do not expect to pay any cash dividends for the foreseeable future.
The continued operation and expansion of our business will require substantial funding. Accordingly, we do not anticipate that we will pay any cash dividends on shares of our common stock for the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. Additionally, our operating subsidiaries are currently restricted from paying cash dividends by the agreements governing their indebtedness, and we expect these restrictions to continue in the future. Accordingly, if you purchase shares in this offering, realization of a gain on your investment will depend on the appreciation of the price of our common stock, which may never occur. Investors seeking cash dividends in the foreseeable future should not purchase our common stock.
We will incur increased costs as a result of becoming a public company.
As a public company, we will incur significant legal, accounting, insurance and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements. We also have incurred and will incur costs associated with complying with the requirements of the Sarbanes-Oxley Act of 2002 and related rules implemented by the Securities and Exchange Commission (SEC) and the NYSE. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. These laws and regulations could also make it more difficult or costly for us to
28
obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.
Compliance with Section 404 of the Sarbanes-Oxley Act of 2002 will require significant expenditures and effort by management, and if our independent registered public accounting firm is unable to provide an unqualified attestation report on our internal controls, our stock price could be adversely affected.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and related rules and regulations and beginning with our Annual Report on Form 10-K for the year ending January 28, 2012, our management will be required to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. We are currently in the process of reviewing, documenting and testing our internal control over financial reporting. We may encounter problems or delays in completing the implementation of any changes necessary to make a favorable assessment of our internal control over financial reporting. In addition, in connection with the attestation process by our independent registered public accounting firm, we may encounter problems or delays in completing the implementation of any requested improvements and receiving a favorable attestation. If we cannot favorably assess the effectiveness of our internal control over financial reporting, or if our independent registered public accounting firm is unable to provide an unqualified attestation report on our internal controls, investors could lose confidence in our financial information and our stock price could decline.
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This prospectus contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this prospectus are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as anticipate, estimate, expect, project, plan, intend, believe, may, will, should, can have, likely and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies, the Reorganization or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:
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changes in consumer spending and general economic conditions; |
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our ability to identify and respond to new and changing fashion trends, customer preferences and other related factors; |
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fluctuations in our sales and results of operations on a seasonal basis and due to store events, promotions and a variety of other factors; |
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increased competition from other retailers; |
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the success of the malls and shopping centers in which our stores are located; |
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our dependence upon independent third parties for the manufacture of all of our merchandise; |
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interruptions of the flow of our merchandise from international manufacturers causing disruptions in our supply chain; |
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shortages of inventory, delayed shipments to our online customers and harm to our reputation due to difficulties or shut-down of our distribution facilities; |
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our reliance upon independent third-party transportation providers for substantially all of our product shipments; |
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our growth strategy, including our international expansion plan; |
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our dependence on a strong brand image; |
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our leasing substantial amounts of space; |
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the failure to find store employees that reflect our brand image and embody our culture; |
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our dependence upon key executive management; |
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our reliance on Limited Brands to provide us with certain key services for our business; |
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our reliance on information systems; |
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system security risk issues that could disrupt our internal operations or information technology services; |
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changes in laws and regulations applicable to our business; |
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our inability to protect our trademarks or other intellectual property rights; |
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our limited operating history as a standalone company; |
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fluctuations in energy costs; |
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changes in taxation requirements or the results of tax audits; |
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claims made against us resulting in litigation; |
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our substantial indebtedness and lease obligations; |
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restrictions imposed by our indebtedness on our current and future operations; |
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increased costs as a result of being a public company; and |
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our failure to maintain adequate internal controls. |
We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations in this prospectus. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.
We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this prospectus are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
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We estimate based upon an assumed initial public offering price of $19.00 per share, the midpoint of the range set forth on the cover of this prospectus, we will receive net proceeds from the offering of approximately $186.5 million, after deducting underwriting discounts and commissions but before deducting $4.0 million of estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders, including any shares sold by the selling stockholders in connection with the exercise of the underwriters option to purchase additional shares.
We intend to use the net proceeds from this offering to prepay all of the Term B Loans outstanding under the Topco credit facility, to pay accrued and unpaid interest and prepayment penalties and to pay other fees and expenses incurred in connection with this offering, including payments to Golden Gate and Limited Brands. See Certain Relationships and Related Party Transactions. We will use any remaining net proceeds from this offering for general corporate purposes.
The following table summarizes the estimated sources and uses of funds in connection with the offering.
Sources of funds: |
Amount |
Uses of funds |
Amount | |||
Net proceeds to us |
$186.5 |
Prepayment of Term B Loans(1) |
$164.5 | |||
Payments to Golden Gate and Limited Brands(2) |
13.3 | |||||
Other fees and expenses |
4.0 | |||||
General corporate purposes |
4.7 | |||||
Total sources of funds |
$186.5 |
Total uses of funds |
$186.5 | |||
(1) | Includes $150.0 million aggregate principal amount ($147.5 million net of unamortized original issue discount) outstanding of Term B Loans, accrued and unpaid interest of $5.5 million as of May 11, 2010 and a prepayment penalty of $9.0 million. A pro rata portion of this amount will be paid to each of GGC Unlevered Credit Opportunities, LLC, an investment fund managed by Golden Gate, and another affiliate of Golden Gate, each in their capacity as a lender of $50.0 million and $8.3 million of the principal amount of Term B Loans, respectively. Accrued and unpaid interest on the Term B Loans as of January 30, 2010 was $10.2 million and was paid on February 1, 2010. |
(2) | Includes payments of $10.0 million to Golden Gate to terminate the Advisory Agreement and $3.3 million to Limited Brands to terminate its advisory arrangement in the Express Parent Limited Liability Company Agreement (the LLC Agreement). |
As of January 30, 2010, we had $150.0 million aggregate principal amount of indebtedness outstanding ($147.4 million net of unamortized original issue discount) under the Term B Loans and $150.0 million aggregate principal amount of indebtedness outstanding ($147.5 million net of unamortized original issue discount) under the Term C Loans under our Topco credit facility. On March 5, 2010, in connection with the 2010 Refinancing Transactions, we prepaid all of the Term C Loans. The Term B Loans have a maturity date of June 26, 2015. Borrowings under our Term B Loans bear interest at a rate of 13.5% per annum and we expect to incur a prepayment penalty associated with the prepayment of the Term B Loans. See Description of Certain Indebtedness. GGC Unlevered Credit Opportunities, LLC, an investment fund managed by Golden Gate, and another affiliate of Golden Gate are lenders under the Topco credit facility and hold $50.0 million and $8.3 million in principal amount of Term B Loans, respectively. Upon prepayment of the Term B Loans with the net proceeds to us from this offering, all amounts outstanding under the Topco credit facility will have been repaid and that facility will be terminated.
A $1.00 increase or decrease in the assumed initial public offering price of $19.00 per share would increase or decrease the net proceeds we receive from this offering by approximately $9.8 million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same.
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We currently intend to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness, and therefore we do not anticipate paying any cash dividends in the foreseeable future. Additionally, because we are a holding company, our ability to pay dividends on our common stock is limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions to us, including restrictions under the terms of the agreements governing our indebtedness. See Description of Certain Indebtedness. Any future determination to pay dividends will be at the discretion of our board of directors, subject to compliance with covenants in current and future agreements governing our indebtedness, and will depend upon our results of operations, financial condition, capital requirements and other factors that our board of directors deems relevant.
Pursuant to our limited liability company agreement, we paid cash distributions to our equity holders to fund their tax obligations in respect of their equity interests on March 25, 2008, April 18, 2008, December 22, 2009 and January 26, 2010 in aggregate amounts of $26.0 million, $7.6 million, $15.0 million and $18.0 million, respectively. We will pay another cash distribution to our equity holders to fund their tax obligations in respect of their equity interests on May 4, 2010 in an aggregate amount of $31.0 million. See Certain Relationships and Related Party TransactionsLLC Agreement. In addition, in April 2008 we made a distribution to our equity holders in an aggregate amount of $168.0 million, in July 2008 we made a distribution to our equity holders in an aggregate amount of $289.5 million and in March 2010, in connection with the 2010 Refinancing Transactions, we made a distribution to our equity holders in an aggregate amount of $230.0 million. As of April 27, 2010 Golden Gate had been paid an aggregate of $556.1 million in these distributions, including distributions for taxes.
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The following table sets forth our cash and cash equivalents and our capitalization as of January 30, 2010 on:
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an actual basis; |
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a pro forma basis to give effect to the following: |
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the 2010 Refinancing Transactions as described under the section entitled Prospectus SummaryRecent Developments; |
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the Reorganization as described under the section entitled Prospectus SummaryReorganization as a Corporation; |
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the use of $199.5 million of the proceeds to us in this offering from the sale of 10.5 million shares to prepay all of the Term B Loans plus accrued and unpaid interest and prepayment penalties in connection with the prepayment of the Term B Loans and to pay fees and expenses incurred in connection with this offering, including underwriters discounts and payments to Golden Gate and Limited Brands. |
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on a pro forma as adjusted basis to give effect to the use of any remaining proceeds of this offering for general corporate purposes. |
You should read the following table in conjunction with the sections entitled Use of Proceeds, Selected Historical Consolidated Financial and Operating Data, Unaudited Pro Forma Condensed Consolidated Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes included elsewhere in this prospectus.
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As of January 30, 2010 | |||||||||||
Actual | Pro Forma |
Pro Forma As
Adjusted(1) |
|||||||||
(unaudited)
(dollars in thousands, except per
|
|||||||||||
Cash and cash equivalents(2) |
$ | 234,404 | $ | 86,139 | $ | 86,139 | |||||
Debt, including current portion: |
|||||||||||
Opco long-term liabilities: |
|||||||||||
Opco revolving credit facility(2) |
$ | | $ | | $ | | |||||
Opco term loan |
121,875 | 121,875 | 121,875 | ||||||||
8¾% Senior Notes due 2018 |
| 246,497 | 246,497 | ||||||||
Topco long-term liabilities: |
|||||||||||
Term B Loans(3) |
147,437 | | | ||||||||
Term C Loans(3) |
147,451 | | | ||||||||
Total long term debt, including current portion |
416,763 | 368,372 | 368,372 | ||||||||
Members interests/stockholders equity: |
|||||||||||
Members Units |
141,214 | | | ||||||||
Common stock, $0.01 par value per share, authorized; 88.7 million shares issued and outstanding, on a pro forma basis; 88.7 million shares issued and outstanding, on a pro forma as adjusted basis |
| 887 | 887 | ||||||||
Additional paid-in capital |
| 125,650 | 125,650 | ||||||||
Retained earnings (accumulated deficit) |
5,872 | (17,544) | (17,544) | ||||||||
Notes receivable |
(5,633 | ) | | | |||||||
Total members interests/stockholders equity |
141,453 | 108,993 | 108,993 | ||||||||
Total capitalization |
$ | 558,216 | $ | 477,365 | $ | 477,365 | |||||
(1) | A $1.00 increase or decrease in the assumed initial public offering price of $19.00 per share, the midpoint of the range set forth on the cover page of this prospectus, would increase or decrease the net proceeds from this offering available to us to prepay the Term B Loans and correspondingly increase or decrease the amount of additional paid-in capital, total stockholders equity and total capitalization by approximately $9.8 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. See Use of Proceeds. |
(2) | As of April 3, 2010, we had $56.7 million of cash and cash equivalents, $139.6 million of availability and no borrowings outstanding under the Opco revolving credit facility. Accrued and unpaid interest of $10.2 million outstanding on our Term B Loans as of January 30, 2010 was paid on February 1, 2010, and we estimate that as of May 11, 2010 we will have $5.5 million of accrued and unpaid interest outstanding under our Term B Loans. |
(3) | GGC Unlevered Credit Opportunities, LLC, an investment fund managed by Golden Gate, is a lender under the Topco credit facility and holds $50.0 million in principal amount of Term B Loans and held $50.0 million in the principal amount of Term C Loans which were prepaid on March 5, 2010 in connection with the 2010 Refinancing Transactions. A separate affiliate of Golden Gate purchased an additional $8.3 million of principal amount of Term B Loans on April 8, 2010. See Certain Relationships and Related Party Transactions. As of January 30, 2010, the principal balances of the Term B Loans and Term C Loans reflect $2.6 million and $2.5 million, respectively, of unamortized original issue discount. |
The information set forth above excludes 1,315,500 shares of our common stock issuable upon the exercise of options to be issued in connection with this offering and 12,500 shares of our common stock subject to restricted stock units that we expect to grant in connection with this offering, as well as 13,672,000 shares of common stock that will remain as reserved for future issuance under our 2010 Incentive Compensation Plan following this option grant and restricted stock unit issuance.
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Our pro forma net tangible book value as of January 30, 2010, before giving effect to the sale by us of 10.5 million shares of common stock offered in this offering, but after giving effect to the 2010 Refinancing Transactions and assuming the completion of the Reorganization, was approximately $(269.9) million, or approximately $(3.47) per share. Pro forma net tangible book value (deficit) per share represents the amount of our total tangible assets less the amount of our total liabilities, divided by the number of shares of common stock outstanding at January 30, 2010, prior to the sale by us of 10.5 million shares of common stock offered in this offering, but after giving effect to the 2010 Refinancing Transactions and assuming the completion of the Reorganization. Dilution in pro forma net tangible book value (deficit) per share represents the difference between the amount per share paid by investors in this offering and the net tangible book value (deficit) per share of our common stock outstanding immediately after this offering.
After giving effect to the completion of the 2010 Refinancing Transactions, the Reorganization and the sale by us of 10.5 million shares of common stock in this offering, based upon an assumed initial public offering price of $19.00 per share, the midpoint of the range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions, a non-cash charge for the early extinguishment of debt and estimated expenses payable by us in connection with this offering, our pro forma as adjusted net tangible book value as of January 30, 2010 would have been approximately $(97.8) million, or $(1.11) per share of common stock. This represents an immediate increase in pro forma net tangible book value of $2.36 per share to existing stockholders and immediate dilution of $20.11 per share to new investors purchasing shares of common stock in this offering at the initial public offering price.
The following table illustrates this dilution in pro forma as adjusted net tangible book value to new investors:
Assumed initial public offering price per share |
$ | 19.00 | ||||||
Pro forma net tangible book value per share as of January 30, 2010 (after giving effect to the 2010 Refinancing Transactions and Reorganization) |
$ | (3.47 | ) | |||||
Increase in pro forma tangible book value per share to existing shareholders attributable to this offering |
2.36 | |||||||
Pro forma net tangible book value per share as of January 30, 2010 (after giving effect to the 2010 Refinancing Transactions, the Reorganization and this offering) |
(1.11 | ) | ||||||
Dilution per share to new investors |
$ | 20.11 | ||||||
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The following table summarizes, as of January 30, 2010, on a pro forma as adjusted basis, the number of shares of our common stock purchased from us, the aggregate cash consideration paid to us and the average price per share paid to us by existing stockholders, which has been determined without regard to any distributions on, or accretion of liquidation value of, our limited liability company interests prior to the Reorganization including in the case of Golden Gate, who purchased their equity interests in us for $484.9 million, and to be paid by new investors purchasing shares of our common stock from us in this offering. Our existing equity holders have received an aggregate of $687.6 million of distributions (excluding distributions in respect of taxes incurred by our equity holders as a result of our partnership status) from us since the Golden Gate Acquisition, of which $507.0 million was distributed to Golden Gate. The table assumes an initial public offering price of $19.00 per share, the midpoint of the range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering:
Shares Purchased | Total Consideration |
Average
Price
Per Share |
||||||||||||
Number | Percentage | Amount | Percentage | |||||||||||
Existing stockholders |
77.7 | 88 | % | $ | 657.8 | 77 | % | $ | 8.47 | |||||
New investors |
10.5 | 12 | 199.5 | 23 | 19.00 | |||||||||
Total |
88.2 | 100 | % | $ | 857.3 | 100 | % | |||||||
A $1.00 increase (decrease) in the assumed initial public offering price of $19.00 per share, the midpoint of the price range set forth on the cover of this prospectus, would increase (decrease) the total consideration paid by investors participating in this offering by $9.8 million, or increase (decrease) the percent of total consideration paid by investors participating in this offering by 5%, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The sale of 5.5 million shares of common stock to be sold by the selling stockholders in this offering will reduce the number of shares held by existing stockholders to 72.2 million, or 82% of the total shares outstanding, and will increase the number of shares held by investors participating in this offering to 16.0 million, or 18% of the total shares outstanding. In addition, if the underwriters option to purchase additional shares is exercised in full, the number of shares of common stock held by existing stockholders will be further reduced to 69.8 million, or 79% of the total number of shares of common stock to be outstanding upon the closing of this offering, and the number of shares of common stock held by investors participating in this offering will be further increased to 18.4 million shares or 21% of the total number of shares of common stock to be outstanding upon the closing of this offering.
The tables and calculations above are based on 88.2 million shares of common stock issued and outstanding as of January 30, 2010, on a pro forma basis to give effect to the 2010 Refinancing Transactions and the Reorganization, and excludes 529,499 restricted stock units subject to vesting, 1,315,500 shares of our common stock issuable upon the exercise of options and 12,500 shares of common stock subject to restricted stock units that we expect to grant in connection with this offering, as well as 13,672,000 remaining shares of common stock reserved for issuance under our 2010 Incentive Compensation Plan, which we plan to adopt in connection with this offering.
To the extent that any outstanding options are exercised, new investors will experience further dilution.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated data sets forth our unaudited pro forma and historical consolidated statement of operations for the year ended January 30, 2010 and our unaudited pro forma balance sheet at January 30, 2010. Such information is based on the audited consolidated financial statements of Express Parent appearing elsewhere in this prospectus.
The unaudited pro forma condensed consolidated balance sheet at January 30, 2010, and the unaudited pro forma condensed consolidated statement of operations for the year ended January 30, 2010, give effect to the following as if each had occurred on January 30, 2010 for the unaudited pro forma condensed consolidated balance sheet and on February 1, 2009 for the unaudited pro forma condensed consolidated statement of operations:
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2010 Refinancing Transactions. On March 5, 2010, we issued, in a private placement, $250.0 million of 8¾% Senior Notes due 2018 at an offering price of 98.599% of the face value of the Senior Notes. An affiliate of Golden Gate purchased $50.0 million of the Senior Notes in the offering. The proceeds from the Senior Notes of $246.5 million, together with cash on hand of $153.8 million, were used to (1) prepay all of the Term C Loans outstanding under the Topco credit facility of our wholly-owned subsidiary, Express Topco, and to pay accrued and unpaid interest and prepayment penalties in an aggregate amount equal to $154.9 million, (2) make a distribution to the equity holders of Express Parent in an aggregate amount equal to $230.0 million and (3) pay related transaction fees and expenses, including discounts and commissions to the initial purchasers of the Senior Notes, in an aggregate amount equal to $15.4 million. |
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Reorganization. Prior to the effectiveness of the registration statement for this offering, we intend to convert from a Delaware limited liability company to a Delaware corporation and change our name from Express Parent LLC to Express, Inc. In connection with the conversion, all of our outstanding Class L Common Units, Class A Common Units and Class C Common Units will be converted into shares of common stock of Express, Inc. |
On the day following this conversion, (1) EIC, the holding company that holds 67.3% of the equity interests in us on behalf of certain investment funds managed by Golden Gate and (2) the Management Holding Companies that directly or indirectly hold 6.1% of the equity interests in us will be merged with and into us. EIC does not have any independent operations or any significant assets or liabilities and does not comprise a business. Accordingly, this legal merger represents in substance a reorganization and transfer of EICs income tax payables or receivables between entities under common control. Accordingly, for financial reporting purposes, the transaction will be reflected as a contribution of certain of EICs income tax payables or receivables to us, in exchange for a net receivable or payable of equal amount with an affiliate of Golden Gate. In connection with these mergers, Golden Gate (indirectly through a limited liability company) and certain members of our management will receive, in exchange for their equity interests in the entities being merged into us, the number of shares of our common stock that they would have held had they held our equity interests directly.
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Initial Public Offering. The issuance of 10.5 million shares of common stock in this offering at a price equal to $19.00 per share, the midpoint of the price range set forth on the cover of this prospectus, and the use of proceeds to (1) prepay all of the Term B Loans outstanding under the Topco credit facility and to pay accrued and unpaid interest and prepayment penalties in an aggregate amount equal to approximately $169.2 million (accrued and unpaid interest of $10.2 million as of January 30, 2010 was paid on February 1, 2010) and (2) pay related transaction fees and expenses, including the underwriters discounts and commissions, in an aggregate amount equal to approximately $30.3 million. |
The unaudited pro forma condensed consolidated statement of operations does not reflect the following items due to their non-recurring nature: (1) transaction fees and related expenses payable to Golden Gate pursuant to our Advisory Agreement with them of $2.7 million related to the issuance of our Senior Notes and a
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fee to terminate this Advisory Agreement in the amount of $10.0 million, (2) a fee payable to Limited Brands of $3.3 million to terminate its advisory fee arrangement in the LLC Agreement, (3) the recognition of a net deferred tax asset of approximately $35.4 million upon our change in tax status, (4) the payment of prepayment penalties of $12.0 million and write-off of deferred financing costs of $3.3 million related to the prepayments of our Topco credit facility and (5) stock based compensation of $1.5 million due to accelerated vesting of certain A and C units. See Certain Relationships and Related Party Transactions.
The unaudited pro forma adjustments are based on available information and certain assumptions that we believe are reasonable. The unaudited pro forma condensed consolidated financial information was prepared on a basis consistent with that used in preparing our audited consolidated financial statements and includes all adjustments, consisting of normal and recurring items, that we consider necessary for a fair presentation of our financial position and results of operations for the unaudited periods.
The unaudited pro forma condensed consolidated financial information should be read in conjunction with the sections of this prospectus entitled Use of Proceeds, Managements Discussion and Analysis of Financial Condition and Results of Operations, and our historical consolidated financial statements and related notes thereto included elsewhere in this prospectus. The unaudited pro forma condensed consolidated financial information is for informational purposes only and is not intended to represent or be indicative of the consolidated results of operations or financial position that we would have reported had the structuring transactions and this offering been completed on the dates indicated and should not be taken as representative of our future consolidated results of operations or financial position.
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EXPRESS PARENT LLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT JANUARY 30, 2010
Historical | Pro Forma Adjustments | Pro Forma | ||||||||||||||||||||||||
2010
Refinancing Transactions |
Reorganization |
Initial Public
Offering |
||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||
Current assets |
||||||||||||||||||||||||||
Cash and cash equivalents |
$ | 234,404 | $ | (153,898 | ) | (A) | $ | | $ | 5,633 | (J) | $ | 86,139 | |||||||||||||
Receivables, net |
4,377 | | | | 4,377 | |||||||||||||||||||||
Inventories |
171,704 | | | | 171,704 | |||||||||||||||||||||
Prepaid minimum rent |
20,874 | | | | 20,874 | |||||||||||||||||||||
Other |
5,289 | | 12,451 | (G) | 10,483 | (K) | 28,223 | |||||||||||||||||||
Total current assets |
436,648 | (153,898 | ) | 12,451 | 16,116 | 311,317 | ||||||||||||||||||||
Property and equipment, net |
215,237 | | | | 215,237 | |||||||||||||||||||||
Tradename/domain name |
197,414 | | | | 197,414 | |||||||||||||||||||||
Other assets |
20,255 | 7,621 | (B) | 22,925 | (G) | (1,642 | ) | (L) | 49,159 | |||||||||||||||||
Total assets |
$ | 869,554 | $ | (146,277 | ) | $ | 35,376 | $ | 14,474 | $ | 773,127 | |||||||||||||||
Liabilities and equity |
||||||||||||||||||||||||||
Current liabilities |
||||||||||||||||||||||||||
Accounts payable |
$ | 61,093 | $ | | $ | | $ | | $ | 61,093 | ||||||||||||||||
Deferred revenue |
22,247 | | | | 22,247 | |||||||||||||||||||||
Accrued bonus |
22,541 | | | | 22,541 | |||||||||||||||||||||
Accrued expenses |
73,576 | (5,423 | ) | (C) | | (10,153 | ) | (M) | 58,000 | |||||||||||||||||
Accounts payable and accrued expensesrelated parties |
|
89,831
|
|
| | | 89,831 | |||||||||||||||||||
Total current liabilities |
269,288 | (5,423 | ) | | (10,153 | ) | 253,712 | |||||||||||||||||||
Long-term debt |
415,513 | (147,451 | ) | (C) | | (147,437 | ) | (M) | 367,122 | |||||||||||||||||
246,497 | (D) | | | |||||||||||||||||||||||
Other long-term liabilities |
43,300 | | | | 43,300 | |||||||||||||||||||||
Total liabilities |
728,101 | 93,623 | | (157,590 | ) | 664,134 | ||||||||||||||||||||
Members interests |
141,214 | (141,214 | ) | (E) | | | | |||||||||||||||||||
Common stock |
| | 782 | (H) | 105 | (N) | 887 | |||||||||||||||||||
Additional paid-in capital |
| | (782 | ) | (H) | 182,381 | (N) | 125,650 | ||||||||||||||||||
35,376 | (G) | 1,489 | (O) | |||||||||||||||||||||||
(92,814 | ) | (I) | ||||||||||||||||||||||||
Retained earnings (accumulated deficit) |
5,872 | (1,651 | ) | (B) | 92,814 | (I) | (1,642 | ) | (L) | (17,544 | ) | |||||||||||||||
(5,549 | ) | (C) | | (11,563 | ) | (M) | ||||||||||||||||||||
(88,786 | ) | (E) | | (13,333 | ) | (P) | ||||||||||||||||||||
(2,700 | ) | (F) | | (1,489 | ) | (O) | ||||||||||||||||||||
| | 10,483 | (K) | |||||||||||||||||||||||
| | |||||||||||||||||||||||||
Notes receivable |
(5,633 | ) | | | 5,633 | (J) | | |||||||||||||||||||
Total equity |
141,453 | (239,900 | ) | 35,376 | 172,064 | 108,993 | ||||||||||||||||||||
Total liabilities and equity |
$ | 869,554 | $ | (146,277 | ) | $ | 35,376 | $ | 14,474 | $ | 773,127 | |||||||||||||||
40
EXPRESS PARENT LLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 30, 2010
Express
Parent LLC |
Pro Forma Adjustments |
Pro
Forma |
|||||||||||||||||||||||
2010
Refinancing Transactions |
Reorganization |
Initial Public
Offering |
|||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||
(dollars and units in thousands, except per unit and per share data) | |||||||||||||||||||||||||
Net sales |
$ | 1,721,066 | $ | | $ | | $ | | $ | 1,721,066 | |||||||||||||||
Cost of goods sold, buying and occupancy costs |
1,175,088 | | | | 1,175,088 | ||||||||||||||||||||
Gross profit |
545,978 | | | | 545,978 | ||||||||||||||||||||
General, administrative, and store operating expenses |
409,198 | | | | 409,198 | ||||||||||||||||||||
Other operating expense, net |
9,943 | | | (9,427 | ) | (T) | 516 | ||||||||||||||||||
Operating income |
126,837 | | | 9,427 | 136,264 | ||||||||||||||||||||
Interest expense |
53,222 | 3,801 | (Q) | | (20,730 | ) | (U) | 36,293 | |||||||||||||||||
Interest income |
(484 | ) | | | 265 | (J) | (219 | ) | |||||||||||||||||
Other income, net |
(2,444 | ) | | | | (2,444 | ) | ||||||||||||||||||
Income before income taxes |
76,543 | (3,801 | ) | | 29,892 | 102,634 | |||||||||||||||||||
Provision for income taxes |
1,236 | | 26,908 | (R | ) | 11,807 | (R) | 39,951 | |||||||||||||||||
Net income |
$ | 75,307 | $ | (3,801 | ) | $ | (26,908 | ) | $ | 18,085 | $ | 62,683 | |||||||||||||
Class L: |
|
||||||||||||||||||||||||
Basic and diluted net income per unit |
$ | 0.74 | |||||||||||||||||||||||
Basic and diluted weighted average units outstanding |
101,742 | ||||||||||||||||||||||||
Class A: |
|||||||||||||||||||||||||
Basic and diluted net income per unit |
$ | | |||||||||||||||||||||||
Basic weighted average units outstanding |
3,630 | ||||||||||||||||||||||||
Diluted weighted average units outstanding |
6,584 | ||||||||||||||||||||||||
Class C: |
|||||||||||||||||||||||||
Basic and diluted net income per unit |
$ | | |||||||||||||||||||||||
Basic weighted average units outstanding |
1,816 | ||||||||||||||||||||||||
Diluted weighted average units outstanding |
3,087 | ||||||||||||||||||||||||
Pro forma net income per share (S) |
|||||||||||||||||||||||||
Basic |
$ | 0.73 | |||||||||||||||||||||||
Diluted |
0.72 | ||||||||||||||||||||||||
Pro forma weighted average shares outstanding (S) |
|||||||||||||||||||||||||
Basic |
86,302 | ||||||||||||||||||||||||
Diluted |
86,945 |
41
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
A. Reflects the following adjustments to cash and cash equivalents:
Prepayment of Topco Term C Loans (see footnote C) |
$(158.4) | |||
Issuance of Senior Notes net of original issue discount (see footnote D) |
246.5 | |||
Distribution to equity holders (see footnote E) |
(230.0 | ) | ||
Other (see footnotes B and F) |
(12.0 | ) | ||
Total change in cash and cash equivalents |
$ | (153.9 | ) | |
B. Represents the net effect of the write-off of deferred debt financing costs associated with the Term C Loans under the Topco credit facility of $1.7 million, capitalization of debt financing costs associated with the issuance of the Senior Notes of $7.4 million and amendment fees and related expenses associated with the amendment of our existing credit facilities of $1.8 million for a total of $7.6 million.
C. Represents the prepayment of the $150.0 million principal amount of the Term C Loans under the Topco credit facility, the recognition of $2.5 million of unamortized original issue discount, payment of the prepayment penalty of $3.0 million and payment of accrued and unpaid interest of $5.4 million as of January 30, 2010. Accrued and unpaid interest was paid in full on February 1, 2010 as required by the credit agreement governing the Term C Loans under our Topco credit facility.
D. Represents the issuance of $250.0 million of Senior Notes net of the $3.5 million of original issue discount.
E. Represents the distribution to equity holders of $230.0 million out of proceeds from the issuance of the Senior Notes and cash on hand.
F. Reflects fees and expenses paid to Golden Gate in connection with the 2010 Refinancing Transaction as required by the Advisory Agreement.
G. Reflects adjustments to deferred income tax assets and liabilities in connection with the Reorganization. The deferred tax balances are primarily associated with timing differences between IRS tax regulations and GAAP financial accounting.
The Reorganization, for tax purposes, is deemed a contribution by Express Parent LLC of its assets and liabilities to Express, Inc., followed by the liquidation of Express Parent LLC. The Reorganization will result in a taxable gain to the partners which will correspondingly increase the tax basis in the assets acquired by Express, Inc. in the Reorganization. The tax basis of our assets and liabilities after the Reorganization will reflect the 75% step-up in the assets and liabilities acquired in the Golden Gate Acquisition and certain gains resulting from the Reorganization. As a result we will record a net deferred tax asset of approximately $ 35.0 million and a one-time, non-cash tax benefit of approximately $35.4 million. In addition, the merger of EIC with and into us may result in the transfer of certain of EICs income tax payables and receivables to us; however, as the parties will fund these liabilities prior to the merger, it is expected that such balances will not be material.
H. Represents the conversion of member units to common stock.
I. Represents a reclassification of historic accumulated deficit to additional paid-in capital due to the Reorganization.
J. Represents the repayment in full by each member of management, effective as of February 9, 2010, of loans made to management participants in our equity incentive plan in conjunction with their 2007 purchase of Class L Common Units, and elimination of interest income associated with these loans.
K. Represents the tax effect of the pro forma balance sheet adjustments at an assumed applicable tax rate of 39.5% which represents a federal statutory rate of 35% and a state statutory rate of 4.5%.
L. Represents the effect of the write-off of deferred debt financing costs associated with the Term B Loans under the Topco credit facility.
M. Represents the prepayment of the $150.0 million principal amount of the Term B Loans under the Topco credit facility, the recognition of $2.6 million of unamortized original issue discount, payment of the prepayment penalty of $9.0 million and payment of accrued and unpaid interest of $10.2 million as of January 30, 2010.
42
Accrued and unpaid interest was paid in full on February 1, 2010 as required by the credit agreement governing the Term B Loans under our Topco credit facility.
N. Represents the sale of shares of our common stock in this offering, the net proceeds of which will be used to prepay of all of the Term B Loans outstanding under our Topco credit facility plus accrued and unpaid interest and prepayment penalties in connection with the prepayment of the Term B Loans, to pay a fee to terminate the Golden Gate Advisory Agreement, to pay a fee to terminate Limited Brands advisory fee arrangement under the LLC Agreement, to pay fees and expenses in connection with this offering and for general corporate purposes, assuming an initial public offering price of $19.00 per share, the midpoint of the price range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
O. Represents the acceleration of certain A and C units upon completion of this offering.
P. Reflects fees and expenses paid to Golden Gate required by the Advisory Agreement, a fee to terminate the Advisory Agreement payable to Golden Gate and a fee to terminate Limited Brandss advisory fee arrangement under the LLC Agreement.
Q. Gives effect to (1) the prepayment of $150.0 million in outstanding Term C Loans under our existing Topco credit facility, (2) the issuance of the Senior Notes and (3) the increase in interest rates resulting from the amendment of our existing Opco term loan and Opco revolving credit facility in connection with the 2010 Refinancing Transactions.
Year Ended
January 30, 2010 |
||||
Elimination of net interest expense on Term C Loans |
$ | (22.2 | ) | |
Net interest expense on Senior Notes |
22.8 | |||
Increase in net interest expense associated with amending existing credit facilities |
3.2 | |||
Total adjustment |
$ | 3.8 | ||
R. As a limited liability company we were subject to taxes only in certain state and local tax jurisdictions. This adjustment represents our conversion to a corporation subject to federal tax obligations reflecting an effective tax rate of 38.71% and the tax effect of the pro forma adjustments at an assumed applicable tax rate of 39.5% which represents a federal statutory rate of 35% and a state statutory rate of 4.5%.
S. Represents the conversion of all of our outstanding Class L Common Units, Class A Common Units and Class C Common Units into shares of our common stock based on the equity value for our company based on an assumed initial public offering price of $19.00 per share, the midpoint of the price range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and the issuance of shares of our common stock in this offering, the net proceeds of which will be used to prepay of all of the Term B Loans outstanding under our Topco credit facility plus accrued and unpaid interest and prepayment penalties in connection with the prepayment of the Term B Loans, to pay a fee to terminate the Golden Gate Advisory Agreement, to pay a fee to terminate Limited Brands advisory fee arrangement under the LLC Agreement, to pay fees and expenses in connection with this offering and for general corporate purposes, assuming an initial public offering price of $19.00 per share, the midpoint of the price range set forth on the cover of this prospectus.
T. In connection with this offering, our Advisory Agreement with Golden Gate and our advisory fee arrangement with Limited Brands under the LLC Agreement will terminate. Other operating expense, net has been adjusted to reflect the elimination of the annual management fees payable to Golden Gate and Limited Brands pursuant to our Advisory Agreement and the LLC Agreement, respectively.
U. Represents elimination of interest expense on the Term B Loans under the Topco credit facility due to its full prepayment.
43
S ELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables set forth our selected historical consolidated financial and operating data as of the dates and for the periods indicated. We have derived the selected historical consolidated financial and operating data for the period ended July 6, 2007 and as of and for the fiscal period ended February 2, 2008 from our consolidated financial statements as of and for such fiscal periods, which were audited by Ernst & Young LLP, an independent registered public accounting firm. We have derived the selected historical consolidated financial and operating data as of and for the fiscal year ended February 3, 2007 from our audited consolidated financial statements, which are not included in this prospectus. We have derived the selected unaudited historical consolidated financial and operating data as of and for the year ended January 28, 2006, from our unaudited consolidated financial statements for such year, which include all adjustments, consisting of normal and recurring adjustments, that we consider necessary for a fair presentation of the financial position and results of operations for such year. We have derived the selected historical consolidated financial and operating data as of and for the fiscal years ended January 31, 2009 and January 30, 2010 from our consolidated financial statements as of and for such fiscal year, which were audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm. Our audited consolidated financial statements as of January 31, 2009 and January 30, 2010 and for the fiscal years or periods, as applicable, ended July 6, 2007, February 2, 2008, January 31, 2009 and January 30, 2010 have been included in this prospectus.
On July 6, 2007, investment funds managed by Golden Gate acquired 75% of the interest in our business from Limited Brands. As a result of the Golden Gate Acquisition, a new basis of accounting was created beginning July 7, 2007 for the Successor periods ending after such date. Prior to the Golden Gate Acquisition, our consolidated financial statements were prepared on a carve-out basis from Limited Brands. The carve-out consolidated financial statements include allocations of certain costs of Limited Brands. In the Successor periods we no longer incur these allocated costs, but do incur certain expenses as a standalone company for similar functions, including for certain support services provided by Limited Brands under the Limited Brands Transition Services Agreements, which is discussed further in the section entitled Certain Relationships and Related Party Transactions. These allocated costs were based upon various assumptions and estimates and actual results may differ from these allocated costs, assumptions and estimates. Accordingly, the carve-out consolidated financial statements may not be a comparable presentation of our financial position or results of operations as if we had operated as a standalone entity during the Predecessor periods. See Risk FactorsWe have a limited operating history as a standalone company, which may make it difficult to compare our current operating results to prior periods.
44
The selected historical consolidated data presented below should be read in conjunction with the sections entitled Risk Factors, Unaudited Pro Forma Condensed Consolidated Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations, and the consolidated financial statements and related notes thereto and other financial data included elsewhere in this prospectus.
Predecessor | Successor | |||||||||||||||||||||||
Year Ended |
February 4,
2007 through July 6, 2007 |
July 7,
2007 through February 2, 2008 |
Year Ended | |||||||||||||||||||||
January 28,
2006 |
February 3,
2007 |
January 31,
2009 |
January 30,
2010 |
|||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
(dollars in thousands, excluding net sales per gross square foot data) | ||||||||||||||||||||||||
Statement of Operations Data: |
||||||||||||||||||||||||
Net sales |
$ | 1,793,963 | $ | 1,748,873 | $ | 659,019 | $ | 1,137,327 | $ | 1,737,010 | $ | 1,721,066 | ||||||||||||
Cost of goods sold, buying and occupancy costs |
1,435,343 | 1,254,762 | 451,514 | 890,063 | 1,280,018 | 1,175,088 | ||||||||||||||||||
Gross profit |
358,620 | 494,111 | 207,505 | 247,264 | 456,992 | 545,978 | ||||||||||||||||||
General, administrative, and store operating expenses |
461,847 | 470,117 | 170,100 | 275,150 | 447,071 | 409,198 | ||||||||||||||||||
Other operating expense, net |
| | 302 | 5,526 | 6,007 | 9,943 | ||||||||||||||||||
Operating (loss) income |
(103,227 | ) | 23,994 | 37,103 | (33,412 | ) | 3,914 | 126,837 | ||||||||||||||||
Interest expense |
| | | 6,978 | 36,531 | 53,222 | ||||||||||||||||||
Interest income |
| | | (5,190 | ) | (3,527 | ) | (484 | ) | |||||||||||||||
Other expense (income), net |
| | | 4,712 | (300 | ) | (2,444 | ) | ||||||||||||||||
Income (loss) before income taxes |
(103,227 | ) | 23,994 | 37,103 | (39,912 | ) | (28,790 | ) | 76,543 | |||||||||||||||
Provision for income taxes |
(41,154 | ) | 6,525 | 7,161 | 487 | 246 | 1,236 | |||||||||||||||||
Net (loss) income |
$ | (62,073 | ) | $ | 17,469 | $ | 29,942 | $ | (40,399 | ) | $ | (29,036 | ) | $ | 75,307 | |||||||||
Pro forma net income per share(1) |
||||||||||||||||||||||||
Basic |
$ | 0.73 | ||||||||||||||||||||||
Diluted |
$ | 0.72 | ||||||||||||||||||||||
Pro forma weighted average shares(1) |
||||||||||||||||||||||||
Basic |
86,302 | |||||||||||||||||||||||
Diluted |
88,945 | |||||||||||||||||||||||
Statement of Cash Flows Data: |
||||||||||||||||||||||||
Net cash provided by (used in): |
||||||||||||||||||||||||
Operating activities |
$ | 39,040 | $ | 84,913 | $ | 45,912 | $ | 282,192 | $ | 35,234 | $ | 200,721 | ||||||||||||
Investing activities |
(72,184 | ) | (53,867 | ) | (22,888 | ) | (15,258 | ) | (51,801 | ) | (26,873 | ) | ||||||||||||
Financing activities |
32,636 | (24,130 | ) | (29,939 | ) | 39,361 | (127,347 | ) | (115,559 | ) | ||||||||||||||
Other Financial and Operating Data: |
||||||||||||||||||||||||
Comparable store sales change(2) |
(8 | )% | (1 | )% | 6 | % | 12 | % | (3 | )% | (6 | )% | ||||||||||||
Net sales per gross square
|
$ | 263 | $ | 282 | $ | 118 | $ | 213 | $ | 337 | $ | 321 | ||||||||||||
Total gross square feet (in thousands) (average) |
6,822 | 6,195 | 5,604 | 5,348 | 5,060 | 5,033 | ||||||||||||||||||
Number of stores (at period end) |
743 | 658 | 622 | 587 | 581 | 573 | ||||||||||||||||||
Capital expenditures |
72,184 | 53,867 | 22,888 | 15,258 | 50,551 | 26,853 | ||||||||||||||||||
Balance Sheet Data (at period end): |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 13,733 | $ | 20,649 | $ | | $ | 320,029 | $ | 176,115 | $ | 234,404 | ||||||||||||
Working capital (excluding cash and cash equivalents)(4) |
60,253 | 60,455 | | (63,308 | ) | (28,317 | ) | (65,794 | ) | |||||||||||||||
Total assets |
483,346 | 479,184 | | 1,025,817 | 860,413 | 869,554 | ||||||||||||||||||
Total debt (including current portion) |
| | | 124,375 | 498,478 | 416,763 | ||||||||||||||||||
Total members equity |
270,855 | 265,849 | | 615,290 | 97,099 | 141,453 |
(1) | Unaudited pro forma net income (loss) per share gives effect to the 2010 Refinancing Transactions and the Reorganization and also includes 10.5 million shares expected to be issued in this offering, whose proceeds will be used to prepay all of the Term B Loans, plus accrued and unpaid interest and prepayment penalties. See Unaudited Pro Forma Condensed Consolidated Financial Data. |
(2) | Comparable store sales have been calculated based upon stores that were open at least thirteen full fiscal months as of the end of the reporting period. For the year ended February 3, 2007, which was a fifty-three week year, sales from the fifty-third week were excluded from the calculation to present comparable periods. |
(3) | Net sales per gross square foot is calculated by dividing net sales for the applicable period by the average gross square footage during such period. For the purpose of calculating net sales per gross square foot, e-commerce sales and other revenues are excluded from net sales. |
(4) | Working capital is defined as current assets, less cash and cash equivalents, less current liabilities excluding the current portion of long-term debt. |
45
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly in the section entitled Risk Factors.
Overview
Express is the sixth largest specialty retail apparel brand in the United States. With 30 years of experience offering a distinct combination of style and quality at an attractive value, we believe we are a core shopping destination for our customers and that we have developed strong brand awareness and credibility with them. We target an attractive and growing demographic of women and men between 20 and 30 years old. We offer our customers an edited assortment of fashionable apparel and accessories to address fashion needs across multiple aspects of their lifestyles, including work, casual and going-out occasions. Since we became an independent company in 2007, we have made several significant changes to our business model, including completing the conversion of our stores to a dual-gender format, re-designing our go-to-market strategy and launching our e-commerce platform, all of which we believe have improved our operating profits and positioned us well for future growth and profitability.
As of January 30, 2010, we operated 573 stores. Our stores are located primarily in high-traffic shopping malls, lifestyle centers and street locations across the United States, and average approximately 8,700 square feet. We also sell our products through our e-commerce website, express.com. Our stores and website are designed to create an exciting shopping environment that reflects the sexy, sophisticated and social brand image that we seek to project. Our product offering includes both womens and mens apparel and accessories, of which womens represented 67% of our net sales and mens represented 33% of our net sales during fiscal 2009. Our product assortment is a mix of core styles balanced with the latest fashions, a combination we believe our customers look for and value from our brand. For fiscal 2009, we generated net sales, net income and Adjusted EBITDA of $1,721.1, $75.3 and $229.8 million, respectively. Our Adjusted EBITDA increased 168% from $85.9 million in fiscal 2006 to $229.8 million in fiscal 2009. See Prospectus SummarySummary Historical and Pro Forma Consolidated Financial and Operating Data for a discussion of Adjusted EBITDA, an accompanying presentation of the most directly comparable GAAP financial measure and a reconciliation of the differences between Adjusted EBITDA and the most directly comparable GAAP financial measure, net income.
Factors Affecting Our Operating Results
Various factors affect our operating results during each period, including:
Overall Economic Trends. Consumer purchases of clothing generally remain constant or may increase during stable economic periods and decline during recessionary periods and other periods when disposable income is adversely affected. As a result, our results of operations during any given period are often impacted by the overall economic conditions in the markets in which we operate. According to the Bureau of Economic Analysis, during 2008, apparel expenditures in the United States decreased by 1% compared to 2007, and by 4% in 2009 compared to 2008, in each case primarily as a result of the global economic recession, in which the United States economy was significantly adversely affected by increased unemployment levels, high levels of consumer debt, reductions in net worth based on recent severe market declines, significant declines in residential real estate and mortgage markets and the resulting significant declines in consumer confidence. Similarly, primarily as a result of the overall decline in consumer spending due to the economic recession, our net sales decreased by 3.3% in fiscal 2008 compared to pro forma 2007 and decreased by 1% in fiscal 2009 compared to fiscal 2008.
46
Consumer Preferences and Fashion Trends . Our ability to maintain our appeal to our existing customers and to attract new customers depends on our ability to anticipate fashion trends. Periods in which we have successfully anticipated fashion trends generally have had more favorable results. If we misjudge the market for our products, we may be faced with significant excess inventories for some products and be required to mark down those products in order to sell them or we may be required to discard those products, either of which would impact our gross profit. In recent periods we have redesigned our go-to-market strategy by focusing on early season testing and managing timing on purchases and production to reduce our exposure to changes in specific styles, which we believe has led to higher product margins from reduced markdowns and lower inventory risk.
Competition . The retail industry is highly competitive, and retailers compete based on a variety of factors, including design, quality, price and customer service. Levels of competition and the ability of our competitors to more accurately predict fashion trends and otherwise attract customers through competitive pricing or other factors impact our results of operations.
Pricing and Changes in Our Merchandise Mix . Our fashion offerings change from period to period, so the prices at which goods are sold and the margins we are able to earn from those goods also change. For example, if an item with a high price and/or a high margin is popular with our customers, then our results will be positively impacted. In fiscal 2009, for instance, our margins were positively impacted by increases in sales in items within our accessories assortment, all of which have high margins. The levels at which we are able to price our merchandise are influenced by a variety of factors, including the quality of the product, cost of production for those products, prices at which our competitors are selling similar items and willingness of our customers to pay for higher priced items. During certain periods we reduce prices or put items on sale if we determine that we need to do so in order to sell inventory before fashion seasons change. For instance, during the third and fourth quarters of 2008, we had disproportionately higher markdowns on excess inventory due to the global economic recession, which resulted in a decrease in our product margins for 2008. In some cases, we have increased prices for specific items if it was supported by customer demand.
The Timing of Our Releases of New Merchandise and Promotional Events . We incur expenditures relating to planning and production when we release new merchandise. If a release is successful, this new merchandise will have a positive impact on our sales until consumer preferences change or until those items are replaced in our stores by new items. Promotional events are intended to generate increased consumer awareness of our products and to increase sales in later periods. These may result in increased expenses in the periods in which the promotions are taking place, with the intent of increasing sales in later periods.
Seasonality . Our business is seasonal. As a result, our net sales fluctuate from quarter to quarter, which often affects the comparability of our results between periods. Net sales are historically higher in the third and fourth fiscal quarters due primarily to early Fall selling patterns and the impact of the holiday season. Generally, the annual sales split is 45% for the Spring season (February through July) and 55% for the Fall season (August through January). Working capital requirements are typically higher in the second and fourth quarters due to inventory-related working capital requirements for holiday and early Fall selling periods.
Changes in Sales Mix Among Sales Channels . Our results of operations may vary according to the amount of products we sell in our stores versus the amount of products we sell through e-commerce. Most of our store operating costs are fixed in the short term, with the exceptions of incentive compensation for our employees and discretionary spending, while our e-commerce operating model has a larger variable cost component and depends in large part on the amount of goods sold. Our sales from e-commerce increased by 231% from 2008 (which reflects sales after we launched our website in July 2008) to 2009, and comprised 1.6% of our net sales in 2008 and 5.3% of our net sales in 2009. As sales from e-commerce continue to increase, we expect our gross margins to be positively affected.
Our Ability to Source and Distribute Products Effectively. Our costs of sales are impacted by our ability to find third parties who can manufacture our products at favorable costs while maintaining the levels of quality that we desire to deliver to our customers. Our costs of distribution are affected by a number of items, such as the cost
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of fuel and the amount of product being transported though similar distribution networks in the markets in which we operate (which affects our ability to obtain more favorable pricing with our providers).
The Number of Stores We Open, Close and Convert to a Dual-Gender Format in Any Period . During any period in which we are constructing additional stores, we will incur capital expenditures as a result of that expansion. In the past, when we converted stores to a dual-gender format, we incurred capital expenditures. Because our dual-gender store conversion efforts are complete, store conversions are not expected to have a significant impact on our results going forward. The number of stores that we operate in any period will impact our results for that period.
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of performance and financial measures. These key measures include net sales and comparable store sales and other individual store performance factors, gross profit and general, administrative and store operating expenses. We also review other metrics such as EBITDA and Adjusted EBITDA.
Net Sales. Net sales reflects our revenues from the sale of our merchandise less returns and discounts, as well as shipping and handling revenue received related to e-commerce and royalties received from our international development agreements.
Comparable Store Sales and Other Individual Store Performance Factors. Comparable store sales have been calculated based upon stores that were open at least thirteen full fiscal months as of the end of the reporting period. A store is not considered a part of the comparable store sales base if the square footage of the store changed by more than 20% due to remodel or relocation activities. As we continue to increase our number of stores, we expect that non-comparable store sales will contribute to our total net sales. We also review sales per gross square foot, average unit retail price, units per transaction, dollars per transaction, traffic and conversion, among other things, in order to evaluate the performance of individual stores. We also review sales per gross square foot on a company-wide basis.
Gross Profit. Gross profit is equal to our net sales minus cost of goods sold, buying and occupancy costs. Gross margin measures gross profit as a percentage of our net sales. Cost of goods sold, buying and occupancy costs includes the direct cost of purchased merchandise, inventory shrinkage, inventory write-downs, inbound freight, all freight costs to get merchandise to our stores, design, buying, allocation and production costs, occupancy costs related to store operations, such as rent and common area maintenance, utilities and depreciation on assets, and all logistics costs associated with our e-commerce business.
Our cost of goods sold, buying and occupancy costs increase in higher volume quarters because we purchase more merchandise for sale. Buying and occupancy costs are largely fixed and do not necessarily increase as volume increases. Changes in the mix of our products, such as changes in the proportion of accessories, which are higher margin, may also impact our overall cost of goods sold, buying and occupancy costs. We review our inventory levels on an ongoing basis in order to identify slow-moving merchandise and generally use markdowns to clear that merchandise. The timing and level of markdowns are driven primarily by customer acceptance of our merchandise. We use a third party vendor to dispose of marked-out-of-stock merchandise which, in turn, is sold to third party discounters. The primary drivers of the costs of individual goods are the raw materials, labor in the countries where we source our merchandise and logistics costs.
General, Administrative, and Store Operating Expenses. General, administrative and store operating expenses include all operating costs not included in cost of goods sold, buying and occupancy costs. These expenses include payroll and other expenses related to operations at our headquarters, store expenses, other than occupancy, and marketing expense, which primarily includes production, mailing and print advertising costs. These expenses generally do not vary proportionally with net sales. As a result, general, administrative and store operating expenses as a percentage of net sales is usually higher in lower volume quarters and lower in higher volume quarters.
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Other Operating Expense, net . Other operating expense, net includes advisory fees paid to Golden Gate under the terms of our Advisory Agreement with them and to Limited Brands under the terms of the LLC Agreement. See Certain Relationships and Related Party Transactions. Changes in other operating expense, net relates primarily to changes in the advisory fees which are calculated as a percent of Adjusted EBITDA.
Other Factors Affecting Our Results
Certain important factors impacted the results presented in this Managements Discussion and Analysis of Financial Condition and Results of Operations, including (1) the Golden Gate Acquisition, (2) our transition from a division of Limited Brands to a standalone private company and (3) our tax structure. In the future, our results will be impacted by costs we incur as a public company, our change in tax status as a result of the Reorganization, and the prepayment of our Term C Loans which occurred concurrently with the issuance of our Senior Notes on March 5, 2010.
Purchase Accounting Impact of Golden Gate Acquisition. On July 6, 2007, we were acquired by investment funds managed by Golden Gate through a transaction that was accounted for under SFAS 141, Business Combinations. The purchase price was allocated to state our assets and liabilities at fair value. The allocation of the purchase price had the effect of increasing the carrying amount of inventory by $86.9 million, property and equipment by $38.5 million and amortizable intangible assets by $24.5 million. The $86.9 million increase in inventory value had the effect of reducing gross margin during pro forma fiscal 2007 and the 2007 Successor period. We have depreciated the $38.5 million increase in property and equipment over the useful life of each asset, which has had the effect of reducing gross margin in all periods subsequent to the Golden Gate Acquisition in 2007. The $24.5 million increase in amortizable intangible assets is being amortized over the remaining life of each asset and has reduced gross margin in all periods subsequent to the 2007 Golden Gate Acquisition.
Standalone Private and Public Company Costs. During our transition from a division of Limited Brands, a public company, to a standalone private company, we incurred one-time costs related to the establishment of infrastructure associated with information technology, tax, risk management, internal audit, treasury, real estate and benefits administration. Following the completion of this initial public offering, we will incur additional legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting and corporate governance requirements. These requirements include compliance with the Sarbanes-Oxley Act as well as other rules implemented by the SEC, and applicable stock exchange rules. We expect these rules and regulations to substantially increase our legal and financial compliance costs and to make certain financial reporting and other activities more time-consuming and costly.
Tax Structure . During the Predecessor periods, taxable income resulting from our operations was included in the consolidated income tax returns of Limited Brands. For the Predecessor period ended February 3, 2007, and through July 6, 2007, we operated as a division of Limited Brands, and reported income taxes on a separate company basis as if we were taxable as a corporation. As part of the Golden Gate Acquisition, Limited Brands, as the legal obligor, has retained income tax liabilities and related income tax contingencies and reserves arising out of our operations for any Predecessor periods.
Since the Golden Gate Acquisition, we have been treated as a partnership for tax purposes and therefore have not been subject to federal and state income tax (subject to exceptions in a limited number of state and local jurisdictions). Instead, our equity holders have been subject to income tax on their distributive share of our earnings and we have made distributions to them to fund their tax obligations.
Prior to the completion of this offering, we intend to reorganize our existing holding company structure. See SummaryReorganization as a Corporation. Upon completion of the Reorganization, we will be treated as a corporation under Subchapter C of Chapter 1 of the Internal Revenue Code and we will be subject to federal and state income tax expense. The Reorganization, for tax purposes, is deemed a contribution by Express Parent LLC
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of its assets and liabilities to Express, Inc., followed by the liquidation of Express Parent LLC. The Reorganization will result in a taxable gain to the partners which will correspondingly increase the inside tax basis in the assets acquired by Express, Inc. in the Reorganization. The tax basis of our assets and liabilities after the Reorganization will reflect the 75% step-up in the assets and liabilities acquired in the Golden Gate Acquisition and certain gains resulting from the Reorganization. As a result we expect to record a net deferred tax asset and one time noncash tax benefit of approximately $35 million.
We expect our effective tax rate will be between 38% and 41% following our conversion to a corporation. Actual tax payments may differ from such effective tax rate due to timing and permanent differences between book income and taxable income.
The effective tax rate for the twenty-two weeks ended July 6, 2007 was 19.3%. The effective tax rate for the thirty-week period ended February 2, 2008, the fiscal year ended January 31, 2009 and the fiscal year ended January 30, 2010 was 1.2%, 0.9% and 1.6%, respectively. The difference in the effective tax rate for the twenty-two week period ended July 6, 2007 and the United States federal statutory rate of 35% is primarily attributable to the favorable impact of us becoming recognized as a partnership for federal income tax purposes effective May 7, 2007. The difference in the effective tax rate for the periods ended February 2, 2008, January 31, 2009 and fiscal 2009 and the United States federal statutory rate of 35% is primarily attributable to the our status as a partnership for federal income tax purposes.
Refinancing of Term C Loans . On March 5, 2010. Express, LLC and Express Finance Corp., as co-issuers, issued, in a private placement, $250.0 million of 8 3 / 4 % Senior Notes due March 1, 2018 at an offering price of 98.599% of the face value of the Senior Notes. Interest on the Senior Notes is payable on March 1 and September 1 of each year. A portion of the proceeds from the issuance of the Senior Notes was used to prepay all of the 14.5% Term C Loans under the Topco credit facility, plus accrued and unpaid interest and prepayment penalties, in an aggregate amount equal to approximately $154.9 million.
Basis of Presentation and Results of Operations
The following discussion contains references to years 2007, 2008 and 2009, which represent our fiscal years ended February 2, 2008, January 31, 2009 and January 30, 2010, respectively. Our fiscal year ends each year on the Saturday closest to January 31. Fiscal years 2008 and 2007 were fifty-two week accounting periods. Our business was acquired by investment funds managed by Golden Gate on July 6, 2007 and, as such, we have Predecessor and Successor periods in fiscal 2007. The twenty-two week Predecessor period is from February 4, 2007 through July 6, 2007 and is referred to as our 2007 Predecessor period, and the thirty week Successor period is from July 7, 2007 through February 2, 2008 and is referred to as our 2007 Successor period.
Due to the Golden Gate Acquisition, the financial statements for all Successor periods are not comparable to that of the Predecessor periods presented in the accompanying table. Prior to the Golden Gate Acquisition, our consolidated financial statements were prepared on a carve-out basis from Limited Brands. The carve-out consolidated financial statements include allocations of certain costs of Limited Brands. In the Successor period we no longer incur these charges, but do incur certain expenses as a standalone company for the same functions, including for certain support services provided by Limited Brands under the Limited Brands Transition Services Agreements. See Certain Relationships and Related Party Transactions. These allocations were based upon various assumptions and estimates and actual results may differ from these allocations, assumptions and estimates. Accordingly, the carve-out consolidated financial statements may not be a comparable presentation of our financial position or results of operations as if we had operated as a standalone entity during the Predecessor periods.
On the day following our conversion to a corporation, (1) EIC, the holding company that holds 67.3% of the equity interests in us on behalf of certain investment funds managed by Golden Gate and (2) the Management Holding Companies that directly or indirectly hold 6.1% of the equity interests in us on behalf of certain members of management, will be merged with and into us. In connection with these mergers, Golden Gate
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(indirectly through a limited liability company) and certain members of our management will receive, in exchange for their equity interests in the entities being merged, the number of shares of our common stock that they would have held had they held these equity interests in us directly. EIC does not have any independent operations or any significant assets or liabilities and does not comprise a business. Accordingly, this legal merger represents in substance a reorganization and transfer of EICs income tax receivables or payables between entities under common control. Accordingly, for financial reporting purposes, the transaction will be reflected as a contribution of certain of EICs income tax payables or receivables to us, in exchange for a net receivable or payable of equal amount with an affiliate of Golden Gate.
The summary unaudited pro forma condensed consolidated financial data for the fiscal year ended February 2, 2008 presented in the table below has been prepared to give effect to the Golden Gate Acquisition as if such transaction had occurred on February 4, 2007. We have presented in the accompanying discussions of our results, comparisons of fiscal 2009 to fiscal 2008 and fiscal 2008 to our 2007 Successor period and pro forma fiscal 2007 results. We believe that presenting the discussion and analysis of the results of operations in this manner promotes the overall usefulness of the comparison given the complexities involved with comparing two significantly different periods. The information contained in the table below should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus.
Predecessor | Successor | Pro Forma | Successor | ||||||||||||||||||
Period from
February 4, 2007 through July 6, 2007 |
Period from
July 7, 2007 through February 2, 2008 |
Year Ended | |||||||||||||||||||
February 2,
2008 |
January 31,
2009 |
January 30,
2010 |
|||||||||||||||||||
(unaudited) | |||||||||||||||||||||
(dollars in thousands) |
|||||||||||||||||||||
Statement of Operations Data: |
|||||||||||||||||||||
Net sales |
$ | 659,019 | $ | 1,137,327 | $ | 1,796,346 | $ | 1,737,010 | $ | 1,721,066 | |||||||||||
Cost of goods sold, buying and occupancy costs |
451,514 | 890,063 | 1,352,056 | 1,280,018 | 1,175,088 | ||||||||||||||||
Gross profit |
207,505 | 247,264 | 444,290 | 456,992 | 545,978 | ||||||||||||||||
General, administrative, and store operating expenses |
170,100 | 275,150 | 447,352 | 447,071 | 409,198 | ||||||||||||||||
Other operating expense, net |
302 | 5,526 | 7,488 | 6,007 | 9,943 | ||||||||||||||||
Operating income (loss) |
37,103 | (33,412 | ) | (10,550 | ) | 3,914 | 126,837 | ||||||||||||||
Interest expense |
| 6,978 | 12,064 | 36,531 | 53,222 | ||||||||||||||||
Interest income |
| (5,190 | ) | (5,190 | ) | (3,527 | ) | (484 | ) | ||||||||||||
Other expense (income), net |
| 4,712 | 4,712 | (300 | ) | (2,444 | ) | ||||||||||||||
Income (loss) before income taxes |
37,103 | (39,912 | ) | (22,136 | ) | (28,790 | ) | 76,543 | |||||||||||||
Provision for income taxes |
7,161 | 487 | 1,583 | 246 | 1,236 | ||||||||||||||||
Net income (loss) |
$ | 29,942 | $ | (40,399 | ) | $ | (23,719 | ) | $ | (29,036 | ) | $ | 75,307 | ||||||||
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The following table sets forth, for the periods presented, our consolidated statements of operations as a percentage of total revenues.
Predecessor | Successor | Pro Forma | Successor | ||||||||||||||
Period from
February 4, 2007 through July 6, 2007 |
Period from
July 7, 2007 through February 2, 2008 |
Year Ended | |||||||||||||||
February 2,
2008 |
January 31,
2009 |
January 30,
2010 |
|||||||||||||||
(unaudited) | |||||||||||||||||
Statement of Operations Data: |
|||||||||||||||||
Net sales |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||
Cost of goods sold, buying and occupancy costs |
68.5 | % | 78.3 | % | 75.3 | % | 73.7 | % | 68.3 | % | |||||||
Gross profit |
31.5 | % | 21.7 | % | 24.7 | % | 26.3 | % | 31.7 | % | |||||||
General, administrative, and store operating expenses |
25.8 | % | 24.2 | % | 24.9 | % | 25.7 | % | 23.8 | % | |||||||
Other operating expense, net |
0.0 | % | 0.5 | % | 0.4 | % | 0.3 | % | 0.6 | % | |||||||
Operating income (loss) |
5.6 | % | (2.9 | )% | (0.6 | )% | 0.2 | % | 7.4 | % | |||||||
Interest expense |
| 0.6 | % | 0.7 | % | 2.1 | % | 3.1 | % | ||||||||
Interest income |
| (0.5 | )% | (0.3 | )% | (0.2 | )% | (0.0 | )% | ||||||||
Other expense (income), net |
| 0.4 | % | 0.3 | % | (0.0 | )% | (0.2 | )% | ||||||||
Income (loss) before income taxes |
5.6 | % | (3.5 | )% | (1.2 | )% | (1.7 | )% | 4.5 | % | |||||||
Provision for income taxes |
1.1 | % | 0.0 | % | 0.1 | % | 0.0 | % | 0.1 | % | |||||||
Net income (loss) |
4.5 | % | (3.6 | )% | (1.3 | )% | (1.7 | )% | 4.4 | % | |||||||
Unaudited Pro Forma Condensed Consolidated Financial Information
The supplemental unaudited pro forma condensed consolidated statements of operations data set forth below for pro forma 2007 has been derived by applying pro forma adjustments to our historical consolidated statements of operations. We were acquired by investment funds managed by Golden Gate on July 6, 2007. The accompanying unaudited pro forma condensed consolidated financial information is presented for the Predecessor and Successor periods, respectively. As a result of the Golden Gate Acquisition, we applied purchase accounting standards and a new basis of accounting effective July 7, 2007. The unaudited pro forma condensed consolidated statements of operations for the year ended February 2, 2008 gives effect to the Golden Gate Acquisition as if it had occurred on February 4, 2007. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with this unaudited pro forma condensed consolidated financial information.
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The unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable under the circumstances. The unaudited pro forma condensed consolidated financial information is presented for supplemental informational purposes only. The unaudited pro forma condensed consolidated financial information does not purport to represent what our results of operations would have been had the Golden Gate Acquisition and related transactions actually occurred on the date indicated, and they do not purport to project our results of operations or financial condition for any future period. The unaudited pro forma condensed consolidated statements of operations should be read in conjunction with other sections of this Managements Discussion and Analysis of Financial Condition and Results of Operations, as well as Selected Historical Consolidated Financial and Operating Data and our audited consolidated financial statements and related notes thereto appearing elsewhere in this prospectus.
Predecessor | Successor |
Total
Adjustments |
Pro Forma | ||||||||||||||
Period from
February 4, 2007 through July 6, 2007 |
Period From
July 7, 2007 through February 2, 2008 |
Year Ended
February 2, 2008 |
|||||||||||||||
(unaudited) | |||||||||||||||||
(dollars in thousands) | |||||||||||||||||
Net sales |
$ | 659,019 | $ | 1,137,327 | $ | | $ | 1,796,346 | |||||||||
Cost of goods sold, buying and occupancy costs |
451,514 | 890,063 | 10,479 | (a) (b) (c) (d) | 1,352,056 | ||||||||||||
Gross profit |
207,505 | 247,264 | (10,479 | ) | 444,290 | ||||||||||||
General, administrative, and store operating expenses |
170,100 | 275,150 | 2,102 | (c) | 447,352 | ||||||||||||
Other operating expense, net |
302 | 5,526 | 1,660 | (e) | 7,488 | ||||||||||||
Operating income (loss) |
37,103 | (33,412 | ) | (14,241 | ) | (10,550) | |||||||||||
Interest expense |
| 6,978 | 5,086 | (f) | 12,064 | ||||||||||||
Interest income |
| (5,190 | ) | | (5,190 | ) | |||||||||||
Other expense, net |
| 4,712 | | 4,712 | |||||||||||||
Income (loss) before income taxes |
37,103 | (39,912 | ) | (19,327 | ) | (22,136) | |||||||||||
Provision for income taxes |
7,161 | 487 | (6,065 | ) | (g) | 1,583 | |||||||||||
Net income (loss) |
$ | 29,942 | $ | (40,399 | ) | $ | (13,262 | ) | $ | (23,719) | |||||||
(a) | As a result of the Golden Gate Acquisition, we recorded intangible assets at fair value, including a credit card relationship, our customer list and certain favorable lease obligations based on purchase accounting standards at a total amount of $24.5 million. These assets amortize over varying periods and the pro forma financials have been adjusted to reflect these costs over the full fiscal year. |
(b) | As a result of the Golden Gate Acquisition, we adjusted property and equipment to reflect a fair value increase equal to $38.5 million. These assets depreciate over various periods greater than two years and the pro forma financials have been adjusted to reflect this additional depreciation expense over the full fiscal year. |
(c) | In connection with the Golden Gate Acquisition, we entered into a transition services agreement with Limited Brands to provide ongoing services at an agreed upon rate which includes a margin on Limited Brands cost to provide the services. See Certain Relationships and Related Party Transactions. Prior to the Golden Gate Acquisition, we were billed for these services at cost. The pro forma financials have been adjusted to reflect this change as if we had entered into the transition services agreement on February 4, 2007. |
(d) | We have leases that contain pre-determined fixed escalations of minimum rents. The related rent expense is recognized on a straight-line basis. The pro forma financials have been adjusted to reflect an effective straight-line reset date of February 4, 2007. |
(e) | In connection with the Golden Gate Acquisition, we entered into an Advisory Agreement with Golden Gate to provide services to us in exchange for an annual advisory fee. Under the terms of our limited liability company agreement, Limited Brands is also paid a fee calculated as a percentage of the Golden Gate advisory fee. See Certain Relationships and Related Party Transactions. The pro forma financials have been adjusted to reflect this fee for the full fiscal year. |
(f) | In connection with the Golden Gate Acquisition, on July 6, 2007, the company entered into the $125.0 million Opco term loan and the $200.0 million Opco revolving credit facility. The pro forma financials have been adjusted to reflect the interest expense, scheduled amortization of principal, and amortization of debt financing costs related to the borrowings as if we had entered into the Opco revolving credit facility and the Opco term loan on February 4, 2007. See Existing Credit Facilities. |
(g) | For the Predecessor periods, we operated as a division of Limited Brands and recorded a tax provision based on a separate-return methodology. For the period from May 6 through July 6, 2007 and subsequent to the Golden Gate Acquisition, we were treated as a partnership for tax purposes and therefore did not record a provision for income taxes. The pro forma financials have been adjusted to reflect our tax status as a partnership for the full fiscal year. |
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Fiscal 2009 Compared to Fiscal 2008
Net sales
Net sales were $1,721.1 million in fiscal 2009, a decrease of $15.9 million, or 0.9%, compared to $1,737.0 million in fiscal 2008. We had 573 and 581 stores open at the end of fiscal 2009 and fiscal 2008, respectively. During fiscal 2009, we opened seven new stores, closed six non-productive stores and converted the womens and mens stores in nine malls to single dual-gender stores. Net sales per gross square foot were $321 in fiscal 2009 compared to $337 in fiscal 2008. Comparable store sales declined 6%, or $98.1 million, in fiscal 2009 as a result of a decrease in transactions, due primarily to the decline in general economic conditions, which was partially offset by an increase in the average dollars spent per transaction. Comparable store sales performance improved from each quarter to the next during fiscal 2009 in comparison to the same quarter in fiscal 2008 with the first quarter down 16%, or $67.3 million, second quarter down 12%, or $44.9 million, third quarter down 1%, or $3.8 million, and fourth quarter up 4%, or $17.9 million. Fiscal 2009 represented our first full fiscal year of e-commerce sales, which generated net sales of $92.2 million in fiscal 2009, an increase of $64.4 million compared to fiscal 2008, primarily as a result of increases in traffic to our website since its launch in July 2008, and the fact that the website was only operational for part of fiscal 2008. Other revenue was $12.2 million in fiscal 2009, an increase of $7.4 million, compared to other revenue of $4.8 million in fiscal 2008 primarily as a result of shipping and handling revenue related to the increase in e-commerce net sales.
Gross profit
Gross profit was $546.0 million, or 31.7% of net sales, in fiscal 2009, an increase of $89.0 million, or 19.5%, compared to $457.0 million, or 26.3% of net sales, in fiscal 2008. Gross profit was impacted by purchase accounting related to the Golden Gate Acquisition which had the effect of increasing the carrying amount of property and equipment by $38.5 million which is being depreciated over the remaining useful life of each asset and recording an intangible asset of $19.8 million related to net favorable lease obligations that is being amortized over the remaining life of each lease.
The improvement in gross profit was due primarily to a $76.5 million increase resulting from our redesigned go-to-market strategy which we believe reduces markdowns and lowers inventory risk through increased product testing. This increase was realized through higher revenue margin (product price plus other revenue less product cost), a reduction in distressed carry-over inventory at the end of fiscal 2009 and lower product cancellation expense. The remaining increase in gross margin was driven primarily by a $5.3 million reduction in freight and a $1.4 million reduction in home office headquarters buying expense. The impact of purchase accounting had the effect of reducing gross profit by $11.8 million and $19.5 million for fiscal 2009 and fiscal 2008, respectively.
General, administrative, and store operating expenses
General, administrative, and store operating expenses were $409.2 million, or 23.8% of net sales, for fiscal 2009, a decrease of $37.9 million, or 8.5%, compared to $447.1 million, or 25.7% of net sales, for fiscal 2008. The decline in general, administrative, and store operating expenses was due primarily to a $35.3 million reduction in store expenses resulting from efforts to optimize payroll and increase operational efficiencies, and a $2.2 million savings in benefits and payroll administration related to our transition to a standalone business. These reductions were partially offset by a $1.7 million investment in home office headcount to support our e-commerce growth strategy.
Other operating expense, net
Other operating expense, net was $9.9 million in fiscal 2009, an increase of $3.9 million, or 65.5%, compared to $6.0 million in fiscal 2008. Changes in other operating expense, net relate primarily to changes in advisory fees which are calculated as a percent of Adjusted EBITDA.
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Interest expense
Interest expense was $53.2 million in fiscal 2009, an increase of $16.7 million, or 45.6%, compared to $36.5 million in fiscal 2008. This increase resulted primarily from our entering into the $300.0 million Topco credit facility on June 26, 2008, and therefore interest expense for fiscal 2008 only reflects thirty-one weeks of interest relating to this facility. This was offset by lower interest expense of $3.0 million related to our Opco term loan, which had a lower interest rate during fiscal 2009 and accrued interest on a lower outstanding principal balance.
Interest income
Interest income was $0.5 million for fiscal 2009, a decrease of $3.0 million, as compared to $3.5 million for fiscal 2008. The decrease in interest income resulted primarily from a reduction in interest rates on investments in overnight treasury securities.
Other expense (income), net
Other income was $2.4 million for fiscal 2009, an increase of $2.1 million, as compared to $0.3 million for fiscal 2008. Other (expense) income, net was primarily composed of changes in the fair market value of our interest rate swap.
Provision for income taxes
Provision for income taxes was $1.2 million for fiscal 2009, an increase of $1.0 million, as compared to $0.2 million for fiscal 2008. See Other Factors Affecting Our Results for additional information related to our tax structure.
Fiscal 2008 Compared to Pro Forma 2007 and the 2007 Successor period
Net sales
Net sales were $1,737.0 million in fiscal 2008, a decrease of $59.3 million, or 3.3%, compared to $1,796.3 million for pro forma fiscal 2007, and were $1,137.3 million in the 2007 Successor period. We had 581 and 587 stores open at the end of fiscal 2008 and fiscal 2007, respectively. During fiscal 2008, we opened nine new stores, closed nine non-productive stores and converted the womens and mens stores in six malls to single dual-gender stores. Fiscal 2008 net sales increased $599.7 million compared to the 2007 Successor period primarily due to the comparison of a fifty-two week period in 2008 to a thirty-week period in 2007. Net sales per gross square foot were $337 in fiscal 2008 compared to $213 in the 2007 Successor period. The increase in sales per gross square foot primarily resulted from the inclusion of an additional twenty-two weeks of net sales in the fiscal 2008 period. Comparable store sales during the same thirty-week period in 2008 were down 10%, or $109.9 million, compared to the 2007 Successor period due primarily to a decline in transaction volumes resulting from an overall decline in consumer spending late in the third quarter and throughout the fourth quarter in 2008. Net sales generated through e-commerce were $27.8 million in fiscal 2008, which represents sales from our website launch in July 2008 through the fiscal year end. Other revenue for fiscal 2008 was $4.8 million and was related primarily to shipping and handling revenue on e-commerce sales.
Net sales per gross square foot were $337 in fiscal 2008, up $8, or 2.4%, compared to $329 in pro forma 2007. Comparable store sales declined by 3%, or $42.4 million, in fiscal 2008 compared to pro forma fiscal 2007, due primarily to a decrease in transaction volumes resulting from an overall decline in consumer spending, late in the third quarter and throughout the fourth quarter of 2008. This resulted in comparable store sales declines of 4%, or $17.5 million, in third quarter and 17%, or $93.3 million, in fourth quarter 2008. This decrease was partially offset by an increase in the first and second quarter comparable store sales which were up 13%, or $46.2 million, and 6%, or $22.2 million, respectively, due to an increased number of transactions.
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Gross profit
Gross profit was $457.0 million, or 26.3% of net sales for fiscal 2008, an increase of $12.7 million, or 2.9%, compared to $444.3 million, or 24.7% of net sales for pro forma fiscal 2007. For the 2007 Successor period, gross profit was $247.3 million, or 21.7% of net sales. Gross profit was impacted by purchase accounting related to the Golden Gate Acquisition, which increased the carrying amount of inventories by $86.9 million during 2007, increased property and equipment by $38.5 million, which is being depreciated over the remaining useful life of each asset, and recorded an intangible asset of $19.8 million related to net favorable lease obligations that is being amortized over the remaining life of each lease. The entire impact of the $86.9 million purchase accounting inventory adjustment was reflected in gross profit for pro forma fiscal 2007 and the 2007 Successor period, while the property and equipment and intangible adjustments impacted fiscal 2008, pro forma fiscal 2007 and the 2007 Successor period by $19.5 million, $20.9 million, and $14.0 million respectively.
The $209.7 million increase in gross profit for fiscal 2008 compared to the 2007 Successor period primarily resulted from the comparison of a fifty-two week period in 2008 to a thirty-week period in 2007. A portion of the increase in fiscal 2008 compared to the 2007 Successor period was driven by the $86.9 million inventory related purchase accounting adjustment that reduced gross profit during the 2007 Successor period. Revenue margin was negatively impacted in fiscal 2008 due to the proportionately higher markdowns on excess inventory during late third quarter and all of fourth quarter, primarily driven by the challenging economic environment. For the comparable thirty-week period in 2008, revenue margin decreased $101.4 million compared to the 2007 Successor period.
The $12.7 million improvement in gross profit for fiscal 2008 compared to pro forma 2007 was driven primarily by the $86.9 million inventory related purchase accounting adjustment that reduced gross profit in pro forma 2007. Gross profit was negatively impacted by a decrease in consumer spending on discretionary items during the recessionary period in fiscal 2008 which contributed to a $59.4 million decline in revenue margin, a $9.8 million increase in product cancellation expense, and a $6.2 million increase in shrink related expense.
General, administrative, and store operating expenses
General, administrative, and store operating expenses were $447.1 million, or 25.7% of net sales, for fiscal 2008, a decrease of $0.3 million, or 0.1%, compared to $447.4 million, or 24.9% of net sales, for pro forma fiscal 2007. For the 2007 Successor period, general, administrative, and store operating expenses were $275.2 million, or 24.2% of net sales.
The $171.9 million increase in general, administrative, and store operating expenses in fiscal 2008 compared to the 2007 Successor period primarily resulted from the comparison of a fifty-two week period in 2008 to a thirty-week period in 2007. For the comparable thirty-week period in 2008, general, administrative, and store operating expenses were down $21.6 million due primarily to a $30.8 million decrease related to efforts to optimize store payroll and increase operational efficiencies in store expense, offset by a $5.4 million increase in home office headquarters expense related to a re-investment in our merchant and design organization, investments to support our e-commerce growth strategy and an $8.6 million investment in marketing campaigns and programs.
The $0.3 million decline in general, administrative, and store operating expenses in fiscal 2008 compared to pro forma 2007 was driven by a $30.3 million reduction in store expenses driven by efforts to optimize store payroll and increase operational efficiencies, offset by a $14.4 million increase in home office headquarters expense related to a re-investment in our merchant and design organization, investments to support our e-commerce growth strategy and a $12.4 million investment in marketing campaigns and programs.
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Other operating expense, net
Other operating expense, net was $6.0 million in fiscal 2008, a decrease of $1.5 million, or 19.8%, compared to $7.5 million in pro forma 2007 and $5.5 million in the 2007 Successor period. Changes in other operating expense, net relate primarily to changes in advisory fees which are calculated as a percent of Adjusted EBITDA.
Interest expense
Interest expense was $36.5 million in fiscal 2008, an increase of $24.5 million, or 203%, compared to $12.1 million in pro forma fiscal 2007 and was $7.0 million in the 2007 Successor period. This increase resulted primarily from our entering into the $300.0 million Topco credit facility on June 26, 2008. This increase was offset slightly by lower interest expense related to our Opco term loan which had a lower interest rate during fiscal 2008 and accrued interest on a lower outstanding principal balance.
Interest income
Interest income was $3.5 million in fiscal 2008, a decrease of $1.7 million, or 32.0%, compared to $5.2 million in pro forma fiscal 2007 and was $5.2 million in the 2007 Successor period. The decrease in interest income during fiscal 2008 was due primarily to a reduction in interest rates on investments in overnight treasury securities and a decline in the average amount of cash and cash equivalents on hand.
Other expense (income), net
Other income was $0.3 million in fiscal 2008, compared to expense of $4.7 million in pro forma fiscal 2007 and expense of $4.7 million in the 2007 Successor period. Other income (expense), net is primarily composed of changes in the fair market value of our interest rate swap and the proceeds from the settlement of insurance claims. Other expense in pro forma 2007 and the 2007 Successor period was due primarily to an increase in liability related to our interest rate swap.
Provision for income taxes
Provision for income taxes was $0.2 million in fiscal 2008 compared to $1.6 million in pro forma fiscal 2007 and $0.5 million in the 2007 Successor period. See the discussion above in Other Factors Affecting Our Results for additional information related to our tax structure.
Quarterly Results and Seasonality
The following table sets forth our historical unaudited quarterly consolidated statements of income for each of the last eight fiscal quarters ended January 30, 2010. This unaudited quarterly information has been prepared on the same basis as our annual audited financial statements appearing elsewhere in this prospectus, and includes all adjustments, consisting only of normal recurring adjustments, that we consider necessary to present fairly the financial information for the fiscal quarters presented.
Our business is seasonal and, historically, we have realized a higher portion of our net sales and net income in the third and fourth fiscal quarters due primarily to early Fall selling patterns as well as the impact of the holiday season. Generally, the annual sales split is 45% for the Spring season (February through July) and 55% for the Fall season (August through January). Working capital requirements are typically higher in the second and fourth quarters due to inventory-related working capital requirements for holiday and early Fall selling periods. Our business is also subject, at certain times, to calendar shifts, which may occur during key selling periods close to holidays such as Easter, Thanksgiving, and Christmas and regional fluctuations for events such as sales tax holidays. As such, results of a period shorter than a full year may not be indicative of results expected for the entire year. Furthermore, the seasonal nature of our business may affect comparisons between periods.
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The quarterly data should be read in conjunction with our audited consolidated financial
Quarterly Results of Operations
Fiscal 2008 | Fiscal 2009 | |||||||||||||||||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||
Net sales |
$ | 422,696 | $ | 399,066 | $ | 409,882 | $ | 505,366 | $ | 374,358 | $ | 373,823 | $ | 426,046 | $ | 546,839 | ||||||||||||||||
Cost of goods sold, buying and occupancy costs |
289,461 | 285,729 | 295,118 | 409,710 | 262,274 | 271,024 | 280,700 | 361,090 | ||||||||||||||||||||||||
Gross profit |
133,235 | 113,337 | 114,764 | 95,656 | 112,084 | 102,799 | 145,346 | 185,749 | ||||||||||||||||||||||||
General, administrative, and store operating expenses |
116,471 | 111,420 | 112,306 | 106,874 | 89,524 | 94,716 | 101,019 | 123,939 | ||||||||||||||||||||||||
Other operating expense, net |
3,768 | 1,282 | 17 | 940 | 1,617 | 1,827 | 3,070 | 3,429 | ||||||||||||||||||||||||
Operating income (loss) |
12,996 | 635 | 2,441 | (12,158 | ) | 20,943 | 6,256 | 41,257 | 58,381 | |||||||||||||||||||||||
Interest expense |
2,737 | 6,029 | 13,625 | 14,140 | 13,649 | 13,198 | 13,357 | 13,018 | ||||||||||||||||||||||||
Interest income |
(2,131 | ) | (870 | ) | (400 | ) | (126 | ) | (76 | ) | (98 | ) | (229 | ) | (81 | ) | ||||||||||||||||
Other (income) expense, net |
(1,155 | ) | (576 | ) | 615 | 816 | (443 | ) | (467 | ) | (668 | ) | (866 | ) | ||||||||||||||||||
Income (loss) before income taxes |
13,545 | (3,948 | ) | (11,399 | ) | (26,988 | ) | 7,813 | (6,377 | ) | 28,797 |
|
46,310 |
|
||||||||||||||||||
Provisions for income taxes |
199 | (76 | ) | (37 | ) | 160 | 214 | 379 | 330 | 313 | ||||||||||||||||||||||
Net income (loss) |
$ | 13,346 | $ | (3,872 | ) | $ | (11,362 | ) | $ | (27,148 | ) | $ | 7,599 | $ | (6,756 | ) | $ | 28,467 | $ | 45,997 | ||||||||||||
Adjusted EBITDA |
$ | 53,949 | $ | 25,557 | $ | 31,973 | $ | 25,719 | $ | 45,150 | $ | 33,564 | $ | 66,415 | $ | 84,621 | ||||||||||||||||
Comparable store sales(1) |
13 | % | 6 | % | (4 | )% | (17 | )% | (16 | )% | (12 | )% | (1 | )% | 4 | % |
(1) | Comparable store sales have been calculated based upon stores that were open at least thirteen full fiscal months as of the end of the reporting period. |
The following table presents a reconciliation of the differences between EBITDA and Adjusted EBITDA to net income, the most directly comparable GAAP financial measure, for the periods indicated below. See note 4 to the table included in Summary Historical and Pro Forma Consolidated Financial and Operating Data.
Fiscal 2008 | Fiscal 2009 | ||||||||||||||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||||||||
Net income (loss) |
$ | 13,346 | $ | (3,872 | ) | $ | (11,362 | ) | $ | (27,148 | ) | $ | 7,599 | $ | (6,756 | ) | $ | 28,467 | $ | 45,997 | |||||||||
Depreciation and amortization |
19,376 | 19,458 | 19,752 | 20,519 | 18,796 | 18,356 | 16,318 | 16,198 | |||||||||||||||||||||
Interest expense, net |
607 | 5,350 | 13,226 | 14,016 | 13,573 | 13,099 | 13,127 | 12,939 | |||||||||||||||||||||
Provision for income taxes |
199 | (76 | ) | (37 | ) | 160 | 214 | 379 | 330 | 313 | |||||||||||||||||||
EBITDA |
33,528 | 20,860 | 21,579 | 7,547 | 40,182 | 25,078 | 58,242 | 75,447 | |||||||||||||||||||||
Non-cash deductions, losses, charges |
2,254 | 1,101 | 6,261 | 11,496 | 922 | 3,647 | 4,225 | 3,334 | |||||||||||||||||||||
Non-recurring expenses |
13,926 | 386 | 1,148 | 3,200 | 1,100 | 1,580 | 1,127 | 2,101 | |||||||||||||||||||||
Transaction expenses |
567 | 1,103 | 826 | 1,100 | 674 | 533 | 236 | 213 | |||||||||||||||||||||
Permitted Advisory Agreement fees and expenses |
1,716 | 1,320 | (29 | ) | 1,231 | 1,193 | 1,253 | 2,279 | 2,428 | ||||||||||||||||||||
Non-cash expense related to equity incentives |
499 | 532 | 503 | 535 | 503 | 501 | 506 | 542 | |||||||||||||||||||||
Other adjustments allowable under our existing credit agreements |
1,459 | 255 | 1,685 | 610 | 576 | 972 | (200 | ) | 556 | ||||||||||||||||||||
Adjusted EBITDA |
$ | 53,949 | $ | 25,557 | $ | 31,973 | $ | 25,719 | $ | 45,150 | $ | 33,564 | $ | 66,415 | $ | 84,621 | |||||||||||||
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Liquidity and Capital Resources
General
Our business relies on cash flows from operations as our primary source of liquidity. We do, however, have access to additional liquidity, if needed, through borrowings under our existing Opco revolving credit facility. Our primary cash needs are for merchandise inventories, payroll, store rent, capital expenditures associated with opening new stores and updating existing stores and information technology. The most significant components of our working capital are cash and cash equivalents, merchandise inventories, accounts payable and other current liabilities. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or, in the case of credit or debit card transactions, within a few days of the related sale, and we have up to 75 days to pay merchandise vendors and 45 days to pay non-merchandise vendors. We used a portion of the proceeds of our Senior Notes offering, together with cash on hand of $153.8 million, to make a distribution to our equity holders of $230.0 million. Following this distribution, as of April 3, 2010, we had cash and cash equivalents of approximately $56.7 million and $139.6 million of availability under the Opco revolving credit facility. Our working capital is seasonal as a result of our building up of inventory for the next selling season, and as a result our cash and cash equivalents during the spring are usually lower when compared to the rest of our fiscal year. Our cash balances generally increase during the summer selling season, and then increase further during the fall and holiday seasons. As our cash balances and inventory increase during the summer, fall and holiday seasons, our borrowing base under our revolving credit facility increases. We believe that cash generated from operations and the availability of borrowings under our credit facilities or other financing arrangements will be sufficient to meet working capital requirements, anticipated capital expenditures and scheduled debt payments for at least the next twelve months.
Cash Flow Analysis
A summary of operating, investing, and financing activities are shown in the following table:
Predecessor | Successor | |||||||||||||||||
Period from
February 4, 2007 through July 6, 2007 |
Period from
July 7, 2007 through February 2, 2008 |
|||||||||||||||||
Year Ended | ||||||||||||||||||
January 31,
2009 |
January 30,
2010 |
|||||||||||||||||
(dollars in thousands) | ||||||||||||||||||
Provided by operating activities |
$ | 45,912 | $ | 282,192 | $ | 35,234 | $ | 200,721 | ||||||||||
Used in investing activities |
(22,888 | ) | (15,258 | ) | (51,801 | ) | (26,873 | ) | ||||||||||
(Used in) provided by financing activities |
(29,939 | ) | 39,361 | (127,347 | ) | (115,559 | ) | |||||||||||
(Decrease) increase in cash and cash equivalents |
(6,915 | ) | 306,295 | (143,914 | ) | 58,289 | ||||||||||||
Cash and cash equivalents at end of period |
$ | 13,734 | $ | 320,029 | $ | 176,115 | $ | 234,404 |
Net Cash Provided By Operating Activities
Operating activities consist primarily of net income adjusted for non-cash items, including depreciation and amortization, the effect of working capital changes, and tenant allowances received from landlords.
Net cash provided by operating activities was $200.7 million for fiscal 2009 compared to $35.2 million in fiscal 2008. The $165.5 million increase in cash provided by operating activities was due primarily to a $104.3 million increase in net income, a $21.6 million source of cash related to the change in accounts payable, deferred revenue, and accrued expenses and a $44.1 million source of cash related to the change in accounts payable and accrued expensesrelated parties.
Net cash provided by operating activities was $35.2 million for fiscal year 2008 compared to $282.2 million in the 2007 Successor period. The cash provided by operating activities in the 2007 successor period was impacted by our transition to a standalone company and establishing working capital accounts with our third
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party vendors. The $247.0 million decrease in cash provided by operating activities was due primarily to a $59.9 million use of cash related to inventory and accounts payable and accrued expenses for related parties in fiscal 2008 compared to a $230.6 million source of cash during the 2007 Successor period. These decreases in cash were partially offset by a $11.4 million increase in net income and a $32.2 million increase in depreciation and amortization expense. Both of these decreases are primarily the result of the comparison of fiscal 2008 to a partial year period in 2007.
Net Cash Used in Investing Activities
Investing activities consist primarily of capital expenditures for growth (new store openings), store maintenance (remodels, conversions to a dual gender format, visual, fixtures, heating, ventilation and air conditioning improvements and gates), and non-store maintenance (information technology and expenses associated with operations at our headquarters).
Capital expenditures were $26.9 million in fiscal 2009, $50.6 million in fiscal 2008, $15.3 million in the 2007 Successor period and $22.9 million in the 2007 Predecessor period. Capital expenditures, gross of landlord allowances, for the opening of new stores, store remodels, and store conversions to a dual gender format were $14.4 million in fiscal 2009, $29.5 million in fiscal 2008, $14.9 million for the 2007 Successor period and $17.2 million in the 2007 Predecessor period. In fiscal 2009, $10.2 million was spent on investments in information technology primarily related to our transition to a standalone business. The remaining capital expenditures in each period relates primarily to investments in store fixtures, heating, ventilation and air conditioning improvements, gates, information technology and investments in the operations at our headquarters.
Management expects capital expenditures for fiscal 2010 to be approximately $57 to $63 million, including landlord allowances, with the increase compared to fiscal 2009 resulting primarily from new store openings and the final phase of our information technology transition which relates primarily to point-of-sale and customer marketing database investments. Landlord allowances related to fiscal 2010 capital expenditures are expected to be approximately $7 to $10 million.
Net Cash (Used in) Provided By Financing Activities
Financing activities consist primarily of borrowings and repayments related to the Opco term loan, the Topco credit facility and our Opco revolving credit facility, as well as distributions to our equity holders and fees and expenses paid in connection with our credit facilities.
Net cash used by financing activities was $115.6 million in fiscal 2009. This use of cash included $75.0 million of repayments of borrowings under our Opco revolving credit facility, $7.1 million of repayments of borrowings under our Opco term loan and Topco credit facility and a $33.0 million distribution to equity holders.
Net cash used by financing activities was $127.3 million for fiscal 2008. This reflected a source of cash related to borrowings of $294.0 million under the Topco credit facility and $75.0 million in borrowings under our Opco revolving credit facility, offset by a distribution to equity holders of $491.2 million as well as $3.9 million in expenses paid in connection with the Topco credit facility, and $1.3 million in repayments related to the Opco term loan. This compares to $39.4 million in net cash provided by financing activities for the 2007 Successor period. This source of cash was primarily from cash equity contributions by our equity holders.
Net cash used by financing activities was $29.9 million for the 2007 Predecessor period. These declines resulted from lower net cash investments in the business by Limited Brands during each respective period.
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Existing Credit Facilities
Opco Revolving Credit Facility
On July 6, 2007, Express Holding and Express, LLC entered into a $200.0 million secured Asset-Based Loan Credit Agreement. The Opco revolving credit facility is available to be used for working capital and other general corporate purposes and is scheduled to expire on July 6, 2012. The Opco revolving credit facility, as amended, allows for swing line advances of up to $30.0 million and up to $45.0 million to be available in the form of letters of credit.
On February 5, 2010, Express Holding and Express, LLC entered into an amendment to the Opco revolving credit facility that became effective March 5, 2010 in connection with the 2010 Refinancing Transactions. The amendment, among other things, (1) permitted the issuance of the Senior Notes and the guarantees thereof by Express Holding and its subsidiaries, (2) increased the applicable interest rate margins and unused line fee, (3) permitted a distribution by Express, LLC to allow Express Topco to prepay the Term C Loans under the Topco credit facility in their entirety (plus prepayment penalties and accrued and unpaid interest thereon) and Express Parent to make a cash distribution to its equity holders in an aggregate amount equal to approximately $230.0 million, (4) permits Express, LLC to pay distributions to allow Express Topco to make regularly scheduled interest payments on the Term B Loans under the Topco credit facility and (5) permits Express Holding to own the equity interests of Express Finance Corp., the co-issuer of the Senior Notes. We paid customary amendment fees to consenting lenders in connection with the amendment.
Borrowings under the Opco revolving credit facility bear interest at a rate equal to LIBOR plus an applicable margin rate or the higher of The Wall Street Journals prime lending rate and 0.50% per annum above the federal funds rate, plus an applicable margin rate. The applicable margin rate is determined based on excess availability as determined with reference to our borrowing base. Prior to the effectiveness of the amendment described above, the applicable margin rate for LIBOR-based advances was 1.25% per annum or 1.00% if excess availability was $100.0 million or greater, and for base rate-based advances was 0.25% per annum or 0.00% if excess availability was $100.0 million or greater. As a result of the amendment described above, effective March 5, 2010, the applicable margin rate for LIBOR-based advances is 2.25% per annum or 2.00% if excess availability is $100.0 million or greater, and for base rate-based advances is 1.25% per annum or 1.00% if excess availability is $100.0 million or greater. The borrowing base components are 90% of credit card receivables plus 85% of the liquidation value of eligible inventory, less certain reserves. At the end of fiscal 2008, we borrowed $75.0 million under the Opco revolving credit facility, which was reflected as a current liability on our balance sheet. This amount was paid in full during the first quarter of fiscal 2009. We had no borrowings outstanding and $139.6 million available under the Opco revolving credit facility as of April 3, 2010.
Prior to the effectiveness of the amendment described above, unused line fees payable under the Opco revolving credit facility were based on 0.25% of the average daily unused revolving commitment during each quarter payable quarterly in arrears. As a result of the amendment described below, effective March 5, 2010, unused line fees payable under the Opco revolving credit facility are based on 0.50% of the average daily unused revolving commitment during each quarter payable quarterly in arrears.
Interest payments under the Opco revolving credit facility are due quarterly on the last day of each April, July, October and January for base rate-based advances and on the last day of the interest period for LIBOR-based advances for interest periods of one, two, three and six months (or if available to all lenders, nine or twelve months), and additionally every three months after the first day of the interest period for LIBOR-based advances for interest periods of greater than three months.
The Opco revolving credit facility contains customary covenants and restrictions on Express Holding and its subsidiaries activities, including, but not limited to, limitations on the incurrence of additional indebtedness; liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions and prepayment of other debt; distributions, dividends and the repurchase of capital stock; transactions with affiliates; the ability to change
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the nature of our business or our fiscal year; the ability to amend the terms of the Opco term loan and the Advisory Agreement; and permitted activities of Express Holding. All obligations under the Opco revolving credit facility are guaranteed by Express Holding and its subsidiaries and secured by a lien on substantially all of the assets of Express Holding and its subsidiaries; provided that the liens on certain assets of Express Holding and its subsidiaries shall be junior in priority to the liens securing the Opco term loan facility.
Prior to the effectiveness of the amendment described above, the Opco revolving credit facility required us to maintain a fixed charge coverage ratio of 1.00 to 1.00 if excess availability plus eligible cash collateral was less than $20.0 million. Our excess availability was $135.2 million as of January 30, 2010. We were not subject to this covenant as of January 30, 2010 because excess availability plus eligible cash collateral was greater than $20.0 million. As a result of the amendment described above, effective March 5, 2010, the Opco revolving credit facility requires Express, LLC to maintain a fixed charge coverage ratio of 1.00 to 1.00 if excess availability plus eligible cash collateral is less than $30.0 million.
Opco Term Loan Facility
On July 6, 2007, Express Holding and Express, LLC, entered into a $125.0 million secured term loan. The proceeds of these borrowings were used to finance, in part, the Golden Gate Acquisition and to pay transaction fees and expenses related to the Golden Gate Acquisition. Borrowings under the Opco term loan bear interest at a rate equal to LIBOR plus an applicable margin rate or the higher of The Wall Street Journals prime lending rate and 0.50% per annum above the federal funds rate, plus an applicable margin rate.
On February 5, 2010, Express Holding and Express, LLC entered into an amendment to the Opco term loan that became effective March 5, 2010 in connection with the 2010 Refinancing Transactions. The amendment, among other things, (1) permitted the issuance of the Senior Notes and the guarantees thereof by Express Holding and its subsidiaries, (2) increased the applicable interest rate margins (subject to a further increase in the event Express, LLCs corporate family rating is not B2 or better by Moodys and Express, LLCs corporate credit rating is not B or better by Standard & Poors), (3) permitted a distribution by Express, LLC to allow Express Topco to prepay the Term C Loans under the Topco credit facility in their entirety (plus any applicable prepayment penalties and accrued and unpaid interest thereon), and Express Parent to make a cash distribution to its equity holders in an aggregate amount equal to approximately $230.0 million, (4) permits Express, LLC to pay distributions to allow Express Topco to make regularly scheduled interest payments on the Term B Loans under the Topco credit facility and (5) permits Express Holding to own the equity interests of Express Finance Corp., the co-issuer of the Senior Notes. We paid customary fees to consenting lenders in connection with the amendment.
The applicable margin rate is determined by Express Holdings leverage ratio of consolidated debt for borrowed money (net of cash and cash equivalents provided that, after giving effect to the amendment described below, no more than $75.0 million of cash and cash equivalents may be netted against consolidated debt for borrowed money for this purpose), including amounts drawn under letters of credit and any synthetic debt, to Adjusted EBITDA (Leverage Ratio), in effect on the first day of each interest period with respect to LIBOR-based advances and by the Leverage Ratio in effect from time to time with respect to base rate-based advances. Prior to the effectiveness of the amendment described above, the applicable margin rate for LIBOR-based advances was 2.75% per annum or 2.50% if the Leverage Ratio was less than 1.00 to 1.00, and for base rate-based advances was 1.75% per annum or 1.50% if the Leverage Ratio was less than 1.00 to 1.00. As a result of the amendment described above, effective March 5, 2010, the applicable margin rate for LIBOR-based advances is 4.25% per annum or 4.00% if the Leverage Ratio is less than 1.00 to 1.00, and for base rate-based advances is 3.25% per annum or 3.00% if the Leverage Ratio is less than 1.00 to 1.00; additionally, these rates may be further increased by 0.50% per annum in the event that Express, LLC fails to maintain, at the time of determination, a corporate family rating of B2 or better by Moodys and a corporate credit rating of B or better by Standard & Poors. As of February 27, 2010, the interest rate under the Opco term loan was 4.25%.
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Interest payments under the Opco term loan are due quarterly on the last day of each April, July, October and January for base rate-based advances and on the last day of the applicable interest period for LIBOR-based advances for interest periods of one, two, three and six months (or if available to all lenders, nine or twelve months), and additionally every three months after the first day of the interest period for LIBOR-based advances for interest periods of greater than three months. Principal payments under the Opco term loan are due quarterly on the last business day of each April, July, October and January through July 6, 2013, in equal installments of 0.25% of the initial principal balance with the balance of principal due on July 6, 2014.
The agreement governing the Opco term loan requires that annual prepayments of principal be made within five business days after the 120th calendar day following the end of each fiscal year in the amount by which an applicable percentage of excess cash flow (as defined in the agreement) that corresponds to Express Holdings Leverage Ratio, exceeds any voluntary prepayments of the Opco term loan over the fiscal year.
The Opco term loan contains customary covenants and restrictions on Express Holding, and its subsidiaries activities, including, but not limited to, limitations on the incurrence of additional indebtedness; liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions and prepayment of other debt; distributions, dividends and the repurchase of capital stock; transactions with affiliates; the ability to change the nature of Express, LLCs businesses or fiscal year; the ability to amend the terms of the purchase agreement pertaining to the Golden Gate Acquisition, the Opco revolving credit facility loan documents and the Advisory Agreement with Golden Gate; and permitted activities of Express Holding. All obligations under the Opco term loan are guaranteed by Express Holding and its subsidiaries and secured by a lien on substantially all of the assets of Express Holding and its subsidiaries; provided that the liens on certain assets of Express Holding and its subsidiaries shall be junior in priority to the liens securing the Opco revolving credit facility.
The Opco term loan also requires that Express Holding maintains a Leverage Ratio for the most recently completed reporting period (last four consecutive fiscal quarters as of the end of each quarter) of not more than 2.25 to 1.00 at the end of the fourth quarter of fiscal year 2009; 2.00 to 1.00 at the end of the first and second fiscal quarters of 2010; and 1.75 to 1.00 thereafter. Express Holding was in compliance with the covenant requirement as of January 30, 2010.
Effective July 6, 2007, Express, LLC entered into a receive variable/pay fixed interest rate swap agreement to mitigate exposure to interest rate fluctuations on a notional principal amount of $75.0 million of the $125.0 million variable-rate Opco term loan. The interest rate swap agreement terminates on August 6, 2010. The fair value of the interest rate swap was a liability of $2.0 million as of January 30, 2010. The Opco term loan requires that Express, LLC maintain interest rate hedge agreements on a notional amount of at least 50% of the term commitments of lenders under the Opco term loan for at least three years.
Topco Credit Facility
On June 26, 2008, Express Topco, as borrower, entered into a $300.0 million secured term loan facility. The proceeds of the Topco credit facility were used to finance distributions to Express Parents equity holders and to pay related fees, costs and expenses. The Topco credit facility is scheduled to mature on June 26, 2015 and was comprised of $150.0 million of Term B Loans and $150.0 million of Term C Loans. On March 5, 2010, in connection with the 2010 Refinancing Transactions, all of the Term C Loans were prepaid, plus all prepayment penalties and accrued and unpaid interest thereon. See Prospectus SummaryRecent Developments. An affiliate of Golden Gate, GGC Unlevered Credit Opportunities, LLC, is a lender under our Topco credit facility and as of January 30, 2010 was owed approximately $50.0 million of the Term B Loans and $50.0 million of the Term C Loans. A separate affiliate of Golden Gate purchased an additional $8.3 million of principal amount of Term B Loans on April 8, 2010.
On February 5, 2010, Express Topco entered into an amendment to the Topco credit facility that became effective on March 5, 2010 in connection with the 2010 Refinancing Transactions. The amendment, among other things, permitted (1) the issuance of the Senior Notes and the guarantee thereof by Express Topco and each of its
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subsidiaries and (2) a distribution by Express Topco to Express Parent to allow Express Parent to make a cash distribution to its equity holders in an aggregate amount equal to approximately $230.0 million. We paid a customary amendment fee to the administrative agent in connection with the amendment.
On April 26, 2010, Express Topco entered into a second amendment to the Topco credit facility. The amendment, among other things, reduced the redemption price in connection with an initial public offering prior to June 26, 2010 to 106%.
The Topco credit facility is not guaranteed by any of Express Topcos subsidiaries. All obligations under the Topco credit facility are secured by a lien on all outstanding equity interests in Express Holding owned by Express Topco, any distributions, dividends or other property received in respect of or in exchange for such interests and all proceeds of the foregoing.
The Term B Loans bear interest at 13.5% per annum. Interest payments for the Term B Loans are due semi-annually, in cash, on the last day of each January and July, with a final payment due upon the maturity of the Topco credit facility. Term C Loans bore interest at 14.5% per annum. Interest payments for the Term C Loans were due on the last day of each January, April, July and October, with a final payment due upon the maturity of the Topco credit facility. Interest payments on Term C Loans were payable in cash, or upon five business days notice to the lenders, could be paid in kind and added to the unpaid principal amount of the Term C Loans. Term C Loans for which interest was paid in kind bore interest at 16.0% per annum for the interest period ending on the applicable payment date. Amounts representing payment in kind interest were treated as and bore interest as Term C Loans under the Topco credit facility. For fiscal 2008 and 2009, Express Topco accumulated $6.2 million of in-kind interest on the Term C Loans which was paid in cash on October 19, 2009 prior to the 2010 Refinancing Transactions.
The Topco credit facility also requires that 50% of the proceeds of the first underwritten public offering of Express Parents (or its direct or indirect parent) or any of the subsidiaries equity securities, net of customary costs incurred in connection with such offering, be used to prepay loans outstanding under the Topco credit facility at the then-applicable redemption prices applicable to voluntary prepayments of such loans described below.
Voluntary prepayments are permitted in whole or in part, subject to certain minimum prepayment requirements and payment of the applicable premium described below. Prepayments of Term B Loans may be made at the following percentages of the outstanding principal amount prepaid: 107% (106% if in connection with an initial public offering) on or after December 26, 2009, but prior to June 26, 2010; 104% on or after June 26, 2010, but prior to June 26, 2011; 102% on or after December 26, 2011, but prior to June 26, 2012; and 100% on or after June 26, 2012.
The Topco credit facility contains customary covenants and restrictions on Express Topcos, and in some cases its subsidiaries, activities, including, but not limited to, limitations on the incurrence of additional indebtedness; liens on the equity interests of Express Holding and proceeds thereof and negative pledges on the equity interests of Express Holding securing the Topco credit facility; guarantees, investments, loans, asset sales, mergers, acquisitions and prepayment of other debt; distributions, dividends, the repurchase of equity interests and payments made pursuant to equity incentive and similar plans; transactions with affiliates; the ability to change the nature of our businesses or fiscal year; and the ability of Express Topco to conduct business or hold any properties or liabilities, other than equity interests in Express Holding, indebtedness permitted by the Topco credit facility, and activities incidental thereto.
The Topco credit facility also requires compliance with certain financial covenants. Express Topco must maintain, for the most recently completed reporting period (last four consecutive fiscal quarters as of the end of each quarter), a leverage ratio of consolidated debt for borrowed money (net of cash and cash equivalents), including amounts drawn under letters of credit and any synthetic debt, to Adjusted EBITDA of not more than 5.00 to 1.00.
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Express Topco must also maintain for the most recently completed reporting period (last four consecutive fiscal quarters as of the end of each quarter), an interest coverage ratio of not less than 1.50 to 1.00. The interest coverage ratio is determined by the ratio of Adjusted EBITDA to consolidated interest expense. We were in compliance with these covenant requirements as of January 30, 2010.
Senior Notes
On March 5, 2010, Express, LLC and Express Finance Corp., as co-issuers, issued, in a private placement, $250.0 million of 8¾% Senior Notes due March 1, 2018 at an offering price of 98.599% of the face value of the Senior Notes. An affiliate of Golden Gate purchased $50.0 million of Senior Notes in the offering. Interest on the Senior Notes is payable on March 1 and September 1 of each year. A portion of the proceeds from the issuance of the Senior Notes was used to prepay all of the Term C Loans under the Topco credit facility, plus prepayment penalties of $3.0 million and accrued and unpaid interest thereon of $1.9 million. The remaining proceeds, together with cash on hand, were used to make a $230.0 million cash distribution to our equity holders and pay fees and expenses, including discounts and commissions to the initial purchasers of the Senior Notes, of $15.4 million.
Prior to March 1, 2014, the Senior Notes may be redeemed in part or in full at a redemption price equal to 100% of the principal amount of the Senior Notes, plus a make-whole premium calculated in accordance with the indenture governing the Senior Notes and accrued and unpaid interest. In addition, prior to March 1, 2013, a portion of the Senior Notes may be redeemed with the net proceeds of certain equity offerings at 108.75%. We do not intend to use the proceeds of this offering to redeem any of the Senior Notes. See Use of Proceeds. On or after March 1, 2014, the Senior Notes may be redeemed in part or in full at the following percentages of the outstanding principal amount prepaid: 104.375% prior to March 1, 2015; 102.188% on or after March 1, 2015, but prior to March 1, 2016; and 100% on or after March 1, 2016.
The indenture governing the Senior Notes contains customary covenants and restrictions on the activities of Express, LLC, Express Finance Corp. and Express, LLCs restricted subsidiaries, including, but not limited to, the incurrence of additional indebtedness; dividends or distributions in respect of capital stock or certain other restricted payments or investments; entering into agreements that restrict distributions from restricted subsidiaries; the sale or disposal of assets, including capital stock of restricted subsidiaries; transactions with affiliates; the incurrence of liens; and mergers, consolidations or the sale of substantially all of Express, LLCs assets. Certain of these covenants will be suspended if the Senior Notes are assigned an investment grade rating by both Standard & Poors Rating Services and Moodys Investor Service, Inc. and no default has occurred or is continuing. If either rating on the Senior Notes should subsequently decline to below investment grade, the suspended covenants will be reinstated.
In connection with the issuance of the Senior Notes, we entered into a registration rights agreement (the Registration Rights Agreement) which requires us to use commercially reasonable efforts to register notes having substantially identical terms as the Senior Notes with the SEC prior to March 5, 2011. In the event that a Registration Default occurs (as defined in the Registration Rights Agreement), then we will be required to pay additional interest on the Senior Notes in an amount equal to 0.25% per annum during the first 90-day period immediately following the occurrence of the first Registration Default. The additional interest will increase by 0.25% per annum for each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of 1.0% per annum.
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Contractual Obligations
We enter into long term contractual obligations and commitments in the normal course of business, primarily debt obligations and non cancelable operating leases. As of January 30, 2010, our contractual cash obligations over the next several periods are set forth below.
Payments Due by Period | |||||||||||||||
Contractual Obligations: |
Total | <1 Year | 2-3 Years | 4-5 Years | Thereafter | ||||||||||
(dollars in millions) | |||||||||||||||
Existing Debt Facilities(1)(2) |
$ | 422.0 | $ | 1.3 | $ | 2.6 | $ | 118.1 | $ | 300.0 | |||||
Other Long Term Obligations(3) |
203.4 | 37.6 | 58.2 | 64.7 | 42.9 | ||||||||||
Operating Leases(4) |
725.8 | 152.9 | 244.7 | 182.9 | 145.3 | ||||||||||
Letters of Credit |
25.1 | 8.8 | 3.6 | 3.6 | 9.0 | ||||||||||
Purchase Obligations(5) |
218.6 | 218.6 | | | | ||||||||||
Total |
$ | 1,594.9 | $ | 419.2 | $ | 309.1 | $ | 369.3 | $ | 497.2 | |||||
(1) | As of January 30, 2010, we had the following amounts outstanding under our existing credit facilities: no amounts outstanding under the Opco revolving credit facility; $121.9 million under the Opco term loan; $150.0 million under the Term B Loans; and $150.0 million under the Term C Loans. The Opco revolving credit facility matures on July 6, 2012, the Opco term loan matures on July 6, 2014, the Term B Loans mature on June 26, 2015 and the Term C Loan was repaid in full on March 5, 2010 with a portion of the proceeds of the issuance of the Senior Notes. See Existing Credit Facilities. |
(2) | Excludes estimated interest under existing debt facilities of $259.3 million. Interest costs for the Opco term loan and revolving credit facility have been estimated based on interest rates in effect for such indebtedness as of January 30, 2010. |
(3) | Other long-term obligations consist of self insurance liabilities, severance agreements, transitional services agreement with Limited Brands and Golden Gate and Limited Brands advisory fees. |
(4) | We enter into operating leases in the normal course of business. Most lease arrangements provide us with the option to renew the leases at defined terms. The future operating lease obligations would change if we were to exercise these options, or if we were to enter into additional new operating leases. |
(5) | Purchase obligations are made up of merchandise purchase orders, unreserved fabric commitments and liabilities to our third party travel administrator. |
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of our assets, liabilities, revenues, and expenses, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. Management evaluates its accounting policies, estimates, and judgments on an on-going basis. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions.
Management evaluated the development and selection of its critical accounting policies and estimates and believes that the following involve a higher degree of judgment or complexity and are most significant to reporting its results of operations and financial position, and are therefore discussed as critical. The following critical accounting policies reflect the significant estimates and judgments used in the preparation of our consolidated financial statements. With respect to critical accounting policies, even a relatively minor variance between actual and expected experience can potentially have a materially favorable or unfavorable impact on subsequent results of operations. However, our historical results for the periods presented in the consolidated financial statements have not been materially impacted by such variances. More information on all of our significant accounting policies can be found in Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements.
Revenue Recognition
We recognize sales at the time the customer takes possession of the merchandise which, for e-commerce revenues, reflects an estimate of shipments that have not yet been received by the customer. This estimate is
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based on shipping terms and historical delivery times. Amounts related to shipping and handling revenues billed to customers in an e-commerce sale transaction are classified as net sales, and the related shipping and handling costs are classified as cost of goods sold, buying and occupancy costs in the Consolidated Statements of Operations. Associate discounts are classified as a reduction of net sales in the Consolidated Statements of Operations. Net sales exclude sales tax collected from customers which is ultimately remitted to governmental authorities.
Additionally, we earn royalties on a development agreement with an unaffiliated franchisee for stores operating in the Middle East. Under this agreement, the third party operates stores that sell Express branded apparel and accessories purchased from us. We recognize royalty revenue when sales entitling us to royalty revenue occur at each of the franchisee locations, and receive payment for these royalties one month in arrears. Royalties are included in net sales in the Consolidated Statements of Operations.
We reserve for projected merchandise returns based on historical experience and various other assumptions that we believe to be reasonable. Merchandise returns are often resaleable merchandise and are refunded by issuing the same payment tender of the original purchase. Merchandise exchanges of the same product and price are not considered merchandise returns and, therefore, are not included in the population when calculating the sales returns reserve.
We sell gift cards in our retail stores and through our e-commerce website and third parties, which do not expire or lose value over periods of inactivity. We account for gift cards by recognizing a liability at the time a gift card is sold. We recognize income from gift cards when they are redeemed by the customer. In addition, income on unredeemed gift cards is recognized when it can be determined that the likelihood of the gift card being redeemed is remote and there is no legal obligation to remit the unredeemed gift cards to relevant jurisdictions (gift card breakage). The gift card breakage rate is based on historical redemption patterns.
Inventories
Inventories are principally valued at the lower of cost or market on a weighted-average cost basis. We record a lower of cost or market adjustment to our inventories, which is reflected in cost of goods sold, buying and occupancy costs in the Consolidated Statements of Operations, if the cost of specific inventory items on hand exceeds the amount we expect to realize from the ultimate sale or disposal of the inventory. The lower of cost or market adjustment calculation requires management to make assumptions and estimates, which are based on factors such as merchandise seasonality, historical trends, and estimated inventory levels, including sell-through of remaining units.
We also record an inventory shrinkage reserve calculated as a percentage of cost of sales for estimated merchandise losses for the period between the last physical inventory count and the balance sheet date. These estimates are based on historical percentages and can be affected by changes in merchandise mix and/or changes in shrinkage trends. We perform physical inventory counts twice a year (once each season) for the entire chain of stores and adjust the shrinkage reserve accordingly. If actual physical inventory losses differ significantly from the estimate, our results of operations could be adversely impacted. The shrinkage reserve reduces the value of total inventory and is a component of inventories on the Consolidated Balance Sheets.
Business Combinations
We account for business combinations under the purchase accounting method. The cost of an acquired company is assigned to the tangible and intangible assets purchased and the liabilities assumed on the basis of their fair values at the date of acquisition. The determination of fair values of assets and liabilities acquired requires us to make estimates and use valuation techniques when market value is not readily available. Any excess of purchase price over fair value of the tangible and intangible assets acquired, if any, is allocated to goodwill. On July 6, 2007, we were subject to a business combination in which Limited Brands sold a 75%
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interest in our company to investment funds managed by Golden Gate in exchange for cash. As a result, the purchase price paid to effect the Golden Gate Acquisition was allocated to state the assets acquired and liabilities assumed at their fair value.
Valuation of Long-lived Assets
Property and equipment and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In evaluating an asset for recoverability, we estimate the future cash flow expected to result from the use of the asset at the store level, the lowest identifiable level of cash flow, if applicable. If the sum of the estimated undiscounted future cash flows related to the asset are less than the carrying value, we recognize a loss equal to the difference between the carrying value and the fair value, usually determined by the estimated discounted cash flow analysis of the asset. Factors used in the valuation of long-lived and intangible assets with finite lives include, but are not limited to, managements plans for future operations, brand initiatives, recent operating results, and projected future cash flows. Impairment charges are included in cost of goods sold, buying and occupancy costs in the Consolidated Statement of Operations.
Intangible assets with indefinite lives, primarily trade names, are reviewed for impairment annually in the fourth quarter and may be reviewed more frequently if indicators of impairment are present. The impairment review is performed by comparing the carrying value to the estimated fair value, usually determined using a discounted cash flow methodology. Factors used in the valuation of intangible assets with indefinite lives include, but are not limited to, managements plans for future operations, brand initiatives, recent operating results, and projected future cash flows.
The discounted cash flow models used to estimate the applicable fair values involve numerous estimates and assumptions that are highly subjective. Changes to these estimates and assumptions could materially impact the fair value estimates. The estimates and assumptions critical to the overall fair value estimates include: (1) estimated future cash flow generated at the store level; and (2) discount rates used to derive the present value factors used in determining the fair values. These and other estimates and assumptions are impacted by economic conditions and expectations of management and may change in the future based on period-specific facts and circumstances. If economic conditions were to deteriorate, future impairment charges may be required.
Claims and Contingencies
We are subject to various claims and contingencies related to legal, regulatory, and other matters arising out of the normal course of business. Our determination of the treatment of claims and contingencies in the consolidated financial statements is based on managements view of the expected outcome of the applicable claim or contingency. Management may also use outside legal advice on matters related to litigation to assist in the estimating process. We accrue a liability if the likelihood of an adverse outcome is probable and the amount is estimable. If the likelihood of an adverse outcome is only reasonably possible, or if an estimate is not determinable, disclosure of a material claim or contingency is disclosed in the Notes to the Consolidated Financial Statements. We re-evaluate these assessments on a quarterly basis or as new and significant information becomes available to determine whether a liability should be established or if any existing liability should be adjusted. However, the ultimate outcome of various legal issues could be different than managements estimates and, as a result, adjustments may be required.
Income Taxes
Effective May 7, 2007, we reorganized as a partnership for federal income tax purposes. As such, with the exception of a limited number of state and local jurisdictions, we are no longer subject to income taxes. The members of the company, and not the company itself, are subject to income tax on their distributive share of our earnings from May 7, 2007 forward. We pay distributions to the members to fund their tax obligations attributable to taxable income of our company.
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We account for income taxes using the asset and liability method. Under this method, the amount of taxes currently payable or refundable are accrued and deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences that currently exist between the tax basis and the financial reporting basis of our assets and liabilities. For periods up to the effective date of our reorganization as a partnership for federal income tax purposes, deferred taxes were recognized on a separate company basis because we were taxable as a corporation until then. As a partnership, our deferred taxes for periods ending after May 7, 2007 are related to a limited number of state and local jurisdictions.
Deferred tax assets and liabilities are measured using the enacted tax rates in effect in the years when those temporary differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized through continuing operations in the period that includes the enactment date of the change. Changes in tax laws and rates could affect recorded deferred tax assets and liabilities in the future.
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Financial Interpretation (FIN) 48, Accounting for Uncertainty in Income Taxes, (codified primarily in ASC 740) which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS 109, Accounting for Income Taxes (codified primarily in ASC 740). FIN 48 provides that a tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more- likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
We recognize tax liabilities in accordance with ASC 740 and we adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense and the effective tax rate in the period in which the new information becomes available.
We adopted FIN 48 effective February 4, 2007. As a result of the implementation of FIN 48, we recognized an increase of $0.7 million in our liability for unrecognized tax benefits, which was accounted for as a reduction to the February 4, 2007 retained earnings balance. Including this adjustment, we had $9.7 million of unrecognized tax benefits at February 4, 2007. Limited Brands retained the amount of FIN 48 liability for unrecognized tax benefits for any Predecessor period up to and including the date of the Golden Gate Acquisition.
We recognize interest and penalties related to unrecognized tax benefits within income tax expense in the accompanying Consolidated Statement of Operations. Accrued interest and penalties are included within the related tax liability line on the Consolidated Balance Sheets.
We may be subject to periodic audits by the Internal Revenue Service and other taxing authorities. These audits may challenge certain of our tax positions, such as the timing and amount of deductions and allocation of taxable income to the various jurisdictions.
Share-Based Payments
We recognize share-based compensation expense over the requisite service period expected to vest for stock awards issued to members of management based upon fair values at the grant date. We granted our first stock awards in December 2007 as a standalone company.
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We use a contingent claims approach utilizing the Black-Scholes option pricing model to estimate the fair value of share-based payment awards on the grant date. We also take into consideration the rights and preferences of awarded equity incentives. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the valuation of stock awards, which affects compensation expense related to these awards. These assumptions include an estimate of the time to liquidity event, volatility and risk free rate over a period of time corresponding to the time to liquidity event. Since our stock has not been publicly traded and there is no historical or implied volatility information available, it is necessary to use historical volatility of shares of comparable publicly traded companies. When selecting comparable companies, consideration is given to industry similarity, financial data availability, active trading volume, and capital structure.
Another factor involving judgment that affects the expensing of share-based payments includes estimated forfeiture rates of share-based awards. These assumptions represent our best estimates and involve inherent uncertainties and the application of management judgment. If any of the assumptions used in the Black-Scholes model change significantly, share-based compensation for future awards may differ materially from the awards previously granted.
In the absence of a public trading market, management considered numerous objective and subjective factors, including information provided by an outside valuation firm to determine its best estimate of the fair market value of our common stock as of each valuation date. Valuations are performed annually, around the end of the third quarter or in the fourth quarter. We use the most recent valuation closest to the date shares are granted, and evaluate the results of the next valuation to determine if adjustments to the grant date fair value are required. In valuing Express Parents Class A and Class C Units, we first determine a business enterprise value by taking an average of the values calculated under two valuation approaches, the Income Approach and the Market Approach.
The Income Approach indicates the fair value of total invested capital based on the value of cash flows that the business can be expected to generate in the future. This approach is typically estimated through a discounted cash flow method using our weighted average cost of capital, which is calculated by weighting the required return on interest-bearing debt and common and preferred equity capital in proportion to their estimated percentages in an expected capital structure and is comprised of four steps: estimate future cash flows for a certain discrete projection period; discount these cash flows to present value at a rate of return that considers the relative risk of achieving the cash flows and the time value of money; estimate the residual value of normalized cash flows subsequent to the discrete projection period; and combine the present value of the residual cash flows with the discrete projection period cash flows to indicate the fair value of a marketable controlling interest in the business.
The Market Approach indicates the fair value of total invested capital based on a comparison of our company to comparable companies in similar lines of business that are publicly traded or which are part of a public or private transaction as well as prior company transactions. This approach can be estimated through the market comparable method, which compares our company to publicly traded companies in similar lines of business. The conditions and prospects of companies in similar lines of business depend on common factors such as overall demand for their products and services. An analysis of the market multiples of companies engaged in similar businesses yields insight into investor perceptions and, therefore, the value of our company. After identifying and selecting the comparable publicly traded companies, their business and financial profiles are analyzed for relative similarity. Consideration for factors such as size, growth, profitability, risk, and return on investment are also analyzed and compared to the comparable businesses. Once these differences and similarities are determined and proper adjustments are made, multiples of the publicly traded companies are calculated and applied to our operating results to estimate a marketable, minority interest value, to which a control premium is applied, as appropriate, to indicate a marketable, controlling interest value.
The amount of share-based compensation expense we recognize during a period is based on the portion of the awards that are ultimately expected to vest. We estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates.
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Recently Issued Accounting Pronouncements
Accounting Standard Codification (Codification) and the Hierarchy of GAAP
In June 2009, the FASB issued Accounting Standards Codification (ASC) Subtopic 105, Generally Accepted Accounting Principles, which reorganizes the thousands of United States GAAP pronouncements into roughly 90 accounting topics and displays all topics using a consistent structure. This standard establishes two levels of GAAP, authoritative and non-authoritative. The Codification is the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. This standard is effective for financial statements for interim or annual reporting periods ending after September 15, 2009. Effective February 1, 2009, we changed our historical United States GAAP references to comply with the Codification. The adoption of this guidance did not impact our results of operations, financial condition, or liquidity since the Codification is not intended to change or alter existing United States GAAP.
Subsequent Events
In May 2009 and February 2010, the FASB issued authoritative guidance included in ASC Subtopic 855, Subsequent Events, which incorporates guidance on subsequent events into authoritative accounting literature and clarifies the time following the balance sheet date that must be considered for subsequent events disclosures in the financial statements. We adopted this guidance effective February 1, 2009, and there was no material impact on our consolidated financial statements.
Fair Value Measurements
In April 2009, the FASB issued authoritative guidance included in ASC Subtopic 825, Financial Instruments, intended to provide additional accounting guidance and enhanced disclosures of fair values of certain financial instruments in interim and annual financial statements. We adopted this guidance effective February 1, 2009, and there was no material impact on our consolidated financial statements.
IntangiblesGoodwill and Other
In April 2008, the FASB issued authoritative guidance included in ASC Subtopic 350 IntangiblesGoodwill and Other, which is intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We adopted this guidance effective February 1, 2009, and there was no material impact on its consolidated financial statements.
Fair Value Measurements
In September 2006, the FASB issued authoritative guidance included in ASC Subtopic 820, Fair Value Measurements and Disclosures, which provides guidance for fair value measurement of assets and liabilities and instruments measured at fair value that are classified in shareholders equity. This guidance defines fair value, establishes a fair value measurement framework and expands fair value disclosures. It emphasizes that fair value is market-based with the highest measurement hierarchy level being market prices in active markets. This guidance requires fair value measurements be disclosed by hierarchy level, an entity to include its own credit standing in the measurement of its liabilities and modifies the transaction price presumption. In February 2008, the FASB delayed the effective date for this guidance to fiscal years beginning after November 15, 2008 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Accordingly, as of February 3, 2008, we adopted the authoritative guidance for financial assets and liabilities only on a prospective basis. As of February 1, 2009, we adopted the remaining provisions. The adoption of this guidance did not have a significant impact on our consolidated financial statements.
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Quantitative and Qualitative Disclosure of Market Risks
Interest Rate Risk
We are subject to interest rate risk in connection with borrowings under our Opco credit facilities, which bear interest at variable rates. Borrowings under our other senior indebtedness, including the Topco credit facility and Senior Notes bear interest at fixed rates. For fixed rate debt, interest rate changes affect the fair market value of such debt, but do not impact earnings or cash flow.
We utilize interest rate swaps to hedge our interest rate risk. Effective July 6, 2007, Express, LLC entered into a receive variable/pay fixed interest rate swap agreement to mitigate exposure to interest rate fluctuations on a notional principal amount of $75.0 million of the $125.0 million variable-rate Opco term loan. The interest rate swap agreement terminates on August 6, 2010. The fair value of the interest rate swap was a liability of $2.0 million as of January 30, 2010. At January 30, 2010, the weighted-average interest rate on the outstanding balance of our Opco term loan and Opco revolving loan was 3.7%. The Opco term loan requires that Express, LLC maintain interest rate hedge agreements on a notional amount of at least 50% of the term commitments of lenders under the Opco term loan for at least 3 years. As of January 30, 2010, a 1% change in interest rates would have resulted in an incremental $0.6 million gain or loss related to this contract.
Impact of Inflation
Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition have been immaterial.
Internal Control Over Financial Reporting
We restated our 2007 Successor and fiscal 2008 financial statements after certain accounting errors were identified that we determined to be material. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. 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 which resulted in adjustments to our income tax expense of $1.1 million and $0.2 million in the 2007 Successor period and in fiscal 2008, respectively, 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 the following errors.
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Golden Gate Advisory Agreement . We are required to pay an annual management fee to Golden Gate under an Advisory Agreement entered into with Golden Gate in connection with the Golden Gate Acquisition. The actual advisory fee and out-of-pocket expenses payable to Golden Gate were $3.6 million and $4.2 million in the 2007 Successor period and in fiscal 2008, respectively. We had previously only accrued or paid $3.1 million and $2.4 million related to the 2007 Successor period and in 2008, respectively. This resulted in the understatement of accounts payable and accrued expensesrelated parties and other operating expense, net by $0.5 million and $1.8 million in the 2007 Successor period and in fiscal 2008, respectively. See Certain Relationships and Related Party TransactionsGolden Gate AcquisitionGolden Gate Advisory Agreement. |
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LLC Agreement . We are required to pay an advisory fee to Limited Brands under our limited liability company agreement. The fee payable to Limited Brands was $1.2 million and $1.3 million in the 2007 Successor period and in fiscal 2008, respectively. We did not accrue or pay these amounts, which resulted in the understatement of accounts payable and accrued expensesrelated parties and other operating expense, net by $1.2 million and $1.3 million in the 2007 Successor period and in fiscal 2008, respectively. See Certain Relationships and Related Party TransactionsGolden Gate AcquisitionLLC Agreement. |
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Transition Services Agreement . We are required to pay certain fees to Limited Brands for certain services provided to us under a transition services agreement. In transitioning services from Limited Brands, we overstated accrued expenses for real estate charges because payments we made were not reflected as reductions to the related liability. This resulted in an overstatement of cost of goods sold, building and occupancy costs of $0.4 million in fiscal 2008. See Certain Relationships and Related Party TransactionsGolden Gate AcquisitionLimited Brands Transition Services Agreement. |
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Unit Purchase Agreement . When we accounted for the Golden Gate Acquisition under the Unit Purchase Agreement, we adopted an accounting policy that caused us to prematurely recognize as a liability the expense for costs related to employee relocation before the costs were actually incurred. This resulted in an overstatement of general, administrative, and store operating expenses of $0.6 million and $0.3 million in the 2007 Successor period and in fiscal 2008, respectively. We also incorrectly accounted for certain property tax payments made pursuant to the unit purchase agreement which resulted in an overstatement of $0.3 million and an understatement of $0.4 million of general, administrative, and store operating expenses in the 2007 Successor period and in fiscal 2008, respectively. See Certain Relationships and Related Party TransactionsGolden Gate AcquisitionPurchase Agreement. |
We have remediated the material weakness associated with accounting for deferred taxes as a result of expanding our senior level resources in our tax, accounting and financial reporting groups in fiscal 2008. While we are still in the process of remediating the material weakness associated with accounting for complex agreements arising from transactions unrelated to our core business operations, we have developed and are implementing a plan to remediate this material weakness by, among other things, establishing an internal committee of accounting, legal and internal audit personnel to review our policies and accounting treatment of all complex agreements and monitor ongoing compliance with such agreements. This committee has already established a charter, selected members, held meetings, and intends to hold, at a minimum, monthly meetings on an on-going basis. In addition, we have also hired a director of external reporting to expand our financial reporting resources in conjunction with this offering.
If we fail to fully remediate this material weakness or 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.
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Our Company
Express is the sixth largest specialty retail apparel brand in the United States. With 30 years of experience offering a distinct combination of style and quality at an attractive value, we believe we are a core shopping destination for our customers and that we have developed strong brand awareness and credibility with them. We target an attractive and growing demographic of women and men between 20 and 30 years old. We offer our customers an edited assortment of fashionable apparel and accessories to address fashion needs across multiple aspects of their lifestyles, including work, casual and going-out occasions. Since we became an independent company in 2007, we have made several significant changes to our business model, including completing the conversion of our stores to a dual-gender format, re-designing our go-to-market strategy and launching our e-commerce platform, all of which we believe have improved our operating profits and positioned us well for future growth and profitability.
As of January 30, 2010, we operated 573 stores. Our stores are located primarily in high-traffic shopping malls, lifestyle centers and street locations across the United States, and average approximately 8,700 square feet. We also sell our products through our e-commerce website, express.com. Our stores and website are designed to create an exciting shopping environment that reflects the sexy, sophisticated and social brand image that we seek to project. Our product offering includes both womens and mens apparel and accessories, of which womens represented 67% of our net sales and mens represented 33% of our net sales during fiscal 2009. Our product assortment is a mix of core styles balanced with the latest fashions, a combination we believe our customers look for and value in our brand. For fiscal 2009, we generated net sales, net income and Adjusted EBITDA of $1,721.1, $75.3 and $229.8, respectively. Our Adjusted EBITDA increased 168% from $85.9 million in fiscal 2006 to $229.8 in fiscal 2009. See Prospectus SummarySummary Historical and Pro Forma Consolidated Financial and Operating Data for a discussion of Adjusted EBITDA, an accompanying presentation of the most directly comparable GAAP financial measure and a reconciliation of the differences between Adjusted EBITDA and the most directly comparable GAAP financial measure, net income.
History and Recent Accomplishments
We opened our first store in 1980, in Chicago, Illinois as a division of Limited Brands, Inc., and launched our mens apparel line in 1987, which we rebranded under the name Structure in 1989. In the mid 1990s, we experienced a period of rapid expansion, resulting in the operation of over 1,000 stores by 2000, including in many cases a womens and mens store in the same shopping center. In 2001, we began to consolidate our separate womens and mens stores into combined dual-gender stores under the Express brand. In 2007, we began to operate as a standalone company and have since implemented and completed numerous initiatives to strengthen our business, including:
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Transitioned to Standalone Company. As a standalone company, we have made a number of changes to improve our organization, reinvest in our business and align incentives with our performance. Among these, we rehired Michael Weiss as our President and CEO in July 2007. Mr. Weiss has been President of Express for over 20 years and has more than 40 years of experience in our industry. We have also worked to build depth in our organization, including by strengthening our merchandising and design teams and improving the processes by which we make product decisions. In addition, we have transitioned our corporate structure and team to be more entrepreneurial and focus decisions on profitability and return on investment instead of sales volume maximization. |
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Completed Dual-Gender Store Conversion. During the last nine years, we have significantly improved the efficiency of our store base by consolidating separate womens and mens stores that were located in the same shopping center into combined dual-gender stores. Over this time period, this conversion has allowed us to reduce our total gross square footage by approximately 30%. In shopping centers where conversions took place, we reduced our square footage per center from approximately 13,500 square feet |
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to approximately 8,700 square feet. We believe our converted store model has resulted in higher store productivity and lower store expenses, leading to increased profitability. |
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Redesigned Go-To-Market Strategy. Since 2007, we have revised the process by which we design, source and merchandise our product assortment. We now design a greater number of styles, colors and fits of key items for each season and test approximately three-quarters of our product early in each season at a select group of stores before ordering for our broader store base. Based on the data gathered from product testing, our merchants are able to refine and narrow the items ordered for each season. We have also worked with our vendors to reduce our lead times, allowing us to make buying decisions closer to each selling season. We believe the results of these changes are higher product margins from reduced markdowns, lower inventory risk and a more relevant product offering for our customers. |
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Reinvested in Our Business to Support Growth. Over the past three years, we have expanded several of our key functional departments and shifted our marketing focus to better position our company for long-term growth. For example, we have increased the number of merchants by 50%, allowing our merchandising organization to focus on specific sub-categories and lines to ensure we have consistent quality and design offered across our broad range of fashion products. In addition, we have placed increased focus on long-term brand-building initiatives. |
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Launched Express.com. We launched our e-commerce website, express.com, in July 2008, offering our customers a new channel to access our products. We believe our e-commerce platform has improved the efficiency of our business by allowing us to monitor real-time customer feedback, enhancing our product testing capabilities, expanding our advertising reach and providing us with a merchandise clearance channel. In fiscal 2009, our e-commerce sales increased 231% relative to the fiscal 2008 but still only represented approximately 5% of our net sales in fiscal 2009. |
Competitive Strengths
We attribute our success to the following competitive strengths:
Established Lifestyle Brand. With 30 years of brand heritage, we have developed a distinct and widely recognized brand that we believe fosters loyalty and credibility among our customers who look to us to provide the latest fashions and quality at an attractive value. We are the sixth largest specialty retail apparel brand in the
United States in terms of 2008 sales and we believe we are the largest specialty lifestyle brand focused on the 20 to 30 year old customer demographic. According to the 2007 Market Survey, we have more than 90% aided brand awareness among our core customer demographic. We believe that our brand awareness and product offering makes our stores a compelling and frequent destination for our customers.
Attractive Market and Customer Demographic . According to the NPD Group, in the twelve months ended June 30, 2009, our brand represented approximately 5% of the $20 billion upscale specialty apparel market for 18 to 30 year old women and men in the United States. During that period, this upscale specialty apparel market accounted for 42% of the $46 billion total apparel market for 18 to 30 year old women and men in the United States. Our customer demographic is a growing segment of the United States population, and we believe that the Express brand appeals to a particularly attractive subset of this group. Based on the 2007 Market Survey, our customers are frequent, fashion-conscious shoppers who spend a higher percentage of their budget on fashion compared to the broader population and shop for clothing at least once every few weeks, and our female customers spend approximately $1,700 on clothing annually, nearly 50% more than the average female specialty retail shopper.
Sophisticated Design, Sourcing and Merchandising Model. We believe that we have an efficient, diversified and flexible supply chain that allows us to quickly identify and respond to trends and to bring a tested assortment of products to our stores. We believe our model allows us to better meet customer needs and enables us to reduce inventory risk and improve product margins from reduced markdowns. We design our entire product assortment in
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our New York City design studio based on an extensive review of fashion trends, styles, fabrics, colors and fits for the upcoming season. Our product testing processes early in the season allow us to test approximately three-quarters of our merchandise in select stores before placing orders for our broader store base. In addition, we assess sales data and new product development on a weekly basis in order to make in-season inventory adjustments where possible and to allow us to respond to the latest trends. We utilize a diversified network of third-party manufacturers located throughout the world that we believe allows us to source the high quality products that our customers demand at competitive prices.
Optimized Real Estate Portfolio. Our stores are located in high-traffic shopping malls, lifestyle centers and street locations in 47 states across the United States, and are diversified across all regions. During the last nine years we have completed the conversion of our store base into dual-gender stores from separate womens and mens stores, which has reduced our total square footage by approximately 30%. We believe that over this period, this conversion has brought our average store size in-line with other dual-gender specialty retailers, has contributed to improved per store sales and profitability and has positioned us to continue to drive improvement in store sales and margins. We believe we also benefit from 30 years of operating experience identifying and opening new stores. As a result of our strong brand and established presence, we have been able to acquire high-traffic locations in most retail centers in which we operate. Substantially all of our stores were profitable in fiscal 2009.
Proven and Experienced Team. Michael Weiss, our President and Chief Executive Officer, has more than 40 years of experience in the fashion industry and has served as our President for over 20 years. In addition, our senior management team has an average of 25 years of experience across a broad range of disciplines in the specialty retail industry, including design, sourcing, merchandising and real estate. Experience and tenure with Express extends deep into our organization. For example, our district managers and store managers have been with Express for an average of ten years and seven years, respectively.
Business Strategy
Key elements of our business and growth strategies include the following:
Improve Productivity of Our Retail Stores. We believe that the efforts we have taken over the last several years to optimize our store base through conversion to dual-gender stores and to improve our go-to-market strategy have positioned us well for future growth. We seek to grow our comparable store sales and operating margins by executing the following initiatives:
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Continuing to Refine Our Go-to-Market Strategy. As we increase testing and refine our go-to-market strategy, we believe our in-store product assortment will be more appealing to our customers and will help us to decrease markdowns and increase sales and product margins; |
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Recapture Market Share in Our Core Product Categories. Approximately five years ago we shifted our product mix, which included a high percentage of tops, casual bottoms and denim to increase our focus on a more premium wear to work assortment. In the last several years we have re-focused on a broader lifestyle clothing mix consistent with our brand heritage. Based on our historical peak sales levels across product categories, we believe there is opportunity for us to recapture sales as our customers re-discover Express in certain product categories, which are specifically casual and party tops, dresses and denim. We believe our efforts to deliver a clear and consistent brand message provides us with additional opportunities to increase sales in core categories that will allow us to return to historical volumes; and |
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Improve Profit Margins. We believe we have the opportunity to continue to improve margins through further efficiencies in sourcing and continued refinement of our merchandising strategy. We plan to leverage our infrastructure, corporate overhead and fixed costs through our converted dual-gender store format. |
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Expand Our Store Base. While there has been significant growth in retail shopping centers during the last decade, we have focused on converting our existing store base to a dual-gender format and have opened few new stores over this time period. As a result, we believe there are numerous attractive, high-traffic locations that present opportunities for us to expand our store base. We currently plan to open an average of 30 new stores across the United States and Canada over each of the next five years, representing annual store growth of approximately 5%.
Expand Our e-Commerce Platform. In July 2008, we launched our e-commerce platform at express.com, providing us with a direct-to-consumer sales channel. In fiscal 2009, our e-commerce sales increased 231% relative to fiscal 2008 but still only represented approximately 5% of our net sales in fiscal 2009. We believe that our target customer regularly shops online, and we see continued opportunity to grow our e-commerce business by providing our customers with a seamless retailing experience. In addition, we believe our multi-channel platform will allow us to continue to improve overall profit margins as our e-commerce business becomes an increased percentage of our sales.
International Expansion with Development Partners. We believe Express has the potential to be a successful global brand. We recently have begun to bolster our brand image and awareness outside of the United States. There are currently four Express stores in the Middle East, which were constructed through a development agreement with Alshaya Trading Co. Through our development agreement, we earn royalty payments from these stores with no capital investment or inventory risk. The agreement allows us to control our brand image, store design and the product assortment offered in these stores. Over the next five years, we believe there are additional opportunities to expand the Express brand internationally through additional low capital development arrangements.
Our Industry
According to the NPD Group, a leading provider of global market information, retail sales of domestic apparel totaled $159 billion in the United States in the twelve months ended June 30, 2009. We operate primarily in the specialty retail distribution channel of this market, which represented 32.7% of the total industry, or $53.5 billion in retail sales, in 2008. According to the United States Census Bureau, the specialty retail channel has grown 37% from 2000 to 2007 and continues to gain share from the department store channel. Our core customer demographic within this segment is 20 to 30 year old women and men. According to United States Census Bureau, this segment of the population is growing, with steady growth projected through 2015.
Our Products
We offer our customers an edited assortment of fashionable merchandise to address multiple aspects of their lifestyle, including work, casual and going-out occasions. Our products are created by our in-house design team and range from core styles to the latest fashions. We believe we have developed a portfolio of products that have significant brand value, including the Editor pant, of which we have sold approximately 16 million over the last seven years, Essential and 1MX shirts, and our Stella, Zelda and Eva lines of denim. We believe our products offer our customer an attractive value. We focus on providing our customers with items made from high-quality materials that are designed to last for several seasons, and we believe our customers have come to expect durability from our brand. For fiscal 2009, approximately 67% of our net sales were from womens apparel and accessories and 33% were from mens apparel and accessories.
We design our products and display them in our stores in a coordinated manner to encourage our customers to purchase multi-item outfits as opposed to individual items. We believe this allows us to better meet our customers shopping objectives while differentiating our product line from competitors. On average, our customers purchase two to three items per transaction. In season, we monitor cross-selling trends in order to optimize our in-store and online product assortment and collection recommendations.
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Design and Merchandising
Our internal design and merchandising team designs high-quality products that reinforce our brand image. Our products are designed to reflect the latest fashions and colors, and we seek to incorporate high-quality fabrics and construction as well as consistent fits and detailing. We have strategically located our design studio on 5th Avenue in New York City to ensure that our staff of over fifty designers are immersed in the heart of New York Citys fashion community and have easy access to inspiration from other high-fashion markets in Europe and abroad. We believe our dual offices in New York City and Columbus, Ohio provide us a balanced design and merchandising perspective.
We develop four seasonal collections per year and then subdivide them so that we have monthly product introductions in our stores. The seasonal design process begins approximately 45 weeks in advance of store delivery with a collaborative planning effort between our designers, merchandisers and finance staff. Each season is carefully planned based on a number of inputs, including the previous years sales, recent fashion trends and customer feedback. Over the course of the design process, the seasonal assortment is refined based on in-store tests and continual review of fashion trends. We engage in early season testing across all product categories and test approximately three-quarters of our merchandise in select stores before placing orders for our company-wide store base. In addition, our designers establish contingency plans in the event that a particular product performs differently than anticipated. We assess sales data on a weekly basis in order to make in-season inventory adjustments where possible and to allow us to respond to the latest trends. We utilize a broad base of manufacturers located throughout the world that we believe produce goods at the levels of quality that our customers demand, and we are able to use manufacturers from this base that can supply products to us on a timely basis at competitive prices relative to our other providers. We conduct extensive post-season reviews of our products to identify areas in which our merchandising process can be improved. We believe that each of these components of our merchandising model helps us to maximize our sales and margins and reduce our inventory risk. As a result, a greater percentage of our products are sold at full-price, and we have experienced an approximate 30% reduction in markdowns since 2007.
Sourcing
Our Sourcing Strategy
Our sourcing approach is focused on optimizing quality, speed of production and cost of our merchandise and is a key element of our success. To accomplish this, we have established collaborative relationships with our third-party vendors and agents. We believe our sourcing strategy maximizes our speed to market and allows us to respond quickly to customers preferences. We have weekly calls with many of our vendors to optimize the use of fabric and supplies to meet the needs of our customers. We have the ability in our supply chain to place and receive orders within eight to twelve weeks, and also have the ability to track popular items and place refill orders and re-stock merchandise at our distribution center within five to eight weeks.
Our Sourcing Methods
We do not own or operate any manufacturing facilities and as a result contract with third-party vendors for production of our merchandise. We purchase apparel and accessories both from importers, including through intermediaries, and directly from manufacturers. Our relationships with our direct manufacturers are sometimes supported by intermediaries, who help coordinate our purchasing requirements with the factories. In exchange for a commission, these buying agents identify suitable vendors and coordinate our purchasing requirements with vendors by placing orders for merchandise on our behalf, ensuring the timely delivery of goods to us, obtaining samples of merchandise produced in factories, inspecting finished merchandise and carrying out administrative communications on our behalf. One of the buying agents we work with is MAST Industries, Inc., an affiliate of Limited Brands. Our relationship with MAST is discussed in the section entitled Certain Relationships and Related Party Transactions.
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We purchase the majority of our merchandise outside of the United States through arrangements with approximately 90 vendors utilizing approximately 350 foreign manufacturing facilities located throughout the world, primarily in Asia and Central and South America. Our top ten manufacturers, based on cost, supplied 34% of our merchandise in fiscal 2009. MAST assisted us with the purchase of $359.9 million, $616.3 million, and $480.7 million of our goods in Successor 2007, fiscal 2008, and fiscal 2009, respectively, representing 87%, 76%, and 68% of total goods purchased during those periods. Approximately 92% to 96% of the amounts paid to MAST consist of pass through costs for products sourced from manufacturers that we have a direct relationship with. The remainder of the amounts paid to MAST relate to fees charged to us in their capacity as a buying agent. Our unit volumes, long-established vendor relationships and our knowledge of fabric and production costs, combined with a flexible, diversified sourcing base, enable us to buy high-quality, low cost goods. We source from over 25 countries and are not subject to long-term production contracts with any of our vendors, manufacturers or buying agents.
Quality Assurance and Compliance Monitoring
Regardless of the sourcing method used, each factory, subcontractor, supplier and agent that manufactures our merchandise is required to adhere to our Code of Vendor Conduct, contained within our Master Sourcing Agreement, which is designed to ensure that each of our suppliers operations are conducted in a legal, ethical and responsible manner. Our Code of Vendor Conduct requires that each of our suppliers operates in compliance with applicable wage, benefit, working hours and other local laws, and it forbids the use of practices such as child labor or forced labor. We monitor compliance through the use of third parties who conduct regular factory audits.
Distribution
We centrally distribute finished products from third-party distribution centers in Columbus, Ohio and Warren, Pennsylvania. The Columbus, Ohio facility is approximately 418,000 square feet and is operated under a long-term logistics services agreement with an affiliate of Limited Brands. Our long-term contract with an affiliate of Limited Brands is discussed in the section entitled Certain Relationships and Related Party Transactions. All of our merchandise is received, inspected, processed, warehoused and distributed through the Columbus distribution facility. Merchandise is typically shipped to our stores and to the Warren distribution facility via third-party delivery services multiple times per week, providing them with a steady flow of new inventory.
Our facility in Warren, Pennsylvania is used both to fulfill all orders placed through our website and to perform call center operations. This facility is operated by an affiliate of Golden Gate. Merchandise at this facility is received from our Columbus, Ohio distribution facility and is sent directly to customers via third-party delivery services.
In Fall of 2010 we plan to transition our fulfillment operations to a facility in Groveport, Ohio. We believe that this transition will provide several benefits including faster replenishment of out-of-stock inventory, more efficient trucking lanes to our customers, reduced delivery costs, and ease of oversight and management of our third party provider.
We believe our customer call center, order fulfillment and distribution operations are designed to handle customer orders and distribute merchandise to stores in a customer-friendly, efficient and cost-effective manner. We believe that these facilities are sufficient to accommodate our expected growth over the next several years.
For additional information on our third-party distribution relationships, see Certain Relationships and Related Party Transactions.
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Our Stores
As of January 30, 2010, we operated 573 stores in 48 states throughout the United States, including 525 dual-gender stores, 29 womens stores and 19 mens stores. Our retail stores are located in high-traffic shopping malls, lifestyle centers and street locations. Over the last several years, we have actively consolidated our presence in most of our shopping centers into one dual-gender store from separate womens and mens stores. We believe this consolidation allows us to compete more effectively with other dual-gender specialty retailers and has significantly improved our productivity, contributing to in an increase in net sales per gross square foot from $260 in 2001 to $321 in 2009. We have completed this store conversion process and do not plan to convert our remaining standalone womens and mens stores. These stores are generally in locations that we consider to be favorable and in some cases where adequate space for a dual-gender store is not available.
Our average retail store is approximately 8,700 square feet and generates sales of approximately $2.9 million per year. The first table below indicates certain historical information regarding the number of stores by type of location, the total gross square footage (which includes retail selling, storage and back-office space) of all stores and the average gross square footage of our stores as of the end of the fiscal year indicated. The second table below indicates certain historical information regarding the number of womens stores, mens stores and dual-gender stores as of the end of the fiscal year indicated.
2004 | 2005 | 2006 | 2007 | 2008 | 2009 | |||||||||||||
Mall |
760 | 627 | 551 | 490 | 480 | 473 | ||||||||||||
Lifestyle Center |
71 | 73 | 69 | 68 | 74 | 75 | ||||||||||||
Street |
53 | 43 | 38 | 29 | 27 | 25 | ||||||||||||
Total |
884 | 743 | 658 | 587 | 581 | 573 | ||||||||||||
Total gross square footage (in thousands) |
6,867 | 6,477 | 5,777 | 5,142 | 5,032 | 4,995 | ||||||||||||
Average gross square footage |
7,768 | 8,718 | 8,780 | 8,760 | 8,661 | 8,716 | ||||||||||||
2004 | 2005 | 2006 | 2007 | 2008 | 2009 | |||||||||||||
Womens stores |
467 | 326 | 195 | 67 | 42 | 29 | ||||||||||||
Mens stores |
223 | 113 | 69 | 34 | 26 | 19 | ||||||||||||
Dual-gender stores |
194 | 304 | 394 | 486 | 513 | 525 | ||||||||||||
Total stores |
884 | 743 | 658 | 587 | 581 | 573 | ||||||||||||
Percentage of total stores that are dual-gender stores |
22 | % | 41 | % | 60 | % | 83 | % | 88 | % | 92 | % |
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Store Locations
The following store list shows the number of stores we operated as of January 30, 2010:
State |
Count | |
Alabama |
9 | |
Arizona |
8 | |
Arkansas |
2 | |
California |
71 | |
Colorado |
11 | |
Connecticut |
9 | |
Delaware |
2 | |
District of Columbia |
2 | |
Florida |
39 | |
Georgia |
18 | |
Hawaii |
1 | |
Idaho |
1 | |
Illinois |
32 | |
Indiana |
9 | |
Iowa |
8 | |
Kansas |
4 | |
Kentucky |
5 |
State |
Count | |
Louisiana | 7 | |
Maine | 1 | |
Maryland | 10 | |
Massachusetts | 18 | |
Michigan | 20 | |
Minnesota | 14 | |
Mississippi | 2 | |
Missouri | 11 | |
Nebraska | 3 | |
Nevada | 7 | |
New Hampshire | 4 | |
New Jersey | 21 | |
New Mexico | 3 | |
New York | 38 | |
North Carolina
|
15
|
|
North Dakota
|
1
|
|
Ohio |
20 |
State |
Count | |
Oklahoma | 5 | |
Oregon | 4 | |
Pennsylvania | 24 | |
Rhode Island | 3 | |
South Carolina | 9 | |
South Dakota | 1 | |
Tennessee | 10 | |
Texas | 52 | |
Utah | 5 | |
Vermont | 1 | |
Virginia | 17 | |
Washington | 7 | |
West Virginia | 1 | |
Wisconsin | 8 | |
Total | 573 | |
Store Design and Environment. We design our stores to create a distinctive and engaging shopping environment that we believe resonates with our customers. Our stores feature a vibrant and youthful look, bright signage and popular music. Our stores are constructed and finished to allow us to efficiently shift merchandise displays throughout the year as seasons dictate. To further enhance our customers experience, we seek to attract enthusiastic store associates who are knowledgeable about our products and are able to offer superior customer service and expertise. We believe that our store atmosphere enhances our brand as a provider of the latest fashions.
North American Store Growth
Now that we have completed our transition to a dual-gender store base, we plan to open an average of 30 new stores per year in the United States and Canada in each of the next five years. Our new store strategy is to open stores of the same size, location type and productivity as in our current fleet. Based on our new stores opened since July 2008, opening new stores has consistently been an attractive use of capital by generating an average pretax cash return on investment of approximately 50%. Our average net investment to open a new store during the last three fiscal years was approximately $0.6 million.
We intend to focus on opening stores in high-traffic malls, lifestyle centers and street locations. We plan to utilize our in-house real estate team to identify attractive locations, negotiate leases and manage the construction costs for our new stores. In selecting shopping centers in which to locate a new store, we target locations with demographics that resemble those of our current locations, including a large 18 to 30 year old customer base, and favorable lease terms. We generally seek to locate our stores in malls in which similar fashion retailers have performed well. Within the shopping centers in which we seek to locate stores, we target locations in high-traffic areas of the shopping center and near other popular retailers that cater to our customers. We also focus on evaluating the market and mall-specific competitive environment for potential new store locations. We seek to diversify our store locations regionally and by caliber of mall. We have currently identified approximately 300 potential sites for new stores with appropriate market characteristics.
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International Stores
In 2009, we entered into a development agreement in the Middle East with Alshaya Trading Co. under which the Alshaya Trading Co. constructs and operates Express stores, and we charge a royalty based on monthly sales volume. As of January 30, 2010, the Alshaya Trading Co. operated four Express stores located in Saudi Arabia, Kuwait, and the United Arab Emirates under this arrangement. Beyond North America, we intend to continue to pursue development agreements to expand our global presence in the Middle East and other select regions internationally. We believe that partnering with companies and individuals that have significant experience and proven success in the target country is to our advantage because it allows us to leverage our partners knowledge of local markets to improve our probability of success and reduce capital investment and risk.
Properties
We do not own any real property. Our 161,000 square foot principal executive office and 418,000 square foot distribution facility are located in Columbus, Ohio and are leased from Limited Brands. Our Columbus, Ohio distribution facility is also operated by Limited Brands. Our lease for both facilities expires in 2016. For additional information on these arrangements with Limited Brands, see Certain Relationships and Related Party TransactionsGolden Gate AcquisitionLogistics Services Agreement. We also lease office space for our design and merchandising functions in New York City at 111 Fifth Avenue under a lease agreement that expires in July 2014.
All of our stores are leased from third parties, including nine subleases from Limited Brands, and the leases typically have terms of ten years with options to renew for additional multi-year periods thereafter. Some of our leases have early cancellation clauses, which permit the lease to be terminated by us or the landlord if certain sales levels are not met in specific periods or if a shopping center does not meet specified occupancy standards. In addition to future minimum lease payments, most of our store leases provide for additional rental payments based on a percentage of net sales if sales at the respective stores exceed specified levels, as well as the payment of common area maintenance charges, real property insurance and real estate taxes. Many of our lease agreements have defined escalating rent provisions over the initial term and any extensions.
We believe that our facilities are generally adequate for current and anticipated future use, although we may from time to time lease new facilities or vacate existing facilities as our operations require.
Internet Website
Since 2008, our customers have been able to purchase our merchandise over the Internet at our website, express.com. In fiscal 2009, our e-commerce sales increased 231% relative to fiscal 2008, but still only represented approximately 5% of our net sales in fiscal 2009. We design and operate our website using an in-house technical staff. Our website emphasizes simplicity and ease of customer use while integrating the Express brands fashion-oriented imagery used in our stores. We update our website periodically throughout the day to accurately reflect product availability and to determine where on the website a particular product generates the best sales. In addition to selling our regular merchandise on our website, we also use our website as a means to sell marked-down merchandise.
Our current fulfillment operation is located in Warren, Pennsylvania and is owned and operated by an affiliate of Golden Gate. In the Fall of 2010 we plan to transition our fulfillment operations to facilities in Groveport, Ohio, which is also owned and operated by an affiliate of Golden Gate.
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Store Management and Training
We believe that our store managers and associates are key to our success. Each of our retail stores is led by a store manager and, depending on the volume of the store, one or two co-managers as well as part-time management associates. We believe that our managers and associates are committed to our customers and are passionate about our brand. On average, our store managers have been with Express for seven years. The number of store associates we employ generally increases during peak selling seasons, particularly the early fall shopping trends as well as the winter holiday seasons, and will increase to the extent that we open new stores.
We empower our managers and associates to deliver a superior shopping experience through training, fostering a culture of accountability and providing them with sales data that helps them to optimize their own store. While general guidelines for our merchandise assortments, store layouts and in-store visuals are provided by our home office, we give our store managers and district managers substantial discretion to tailor their stores to the individual market and empower them to make store-level business decisions. Our comprehensive training programs are offered at the store, regional and national levels. Our programs allow managers from all geographic locations to interact with each other and to exchange ideas to better operate stores. Our regional, district and store managers are compensated in part based on the sales volume of the store or stores they manage.
Through our training, evaluation and incentive programs, we seek to enhance the productivity of our store associates. Our store associates receive extensive training from their managers to improve their product expertise and selling skills. We evaluate our store associates on measures such as sales per associate hour, items per transaction and dollars per transaction to ensure consistent productivity, to reward top performers and to identify potential training opportunities. We bring our top managers to a conference each year in order to reward them for their performance and provide them with additional management training.
Marketing and Advertising
We use a variety of marketing vehicles to increase customer traffic and build brand loyalty. These include direct mail offers, e-mail communications, in-store promotions and magazine, web-based banner and search advertising and social networking sites, such as Facebook and Twitter. We use our proprietary database, which includes the purchasing habits, fashion preferences and other key information on over 12 million customers who have made purchases within the last twelve months, to tailor our marketing efforts to our customers. We have begun testing new media channels to increase our exposure to our customers in order to increase our brand value.
The success of our products also results in frequent placement and promotion of our products and brand in the mainstream media, including editorial print and television credits. We also actively work to expose our products by encouraging celebrities to wear our fashions and regularly receive press coverage of our products as a result of celebrities who wear Express clothing. In 2009, Express was referenced in approximately 500 editorial and television credits through outlets such as Lucky , Cosmopolitan , Glamour , Elle , Marie Claire , InStyle , GQ and Vogue . We believe such references reinforce our brand image and we have an in-house public relations group that works to maximize such opportunities.
We offer a private-label credit card through an agreement with World Financial Network National Bank, under which World Financial Network National Bank owns the credit card accounts and Alliance Data Systems Corporation provides services to our private-label credit card customers. All of our proprietary credit cards carry the Express brand. We believe that our credit card rewards program encourages frequent store and website visits and promotes multiple-item purchases, thereby cultivating customer loyalty to the Express brand and increasing sales.
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Management Information Systems
Our management information systems provide a full range of business process support and information to our store, merchandising, financial and real estate business teams. We believe the combination of our business processes and systems provide us with improved operational efficiencies, scalability, increased management control and timely reporting that allow us to identify and respond to trends in our business. We utilize a combination of customized and industry standard software systems to provide various functions related to:
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point-of-sales; |
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inventory management; |
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design; |
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planning and distribution; and |
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financial reporting. |
We believe our management information systems benefit us through enhanced customer service, more efficient operations and increased control over our business.
Over the last few years, we have substantially completed a transition to standalone information technology platforms from sharing many parts of our information systems and hardware with our former parent, Limited Brands. We expect to complete our transition by mid-2010 after working with our existing point of sale equipment vendor to upgrade
Competition
The specialty apparel retail market is highly competitive. We compete primarily with other specialty retailers, higher-end department stores and Internet businesses that engage in the retail sale of womens and mens apparel, accessories and similar merchandise targeting customers aged 18 to 30. We believe the principal basis upon which we compete are design, quality, price and customer service. We believe that our primary competitive advantages are consumer recognition of the Express brand name, strong real estate locations and a passionate employee sales force that creates a customer focused shopping experience. We believe that we also differentiate ourselves from competitors on the basis of our consistent look by our in-house product design team, our ability to offer a balanced assortment of core styles and the latest fashions, our focus on the quality of our product offerings and the attractive value we offer to our customers.
Our success also depends in substantial part on our ability to originate and define product and fashion trends so that we can anticipate, gauge and react to changing consumer demands on a timely basis. While we do not believe that any retailer directly competes with us on all of these attributes, we believe our competitors include other specialty retailers and department stores, including Aéropostale, American Eagle Outfitters, Banana Republic, Bebe, Forever21, Gap, Guess?, J. Crew, Macys and Zara. Further, we may face new competitors and increased competition from existing competitors as we expand into new markets and increase our presence in existing markets.
Intellectual Property
The Express trademark and certain variations thereon, such as Express Fashion, are registered or are subject to pending trademark applications with the United States Patent and Trademark Office and with the registries of many foreign countries. In addition, we own domain names, including express.com, for our primary trademarks. We believe our material trademarks have significant value and we vigorously protect them against infringement.
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Regulation and Legislation
We are subject to labor and employment laws, including minimum wage requirements, laws governing advertising and promotions, privacy laws, safety regulations and other laws, such as consumer protection regulations that govern product standards and regulations with respect to the operation of our stores and warehouse facilities. We monitor changes in these laws and believe that we are in material compliance with applicable laws.
A substantial portion of our products are manufactured outside the United States. These products are imported and are subject to United States customs laws, which impose tariffs as well as import quota restrictions for textiles and apparel. Some of our imported products are eligible for duty-advantaged programs. While importation of goods from foreign countries from which we buy our products may be subject to embargo by United States customs authorities if shipments exceed quota limits, we closely monitor import quotas and believe we have a diversified sourcing network to allow us to efficiently shift production to factories located in countries with a similar manufacturing base if necessary.
Employees
As of January 30, 2010, we had over 17,000 employees of which approximately 14,000 were part-time employees. Of this total number, approximately 500 employees were based at our corporate headquarters, approximately 100 regional and district managers were employed in the field, approximately 1,500 store managers and co-managers and approximately 15,000 sales associates were located in our stores. None of our employees are represented by a union and we have had no labor-related work stoppages. We believe our relations with our employees are good.
Seasonality
Our business is seasonal and, historically, we have realized a higher portion of our net sales and net income in the third and fourth fiscal quarters due primarily to early fall selling patterns as well as the impact of the holiday season. In fiscal 2009, 57% of our net sales were generated in the third and fourth fiscal quarters, while 43% were generated in the first and second fiscal quarters. Working capital requirements are typically higher in the second and fourth quarters due to inventory-related working capital requirements for holiday and early Fall selling periods. Our business is also subject, at certain times, to calendar shifts, which may occur during key selling periods close to holidays such as Easter, Thanksgiving and Christmas and regional fluctuations for events such as sales tax holidays.
Legal Proceedings
In addition to the matter described below, we are subject to various other legal claims and proceedings which arise in the ordinary course of our business, including employment related claims, involving routine claims incidental to our business. Although the outcome of these routine claims cannot be predicted with certainty, we do not believe that the ultimate resolution of these claims will have a material adverse effect on our results of operations, financial condition or cash flows.
In February 2009, Express, LLC was named as a defendant in a purported class action lawsuit in a complaint filed in the Superior Court of California in the County of Santa Clara. The complaint alleges claims concerning the failure by Express, LLC to provide meal and rest periods to its employees and various related claims. See Note 13 to our consolidated financial statements as of January 30, 2010 included elsewhere in this prospectus.
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Below is a list of the names and ages (as of April 29, 2010) of our directors, director designee and executive officers and a brief account of the business experience of each of them.
Name |
Age |
Position |
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Michael A. Weiss |
69 | President and Chief Executive Officer, Director | ||
Matthew C. Moellering |
43 | Executive Vice PresidentChief Administrative Officer, Chief Financial Officer, Treasurer and Secretary | ||
Colin Campbell |
51 | Executive Vice PresidentSourcing and Production | ||
Lisa A. Gavales |
46 | Executive Vice PresidentChief Marketing Officer | ||
Fran Horowitz-Bonadies |
46 | Executive Vice PresidentWomens Merchandising and Design | ||
David G. Kornberg |
42 | Executive Vice PresidentMens Merchandising and Design | ||
John J. (Jack) Rafferty |
58 | Executive Vice PresidentPlanning and Allocation | ||
Jeanne L. St. Pierre |
50 | Executive Vice PresidentStores | ||
Douglas H. Tilson |
52 | Executive Vice PresidentReal Estate | ||
Elliott R. Tobias |
49 | Executive Vice PresidentHuman Resources | ||
David C. Dominik |
54 | Director | ||
Timothy J. Faber |
48 | Director | ||
Stefan L. Kaluzny |
43 |
Chairman of the Board |
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Jennie W. Wilson |
46 | Director | ||
Michael F. Devine, III |
51 | Director Designee |
Executive Officers
Michael A. Weiss has served as our President and Chief Executive Officer and a member of our board of directors since returning to our company in July 2007. From 2004 to July 2007 he was retired, but returned to our company in connection with the Golden Gate Acquisition. He previously served as our President and Chief Executive Officer from 1997 to 2004. Prior to that, he served as the Vice Chairman of Limited Brands from 1993 to 1997. He served as our President from 1982 to 1993 and prior to that served with Express when it was founded, starting as a merchandise manager for what was then an eight store experimental division of Limited Brands. In addition to his prior service as a director at Borders Group, Inc., Chicos FAS, Inc. and Pacific Sunwear of California Inc., Mr. Weiss currently serves as a director at Collective Brands, Inc., a position he has held since 2005, and is a member of its governance and compensation committees. As a result of these and other professional experiences, Mr. Weiss possesses particular knowledge and experience in retail and merchandising; branded apparel and consumer goods; and leadership of complex organizations that strengthen the boards collective qualifications, skills, and experience.
Matthew C. Moellering has served as our Executive Vice President, Chief Administrative Officer, Chief Financial Officer, Treasurer and Secretary since October 2009. Prior to that, he served as our Senior Vice President, Chief Financial Officer, Treasurer and Secretary from July 2007 to October 2009 and our Vice President of Finance from September 2006 to July 2007. Prior to that, he served in various roles with Limited Brands from February 2003 to September 2006, most recently as Vice President of Financial Planning. He started with Limited Brands as a Finance Director from 2003 until 2004. Prior to that, Mr. Moellering served in various roles with Procter and Gamble where he was employed from July 1995 until February 2003 and prior to that as an officer in the United States Army.
Colin Campbell has served as our Executive Vice President of Sourcing and Production since June 2005. Prior to that, from March 1997 to June 2005, Mr. Campbell held a number of leadership positions for various divisions of Limited Brands including Cacique and Limited Stores and was an Executive Vice President of Western Hemisphere Operations at MAST from 2003 to 2005. Prior to that, from 1985 to 1997, Mr. Campbell was Vice President of Operations for the dress division of Liz Claiborne. He has also worked in production leadership positions with Bentwood Brothers LTD in England and Daks-Simpson LTD in Scotland.
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Lisa A. Gavales has served as our Executive Vice President and Chief Marketing Officer since January 2008. Prior to that, she worked with Bloomingdales for 13 years in a number of merchandising and marketing roles, most recently as Senior Vice President of Marketing from 2000 to 2007. Ms. Gavales has also worked for Pricewaterhouse and Habberstad International. She began her career in the training program at R. H. Macys & Co.
Fran Horowitz-Bonadies has served as our Executive Vice President of Womens Merchandising and Design since December 2007. Prior to that, she served as our Senior Vice President and General Merchandise Manager from December 2005 to December 2007. Prior to that, she served as our Vice President and Merchandise Manager from March 2005 to December 2005. Prior to that, she worked at Bloomingdales for 13 years in various merchandising roles. Ms. Horowitz-Bonadies also worked early in her career in buying positions at Bergdorf Goodman, Bonwit Teller and Saks Fifth Avenue.
David G. Kornberg has served as our Executive Vice President of Mens Merchandising and Design since December 2007. He served as our Senior Vice President and General Merchandise Manager from 2003 to December 2007. Prior to that, he was a Vice President of Business Development with Disney Stores. Mr. Kornberg spent the first ten years of his career with Marks & Spencer PLC in the United Kingdom.
John J. (Jack) Rafferty has served as our Executive Vice President of Planning and Allocation since 1999 after joining Express as Vice President of Planning and Allocation in 1998. Prior to Express, Mr. Rafferty held a number of planning and allocation leadership roles with Limited Brands. These roles include Vice President of Planning and Allocation for Lerner from 1990 to 1998, Vice President of Lane Bryant from 1988 until 1990 and Director of Planning and Allocation for Sizes Unlimited from 1984 to 1986. Mr. Rafferty started his career in various planning and allocation roles with Korvettes, Casual Corner and Brooks Fashion.
Jeanne L. St. Pierre has served as our Executive Vice President of Stores since March 2004. Prior to that, she was the Zone Vice President for Bath & Body Works from November 1998 until March 2004. Prior to that, she served as both a Regional Vice President and a District Manager with Ann Taylor. Ms. St. Pierre was also a District Manager for Abercrombie & Fitch, a Training Store Manager for Talbots and an Allocator for Express earlier in her career.
Douglas H. Tilson has served as our Executive Vice President of Real Estate since October 2009. Prior to that, he served as our Senior Vice President of Real Estate from October 2007 to October 2009. Prior to that, he was with Steiner & Associates as Senior Vice President of Leasing from April 2005 until October 2007. Prior to that, Mr. Tilson was Senior Vice President of Real Estate for Tween Brands from July 1999 until April 2005 and served in a number of senior Real Estate positions with Limited Brands from January 1987 until July 1999. Prior to that he was a labor attorney with the Columbus, Ohio-based law firm Porter, Wright, Morris & Arthur LLP from June 1984 until January 1987.
Elliott R. Tobias has served as our Executive Vice President of Human Resources since October 2009. He joined Express as our head of Human Resources in March 2006 and was promoted to Senior Vice President in March 2007. Prior to that, Mr. Tobias held numerous human resources leadership roles with Limited Brands from October 2001 to March 2006 and with Macys Department Stores from November 1986 to October 2001. Prior to that, Mr. Tobias started his career in human resources in various roles with Modells Sporting Goods and Fortunoffs.
Directors and Director Designee
As the sixth largest specialty retail apparel brand in the United States, we believe our board of directors should be composed of individuals with sophistication and experience in many substantive areas that impact our business. We believe experience, qualifications, or skills in the following areas are most important: retail merchandising; marketing and advertising; apparel and consumer goods; manufacturing, sales and distribution; accounting, finance, and capital structure; strategic planning and leadership of complex organizations; legal/ regulatory and government affairs; people management; and board practices of other major corporations. We
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believe that all our current board members possess the professional and personal qualifications necessary for board service, and have highlighted particularly noteworthy attributes for each board member in the individual biographies below, or above in the case of Mr. Weiss.
Michael F. Devine, III will become a member of our board of directors upon the completion of this offering. Mr. Devine was appointed Senior Vice President and Chief Financial Officer of Coach in December 2001 and Executive Vice President in August 2007. Prior to that, Mr. Devine served as Chief Financial Officer and Vice PresidentFinance of Mothers Work, Inc. (now known as Destination Maternity Corporation) from February 2000 until November 2001. From 1997 to 2000, Mr. Devine was Chief Financial Officer of Strategic Distribution, Inc. Prior to that, Mr. Devine was Chief Financial Officer at Industrial System Associates, Inc. from 1995 to 1997, and for the prior six years he was the Director of Finance and Distribution for McMaster-Carr Supply Co. He also serves as a member of the Board of Directors of NutriSystem, Inc. Mr. Devine holds a B.S. in Finance and Marketing from Boston College and an M.B.A. in Finance from the Wharton School of the University of Pennsylvania. As a result of these and other professional experiences, Mr. Devine possesses particular knowledge and experience in retail merchandising; accounting, finance, and capital structure; strategic planning and leadership of complex organizations; and board practices of other major corporations that strengthen the boards collective qualifications, skills, and experience.
David C. Dominik has served as a member of our board of directors since July 2007. Mr. Dominik has been a Managing Director of Golden Gate Capital since 2000, when he co-founded the firm. Mr. Dominik previously spent ten years as a Managing Director at Bain Capital. Mr. Dominik managed Information Partners, a specialized fund within Bain Capital, that focused on opportunities in the information services and software markets and also served on the investment committee of Brookside, Bain Capitals public equity hedge fund. Mr. Dominik has a J.D. from Harvard Law School and an A.B. from Harvard College. Mr. Dominik is also a member of the board of directors of Infor Global Solutions, Aspect Communications, Lantiq, Escalate Retail and Orchard Brands. As a result of these and other professional experiences, Mr. Dominik possesses particular knowledge and experience in accounting, finance, and capital structure; strategic planning and leadership of complex organizations; and board practices of other major corporations that strengthen the boards collective qualifications, skills, and experience.
Timothy J. Faber has served as a member of our board of directors since July 2007. Since April 2006 he has served as Senior Vice President, Treasury, for Limited Brands. From January 2000 to April 2006 he was Vice President of Treasury/Mergers & Acquisitions. Prior to Limited Brands, Mr. Faber served in a number of positions with GE Capital Services from September 1996 until January 2000. His last position held was Managing Director, Business Development. Prior to that, he spent over seven years in a number of key positions in General Electrics treasury operation and investment management businesses, including experience in Asia. Mr. Faber started his career in the Treasury Group at Avon Products, where he served from June 1986 to June 1989. As a result of these and other professional experiences, Mr. Faber possesses particular knowledge and experience in accounting, finance, and capital structure and strategic planning that strengthen the boards collective qualifications, skills, and experience.
Stefan L. Kaluzny has served as a member of our board of directors since July 2007, and is currently Chairman of the Board. Mr. Kaluzny is a Managing Director of Golden Gate Capital and has been with the firm since its inception in 2000. Prior to Golden Gate Capital, Mr. Kaluzny was co-founder and CEO of Delray Farms, a Hispanic specialty food company. Mr. Kaluzny has also held positions at consulting firms Bain & Company and LEK. He has an M.B.A. from Harvard Business School and a B.A. from Yale University. Mr. Kaluzny serves on the Yale University Investment Committee and is also a member of the board of directors of Apogee Retail, Eddie Bauer, J. Jill, Romanos Macaroni Grill and Orchard Brands. As a result of these and other professional experiences, Mr. Kaluzny possesses particular knowledge and experience in retail merchandising; accounting, finance, and capital structure; strategic planning and leadership of complex organizations; and board practices of other major corporations that strengthen the boards collective qualifications, skills, and experience.
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Jennie W. Wilson has served as a member of our board of directors since November 2008. Since 2007, Ms. Wilson has served as Senior Vice President of Finance for Limited Brands Inc. Prior to that, Ms. Wilson served as Chief Financial Officer for the Victorias Secret Megabrand from 2006 until 2007. She joined Limited Brands in 2004 as Senior Vice President of Finance and also served as the Chief Financial Officer and Vice President for the real estate and store design and construction divisions. Prior to that, Ms. Wilson spent 12 years with Dunkin Brands. Her last position held with Dunkin Brands was Senior Vice President and Chief Financial Officer. Prior to that, Ms. Wilson spent five years at Ernst & Young LLP between 1986 and 1992. Ms. Wilson is also a member of the board of directors of MAP Furniture Bank. As a result of these and other professional experiences, Ms. Wilson possesses particular knowledge and experience in accounting, finance, and capital structure; and apparel and consumer goods that strengthen the boards collective qualifications, skills, and experience.
Family Relationships
There are no family relationships between any of our executive officers or directors.
Corporate Governance
Board Composition
Our certificate of incorporation, which will be in effect prior to the completion of this offering, will provide that, subject to any rights applicable to any then outstanding preferred stock, our board of directors shall consist of such number of directors as determined from time to time by resolution adopted by a majority of the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships. Initially, our board of directors will consist of six directors. Subject to any rights applicable to any then outstanding preferred stock, any additional directorships resulting from an increase in the number of directors may only be filled by the directors then in office unless otherwise required by law or by a resolution passed by the board of directors. The term of office for each director will be until his or her successor is elected at our annual meeting or his or her death, resignation or removal, whichever is earliest to occur. Shareholders will elect directors each year at our annual meeting.
Our board of directors will be divided into three classes, with each director serving a three-year term, and one class being elected at each years annual meeting of stockholders. Mr. Dominik and Ms. Wilson will serve as Class I directors with an initial term expiring on 2011. Mr. Devine and Mr. Faber will serve as Class II directors with an initial term expiring in 2012. Mr. Kaluzny and Mr. Weiss will serve as Class III directors with an initial term expiring in 2013. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the total number of directors. Our board of directors has affirmatively determined that Mr. Devine will be an independent director, as defined under the rules of the NYSE.
Upon completion of this offering, Golden Gate and Limited Brands will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a controlled company under the NYSE corporate governance standards. As a controlled company, exemptions under the standards will free us from the obligation to comply with certain corporate governance requirements, including the requirements:
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that we have a compensation committee or nominating and corporate governance committee; |
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that a majority of our board of directors consists of independent directors, as defined under the rules of the NYSE; |
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that any corporate governance and nominating committee or compensation committee be composed entirely of independent directors with a written charter addressing the committees purpose and responsibilities; and |
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for an annual performance evaluation of the nominating and governance committees and compensation committee. |
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These exemptions do not modify the independence requirements for our Audit Committee, and we intend to comply with the requirements of Rule 10A-3 of the Exchange Act and the rules of the NYSE within the applicable time frame.
Prior to our Reorganization, Messrs. Weiss, Dominik, Kaluzny and Faber and Ms. Wilson were appointed to the board of Express Parent by Golden Gate and Limited Brands pursuant to the LLC Agreement. At the time of our Reorganization, Messrs. Weiss, Dominik, Kaluzny and Faber and Ms. Wilson will be re-appointed to our board of directors in connection with our Reorganization pursuant to a Conversion Agreement entered into among our equity holders. Although the board appointment rights in the LLC Agreement will no longer be in effect upon termination of the LLC Agreement in connection with the Reorganization, our company, Golden Gate and Limited Brands will enter into a new Stockholders Agreement that provides, among other things, for board nomination rights. Pursuant to the Stockholders Agreement, Golden Gate will have 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 this offering, 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 completion of this offering. Limited Brands will have 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 completion of this offering, 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 completion of this offering. The Stockholders Agreement will require 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. Accordingly, Golden Gate and Limited Brands, acting together, will be able to control the election of a majority of our directors.
Board Leadership Structure
Initially, our board of directors will consist of six directors, including our President and Chief Executive Officer. Upon completion of this offering, our board will have two standing committees Audit Committee and Compensation and Governance Committee each with a director serving as committee chair. Each of these committees reports to the board of directors as they deem appropriate, and as the board may request.
With respect to the roles of Chairman of the Board and Chief Executive Officer, our Corporate Governance Guidelines provide that the roles may be separated or combined, and the board exercises its discretion in combining or separating these positions as it deems appropriate in light of prevailing circumstances. Our board of directors believes that the combination or separation of these positions should continue to be considered as part of the succession planning process. Currently the roles are separated, with Mr. Kaluzny serving as Chairman. Our Corporate Governance Guidelines provide the flexibility for our board to modify our leadership structure in the future as appropriate. We believe that Express, like many U.S. companies, is well-served by this flexible leadership structure.
Board Committees
Our board of directors currently has an Audit Committee and a Compensation Committee. Prior to the completion of this offering, our board of directors will establish a new Audit Committee and a new Compensation and Governance Committee which will replace our current committees. The composition, duties and responsibilities of these committees is as set forth below. In the future, our board may establish other committees, as it deems appropriate, to assist it with its responsibilities.
Audit Committee
The Audit Committee will be responsible for, among other matters: (1) appointing, compensating, retaining, evaluating, terminating and overseeing our independent registered public accounting firm; (2) discussing with
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our independent registered public accounting firm their independence from management; (3) reviewing with our independent registered public accounting firm the scope and results of their audit; (4) approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm; (5) overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the Securities and Exchange Commission; (6) reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls and compliance with legal and regulatory requirements; (7) establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls or auditing matters; and (8) reviewing and approving related person transactions.
Upon completion of this offering, our Audit Committee will consist of Mr. Devine, Mr. Kaluzny and Ms. Wilson. Rule 10A-3 of the Exchange Act and the NYSE rules require us to have one independent Audit Committee member upon the listing of our common stock on the NYSE, a majority of independent directors within 90 days of the date of this prospectus and all independent Audit Committee members within one year of the date of this prospectus. Our board of directors has affirmatively determined that Mr. Devine meets the definition of independent director for purposes of serving on an Audit Committee under Rule 10A-3 and the NYSE rules, and we intend to comply with the other independence requirements within the time periods specified. In addition, our board of directors has determined that Mr. Devine will qualify as an audit committee financial expert, as such term is defined in Item 407(d)(5) of Regulation S-K. Our board of directors will adopt a new written charter for the Audit Committee, which will be available on our corporate website at express.com after the completion of this offering. Our website is not part of this prospectus.
Compensation and Governance Committee
The Compensation and Governance Committee will be responsible for, among other matters: (1) reviewing key employee compensation goals, policies, plans and programs; (2) reviewing and approving the compensation of our directors, chief executive officer and other executive officers; (3) reviewing and approving employment agreements and other similar arrangements between us and our executive officers; (4) administration of stock plans and other incentive compensation plans; (5) identifying individuals qualified to become members of our board of directors, consistent with criteria approved by our board of directors; (6) overseeing the organization of our board of directors to discharge the boards duties and responsibilities properly and efficiently; (7) identifying best practices and recommending corporate governance principles; and (8) developing and recommending to our board of directors a set of corporate governance guidelines and principles applicable to us.
Upon completion of this offering, our Compensation and Governance Committee will consist of Mr. Dominik, Mr. Faber and Mr. Kaluzny. As a controlled company, we will rely upon the exemption from the requirement that we have a separate compensation committee and nominating and corporate governance committee with each composed entirely of independent directors within one year of the date of this prospectus. Our board of directors will adopt a new written charter for the Compensation and Governance Committee, which will be available on our corporate website at express.com after the completion of this offering. Our website is not part of this prospectus.
Risk Oversight
Our board of directors is responsible for overseeing our risk management process. The board focuses on our general risk management strategy, the most significant risks facing Express, and ensures that appropriate risk mitigation strategies are implemented by management. The board is also apprised of particular risk management matters in connection with its general oversight and approval of corporate matters and significant transactions.
The board has delegated to the Audit Committee oversight of our risk management process. Our other board committees also consider and address risk as they perform their respective committee responsibilities. All committees report to the full board as appropriate, including when a matter rises to the level of a material or enterprise level risk.
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Our management is responsible for day-to-day risk management. Our internal audit function serves as the primary monitoring and testing function for company-wide policies and procedures, and manages the day-to-day oversight of the risk management strategy for the ongoing business of Express. This oversight includes identifying, evaluating, and addressing potential risks that may exist at the enterprise, strategic, financial, operational, and compliance and reporting levels.
Compensation Committee Interlocks and Insider Participation
For fiscal year 2009, the members of the compensation committee of the board of directors were Mr. Dominik, Mr. Kaluzny and Mr. Faber. Neither Mr. Dominik, Mr. Kaluzny nor Mr. Faber is an officer or employee, or former officer or employee, of us or any of our subsidiaries. Mr. Dominik and Mr. Kaluzny are Managing Directors of Golden Gate and Mr. Faber is Senior Vice President, Treasury, for Limited Brands. Golden Gate provides advisory and consulting services to us.
No interlocking relationships exist between the members of our board of directors or compensation committee and the board of directors or compensation committee of any other company.
Code of Ethics
We will adopt a code of business conduct and ethics applicable to our principal executive, financial and accounting officers and all persons performing similar functions. A copy of that code will be available on our corporate website at express.com after completion of this offering. We expect that any amendments to the code, or any waivers of its requirements, will be disclosed
Director Compensation
None of the five directors serving on our board of directors as of January 30, 2010 received compensation as a director during fiscal year 2009. All directors receive reimbursement for reasonable out-of-pocket expenses incurred in connection with meetings of the board. Only those non-employee directors who are not affiliated with Golden Gate and Limited Brands are eligible to receive compensation from us for their service on our board of directors. Non-employee directors who are not affiliated with Golden Gate and Limited Brands will be paid an annual retainer of $100,000. An additional $10,000 will be paid annually for each committee on which a non-employee director serves and an additional $10,000 will be paid annually for serving as the chairman of a committee other than the Audit Committee. The chairman of the Audit Committee will be paid an additional $15,000 annually for serving in that capacity. Finally, such non-employee directors who are not affiliated with Golden Gate or Limited Brands will receive options, upon the completion of this offering, to purchase 10,000 shares of our common stock at the initial public offering price.
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Compensation Discussion and Analysis
Introduction
This Compensation Discussion and Analysis describes the compensation arrangements we have with our named executive officers as required under the rules of the SEC. The SEC rules require disclosure for the principal executive officer (our Chief Executive Officer) and principal financial officer (our Chief Financial Officer), regardless of compensation level, and the three most highly compensated executive officers in our last completed fiscal year, other than the CEO and CFO. All of these executive officers are referred to in this Compensation Discussion and Analysis as our NEOs.
Our NEOs are:
Name |
Title |
|
Michael A. Weiss |
President and Chief Executive Officer, Director | |
Matthew C. Moellering |
Executive Vice PresidentChief Administrative Officer, Chief Financial Officer, Treasurer and Secretary | |
Fran Horowitz-Bonadies |
Executive Vice PresidentWomens Merchandising and Design | |
Colin Campbell |
Executive Vice PresidentSourcing and Production | |
John J. (Jack) Rafferty |
Executive Vice PresidentPlanning and Allocation |
Our business previously operated as a division of Limited Brands, Inc. and was acquired in July 2007 by investment funds managed by Golden Gate Private Equity, Inc. All of our current NEOs, other than Mr. Weiss, were executives of Limited Brands at the time of the acquisition of our business by Golden Gate. With respect to these NEOs, our board that was put in place upon completion of the Golden Gate Acquisition resolved to maintain the same compensation levels and similar compensation plans as were in place prior to the Golden Gate Acquisition in order to maintain continuity with our senior leadership team. Subsequent to July 6, 2007, as part of our compensation program, our NEOs made equity contributions to us and acquired co-invest and incentive equity units, which are described later in this Compensation Discussion and Analysis. Mr. Weiss, who had retired in 2004 after leading our business for 22 years, was recruited by Golden Gate to return to the business in connection with the Golden Gate Acquisition.
In connection with the Golden Gate Acquisition, our board of directors established a compensation committee comprised of Mr. Dominik, Mr. Kaluzny and Mr. Faber (the Compensation Committee). To date the Compensation Committee has been responsible for the oversight, implementation and administration of all of our executive compensation plans and programs. The Compensation Committee determined all of the components of compensation of the CEO, and, in consultation with the CEO, the compensation of the remaining executive officers.
Upon completion of this offering, we will establish a Compensation and Governance Committee comprised of Mr. Dominik, Mr. Faber and Mr. Kaluzny, and will replace our existing Compensation Committee. We expect that our Compensation and Governance Committee will undertake a substantial review of our existing compensation programs, objectives and philosophy and determine whether such programs, objectives, and philosophy are appropriate given that we have become a public company. In addition, as we gain experience as a public company, we expect that the specific direction, emphasis and components of our executive compensation program will continue to evolve.
Executive Compensation Objectives and Philosophy
The key objectives of our executive compensation programs are (1) to attract, motivate, reward and retain superior executive officers with the skills necessary to successfully lead and manage our business, (2) to achieve accountability for performance by linking annual cash incentive compensation to the achievement of measurable performance objectives, and (3) to align the interests of the executive officers and our equity holders through
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short and long-term incentive compensation programs. For our NEOs, these short- and long-term incentives are designed to accomplish these objectives by providing a significant financial correlation between our financial results and their total compensation.
A significant portion of the compensation of the NEOs has historically consisted of equity compensation and/or cash incentive compensation contingent upon the achievement of financial performance metrics. We expect to continue to provide our NEOs with a majority of their compensation in this manner. These two elements of executive compensation are aligned with the interests of our stockholders because the amount of compensation ultimately received will vary with our companys financial performance. Equity compensation derives its value from our equity value, which is likely to fluctuate based on our financial performance. Payment of cash incentives is dependent on our achievement of pre-determined financial objectives.
We seek to apply a consistent philosophy to compensation for all executive officers. Our compensation philosophy is based on the following core principles:
To Pay-for-Performance
Individuals in leadership roles are compensated based on a combination of total company and individual performance factors. Total company performance is evaluated primarily based on the degree to which pre-established financial objectives are met. Individual performance is evaluated based upon several individualized leadership factors, including:
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attaining specific financial objectives; |
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building and developing individual skills and a strong leadership team; and |
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developing an effective infrastructure to support business growth and profitability. |
A significant portion of total compensation is delivered in the form of equity-based award opportunities to directly link compensation with stockholder value.
To Pay Competitively
We are committed to providing a total compensation program designed to retain our high-caliber performers and attract superior leaders to our company. To achieve this goal, we annually compare our pay practices and overall pay levels with other leading specialty retail organizations, and, where appropriate, with non-specialty retail organizations when establishing our pay guidelines.
To Pay Equitably
We believe that it is important to apply generally consistent guidelines for all executive officer compensation programs. In order to deliver equitable pay levels, we expect that the Compensation and Governance Committee will consider depth and scope of accountability, complexity of responsibility, qualifications and executive performance, both individually and collectively as a team.
In addition to short- and long-term compensation, we have found it important to provide our executive officers with competitive post-employment compensation. Post-employment compensation consists of two main types qualified and nonqualified defined contribution retirement plan benefits and termination benefits. We believe that retirement plan benefits and termination benefits are important components in a well-structured executive officer compensation package, and have sought to ensure that the combined package is competitive at the time the package is negotiated with the executive officer.
Compensation Committee Review of Compensation
We expect that following this offering, the Compensation and Governance Committee will review compensation elements and amounts for NEOs on an annual basis, at the time of a promotion or other change in level of responsibilities, as well as when competitive circumstances or business needs may require. We may, but
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do not currently, use a third party consultant to assist us with determining compensation levels. We expect that each year our head of human resources will compile a report of benchmark data for executive positions for similar companies, including summaries of base salary, annual cash incentive plan opportunities and awards and long-term incentive award values. We expect that the Compensation and Governance Committee will determine a list of companies that we will benchmark our compensation packages against shortly after completion of this offering and will compare our pay practices and overall pay levels with other leading retail organizations, and, where appropriate, with non-retail organizations when establishing our pay guidelines.
We expect that the CEO will provide compensation recommendations to the Compensation and Governance Committee for executives other than himself based on this data and the other considerations mentioned in this Compensation Discussion and Analysis. We expect that the Compensation and Governance Committee will recommend a compensation package that is consistent with our compensation philosophy strategically positioned above the median of the peer group and competitive with other leading retail organizations. The Compensation and Governance Committee will then discuss these recommendations with the CEO and the head of human resources and will make a recommendation to the board, which the board will consider and approve, if appropriate.
We expect that the Compensation and Governance Committee will consider input from our CEO and CFO when setting financial objectives for our incentive plans. We also expect that the Compensation and Governance Committee in determining compensation will consider input from our CEO, with the assistance of our head of human resources (for officers other than for themselves), regarding benchmarking and recommendations for base salary, annual incentive targets and other compensation awards. The Compensation and Governance Committee will likely give significant weight to our CEOs judgment when assessing each of the other officers performance and determining appropriate compensation levels and incentive awards. The members of the board of directors or the Compensation and Governance Committee, (in each case, other than the CEO), meeting in executive session, will determine the compensation of the CEO, including his annual incentive targets.
Elements of Compensation
As discussed throughout this Compensation Discussion and Analysis, the compensation policies applicable to our NEOs are reflective of our pay-for-performance philosophy, whereby a significant portion of both cash and equity compensation is contingent upon achievement of measurable financial objectives and enhanced equity value, as opposed to current cash compensation and perquisites not directly linked to objective financial performance. This compensation mix is consistent with our performance-based philosophy that the role of executive officers is to enhance equity holder value over the long term.
The elements of our compensation program are:
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base salary; |
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performance-based cash incentives; |
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equity incentives; and |
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certain additional executive benefits and perquisites. |
Base salary, performance-based cash incentives and long-term equity-based incentives are the most significant elements of our executive compensation program and, on an aggregate basis, they are intended to substantially satisfy our programs overall objectives. Typically, the Compensation Committee has sought to set each of these elements of compensation at the same time to enable the Compensation Committee to simultaneously consider all of the significant elements and their impact on total compensation; and, the extent to which the determinations made will reflect the principles of the compensation philosophy and related guidelines with respect to allocation of compensation among certain of these elements and total compensation. We strive to
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achieve an appropriate mix between the various elements of our compensation program to meet our compensation objectives and philosophy; however, we do not apply any rigid allocation formula in setting our executive compensation, and we may make adjustments to this approach for various positions after giving due consideration to prevailing circumstances.
Base Salary
We provide a base salary to our executive officers to compensate them for their services during the year and to provide them with a stable source of income. The base salaries for our NEOs in 2008 were established by our board of directors, based in large part on the salaries established for these persons when they were with Limited Brands and our Compensation Committees review of other factors, including:
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the individuals performance, results, qualifications and tenure; |
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the jobs responsibilities, pay mix (base salary, annual cash incentives, equity incentives, perquisites and other executive benefits) and compensation practices in our markets; and |
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our ability to replace the individual. |
In setting base salaries, our Compensation Committee considered the factors described above. However, the Compensation Committee was primarily concerned with the continued impact of global economic conditions and their effect on our company and our markets. Consequently, the 2009 base salaries of our NEOs remained unchanged and identical to their 2008 annual base salaries. This conscientious decision was made despite the fact that our NEOs continued to meet and exceed the expectations of our board of directors and equity holders. Mr. Moellering was promoted from Senior Vice President, Chief Financial Officer, Treasurer and Secretary to Executive Vice President, Chief Administrative Officer, Chief Financial Officer, Treasurer and Secretary on October 4, 2009. In consideration of establishing a new compensation level with this promotion, the Compensation Committee reviewed several factors including Mr. Moellerings new level of responsibility, the compensation levels of other Express executive officers, practices in the marketplace for similar roles and Mr. Moellerings performance and qualifications. As a result, his annual base salary was increased from $400,000 to $500,000 in late 2009.
The annual base salaries in effect for each of our NEOs as of January 30, 2010 are as follows:
Name |
Annual Salary | |||
Michael A. Weiss |
$ | 750,000 | (1) | |
Matthew C. Moellering |
$ | 500,000 | ||
Fran Horowitz-Bonadies |
$ | 500,000 | (2) | |
Colin Campbell |
$ | 485,000 | (2) | |
John J. (Jack) Rafferty |
$ | 430,000 | (2) |
(1) | In January 2010, the board of directors reviewed competitive market practices for CEO compensation levels, as well as the performance and qualifications of Mr. Weiss. As a result, effective February 1, 2010, |
the board of directors increased the annual base salary for Mr. Weiss from $750,000 to $1,000,000.
(2) | In March 2010, the board of directors reviewed competitive market practices, internal pay equity for senior executives, and individual performance and approved pay increases for the following named executive officers effective April 4, 2010: (a) Ms. Horowitz-Bonadies annual base salary increased from $500,000 to $520,000; (b) Mr. Campbells annual base salary increased from $485,000 to $500,000; and (c) Mr. Raffertys annual base salary increased from $430,000 to $455,000. This effective date is consistent with merit-based pay increases provided to other executives and employees at the corporate headquarters. Mr. Moellerings annual base salary was not increased because he was promoted in October 2009 and received a pay increase at that time as noted above. |
In the future, we expect that salaries for executive officers will be reviewed annually, as well as at the time of a promotion or other change in level of responsibilities, or when competitive circumstances or business needs
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may require. As noted above, we expect that the Compensation and Governance Committee will recommend a compensation package that is consistent with our compensation philosophy strategically positioned above the median of our to be determined peer group.
Performance-Based Cash Incentives
We pay performance-based cash incentives in order to align the compensation of our NEOs with our short- term operational and performance goals and to provide near-term rewards for our NEOs to meet these goals. Our short-term, performance-based cash incentive plan provides for incentive payments for each six-month operating season for our NEOs. These incentive payments are based on the attainment of pre-established objective financial goals and are intended to motivate executives to work effectively to achieve financial performance objectives and reward them when objectives are met and results are certified by the Compensation Committee. Using short-term incentives tied to the traditional retail selling seasons of Spring (February through July) and Fall (August through January) allows us to establish appropriately aggressive performance expectations that align business performance expectations to the prevailing market and economic conditions. In connection with the rehiring of Mr. Weiss, his employment agreement was structured with an annual incentive plan. This was consistent with other executive agreements familiar to our board and as a result his compensation in previous periods has been based on this annual plan. However, the Compensation Committee has determined that beginning in 2010, the CEO will be moving to the same six-month seasonal incentive plan as all other executives and that this change will better align the incentives of the CEO with other executives within our company as well as our companys seasonal business cycle. In addition to this incentive period change and in connection with the review of the CEOs compensation by the Compensation Committee noted under the Base Salary section above, the Compensation Committee determined that beginning with fiscal year 2010, the annual performance-based incentive compensation plan target payout for Mr. Weiss will remain at 100%, however, his maximum payout opportunity will change from 300% to 200%. This change will result in his short-term incentive opportunity ranging from zero to double his incentive target, which is consistent with other NEOs.
The pre-established objective financial incentive target goal under this plan for fiscal 2009 is based on operating income plus depreciation, amortization and advisory and related fees and expenses, which we refer to herein as Adjusted Operating Income. Adjusted Operating Income is a non-GAAP measure specific to this plan and may not be comparable to other similarly titled measures of other companies. We use Adjusted Operating Income because it measures performance over the periods which executives can have significant impact, and is also directly linked to our long-term growth plan. Our board of directors sets the performance goals at the beginning of each six-month season based on an analysis of (1) historical performance; (2) income, expense and margin expectations; (3) financial results of other comparable businesses; (4) economic conditions and (5) progress toward achieving our strategic plan.
The target cash incentive compensation opportunity for each eligible executive is set at a percentage of base salary. For fiscal year 2009, the amount of performance-based cash incentive opportunity for participating executives, other than the CEO, ranged from zero to double their incentive target and for the CEO the amount of performance-based incentive compensation opportunity ranged from zero to triple his incentive target (see table below), based upon the extent to which the pre-established performance goals are achieved or exceeded.
As a result of the uncertain business climate, in 2009, we made a one-year change to our short-term performance-based cash incentive plan for 2009. In 2009, the Compensation Committee set targets that reflected the challenging economic environment, recognizing that historical growth rates were no longer appropriate considering the significant downturn in the retail environment. We also made the decision to change the plan payout timing and Spring season eligibility requirements to an annual schedule versus our historical practice of paying short-term performance-based compensation seasonally. Effective in 2009, the cash incentive earned in Spring would be earned only if we achieved the goal for threshold payout for Adjusted Operating Income for the Fall selling season ($57.0 million), and would actually be paid in conjunction with the Fall 2009 cash incentive to remaining participants. We believe that these short-term changes led to long-term preservation of stockholder value in an economic downturn and did not encourage our executive officers to take unnecessary and excessive risks.
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The threshold, target and maximum short-term performance-based cash incentive payout opportunities of our NEOs for fiscal year 2009 are set forth in the Grants of Plan-Based Awards table below.
The following tables show each NEOs performance-based cash incentive targets and actual payout as a percentage of base salary and Adjusted Operating Income goals used to determine the incentive payment for fiscal year 2009.
Michael Weiss
For fiscal year 2009, Mr. Weiss was on an annual incentive plan, while the other executives were on a seasonal incentive plan. However, beginning with fiscal year 2010, Mr. Weiss and the other executives will be on the same seasonal incentive plan.
Fiscal Year 2009 | ||||||||||||||||
Percentage of Base Salary
(February 2009 thru January 2010) |
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Name |
Threshold Payout | Target Payout | Maximum Payout | Actual Payout | ||||||||||||
Michael A. Weiss |
20.0 | % | 100.0 | % | 300.0 | % | 300 | % | ||||||||
Performance Goal |
Goal for
Threshold Payout |
Goal for
Target Payout |
Goal for
Maximum Payout |
Actual
Achieved |
||||||||||||
Adjusted Operating Income (in millions)(1) |
$ | 107.0 | $ | 142.0 | $ | 182.7 | $ | 209.1 |
All Other NEOs
Spring 2009 | ||||||||||||||||
Percentage of Base Salary
(February 2009 through July 2009) |
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Name |
Threshold Payout | Target Payout | Maximum Payout | Actual Payout | ||||||||||||
Matthew C. Moellering |
4.0 | % | 20.0 | % | 40.0 | % | 40.0 | % | ||||||||
Fran Horowitz-Bonadies |
4.4 | % | 22.0 | % | 44.0 | % | 44.0 | % | ||||||||
Colin Campbell |
4.0 | % | 20.0 | % | 40.0 | % | 40.0 | % | ||||||||
John J. (Jack) Rafferty |
4.8 | % | 24.0 | % | 48.0 | % | 48.0 | % | ||||||||
Performance Goal |
Goal for
Threshold Payout |
Goal for
Target Payout |
Goal for
Maximum Payout |
Actual
Achieved |
||||||||||||
Adjusted Operating Income (in millions)(1) |
$ | 50.0 | $ | 58.0 | $ | 68.0 | $ | 68.7 |
Fall 2009 | ||||||||||||||||
Percentage of Base Salary
(August 2009 through January 2010) |
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Name |
Threshold Payout | Target Payout | Maximum Payout | Actual Payout | ||||||||||||
Matthew C. Moellering(2) |
7.2 | % | 36.0 | % | 72.0 | % | 72.0 | % | ||||||||
Fran Horowitz-Bonadies |
6.6 | % | 33.0 | % | 66.0 | % | 66.0 | % | ||||||||
Colin Campbell |
6.0 | % | 30.0 | % | 60.0 | % | 60.0 | % | ||||||||
John J. (Jack) Rafferty |
7.2 | % | 36.0 | % | 72.0 | % | 72.0 | % | ||||||||
Performance Goal |
Goal for
Threshold Payout |
Goal for
Target Payout |
Goal for
Maximum Payout |
Actual
Achieved |
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Adjusted Operating Income (in millions)(1) |
$ | 57.0 | $ | 84.0 | $ | 104.0 | $ | 140.4 |
(1) | This is a non-GAAP measure specific to our incentive plan and is defined above. |
(2) | In connection with Mr. Moellerings promotion in October 2009 (See Base Salary), his Spring and Fall performance-based cash incentive targets were increased by 4% and 6% respectively. |
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The following table shows each NEOs performance-based cash incentive targets as a percentage of base salary for fiscal year 2010. For fiscal year 2010, we are using Adjusted EBITDA (as calculated under Prospectus SummarySummary Historical and Pro Forma Consolidated Financial and Operating Data) as the financial measure for the plan. We are using Adjusted EBITDA for the same reasons we used Adjusted Operating Income for fiscal year 2009, as well as because Adjusted EBITDA is a key metric used by management and the board to assess our operating performance. We do not believe that disclosure of our 2010 Adjusted EBITDA goals are relevant to an understanding of compensation for our 2009 fiscal year. In addition, because the components of Adjusted EBITDA for 2010 contain highly sensitive data such as targeted net income, we do not disclose specific future measures and targets because we believe that such disclosure would result in serious competitive harm and be detrimental to our operating performance. Our 2010 Adjusted EBITDA goals are intended to be realistic and reasonable, but challenging, in order to drive performance on an individual basis.
Spring 2010 | Fall 2010 | |||||||||||||||||
Percentage of Base
Salary
(February 2010 through July 2010) |
Percentage of Base
Salary
(August 2010 through January 2011) |
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Name |
Threshold
Payout |
Target
Payout |
Maximum
Payout |
Threshold
Payout |
Target
Payout |
Maximum
Payout |
||||||||||||
Michael A. Weiss |
8.0 | % | 40.0 | % | 80.0 | % | 12.0 | % | 60.0 | % | 120.0 | % | ||||||
Matthew C. Moellering |
4.8 | % | 24.0 | % | 48.0 | % | 7.2 | % | 36.0 | % | 72.0 | % | ||||||
Fran Horowitz-Bonadies |
4.4 | % | 22.0 | % | 44.0 | % | 6.6 | % | 33.0 | % | 66.0 | % | ||||||
Colin Campbell |
4.0 | % | 20.0 | % | 40.0 | % | 6.0 | % | 30.0 | % | 60.0 | % | ||||||
John J. (Jack) Rafferty |
4.8 | % | 24.0 | % | 48.0 | % | 7.2 | % | 36.0 | % | 72.0 | % |
Although Adjusted EBITDA was used as the financial measure for fiscal year 2010, in the future the Compensation Committee may use other objective financial performance indicators for the plan, including, without limitation, the price of our common stock, shareholder return, return on equity, return on investment, return on capital, sales productivity, comparable store sales growth, economic profit, economic value added, net income, operating income, gross margin, sales, free cash flow, earnings per share, operating company contribution, EBITDA (or any derivative thereof) or market share.
Equity IncentivesSummary of our Current Plan
In November 2007, we implemented our employee equity incentive program, which provides members of our management team (referred to as management participants) the opportunity to acquire units and participate in the equity appreciation of the company. We formed Express Management Investors LLC for the sole purpose of indirectly holding units (through another holding company named Express Management Investors Blocker, Inc.) on behalf of our employees other than Mr. Weiss. In lieu of issuing units directly to our employees, we issue Units to Express Management Investors Blocker, Inc., which in turn issues equity interests in Express Management Investors Blocker, Inc. to Express Management Investors LLC, which in turn issues equity interests in Express Management Investors LLC to our employees having substantially the same terms and economic value as the Units we issued to Express Management Investors Blocker, Inc. on their behalf. Currently, 742,460 Class L Units of Express Management Investors LLC, 3,330,000 Class A Units of Express Management Investors LLC, and 4,705,000 Class C Units of Express Management Investors LLC have been purchased by management participants. Our President and Chief Executive Officer, Mr. Weiss, has purchased units of Express Parent, the terms of which are summarized below.
Our long-term equity incentive awards are generally intended to accomplish the following main objectives: create a direct correlation between our financial and equity value performance and compensation paid to the NEOs, long-term retention of the NEOs, assist in building equity ownership of the NEOs to increase alignment with long-term stockholder interests, attract and motivate key employees, reward participants for performance in relation to the creation of stockholder value, and deliver competitive levels of compensation consistent with our compensation philosophy.
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The Class L Units of Express Management Investors LLC were purchased by management participants at a purchase price per unit of $6.47, which is the same purchase price per unit paid by Golden Gate for Class L Units of Express Parent in connection with the Golden Gate Acquisition. Management participants were allowed to purchase the Class L Units of Express Management Investors LLC with a promissory note in favor of Express Holding for 50% of the purchase price, with the remainder of the purchase price paid in cash. The promissory note provides for an annual cash interest payment of 4.39%, and is due in full on the seventh anniversary of the note, except that a mandatory prepayment is due if the management participant ceases to be employed by us, we liquidate, the management participant becomes bankrupt, such prepayment is required pursuant to applicable law (including pursuant to Section 402 of the Sarbanes-Oxley Act) or the management participant receives cash in connection with his or her ownership of us. Each management participant that made a promissory note was required to pledge all of his or her units in Express Management Investors LLC (whether held currently or acquired in the future) as security to us to secure the repayment of his or her promissory note. Each of the aforementioned promissory notes (including for Mr. Weiss ($3,320,176.03 ), Mr. Moellering ($251,713.90 ), Ms. Horowitz-Bonadies ($251,713.90 ), Mr. Campbell ($302,056.69 ) and Mr. Rafferty ($503,427.81 )) was repaid by each management participant in full effective as of February 9, 2010. The Class A Units and Class C Units of Express Management Investors LLC were purchased by management participants with cash for a nominal price per unit of $0.01 and $0.0025, respectively. In general, the number of Class A Units and Class C Units issued to our NEOs is determined at the discretion of our board. The board considers the value the executive brings to us based on their expertise and leadership capabilities, the size of his or her total compensation package and his or her position with us. No formal benchmarking efforts are currently made by our board or Compensation Committee.
Class L Units of Express Management Investors LLC are fully vested. The Class A Units of Express Management Investors LLC and Class C Units of Express Management Investors LLC generally vest over four years on an anniversary date set forth in the management participants purchase agreement. The anniversary date is generally based on the employees start date or the unit grant date, provided, that units granted in November 2007 vest based upon the anniversary date of the Golden Gate Acquisition. On the first anniversary date, 25% of the Class A Units and 25% of the Class C Units purchased by a management participant vest, with quarterly vesting of the Class A Units and Class C Units thereafter. All unvested Class A and Class C Units held by our executive officers including our NEOs will fully vest in connection with this offering.
All classes of units of Express Management Investors LLC (including Class L Units) are subject to repurchase by us if an employee ceases to be employed by us on or prior to July 6, 2011. We may repurchase units at (1) the lower of original cost or fair market value with respect to units that are unvested or all units if the management participant was terminated for cause or participates in a competitive activity and (2) at fair market value if the management participant was terminated for any other reason. No employee may transfer his or her units in Express Management Investors LLC without our prior written consent. The decision whether or not to make a repurchase is approved by the board of managers of Express Parent prior to Express Management Blocker Inc. exercising its right to repurchase a managers equity interests (through Express Management Investors LLC).
On July 24, 2007, our President and Chief Executive Officer, Mr. Weiss, purchased (1) 1,000,000 of our Class L Units at a purchase price per unit of $6.47, which is the same purchase price per unit paid by Golden Gate for our Class L Units in connection with the Golden Gate Acquisition and (2) 4,000,000 of our Class A Units for a nominal price per unit of $0.01. Mr. Weiss paid cash for such Class A Units, and purchased such Class L Units with a promissory note in favor of Express Holding for 50% of the purchase price, with the remainder of the purchase price paid in cash. The promissory note provides for an annual cash interest payment of 4.95%, and is due in full on the seventh anniversary of the note, except that a mandatory prepayment is due if we liquidate, Mr. Weiss becomes bankrupt, such prepayment is required pursuant to applicable law (including pursuant to Section 402 of the Sarbanes-Oxley Act) or Mr. Weiss receives cash in connection with his ownership of us. Mr. Weiss was required to pledge all of his units in us (whether held currently or acquired in the future) as security to us to secure the repayment of his promissory note. Mr. Weiss promissory note was repaid in full by him effective as of February 9, 2010 and, as a result, all such units were released from the aforementioned
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pledge. Effective March 13, 2008, Mr. Weiss transferred an aggregate of 333,338 of our Class L Units and an aggregate of 1,333,338 of our Class A Units to certain of Mr. Weiss family trusts and his spouse. All of the Units held by Mr. Weiss, his wife and Mr. Weiss family trusts are fully vested.
Equity and Cash IncentivesExpress, Inc. 2010 Incentive Compensation Plan
Effective upon the completion of this offering, we will implement the Express, Inc. 2010 Incentive Compensation Plan (2010 Plan), in connection with this offering. The 2010 Plan will provide for grants of stock options, stock appreciation rights, restricted stock and other stock-based awards. Independent directors, officers and other employees of us and our subsidiaries, as well as others performing consulting or advisory services for us, will be eligible for grants under the 2010 Plan. The purpose of the 2010 Plan is to provide incentives that will attract, retain and motivate high performing officers, directors, employees and consultants by providing them with appropriate incentives and rewards either through a proprietary interest in our long-term success or compensation based on their performance in fulfilling their personal responsibilities. The following is a summary of the material terms of the 2010 Plan, but does not include all of the provisions of the 2010 Plan. For further information about the 2010 Plan, we refer you to the complete copy of the 2010 Plan, which we will file as an exhibit to the registration statement, of which this prospectus is a part.
Administration
The 2010 Plan will be administered by the Compensation and Governance Committee designated by our board of directors. Among the committees powers are to determine the form, amount and other terms and conditions of awards, clarify, construe or resolve any ambiguity in any provision of the 2010 Plan or any award agreement, amend the terms of outstanding awards and adopt such rules, forms, instruments and guidelines for administering the 2010 Plan as it deems necessary or proper. All actions, interpretations and determinations by the committee or by our board of directors are final and binding.
The Compensation and Governance Committee will have full authority to administer and interpret the 2010 Plan, to grant discretionary awards under the 2010 Plan, to determine the persons to whom awards will be granted, to determine the types of awards to be granted, to determine the terms and conditions of each award, to determine the number of shares of common stock to be covered by each award and to make all other determinations in connection with the 2010 Plan and the awards thereunder as the Compensation and Governance Committee, in its sole discretion, deems necessary or desirable.
Available Shares
The aggregate number of shares of common stock which may be issued or used for reference purposes under the 2010 Plan or with respect to which awards may be granted is 15.0 million shares, subject to automatic increase on the first day of each fiscal year beginning in 2011 and ending in 2019 by the lesser of (1) 2% of the shares of common stock outstanding on the last day of the immediately preceding fiscal year, or (2) such lesser number of shares as determined by the Compensation and Governance Committee. We anticipate that in connection with this offering, we expect to grant options to purchase an aggregate of 1,315,500 shares of our common stock and 12,500 restricted stock units at an exercise price equal to the initial public offering price of our common stock. Of these grants, we anticipate that options to acquire 690,000 shares of our common stock will be granted to our executive officers, including options to acquire 250,000 shares to Mr. Weiss, 60,000 shares to Mr. Moellering, 50,000 shares to Ms. Horowitz-Bonadies, 50,000 shares to Mr. Rafferty and 40,000 shares to Mr. Campbell. The shares may be either authorized and unissued shares of our common stock or shares of common stock held in or acquired for our treasury. In general, if awards under the 2010 Plan are for any reason cancelled, or expire or terminate unexercised, the shares covered by such awards will again be available for the grant of awards under the 2010 Plan.
Eligibility for Participation
Independent members of our board of directors, as well as employees of, and consultants to, us or any of our subsidiaries and affiliates are eligible to receive awards under the 2010 Plan. The selection of participants is within the sole discretion of the Compensation and Governance Committee.
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Award Agreement
Awards granted under the 2010 Plan shall be evidenced by award agreements, which need not be identical, that provide additional terms, conditions, restrictions and/or limitations covering the grant of the award, including, without limitation, additional terms providing for the acceleration of exercisability or vesting of awards in the event of a change of control or conditions regarding the participants employment, as determined by the committee in its sole discretion.
Stock Options
The committee may grant nonqualified stock options and incentive stock options to purchase shares of our common stock only to eligible employees. The Compensation and Governance Committee will determine the number of shares of our common stock subject to each option, the term of each option, which may not exceed ten years, or five years in the case of an incentive stock option granted to a 10.0% stockholder, the exercise price, the vesting schedule, if any, and the other material terms of each option. No incentive stock option or nonqualified stock option may have an exercise price less than the fair market value of a share of our common stock at the time of grant or, in the case of an incentive stock option granted to a 10.0% stockholder, 110.0% of such shares fair market value. Options will be exercisable at such time or times and subject to such terms and conditions as determined by the committee at grant and the exercisability of such options may be accelerated by the committee in its sole discretion.
Stock Appreciation Rights
The Compensation and Governance Committee may grant stock appreciation rights, which we refer to as SARs, either with a stock option, which may be exercised only at such times and to the extent the related option is exercisable, which we refer to as a Tandem SAR, or independent of a stock option, which we refer to as a Non-Tandem SAR. A SAR is a right to receive a payment in shares of our common stock or cash, as determined by the Compensation and Governance Committee, equal in value to the excess of the fair market value of one share of our common stock on the date of exercise over the exercise price per share established in connection with the grant of the SAR. The term of each SAR may not exceed ten years. The exercise price per share covered by an SAR will be the exercise price per share of the related option in the case of a Tandem SAR and will be the fair market value of our common stock on the date of grant in the case of a Non-Tandem SAR. The Compensation and Governance Committee may also grant limited SARs, either as Tandem SARs or Non-Tandem SARs, which may become exercisable only upon the occurrence of a change in control, as defined in the 2010 Plan, or such other event as the Compensation and Governance Committee may, in its sole discretion, designate at the time of grant or thereafter.
Restricted Stock
The Compensation and Governance Committee may award shares of restricted stock. Except as otherwise provided by the Compensation and Governance Committee upon the award of restricted stock, the recipient generally has the rights of a stockholder with respect to the shares, including the right to receive dividends, the right to vote the shares of restricted stock and, conditioned upon full vesting of shares of restricted stock, the right to tender such shares, subject to the conditions and restrictions generally applicable to restricted stock or specifically set forth in the recipients restricted stock agreement. The Compensation and Governance may determine at the time of award that the payment of dividends, if any, will be deferred until the expiration of the applicable restriction period.
Recipients of restricted stock are required to enter into a restricted stock agreement with us that states the restrictions to which the shares are subject, which may include satisfaction of pre-established performance goals, and the criteria or date or dates on which such restrictions will lapse.
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If the grant of restricted stock or the lapse of the relevant restrictions is based on the attainment of performance goals, the committee will establish for each recipient the applicable performance goals, formulae or standards and the applicable vesting percentages with reference to the attainment of such goals or satisfaction of such formulae or standards while the outcome of the performance goals are substantially uncertain. Such performance goals may incorporate provisions for disregarding, or adjusting for, changes in accounting methods, corporate transactions, including, without limitation, dispositions and acquisitions, and other similar events or circumstances. Section 162(m) of the Internal Revenue Code of 1986, as amended, which we refer to as the Code, requires that performance awards be based upon objective performance measures. The performance goals for performance-based restricted stock will be based on one or more of the objective criteria set forth on Exhibit A to the 2010 Plan and are discussed in general below.
Other Stock-Based Awards
The Compensation and Governance Committee may, subject to limitations under applicable law, make a grant of such other stock-based awards, including, without limitation, performance units, dividend equivalent units, stock equivalent units, restricted stock units and deferred stock units under the 2010 Plan that are payable in cash or denominated or payable in or valued by shares of our common stock or factors that influence the value of such shares. The Compensation and Governance Committee shall determine the terms and conditions of any such other awards, which may include the achievement of certain minimum performance goals for purposes of compliance with Section 162(m) of the Code and/or a minimum vesting period. The performance goals for performance-based other stock-based awards will be based on one or more of the objective criteria set forth on Exhibit A to the 2010 Plan and discussed in general below.
Performance Awards
The Compensation and Governance Committee may grant a performance award to a participant payable upon the attainment of specific performance goals. The Compensation and Governance Committee may grant performance awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code as well as performance awards that are not intended to qualify as performance-based compensation under Section 162(m) of the Code. Based on service, performance and/or such other factors or criteria, if any, as the Compensation and Governance Committee may determine, the Compensation and Governance Committee may, at or after grant, accelerate the vesting of all or any part of any performance award.
Performance Goals
The Compensation and Governance Committee may grant awards of restricted stock, performance awards, and other stock-based awards that are intended to qualify as performance-based compensation for purposes of Section 162(m) of the Code. These awards may be granted, vest and be paid based on attainment of specified performance goals established by the committee. These performance goals will be based on the attainment of a certain target level of, or a specified increase or decrease in, one or more of the following measures selected by the committee: (1) earnings per share; (2) operating income; (3) gross income; (4) net income (before or after taxes); (5) cash flow; (6) gross profit; (7) gross profit return on investment; (8) gross margin return on investment; (9) gross margin; (10) operating margin; (11) working capital; (12) earnings before interest and taxes; (13) earnings before interest, tax, depreciation and amortization; (14) return on equity; (15) return on assets; (16) return on capital; (17) return on invested capital; (18) net revenues; (19) gross revenues; (20) revenue growth; (21) annual recurring revenues; (22) recurring revenues; (23) license revenues; (24) sales or market share; (25) total shareholder return; (26) economic value added; (27) specified objectives with regard to limiting the level of increase in all or a portion of our bank debt or other long-term or short-term public or private debt or other similar financial obligations, which may be calculated net of cash balances and/or other offsets and adjustments as may be established by the committee in its sole discretion; (28) the fair market value of the a share of common stock; (29) the growth in the value of an investment in the common stock assuming the reinvestment of dividends; or (30) reduction in operating expenses.
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To the extent permitted by law, the Compensation and Governance Committee may also exclude the impact of an event or occurrence which the committee determines should be appropriately excluded, including: (1) restructurings, discontinued operations, extraordinary items and other unusual or non-recurring charges; (2) an event either not directly related to our operations or not within the reasonable control of management; or (3) a change in accounting standards required by generally accepted accounting principles.
Performance goals may also be based on an individual participants performance goals, as determined by the Compensation and Governance Committee, in its sole discretion.
In addition, all performance goals may be based upon the attainment of specified levels of our performance, or subsidiary, division or other operational unit, under one or more of the measures described above relative to the performance of other corporations. The Compensation and Governance Committee may designate additional business criteria on which the performance goals may be based or adjust, modify or amend those criteria.
Change in Control
In connection with a change in control, as defined in the 2010 Plan, the Compensation and Governance Committee may accelerate vesting of outstanding awards under the 2010 Plan. In addition, such awards will be, in the discretion of the committee, (1) assumed and continued or substituted in accordance with applicable law, (2) purchased by us for an amount equal to the excess of the price of a share of our common stock paid in a change in control over the exercise price of the award(s), or (3) cancelled if the price of a share of our common stock paid in a change in control is less than the exercise price of the award. The Compensation and Governance Committee may also, in its sole discretion, provide for accelerated vesting or lapse of restrictions of an award at any time.
Stockholder Rights
Except as otherwise provided in the applicable award agreement, and with respect to an award of restricted stock a participant has no rights as a stockholder with respect to shares of our common stock covered by any award until the participant becomes the record holder of such shares.
Amendment and Termination
Notwithstanding any other provision of the 2010 Plan, our board of directors may at any time amend any or all of the provisions of the 2010 Plan, or suspend or terminate it entirely, retroactively or otherwise; provided, however, that, unless otherwise required by law or specifically provided in the 2010 Plan, the rights of a participant with respect to awards granted prior to such amendment, suspension or termination may not be adversely affected without the consent of such participant.
Transferability
Awards granted under the 2010 Plan are generally nontransferable (other than by will or the laws of descent and distribution), except that the committee may provide for the transferability of nonqualified stock options at the time of grant or thereafter to certain family members.
Effective Date
The 2010 Plan will be adopted in connection with this offering.
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Additional Executive Benefits and Perquisites
We provide our executive officers with executive benefits and perquisites that the Compensation Committee believe are reasonable and in the best interests of the company and its stockholders. Consistent with our compensation philosophy, we intend to continue to maintain our current benefits for our executive officers, including retirement plans, executive medical benefits, life insurance benefits, housing relocation benefits, paid vacation and other perquisites described below. The Compensation and Governance Committee, in its discretion, may revise, amend or add to an officers executive benefits if it deems it advisable. We believe these benefits are generally equivalent to benefits provided by comparable companies. We have no current plans to change the levels of benefits provided thereunder.
Retirement Plan Benefits
The company does not sponsor a defined benefit retirement plan as we do not believe that such a plan best serves the needs of our employees or the business at this time. We sponsor a tax-qualified defined contribution retirement plan and a nonqualified defined contribution retirement plan. Participation in the qualified plan is available to employees who meet certain age and service requirements. Participation in the nonqualified plan is made available to employees who meet certain age, service, and job level requirements. Our executive officers participate in these plans based on these requirements.
Qualified Retirement Plan. The qualified plan is available to all eligible employees, including executive officers, and allows them to elect to make contributions up to the maximum limits allowable under the Internal Revenue Code. We match employees contributions according to a predetermined formula and contributes additional discretionary contribution amounts based on a percentage of the employees eligible annual compensation and years of service. Employees contributions and company matching contributions vest immediately. Additional company contributions and the related investment earnings are subject to vesting based on years of service.
As a result of the uncertain business climate, in 2009 we made the decision to not make the 2008 discretionary annual contribution to the qualified retirement plan and suspended the 401(k) match for 2009. However in light of improved market and business conditions, at the end of 2009, we made the decision to provide all eligible and active employees with a lump sum bonus equivalent to what their 2008 retirement contribution would have been had we made it. At the end of 2009, we also made the decision to reinstate the 401(k) match beginning in 2010.
Nonqualified Deferred Compensation Plan. The nonqualified deferred compensation plan is available to all director-level employees and above and certain employees who were participants in a prior supplemental retirement plan sponsored by us, and is an unfunded plan which provides benefits beyond the Internal Revenue Code limits for qualified defined contribution plans. The plan permits participating employees to elect contributions up to a maximum percentage of eligible compensation. We match employees contributions according to a predetermined formula and credits additional amounts equal to a percentage of the employees eligible compensation beyond the compensation taken into account under the Internal Revenue Code limits for qualified defined contribution plans based on years of service. The plan also permits employees to defer additional compensation up to a maximum amount which we do not match. Employees accounts are credited with interest using a rate determined annually based on related factors or indices, including but not limited to, our cost of funds or cost of borrowing. The interest rate for the 2009 plan year was 7.7%. Employees contributions and the related interest vest immediately. Our contributions and credits and the related interest are subject to vesting based on years of service. Employees generally may elect in-service distributions for the unmatched deferred compensation component only. The remaining vested portion of employees accounts in the plan will be distributed upon termination of employment in either a lump sum or in equal annual installments over a specified period of up to ten years as elected by the participant.
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Health and Welfare Benefits
Executive Medical. In addition to the group health plans eligible to all full-time employees, the Executive Medical Program provides benefits to reimburse executives for certain out-of-pocket healthcare-related expenses. This program reimburses 100% of eligible expenses up to a total of $10,000 per family per calendar year. All executive officers are eligible for the Executive Medical Program.
Executive Life Insurance. We provide all executives officers with executive life insurance that offers a benefit equal to two times their annual base salary up to a maximum of one million dollars.
Executive Disability Insurance. We also provide all executive officers with disability coverage that provides a benefit of 100% base salary continuation for up to 365 days and then 60% of the executives base salary plus the annual average of the last three years of incentive cash compensation, up to a maximum benefit of $25,000 per month.
Perquisites
Personal Use of Airplane . For security and personal safety reasons, we require Mr. Weiss to use a private aircraft for both business and personal travel (up to 100 hours of personal use). Use of the corporate aircraft for business and personal reasons also allows Mr. Weiss to be more productive and efficient when he is required to travel. We provide Mr. Weiss with a tax gross-up payment on the income associated with his use of such private aircraft for personal use.
Housing Allowance . We provide Mr. Weiss and Mr. Campbell with reimbursement allowances for the business use of their private residences in the New York metropolitan area, which they use when required to be at our New York design studio or otherwise required by us to be in the New York City area, along with a tax gross-up payment to Mr. Weiss on the income associated therewith.
Accounting and Tax Considerations
In determining which elements of compensation are to be paid, and how they are weighted, we also take into account whether a particular form of compensation will be deductible under Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended (the Code). Section 162(m) generally limits the deductibility of compensation paid to our NEOs to $1 million during any fiscal year unless such compensation is performance-based under Section 162(m). However, under a Section 162(m) transition rule for compensation plans or agreements of corporations which are privately held and which become publicly held in an initial public offering, compensation paid under a plan or agreement that existed prior to the initial public offering will not be subject to Section 162(m) until the earlier of (1) the expiration of the plan or agreement, (2) a material modification of the plan or agreement, (3) the issuance of all employer stock and other compensation that has been allocated under the plan, or (4) the first meeting of stockholders at which directors are to be elected that occurs after the close of the third calendar year following the year of the initial public offering (the Transition Date). After the Transition Date, rights or awards granted under the plan, other than options and stock appreciation rights, will not qualify as performance-based compensation for purposes of Section 162(m) unless such rights or awards are granted or vest upon pre-established objective performance goals, the material terms of which are disclosed to and approved by our stockholders.
Our compensation program is intended to maximize the deductibility of the compensation paid to our NEOs to the extent that we determine it is in our best interests. Consequently, we may rely on the exemption from Section 162(m) afforded to us by the transition rule described above for compensation paid pursuant to our pre-existing plans.
Many other Code provisions, SEC regulations and accounting rules affect the payment of executive compensation and are generally taken into consideration as programs are developed. Our goal is to create and maintain plans that are efficient, effective and in full compliance with these requirements.
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Compensation Tables
The purpose of the following tables is to provide information regarding the compensation earned during our most recently completed fiscal
Summary Compensation Table
The following table shows the compensation earned by our NEOs during the fiscal year ended January 30, 2010, referred to as fiscal year 2009.
Name and Principal Position |
Year |
Salary
($) |
Bonus
($)(1) |
Stock
Awards ($) |
Option
Awards ($) |
Non-Equity
Incentive Plan Compensation ($)(2) |
Nonqualified
Deferred Compensation Earnings ($)(3) |
All
Other
Compensation ($)(5) |
Total ($) | ||||||||||
Michael A. Weiss
|
2009 | 750,000 | 209,768 | | | 2,250,000 | | 510,317 | 3,720,085 | ||||||||||
Matthew C. Moellering
|
2009 | 432,692 | 25,295 | 138,000 | (4) | | 520,000 | 4,809 | 68,678 | 1,189,474 | |||||||||
Fran Horowitz
-
Bonadies
|
2009 | 500,000 | 21,715 | | | 550,000 | 8,619 | 80,317 | 1,160,651 | ||||||||||
Colin Campbell
|
2009 | 485,000 | 27,490 | | | 485,000 | 29,142 | 111,119 | 1,137,751 | ||||||||||
John J. (Jack) Rafferty
|
2009 | 430,000 | 36,270 | | | 516,000 | 69,812 | 82,888 | 1,134,970 |
(1) | Special discretionary bonus paid to reimburse our NEOs for the interest payable on their promissory notes, which were repaid in full effective February 9, 2010. See Compensation Discussion and AnalysisEquity IncentivesSummary of our Current Plan for information about the promissory notes. Also includes for each NEO, except Mr. Weiss, a special bonus equivalent to what their 2008 annual company contribution under the qualified retirement plan would have been had we made it in 2008. For Mr. Weiss, also includes payment to reimburse him for his expenses related to employer Medicare and Social Security taxes. |
(2) | Represents amounts paid under our performance-based cash incentive plan. Refer to the Compensation Discussion and Analysis Performance-Based Cash Incentives section for more details. |
(3) | We do not sponsor any tax-qualified or nonqualified defined benefit retirement plans. For fiscal year 2009, the amounts shown represent the amount by which earnings of 7.7% on each NEOs nonqualified deferred compensation account balance exceeded 120% of the applicable federal long-term rate. |
(4) | Reflects the aggregate grant date fair value of the grant made in fiscal 2009, computed in accordance with applicable accounting guidelines See Note 11 of the consolidated financial statements. |
(5) | The following table details All Other Compensation paid to each NEO during fiscal year 2009: |
Qualified
Retirement Plan(f) |
Nonqualified
Supplemental Retirement Plan(g) |
|||||||||||||||||||
Name |
Tax
Payments ($)(a) |
Executive
Health Benefits ($)(b) |
Executive
Life and Disability Insurance ($)(c) |
Personal
Aircraft Usage ($)(d) |
Housing
Allowance ($)(e) |
Relocation
Benefits ($) |
401(k)
Company Match ($) |
Annual
Company Contribution ($) |
Company
Match ($) |
Annual
Company Contribution ($) |
||||||||||
Michael A. Weiss |
224,863 | 10,090 | 1,656 | 263,208 | 10,500 | | * | * | * | * | ||||||||||
Matthew C. Moellering |
7,469 | 14,373 | 1,038 | | | | 3,385 | 15,328 | 11,608 | 15,477 | ||||||||||
Fran Horowitz-Bonadies |
8,058 | 13,505 | 1,188 | | | | 3,846 | 15,328 | 16,454 | 21,938 | ||||||||||
Colin Campbell |
8,961 | 12,192 | 1,177 | | 6,500 | 19,669 | 3,731 | 15,328 | 15,519 | 28,042 | ||||||||||
John J. (Jack) Rafferty |
14,100 | 13,449 | 1,138 | | | | 3,308 | 15,328 | 12,092 | 23,473 |
* | Per his employment agreement, Mr. Weiss was not eligible for company retirement plans in 2009, but will be eligible to participate in 2010. |
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(a) | For all NEOs, except for Mr. Weiss, this column represents the gross-up amount on Medicare and the city tax for company contributions into the nonqualified deferred compensation plan and gross-up for a special discretionary bonus paid to reimburse our NEOs for the interest payable on their promissory notes, which were repaid in full effective February 9, 2009. For Mr. Weiss, this column includes (1) gross-up for personal aircraft usage in the amount of $48,654, (2) gross-up for housing allowance in the amount of $8,548 and (3) gross-up for employee Medicare and Social Security taxes in the amount of $40,014; and (4) gross-up for special discretionary bonus paid to reimburse Mr. Weiss for the interest payable on his promissory note in the amount of $127,647. |
(b) | The following items are included in Executive Health Benefits: Average company cost per employee for the Employee Medical Plan and Employee Dental Plan; actual company expenses for the Executive Physical Program; and actual premiums paid by the company for the Executive Medical Plan. |
(c) | Amounts represent the annual premiums paid by the company for executive life insurance, and executive disability insurance. |
(d) | This represents the expense for use of purchased aircraft time for personal private aircraft usage for Mr. Weiss. |
(e) | Amounts include payments to Mr. Weiss and Mr. Campbell for nights stayed at their New York apartments while on business in New York at a nightly rate approximately equivalent to a nightly rate at a hotel. |
(f) | See Compensation Discussion and AnalysisRetirement Plan BenefitsQualified Retirement Plan for additional information. |
(g) | See Compensation Discussion and AnalysisRetirement Plan BenefitsNonqualified Deferred Compensation Plan for additional information. |
Grants of Plan-Based Awards
During fiscal year 2009, each of our NEOs participated in our performance-based cash incentive plan in which each officer was eligible for awards set forth under Estimated Potential Payouts Under Non-Equity Incentive Plan Awards below. The actual payout for the NEOs is set forth above under the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. For a detailed discussion of our performance-based cash incentive plan, refer to Compensation Discussion and AnalysisPerformance-Based Cash Incentives.
We did not make any equity awards to our NEOs in fiscal year 2009, other than to Mr. Moellering in connection with his promotion in October 2009.
Estimated Potential Payouts
Under Non-Equity Incentive Plan Awards |
Estimated Potential Payouts Under
Equity Incentive Plan Awards |
All Other
Stock Awards: Number of Shares or Stock Units (#) |
All Other
Option Awards: Number of Securities Underlying Options (#) |
Exercise
or Base Price of Option Awards ($/Sh) |
Grant Date
Fair Value of Stock and Award Options ($) |
|||||||||||||||||
Name |
Grant
Date |
Threshold
($) |
Target
($) |
Maximum
($) |
Threshold
($) |
Target
($) |
Maximum
($) |
|||||||||||||||
Michael A. Weiss |
| 150,000 | 750,000 | 2,250,000 | | | | | | | | |||||||||||
Matthew C. Moellering |
11/2/09 | 52,000 | 260,000 | 520,000 | | | | 200,000 | | | 138,000 | |||||||||||
Fran Horowitz-Bonadies |
| 55,000 | 275,000 | 550,000 | | | | | | | | |||||||||||
Colin Campbell |
| 48,500 | 242,500 | 485,000 | | | | | | | | |||||||||||
John J. (Jack) Rafferty |
| 51,600 | 258,000 | 516,000 | | | | | | | |
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Outstanding Equity Awards at Fiscal Year-End
The table below sets forth certain information regarding the outstanding equity awards held by our NEOs as of January 30, 2010.
Option Awards | Stock Awards | |||||||||||||||||||||
Name |
Number
Of
Securities Underlying Unexercised Options (#) Exercisable |
Number Of
Securities Underlying Unexercised Options (#) Unexercisable |
Equity
Incentive Plan Awards: Number Of Securities Underlying Unexercised Unearned Options (#) |
Option
Exercise Price ($) |
Option
Expiration Date |
Grant
Date(1) |
Unit
Class(2) |
Number
Of Shares Or Units Of Stock That Have Not Vested (#) |
Market
Value Of Shares Or Units Of Stock That Have Not Vested ($)(3) |
Equity
Incentive Plan Awards: Number Of Unearned Shares, Units Or Other Rights That Have Not Vested (#) |
Equity
Incentive Plan Awards: Market Or Payout Value Of Unearned Shares, Units Or Other Rights That Have Not Vested (#) |
|||||||||||
Michael A. Weiss |
| | | | | 7/24/2007 | A | 1,500,000 | 4,470,000 | | | |||||||||||
Matthew C. Moellering |
|
|
|
|
|
12/14/2007
12/14/2007 |
A
C |
93,750
93,750 |
279,375
64,688 |
|
|
|||||||||||
| | | | | 11/2/2009 | C | 200,000 | 138,000 | ||||||||||||||
Fran Horowitz-Bonadies |
|
|
|
|
|
12/14/2007
12/14/2007 |
A
C |
131,250
131,250 |
391,125
90,563 |
|
|
|||||||||||
Colin Campbell |
|
|
|
|
|
12/14/2007
12/14/2007 |
A
C |
75,000
75,000 |
223,500
51,750 |
|
|
|||||||||||
John J. (Jack) Rafferty |
|
|
|
|
|
12/14/2007
12/14/2007 |
A
C |
131,250
131,250 |
391,125
90,563 |
|
|
(1) | Mr. Moellering was awarded 200,000 additional Class C Units in connection with his promotion in October 2009. |
(2) | These Class A Units and Class C Units vest incrementally over a four-year period as described in Compensation Discussion and AnalysisEquity IncentivesSummary of our Current Plan section, except the Units for Mr. Weiss, which are fully vested as of February 2010. All unvested Class A and Class C Units held by our executive officers, including our NEOs will fully vested in connection with this offering. |
(3) | In the absence of a public trading market, management, in conjunction with a third party valuation firm, considered numerous objective and subjective factors to determine its best estimate of the fair value of our common stock as of each valuation date. Valuations are performed annually, in either our third quarter or in the fourth quarter. We use the most recent valuation closest to the date shares are granted, and evaluate the results of the next valuation to determine if adjustments to the grant date fair value are required. |
Option Exercises and Stock Vested
The following table provides information relating to the Stock Awards vested during the fiscal year 2009. There were no Option Awards exercised during fiscal year 2009.
Option Awards | Stock Awards | |||||||||
Name |
Number of Shares
Acquired on Exercise (#) |
Value Realized on
Exercise ($) |
Unit
Class |
Number of Units
Acquired on Vesting (#) |
Value Realized on
Vesting(1) ($) |
|||||
Michael A. Weiss |
| | A | 1,000,000 | 1,970,000 | |||||
Matthew C. Moellering |
| | A | 62,500 | 123,125 | |||||
| | C | 62,500 | 34,062 | ||||||
Fran Horowitz Bonadies |
| | A | 87,500 | 172,375 | |||||
| | C | 87,500 | 47,687 | ||||||
Colin Campbell |
| | A | 50,000 | 98,500 | |||||
| | C | 50,000 | 27,250 | ||||||
John J. (Jack) Rafferty |
| | A | 87,500 | 172,375 | |||||
| | C | 87,500 | 47,687 |
(1) | In the absence of a public trading market, management, in conjunction with a third-party valuation firm, considered numerous objective and subjective factors to determine its best estimate of the fair value of our common stock as of each valuation date. Valuations are performed annually, in either our third quarter or in the fourth quarter. We use the most recent valuation closest to the date shares are granted, and evaluate the results of the next valuation to determine if adjustments to the grant date fair value are required. |
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Pension Benefits
Our NEOs did not participate in or have account balances in any qualified or nonqualified defined benefit plans sponsored by us. Our board of directors or Compensation and Governance Committee may elect to adopt qualified or nonqualified benefit plans in the future if it determines that doing so is in our best interest.
Deferred Compensation
We provide a nonqualified deferred compensation plan for our executive officers. See Compensation Discussion and AnalysisRetirement Plan BenefitsNonqualified Deferred Compensation Plan for additional information. The following table provides the figures related to our Nonqualified Deferred Compensation Plan for fiscal year 2009.
Name |
Executive
Contributions In Last Fiscal Year ($) |
Registrant
Company Contributions In Last Fiscal Year ($)(2) |
Aggregate
Earnings in Last Fiscal Year ($)(3) |
Aggregate
Withdrawals / Distributions ($) |
Aggregate
Balance At Last Fiscal Year ($) |
|||||
Michael A. Weiss(1) |
| | | | | |||||
Matthew C. Moellering |
5,804 | 27,085 | 13,205 | | 200,555 | |||||
Fran Horowitz-Bonadies |
8,227 | 38,392 | 23,669 | | 348,802 | |||||
Colin Campbell |
7,760 | 43,562 | 80,027 | | 1,111,835 | |||||
John J. (Jack) Rafferty |
6,046 | 35,565 | 191,709 | | 2,624,003 |
(1) | Under his employment agreement, Mr. Weiss was not eligible for the companys nonqualified deferred compensation plan in 2009, but will be eligible to participate in 2010. |
(2) | These amounts were included in the All Other Compensation column of the Summary Compensation Table. |
(3) | The above-market portion of these earnings was included in the Nonqualified Deferred Compensation Earnings column of the Summary Compensation Table. |
Employment and Other Agreements
The Compensation Committee believes that our current severance arrangements protect stockholder interests by retaining management should periods of uncertainty arise. Because our severance arrangements are structured to serve the above purposes and because severance agreements represent a contractual obligation of our company, decisions relating to other elements of compensation have minimal effect on decisions relating to existing severance agreements.
These agreements generally provide that, if we fail to extend the executives agreement or terminate the executives employment without cause, or if the executive terminates the executives employment for good reason, the executive will continue to receive the executives base salary and medical and dental benefits for one year after the termination date. If the executive agrees to execute a general release of claims against our company, the executive will also be entitled to receive the amount of the incentive compensation that the executive would have otherwise received during the first year after termination.
Michael A. Weiss
We are party to an employment agreement with Mr. Weiss, our President and Chief Executive Officer. Under the terms of his employment agreement, effective February 1, 2010, Mr. Weiss is entitled to an annual base salary of $1,000,000, subject to annual review thereof by our Compensation Committee for potential increase. Mr. Weiss is also eligible to earn a short-term, performance-based cash incentive payment for each six-month operating season. The target payout for Mr. Weiss is 100% of his annual base salary, with a maximum annual payout opportunity of 200% of his annual base salary.
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Mr. Weiss is also eligible to receive benefits in accordance with the standard benefit plans we provide to our other senior executives. In addition, we provide Mr. Weiss with the use of a private jet for his business-related travel (necessitated primarily by his frequent trips to our New York design studio) and for up to 100 hours of his personal travel, along with a tax gross-up payment to Mr. Weiss on the income associated therewith. Mr. Weiss is also entitled to up to four weeks of paid time off and reimbursement for all business travel, entertainment and other business expenses, including a reasonable daily reimbursement allowance for the business use of his private residence in New York, New York, which he uses when required to be at our New York design studio, along with a tax gross-up payment to Mr. Weiss on the income associated therewith, if any.
Mr. Weiss employment continues until the earlier of his resignation (with or without good reason), death or disability, or termination by us (with or without cause). If we terminate Mr. Weiss employment without cause or Mr. Weiss resigns for good reason, Mr. Weiss is entitled to receive severance equal to (1) twelve months of his then-current base salary payable within sixty days and continuation of his medical and dental benefits, (2) a guaranteed bonus payment equal to 100% of his then-current base salary, and (3) the bonus described in the first paragraph of this section for the season in which Mr. Weiss employment was terminated if Mr. Weiss would have otherwise been entitled to receive such bonus (prorated based on the number of days Mr. Weiss was employed during the season in which any such termination may occur). The foregoing amounts are payable at such times as Mr. Weiss would have otherwise been entitled to receive them had his employment not been terminated. Mr. Weiss receipt of severance is contingent upon execution of a general release of any and all claims arising out of or related to his employment with us and the termination of his employment.
Mr. Weiss has also agreed to customary restrictions with respect to the use of our confidential information, and has agreed that all intellectual property developed or conceived by Mr. Weiss while he is employed by us which relates to our business is our property. During the term of Mr. Weiss employment with us and during the twelve month period immediately thereafter, Mr. Weiss has agreed not to (1) solicit or hire any of our employees, (2) induce or attempt to induce any supplier, licensee, licensor or other material business relation of ours to cease doing business with us, or (3) participate (whether as an officer, director, employee or otherwise) in any competitive business (subject to Mr. Weiss ability to serve as a member of the board of directors of certain agreed upon public companies). During any period in which Mr. Weiss has breached the above restrictions, we have no obligations to pay Mr. Weiss any severance described above.
If any payment by us to Mr. Weiss under his employment agreement or the lapse or termination of any vesting restriction with respect to the units held by Mr. Weiss, his family trusts or his spouse would be subject to the excise tax imposed by Internal Revenue Code Section 4999 by reason of being contingent on a change in ownership or control within the meaning of Internal Revenue Code Section 280G, then Mr. Weiss shall be entitled to receive a gross-up payment from us in an amount such that after payment by Mr. Weiss of all taxes (including any penalties or interest with respect thereto) and excise tax imposed on such gross-up payment, Mr. Weiss is entitled to retain an amount of such gross-up payment equal to the excise tax imposed on any such payment under his employment agreement or the lapse or termination of any vesting restriction with respect to the units held by Mr. Weiss, his family trusts or his spouse determined to be subject to the excise tax imposed by Internal Revenue Code Section 4999.
We have agreed to indemnify and hold Mr. Weiss harmless in any and all actions resulting from the good faith performance of his duties and obligations with us.
All Other NEOs
We have entered into the below described employment agreements with all other NEOs. The term of each of these employment agreements is five years with automatic renewals thereafter on a year-to-year basis unless we or the applicable executive provides prior written notice of non-renewal. Notwithstanding the foregoing, the employment agreements may be terminated in the case of the applicable executives resignation, death or disability or termination by us.
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Each such employment agreement provides for an annual base salary that is subject to annual review by us for potential increase, as well as short-term, performance-based cash incentive payment opportunities for each six-month operating season based on a percentage of the applicable executives base salary. See Compensation Discussion and AnalysisPerformance-Based Cash Incentives for more information. In addition, each such employment agreement provides that the applicable executive is eligible for equity-based compensation awards that are commensurate with his or her performance and position. Each such executive is also entitled to participate in all employee benefit plans that we maintain and make available to our senior executives and is entitled to paid time off in accordance with our policies as in effect from time to time.
Each such employment agreement provides that, if we fail to extend the executives agreement or terminate the executives employment without cause, or if the executive terminates the executives employment for good reason, the executive will continue to receive one year of his or her then-current base salary and (subject to certain exceptions) medical and dental benefits during the one year period following such termination. If the executive agrees to execute a general release of claims against our company, the executive will also be entitled to receive the amount of the cash incentive compensation that the executive would have otherwise received during the first year after termination.
Potential Payments Upon Termination and Change in Control
The information below describes and quantifies certain compensation that
would become payable under employment agreements with the following NEOs if, as of January 30, 2010, his/her employment with us had been terminated. Due to the number of factors that affect the nature and amount of any benefits provided upon
the events discussed below, any actual amounts paid or distributed may be different. Factors that could affect these amounts include the timing during the year of any such event. Further, the information below does not incorporate the terms of any
Michael A. Weiss
Involuntary without
Cause or Voluntary with Good Reason |
Involuntary
without Cause following Change in Control |
Disability(4) | Retirement | |||||||||||||||
Component |
Voluntary
Resignation |
Without
Signed Release |
With
Signed Release |
|||||||||||||||
Base Salary |
$ | | $ | | $ | 750,000 | $ | 750,000 | $ | 750,000 | $ | | ||||||
Bonus(1) |
| | 3,000,000 | 3,000,000 | | | ||||||||||||
Total Cash Severance |
$ | | $ | | $ | 3,750,000 | $ | 3,750,000 | $ | 750,000 | $ | | ||||||
Value of Accelerated Equity(2) |
| | | | | | ||||||||||||
Benefits and Perquisites(3) |
| | 10,192 | 10,192 | 8,900 | | ||||||||||||
Total Severance |
$ | | $ | | $ | 3,760,192 | $ | 3,760,192 | $ | 758,900 | $ | | ||||||
(1) | This amount includes a guaranteed bonus payment of $750,000 and the fiscal year 2009 performance-based cash compensation plan payout of $2,250,000 which has been earned but not yet paid. |
(2) | Equity is fully vested as of February 2010. |
(3) | Estimates for benefits and perquisites include the continuation of medical and dental. |
(4) | If Mr. Weiss became permanently and totally disabled on January 30, 2010, he would receive 12 months of salary continuation from us and 9 months of benefits continuation. Additional eligible disability compensation would be provided by a third-party insurance company and not paid by us. |
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Matthew C. Moellering
Voluntary
Resignation |
Involuntary without Cause or
Voluntary with Good Reason |
Involuntary w/out
Cause following Change in Control |
||||||||||||||||
Component |
Without Signed
Release |
With Signed
Release |
Disability
(2) |
Retirement | ||||||||||||||
Base Salary |
$ | | $ | 500,000 | $ | 500,000 | $ | 500,000 | $ | 500,000 | $ | | ||||||
Bonus |
| | 300,000 | 300,000 | | | ||||||||||||
Total Cash Severance |
$ | | $ | 500,000 | $ | 800,000 | $ | 800,000 | $ | 500,000 | $ | | ||||||
Value of Accelerated Equity |
| | | | | | ||||||||||||
Benefits and Perquisites(1) |
| 12,294 | 12,294 | 12,294 | 10,089 | | ||||||||||||
Total Severance |
$ | | $ | 512,294 | $ | 812,294 | $ | 812,294 | $ | 510,089 | $ | | ||||||
(1) | Estimates for benefits and perquisites include the continuation of medical and dental, as well as the value of unvested qualified and nonqualified retirement plan balances that would become vested. |
(2) | If Mr. Moellering became permanently and totally disabled on January 30, 2010, he would receive 12 months of salary continuation from us and 9 months of benefits continuation. Additional eligible disability compensation would be provided by a third-party insurance company and not paid by us. |
Fran Horowitz-Bonadies
Voluntary
Resignation |
Involuntary without Cause or
Voluntary with Good Reason |
Involuntary
w/out Cause following Change in Control |
Disability
(2) |
Retirement | ||||||||||||||
Component |
Without Signed
Release |
With Signed
Release |
||||||||||||||||
Base Salary |
$ | | $ | 500,000 | $ | 500,000 | $ | 500,000 | $ | 500,000 | $ | | ||||||
Bonus |
| | 275,000 | 275,000 | | | ||||||||||||
Total Cash Severance |
$ | | $ | 500,000 | $ | 775,000 | $ | 775,000 | $ | 500,000 | $ | | ||||||
Value of Accelerated Equity |
| | | | | | ||||||||||||
Benefits and Perquisites(1) |
| 12,294 | 12,294 | 12,294 | 10,238 | | ||||||||||||
Total Severance |
$ | | $ | 512,294 | $ | 787,294 | $ | 787,294 | $ | 510,238 | $ | | ||||||
(1) | Estimates for benefits and perquisites include the continuation of medical and dental, as well as the value of unvested qualified and nonqualified retirement plan balances that would become vested. |
(2) | If Ms. Horowitz-Bonadies became permanently and totally disabled on January 30, 2010, she would receive 12 months of salary continuation from us and 9 months of benefits continuation. Additional eligible disability compensation would be provided by a third-party insurance company and not paid by us. |
Colin Campbell
Voluntary
Resignation |
Involuntary without Cause or
Voluntary with Good Reason |
Involuntary
w/out Cause following Change in Control |
Disability
(2) |
Retirement | ||||||||||||||
Component |
Without Signed
Release |
With Signed
Release |
||||||||||||||||
Base Salary |
$ | | $ | 485,000 | $ | 485,000 | $ | 485,000 | $ | 485,000 | $ | | ||||||
Bonus |
| | 242,500 | 242,500 | | | ||||||||||||
Total Cash Severance |
$ | | $ | 485,000 | $ | 727,500 | $ | 727,500 | $ | 485,000 | $ | | ||||||
Value of Accelerated Equity |
| | | | | | ||||||||||||
Benefits and Perquisites(1) |
| 12,294 | 12,294 | 12,294 | 10,221 | | ||||||||||||
Total Severance |
$ | | $ | 497,294 | $ | 739,794 | $ | 739,794 | $ | 495,221 | $ | | ||||||
(1) | Estimates for benefits and perquisites include the continuation of medical and dental, as well as the value of unvested qualified and nonqualified retirement plan balances that would become vested. |
(2) | If Mr. Campbell became permanently and totally disabled on January 30, 2010, he would receive 12 months of salary continuation from us and 9 months of benefits continuation. Additional eligible disability compensation would be provided by a third-party insurance company and not paid by us. |
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John J. (Jack) Rafferty
Voluntary
Resignation |
Involuntary without Cause or
Voluntary with Good Reason |
Involuntary
w/out Cause following Change in Control |
Disability
(2) |
Retirement | ||||||||||||||
Component |
Without Signed
Release |
With Signed
Release |
||||||||||||||||
Base Salary |
$ | | $ | 430,000 | $ | 430,000 | $ | 430,000 | $ | 430,000 | $ | | ||||||
Bonus |
| | 258,000 | 258,000 | | | ||||||||||||
Total Cash Severance |
$ | | $ | 430,000 | $ | 688,000 | $ | 688,000 | $ | 430,000 | $ | | ||||||
Value of Accelerated Equity |
| | | | | | ||||||||||||
Benefits and Perquisites(1) |
| 12,294 | 12,294 | 12,294 | 10,162 | | ||||||||||||
Total Severance |
$ | | $ | 442,294 | $ | 700,294 | $ | 700,294 | $ | 440,162 | $ | | ||||||
(1) | Estimates for benefits and perquisites include the continuation of medical and dental, as well as the value of unvested qualified and nonqualified retirement plan balances that would become vested. |
(2) | If Mr. Rafferty became permanently and totally disabled on January 30, 2010, he would receive 12 months of salary continuation from us and 9 months of benefits continuation. Additional eligible disability compensation would be provided by a third-party insurance company and not paid by us. |
Director Compensation
See ManagementCorporate GovernanceDirector Compensation.
Director and Officer Indemnification and Limitation of Liability
Our bylaws will provide that we will indemnify our directors and officers to the fullest extent permitted by the General Corporation Law of the State of Delaware (DGCL). In addition, our certificate of incorporation will provide that our directors will not be liable for monetary damages for breach of fiduciary duty.
In addition, prior to the completion of this offering, we will enter into indemnification agreements with each of our executive officers and directors. The indemnification agreements will provide the executive officers and directors with contractual rights to indemnification, expense advancement and reimbursement, to the fullest extent permitted under the Delaware General Corporation Law. We will also enter into an indemnification priority agreement with Golden Gate and Limited Brands to clarify the priority of advancement of expenses and indemnification obligations among us, our subsidiaries and any of our directors appointed by Golden Gate and Limited Brands and other related matters.
There is no pending litigation or proceeding naming any of our directors or officers to which indemnification is being sought, and we are not aware of any pending or threatened litigation that may result in claims for indemnification by any director or officer.
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S ECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of April 29, 2010 regarding the beneficial ownership of our common stock (1) immediately prior to and (2) as adjusted to give effect to this offering, in each case giving effect to the Reorganization, by:
|
each person or group who is known by us to own beneficially more than 5% of our outstanding shares of our common stock; |
|
each of our named executive officers; |
|
each of our directors and our director designee; and |
|
all of our executive officers and directors and our director designee as a group. |
For further information regarding material transactions between us and certain of our stockholders, see Certain Relationships and Related Party Transactions.
Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting thereof, or to dispose or direct the disposition thereof or has the right to acquire such powers within 60 days. Common stock subject to options that are currently exercisable or exercisable within 60 days of April 29, 2010 are deemed to be outstanding and beneficially owned by the person holding the options. These shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Percentage of beneficial ownership is based on shares of common stock outstanding after giving effect to the Reorganization, and 88.7 million shares of common stock to be outstanding after the completion of this offering, assuming no exercise of the option to purchase additional shares, or 91.1 million shares, assuming full exercise of the option to purchase additional shares. Except as disclosed in the footnotes to this table and subject to applicable community property laws, we believe that each stockholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the stockholder. Unless otherwise indicated in the table or footnotes below, the address for each beneficial owner is c/o Express, Inc., One Limited Parkway, Columbus, Ohio 43230.
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Shares
Beneficially Owned Prior to This Offering |
Shares To Be
Sold in This Offering Assuming No Exercise of Overallotment |
Shares To Be
Sold In This Offering Assuming Full Exercise of Overallotment Option |
Shares Beneficially
Owned After This Offering Assuming No Exercise of Overallotment Option |
Shares
Beneficially Owned After This Offering Assuming Full Exercise of Overallotment Option |
||||||||||||
Name |
Number | Percent | Number | Number | Number | Percent | Number | Percent | ||||||||
5% Stockholders: |
||||||||||||||||
Funds managed by Golden Gate Private Equity, Inc.(1) |
52,642,520 | 67.3% | 3,842,676 | 5,519,765 | 48,799,844 | 55.0% | 47,122,755 | 53.1% | ||||||||
Limited Brands, Inc.(2) |
17,547,507 | 22.4% | 1,280,892 | 1,839,827 | 16,266,615 | 18.3% | 15,707,680 | 17.7% | ||||||||
Executive Officers, Directors and Director Designee: |
||||||||||||||||
Michael A. Weiss |
3,259,306 | 4.2% | 237,915 | 341,732 | 3,021,391 | 3.4% | 2,917,574 | 3.3% | ||||||||
John J. Rafferty |
486,933 | 0.6% | 35,544 | 51,055 | 451,389 | 0.5% | 435,878 | 0.5% | ||||||||
Fran Horowitz-Bonadies |
432,929 | 0.6% | | | 432,929 | 0.5% | 432,929 | 0.5% | ||||||||
Jeanne L. St. Pierre |
432,929 | 0.6% | | | 432,929 | 0.5% | 432,929 | 0.5% | ||||||||
Matthew C. Moellering |
413,142 | 0.5% | 30,158 | 43,234 | 382,984 | 0.4% | 369,908 | 0.4% | ||||||||
David G. Kornberg |
380,739 | 0.5% | 27,792 | 39,843 | 352,947 | 0.4% | 340,896 | 0.4% | ||||||||
Elliott R. Tobias |
335,465 | 0.4% | 24,487 | 35,104 | 310,978 | 0.4% | 300,361 | 0.3% | ||||||||
Lisa A. Gavales |
315,678 | 0.4% | | | 315,678 | 0.4% | 315,678 | 0.4% | ||||||||
Colin Campbell |
281,333 | 0.4% | 20,536 | 29,440 | 260,797 | 0.3% | 251,893 | 0.3% | ||||||||
Douglas H. Tilson |
239,037 | 0.3% | | | 239,037 | 0.3% | 239,037 | 0.3% | ||||||||
David C. Dominik(1) |
52,642,520 | 67.3% | 3,842,676 | 5,519,765 | 48,799,844 | 55.0% | 47,122,755 | 53.1% | ||||||||
Timothy J. Faber(3) |
| | | | | | | | ||||||||
Stefan L. Kaluzny(1) |
52,642,520 | 67.3% | 3,842,676 | 5,519,765 | 48,799,844 | 55.0% | 47,122,755 | 53.1% | ||||||||
Jennie W. Wilson(3) |
| | | | | | | | ||||||||
Michael F. Devine, III |
| | | | | | | | ||||||||
All executive officers and directors as a group (15 persons) |
59,220,011 | 75.7% | 4,219,108 | 5,160,173 | 55,000,903 | 62.0% | 53,159,838 | 59.9% |
* | Represents beneficial ownership of less than one percent (1%) of our outstanding common stock. |
(1) | Includes shares of common stock that will be held directly following the Reorganization by Multi-Channel Retail Holdings LLCSeries G, a Delaware limited liability company, and shares of common stock held indirectly (through their respective ownership in Multi-Channel Retail Holdings LLC) by (a) Golden Gate Capital Investment Fund II, L.P., (b) Golden Gate Capital Investment Fund II-A, L.P., (c) Golden Gate Capital Investment Annex Fund II, L.P., (d) Golden Gate Capital Investment Fund II (AI), L.P., (e) Golden Gate Capital Investment Fund II-A (AI), L.P., (f) Golden Gate Capital Investment Annex Fund II (AI), L.P., (g) Golden Gate Capital Associates II-QP, L.L.C., (h) Golden Gate Capital Associates II-AI, L.L.C., (i) CCG AV, L.L.C.Series C, (j) CCG AV, L.L.C.Series I and (k) CCG AV, L.L.C.Series L (the entities listed in clauses (a) through (k) above, the Golden Gate Entities), each of which are funds managed by Golden Gate. Golden Gate may be deemed to be the beneficial owner of the shares owned by Multi-Channel Retail Holdings LLC and the Golden Gate Entities, but disclaims beneficial ownership pursuant to the rules under the Securities Exchange Act of 1934, as amended. Each of Mr. Dominik and Mr. Kaluzny is a managing director of Golden Gate, and each may be deemed to be the beneficial owners of shares owned by Multi-Channel Retail Holdings LLC and the Golden Gate Entities. Each of Mr. Dominik and Mr. Kaluzny disclaim beneficial ownership of any securities owned by Multi-Channel Retail Holdings LLC or the Golden Gate Entities, except, in each case, to the extent of their pecuniary interest therein. The address for Golden Gate, Multi-Channel Retail Holdings LLC, the Golden Gate Entities and Mr. Dominik and Mr. Kaluzny is c/o Golden Gate Private Equity, Inc., One Embarcadero Center, 39th Floor, San Francisco, California 94111. |
(2) | Represents 16,845,607 shares of common stock held by Limited Brands Store Operations, Inc. and 701,900 shares of common stock held by EXP Investments, Inc., each of which are direct or indirect subsidiaries of, and controlled by, Limited Brands, Inc., c/o Limited Brands, Inc., Three Limited Parkway, Columbus, Ohio 43230. |
(3) | The address for Ms. Wilson and Mr. Faber is c/o Limited Brands, Inc., Three Limited Parkway, Columbus, Ohio 43230. |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In connection with this offering, we will adopt a written policy with respect to related party transactions. Under our related person transaction policy, a Related Person Transaction is any transaction, arrangement or relationship between us or any of our subsidiaries and a Related Person not including any transactions involving $120,000 or less when aggregated with all similar transactions. A Related Person is any of our executive officers, directors or director nominees, any stockholder beneficially owning in excess of 5% of our stock or securities exchangeable for our stock, any immediate family member of any of the foregoing persons, and any firm, corporation or other entity in which any of the foregoing persons is an executive officer, a partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest in such entity.
Pursuant to our Related Person Transaction policy, any Related Person Transaction must be approved or ratified by a majority of the disinterested directors on the Board of Directors or a designated committee thereof consisting solely of disinterested directors. In approving any Related Person Transaction, the Board of Directors or the committee must determine that the transaction is on terms no less favorable in the aggregate than those generally available to an unaffiliated third party under similar circumstances.
Transactions with Related Persons, though not classified as Related Person Transactions by our policy and thus not subject to its review and approval requirements, may still need to be disclosed if required by the applicable securities laws, rules and regulations.
Other than compensation agreements and other arrangements which are described under Executive Compensation, and the transactions described below, since February 4, 2007, there has not been, and there is not currently proposed, any transaction or series of similar transactions to which we were or will be a party in which the amount involved exceeded or will exceed $120,000 and in which any of our directors, executive officers, holders of more than 5% of any class of our voting securities or any member of the immediate family of the foregoing persons had or will have a direct or indirect material interest.
Golden Gate Acquisition
In connection with the Golden Gate Acquisition, we entered into the following agreements:
|
a Unit Purchase Agreement pursuant to which Golden Gate acquired a controlling interest in us for $484.9 million; |
|
a transition services agreement pursuant to which Limited Brands agreed to provide us with support services in various operational and administrative areas, including product sourcing services through MAST. We incurred charges under this agreement of $809.0 million, $772.7 million and $532.2 million during the 2007 Successor period, fiscal 2008 and fiscal 2009, respectively, of which $471.4 million, $584.5 million and $464.7 million related to MAST, in its capacity as a buying agent; |
|
a master sublease and store leases agreement pursuant to which we lease certain stores and our New York design center from Limited Brands; |
|
an advisory agreement with Golden Gate, under which we incurred fees of $3.6 million, $4.2 million and $7.2 million in 2007 Successor period, fiscal 2008 and fiscal 2009, respectively; and |
|
a limited liability company agreement, which includes an advisory fee arrangement for Limited Brands, pursuant to which we incurred fees of $1.1 million, $1.3 million and $2.2 million during the 2007 Successor period, fiscal 2008 and fiscal 2009, respectively. |
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We have amended, replaced or terminated certain of these agreements, and we currently are party to the following agreements with Golden Gate and/or Limited Brands:
|
an amended and restated transition services agreement dated as of April 8, 2010, which provides for the continuation of services provided under the original transition services agreement discussed above that have not otherwise terminated or been replaced, including product sourcing services to be provided by MAST through July 6, 2010; |
|
a master sublease and store leases agreement discussed above pursuant to which we lease certain stores and our New York design center from Limited Brands; |
|
a logistics services agreement effective as of February 1, 2010 pursuant to which an affiliate of Limited Brands provides transportation and delivery and other related services, and pursuant to which we lease our distribution space in Columbus, Ohio; |
|
an office space lease agreement effective as of February 1, 2010 pursuant to which we lease office space from Limited Brands; |
|
the advisory agreement with Golden Gate as discussed above, which will be terminated upon completion of this offering; |
|
the limited liability company agreement discussed above, which will be terminated upon completion of this offering; and |
|
certain other transactions with Golden Gate described in Other Golden Gate Transactions below, pursuant to which we incurred charges of $8.4 million and $19.5 million in fiscal 2008 and fiscal 2009, respectively. |
Each of these agreements and arrangements is described in further detail below.
Purchase Agreement
Pursuant to the Unit Purchase Agreement, dated May 15, 2007 (as amended, the Purchase Agreement), an affiliate of Limited Brands sold 75% of the equity interests in Express Holding, LLC to an entity that is wholly-owned by Golden Gate, Express Investment Corp., for a cash payment of $484.9 million, which amount includes a $34.3 million net tangible asset adjustment paid by Express Investment Corp. to Express Holding. In addition, on the closing of the Golden Gate Acquisition, we distributed to an affiliate of Limited Brands $117.0 million in loan proceeds (which amount includes the expense reimbursement paid to Limited Brands described below) from a $125.0 million term loan facility entered into with Morgan Stanley Senior Funding, Inc. as administrative agent and certain other lenders. See Description of Certain IndebtednessOpco Term Loan Facility. The Purchase Agreement also required us to pay up to $14.0 million and $7.0 million, respectively, of the reasonable out-of-pocket costs and expenses incurred by Express Investment Corp. and Limited Brands, respectively, in connection with Golden Gate Acquisition. The expense reimbursement to which Limited Brands was entitled under the Purchase Agreement was included in the aforementioned amounts paid to it at the closing of the Golden Gate Acquisition. The purchase price for the equity interests in Express Holding was also subject to a customary adjustment following the closing of the Golden Gate Acquisition based on the amount of our net tangible assets as of the closing. Limited Brands paid Express Holding $1.9 million in connection with this adjustment.
The Purchase Agreement contains negotiated representations and warranties and covenants of each of Express Investment Corp. and Limited Brands and provides for indemnification in the event of a breach of these covenants and certain of these representations and warranties. None of the representations and warranties survived the closing of the Golden Gate Acquisition, except for claims with respect to (1) a breach of certain fundamental representations (including those made by a party as to its corporate existence, authority to enter into the Purchase Agreement, and capitalization) (the time period to bring a claim for any such breach survives until
118
the latest date permitted by law), and (2) a breach of representations regarding financial statements and sufficiency of assets (the time period to bring a claim for any such breach expired on July 6, 2008). Covenants of the parties continue in full force and effect indefinitely or for the shorter period specified in the Purchase Agreement. Neither party has brought an indemnification claim against the other party as of the date of this prospectus.
Limited Brands Transition Services Agreements
In connection with the Golden Gate Acquisition, we entered into a transition services agreement pursuant to which Limited Brands agreed to provide us support services in various operational areas including, among other things, human resources, real estate, tax, marketing, logistics, technology and product sourcing. We also used Limited Brands to process a portion of our normal course store operating lease payments so as to minimize the potential for disruption to our landlords during the transition. The product sourcing services are provided by MAST, an affiliate of Limited Brands, and are discussed separately below. See MAST Services Agreement. The length of time these services are to be provided vary and generally range in duration from 3 months to 36 months. The provision of these services under the transition services agreement will expire in July 2010. We incurred $337.6 million, $188.2 million and $67.5 million in charges from Limited Brands for various transition services, excluding services provided by MAST, during the 2007 Successor period, fiscal 2008 and fiscal 2009, respectively.
The following table provides additional detail on these transition services charges from Limited Brands.
Period from
July 7, 2007 through February 2, 2008 |
2008 | 2009 | |||||||
Store lease payments processed by LBI |
$ | 160.8 | $ | 70.2 | $ | 1.0 | |||
Payroll and related expenses processed by LBI |
81.5 | 24.6 | | ||||||
Logistics services |
29.7 | 50.7 | 42.6 | ||||||
Information technology |
14.0 | 20.6 | 17.0 | ||||||
Other general and administrative expenses |
51.6 | 22.1 | 6.9 | ||||||
Total |
$ | 337.6 | $ | 188.2 | $ | 67.5 | |||
Our outstanding liability, included in accounts payable and accrued expensesrelated parties for transition services excluding services provided by MAST as of January 30, 2010 was $10.9 million. The amounts we pay for the services provided pursuant to the transition services agreement, excluding services provided by MAST, vary depending on the applicable service and, in some instances, include a specified overhead charge. We are generally invoiced by Limited Brands monthly for these amounts and are generally required to pay within 30 days of invoice. Since the Golden Gate Acquisition, we have made investments in our business so that we can operate as a standalone business. The only material services that are still provided to us by Limited Brands under this agreement relate to information technology, customer marketing and product sourcing through MAST as described below. We intend to amend and restate the transition services agreement prior to the completion of this offering to eliminate provisions of that agreement that are related to services that are no longer provided to us by Limited Brands. We have substantially completed the transition from Limited Brands information technology to our own information technology systems. We expect to complete our information technology transition by June 30, 2010, and we expect to complete our marketing transition by June 1, 2010. As a result, we do not expect the expiration of the provision of these services to have an adverse impact on our business.
MAST Services Arrangements
An affiliate of Limited Brands, MAST Industries, Inc. currently provides us with certain support services relating to our product production and sourcing under the transition services agreement described above which expires in July 2010. MAST is one of the largest contract manufacturers and importers of womens and mens
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apparel in the United States and has relationships with many other third-party retailers. These services include providing us support in connection with our product costing and specifications, assisting us with vendor certification, compliance and auditing, purchase order initiation and tracking, and product delivery services, including customs and other regulatory compliance and logistics services. Our agreement with Limited Brands pursuant to which MAST provides services to us contains a confidentiality provision that requires Limited Brands and us to maintain as confidential all of the confidential information provided in connection with the performance of the agreement, including the MAST services. In addition, this provision prohibits us and Limited Brands from using the other partys confidential information for their own benefit. Because of these contractual confidentiality restrictions, we do not believe that sharing competitive information with MAST or Limited Brands in connection with these arrangements places us at a disadvantage relative to Limited Brands or any of our other competitors.
For the twelve month period ending July 6, 2010, we are obligated to purchase a minimum of 60% of our requirements for certain of our products, and related services, through MAST. After July 6, 2010, we may obtain all of our products and related services on the open market as we do with the other 40% of products not sourced
through MAST. While we anticipate little to no change in our sourcing strategy once the transition services agreement expires, we do not intend to enter into another long term agreement with MAST that obligates us to minimum purchase requirements. However, we are required to obtain certain customs, labor and related compliance services through Limited Brands in connection with all products sourced by us through non-Limited Brands entities for so long as Limited Brands holds at least 20% of our outstanding equity. We estimate that the cost of these required services will be approximately $0.3 million per year. We incurred charges from MAST, in its capacity as buying agent, of $471.4 million, $584.5 million, and $464.7 million in the 2007 Successor period, fiscal 2008 and fiscal 2009, respectively. These charges from MAST primarily consisted of payments in respect of the purchase price of sourced products, with an additional sourcing fee paid to MAST to compensate them for their services. Our outstanding liability, included in accounts payable and accrued expensesrelated parties for merchandise sourcing as of January 30, 2010 was $63.6 million. We pay MAST on terms comparable to our other large unrelated sourcing vendors.
Master Sublease and Store Leases Agreement
In connection with the Golden Gate Acquisition, on July 6, 2007 we entered into a Master Sublease, a Store Leases Agreement and certain related agreements with Limited Brands and certain of its affiliates. The Master Sublease provides for Limited Brands or one of its affiliates to sublease us the space for approximately nine of our retail stores, as well as our design center in New York, New York. Fees incurred under this agreement were paid under the transition services agreement and are included in the expenses referenced above for the transition services agreement. Limited Brands has guaranteed for the benefit of the applicable landlord our performance of our obligations under each of the prime leases for these sites, including the obligation to pay rent. Under the Master Sublease, Limited Brands has agreed to cooperate with us so that we have the right and power to control all decisions in connection with the exercise or election not to exercise any and all rights of the tenant under the applicable lease agreement.
The Store Leases Agreement provides for the sublease (with us as either the subtenant or sublandlord party) of certain retail space shared by Limited Brands or one of its affiliates and us, including the retail space for certain of our stores, as well as the retail space for certain stores operated by Limited Brands or one of its affiliates. Depending on whether we or an affiliate of Limited Brands is the tenant under applicable lease agreement, either we or an affiliate of Limited Brands are primarily responsible for the obligations under the applicable lease.
In general, the subleases effectuated pursuant to the terms of the Master Sublease and Store Leases Agreement commenced on July 6, 2007 and expire on the day immediately preceding the day of expiration of the current term of the underlying lease agreement for the applicable retail store. In addition, the other arrangements provided for in the Master Sublease and Store Leases Agreement (including the payment of rent and monetary expenses) mirror the terms of the underlying lease agreement with the landlord for the applicable site.
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Golden Gate Advisory Agreement
In connection with the Golden Gate Acquisition, we entered into an Advisory Agreement with Golden Gate that expires in July 2017, with automatic one-year extensions unless either we or Golden Gate provides a termination notice to the other at least 90 days prior to the expiration of the initial or any extension term. Under this agreement, Golden Gate provides us with consulting and advisory services, including general executive and management services, support and analysis with respect to financing alternatives and finance marketing and human resources services. Under the Advisory Agreement, we reimburse Golden Gate for reasonable out-of-pocket expenses incurred in connection with providing us consulting and advisory services and also pay an annual advisory fee equal to the greater of (1) $2.0 million per fiscal year and (2) 3% of our Adjusted EBITDA. These advisory fees are payable quarterly in advance. We incurred advisory fees of $3.6 million, $4.2 million and $7.2 million in the 2007 Successor period, fiscal 2008 and fiscal 2009, respectively. These expenses are recorded as other operating expenses. Upon the consummation of each transaction that results in a change of control of Express Parent or its subsidiaries or an acquisition, divestiture or incremental financing (above and beyond the existing amount of funded debt being replaced, whether by debt or equity financing) by or involving Express Parent or its subsidiaries (including the issuance of the Senior Notes), we are also required to pay Golden Gate a transaction fee in an amount equal to 1% of the aggregate value of any such transaction. In addition, under the LLC Agreement described below, so long as Limited Brands owns any of Express Parents equity interests, we are obligated to make a cash payment to it equal to a portion of the periodic quarterly advisory fees paid to Golden Gate under the Advisory Agreement, which payment will be determined based on the amount of Express Parents equity interests it holds relative to that held by Golden Gate. In connection with the Refinancing Transactions, we paid Golden Gate $2.5 million in transaction advisory fees. In connection with this initial public offering, we plan to pay Golden Gate $ 10.0 million in connection with terminating this agreement and Limited Brands $3.3 million to terminate their advisory fee arrangement under the LLC Agreement but will not pay a separate 1% transaction fee. See Use of Proceeds.
Logistics Services Agreement
On October 5, 2009, we negotiated a new logistics services agreement with an affiliate of Limited Brands to replace the logistics services provided to us by Limited Brands under the transition services agreement. The term of the agreement commenced on February 1, 2010 and ends on April 30, 2016 and will continue thereafter unless it is terminated by either party on no less than 24 months prior notice. Notwithstanding the foregoing, we have the right to terminate the agreement on 24 months prior notice, which may be given any time after February 1, 2011. In no event may the termination of the agreement occur between October 1 of any calendar year and the last day of February of the next calendar year.
Under the logistics services agreement, an affiliate of Limited Brands has agreed to provide us certain inbound and outbound transportation and delivery services, distribution services, and customs and brokerage services. This agreement also provides for the rental of approximately 418,000 square feet of warehouse/distribution space located in Columbus, Ohio commencing February 1, 2010, which lease will replace our current lease of 403,620 square feet in this warehouse/distribution space from an affiliate of Limited Brands. We have the option to convert up to 30,000 square feet of the warehouse/distribution facility into office space. If we elect to exercise this option, our rent and operating expenses will be increased by an amount specified in the logistic services agreement.
The amounts we pay for the services provided pursuant the logistics agreement vary depending on the type of service but generally are based on the costs incurred by the Limited Brands affiliate to provide such service plus a mark-up. We pay monthly rent for the distribution space of approximately $0.1 million (subject to a 10% increase every five years), plus operating expenses. We are generally invoiced by the Limited Brands for amounts due under the logistics agreement monthly and are required to pay within 30 days of the invoice.
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Lease Agreement for Office Space
We and an affiliate of Limited Brands entered into an agreement for us to lease 160,519 square feet of office space located in Columbus, Ohio on October 5, 2009. This lease agreement replaces and supersedes a lease agreement we entered into at the closing of the Golden Gate Acquisition, which provided for the lease by us of the aforementioned office space. The lease agreement became effective on February 1, 2010 and has an initial term ending April 30, 2016. We also have the right to exercise a renewal option for five additional years. We are obligated to pay the Limited Brands affiliate monthly rent under the lease equal to approximately $107,000 during the first five years of the lease and approximately $118,000 during the remainder of the lease term and the optional renewal period, plus operating expenses.
LLC Agreement
On June 26, 2008, as part of the corporate reorganization described below, each member of Express Parent (including an affiliate of Limited Brands) entered into a limited liability company agreement with Express Parent. This agreement governs the management of Express Parent, and the ownership and transfer of equity interests of Express Parent, which are referred to as units.
Under the LLC Agreement, each member must take all actions (including voting its units) to cause the membership of Express Parents board of managers to be comprised of five managers. Limited Brands (through its affiliates) has the right to designate two managers as long as it owns at least 50% of the units it acquired in the Golden Gate Acquisition and one manager as long as it owns at least 25% of the units it acquired in the Golden Gate Acquisition. Golden Gate has the right to designate three managers as long as it owns at least 50% of the units it acquired in the Golden Gate Acquisition and two managers as long as its owns at least 25% of the units it acquired in the Golden Gate Acquisition. In the event our chief executive officer has not been designated as a manager by either Limited Brands or Golden Gate, he or she will be an ex-officio, non-voting member of the board of managers.
The LLC Agreement provides that until the earlier of such time as (1) Express Parent or any of its subsidiaries have consummated an initial public offering of at least 15% of its outstanding equity interests after giving effect to the initial public offering which yields gross proceeds of at least $200.0 million (a Qualified IPO) and (2) the first date when Limited Brands owns less than 20% of Express Parents outstanding equity interests, we may not take certain actions without Limited Brands prior written approval, including changing the size of the board, the designation of any subcommittee of the board, changing Express Parents or any of its subsidiaries organizational documents, the transfer of less than all of the equity interests of any subsidiary of Express Parent, changing our fiscal year, selecting or removing our principal auditors (unless certain named auditors are selected following such removal), certain issuances of securities, filing for insolvency or winding up or dissolving Express Parent or its subsidiaries, effecting an initial public offering that is not a Qualified IPO, certain mergers and similar transactions, certain sales of all or substantially all of Express Parents or any of its subsidiaries assets or equity, entering into certain transactions with Express Parents equity holders or their affiliates and changing our line of business.
Under the LLC Agreement certain of our equity holders have registration rights. At any time following the earlier of (1) 180 days after the effective date of the registration statement for our proposed initial public offering and (2) the expiration of any lock-up period in connection with our proposed initial public offering, each of Golden Gate, Limited Brands and our President and Chief Executive Officer, Michael A. Weiss, Mr. Weiss spouse and certain of Mr. Weiss family trusts (collectively, the Weiss Holders) and other holders of our Class L Units may demand that we register under the Securities Act the shares of our common stock held by them. We are required to use our reasonable best efforts to effect and maintain the registration of the securities requested to be registered by Golden Gate, Limited Brands, the Weiss Holders and/or such other holders, as applicable, as well as any securities we may elect to register. Each of Golden Gate, Limited Brands, the Weiss Holders and such other holders are entitled to no more than three long-form demand registrations and an
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unlimited number of short-form demand registrations. The aforementioned registration rights are subject to standard underwriter cutbacks and other customary limitations.
In addition, following the completion of our proposed initial public offering, if we propose to file a registration statement in connection with a public offering of our common stock, then, subject to certain limited exceptions, each of Golden Gate, Limited Brands, the Weiss Holders and other holders of our Class L Units have piggyback registration rights pursuant to which we are required to use our reasonable best efforts to register such number of securities as they request. These registration rights are also subject to customary cutbacks and other limitations.
We are required to pay all fees and expenses incurred in connection with the aforementioned registrations, except that we are not required to pay any underwriting discounts or commissions or transfer taxes relating to the transfer of securities by any persons other than us. In addition, in connection with the aforementioned registrations, each of Golden Gate, Limited Brands, the Weiss Holders and other holders of our Class L Units must consent and comply with any lock-up restrictions that may be reasonably requested by the managing underwriters of such offering, regardless of whether such persons securities are included in such registration. In connection with the grant of these registration rights, we, Golden Gate, Limited Brands, the Weiss Holders and other holders of our Class L Units have entered into customary cross-indemnification and contribution agreements with respect to the registration of our common stock.
Furthermore, under the LLC Agreement, Limited Brands is entitled to receive a cash payment (at the same time payments are made under the Advisory Agreement with Golden Gate) equal to the product of (i) the amount of the advisory fees actually paid in cash by us and our subsidiaries under the Advisory Agreement and (ii) the quotient of the number of units held by Limited Brands over the number of units held by Golden Gate at the time of payment of such fees. In connection with this initial public offering, we plan to pay Limited Brands $3.3 million in connection with terminating this agreement.
Other Golden Gate Transactions
From time to time we enter into various transactions with affiliates of Golden Gate. Our LLC Agreement requires that, prior to entering into transactions with affiliated parties, our board determines that the terms of the transaction are substantially similar to those that would be obtained with an unaffiliated third party. We are party to an agreement with Appleseeds Intermediate Holdings (Appleseeds), an affiliate of Golden Gate, under which Appleseeds provides us with services related to our e-commerce business, including warehouse and fulfillment services. During 2008 and 2009 we incurred charges in the amount of $7.8 million and $19.2 million for services rendered under this agreement, respectively. On March 25, 2010, we elected to prepay Appleseeds $10.2 million for services from April 2010 through January 2011 in exchange for a 9% discount on the services Appleseeds provides to us. In addition, during 2008 and 2009, we purchased software licenses, consulting and software maintenance services from affiliates of Golden Gate in the amount of $0.6 million and $0.3 million, respectively. Our outstanding liability, included in accounts payable and accrued expensesrelated parties, for services rendered by affiliates of Golden Gate (excluding the Advisory Agreement) was $3.5 million as of January 30, 2010. In addition, we provide certain real estate services, including assistance with lease negotiations and site identification, to certain affiliates of Golden Gate. We expect to continue to operate in the ordinary course of business, including with respect to our transactions with affiliates of Golden Gate, after completing this offering.
2008 Corporate Reorganization
On June 26, 2008, we completed a corporate reorganization. In connection with the 2008 reorganization, on June 26, 2008, Express Topco entered into the $300.0 million Topco credit facility. See Description of Certain IndebtednessTopco Credit Facility.
On June 26, 2008, Express Topco borrowed $200.0 million under the Topco credit facility. KKR SCF Loan Administration, LLC is the administrative agent, and originally held $100.0 million of Term B Loans and $100.0
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million of Term C Loans, under our Topco credit facility. The terms of this facility, including the interest rates of 13.5% per annum for the Term B Loans and 14.5% for the Term C Loans were established through negotiations between us and KKR SCF Loan Administration, LLC, who is not affiliated with our company. In 2008, based upon our board receiving various proposals from other third parties for financings similar to the Topco credit facility and our boards understanding of the debt markets at that time, we determined that the terms of the Topco credit facility, including the interest rates, were comparable to terms available from other lenders at that time. The Topco credit facility provides for higher interest rates relative to the Opco credit facilities because, among other things, the Topco credit facility is effectively subordinated to the borrowings under the Opco credit facilities and the proceeds were used to pay a distribution to equity holders. On or about July 15, 2008, Express Topco borrowed an additional $100.0 million under the Topco credit facility. Total proceeds from these borrowings were $300.0 million, less an original issue discount of $6.0 million and fees and expenses of $4.5 million, resulting in net proceeds of $289.5 million. On or about July 15, 2008, Express Topco made a distribution to Express Parent of $289.5 million with the net proceeds of the foregoing borrowings. Immediately following its receipt of such proceeds, Express Parent made a distribution of $289.5 million to its equity holders in accordance with the provisions of the LLC Agreement. See LLC Agreement. On March 5, 2010, the Term C Loans were prepaid in full in connection with the 2010 Refinancing Transactions.
An affiliate of Golden Gate, GGC Unlevered Credit Opportunities, LLC, is a lender under our Topco credit facility and as of January 30, 2010 was owed approximately $50 million in the original principal amount of the Term B Loans and $50 million in the original principal amount of the Term C Loans, which indebtedness has the same terms, including interest rate, as the loans held by the other lenders, including KKR SCF Loan Administration, LLC, under the Topco credit facility. A separate affiliate of Golden Gate purchased an additional $8.3 million of principal amount of Term B Loans on April 8, 2010. In 2008, Express Topco paid interest equal to $2.9 million in cash to GGC Unlevered Credit Opportunities, LLC pursuant to the terms of the Topco credit facility. In 2009, Express Topco paid interest equal to $14.4 million in cash to GGC Unlevered Credit Opportunities, LLC pursuant to the terms of the Topco credit facility which included the payment in full of all payment-in-kind interest that we accrued in 2008 and 2009. The amount of interest and prepayment fees paid to GGC Unlevered Credit Opportunities, LLC is equal to its pro rata share of the total interest and fees paid by Express Topco pursuant to the terms of the Topco credit facility based on the amount loaned by GGC Unlevered Credit Opportunities, LLC relative to the other lender. See Managements Discussion and Analysis of Financial Condition and Results of OperationLiquidity and Capital ResourcesExisting Credit FacilitiesTopco Credit Facility.
Employment Agreements
We have entered into employment agreements with Michael Weiss, our President and Chief Executive Officer and other executives. For more information regarding this agreement, see Executive CompensationEmployment and Other Agreements.
Equity Incentive Program
We have entered into equity purchase agreements with various members of our senior management, including with Michael Weiss, our President and Chief Executive Officer, in connection with our equity incentive program. In addition, members of our senior management executed promissory notes in favor of Express Holding to satisfy a portion of the purchase price for the equity, each of which was repaid in full by each member of management effective as of February 9, 2010. See Executive CompensationCompensation Discussion and AnalysisEquity IncentivesSummary of our Current Plan.
Senior Notes
On March 5, 2010, investment funds managed by affiliates of Golden Gate purchased $50.0 million of Senior Notes at a purchase price per note equal to 98.599% of the face value of the Senior Notes (the offering price) less the discount at which the initial purchasers purchased the Senior Notes.
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Reorganization as a Corporation
Prior to the effectiveness of the registration statement for this offering, we intend to convert from a Delaware limited liability company to a Delaware corporation and change our name from Express Parent LLC to Express, Inc. In connection with the conversion, all of our Class L Units, Class A Units and Class C Units (collectively, the Units) will be converted into shares of common stock of Express, Inc. Any shares of common stock received in exchange for unvested Class A Units and Class C Units will be subject to the same vesting restrictions that the Class A Units and Class C Units were subject to prior to the conversion. In addition, shares of common stock received in exchange for Units that were subject to repurchase rights will continue to be subject to the same repurchase rights that the Units were subject to prior to the conversion.
The number of shares of common stock into which each Unit will be converted will be determined by calculating the equity value for our company based on an assumed initial public offering price equal to the midpoint of the range set forth on the cover of this prospectus, determining the amount of proceeds to which each Unit would be entitled upon liquidation of our company in accordance with the rights and preferences for each Unit set forth in our LLC Agreement and dividing the amount of proceeds that each Unit would be entitled to receive by the assumed initial public offering price equal to the midpoint of the range set forth on the cover of this prospectus.
On the day following the conversion, (1) EIC, the holding company that holds 67.3% of the equity interests in us on behalf of certain investment funds managed by Golden Gate, and (2) the Management Holding Companies that directly or indirectly hold 6.1% of the equity interests in us on behalf of certain members of management, will be merged with and into us. In connection with these mergers, Golden Gate (indirectly through a limited liability company) and certain members of our management will receive, in exchange for their equity interests in the entities being merged into us, the number of shares of our common stock that they would have held had they held our equity interests directly.
In connection with the Reorganization, we intend to enter into the following agreements:
Conversion Agreement and Merger Agreement
We intend to enter into a Conversion Agreement and a Merger Agreement with our controlling equity holders to effect our conversion into a corporation and the mergers described above. Concurrently with the consummation of the conversion to a corporation, the LLC Agreement will be terminated (other than the provisions thereof relating to certain pre-closing tax matters and liabilities for breaches of the LLC Agreement). Concurrently with the consummation of this offering, the Advisory Agreement will be terminated. As noted above, in connection with the termination of the advisory arrangements with Golden Gate and Limited Brands, we intend to pay Golden Gate an amount equal to $10.0 million and Limited Brands an amount equal to $3.3 million.
In the Merger Agreement, the companies that will be merged into us will represent and warrant that they do not have any liabilities, operations or businesses other than activities related to holding our common stock and other than liabilities for (i) deferred income taxes that reflect only timing differences between the treatment of items for accounting and income tax purposes and (ii) income taxes with respect to pre-closing periods which are not yet due and payable and for which we are fully indemnified. The mergers will be structured so that we will not acquire any assets (other than certain income tax receivables and an amount of cash that has been estimated in good faith to be sufficient to pay all pre-closing income taxes of the entities to be merged into us) or be responsible for any liabilities other than (i) deferred income taxes that reflect only timing differences between the treatment of items for accounting and income tax purposes and (ii) income taxes with respect to pre-closing periods which are not yet due and payable and for which we are fully indemnified. An affiliate of Golden Gate, Multi-Channel Retail Holdings, LLCSeries G (MCRH), will indemnify us with respect to any liabilities (including tax liabilities related to pre-closing periods, other than with respect to deferred income tax liabilities that reflect only timing differences between the treatment of items for accounting and income tax purposes) of EIC that we acquire in the merger.
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Members of our management who hold equity in the Management Holding Companies will indemnify us with respect to any liabilities (including tax liabilities related to pre-closing periods, other than with respect to deferred income tax liabilities that reflect only timing differences between the treatment of items for accounting and income tax purposes) of the Management Holding Companies that we acquire in the merger. Any assets (other than certain income tax receivables and an amount of cash that has been estimated in good faith to be sufficient to pay all pre-closing income taxes of the entities to be merged into us) in the entities to be merged into us will be distributed to the investors in those entities prior to the merger.
Registration Rights Agreement
We intend to enter into a Registration Rights Agreement that will provide Golden Gate, Limited Brands and certain management stockholders, including each of our NEOs, with substantially equivalent registration rights as these holders have under the LLC Agreement that will be terminated in connection with the Reorganization. Under the Registration Rights Agreement, following the earlier of (x) 180 days after the effective date of the registration statement for this offering and (y) the expiration of the period during which the managing underwriters of this offering shall prohibit us from effecting any other public sale or distribution of our common stock, Golden Gate and Limited Brands will have the right to request three long-form demand registrations and an unlimited number of demand registrations on Form S-3. In addition, Golden Gate, Limited Brands and certain management stockholders, including each of our NEOs, will have piggyback registration rights in connection with offerings initiated by us, Golden Gate or Limited Brands. The registration rights are subject to customary cutbacks and other limitations.
At any time after the date we are eligible to file a registration statement on Form S-3, Golden Gate or Limited Brands may request that we file a shelf-registration with respect to their common stock. We are required to pay all fees and expenses incurred in connection with the registrations, except that we are not required to pay for any underwriting discounts or commissions or transfer taxes relating to the transfer of securities by any persons other than us.
Under the Registration Rights Agreement, Golden Gate, Limited Brands and management stockholders will be required to comply with any lock-up restrictions that may be reasonably requested by the managing underwriters of an offering, regardless of whether such persons securities are included in a registration, and will be subject to customary cross-indemnification and contribution arrangements with respect to the registration of our common stock.
Stockholders Agreement
We intend to enter into a Stockholders Agreement with MCRH and Limited Brands. Under the Stockholders Agreement, Golden Gate will have 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 this offering, or 26,321,259 shares, 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 completion of this offering, or 13,160,629 shares. Limited Brands will have 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 completion of this offering, or 8,773,753 shares, 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 completion of this offering, or 4,386,876 shares. The Stockholders Agreement will require 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. We will be required to use commercially reasonable efforts to cause the nominees to be included in the Board of Directors slate of nominees and in our annual proxy statement, subject to certain exceptions.
The Stockholders Agreement will restrict Golden Gates ability to make distributions of our common stock without consideration to the partners of investment funds managed by Golden Gate and will restrict Limited
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Brands ability to make distributions of our common stock without consideration to its stockholders, in each case during the eighteen month period following the completion of this offering. The Stockholders Agreement will not otherwise restrict the ability of Golden Gate or Limited Brands to transfer our common stock. The Stockholders Agreement will also require Golden Gate and Limited Brands to maintain the confidence of our confidential information and use it only for purposes of our business and will give Limited Brands rights to receive certain of our financial information until such time that Limited Brands ceases to account for its investment in us pursuant to the equity method of accounting.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Opco Revolving Credit Facility
On July 6, 2007, Express Holding and Express, LLC entered into a $200.0 million secured Asset-Based Loan Credit Agreement with Wells Fargo Retail Finance, LLC, as administrative agent, and certain other lenders. The Opco revolving credit facility is available to be used for working capital and other general corporate purposes and is scheduled to expire on July 6, 2012. The Opco revolving credit facility, as amended, allows for swing line advances of up to $30.0 million and up to $45.0 million to be available in the form of letters of credit. At any time that the foregoing conditions to borrowings are not met, or after the occurrence and during the continuance of an event of default, the administrative agent and collateral agent are authorized to make protective advances to us to (1) preserve or protect the value of the collateral securing the Opco revolving credit facility, (2) enhance the likelihood or maximize the amount of repayment under the Opco revolving credit facility or (3) pay certain amounts payable by us pursuant to the Opco revolving credit facility, provided that such protective advances shall not exceed at any time the lesser of $20.0 million and 10% of the borrowing base if made pursuant to clauses (1) and (2).
On February 5, 2010, Express Holding and Express, LLC entered into an amendment to the Opco revolving credit facility that became effective March 5, 2010, in connection with the completion of the 2010 Refinancing Transactions. The amendment, among other things, (1) permitted the issuance of the Senior Notes and the guarantees thereof by Express Holding and its subsidiaries, (2) increased the applicable interest rate margins and unused line fee, (3) permitted a distribution by Express, LLC to allow Express Topco to prepay the Term C loans in their entirety (plus prepayment penalties and accrued and unpaid interest thereon) and Express Parent to make a cash distribution to its equity holders in an aggregate amount equal to approximately $230.0 million, (4) permits Express, LLC to pay distributions to allow Express Topco to make regularly scheduled interest payments on the Term B Loans under the Topco credit facility and (5) permits Express Holding to own the equity interests of Express Finance Corp., the co-issuer of the Senior Notes. We paid customary amendment fees to consenting lenders in connection with the amendment.
Borrowings under the Opco revolving credit facility bear interest at a rate equal to LIBOR plus an applicable margin rate or the higher of The Wall Street Journals prime lending rate and 0.50% per annum above the federal funds rate, plus an applicable margin rate. The applicable margin rate is determined based on excess availability as determined with reference to our borrowing base. The borrowing base components are 90% of credit card receivables plus 85% of the liquidation value of eligible inventory, less certain reserves. At the end of fiscal 2008, we borrowed $75.0 million under the Opco revolving credit facility, which was reflected as a current liability on our balance sheet. This amount was paid in full in fiscal 2009. We had no borrowings outstanding and $139.6 million available under the Opco revolving credit facility as of April 3, 2010. As a result of the amendment described above, effective March 5, 2010, the applicable margin rate for LIBOR-based advances is 2.25% per annum or 2.00% if excess availability is $100.0 million or greater, and for base rate-based advances is 1.25% per annum or 1.00% if excess availability is $100.0 million or greater.
As a result of the amendment described above, effective March 5, 2010, unused line fees payable under the Opco revolving credit facility are based on 0.50% of the average daily unused revolving commitment during each quarter payable quarterly in arrears. Additionally, fees for outstanding letter of credit balances are at the applicable margin rate for LIBOR-based advances based on the average daily aggregate amount during the quarter of all letters of credit outstanding, payable quarterly in arrears. There is also a fronting fee payable quarterly in arrears of 0.125% based on the average daily aggregate available amount during the quarter of all letters of credit outstanding.
Interest payments under the Opco revolving credit facility are due quarterly on the last day of each April, July, October and January for base rate-based advances and on the last day of the interest period for LIBOR-based advances for interest periods of one, two, three and six months (or if available to all lenders, nine or twelve months), and additionally every three months after the first day of the interest period for LIBOR-based advances for interest periods of greater than three months.
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Voluntary prepayments are permitted in whole or in part, without premium or penalty, subject to certain minimum prepayment requirements and payment of costs and expenses incurred by the lenders in connection with prepayment of LIBOR-based borrowings prior to the end of the applicable interest period for such borrowings.
Express, LLC may terminate in whole or reduce in certain multiples the amount of commitments under the Opco revolving credit facility upon five business days notice to the lender.
Borrowings under the Opco revolving credit facility are subject to the accuracy of representations and warranties in all material respects and the absence of any defaults.
The Opco revolving credit facility contains customary covenants and restrictions on Express Holding, and its subsidiaries activities, including, but not limited to, limitations on the incurrence of additional indebtedness; liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions and prepayment of other debt; distributions, dividends and the repurchase of capital stock; transactions with affiliates; the ability to change the nature of our business or our fiscal year; the ability to amend the terms of the Opco term loan and the Advisory Agreement; and permitted activities of Express Holding.
As a result of the amendment described above, effective March 5, 2010, the Opco revolving credit facility requires Express Holding to maintain a fixed charge coverage ratio of 1.00 to 1.00 if excess availability plus eligible cash collateral is less than $30.0 million.
Events of default under the Opco revolving credit facility include, but are not limited to, (1) Express, LLCs failure to pay principal, interest, fees or other amounts under the Opco revolving credit facility when due taking into account any applicable grace period; (2) any representation or warranty proving to have been incorrect in any material respect when made; (3) failure to perform or observe covenants or other terms of the Opco revolving credit facility subject to certain grace periods; (4) a cross default or failure to pay certain other debt; (5) bankruptcy events; (6) unsatisfied final judgments over a threshold; (7) a change of control; (8) certain defaults under the Employee Retirement Income Security Act of 1974; and (9) the invalidity or impairment of any loan document or any security interest.
All obligations under the Opco revolving credit facility are guaranteed by Express Holding and its subsidiaries and secured by a lien on substantially all of the assets of Express Holding and its subsidiaries, including owned real property; all fixtures and equipment; all intellectual property; all equity interests in Express, LLC and other subsidiaries of Express Holding; general intangibles; all of our intercompany indebtedness; all proceeds of insurance; all books and records; and all other proceeds. The lien of the Opco revolving credit facility lenders is first in priority with respect to the following: all accounts arising from the sale or other disposition of goods or services; all inventory; to the extent evidencing, governing, securing or otherwise related to the foregoing accounts and inventory, all general intangibles, chattel paper, instruments, documents, letter of credit rights and supporting obligations; all collection accounts, deposit accounts, commodity accounts, security accounts and any cash, cash equivalents or other assets in any such accounts (excluding any net cash proceeds from the sale or other disposition of any collateral as to which the Opco term loan lenders have first priority); all books, property and records related to the foregoing; and all products and proceeds of the foregoing.
Opco Term Loan Facility
On July 6, 2007, Express Holding and Express, LLC, entered into a $125.0 million secured term loan. The proceeds of these borrowings were used to finance, in part, the Golden Gate Acquisition and to pay transaction fees and expenses related to the Golden Gate Acquisition. Borrowings under the Opco term loan bear interest at a rate equal to LIBOR plus an applicable margin rate or the higher of The Wall Street Journals prime lending rate and 0.50% per annum above the federal funds rate, plus an applicable margin rate.
On February 5, 2010, Express Holding and Express, LLC entered into an amendment to the Opco term loan that became effective March 5, 2010 in connection with the 2010 Refinancing Transactions. The amendment
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among other things, (1) permitted the issuance of the Senior Notes and the guarantees thereof by Express Holding and its subsidiaries, (2) increased the applicable interest rate margins (subject to a further increase in the event Express, LLCs corporate family rating is not B2 or better by Moodys and Express, LLCs corporate credit rating is not B or better by Standard & Poors), (3) permitted, a distribution by Express, LLC to allow Express Topco to prepay the Term C Loans under the Topco credit facility in their entirety (plus any applicable prepayment penalties and accrued and unpaid interest thereon) and Express Parent to make a distribution to its equity holders in an aggregate amount equal to approximately $230.0 million, (4) permits Express, LLC to pay distributions to allow Express Topco to make regularly scheduled interest payments on the Term B Loans under the Topco credit facility and (5) permits Express Holding to own the equity interests of Express Finance Corp., the co-issuer of the Senior Notes. The amendment also increased the applicable margin rates on advances as described above. We paid customary amendment fees to consenting lenders in connection with the amendment.
The applicable margin rate is determined by Express Holdings leverage ratio of consolidated debt for borrowed money (net of cash and cash equivalents, provided that after giving effect to the amendment described below, no more than $75.0 million of cash and cash equivalents may be netted against consolidated debt for borrowed money for this purpose), including amounts drawn under letters of credit and any synthetic debt, to Adjusted EBITDA, in effect on the first day of each interest period with respect to LIBOR based advances and by the Leverage Ratio in effect from time to time with respect to base rate based advances. As a result of the amendment described above, effective March 5, 2010, the applicable margin rate for LIBOR-based advances is 4.25% per annum or 4.00% if the Leverage Ratio is less than 1.00 to 1.00, and for base rate-based advances is 3.25% per annum or 3.00% if the Leverage Ratio is less than 1.00 to 1.00; additionally, these rates may be further increased by 0.50% per annum in the event that Express, LLC fails to maintain at the time of determination, a corporate family rating of B2 or better by Moodys and a corporate credit rating of B or better by Standard & Poors. As of February 1, 2010, the interest rate under the Opco term loan was 2.75%.
Interest payments under the Opco term loan are due quarterly on the last day of each April, July, October and January for base rate-based advances and on the last day of the applicable interest period for LIBOR-based advances for interest periods of one, two, three and six months (or if available to all lenders, nine or twelve months), and additionally every three months after the first day of the interest period for LIBOR-based advances for interest periods of greater than three months. Principal payments under the Opco term loan are due quarterly on the last business day of each April, July, October and January through July 6, 2013, in equal installments of 0.25% of the initial principal balance with the balance of principal due on July 6, 2014.
The agreement governing the Opco term loan requires that annual prepayments of principal be made within five business days after the 120th calendar day following the end of each fiscal year in the amount by which an applicable percentage of excess cash flow (as defined in the agreement) that corresponds to Express Holdings Leverage Ratio, exceeds any voluntary prepayments of the Opco term loan over the fiscal year.
The Opco term loan also requires prepayments of principal with respect to (1) 100% of certain asset transfers in excess of $1.0 million per fiscal year, (2) 100% of certain debt issuances, and (3) 100% of certain other extraordinary receipts pertaining to casualty insurance and condemnation awards.
Voluntary prepayments are permitted in whole or in part, without premium or penalty, subject to certain minimum prepayment requirements and payment of costs and expenses incurred by the lenders in connection with prepayment of LIBOR-based borrowings prior to the end of the applicable interest period for such borrowings.
The Opco term loan contains customary covenants and restrictions on Express Holding, and its subsidiaries activities, including, but not limited, to limitations on: the incurrence of additional indebtedness; liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions and prepayment of other debt; distributions, dividends and the repurchase of capital stock; transactions with affiliates; the ability to change the nature of our businesses or fiscal year; the ability to amend the terms of the purchase agreement pertaining to the
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Golden Gate Acquisition, the Opco revolving credit facility loan documents and the Advisory Agreement with Golden Gate; and permitted activities of Express Holding. Express Holding is also required to use commercially reasonable efforts to maintain corporate family credit and corporate family ratings with Standard & Poors and Moodys Investors Services, Inc.
The Opco term loan also requires that Express Holding, LLC maintain a Leverage Ratio for the most recently completed reporting period (last four consecutive fiscal quarters as of the end of each quarter) of not more than 2.25 to 1.00 at the end of the fourth quarter of fiscal year 2009; 2.00 to 1.00 at the end of the first and second fiscal quarters of 2010; and 1.75 to 1.00 thereafter. Express Holding was in compliance with the covenant requirement as of January 30, 2010.
Events of default under the Opco term loan include, but are not limited to, (1) Express, LLCs failure to pay principal, interest, fees or other amounts under the Opco term loan when due, taking into account any applicable grace period; (2) any representation or warranty proving to have been incorrect in any material respect when made; (3) failure to perform or observe covenants or other terms of the Opco term loan subject to certain grace periods; (4) a cross default or failure to pay certain other debt; (5) bankruptcy events; (6) unsatisfied final judgments over a threshold; (7) a change of control; (8) certain defaults under the Employee Retirement Income Security Act of 1974 and (9) the invalidity or impairment of any loan document or any security interest.
Effective July 6, 2007, Express, LLC entered into a receive variable/pay fixed interest rate swap agreement to mitigate exposure to interest rate fluctuations on a notional principal amount of $75.0 million of the $125.0 million variable-rate Opco term loan. The interest rate swap agreement terminates on August 6, 2010. The fair value of the interest rate swap was a liability of $2.0 million as of January 30, 2010. The Opco term loan requires that Express, LLC maintain interest rate hedge agreements on a notional amount of at least 50% of the term commitments of lenders under the Opco term loan for at least three years.
All obligations under the Opco term loan are guaranteed by Express Holding and its subsidiaries and secured by a lien on substantially all of the assets of Express Holding and its subsidiaries, including owned real property; all fixtures and equipment; all intellectual property; all equity interests in Express, LLC and other subsidiaries of Express Holding; general intangibles; all of our intercompany indebtedness; all proceeds of insurance; all books and records; and all other proceeds. The lien of the Opco term loan lenders is first in priority with respect to the following: owned real property, fixtures and equipment; intellectual property; equity interests in Express, LLC and its subsidiaries; general intangibles, chattel paper, instruments and documents (other than any of those which are first lien collateral for the Opco revolving credit facility described below); payment intangibles that relate to real property, fixtures or equipment; intercompany debt; permits and licenses, and proceeds of insurance related to the foregoing; books and records related to the foregoing and not constituting first lien collateral for the Opco revolving credit facility described below; other collateral which is not first lien collateral for the Opco revolving credit facility described above; and all products and proceeds of the foregoing.
Topco Credit Facility
On June 26, 2008, Express Topco, as borrower, entered into a $300.0 million secured term loan facility with KKR SCF Loan Administration, LLC, as administrative agent, and certain other lenders. The proceeds of the Topco credit facility were used to finance distributions to Express Parents equity holders and to pay related fees, costs and expenses. The Topco credit facility is scheduled to mature on June 26, 2015 and was comprised of $150.0 million of Term B Loans and $150.0 million of Term C Loans. On March 5, 2010, in connection with the 2010 Refinancing Transactions, all of the Term C Loans were prepaid, plus all prepayment penalties and accrued interest thereon. See Prospectus SummaryRecent Developments. An affiliate of Golden Gate, GGC Unlevered Credit Opportunities, LLC, is a lender under our Topco credit facility and as of January 30, 2010 was owed approximately $50 million of the Term B Loans and $50 million of the Term C Loans. A separate affiliate of Golden Gate purchased $8.3 million of principal amount of Term B Loans on April 8, 2010.
On February 5, 2010, Express Topco entered into an amendment to the Topco credit facility that became effective March 5, 2010 in connection with the 2010 Refinancing Transactions. The amendment, among other
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things, permitted (1) the issuance of the Senior Notes and the guarantee thereof by Express Topco and each of its subsidiaries and (2) a distribution by Express Topco to Express Parent to allow Express Parent to make a cash distribution to its equity holders in an aggregate amount equal to approximately $230.0 million. We paid a customary amendment fee to the administrative agent in connection with the amendment.
On April 26, 2010, Express Topco entered into a second amendment to the Topco credit facility. The amendment, among other things, reduced the redemption price in connection with an initial public offering prior to June 26, 2010 to 106%.
The Topco credit facility is not guaranteed by any of Express Topcos subsidiaries. All obligations under the Topco credit facility are secured by a lien on all outstanding equity interests in Express Holding owned by Express Topco, any distributions, dividends or other property received in respect of or in exchange for such interests and all proceeds of the foregoing.
The Term B Loans bear interest at 13.5% per annum. Interest payments for the Term B Loans are due semi- annually, in cash, on the last day of each January and July, with a final payment due upon the maturity of the Topco credit facility.
Provisions of the Topco credit facility require that certain prepayments of principal be offered to the lenders with respect to (1) 100% of certain asset transfers in excess of $1.0 million per fiscal year, (2) 100% of certain debt issuances and (3) 100% of certain other extraordinary receipts pertaining to casualty insurance and condemnation awards. Such prepayments are not required until the sum of the amounts described in clauses (1), (2) and (3) of the previous sentence equals or exceeds $0.5 million. Lenders may opt out of such repayment amounts and any amount for which a lender opts out will be offered to other lenders.
Additionally, in the event of a change in control (as defined in the Topco credit facility and described in the following sentence) all loans outstanding under the Topco credit facility must be prepaid at the then applicable redemption prices applicable to voluntary prepayments of such loans described below. Change in control under the Topco credit facility means (1) at any time prior to the consummation of an initial public offering of equity interests of any of Express Parent, Express Topco or Express Holding, Golden Gate ceases to directly or indirectly own at least 50% of the voting interests of Express Parent; (2) at any time after the consummation of an initial public offering of equity interests of any of Express Parent, Express Topco or Express Holding, any person or entity or two or more persons or entities acting in concert other than Golden Gate acquire beneficial ownership, directly or indirectly, of voting interests (or securities convertible into voting interests) representing 35% or more of the combined voting power of all voting interests of Express Parent, unless Golden Gate owns voting interests representing a greater percentage; (3) at any time after the consummation of an initial public offering of equity interests of any of Express Parent, Express Topco or Express Holding, during any period of up to 24 consecutive months, the continuing directors of Express Topco fail to constitute a majority of the board of directors of Express Topco, (4) at any time, Express Parent ceases to beneficially own and control 100% of the economic and voting interest in the equity interests of Express Topco, (5) at any time, Express Topco ceases to beneficially own and control 100% of the economic and voting interest in the equity interests of Express Holding or (6) at any time, Express Holding ceases to own and control 100% of the economic and voting interest in the equity interests of Express, LLC.
The Topco credit facility also requires that 50% of the proceeds of the first underwritten public offering of Express Parents (or its direct or indirect parent) or any of the subsidiaries equity securities, net of customary costs incurred in connection with such offering, be used to prepay loans outstanding under the Topco credit facility at the then-applicable redemption prices applicable to voluntary prepayments of such loans described below.
Voluntary prepayments are permitted in whole or in part, subject to certain minimum prepayment requirements and payment of the applicable premium described below. Prepayments of Term B Loans may be
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made at the following percentages of the outstanding principal amount prepaid: 107% (106% if in connection with an initial public offering) on or after December 26, 2009, but prior to June 26, 2010; 104% on or after June 26, 2010, but prior to June 26, 2011; 102% on or after December 26, 2011, but prior to June 26, 2012; and 100% on or after June 26, 2012.
The Topco credit facility contains customary covenants and restrictions on Express Topco, and in some cases its subsidiaries activities, including, but not limited to, limitations on the incurrence of additional indebtedness; liens on the equity interests of Express Holding and proceeds thereof and negative pledges on the equity interests of Express Holding securing the Topco credit facility; guarantees, investments, loans, asset sales, mergers, acquisitions and prepayment of other debt; distributions, dividends, the repurchase of equity interests and payments made pursuant to equity incentive and similar plans; transactions with affiliates; the ability to change the nature of our businesses or fiscal year; and the ability of Express Topco to conduct business or hold any properties or liabilities, other than equity interests in Express Holding, indebtedness permitted by the Topco credit facility, and activities incidental thereto. Express Topco is also required to use commercially reasonable efforts to maintain monitored ratings of the Term B Loans with Standard & Poors and Moodys Investors Services, Inc.
The Topco credit facility also requires compliance with certain financial covenants. Express Topco must maintain, for the most recently completed reporting period (last four consecutive fiscal quarters as of the end of each quarter), a leverage ratio of consolidated debt for borrowed money (net of cash and cash equivalents), including amounts drawn under letters of credit and any synthetic debt, to Adjusted EBITDA of not more than 5.00 to 1.00.
Express Topco must also maintain for the most recently completed reporting period (last four consecutive fiscal quarters as of the end of each quarter), an interest coverage ratio of not less than 1.50 to 1.00. The interest coverage ratio is determined by the ratio of Adjusted EBITDA to consolidated interest expense. We were in compliance with these covenant requirements as of January 30, 2010.
Events of default under the Topco credit facility include, but are not limited to, (1) failure to pay principal, interest, fees or other amounts under the Topco credit facility when due, taking into account any applicable grace period; (2) any representation or warranty proving to have been incorrect in any material respect when made; (3) failure to perform or observe covenants or other terms of the Topco credit facility subject to certain grace periods; (4) certain cross defaults or the failure to pay certain other debt; (5) bankruptcy events; (6) unsatisfied final judgments over a threshold; and (7) the invalidity or impairment of any loan document or any security interest.
Senior Notes
On March 5, 2010, Express, LLC and Express Finance Corp., as co-issuers, issued $250.0 million of 8¾% Senior Notes due March 1, 2018 at an offering price of 98.599% of the face value of the Senior Notes. An affiliate of Golden Gate purchased $50.0 million of Senior Notes in the offering. Interest on the Senior Notes is payable on March 1 and September 1 of each year. A portion of the proceeds were used to prepay all of the Term C Loans under the Topco credit facility of $150.0 million, plus prepayment penalties of $3.0 million and accrued and unpaid interest thereon of $1.9 million. The remaining proceeds, together with cash on hand, were used to make a $230.0 million cash distribution to our equity holders and pay related fees and expenses, including discounts and commissions to the initial purchasers of the Senior Notes of $15.4 million.
Prior to March 1, 2014, the Senior Notes may be redeemed in part or in full at a redemption price equal to 100% of the principal amount of the Senior Notes, plus a make-whole premium calculated in accordance with the indenture governing the Senior Notes (the Senior Notes indenture) and accrued and unpaid interest. In addition, prior to March 1, 2013, the Senior Notes may be redeemed in part or in full with the net proceeds of certain equity offerings at 108.75%. On or after March 1, 2014, the Senior Notes may be redeemed in part or in full at
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the following percentages of the outstanding principal amount prepaid: 104.375% prior to March 1, 2015; 102.188% on or after March 1, 2015, but prior to March 1, 2016; and 100% on or after March 1, 2016.
In the event of a Change in Control (as defined in the Senior Notes indenture and described in the following sentence), we will be required to offer to repurchase the Senior Notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest, if any, to the date of repurchase. Change in Control under the Senior Notes indenture means the occurrence of any of the following: (1) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of Express, LLC and its subsidiaries, taken as a whole, other than to Permitted Holders or (2) Express, LLC becomes aware of the consummation of any transaction, the result of which is that any Person (as defined in the Senior Notes indenture) other than the Permitted Holders becomes the beneficial owner, directly or indirectly, of more than 50% of the voting power of Express, LLC. Both Golden Gate and Limited Brands, as well as certain of their affiliates and subsidiaries, are considered to be Permitted Holders under the Senior Notes indenture. In addition, we will be required to offer to repurchase the Senior Notes at a price equal to 100% of the principal amount, plus accrued and unpaid interest, if any, with Excess Proceeds from certain asset sales as defined under the Senior Notes indenture, if such proceeds have not otherwise been used in certain specified manners within 365 days of the date of the asset sale.
The Senior Notes Indenture contains customary covenants and restrictions on the activities of Express, LLC, Express Finance Corp. and Express, LLCs restricted subsidiaries, including, but not limited to, the incurrence of additional indebtedness; dividends or distributions in respect of capital stock or certain other restricted payments or investments; entering into agreements that restrict distributions from restricted subsidiaries; the sale or disposal of assets, including capital stock of restricted subsidiaries; transactions with affiliates; the incurrence of liens; and mergers, consolidations or the sale of substantially all of Express, Inc.s assets. The covenants in the Senior Notes indenture are subject to certain thresholds and exceptions described in the Senior Notes indenture, including exceptions that permit Express, LLC, Express Finance Corp. and Express, LLCs restricted subsidiaries to enter into affiliate transactions with, and to make restricted payments to, Golden Gate and Limited Brands, under certain circumstances specified in the Senior Notes indenture. Certain of these covenants will be suspended if the Senior Notes are assigned an investment grade rating by both Standard & Poors Rating Services and Moodys Investor Service, Inc. and no default has occurred or is continuing. If either rating on the Senior Notes should subsequently decline to below investment grade, the suspended covenants will be reinstated.
Events of default under Senior Notes indenture include, but are not limited to, (1) failure to pay principal or interest when due; (2) certain bankruptcy events; (3) a change of control; (4) failure to comply with the terms of the Senior Notes indenture after 60 days notice; (5) a default with respect to other indebtedness for failure to pay amounts due or which results in the acceleration of such indebtedness if the aggregate amount of such indebtedness is $20.0 million or greater; and (6) failure to pay final non-appealable judgments entered by a court aggregating in excess of $20.0 million within 60 days.
All obligations under the Senior Notes are unconditionally guaranteed by Express Parent and all of the domestic subsidiaries of Express, LLC, other than immaterial subsidiaries. The Senior Notes are general unsecured obligations of Express, LLC and Express Finance Corp. and rank equally in right of payment with all existing and future senior indebtedness of Express, LLC and Express Finance Corp.
In connection with the issuance of the Senior Notes, we entered into a registration rights agreement (the Registration Rights Agreement) which requires us to use commercially reasonable efforts to register notes having substantially identical terms as the Senior Notes with the SEC prior to March 5, 2011. In the event that a Registration Default occurs (as defined in the Registration Rights Agreement), then we will be required to pay additional interest on the Senior Notes in an amount equal to 0.25% per annum during the first 90-day period immediately following the occurrence of the first Registration Default. The additional interest will increase by 0.25% per annum for each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of 1.0% per annum.
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Prior to the effectiveness of the registration statement for this offering, we intend to convert from a Delaware limited liability company to a Delaware corporation and change our name from Express Parent LLC to Express, Inc. Unless otherwise indicated, all information in this section assumes that the Reorganization has been completed prior to the effectiveness of the registration statement. The following is a description of the material terms of our certificate of incorporation and bylaws as they will be in effect upon the Reorganization and completion of this offering. The following description may not contain all of the information that is important to you. To understand them fully, you should read our certificate of incorporation and bylaws, copies of which are or will be filed with the SEC as exhibits to the registration statement, of which this prospectus is a part.
Authorized Capitalization
Upon completion of this offering, our authorized capital stock will consist of 500.0 million shares of common stock, par value $0.01 per share, and 10.0 million shares of preferred stock, par value $0.01 per share. Upon completion of our conversion to a corporation, there will be 78.2 million shares of our common stock outstanding, held of record by approximately 65 stockholders. Based upon (1) 78.2 million shares of our common stock outstanding as of our conversion to a corporation and (2) the issuance of 10.5 million shares of common stock in this offering, there will be 88.7 million shares of our common stock outstanding upon completion of this offering, and no shares of preferred stock will be outstanding.
Upon completion of our conversion to a corporation, there will be no shares of our common stock subject to outstanding options. However, in connection with this offering, we expect to grant options to purchase 1,315,500 shares of our common stock at an exercise price equal to the initial public offering price and 12,500 restricted stock units each representing one share of our common stock.
Common Stock
Voting Rights
Each share of common stock entitles the holder to one vote with respect to each matter presented to our stockholders on which the holders of common stock are entitled to vote. Subject to any rights that may be applicable to any then outstanding preferred stock, our common stock votes as a single class on all matters relating to the election and removal of directors on our board of directors and as provided by law. Holders of our common stock will not have cumulative voting rights. Except in respect of matters relating to the election and removal of directors on our board of directors and as otherwise provided in our certificate of incorporation or required by law, all matters to be voted on by our stockholders must be approved by a majority of the shares present in person or by proxy at the meeting and entitled to vote on the subject matter. In the case of election of directors, all matters to be voted on by our stockholders must be approved by a plurality of the votes entitled to be cast by all shares of common stock.
Dividend Rights
Subject to preferences that may be applicable to any then outstanding preferred stock, the holders of our outstanding shares of common stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of legally available funds. Because we are a holding company, our ability to pay dividends on our common stock is limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions to us, including restrictions under the terms of the agreements governing our indebtedness. See Description of Certain Indebtedness. See also Dividend Policy.
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Liquidation Rights
In the event of any voluntary or involuntary liquidation, dissolution or winding up of our affairs, holders of our common stock would be entitled to share ratably in our assets that are legally available for distribution to stockholders after payment of our debts and other liabilities. If we have any preferred stock outstanding at such time, holders of the preferred stock may be entitled to distribution and/or liquidation preferences. In either such case, we must pay the applicable distribution to the holders of our preferred stock before we may pay distributions to the holders of our common stock.
Other Rights
Our stockholders have no preemptive, conversion or other rights to subscribe for additional shares. All outstanding shares are, and all shares offered by this prospectus will be, when sold, validly issued, fully paid and nonassessable. The rights, preferences and privileges of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock that we may designate and issue in the future.
Listing
We have applied to have our common stock approved for listing on the New York Stock Exchange under the symbol EXPR.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock will be Computershare Trust Company, N.A.
Preferred Stock
Our certificate of incorporation will authorize our board of directors to provide for the issuance of shares of preferred stock in one or more series and to fix the preferences, powers and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including the dividend rate, conversion rights, voting rights, redemption rights and liquidation preference and to fix the number of shares to be included in any such series without any further vote or action by our stockholders. Any preferred stock so issued may rank senior to our common stock with respect to the payment of dividends or amounts upon liquidation, dissolution or winding up, or both. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of our company without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock. The issuance of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of common stock, including the loss of voting control to others. At present, we have no plans to issue any of the preferred stock.
Corporate Opportunity
As permitted under the DGCL, in our certificate of incorporation, we will renounce any interest or expectancy in, or any offer of an opportunity to participate in, specified business opportunities that are presented to us or one or more of our officers, directors or stockholders. In recognition that directors, officers and/or employees of Golden Gate and Limited Brands may serve as directors and/or officers of ours, and Golden Gate and its affiliates, not including us (the Golden Gate Entities), and Limited Brands and its affiliates, not including us (the Limited Brands Entities) may engage in similar activities or lines of business that we do, our certificate of incorporation will provide for the allocation of certain corporate opportunities between us and the Golden Gate Entities and us and the Limited Brands Entities. Specifically, none of the Golden Gate Entities and none of the Limited Brands Entities have any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business that we do. In the event that a director or officer of Golden Gate
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who is also a director or officer of ours or a director or officer of Limited Brands who is also a director or officer of ours acquires knowledge of a potential transaction or matter which may be a corporate opportunity for any of the Golden Gate Entities or Limited Brands Entities, as applicable, and us, we will not have any expectancy in such corporate opportunity, and the director or officer will not have any duty to present such corporate opportunity to us and may pursue or acquire such corporate opportunity for itself or direct such opportunity to another person. In addition, if a director or officer of any of the Golden Gate Entities who is also a director or officer of ours or a director or officer of Limited Brands who is also a director or officer of ours acquires knowledge of a potential transaction or matter which may be a corporate opportunity for us and any of the Golden Gate Entities, or Limited Brands Entities, as applicable, such corporate opportunity will belong to Golden Gate or Limited Brands, as applicable unless such corporate opportunity is expressly offered in writing to such person solely in his or her capacity as a director or officer of ours.
Antitakeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws
Our certificate of incorporation and bylaws will also contain provisions that may delay, defer or discourage another party from acquiring control of us. We expect that these provisions, which are summarized below, will discourage coercive takeover practices or inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors, which we believe may result in an improvement of the terms of any such acquisition in favor of our stockholders. However, they also give our board of directors the power to discourage acquisitions that some stockholders may favor.
Undesignated Preferred Stock
The ability to authorize undesignated preferred stock will make it possible for our board of directors to issue preferred stock with super voting, special approval, dividend or other rights or preferences on a discriminatory basis that could impede the success of any attempt to acquire us. These and other provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of our company.
Classified Board of Directors
Our certificate of incorporation will provide that our board of directors will be divided into three classes, with each class serving three-year staggered terms. In addition, our certificate of incorporation will provide that directors may only be removed from the board of directors with cause and by an affirmative vote of 66 2 / 3 % of our common stock. These provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of our company.
Requirements for Advance Notification of Stockholder Meetings, Nominations and Proposals
Our certificate of incorporation will provide that, upon completion of this offering, special meetings of the stockholders may be called only by a resolution adopted by the affirmative vote of the majority of the directors then in office. Our bylaws prohibit the conduct of any business at a special meeting other than as specified in the notice for such meeting. In addition, any stockholder who wishes to bring business before an annual meeting or nominate directors must comply with the requirements set forth in our bylaws. These provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of our company.
Stockholder Action by Written Consent
Pursuant to Section 228 of the DGCL, any action required to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all
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shares of our stock entitled to vote thereon were present and voted, unless the companys certificate of incorporation provides otherwise. Our certificate of incorporation provides that, upon completion of this offering, any action required or permitted to be taken by our stockholders may be effected at a duly called annual or special meeting of our stockholders and may not be effected by consent in writing by such stockholders.
Business Combinations with Interested Stockholders
We will elect in our certificate of incorporation not to be subject to Section 203 of the DGCL, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination, such as a merger, with a person or group owning 15% or more of the corporations voting stock for a period of three years following the date the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Accordingly, we will not be subject to any anti-takeover effects of Section 203. However, our certificate of incorporation will contain provisions that have the same effect as Section 203, except that they will provide that Golden Gate and any persons to whom Golden Gate sells their common stock will be deemed to have been approved by our board of directors, and thereby not subject to the restrictions set forth in Section 203.
Amendments
Any amendments to the foregoing provisions of our certificate of incorporation (except related to preferred stock) and any amendments to our bylaws will require the affirmative vote of at least 66 2 / 3 % of the voting power of all shares of our common stock then outstanding. See Risk FactorsWe are a controlled company, controlled by investment funds managed by Golden Gate Private Equity, Inc. whose interests in our business may be different from yours.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of our common stock in the public market, or the perception that such sales may occur, could adversely affect the prevailing market price of our common stock. No prediction can be made as to the effect, if any, future sales of shares, or the availability of shares for future sales, will have on the market price of our common stock prevailing from time to time. The sale of substantial amounts of our common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of our common stock.
Sale of Restricted Shares
Upon completion of this offering, we will have 88,735,895 shares of common stock outstanding. Of these shares of common stock, the 16,000,000 shares of common stock being sold in this offering, plus any shares sold by the selling stockholders upon exercise of the underwriters option to purchase additional shares, will be freely tradable without restriction under the Securities Act, except for any such shares which may be held or acquired by an affiliate of ours, as that term is defined in Rule 144 promulgated under the Securities Act, which shares will be subject to the volume limitations and other restrictions of Rule 144 described below. The remaining 72,735,895 shares of common stock held by our existing stockholders upon completion of this offering will be restricted securities, as that phrase is defined in Rule 144, and may be resold only after registration under the Securities Act or pursuant to an exemption from such registration, including, among others, the exemptions provided by Rule 144 and 701 under the Securities Act, which rules are summarized below. These remaining shares of common stock held by our existing stockholders upon completion of this offering will be available for sale in the public market after the expiration of the lock-up agreements described in Underwriting, taking into account the provisions of Rules 144 and 701 under the Securities Act.
Rule 144
The SEC adopted amendments to Rule 144 which became effective on February 15, 2008. Under these amendments, persons who became the beneficial owner of shares of our common stock prior to the completion of this offering may not sell their shares until the earlier of (1) the expiration of a six-month holding period, if we have been subject to the reporting requirements of the Securities Exchange Act of 1934 (the Exchange Act) and have filed all required reports for at least 90 days prior to the date of the sale, or (2) a one-year holding period.
At the expiration of the six-month holding period, a person who was not one of our affiliates at any time during the three months preceding a sale would be entitled to sell an unlimited number of shares of our common stock provided current public information about us is available, and a person who was one of our affiliates at any time during the three months preceding a sale would be entitled to sell within any three-month period only a number of shares of common stock that does not exceed the greater of either of the following:
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1% of the number of shares of our common stock then outstanding, which will equal approximately 887,359 shares immediately after this offering, based on the number of shares of our common stock outstanding after completion of this offering; or |
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the average weekly trading volume of our common stock on the NYSE during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. |
At the expiration of the one-year holding period, a person who was not one of our affiliates at any time during the three months preceding a sale would be entitled to sell an unlimited number of shares of our common stock without restriction. A person who was one of our affiliates at any time during the three months preceding a sale would remain subject to the volume restrictions described above.
Sales under Rule 144 by our affiliates are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.
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Rule 701
In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who acquired shares from us in connection
with a compensatory stock or option plan or other written agreement before the effective date of this offering, are eligible to resell such shares in reliance upon Rule 144 beginning 90 days after the date of this prospectus. If such person is not
an affiliate, the sale may be made subject only to the manner-of-sale restrictions of Rule 144. If such a person is an affiliate, the sale may be made under Rule 144 without compliance with its one-year minimum holding period, but subject to the
Stock Plans
We intend to file one or more registration statements on Form S-8 under the Securities Act to register shares of our common stock issued or reserved for issuance under the 2010 Plan. The first such registration statement is expected to be filed soon after the date of this prospectus and will automatically become effective upon filing with the SEC. Accordingly, shares registered under such registration statement will be available for sale in the open market following the effective date, unless such shares are subject to vesting restrictions with us, Rule 144 restrictions applicable to our affiliates or the lock-up restrictions described below.
Lock-Up Agreements
We, each of our officers and directors and the selling stockholders have agreed, subject to certain exceptions, with the underwriters not to dispose of or hedge any of the shares of common stock or securities convertible into or exchangeable for, or that represent the right to receive, shares of common stock during the period from the date of the underwriting agreement to be executed by us in connection with this offering continuing through the date that is 180 days after the date of the underwriting agreement, except with the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman, Sachs & Co. See Underwriting.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS TO NON-U.S. HOLDERS
The following is a summary of material U.S. federal income tax consequences of the purchase, ownership and disposition of our common stock to a non-U.S. holder that purchases shares of our common stock in this offering. For purposes of this summary, a non-U.S. holder means a beneficial owner of our common stock that is, for U.S. federal income tax purposes:
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a nonresident alien individual; |
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a foreign corporation (or entity treated as a foreign corporation for U.S. federal income tax purposes); or |
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a foreign estate or foreign trust. |
In the case of a holder that is classified as a partnership for U.S. federal income tax purposes, the tax treatment of a partner in such partnership generally will depend upon the status of the partner and the activities of the partner and the partnership. If you are a partner in a partnership holding our common stock, then you should consult your own tax advisor.
This summary is based upon the provisions of the U.S. Internal Revenue Code of 1986, as amended, which we refer to as the Code, the Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as of the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in U.S. federal income tax consequences different from those summarized below. We cannot assure you that a change in law, possibly with retroactive application, will not alter significantly the tax considerations that we describe in this summary. We have not sought and do not plan to seek any ruling from the U.S. Internal Revenue Service, which we refer to as the IRS, with respect to statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS or a court will agree with our statements and conclusions.
This summary does not address all aspects of U.S. federal income taxes that may be relevant to non-U.S. holders in light of their personal circumstances, and does not deal with federal taxes other than the U.S. federal income tax or with non-U.S., state or local tax considerations. Special rules, not discussed here, may apply to certain non-U.S. holders, including:
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U.S. expatriates; |
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controlled foreign corporations; |
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passive foreign investment companies; and |
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investors in pass-through entities that are subject to special treatment under the Code. |
Such non-U.S. holders should consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them.
This summary applies only to a non-U.S. holder that holds our common stock as a capital asset (within the meaning of Section 1221 of the Code).
If you are considering the purchase of our common stock, you should consult your own tax advisor concerning the particular U.S. federal income tax consequences to you of the purchase, ownership and disposition of our common stock, as well as the consequences to you arising under U.S. tax laws other than the federal income tax law or under the laws of any other taxing jurisdiction.
Dividends
As discussed under the section entitled Dividend Policy above, we do not currently anticipate paying dividends. In the event that we do make a distribution of cash or property (other than certain stock distributions) with respect to our common stock (or certain redemptions that are treated as distributions with respect to
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common stock), any such distributions will be treated as a dividend for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Dividends paid to you generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct of a trade or business by you within the United States and, where a tax treaty applies, are generally attributable to a United States permanent establishment, are not subject to the withholding tax, but instead are subject to United States federal income tax on a net income basis at applicable graduated individual or corporate rates. Certain certification and disclosure requirements including delivery of a properly executed IRS Form W-8ECI must be satisfied for effectively connected income to be exempt from withholding. Any such effectively connected dividends received by a foreign corporation may be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
If the amount of a distribution paid on our common stock exceeds our current and accumulated earnings and profits, such excess will be allocated ratably among each share of common stock with respect to which the distribution is paid and treated first as a tax-free return of capital to the extent of your adjusted tax basis in each such share, and thereafter as capital gain from a sale or other disposition of such share of common stock that is taxed to you as described below under the heading Gain on Disposition of Common Stock. Your adjusted tax basis is generally the purchase price of such shares, reduced by the amount of any such tax-free returns of capital.
If you wish to claim the benefit of an applicable treaty rate to avoid or reduce withholding of U.S. federal income tax for dividends, then you must (a) provide the withholding agent with a properly completed IRS Form W-8BEN (or other applicable form) and certify under penalties of perjury that you are not a U.S. person and are eligible for treaty benefits, or (b) if our common stock is held through certain foreign intermediaries, satisfy the relevant certification requirements of applicable U.S. Treasury regulations. Special certification and other requirements apply to certain non-U.S. holders that act as intermediaries (including partnerships).
If you are eligible for a reduced rate of U.S. federal income tax pursuant to an income tax treaty, then you may obtain a refund or credit of any excess amounts withheld by filing timely an appropriate claim with the IRS.
Gain on Disposition of Common Stock
You generally will not be subject to U.S. federal income tax with respect to gain realized on the sale or other taxable disposition of our common stock, unless:
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the gain is effectively connected with a trade or business you conduct in the United States, and, in cases in which certain tax treaties apply, is attributable to a United States permanent establishment; |
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if you are an individual, you are present in the United States for 183 days or more in the taxable year of the sale or other taxable disposition, and you have a tax home (as defined in the Code) in the United States; or |
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we are or have been during a specified testing period a U.S. real property holding corporation for U.S. federal income tax purposes, and certain other conditions are met. |
We believe that we have not been and are not, and we do not anticipate becoming, a U.S. real property holding corporation for U.S. federal income tax purposes. If you are an individual described in the first bullet point above, you will be subject to tax on the net gain derived from the sale under regular graduated United States federal income tax rates. If you are an individual described in the second bullet point above, you will be subject to a flat 30% tax on the gain derived from the sale, which may be offset by United States source capital losses (even though you are not considered a resident of the United States) but may not be offset by any capital loss carryovers. If you are a foreign corporation described in the first bullet point above, you will be subject to tax on your gain under regular graduated United States federal income tax rates and, in addition, may be subject to the branch profits tax equal to 30% of your effectively connected earnings and profits or at such lower rate as may be specified by an applicable income tax treaty.
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Information Reporting and Backup Withholding Tax
We must report annually to the IRS and to you the amount of dividends paid to you and the amount of tax, if any, withheld with respect to such dividends. The IRS may make this information available to the tax authorities in the country in which you are resident.
In addition, you may be subject to information reporting requirements and backup withholding tax (currently at a rate of 28%) with respect to dividends paid on, and the proceeds of disposition of, shares of our common stock, unless, generally, you certify under penalties of perjury (usually on IRS Form W-8BEN) that you are not a U.S. person or you otherwise establish an exemption. Additional rules relating to information reporting requirements and backup withholding tax with respect to payments of the proceeds from the disposition of shares of our common stock are as follows:
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If the proceeds are paid to or through the U.S. office of a broker, the proceeds generally will be subject to backup withholding tax and information reporting, unless you certify under penalties of perjury (usually on IRS Form W-8BEN) that you are not a U.S. person or you otherwise establish an exemption. |
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If the proceeds are paid to or through a non-U.S. office of a broker that is not a U.S. person and is not a foreign person with certain specified U.S. connections (a U.S.-related person), information reporting and backup withholding tax generally will not apply. |
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If the proceeds are paid to or through a non-U.S. office of a broker that is a U.S. person or a U.S.-related person, the proceeds generally will be subject to information reporting (but not to backup withholding tax), unless you certify under penalties of perjury (usually on IRS Form W-8BEN) that you are not a U.S. person or you otherwise establish an exemption. |
Any amounts withheld under the backup withholding tax rules may be allowed as a refund or a credit against your U.S. federal income tax liability, provided the required information is timely furnished by you to the IRS.
New Legislation Affecting Taxation of Common Stock Held By or Through Foreign Entities
Recently enacted legislation generally will impose a withholding tax of 30 percent on dividend income from our common stock and the gross proceeds of a disposition of our common stock paid to a foreign financial institution, unless such institution enters into an agreement with the United States government to collect and provide to the United States tax authorities substantial information regarding United States account holders of such institution (which would include certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with United States owners). Absent any applicable exception, this legislation also generally will impose a withholding tax of 30 percent on dividend income from our common stock and the gross proceeds of a disposition of our common stock paid to a foreign entity that is not a foreign financial institution unless such entity provides the withholding agent with a certification identifying the substantial United States owners of the entity, which generally includes any United States person who directly or indirectly own more than 10 percent of the entity. Under certain circumstances, a non-United States holder of our common stock might be eligible for refunds or credits of such taxes, and a non-United States holder might be required to file a United States federal income tax return to claim such refunds or credits. This legislation generally is effective for payments made after December 31, 2012. Investors are encouraged to consult with their own tax advisors regarding the implications of this legislation on their investment in our common stock.
THE SUMMARY OF MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES ABOVE IS INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY. POTENTIAL PURCHASERS OF OUR COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSIDERATIONS OF PURCHASING, OWNING AND DISPOSING OF OUR COMMON STOCK.
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The company, the selling stockholders and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman, Sachs & Co. are the representatives of the underwriters.
Underwriters |
Number
of Shares |
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Merrill Lynch, Pierce, Fenner &
Smith
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Goldman, Sachs & Co. |
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Morgan Stanley & Co. Incorporated |
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Barclays Capital Inc. |
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Piper Jaffray & Co. |
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UBS Securities LLC |
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Stephens Inc. |
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Total |
16,000,000 | |
The underwriting agreement provides that the obligations of the underwriters to purchase the shares being offered are subject to certain conditions. The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below unless and until this option is exercised.
If the underwriters sell more shares than the total number set forth in the table above, the underwriters have an option to buy up to an additional shares from the selling stockholders. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.
The following tables show the per share and total underwriting discounts and commissions to be paid to the underwriters by the company and the selling stockholders. Such amounts are shown assuming both no exercise and full exercise of the underwriters option to purchase additional shares.
Per Share | Without Option | With Option | ||||
Public offering price |
$ | $ | $ | |||
Underwriting discount |
$ | $ | $ | |||
Proceeds, before expenses, to Express, Inc. |
$ | $ | $ | |||
Proceeds, before expenses, to the selling stockholders |
$ | $ | $ |
Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. If all the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters right to reject any order in whole or in part.
The company and its officers, directors and selling stockholders, have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for, or that represent the right to receive, shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior
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written consent of the representatives. This agreement does not apply to any existing employee stock option plans. See Shares Eligible for Future Sale for a discussion of certain transfer restrictions. Specifically, we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly:
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offer, pledge, sell or contract to sell any common stock; |
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sell any option or contract to purchase any common stock; |
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purchase any option or contract to sell any common stock; |
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grant any option, right or warrant for the sale of any common stock; |
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make any short sale of any common stock; |
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lend or otherwise dispose of or transfer any common stock; |
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file, request or demand that we file a registration statement related to the common stock; or |
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enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common stock, |
whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise.
The 180-day restricted period described in the preceding paragraph will be automatically extended if: (1) during the last 17 days of the 180-day restricted period the company issues an earnings release or announces material news or a material event; or (2) prior to the expiration of the 180-day restricted period, the company announces that it will release earnings results during the 15-day period following the last day of the 180-day period, in which case the restrictions described in the preceding paragraph will be automatically extended until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or material event, as applicable, unless the representatives waive, in writing, such extension.
Prior to the offering, there has been no public market for the shares. The initial public offering price has been negotiated among the company and the representatives. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be the companys historical performance, estimates of the business potential and earnings prospects of the company, an assessment of the companys management and the consideration of the above factors in relation to market valuation of companies in related businesses. An active trading market for the shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial offering price.
The company has applied to list the common stock on the New York Stock Exchange under the symbol EXPR. In order to meet one of the requirements for listing the common stock on the New York Stock Exchange, the underwriters have undertaken to sell lots of 100 or more shares of common stock to a minimum of 400 beneficial owners.
In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. Covered short sales are sales made in an amount not greater than the underwriters option to purchase additional shares from the selling stockholders in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option granted to them. Naked short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the
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underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of the companys stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued at any time. These transactions may be effected on the NYSE, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed in the aggregate five percent of the total number of shares offered. In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated will not confirm initial sales to any accounts over which it exercises discretionary authority without the prior approval of the customer.
The company estimates that its share of the total expenses of the offering will be approximately $30.3 million which includes underwriting discounts and commissions associated with the shares of common stock sold by us, and includes $10.0 million to terminate our advisory agreement with Golden Gate and $3.3 million to terminate the fee sharing arrangement in our LLC Agreement with Limited Brands. The selling stockholders estimate that their share of the total expenses of the offering will be approximately $6.8 million, consisting of only the underwriting discounts and commissions associated with the shares of common stock sold by the selling stockholders.
The company and the selling stockholders have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act and to contribute to payments that the underwriters may be required to make for these liabilities.
At our request, the underwriters have reserved for sale, at the initial public offering price, up to 800,000, or 5% of the shares offered by this prospectus for sale to some of our employees and officers. If these persons purchase reserved shares it will reduce the number of shares available for sale to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus.
Notice to Prospective Investors in the EEA
In relation to each Member State of the European Economic Area (the EEA) which has implemented the Prospectus Directive (each, a Relevant Member State), an offer of any shares to the public which are the subject of the offering contemplated by this prospectus may not be made in that Relevant Member State in accordance with the Prospectus Directive, except that an offer of any shares to the public in that Relevant Member State may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
(a) | to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities; |
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(b) | to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated accounts; |
(c) | by the underwriters to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives for any such offer; or |
(d) | in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of shares shall result in a requirement for the publication by us or any of the underwriters of a prospectus pursuant to Article 3 of the Prospectus Directive. |
Any person making or intending to make any offer within the EEA of shares which are the subject of the offering contemplated in this prospectus should only do so in circumstances in which no obligation arises for us or any of the underwriters to produce a prospectus for such offer. Neither we nor the underwriters have authorized, nor do they authorize, the making of any offer of shares through any financial intermediary, other than offers made by the underwriters which constitute the final offering of shares contemplated in this prospectus.
For the purposes of this provision, and your representation below, the expression an offer of shares to the public in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
Each person in a Relevant Member State who receives any communication in respect of, or who acquires any shares which are the subject of the offering contemplated by this prospectus under, the offers contemplated in this prospectus will be deemed to have represented, warranted and agreed to and with us and each underwriter that:
(a) | it is a qualified investor within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive; and |
(b) | in the case of any shares acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, (i) the shares acquired by it in the offering have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than qualified investors as defined in the Prospectus Directive, or in circumstances in which the prior consent of the underwriters has been given to the offer or resale; or (ii) where shares have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of those shares to it is not treated under the Prospectus Directive as having been made to such persons. |
Notice to Prospective Investors in Hong Kong
The shares may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to professional investors within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a prospectus within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or
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the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
Notice to Prospective Investors in Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
Notice to Prospective Investors in Switzerland
This document, as well as any other material relating to the shares which are the subject of the offering contemplated by this prospectus, do not constitute an issue prospectus pursuant to Article 652a of the Swiss Code of Obligations. The shares will not be listed on the SIX Swiss Exchange and, therefore, the documents relating to the shares, including, but not limited to, this document, do not claim to comply with the disclosure standards of the listing rules of the SIX Swiss Exchange and corresponding prospectus schemes annexed to the listing rules of the SIX Swiss Exchange. The shares are being offered in Switzerland by way of a private placement, i.e., to a small number of selected investors only, without any public offer and only to investors who do not purchase the shares with the intention to distribute them to the public. The investors will be individually approached by us from time to time. This document, as well as any other material relating to the shares, is personal and confidential and does not constitute an offer to any other person. This document may only be used by those investors to whom it has been handed out in connection with the offering described herein and may neither directly nor indirectly be
148
distributed or made available to other persons without our express consent. It may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in (or from) Switzerland.
Notice to Prospective Investors in the Dubai International Financial Centre
This document relates to an exempt offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority. This document is intended for distribution only to persons of a type specified in those rules. It must not be delivered to, or relied on by, any other person. The Dubai Financial Services Authority has no responsibility for reviewing or verifying any documents in connection with exempt offers. The Dubai Financial Services Authority has not approved this document nor taken steps to verify the information set out in it, and has no responsibility for it. The shares which are the subject of the offering contemplated by this prospectus may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered pursuant to this prospectus should conduct their own due diligence on such shares. If you do not understand the contents of this document you should consult an authorized financial adviser.
Other Relationships
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for the issuer, for which they received or will receive customary fees and expenses. In particular, the representatives and Morgan Stanley & Co. Incorporated acted as initial purchasers in the Senior Notes issuance, for which they received customary discounts and commissions. In addition, an affiliate of Morgan Stanley & Co. Incorporated is a counterparty under our interest rate swap agreement and other affiliates of Morgan Stanley & Co. Incorporated act as administrative agent and collateral agent under our Opco term loan facility, for which services we have paid, and will continue to pay, customary fees.
In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the issuer.
149
The validity of the common stock offered hereby will be passed upon for us by Kirkland & Ellis LLP, Chicago, Illinois. Certain partners of Kirkland & Ellis LLP are members of a limited partnership that is an investor in one or more investment funds affiliated with Golden Gate. Kirkland & Ellis LLP represents entities affiliated with Golden Gate in connection with legal matters. Certain legal matters will be passed upon for the underwriters by Latham & Watkins LLP, New York, New York.
150
The financial statements of Express Parent LLC as of January 30, 2010 and January 31, 2009 and for the fiscal years ended January 30, 2010 and January 31, 2009 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Express Parent LLC for the period from July 7, 2007 to February 2, 2008 (Successor) and the period from February 4, 2007 to July 6, 2007 (Predecessor), appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
On October 31, 2008, our board of directors approved the engagement of PricewaterhouseCoopers LLP as our independent registered public accounting firm to audit our consolidated financial statements as of January 30, 2010 and January 31, 2009, and for the years then ended. Ernst & Young LLP (E&Y) had previously been engaged to audit our consolidated financial statements for the period from July 7, 2007 to February 2, 2008 (2007 Successor period) and the period from February 4, 2007 to July 6, 2007 (2007 Predecessor period). The decision to dismiss E&Y was approved by our board of directors on October 31, 2008.
The reports of E&Y on our consolidated financial statements did not contain any adverse opinion or disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles. We had no disagreements with E&Y on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to its satisfaction, would have caused E&Y to make reference in connection with its opinion to the subject matter of the disagreement. During the periods from February 4, 2007 to July 6, 2007 and July 7, 2007 to February 2, 2008 and through our dismissal of E&Y, there were no reportable events as such term is defined in Item 304(a)(1)(v) of Regulation S-K. We have provided E&Y with a copy of the foregoing disclosures and requested that they review such disclosures and furnish a letter addressed to the Securities and Exchange Commission stating whether or not E&Y agrees with such statements. The response letter from E&Y is attached hereto as an exhibit.
During the periods from July 7, 2007 to February 2, 2008 and February 4, 2007 to July 6, 2007, and through our retention of PricewaterhouseCoopers LLP as our independent registered public accounting firm in October 2008, we did not consult with PricewaterhouseCoopers LLP on matters that involved (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Companys financial statements, or (ii) any matter that was either the subject of a disagreement as that term is used in Item 304 (a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K or a reportable event as that term is used in Item 304(a)(1)(v) and the related instructions to Item 304 of Regulation S-K.
151
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act that registers the shares of our common stock to be sold in this offering. The registration statement, including the attached exhibits, contains additional relevant information about us and our common stock. The rules and regulations of the SEC allow us to omit from this document certain information included in the registration statement.
You may read and copy the reports and other information we file with the SEC at the SECs Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of this information by mail from the public reference section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. You may obtain information regarding the operation of the public reference room by calling 1-800-SEC-0330. The SEC also maintains a website that contains reports, proxy statements and other information about issuers, like us, who file electronically with the SEC. The address of that website is http://www.sec.gov. This reference to the SECs website is an inactive textual reference only and is not a hyperlink.
Upon completion of this offering, we will become subject to the reporting, proxy and information requirements of the Exchange Act, and as a result will be required to file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SECs public reference room and the website of the SEC referred to above, as well as on our website, www.express.com. This reference to our website is an inactive textual reference only and is not a hyperlink. The contents of our website are not part of this prospectus, and you should not consider the contents of our website in making an investment decision with respect to our common stock.
We intend to furnish our stockholders with annual reports containing audited financial statements and make available to our stockholders quarterly reports for the first three quarters of each fiscal year containing unaudited interim financial information.
152
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Managers and Members of Express Parent LLC:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in members equity, and cash flows present fairly, in all material respects, the financial position of Express Parent LLC and its subsidiaries at January 30, 2010 and January 31, 2009, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP |
March 25, 2010 Columbus, Ohio |
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Managers and Members of Express Parent LLC:
We have audited the accompanying consolidated statements of operations, changes in members equity, and cash flows of Express Parent LLC and subsidiaries for the period from July 7, 2007 to February 2, 2008 (Successor) and the period from February 4, 2007 to July 6, 2007 (Predecessor). These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of the operations and cash flows of Express Parent LLC and subsidiaries for the period from July 7, 2007 to February 2, 2008 and the period from February 4, 2007 to July 6, 2007, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Columbus, Ohio
May 2, 2008, except for Note 1 (as it pertains to segment disclosure and the impact of the recapitalization of the Company) and Notes 7 and 12, as to which the date is February 15, 2010.
F-3
CONSOLIDATED BALANCE SHEETS
(in thousands)
January 31,
2009 |
January 30,
2010 |
Pro Forma
Shareholders Equity |
||||||||||
(unaudited) | ||||||||||||
Assets |
||||||||||||
Current assets |
||||||||||||
Cash and cash equivalents |
$ | 176,115 | $ | 234,404 | ||||||||
Receivables, net |
6,563 | 4,377 | ||||||||||
Inventories |
170,202 | 171,704 | ||||||||||
Prepaid minimum rent |
20,868 | 20,874 | ||||||||||
Other |
7,269 | 5,289 | ||||||||||
Total current assets |
381,017 | 436,648 | ||||||||||
Property and equipment, net |
253,482 | 215,237 | ||||||||||
Tradename/domain name |
197,394 | 197,414 | ||||||||||
Other assets |
28,520 | 20,255 | ||||||||||
Total assets |
$ | 860,413 | $ | 869,554 | ||||||||
Liabilities and members equity |
||||||||||||
Current liabilities |
||||||||||||
Accounts payable |
$ | 47,426 | $ | 61,093 | ||||||||
Line of credit |
75,000 | | ||||||||||
Deferred revenue |
21,601 | 22,247 | ||||||||||
Accrued bonus |
94 | 22,541 | ||||||||||
Accrued expenses |
65,336 | 73,576 | ||||||||||
Accounts payable and accrued expensesrelated parties |
100,012 | 89,831 | ||||||||||
Total current liabilities |
309,469 | 269,288 | ||||||||||
Long-term debt |
422,228 | 415,513 | ||||||||||
Other long-term liabilities |
31,617 | 43,300 | ||||||||||
Total liabilities |
763,314 | 728,101 | ||||||||||
Commitments and Contingencies (Note 15) |
||||||||||||
Members equity |
||||||||||||
Common units (Class L)no par value; 101,742 and 101,742 issued and outstanding on January 31, 2009 and January 30, 2010, respectively |
168,866 | 135,866 | $ | | ||||||||
Common units (Class A)no par value; 7,540 and 7,330 issued and outstanding on January 31, 2009 and January 30, 2010, respectively |
2,691 | 4,302 | | |||||||||
Common units (Class B)no par value; none issued and outstanding |
| | | |||||||||
Common units (Class C)no par value; 4,155 and 4,705 issued and outstanding on January 31, 2009 and January 30, 2010, respectively |
610 | 1,046 | | |||||||||
Common stock ($0.01 par value, 88,749 issued and outstanding) |
| | 887 | |||||||||
Additional paid-in capital |
| | 125,650 | |||||||||
Accumulated (deficit) earnings |
(69,435 | ) | 5,872 | (17,544 | ) | |||||||
Notes receivable |
(5,633 | ) | (5,633 | ) | | |||||||
Total members equity |
97,099 | 141,453 | $ | 108,993 | ||||||||
Total liabilities and members equity |
$ | 860,413 | $ | 869,554 | ||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-4
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit amounts)
Predecessor | Successor | ||||||||||||||||
Twenty-Two
Weeks Ended July 6, 2007 |
Thirty
Weeks Ended February 2, 2008 |
2008 | 2009 | ||||||||||||||
Net sales |
$ | 659,019 | $ | 1,137,327 | $ | 1,737,010 | $ | 1,721,066 | |||||||||
Cost of goods sold, buying and occupancy costs |
451,514 | 890,063 | 1,280,018 | 1,175,088 | |||||||||||||
Gross profit |
207,505 | 247,264 | 456,992 | 545,978 | |||||||||||||
General, administrative, and store operating expenses |
170,100 | 275,150 | 447,071 | 409,198 | |||||||||||||
Other operating expense, net |
302 | 5,526 | 6,007 | 9,943 | |||||||||||||
Operating income (loss) |
37,103 | (33,412 | ) | 3,914 | 126,837 | ||||||||||||
Interest expense |
| 6,978 | 36,531 | 53,222 | |||||||||||||
Interest income |
| (5,190 | ) | (3,527 | ) | (484 | ) | ||||||||||
Other expense (income), net |
| 4,712 | (300 | ) | (2,444 | ) | |||||||||||
Income (loss) before income taxes |
37,103 | (39,912 | ) | (28,790 | ) | 76,543 | |||||||||||
Provision for income taxes |
7,161 | 487 | 246 | 1,236 | |||||||||||||
Net income (loss) |
$ | 29,942 | $ | (40,399 | ) | $ | (29,036 | ) | $ | 75,307 | |||||||
Pro forma income before income taxes (Note 13, unaudited) |
$ | 102,634 | |||||||||||||||
Pro forma provision for income taxes (Note 13, unaudited) |
39,951 | ||||||||||||||||
Pro forma net income (Note 13, unaudited) |
$ | 62,683 | |||||||||||||||
Class L: |
|||||||||||||||||
Basic and diluted net (loss) income per unit |
$ | (0.40 | ) | $ | (0.25 | ) | $ | 0.74 | |||||||||
Basic and diluted weighted average units outstanding |
101,746 | 101,742 | 101,742 | ||||||||||||||
Class A: |
|||||||||||||||||
Basic and diluted net loss per unit |
$ | (2.08 | ) | $ | | ||||||||||||
Basic weighted average units outstanding |
1,295 | 3,630 | |||||||||||||||
Diluted weighted average units outstanding |
1,295 | 6,584 | |||||||||||||||
Class C: |
|||||||||||||||||
Basic and diluted net loss per unit |
$ | (1.00 | ) | $ | | ||||||||||||
Basic weighted average units outstanding |
607 | 1,816 | |||||||||||||||
Diluted weighted average units outstanding |
607 | 3,087 | |||||||||||||||
Pro forma net income per share (Note 13, unaudited) |
|||||||||||||||||
Basic |
$ | 0.73 | |||||||||||||||
Diluted |
$ | 0.72 | |||||||||||||||
Pro forma weighted average shares outstanding (Note 13, unaudited) |
86,302 | ||||||||||||||||
Basic |
86,945 | ||||||||||||||||
Diluted |
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-5
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS EQUITY
(in thousands)
Class L
Units |
Class A
Units |
Class B
Units |
Class C
Units |
Accumulated
(Deficit) Earnings |
Notes
Receivable |
Total
Members Equity |
|||||||||||||||||||||
Predecessor balances, February 3, 2007 |
$ | | $ | | $ | | $ | | $ | | $ | | $ | 265,849 | |||||||||||||
Adoption of ASC Subtopic 740-10 |
| | | | | | (702 | ) | |||||||||||||||||||
Changes in Limited Brands, Inc. net investment |
| | | | | | 12,423 | ||||||||||||||||||||
Share-based compensation expense |
| | | | | | 545 | ||||||||||||||||||||
Net income |
| | | | | | 29,942 | ||||||||||||||||||||
Elimination of Predecessor equity in connection with sale |
| | | | | | (308,057 | ) | |||||||||||||||||||
Predecessor balances, July 6, 2007 |
| | | | | | | ||||||||||||||||||||
Successor capital contribution, net |
660,099 | | | | | | 660,099 | ||||||||||||||||||||
Issuance of notes receivable |
| | | | | (5,643 | ) | (5,643 | ) | ||||||||||||||||||
Share-based compensation expense |
| 1,008 | | 225 | | | 1,233 | ||||||||||||||||||||
Net loss |
| | | | (40,399 | ) | | (40,399 | ) | ||||||||||||||||||
Successor balances, February 2, 2008 |
660,099 | 1,008 | | 225 | (40,399 | ) | (5,643 | ) | 615,290 | ||||||||||||||||||
Distributions |
(491,213 | ) | | | | | | (491,213 | ) | ||||||||||||||||||
Repurchase of equity units |
(20 | ) | (3 | ) | | (1 | ) | | | (24 | ) | ||||||||||||||||
Repayment of notes receivable |
| | | | | 10 | 10 | ||||||||||||||||||||
Share-based compensation expense |
| 1,686 | | 386 | | | 2,072 | ||||||||||||||||||||
Net loss |
| | | | (29,036 | ) | | (29,036 | ) | ||||||||||||||||||
Successor balances, January 31, 2009 |
168,866 | 2,691 | | 610 | (69,435 | ) | (5,633 | ) | 97,099 | ||||||||||||||||||
Distributions |
(33,000 | ) | | | | | | (33,000 | ) | ||||||||||||||||||
Grant of equity units |
| | | 2 | | | 2 | ||||||||||||||||||||
Repurchase of equity units |
| (2 | ) | | (1 | ) | | | (3 | ) | |||||||||||||||||
Share-based compensation expense |
| 1,613 | | 435 | | | 2,048 | ||||||||||||||||||||
Net income |
| | | | 75,307 | | 75,307 | ||||||||||||||||||||
Successor balances, January 30, 2010 |
$ | 135,866 | $ | 4,302 | $ | | $ | 1,046 | $ | 5,872 | $ | (5,633 | ) | $ | 141,453 | ||||||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Predecessor | Successor | |||||||||||||||||
Twenty-Two
Weeks Ended July 6, 2007 |
Thirty
Weeks Ended February 2, 2008 |
2008 | 2009 | |||||||||||||||
Operating Activities |
||||||||||||||||||
Net income (loss) |
$ | 29,942 | $ | (40,399 | ) | $ | (29,036 | ) | $ | 75,307 | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||||||||||||
Depreciation and amortization |
25,051 | 49,247 | 81,410 | 72,434 | ||||||||||||||
Interest expense paid in kind |
| | 6,049 | 132 | ||||||||||||||
Loss on disposal of property and equipment |
| 410 | 1,732 | 545 | ||||||||||||||
Impairment charges |
| 484 | 2,442 | 2,623 | ||||||||||||||
Bad debt expense |
| | 1,230 | 2,602 | ||||||||||||||
Change in fair value of interest rate swap |
| 4,712 | (300 | ) | (2,444 | ) | ||||||||||||
Share-based compensation |
545 | 1,233 | 2,072 | 2,048 | ||||||||||||||
Deferred taxes |
(5,023 | ) | (381 | ) | (234 | ) | (337 | ) | ||||||||||
Change in assets and liabilities: |
||||||||||||||||||
Receivables, net |
(9,951 | ) | 11,075 | 3,195 | 4,167 | |||||||||||||
Inventories |
(4,970 | ) | 76,245 | (5,553 | ) | (1,502 | ) | |||||||||||
Accounts payable, deferred revenue, and accrued expenses |
2,285 | 18,271 | 22,775 | 44,397 | ||||||||||||||
Accounts payable and accrued expensesrelated parties |
8,064 | 154,314 | (54,302 | ) | (10,181 | ) | ||||||||||||
Other assets and liabilities |
(31 | ) | 6,981 | 3,754 | 10,930 | |||||||||||||
Net cash provided by operating activities |
45,912 | 282,192 | 35,234 | 200,721 | ||||||||||||||
Investing Activities |
||||||||||||||||||
Capital expenditures |
(22,888 | ) | (15,258 | ) | (50,551 | ) | (26,853 | ) | ||||||||||
Purchase of intangible asset |
| | (1,250 | ) | (20 | ) | ||||||||||||
Net cash used in investing activities |
(22,888 | ) | (15,258 | ) | (51,801 | ) | (26,873 | ) | ||||||||||
Financing Activities |
||||||||||||||||||
Borrowings under line of credit arrangement |
| | 75,000 | | ||||||||||||||
Borrowings under long-term debt arrangements |
| | 294,000 | | ||||||||||||||
Repayments of line of credit arrangement |
| | | (75,000 | ) | |||||||||||||
Repayments of long-term debt arrangements |
| (625 | ) | (1,250 | ) | (7,118 | ) | |||||||||||
Costs incurred in connection with equity offering |
| | | (317 | ) | |||||||||||||
Costs incurred in connection with debt arrangements and Senior Notes |
| | (3,870 | ) | (123 | ) | ||||||||||||
Distributions paid to members |
| | (491,213 | ) | (33,000 | ) | ||||||||||||
Grant of equity units |
| | | 2 | ||||||||||||||
Repurchase of equity units |
| | (24 | ) | (3 | ) | ||||||||||||
Repayment of notes receivable |
| | 10 | | ||||||||||||||
Cash equity contributions by members |
| 39,986 | | | ||||||||||||||
Decrease in Limited Brands, Inc. net investment |
(29,939 | ) | | | | |||||||||||||
Net cash (used in) provided by financing activities |
(29,939 | ) | 39,361 | (127,347 | ) | (115,559 | ) | |||||||||||
Net (decrease) increase in cash and cash equivalents |
(6,915 | ) | 306,295 | (143,914 | ) | 58,289 | ||||||||||||
Cash and cash equivalents, beginning of period |
20,649 | 13,734 | 320,029 | 176,115 | ||||||||||||||
Cash and cash equivalents, end of period |
$ | 13,734 | $ | 320,029 | $ | 176,115 | $ | 234,404 | ||||||||||
Supplemental disclosure of non-cash activities: |
||||||||||||||||||
Borrowings to effect GGC acquisition |
$ | | $ | 125,000 | $ | | $ | | ||||||||||
Push-down of fair value and equity contribution |
$ | | $ | 287,206 | $ | | $ | | ||||||||||
Notes received in connection with issuance of equity |
$ | | $ | 5,643 | $ | | $ | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. Summary of Significant Accounting Policies
Basis of Presentation
Express Parent LLC, a Delaware limited liability company (LLC) (the Company), was formed on June 10, 2008 and acquired all of the outstanding equity interest in Express Topco LLC, a Delaware LLC (Topco) which owns all of the outstanding equity interest in Express Holding, LLC, a Delaware LLC (Holding), on June 26, 2008. Holding owns all of the outstanding equity interest in Express, LLC (Express), which previously operated as a division of Limited Brands, Inc., a Delaware corporation (LBI), and Express Finance Corporation, a Delaware corporation (EFC). EFC was formed on January 28, 2010 for the purpose of serving as co-issuer of the Senior Notes described in Note 16. Express is a wholly-owned subsidiary of Holding and conducts the operations of the Company. The Company is a holding company without any assets except its investment in Topco.
On June 26, 2008, the Company entered into an exchange agreement with Holding, Topco, and other security holders, whereby the members of Holding contributed, transferred, assigned, and delivered all issued and outstanding equity interests of Holding to the Company in exchange for issuance by the Company to each Holding member an equivalent number of identical equity interests of the Company (the Recapitalization). Upon consummation of the exchange agreement, the Company and Topco entered into a contribution agreement, pursuant to which the Company contributed all of its equity interest in Holding to Topco as a contribution to Topcos capital. Immediately following the consummation of these transactions, Topco entered into the Second Amended and Restated LLC Agreement (Amended LLC Agreement) of Holding in order to recapitalize the membership interests of Holding into a single class of membership units. Following the Recapitalization, the Company owned 100% of the membership interests of Topco, and Topco owned 100% of the membership interests of Holding. Because the Recapitalization represented a transfer of equity interests between entities under common control, the Company recognized the assets and liabilities transferred at their historical carrying amounts, similar to the pooling-of-interests method.
Members of the Company are not obligated for any debts, obligations, or liabilities of the Company solely by reason of being a member. Members of the Company shall not act as agents for one another or incur debts, obligations, or liabilities on behalf of other members.
Due to the Golden Gate Capital Acquisition (GGC Acquisition) (see Note 2) on July 7, 2007, the Company applied purchase accounting and began a new basis of accounting. As a result, the financial reporting periods presented are as follows:
|
The 2007 periods presented reflect the twenty-two weeks of operating results of Express and its subsidiary from February 4, 2007 through July 6, 2007 (the 2007 Predecessor period) and the thirty weeks of operating results of Holding and its subsidiary from July 7, 2007 through February 2, 2008 (the 2007 Successor period), which includes the effects of purchase accounting as a result of the GGC Acquisition. |
|
The 2008 presentation reflects the operating results of Holding and its subsidiary from February 3, 2008 through June 25, 2008 and the consolidated operating results of Holding, Topco, and the Company from June 26, 2008 (date of formation) through January 31, 2009 (a Successor period). |
|
The 2009 presentation reflects the consolidated operating results of Holding, Topco, and the Company from February 1, 2009 through January 30, 2010 (a Successor period). |
The Consolidated Financial Statements for the 2007 Predecessor period have been prepared using a historical basis of accounting. As a result of purchase accounting, the Predecessor and Successor Consolidated Financial Statements are not comparable.
F-8
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. Summary of Significant Accounting Policies (continued)
The Consolidated Financial Statements for the 2007 Predecessor period have been prepared on a standalone basis and are derived from the Consolidated Financial Statements and accounting records of LBI. These Consolidated Financial Statements include all costs historically allocated to the Company by LBI as well as income taxes as if the Company had been a standalone entity. Management believes the assumptions underlying the Consolidated Statements of Operations, Changes in Members Equity, and Cash Flows are reasonable. However, these Consolidated Statements of Operations, Changes in Members Equity, and Cash Flows for the 2007 Predecessor period may not be indicative of the Companys results of operations and cash flows on a standalone basis, and future results may differ materially. In the Successor periods, the Company no longer incurred these allocated costs, but does incur certain expenses as a standalone company for similar functions, including certain support services provided by LBI under the LBI Transition Services Agreements (TSAs) (See Note 6).
Business Description
Express is a specialty retailer of womens and mens apparel, offering woven and knit tops, sweaters, pants, denim, intimate apparel, and accessories to a youthful clientele targeting 20 to 30 year olds. Express merchandise is sold through retail stores and its website. Express operated 573 primarily mall-based stores in the United States as of January 30, 2010.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its subsidiary. All intercompany transactions and balances have been eliminated in consolidation.
Fiscal Year
The Companys fiscal year ends on the Saturday closest to January 31. Fiscal years are designated in the Consolidated Financial Statements and Notes by the calendar year in which the fiscal year commences. References to 2008 and 2009 represent the fiscal years ended January 31, 2009 and January 30, 2010, respectively.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements. Actual results may differ from those estimates. The Company revises its estimates and assumptions as new information becomes available.
F-9
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. Summary of Significant Accounting Policies (continued)
Segment Reporting
The Company defines an operating segment on the same basis that it uses to evaluate performance internally. The Company has determined that the Chief Executive Officer (CEO) is its Chief Operating Decision Maker and that there is one operating segment, and therefore reports as a single segment. This includes the operation of its Express brick and mortar retail stores and the Express.com e-commerce website.
Predecessor | Successor | |||||||||||||||
Twenty-Two
Weeks Ended July 6, 2007 |
Thirty
Weeks Ended February 2, 2008 |
2008 | 2009 | |||||||||||||
Classes: |
||||||||||||||||
Apparel |
$ | 620,204 | $ | 1,057,453 | $ | 1,592,468 | $ | 1,564,060 | ||||||||
Accessories and other |
38,308 | 78,569 | 139,703 | 144,806 | ||||||||||||
Other revenue |
507 | 1,305 | 4,839 | 12,200 | ||||||||||||
Total net sales |
$ | 659,019 | $ | 1,137,327 | $ | 1,737,010 | $ | 1,721,066 | ||||||||
Predecessor |
Successor | |||||||||||||||
Twenty-Two
Weeks Ended July 6, 2007 |
Thirty
Weeks Ended February 2, 2008 |
2008 | 2009 | |||||||||||||
Channels: |
||||||||||||||||
Stores |
$ | 658,512 | $ | 1,136,022 | $ | 1,704,376 | $ | 1,616,642 | ||||||||
E-commerce |
| | 27,795 | 92,224 | ||||||||||||
Other revenue |
507 | 1,305 | 4,839 | 12,200 | ||||||||||||
Total net sales |
$ | 659,019 | $ | 1,137,327 | $ | 1,737,010 | $ | 1,721,066 | ||||||||
Other revenue consists primarily of shipping and handling revenue, gift card breakage, and franchise royalties.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, deposits with financial institutions, and treasury security investments with an original maturity of three months or less. As of January 31, 2009 and January 30, 2010, cash held primarily in treasury securities was $159,236 and $216,782, respectively.
Payments due from banks for third-party credit card and debit card transactions for up to five days of sales, classified as cash and cash equivalents, totaled approximately $10,586 and $11,412 as of January 31, 2009 and January 30, 2010, respectively.
Outstanding checks not yet presented for payment amounted to $12,901 and $18,422 as of January 31, 2009 and January 30, 2010, respectively, and are included in accounts payable on the Consolidated Balance Sheets.
F-10
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. Summary of Significant Accounting Policies (continued)
Fair Value of Financial Assets and Liabilities
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date.
Level 1Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets. |
Level 2Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
Level 3Valuation is based upon other unobservable inputs that are significant to the fair value measurement. |
The Company incorporates credit valuation adjustments (CVAs) to appropriately reflect its non-performance risk and the respective counterpartys non-performance risk in its fair value measurements. Although the Company has determined that the majority of the inputs used to value its derivatives, such as forward interest rates, and the Companys and counterpartys credit ratings, fall within Level 2 of the fair value hierarchy, the CVAs associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparty. However, as of January 31, 2009 and January 30, 2010, the Company has assessed the significance of the impact of the CVAs on the overall valuation of its derivative positions and has determined that the CVAs are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
The following table presents the Companys assets and liabilities measured at fair value on a recurring basis as of January 31, 2009 and January 30, 2010, aggregated by the level in the fair value hierarchy within which those measurements fall.
January 31, 2009 | |||||||||
Level 1 | Level 2 | Level 3 | |||||||
Treasury securities |
$ | 159,236 | $ | | $ | | |||
Interest rate swap |
$ | | $ | 4,412 | $ | | |||
January 30, 2010 | |||||||||
Level 1 | Level 2 | Level 3 | |||||||
Treasury securities |
$ | 216,782 | $ | | $ | | |||
Interest rate swap |
$ | | $ | 1,968 | $ | |
The carrying amounts reflected on the Consolidated Balance Sheets for cash, cash equivalents, receivables, prepaid expenses, and payables as of January 31, 2009 and January 30, 2010 approximated their fair values.
F-11
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. Summary of Significant Accounting Policies (continued)
Concentration of Credit Risk
The Company maintains cash and cash equivalents with various major financial institutions. The Company monitors the relative credit standing of these financial institutions and other entities and limits the amount of credit exposure with any one entity. The Company also monitors the creditworthiness of the entities to which it grants credit terms in the normal course of business.
Receivables, Net
Receivables consist primarily of tenant allowances from landlords and miscellaneous trade receivables, which are continuously reviewed for collectability. The Company maintains an allowance for doubtful accounts balance which totaled $1,230 and $3,832 as of January 31, 2009 and January 30, 2010, respectively.
Inventories
Inventories are principally valued at the lower of cost or market on a weighted-average cost basis. The Company records a lower of cost or market adjustment on its inventory, which is reflected in cost of goods sold, buying and occupancy costs in the Consolidated Statements of Operations, if the cost of specific inventory items on hand exceeds the amount it expects to realize from the ultimate sale or disposal of the inventory. These estimates are based on managements judgment regarding future demand and market conditions and analysis of historical experience. The lower of cost or market reserve was $14,639 and $5,508 as of January 31, 2009 and January 30, 2010, respectively.
The Company also records an inventory shrink reserve for estimated merchandise inventory losses for the period between the last physical inventory and the balance sheet date. This estimate is based on managements analysis of historical results. The shrink reserve was $17,611 and $15,415 as of January 31, 2009 and January 30, 2010, respectively.
Advertising
Advertising production costs are expensed at the time the promotion first appears in media, store, or on the website. Costs to publish or broadcast the promotion are expensed when incurred. Total advertising expense totaled $14,825 in the 2007 Predecessor period, $30,052 in the 2007 Successor period, $57,551 in 2008, and $53,685 in 2009. Advertising costs are included in general, administrative, and store operating expenses in the Consolidated Statements of Operations.
Private Label Credit Card Rewards
The Company has a credit card agreement (the Card Agreement) with a third party to provide customers with private label credit cards (credit card(s)). Each credit card bears the logo of the Express brand and can be used at any of the Companys retail store locations or website. A third-party financing company is the sole owner of the accounts issued under the credit card program and absorbs the losses associated with non-payment by the card holders and a portion of any fraudulent usage of the accounts. The Company receives reimbursement for expenses incurred from the third-party financing company in accordance with the Card Agreement based on usage of the credit cards. Income is recognized when the amounts are fixed or determinable and collectability is reasonably assured, which is generally at the time that the actual usage of the credit cards or specified transaction occurs. In accordance with Accounting Standards Codification (ASC) Subtopic 605-50, Customer Payments and Incentives, the income is classified in general, administrative, and store operating expenses in the Consolidated Statements of Operations.
F-12
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. Summary of Significant Accounting Policies (continued)
Card holders earn reward certificates that result in discounts on future purchases. Upon reaching the target-earned threshold, card holders receive reward certificates for these discounts that expire within three months of issuance, at which time the certificate is forfeited. The Company accrues the anticipated redemptions of the discount earned. To calculate this expense, the Company estimates margin rates and makes assumptions related to card holder redemption rates, which are both based on historical experience. The accrued liability as of January 31, 2009 and January 30, 2010 was $3,842 and $3,489, respectively, and is included in accrued expenses on the Consolidated Balance Sheets.
Property and Equipment, Net
All property and equipment are stated at cost. Depreciation of property and equipment is computed on a straightline basis, using the following useful lives:
Category |
Depreciable Life |
|
Software, including software developed for internal use |
3 years | |
Store related assets and other property and equipment |
3 10 years | |
Leasehold improvements |
Shorter of lease term or 10 years |
When a decision is made to dispose of property and equipment prior to the end of the previously estimated useful life, depreciation estimates are revised to reflect the use of the asset over the shortened estimated useful life. The cost of assets sold or retired and the related accumulated depreciation are removed from the accounts with any resulting gain or loss included in other operating expense, net, in the Consolidated Statements of Operations. Maintenance and repairs are charged to expense as incurred. Major renewals and betterments that extend useful lives are capitalized.
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The reviews are conducted at the store asset level, the lowest identifiable level of cash flow. If the estimated undiscounted future cash flows related to the property and equipment are less than the carrying value, the Company recognizes a loss equal to the difference between the carrying value and the fair value, usually determined by the estimated discounted cash flow analysis of the asset. Factors used to assess the fair value of property and equipment include, but are not limited to, managements plans for future operations, brand initiatives, recent operating results, and projected future cash flows. The Company recorded impairment charges related to store leasehold improvements of $0 in the 2007 Predecessor period, $484 in the 2007 Successor period, $2,442 in 2008 and $2,623 in 2009. Impairment charges are included in cost of goods sold, buying and occupancy costs in the Consolidated Statements of Operations.
On February 1, 2009, the Company adopted the authoritative guidance included in ASC Topic 820 to fair value measurements of non-financial assets and non-financial liabilities that are recognized or disclosed at fair value in the financial statements on a non-recurring basis. Non-financial assets and liabilities measured at fair value on a non-recurring basis as of January 30, 2010 consisted of the following:
Level 1 | Level 2 | Level 3 | |||||||
Long-lived assets to be held and used |
$ | | $ | | $ | 712 |
F-13
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. Summary of Significant Accounting Policies (continued)
Long-lived assets to be held and used with a carrying amount of $3,335 were written down to their fair value of $712, resulting in an impairment charge of $2,623, which is included in cost of goods sold, buying and occupancy costs in 2009.
Intangible Assets
The Company has intangible assets, primarily its tradename resulting from the GGC Acquisition, and internet domain name purchased during 2008 prior to the launch of its e-commerce website. Intangible assets with indefinite lives are reviewed for impairment annually in the fourth quarter, or more frequently if indicators of impairment are present, by comparing the carrying value to the estimated fair value, usually determined using a discounted cash flow methodology. Factors used in the valuation of all intangible assets include, but are not limited to, managements plans for future operations, brand initiatives, recent operating results, and projected future cash flows.
Intangible assets with finite lives are amortized on a basis reflecting when the economic benefits of the assets are consumed or otherwise used up over their respective estimated useful lives. Intangible assets with finite lives are reviewed for impairment when events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If the estimated undiscounted future cash flows related to the asset are less than the carrying value, the Company recognizes a loss equal to the difference between the carrying value and the estimated fair value, usually determined by the estimated discounted future cash flows of the asset.
The Company did not have any intangible assets in the 2007 Predecessor period and did not incur any impairment charges on intangible assets in the 2007 Successor period, in 2008, or in 2009.
Leases and Leasehold Improvements
The Company has leases that contain pre-determined fixed escalations of minimum rentals and/or rent abatements subsequent to taking possession of the leased property. The related rent expense is recognized on a straight-line basis commencing upon possession date. The Company records the difference between the recognized rent expense and amounts payable under the leases as deferred lease credits. The obligations for pre-determined fixed escalations of minimum rent and/or rent abatements were $7,968 and $11,775 as of January 31, 2009 and January 30, 2010, respectively, and are included in other long-term liabilities on the Consolidated Balance Sheets.
The Company receives allowances from landlords related to its retail stores. These allowances are generally comprised of cash amounts received from landlords as part of negotiated lease terms. Cash received from landlords was $398 in the 2007 Predecessor period, $4,160 in the 2007 Successor period, $5,057 in 2008, and $5,772 in 2009. The Company records a receivable and a landlord allowance upon satisfaction of the provisions for receiving the allowance. The landlord allowance is amortized on a straight-line basis as a reduction to rent expense over the term of the lease (including the pre-opening build-out period). The receivable is reduced as allowance amounts are received from landlords. The reduction to rent expense was $3,320 in the 2007 Predecessor period, $201 in the 2007 Successor period, $697 in 2008, and $1,648 in 2009, and is included in cost of goods sold, buying and occupancy costs in the Consolidated Statements of Operations. The unamortized portion of landlord allowances totaled $9,670 and $13,952 as of January 31, 2009 and January 30, 2010, respectively, and is included in other long-term liabilities on the Consolidated Balance Sheets.
F-14
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. Summary of Significant Accounting Policies (continued)
Certain leases provide for contingent rents which are based on a percentage of gross sales in excess of predetermined levels and are not measured at inception. These amounts are excluded from minimum rent and are included in the determination of rent expense when it is probable that the expense has been incurred and the amount is reasonably estimable.
The Company also has leasehold improvements which are depreciated over the shorter of their estimated useful lives or the period from the date the assets are placed in service to the end of the initial lease term, including renewal periods, if reasonably assured. Leasehold improvements made after the inception of the initial lease term are depreciated over the shorter of their estimated useful lives or the remaining lease term, including renewal periods, if reasonably assured.
Debt Issuance Costs and Discount
Fees and costs incurred in connection with the Companys borrowings are capitalized and included in other assets on the Consolidated Balance Sheets. Debt issuance costs and debt discounts are amortized to interest expense over the term of the respective loan agreements and are included in interest expense in the Consolidated Statements of Operations. Debt issuance costs were recorded as a result of the GGC Acquisition and the Recapitalization. As of January 31, 2009 and January 30, 2010, debt issuance costs totaled $11,488 and $10,061, respectively. The Company recorded amortization expense related to debt issuance costs of $0 in the 2007 Predecessor period, $1,052 in the 2007 Successor period, $2,001 in 2008, and $2,181 in 2009. The Company recorded amortization expense for debt discounts of $0 in the 2007 Predecessor period, $0 in the 2007 Successor period, $304 in 2008, and $584 in 2009.
Derivative Financial Instruments
The Company uses derivative financial instruments to manage its exposure to interest rates. The Company does not use derivative financial instruments to manage exposure to foreign currency exchange rates or for trading purposes. Derivative financial instruments are required to be recorded on the Consolidated Balance Sheets at fair value. The Company did not seek cash flow hedge accounting and, therefore, records the impact of the change in fair value of its derivative in other expense (income), net in the Consolidated Statements of Operations.
Income Taxes
Effective May 7, 2007, the Company became recognized as a partnership for federal income tax purposes. As such, with the exception of a limited number of state and local jurisdictions, the Company is no longer subject to income taxes. The members of the Company, and not the Company itself, are subject to income tax on their distributive share of the Companys earnings from May 7, 2007 forward. The Company pays distributions to members to fund their tax obligations.
The Company accounts for income taxes using the asset and liability method. Under this method, the amount of taxes currently payable or refundable are accrued, and deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences that currently exist between the tax basis and the financial reporting basis of the Companys assets and liabilities. For periods up to the effective date of the Companys recognition as a partnership for federal income tax purposes, deferred taxes were recognized on a
F-15
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. Summary of Significant Accounting Policies (continued)
separate company basis as if the Company were taxable as a corporation. As a partnership, deferred taxes for periods ending after May 7, 2007 were related to a limited number of state and local jurisdictions.
Deferred tax assets and liabilities are measured using the enacted tax rates in effect in the years when those temporary differences are expected to reverse. The effect of a change in tax rates on deferred taxes is recognized through continuing operations in the period that includes the enactment date of the change. Changes in tax laws and rates could affect recorded deferred tax assets and liabilities in the future. The Company is not aware of any such changes that would have a material effect on its results of operations, cash flows, or financial position.
In July 2006, the Financial Accounting Standards Board (FASB) issued authoritative guidance included in ASC Subtopic 740-10, Income TaxesOverall , (ASC Subtopic 740-10) which clarifies the accounting for uncertainty in income taxes recognized in the financial statements. ASC Subtopic 740-10 provides that a tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on its technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of ASC Subtopic 740-10 and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
The Company recognizes tax liabilities in accordance with ASC Subtopic 740-10 and adjusts these liabilities when judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the liabilities. These differences will be reflected as increases or decreases in income tax expense and the effective tax rate in the period in which new information becomes available.
The Company adopted the authoritative guidance included in ASC Subtopic 740-10 effective February 4, 2007. As a result of the implementation of the authoritative guidance included in ASC Subtopic 740-10, the Company recognized an additional liability of $702 for unrecognized tax benefits, which was accounted for as a reduction to the February 4, 2007 retained earnings balance. LBI retained the entire ASC Subtopic 740-10 liability of $9,673 for unrecognized tax benefits for any Predecessor period up to and including the date of the GGC Acquisition. For the Successor periods, the Company recognized no liability for unrecognized tax benefits and, therefore, there was no effect on the Companys financial condition or results of operations for any Successor period.
The Company recognizes interest and penalties related to unrecognized tax benefits in provision for income taxes in the Consolidated Statements of Operations. Accrued interest and penalties are included within the related tax liability line on the Consolidated Balance Sheets.
The Company may be subject to periodic audits by the Internal Revenue Service (IRS) and other taxing authorities. These audits may challenge certain of the Companys tax positions, such as the timing and amount of deductions and allocation of taxable income to the various jurisdictions.
F-16
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. Summary of Significant Accounting Policies (continued)
Self Insurance
The Company is self-insured for medical, workers compensation, and general liability benefits up to certain stop-loss limits. Such costs are accrued based on known claims and an estimate of incurred but not reported (IBNR) claims. IBNR claims are estimated using historical claim information and actuarial estimates. The accrued liability for self insurance as of January 31, 2009 and January 30, 2010 was $2,795 and $3,800, respectively, and is included in accrued expenses on the Consolidated Balance Sheets.
Revenue Recognition
The Company recognizes sales at the time the customer takes possession of the merchandise which, for e-commerce revenues, reflects an estimate of shipments that have not yet been received by the customer. The estimate of these shipments is based on shipping terms and historical delivery times. Amounts related to shipping and handling revenues billed to customers in an e-commerce sale transaction are classified as net sales, and the related shipping and handling cost are classified as cost of goods sold, buying and occupancy costs in the Consolidated Statements of Operations. The Companys shipping and handling revenues were $2,728 and $8,913 in 2008 and 2009, respectively. The Company launched its e-commerce business in June 2008, and therefore did not receive or record shipping and handling revenues for the 2007 Predecessor or 2007 Successor periods. Associate discounts are classified as a reduction of net sales. Net sales exclude sales tax collected from customers and remitted to governmental authorities.
The Company provides a reserve for projected merchandise returns based on prior experience. Merchandise returns are often resalable merchandise and are refunded by issuing the same payment tender of the original purchase. Merchandise exchanges of the same product and price, typically due to size or color preferences, are not considered merchandise returns. The sales returns reserve was $2,284 and $4,312 as of January 31, 2009 and January 30, 2010, respectively, and is included in accrued expenses on the Consolidated Balance Sheets.
The Company sells gift cards in its retail stores and through its e-commerce website and third parties, which do not expire or lose value over periods of inactivity. The Company accounts for gift cards by recognizing a liability at the time a gift card is sold. The gift card liability balance was $20,481 and $21,140, as of January 31, 2009 and January 30, 2010, respectively, and is included in deferred revenue on the Consolidated Balance Sheets. The Company recognizes income from gift cards when they are redeemed by the customer. In addition, income on unredeemed gift cards is recognized when it can be determined that the likelihood of the gift card being redeemed is remote and that there is no legal obligation to remit the unredeemed gift cards to relevant jurisdictions (gift card breakage). The gift card breakage rate is based on historical redemption patterns. Gift card breakage of $1,199 in the 2007 Predecessor period, $1,366 in the 2007 Successor period, $2,428 in 2008, and $2,328 in 2009 was recorded by the Company and is included in net sales in the Consolidated Statements of Operations.
Share-Based Compensation
The Company accounts for share-based employee compensation in accordance with ASC Topic 718, CompensationStock Compensation , (ASC Topic 718). ASC Topic 718 requires the fair value of share-based payments to employees to be recognized in the financial statements as compensation cost over the requisite service period. Compensation expense for equity units is recognized, on a straight-line basis, net of forfeitures, over the requisite service period for the fair value of awards that actually vest.
F-17
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. Summary of Significant Accounting Policies (continued)
Cost of Goods Sold, Buying and Occupancy Costs
Cost of goods sold, buying and occupancy costs includes merchandise costs, net of discounts and allowances, freight, inventory shrinkage, and other gross margin related expenses. Buying and occupancy expenses primarily include payroll, benefit costs, and other operating expenses for the buying departments (merchandising, design, manufacturing, and planning and allocation),
General, Administrative, and Store Operating Expenses
General, administrative, and store operating expenses primarily include payroll, benefit costs, and other operating expenses for store selling and administrative departments and store marketing and advertising expenses.
Other Operating Expense, Net
Other operating expense, net consists of GGC advisory fees, LBI LLC fees, gain/loss on disposal of assets, and excess proceeds from the settlement of insurance claims.
Other Expense (Income), Net
Other expense (income), net consists of the change in fair market value of the interest rate swap.
Recently Issued Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820)Improving Disclosures about Fair Value Measurements , (ASU 2010-06). ASU 2010-06 requires the following new disclosures: (i) the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and a description of the reasons for the transfers; and (ii) a reconciliation for fair value measurements using significant unobservable inputs (Level 3), including separate information about purchases, sales, issuance, and settlements. ASU 2010-06 also clarifies existing requirements about fair value measurement disclosures and disclosures about inputs and valuation techniques. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the reconciliation of Level 3 activity, which is effective for fiscal years beginning after December 15, 2010. The adoption of ASU 2010-06 beginning in the first quarter of fiscal 2010 will require expanded disclosure in the Notes to the Companys Consolidated Financial Statements but will not impact amounts within its Consolidated Financial Statements.
In June 2009, the FASB issued ASC Topic 105, GAAP (ASC Topic 105). This standard establishes two levels of GAAP, authoritative and non-authoritative. The FASB ASC (the Codification) is now the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the Securities and Exchange Commission (SEC), which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative. This standard is effective for financial statements for interim or annual reporting periods ending after September 15, 2009. Effective February 1, 2009, the Company has adopted ASC Topic 105 which changed its historical U.S. GAAP references to comply with the Codification.
F-18
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. Summary of Significant Accounting Policies (continued)
In May 2009, the FASB issued authoritative guidance included in ASC Topic 855, Subsequent Events . This standard is intended to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued. The Company has adopted this guidance, and there was no material impact on its Consolidated Financial Statements. Refer to Note 16.
In April 2009, the FASB issued authoritative guidance included in ASC Topic 825, Financial Instruments, intended to provide additional accounting guidance and enhanced disclosures of fair values of certain financial instruments in interim and annual financial statements. The Company has adopted this guidance, and there was no impact on its Consolidated Financial Statements.
In April 2008, the FASB issued authoritative guidance included in ASC Topic 350, IntangiblesGoodwill and Other , which is intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company has adopted this guidance effective February 1, 2009, and there was no impact on its Consolidated Financial Statements.
In March 2008, the FASB issued authoritative guidance included in ASC Topic 815, Derivatives and Hedging. This guidance requires additional disclosures about the objectives and strategies for using derivative instruments and is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early adoption encouraged. The Company has adopted this guidance effective February 1, 2009, the results of which are included in Note 9.
In September 2006, the FASB issued authoritative guidance included in ASC Topic 820, Fair Value Measurements and Disclosures , which provides guidance for fair value measurement of assets and liabilities and instruments measured at fair value that are classified in members equity. This guidance defines fair value, establishes a fair value measurement framework and expands fair value disclosures. It emphasizes that fair value is market-based with the highest measurement hierarchy level being market prices in active markets. This guidance requires fair value measurements be disclosed by hierarchy level, an entity to include its own credit standing in the measurement of its liabilities and modifies the transaction price presumption. In February 2008, the FASB delayed the effective date for this guidance to fiscal years beginning after November 15, 2008 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Accordingly, as of February 3, 2008, the Company adopted the authoritative guidance for financial assets and liabilities only on a prospective basis. As of February 1, 2009, the Company adopted the remaining provisions. The adoption of this guidance did not have a material impact on the Companys Consolidated Financial Statements.
2. The GGC Acquisition
In anticipation of the GGC Acquisition, LBI, through its subsidiaries, Limited Brands Store Operations, Inc. (LBSO), a Delaware corporation, and Express Investment Inc, formed Holding on May 9, 2007, whereby LBSO contributed Express to Holding in exchange for 100% of the interest in Holding. For the period from May 9, 2007 through July 2007, Holding was an indirectly, wholly-owned subsidiary of LBI. Golden Gate Capital (GGC) formed Express Investment Corp., a Delaware corporation (EIC) and in July 2007 acquired a 75% interest in Holding from LBSO in multiple steps pursuant to a Unit Purchase Agreement (the Purchase Agreement) dated May 15, 2007 and amended July 6, 2007.
F-19
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
2. The GGC Acquisition (continued)
EIC acquired an initial controlling interest of 66 2 / 3 % on July 7, 2007 from LBI in exchange for $513,657 in cash and acquired an incremental interest of 8 1 / 3 % from LBI on July 31, 2007 in exchange for $53,875 in cash, resulting in an aggregate cash consideration of $567,532. The cash consideration and certain related transaction costs were funded by cash of $452,870 from EIC and $125,000 of debt issued by Holding. Additionally, Holding received a cash contribution of $34,343 from EIC.
Pursuant to the Amended and Restated LLC Agreement (LLC Agreement) dated July 6, 2007, 75,000 and 25,000 Class L equity ownership units of Holding were held by GGC through EIC, and LBI, through its subsidiaries, respectively. Subsequent to July 6, 2007, certain executive management members of Holding made equity contributions of $11,285, partially funded by $5,643 of promissory notes payable to Holding, in exchange for 1,700 Class L equity ownership units, representing 1.7% ownership interest in Holding. These additional Class L equity ownership units purchased by certain executive management members resulted in dilution to the original ownership percentage of EIC and the subsidiaries of LBI to 73.7% and 24.6%, respectively. The accompanying Consolidated Financial Statements are presented for the Predecessor and Successor relating to the periods preceding and succeeding the GGC Acquisition, respectively.
Holding accounted for the GGC Acquisition in accordance with Statement of Financial Accounting Standards 141, Business Combinations . Holding was created in anticipation of and used to effect the GGC Acquisition. Accordingly, for accounting purposes, Holding was deemed the accounting acquirer and the transaction was reflected as the acquisition of 100% of the fair value of Express by Holding in exchange for cash and a 25% equity interest, accompanied by a change in control. The value of the equity interest in Holding retained by LBI was derived from the fair value of the acquired business and determined to be $161,625. The total purchase price of $739,495, consisting of cash paid by GGC, the fair value of the 25% interest in Holding, and $10,338 of directly related transaction costs were allocated to the acquired assets and liabilities based on their respective fair values.
The allocation of the purchase price was as follows:
Cash and cash equivalents |
$ | 13,734 | |
Receivables, net |
11,709 | ||
Inventories |
241,894 | ||
Other current assets |
25,500 | ||
Property and equipment |
309,744 | ||
Intangible assets (primarily tradename) |
220,660 | ||
Other assets |
11,736 | ||
Total assets acquired |
834,977 | ||
Accounts payable |
36,197 | ||
Accrued expenses |
50,856 | ||
Other long-term liabilities |
8,429 | ||
Total liabilities assumed |
95,482 | ||
Net assets acquired at fair value |
$ | 739,495 | |
F-20
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
2. The GGC Acquisition (continued)
The fair value of the acquired net assets, representing 100% of the assets of Express, exceeded the purchase price paid by GGC. In connection with the GGC Acquisition allocation, Holding increased the carrying amount of its inventories by $86,887, its property and equipment by $38,529, and recorded $220,660 of intangible assets. Intangible asset detail is included in Note 5.
3. Property and Equipment, Net
Property and equipment, net, consisted of:
January 31, 2009 | January 30, 2010 | |||||||
Building improvements |
$ | 2,817 | $ | 2,816 | ||||
Furniture, fixtures and equipment, software |
167,914 | 183,981 | ||||||
Leaseholds and improvements |
188,911 | 198,425 | ||||||
Construction in process |
9,649 | 10,729 | ||||||
Total |
369,291 | 395,951 | ||||||
Less: accumulated depreciation |
(115,809 | ) | (180,714 | ) | ||||
Property and equipment, net |
$ | 253,482 | $ | 215,237 | ||||
Depreciation expense totaled $25,051 in the 2007 Predecessor period, $44,347 in the 2007 Successor period, $73,139 in 2008, and $64,664 in 2009.
4. Leased Facilities and Commitments
On July 6, 2007, the Company entered into a lease agreement (the Lease) with LBI, a related party, for its corporate home office and distribution center facility in Columbus, OH. The Lease is for a six year period that expires on July 31, 2013 and requires annual minimum rent payments of approximately $3,800 in year one and $3,300 thereafter, subject to periodic adjustments each July based on the change in the Consumer Price Index over the twelve month period ending two months prior to each July. Either party can elect to terminate the Lease prior to July 31, 2013 with written notice. On February 20, 2009, the parties amended the Lease to provide that each partys right to terminate the Lease prior to July 31, 2013 may not be exercised by either party until April 30, 2011.
On October 5, 2009, the Company and LBI entered into a new lease agreement (the New Lease) for the corporate home office and distribution center facility in Columbus, OH. The New Lease is for a 75 month period that commences February 1, 2010 and expires on April 30, 2016 and requires annual minimum market rent payments of approximately $1,284 for the first five years and $1,413 thereafter. The New Lease contains a renewal option for one period of five years by written notice 365 days prior to the expiration of the New Lease term and a construction allowance of $8,000.
Annual store rent consists of a fixed minimum amount and/or contingent rent based on a percentage of sales exceeding a stipulated amount. The Company records a contingent rent liability in accrued expenses on the Consolidated Balance Sheets and the corresponding rent expense in cost of goods sold, buying and occupancy costs in the Consolidated Statements of Operations when specified levels have been achieved or when management determines that achieving the specified levels during the fiscal year is probable.
F-21
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
4. Leased Facilities and Commitments (continued)
Rent expense is summarized as follows:
Predecessor | Successor | |||||||||||||
Twenty-Two
Weeks Ended July 6, 2007 |
Thirty
Weeks Ended February 2, 2008 |
2008 | 2009 | |||||||||||
Store rent |
||||||||||||||
Fixed minimum |
$ | 60,118 | $ | 98,319 | $ | 151,381 | $ | 152,868 | ||||||
Contingent |
3,112 | 5,540 | 6,832 | 6,805 | ||||||||||
Total store rent |
63,230 | 103,859 | 158,213 | 159,673 | ||||||||||
Home office, distribution center, and other |
2,911 | 5,540 | 8,965 | 8,551 | ||||||||||
Total rent expense |
$ | 66,141 | $ | 109,399 | $ | 167,178 | $ | 168,224 | ||||||
As of January 30, 2010, the Company was committed to noncancelable leases with remaining terms generally from one to ten years. A substantial portion of these commitments consist of store leases generally with an initial term of ten years. Store lease terms generally require additional payments covering real estate taxes, common area maintenance costs, and certain other expenses. The obligations for these additional payments are excluded from the table that follows.
Minimum rent commitments, net of landlord allowances, under noncancelable leases are as follows:
2010 |
$ | 155,183 | |
2011 |
129,512 | ||
2012 |
120,144 | ||
2013 |
106,810 | ||
2014 |
81,357 | ||
Thereafter |
$ | 148,867 |
The Companys future sublease income under noncancelable subleases was $3,030 as of January 30, 2010.
On April 28, 2008, the Company issued an irrevocable stand-by letter of credit (LBI stand-by LC) to LBI for $34,170, which related to certain pre-existing store leases guaranteed by LBI that could not be assigned to the Company at or subsequent to the GGC Acquisition. LBI can draw from the LBI stand-by LC if the Company were to default on any of the guaranteed leases. The LBI stand-by LC is reduced through the September 30, 2010 expiration date with the overall reduction in guaranteed lease payments. The available balance of the LBI stand-by LC was $18,708 and $6,353 as of January 31, 2009 and January 30, 2010, respectively. There were no outstanding draws on the LBI stand-by LC as of January 30, 2010.
F-22
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
5. Intangible Assets
The following table provides the significant components of intangible assets:
January 31, 2009 | |||||||||
Cost |
Accumulated
Amortization |
Ending Net
Balance |
|||||||
Tradename |
$ | 196,144 | $ | | $ | 196,144 | |||
Internet domain name/other |
1,250 | | 1,250 | ||||||
Net favorable lease obligations |
19,750 | 7,197 | 12,553 | ||||||
Credit card relationships & customer lists |
4,766 | 2,929 | 1,837 | ||||||
$ | 221,910 | $ | 10,126 | $ | 211,784 | ||||
January 30, 2010 | |||||||||
Cost |
Accumulated
Amortization |
Ending Net
Balance |
|||||||
Tradename |
$ | 196,144 | $ | | $ | 196,144 | |||
Internet domain name/other |
1,270 | | 1,270 | ||||||
Net favorable lease obligations |
19,750 | 11,262 | 8,488 | ||||||
Credit card relationships & customer lists |
4,766 | 3,868 | 898 | ||||||
$ | 221,930 | $ | 15,130 | $ | 206,800 | ||||
The Companys tradename and internet domain name have indefinite lives. Net favorable lease obligations, credit card relationships, and customer lists have finite lives and are amortized over a period of up to seven years, four years, and two years, respectively, and are included in other assets on the Consolidated Balance Sheets. Amortization expense totaled $0 in the 2007 Predecessor period, $4,160 in the 2007 Successor period, $5,966 in 2008, and $5,004 in 2009.
Estimated future amortization expense will approximate the following:
2010 |
$ | 3,636 | |
2011 |
2,274 | ||
2012 |
1,537 | ||
2013 |
1,221 | ||
2014 |
718 | ||
Thereafter |
| ||
Total |
$ | 9,386 | |
F-23
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
6. Related Party Transactions
Transactions with LBI
Predecessor
Prior to the GGC Acquisition, transactions between the Company and LBI and their wholly-owned subsidiaries occurred primarily in the ordinary course of business. Costs relating to these transactions were charged or allocated to the Company using the following methodologies:
Direct Costscosts incurred by LBI and its subsidiaries on behalf of the Company were charged directly to the Company; |
Allocated Costsadministrative and other shared costs incurred by a shared service provided were allocated to the Company using activity drivers or other allocation methodologies that approximate the level of effort required to provide the service. |
Costs were allocated by LBI to the Company for certain functions provided by LBI including, but not limited to, general corporate expenses related to accounting, finance, legal, employee benefits and incentives, real estate and store operations, store design and construction, logistics services, technology services, loss prevention, customer marketing, and human resources.
The Company believes the allocation methodologies described above are fair and reasonable. However, the allocated costs are not necessarily indicative of the amounts that would have been or that will be incurred by the Company on a standalone basis.
Twenty-Two
Weeks Ended July 6, 2007 |
||||
Beginning balance |
$ | 265,849 | ||
Charges from LBI and its wholly-owned subsidiaries |
407,277 | |||
Net cash transferred to LBI |
(394,309 | ) | ||
Adoption of ASC Subtopic 740-10 |
(702 | ) | ||
Net income |
29,942 | |||
Ending balance |
$ | 308,057 | ||
Successor
On July 6, 2007, in conjunction with the GGC Acquisition, the Company entered into TSAs whereby LBI provides support in various operational areas including, among other things, logistics, technology, and merchandising sourcing. The terms of these TSAs vary and range from three months to thirty-nine months. The Company is obligated to purchase a minimum of 90% of its merchandise products from LBI during the first year after the GGC Acquisition, 80% during the second year, and 60% during the third year. The Company is liable to LBI in the event of a breach of this provision in the amount of a margin rate defined in the merchandise sourcing TSA, applied to the cost of products for which the Company is otherwise required to source through LBI.
F-24
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
6. Related Party Transactions (continued)
The Company incurred charges from LBI for various transaction services, included in general, administrative, and store operating expenses and merchandising sourcing, included in cost of goods sold, buying and occupancy costs, as follows:
Thirty
Weeks Ended February 2, 2008 |
2008 | 2009 | |||||||
Transaction services |
$ | 337,571 | $ | 188,216 | $ | 67,467 | |||
Merchandising sourcing |
$ | 471,378 | $ | 584,527 | $ | 464,709 |
The Companys outstanding liability, included in accounts payable and accrued expensesrelated parties on the Consolidated Balance Sheets, for transaction services and merchandising sourcing was as follows:
January 31, 2009 | January 30, 2010 | |||||
Transaction services |
$ | 12,358 | $ | 10,881 | ||
Merchandising sourcing |
$ | 79,636 | $ | 63,643 |
On October 5, 2009, the parties entered into a new logistics services agreement (the Logistics Agreement) with an initial six year term commencing on February 1, 2010 and a renewal option which terminates the logistics services portion of the TSA described above that was nearing expiration.
Furthermore, under the LLC Agreement, LBI is entitled to receive a cash payment (at the same time payments are made under the GGC Advisory Agreement (Advisory Agreement)) equal to the product of (i) the amount of the fees actually paid in cash under the Advisory Agreement and (ii) the quotient of the number of units held by LBI over the number of units held by GGC at the time of payment of such fees. These fees, included in other operating expense, net in the Consolidated Statements of Operations, were as follows:
Thirty
Weeks Ended February 2, 2008 |
2008 | 2009 | |||||||
LBI LLC fee |
$ | 1,152 | $ | 1,262 | $ | 2,275 |
The Companys outstanding liability related to the LBI LLC fee, included in accounts payable and accrued expensesrelated parties on the Consolidated Balance Sheets, was $2,414 and $4,688 as of January 31, 2009 and January 30, 2010, respectively.
Transactions with GGC
In connection with the GGC Acquisition, the Company entered into the Advisory Agreement with GGC that expires in July 2017. In exchange for on-going consulting and management advisory services provided by GGC, the Company reimburses GGC for reasonable out-of-pocket expenses incurred in connection with providing on-going services and an annual management fee equal to the greater of (i) $2,000 per fiscal year or (ii) 3% of adjusted EBITDA of Holding as defined in the term loan agreement (see Note 8).
F-25
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
6. Related Party Transactions (continued)
The Company incurred advisory fees and out-of-pocket expenses, included in other operating expense, net in the Consolidated Statements of Operations, as follows:
Thirty
Weeks Ended February 2, 2008 |
2008 | 2009 | |||||||
Advisory fees and out-of-pocket expenses |
$ | 3,625 | $ | 4,206 | $ | 7,153 |
The Companys
outstanding liability related to the advisory fees and out-of-pocket expenses, included in accounts payable and accrued expenses related parties on the Consolidated Balance Sheets, was $2,513 and $7,128 as of January 31, 2009 and
Transactions with Other GGC Affiliates
The Company also transacts with affiliates of GGC for the software license purchases, consulting and software maintenance services, and e-commerce warehouse and fulfillment services. The Company incurred charges, included in general, administrative, and store operating expenses in the Consolidated Statement of Operations, as follows:
Thirty
Weeks Ended February 2, 2008 |
2008 | 2009 | |||||||
Software licenses and maintenance, and consulting |
$ | 0 | $ | 576 | $ | 255 | |||
E-commerce warehouse and fulfillment |
$ | 0 | $ | 7,846 | $ | 19,248 |
The Companys outstanding liability to other GGC affiliates, included in accounts payable and accrued expensesrelated parties on the Consolidated Balance Sheets, was $3,092 and $3,491 as of January 31, 2009 and January 30, 2010, respectively.
In 2009, the Company began providing real estate services to multiple GGC affiliates. Income recognized for these services in 2009 was nominal.
An affiliate of GGC is a lender under the Topco Term Loan and is owed $100,000 in original principal. Terms of the Topco Term Loan are the same for all lenders in the facility (see Note 8 for further discussion).
7. Income Taxes
For the Predecessor period through May 6, 2007, the Company provided for income taxes on a separate company basis as if the Company was taxable as a corporation. Effective May 7, 2007, the Company became recognized as a partnership for federal income tax purposes. With limited exception as noted below, the Company recognizes no federal, state, or local income taxes for periods subsequent to May 7, 2007, as the members of the Company, and not the Company itself, are subject to income tax on their distributive share of the Companys earnings from May 7, 2007 forward. The Company pays distributions to members to fund their tax obligations. In 2009, $33,000 of tax distributions were paid to members of the Company.
F-26
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
7. Income Taxes (continued)
There are a limited number of state and local jurisdictions that subject the Company to income tax even though it is recognized as a partnership for federal income tax purposes. The Company provides for income taxes related to these jurisdictions for periods ending subsequent to May 7, 2007. LBI retained current income tax liabilities and related income tax contingencies and reserves for any Predecessor period up to and including the date of the GGC Acquisition.
The provision for income taxes consists of the following:
Predecessor | Successor | |||||||||||||||||||
Twenty-Two
Weeks Ended July 6, 2007 |
Thirty
Weeks Ended February 2, 2008 |
2008 | 2009 | |||||||||||||||||
Current: |
||||||||||||||||||||
U.S. federal |
$ | 10,730 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
U.S. state and local |
1,454 | 868 | 480 | 1,572 | ||||||||||||||||
Total: |
12,184 | 868 | 480 | 1,572 | ||||||||||||||||
Deferred: |
||||||||||||||||||||
U.S. federal |
(4,665 | ) | 0 | 0 | 0 | |||||||||||||||
U.S. state and local |
(358 | ) | (381 | ) | (234 | ) | (336 | ) | ||||||||||||
Total: |
(5,023 | ) | (381 | ) | (234 | ) | (336 | ) | ||||||||||||
Provision for income taxes |
$ | 7,161 | $ | 487 | $ | 246 | $ | 1,236 | ||||||||||||
The following table provides the reconciliation between the statutory federal income tax rate and the effective tax rate:
Predecessor | Successor | |||||||||||||||
Twenty-Two
Weeks Ended July 6, 2007 |
Thirty
Weeks Ended February 2, 2008 |
2008 | 2009 | |||||||||||||
Federal income tax rate |
35.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||
State income taxes, net of federal income tax effect |
1.93 | % | 1.22 | % | 0.85 | % | 1.61 | % | ||||||||
Entity status change to partnership |
(18.04 | )% | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||
Other items, net |
0.41 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||
Effective tax rate |
19.30 | % | 1.22 | % | 0.85 | % | 1.61 | % | ||||||||
F-27
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
7. Income Taxes (continued)
The following table provides the effect of temporary differences that created deferred income taxes as of January 31, 2009 and January 30, 2010. Deferred tax assets and liabilities represent the future effects on income taxes resulting from temporary differences and carry-forwards at the end of the respective periods.
January 31, 2009 | January 30, 2010 | |||||
Deferred tax assets: |
||||||
Accrued expenses and deferred compensation |
$ | 114 | $ | 223 | ||
Property and equipment |
0 | 89 | ||||
Other |
74 | 1 | ||||
Total deferred tax assets |
188 | 313 | ||||
Deferred tax liabilities: |
||||||
Intangible assets |
676 | 615 | ||||
Property and equipment |
164 | 0 | ||||
Other |
39 | 53 | ||||
Total deferred tax liabilities |
879 | 668 | ||||
Net deferred tax liabilities |
$ | 691 | $ | 355 | ||
The Company had a net current deferred tax assets balance of $83 and $82 as of January 31, 2009 and January 30, 2010, respectively, which is included in other current assets on the Consolidated Balance Sheets. The Company also recorded a net receivable for state and local income taxes, primarily related to the estimated amount of tax overpayments, of approximately $201 and $112 as of January 31, 2009 and January 30, 2010, respectively, which is included in receivables, net on the Consolidated Balance Sheets. State and local income tax payments totaled $345 and $310 during 2008 and 2009, respectively.
Uncertain Tax Positions
The Company adopted the authoritative guidance included in ASC Subtopic 740-10 effective February 4, 2007. As a result of the implementation of the authoritative guidance included in ASC Subtopic 740-10, the Company recognized an additional liability of $702 for uncertain tax positions, which was accounted for as a reduction to the February 4, 2007 retained earnings balance. Including this adjustment, the Company had $9,673 of uncertain tax positions as of February 4, 2007. LBI retained the entire ASC Subtopic 740-10 liability for uncertain tax positions for any Predecessor period up to and including the date of the GGC Acquisition. For the Successor periods, the Company recognized no liability for uncertain tax positions and, therefore, there was no effect on the Companys financial condition or results of operations for any Successor period.
The Company believes the increase or decrease in the liability for uncertain tax positions will not be significant within the next twelve months. However, changes could result from examinations, the expiration of the statute of limitations or other circumstances. Thus, an estimate of the range of the reasonably possible change cannot be made.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense in the Consolidated Statements of Operations. Accrued interest and penalties are included within the related tax liability line, which is included within accrued expenses on the Consolidated Balance Sheets.
F-28
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
7. Income Taxes (continued)
The Company files a partnership income tax return for federal purposes and in most state and local jurisdictions. The Company may be subject to periodic audits by the IRS and other taxing authorities. These audits may challenge certain of the Companys tax positions, such as the timing and amount of deductions and allocation of taxable income to the various jurisdictions. As of January 30, 2010, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations are the fiscal year ended 2007 and forward.
The Company is currently not under examination by the IRS or state taxing authorities.
8. Credit Facility and Long-Term Debt
Credit Facility
On July 6, 2007, the Company entered into a $200,000 secured Asset-Based Loan Credit Facility (Credit Facility) with a lender. The Credit Facility is available to be used for working capital and other general corporate purposes and expires on July 6, 2012. The Credit Facility borrowing rate is equal to LIBOR plus an applicable margin rate or the higher of the Wall Street Journals prime lending rate or 0.5% per annum above the Federal Funds Rate, plus an applicable margin rate. The applicable margin rate is determined based on the Companys most recent Borrowing Base Certificate equal to 90% (credit card advance rate) of credit card receivables plus 90% (inventory advance rate) of the liquidation value of eligible inventory during year one (through July 6, 2008) and 85% thereafter, less certain reserves. During 2008, the Company borrowed $75,000 under the Credit Facility, which is reflected as a current liability on the Consolidated Balance Sheets as of January 31, 2009. The $75,000 Credit Facility outstanding balance was repaid by the Company in the first quarter of 2009. As of January 30, 2010, the weighted average borrowing rate was 3.25%.
Fees payable under the Credit Facility are based on 0.25% of the average daily unused balance during each quarter payable quarterly in arrears. Additionally, fees for outstanding letter of credit balances are 0.125% based on the average daily aggregate available amount during the quarter of all letters of credit outstanding payable quarterly in arrears. The Credit Facility requires the Company to maintain an agreed upon fixed charge coverage ratio if excess availability plus eligible cash collateral is less than $20,000. The Companys excess availability was $135,153 as of January 30, 2010. The Company was not subject to this covenant as of January 30, 2010 because excess availability plus eligible cash collateral was greater than $20,000 as of January 30, 2010.
All obligations under the Credit Facility are guaranteed and secured by substantially all the assets of Holding and its subsidiary, including: all accounts arising from the sale or other disposition of goods or services; all inventory; letter-of-credit rights and supporting obligations related to the accounts arising from the sale or other disposition of goods or services and inventory; all collection accounts, deposit accounts, commodity accounts, security accounts and any cash, cash equivalents or other assets in any such accounts (excluding any net cash proceeds from the sale or other disposition of any Holding Term Loan first lien collateral); all books, property, and records (including, without limitation, ledgers, customer lists, credit files, printouts, computer software, data processing and other records); and all products and proceeds, including proceeds of insurance and claims against third parties.
Letters of Credit
The Company periodically enters into various trade letters of credit (trade LCs) for certain beneficiary vendors to secure merchandise goods. These trade LCs are issued for a defined period of time and for specific
F-29
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
8. Credit Facility and Long-Term Debt (continued)
shipments and generally expire three weeks after the date of merchandise shipment. As of January 31, 2009 and January 30, 2010, outstanding trade LCs totaled $145 and $0, respectively. Additionally, the Company enters into stand-by letters of credit (stand-by LCs) on an as-need basis. As of January 31, 2009 and January 30, 2010, outstanding stand-by LCs, including the LBI stand-by LC, totaled $20,489 and $8,160, respectively.
Holding Term Loan
On July 6, 2007, the Company entered into a $125,000 secured term loan (Holding Term Loan) with a different lender. The proceeds of these borrowings were used to finance, in part, the GGC Acquisition and pay transaction fees and expenses related to the GGC Acquisition. The Holding Term Loan borrowing rate is equal to LIBOR plus an applicable margin rate or the higher of the Wall Street Journals prime lending rate or 0.5% per annum above the Federal Funds Rate, plus an applicable margin rate. The applicable margin rate is determined by the leverage ratio in effect on the first day of each interest period.
Principal payments under the Holding Term Loan are due in equal quarterly installments of 0.25% of the initial principal balance through the maturity date on July 6, 2014. The Holding Term Loan also requires the Company to maintain a certain leverage ratio of consolidated debt, including letters of credit (net of cash and cash equivalents) to consolidated adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, adjusted for certain items such as non-cash deductions and non-recurring expenses) for the most recently completed reporting period (last twelve months as of the end of each quarter). The Holding Term Loan contains various customary covenants, including certain restrictions on the Companys ability and the ability of its subsidiary to pay distributions.
Effective July 6, 2007, the Company entered into a receive variable/pay fixed interest rate swap agreement to mitigate exposure to interest rate fluctuations on a notional amount of $75,000 of the Companys $125,000 variable-rate Holding Term Loan. The Company did not seek cash flow hedge accounting and, therefore, records the impact of the change in fair value of the swap in other expense (income), net in the Consolidated Statements of Operations. The interest rate swap agreement terminates on August 6, 2010. The fair value of the interest rate swap was a liability of $4,412 and $1,968 as of January 31, 2009 and January 30, 2010, respectively. The short-term portion of the fair value of interest rate swap is included in accrued expenses, and the long-term portion is included in other long-term liabilities on the Consolidated Balance Sheets.
All obligations under the Holding Term Loan are guaranteed and secured by substantially all the assets of the Company and its subsidiaries, including: owned real property, all fixtures and equipment; all intellectual property; all equity interests in Holding and its subsidiary; all intercompany indebtedness of Holding and its subsidiary; all permits and licenses related to ownership or operation of real property, fixtures or equipment; all proceeds of insurance; all books and records not constituting the Credit Facility first lien collateral; all other collateral not constituting the Credit Facility first lien collateral; and all product and proceeds.
Topco Term Loan
On June 26, 2008, the Company entered into a $300,000 Term Loan (Topco Term Loan), a portion of which is with a GGC affiliate. The proceeds of these borrowings were used to pay a distribution to members and associated transaction fees and expenses related to the Recapitalization. The Topco Term Loan was issued at 98% with the face value due at maturity on June 26, 2015. Interest on $150,000 of the borrowings (Topco Term B Loan) is due semi-annually, on the last calendar day of each January and July, at a rate of 13.5% per annum.
F-30
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
8. Credit Facility and Long-Term Debt (continued)
Interest on the remaining $150,000 of borrowings (Topco Term C Loan) is due quarterly, on the last calendar day of each January, April, July, and October, at a rate of 14.5% per annum. The Company may elect to pay in kind (PIK) all or any portion of the quarterly interest on the Topco Term C Loan at a rate of 16.0% per annum. The Company elected to pay the quarterly interest due on January 31, 2009 for $150,000 of the borrowings as PIK interest. Accordingly, the Company recognized accrued PIK interest of $6,049 as of January 31, 2009, which is included in long-term debt on the Consolidated Balance Sheets. During 2009, the Company fully repaid this PIK interest.
The Topco Term Loan requires the Company to maintain a certain leverage ratio of consolidated debt, including letters of credit (net of cash and cash equivalents) to consolidated adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, adjusted for certain items such as non-cash deductions and non-recurring expenses) for the most recently completed reporting period (last twelve months as of the end of each quarter). The Topco Term Loan also requires the Company to maintain a certain interest coverage ratio of consolidated adjusted EBITDA to interest expense for the most recently completed twelve months. The Topco Term Loan contains various customary covenants, including certain restrictions on the Companys ability and the ability of its subsidiary to pay distributions.
The Company is required to make mandatory prepayments on the Topco Term Loan upon the occurrence of certain events defined in the Topco Term Loan agreement. The Company may, at its option, prepay all or any portion of the Topco Term Loan principal amount plus accrued interest at redemption prices set forth in the loan agreement. The Topco Term Loan is collateralized by 100% of the membership interests in Holding, but is not guaranteed by Topcos subsidiary.
Borrowings outstanding consisted of the following:
January 31, 2009 | January 30, 2010 | |||||||
Holding Term Loan |
$ | 123,125 | $ | 121,875 | ||||
Topco Term Loan, including PIK interest |
306,049 | 300,000 | ||||||
Debt discount on Topco Term Loan |
(5,696 | ) | (5,112 | ) | ||||
Total |
423,478 | 416,763 | ||||||
Less: current portion |
(1,250 | ) | (1,250 | ) | ||||
Total long-term debt |
$ | 422,228 | $ | 415,513 | ||||
Annual maturities of long-term debt on the Holding Term Loan and Topco Term Loan are as follows over the next five years and thereafter:
2010 |
$ | 1,250 | |
2011 |
1,250 | ||
2012 |
1,250 | ||
2013 |
1,250 | ||
2014 |
116,875 | ||
Thereafter |
300,000 | ||
Total |
$ | 421,875 | |
F-31
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
8. Credit Facility and Long-Term Debt (continued)
The fair value of the Companys variable rate debt was estimated using quoted market prices for similar debt issues. As of January 31, 2009, the estimated fair value of the Holding Term Loan and Topco Term Loan was $115,738 and $261,540, respectively. As of January 30, 2010, the estimated fair value of the Holding Term Loan and Topco Term Loan was $126,029 and $312,022, respectively.
The Company incurred interest expense of $0 in the 2007 Predecessor period, $6,978 in the 2007 Successor period, $36,531 in 2008, and $53,222 in 2009. Interest expense incurred for the GGC affiliates portion of the Topco Term Loan was $0 in the 2007 Predecessor period, $0 in the 2007 Successor period, $8,513 in 2008, and $14,499 in 2009. Cash paid for interest was $0 in the 2007 Predecessor period, $5,198 in the 2007 Successor period, $16,349 in 2008, and $51,610 in 2009. The GGC affiliates portion of cash paid for interest under the Topco Term Loan was $2,927 and $14,445 in 2008 and 2009, respectively.
9. Derivative Instrument
Effective July 6, 2007, the Company entered into a receive variable/pay fixed interest rate swap agreement to mitigate exposure to interest rate fluctuations on a notional amount of $75,000 of the Companys $125,000 variable-rate Holding Term Loan. The Company did not seek cash flow hedge accounting and, therefore, records the impact of the change in fair market value of the swap in other expense (income), net in the Consolidated Statements of Operations. The interest rate swap agreement terminates on August 6, 2010.
The Company recorded the interest rate swap at fair value as follows:
January 31, 2009 | January 30, 2010 | |||||||||
Derivative Instrument |
Balance Sheet
Location |
Fair Value |
Balance Sheet
Location |
Fair Value | ||||||
Interest rate swap agreementshort term |
Accrued expenses | $ | 2,275 | Accrued expenses | $ | 1,968 | ||||
Interest rate swap agreementlong term |
Other long-term
liabilities |
2,137 |
Other long-term
liabilities |
| ||||||
Total derivative instruments |
$ | 4,412 | $ | 1,968 | ||||||
The effect of the derivative instrument on other expense (income), net in the Consolidated Statements of Operations was $300 and $2,444 in 2008 and 2009, respectively, both a reduction of expense.
10. Members Equity
Certain executive management members were provided the opportunity to purchase Class L equity ownership units for a combination of cash and promissory notes payable to Holding. These seven-year promissory notes are fully-recourse to the employee, accrue interest on an arms length rate basis, and are secured by a pledge of all equity interests of Holding by the executive management member. The promissory notes require mandatory prepayments upon certain events defined in the agreements, including upon receipt of any cash proceeds received by the executive management members in connection with their membership interests.
F-32
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
10. Members Equity (continued)
The promissory notes will be repaid at maturity, unless the mandatory prepayment is triggered or the executive management member elects to prepay. Pursuant to the Recapitalization, the executive management members contributed their Class L equity ownership units of Holding in exchange for an equivalent number of Class L equity ownership units of the Company. Notes receivable of $5,633 related to the purchase of executive management membership interest in the Company are reflected as a reduction of members equity as of January 31, 2009 and January 30, 2010. The Company received interest income on the notes receivable of $0 in the 2007 Successor period, $266 in 2008, and $265 in 2009, which is included in interest income in the Consolidated Statements of Operations.
The Company owns 100% of the membership interests of Topco, and Topco owns 100% of the membership interests of Holding. The Company is authorized to issue an unlimited number of units. The following equity units of the Company were issued and outstanding as of the respective periods:
Outstanding Units |
January 31, 2009 | January 30, 2010 | ||
Class L |
101,742 | 101,742 | ||
Class A |
7,540 | 7,330 | ||
Class B |
| | ||
Class C |
4,155 | 4,705 | ||
Total |
113,437 | 113,777 | ||
Class L units accumulate a non-cash compounded yield of 10% per annum and have a distribution preference over Class A, B, and C units. Class L unit holders are entitled to participate in all distributions, including recapitalizations, dividends, and other liquidity events. Such events have the following priority; (a) Class L units first receive their preferred return on their cost basis per unit plus the accumulated yield; (b) Class L units then receive an amount equal to their aggregate unreturned capital; (c) Class L and A units then, as a group, ratably based upon the number of vested units held by each at the time of such event, receive 100% until the amount reaches one and half times such holders aggregate investment in such units; (d) Class L, A, and B units then, as a group, ratably based upon the number of vested units held by each at the time of such event, receive 100% until the amount reaches two times such holders aggregate investment in such units; and (e) Class L, A, B, and C units, as a group, ratably upon the number of vested units held by each at the time of such event, receive 100% of the remaining amount. Class A, B, and C units are equity incentive units (see Note 11).
During 2008, the Company repurchased certain Class L, A, and C units at cost from employees who were separated from the Company. As of January 30, 2010, approximately 3 Class L units, 525 Class A, and 560 Class C units were included in treasury stock.
In addition to $33,610 of tax distributions, the Company declared and approved $168,074 of other distributions to its members during 2008. In July 2008, the Company distributed $289,529 to members from the proceeds of the Topco Term Loan. The Company waived the promissory note mandatory prepayment requirement in connection with the distributions to members during 2008.
F-33
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
11. Equity Units and Share-Based Compensation
Predecessor
Prior to the GGC Acquisition, officers and key employees were granted share-based awards to participate in the LBI 1993 Stock Option and Performance Incentive Plan as amended (the LBI Stock Plan). The LBI Stock Plan provided for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, performance-based restricted stock, performance units, and unrestricted shares. LBI grants stock options at a price equal to the fair market value of the stock on the date of the grant. Stock options generally vested over four years with 25% vesting each year. Restricted stock generally vests (the restrictions lapse) over a two or three year period.
Stock options of 51 were granted during the 2007 Predecessor period at a weighted average option price per share of $26.12.
Restricted stock shares of 137 were granted during the 2007 Predecessor period at a weighted average grant date fair value of $24.66.
Intrinsic value for stock options is the difference between the current market value of LBIs stock as of July 6, 2007 and the option strike price. The total intrinsic value of options exercised in the 2007 Predecessor period was $651. The total intrinsic value of restricted stock vested in the 2007 Predecessor period was $4,197.
Valuation Methodology
LBI used the Black-Scholes option pricing model for valuations of options granted to employees and directors. The weighted average estimated fair value of stock options granted in the 2007 Predecessor Period was $7.03 based on the following weighted-average assumptions.
2007
Predecessor Period |
|||
Risk-free interest rate |
3.2 | % | |
Expected volatility |
45 | % | |
Dividend yield |
3.0 | % | |
Expected life |
5.3 |
The risk-free interest rate assumption is based upon the average daily closing rates during the period for U.S. treasury notes that have a life which approximates the expected life of the option. The expected volatility assumption is based on LBIs analysis of historical volatility of LBIs stock. The dividend yield assumption is based on LBIs history and expectation of dividend payouts. The expected life of employee stock options represent the weighted-average period the stock options are expected to remain outstanding. Fair value of restricted stock awards is based on the market value of an unrestricted share on the grant date adjusted for anticipated dividend yields.
Compensation expense for stock options was recognized, net of forfeitures, over the requisite service period on a straight-line basis, using a single option approach (each option is valued as one grant, irrespective of the number of vesting tranches). Restricted stock expense was recognized, net of forfeitures over the requisite service period on a straight-line basis.
F-34
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
11. Equity Units and Share-Based Compensation (continued)
Successor
Equity Incentive Units
In December 2007, the Board of Directors (the Board) approved, and the Company implemented, a management equity program (the Equity Program). The Equity Program authorizes Class A, B, and C equity incentive units to be granted to certain management employees upon the approval of the Board. Pursuant to the Recapitalization, the management members contributed their Class A and C equity incentive units of Holding in exchange for an equivalent number of Class A and C equity incentive units of the Company. At the time of the Recapitalization, there were no Class B equity incentive units outstanding. As of January 30, 2010, approximately 4,581 Class A and 2,327 Class C equity incentive units were vested. Under the Equity Program, as of January 30, 2010, approximately 9,400 and 5,000 Class A and C equity incentive units, respectively, were authorized to be granted, and approximately 2,070 and 295 Class A and C equity incentive units, respectively, were available for grant.
Class A and C equity incentive unit grants vest over four years in equal 25% increments each year and have pro-rata vesting for each quarter elapsed since the prior annual vesting date. These units have no exercise price and as such the fair value of the incentive units is equal to the fair value of the underlying equity units.
The Company recognized compensation expense related to Class A and C equity incentive units of $1,233 in the 2007 Successor period, $2,072 in 2008, and $2,048 in 2009. As of January 30, 2010, there was approximately $3,364 of total unrecognized compensation expense related to unvested Class A and C equity incentive units. That cost is expected to be recognized over a weighted-average period of 1.5 years.
The Companys activity with respect to Class A and C equity incentive units for 2009 was as follows:
(in thousands, except per unit
amounts) |
Number of
Class A Units |
Class A Unit
Grant Date Weighted Average Fair Value |
Number of
Class C Units |
Class C Unit
Grant Date Weighted Average Fair Value |
||||||||||
Unvested, January 31, 2009 |
4,722 | $ | 0.88 | 2,837 | $ | 0.40 | ||||||||
Granted |
| | 760 | 0.67 | ||||||||||
Vested |
(1,763 | ) | 0.88 | (1,009 | ) | 0.40 | ||||||||
Repurchased |
(210 | ) | (0.01 | ) | (210 | ) | (0.0025 | ) | ||||||
Unvested, January 30, 2010 |
2,749 | $ | 0.88 | 2,378 | $ | 0.40 | ||||||||
The weighted average grant date fair value of Class A equity incentive units granted during the 2007 Successor period was $0.88 per unit. There were no grants of Class A equity incentive units in 2008 or 2009.
The weighted average grant date fair value of Class C equity incentive units granted during the 2007 Successor period, 2008, and 2009 was $0.40, $0.40, and $0.67, respectively.
No incentive units vested during the 2007 Successor period. The total fair value of units vested during 2008 and 2009 was $3,007 and $1,955, respectively.
F-35
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
11. Equity Units and Share-Based Compensation (continued)
Valuation of Underlying Equity Units
Fair value of the underlying equity units is determined by applying a contingent claims approach utilizing the Black-Scholes pricing model and taking into consideration the rights and preferences of the underlying equity units. This model assumes asset volatility for comparable companys equity volatility and leverage, and a marketability discount to reflect the lack of liquidity and ready market.
The following table illustrates the assumptions used in the Black-Scholes pricing model:
February 2, 2008 | January 31, 2009 | January 30, 2010 | |||||||
Risk-free interest rate |
3.15 | % | 1.69 | % | 0.20 | % | |||
Asset volatility |
35 | % | 40 | % | 50 | % | |||
Time to liquidity event |
3 years | 2-3 years | 7 months | ||||||
Marketability discount |
25 | % | 34 | % | 10 | % | |||
Equity dividend yield |
| | |
Risk-free interest rateThis is an interpolated rate from the U.S. constant maturity treasury rate for a term corresponding to the time to liquidity event, as described below. An increase in the risk-free interest rate will increase compensation expense.
Asset volatilityThis is a measure of the amount by which the price of various comparable companies common stock has fluctuated or is expected to fluctuate, as the Companys common stock is not publicly-traded. The comparable companies were selected by analyzing public companies in the industry based on various factors including, but not limited to, company size, financial data availability, active trading volume, and capital structure. An increase in the expected volatility will increase compensation expense.
Time to liquidity eventThis is the period of time over which the underlying equity units are expected to remain outstanding. An increase in the expected term will increase compensation expense.
Marketability discountThis is a measure of the amount by which the value of the underlying equity units is reduced as the value of privately-held shares is not directly comparable to the value of publicly-traded shares of similar common stock. An increase in the marketability discount will decrease compensation expense.
The Finnerty Model was utilized to calculate a discount on the underlying equity units. The Finnerty Model provides for a valuation discount reflecting the holding period restriction embedded in a restricted stock preventing its sale over a certain period of time.
The Finnerty Model proposes to estimate a discount for lack of marketability such as transfer restrictions by using an option pricing theory. This model has gained recognition through its ability to address the magnitude of the discount by considering the volatility of a companys stock price and the length of restriction. The concept underpinning the Finnerty Model is that restricted stock cannot be sold over a certain period of time. Further simplified, a restricted share of equity in a company can be viewed as having forfeited a put on the average price of the marketable equity over the restriction period (also known as an Asian Put Option). If an Asian Put Option is priced and compared to that of the assumed fully marketable underlying stock, the marketability discount can be effectively estimated.
The assumptions utilized in the model included (i) length of holding period of 2 years, 2 years and 7 months for 2007 successor period, 2008 and 2009, respectively, (ii) equity volatility of 41%, 80% and 80% for 2007 successor period, 2008 and 2009, respectively, (iii) dividend yield of zero for each period, and (iv) risk free rate of 3.12%, 1.43%, and 0.20% for 2007 Successor period, 2008 and 2009, respectively.
F-36
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars and units in thousands)
12. Earnings Per Unit
Basic net income (loss) per unit (EPU) is computed for each class of common units outstanding during the period by dividing net income (loss) allocated to each class by the weighted average number of common units outstanding during the period. Net income (loss) for the period is allocated to each class of common units based on the terms and preferences of the respective class of common units as prescribed by the Companys LLC agreement. Diluted EPU assumes the conversion, exercise, or issuance of all potential common unit equivalents, unless the effect of inclusion would result in the reduction of a loss or the increase in income per unit. For purposes of this calculation unvested units under the Equity Program are considered to be potential common units and are only included in the calculation of diluted EPU when the effect is dilutive.
Due to the GGC Acquisition, the Companys capital structure for the periods before and after the GGC Acquisition are not comparable. Prior to the GGC Acquisition, Express operated as a division of LBI without a defined capital structure or designated member units. As a result, EPU is presented only for periods subsequent to the GGC Acquisition.
According to the LLC agreement, common units absorb losses only to the extent of the respective classes capital accounts. All Class A and Class C equity incentive units have been issued in exchange for services and their capital accounts reflect only amortization of share-based compensation expense. Any losses in excess of accumulated share-based compensation expenses are allocated to the Class L equity ownership units, as follows:
Thirty
Weeks Ended February 2, 2008 |
2008 | |||||||
Net loss attributable to the Company |
$ | (40,399 | ) | $ | (29,036 | ) | ||
Loss allocated to Class L units |
(40,399 | ) | (25,735 | ) | ||||
Loss allocated to Class A units |
| (2,691 | ) | |||||
Loss allocated to Class C units |
| (610 | ) |
Diluted net loss per common unit is the same as basic net loss per unit for the 2007 Successor period and 2008, since the effect of any potentially dilutive units was excluded, as they were anti-dilutive due to the net loss attributable to all classes of common units.
The following potentially dilutive units were excluded from the calculation of diluted net loss per unit:
Thirty
Weeks Ended February 2, 2008 |
2008 | |||
Unvested Class A Units: |
7,855 | 6,281 | ||
Unvested Class C Units: |
3,855 | 3,172 |
Common units absorb net income, or distributions, in accordance with the LLC Agreement distribution preference, as follows:
2009 | |||
Net income attributable to the Company |
$ | 75,307 | |
Income allocated to Class L units |
75,307 | ||
Income allocated to Class A units |
| ||
Income allocated to Class C units |
|
F-37
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars and units in thousands)
13. Pro forma Information (unaudited)
Pro forma basic and diluted net income per share of common stock (unaudited) has been computed to give effect to the pro forma adjustments discussed below, including the assumed conversion of the common units into common stock, as follows:
Common
Units |
Exchange
Ratio |
Common
Shares |
||||
Class L units |
101,742 | 0.702 | 71,407 | |||
Class A units |
7,330 | 0.649 | 4,757 | |||
Class C units |
4,685 | 0.442 | 2,072 | |||
Total shares |
113,757 | 78,236 | ||||
The pro forma net income applied in computing the unaudited pro forma income per unit for the year ended January 30, 2010 is based upon the Companys historical net income as adjusted to reflect:
|
The elimination of the GGC Advisory fee and LBI LLC fee in the amount of $9,427, |
|
The net effect of $(16,912) on interest expense, including amortization of debt issuance costs and debt discounts, arising from prepayment of the Topco Term Loan with the proceeds from the Senior Notes and this initial public offering (IPO) of the Companys common stock and the incremental interest expense of the Senior Notes issued, |
|
The elimination of interest income from the management notes due to their repayment in anticipation of the IPO, |
|
The conversion of the Company to a corporation. Prior to such conversion, the Company was a partnership and generally not subject to income taxes. The pro forma net income, therefore, also includes adjustments for income tax expense as if the Company had been a corporation at an assumed combined federal, state, and local income tax rate of 38.7%. |
Pro forma shareholders equity (unaudited) is based upon the Companys historical members equity as of January 30, 2010 and has been computed to give effect to the pro forma adjustments discussed below:
|
The write-off of debt issuance costs, recognition of the remaining debt discount, payment of a transaction fee to GGC, payment of a prepayment penalty, and payment of an equity distribution of $230,000, all of which was in connection with the issuance of the Senior Notes and prepayment of the Topco Term C Loan, |
|
The conversion of the Companys members interests in shares of common stock and the reclassification of accumulated deficit to additional paid-in capital upon a reorganization to a Delaware corporation, |
|
The write-off of debt issuance costs, recognition of the remaining debt discount, payment of a transaction fee to GGC, and payment of a prepayment penalty and related tax effects, all of which is in connection with the prepayment of the Topco Term B Loan, |
|
The issuance of common shares, whose proceeds is equal to the amounts paid in the preceding bullet point. |
|
A fee to terminate the Advisory Agreement payable to Golden Gate and a fee to terminate Limited Brands advisory fee arrangement under the LLC Agreement. |
|
The acceleration of certain A and C units upon IPO. |
|
Adjustments to deferred income tax assets and liabilities in connection with the Companys reorganization to a Delaware corporation. |
F-38
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
14. Retirement Benefits
The employees of the Company, if eligible, participate in a qualified defined contribution retirement plan (the Qualified Plan) and a non-qualified supplemental retirement plan (the Non-Qualified Plan) sponsored by the Company.
Participation in the Companys Qualified Plan is available to employees who meet certain age and service requirements. The Qualified Plan permits employees to elect contributions up to the maximum limits allowable under the Internal Revenue Code (IRC). The Company matches employee contributions according to a pre-determined formula and contributes additional amounts based on a percentage of the employees eligible annual compensation and years of service. Employee contributions and Company matching contributions vest immediately.
Additional Company contributions and the related investment earnings are subject to vesting based on years of service. Total expense recognized related to the Qualified Plan was $879 in the 2007 Predecessor period, $3,552 in the 2007 Successor period, $2,508 in 2008, and $379 in 2009.
The Company elected not to fund an additional amount to the Qualified Plan for 2008. Additionally, the Company elected to suspend the employer matching contribution to the Qualified Plan effective March 6, 2009.
Participation in the Non-Qualified Plan is made available to employees who meet certain age, service, job level and compensation requirements. The Non-Qualified Plan is an unfunded plan which provides benefits beyond the IRC limits for qualified defined contribution plans. The plan permits employees to elect contributions up to a maximum percentage of eligible compensation. The Company matches employee contributions according to a pre-determined formula and credits additional amounts based on a percentage of the employees eligible compensation and years of service. The Non-Qualified Plan also permits employees to defer additional compensation up to a maximum amount. The Company does not match the contributions for additional deferred compensation. Employees accounts are credited with interest using a rate determined annually by the Retirement Plan Committee based on a methodology consistent with historical practices. Employee contributions and the related interest vest immediately. Company contributions and the related interest are subject to vesting based on years of service. Employees may elect an in-service distribution for the additional deferred compensation component only. Employees are not permitted to take a withdrawal from any other portion of the Non-Qualified Plan while actively employed with the Company. The remaining vested portion of employees accounts in the Non-Qualified Plan will be distributed upon termination of employment in either a lump sum or in equal annual installments over a specified period of up to ten years. Total expense recognized related to the Non-Qualified Plan was $471 in the 2007 Predecessor period, $831 in the 2007 Successor period, $2,241 in 2008, and $1,256 in 2009.
The Company elected to account for this cash balance plan based on the participant account balances, excluding actuarial considerations as permitted by the applicable authoritative guidance.
F-39
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
14. Retirement Benefits (continued)
The annual activity for the Companys Non-Qualified Plan and the year-end liability, which is included in other long-term liabilities on the Consolidated Balance Sheets, was as follows:
2008 | 2009 | |||||||
Balance, beginning of period |
$ | 7,208 | $ | 11,119 | ||||
Contributions: |
||||||||
Employee |
1,209 | 422 | ||||||
Company |
2,226 | | ||||||
Interest |
680 | 762 | ||||||
Distributions |
(191 | ) | (1,541 | ) | ||||
Forfeitures |
(13 | ) | (29 | ) | ||||
Balance, end of period |
$ | 11,119 | $ | 10,733 | ||||
15. Commitments and Contingencies
Express is named as a defendant in a purported class action lawsuit action alleging various California state labor law violations. The complaint was originally filed on February 18, 2009, and an amended complaint was filed on March 18, 2009. The amended complaint contains six counts: (1) failure to provide required meal breaks to the class members and failure to pay the class members for missed meal breaks, including premium payments required by California law; (2) failure to provide required rest breaks to the class members and failure to pay the class members for missed rest breaks, including premium payments required by California law; (3) failure to pay wages in a timely manner to employees who were terminated or quit; (4) failure to pay overtime or premium payments in a timely manner; (5) failure to provide accurate wage statements; and (6) violations of Section 17200 of the California Business and Professions Code. The Company estimated that the potential exposure for losses related to this lawsuit ranges from approximately $1,900 to $3,400 and has accrued an amount on the January 30, 2010 Consolidated Balance Sheet to reflect its best estimate of this risk. As the situation develops and more information becomes available, the amount of the reserve may increase or decrease accordingly. The amount of any such change may be material to the Companys results of operations or financial condition.
The Company is subject to various claims and contingencies related to other lawsuits and pending action arising out of the normal course of business. Management believes that the ultimate liability arising from such claims and contingencies, if any, is not likely to have a material adverse effect on the Companys results of operations, financial condition, or cash flows.
16. Subsequent Events
Management has evaluated all events and transactions that occurred after January 30, 2010 through March 25, 2010, which is the date the financial statements are available to be issued.
On February 1, 2010, the Company made interest payments of $15,686 on the Topco Term Loan.
On February 9, 2010, the management promissory notes totaling $5,633 were repaid in full by each member of management.
As of February 2010, all of the Chief Executive Officers Class A equity units were vested.
F-40
EXPRESS PARENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
16. Subsequent Events (continued)
In February 2010, in anticipation of the issuance of Senior Notes, the Company amended the respective debt arrangements as follows:
The Credit Facility was amended to permit the incurrence of the Senior Notes debt not to exceed $250,000 aggregate principle. The applicable margin rate was increased by 1.00 basis point and is based on the existing excess availability calculation illustrated in Note 8. The fee payable on the average daily unused balance was increased from 0.25% to 0.50%. The excess availability covenant was increased to not be less than $30,000, up from $20,000 in the original agreement.
The Holding Term Loan was amended to permit the incurrence of the Senior Notes debt not to exceed $250,000 aggregate principle. The applicable margin rate was increased by 1.50 basis points (increased by an additional 0.50% in the event that the Companys Moodys corporate family rating is not B2 or better or Standard & Poors corporate credit rating is not B or better) and is based on the existing leverage ratio calculation illustrated in Note 8. The leverage ratio was revised to require that no more than $75,000 of cash and cash equivalents be netted against debts.
The Topco Term Loan was amended to permit the incurrence of the Senior Notes debt not to exceed $250,000 aggregate principle and requires the prepayment of the $150,000 Topco Term C Loan at 102% with the proceeds from the issuance of the Senior Notes.
On February 16, 2010, the Company filed an S-1 registration statement with the Securities and Exchange Commission.
On March 5, 2010, the Company issued $250,000 8 3 / 4 % Senior Notes due 2018 at a 1.4% discount, including a GGC affiliate purchasing $50,000 of the $250,000 Senior Notes. On March 5, 2010, net proceeds of $241,397 were received from the Senior Notes. The net proceeds were used to pay off $154,907 of the Topco Term C Loan (including principal, interest and prepayment penalty), $85,210 was allocated to the Company, and the remainder was used to pay related transaction fees and expenses, including $2,700 to Golden Gate in transaction advisory fees. On March 10, 2010, the Company utilized the cash received from the issuance of the Senior Notes and cash on hand to pay a distribution of $230,000 to its members.
On March 25, 2010, the Company elected to prepay its e-commerce service provider, a GGC affiliate, $10,240 for services from April 2010 through January 2011 in exchange for a discount on those services.
17. Subsequent Events (unaudited)
On April 8, 2010, EIC purchased $8,304 face value of the Topco Term B Loan at a 5% premium from KKR SCF Loan Administration, LLC for a total of $8,719.
On April 23, 2010, the Board approved the accelerated vesting of certain A and C equity units upon consummation of an IPO.
F-41
Through and including , 2010 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealers obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
16,000,000 Shares
Express, Inc.
Common Stock
PROSPECTUS
BofA Merrill Lynch
Goldman, Sachs & Co.
Morgan Stanley
Barclays Capital
Piper Jaffray
UBS Investment Bank
Stephens Inc.
, 2010
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all costs and expenses, other than the underwriting discounts and commissions payable by us, in connection with the offer and sale of the securities being registered. All amounts shown are estimates except for the SEC registration fee and the Financial Industry Regulatory Authority, Inc., or FINRA, filing fee.
SEC registration fee |
$ | 24,955 | |
FINRA filing fee |
$ | 35,500 | |
NYSE listing fee |
$ | 250,000 | |
Printing expenses |
* | ||
Legal fees and expenses |
* | ||
Accounting fees and expenses |
* | ||
Miscellaneous expenses |
* | ||
Total expenses |
$ | * | |
* | To be provided by amendment. |
Item 14. Indemnification of Directors and Officers.
Prior to the effectiveness of this registration statement we intend to reorganize our existing corporate structure so that the issuer of our common stock is a Delaware corporation named Express, Inc. Upon completion of this reorganization, we will be subject to the DGCL.
Section 102(b)(7) of the DGCL allows a corporation to provide in its certificate of incorporation that a director of the corporation will not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except where the director breached the duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Our certificate of incorporation will provide for this limitation of liability.
Section 145 of the DGCL (Section 145) provides that a Delaware corporation may indemnify any person who was, is or is threatened to be made, party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporations best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A Delaware corporation may indemnify any persons who are, were or are a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person is or was a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporations best interests, provided that no indemnification is permitted without judicial approval if the officer, director, employee or agent is adjudged to be liable to the corporation. Where an officer or director is successful
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on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses which such officer or director has actually and reasonably incurred.
Section 145 further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his or her status as such, whether or not the corporation would otherwise have the power to indemnify him under Section 145.
Our certificate of incorporation will provide that we must indemnify our directors and officers to the fullest extent authorized by the DGCL and must also pay expenses incurred in defending any such proceeding in advance of its final disposition upon delivery of an undertaking, by or on behalf of an indemnified person, to repay all amounts so advanced if it should be determined ultimately that such person is not entitled to be indemnified under this section or otherwise.
Prior to the completion of this offering, we will enter into indemnification agreements with each of our executive officers and directors. The indemnification agreements will provide the executive officers and directors with contractual rights to indemnification, expense advancement and reimbursement, to the fullest extent permitted under the DGCL. We will also enter into an indemnification priority agreement with Golden Gate and Limited Brands to clarify the priority of advancement of expenses and indemnification obligations among us, our subsidiaries and any of our directors appointed by Golden Gate and Limited Brands and other related matters.
The indemnification rights set forth above shall not be exclusive of any other right which an indemnified person may have or hereafter acquire under any statute, provision of our certificate of incorporation, our bylaws, agreement, vote of stockholders or disinterested directors or otherwise.
We expect to maintain standard policies of insurance that provide coverage (1) to our directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act and (2) to us with respect to indemnification payments that we may make to such directors and officers.
The proposed form of Underwriting Agreement to be filed as Exhibit 1.1 to this Registration Statement provides for indemnification to our
Item 15. Recent Sales of Unregistered Securities.
Set forth below is information regarding securities sold by us within the past three years that were not registered under the Securities Act. Also included is the consideration, if any, received by us for such securities and information relating to the section of the Securities Act, or rule of the SEC, under which exemption from registration was claimed.
In connection with the Golden Gate Acquisition described in the prospectus which is a part of this registration statement, our employees were offered the opportunity to purchase equity in our company. On July 24, 2007, our President and Chief Executive Officer, Michael Weiss, purchased 1,000,000 of our Class L Units at a purchase price per unit of $6.47 and 4,000,000 of our Class A Units for a nominal price per unit of $0.01. Between November and December 2007, ten of our executive officers purchased 745,554 Class L Units of Express Management Investors LLC at a purchase price of $6.47, 2,500,000 of Class A Units of Express Management Investors LLC at a nominal price per unit of $0.01 and 2,500,000 of Class C Units of Express Management Investors LLC at a nominal price per unit of $0.0025. These purchases of securities by Mr. Weiss and our other executive officers were made in reliance upon Section 4(2) of the Securities Act, as they did not involve any public offering and all recipients of these securities in these purchases were accredited investors within the meaning of our Rule 501 of Regulation D under the Securities Act.
Also between November and December 2007, fifty-one of our employees purchased 1,355,000 Class A Units of Express Management Investors LLC at a nominal price per unit of $0.01 and 1,355,000 Class C Units of
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Express Management Investors LLC at a nominal price per unit of $0.0025 through unit purchase agreements. Additionally, between September 12, 2008 and December 16, 2009, we sold 1,410,000 Class C Units of Express Management Investors LLC to approximately 70 employees, typically at the vice president level or above in various departments of Express at a nominal price per unit of $0.0025 through unit purchase agreements. The issuance and sales of our Class A Units and Class C Units described above were deemed to be exempt from the registration provisions under the Securities Act in reliance upon Rule 701 promulgated under Section 3(b) of the Securities Act. The issuer relied on Rule 701 because (i) these sales were to employees and were made pursuant to a written compensation contract, which was delivered to each employee purchasing equity, (ii) the issuer was not subject to Section 13 or 15(d) of the Exchange Act at the time of issuance and (iii) these issuances did not exceed the sale price limitations set forth in Rule 701. See Executive CompensationCompensation Discussion and AnalysisEquity IncentivesSummary of Current Plan in the prospectus which is a part of this registration statement.
On March 5, 2010, in connection with the 2010 Refinancing Transactions, Express, LLC and Express Finance Corp., each an indirect, wholly-owned subsidiary of ours, jointly issued and sold, in a private placement, $250.0 million of their 8 3 / 4 % Senior Notes due 2018 at an issue price of 98.599% of the face value of the Senior Notes. An affiliate of Golden Gate purchased $50.0 million of Senior Notes in the offering. The proceeds from the Senior Notes of $246.5 million, together with cash on hand of $153.8 million, were used or will be used to (1) prepay all of the Term C Loans outstanding under the term loan facility of our wholly-owned subsidiary, Express Topco, and to pay accrued and unpaid interest and prepayment penalties in an aggregate amount equal to $154.9 million, (2) make a distribution to the equity holders of Express Parent in an aggregate amount equal to $230.0 million and (3) pay related transaction fees and expenses, including discounts and commissions to the initial purchasers of the Senior Notes, in an aggregate amount equal to $15.4 million. The issuance and sale of the Senior Notes were exempt from the registration requirements of the Securities Act because the Senior Notes were sold to the initial purchasers in transactions not involving a public offering pursuant to Section 4(2) thereof and the Senior Notes were sold by the initial purchasers to qualified institutional investors pursuant to Rule 144A under the Securities Act and to persons outside the United States pursuant to Regulation S under the Securities Act.
Appropriate legends were affixed to the securities issued in all of the above-listed transactions. Each of the recipients of securities in these transactions had adequate access, through employment, business or other relationships, to information about us.
Item 16. Exhibits and Financial Statement Schedules.
(a) | Exhibits |
The exhibit index attached hereto is incorporated herein by reference.
(b) | Financial Statement Schedules |
No financial statement schedules are provided because the information called for is not applicable or is shown in the financial statements
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the purchase agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions referenced in Item 14 of this
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registration statement or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) | For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective; and |
(2) | For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. |
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly caused this Amendment No. 5 to this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Columbus, Ohio on April 30, 2010.
Express Parent LLC | ||
By: |
/ S / M ATTHEW C. M OELLERING |
|
Name: | Matthew C. Moellering | |
Title: | Executive Vice PresidentChief Administrative Officer, Chief Financial Officer, Treasurer and Secretary |
* * * *
Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities indicated on the date indicated below:
Signature |
Title |
Date |
||
* Michael A. Weiss |
President, Chief Executive
Officer and Director (principal executive officer) |
April 30, 2010 | ||
/ S / M ATTHEW C. M OELLERING Matthew C. Moellering |
Executive Vice President
Treasurer and Secretary
|
April 30, 2010 | ||
* David C. Dominik |
Director | April 30, 2010 | ||
* Stefan L. Kaluzny |
Director | April 30, 2010 | ||
* Jennie W. Wilson |
Director | April 30, 2010 | ||
* Timothy J. Faber |
Director | April 30, 2010 |
* By: |
/s/ M ATTHEW C. M OELLERING |
|
Matthew C. Moellering, as Attorney-in-Fact |
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EXHIBIT INDEX
Exhibit
|
Description |
|
1.1 | Form of Underwriting Agreement. | |
2.1 | Unit Purchase Agreement, dated as of May 15, 2007, among Express Investment Corp., Limited Brands Store Operations, Inc., Express Holding, LLC and Limited Brands, Inc. (Unit Purchase Agreement). | |
2.2 | Amendment No. 1 to Unit Purchase Agreement, dated as of July 6, 2007. | |
2.3 | Form of Conversion Agreement by and among Express Parent LLC, Express Management Investors Blocker, Inc., Express Investment Corp., Limited Brands Store Operations, Inc. and EXP Investments, Inc. | |
2.4 | Form of Agreement and Plan of Merger among Express, Inc., Express Management Investors Blocker, Inc., Express Management Investors LLC, Express Investment Corp., Multi-Channel Retail Holdings LLC - Series G and Express Holding, LLC. | |
3.1 | Form of Certificate of Incorporation of Express, Inc., to be effective upon the completion of this offering. | |
3.2 | Form of Bylaws of Express, Inc., to be effective upon the completion of this offering. | |
4.1 | Specimen Common Stock Certificate. | |
4.2 | Indenture, dated March 5, 2010, among Express, LLC, Express Finance Corp., the Guarantors and U.S. National Bank Association, as trustee. | |
4.3 | Registration Rights Agreement, by and among Express, LLC, Express Finance Corp., Express Parent LLC, Express GC, LLC and Banc of America Securities LLC, Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated. | |
4.4 | Form of Registration Agreement between Express, Inc. and the other signatories thereto. | |
4.5 | Form of Stockholders Agreement by and among Express Inc., Multi-Channel Retail Holding LLC - Series G, Limited Brands Store Operations, Inc. and EXP Investments, Inc. | |
5.1 | Opinion of Kirkland & Ellis LLP. | |
10.1 | Asset-Based Loan Credit Agreement, dated as of July 6, 2007, among Express Holding, LLC, as Parent, Express, LLC, as Borrower, the Initial Lenders, the Initial Issuing Bank, the Swing Line Bank, Wells Fargo Retail Finance, LLC, as Administrative Agent and Collateral Agent, Morgan Stanley Senior Funding, Inc., as Syndication Agent, The CIT Group/Business Credit, Inc. and Wachovia Capital Finance Corporation (Central), as Co-Documentation Agents, and Morgan Stanley Senior Funding, Inc., as Sole Lead Arranger and Sole Bookrunner (the Asset-Based Loan Credit Agreement). | |
10.2 | Amendment No. 1 to Asset-Based Loan Credit Agreement, dated as of June 3, 2008. | |
10.3 | Amendment No. 2 to Asset-Based Loan Credit Agreement, dated as of February 5, 2010. | |
10.4 | Term Loan Credit Agreement, dated as of July 6, 2007, among Express Holding, LLC, as Parent, Express, LLC, as Borrower, the Initial Lenders, Morgan Stanley & Co. Incorporated, as Collateral Agent, and Morgan Stanley Senior Funding, Inc., as Administrative Agent, Syndication Agent, Sole Lead Arranger and Sole Bookrunner (the Term Loan Credit Agreement). | |
10.5 | Amendment to Term Loan Credit Agreement, dated as of February 5, 2010. | |
10.6 | Credit Agreement, dated as of June 26, 2008, among Express Topco LLC, as Borrower, the Lenders party thereto and KKR SCF Loan Administration, LLC, as Administrative Agent (Topco Credit Agreement). |
Exhibit
|
Description |
|
10.7 | Amendment to Topco Credit Agreement, dated as of February 5, 2010. | |
10.8+ | Employment Agreement, dated as of February 12, 2010, by and among Express, LLC, Express Parent LLC and Michael A. Weiss. | |
10.9+ | Form of Employment Agreement. | |
10.10+ | Express, Inc. 2010 Incentive Compensation Plan. | |
10.11+ | Form of Incentive Stock Option Agreement. | |
10.12 | Master Sublease, dated as of July 6, 2007, between Limited Brands, Inc. and Express, LLC. | |
10.13+ | Form of Restricted Stock Agreement. | |
10.14 | Store Leases Agreement, dated as of July 6, 2007, by and among Limited Stores, LLC, Bath & Body Works, LLC, Victorias Secret Stores, LLC, Diva US, LLC, Express, LLC and Limited Brands, Inc. | |
10.15 | Logistics Services Agreement, dated October 5, 2009, by and between Express, LLC and Limited Logistics Services, Inc. | |
10.16 | Exchange Agreement, dated June 26, 2008, by and among Express Parent LLC, Express Topco LLC, Express Holding, LLC and the securityholders listed thereto. | |
10.17+ | Form of Nonqualified Stock Option Agreement. | |
10.18+ | Form of Stock Appreciation Rights Agreement. | |
10.19+ | Form of Restricted Stock Unit Agreement. | |
10.20 | Amended and Restated Services Agreement, dated as of April 8, 2010, between Express, Inc. and Limited Brands, Inc. | |
10.21+ | Amendment No. 1 dated as of April 14, 2010 by and among Express, LLC, Express Parent LLC and Michael A. Weiss. | |
10.22 | Form of Indemnification Agreement. | |
10.23 | Form of Letter Agreement by and among Limited Brands, Inc., Express, Inc., Express Topco LLC, Express Holding, LLC, Express, LLC, Express Finance Corp. and Express GC, LLC. | |
10.24 | Form of Letter Agreement by and among Golden Gate Private Equity, Inc., Express, Inc., Express Topco LLC, Express Holding, LLC, Express, LLC, Express Finance Corp. and Express GC, LLC. | |
10.25 | Amendment No. 2 to Topco Credit Agreement, dated as of April 26, 2010. | |
10.26 | Letter Agreement, dated as of April 28, 2010 between Michael F. Devine, III and Express Parent LLC. | |
16.1 | Letter from Ernst & Young LLP, independent registered public accounting firm. | |
21.1 | List of subsidiaries of Express Parent LLC. | |
23.1 | Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm. | |
23.2 | Consent of Ernst & Young LLP, independent registered public accounting firm. | |
23.3 | Consent of Kirkland & Ellis LLP (included in Exhibit 5.1). | |
23.4 | Consent of e-Rewards, Inc. | |
24.1 | Powers of Attorney (included on signature page). | |
99.1 | Consent of Director Designee. |
* | To be filed by amendment. |
+ | Indicates a management contract or compensatory plan or arrangement. |
| Previously filed. |
Exhibit 1.1
Express, Inc.
Common Stock, $0.01 par value
Underwriting Agreement
May [ ], 2010
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Goldman, Sachs & Co.,
As Representatives of the several Underwriters
named in Schedule I hereto
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
One Bryant Park
New York, New York 10036
Ladies and Gentlemen:
Express, Inc., a Delaware corporation (the Company), proposes, subject to the terms and conditions stated in this Underwriting Agreement (this Agreement), to issue and sell to the Underwriters named in Schedule I hereto (the Underwriters) an aggregate of 10,500,000 shares of common stock, $0.01 par value (Stock) of the Company and the stockholders of the Company named in Schedule II(a) and Schedule II(b) hereto (collectively, the Selling Stockholders) propose, severally and not jointly, subject to the terms and conditions stated herein, to sell to the Underwriters an aggregate of 5,500,000 shares and, at the election of the Underwriters, up to 2,400,000 additional shares of Stock. The aggregate of 16,000,000 shares of Stock to be sold by the Company and the Selling Stockholders is herein called the Firm Shares and the aggregate of 2,400,000 additional shares of Stock to be sold by the Selling Stockholders is herein called the Optional Shares. The Firm Shares and the Optional Shares that the Underwriters elect to purchase pursuant to Section 2 hereof are herein collectively called the Shares.
1. (a) The Company represents and warrants to, and agrees with, each of the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-164906) (the Initial Registration Statement) in respect of the Shares has been filed with the Securities and Exchange Commission (the Commission); the Initial Registration Statement and any post-effective amendment thereto, each in the form heretofore delivered to you, have been declared effective by the Commission in such form; other than a registration statement, if any, increasing the size of the offering (a Rule 462(b) Registration Statement), filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the Act), which became effective upon filing, no other document with respect to the Initial Registration Statement has heretofore been filed with the Commission; and no stop order suspending the effectiveness of the Initial Registration Statement, any post-effective amendment thereto or the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that purpose has been initiated or, to the Companys knowledge, threatened by the Commission (any preliminary prospectus included in the Initial Registration Statement or filed with the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Act is hereinafter called a Preliminary Prospectus; the Initial Registration Statement and the Rule 462(b) Registration Statement, if any, including all exhibits thereto and including the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the Initial Registration Statement at the time it was declared effective, each as amended at the time the Initial Registration Statement became effective or the Rule 462(b) Registration Statement, if any, became or hereafter becomes effective, are hereinafter collectively called the Registration Statement; the Preliminary Prospectus relating to the Shares that was included in the Registration Statement immediately prior to the Applicable Time (as defined in Section 1(a)(iii) hereof) is hereinafter called the Pricing Prospectus; the final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is hereinafter called the Prospectus; and any issuer free writing prospectus, as defined in Rule 433 under the Act, relating to the Shares is hereinafter called an Issuer Free Writing Prospectus);
(ii) No order preventing or suspending the use of any Preliminary Prospectus or any Issuer Free Writing Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder;
(iii) For the purposes of this Agreement, the Applicable Time is : m (Eastern time) on the date of this Agreement; the Pricing Prospectus as supplemented by the information listed in Schedule III(b) hereto (collectively, the Pricing Disclosure Package) taken together as of the Applicable Time, did not include any untrue statement of a material fact or omit to state any material fact
2
necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and each Issuer Free Writing Prospectus listed on Schedule III(a) hereto does not conflict with the information contained in the Registration Statement, the Pricing Prospectus or the Prospectus and each such Issuer Free Writing Prospectus, as supplemented by and taken together with the Pricing Disclosure Package as of the Applicable Time, did not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to statements or omissions made in the Pricing Disclosure Package or an Issuer Free Writing Prospectus in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter expressly for use therein or by a Selling Stockholder expressly for use therein;
(iv) (A) The Registration Statement conforms, and any further amendments or supplements to the Registration Statement will conform, in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date of the Registration Statement and any amendment thereto, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (B) the Prospectus and any further amendments or supplements to the Prospectus will conform in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable filing date as to the Prospectus and any amendment or supplement thereto, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided , however , that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter expressly for use therein or by a Selling Stockholder expressly for use therein;
(v) Neither the Company nor any of its subsidiaries has sustained since the date of the latest audited financial statements included in the Pricing Prospectus any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Pricing Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Pricing Prospectus, there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries (other than borrowings by the Company or its subsidiaries under any revolving credit facility consistent with past practices and except as set forth or contemplated in the Pricing Prospectus) nor, since the
3
date of the latest audited financial statements included in the Pricing Prospectus and the Prospectus, has there been any material adverse change, or any development involving a prospective material adverse change, in or affecting the business, consolidated financial position or results of operations of the Company and its subsidiaries taken as a whole (a Material Adverse Effect), and neither the Company nor any of its subsidiaries has entered into any transaction or agreement that is material to the Company and its subsidiaries taken as a whole or incurred any liability or obligation, direct or contingent, that is material to the Company and its subsidiaries taken as a whole, except in each case as otherwise set forth or contemplated in the Pricing Prospectus;
(vi) The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them (other than Intellectual Property (as defined below), which is addressed in subsection (xxii) of this Section), in each case free and clear of all liens, encumbrances and defects except such as are described in the Pricing Prospectus or such as do not materially affect the value of such property, taken as a whole, and do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries, taken as a whole; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases other than as would not, individually or in the aggregate, have a Material Adverse Effect;
(vii) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of Delaware, with corporate power and authority to own or hold its properties and conduct its business as described in the Pricing Prospectus and the Prospectus; the Company has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except where the failure to be so qualified or in good standing would not, individually or in the aggregate, have a Material Adverse Effect; each subsidiary of the Company has been duly incorporated or formed, as applicable, and is validly existing as a corporation or limited liability company, as applicable, in good standing under the laws of its jurisdiction of incorporation or formation, as applicable, with power and authority (corporate or otherwise) to own its properties and conduct its business as described in the Pricing Prospectus and the Prospectus; and each Subsidiary of the Company has been duly qualified as a foreign corporation or limited liability company, as applicable, for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except where the failure to be so qualified or in good standing would not, individually or in the aggregate, have a Material Adverse Effect;
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(viii) The Company has an authorized capitalization as set forth in the Pricing Prospectus and the Prospectus, and all of the outstanding shares of capital stock of the Company have been duly authorized and validly issued, are fully paid and non-assessable, are not subject to any preemptive or similar rights, and conform to the description of the Stock contained in the Pricing Prospectus and the Prospectus in all material respects; and all of the issued shares of capital stock or membership interests, as applicable, of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and (except for directors qualifying shares and except as otherwise set forth in the Pricing Prospectus) are owned directly or indirectly by the Company, free and clear of all preemptive rights, liens, encumbrances, equities or claims;
(ix) The Shares to be issued and sold by the Company to the Underwriters hereunder have been duly authorized and, when issued and delivered against payment therefor as provided herein, will be validly issued and fully paid and non-assessable and will conform in all material respects to the description of the Stock contained in the Pricing Prospectus and the Prospectus;
(x) The execution, delivery and performance by the Company of this Agreement, the issuance and sale of the Shares to be sold by the Company and the compliance by the Company with this Agreement, and the consummation of the transactions herein contemplated will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject except in the case of this clause (i) as would not, individually or in the aggregate, have a Material Adverse Effect, (ii) result in any violation of the provisions of the charter or by-laws or similar organizational documents of the Company or (iii) result in a violation of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties except in the case of this clause (iii) as would not, individually or in the aggregate, have a Material Adverse Effect; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the execution, delivery and performance by the Company of this Agreement and compliance herewith, the issuance and sale of the Shares to be sold by the Company or the consummation by the Company of the transactions contemplated by this Agreement, except the registration under the Act of the Shares and such consents, approvals, authorizations, orders, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters or that have been obtained on or prior to the date of this Agreement;
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(xi) Neither the Company nor any of its subsidiaries is (i) in violation of its charter or by-laws or similar organizational documents or (ii) in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be subject except in the case of this clause (ii) as would not, individually or in the aggregate, have a Material Adverse Effect;
(xii) The statements set forth in the Pricing Prospectus and the Prospectus under the caption Description of Capital Stock, insofar as they purport to constitute a summary of the terms of the Stock, under the caption Material U.S. Federal Income Tax Considerations to Non-U.S. Holders, and under the caption Underwriting (other than notices to prospective investors outside of the United States described under such caption, which, to the knowledge of the Company is accurate, complete and fair in all material respects), insofar as they purport to describe the provisions of the laws and documents referred to therein, are accurate, complete and fair in all material respects;
(xiii) Other than as set forth in the Pricing Prospectus and the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, would, individually or in the aggregate, have a Material Adverse Effect; and, to the best of the Companys knowledge, no such proceedings are threatened by governmental authorities or threatened by others;
(xiv) The Company is not and, after giving effect to the offering and sale of the Shares by the Company and the application of the proceeds thereof, will not be an investment company, as such term is defined in the Investment Company Act of 1940, as amended;
(xv) The Company has the requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby; this Agreement has been duly authorized, executed and delivered by the Company;
(xvi) To the Companys knowledge, PricewaterhouseCoopers LLP, who have certified certain financial statements of the Company and its subsidiaries, and Ernst & Young LLP, who have certified certain financial statements of the Company and its subsidiaries, are each registered independent public accounting firms as required by the Act and the rules and regulations of the Commission thereunder;
(xvii) The Company and its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (A) transactions are executed in accordance with managements general or specific
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authorizations; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (C) access to assets is permitted only in accordance with managements general or specific authorization; and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences;
(xviii) Except as disclosed in each of the Pricing Prospectus and the Prospectus, since the date of the latest audited financial statements included in the Pricing Prospectus, there has been no (A) material weaknesses or significant deficiencies in the Companys internal control over financial reporting (whether or not remediated) and (B) changes in the Companys internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting;
(xix) The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended (the Exchange Act)) that comply with the requirements of the Exchange Act; such disclosure controls and procedures have been designed to ensure that material information relating to the Company and its subsidiaries is made known to the Companys principal executive officer and principal financial officer by others within those entities; and such disclosure controls and procedures are effective;
(xx) The Company and its directors or officers, in their capacities as such, are in compliance in all material respects with all provisions of the Sarbanes-Oxley Act of 2002 that are applicable to the Company and its directors or officers as of the date hereof and expect to be in compliance with all additional provisions of the Sarbanes-Oxley Act of 2002 that will become applicable to them at the First Time of Delivery, including those provisions relating to internal controls over financial reporting, when such provisions become applicable to the Company and its directors or officers;
(xxi) There are no contracts or documents which are required by the Act to be described in the Registration Statement or the Pricing Prospectus or to be filed as exhibits thereto which have not been so described and filed as required;
(xxii) Other than as would not, individually or in the aggregate, have a Material Adverse Effect and except as set forth or contemplated in the Pricing Prospectus, the Company and its subsidiaries own or otherwise possess the right to use all patents, patent applications, inventions, copyrights (whether or not registered), know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, trademark registrations and applications therefor, service marks, service mark registrations and applications therefor, trade names or other intellectual property rights (collectively, Intellectual Property) necessary to carry
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on the business now operated by them. Other than as would not, individually or in the aggregate, have a Material Adverse Effect, (A) none of the Company, its subsidiaries or any other person has granted an exclusive license to any third party to use any portion of Intellectual Property owned by the Company or its Subsidiaries, (B) there is no infringement, misappropriation, dilution or other violation by third parties of any Intellectual Property owned by or exclusively licensed to the Company or its Subsidiaries, (C) there is no pending or, to the best of the Companys knowledge, threatened action, suit, proceeding or claim by others: (1) challenging the Companys or its Subsidiaries rights in or to any Intellectual Property; (2) challenging the validity or scope of any Intellectual Property owned by the Company or its Subsidiaries; or (3) that the Company or its subsidiaries, or the operation and the conduct of their respective businesses is infringing, misappropriating, diluting or otherwise violating any Intellectual Property of any third party, and the Company is unaware of any facts that would form a reasonable basis for any such claim covered by clauses (1), (2) and (3) herein. Other than as would not, individually or in the aggregate, have a Material Adverse Effect, the execution, delivery and performance by the Company of this Agreement, the issuance and sale of the Shares to be sold by the Company and the compliance by the Company with this Agreement and the consummation of the transactions herein contemplated will not result in the loss, loss of use, impairment or impairment of use by the Company or its subsidiaries of any Intellectual Property owned or licensed by the Company or its subsidiaries;
(xxiii) Other than as would not, individually or in the aggregate, have a Material Adverse Effect and except as disclosed in the Pricing Prospectus and the Prospectus, (i) no failure to satisfy the minimum funding standard (as defined in Section 302 of the Employee Retirement Income Security Act of 1974, as amended, (ERISA) or Section 412 of the Internal Revenue Code of 1986, as amended from time to time (the Code)), or other event of the kind described in Section 4043(c) of ERISA (other than events with respect to which the 30-day notice requirement under Section 4043 of ERISA has been waived) has occurred with respect to any employee benefit plan for which the Company would have any liability (whether absolute or contingent) (each, a Plan); (ii) each Plan is in compliance in all respects with applicable law, including, without limitation, ERISA and the Code; (iii) other than in the ordinary course, neither the Company nor any trade or business, whether or not incorporated, that, together with the Company, would be deemed to be a single employer within the meaning of Section 4001(b) of ERISA or Section 414 of the Code has incurred or reasonably expects to incur any liability with respect to any Plan (A) under Title IV of ERISA or (B) in respect of any post-employment health, medical or life insurance benefits for former, current or future employees of the Company or any subsidiary, except as required to avoid excise tax under Section 4980B of the Code; and (iv) each Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and nothing has occurred, whether by action or by failure to act, which could cause the
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loss of such qualification. Neither the Company nor any of its subsidiaries is, or at any time during the last three years has been, a party to any collective bargaining agreement or other labor agreement with respect to employees of the Company or its subsidiaries. There are no pending, or, to the best of the Companys knowledge, threatened, activities or proceedings by any labor union or similar entity to organize any employees of the Company or its subsidiaries other than as would not, individually or in the aggregate, have a Material Adverse Effect. No labor dispute with or labor strike, work stoppage or other material labor disturbance by the employees of the Company or any subsidiary exists or to the best of the Companys knowledge is imminent;
(xxiv) The Company and its subsidiaries have paid all federal, state, local and foreign taxes and filed all tax returns required to be paid or filed through the date hereof except for any such taxes that are not delinquent or that are being contested in good faith; and there is no tax deficiency that has been, or could reasonably be expected to be, asserted against the Company or any of its subsidiaries or any of their respective properties or assets other than as would not, individually or in the aggregate, have a Material Adverse Effect;
(xxv) The Company and its subsidiaries possess all permits, licenses, consents, approvals, certificates and other authorizations (collectively, Governmental Licenses) issued by, and have made all declarations and filings with, the appropriate federal, state, local or foreign governmental or regulatory authorities that are necessary for the ownership or lease of their respective properties or the conduct of their respective businesses as described in each of the Pricing Prospectus and the Prospectus other than as would not, individually or in the aggregate, have a Material Adverse Effect; the Company and its subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses other than as would not, individually or in the aggregate, have a Material Adverse Effect; all such Governmental Licenses are valid and in full force and effect other than as would not, individually or in the aggregate, have a Material Adverse Effect; and neither the Company nor any of its subsidiaries has received any notice of proceedings related to revocation or modification of any such Governmental Licenses or has any reason to believe that any such Governmental Licenses will not be renewed in the ordinary course other than as would not, individually or in the aggregate, have a Material Adverse Effect;
(xxvi) Other than the registration rights granted pursuant to (A) that certain registration rights agreement, dated as of March 5, 2010, between Express, LLC, Express Finance Corp. and the other parties thereto, and (B) that certain registration rights agreement, dated as of [ ], 2010, between the Company and the other parties thereto, there are no persons with registration rights or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the Act;
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(xxvii) The Company and its subsidiaries carry or are entitled to the benefits of insurance, with financially sound and reputable insurers, in such amounts, with such deductibles and covering such risks as they deem reasonably adequate for the conduct of their respective businesses, and all such insurance is in full force and effect. The Company has no reason to believe that it or any subsidiary will not be able (A) to renew its existing insurance coverage as and when such policies expire or (B) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse Effect;
(xxviii) (A) Neither the Company nor any of its subsidiaries is in violation of any applicable federal, state, local or foreign statute, law, rule, regulation, ordinance or code or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or the protection of human health or the environment (including, without limitation, ambient air, indoor air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products, asbestos-containing materials or mold (collectively, Hazardous Materials) or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, Environmental Laws), (B) the Company and its subsidiaries have all permits, authorizations and approvals required under any applicable Environmental Laws and are each in compliance with their requirements, (C) there are no pending or threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company or any of its subsidiaries and (D) there are no events or circumstances that would reasonably be expected to form the basis of an order for clean-up or remediation or any other action, suit or proceeding by any private party or Governmental Entity, against or affecting the Company or any of its subsidiaries relating to Hazardous Materials or any Environmental Laws, except in the case of each of the foregoing clauses (A) through (D), other than as would not, individually or in the aggregate, have a Material Adverse Effect;
(xxix) None of the Company, any of its subsidiaries or, to the knowledge of the Company, any director, officer, agent, employee, affiliate or other person acting on behalf of the Company or any of its subsidiaries is aware of or has taken any action, directly or indirectly, that would result in a violation by such persons of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (the FCPA), and the Company and, to the knowledge of the Company, its affiliates have conducted their businesses in compliance with the FCPA and have instituted and maintain policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance therewith;
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(xxx) The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the Money Laundering Laws); and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Money Laundering Laws is pending or, to the best knowledge of the Company, threatened;
(xxxi) None of the Company, any of its subsidiaries or, to the knowledge of the Company, any director, officer, agent, employee, affiliate or other person acting on behalf of the Company or any of its subsidiaries is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (OFAC); and the Company will not directly or indirectly use the proceeds of the sale of the Shares, or lend, contribute or otherwise make available such proceeds to any of its subsidiaries, joint venture partners or other person, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC;
(xxxii) Any statistical and market-related data included in the Pricing Prospectus are based on or derived from sources that the Company believes to be reliable and accurate in all material respects;
(xxxiii) At the time of filing the Initial Registration Statement the Company was not and is not an ineligible issuer, as defined under Rule 405 under the Act; and
(xxxiv) Neither the Company nor any of its affiliates has taken nor will any such party take, directly or indirectly, any action which is designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares.
(b) Each of the Selling Stockholders severally and not jointly represents and warrants to, and agrees with, each of the Underwriters and the Company that:
(i) (A) All consents, approvals, authorizations and orders necessary for the execution and delivery by such Selling Stockholder of this Agreement, and for the sale and delivery of the Shares to be sold by such Selling Stockholder hereunder, have been obtained; such Selling Stockholder has full right, power and authority to enter into this Agreement, and to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder except for such
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consents, approvals, authorizations and orders as would not reasonably be expected to impair the fulfillment of such Selling Stockholders obligations hereunder; and such Selling Stockholder has duly authorized, executed and delivered this Agreement; and (B) in the case of Selling Stockholders named in Schedule II(a) hereto: (1) all consents, approvals, authorizations and orders necessary for the execution and delivery by such Selling Stockholder of the Power of Attorney appointing certain individuals as such Selling Stockholders attorneys-in-fact to the extent set forth herein, relating to the transactions contemplated hereby and by the Registration Statement (the Power of Attorney) and the Custody Agreement signed by such Selling Stockholder relating to the deposit of the Shares to be sold by such Selling Stockholder (the Custody Agreement); (2) such Selling Stockholder has full right, power and authority to enter into the Power of Attorney and the Custody Agreement; and (3) such Selling Stockholder has duly authorized, executed and delivered the Power of Attorney and the Custody Agreement, and the Power of Attorney and the Custody Agreement are legally valid and binding agreements of such Selling Stockholder, enforceable against such Selling Stockholder in accordance with their terms;
(ii) The sale of the Shares to be sold by such Selling Stockholder hereunder and the compliance by such Selling Stockholder with all of the provisions of this Agreement, and, in the case of Selling Stockholders named in Schedule II(a) hereto, the Power of Attorney and the Custody Agreement, and the consummation of the transactions herein and therein contemplated (A) will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any material statute, indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is bound or to which any of the property or assets of such Selling Stockholder is subject and (B) will not result in any violation of the provisions of (1) the certificate of incorporations or by-laws of such Selling Stockholder if such Selling Stockholder is a corporation, the partnership agreement of such Selling Stockholder if such Selling Stockholder is a partnership or (2) any material statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over such Selling Stockholder or the property of such Selling Stockholder, except in the case of clause (A) or (B) for such conflicts, breaches, violations or defaults as would not reasonably be expected to impair the fulfillment of such Selling Stockholders obligations hereunder or thereunder;
(iii) (A) Such Selling Stockholder has, and immediately prior to each Time of Delivery (as defined in Section 4 hereof) such Selling Stockholder will have, good and marketable title to the Shares to be sold by such Selling Stockholder hereunder or to a security entitlement (within the meaning of Section 8-501 of the New York Uniform Commercial Code (the UCC)) in respect of such Shares, in each case, free and clear of all liens, encumbrances, equities or claims; and (B) upon payment for the Shares to be sold by such Selling Stockholder, delivery
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of such Shares, as directed by the Underwriters, to Cede & Co. (Cede) or such other nominee as may be designated by The Depository Trust Company (DTC), registration of such Shares in the name of Cede or such other nominee and the crediting of such Shares on the books of DTC to securities accounts of the Underwriters, (i) under Section 8-501 of the UCC, the Underwriters will acquire a valid security entitlement (within the meaning of Section 8-102 of the UCC) in respect of such Shares and (ii) assuming the Underwriters have acquired such security entitlements without notice of any adverse claim (within the meaning of Section 8-105 of the UCC) to such Shares, no action based on any valid adverse claim (within the meaning of Section 8-102 of the UCC), to such Shares may be asserted against the Underwriters with respect to such security entitlement. For purposes of clause (B), such Selling Stockholder may assume that when such payment, delivery and crediting occur, (A) such Shares will have been registered in the name of Cede or another nominee designated by DTC, in each case on the Companys share registry in accordance with its certificate of incorporation, bylaws and applicable law, (B) DTC will be registered as a clearing corporation (within the meaning of Section 8-102 of the UCC) and (C) appropriate entries to the accounts of the several Underwriters on the records of DTC will have been made pursuant to the UCC;
(iv) Such Selling Stockholder has duly executed and delivered to the Underwriters a lock-up agreement (each, a Lock-Up Agreement) substantially as set forth in Annex I hereto; each such Lock-Up Agreement has been duly authorized by such Selling Stockholder;
(v) Such Selling Stockholder has not taken and will not take, directly or indirectly, any action which is designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares;
(vi) To the extent that any statements or omissions made in the Registration Statement, the Pricing Prospectus, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or any Issuer Free Writing Prospectus listed on Schedule III hereto, are made in reliance solely upon and in conformity with written information furnished to the Company by such Selling Stockholder expressly for use therein, (A) such Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, (B) the Prospectus and any further amendments or supplements to the Prospectus, when they are filed with the Commission, will, conform in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (C) the Registration Statement did, and any further amendments or supplements to the Registration Statement, when they become effective, will,
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conform in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading;
(vii) The sale of the Securities by such Selling Stockholder pursuant hereto is not prompted by any information concerning the Company or any of its subsidiaries which is not set forth in the Pricing Prospectus and the Prospectus or any amendment or supplement thereto;
(viii) In order to document the Underwriters compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated, such Selling Stockholder will deliver to you prior to or at the First Time of Delivery (as hereinafter defined) a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof);
(ix) In the case of Selling Stockholders named in Schedule II(a) hereto, certificates in negotiable form representing all of the Shares to be sold hereunder by such Selling Stockholder have been placed in custody under the Custody Agreement, in the form heretofore furnished to you, duly executed and delivered by such Selling Stockholder to [ ], as custodian (the Custodian), and such Selling Stockholder has duly executed and delivered a Power of Attorney, in the form heretofore furnished to you, appointing the persons indicated in Schedule II(a) hereto, and each of them, as such Selling Stockholders attorneys-in-fact (the Attorneys-in-Fact) with authority to execute and deliver this Agreement on behalf of such Selling Stockholder, to determine the purchase price to be paid by the Underwriters to the Selling Stockholders as provided in Section 2 hereof, to authorize the delivery of the Shares to be sold by such Selling Stockholder hereunder and otherwise to act on behalf of such Selling Stockholder in connection with the transactions contemplated by this Agreement and the Custody Agreement;
(x) In the case of Selling Stockholders named in Schedule II(a) hereto, the Shares represented by the certificates held in custody for such Selling Stockholder under the Custody Agreement are subject to the interests of the Underwriters hereunder; the arrangements made by such Selling Stockholder for such custody, and the appointment by such Selling Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that extent irrevocable; the obligations of the Selling Stockholders hereunder shall not be terminated by operation of law, whether by the death or incapacity of any individual Selling Stockholder or, in the case of an estate or trust, by the death or incapacity of any executor or trustee or the termination of such estate or trust, or in the case of a partnership or corporation, by the dissolution of such partnership or corporation, or by the occurrence of any other event; if any individual Selling Stockholder or any such
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executor or trustee should die or become incapacitated, or if any such estate or trust should be terminated, or if any such partnership or corporation should be dissolved, or if any other such event should occur, before the delivery of the Shares hereunder, certificates representing the Shares shall be delivered by or on behalf of the Selling Stockholders in accordance with the terms and conditions of this Agreement and of the Custody Agreements; and actions taken by the Attorneys-in-Fact pursuant to the Powers of Attorney shall be as valid as if such death, incapacity, termination, dissolution or other event had not occurred, regardless of whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall have received notice of such death, incapacity, termination, dissolution or other event;
(xi) Neither such Selling Stockholder nor any of its affiliates directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, any member firm of the Financial Industry Regulatory Authority, Inc. (FINRA) or is a person associated with a member (within the meaning of the FINRA by-laws) of FINRA.
2. Subject to the terms and conditions herein set forth, (a) the Company and each of the Selling Stockholders agree, severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company and each of the Selling Stockholders, at a purchase price per share of $[ ], the number of Firm Shares (to be adjusted by you so as to eliminate fractional shares) determined by multiplying the aggregate number of Shares to be sold by the Company and each of the Selling Stockholders as set forth opposite their respective names in Schedule II hereto by a fraction, the numerator of which is the aggregate number of Firm Shares to be purchased by such Underwriter as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the aggregate number of Firm Shares to be purchased by all of the Underwriters from the Company and all of the Selling Stockholders hereunder and (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as provided below, each of the Selling Stockholders agrees, severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from each of the Selling Stockholders, at the purchase price per share set forth in clause (a) of this Section 2, that portion of the number of Optional Shares as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum number of Optional Shares that all of the Underwriters are entitled to purchase hereunder.
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The Selling Stockholders, as and to the extent indicated in Schedule II hereto, hereby grant, severally and not jointly, to the Underwriters the right to purchase at their election up to 2,400,000 Optional Shares, at the purchase price per share set forth in the paragraph above, for the sole purpose of covering sales of shares in excess of the number of Firm Shares, provided that the purchase price per Optional Share shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Firm Shares but not payable on the Optional Shares. Any such election to purchase Optional Shares shall be made in proportion to the maximum number of Optional Shares to be sold by each Selling Stockholder as set forth in Schedule II hereto. Any such election to purchase Optional Shares may be exercised only by written notice from you to the Attorneys-in-Fact and the Selling Stockholders named in Schedule II(b) hereto, given within a period of 30 calendar days after the date of this Agreement and setting forth the aggregate number of Optional Shares to be purchased and the date on which such Optional Shares are to be delivered, as determined by you but in no event earlier than the First Time of Delivery (as defined in Section 4 hereof) or, unless you, the Attorneys-in-Fact and the Selling Stockholders named in Schedule II(b) hereto otherwise agree in writing, in the case of any election to purchase Optional Shares made after the First Time of Delivery, no earlier that two business days after the date of such notice, and in any case no later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the several Underwriters propose to offer the Firm Shares for sale upon the terms and conditions set forth in the Pricing Prospectus and the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in definitive form, and in such authorized denominations and registered in such names as the Underwriters may request upon at least forty-eight hours prior notice to the Company and the Selling Stockholders shall be delivered by or on behalf of the Company and the Selling Stockholders to the Underwriters, through the facilities of DTC, for the account of such Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor by wire transfer of Federal (same-day) funds to the account specified by the Company and each of the Selling Stockholders to the Underwriters at least forty-eight hours in advance. The time and date of such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New York City time, on [ ], 2010 or such other time and date as the Underwriters, the Company, the Attorneys-in-Fact and the Selling Stockholders named in Schedule II(b) hereto may agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York time, on the date specified by the Underwriters in the written notice given by the Underwriters of the Underwriters election to purchase such Optional Shares, or such other time and date as the Underwriters, the Company, the Attorneys-in-Fact and the Selling Stockholders named in Schedule II(b) hereto may agree upon in writing. Such time and date for delivery of the Firm Shares is herein called the First Time of
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Delivery, such time and date for delivery of the Optional Shares, if not the First Time of Delivery, is herein called the Second Time of Delivery, and each such time and date for delivery is herein called a Time of Delivery.
(b) The documents to be delivered at each Time of Delivery by or on behalf of the parties hereto pursuant to Section 8 hereof, including the cross receipt for the Shares and any additional documents requested by the Underwriters pursuant to Section 8(l) hereof, will be delivered at the offices of Latham & Watkins LLP, 885 Third Avenue, New York, New York 10022-4834 (the Closing Location), and the Shares will be delivered at the office of DTC or its designated custodian, all at such Time of Delivery. A meeting will be held at the Closing Location at 5:00 p.m., New York City time, on the New York Business Day next preceding such Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Section 4, New York Business Day shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York City are generally authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you, such approval not to be unreasonably withheld, and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commissions close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or any supplement to the Registration Statement or the Prospectus prior to the last Time of Delivery which shall be reasonably disapproved by you promptly after reasonable notice thereof; to advise you, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any amendment or supplement to the Prospectus has been filed and to furnish you with copies thereof; to file promptly all material required to be filed by the Company with the Commission pursuant to Rule 433(d) under the Act; to advise you, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus, the Prospectus or other prospectus in respect of the Shares, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or the Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus, the Prospectus or other prospectus or suspending any such qualification, to promptly use its best efforts to obtain the withdrawal of such order;
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(b) Promptly from time to time to take such action as you may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares, provided that in connection therewith the Company shall not be required to (i) qualify as a foreign corporation, (ii) file a general consent to service of process in any jurisdiction, (iii) subject itself to taxation in any such jurisdiction if it is not otherwise so subject or (iv) make any change to its charter or by-laws or similar organizational documents;
(c) Prior to 10:00 a.m., New York City time, on the New York Business Day next succeeding the date of this Agreement and from time to time, to furnish the Underwriters and the Selling Stockholders with written and electronic copies of the Prospectus in New York City in such quantities as you and the Selling Stockholders may reasonably request, and, if the delivery of a prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) is required at any time prior to the earlier of (i) the expiration of the distribution of the Shares as reasonably determined by the Underwriters or (ii) six months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any event shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) is delivered, not misleading, or, if for any other reason it shall be necessary or desirable during such same period to amend or supplement the Prospectus in order to comply with the Act, to notify you and upon your request to prepare and furnish without charge to each Underwriter and to any dealer in securities as many written and electronic copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance; and in case any Underwriter is required to deliver a prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) in connection with sales of any of the Shares at any time nine months or more after the time of issue of the Prospectus, upon your request but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many written and electronic copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as practicable, but in any event not later than sixteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the Act), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158);
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(e) Without your prior written consent, during the period beginning from the date hereof and continuing to and including the date 180 days after the date of the Prospectus (the initial Lock-Up Period), not to, directly or indirectly, (i) issue, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, make any short sale or otherwise transfer, lend or dispose of, except as provided hereunder, any Stock or any securities of the Company that are substantially similar to the Stock, including, but not limited to, any securities that are convertible into or exchangeable or exercisable for, or that represent the right to receive, Stock or any such substantially similar securities (other than pursuant to employee stock option plans existing on the date of this Agreement) or file any registration statement under the Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequences of ownership of the Stock or any substantially similar securities, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Stock or such other securities, in cash or otherwise; provided , however , that if (1) during the last 17 days of the initial Lock-Up Period, the Company releases earnings results or announces material news or a material event or (2) prior to the expiration of the initial Lock-Up Period, the Company announces that it will release earnings results during the 15-day period following the last day of the initial Lock-Up Period, then in each case the Lock-Up Period will be automatically extended until the expiration of the 18-day period beginning on the date of release of the earnings results or the announcement of the material news or material event, as applicable, unless the Underwriters waive, in writing, such extension; the Company will provide the Underwriters and each stockholder subject to the Lock-Up Period pursuant to the lockup letters described in Sections 1(b)(iv) and 8(k) with prior notice of any such announcement that gives rise to an extension of the Lock-up Period;
(f) To furnish to its stockholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders equity and cash flows of the Company and its consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the effective date of the Registration Statement), to make available to its stockholders consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail;
(g) During a period of two years from the effective date of the Registration Statement, to furnish to you copies of all reports or other communications (financial or other) furnished to stockholders, and to deliver to
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you (i) as soon as they are furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed, copies of any reports and financial statements; and (ii) such additional information concerning the business and financial condition of the Company as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission); provided that any report or financial statement furnished to or filed with the Commission that is publicly available on the Commissions EDGAR system shall be deemed to have been furnished to you at the time furnished to or filed with the Commission;
(h) To use the net proceeds received by it from the sale of the Shares pursuant to this Agreement in the manner specified in the Pricing Prospectus under the caption Use of Proceeds;
(i) To file with the Commission such information on Form 10-Q or Form 10-K as may be required by Rule 463 under the Act;
(j) If the Company elects to rely upon Rule 462(b), the Company shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and the Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Act; and
(k) Upon request of any Underwriter, to furnish, or cause to be furnished, to such Underwriter an electronic version of the Companys trademarks, servicemarks and corporate logo for use on the website, if any, operated by such Underwriter for the purpose of facilitating the on-line offering of the Shares (the License); provided , however , that the License shall be used solely for the purpose described above, is granted without any fee and may not be assigned or transferred.
6. (a) The Company and each of the Selling Stockholders, severally and not jointly, represents and agrees that, without the prior consent of the Underwriters, it has not made and will not make any offer relating to the Shares that would constitute a free writing prospectus as defined in Rule 405 under the Act; each Underwriter represents and agrees that, without the prior consent of the Company and the Underwriters, it has not made and will not make any offer relating to the Shares that would constitute a free writing prospectus; any such free writing prospectus the use of which has been consented to by the Company and the Underwriters is listed on Schedule III(a) or Schedule III(b) hereto;
(b) The Company has complied and will comply with the requirements of Rule 433 under the Act applicable to any Issuer Free Writing Prospectus, including timely filing with the Commission or retention where required and
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legending; and the Company represents that it has satisfied and agrees that it will satisfy the conditions under Rule 433 under the Act to avoid a requirement to file with the Commission any electronic road show;
(c) The Company agrees that if at any time following issuance of an Issuer Free Writing Prospectus any event occurred or occurs as a result of which such Issuer Free Writing Prospectus would conflict with the information in the Registration Statement, the Pricing Prospectus or the Prospectus or would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances then prevailing, not misleading, the Company will give prompt notice thereof to the Underwriters and, if requested by the Underwriters, will prepare and furnish without charge to each Underwriter an Issuer Free Writing Prospectus or other document which will correct such conflict, statement or omission; provided , however , that this representation and warranty shall not apply to any statements or omissions in an Issuer Free Writing Prospectus made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter expressly for use therein.
7. (a) The Company covenants and agrees with the several Underwriters and the Selling Stockholders that: the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Companys counsel and accountants and all of the Companys other expenses in connection with the preparation, printing, reproduction and filing of the Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) all of the Companys costs of printing or producing this Agreement, the Blue Sky Memorandum, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Shares; (iii) all expenses in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 5(b) hereof, including the reasonable and documented fees and disbursements of one counsel for the Underwriters solely in connection with (A) such qualification and (B) the Blue Sky survey; (iv) all fees and expenses in connection with listing the Shares on The New York Stock Exchange Stock Exchange (the NYSE); (v) the filing fees incident to, and the fees and disbursements of counsel for the Underwriters in connection with, any required review by FINRA of the terms of the sale of the Shares; (vi) the cost of preparing stock certificates; (vii) the cost and charges of any transfer agent or registrar; (viii) the fees and expenses of the Attorneys-in-Fact and the Custodian; (ix) fifty percent (50%) of all costs and expenses incurred in connection with any road show presentation to potential purchasers of the Shares, and the other fifty percent (50%) of such costs and expenses will be paid by the Underwriters; and (x) all other costs and expenses incident to the performance of its and each Selling Stockholders obligations hereunder which are not otherwise specifically provided for in this Section; and
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(b) Each Selling Stockholder severally and not jointly covenants and agrees with the Underwriters and the Company that (i) such Selling Stockholder will pay or cause to be paid the fees and expenses of counsel for such Selling Stockholder; (ii) the underwriting discounts and commissions associated with the Shares to be sold by such Selling Stockholder hereunder shall be deducted from such Selling Stockholders proceeds from the sale of such Shares; and (iii) subject to the next sentence of this subsection (b), such Selling Stockholder will pay or cause to be paid all transfer taxes incident to the sale and delivery of the Shares to be sold by such Selling Stockholder to the Underwriters hereunder. In connection with clause (b)(iii) of the preceding sentence, the Underwriters agree, severally and not jointly, to pay New York State stock transfer tax, and such Selling Stockholder agrees to reimburse the Underwriters for associated carrying costs if such tax payment is not rebated on the day of payment and for any portion of such tax payment not rebated. It is understood, however, that the Company shall bear, and the Selling Stockholders shall not be required to pay or to reimburse the Company for, the cost of any other matters not directly relating to the sale and purchase of the Shares pursuant to this Agreement, and that, except as provided in this Section 7, and Sections 9 and 12 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make.
8. The obligations of the Underwriters hereunder, as to the Shares to be delivered at each Time of Delivery, shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Company and of the Selling Stockholders herein are, at and as of such Time of Delivery, true and correct, the condition that the Company and the Selling Stockholders shall have performed all of its and their obligations hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) under the Act within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 5(a) hereof; all material required to be filed by the Company pursuant to Rule 433(d) under the Act shall have been filed with the Commission within the applicable time period prescribed for such filing by Rule 433; if the Company has elected to rely upon Rule 462(b) under the Act, the Rule 462(b) Registration Statement shall have become effective by 10:00 P.M., Washington, D.C. time, on the date of this Agreement; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission;
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no stop order suspending or preventing the use of any Preliminary Prospectus, the Prospectus or any Issuer Free Writing Prospectus shall have been initiated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction;
(b) Latham & Watkins LLP, counsel for the Underwriters, shall have furnished to you their written opinion or opinions, dated such Time of Delivery, in form and substance reasonably satisfactory to you, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters;
(c) Kirkland & Ellis LLP, counsel for the Company, shall have furnished to you their written opinion, dated such Time of Delivery, reasonably satisfactory to you and in the form previously mutually agreed upon between counsel for the Company and counsel for the Underwriters;
(d) The respective counsel for each of the Selling Stockholders, as indicated in Schedule II hereto, each shall have furnished to you their written opinion with respect to each of the Selling Stockholders for whom they are acting as counsel, dated such Time of Delivery, reasonably satisfactory to you and in the form previously mutually agreed upon between such counsel and counsel for the Underwriters;
(e) On the date of the Prospectus at a time prior to the execution of this Agreement, on the effective date of any post-effective amendment to the Registration Statement filed subsequent to the date of this Agreement and also at each Time of Delivery, each of (i) PricewaterhouseCoopers LLP and (ii) Ernst & Young LLP shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance reasonably satisfactory to you;
(f) On the date of the Prospectus at a time prior to the execution of this Agreement, the chief financial officer of the Company shall have furnished to you a certificate with respect to certain financial information contained in the Pricing Disclosure Package and the Prospectus, dated the date of delivery thereof, in form and substance reasonably satisfactory to you;
(g) (i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included in the Pricing Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Pricing Prospectus, and (ii) since the respective dates as of which information is given in the Registration Statement and the Pricing Prospectus there shall
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not have been any change in the capital stock or long-term debt of the Company or any of its subsidiaries (other than borrowings by the Company or its subsidiaries under any revolving credit facility consistent with past practices) or any change, or any development involving a prospective change, in or affecting the business, consolidated financial position, or results of operations of the Company and its subsidiaries taken as a whole, otherwise than as set forth or contemplated in the Pricing Prospectus, the effect of which, in any such case described in clause (i) or (ii), is in your judgment so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Pricing Prospectus and the Prospectus;
(h) On or after the Applicable Time (i) no downgrading shall have occurred in the rating accorded the Companys debt securities by any nationally recognized statistical rating organization, as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Companys debt securities;
(i) On or after the Applicable Time there shall not have occurred any of the following: (A) a suspension or material limitation in trading in securities generally on the NYSE; (B) a suspension or material limitation in trading in the Companys securities on the NYSE; (C) a general moratorium on commercial banking activities declared by either Federal or New York State authorities or a material disruption in commercial banking or securities settlement or clearance services in the United States; (D) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war or (E) the occurrence of any other calamity or crisis or any change in financial, political or economic conditions in the United States or elsewhere, if the effect of any such event specified in clause (D) or (E) in your judgment makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus;
(j) The Shares to be sold at such Time of Delivery shall have been duly listed, subject to notice of issuance, on the NYSE;
(k) The Company shall have obtained and delivered to the Underwriters executed copies of an agreement from each of the parties listed on Annex I(b) hereto, substantially as set forth in Annex I(a) hereto and in form and substance reasonably satisfactory to you;
(l) The Company and the Selling Stockholders shall have furnished or caused to be furnished to you at such Time of Delivery certificates of
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officers of the Company and the Selling Stockholder, respectively, reasonably satisfactory to you as to the accuracy of the representations and warranties of the Company and the Selling Stockholders, respectively, herein at and as of such Time of Delivery, as to the performance by the Company and the Selling Stockholders of all of their respective obligations hereunder to be performed at or prior to such Time of Delivery, as to the matters set forth in subsections (a) and (g) of this Section and as to such other customary matters as you may reasonably request;
(m) Each Selling Stockholder shall have delivered to the Underwriters a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof); and
(n) Each of Express Investment Corp., Express Management Investors Blocker, Inc. and Express Management Investors LLC shall have been merged with and into the Company, as described in the Pricing Prospectus and the Prospectus, and the Underwriters shall have received evidence of such transactions in form and substance reasonably satisfactory to the Representatives.
9. (a) The Company will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus or any issuer information filed or required to be filed pursuant to Rule 433(d) under the Act, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided , however , that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, in reliance upon and in conformity with written information furnished to the Company by any Underwriter expressly for use therein.
(b) Each of the Selling Stockholders will, severally and not jointly, indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become
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subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, in reliance upon and in conformity with written information furnished to the Company by such Selling Stockholder expressly for use therein; and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided , however , that such Selling Stockholder shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, in reliance upon and in conformity with written information furnished to the Company by any Underwriter expressly for use therein; provided , further, that the liability of a Selling Stockholder pursuant to this subsection (b) shall not exceed the product of the number of Shares sold by such Selling Stockholder (including Optional Shares) and the initial public offering price of the Shares as set forth in the Prospectus after deducting any underwriting discounts and commissions received by the Underwriters, but without deducting expenses of the Company or the Selling Stockholders (Net Proceeds).
(c) Each Underwriter will, severally and not jointly, indemnify and hold harmless the Company and each Selling Stockholder and their respective officers and directors and each person, if any, who controls such Selling Stockholder within the meaning of Section 15 of the Act against any losses, claims, damages or liabilities to which such parties may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such
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untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, in reliance upon and in conformity with written information furnished to the Company by such Underwriter expressly for use therein; and each Underwriter will reimburse the Company and each Selling Stockholder for any legal or other expenses reasonably incurred by the Company or such Selling Stockholder in connection with investigating or defending any such action or claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection (a), (b) or (c) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection and except to the extent the indemnifying party is materially prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party. The indemnifying party shall not be required to indemnify the indemnified party for any amounts paid or payable by the indemnified party in the settlement or compromise of, or voluntary entry into any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought under this Section without the written consent of the indemnifying party, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, if at any time an
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indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel pursuant to Section 9(a) or 9(b), such indemnifying party agrees that it shall be liable for any settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought under Section 9(a) or 9(b) effected without written consent of such indemnifying party if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement.
(e) If the indemnification provided for in this Section 9 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a), (b) or (c) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and/or the Selling Stockholders on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (d) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and/or the Selling Stockholders on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and/or the Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and/or the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and/or the Selling Stockholders on the one hand or the Underwriters on the other and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, each of the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this subsection (e) were
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determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (e). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (e), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this subsection (e), no Selling Stockholder shall be required to contribute any amount in excess of the amount by which the Net Proceeds to such Selling Stockholder exceeds the amount of any damages which such Selling Stockholder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters obligations in this subsection (e) to contribute are several in proportion to their respective underwriting obligations and not joint. The Selling Stockholders obligations in this subsection (e) to contribute are several in proportion to their respective Net Proceeds from the offering and not joint.
(f) The obligations of the Company and the Selling Stockholders under this Section 9 shall be in addition to any liability which the Company and the respective Selling Stockholders may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act and each broker-dealer affiliate of any Underwriter; and the obligations of the Underwriters under this Section 9 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer, director and employee of the Company and of the Selling Stockholders (including any person who, with his or her consent, is named in the Registration Statement as about to become a director of the Company) and to each person, if any, who controls the Company or any Selling Stockholder within the meaning of the Act.
10. (a) If any Underwriter shall default in its obligation to purchase the Shares which it has agreed to purchase hereunder at a Time of Delivery and such default exceeds one-tenth of the aggregate number of Shares to be purchased on such date, you may in your discretion arrange during the forty-eight hours after such default for you or another party to this Agreement or other parties to purchase such Shares on the terms contained herein. In the event that, within the
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prescribed period, a new purchaser has been arranged, or if the Underwriters are required to purchase the Shares of the defaulting Underwriter pursuant to clause (b) below, you or the Company shall have the right to postpone such Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees to file promptly any amendments or supplements to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. The term Underwriter as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased does not exceed one-tenth of the aggregate number of all the Shares to be purchased at such Time of Delivery, then the Company and the Selling Stockholders shall have the right to require each non-defaulting Underwriter to purchase the number of Shares which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased exceeds one-tenth of the aggregate number of all the Shares to be purchased at such Time of Delivery, or if the Company and the Selling Stockholders shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to the Second Time of Delivery, the obligations of the Underwriters to purchase and of the Selling Stockholders to sell the Optional Shares) shall thereupon terminate, without liability on the part of any non-defaulting Underwriter or the Company or the Selling Stockholders, except for the expenses to be borne by the Company and the Selling Stockholders and the Underwriters as provided in Section 7 hereof and the indemnity and contribution agreements in Section 9 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default.
11. The respective indemnities, agreements, representations and warranties of the Company, the Selling Stockholders and the several Underwriters, as set forth in this Agreement or made by them, respectively,
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pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or the Company, or any of the Selling Stockholders, or any officer or director or controlling person of the Company, or any officer or director or controlling person of any Selling Stockholder, and shall survive delivery of and payment for the Shares.
12. If this Agreement shall be terminated pursuant to Section 10 hereof, neither the Company nor the Selling Stockholders shall then be under any liability to any Underwriter except as provided in Sections 7 and 9 hereof. If this Agreement is terminated pursuant to Section 8 hereof (other than the failure of the conditions described in Sections 8(i)(A), (C), (D) and (E)), including if any Shares are not delivered by or on behalf of the Company and the Selling Stockholders at the Time of Delivery because of any refusal, inability or failure on the part of the Company or any of the Selling Stockholders to perform any agreement herein or to comply with any provision hereof, the Company and each of the Selling Stockholders, in accordance with the allocation of expenses set forth in Section 7, will reimburse the Underwriters for all reasonable out-of-pocket expenses approved in writing by the Underwriters, including reasonable fees and disbursements of counsel, incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares not so delivered, but the Company and the Selling Stockholders shall then be under no further liability to any Underwriter in respect of the Shares not so delivered except as provided in Sections 7 and 9 hereof.
13. In all dealings hereunder, you shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by you jointly or by Merrill Lynch, Pierce, Fenner & Smith Incorporated on behalf of you as the representatives; and in all dealings with any Selling Stockholder hereunder, you and the Company shall be entitled to act and rely upon any statement, request, notice or agreement made by such Selling Stockholder or on behalf of any Selling Stockholder named in Schedule II(a) hereto made or given by any or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail or facsimile transmission to you as the representatives in care of Merrill Lynch, Pierce, Fenner & Smith Incorporated, One Bryant Park, New York, New York 10036, Attention: Syndication Department (fax: (646) 855-3073) and ECM Legal (fax: (212) 230-8730); if to any Selling Stockholder shall be delivered or sent by mail or facsimile transmission to counsel for such Selling Stockholder at its address set forth in Schedule II hereto; and if to the Company shall be delivered or sent by mail or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention: Secretary; provided , however , that notices under Section
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5(e) shall be in writing, and if to the Underwriters shall be delivered or sent by mail or facsimile transmission to you as the representatives in care of Merrill Lynch, Pierce, Fenner & Smith Incorporated, One Bryant Park, New York, New York 10036, Attention: Syndication Department (fax: (646) 855-3073) and ECM Legal (fax: (212) 230-8730). Any such statements, requests, notices or agreements shall take effect upon receipt thereof.
In accordance with the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), the Underwriters are required to obtain, verify and record information that identifies their respective clients, including the Company, which information may include the name and address of their respective clients, as well as other information that will allow the Underwriters to properly identify their respective clients.
14. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company and the Selling Stockholders and, to the extent provided in Sections 9 and 11 hereof, the officers, directors and employees of the Company and the Selling Stockholders and each person who controls the Company, any Selling Stockholder or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase.
15. Time shall be of the essence of this Agreement. As used herein, the term business day shall mean any day when the Commissions office in Washington, D.C. is open for business.
16. The Company and each of the Selling Stockholders acknowledge and agree that (i) the purchase and sale of the Shares pursuant to this Agreement is an arms-length commercial transaction between the Company and the Selling Stockholders, on the one hand, and the several Underwriters, on the other, (ii) in connection therewith and with the process leading to such transaction each Underwriter is acting solely as a principal and not the agent or fiduciary of the Company or any Selling Stockholder, (iii) no Underwriter has assumed an advisory or fiduciary responsibility in favor of the Company or any Selling Stockholder with respect to the offering contemplated hereby or the process leading thereto (irrespective of whether such Underwriter has advised or is currently advising the Company or any Selling Stockholder on other matters) or any other obligation to the Company or any Selling Stockholder except the obligations expressly set forth in this Agreement and (iv) the Company and each of the Selling Stockholders has consulted its own legal and financial advisors to the extent it deemed appropriate. The Company and each of the Selling Stockholders agrees that it will not claim that the Underwriters, or any of them, have rendered advisory services of any nature or respect, or owes a fiduciary or similar duty to the Company or any Selling Stockholder, in connection with such transaction or the process leading thereto.
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17. This Agreement supersedes all prior agreements and understandings (whether written or oral) between the Company, the Selling Stockholders and the Underwriters, or any of them, with respect to the subject matter hereof.
18. THIS AGREEMENT AND ANY MATTERS RELATED TO THIS TRANSACTION SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS THAT WOULD RESULT IN THE APPLICATION OF ANY LAW OTHER THAN THE LAWS OF THE STATE OF NEW YORK. The Company and each of the Selling Stockholders agrees that any suit or proceeding arising in respect of this agreement or our engagement will be tried exclusively in the U.S. District Court for the Southern District of New York or, if that court does not have subject matter jurisdiction, in any state court located in The City and County of New York and the Company and each of the Selling Stockholders agrees to submit to the jurisdiction of, and to venue in, such courts.
19. The Company, each of the Selling Stockholders and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
20. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.
[Remainder of page intentionally left blank]
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If the foregoing is in accordance with your understanding, please sign and return to us counterparts hereof, and upon the acceptance hereof by you this letter and such acceptance hereof shall constitute a binding agreement among each of the Underwriters, the Company and each of the Selling Stockholders. Any person executing and delivering this Agreement as Attorney-in-Fact for a Selling Stockholder represents by doing so that he has been duly appointed as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and binding Power of Attorney that authorizes such Attorney-in-Fact to take such action.
Very truly yours, | ||
Express, Inc. | ||
By: |
|
|
Name: | ||
Title: | ||
Limited Brands Store | ||
Operations, Inc. | ||
By: |
|
|
Name: | ||
Title: | ||
EXP Investments, Inc. | ||
By: |
|
|
Name: | ||
Title: | ||
Multi-Channel Retail | ||
Holdings LLC Series G | ||
By: |
|
|
Name: | ||
Title: | ||
Colin Campbell | ||
David G. Kornberg | ||
Matthew C. Moellering | ||
John J. Rafferty | ||
Elliott R. Tobias | ||
Arlene Weiss |
Michael A. Weiss | ||
Weiss Descendants 2008 | ||
Irrevocable Trust | ||
Weiss Family 2008 Irrevocable | ||
Trust Alpha | ||
Weiss Family 2008 Irrevocable | ||
Trust Beta | ||
By: |
|
|
Name: | ||
Title: | ||
As Attorney-in-Fact acting on behalf of each of the Selling Stockholders named in Schedule II(a) to this Agreement |
Accepted as of the date hereof: | ||
Merrill Lynch, Pierce, Fenner & Smith Incorporated |
||
By: |
|
|
Authorized Signatory | ||
Goldman, Sachs & Co. | ||
By: |
|
|
(Goldman, Sachs & Co.) | ||
On behalf of each of the Underwriters |
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Exhibit 2.3
CONVERSION AGREEMENT
THIS CONVERSION AGREEMENT (this Agreement ) is dated as of , 2010 1 , by and among Express Parent LLC, a Delaware limited liability company (the Company ), Express Management Investors Blocker, Inc., a Delaware corporation ( EMIB ), Express Investment Corp., a Delaware corporation ( EIC ), Limited Brands Store Operations, Inc., a Delaware corporation ( LBSO ), and EXP Investments, Inc., a Delaware corporation ( EXP ). The Company, EMIB, EIC, LBSO, and EXP are collectively referred to herein as the Parties and each individually is referred to herein as a Party .
WHEREAS, upon the terms and subject to the conditions set forth herein and in accordance with Delaware Law, the board of managers of the Company deems it advisable to convert the Company from a Delaware limited liability company to a Delaware corporation to be named Express, Inc. ( Express ) (the Conversion ) to facilitate the initial public offering of Express common stock, par value $0.01 per share (the Common Stock ), pursuant to a registration statement filed with the Securities and Exchange Commission (the Initial Public Offering );
WHEREAS, subsequent to the Conversion and pursuant to the terms of an Agreement and Plan of Merger, EIC, EMIB and Express Management Investors LLC, a Delaware limited liability company, will merge into Express (the Mergers );
WHEREAS, the Parties intend for the Conversion to be treated as a transaction governed by Section 351 of the Internal Revenue Code of 1986, as amended (the Code ), the mergers of EIC and EMIB into Express to be treated as transactions governed by Section 368 of the Code, and the merger of Express Management Investors LLC into Express to be treated as a liquidation governed by Sections 731 and 732 of the Code; and
WHEREAS, the board of managers and the requisite equityholders of the Company (including the Parties hereto that are equityholders of the Company) have approved the Conversion, in accordance with the requirements of Delaware Law.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:
ARTICLE 1
D EFINITIONS
Section 1.01 Definitions .
(a) As used herein, the following terms have the following meanings:
Business Day means a day, other than Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by applicable Law to close.
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For tax reasons, should be the day before the closing of the Mergers. |
Closing Date means the date of the Closing.
Delaware Law means, collectively, the DGCL and the DLLCA.
DGCL means the General Corporation Law of the State of Delaware.
DLLCA means the Limited Liability Company Act of the State of Delaware.
Law means any law, statute, regulation, rule, permit, license, certificate, judgment, order, award or other legally binding decision or requirement of any arbitrator, court, government or governmental agency or instrumentality (domestic or foreign).
Person means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
Subsidiary means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by a Person.
Transaction Documents means this Agreement and the Exhibits attached hereto.
(b) Each of the following terms is defined in the Section set forth opposite such term:
Term |
Section | |
Agreement |
Preamble | |
Certificate of Conversion |
2.01(a) | |
Certificate of Incorporation |
2.01(a) | |
Closing |
2.02 | |
Common Stock |
Recitals | |
Company |
Preamble | |
Company LLC Agreement |
2.01(g) | |
Conversion |
Recitals | |
Conversion Effective Time |
2.01(a) | |
EIC |
Preamble | |
EMIB |
Preamble | |
EXP |
Preamble | |
Express |
Recitals | |
Initial Public Offering |
Recitals | |
LBSO |
Preamble | |
Parties |
Preamble | |
Party |
Preamble |
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Section 1.02 Other Definitional and Interpretative Provisions . The words hereof , herein , and hereunder and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. References to Articles, Sections, and Exhibits are to Articles, Sections, and Exhibits of this Agreement unless otherwise specified. All Exhibits annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Exhibit but not otherwise defined therein, shall have the meaning as defined in this Agreement. Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. Whenever the words include , includes , or including are used in this Agreement, they shall be deemed to be followed by the words without limitation , whether or not they are in fact followed by those words or words of like import. Writing , written , and comparable terms refer to printing, typing and other means of reproducing words (including electronic media) in a visible form. References to any agreement or contract are to that agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. References to any Person include the successors and permitted assigns of that Person. References from or through any date mean, unless otherwise specified, from and including or through and including, respectively. References to law , laws , or to a particular statute or law shall be deemed also to include any and all Laws.
ARTICLE 2
T HE C ONVERSION
Section 2.01 The Conversion .
(a) Upon the terms and subject to the conditions of this Agreement, at the Closing, the Company shall cause to be filed with the Secretary of State of the State of Delaware (i) a certificate of conversion in the form of Exhibit A attached hereto (the Certificate of Conversion ) providing for the Conversion, and (ii) a certificate of incorporation of Express in the form of Exhibit B attached hereto (the Certificate of Incorporation ). The Conversion shall become effective at the time and date as provided under the DGCL and as specified in the Certificate of Conversion (the Conversion Effective Time ). References to the Company from and after the Conversion Effective Time shall mean Express.
(b) The Conversion shall have the effects set forth under Delaware Law. Without limiting the generality of the foregoing, and subject thereto, at the Conversion Effective Time, all the properties, rights, privileges, and powers of the Company shall vest in Express, and all debts, liabilities, and duties of the Company shall become the debts, liabilities, and duties of Express.
(c) The Certificate of Incorporation and bylaws of Express (in the form of Exhibit C attached hereto), as in effect as of the Conversion Effective Time, shall be the certificate of incorporation and bylaws of Express until thereafter amended in accordance with the provisions thereof and applicable Law.
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(d) Subject to applicable Law, (i) the members of the board of managers of the Company as of the Conversion Effective Time shall be the members of the board of directors of Express and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation, or removal, and (ii) the officers of the Company as of the Conversion Effective Time shall be the officers of Express and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation, or removal.
(e) All of the equity interests of the Company outstanding as of immediately prior to the Conversion Effective Time shall, as of the Conversion Effective Time, by virtue of the Conversion and without any action on the part of any Party hereto or the holder thereof or any other Person, be canceled and extinguished and converted into the right to receive the Common Stock specified in Section 2.01(f). All of such outstanding equity interests of the Company when so converted, shall no longer be outstanding and shall automatically be canceled and the former holders thereof shall cease to have any rights with respect thereto, except the right to receive the Common Stock specified in Section 2.01(f).
(f) At the Conversion Effective Time, all the outstanding equity interests of Company immediately prior to the Conversion Effective Time shall, by reason of the Conversion, be converted into the number of shares of Common Stock of Express set forth opposite the name of the holder thereof on Exhibit D attached hereto. Neither any provision of the Transaction Documents nor the consummation of the transactions contemplated thereby will limit, impair or otherwise modify any vesting restrictions or repurchase rights with respect to any equity issued by the Company to any officer or employee of the Company, which vesting restrictions and repurchase rights shall continue to apply to the Common Stock of Express issued hereby to any such Persons until the expiration of such vesting restrictions and repurchase rights in accordance with their terms.
(g) As of the Conversion Effective Time, that certain Limited Liability Company Agreement of the Company, dated as of June 28, 2008 (as amended or otherwise modified from time to time, the Company LLC Agreement ) shall be terminated and of no further force and effect, and no party thereto shall have any further rights, duties or obligations pursuant to the Company LLC Agreement, except that the following provisions of the Company LLC Agreement shall survive the Closing: (i) with respect to any tax matters relating to tax periods of the Company ending on or prior to the Closing, Sections 4.06, 4.07, 6.02, 6.04(a) and 6.04(b), and (ii) for the avoidance of doubt, the provisions of the Company LLC Agreement memorialized in the agreements set forth in Section 2.02(ii)(B) and (C) hereof. Notwithstanding the foregoing, the termination of the Company LLC Agreement pursuant to this Section 2.01(g) shall not relieve any party thereto from any liability arising in connection with any breach by such party of the Company LLC Agreement whether arising prior to or after the Conversion Effective Time.
(h) In consideration of the aforementioned termination of the Company LLC Agreement, upon consummation of the Initial Public Offering, Express, in its capacity as successor-in-interest to the Company, shall make a cash payment, by wire transfer of immediately available funds, to, at the direction of EXP and LBSO, either EXP, LBSO or a designee thereof, in the amount of $3,333,333.
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Section 2.02 Closing . The closing (the Closing ) of the transactions contemplated hereunder shall take place at the offices of Kirkland & Ellis LLP, 300 N. LaSalle Street, Chicago, Illinois 60654 on the date hereof. At the Closing:
(i) The Certificate of Conversion and the Certificate of Incorporation shall be filed pursuant to the terms of Section 2.01.
(ii) The Company shall obtain and deliver fully executed copies by each of the parties thereto of each of the following agreements: (A) that certain Termination Agreement to be dated as of the Closing Date among the Company and certain of its Subsidiaries and GGC Administration, LLC (in the form of Exhibit E attached hereto), (B) that certain Stockholders Agreement to be dated as of the Closing Date among Express and certain of its stockholders (in the form of Exhibit F attached hereto), and (C) that certain Registration Agreement to be dated as of the Closing Date among Express and certain of its stockholders (in the form of Exhibit G attached hereto).
(iii) Each of the Parties shall deliver such other documents, instruments and agreements as are required to be delivered by such Party at the Closing pursuant to this Agreement.
ARTICLE 3
R EPRESENTATIONS A ND W ARRANTIES O F T HE P ARTIES O THER THAN THE C OMPANY
Each of the Parties other than the Company, severally and not jointly, represents and warrants to the Company as of the date hereof that:
Section 3.01 Corporate Existence and Power . Such Party is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation.
Section 3.02 Corporate Authorization . The execution, delivery and performance by such Party of the Transaction Documents to which it is or will be a party and the consummation of the transactions contemplated thereby are within the corporate powers and authority, as applicable, of such Party and have been duly authorized by all necessary corporate action on the part of such Party. Each of the Transaction Documents to which it is or will be a party constitutes, or will when executed constitute, the legal, valid and binding obligation of such Party enforceable against such Party in accordance with its respective terms, (a) except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to or affecting creditors rights generally, including the effect of statutory and other laws concerning fraudulent conveyances and preferential transfers and (b) subject to the limitations imposed by general equitable principles (regardless of whether such enforceability is considered in proceeding at law or in equity).
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Section 3.03 Governmental Authorization . The execution, delivery and performance by such Party of each of the Transaction Documents to which it is or will be a party and the consummation of the transactions contemplated thereby require no action, consent or approval by or in respect of, filing with or notice to, any governmental body, agency or official other than the Certificate of Conversion and the Certificate of Incorporation to be filed by the Company and any other such action or filing as to which the failure to make or obtain would not have, individually or in the aggregate, a material adverse effect on such Partys ability to consummate the transactions contemplated thereby.
Section 3.04 Noncontravention . The execution, delivery and performance by such Party of any of the Transaction Documents to which it is or will be a party, and the consummation of the transactions contemplated thereby do not and will not (a) violate or conflict with the organizational documents of such Party or (b) assuming compliance with the matters referred to in Section 3.03, contravene or conflict with or constitute a violation of any provision of any Law binding upon or applicable to such Party, except, in the case of clauses (a) or (b), for any such contravention, conflict or violation that would not have, individually or in the aggregate, a material adverse effect on such Partys ability to consummate the transactions contemplated thereby.
ARTICLE 4
R EPRESENTATIONS A ND W ARRANTIES O F T HE C OMPANY
The Company represents and warrants to each of the other Parties, as of the date hereof, that:
Section 4.01 Limited Liability Company Existence and Power . The Company is a limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of formation.
Section 4.02 LLC Authorization . The execution, delivery and performance by the Company of the Transaction Documents to which it is or will be a party and the consummation of the transactions contemplated thereby are within the limited liability company powers and authority of the Company and have been duly authorized by all necessary limited liability company action on the part of the Company. Each of the Transaction Documents to which it is or will be a party constitutes, or will when executed constitute, the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its respective terms, (i) except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to or affecting creditors rights generally, including the effect of statutory and other laws concerning fraudulent conveyances and preferential transfers and (ii) subject to the limitations imposed by general equitable principles (regardless of whether such enforceability is considered in a proceeding at law or in equity).
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Section 4.03 Governmental Authorization . The execution, delivery and performance by the Company of each of the Transaction Documents to which it is or will be a party and the consummation of the transactions contemplated thereby require no action, consent or approval by or in respect of, filing with or material notice to, any governmental body, agency or official other than: (1) the filing of the Certificate of Conversion and the Certificate of Incorporation; and (2) any other such action or filing as to which the failure to make or obtain would not have, individually or in the aggregate, a material adverse effect on the ability of the Company to consummate the transactions contemplated by the Transaction Documents.
Section 4.04 Noncontravention . The execution, delivery and performance by the Company of any of the Transaction Documents to which it is or will be a party and the consummation of the transactions contemplated thereby do not and will not (i) violate or conflict with the certificate of formation (or other organizational documents) of the Company, (ii) assuming compliance with the matters referred to in Section 4.03, contravene or conflict with or constitute a violation of any provision of any Law binding upon or applicable to the Company or (iii) with or without the giving of notice or the lapse of time, or both, constitute a default under or give rise to any right of termination, cancellation or acceleration of any right or obligation of the Company, or to a loss of any benefit to which the Company is entitled under any provision of any agreement, contract or other instrument to which the Company is a party or by which the Company or its properties or assets are bound, except, in the case of clauses (i), (ii) or (iii), for any such contravention, conflict, violation, default, termination, cancellation, acceleration or loss that would not have, individually or in the aggregate, a material adverse effect on the ability of the Company to consummate the transactions contemplated by the Transaction Documents.
ARTICLE 5
C OVENANTS O F T HE P ARTIES
Each of the Parties hereto agrees that:
Section 5.01 Reasonable Best Efforts; Further Assurances . Subject to the terms and conditions of this Agreement, each Party will use their reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable to consummate the transactions contemplated by any of the Transaction Documents. Each Party shall execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be necessary or appropriate in order to consummate or implement expeditiously the transactions contemplated by any of the Transaction Documents.
Section 5.02 Public Announcements . Other than the Company, none of the other Parties hereto may issue any press release or make any public statement with respect to any Transaction Document or the transactions contemplated thereby.
Section 5.03 Tax Treatment . The Parties agree to treat, for U.S. federal income, state and local tax purposes, the Conversion as a transaction governed by Section 351 of Code, the mergers of EIC and EMIB into Express as transactions governed by Section 368 of the Code, and the merger of Express Management Investors LLC into Express as a liquidation governed by Sections 731 and 732 of the Code.
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ARTICLE 6
S URVIVAL
Section 6.01 Survival . None of the representations and warranties of any of the Parties hereto contained in this Agreement shall survive the Closing Date, except that the representations and warranties contained in Section 3.01, Section 3.02, Section 4.01 and Section 4.02 shall survive until the latest date permitted by Law. Except as specifically set forth in the preceding sentence, no other representation or warranty of any party set forth in this Agreement will survive the Closing, and no party will have any rights or remedies after the Closing with respect to any misrepresentation of or inaccuracy in any such representation or warranty. Except as otherwise provided in this Agreement, the covenants and agreements of the Parties contained in this Agreement shall survive Closing and shall continue in full force and effect indefinitely or for the shorter period specified in this Agreement.
ARTICLE 7
M ISCELLANEOUS
Section 7.01 Notices . All notices, requests and other communications to any Party hereunder shall be in writing (including facsimile transmission) and shall be given,
if to EIC, to:
c/o Golden Gate Private Equity, Inc.
One Embarcadero Center, 39th Floor
San Francisco, California 94111
Attention: Stefan Kaluzny
Fax: (415) 983-2701
if to EMIB, the Company or Express, to:
c/o Express, Inc.
One Limited Parkway
Columbus, Ohio 43230
Attention: Chief Financial Officer
Fax: (614) 415-4000
if to LBSO or EXP, to:
c/o Limited Brands, Inc.
Three Limited Parkway
Columbus, Ohio 43230
Attention: Douglas L. Williams
Fax: (614) 415-7188
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or to such other address or telecopy number and with such other copies, as such party may hereafter specify for the purpose by notice to the other parties. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt. Each such notice, request or other communication shall be effective (1) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section and evidence of receipt is received or (2) if given by any other means, upon delivery or refusal of delivery at the address specified in this Section 7.01.
Section 7.02 Amendments and Waivers .
(a) Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.
Section 7.03 Expenses . Except to the extent otherwise expressly provided for in any of the Transaction Documents, all costs and expenses incurred by any Party in connection with the negotiation, preparation, execution and delivery of this Agreement and the Transaction Documents and the consummation of the Closing shall be paid by the Party incurring such costs or expenses.
Section 7.04 Successors and Assigns . The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto.
Section 7.05 Governing Law . This Agreement shall be governed by and construed in accordance with the law of the State of Delaware, without regard to the conflicts of law rules of such state.
Section 7.06 Jurisdiction . Except as otherwise expressly provided in this Agreement, the parties hereto agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, any of the Transaction Documents or the transactions contemplated thereby shall be brought in the United States District Court or any Delaware state court sitting in Wilmington, Delaware, so long as one of such courts shall have subject matter jurisdiction over such suit, action or proceeding, and that any cause of action arising out of any of the Transaction Documents shall be deemed to have arisen from a transaction of business in the State of Delaware, and each of the parties hereby irrevocably
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consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 7.01 shall be deemed effective service of process on such party.
Section 7.07 WAIVER OF JURY TRIAL . EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 7.08 Counterparts; Third Party Beneficiaries . This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Each Transaction Document shall become effective when each party thereto shall have received a counterpart thereof signed by the other party thereto. No Transaction Document is intended to confer upon any Person other than the parties thereto any rights or remedies hereunder.
Section 7.09 Entire Agreement . The Transaction Documents constitute the entire agreement between the parties with respect to the subject matter of this Agreement and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement. No representation, inducement, promise, understanding, condition or warranty not set forth herein has been made or relied upon by any party hereto.
Section 7.10 Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other governmental authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.
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IN WITNESS WHEREOF, the parties hereto have caused this Conversion Agreement to be duly executed as of the day and year first above written.
EXPRESS PARENT LLC | ||
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EXPRESS MANAGEMENT INVESTORS BLOCKER, INC. | ||
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EXPRESS INVESTMENT CORP. | ||
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LIMITED BRANDS STORE OPERATIONS, INC. | ||
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EXP INVESTMENTS, INC. | ||
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Exhibit A
(Certificate of Conversion)
See attached.
Exhibit B
(Certificate of Incorporation)
See attached.
14
Exhibit C
(Bylaws)
See attached.
15
Exhibit D
(Common Stock Issued in the Conversion)
See attached.
16
Exhibit E
(GGC Termination Agreement)
See attached.
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Exhibit F
(Stockholders Agreement)
See attached.
Exhibit G
(Registration Agreement)
See attached.
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Exhibit 2.4
AGREEMENT AND PLAN OF MERGER
dated as of
, 2010
among
EXPRESS, INC.,
EXPRESS MANAGEMENT INVESTORS BLOCKER, INC.,
EXPRESS MANAGEMENT INVESTORS LLC,
EXPRESS INVESTMENT CORP.,
MULTI-CHANNEL RETAIL HOLDINGS LLC - SERIES G
and
EXPRESS HOLDING, LLC
TABLE OF CONTENTS
P AGE |
||||
ARTICLE 1 Definitions | 1 | |||
Section 1.01 |
Definitions | 1 | ||
Section 1.02 |
Other Definitional and Interpretative Provisions | 4 | ||
ARTICLE 2 The Mergers And Other Transactions | 5 | |||
Section 2.01 |
The Mergers | 5 | ||
Section 2.02 |
Closing | 7 | ||
Section 2.03 |
Distribution of Assets | 7 | ||
Section 2.04 |
Payment of Indebtedness | 7 | ||
ARTICLE 3 Representations And Warranties Of The Merged Entities | 7 | |||
Section 3.01 |
Corporate Existence and Power | 7 | ||
Section 3.02 |
Corporate Authorization | 8 | ||
Section 3.03 |
Governmental Authorization | 8 | ||
Section 3.04 |
Noncontravention | 8 | ||
Section 3.05 |
Capitalization | 8 | ||
Section 3.06 |
Subsidiaries | 9 | ||
Section 3.07 |
No Undisclosed Material Liabilities | 9 | ||
Section 3.08 |
Related Party Agreements | 9 | ||
Section 3.09 |
Litigation | 9 | ||
Section 3.10 |
Compliance with Laws | 10 | ||
Section 3.11 |
Finders Fees | 10 | ||
Section 3.12 |
Inspections; No Other Representations | 10 | ||
ARTICLE 4 Representations And Warranties Of The Company | 10 | |||
Section 4.01 |
Corporate Existence and Power | 10 | ||
Section 4.02 |
Corporate Authorization | 10 | ||
Section 4.03 |
Governmental Authorization | 10 | ||
Section 4.04 |
Noncontravention | 11 | ||
ARTICLE 5 Covenants Of The Parties | 11 | |||
Section 5.01 |
Reasonable Best Efforts; Further Assurances | 11 | ||
Section 5.02 |
Public Announcements | 11 | ||
ARTICLE 6 Tax Matters | 11 | |||
Section 6.01 |
Tax Representations | 11 |
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Section 6.02 |
Tax Covenants | 12 | ||
Section 6.03 |
Tax Indemnification | 12 | ||
ARTICLE 7 Survival; Indemnification | 14 | |||
Section 7.01 |
Survival | 14 | ||
Section 7.02 |
Indemnification | 14 | ||
Section 7.03 |
Procedures | 15 | ||
Section 7.04 |
Limitation on Damages | 15 | ||
Section 7.05 |
Assignment of Claims | 15 | ||
Section 7.06 |
Exclusivity | 16 | ||
ARTICLE 8 Miscellaneous | 16 | |||
Section 8.01 |
Notices | 16 | ||
Section 8.02 |
Amendments and Waivers | 17 | ||
Section 8.03 |
Expenses | 17 | ||
Section 8.04 |
Successors and Assigns | 17 | ||
Section 8.05 |
Governing Law | 17 | ||
Section 8.06 |
Jurisdiction | 17 | ||
Section 8.07 |
WAIVER OF JURY TRIAL | 17 | ||
Section 8.08 |
Counterparts; Third Party Beneficiaries | 18 | ||
Section 8.09 |
Entire Agreement | 18 | ||
Section 8.10 |
Severability | 18 |
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this Agreement ) is dated as of , 2010 1 , by and among Express, Inc., a Delaware corporation (the Company ), Express Management Investors Blocker, Inc., a Delaware corporation ( EMIB ), Express Management Investors LLC, a Delaware limited liability company and the sole stockholder of EMIB ( EMI ), Express Investment Corp., a Delaware corporation ( EIC ), Multi-Channel Retail Holdings LLC Series G, a Delaware limited liability company and the sole stockholder of EIC ( MCRH ), and Express Holding, LLC ( Holding ). The Company, EMIB, EMI, EIC, MCRH, and Holding are collectively referred to herein as the Parties and each individually is referred to herein as a Party .
WHEREAS, in connection with the initial public offering of the Companys common stock, par value $0.01 per share (the Common Stock ), pursuant to a registration statement filed with the Securities and Exchange Commission (the Initial Public Offering ), (i) the board of directors of the Company and the board of directors of EIC deem it advisable that EIC merge with and into the Company (the EIC Merger ), (ii) the board of directors of the Company and the board of directors of EMIB deem it advisable that EMIB merge with and into the Company (the EMIB Merger ), and (iii) the board of directors of the Company and the manager of EMI deem it advisable that EMI merge with and into the Company (the EMI Merger , and collectively with the EIC Merger and the EMIB Merger, the Mergers ), in each case, upon the terms and subject to the conditions set forth herein and in accordance with Delaware Law; and
WHEREAS, the board of directors or manager, as applicable, and equityholders of each of the Company, EIC, EMIB, and EMI have approved the EIC Merger, the EMIB Merger, and the EMI Merger, respectively, in accordance with the requirements of Delaware Law and their respective organizational documents.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows:
ARTICLE 1
D EFINITIONS
Section 1.01 Definitions.
(a) As used herein, the following terms have the following meanings:
Affiliate means, with respect to any Person, any Person directly or indirectly controlling, controlled by, or under common control with such other Person. For purposes of this definition, control when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership
1 | To be dated as of the day immediately following the Conversion. |
of voting securities, by contract or otherwise, and the terms controlling and controlled have meanings correlative to the foregoing. Notwithstanding the foregoing, for purposes of this Agreement, neither the Company nor any of its Subsidiaries shall be considered an Affiliate of any of the other Parties to this Agreement.
Business Day means a day, other than Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by applicable Law to close.
Closing Date means the date of the Closing.
Code means the United States Internal Revenue Code of 1986, as amended.
Delaware Law means, collectively, the DGCL and the DLLCA.
DGCL means the General Corporation Law of the State of Delaware.
DLLCA means the Limited Liability Company Act of the State of Delaware.
GAAP means generally accepted accounting principles in the United States.
knowledge or any similar knowledge qualification in this Agreement means to the actual knowledge of each of the executive officers of the applicable Person.
Law means any law, statute, regulation, rule, permit, license, certificate, judgment, order, award or other legally binding decision or requirement of any arbitrator, court, government or governmental agency or instrumentality (domestic or foreign).
Lien means, with respect to any property or asset, any mortgage, lien, pledge, charge or security interest in respect of such property or asset.
Management Holders means each holder of Common Stock listed on Exhibit B attached hereto under the heading Management Holders. Pursuant to individual letter agreements dated on or about the date hereof between the Company and each Management Holder, each Management Holder has agreed (1) to bear its Pro Rata Share of the obligations to be borne by the Management Holders set forth in this Agreement and (2) to waive any dissenters or appraisal rights that might otherwise be available to such Person by reason of the EMI Merger.
Material Adverse Effect means a material adverse effect on the business, assets or results of operations of the applicable Merged Entity, taken as whole, except any such effect resulting from or arising in connection with (1) this Agreement or the transactions contemplated hereby or (2) changes in applicable Law or GAAP.
Merged Entities means EIC, EMI, and EMIB, and the term Merged Entity means any one of them, as the case may be.
Parent means Express Parent, LLC, the predecessor in interest to the Company.
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Permitted Liens and Exceptions means Liens for Taxes, assessments and similar charges that are not yet due and payable.
Person means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
Pre-Closing Tax Period means any Tax period ending on or before the Closing Date.
Pro Rata Share means each Management Holders pro rata share of the obligations of all of the Management Holders set forth in this Agreement, and such pro rata share shall mean in respect of any such obligations, (i) to the extent such obligations are specifically identifiable from such Management Holders indirect Common Stock ownership through EMIB and EMI, such specifically identifiable obligations, and (ii) otherwise, the percentage that results from dividing (a) the number of shares of Common Stock owned by such Management Holder as of the date hereof by (b) the total number of shares of Common Stock held by all Management Holders as of the date hereof. The aggregate Pro Rata Shares of all of the Management Holders equals 100%.
Subsidiary means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by a Person.
Tax means (1) any tax, governmental fee or other like assessment or charge of any kind whatsoever; including, but not limited to, withholding on amounts paid to or by any Person, federal and state income taxes, real property gains taxes, sales and use taxes, escheat taxes, abandoned or unclaimed property taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business license taxes, capital stock taxes, real and personal property taxes, environmental taxes, transfer taxes, severance taxes, alternative or add-on minimum taxes, and custom duties, together with any interest, penalty, addition to tax or additional amount imposed by any governmental authority (whether federal, state, local, municipal, foreign or otherwise) responsible for the imposition of any such tax (a Taxing Authority ) and (2) any liability for the payment of any amount of the type described in the immediately preceding clause (1) as a result of a Merged Entity being a member of an affiliated, consolidated or combined group with any other corporation at any time on or prior to the Closing Date.
Tax Asset means 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 income or franchise Taxes (including, without limitation, deductions and credits related to alternative minimum Taxes) and losses or deductions deferred by the Code or other applicable law.
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Transaction Documents means this Agreement and the Exhibits attached hereto.
(b) Each of the following terms is defined in the Section set forth opposite such term:
Term |
Section | |
Agreement | Preamble | |
Certificate of Merger | 2.01(b) | |
Claim | 7.03 | |
Closing | 2.02 | |
Common Stock | Recitals | |
Company | Preamble | |
Damages | 7.02 | |
EIC | Preamble | |
EIC Merger | Recitals | |
EIC Tax Loss | 6.03(a) | |
EMI | Preamble | |
EMI Merger | Recitals | |
EMIB | Preamble | |
EMIB Merger | Recitals | |
EMIB/EIC Tax Loss | 6.03(a) | |
Holding | Preamble | |
Indemnified Party | 7.03 | |
Indemnifying Party | 7.03 | |
Initial Public Offering | Recitals | |
MCRH | Preamble | |
Merger Effective Time | 2.01(b) | |
Mergers | Recitals | |
Parties | Preamble | |
Party | Preamble | |
Potential Contributor | 7.05 | |
Returns | 6.01 | |
Securities | 3.05 | |
Surviving Company | 2.01(a) | |
Tax Benefit | 6.03(c) | |
Tax Loss | 6.03(a) | |
Third Party Claim | 7.03(b) | |
Transfer Taxes | 6.02(b) | |
Warranty Breach | 7.02(a) |
Section 1.02 Other Definitional and Interpretative Provisions. The words hereof , herein , and hereunder and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. References to Articles, Sections, and Exhibits are to Articles, Sections, and Exhibits of this Agreement unless otherwise specified. All Exhibits annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Exhibit but not otherwise defined therein, shall have the meaning as defined in this Agreement. Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. Whenever the words include , includes , or including are used in this Agreement, they shall be deemed to be followed by
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the words without limitation , whether or not they are in fact followed by those words or words of like import. Writing , written , and comparable terms refer to printing, typing and other means of reproducing words (including electronic media) in a visible form. References to any agreement or contract are to that agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. References to any Person include the successors and permitted assigns of that Person. References from or through any date mean, unless otherwise specified, from and including or through and including, respectively. References to law , laws , or to a particular statute or law shall be deemed also to include any and all Laws.
ARTICLE 2
T HE M ERGERS A ND O THER T RANSACTIONS
Section 2.01 The Mergers.
(a) At the Merger Effective Time (as defined below), and in accordance with the applicable provisions of this Agreement and Delaware Law, each of EIC, EMIB, and EMI shall be merged with and into the Company. Following the Mergers, the separate corporate or limited liability company existence, as applicable, of each of EIC, EMIB, and EMI shall cease and the Company shall continue as the surviving company (the Surviving Company ).
(b) As of the date hereof, the Company shall cause a certificate of merger in form and substance as set forth on Exhibit A attached hereto (the Certificate of Merger ) to be executed, acknowledged and filed with the Secretary of State of the State of Delaware, all as provided for and in accordance with Section 251 and Section 264 of the DGCL and Section 18-209 of the DLLCA. The Merger shall become effective at the time and date as provided under Delaware Law and as specified in the Certificate of Merger (the Merger Effective Time ). References to the Company after the Merger Effective Time shall mean the Surviving Company.
(c) The Merger shall have the effects set forth under Delaware Law. Without limiting the generality of the foregoing, and subject thereto, at the Merger Effective Time, all the properties, rights, privileges, and powers of each of EIC, EMIB, and EMI shall vest in the Surviving Company, and all debts, liabilities, and duties of each of EIC, EMIB, and EMI shall become the debts, liabilities, and duties of the Surviving Company.
(d) The certificate of incorporation and bylaws of the Company, as in effect immediately prior to the Merger Effective Time, shall be the certificate of incorporation and bylaws of the Surviving Company until thereafter amended in accordance with the provisions thereof and applicable Law.
(e) Subject to applicable Law, (i) the directors of the Company immediately prior to the Merger Effective Time shall be the initial directors of the Surviving Company and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation, or removal, and (ii) the officers of the Company immediately prior to the Merger Effective Time shall be the initial officers of the Surviving Company and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation, or removal.
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(f) All of the equity interests of each of EIC, EMIB, and EMI outstanding as of immediately prior to the Merger Effective Time shall, as of the Merger Effective Time, by virtue of the Merger and without any action on the part of any Party hereto or the holder thereof or any other Person, be canceled and extinguished and converted into the right to receive the consideration specified in Section 2.01(g). All of such outstanding equity interests of EIC, EMIB, and EMI when so converted, shall no longer be outstanding and shall automatically be canceled and the former holders thereof shall cease to have any rights with respect thereto, except the right to receive the consideration specified in Section 2.01(g).
(g) At the Merger Effective Time:
(i) in respect of the outstanding equity interests of EIC held by MCRH immediately prior to the Merger Effective Time and canceled and extinguished by virtue of the EIC Merger, MCRH shall receive the number of shares of Common Stock as is set forth opposite MCRHs name on Exhibit B attached hereto;
(ii) in respect of the outstanding equity interests of EMIB held by EMI immediately prior to the Merger Effective Time and canceled and extinguished by virtue of the EMIB Merger, EMI shall receive a number of shares of Common Stock equal to the number of shares of Common Stock held by EMIB immediately prior to the Merger Effective Time;
(iii) in respect of the outstanding equity interests of EMI held by the Management Holders immediately prior to the Merger Effective Time and canceled and extinguished by virtue of the EMI Merger, each Management Holder shall receive the number of shares of Common Stock as is set forth opposite such Management Holders name on Exhibit B attached hereto (without duplication of the Common Stock issued to EMI pursuant to Section 2.01(g)(ii) (i.e., such Common Stock issued to EMI pursuant to Section 2.01(g)(ii) shall constitute an asset of EMI, and shall be transferred to the Company by reason of the EMI Merger, and shall be canceled by the Company immediately following the consummation of the EMI Merger)); and
(iv) the outstanding equity interests of EMI held by Holding immediately prior to the Merger Effective Time shall be canceled and extinguished by virtue of the EMI Merger without payment of any consideration therefor.
(h) Exhibit B sets forth the outstanding shares of Common Stock of the Surviving Company immediately after giving effect to the Mergers.
(i) By their execution of this Agreement, each of MCRH, as the sole stockholder of EIC, and EMI, as the sole stockholder of EMIB, waives its right to dissent to the EIC Merger and the EMIB Merger, as the case may be, and demand appraisal for its shares of EIC and EMIB, respectively, under the DGCL. The Management Holders have waived their right to dissent to the EMI Merger and demand appraisal for their equity interests of EMI pursuant to individual letter agreements between the Company and each Management Holder.
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Section 2.02 Closing. The closing (the Closing ) of the transactions contemplated hereunder shall take place at the offices of Kirkland & Ellis LLP, 300 N. LaSalle Street, Chicago, Illinois 60654 on the date hereof. The Closing shall be deemed to occur at the close of business on the Closing Date. At the Closing:
(i) The Certificate of Merger shall be filed pursuant to the terms of Section 2.01.
(ii) Each of the Parties shall deliver such other documents, instruments and agreements as are required to be delivered by such Party at the Closing pursuant to this Agreement.
Section 2.03 Distribution of Assets. Prior to the Merger Effective Time, each Merged Entity shall dividend or otherwise distribute all of its assets (other than shares of Common Stock held by such Merged Entities, any deferred income tax assets, any of their respective tax attributes, and an amount of cash that has been estimated in good faith by each Merged Entity to be sufficient to pay all incomes Taxes of such Merged Entity for the Pre-Closing Tax Period) to its equity holders and shall take all necessary action required under Delaware Law related to such dividend or distribution.
Section 2.04 Payment of Indebtedness. No later than immediately prior to the Closing, each Merged Entity shall repay all indebtedness for borrowed money (including any capital leases) of such Merged Entity outstanding immediately prior to the Closing, of any kind or nature whatsoever, including any obligations related thereto (including any accrued interest or prepayment penalties). At Closing, each Merged Entity shall deliver the Company customary payoff letters from each holder of any indebtedness of such Merged Entity to be repaid at the Closing.
ARTICLE 3
R EPRESENTATIONS A ND W ARRANTIES O F T HE M ERGED E NTITIES
Each of the Merged Entities, severally and not jointly, represents and warrants to the Company as of the date hereof that:
Section 3.01 Corporate Existence and Power. Such Merged Entity is a corporation or limited liability company duly incorporated or organized, as applicable, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, as applicable, and has all corporate or limited liability company powers, as applicable, to carry on its business as now conducted. Such Merged Entity is duly qualified to do business as a foreign corporation or limited liability company, as applicable, and is in good standing in each jurisdiction where such qualification is necessary, except for those jurisdictions where the failure to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect.
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Section 3.02 Corporate Authorization. The execution, delivery and performance by such Merged Entity of the Transaction Documents to which it is or will be a party and the consummation of the transactions contemplated thereby are within the corporate or limited liability powers and authority, as applicable, of such Merged Entity and have been duly authorized by all necessary corporate or limited liability action, as applicable, on the part of such Merged Entity. Each of the Transaction Documents to which it is or will be a party constitutes, or will when executed constitute, the legal, valid and binding obligation of such Merged Entity enforceable against such Merged Entity in accordance with its respective terms, (a) except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to or affecting creditors rights generally, including the effect of statutory and other laws concerning fraudulent conveyances and preferential transfers and (b) subject to the limitations imposed by general equitable principles (regardless of whether such enforceability is considered in proceeding at law or in equity).
Section 3.03 Governmental Authorization. The execution, delivery and performance by such Merged Entity of each of the Transaction Documents to which it is or will be a party and the consummation of the transactions contemplated thereby require no action, consent or approval by or in respect of, filing with or notice to, any governmental body, agency or official other than the Certificate of Merger and any other such action or filing as to which the failure to make or obtain would not have, individually or in the aggregate, a Material Adverse Effect.
Section 3.04 Noncontravention. The execution, delivery and performance by such Merged Entity of any of the Transaction Documents to which it is or will be a party, and the consummation of the transactions contemplated thereby do not and will not (a) violate or conflict with the organizational documents of such Merged Entity, (b) assuming compliance with the matters referred to in Section 3.03, contravene or conflict with or constitute a violation of any provision of any Law binding upon or applicable to such Merged Entity, (c) with or without the giving of notice or the lapse of time, or both, constitute a default under or give rise to any right of termination, cancellation or acceleration of any right or obligation of such Merged Entity, or to a loss of any benefit to which such Merged Entity is entitled, under any provision of any agreement, contract or other instrument to which such Merged Entity is a party or by which it or its properties or assets is bound (it being agreed and understood that no representation or warranty of any kind or nature whatsoever is made pursuant to this Agreement or any of the other Transaction Documents as to the value, collectability or any other feature or quality whatsoever with respect to any Tax Asset of such Merged Entity) or (d) result in the creation or imposition of any Lien (other than Permitted Liens and Exceptions) upon or with respect to such Merged Entity or its assets.
Section 3.05 Capitalization. EIC represents and warrants that MCRH owns 100% of the issued and outstanding capital stock of EIC. EMI represents and warrants that EMI owns 100% of the issued and outstanding capital stock of EMIB. EMI represents and warrants that Holding and the Management Holders, in the aggregate, own 100% of the issued and outstanding equity interests of EMI. All of the capital stock or equity interests, as applicable, of such Merged Entity have been duly authorized and validly issued and are fully paid and non-assessable. Other than the capital stock or equity interests issued to MCRH, EMI, Holding, or the Management Holders described in this Section 3.05, there are no outstanding (i) capital stock
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or equity interests or other voting securities of such Merged Entity, (ii) securities of such Merged Entity convertible into or exchangeable for capital stock or equity interests or other voting securities of such Merged Entity or (iii) options or other rights to acquire from such Merged Entity, or other obligation of such Merged Entity to issue, any capital stock or equity interests or other voting securities of such Merged Entity or securities convertible into or exchangeable for capital stock or equity interests or other voting securities of such Merged Entity (the items in clauses (i) through (iii) being referred to collectively as the Securities ). There are no outstanding obligations of such Merged Entity to repurchase, redeem or otherwise acquire any Securities and there are no agreements or other instruments relating to the issuance, sale or transfer by such Merged Entity of any Securities.
Section 3.06 Subsidiaries. EIC does not have any Subsidiaries (assuming, for purposes hereof, that neither the Company nor any of its Subsidiaries are Subsidiaries of EIC). EMIB does not have any Subsidiaries. EMI owns 100% of the issued and outstanding capital stock of EMIB, free and clear of any Lien. No Merged Entity controls directly or indirectly or has any direct or indirect equity participation in any corporation, partnership, trust, or other business association (assuming, for purposes hereof, that EIC does not directly or indirectly control or have any direct or indirect equity participation in the Company or its Subsidiaries).
Section 3.07 No Undisclosed Material Liabilities. No Merged Entity conducts any operating or other business or related general business operations, other than its activities as a holding company incident to its direct or indirect ownership of the Common Stock of the Company and prior ownership of the predecessor limited liability company interests of the Company. No Merged Entity has any liabilities of any kind, character or description (whether known or unknown, accrued, absolute, contingent or otherwise), other than (i) deferred income Taxes that reflect only timing differences between the treatment of items for accounting and income Tax purposes, and (ii) income Taxes with respect to Pre-Closing Tax Periods that are not yet due and payable and for which the Company is fully indemnified.
Section 3.08 Related Party Agreements. Except as otherwise provided in the Transaction Documents, there are no agreements, contracts, commitments or understandings, other than any such agreements, contracts, commitments or understandings that will be terminated as of Closing without any further liability or obligation on the part of such Merged Entity, by and between such Merged Entity, on the one hand, and such Merged Entitys Affiliates, on the other hand, including, without limitation, any such agreements, contracts, commitments or understandings pursuant to which such Affiliate provides or receives any information, assets, properties, support or other services to or from such entity (including, but not limited to accounting, tax, data processing, information technology and legal services).
Section 3.09 Litigation. There is no claim, action, suit, investigation or proceeding pending against, or to the knowledge of such Merged Entity, threatened against, such Merged Entity or any of its assets before any court or arbitrator or any governmental body, agency or official. As of the date hereof, such Merged Entity is not aware of any known claim, action, suit, investigation or proceeding pending or threatened against such Merged Entity or any of its assets, or any known orders or other decrees binding on such Merged Entity or any of its assets.
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Section 3.10 Compliance with Laws. Such Merged Entity is, and at all time since January 1, 2009 has been, in compliance with all applicable Laws.
Section 3.11 Finders Fees. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of such Merged Entity or any of its Affiliates which might be entitled to any fee or commission in connection with the transactions contemplated by this Agreement.
Section 3.12 Inspections; No Other Representations. No Merged Entity makes any express or implied representations or warranties of any nature, whether in writing, oral or otherwise, made by or on behalf of or imputed to any Merged Entity or any of its Affiliates, except as expressly set forth in this Agreement. Without limiting the generality of the foregoing, no Merged Entity nor any of their Affiliates makes any representation or warranty with respect to any projections, estimates or budgets delivered to or made available to the Company of future revenues, future results of operations (or any component thereof), future cash flows or future financial condition (or any component thereof) or any other information or documents made available to the Company or its counsel, accountants or advisors with respect to any Merged Entity or any of the foregoing business, assets, liabilities or operations (including, without limitation, the use, value or realization of any Tax Asset of any Merged Entity), except as expressly set forth in this Agreement.
ARTICLE 4
R EPRESENTATIONS A ND W ARRANTIES O F T HE C OMPANY
The Company represents and warrants to each of the other Parties, as of the date hereof, that:
Section 4.01 Corporate Existence and Power. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation.
Section 4.02 Corporate Authorization. The execution, delivery and performance by the Company of the Transaction Documents to which it is or will be a party and the consummation of the transactions contemplated thereby are within the corporate powers and authority of the Company and have been duly authorized by all necessary corporate action on the part of the Company. Each of the Transaction Documents to which it is or will be a party constitutes, or will when executed constitute, the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its respective terms, (i) except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to or affecting creditors rights generally, including the effect of statutory and other laws concerning fraudulent conveyances and preferential transfers and (ii) subject to the limitations imposed by general equitable principles (regardless of whether such enforceability is considered in a proceeding at law or in equity).
Section 4.03 Governmental Authorization. The execution, delivery and performance by the Company of each of the Transaction Documents to which it is or will be a party and the
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consummation of the transactions contemplated thereby require no action, consent or approval by or in respect of, filing with or material notice to, any governmental body, agency or official other than: (1) the filing of the Certificate of Merger; and (2) any other such action or filing as to which the failure to make or obtain would not have, individually or in the aggregate, a material adverse effect on the ability of the Company to consummate the transactions contemplated by the Transaction Documents.
Section 4.04 Noncontravention . The execution, delivery and performance by the Company of any of the Transaction Documents to which it is or will be a party and the consummation of the transactions contemplated thereby do not and will not (i) violate or conflict with the certificate of incorporation or bylaws (or other organizational documents) of the Company, (ii) assuming compliance with the matters referred to in Section 4.03, contravene or conflict with or constitute a violation of any provision of any Law binding upon or applicable to the Company or (iii) with or without the giving of notice or the lapse of time, or both, constitute a default under or give rise to any right of termination, cancellation or acceleration of any right or obligation of the Company, or to a loss of any benefit to which the Company is entitled under any provision of any agreement, contract or other instrument to which the Company is a party or by which the Company or its properties or assets are bound, except, in the case of clauses (ii) or (iii), for any such contravention, conflict, violation, default, termination, cancellation, acceleration or loss that would not have, individually or in the aggregate, a material adverse effect on the Company and its Subsidiaries, taken as a whole.
ARTICLE 5
C OVENANTS O F T HE P ARTIES
Each of the Parties hereto agrees that:
Section 5.01 Reasonable Best Efforts; Further Assurances . Subject to the terms and conditions of this Agreement, each Party will use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable to consummate the transactions contemplated by any of the Transaction Documents. Each Party shall execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be necessary or appropriate in order to consummate or implement expeditiously the transactions contemplated by any of the Transaction Documents.
Section 5.02 Public Announcements . Other than the Company, none of the other Parties hereto may issue any press release or make any public statement with respect to any Transaction Document or the transactions contemplated thereby.
ARTICLE 6
T AX M ATTERS
Section 6.01 Tax Representations . Each Merged Entity, severally and not jointly, represents and warrants to the Company as of the date hereof that (a) all Tax returns, statements, reports and forms (collectively, Returns ) that are material and are required to be filed with any Taxing Authority by, or with respect to, such Merged Entity on or before the Closing Date
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(taking into account any duly obtained extensions) have been, or will be, timely filed, (b) such Merged Entity has timely paid all Taxes shown as due and payable on the Returns that have been filed, (c) the Returns that have been filed are true, correct and complete in all material respects, (d) there is no action, suit, proceeding, investigation, audit or claim now proposed or pending against or with respect to such Merged Entity in respect of any material Tax, (e) such Merged Entity has properly withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any shareholder, employee, creditor, independent contractor, or other third party, (f) there is no claim pending or to such Merged Entitys knowledge proposed or threatened by a taxing authority in a jurisdiction where such Merged Entity does not file Returns that such Merged Entity is or may be subject to taxation in such jurisdiction, and (g) such Merged Entity has not consented to extend the time, or is the beneficiary of any extension of time, in which any Tax may be assessed or collected by any taxing authority.
Section 6.02 Tax Covenants .
(a) The Company shall prepare and timely file all Returns reflecting the income of each Merged Entity for all Pre-Closing Tax Periods. No later than thirty (30) days prior to filing any such Return, the Company shall submit such Return to MCRH for its review and consent. If any Return for a Pre-Closing Tax Period reflects an overpayment of estimated Taxes for such period, a right to a refund of Taxes and/or an amount of Taxes due with such Return that is less than the amount of cash retained by the respective Merged Entity pursuant to Section 2.03 to pay such Taxes, then within ten (10) Business Days after filing such Return, the Company shall pay the amount of such overpayment, refund, and/or excess cash to MCRH (in the case of EIC) or to the Management Holders (in the case of EMIB or EMI and in proportion to their Pro Rata Share).
(b) All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest) incurred in connection with transactions contemplated by this Agreement (all such Taxes, Transfer Taxes ) shall initially be paid by the Company, and the Company will file all necessary Returns and other documentation with respect to all such Taxes and fees, and, if required by applicable Law, the other Party(ies) will join in the execution of any such Returns and other documentation; provided that (i) MCRH will bear 100% of the economic burden of any Transfer Tax with respect to EIC and (ii) each of the Management Holders, according to their respective Pro Rata Shares, will bear 100% of the economic burden of any Transfer Tax with respect to EMIB and EMI. The provisions of this Section 6.02(b), and no other provision (including Section 6.03), will govern the allocation between the parties of the economic burden of Transfer Taxes.
Section 6.03 Tax Indemnification .
(a) MCRH hereby indemnifies the Company against and agrees to hold it harmless from any (i) Tax of EIC relating to a Pre-Closing Tax Period and (ii) liabilities, costs and expenses (including, without limitation, reasonable expenses of investigation and attorneys fees and expenses) arising out of or incident to the imposition, assessment or assertion of any Tax described in (i), including those liabilities, costs and expenses incurred in the contest in good
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faith in appropriate proceedings relating to the imposition, assessment or assertion of any such Tax, in each case suffered by the Company after the Closing (the sum of (i) and (ii) being referred to as an EIC Tax Loss ). Each Management Holder, severally and not jointly, according to its respective Pro Rata Share, hereby indemnifies the Company against and agrees to hold it harmless from any (i) Tax of EMIB or EMI relating to a Pre-Closing Tax Period and (ii) liabilities, costs and expenses (including, without limitation, reasonable expenses of investigation and attorneys fees and expenses) arising out of or incident to the imposition, assessment or assertion of any Tax described in (i), including those liabilities, costs and expenses incurred in the contest in good faith in appropriate proceedings relating to the imposition, assessment or assertion of any such Tax, in each case suffered by the Company after the Closing (the sum of (i) and (ii) being referred to as a EMIB/EMI Tax Loss ; and collectively with any EIC Tax Loss, a Tax Loss ).
(b) If any claim or demand for Taxes in respect of which indemnity may be sought pursuant to this Section 6.03 is asserted against the Company, the Company shall notify MCRH (relating to any Tax of EIC) or the Management Holders (relating to any Tax of EMI or EMIB) of such claim or demand within 10 days of receipt thereof, and shall give MCRH or the Management Holders, as applicable, such information with respect thereto as MCRH or the Management Holders, as applicable, may reasonably request. MCRH or the Management Holders, as applicable, may discharge, at any time, their indemnification obligation under this Section 6.03 by paying to the Company the amount of the applicable Tax Loss, calculated on the date of such payment. The Company shall not settle or conclude any contest or proceeding (including, without limitation, a Tax audit) relating to Taxes for which indemnification may be sought from MCRH under this Section 6.03 without MCRHs approval, not to be unreasonably withheld. Neither MCRH nor any Management Holder shall be liable under this Section 6.03 for any amount arising out of a contest or proceeding of which MCRH or the Management Holders, as applicable, were not notified as required under this Section 6.03(b) to the extent that the failure to so notify prejudiced MCRH or the Management Holders, as applicable.
(c) Notwithstanding Section 6.03(a), if MCRHs or the Management Holders, as applicable, indemnification obligation under this Section 6.03 arises in respect of an adjustment which makes allowable to the Company any deduction, amortization, exclusion from income or other allowance for any taxable period beginning after the Closing Date (a Tax Benefit ) which would not, but for such adjustment, be allowable, then the Company shall pay over to MCRH or the Management Holders (according to their respective Pro Rata Shares), as applicable, the tax savings attributable to such Tax Benefit (calculated on a with-and-without basis) as and when realized by the Company; provided, however, that the amount paid to MCRH or the Management Holders, as applicable, pursuant to this provision with respect to any indemnification obligation shall not exceed the amount paid by MCRH or the Management Holders, as applicable, pursuant to Section 6.03 with respect to such indemnification obligation.
(d) Except as otherwise provided in Section 6.02(a) , the Company shall pay (i) to MCRH any refunds of Taxes paid by EIC received by the Company and (ii) to the Management Holders (in proportion to their Pro Rata Share) any refunds of Taxes paid by EMIB or EMI received by the Company, in each case within ten (10) Business Days of the receipt thereof, it being understood that all such refunds will be claimed in cash rather than as a credit against future Taxes of the Company and/or its Subsidiaries.
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ARTICLE 7
S URVIVAL ; I NDEMNIFICATION
Section 7.01 Survival . The representations and warranties of any of the Parties hereto contained in this Agreement shall survive the Closing Date until the latest date permitted by Law. Except as otherwise provided in this Agreement, the covenants and agreements of the Parties contained in this Agreement shall survive Closing and shall continue in full force and effect indefinitely or for the shorter period specified in this Agreement. Any breach of representation, warranty, covenant or agreement in respect of which indemnity may be sought under this Agreement shall survive the time at which it would otherwise terminate pursuant to Section 7.01 if notice of the inaccuracy or breach thereof giving rise to such right of indemnity shall have been given to the party against whom such indemnity may be sought prior to such time.
Section 7.02 Indemnification .
(a) From and after Closing, the Company hereby indemnifies MCRH and each of the Management Holders against and agrees to hold each of them harmless from any and all damage, loss, liability and expense (including, without limitation, reasonable expenses of investigation and reasonable attorneys fees and expenses in connection with any action, suit or proceeding) ( Damages ) actually incurred or suffered by MCRH or the Management Holders arising out of or resulting from any inaccuracy or breach of any representation and warranty (each such inaccuracy and breach, a Warranty Breach ) or breach of a covenant, in each case of the Company contained in this Agreement.
(b) From and after Closing, MCRH hereby indemnifies the Company against and agrees to hold it harmless from any and all Damages actually incurred or suffered by the Company arising out of or related in any way to any Warranty Breach or breach of a covenant, in each case of EIC or MCRH contained in this Agreement.
(c) From and after Closing, each Management Holder, severally and not jointly, according to its respective Pro Rata Share, hereby indemnifies the Company against and agrees to hold it harmless from any and all Damages actually incurred or suffered by the Company arising out of or related in any way to any Warranty Breach or breach of a covenant, in each case of EMIB, EMI or such Management Holder contained in this Agreement.
(d) Notwithstanding any of the provisions of this Article 7, Section 6.03 shall provide the exclusive remedy for the Companys recovery of any Tax Loss from MCRH (with respect to EIC) and the Management Holders (with respect to EMI and EMIB), and the procedures set forth in Section 6.03 shall govern any claim for indemnification under such provision.
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Section 7.03 Procedures .
(a) The party seeking indemnification under Section 7.02 (the Indemnified Party ) agrees to give prompt notice to the party against whom indemnity is sought (the Indemnifying Party ) of the assertion of any claim, or the commencement of any suit, action or proceeding ( Claim ) in respect of which indemnity may be sought under such Section and will provide the Indemnifying Party such information with respect thereto that the Indemnifying Party may reasonably request. The failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder, except to the extent such failure shall have adversely prejudiced the Indemnifying Party.
(b) The Indemnified Party shall obtain the prior written consent of the Indemnifying Party (which shall not be unreasonably withheld, conditioned or delayed) before entering into any settlement of any Claim asserted by any third party ( Third Party Claim ).
(c) Each Party shall cooperate, and cause their respective Affiliates to cooperate, in the defense or prosecution of any Third Party Claim and shall furnish or cause to be furnished such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials or appeals, as may be reasonably requested in connection therewith.
(d) Each Indemnified Party must mitigate in accordance with applicable Law any loss for which such Indemnified Party seeks indemnification under this Agreement. If such Indemnified Party mitigates its loss after the Indemnifying Party has paid the Indemnified Party under any indemnification provision of this Agreement in respect of that loss, the Indemnified Party must promptly notify the Indemnifying Party and promptly pay to the Indemnifying Party the extent of the value of the benefit (or, if less, the amount of any such loss previously paid by the Indemnifying Party) to the Indemnified Party of that mitigation (less the Indemnified Partys reasonable costs of mitigation).
(e) Each Indemnified Party shall use reasonable efforts to collect any amounts available under insurance coverage, or from any other Person alleged to be responsible, for any Damages payable under Section 7.02.
Section 7.04 Limitation on Damages . The amount of any Damages payable under Section 7.02 by the Indemnifying Party shall be net of (i) any amounts recovered by the Indemnified Party under applicable insurance policies and (ii) the amount of any Tax Benefit actually realized by the Indemnified Party arising from the incurrence or payment of any such Damages (net of any Tax detriment arising from receipt of any indemnification payment).
Section 7.05 Assignment of Claims . If the Indemnified Party receives any payment from an Indemnifying Party in respect of any Damages pursuant to Section 7.02 and the Indemnified Party could have recovered all or a part of such Damages from a third party (other than any Subsidiary of the Company or any current or former employee or agent of such Persons) (a Potential Contributor ) based on the underlying Claim asserted against the Indemnifying Party, the Indemnified Party shall assign such of its rights to proceed against the Potential Contributor as are necessary to permit the Indemnifying Party to recover from the Potential Contributor the amount of such payment.
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Section 7.06 Exclusivity . After the Closing, Article 6 and Section 7.02 will provide the exclusive remedy for any misrepresentation, breach of warranty, covenant or other agreement or other claim arising out of this Agreement or the transactions contemplated hereby, other than any claim for fraud. Notwithstanding the foregoing, it is understood that nothing herein shall prohibit any party hereto from exercising its rights to seek equitable relief with respect to a breach of covenant or agreement under any Transaction Document.
ARTICLE 8
M ISCELLANEOUS
Section 8.01 Notices . All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission) and shall be given,
if to MCRH or EIC, to:
c/o Golden Gate Private Equity, Inc.
One Embarcadero Center, 39th Floor
San Francisco, California 94111
Attention: Stefan Kaluzny
Fax: (415) 983-2701
if to EMI, EMIB or the Company, to:
c/o Express, Inc.
One Limited Parkway
Columbus, Ohio 43230
Attention: Chief Financial Officer
Fax: (614) 415-4000
If to any Management Holder, to:
The address specified in the Companys records
or to such other address or telecopy number and with such other copies, as such party may hereafter specify for the purpose by notice to the other parties. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt. Each such notice, request or other communication shall be effective (1) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section and evidence of receipt is received or (2) if given by any other means, upon delivery or refusal of delivery at the address specified in this Section 8.01.
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Section 8.02 Amendments and Waivers .
(a) Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.
Section 8.03 Expenses . Except to the extent otherwise expressly provided for in any of the Transaction Documents, all costs and expenses incurred by any Party in connection with the negotiation, preparation, execution and delivery of this Agreement and the Transaction Documents and the consummation of the Closing shall be paid by the Party incurring such costs or expenses.
Section 8.04 Successors and Assigns . The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto.
Section 8.05 Governing Law . This Agreement shall be governed by and construed in accordance with the law of the State of Delaware, without regard to the conflicts of law rules of such state.
Section 8.06 Jurisdiction . Except as otherwise expressly provided in this Agreement, the parties hereto agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, any of the Transaction Documents or the transactions contemplated thereby shall be brought in the United States District Court or any Delaware state court sitting in Wilmington, Delaware, so long as one of such courts shall have subject matter jurisdiction over such suit, action or proceeding, and that any cause of action arising out of any of the Transaction Documents shall be deemed to have arisen from a transaction of business in the State of Delaware, and each of the parties hereby irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 8.01 shall be deemed effective service of process on such party.
Section 8.07 WAIVER OF JURY TRIAL . EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
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Section 8.08 Counterparts; Third Party Beneficiaries . This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Each Transaction Document shall become effective when each party thereto shall have received a counterpart thereof signed by the other party thereto. No Transaction Document is intended to confer upon any Person other than the parties thereto any rights or remedies hereunder.
Section 8.09 Entire Agreement . The Transaction Documents constitute the entire agreement between the parties with respect to the subject matter of this Agreement and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement. No representation, inducement, promise, understanding, condition or warranty not set forth herein has been made or relied upon by any party hereto.
Section 8.10 Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other governmental authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan of Merger to be duly executed as of the day and year first above written.
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EXPRESS MANAGEMENT INVESTORS BLOCKER, INC. | ||
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EXPRESS MANAGEMENT INVESTORS LLC | ||
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EXPRESS INVESTMENT CORP. | ||
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MULTI-CHANNEL RETAIL HOLDINGS LLC SERIES G | ||
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EXPRESS HOLDING, LLC | ||
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Exhibit A
(Certificate of Merger)
See attached.
Exhibit B
(Common Stock of the Surviving Company Following the Mergers)
See attached.
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
EXPRESS, INC.
ARTICLE ONE
The name of the Corporation is Express, Inc. (the Corporation ).
ARTICLE TWO
The address of the Corporations registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, 19801. The name of its registered agent at such address is The Corporation Trust Company. The registered office and/or registered agent of the Corporation may be changed from time to time by resolution of the Board of Directors.
ARTICLE THREE
The nature of the business of the Corporation is to engage in any lawful act or activity for which corporations may be organized under
ARTICLE FOUR
The name and mailing address of the sole incorporator are as follows:
NAME |
MAILING ADDRESS |
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Matthew C. Moellering |
c/o Express, Inc. One Limited Parkway Columbus, OH 43230 |
ARTICLE FIVE
PART A. AUTHORIZED SHARES
The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 510,000,000 shares, consisting of:
1. 10,000,000 shares of Preferred Stock, par value $0.01 per share (the Preferred Stock ); and
2. 500,000,000 shares of Common Stock, par value $0.01 per share (the Common Stock ).
The Preferred Stock and the Common Stock shall have the rights, preferences and limitations set forth below.
PART B. PREFERRED STOCK
The Board of Directors is authorized, subject to limitations prescribed by law, to provide by resolution or resolutions for the issuance of shares of Preferred Stock in one or more series, to establish the number of shares to be included in each such series, and to fix the voting powers (if any), designations, powers, preferences, and relative, participating, optional or other rights, if any, of the shares of each such series, and any qualifications, limitations or restrictions thereof. Within the limitations or restrictions stated in any resolution or resolutions of the Board of Directors fixing the number of shares constituting a series of Preferred Stock, the Board of Directors may increase or decrease (but not below the number of shares of any such series of Preferred Stock then outstanding) by resolution the number of shares of any such series of Preferred Stock. In the event that the number of shares of any series of Preferred Stock shall be so decreased, the shares constituting such decrease shall resume the undesignated status which such shares had prior to the adoption of the resolution originally fixing the number of shares of such series of Preferred Stock subject to the requirements of applicable law. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the outstanding shares of capital stock of the Corporation entitled to vote, without the separate vote of the holders of the Preferred Stock as a class irrespective of the provisions of Section 242(b)(2) of the DGCL.
PART C. COMMON STOCK
Section 1. Voting Rights . Except as otherwise provided by the DGCL or this Certificate of Incorporation and subject to the rights of holders of any series of Preferred Stock, all of the voting power of the stockholders of the Corporation shall be vested in the holders of the Common Stock. Each share of Common Stock shall entitle the holder thereof to one vote for each share held by such holder on all matters voted upon by the stockholders of the Corporation; provided, however, that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock).
ARTICLE SIX
The Corporation is to have perpetual existence.
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ARTICLE SEVEN
Section 1. Board of Directors . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by this Certificate of Incorporation or the Bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.
Section 2. Number of Directors . Subject to any rights of the holders of any class or series of Preferred Stock to elect additional directors under specified circumstances, the number of directors which shall constitute the Board of Directors shall be fixed exclusively from time to time by resolution adopted by the affirmative vote of a majority of the Whole Board. For purposes of this Certificate of Incorporation, the term Whole Board shall mean the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships.
Section 3. Classes of Directors . Beginning immediately following the consummation of the Corporations initial public offering of its Common Stock pursuant to an effective registration statement under the Securities Act of 1933, as amended, (the Initial Public Offering ) the directors of the Corporation, other than those who may be elected by the holders of any series of Preferred Stock under specified circumstances, shall be divided into three classes, hereby designated Class I, Class II and Class III.
Section 4. Election and Term of Office . The directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote in the election of directors; provided that, whenever the holders of any class or series of capital stock of the Corporation are entitled to elect one or more directors pursuant to the provisions of this Certificate of Incorporation (including, but not limited to, any duly authorized certificate of designation), such directors shall be elected by a plurality of the votes of such class or series present in person or represented by proxy at the meeting and entitled to vote in the election of such directors. The term of office of the initial Class I directors shall expire at the first annual meeting of stockholders after the Initial Public Offering, the term of office of the initial Class II directors shall expire at the second succeeding annual meeting of stockholders after the Initial Public Offering and the term of office of the initial Class III directors shall expire at the third succeeding annual meeting of the stockholders after the Initial Public Offering. For the purposes hereof, the Board of Directors may assign directors already in office to the initial Class I, Class II and Class III at the time of the Initial Public Offering. At each annual meeting of stockholders after the Initial Public Offering, directors elected to replace those of a Class whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting after their election and until their respective successors shall have been duly elected and qualified. Prior to the Initial Public Offering, each director shall hold office until such directors successor is duly elected and qualified or until his or her earlier death, resignation or removal. After the Initial Public Offering, each director shall hold office until the annual meeting of stockholders for the year in which such directors term expires and a successor is duly elected and qualified or until his or her earlier death, resignation or removal. Nothing in this Certificate shall preclude a director from serving consecutive terms. Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
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Section 5. Newly-Created Directorships and Vacancies . Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, disqualification, removal from office or any other cause may be filled only by the Board of Directors (and not by stockholders), provided that a quorum is then in office and present, or by a majority of the directors then in office, if less than a quorum is then in office, or by the sole remaining director. Prior to the Initial Public Offering, a director chosen to fill a vacancy or a position resulting from an increase in the number of directors shall hold office until his or her successor is elected and qualified, or until his or her earlier death, resignation or removal. After the Initial Public Offering, a director elected to fill a vacancy shall be elected for the unexpired term of his or her predecessor in office and until his or her successor is elected and qualified. After the Initial Public Offering, a director chosen to fill a position resulting from an increase in the number of directors shall hold office until the next election of the class for which such director shall have been chosen and until his or her successor is elected and qualified, or until his or her earlier death, resignation or removal. No decrease in the authorized number of directors shall shorten the term of any incumbent director.
Section 6. Removal of Directors . After the Initial Public Offering, subject to the rights of the holders of any series of Preferred Stock then outstanding, a director may be removed from office only for cause, at a meeting called for that purpose, by the affirmative vote of the holders of at least sixty-six and two thirds percent (66 2 / 3 %) of the voting power of all outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class.
Section 7. Rights of Holders of Preferred Stock . Notwithstanding the provisions of this ARTICLE SEVEN, whenever the holders of one or more series of Preferred Stock issued by the Corporation shall have the right, voting separately or together by series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorship shall be governed by the rights of such Preferred Stock as set forth in the certificate of designation governing such series.
Section 8. Bylaws . In furtherance and not in limitation of the powers conferred upon it by the laws of the State of Delaware, the Board of Directors shall have the power to adopt, amend, alter or repeal the Corporations Bylaws. The affirmative vote of a majority of the Whole Board shall be required to adopt, amend, alter or repeal the Corporations Bylaws. The Corporations Bylaws also may be adopted, amended, altered or repealed by the stockholders; provided, however, that in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2 / 3 %) of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class shall be required to adopt, amend, alter or repeal any provisions of the Bylaws of the Corporation.
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Section 9. Advance Notice . Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation.
ARTICLE EIGHT
Section 1. Limitation of Liability .
(a) To the fullest extent permitted by the DGCL as it now exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader rights than permitted prior thereto), no director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages arising from a breach of fiduciary duty owed to the Corporation or its stockholders.
(b) Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to any act, omission or other matter occurring prior to such repeal or modification.
ARTICLE NINE
After the Initial Public Offering, and subject to the rights of the holders of any series of Preferred Stock, (i) the stockholders of the Corporation may not take any action by written consent in lieu of a meeting, and must take any actions at a duly called annual or special meeting of stockholders and the power of stockholders to consent in writing without a meeting is specifically denied and (ii) special meetings of stockholders of the Corporation may be called only by a resolution adopted by the affirmative vote of the majority of the Whole Board.
ARTICLE TEN
Section 1. Certain Acknowledgments . In recognition and anticipation that (i) the directors, officers or employees of Golden Gate Private Equity, Inc., Limited Brands, Inc. or their respective Affiliated Companies (as defined below) may serve as directors or officers of the Corporation, (ii) Golden Gate Private Equity, Inc. and its Affiliated Companies and Limited Brands, Inc. and its Affiliated Companies engage and may continue to engage in the same or similar activities or related lines of business as those in which the Corporation, directly or indirectly, may engage and/or other business activities that overlap with or compete with those in which the Corporation, directly or indirectly, may engage, and (iii) that the Corporation and its Affiliated Companies may engage in material business transactions with Golden Gate Private Equity, Inc. and its Affiliated Companies and Limited Brands, Inc. and its Affiliated Companies, as applicable, and that the Corporation is expected to benefit therefrom, the provisions of this ARTICLE TEN are set forth to regulate and define the conduct of certain affairs of the Corporation as they may involve Golden Gate Private Equity, Inc. and/or its Affiliated
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Companies, Limited Brands, Inc. and/or its Affiliated Companies and/or their respective officers and directors, and the powers, rights, duties and liabilities of the Corporation and its officers, directors and stockholders in connection therewith. In furtherance of the foregoing, the Corporation renounces any interest or expectancy in, or being offered the opportunity to participate in, any corporate opportunity not allocated to it pursuant to this ARTICLE TEN to the fullest extent permitted by law.
Section 2. Competition and Corporate Opportunities . To the fullest extent permitted by law, none of Golden Gate Private Equity, Inc. or any of its Affiliated Companies or Limited Brands, Inc. or any of its Affiliated Companies shall have any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as the Corporation or any of its Affiliated Companies, and none of Golden Gate Private Equity, Inc. or any of its Affiliated Companies, Limited Brands, Inc. or any of its Affiliated Companies, or any officer or director thereof (except as provided in Section 3 below) shall be liable to the Corporation or its stockholders for breach of any fiduciary duty solely by reason of any such activities of Golden Gate Private Equity, Inc. or any of its Affiliated Companies or Limited Brands, Inc. or any of its Affiliated Companies. To the fullest extent permitted by law, in the event that Golden Gate Private Equity, Inc. or any of its Affiliated Companies acquires knowledge of a potential transaction or matter which may be a corporate opportunity for itself and the Corporation or any of the Corporations Affiliated Companies, neither Golden Gate Private Equity, Inc. nor any of its Affiliated Companies shall have any duty to communicate or offer such corporate opportunity to the Corporation or any of its Affiliated Companies and shall not be liable to the Corporation or its stockholders for breach of any fiduciary duty as a stockholder of the Corporation solely by reason of the fact that Golden Gate Private Equity, Inc. or any of its Affiliated Companies pursues or acquires such corporate opportunity for itself, directs such corporate opportunity to another person, or does not communicate information regarding such corporate opportunity to the Corporation. To the fullest extent permitted by law, in the event that Limited Brands, Inc. or any of its Affiliated Companies acquires knowledge of a potential transaction or matter which may be a corporate opportunity for itself and the Corporation or any of the Corporations Affiliated Companies, neither of Limited Brands, Inc. or any of its Affiliated Companies shall have any duty to communicate or offer such corporate opportunity to the Corporation or any of its Affiliated Companies and shall not be liable to the Corporation or its stockholders for breach of any fiduciary duty as a stockholder of the Corporation solely by reason of the fact that Limited Brands, Inc. or any of its Affiliated Companies pursues or acquires such corporate opportunity for itself, directs such corporate opportunity to another person, or does not communicate information regarding such corporate opportunity to the Corporation.
Section 3. Allocation of Corporate Opportunities .
(a) In the event that a director or officer of the Corporation who is also a director or officer of Golden Gate Private Equity, Inc. or any of its Affiliated Companies acquires knowledge of a potential transaction or matter which may be a corporate opportunity for the Corporation or any of its Affiliated Companies and Golden Gate Private Equity, Inc. or any of its Affiliated Companies, such director or officer of the Corporation shall have fully satisfied and fulfilled the fiduciary duty of such director or officer to the Corporation and its stockholders with respect to such corporate opportunity, if such director or officer acts in a manner consistent with the following policy:
(i) A corporate opportunity offered to any person who is a director or officer of the Corporation, and who is also a director or officer of Golden Gate Private Equity, Inc. or any of its Affiliated Companies, shall belong to the Corporation if such opportunity is expressly offered to such person in writing solely in his or her capacity as a director or officer of the Corporation.
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(ii) Otherwise, such corporate opportunity shall belong to Golden Gate Private Equity, Inc.
(b) In the event that a director or officer of the Corporation who is also a director or officer of Limited Brands, Inc. or any of its Affiliated Companies acquires knowledge of a potential transaction or matter which may be a corporate opportunity for the Corporation or any of its Affiliated Companies and Limited Brands, Inc. or any of its Affiliated Companies, such director or officer of the Corporation shall have fully satisfied and fulfilled the fiduciary duty of such director or officer to the Corporation and its stockholders with respect to such corporate opportunity, if such director or officer acts in a manner consistent with the following policy:
(i) A corporate opportunity offered to any person who is a director or officer of the Corporation, and who is also a director or officer of Limited Brands, Inc. or any of its Affiliated Companies, shall belong to the Corporation if such opportunity is expressly offered to such person in writing solely in his or her capacity as a director or officer of the Corporation.
(ii) Otherwise, such corporate opportunity shall belong to Limited Brands, Inc.
Section 4. Certain Matters Deemed Not Corporate Opportunities . In addition to and notwithstanding the foregoing provisions of this ARTICLE TEN, a corporate opportunity shall not be deemed to belong to the Corporation if it is a business opportunity that the Corporation is not permitted to undertake under the terms of ARTICLE THREE or that the Corporation is not financially able or contractually permitted or legally able to undertake, or that is, from its nature, not in the line of the Corporations business or is of no practical advantage to it or that is one in which the Corporation has no interest or reasonable expectancy.
Section 5. Renouncement of Certain Corporate Opportunities .
(a) Except as provided in Section 3(a)(i) of this ARTICLE TEN above, if a director or officer of the Corporation who is also a director or officer of Golden Gate Private Equity, Inc. or any of its Affiliated Companies acquires knowledge of a potential transaction or matter which may be a corporate opportunity, the Corporation shall have no interest in such corporate opportunity and no expectancy that such corporate opportunity be offered to it, any such interest or expectancy being hereby renounced, so that such person shall have no duty to present such corporate opportunity to the Corporation and shall have the right to hold and exploit any such corporate opportunity for its (and its officers, employees, directors, agents, stockholders,
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members, partners, affiliates or subsidiaries) own account or to direct, sell, assign or transfer such corporate opportunity to persons other than the Corporation or any of its Affiliated Companies. Such person shall not breach any fiduciary duty to the Corporation or to its stockholders by reason of the fact that such person does not present such corporate opportunity to the Corporation or pursues, acquires or exploits such corporate opportunity for itself or directs, sells, assigns or transfers such corporate opportunity to another person.
(b) Except as provided in Section 3(b)(i) above of this ARTICLE TEN, if a director or officer of the Corporation who is also a director or officer of Limited Brands, Inc. or any of its Affiliated Companies acquires knowledge of a potential transaction or matter which may be a corporate opportunity, the Corporation shall have no interest in such corporate opportunity and no expectancy that such corporate opportunity be offered to it, any such interest or expectancy being hereby renounced, so that such person shall have no duty to present such corporate opportunity to the Corporation and shall have the right to hold and exploit any such corporate opportunity for its (and its officers, employees, directors, agents, stockholders, members, partners, affiliates or subsidiaries) own account or to direct, sell, assign or transfer such corporate opportunity to persons other than the Corporation or any of its Affiliated Companies. Such person shall not breach any fiduciary duty to the Corporation or to its stockholders by reason of the fact that such person does not present such corporate opportunity to the Corporation or pursues, acquires or exploits such corporate opportunity for itself or directs, sells, assigns or transfers such corporate opportunity to another person.
Section 6. Certain Definitions . For purposes of this ARTICLE TEN, Affiliated Company shall mean (a) in respect of Golden Gate Private Equity, Inc., any company which controls, is controlled by or under common control with Golden Gate Private Equity, Inc. and any investment funds managed by Golden Gate Private Equity, Inc. (other than the Corporation and any company that is controlled by the Corporation), (b) in respect of Limited Brands, Inc. shall mean any company controlled by Limited Brands, Inc. (other than the Corporation and any company that is controlled by the Corporation) and (c) in respect of the Corporation, shall mean any company controlled by the Corporation.
Section 7. Amendment of this Article . Notwithstanding anything to the contrary elsewhere contained in this Certificate of Incorporation, the affirmative vote of the holders of at least eighty percent (80%) of the voting power of all shares of Common Stock then outstanding, voting together as a single class, shall be required to alter, amend or repeal, or to adopt any provision inconsistent with, this ARTICLE TEN.
Section 8. Deemed Notice . Any person or entity purchasing or otherwise acquiring any interest in any shares of the Corporation shall be deemed to have notice of and to have consented to the provisions of this ARTICLE TEN.
Section 9. Severability . To the extent that any provision of this ARTICLE TEN is found to be invalid or unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision of this ARTICLE TEN.
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ARTICLE ELEVEN
Section 1. Section 203 of the DGCL . The Corporation expressly elects not to be governed by Section 203 of the DGCL.
Section 2. Interested Stockholder Transactions . Notwithstanding any other provision in this Certificate of Incorporation to the contrary, the Corporation shall not engage in any Business Combination (as defined hereinafter) with any Interested Stockholder (as defined hereinafter) for a period of three years following the time that such stockholder became an Interested Stockholder, unless:
(a) | prior to such time the Board of Directors approved either the Business Combination or the transaction which resulted in such stockholder becoming an Interested Stockholder; |
(b) | upon consummation of the transaction which resulted in such stockholder becoming an Interested Stockholder, such stockholder owned at least eighty-five percent (85%) of the Voting Stock (as defined hereinafter) of the Corporation outstanding at the time the transaction commenced, excluding for purposes of determining the Voting Stock outstanding (but not the outstanding Voting Stock owned by such stockholder) those shares owned (i) by Persons (as defined hereinafter) who are directors and also officers of the Corporation and (ii) employee stock plans of the Corporation in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
(c) |
at or subsequent to such time the Business Combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 66 2 / 3 % of the outstanding Voting Stock which is not owned by such stockholder. |
Section 3. Exceptions to Prohibition on Interested Stockholder Transactions . The restrictions contained in this ARTICLE ELEVEN shall not apply if:
(a) | a stockholder becomes an Interested Stockholder inadvertently and (i) as soon as practicable divests itself of ownership of sufficient shares so that the stockholder ceases to be an Interested Stockholder; and (ii) would not, at any time within the three-year period immediately prior to a Business Combination between the Corporation and such stockholder, have been an Interested Stockholder but for the inadvertent acquisition of ownership; or |
(b) |
the Business Combination is proposed prior to the consummation or abandonment of and subsequent to the earlier of the public announcement or the notice required hereunder of a proposed transaction which (i) constitutes one of the transactions described in the second sentence of |
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this Section 3(b) of ARTICLE ELEVEN; (ii) is with or by a Person who either was not an Interested Stockholder during the previous three years or who became an Interested Stockholder with the approval of the Board of Directors; and (iii) is approved or not opposed by a majority of the directors then in office (but not less than one) who were directors prior to any Person becoming an Interested Stockholder during the previous three years or were recommended for election or elected to succeed such directors by a majority of such directors. The proposed transactions referred to in the preceding sentence are limited to (x) a merger or consolidation of the Corporation (except for a merger in respect of which, pursuant to § 251(f) of the DGCL, no vote of the stockholders of the Corporation is required); (y) a sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), whether as part of a dissolution or otherwise, of assets of the Corporation or of any direct or indirect majority-owned subsidiary of the Corporation (other than to any direct or indirect wholly-owned subsidiary or to the Corporation) having an aggregate market value equal to fifty percent (50%) or more of either that aggregate market value of all of the assets of the Corporation determined on a consolidated basis or the aggregate market value of all the outstanding Stock (as defined hereinafter) of the Corporation; or (z) a proposed tender or exchange offer for fifty percent (50%) or more of the outstanding Voting Stock of the Corporation. The Corporation shall give not less than 20 days notice to all Interested Stockholders prior to the consummation of any of the transactions described in clause (x) or (y) of the second sentence of this Section 3(b) of ARTICLE ELEVEN. |
Section 4. Definitions . As used in this ARTICLE ELEVEN only, and unless otherwise provided by the express terms of this ARTICLE ELEVEN, the following terms shall have the meanings ascribed to them as set forth in this Section 4:
(a) | Affiliate means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another Person; |
(b) | Associate, when used to indicate a relationship with any Person, means: (i) any corporation, partnership, unincorporated association or other entity of which such Person is a director, officer or partner or is, directly or indirectly, the owner of twenty percent (20%) or more of any class of Voting Stock; (ii) any trust or other estate in which such Person has at least a twenty percent (20%) beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity; and (iii) any relative or spouse of such Person, or any relative of such spouse, who has the same residence as such Person; |
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(c) | Business Combination means: |
(i) | any merger or consolidation of the Corporation or any direct or indirect majority-owned subsidiary of the Corporation with (A) the Interested Stockholder, or (B) with any Person if the merger or consolidation is caused by the Interested Stockholder and as a result of such merger or consolidation Section 2 of this ARTICLE ELEVEN is not applicable to the surviving entity; |
(ii) | any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), except proportionately as a stockholder of the Corporation, to or with the Interested Stockholder, whether as part of a dissolution or otherwise, of assets of the Corporation or of any direct or indirect majority-owned subsidiary of the Corporation which assets have an aggregate market value equal to ten percent (10%) or more of either the aggregate market value of all the assets of the Corporation determined on a consolidated basis or the aggregate market value of all the outstanding Stock of the Corporation; |
(iii) | any transaction which results in the issuance or transfer by the Corporation or by any direct or indirect majority-owned subsidiary of the Corporation of any Stock of the Corporation or of such subsidiary to the Interested Stockholder, except: (A) pursuant to the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into Stock of the Corporation or any such subsidiary which securities were outstanding prior to the time that the Interested Stockholder became such; (B) pursuant to a merger under § 251(g) or § 253 of the DGCL; (C) pursuant to a dividend or distribution paid or made, or the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into Stock of the Corporation or any such subsidiary which security is distributed, pro rata to all holders of a class or series of Stock of the Corporation subsequent to the time the Interested Stockholder became such; (D) pursuant to an exchange offer by the Corporation to purchase Stock made on the same terms to all holders of such Stock; or (E) any issuance or transfer of Stock by the Corporation; provided however, that in no case under items (C)-(E) of this Section 4(c)(iii) of ARTICLE ELEVEN shall there be an increase in the Interested Stockholders proportionate share of the Stock of any class or series of the Corporation or of the Voting Stock of the Corporation; |
(iv) | any transaction involving the Corporation or any direct or indirect majority-owned subsidiary of the Corporation which has the effect, directly or indirectly, of increasing the proportionate share of the Stock of any class or series, or securities convertible into the Stock of any class or series, of the Corporation or of any such subsidiary which is owned by the Interested Stockholder, except as a result of immaterial changes due to fractional share adjustments or as a result of any purchase or redemption of any shares of Stock not caused, directly or indirectly, by the Interested Stockholder; or |
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(v) | any receipt by the Interested Stockholder of the benefit, directly or indirectly (except proportionately as a stockholder of the Corporation), of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in Sections 4(c)(i)-(iv) of ARTICLE ELEVEN) provided by or through the Corporation or any direct or indirect majority-owned subsidiary of the Corporation; |
(d) | Control, including the terms controlling, controlled by and under common control with, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of stock or other equity interests, by contract or otherwise. A Person who is the owner of twenty percent (20%) or more of the outstanding Voting Stock of any corporation, partnership, unincorporated association or other entity shall be presumed to have control of such entity, in the absence of proof by a preponderance of the evidence to the contrary; notwithstanding the foregoing, a presumption of control shall not apply where such Person holds Voting Stock, in good faith and not for the purpose of circumventing this ARTICLE ELEVEN, as an agent, bank, broker, nominee, custodian or trustee for one or more owners who do not individually or as a group have control of such entity; |
(e) |
Interested Stockholder means any Person (other than the Corporation and any direct or indirect majority-owned subsidiary of the Corporation) that (i) is the owner of fifteen percent (15%) or more of the outstanding Voting Stock of the Corporation, or (ii) is an Affiliate or Associate of the Corporation and was the owner of fifteen percent (15%) or more of the outstanding Voting Stock of the Corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such Person is an Interested Stockholder, and the Affiliates and Associates of such Person. Notwithstanding anything in this ARTICLE ELEVEN to the contrary, the term Interested Stockholder shall not include: (x) any investment fund managed by Golden Gate Private Equity, Inc., or Affiliates or Associates of any investment fund managed by Golden Gate Private Equity, Inc.; (y) any Person who would otherwise be an Interested Stockholder because of a transfer, sale, assignment, conveyance, hypothecation, encumbrance, or other disposition of five percent (5%) or more of the outstanding Voting Stock of the Corporation (in one transaction or a series of transactions) by any party specified in the immediately preceding clause (x) to such Person, so long as such transfer, sale, assignment, conveyance, hypothecation, encumbrance, or other disposition occurs from and after the first date that Limited Brands, Inc. and any company controlled by Limited Brands, Inc. (other than the Corporation and any company controlled by the Corporation) owns less |
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than five percent (5%) of the Corporations Common Stock; provided, however, that such Person was not an Interested Stockholder prior to such transfer, sale, assignment, conveyance, hypothecation, encumbrance, or other disposition; or (z) any Person whose ownership of shares in excess of the fifteen percent (15%) limitation set forth herein is the result of action taken solely by the Corporation, provided that, for purposes of this clause (z), such Person shall be an Interested Stockholder if thereafter such Person acquires additional shares of Voting Stock of the Corporation, except as a result of further action by the Corporation not caused, directly or indirectly, by such Person; |
(f) | Owner, including the terms own and owned, when used with respect to any Stock, means a Person that individually or with or through any of its affiliates or associates beneficially owns such Stock, directly or indirectly; or has (A) the right to acquire such Stock (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the owner of Stock tendered pursuant to a tender or exchange offer made by such Person or any of such Persons Affiliates or Associates until such tendered Stock is accepted for purchase or exchange; or (B) the right to vote such Stock pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the owner of any Stock because of such Persons right to vote such Stock if the agreement, arrangement or understanding to vote such Stock arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made to 10 or more Persons; or has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent as described in (B) of this Section 4(f) of ARTICLE ELEVEN), or disposing of such Stock with any other Person that beneficially owns, or whose affiliates or associates beneficially own, directly or indirectly, such Stock; provided, that, for the purpose of determining whether a Person is an Interested Stockholder, the Voting Stock of the Corporation deemed to be outstanding shall include Stock deemed to be owned by the Person through application of this definition of owned but shall not include any other unissued Stock of the Corporation which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise; |
(g) | Person means any individual, corporation, partnership, unincorporated association or other entity; |
(h) | Stock means, with respect to any corporation, capital stock and, with respect to any other entity, any equity interest; and |
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(i) | Voting Stock means, with respect to any corporation, Stock of any class or series entitled to vote generally in the election of directors and, with respect to any entity that is not a corporation, any equity interest entitled to vote generally in the election of the governing body of such entity. Every reference to a percentage of Voting Stock shall refer to such percentage of the votes of such Voting Stock. |
ARTICLE TWELVE
The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed herein and by the laws of the State of Delaware, and all rights conferred upon stockholders herein are granted subject to this reservation. Notwithstanding any other provision of this Certificate of Incorporation or the Bylaws of the Corporation, and notwithstanding the fact that a lesser percentage or separate class vote may be specified by law or otherwise, but in addition to any affirmative vote of the holders of any particular class or series of the capital stock required by law or otherwise, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2 / 3 %) of the voting power of all outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt any provision inconsistent with, to amend, alter, change or repeal any provision of, or to adopt a bylaw inconsistent with, ARTICLES SEVEN, EIGHT, NINE, ELEVEN and TWELVE of this Certificate of Incorporation.
* * * * *
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I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is my act and deed and the facts stated herein are true, and accordingly have hereunto set my hand on the day of , 2010.
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Matthew C. Moellering |
Sole Incorporator |
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Exhibit 3.2
BYLAWS
OF
EXPRESS, INC.
A Delaware corporation
(Adopted as of , 2010)
ARTICLE I
OFFICES
Section 1. Offices . Express, Inc. (the Corporation ) may have an office or offices other than its registered office at such place or places, either within or outside the State of Delaware, as the Board of Directors of the Corporation (the Board of Directors ) may from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings . The Board of Directors may designate a place, if any, either within or outside the State of Delaware, as the place of meeting for any annual meeting or for any special meeting.
Section 2. Annual Meeting . An annual meeting of the stockholders shall be held each year at such time as is specified by the Board of Directors. At the annual meeting, stockholders shall elect directors to succeed those whose terms expire and transact such other business as properly may be brought before the annual meeting pursuant to Section 11 of ARTICLE II.
Section 3. Special Meetings . Special meetings of the stockholders may only be called in the manner provided in the Corporations certificate of incorporation as then in effect (the Certificate of Incorporation ). Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.
Section 4. Notice of Meetings . Notice of the place, if any, date, and time of all meetings of the stockholders, the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, and the record date for determining the stockholders entitled to vote at the meeting, if such date is different from the record date for determining stockholders entitled to notice of the meeting, shall be given, not less than 10 nor more than 60 days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the General Corporation Law of the State of Delaware (the DGCL ) or the Certificate of Incorporation).
(a) Form of Notice . All such notices shall be delivered in writing or by a form of electronic transmission if receipt thereof has been consented to by the stockholder to whom the notice is given. If mailed, such notice shall be deemed given when deposited in the United States mail, postage prepaid, addressed to the stockholder at his, her or its address as the same appears on the records of the Corporation. If given by facsimile telecommunication, such notice shall be deemed given when directed to a number at which the stockholder has consented to receive notice by facsimile. Subject to the limitations of Section 4(c) of this ARTICLE II, if given by electronic transmission, such notice shall be deemed to be delivered: (i) by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (ii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (x) such posting and (y) the giving of such separate notice; and (iii) if by any other form of electronic transmission, when directed to the stockholder. An affidavit of the secretary or an assistant secretary of the Corporation, the transfer agent of the Corporation or any other agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
(b) Waiver of Notice . Whenever notice is required to be given under any provisions of the DGCL, the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the stockholder entitled to notice, or a waiver by electronic transmission by the person or entity entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Neither the business to be transacted at, nor the purpose of, any meeting of the stockholders of the Corporation need be specified in any waiver of notice of such meeting. Attendance of a stockholder of the Corporation at a meeting of such stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.
(c) Notice by Electronic Delivery . Without limiting the manner by which notice otherwise may be given effectively to stockholders of the Corporation pursuant to the DGCL, the Certificate of Incorporation or these Bylaws, any notice to stockholders of the Corporation given by the Corporation under any provision of the DGCL, the Certificate of Incorporation or these Bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder of the Corporation to whom the notice is given. Any such consent shall be deemed revoked if: (i) the Corporation is unable to deliver by electronic transmission two (2) consecutive notices given by the Corporation in accordance with such consent; and (ii) such inability becomes known to the secretary or an assistant secretary of the Corporation or to the transfer agent or other person responsible for the giving of notice. However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. For purposes of these Bylaws, except as otherwise limited by applicable law, the term electronic transmission means any form of communication not directly involving the physical transmission of paper that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such recipient through an automated process.
Section 5. List of Stockholders . The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, provided, however, if the record
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date for determining the stockholders entitled to vote is less than 10 days before the meeting date, the list shall reflect the stockholders entitled to vote as of the 10th day before the meeting date, arranged in alphabetical order and showing the address of each such stockholder and the number of shares registered in his or her name. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the principal place of business of the Corporation. In the event the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. The list shall also be produced and kept at the time and place, if any, of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum . The holders of a majority of the outstanding voting power of capital stock entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders, except as otherwise provided by the DGCL or by the Certificate of Incorporation. If a quorum is not present, the chairman of the meeting or the holders of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote at the meeting may adjourn the meeting to another time and/or place. When a specified item of business requires a vote by a class or series (if the Corporation shall then have outstanding shares of more than one class or series) voting as a class or series, the holders of a majority of the voting power of such class or series shall constitute a quorum (as to such class or series) for the transaction of such item of business.
Section 7. Adjourned Meetings . When a meeting is adjourned to another time and place, notice need not be given of the adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, the Board of Directors shall fix a new record date for notice of such adjourned meeting, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and, except as otherwise required by law, shall not be more than 60 days nor less than 10 days before the date of such adjourned meeting, and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date fixed for notice of such adjourned meeting.
Section 8. Vote Required . When a quorum is present, the affirmative vote of the majority of voting power of capital stock present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless by express provisions of an applicable law, the rules of any stock exchange upon which the Corporations securities are listed, or the Certificate of Incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question.
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Section 9. Voting Rights . Except as otherwise provided by the DGCL, the Certificate of Incorporation, the certificate of designation relating to any outstanding class or series of preferred stock or these Bylaws, every stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of capital stock held by such stockholder.
Section 10. Proxies . Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally.
Section 11. Advance Notice of Stockholder Business and Director Nominations .
(a) Business at Annual Meetings of Stockholders .
(i) Only such business (other than nominations of persons for election to the Board of Directors, which must be made in compliance with and is governed exclusively by Section 11(b) of ARTICLE II) shall be conducted at an annual meeting of the stockholders as shall have been brought before the meeting (A) as specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (B) by or at the direction of the Board of Directors, or (C) by any stockholder of the Corporation who (1) was a stockholder of record at the time of giving of notice provided for in Section 11(a) of ARTICLE II and at the time of the meeting, (2) is entitled to vote at the meeting and (3) complies with the notice procedures set forth in Section 11(a) of ARTICLE II. For the avoidance of doubt, the foregoing clause (C) of this Section 11(a)(i) of ARTICLE II shall be the exclusive means for a stockholder to propose such business (other than business included in the Corporations proxy materials pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the Exchange Act )) before an annual meeting of stockholders.
(ii) For any business (other than nominations of persons for election to the Board of Directors, which must be made in compliance with and is governed exclusively by Section 11(b) of ARTICLE II) to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in proper written form as described in Section 11(a)(iii) of ARTICLE II to the Secretary; any such proposed business must be a proper matter for stockholder action and the stockholder and the Stockholder Associated Person (as defined in Section 11(e) of ARTICLE II) must have acted in accordance with the representations set forth in the Solicitation Statement (as defined in Section 11(a)(iii) of ARTICLE II) required by these Bylaws. To be timely, a stockholders notice for such business must be received by the Secretary at the principal executive offices of the Corporation in proper written form not less than ninety (90) days and not more than one hundred twenty (120) days prior to the first anniversary of the preceding years annual meeting of stockholders; provided, however, that if and only if the annual meeting is not scheduled to be held within a period that commences thirty
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(30) days before such anniversary date and ends thirty (30) days after such anniversary date, or if no annual meeting was held in the preceding year, such stockholders notice must be delivered by the later of (A) the tenth day following the day the Public Announcement (as defined in Section 11(e) of ARTICLE II) of the date of the annual meeting is first made or (B) the date which is ninety (90) days prior to the date of the annual meeting. In no event shall any adjournment, deferral or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholders notice as described above. Notices delivered pursuant to Section 11(a) of ARTICLE II) will be deemed received on any given day if received prior to the close of business on such day.
(iii) To be in proper written form, a stockholders notice to the Secretary must set forth as to each matter of business the stockholder proposes to bring before the annual meeting (A) a brief description of the business desired to be brought before the annual meeting (including the specific text of any resolutions or actions proposed for consideration and if such business includes a proposal to amend the Certificate of Incorporation or these Bylaws, the specific language of the proposed amendment) and the reasons for conducting such business at the annual meeting, (B) the name and address of the stockholder proposing such business, as they appear on the Corporations books, the residence name and address (if different from the Corporations books) of such proposing stockholder, and the name and address of any Stockholder Associated Person covered by clauses (C), (D), (F) and (G) below, (C) the class and number of shares of stock of the Corporation which are directly or indirectly held of record or beneficially owned by such stockholder or by any Stockholder Associated Person, a description of any Derivative Positions (as defined in Section 11(e) of ARTICLE II) directly or indirectly held or beneficially held by the stockholder or any Stockholder Associated Person, and whether and the extent to which a Hedging Transaction (as defined in Section 11(e) of ARTICLE II) has been entered into by or on behalf of such stockholder or any Stockholder Associated Person, (D) a description of all arrangements or understandings between such stockholder or any Stockholder Associated Person and any other person or entity (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder, any Stockholder Associated Person or such other person or entity in such business, (E) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting, (F) any other information related to such stockholder or any Stockholder Associated Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with the solicitation of proxies or consents (even if a solicitation is not involved) by such stockholder or Stockholder Associated Person in support of the business proposed to be brought before the meeting pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder and (G) a representation as to whether such stockholder or any Stockholder Associated Person will solicit, directly or indirectly, a proxy from holders of at least the percentage of the Corporations outstanding capital stock required to approve the proposal or otherwise to solicit proxies from stockholders in support of the proposal (such representation, a
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Solicitation Statement ). In addition, any stockholder who submits a notice pursuant to Section 11(a) of ARTICLE II is required to update and supplement the information disclosed in such notice, if necessary, in accordance with Section 11(d) of ARTICLE II.
(iv) Notwithstanding anything in these Bylaws to the contrary, no business (other than nominations of persons for election to the Board of Directors, which must be made in compliance with and are governed exclusively by Section 11(b) of ARTICLE II) shall be conducted at an annual meeting except in accordance with the procedures set forth in Section 11(a) of ARTICLE II.
(b) Nominations at Annual Meetings of Stockholders .
(i) Only persons who are nominated in accordance and compliance with the procedures set forth in Section 11(b) of ARTICLE II shall be eligible for election to the Board of Directors at an annual meeting of stockholders.
(ii) Nominations of persons for election to the Board of Directors of the Corporation may be made at an annual meeting of stockholders only (A) by or at the direction of the Board of Directors or (B) by any stockholder of the Corporation who (1) was a stockholder of record at the time of giving of notice provided for in Section 11(b) of ARTICLE II and at the time of the meeting, (2) is entitled to vote at the meeting and (3) complies with the notice procedures set forth in Section 11(b) of ARTICLE II. For the avoidance of doubt, clause (B) of this Section 11(b)(ii) of ARTICLE II shall be the exclusive means for a stockholder to make nominations of persons for election to the Board of Directors at an annual meeting of stockholders. For nominations to be properly brought by a stockholder at an annual meeting of stockholders, the stockholder must have given timely notice thereof in proper written form as described in Section 11(b)(iii) of ARTICLE II to the Secretary and the stockholder and the Stockholder Associated Person must have acted in accordance with the representations set forth in the Nomination Solicitation Statement required by these Bylaws. To be timely, a stockholders notice for the nomination of persons for election to the Board of Directors must be delivered to the Secretary at the principal executive offices of the Corporation in proper written form not less than ninety (90) days and not more than one hundred twenty (120) days prior to the first anniversary of the preceding years annual meeting of stockholders; provided, however, that if and only if the annual meeting is not scheduled to be held within a period that commences thirty (30) days before such anniversary date and ends thirty (30) days after such anniversary date, or if no annual meeting was held in the preceding year, such stockholders notice must be delivered by the later of the tenth day following the day the Public Announcement of the date of the annual meeting is first made and the date which is ninety (90) days prior to the date of the annual meeting. In no event shall any adjournment, deferral or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholders notice as described above. Notices delivered pursuant to Section 11(b) of ARTICLE II will be deemed received on any given day if received prior to the close of business on such day.
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(iii) To be in proper written form, a stockholders notice to the Secretary shall set forth (A) as to each person whom the stockholder proposes to nominate for election or re-election as a director of the Corporation, (1) the name, age, business address and residence address of the person, (2) the principal occupation or employment of the person, (3) the class or series and number of shares of capital stock of the Corporation which are directly or indirectly owned beneficially or of record by the person, (4) the date such shares were acquired and the investment intent of such acquisition and (5) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with the solicitation of proxies or consents for a contested election of directors (even if an election contest or proxy solicitation is not involved), or is otherwise required, pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder (including such persons written consent to being named in the proxy statement as a nominee, if applicable, and to serving if elected), (B) as to the stockholder giving the notice, the name and address of such stockholder, as they appear on the Corporations books, the residence name and address (if different from the Corporations books) of such proposing stockholder, and the name and address of any Stockholder Associated Person covered by clauses (C), (D), (F) and (G) below, (C) the class and number of shares of stock of the Corporation which are directly or indirectly held of record or beneficially owned by such stockholder or by any Stockholder Associated Person with respect to the Corporations securities, a description of any Derivative Positions directly or indirectly held or beneficially held by the stockholder or any Stockholder Associated Person, and whether and the extent to which a Hedging Transaction has been entered into by or on behalf of such stockholder or any Stockholder Associated Person, (D) a description of all arrangements or understandings (including financial transactions and direct or indirect compensation) between such stockholder or any Stockholder Associated Person and each proposed nominee and any other person or entity (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (E) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice, (F) any other information relating to such stockholder or any Stockholder Associated Person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with the solicitation of proxies or consents for a contested election of directors (even if an election contest or proxy solicitation is not involved), or otherwise required, pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder, and (G) a representation as to whether such stockholder or any Stockholder Associated Person will solicit, directly or indirectly, a proxy from the holders of a sufficient number of the Corporations outstanding shares reasonably believed by the stockholder or any Stockholder Associated Person, as the case may be, to elect each proposed nominee or otherwise to solicit proxies from stockholders in support of the nomination (such representation, a Nomination Solicitation Statement). In addition, any stockholder who submits a notice pursuant to this Section 11(b) of ARTICLE II hereof is required to update and supplement the information disclosed in such notice, if necessary, in accordance with Section 11(d) of ARTICLE II hereof and shall comply with Section 11(f) of ARTICLE II.
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(iv) Notwithstanding anything in Section 11(b)(ii) of ARTICLE II to the contrary, if the number of directors to be elected to the Board of Directors is increased and there is no Public Announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least 10 days prior to the last day a stockholder may deliver a notice of nomination in accordance with Section 11(b)(ii), a stockholders notice required by Section 11(b)(ii) of ARTICLE II shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such Public Announcement is first made by the Corporation.
(c) Special Meetings of Stockholders . Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the notice of meeting. Only persons who are nominated in accordance and compliance with the procedures set forth in this Section 11(c) of ARTICLE II shall be eligible for election to the Board of Directors at a special meeting of stockholders at which directors are to be elected. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the notice of meeting only (i) by or at the direction of the Board of Directors or (ii) provided that the Board of Directors has determined that directors are to be elected at such special meeting, by any stockholder of the Corporation who (A) was a stockholder of record at the time of giving of notice provided for in this Section 11(c) of ARTICLE II and at the time of the special meeting, (B) is entitled to vote at the meeting and (C) complies with the notice procedures provided for in this Section 11(c) of ARTICLE II. For the avoidance of doubt, the foregoing clause (ii) of this Section 11(c) of ARTICLE II shall be the exclusive means for a stockholder to propose nominations of persons for election to the Board of Directors at a special meeting of stockholders at which directors are to be elected. For nominations to be properly brought by a stockholder at a special meeting of stockholders, the stockholder must have given timely notice thereof in proper written form as described in this Section 11(c) of ARTICLE II to the Secretary. To be timely, a stockholders notice for the nomination of persons for election to the Board of Directors must be received by the Secretary at the principal executive offices of the Corporation not earlier than the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the tenth day following the day on which a Public Announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall any adjournment, deferral or postponement of a special meeting or the announcement thereof commence a new time period for the giving of a stockholders notice as described above. Notices delivered pursuant to Section 11(c) of ARTICLE II will be deemed received on any given day if received prior to the close of business on such day. To be in proper written form, such stockholders notice shall set forth all of the information required by, and otherwise be in compliance with, Section 11(b)(iii) of ARTICLE II. In addition, any stockholder who submits a notice pursuant to this Section 11(c) of ARTICLE II is required to update and supplement the information disclosed in such notice, if necessary, in accordance with Section 11(d) of ARTICLE II and shall comply with Section 11(f) of ARTICLE II.
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(d) Update and Supplement of Stockholders Notice . Any stockholder who submits a notice of proposal for business or nomination for election pursuant to Section 11 of ARTICLE II is required to update and supplement the information disclosed in such notice, if necessary, so that the information provided or required to be provided in such notice shall be true and correct as of the record date for determining the stockholders entitled to notice of the meeting of stockholders and as of the date that is ten (10) business days prior to such meeting of the stockholders or any adjournment or postponement thereof, and such update and supplement shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the fifth business day after the record date for the meeting of stockholders (in the case of the update and supplement required to be made as of the record date), and not later than the close of business on the eighth business day prior to the date for the meeting of stockholders or any adjournment or postponement thereof (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting of stockholders or any adjournment or postponement thereof).
(e) Definitions . For purposes of Section 11 of ARTICLE II, the term:
(i) Derivative Positions means, with respect to a stockholder or any Stockholder Associated Person, any derivative positions including, without limitation, any short position, profits interest, option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation, whether or not such instrument or right shall be subject to settlement in the underlying class or series of capital stock of the Corporation or otherwise and any performance-related fees to which such stockholder or any Stockholder Associated Person is entitled based, directly or indirectly, on any increase or decrease in the value of shares of capital stock of the Corporation;
(ii) Hedging Transaction means, with respect to a stockholder or any Stockholder Associated Person, any hedging or other transaction (such as borrowed or loaned shares) or series of transactions, or any other agreement, arrangement or understanding, the effect or intent of which is to increase or decrease the voting power or economic or pecuniary interest of such stockholder or any Stockholder Associated Person with respect to the Corporations securities;
(iii) Public Announcement means disclosure in a press release reported by the Dow Jones News Service, Associated Press, Business Wire, PR Newswire or comparable news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act; and
(iv) Stockholder Associated Person of any stockholder means (A) any person controlling, directly or indirectly, or acting in concert with, such stockholder, (B) any beneficial owner of shares of stock of the Corporation owned of record or beneficially by such stockholder or (C) any person directly or indirectly controlling, controlled by or under common control with such Stockholder Associated Person.
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(f) Submission of Questionnaire, Representation and Agreement . To be qualified to be a nominee for election or reelection as a director of the Corporation, a person must deliver (in the case of a person nominated by a stockholder in accordance with Sections 11(b) or 2.11(c), in accordance with the time periods prescribed for delivery of notice under such sections) to the Secretary at the principal executive offices of the Corporation a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request) and a written representation and agreement (in the form provided by the Secretary upon written request) that such person (i) is not and will not become a party to (A) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a Voting Commitment ) that has not been disclosed to the Corporation or (B) any Voting Commitment that could limit or interfere with such persons ability to comply, if elected as a director of the Corporation, with such persons fiduciary duties under applicable law, (ii) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein and (iii) would be in compliance, and if elected as a director of the Corporation will comply, with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation. The Corporation may also require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve either as a director of the Corporation or as an independent director of the Corporation under applicable Securities and Exchange Commission and stock exchange rules and the corporations publicly disclosed corporate governance guidelines, or that could be material to a reasonable stockholders understanding of the qualifications and/or independence, or lack thereof, of such nominee.
(g) Authority of Chairman . Except as otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws, the Chairman of the meeting shall have the power and duty to determine whether any nomination or other business proposed to be brought before the meeting was made or brought in accordance with the procedures set forth in these Bylaws and, if any nomination or other business is not made or brought in compliance with these Bylaws, to declare that such nomination or proposal of other business be disregarded and not acted upon.
(h) Compliance with Exchange Act . Notwithstanding the foregoing provisions of these Bylaws, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder with respect to the matters set forth in these Bylaws; provided, however, that any references in these Bylaws to the Exchange Act or the rules and regulations promulgated thereunder are not intended to and shall not limit the requirements applicable to any nomination or other business to be considered pursuant to Section 11 of ARTICLE II.
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(i) Effect on Other Rights . Nothing in these Bylaws shall be deemed to affect any rights of the stockholders to request inclusion of proposals in the Corporations proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 12. Fixing a Record Date for Stockholder Meetings . In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, except as otherwise required by law, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 days nor less than 10 days before the date of such meeting. If the Board of Directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the next day preceding the day on which notice is first given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting; and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance with the foregoing provisions of this Section 12 at the adjourned meeting.
Section 13. Conduct of Meetings .
(a) Generally . Meetings of stockholders shall be presided over by a chairman designated by the Board of Directors, or in his or her absence the Chairman of the Board, if any, or in the Chairmans absence or disability by the Chief Executive Officer, or in the Chief Executive Officers absence or disability, by the President, or in the Presidents absence or disability, by a Vice President. The Secretary shall act as secretary of the meeting, but in the Secretarys absence or disability the chairman of the meeting may appoint any person to act as secretary of the meeting.
(b) Rules, Regulations and Procedures . The Board of Directors may adopt by resolution such rules, regulations and procedures for the conduct of any meeting of stockholders of the Corporation as it shall deem appropriate including, without limitation, such guidelines and procedures as it may deem appropriate regarding the participation by means of remote communication of stockholders and proxyholders not physically present at a meeting. Except to the extent inconsistent with such rules, regulations and procedures as adopted by the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting
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and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as shall be determined; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. The chairman of the meeting shall announce at the meeting when the polls for each matter to be voted upon at the meeting will be opened and closed. After the polls close, no ballots, proxies or votes or any revocations or changes thereto may be accepted. The chairman shall have the power to adjourn the meeting to another place, if any, date and time.
(c) Inspectors of Elections . The Corporation may, and to the extent required by law shall, in advance of any meeting of stockholders, appoint one or more inspectors of election to act at the meeting and make a written report thereof. One or more other persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Unless otherwise required by law, inspectors may be officers, employees or agents of the Corporation. Each inspector, before entering upon the discharge of such inspectors duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspectors ability. The inspector shall have the duties prescribed by law and shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by law. Every vote taken by ballots shall be counted by a duly appointed inspector or duly appointed inspectors.
ARTICLE III
DIRECTORS
Section 1. General Powers . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to such powers as are herein and in the Certificate of Incorporation expressly conferred upon it, the Board of Directors shall have and may exercise all the powers of the Corporation, subject to the provisions of the laws of the State of Delaware, the Certificate of Incorporation and these Bylaws.
Section 2. Annual Meetings . The annual meeting of the Board of Directors shall be held without other notice than this Bylaw immediately after, and at the same place as, the annual meeting of stockholders.
Section 3. Regular Meetings and Special Meetings . Regular meetings, other than the annual meeting, of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by resolution of the Board of Directors and publicized among all directors. Special meetings of the Board of Directors may be called by the Chairman of the Board, if any, or upon the written request of at least a majority of the Whole Board. For purposes of the Bylaws, Whole Board shall mean the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships.
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Section 4. Notice of Meetings . Notice of regular meetings of the Board of Directors need not be given except as otherwise required by law or these Bylaws. Notice of each special meeting of the Board of Directors, and of each regular and annual meeting of the Board of Directors for which notice shall be required, shall be given by the Secretary as hereinafter provided in this Section 4, in which notice shall be stated the time and place of the meeting. Notice of any special meeting, and of any regular or annual meeting for which notice is required, shall be given to each director at least (a) twenty-four (24) hours before the meeting if by telephone or by being personally delivered or sent by telex, telecopy, email or similar means or (b) five (5) days before the meeting if delivered by mail to the director's residence or usual place of business. Such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage prepaid, or when transmitted if sent by telex, telecopy, email or similar means. Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Any director may waive notice of any meeting by a writing signed by the director or by electronic transmission entitled to the notice and filed with the minutes or corporate records.
Section 5. Waiver of Notice and Presumption of Assent . Any member of the Board of Directors or any committee thereof who is present at a meeting shall be conclusively presumed to have waived notice of such meeting except when such member attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.
Section 6. Chairman of the Board, Quorum, Required Vote and Adjournment . The Board of Directors may elect, by the affirmative vote of a majority of the Whole Board, a Chairman of the Board. The Chairman of the Board may be a director or an officer of the Corporation. Subject to the provisions of these Bylaws and the direction of the Board of Directors, he or she shall perform all duties and have all powers which are commonly incident to the position of Chairman of the Board or which are delegated to him or her by the Board of Directors who shall preside at all meetings of the stockholders and Board of Directors at which he or she is present and shall have such powers and perform such duties as the Board of Directors may from time to time prescribe. If the Chairman of the Board is not present at a meeting of the stockholders or the Board of Directors, the Chief Executive Officer (if the Chief Executive Officer is a director and is not also the Chairman of the Board) shall preside at such meeting, and, if the Chief Executive Officer is not present at such meeting, a majority of the directors present at such meeting shall elect one of the directors present at the meeting to so preside. A majority of the Whole Board shall constitute a quorum for the transaction of business. Unless by express provision of an applicable law, the Certificate of Incorporation or these Bylaws a different vote is required, the vote of a majority of directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may, to the fullest extent permitted by law, adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
Section 7. Committees . The Board of Directors (i) may, by resolution passed by a majority of the Whole Board, designate one or more committees, including an executive committee, consisting of one or more of the directors of the Corporation, and (ii) shall during
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such period of time as any securities of the Corporation are listed on any exchange, by resolution passed by a majority of the Whole Board, designate all committees required by the rules and regulations of such exchange. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Except to the extent restricted by applicable law or the Certificate of Incorporation, each such committee, to the extent provided in the resolution creating it, shall have and may exercise all the powers and authority of the Board of Directors. Each such committee shall serve at the pleasure of the Board of Directors as may be determined from time to time by resolution adopted by the Board of Directors or as required by the rules and regulations of such exchange, if applicable. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors upon request.
Section 8. Committee Rules . Each committee of the Board of Directors may fix its own rules of procedure and shall hold its meetings as provided by such rules, except as may otherwise be provided by a resolution of the Board of Directors designating such committee. Unless otherwise provided in such a resolution, the presence of at least a majority of the members of the committee shall be necessary to constitute a quorum. Unless otherwise provided in such a resolution, in the event that a member and that members alternate, if alternates are designated by the Board of Directors, of such committee is or are absent or disqualified, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member.
Section 9. Action by Written Consent . Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
Section 10. Compensation . The Board of Directors shall have the authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity, including participation on any committees.
Section 11. Reliance on Books and Records . A member of the Board of Directors, or a member of any committee designated by the Board of Directors shall, in the performance of such persons duties, be fully protected in relying in good faith upon records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporations officers or employees, or committees of the Board of Directors, or by any other person as to matters the member reasonably believes are within such other persons professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.
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Section 12. Telephonic and Other Meetings . Unless restricted by the Certificate of Incorporation, any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting.
ARTICLE IV
OFFICERS
Section 1. Number . The officers of the Corporation shall be elected by the Board of Directors and shall consist of a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary, a Chief Financial Officer and such other officers and assistant officers as may be deemed necessary or desirable by the Board of Directors. Any number of offices may be held by the same person. In its discretion, the Board of Directors may choose not to fill any office for any period as it may deem advisable.
Section 2. Election and Term of Office . The officers of the Corporation shall be elected annually by the Board of Directors at its first meeting held after each annual meeting of stockholders or as soon thereafter as is convenient. The Chairman of the Board, if any, shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of stockholders or as soon thereafter as is convenient. Vacancies may be filled or new offices created and filled by the Board of Directors. Each officer shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided.
Section 3. Removal . Any officer or agent elected by the Board of Directors may be removed by the Board of Directors at its discretion, but such removal shall be without prejudice to the contract rights, if any, of the person so removed.
Section 4. Vacancies . Any vacancy occurring in any office because of death, resignation, removal, disqualification or otherwise may be filled by the Board of Directors.
Section 5. Compensation . Compensation of all executive officers shall be approved by the Board of Directors, and no officer shall be prevented from receiving such compensation by virtue of his or her also being a director of the Corporation.
Section 6. Chief Executive Officer . The Chief Executive Officer shall have the powers and perform the duties incident to that position. The Chief Executive Officer shall, in the absence of the Chairman of the Board, or if a Chairman of the Board shall not have been elected, preside at each meeting of (a) the Board of Directors if the Chief Executive Officer is a director or (b) stockholders. Subject to the powers of the Board of Directors and the Chairman of the Board, the Chief Executive Officer shall be in general and active charge of the entire business and affairs of the Corporation, and shall be its chief policy making officer. The Chief Executive Officer shall have such other powers and perform such other duties as may be prescribed by the Board of
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Directors or provided in these Bylaws. The Chief Executive Officer is authorized to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. Whenever the President is unable to serve, by reason of sickness, absence or otherwise, the Chief Executive Officer shall perform all the duties and responsibilities and exercise all the powers of the President.
Section 7. The President . The President of the Corporation shall, subject to the powers of the Board of Directors, the Chairman of the Board and the Chief Executive Officer, have general charge of the business, affairs and property of the Corporation, and control over its officers, agents and employees. The President shall see that all orders and resolutions of the Board of Directors are carried into effect. The President is authorized to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. The President shall have such other powers and perform such other duties as may be prescribed by the Chairman of the Board, the Chief Executive Officer, the Board of Directors or as may be provided in these Bylaws.
Section 8. Vice Presidents . The Vice President, or if there shall be more than one, the Vice Presidents, in the order determined by the Board of Directors or the Chairman of the Board, shall, in the absence or disability of the President, act with all of the powers and be subject to all the restrictions of the President. The Vice Presidents shall also perform such other duties and have such other powers as the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or these Bylaws may, from time to time, prescribe. The Vice Presidents may also be designated as Executive Vice Presidents or Senior Vice Presidents, as the Board of Directors may from time to time prescribe.
Section 9. The Secretary and Assistant Secretaries . The Secretary shall attend all meetings of the Board of Directors (other than executive sessions thereof) and all meetings of the stockholders and record all the proceedings of the meetings in a book or books to be kept for that purpose or shall ensure that his or her designee attends each such meeting to act in such capacity. Under the Board of Directors supervision, the Secretary shall give, or cause to be given, all notices required to be given by these Bylaws or by law; shall have such powers and perform such duties as the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or these Bylaws may, from time to time, prescribe; and shall have custody of the corporate seal of the Corporation. The Secretary, or an Assistant Secretary, shall have authority to affix the corporate seal to any instrument requiring it and when so affixed, it may be attested by his or her signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature. The Assistant Secretary, or if there be more than one, any of the assistant secretaries, shall in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President, or Secretary may, from time to time, prescribe.
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Section 10. The Chief Financial Officer . The Chief Financial Officer shall have the custody of the corporate funds and securities; shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation as shall be necessary or desirable in accordance with applicable law or generally accepted accounting principles; shall deposit all monies and other valuable effects in the name and to the credit of the Corporation as may be ordered by the Chairman of the Board or the Board of Directors; shall receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever; shall cause the funds of the Corporation to be disbursed when such disbursements have been duly authorized, taking proper vouchers for such disbursements; and shall render to the Board of Directors, at its regular meeting or when the Board of Directors so requires, an account of the Corporation; shall have such powers and perform such duties as the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or these Bylaws may, from time to time, prescribe.
Section 11. Other Officers, Assistant Officers and Agents . Officers, assistant officers and agents, if any, other than those whose duties are provided for in these Bylaws, shall have such authority and perform such duties as may from time to time be prescribed by resolution of the Board of Directors.
Section 12. Officers Bonds or Other Security . If required by the Board of Directors, any officer of the Corporation shall give a bond or other security for the faithful performance of his duties, in such amount and with such surety as the Board of Directors may require.
Section 13. Delegation of Authority . The Board of Directors may by resolution delegate the powers and duties of such officer to any other officer or to any director, or to any other person whom it may select.
ARTICLE V
CERTIFICATES OF STOCK
Section 1. Form . The shares of stock of the Corporation shall be represented by certificates provided that the Board of Directors may provide by resolution that some or all of any or all classes or series of its stock shall be uncertificated shares. If shares are represented by certificates, the certificates shall be in such form as required by applicable law and as determined by the Board of Directors. Each certificate shall certify the number of shares owned by such holder in the Corporation and shall be signed by, or in the name of the Corporation by the Chairman of the Board, or the President or the Vice President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation designated by the Board of Directors. Any or all signatures on the certificate may be a facsimile. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on, any such certificate or certificates shall cease to be such officer or officers of the Corporation whether because of death, resignation or otherwise before such certificate or certificates have been issued by the Corporation, such certificate or certificates may nevertheless be issued as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the Corporation. All certificates for shares shall be consecutively numbered or otherwise identified.
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The Board of Directors may appoint a bank or trust company organized under the laws of the United States or any state thereof to act as its transfer agent or registrar, or both in connection with the transfer of any class or series of securities of the Corporation. The Corporation, or its designated transfer agent or other agent, shall keep a book or set of books to be known as the stock transfer books of the Corporation, containing the name of each holder of record, together with such holder's address and the number and class or series of shares held by such holder and the date of issue. When shares are represented by certificates, the Corporation shall issue and deliver to each holder to whom such shares have been issued or transferred, certificates representing the shares owned by such holder, and shares of stock of the Corporation shall only be transferred on the books of the Corporation by the holder of record thereof or by such holders attorney duly authorized in writing, upon surrender to the Corporation or its designated transfer agent or other agent of the certificate or certificates for such shares endorsed by the appropriate person or persons, with such evidence of the authenticity of such endorsement, transfer, authorization and other matters as the Corporation may reasonably require, and accompanied by all necessary stock transfer stamps. In that event, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate or certificates and record the transaction on its books. When shares are not represented by certificates, shares of stock of the Corporation shall only be transferred on the books of the Corporation by the holder of record thereof or by such holders attorney duly authorized in writing, with such evidence of the authenticity of such transfer, authorization and other matters as the Corporation may reasonably require, and accompanied by all necessary stock transfer stamps, and within a reasonable time after the issuance or transfer of such shares, the Corporation shall send the holder to whom such shares have been issued or transferred a written statement of the information required by applicable law. Unless otherwise provided by applicable law, the Certificate of Incorporation, Bylaws or any other instrument the rights and obligations of shareholders are identical, whether or not their shares are represented by certificates.
Section 2. Lost Certificates . The Corporation may issue or direct a new certificate or certificates or uncertificated shares to be issued in place of any certificate or certificates previously issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates or uncertificated shares, the Corporation may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his or her legal representative, to give the Corporation a bond in such sum as it may direct, sufficient to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
Section 3. Registered Stockholders . The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends, to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner. The Corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
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Section 4. Fixing a Record Date for Purposes Other Than Stockholder Meetings . In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment or any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purposes of any other lawful action (other than stockholder meetings which is expressly governed by Section 12 of ARTICLE II hereof), the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
ARTICLE VI
GENERAL PROVISIONS
Section 1. Dividends . Subject to the provisions of statutes and the Certificate of Incorporation, dividends upon the shares of capital stock of the Corporation may be declared by the Board of Directors, in accordance with applicable law. Dividends may be paid in cash, in property or in shares of the capital stock, subject to the provisions of applicable law and the Certificate of Incorporation. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors may think conducive to the interests of the Corporation. The Board of Directors may modify or abolish any such reserves in the manner in which they were created.
Section 2. Checks, Notes, Drafts, Etc . All checks, notes, drafts or other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation.
Section 3. Contracts . In addition to the powers otherwise granted to officers pursuant to ARTICLE IV hereof, the Board of Directors may authorize any officer or officers, or any agent or agents, in the name and on behalf of the Corporation to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances.
Section 4. Loans . Subject to compliance with applicable law (including Section 13(k) of the Securities Exchange Act of 1934), the Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiaries, including any officer or employee who is a director of the Corporation or its subsidiaries, whenever, in the judgment of the directors, such loan, guaranty or assistance may
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reasonably be expected to benefit the Corporation. The loan, guaranty or other assistance may be with or without interest, and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute.
Section 5. Fiscal Year . The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.
Section 6. Corporate Seal . The Board of Directors may provide a corporate seal which shall be in the form of a circle and shall have inscribed thereon the name of the Corporation and the words Corporate Seal, Delaware. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Notwithstanding the foregoing, no seal shall be required by virtue of this Section.
Section 7. Voting Securities Owned By Corporation . Voting securities in any other Corporation held by the Corporation shall be voted by the Chairman of the Board, Chief Executive Officer, the President or the Chief Financial Officer, unless the Board of Directors specifically confers authority to vote with respect thereto, which authority may be general or confined to specific instances, upon some other person or officer. Any person authorized to vote securities shall have the power to appoint proxies, with general power of substitution.
Section 8. Inspection of Books and Records . The Board of Directors shall have power from time to time to determine to what extent and at what times and places and under what conditions and regulations the accounts and books of the Corporation, or any of them, shall be open to the inspection of the stockholders; and no stockholder shall have any right to inspect any account or book or document of the Corporation, except as conferred by the laws of the State of Delaware, unless and until authorized so to do by resolution of the Board of Directors.
Section 9. Section Headings . Section headings in these Bylaws are for convenience of reference only and shall not be given any substantive effect in limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions . In the event that any provision of these Bylaws is or becomes inconsistent with any provision of the Certificate of Incorporation, the DGCL or any other applicable law, the provision of these Bylaws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect.
ARTICLE VII
INDEMNIFICATION
Section 1. Right to Indemnification and Advancement . Each person who was or is made a party or is threatened to be made a party to or is otherwise involved (including involvement, without limitation, as a witness) in any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative (a proceeding ), by reason of the fact that he or she
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is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (an indemnitee ), whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability and loss (including attorneys fees and related disbursements, judgments, fines, excise taxes, penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the indemnitees heirs, executors and administrators; provided, however, that, except as provided in this Section 1 of this ARTICLE VII with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section 1 of this ARTICLE VII shall be a contract right. In addition to the right to indemnification conferred herein, an indemnitee shall also have the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition (an advance of expenses ); provided, however, that if and to the extent that the DGCL requires, an advance of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any capacity in which service was or is rendered by such indemnitee, including without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (an undertaking ), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (a final adjudication ) that such indemnitee is not entitled to be indemnified for such expenses under this Section 1 or otherwise. The Corporation may also, by action of its Board of Directors, provide indemnification and advancement to employees and agents of the Corporation.
Section 2. Procedure for Indemnification . Any indemnification of a director or officer of the Corporation or advance of expenses (including attoneys fees, costs and charges) under this Section 2 of this ARTICLE VII shall be made promptly, and in any event within forty-five days (or, in the case of an advance of expenses, twenty days, provided that the director or officer has delivered the undertaking contemplated by Section 1 of this ARTICLE VII if required), upon the written request of the director or officer. If the Corporation denies a written request for indemnification or advance of expenses, in whole or in part, or if payment in full pursuant to such request is not made within forty-five days (or, in the case of an advance of expenses, twenty days, provided that the director or officer has delivered the undertaking contemplated by Section 1 of this ARTICLE VII if required), the right to indemnification or advances as granted by this ARTICLE VII shall be enforceable by the director or officer in any court of competent jurisdiction. Such persons costs and expenses incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such action shall also be
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indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of expenses where the undertaking required pursuant to Section 1 of this ARTICLE VII, if any, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the DGCL for the Corporation to indemnify the claimant for the amount claimed, but the burden of such defense shall be on the Corporation to the fullest extent permitted by law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.
Section 3. Insurance . The Corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was or has agreed to become a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify such person against such expenses, liability or loss under the DGCL.
Section 4. Service for Subsidiaries . Any person serving as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture or other enterprise, at least 50% of whose equity interests are owned by the Corporation (a subsidiary for this ARTICLE VII) shall be conclusively presumed to be serving in such capacity at the request of the Corporation.
Section 5. Reliance . Persons who after the date of the adoption of this provision become or remain directors or officers of the Corporation or who, while a director or officer of the Corporation, become or remain a director, officer, employee or agent of a subsidiary, shall be conclusively presumed to have relied on the rights to indemnity, advance of expenses and other rights contained in this ARTICLE VII in entering into or continuing such service. The rights to indemnification and to the advance of expenses conferred in this ARTICLE VII shall apply to claims made against an indemnitee arising out of acts or omissions which occurred or occur both prior and subsequent to the adoption hereof. Any amendment, alteration or repeal of this ARTICLE VII that adversely affects any right of an indemnitee or its successors shall be prospective only and shall not limit, eliminate, or impair any such right with respect to any proceeding involving any occurrence or alleged occurrence of any action or omission to act that took place prior to such amendment or repeal.
Section 6. Non-Exclusivity of Rights . The rights to indemnification and to the advance of expenses conferred in this ARTICLE VII shall not be exclusive of any other right which any person may have or hereafter acquire under the Certificate of Incorporation or under any statute, by-law, agreement, vote of stockholders or disinterested directors or otherwise.
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Section 7. Merger or Consolidation . For purposes of this ARTICLE VII, references to the Corporation shall include, in addition to the resulting Corporation, any constituent Corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent Corporation, or is or was serving at the request of such constituent Corporation as a director, officer, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this ARTICLE VII with respect to the resulting or surviving Corporation as he or she would have with respect to such constituent Corporation if its separate existence had continued.
Section 8. Savings Clause . If this ARTICLE VII or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify and advance expenses to each person entitled to indemnification under Section 1 as to all expense, liability and loss (including attorneys fees and related disbursements, judgments, fines, excise taxes, penalties and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such person and for which indemnification and advancement of expenses is available to such person pursuant to this ARTICLE VII to the fullest extent permitted by any applicable portion of this ARTICLE VII that shall not have been invalidated and to the fullest extent permitted by applicable law.
ARTICLE VIII
AMENDMENTS
These Bylaws may be amended, altered, changed or repealed or new Bylaws adopted only in accordance with Article Seven of the Certificate of Incorporation.
- 23 -
Exhibit 4.1
By
AUTHORIZED SIGNATURE
THIS CERTIFIES THAT
is the owner of
CUSIP
DATED
COUNTERSIGNED AND REGISTERED:
COMPUTERSHARE TRUST COMPANY, N.A.
TRANSFER AGENT AND REGISTRAR,
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
Express, Inc. (hereinafter called the Company), transferable on the books of the Company in person or by
duly authorized attorney, upon surrender of this Certificate properly endorsed. This Certificate and the shares
represented hereby, are issued and shall be held subject to all of the provisions of the Articles of Incorporation,
as amended, and the By-Laws, as amended, of the Company (copies of which are on file with the Company and
with the Transfer Agent), to all of which each holder, by acceptance hereof, assents. This Certificate is not valid
unless countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Company and the facsimile signatures of its duly authorized officers.
COMMON STOCK
PAR VALUE $0.01
COMMON STOCK
THIS CERTIFICATE IS TRANSFERABLE IN
CANTON, MA AND NEW YORK, NY
SEE REVERSE FOR CERTAIN DEFINITIONS
Certificate
Number
Shares
EXPRESS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
President and Chief Executive Officer
Executive Vice President, Chief Administrative Officer,
Chief Financial Officer, Secretary and Treasurer
016570| 003590|127C|RESTRICTED||4|057-423
30219E 10 3
>
* * 600620* * * * * *
* * * 600620* * * * *
* * * * 600620* * * *
* * * * * 600620* * *
* * * * * * 600620* *
** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample
**** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David
Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander
David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr.
Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample ****
Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample
**** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David
Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander
David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr.
Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample ****
Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Sample **** Mr. Sample
**600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares***
*600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****
600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****6
00620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****60
0620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600
620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares***600620**Shares****600620**Shares****60062
0**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620
**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620*
*Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**
Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**S
hares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Shares****600620**Sh
* * * SIX HUNDRED THOUSAND
SIX HUNDRED AND TWENTY* * *
MR. SAMPLE & MRS. SAMPLE &
MR. SAMPLE & MRS. SAMPLE
NNNNN
ZQ 000000
Certificate Numbers
1234567890/1234567890
1234567890/1234567890
1234567890/1234567890
1234567890/1234567890
1234567890/1234567890
1234567890/1234567890
Total Transaction
Num/No.
123456
Denom.
123456
Total
1234567
MR A SAMPLE
DESIGNATION (IF ANY)
ADD 1
ADD 2
ADD 3
ADD 4
PO BOX 43004, Providence, RI 02940-3004
CUSIP XXXXXX XX X
Holder ID XXXXXXXXXX
Insurance Value 1,000,000.00
Number of Shares 123456
DTC 12345678 123456789012345
-----------------------------------------------------------------------------------------------------------------------------------------------------------------
EXPRESS, INC.
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS, A SUMMARY OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OF THE COMPANY AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND RIGHTS, AND THE VARIATIONS IN RIGHTS, PREFERENCES AND LIMITATIONS DETERMINED FOR EACH SERIES, WHICH ARE FIXED BY THE ARTICLES OF INCORPORATION OF THE COMPANY, AS AMENDED, AND THE RESOLUTIONS OF THE BOARD OF DIRECTORS OF THE COMPANY, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS FOR FUTURE SERIES. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE COMPANY OR TO THE TRANSFER AGENT. THE BOARD OF DIRECTORS MAY REQUIRE THE OWNER OF A LOST OR DESTROYED STOCK CERTIFICATE, OR HIS LEGAL REPRESENTATIVES, TO GIVE THE COMPANY A BOND TO INDEMNIFY IT AND ITS TRANSFER AGENTS AND REGISTRARS AGAINST ANY CLAIM THAT MAY BE MADE AGAINST THEM ON ACCOUNT OF THE ALLEGED LOSS OR DESTRUCTION OF ANY SUCH CERTIFICATE.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: |
||||||
TEN COM | - as tenants in common | UNIF GIFT MIN ACT | - .. ......... .. Custodian .............................................. | |||
(Cust) (Minor) | ||||||
TEN ENT | - as tenants by the entireties | under Uniform Gifts to Minors Act ................................................ | ||||
(State) | ||||||
JT TEN | - as joint tenants with right of survivorship | UNIF TRF MIN ACT | - .............. Custodian (until age.................................... ) | |||
(Cust) | ||||||
........................under Uniform Transfers to Minors Act ................... | ||||||
(Minor) (State) | ||||||
Additional abbreviations may also be used though not in the above list.
|
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE | ||
For value received, hereby sell, assign and transfer unto
|
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE)
Dated: 20 |
Signature(s) Guaranteed: Medallion Guarantee Stamp THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan Associations and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15. |
|
Signature: |
||
Signature: |
||
Notice: The signature to this assignment must correspond with the name as written upon the face of the certificate, in every particular, without alteration or enlargement, or any change whatever. |
||
Exhibit 4.4
REGISTRATION AGREEMENT
THIS REGISTRATION AGREEMENT (this Agreement ) is made as of , 2010, by and among Express Parent LLC, a Delaware limited liability company ( Parent ), and each of the Persons listed on the signature pages attached hereto (the Stockholders ). This Agreement shall amend and replace in its entirety the terms and conditions of Annex B to the Express Parent LLC ( Parent ) Limited Liability Company Agreement dated as of June 26, 2008, as the same may have been amended or modified from time to time.
WHEREAS, as of the date hereof, Parent will convert (the Conversion ) from a Delaware limited liability company to a Delaware corporation named Express, Inc. (the Company ) to effectuate an initial public offering of shares of the Companys common stock, par value $0.01 per share (the Common Stock ), pursuant to a registration statement filed with the Securities and Exchange Commission (the Initial Public Offering );
WHEREAS, the Company is the successor-in-interest to Parent by reason of the Conversion;
WHEREAS, on the day immediately following the date hereof, pursuant to that certain Agreement and Plan of Merger to be dated as of the day immediately following the date hereof, among the Company, Express Investment Corp., a Delaware corporation ( EIC ), Express Management Investors Blocker, Inc., a Delaware corporation ( EMIB ), Express Management Investors LLC, a Delaware limited liability company ( EMI , and together with EIC and EMIB, the Merged Entities ), Multi-Channel Retail Holdings LLC - Series G, a Delaware limited liability company ( MCRH ), and Express Holding, LLC, a Delaware limited liability company, the beneficial owners of the Merged Entities, including MCRH, will receive shares of Common Stock of the Company in connection with the mergers contemplated therein (the Mergers );
WHEREAS, immediately following the consummation of the Mergers, MCRH will become a party to this Agreement (and will be deemed to be a Stockholder hereunder from and after such time), as successor-in-interest to EIC, and from and after such time, all references in this Agreement to EIC shall be deemed to mean MCRH; and
WHEREAS, the parties hereto desire to enter into this Agreement to set forth certain registration rights of the Stockholders.
NOW, THEREFORE, the parties to this Agreement agree as follows:
Section 1.1 Definitions . (a) For purposes of this Agreement, the following terms have the following meanings:
Commission means the United States Securities and Exchange Commission and any successor federal agency administering the Securities Act.
Exchange Act means the Securities Exchange Act of 1934 and all rules, regulations and orders issued thereunder, as any of the same may be amended.
Limited means, collectively, EXP Investments, Inc., a Delaware corporation, and Limited Brands Store Operations, Inc., a Delaware corporation.
Person means an individual, corporation, partnership, association, trust, limited liability company, joint venture, unincorporated organization or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
Registrable Securities means (i) all shares of Common Stock owned of record by a Stockholder that were formerly represented by Class L units of Parent and (ii) all shares of Common Stock that may be issued to such Stockholder in respect of shares of Common Stock described in clause (i) above pursuant to any conversion, exchange, stock dividend, split or combination, recapitalization, merger, consolidation, other reorganization or otherwise. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (i) the offer and sale of such securities shall have been registered under the Securities Act, the registration statement with respect to such offer or sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of pursuant to such effective registration statement, (ii) such securities shall have been sold pursuant to Rule 144, (iii) such securities shall have been otherwise transferred, if new certificates or other evidences of ownership for them not bearing a legend restricting further transfer and not subject to any stop transfer order or other restrictions on transfer shall have been delivered by the Company and subsequent disposition of such securities shall not require registration or qualification of such securities under the Securities Act or any state securities laws then in force or (iv) such securities shall cease to be outstanding.
Registration means a registration of a bona fide public offering and sale of shares of Common Stock or other equity securities of the Company pursuant to an effective registration statement under the Securities Act (other than pursuant to a registration statement on Form S-4 or Form S-8 or any successor or similar form) and in compliance with all applicable state securities laws, and Register means to effect such a registration.
Registration Expenses means all expenses of the Company incident to the Companys performance of or compliance with the provisions of this Agreement, including all Commission and stock exchange or automated interdealer quotation system registration, filing and listing fees and expenses, fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities), rating agency fees, all fees and expenses of the transfer agent and registrar for the securities, printing expenses, messenger and delivery expenses, the fees and reasonable expenses incurred in
2
connection with the listing of the securities to be registered on each securities exchange or automated interdealer quotation system on which Registrable Securities are to be listed or on which similar securities issued by the Company are to be listed in connection with such transaction, reasonable fees and disbursements of counsel for the Company and all independent certified public accountants for the Company (including the expenses of any annual audit, special audit and cold comfort letters required in connection therewith or incident thereto), the reasonable fees and disbursements of underwriters customarily paid by issuers or sellers of securities (but not including any underwriting discounts or commissions or transfer taxes, if any, attributable to the sale of Registrable Securities by the holders of such Registrable Securities, or any fees or expenses of counsel), all fees and expenses of any qualified independent underwriter or any person acting in a similar capacity under the rules of the National Association of Securities Dealers, the reasonable fees and disbursements of one counsel retained in connection with each such Registration by the Stockholders, such counsel to be selected by the Stockholders who hold two-thirds of the Registrable Securities being Registered, the reasonable fees and expenses of any special experts retained by the Company in connection with such Registration, fees and expenses of other Persons retained by the Company, and expenses relating to any analyst or investor presentation or any road shows undertaken by the Company in connection with the registration, marketing or selling of the Registrable Securities.
Representative means, with respect to a particular Person, any director, officer, general partner, limited partner, co-owner, member, nominee, managing director, financial advisor, accountant, legal counsel, consultant, agent or controlling Person of such Person.
Securities Act means the Securities Act of 1933, as amended.
(b) Each of the following terms is defined in the Section set forth opposite such term:
Term |
Section | |
Demand Securities |
1.2(a) | |
Requesting Stockholder |
1.2(a) | |
Shelf Registration |
1.2(g) |
Section 1.2 Demand Registration Rights . (a) Following the earlier of (x) 180 days after the effective date of the registration statement for the Initial Public Offering and (y) the expiration of the period during which the managing underwriters for the Initial Public Offering shall prohibit the Company from effecting any other public sale or distribution of Registrable Securities, upon written notice to the Company from Limited or EIC (together with its permitted assigns, the Requesting Stockholder ) (which notice shall specify the number and the intended method of disposition of Registrable Securities), the Company shall (i) promptly give written notice of such requested Registration to each of the Stockholders then owning Registrable Securities and (ii) use its reasonable best efforts to effect and maintain the
3
Registration on an appropriate form under the Securities Act of offers and sales of (x) Registrable Securities by the Requesting Stockholder and Registrable Securities by each other Stockholder which shall have made a written request to the Company for Registration thereof (which request shall specify the number of Registrable Securities) within ten Business Days after the giving of such written notice by the Company (collectively, the Demand Securities ) and (y) any securities which the Company may elect to Register in connection with the offering of Demand Securities and such other securities the Company may be obligated to include due to other piggyback registration rights, if any, granted to third parties, in each case in accordance with the intended method or methods of disposition specified by the Requesting Stockholder, subject to the other provisions of this Agreement; provided that the Company shall not be obligated to effect any Registration pursuant to this Section 1.2 except in accordance with the following provisions:
(i) no Requesting Stockholder shall be entitled to make more than three (3) requests for Registration pursuant to this Section 1.2, other than Registrations requested to be effected pursuant to a registration statement on Form S-3 under the Securities Act (or any successor thereto), for which an unlimited number of requests pursuant to this Section 1.2 shall be permitted; provided that at the time of such request the Company is eligible for use of Form S-3 under the Securities Act (or any successor thereto);
(ii) no Requesting Stockholder shall be entitled to request any Registration pursuant to this Section 1.2 until at least six (6) months after the closing of the last Registration and sale of Company securities subject to this Section 1.2 or Section 1.3;
(iii) the Company shall not be required to effect any Registration pursuant to this Section 1.2 unless the anticipated gross proceeds of the Registrable Securities sought to be registered by the Requesting Stockholder exceeds $100 million; and
(iv) if, after a request for Registration pursuant to this Section 1.2 has been made, the board of directors of the Company or other equivalent governing body has determined, in good faith, that the filing of a registration statement to effect such a Registration pursuant to this Section 1.2 would require the disclosure of material information which the Company has a reasonable justification for keeping confidential on the grounds that such disclosure would materially interfere with a proposed or pending bona fide material financing, acquisition or other material transaction of the Company, the Company shall not be obligated to effect such a Registration pursuant to this Section 1.2 until the earlier of the expiration of 90 days after the Company first makes such good faith determination or the completion of such transaction, negotiations or bidding; provided that the Company shall not be permitted to exercise its rights under this Section 1.12(a)(iv) more than twice (not to exceed 90 days in the aggregate) during any twelve-month period.
(b) Subject to Section 1.2(a), the Requesting Stockholder may, in the notice delivered pursuant to Section 1.2(a), elect that the requested Registration be pursuant to an
4
underwritten offering. Upon such election by the Requesting Stockholder (or, in the event the Requesting Stockholder does not so elect, if the Company elects an underwritten offering), a majority of the board of directors of the Company or other equivalent governing body shall have the right to designate the managing underwriter(s) and, in such case, the Company shall not be required to include the Registrable Securities of a Stockholder in the underwritten offering unless such Stockholder accepts the reasonable and customary terms of the underwritten offering as agreed upon between the Company and the managing underwriter(s) so designated.
(c) If a Registration pursuant to this Section 1.2 involves an underwritten offering, and the managing underwriter shall advise the Company in writing (with a copy to each holder of Demand Securities) that, in its opinion, the number of securities requested to be included in such Registration (including securities of the Company which are not Registrable Securities) should be limited due to market or other conditions, the Company will include in such Registration, to the extent of the number which the Company is so advised in writing can be sold in such offering, (i) first, Demand Securities, pro rata among the holders thereof requesting such Registration on the basis of the number of such securities requested to be included by such holders and (ii) second, any securities which the Company has elected to Register pursuant to Section 1.2(a) in connection with the offering of Demand Securities and (iii) third, such other securities the Company may be obligated to include due to other piggyback registration rights granted to third parties.
(d) The Requesting Stockholder(s) requesting a Registration under this Section 1.2 may, at any time prior to the effective date of the registration statement relating to such Registration, revoke such request by providing written notice thereof to the Company, with the following consequences:
(i) if such request is withdrawn prior to the filing date of the applicable registration statement, such withdrawn registration shall count as a requested Registration for purposes of Section 1.2(a)(i) unless the Requesting Stockholder has promptly reimbursed the Company for all Registration Expenses incurred by the Company in connection with the preparation of such registration statement for filing; or
(ii) if such request is withdrawn after the filing date of the applicable registration statement but prior to its effective date, such withdrawn registration shall count as a requested Registration for purposes of Section 1.2(a)(i) unless the Requesting Stockholder has promptly reimbursed the Company for all Registration Expenses incurred by the Company in connection with such withdrawn registration.
(e) Except as provided in Section 1.2(d), any Registration requested by any Requesting Stockholder pursuant to Section 1.2(a) shall not be deemed to have been effected (and, therefore, not requested for purposes of Section 1.2(a)):
(i) unless such Registration has become effective and has remained effective for the period set forth in Section 1.12(a)(i) (subject to Section 1.1.2(b)); provided that a Registration which does not become effective after the Company has filed a registration statement with respect thereto solely by reason of the
5
refusal to proceed by the Requesting Stockholder (other than a refusal to proceed based upon the advice of counsel relating to a matter with respect to the Company) shall be deemed to have been effected by the Company at the request of such Requesting Stockholder;
(ii) if after such Registration has become effective such Registration is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental entity for any reason other than a misrepresentation or an omission by the Requesting Stockholder and, as a result thereof, the Registrable Securities requested by the Requesting Stockholder to be registered cannot be completely distributed in accordance with the plan of distribution set forth in the related registration statement;
(iii) if the closing pursuant to the purchase agreement or underwriting agreement entered into in connection with such Registration does not occur; or
(iv) if, as a result of a determination made pursuant to Section 1.2(c) by a managing underwriter, the Requesting Stockholder shall not be entitled to include in such Registration at least 65% of the Registrable Securities that such Requesting Stockholder requested pursuant to Section 1.2(a) to be included in such registration.
(f) Any Registration effected pursuant to Section 1.3 shall not be deemed to have been requested by a Requesting Stockholder pursuant to this Section 1.2.
(g) At any time following the date when the Company becomes eligible to use Form S-3 under the Securities Act for secondary sales, upon written request of Limited or EIC, the Company shall use its reasonable best efforts to file a shelf registration statement (the Shelf Registration ) with respect to all or any portion of such Stockholders Registrable Securities, if requested by such Stockholder, on an appropriate form pursuant to Rule 415 (or any similar provision that may be adopted by the Commission) under the Securities Act and to cause such Shelf Registration to become effective and to keep such Shelf Registration in effect until such Stockholder shall no longer hold any Registrable Securities.
Section 1.3 Piggyback Registration Rights. (a) If, at any time following the completion of an Initial Public Offering, the Company proposes to effect a Registration, whether or not for sale for its own account, in a manner which would permit Registration of Registrable Securities for sale to the public under the Securities Act (other than a Registration pursuant to Section 1.2), it shall give prompt written notice to the Stockholders holding Registrable Securities of its intention to do so and of such Stockholders rights under this Section 1.3, at least ten Business Days prior to the anticipated filing date of the registration statement relating to such Registration. Such notice shall offer all such Stockholders holding Registrable Securities the opportunity to include in such Registration such number of Registrable Securities as each such Stockholder may request. Upon the written request of any such Stockholder made within five Business Days after the receipt of the Companys notice (which request shall specify the number of Registrable Securities intended to be disposed of by such Stockholder), the Company shall use
6
its reasonable best efforts to include in such Registration all of the Registrable Securities which the Company has been so requested to Register by the Stockholders holding such Registrable Securities pursuant to this Section 1.3(a); provided that the Company shall not be obligated to effect any Registration pursuant to this Section 1.3 except in accordance with the following provisions:
(i) if such Registration involves an underwritten offering, all Stockholders requesting that their Registrable Securities be included in the Companys Registration must, upon request by the underwriter(s), sell their Registrable Securities to such underwriter(s) selected by the Company on the same terms and conditions as apply to the Company or any selling securityholder, including executing and delivering such underwriting agreements or other agreements (including legal opinions) to which the Company or any such selling securityholder has agreed to execute and deliver;
(ii) if, at any time after giving written notice of its intention to register any securities pursuant to this Section 1.3, the Company shall determine for any reason not to Register or to withdraw Registration of such securities, the Company shall give written notice to all Stockholders holding Registrable Securities included in such Registration and, thereupon, shall be relieved of its obligation to Register (or maintain the effectiveness of the Registration of) any Registrable Securities in connection with such Registration (without prejudice, however, to the rights of the Stockholders immediately to request that such Registration be effected as a Registration under Section 1.2);
(iii) the Company shall not be required to effect any Registration of Registrable Securities under this Section 1.3 incidental to the registration of any of its securities in connection with mergers, acquisitions, exchange offers, subscription offers, dividend reinvestment plans or stock option or other executive or employee benefit or compensation plans (including any registration of securities on a Form S-4 or S-8 registration statement or any successor or similar forms); and
(iv) no Registration of Registrable Securities effected under this Section 1.3 shall relieve the Company of its obligation to effect a Registration of Registrable Securities pursuant to Section 1.2.
(b) If a Registration pursuant to this Section 1.3 involves an underwritten offering, and the managing underwriter shall advise the Company in writing (with a copy to each Stockholder requesting inclusion of Registrable Securities in such Registration) that, in its opinion, the number of securities requested to be included in such Registration (including securities of the Company which are not Registrable Securities) should be limited due to market or other conditions, the Company shall include in such Registration (i) first, the securities the Company proposes to sell, (ii) second, the Registrable Securities requested to be included therein pursuant to this Section 1.3, pro rata among the requesting Stockholders on the basis of the number of Registrable Securities requested to be included in such Registration by such Stockholders and (iii) third, any other securities requested to be included in such registration pro rata among the holders of such securities on the basis of the number of shares requested to be Registered by such holders or as such holders may otherwise agree.
7
Section 1.4 Registration Expenses. Subject to Section 1.2(d), the Company shall pay all Registration Expenses in connection with each Registration of Registrable Securities requested pursuant to this Agreement and any other actions that may be taken in connection with any such Registration as contemplated by this Agreement; provided that the Company shall not be obligated to pay any underwriting discounts or commissions or transfer taxes, if any, relating to the Transfer of securities Transferred by Persons other than the Company pursuant to any such Registration.
Section 1.5 Restrictions on Public Sales by Stockholders. In connection with any underwritten offering of securities of the Company, including any offering contemplated by this Agreement (other than pursuant to a Shelf Registration), each Stockholder agrees that, whether or not such Stockholders Registrable Securities are included in such Registration, it shall consent and agree to comply with any hold back or lock-up restriction, relating to Registrable Securities or any other securities of the Company then owned by such holder, that may be reasonably requested by the managing underwriter(s) of such offering. The Company hereby also agrees to use its reasonable efforts to cause each other holder of equity securities or securities convertible into or exchangeable or exercisable for such securities (other than in the case of equity securities issued under dividend reinvestment plans or employee stock plans) purchased directly from the Company otherwise than in a public offering to so agree, to the extent reasonably requested by the managing underwriter(s) of such offering.
Section 1.6 Indemnification by the Company. In the event of any Registration of any Registrable Securities under the Securities Act pursuant to this Agreement, the Company shall indemnify and hold harmless, to the full extent permitted by law, each of the Stockholders holding any Registrable Securities included in such registration statement, its Representatives, each other person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls, is controlled by or is under common control with such Stockholder or any such underwriter within the meaning of the Securities Act, against any and all losses, claims, damages or liabilities, joint or several, and expenses (including any amounts paid in any settlement effected with the Companys consent) to which such Stockholder, any such Representative or any such underwriter or controlling Person may become subject under the Securities Act, state securities or blue sky laws, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) or expenses arise out of or are based upon (a) any untrue statement or alleged untrue statement of any material fact contained in any information conveyed in connection with such Registration at or prior to the time of sale, or in any registration statement under which such securities were Registered under the Securities Act, any preliminary, final or summary prospectus contained therein, or any amendment or supplement thereto, (b) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (c) any violation by the Company of any law applicable to the Company and relating to action required of or inaction by the Company in connection with any such Registration, and the Company shall reimburse such Stockholder and each such Representative or underwriter and controlling Person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending such loss, claim, liability, action or proceeding; provided that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged
8
omission made in any information conveyed in connection with such Registration at or prior to the time of sale, or in such registration statement or amendment or supplement thereto or in any such preliminary, final or summary prospectus in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such Stockholder or any such Representative or underwriter specifically stating that it is for use in the preparation thereof. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Stockholder or any such Representative or underwriter and shall survive the transfer of such securities by such Stockholder.
Section 1.7 Indemnification by the Stockholders and Underwriters. The Company may require, as a condition to including any Registrable Securities in any registration statement filed in accordance with Agreement, that the Company shall have received an undertaking reasonably satisfactory to it from the holders of such Registrable Securities and any underwriter, to indemnify and hold harmless severally, and not jointly, in the same manner and to the same extent as set forth in Section 1.6, the Company and its Representatives and all other prospective sellers and their respective Representatives, and their respective controlling Persons with respect to any statement or alleged statement in or omission or alleged omission from such information, registration statement, any preliminary, final or summary prospectus contained therein, or any amendment or supplement thereto, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company or its representatives through an instrument duly executed by or on behalf of such Stockholder or underwriter, as the case may be, specifically stating that it is for use in the preparation of such information, registration statement, preliminary, final or summary prospectus or amendment or supplement thereto, or a document incorporated by reference into any of the foregoing. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any of the Stockholders, underwriters or any of their respective Representatives or controlling persons and shall survive the transfer of such securities by such Stockholder; provided that no such Stockholder shall be liable under this Section 1.7 for any amounts exceeding the product of the purchase price per Registrable Security and the number of Registrable Securities being sold pursuant to such registration statement or prospectus by such Stockholder (net of any underwriters or placement agents fees, discounts or commissions related thereto); provided, further, that no underwriter shall be liable under this Section 1.7 for any amounts exceeding the total price at which the Registrable Securities purchased by it and distributed to the public were offered to the public.
Section 1.8 Notices of Claims, Etc. Promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Agreement, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party, promptly give written notice to the latter of the commencement of such action; provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding Sections of this Agreement, except to the extent that the indemnifying party is actually materially prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified partys reasonable judgment (a) a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, (b) the claim is criminal in nature or (c) the claim involves material civil liability on the part of an indemnified party, the indemnifying party shall be
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entitled to participate in and, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof, unless in such indemnified partys reasonable judgment a conflict of interest between such indemnified and indemnifying parties arises in respect of such claim after the assumption of the defense thereof, and the indemnifying party shall not be subject to any liability for any settlement made without its consent (which consent shall not be unreasonably withheld). No indemnified party shall consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action the defense of which has been assumed by an indemnifying party without the consent of such indemnifying party. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel (in addition to any local counsel) for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels.
Section 1.9 Other Indemnification. Indemnification similar to that specified in the preceding Sections of this Agreement (with appropriate modifications) shall be given by the Company and each Stockholder holding Registrable Securities with respect to any required Registration or other qualification of securities under any law other than arising under the Securities Act.
Section 1.10 Indemnification Payments. The indemnification required by Section 1.6 and Section 1.7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred.
Section 1.11 Contribution. (a) If the indemnification provided for in Section 1.6 and Section 1.7 is unavailable to an indemnified party in respect of any expense, loss, claim, damage or liability referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such expense, loss, claim, damage or liability (a) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the participating Stockholders or underwriter(s), as the case may be, on the other hand, from the distribution of the Registrable Securities or (b) if the allocation provided by clause (a) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (a) above but also the relative fault of the Company, on the one hand, and of the participating Stockholders or underwriter(s), as the case may be, on the other hand, in connection with the statements or omissions which resulted in such expense, loss, damage or liability, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the participating Stockholders or underwriter(s), as the case
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may be, on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission to state a material fact relates to information supplied by the Company, by the participating Stockholders or by the underwriter(s) and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided that the foregoing contribution agreement shall not inure to the benefit of any indemnified party if indemnification would be unavailable to such indemnified party by reason of the provisions contained in the first sentence of either of Section 1.6 and Section 1.7, and in no event shall the obligation of any indemnifying party to contribute under this Section 1.11 exceed the amount that such indemnifying party would have been obligated to pay by way of indemnification if the indemnification provided for under Section 1.6 and Section 1.7 had been available under the circumstances.
(b) The Company and the holders of Registrable Securities agree that it would not be just and equitable if contribution pursuant to this Section 1.11 were determined by pro rata allocation (even if the holders and any underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in Section 1.11(a). The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in Section 1.11(a) shall be deemed to include, subject to the limitations set forth in the preceding sentence and Section 1.8, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim.
(c) Notwithstanding the provisions of this Section 1.11, no holder of Registrable Securities or underwriter shall be required to contribute any amount in excess of the amount by which (i) in the case of any such holder, the net proceeds received by such holder from the sale of Registrable Securities or (ii) in the case of an underwriter, the total price at which the Registrable Securities purchased by it and distributed to the public were offered to the public exceeds, in any such case, the amount of any damages that such holder or underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
Section 1.12 Registration Procedures . (a) If and whenever the Company is required to effect or cause the Registration of any Registrable Securities pursuant to this Agreement, the Company shall, as promptly as practicable:
(i) prepare in reasonable cooperation with the sellers (and, in the event of an underwritten offering, with the underwriter(s)), and file with the Commission (subject to Section 1.2(a)(iv)), and otherwise in a manner consistent with the provisions of this Agreement, a registration statement with respect to such Registrable Securities on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate as the case may be, and which form shall be available for the sale of the Registrable Securities in accordance with the intended methods of distribution thereof, and, except in the case of a registration pursuant to Section 1.3, use its reasonable best efforts to cause such registration statement to become and remain effective for a period of not less than 120 days (or such shorter period in which all of the
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Registrable Securities included in such registration statement have been sold thereunder, but which shall not expire before the expiration of the 90-day period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder, if applicable) or, in the case of a Shelf Registration, for so long as any Registrable Securities covered thereby are outstanding; provided that at least seven days before filing with the Commission a registration statement or prospectus or any amendments or supplements thereto, the Company shall (A) furnish to one counsel selected by the Requesting Stockholder(s), in the event of a Registration effected pursuant to Section 1.2, or selected by the holders of a majority of the Registrable Securities covered by such registration statement, in the event of any other Registration, copies of all such documents proposed to be filed (other than documents filed pursuant to the Exchange Act and incorporated by reference into such registration statement), which documents shall be subject to the timely review of such counsel, and (B) notify each holder of Registrable Securities covered by such registration statement of any stop order issued or threatened by the Commission and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered;
(ii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period required pursuant to Section 1.12(a)(i) and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement;
(iii) furnish to each holder of Registrable Securities covered by the registration statement and to each underwriter, if any, of such Registrable Securities, such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto, unless otherwise available via EDGAR), and the prospectus included in such registration statement (including each preliminary prospectus), a copy of any and all material transmittal letters or other material correspondence to or received from the Commission or any other governmental entity or self-regulatory body or other Person having jurisdiction (including any domestic or foreign securities exchange) relating to such Registration and the related offering, and such other documents, as such Person may reasonably request, in order to facilitate, the public sale or other disposition of the Registrable Securities owned by such holder;
(iv) use its reasonable best efforts to register or qualify such Registrable Securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as any holder, and underwriter, if any, of Registrable Securities covered by such registration statement shall reasonably request, and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller; provided that the Company shall not for any such purpose, be required to (A) qualify to do business as a foreign corporation in any jurisdiction where, but for the requirements of this Section 1.12, it is not then so qualified, (B) subject itself to taxation in any such jurisdiction or (C) take any action which would subject it to consent to general or unlimited service of process to which it is not then so subject;
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(v) notify in writing and on a timely basis each seller of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event which comes to the Companys attention if as a result of such event the prospectus included in such registration statement, as then in effect, includes any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading and at the request of any such seller, deliver a reasonable number of copies of an amended or supplemental prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading;
(vi) use its reasonable best efforts to cause all such Registrable Securities to be listed on such national securities exchange as may be designated by the Company, and enter into such customary agreements including a listing application and indemnification agreement in customary form, provided that the applicable listing requirements are satisfied, and to provide a transfer agent and registrar for such Registrable Securities covered by such registration statement no later than the effective date of such registration statement;
(vii) in the case of such registration that involves an underwritten offering, (A) use its reasonable best efforts to furnish to any underwriter of such Registrable Securities (1) an opinion of counsel for the Company, addressed to such underwriter and dated the date of the closing under the underwriting agreement and (2) comfort letters addressed to such underwriter and signed by the independent public accountants who have audited the financial statements of the Company and (B) use its commercially reasonable efforts to furnish to any selling Stockholder of such Registrable Securities (1) an opinion of counsel for the Company, addressed to such selling Stockholder and dated the date of the closing under the underwriting agreement and (2) comfort letters addressed to such selling Stockholder and signed by the independent public accountants who have audited the financial statements of the Company, in each case in customary form and covering matters of the type customarily covered in such opinions and letters;
(viii) after the filing of the registration statement, promptly notify each seller of Registrable Securities named in such registration statement in writing of the effectiveness thereof and of any stop order issued or threatened by the Commission and take all reasonable actions required to prevent the entry of such stop order or to promptly remove it if entered and promptly notify each seller of Registrable Securities of such lifting or withdrawal of such order;
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(ix) in the case of such registration that involves an underwritten offering, use its reasonable best efforts to have appropriate officers of the Company (A) attend any road shows and analyst and investor presentations scheduled in connection with any such Registration and (B) cooperate as reasonably requested by the holders of Registrable Securities in the marketing of the Registrable Securities; all reasonable out of pocket costs and expenses incurred by the Company or such officers in connection with such attendance or cooperation shall be paid by the Company;
(x) give the sellers of Registrable Securities named in such registration statement and the underwriters, if any, and their respective counsel and accountants, such reasonable and customary access to its books, records and properties and such opportunities to discuss the business and affairs of the Company with its officers and the independent public accountants who have certified the financial statements of the Company as shall be necessary, in the opinion of such sellers and such underwriters or their respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act;
(xi) use its reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement or such other document satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; and
(xii) execute and deliver all reasonable and customary instruments and documents (including, in an underwritten offering, an underwriting agreement in customary form) and take such other reasonable and customary actions and obtain such reasonable and customary certificates and opinions in order to effect a public offering of such Registrable Securities; provided that the Company may require each holder of Registrable Securities as to which any Registration is being effected to furnish to the Company such reasonable and customary information regarding such holder and the distribution of such Registrable Securities as the Company may from time to time reasonably request in writing in connection with effecting such offering.
(b) Each holder of Registrable Securities shall, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 1.12(a)(v), promptly discontinue disposition of the Registrable Securities pursuant to the registration statement covering such Registrable Securities until such holders receipt of the copies of the supplemented or amended prospectus contemplated by Section 1.12(a)(v), and, if so directed by the Company, such holder shall deliver to the Company (at the Companys expense) all copies, other than permanent file copies, then in such holders possession, of the prospectus covering such Registrable Securities at the time of receipt of such notice.
Section 1.13 Rule 144 and Form S-3. If the Company shall have filed a registration statement pursuant to the requirements of Section 12 of the Exchange Act or a registration statement pursuant to the requirements of the Securities Act, the Company shall (a) file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder (or, if the Company is not required to file such reports, it shall, upon the request of any holder of Registrable Securities, make
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publicly available other information), and it shall take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell shares of Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 or (ii) any similar rule or regulation hereafter adopted by the Commission and (b) use its reasonable best efforts to cause the conditions 1, 2 and 3 under General Instruction I.A. of Form S-3 (or any successor form and conditions) under the Securities Act for the filing of registration statements under this Agreement to be met. Upon the request of any holder of Registrable Securities, the Company shall deliver to such holder a written statement as to whether it has complied with such requirements.
Section 1.14 Registration Rights to Others. If the Company shall at any time hereafter provide to any holder of any securities of the Company rights with respect to the registration of such securities under the Securities Act, (i) such rights shall not be in conflict with or adversely affect any of the rights provided in this Agreement to any Stockholder and (ii) if such rights are provided on terms or conditions more favorable to such holder than the terms and conditions provided in this Agreement, the Company shall provide (by way of amendment to this Agreement or otherwise) such more favorable terms or conditions to each Stockholder.
Section 1.15 Assignment of Rights. Each of EIC or Limited may assign some or all of its rights pursuant to this Agreement to any transferee of its Registrable Securities; provided that in either case, such transferee agrees in writing to be bound by the provisions of this Agreement.
Section 1.16 Miscellaneous
(a) Amendment and Waiver . Any provision of this Agreement may be amended or waived if such amendment or waiver is in writing and signed by Stockholders holding not less than a majority of the then outstanding Common Stock then held by each of the Stockholders party to this Agreement; provided that in the event such amendment or waiver would adversely treat a Stockholder in a manner different from any other Stockholder, then such amendment or waiver will require the consent of such adversely treated Stockholder.
(b) Benefit of Parties; Transfer . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Except as otherwise expressly provided herein, nothing herein contained shall confer or is intended to confer on any third party or entity that is not a party to this Agreement any rights under this Agreement.
(c) Headings . Headings are for ease of reference only and shall not form a part of this Agreement.
(d) Governing Law . This Agreement shall be construed in accordance with and governed by the law of the State of Delaware without giving effect to the principles of conflicts of laws thereof.
(e) Jurisdiction . Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement may be
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brought against any of the parties in any federal court located in the State of Delaware or any Delaware state court, and each of the parties hereby consents to the exclusive jurisdiction of such court (and of the appropriate appellate courts) in any such suit, action or proceeding and waives any objection to venue laid therein. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, the parties agree that service of process upon such party at the address referred to in Section 1.6(l), together with written notice of such service to such party, shall be deemed effective service of process upon such party.
(f) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(g) Entire Agreement . This Agreement and any other writing signed by authorized representatives of each of the parties after the date hereof that specifically references this Agreement, constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written and oral between the parties with respect to the subject matter hereof.
(h) Counterparts; Effectiveness . This Agreement may be signed in any number of counterparts, each of which shall be deemed an original. This Agreement shall become effective when each party shall have received a counterpart hereof signed by each of the other parties. An executed copy or counterpart hereof delivered by facsimile shall be deemed an original instrument.
(i) Severability . If any provision of this Agreement or the application thereof to any Person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provisions to other Persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.
(j) Further Assurances . The Stockholders shall execute and deliver such further instruments and do such further acts and things as may be required to carry out the intent and purpose of this Agreement.
(k) Specific Performance . The parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any federal or state court located in the State of Delaware, in addition to any other remedy to which they are entitled at law or in equity.
(l) Notices . All notices, requests and other communications to any party or to the Company shall be in writing (including telecopy or similar writing) and shall be given,
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If to the Company:
Express, Inc.
One Limited Parkway
Columbus, OH 43230
Attention: Chief Executive Officer
Facsimile: (614) 415-8227
With a copy to (which shall not constitute notice):
Kirkland & Ellis LLP
300 North LaSalle Street
Chicago, IL 60654
Attention: Gary M. Holihan, P.C.
Facsimile: (312) 862-2200
If to a Stockholder:
The address specified in the Companys records
or to such other address or telecopier number as such party or the Company may hereafter specify for the purpose by notice to the other parties and the Company. Each such notice, request or other communication shall be effective when delivered at the address specified in this Section 1.6(l) during regular business hours.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Registration Agreement on the day and year first above written.
EXPRESS PARENT LLC | ||
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Title: | ||
EXPRESS INVESTMENT CORP. | ||
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Title: | ||
LIMITED BRANDS STORE OPERATIONS, INC. |
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By: |
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Name: | ||
Title: | ||
EXP INVESTMENTS, INC. | ||
By: |
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Name: | ||
Title: |
[Signature Page to Registration Agreement]
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Michael A. Weiss | ||
JP Morgan Chase Bank, N.A., as Trustee of the Weiss Family 2008 Irrevocable Trust Alpha under Agreement with Michael A. Weiss, as Grantor, dated March 13, 2008 | ||
By: |
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Its: |
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JP Morgan Chase Bank, N.A., as Trustee of the Weiss Family 2008 Irrevocable Trust Beta under Agreement with Michael A. Weiss, as Grantor, dated March 13, 2008 | ||
By: |
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Its: |
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JP Morgan Chase Bank, N.A., as Trustee of the Weiss Descendants 2008 Irrevocable Trust under Agreement with Michael A. Weiss, as Grantor, dated March 13, 2008 | ||
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Its: |
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Arlene Weiss |
[Signature Page to Registration Agreement]
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John Rafferty |
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Fran Horowitz-Bonadies |
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Jeanne St. Pierre |
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Elliott Tobias |
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Colin Campbell |
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Matthew Moellering |
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David Kornberg |
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Douglas Tilson |
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Lisa Gavales |
[Signature Page to Registration Agreement]
FROM AND AFTER THE CONSUMMATION OF THE MERGERS: | ||
MULTI-CHANNEL RETAIL HOLDINGS, LLC - SERIES G |
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By: |
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Name: | ||
Title: |
[Signature Page to Registration Agreement]
Exhibit 4.5
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this Agreement ) is made and entered into as of , 2010, by and among Express Parent LLC, a Delaware limited liability company ( Parent ), Express Investment Corp., a Delaware corporation ( EIC ), Limited Brands Store Operations, Inc., a Delaware corporation ( LBSO ), and EXP Investments, Inc., a Delaware corporation ( EXP and together with LBSO, Limited ). EIC and Limited are collectively referred to herein as the Stockholders and each individually as a Stockholder . Unless otherwise indicated herein, capitalized terms used herein are defined in Section 6 hereof.
WHEREAS, as of the date hereof, Parent will convert (the Conversion ) from a Delaware limited liability company to a Delaware corporation named Express, Inc. (the Company ) to effectuate an initial public offering of shares of the Companys common stock, par value $0.01 per share (the Common Stock ), pursuant to a registration statement filed with the Securities and Exchange Commission (the Initial Public Offering );
WHEREAS, the Company is the successor-in-interest to Parent by reason of the Conversion;
WHEREAS, pursuant to the terms of that certain Conversion Agreement dated as of the date hereof (the Conversion Agreement ), on the day immediately following the date hereof, pursuant to that certain Agreement and Plan of Merger (the Merger Agreement ) to be dated as of the day immediately following the date hereof, among the Company, EIC, Express Management Investors Blocker, Inc., a Delaware corporation ( EMIB ), Express Management Investors LLC, a Delaware limited liability company ( EMI , and together with EIC and EMIB, the Merged Entities ), Multi-Channel Retail Holdings LLC - Series G, a Delaware limited liability company ( MCRH ), and Express Holding, LLC, a Delaware limited liability company, the beneficial owners of the Merged Entities, including MCRH, will receive shares of Common Stock of the Company in connection with the mergers contemplated therein (the Mergers );
WHEREAS, immediately following the consummation of the Mergers, MCRH will become a party to this Agreement (and will be deemed to be a Stockholder hereunder from and after such time), as successor-in-interest to EIC, and from and after such time, all references in this Agreement to EIC shall be deemed to mean MCRH; and
WHEREAS, the parties hereto desire to enter into this Agreement to set forth certain rights and obligations of the Stockholders with respect to the Company.
NOW, THEREFORE, the parties to this Agreement agree as follows:
1. Voting Agreement; Board Nomination Rights .
(a) From and after the date hereof and until the provisions of this Section 1 cease to be effective and subject to the terms and conditions of this Agreement, the following holders of Common Stock (or their indirect beneficial owners) shall have the right to nominate persons for election to the Board (each a Nominee ) as follows (and each Stockholder hereby agrees that such Stockholder shall vote, or cause to be voted, all voting securities of the Company over
which such Stockholder has the power to vote or direct the voting, and shall take all other reasonably necessary or desirable actions within such Stockholders control (but only in such Stockholders capacity as a stockholder of the Company, including without limitation, attendance at meetings in person, via telephone or by proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings so that each such Nominee shall be elected to the Board):
(i) (x) two representatives nominated by Limited (determined by a vote of a majority of the Common Stock held by Limited) (the Limited Appointees ), so long as Limiteds Ownership Percentage is at least 50%, and (y) one representative nominated by Limited (determined by a vote of a majority of the Common Stock held by Limited), so long as Limiteds Ownership Percentage is at least 25%;
(ii) (x) three representatives collectively nominated by Golden Gate Capital Investment Fund II, L.P., Golden Gate Capital Investment Fund II-A, L.P., and Golden Gate Capital Investment Annex Fund II, L.P. (the GGC Funds ) (one of whom shall be nominated by Golden Gate Capital Investment Fund II, L.P., one of whom shall be nominated by Golden Gate Capital Investment Fund II-A, L.P., and one of whom shall be nominated by Golden Gate Capital Investment Annex Fund II, L.P.) (the GGC Appointees ), so long as EICs Ownership Percentage is at least 50%, and (y) two representatives collectively nominated by the GGC Funds (one of whom shall be nominated by Golden Gate Capital Investment Fund II-A, L.P. and one of whom shall be nominated by Golden Gate Capital Investment Annex Fund II, L.P.), so long as EICs Ownership Percentage is at least 25%; it being expressly acknowledged and agreed by each Stockholder that each of the GGC Funds shall be express third party beneficiaries of this Section 1(a)(ii) and the related provisions of this Agreement; and
(iii) subject to the provisions of this Section 1 , the Board shall determine the size (i.e., number of Board seats) of the Board, which as of the date hereof consists of not less than five (5) Board members, including the Limited Appointees (Timothy J. Faber and Jennie W. Wilson) and the GGC Appointees (David C. Dominik, Stefan L. Kaluzny and Michael A. Weiss).
(b) Notwithstanding the foregoing, in the event that a Person loses its right to nominate a director for election in accordance with Section 1(e) below, the director(s) nominated by such Person may be removed at the request of a majority of the Board (excluding such director or directors) upon the occurrence of such event and the total authorized number of directors may be reduced upon such action by a majority of the Board (excluding such director or directors) by the number of directors that such Person loses its rights to nominate.
(c) The representatives designated hereunder by any Stockholder shall be nominated to serve as a Class I, Class II or Class III director (as defined in the Companys Certificate of Incorporation), as the case may be, as set forth on the Schedule of Directors attached hereto. The initial term of each Class I, Class II and Class III director shall expire as set forth in the Companys Certificate of Incorporation. Any director nominated by a Stockholder hereunder to fill a vacancy on the Board shall be designated as the same class of director as the director whose termination of services as a director created such vacancy.
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(d) The Company shall pay the reasonable out-of-pocket expenses incurred by each director in connection with attending the meetings of the Board and any committee thereof.
(e) Notwithstanding anything to the contrary contained herein,
(i) at such time as Limiteds Ownership Percentage is less than 25%, the rights of Limited under this Section 1 to nominate any Nominee shall terminate automatically and cease to have any further force or effect;
(ii) at such time as EICs Ownership Percentage is less than 25%, the rights of the GGC Funds under this Section 1 to nominate any Nominee shall terminate automatically and cease to have any further force or effect; and
(iii) Notwithstanding the foregoing provisions of this Section 1(e) , such Stockholders agreement set forth herein to vote for Nominees of the other Stockholders shall continue so long as such Stockholder owns any Common Stock.
(f) At every meeting of the Board, or a committee thereof, for which directors are nominated to stand for election by stockholders of the Company, each Stockholder will have the right to select those persons to be nominated for election to the Board for each Retiring Director that was a prior Nominee of such Stockholder in accordance with this Section 1 .
(g) If a vacancy occurs because of the death, disability, disqualification, resignation or removal of a Nominee, the Stockholders who nominated such person shall be entitled to nominate such persons successors in accordance with this Agreement and the Board, subject to a determination of the Board in good faith, after consultation with outside legal counsel that such action would not constitute a breach of its fiduciary duties or applicable law, shall fill the vacancy with such successor Nominee.
(h) If a Nominee is not nominated or elected to the Board because of the Nominees death, disability, disqualification, withdrawal as a nominee or for other reason is unavailable or unable to serve on the Board, the Stockholder who nominated such person shall be entitled to nominate promptly another Nominee and the director position for which such Nominee was nominated shall not be filled pending such nomination.
2. Company Obligations .
(a) The Company agrees to use its commercially reasonable efforts to assure that (i) each Nominee is included in the Boards slate of nominees to the stockholders for each election of directors, and (ii) each Nominee is included in the proxy statement prepared by management of the Company in connection with soliciting proxies for every meeting of the stockholders of the Company called with respect to the election of members of the Board, and at every adjournment or postponement thereof, and on every action or approval by written consent of the stockholders of the Company or the Board with respect to the election of members of the Board.
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(b) Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause to be nominated for election to the Board or recommend to the stockholders the election of any Nominee (i) who fails to submit to the Company on a timely basis such questionnaires as the Company may reasonably require of its directors generally and such other information as the Company may reasonably request in connection with the preparation of its filings under the Securities Laws, or (ii) the Board or the Nominating Committee determines in good faith, after consultation with outside legal counsel, that such action would constitute a breach of its fiduciary duties or applicable law or violate the Companys Certificate of Incorporation; provided , however , that upon the occurrence of either (i) or (ii) above, the Company shall promptly notify the applicable Stockholder of the occurrence of such event and permit the applicable Stockholder to provide an alternate Nominee sufficiently in advance of any Board action, meeting of the stockholders called or written action of stockholders with respect to such election of Nominees and the Company shall use commercially reasonable efforts to perform its obligations under Section 2(a) with respect to such alternate Nominee ( provided that if the Company provides at least 45 days advance notice of the occurrence of any such event such alternative Nominee must be designated by the applicable Stockholder not less than 30 days in advance of any Board action, notice of meeting of the stockholders or written action of stockholders with respect to such election of Nominees). The Company shall use commercially reasonable efforts to perform its obligations under Section 2(a) with respect to such alternate Nominee, provided that in no event shall the Company be obligated to postpone, reschedule or delay any scheduled meeting of the stockholders with respect to such election of Nominees.
(c) At any time a vacancy occurs because of the death, disability, resignation or removal of a Nominee, then the Board, or any committee thereof, shall not fill such vacancy until the earliest to occur of (i) such Stockholder has nominated a successor Nominee and the Board has filled the vacancy and appointed such successor Nominee, (ii) such Stockholder fails to nominate a successor Nominee within 30 Business Days after receiving notification of the vacancy from the Company, and (iii) such Stockholder has specifically waived its right under this Section 2(c) .
(d) At any time that any Stockholder shall have any nomination rights under Section 1 , the Company shall not take any action to reduce the size of the Board from five (5), except as otherwise provided herein.
3. Transfers .
(a) Each Stockholder agrees that until the 18-month anniversary of the consummation of the Initial Public Offering, it will not, nor will it permit any of its Affiliates to, make a distribution without consideration therefor to, in the case of Limited, the public stockholders of Limited Brands, Inc., and in the case of EIC, to the ultimate partners of any investment fund managed by Golden Gate Private Equity, Inc. and its Affiliates.
(b) Prior to a Stockholder Transferring any Common Stock to an Affiliate, such Stockholder will cause such Affiliate to execute and deliver a counterpart hereof to the other parties hereto evidencing such Affiliates agreement to be bound by the provisions of this Agreement.
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4. Confidentiality .
(a) From and after the date hereof, each Stockholder shall, and shall cause its Subsidiaries and controlled Affiliates to, maintain in confidence and use only in connection with its investment in the Company and for purposes of the business of the Company and its Subsidiaries, all Confidential Information. Confidential Information means all information concerning the Company or its Subsidiaries or the financial condition, business, operations or prospects of the Company or its Subsidiaries in the possession of or furnished to any Stockholder (including by virtue of its present or former right to nominate director(s) to the Board). Each Stockholder shall exercise the same care and safeguards with respect to Confidential Information as is used to maintain the confidentiality of its own information of like character, but will, at a minimum, use reasonable care.
(b) Any Stockholder may disclose Confidential Information to its Subsidiaries, Affiliates, counsel, advisers, consultants, outside contractors and other agents, on the condition that such Persons agree to keep the Confidential Information confidential to the same extent as such disclosing party is required to keep the Confidential Information confidential, solely to the extent it is reasonably necessary or appropriate to fulfill its obligations or to exercise its rights under this Agreement; provided that the disclosing party shall remain liable with respect to any breach of this Section 4 by any such Subsidiaries, Affiliates, counsel, advisers, consultants, outside contractors and other agents. Without limiting the generality of the foregoing, it is understood and agreed that neither EIC nor Golden Gate Private Equity, Inc. will provide or disclose any Confidential Information to any portfolio company of Golden Gate Private Equity, Inc.
(c) Notwithstanding Section 4(a) or Section 4(b) above, a Stockholder may disclose such Confidential Information (i) to the extent that the such Person is legally compelled (by oral questions, interrogatories, request for information or documents, subpoena, civil investigative demand or similar process) to disclose any of the Confidential Information, (ii) for purposes of reporting to its stockholders the performance of the Company and its Subsidiaries and for purposes of including applicable information in its financial statements, (iii) to the extent required to be disclosed by applicable law, rule or regulation; provided that in connection with any such disclosure (A) a disclosing party shall only disclose such Confidential Information as is required to be disclosed in connection with the foregoing, (B) to the extent reasonably practicable, a disclosing party shall provide the Company with prompt and advance written notice of any such intended disclosure so that the Company has a reasonable opportunity to limit such disclosure, or (if applicable, and to the extent reasonably practicable) seek a protective order or other appropriate remedy to prevent such disclosure, and (C) a disclosing party shall use its reasonable efforts to seek confidential treatment (consistent with the terms hereof) by the Person to whom such disclosure is made. Each Stockholder acknowledges that money damages would not be a sufficient remedy for any breach of the provisions of this Section 4 and that the Company shall be entitled to equitable relief in a court of law in the event of, or to prevent, a breach or threatened breach of this Section 4 .
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(d) The obligation not to disclose Confidential Information shall not apply to any part of such Confidential Information that (i) is or becomes patented, published, or otherwise part of the public domain other than by acts of a Stockholder in contravention of this Agreement, (ii) is disclosed to a Stockholder by a third party, unless such Confidential Information was obtained by such third party directly or indirectly from a Stockholder hereto on a confidential basis, (iii) prior to disclosure under this Agreement, was already in the possession of the Stockholder, unless such Confidential Information was obtained directly or indirectly from a Stockholder on a confidential basis, or (iv) is independently acquired or developed by a Stockholder other than by acts of a Stockholder in contravention of this Agreement.
5. Information Rights . Until such time as Limited is no longer required to account for its investment in the Company using the equity method of accounting, the Company shall furnish to Limited:
(a) As soon as practicable and, in any event no later than the first Thursday following the end of each fiscal month, the unaudited consolidated balance sheet of the Company and its Subsidiaries as at the end of such fiscal month and the related unaudited statement of operations for such fiscal month, and for the portion of the fiscal year then ended, in each case prepared in accordance with GAAP, setting forth in comparative form the figures for the corresponding fiscal month and portion of the previous fiscal year.
(b) As soon as practicable and, in any event no later than the first Thursday following the end of each fiscal month, the projected statement of operations of the Company and its Subsidiaries for each fiscal month in the succeeding twelve month period.
(c) As soon as practicable and, in any event, no later than the first Thursday following the end of each fiscal year, a preliminary draft unaudited consolidated balance sheet of the Company and its Subsidiaries as at the end of such fiscal year and the related preliminary draft unaudited statement of operations for such fiscal year, and for the portion of the fiscal year then ended, in each case prepared in accordance with GAAP.
(d) As soon as practicable and, in any event within 75 days after the end of each fiscal year, the audited consolidated balance sheet of the Company and its Subsidiaries as at the end of such fiscal year and the related audited statement of operations and cash flows for such fiscal year and the related footnotes, in each case prepared in accordance with GAAP and audited by the Companys independent public accountants and a comparison of the figures in the financial statements delivered pursuant to this clause (d) with the figures for the previous fiscal year.
(e) Any management certification, representation or other similar letters signed by the Chief Executive Officer and Chief Financial Officer (or Chief Accounting Officer if different from the Chief Financial Officer) on the same basis and on the same timetable as provided to Limited prior to the date hereof and, as promptly as reasonably practicable, such other information with respect to the Company or any of its Subsidiaries as may reasonably be requested by Limited.
6
(f) The financial statements provided pursuant to this Section 5 shall be substantially similar to the format provided to Limited prior to the date hereof; provided that the Company shall not be required to make adjustments to the financial statements to reflect the fact that Limited does not account for its investment in the Company on a step-up basis.
(g) Limited hereby acknowledges that (i) it is aware, and that it will advise each of its Affiliates and Limiteds and its Affiliates respective representatives who are provided any Confidential Information (as defined in Section 4 hereof) of the Company, including the financial information provided pursuant to this Section 5 , that the U.S. securities laws prohibit any person who has received from an issuer material non-public information from purchasing or selling securities of such issuer or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities, and (ii) Limited is familiar with the Securities Exchange Act of 1934 (the Exchange Act ) and the rules and regulations promulgated thereunder, and agrees that Limited, its Affiliates and their respective representatives will not use, or communicate to any person under circumstances where it is reasonably likely that such person is likely to use or cause any person to use, any such information in contravention of the Exchange Act or any of its rules and regulations, including Rules 10b-5 and 14e-3.
(h) During the Black-Out Period (as defined below), Limited agrees that it will not buy, purchase or otherwise acquire, nor sell, assign, pledge, transfer or otherwise dispose of, nor permit the purchase, acquisition, sale, assignment, pledge, transfer or other disposition, of any beneficial ownership interest in any of the Companys securities, including the Common Stock; provided that (i) Limited shall have received notice of the Black-Out Period at the same time and in the same manner as the Companys officers and directors and (ii) that the restrictions contained in this Section 5(h) shall not limit Limiteds ability to transfer the Companys securities pursuant to, and in accordance with, that certain registration rights agreement entered into with Company and the other stockholders of the Company that are party thereto. For the avoidance of doubt, beneficially owns means for the purposes of this Agreement the power, whether by contract or otherwise, to direct the exercise of the voting rights and the disposition of any securities of the Company or the right to acquire such rights. The Black-Out Period shall mean the Companys black-out period during which the Companys officers and directors, generally, are restricted from trading the Companys securities, including its Common Stock .
6. Definitions .
Affiliate means, with respect to any Person, any other Person which directly or indirectly controls, is controlled by or is under common control with such Person. For purposes of this definition, control (including, with correlative meanings, the terms controlled by and under common control with ), as applied to any Person, means the possession, directly or indirectly, of the power to vote a majority of the securities having voting power for the election of directors (or other Persons acting in similar capacities) of such Person or otherwise to direct or cause the direction of the management and policies of such Person through the ownership of voting securities, by contract or otherwise. For purposes of this Agreement, no Stockholder shall by reason of this Agreement be deemed to be an Affiliate of any other Stockholder or of the Company.
Board means the board of directors of the Company.
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Business Day means a day, other than Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close.
Certificate of Incorporation means the Companys Certificate of Incorporation as the same may be amended from time to time.
GAAP means generally accepted accounting principles in the United States.
Limiteds Ownership Percentage means, at any time, the fraction (expressed as a percentage) that results from dividing (i) the number of shares of Common Stock owned by Limited and its Affiliates at such time by (ii) the number of shares of Common Stock held by Limited immediately following the Conversion (as adjusted for stock splits, combinations, recapitalizations and the like).
EICs Ownership Percentage means, at any time, the fraction (expressed as a percentage) that results from dividing (i) the number of shares of Common Stock owned by EIC and its Affiliates at such time by (ii) the number of shares of Common Stock held by EIC immediately following the Conversion (as adjusted for stock splits, combinations, recapitalizations and the like).
Nominating Committee means the Corporate Governance and Nominating Committee of the Board.
Person means an individual, corporation, partnership, association, trust, limited liability company, joint venture, unincorporated organization or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
Retiring Director means any director whose term expires at the next annual meeting of the stockholders of the Company pursuant to the terms of the Companys Certificate of Incorporation.
Securities Act means the Securities Act of 1933, as amended.
Securities Laws means the Securities Act and the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder.
Subsidiary means, at any time, with respect to any Person, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time owned or controlled directly or indirectly by such Person.
Transfer means, with respect to any Common Stock, to sell, assign, dispose of, exchange, or otherwise directly transfer such Common Stock or agree or commit to do any of the foregoing, except for any Transfers to an Affiliate not otherwise prohibited hereby.
8
7. Amendment and Waiver . Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.
8. Benefit of Parties . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Except as otherwise expressly provided herein, nothing herein contained shall confer or is intended to confer on any third party or entity that is not a party to this Agreement any rights under this Agreement.
9. Headings . Headings are for ease of reference only and shall not form a part of this Agreement.
10. Governing Law . This Agreement shall be construed in accordance with and governed by the law of the State of Delaware without giving effect to the principles of conflicts of laws thereof.
11. Jurisdiction . Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement may be brought against any of the parties in any federal court located in the State of Delaware or any Delaware state court, and each of the parties hereby consents to the exclusive jurisdiction of such court (and of the appropriate appellate courts) in any such suit, action or proceeding and waives any objection to venue laid therein. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, the parties agree that service of process upon such party at the address referred to in Section 18, together with written notice of such service to such party, shall be deemed effective service of process upon such party.
12. WAIVER OF JURY TRIAL . EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
13. Entire Agreement . This Agreement (including the Schedules constituting a part of this Agreement) and any other writing signed by authorized representatives of each of the parties after the date hereof that specifically references this Agreement, constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written and oral between the parties with respect to the subject matter hereof.
14. Counterparts; Effectiveness . This Agreement may be signed in any number of counterparts, each of which shall be deemed an original. This Agreement shall become effective when each party shall have received a counterpart hereof signed by each of the other parties. An executed copy or counterpart hereof delivered by facsimile shall be deemed an original instrument.
9
15. Severability . If any provision of this Agreement or the application thereof to any Person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provisions to other Persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.
16. Further Assurances . The Stockholders shall execute and deliver such further instruments and do such further acts and things as may be required to carry out the intent and purpose of this Agreement.
17. Specific Performance . The parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any federal or state court located in the State of Delaware, in addition to any other remedy to which they are entitled at law or in equity.
18. Notices . All notices, requests and other communications to any party or to the Company shall be in writing (including telecopy or similar writing) and shall be given,
If to Parent or to the Company :
Express, Inc.
One Limited Parkway
Columbus, OH 43230
Attention: Chief Executive Officer
Facsimile: (614) 415-8227
With a copy to (which shall not constitute notice) :
Kirkland & Ellis LLP
300 North LaSalle Street
Chicago, IL 60654
Attention: Gary M. Holihan, P.C.
Facsimile: (312) 862-2200
If to EIC :
c/o Golden Gate Private Equity, Inc.
One Embarcadero Center, 39th Floor
San Francisco, CA 94111
Attention: Stefan L. Kaluzny
Facsimile: (415) 983-2701
10
With a copy to (which shall not constitute notice) :
Kirkland & Ellis LLP
300 North LaSalle Street
Chicago, IL 60654
Attention: Gary M. Holihan, P.C.
Facsimile: (312) 862-2200
If to Limited :
c/o Limited Brands, Inc.
Three Limited Parkway
Columbus, OH 43230
Attention: Douglas L. Williams
Facsimile: (614) 415-7188
With a copy to (which shall not constitute notice) :
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
Attention: David L. Caplan
Facsimile No.: 212-701-5800
or to such other address or telecopier number as such party or the Company may hereafter specify for the purpose by notice to the other parties and the Company. Each such notice, request or other communication shall be effective when delivered at the address specified in this Section 18 during regular business hours.
19. Enforcement . The parties hereto covenant and agree that the disinterested members of the Board or the disinterested members of any Board committee so designated by the Board have the right to enforce, waive or take any other action with respect to this Agreement, the Merger Agreement, the Conversion Agreement, the Termination Agreement among Parent, certain of its subsidiaries and GGC Administration, LLC, the Registration Agreement among the Company and certain of its stockholders, and the individual letter agreements between the Company and each of the Management Holders (as defined in the Merger Agreement) on behalf of the Company.
* * * * *
11
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders Agreement on the day and year first above written.
EXPRESS PARENT, LLC | ||
By: | ||
Name: | ||
Title: | ||
EXPRESS INVESTMENT CORP. | ||
By: | ||
Name: | ||
Title: | ||
LIMITED BRANDS STORE OPERATIONS, INC. | ||
By: | ||
Name: | ||
Title: | ||
EXP INVESTMENTS, INC. | ||
By: | ||
Name: | ||
Title: |
[Signature Page to Stockholders Agreement]
FROM AND AFTER THE CONSUMMATION OF THE MERGERS: | ||
MULTI-CHANNEL RETAIL HOLDINGS, LLC - SERIES G | ||
By: | ||
Name: | ||
Title: |
[Signature Page to Stockholders Agreement]
SCHEDULE OF DIRECTORS
Name |
Nominated As |
Class of Director |
||
David C. Dominik | GGC Nominee | I | ||
Stefan L. Kaluzny | GGC Nominee | III | ||
Michael A. Weiss | GGC Nominee | III | ||
Timothy J. Faber | LBI Nominee | II | ||
Jennie W. Wilson | LBI Nominee | I | ||
Independent Director | | II |
Exhibit 5.1
300 North LaSalle
Chicago, Illinois 60654
(312) 862-2000 |
Facsimile: (312) 862-2200 |
|||
www.kirkland.com |
April 30, 2010
Express, Inc.
One Limited Parkway
Columbus, OH 43230
Ladies and Gentlemen:
We are acting as special counsel to Express, Inc., a Delaware corporation (the Company ), in connection with the proposed registration by the Company of shares of its Common Stock, par value $0.01 per share (the Common Stock ), including shares of its Common Stock to cover over-allotments, if any, pursuant to a Registration Statement on Form S-1 (Registration No. 333-164906), originally filed with the Securities and Exchange Commission (the Commission ) on February 16, 2010 under the Securities Act of 1933, as amended (the Act ) (such Registration Statement, as amended or supplemented, is hereinafter referred to as the Registration Statement ). The shares of Common Stock to be issued and sold by the Company pursuant to the Registration Statement are referred to herein as the Firm Shares and the shares of Common Stock to be sold by the selling stockholders identified in the Registration Statement are referred to herein as the Secondary Shares .
In that connection, we have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents, corporate records and other instruments as we have deemed necessary for the purposes of this opinion, including (i) the Certificate of Incorporation (the Charter ) of the Company in the form filed as Exhibit 3.1 to the Registration Statement (the Shares ); (ii) the Bylaws (the Bylaws ) of the Company in the form filed as Exhibit 3.2 to the Registration Statement; (iii) the form of underwriting agreement filed as Exhibit 1.1 to the Registration Statement (the Underwriting Agreement ); (iv) resolutions of the Board of Directors and stockholders of the Company (the Resolutions ); (v) certain documents with respect to the conversion of Express Parent LLC into Express, Inc. and the merger of Express Investment Corp., a Delaware corporation, Express Management Investors LLC, a Delaware limited liability company, and Express Management Investors Blocker Inc., a Delaware corporation, with and into the Company (the Reorganization ), and (vi) the Registration Statement.
For purposes of this opinion, we have assumed the authenticity of all documents submitted to us as originals, the conformity to the originals of all documents submitted to us as
Hong Kong | London | Los Angeles | Munich | New York | Palo Alto | San Francisco | Shanghai | Washington, D.C. |
Express, Inc.
April 30, 2010
2
copies and the authenticity of the originals of all documents submitted to us as copies. We have also assumed the legal capacity of all natural persons, the genuineness of the signatures of persons signing all documents in connection with which this opinion is rendered, the authority of such persons signing on behalf of the parties thereto and the due authorization, execution and delivery of all documents by the parties thereto. We relied upon statements and representations of officers and other representatives of the Company and others as to factual matters.
Based upon and subject to the foregoing qualifications, assumptions and limitations and the further limitations set forth below, we are of the opinion that, when (i) the Reorganization is complete, (ii) the final Underwriting Agreement is duly executed and delivered by the parties thereto, and (iii) the Registration Statement becomes effective under the Act:
1. The Firm Shares will be duly authorized, and when the Firm Shares are registered by the Companys transfer agent and delivered against payment of the agreed consideration therefor, all in accordance with the Underwriting Agreement, the Firm Shares will be validly issued, fully paid and non-assessable.
2. The Secondary Shares will be duly authorized and validly issued, fully paid and non-assessable; and
Our opinions expressed above are subject to the qualifications that we express no opinion as to the applicability of, compliance with, or effect of any laws except the General Corporation Law of the State of Delaware.
We hereby consent to the filing of this opinion with the Commission as Exhibit 5.1 to the Registration Statement. We also consent to the reference to our firm under the heading Legal Matters in the Registration Statement. In giving this consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission.
Express, Inc.
April 30, 2010
3
This opinion is limited to the specific issues addressed herein, and no opinion may be inferred or implied beyond that expressly stated herein.
This opinion is furnished to you in connection with the filing of the Registration Statement.
Very truly yours, |
/s/ KIRKLAND & ELLIS LLP |
KIRKLAND & ELLIS LLP |
Exhibit 10.10
EXPRESS, INC.
2010 INCENTIVE COMPENSATION PLAN
EXPRESS, INC.
2010 INCENTIVE COMPENSATION PLAN
TABLE OF CONTENTS
ARTICLE I PURPOSE |
1 | |
ARTICLE II DEFINITIONS |
1 | |
ARTICLE III ADMINISTRATION |
7 | |
ARTICLE IV SHARE LIMITATION |
9 | |
ARTICLE V ELIGIBILITY |
13 | |
ARTICLE VI STOCK OPTIONS |
13 | |
ARTICLE VII STOCK APPRECIATION RIGHTS |
17 | |
ARTICLE VIII RESTRICTED STOCK |
20 | |
ARTICLE IX PERFORMANCE AWARDS |
22 | |
ARTICLE X OTHER STOCK-BASED AND CASH-BASED AWARDS |
24 | |
ARTICLE XI CHANGE IN CONTROL PROVISIONS |
26 | |
ARTICLE XII TERMINATION OR AMENDMENT OF PLAN |
27 | |
ARTICLE XIII UNFUNDED STATUS OF PLAN |
28 | |
ARTICLE XIV GENERAL PROVISIONS |
28 | |
ARTICLE XV EFFECTIVE DATE OF PLAN |
33 | |
ARTICLE XVI TERM OF PLAN |
33 | |
ARTICLE XVII NAME OF PLAN |
33 | |
EXHIBIT A PERFORMANCE GOALS |
A-1 |
i
EXPRESS, INC.
2010 INCENTIVE COMPENSATION PLAN
ARTICLE I
PURPOSE
The purpose of this Express, Inc. 2010 Incentive Compensation Plan is to enhance the profitability and value of the Company for the benefit of its stockholders by enabling the Company to offer Eligible Individuals cash and stock-based incentives in order to attract, retain and reward such individuals and strengthen the mutuality of interests between such individuals and the Companys stockholders. The Plan is effective as of the date set forth in Article XV.
ARTICLE II
DEFINITIONS
For purposes of this Plan, the following terms shall have the following meanings:
2.1 Acquisition Event has the meaning set forth in Section 4.2(d).
2.2 Affiliate means each of the following: (a) any Subsidiary; (b) any Parent; (c) any corporation, trade or business (including, without limitation, a partnership or limited liability company) which is directly or indirectly controlled 50% or more (whether by ownership of stock, assets or an equivalent ownership interest or voting interest) by the Company or one of its Affiliates; (d) any trade or business (including, without limitation, a partnership or limited liability company) which directly or indirectly controls 50% or more (whether by ownership of stock, assets or an equivalent ownership interest or voting interest) of the Company; and (e) any other entity in which the Company or any of its Affiliates has a material equity interest and which is designated as an Affiliate by resolution of the Committee; provided that, unless otherwise determined by the Committee, the Common Stock subject to any Award constitutes service recipient stock for purposes of Section 409A of the Code or otherwise does not subject the Award to Section 409A of the Code.
2.3 Award means any award under the Plan of any Stock Option, Stock Appreciation Right, Restricted Stock, Performance Award or Other Stock-Based Award or Other Cash-Based Award. All Awards shall be granted by, confirmed by, and subject to the terms of, a written agreement executed by the Company and the Participant.
2.4 Award Agreement means the written or electronic agreement setting forth the terms and conditions applicable to an Award.
2.5 Board means the Board of Directors of the Company.
2.6 Cause means, unless otherwise determined by the Committee in the applicable Award Agreement, with respect to a Participants Termination of Employment or Termination of
Consultancy, the following: (a) in the case where there is no employment agreement, consulting agreement, change in control agreement or similar agreement in effect between the Company or an Affiliate and the Participant at the time of the grant of the Award (or where there is such an agreement but it does not define cause (or words of like import)), termination due to a Participants, dishonesty, fraud, moral turpitude, willful misconduct or refusal to perform his or her duties or responsibilities for any reason other than illness or incapacity, as determined by the Committee in its sole discretion; or (b) in the case where there is an employment agreement, consulting agreement, change in control agreement or similar agreement in effect between the Company or an Affiliate and the Participant at the time of the grant of the Award that defines cause (or words of like import), cause as defined under such agreement; provided, however, that with regard to any agreement under which the definition of cause only applies on occurrence of a change in control, such definition of cause shall not apply until a change in control actually takes place and then only with regard to a termination thereafter. With respect to a Participants Termination of Directorship, cause means an act or failure to act that constitutes cause for removal of a director under applicable Delaware law.
2.7 Change in Control has the meaning set forth in 11.2.
2.8 Change in Control Price has the meaning set forth in Section 11.1.
2.9 Code means the Internal Revenue Code of 1986, as amended. Any reference to any section of the Code shall also be a reference to any successor provision and any Treasury Regulation promulgated thereunder.
2.10 Committee means any committee of the Board duly authorized by the Board to administer the Plan. If no committee is duly authorized by the Board to administer the Plan, the term Committee shall be deemed to refer to the Board for all purposes under the Plan.
2.11 Common Stock means the Common Stock, $0.01 par value per share, of the Company.
2.12 Company means Express, Inc., a Delaware corporation, and its successors by operation of law.
2.13 Consultant means any natural person who is an advisor or consultant to the Company or its Affiliates.
2.14 Detrimental Activity means, unless otherwise determined by the Committee, in the applicable Award Agreement: (a) the disclosure to anyone outside the Company or its Affiliates, or the use in any manner other than in the furtherance of the Companys or its Affiliates business, without written authorization from the Company, of any confidential information, trade secrets or proprietary information, relating to the business of the Company or its Affiliates that is acquired by a Participant prior to the Participants Termination; (b) activity while employed or performing services that results, or if known could result, in the Participants Termination that is classified by the Company as a termination for Cause; (c) any attempt, directly or indirectly, to solicit, induce or hire (or the identification for solicitation, inducement or hiring of) any employee of the Company or its Affiliates to be employed by, or to perform services for, the Participant or any person or entity with which the Participant is associated (including, but not
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limited to, due to the Participants employment by, consultancy for, equity interest in, or creditor relationship with such person or entity) or any person or entity from which the Participant receives direct or indirect compensation or fees as a result of such solicitation, inducement or hire (or the identification for solicitation, inducement or hire) without, in all cases, written authorization from the Company; (d) any attempt, directly or indirectly, to solicit in a competitive manner any customer or prospective customer of the Company or its Affiliates at the time of a Participants Termination, without, in all cases, written authorization from the Company; (e) the Participants Disparagement, or inducement of others to do so, of the Company or its Affiliates or their past and present officers, directors, employees or products; or (f) breach of any agreement between the Participant and the Company or an Affiliate (including, without limitation, any employment agreement or noncompetition or nonsolicitation agreement). For purposes of sub-sections (a), (c), and (d) above, the General Counsel, Chief Administrative Officer, Executive Vice President of Human Resources or the Chief Executive Officer of the Company shall have authority to provide the Participant, except for himself or herself, with written authorization to engage in the activities contemplated thereby and no other person shall have authority to provide the Participant with such authorization.
2.15 Disability means, unless otherwise determined by the Committee in the applicable Award Agreement, with respect to a Participants Termination, a permanent and total disability as defined in Section 22(e)(3) of the Code. A Disability shall only be deemed to occur at the time of the determination by the Committee of the Disability. Notwithstanding the foregoing, for Awards that are subject to Section 409A of the Code, Disability shall mean that a Participant is disabled under Section 409A(a)(2)(C)(i) or (ii) of the Code.
2.16 Disparagement means making comments or statements to the press, the Companys or its Affiliates employees, consultants or any individual or entity with whom the Company or its Affiliates has a business relationship which could reasonably be expected to adversely affect in any manner: (a) the conduct of the business of the Company or its Affiliates (including, without limitation, any products or business plans or prospects); or (b) the business reputation of the Company or its Affiliates, or any of their products, or their past or present officers, directors or employees.
2.17 Effective Date means the effective date of the Plan as defined in Article XV.
2.18 Eligible Employee means each employee of the Company or an Affiliate.
2.19 Eligible Individual means an Eligible Employee, Non-Employee Director or Consultant who is designated by the Committee in its discretion as eligible to receive Awards subject to the conditions set forth herein.
2.20 Exchange Act means the Securities Exchange Act of 1934, as amended. Reference to a specific section of the Exchange Act or regulation thereunder shall include such section or regulation, any valid regulation or interpretation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
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2.21 Fair Market Value means, for purposes of the Plan, unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, as of any date and except as provided below, the last sales price reported for the Common Stock on the applicable date: (a) as reported on the principal national securities exchange in the United States on which it is then traded or (b) if the Common Stock is not traded, listed or otherwise reported or quoted, the Committee shall determine in good faith the Fair Market Value in whatever manner it considers appropriate taking into account the requirements of Section 409A of the Code. For purposes of the grant of any Award, the applicable date shall be the trading day immediately prior to the date on which the Award is granted. For purposes of the exercise of any Award, the applicable date shall be the date a notice of exercise is received by the Committee or, if not a day on which the applicable market is open, the next day that it is open.
2.22 Family Member means family member as defined in Section A.1.(5) of the general instructions of Form S-8.
2.23 Incentive Stock Option means any Stock Option awarded to an Eligible Employee of the Company, its Subsidiaries and its Parents (if any) under this Plan intended to be and designated as an Incentive Stock Option within the meaning of Section 422 of the Code.
2.24 Merger Event has the meaning set forth in Section 4.2(d).
2.25 Non-Employee Director means a director or a member of the Board of the Company or any Affiliate who is not an active employee of the Company or any Affiliate.
2.26 Non-Qualified Stock Option means any Stock Option awarded under the Plan that is not an Incentive Stock Option.
2.27 Non-Tandem Stock Appreciation Right shall mean the right to receive an amount in cash and/or stock equal to the difference between (x) the Fair Market Value of a share of Common Stock on the date such right is exercised, and (y) the aggregate exercise price of such right, otherwise than on surrender of a Stock Option.
2.28 Other Cash-Based Award means an Award granted pursuant to Section 10.3 of the Plan and payable in cash at such time or times and subject to such terms and conditions as determined by the Committee in its sole discretion.
2.29 Other Stock-Based Award means an Award under Article X of the Plan that is valued in whole or in part by reference to, or is payable in or otherwise based on, Common Stock, including, without limitation, an Award valued by reference to an Affiliate.
2.30 Parent means any parent corporation of the Company within the meaning of Section 424(e) of the Code.
2.31 Participant means an Eligible Individual to whom an Award has been granted pursuant to the Plan.
2.32 Performance Award means an Award granted to a Participant pursuant to Article IX hereof contingent upon achieving certain Performance Goals.
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2.33 Performance Goals means goals established by the Committee as contingencies for Awards to vest and/or become exercisable or distributable based on one or more of the performance goals set forth in Exhibit A hereto.
2.34 Performance Period means the designated period during which the Performance Goals must be satisfied with respect to the Award to which the Performance Goals relate.
2.35 Plan means this Express, Inc. 2010 Incentive Compensation Plan, as amended from time to time.
2.36 Reference Stock Option has the meaning set forth in Section 7.1.
2.37 Registration Date means the date on which the Company sells its Common Stock in a bona fide, firm commitment underwriting pursuant to a registration statement under the Securities Act.
2.38 Restricted Stock means an Award of shares of Common Stock under the Plan that is subject to restrictions under Article VIII.
2.39 Restriction Period has the meaning set forth in Section 8.3(a) with respect to Restricted Stock.
2.40 Rule 16b-3 means Rule 16b-3 under Section 16(b) of the Exchange Act as then in effect or any successor provision.
2.41 Section 162(m) of the Code means the exception for performance-based compensation under Section 162(m) of the Code and any applicable treasury regulations thereunder.
2.42 Section 409A of the Code means the nonqualified deferred compensation rules under Section 409A of the Code and any applicable treasury regulations and other official guidance thereunder.
2.43 Securities Act means the Securities Act of 1933, as amended and all rules and regulations promulgated thereunder. Reference to a specific section of the Securities Act or regulation thereunder shall include such section or regulation, any valid regulation or interpretation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
2.44 Stock Appreciation Right shall mean the right pursuant to an Award granted under Article VII.
2.45 Stock Option or Option means any option to purchase shares of Common Stock granted to Eligible Individuals granted pursuant to Article VI.
2.46 Subsidiary means any subsidiary corporation of the Company within the meaning of Section 424(f) of the Code.
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2.47 Tandem Stock Appreciation Right shall mean the right to surrender to the Company all (or a portion) of a Stock Option in exchange for an amount in cash and/or stock equal to the difference between (i) the Fair Market Value on the date such Stock Option (or such portion thereof) is surrendered, of the Common Stock covered by such Stock Option (or such portion thereof), and (ii) the aggregate exercise price of such Stock Option (or such portion thereof).
2.48 Ten Percent Stockholder means a person owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, its Subsidiaries or its Parent.
2.49 Termination means a Termination of Consultancy, Termination of Directorship or Termination of Employment, as applicable.
2.50 Termination of Consultancy means: (a) that the Consultant is no longer acting as a consultant to the Company or an Affiliate; or (b) when an entity which is retaining a Participant as a Consultant ceases to be an Affiliate unless the Participant otherwise is, or thereupon becomes, a Consultant to the Company or another Affiliate at the time the entity ceases to be an Affiliate. In the event that a Consultant becomes an Eligible Employee or a Non-Employee Director upon the termination of his or her consultancy, unless otherwise determined by the Committee, in its sole discretion, no Termination of Consultancy shall be deemed to occur until such time as such Consultant is no longer a Consultant, an Eligible Employee or a Non-Employee Director. Notwithstanding the foregoing, the Committee may otherwise define Termination of Consultancy in the Award Agreement or, if no rights of a Participant are reduced, may otherwise define Termination of Consultancy thereafter, provided that any such change to the definition of the term Termination of Consultancy does not subject the applicable Stock Option to Section 409A of the Code.
2.51 Termination of Directorship means that the Non-Employee Director has ceased to be a director of the Company; except that if a Non-Employee Director becomes an Eligible Employee or a Consultant upon the termination of his or her directorship, his or her ceasing to be a director of the Company shall not be treated as a Termination of Directorship unless and until the Participant has a Termination of Employment or Termination of Consultancy, as the case may be.
2.52 Termination of Employment means: (a) a termination of employment (for reasons other than a military or personal leave of absence granted by the Company) of a Participant from the Company and its Affiliates; or (b) when an entity which is employing a Participant ceases to be an Affiliate, unless the Participant otherwise is, or thereupon becomes, employed by the Company or another Affiliate at the time the entity ceases to be an Affiliate. In the event that an Eligible Employee becomes a Consultant or a Non-Employee Director upon the termination of his or her employment, unless otherwise determined by the Committee, in its sole discretion, no Termination of Employment shall be deemed to occur until such time as such Eligible Employee is no longer an Eligible Employee, a Consultant or a Non-Employee Director. Notwithstanding the foregoing, the Committee may otherwise define Termination of Employment in the Award Agreement or, if no rights of a Participant are reduced, may otherwise define Termination of Employment thereafter, provided that any such change to the definition of the term Termination of Employment does not subject the applicable Stock Option to Section 409A of the Code.
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2.53 Transfer means: (a) when used as a noun, any direct or indirect transfer, sale, assignment, pledge, hypothecation, encumbrance or other disposition (including the issuance of equity in any entity), whether for value or no value and whether voluntary or involuntary (including by operation of law), and (b) when used as a verb, to directly or indirectly transfer, sell, assign, pledge, encumber, charge, hypothecate or otherwise dispose of (including the issuance of equity in any entity) whether for value or for no value and whether voluntarily or involuntarily (including by operation of law). Transferred and Transferable shall have a correlative meaning.
2.54 Transition Period means the period beginning with the Registration Date and ending as of the earlier of: (i) the date of the first annual meeting of stockholders of the Company at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which the Registration Date occurs; and (ii) the expiration of the reliance period under Treasury Regulation Section 1.162-27(f)(2).
ARTICLE III
ADMINISTRATION
3.1 The Committee . The Plan shall be administered and interpreted by the Committee. To the extent required by applicable law, rule or regulation, each member of the Committee shall qualify as (a) a non-employee director under Rule 16b-3, (b) an outside director under Code Section 162(m) and (c) an independent director under the rules of any national securities exchange or national securities association, as applicable. If it is later determined that one or more members of the Committee do not so qualify, actions taken by the Committee prior to such determination shall be valid despite such failure to qualify. In the event that any member of the Committee does not qualify as a non-employee director for purposes of Section 16 of the Exchange Act, then all compensation that is intended to be exempt from Section 16 will also be approved by the Board or a subcommittee made up of members of the Board who qualify as non-employee directors. In the event that any member of the Committee does not qualify as an outside director for purposes of Section 162(m) of the Code, then all compensation that is intended to be exempt from Section 162(m) of the Code will also be approved by a subcommittee made up of members of the Board who qualify as outside directors.
3.2 Grants of Awards . The Committee shall have full authority to grant, pursuant to the terms of this Plan, to Eligible Individuals: (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv) Performance Awards; (v) Other Stock-Based Awards; and (vi) Other Cash-Based Awards. In particular, the Committee shall have the authority:
(a) to select the Eligible Individuals to whom Awards may from time to time be granted hereunder;
(b) to determine whether and to what extent Awards, or any combination thereof, are to be granted hereunder to one or more Eligible Individuals;
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(c) to determine the number of shares of Common Stock to be covered by each Award granted hereunder;
(d) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder (including, but not limited to, the exercise or purchase price (if any), any restriction or limitation, any vesting schedule or acceleration thereof, or any forfeiture restrictions or waiver thereof, regarding any Award and the shares of Common Stock relating thereto, based on such factors, if any, as the Committee shall determine, in its sole discretion);
(e) to determine whether, to what extent and under what circumstances grants of Options and other Awards under the Plan are to operate on a tandem basis and/or in conjunction with or apart from other awards made by the Company outside of this Plan;
(f) to determine whether and under what circumstances a Stock Option may be settled in cash, Common Stock and/or Restricted Stock under Section 6.4(d);
(g) to determine whether a Stock Option is an Incentive Stock Option or Non-Qualified Stock Option;
(h) to determine whether to require a Participant, as a condition of the granting of any Award, to not sell or otherwise dispose of shares acquired pursuant to the exercise of an Award for a period of time as determined by the Committee, in its sole discretion, following the date of the acquisition of such Award;
(i) to modify, extend or renew an Award, subject to Article XII and Section 6.4(l), provided, however, that such action does not subject the Award to Section 409A of the Code without the consent of the Participant; and
(j) solely to the extent permitted by applicable law, to determine whether, to what extent and under what circumstances to provide loans (which may be on a recourse basis and shall bear interest at the rate the Committee shall provide) to Participants in order to exercise Options under the Plan.
3.3 Guidelines . Subject to Article XII hereof, the Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan and perform all acts, including the delegation of its responsibilities (to the extent permitted by applicable law and applicable stock exchange rules), as it shall, from time to time, deem advisable; to construe and interpret the terms and provisions of the Plan and any Award issued under the Plan (and any agreements relating thereto); and to otherwise supervise the administration of the Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any agreement relating thereto in the manner and to the extent it shall deem necessary to effectuate the purpose and intent of the Plan. The Committee may adopt special guidelines and provisions for persons who are residing in or employed in, or subject to, the taxes of, any domestic or foreign jurisdictions to comply with applicable tax and securities laws of such domestic or foreign jurisdictions. Notwithstanding the foregoing, no action of the Committee under this Section 3.3 shall impair the rights of any Participant without the Participants consent. To the extent applicable, this Plan is intended to comply with the
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applicable requirements of Rule 16b-3, and with respect to Awards intended to be performance-based, the applicable provisions of Section 162(m) of the Code, and the Plan shall be limited, construed and interpreted in a manner so as to comply therewith.
3.4 Decisions Final . Any decision, interpretation or other action made or taken in good faith by or at the direction of the Company, the Board or the Committee (or any of its members) arising out of or in connection with the Plan shall be within the absolute discretion of all and each of them, as the case may be, and shall be final, binding and conclusive on the Company and all employees and Participants and their respective heirs, executors, administrators, successors and assigns.
3.5 Procedures . If the Committee is appointed, the Board shall designate one of the members of the Committee as chairman and the Committee shall hold meetings, subject to the By-Laws of the Company, at such times and places as it shall deem advisable, including, without limitation, by telephone conference or by written consent to the extent permitted by applicable law. A majority of the Committee members shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by all of the Committee members in accordance with the By-Laws of the Company, shall be fully effective as if it had been made by a vote at a meeting duly called and held. The Committee shall keep minutes of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable.
3.6 Designation of Consultants/Liability .
(a) The Committee may designate employees of the Company and professional advisors to assist the Committee in the administration of the Plan and (to the extent permitted by applicable law and applicable exchange rules) may grant authority to officers to grant Awards and/or execute agreements or other documents on behalf of the Committee.
(b) The Committee may employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion received from any such counsel or consultant and any computation received from any such consultant or agent. Expenses incurred by the Committee or the Board in the engagement of any such counsel, consultant or agent shall be paid by the Company. The Committee, its members and any person designated pursuant to sub-section (a) above shall not be liable for any action or determination made in good faith with respect to the Plan. To the maximum extent permitted by applicable law, no officer of the Company or member or former member of the Committee or of the Board shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted under it.
ARTICLE IV
SHARE LIMITATION
4.1 Shares . (a) Subject to any increase or decrease pursuant to Section 4.2, the aggregate number of shares of Common Stock that may be issued or used for reference purposes or with respect to which Awards may be granted under the Plan shall not exceed fifteen million (15,000,000) shares, plus an automatic annual increase on the first day of each of the Companys fiscal years beginning in 2011 and ending in 2019 equal to the lesser of (i) two percent (2%) of the shares of Common Stock outstanding on the last day of the immediately preceding fiscal year or (ii) such lesser number of shares of Common Stock as determined by the Committee. The shares may be either authorized and unissued Common Stock or Common Stock held in or acquired for
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the treasury of the Company or both. The maximum number of shares of Common Stock with respect to which Incentive Stock Options may be granted under the Plan shall be fifteen million (15,000,000) shares. With respect to Stock Appreciation Rights settled in Common Stock, upon settlement, only the number of shares of Common Stock delivered to a Participant (based on the difference between the Fair Market Value of the shares of Common Stock subject to such Stock Appreciation Right on the date such Stock Appreciation Right is exercised and the exercise price of each Stock Appreciation Right on the date such Stock Appreciation Right was awarded) shall count against the aggregate and individual share limitations set forth under Sections 4.1(a) and 4.1(b). If any Option, Stock Appreciation Right or Other Stock-Based Award granted under the Plan expires, terminates or is canceled for any reason without having been exercised in full, the number of shares of Common Stock underlying any unexercised Award shall again be available for the purpose of Awards under the Plan. If any shares of Restricted Stock, Performance Awards or Other Stock-Based Awards denominated in shares of Common Stock awarded under the Plan to a Participant are forfeited for any reason, the number of forfeited shares of Restricted Stock, Performance Awards or Other Stock-Based Awards denominated in shares of Common Stock shall again be available for purposes of Awards under the Plan. If a Tandem Stock Appreciation Right or a Limited Stock Appreciation Right is granted in tandem with an Option, such grant shall only apply once against the maximum number of shares of Common Stock which may be issued under the Plan. Any Award under the Plan settled in cash shall not be counted against the foregoing maximum share limitations.
(b) Individual Participant Limitations . To the extent required by Section 162(m) of the Code for Awards under the Plan to qualify as performance-based compensation, the following individual Participant limitations shall only apply after the expiration of the Transition Period:
(i) The maximum number of shares of Common Stock subject to any Award of Stock Options, or Stock Appreciation Rights, or shares of Restricted Stock, or Other Stock-Based Awards for which the grant of such Award or the lapse of the relevant Restriction Period is subject to the attainment of Performance Goals in accordance with Section 8.3(a)(ii) which may be granted under the Plan during any fiscal year of the Company to any Participant shall be one million (1,000,000) shares per type of Award (which shall be subject to any further increase or decrease pursuant to Section 4.2), provided that the maximum number of shares of Common Stock for all types of Awards does not exceed one million (1,000,000) shares (which shall be subject to any further increase or decrease pursuant to Section 4.2) during any fiscal year of the Company. If a Tandem Stock Appreciation Right is granted or a Limited Stock Appreciation Right is granted in tandem with a Stock Option, it shall apply against the Participants individual share limitations for both Stock Appreciation Rights and Stock Options.
(ii) There are no annual individual share limitations applicable to Participants on Restricted Stock or Other Stock-Based Awards for which the grant, vesting or payment (as applicable) of any such Award is not subject to the attainment of Performance Goals.
(iii) The maximum number of shares of Common Stock subject to any Performance Award which may be granted under the Plan during any fiscal year of the Company to any Participant shall be one million (1,000,000) shares (which shall be subject to any further increase or decrease pursuant to Section 4.2) with respect to any fiscal year of the Company.
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(iv) The maximum value of a cash payment made under a Performance Award which may be granted under the Plan with respect to any fiscal year of the Company to any Participant shall be ten million dollars ($10,000,000) .
(v) The individual Participant limitations set forth in this Section 4.1(b) (other than Section 4.1(b)(iii)) shall be cumulative; that is, to the extent that shares of Common Stock for which Awards are permitted to be granted to a Participant during a fiscal year are not covered by an Award to such Participant in a fiscal year, the number of shares of Common Stock available for Awards to such Participant shall automatically increase in the subsequent fiscal years during the term of the Plan until used.
4.2 Changes .
(a) The existence of the Plan and the Awards granted hereunder shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize (i) any adjustment, recapitalization, reorganization or other change in the Companys capital structure or its business, (ii) any merger or consolidation of the Company or any Affiliate, (iii) any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock, (iv) the dissolution or liquidation of the Company or any Affiliate, (v) any sale or transfer of all or part of the assets or business of the Company or any Affiliate or (vi) any other corporate act or proceeding.
(b) Subject to the provisions of Section 4.2(d), in the event of a dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property) other than regular cash dividends, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, Change in Control or exchange of Common Stock or other securities of the Company, or other corporate transaction or event affects the Common Stock such that an adjustment is necessary or appropriate in order to prevent dilution or enlargement of benefits or potential benefits intended to be made available under the Plan (a Section 4.2 Event ), the Committee shall equitably adjust (i) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or property) with respect to which Awards may be granted under the Plan, (ii) the maximum share limitation applicable to each type of Award that may be granted to any individual participant in any calendar year, (iii) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or property) subject to outstanding Awards, and (iv) the exercise price with respect to any Stock Option or any Stock Appreciation Right. Any such adjustment determined by the Committee shall be final, binding and conclusive on the Company and all Participants and their respective heirs, executors, administrators, successors and permitted assigns. If the Company enters into or is involved in any merger, reorganization, Change in Control or other business combination with any person or entity (a Merger Event ), the Committee may, prior to such Merger Event and effective upon such Merger Event, take such action as it deems appropriate, including, but not limited to, replacing Awards with substitute Awards in respect of the shares, other securities or other property of the surviving corporation or any affiliate of the surviving corporation on such terms and conditions, as to the number of shares, pricing and otherwise, which shall substantially preserve the value, rights and benefits of any affected Awards granted hereunder as of the date of the consummation of the Merger Event. Upon receipt by any affected Participant of any such substitute Award (or payment) as a result of any such Merger
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Event, such Participants affected Awards for which such substitute Awards (or payment) were received shall be thereupon cancelled without the need for obtaining the consent of any such affected Participant. In addition, subject to Section 4.2(d), if there shall occur any change in the capital structure or the business of the Company that is not a Section 4.2 Event or Merger Event (an Other Extraordinary Event ), then the Committee, in its sole discretion, may adjust any Award and make such other adjustments to the Plan. Except as expressly provided in this Section 4.2 or in the applicable Award Agreement, a Participant shall have no rights by reason of any Section 4.2 Event, Merger Event, or any Other Extraordinary Event.
(c) Fractional shares of Common Stock resulting from any adjustment in Awards pursuant to Section 4.2(a) or 4.2(b) shall be aggregated until, and eliminated at, the time of exercise by rounding-down for fractions less than one-half and rounding-up for fractions equal to or greater than one-half. No cash settlements shall be made with respect to fractional shares eliminated by rounding. Notice of any adjustment shall be given by the Committee to each Participant whose Award has been adjusted and such adjustment (whether or not such notice is given) shall be effective and binding for all purposes of the Plan.
(d) In the event of a Merger Event in which the Company is not the surviving entity or in the event of any transaction that results in the acquisition of substantially all of the Companys outstanding Common Stock by a single person or entity or by a group of persons and/or entities acting in concert, or in the event of the sale or transfer of all or substantially all of the Companys assets (all of the foregoing being referred to as an Acquisition Event ), then the Committee may, in its sole discretion, terminate all outstanding and unexercised Stock Options, Stock Appreciation Rights, or any Other Stock-Based Awards that provide for a Participant elected exercise, effective as of the date of the Acquisition Event, by delivering notice of termination to each Participant at least 20 days prior to the date of consummation of the Acquisition Event, in which case during the period from the date on which such notice of termination is delivered to the consummation of the Acquisition Event, each such Participant shall have the right to exercise in full all of his or her vested Awards that are then outstanding, but any such exercise shall be contingent on the occurrence of the Acquisition Event, and, provided that, if the Acquisition Event does not take place within a specified period after giving such notice for any reason whatsoever, the notice and exercise pursuant thereto shall be null and void.
If an Acquisition Event occurs but the Committee does not terminate the outstanding Awards pursuant to this Section 4.2(d), then the provisions of Section 4.2(b) and Article XI shall apply.
4.3 Minimum Purchase Price . Notwithstanding any provision of the Plan to the contrary, if authorized but previously unissued shares of Common Stock are issued under the Plan, such shares shall not be issued for a consideration that is less than as permitted under applicable law.
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ARTICLE V
ELIGIBILITY
5.1 General Eligibility . All current and prospective Eligible Individuals are eligible to be granted Awards. Eligibility for the grant of Awards and actual participation in the Plan shall be determined by the Committee in its sole discretion.
5.2 Incentive Stock Options . Notwithstanding the foregoing, only Eligible Employees of the Company, its Subsidiaries and its Parent (if any) are eligible to be granted Incentive Stock Options under the Plan. Eligibility for the grant of an Incentive Stock Option and actual participation in the Plan shall be determined by the Committee in its sole discretion.
5.3 General Requirement . The vesting and exercise of Awards granted to a prospective Eligible Individual are conditioned upon such individual actually becoming an Eligible Employee, Consultant or Non-Employee Director, respectively.
ARTICLE VI
STOCK OPTIONS
6.1 Options . Stock Options may be granted alone or in addition to other Awards granted under the Plan. Each Stock Option granted under the Plan shall be of one of two types: (a) an Incentive Stock Option or (b) a Non-Qualified Stock Option.
6.2 Grants . The Committee shall have the authority to grant to any Eligible Employee one or more Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock Options. The Committee shall have the authority to grant any Consultant or Non-Employee Director one or more Non-Qualified Stock Options. To the extent that any Stock Option does not qualify as an Incentive Stock Option (whether because of its provisions or the time or manner of its exercise or otherwise), such Stock Option or the portion thereof which does not so qualify shall constitute a separate Non-Qualified Stock Option.
6.3 Incentive Stock Options . Notwithstanding anything in the Plan to the contrary, no term of the Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify the Plan under Section 422 of the Code, or, without the consent of the Participants affected, to disqualify any Incentive Stock Option under such Section 422.
6.4 Terms of Options . Options granted under the Plan shall be subject to the following terms and conditions and shall be in such form and contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Exercise Price . The exercise price per share of Common Stock subject to a Stock Option shall be determined by the Committee at the time of grant, provided that the per share exercise price of a Stock Option shall not be less than 100% (or, in the case of an Incentive Stock Option granted to a Ten Percent Stockholder, 110%) of the Fair Market Value of the Common Stock at the time of grant.
(b) Stock Option Term . The term of each Stock Option shall be fixed by the Committee, provided that no Stock Option shall be exercisable more than 10 years after the date the Option is granted; and provided further that the term of an Incentive Stock Option granted to a Ten Percent Stockholder shall not exceed five years.
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(c) Exercisability . Unless otherwise provided by the Committee in accordance with the provisions of this Section 6.4, Stock Options granted under the Plan shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at the time of grant. If the Committee provides, in its discretion, that any Stock Option is exercisable subject to certain limitations (including, without limitation, that such Stock Option is exercisable only in installments or within certain time periods), the Committee may waive such limitations on the exercisability at any time at or after the time of grant in whole or in part (including, without limitation, waiver of the installment exercise provisions or acceleration of the time at which such Stock Option may be exercised), based on such factors, if any, as the Committee shall determine, in its sole discretion. Unless otherwise determined by the Committee at the time of grant, the Option agreement shall provide that (i) in the event that the Participant engages in Detrimental Activity prior to any exercise of the Stock Option (whether vested or unvested), all Stock Options held by the Participant shall thereupon terminate and expire, (ii) as a condition of the exercise of a Stock Option, the Participant shall be required to certify (or shall be deemed to have certified) at the time of exercise in a manner acceptable to the Company that the Participant is in compliance with the terms and conditions of the Plan and that the Participant has not engaged in, and does not intend to engage in, any Detrimental Activity, and (iii) in the event that the Participant engages in Detrimental Activity during the one-year period commencing on the date that the Stock Option is exercised or becomes vested, the Company shall be entitled to recover from the Participant at any time within one year after such exercise or vesting, and the Participant shall pay over to the Company, an amount equal to any gain realized as a result of the exercise (whether at the time of exercise or thereafter).
(d) Method of Exercise . Subject to whatever installment exercise and waiting period provisions apply under Section 6.4(c), to the extent vested, Stock Options may be exercised in whole or in part at any time during the Option term, by giving written notice of exercise to the Company specifying the number of shares of Common Stock to be purchased. Such notice shall be accompanied by payment in full of the purchase price as follows: (i) in cash or by check, bank draft or money order payable to the order of the Company; (ii) solely to the extent permitted by applicable law, if the Common Stock is traded on a national securities exchange, and the Committee authorizes, through a procedure whereby the Participant delivers irrevocable instructions to a broker reasonably acceptable to the Committee to deliver promptly to the Company an amount equal to the purchase price; or (iii) on such other terms and conditions as may be acceptable to the Committee (including, without limitation, the relinquishment of Stock Options or by payment in full or in part in the form of Common Stock owned by the Participant based on the Fair Market Value of the Common Stock on the payment date as determined by the Committee). No shares of Common Stock shall be issued until payment therefore, as provided herein, has been made or provided for.
(e) Non-Transferability of Options . No Stock Option shall be Transferable by the Participant otherwise than by will or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the Participants lifetime, only by the Participant. Notwithstanding the foregoing, the Committee may determine, in its sole discretion, at the time of grant or thereafter that a Non-Qualified Stock Option that is otherwise not Transferable pursuant to this Section is Transferable to a Family Member in whole or in part and in such circumstances, and under such conditions, as specified by the Committee. A Non-Qualified Stock Option that is Transferred to a Family Member pursuant to the preceding sentence (i) may not be subsequently
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Transferred otherwise than by will or by the laws of descent and distribution and (ii) remains subject to the terms of this Plan and the applicable Award Agreement. Any shares of Common Stock acquired upon the exercise of a Non-Qualified Stock Option by a permissible transferee of a Non-Qualified Stock Option or a permissible transferee pursuant to a Transfer after the exercise of the Non-Qualified Stock Option shall be subject to the terms of this Plan and the applicable Award Agreement.
(f) Termination by Death or Disability . Unless otherwise determined by the Committee at the time of grant, or if no rights of the Participant are reduced, thereafter, if a Participants Termination is by reason of death or Disability, all Stock Options that are held by such Participant that are vested and exercisable at the time of the Participants Termination may be exercised by the Participant at any time within a period of one year from the date of such Termination, but in no event beyond the expiration of the stated term of such Stock Options; provided, however, that if the Participant dies within such exercise period, all unexercised Stock Options held by such Participant shall thereafter be exercisable, to the extent to which they were exercisable at the time of death, for a period of one year from the date of such death, but in no event beyond the expiration of the stated term of such Stock Options.
(g) Involuntary Termination Without Cause . Unless otherwise determined by the Committee at the time of grant, or if no rights of the Participant are reduced, thereafter, if a Participants Termination is by involuntary termination without Cause, all Stock Options that are held by such Participant that are vested and exercisable at the time of the Participants Termination may be exercised by the Participant at any time within a period of 90 days from the date of such Termination, but in no event beyond the expiration of the stated term of such Stock Options.
(h) Voluntary Termination . Unless otherwise determined by the Committee at the time of grant, or if no rights of the Participant are reduced, thereafter, if a Participants Termination is voluntary (other than a voluntary termination described in Section 6.4(i)(y) hereof), all Stock Options that are held by such Participant that are vested and exercisable at the time of the Participants Termination may be exercised by the Participant at any time within a period of 90 days from the date of such Termination, but in no event beyond the expiration of the stated term of such Stock Options.
(i) Termination for Cause . Unless otherwise determined by the Committee at the time of grant, or if no rights of the Participant are reduced, thereafter, if a Participants Termination (x) is for Cause or (y) is a voluntary Termination (as provided in Section 6.4(h)) after the occurrence of an event that would be grounds for a Termination for Cause, all Stock Options, whether vested or not vested, that are held by such Participant shall thereupon terminate and expire as of the date of such Termination.
(j) Unvested Stock Options . Unless otherwise determined by the Committee at the time of grant, or if no rights of the Participant are reduced, thereafter, Stock Options that are not vested as of the date of a Participants Termination for any reason shall terminate and expire as of the date of such Termination.
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(k) Incentive Stock Option Limitations . To the extent that the aggregate Fair Market Value (determined as of the time of grant) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by an Eligible Employee during any calendar year under this Plan and/or any other stock option plan of the Company, any Subsidiary or any Parent exceeds $100,000, such Options shall be treated as Non-Qualified Stock Options. Should any provision of this Plan not be necessary in order for the Stock Options to qualify as Incentive Stock Options, or should any additional provisions be required, the Committee may amend this Plan accordingly, without the necessity of obtaining the approval of the stockholders of the Company.
(l) Form, Modification, Extension and Renewal of Stock Options . Subject to the terms and conditions and within the limitations of the Plan, Stock Options shall be evidenced by such form of agreement or grant as is approved by the Committee, and the Committee may (i) modify, extend or renew outstanding Stock Options granted under the Plan (provided that the rights of a Participant are not reduced without his or her consent and provided further that such action does not subject the Stock Options to Section 409A of the Code without the consent of the Participant), and (ii) accept the surrender of outstanding Stock Options (up to the extent not theretofore exercised) and authorize the granting of new Stock Options in substitution therefor (to the extent not theretofore exercised). Notwithstanding anything herein to the contrary, unless otherwise provided in the Award Agreement, the Committee may, at its sole and absolute discretion, (i) lower the strike price of a Stock Option after it is granted, or take any other action with the effect of lowering the strike price of a Stock Option after it is granted, or (ii) permit the cancellation of a Stock Option in exchange for another Award.
(m) Deferred Delivery of Common Shares . The Committee may in its discretion permit Participants to defer delivery of Common Stock acquired pursuant to a Participants exercise of an Option in accordance with the terms and conditions established by the Committee in the applicable Award Agreement, which shall be intended to comply with the requirements of Section 409A of the Code.
(n) Early Exercise . The Committee may provide that a Stock Option include a provision whereby the Participant may elect at any time before the Participants Termination to exercise the Stock Option as to any part or all of the shares of Common Stock subject to the Stock Option prior to the full vesting of the Stock Option and such shares shall be subject to the provisions of Article VIII and be treated as Restricted Stock. Unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Committee determines to be appropriate.
(o) Cashing-Out of Stock Options . Unless otherwise provided in the Award Agreement, on receipt of written notice of exercise, the Committee may elect to cash-out all or part of the portion of the shares for which an Option is being exercised by paying the optionee an amount, in cash or shares of Common Stock, equal to the excess of the Fair Market Value of the shares of Common Stock over the exercise price multiplied by the number of shares of Common Stock for which the Option is being exercised on the effective date of such cash-out.
(p) Other Terms and Conditions . Stock Options may contain such other provisions, which shall not be inconsistent with any of the terms of the Plan, as the Committee
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shall deem appropriate including, without limitation, permitting reloads such that the same number of Stock Options are granted as the number of Stock Options exercised, shares used to pay for the exercise price of Stock Options or shares used to pay withholding taxes ( Reloads ). With respect to Reloads, the exercise price of the new Stock Option shall be the Fair Market Value on the date of the reload and the term of the Stock Option shall be the same as the remaining term of the Stock Options that are exercised, if applicable, or such other exercise price and term as determined by the Committee.
ARTICLE VII
STOCK APPRECIATION RIGHTS
7.1 Tandem Stock Appreciation Rights . Stock Appreciation Rights may be granted in conjunction with all or part of any Stock Option (a Reference Stock Option ) granted under the Plan ( Tandem Stock Appreciation Rights ). In the case of a Non-Qualified Stock Option, such rights may be granted either at or after the time of the grant of such Reference Stock Option. In the case of an Incentive Stock Option, such rights may be granted only at the time of the grant of such Reference Stock Option.
7.2 Terms and Conditions of Tandem Stock Appreciation Rights . Tandem Stock Appreciation Rights granted hereunder shall be subject to such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee, and the following:
(a) Exercise Price . The exercise price per share of Common Stock subject to a Tandem Stock Appreciation Right shall be determined by the Committee at the time of grant, provided that the per share exercise price of a Tandem Stock Appreciation Right shall not be less than 100% of the Fair Market Value of the Common Stock at the time of grant.
(b) Term . A Tandem Stock Appreciation Right or applicable portion thereof granted with respect to a Reference Stock Option shall terminate and no longer be exercisable upon the termination or exercise of the Reference Stock Option, except that, unless otherwise determined by the Committee, in its sole discretion, at the time of grant, a Tandem Stock Appreciation Right granted with respect to less than the full number of shares covered by the Reference Stock Option shall not be reduced until and then only to the extent that the exercise or termination of the Reference Stock Option causes the number of shares covered by the Tandem Stock Appreciation Right to exceed the number of shares remaining available and unexercised under the Reference Stock Option.
(c) Exercisability . Tandem Stock Appreciation Rights shall be exercisable only at such time or times and to the extent that the Reference Stock Options to which they relate shall be exercisable in accordance with the provisions of Article VI, and shall be subject to the provisions of Section 6.4(c).
(d) Method of Exercise . A Tandem Stock Appreciation Right may be exercised by the Participant by surrendering the applicable portion of the Reference Stock Option. Upon such exercise and surrender, the Participant shall be entitled to receive an amount determined in the manner prescribed in this Section 7.2. Stock Options which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent that the related Tandem Stock Appreciation Rights have been exercised.
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(e) Payment . Upon the exercise of a Tandem Stock Appreciation Right, a Participant shall be entitled to receive up to, but no more than, an amount in cash and/or Common Stock (as chosen by the Committee in its sole discretion) equal in value to the excess of the Fair Market Value of one share of Common Stock over the Option exercise price per share specified in the Reference Stock Option agreement multiplied by the number of shares of Common Stock in respect of which the Tandem Stock Appreciation Right shall have been exercised, with the Committee having the right to determine the form of payment.
(f) Deemed Exercise of Reference Stock Option . Upon the exercise of a Tandem Stock Appreciation Right, the Reference Stock Option or part thereof to which such Stock Appreciation Right is related shall be deemed to have been exercised for the purpose of the limitation set forth in Article IV of the Plan on the number of shares of Common Stock to be issued under the Plan.
(g) Non-Transferability . Tandem Stock Appreciation Rights shall be Transferable only when and to the extent that the underlying Stock Option would be Transferable under Section 6.4(e) of the Plan.
7.3 Non-Tandem Stock Appreciation Rights . Non-Tandem Stock Appreciation Rights may also be granted without reference to any Stock Options granted under the Plan.
7.4 Terms and Conditions of Non-Tandem Stock Appreciation Rights . Non-Tandem Stock Appreciation Rights granted hereunder shall be subject to such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee, and the following:
(a) Exercise Price . The exercise price per share of Common Stock subject to a Non-Tandem Stock Appreciation Right shall be determined by the Committee at the time of grant, provided that the per share exercise price of a Non-Tandem Stock Appreciation Right shall not be less than 100% of the Fair Market Value of the Common Stock at the time of grant.
(b) Term . The term of each Non-Tandem Stock Appreciation Right shall be fixed by the Committee, but shall not be greater than 10 years after the date the right is granted.
(c) Exercisability . Unless otherwise provided by the Committee in accordance with the provisions of this Section 7.4, Non-Tandem Stock Appreciation Rights granted under the Plan shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at the time of grant. If the Committee provides, in its discretion, that any such right is exercisable subject to certain limitations (including, without limitation, that it is exercisable only in installments or within certain time periods), the Committee may waive such limitations on the exercisability at any time at or after grant in whole or in part (including, without limitation, waiver of the installment exercise provisions or acceleration of the time at which such right may be exercised), based on such factors, if any, as the Committee shall determine, in its sole discretion.
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Unless otherwise determined by the Committee at grant, the Award Agreement shall provide that (i) in the event that the Participant engages in Detrimental Activity prior to any exercise of the Non-Tandem Stock Appreciation Right, all Non-Tandem Stock Appreciation Rights held by the Participant shall thereupon terminate and expire, (ii) as a condition of the exercise of a Non-Tandem Stock Appreciation Right, the Participant shall be required to certify (or shall be deemed to have certified) at the time of exercise in a manner acceptable to the Company that the Participant is in compliance with the terms and conditions of the Plan and that the Participant has not engaged in, and does not intend to engage in, any Detrimental Activity, and (iii) in the event that the Participant engages in Detrimental Activity during the one-year period commencing on the date the Non-Tandem Stock Appreciation Right is exercised or becomes vested, the Company shall be entitled to recover from the Participant at any time within one year after such exercise or vesting, and the Participant shall pay over to the Company, an amount equal to any gain realized as a result of the exercise (whether at the time of exercise or thereafter).
(d) Method of Exercise . Subject to whatever installment exercise and waiting period provisions apply under Section 7.4(c), Non-Tandem Stock Appreciation Rights may be exercised in whole or in part at any time in accordance with the applicable Award Agreement, by giving written notice of exercise to the Company specifying the number of Non-Tandem Stock Appreciation Rights to be exercised.
(e) Payment . Upon the exercise of a Non-Tandem Stock Appreciation Right a Participant shall be entitled to receive, for each right exercised, up to, but no more than, an amount in cash and/or Common Stock (as chosen by the Committee in its sole discretion) equal in value to the excess of the Fair Market Value of one share of Common Stock on the date that the right is exercised over the Fair Market Value of one share of Common Stock on the date that the right was awarded to the Participant.
(f) Termination . Unless otherwise determined by the Committee at grant or, if no rights of the Participant are reduced, thereafter, subject to the provisions of the applicable Award Agreement and the Plan, upon a Participants Termination for any reason, Non-Tandem Stock Appreciation Rights will remain exercisable following a Participants Termination on the same basis as Stock Options would be exercisable following a Participants Termination in accordance with the provisions of Sections 6.4(f) through 6.4(j).
(g) Non-Transferability . No Non-Tandem Stock Appreciation Rights shall be Transferable by the Participant otherwise than by will or by the laws of descent and distribution, and all such rights shall be exercisable, during the Participants lifetime, only by the Participant.
7.5 Limited Stock Appreciation Rights . The Committee may, in its sole discretion, grant Tandem and Non-Tandem Stock Appreciation Rights either as a general Stock Appreciation Right or as a Limited Stock Appreciation Right. Limited Stock Appreciation Rights may be exercised only upon the occurrence of a Change in Control or such other event as the Committee may, in its sole discretion, designate at the time of grant or thereafter. Upon the exercise of Limited Stock Appreciation Rights, except as otherwise provided in an Award Agreement, the Participant shall receive in cash and/or Common Stock, as determined by the Committee, an amount equal to the amount (i) set forth in Section 7.2(e) with respect to Tandem Stock Appreciation Rights, or (ii) set forth in Section 7.4(e) with respect to Non-Tandem Stock Appreciation Rights.
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ARTICLE VIII
RESTRICTED STOCK
8.1 Awards of Restricted Stock . Shares of Restricted Stock may be issued either alone or in addition to other Awards granted under the Plan. The Committee shall determine the Eligible Individuals, to whom, and the time or times at which, grants of Restricted Stock shall be made, the number of shares to be awarded, the price (if any) to be paid by the Participant (subject to Section 8.2), the time or times within which such Awards may be subject to forfeiture, the vesting schedule and rights to acceleration thereof, and all other terms and conditions of the Awards.
Unless otherwise determined by the Committee at grant, each Award of Restricted Stock shall provide that in the event that the Participant engages in Detrimental Activity prior to, or during the one-year period after, any vesting of Restricted Stock, the Committee may direct that all unvested Restricted Stock shall be immediately forfeited to the Company and that the Participant shall pay over to the Company an amount equal to the Fair Market Value at the time of vesting of any Restricted Stock which had vested in the period referred to above.
The Committee may condition the grant or vesting of Restricted Stock upon the attainment of specified performance targets (including, the Performance Goals) or such other factor as the Committee may determine in its sole discretion, including to comply with the requirements of Section 162(m) of the Code.
8.2 Awards and Certificates . Eligible Individuals selected to receive Restricted Stock shall not have any right with respect to such Award, unless and until such Participant has delivered a fully executed copy of the agreement evidencing the Award to the Company and has otherwise complied with the applicable terms and conditions of such Award. Further, such Award shall be subject to the following conditions:
(a) Purchase Price . The purchase price of Restricted Stock shall be fixed by the Committee. Subject to Section 4.3, the purchase price for shares of Restricted Stock may be zero to the extent permitted by applicable law, and, to the extent not so permitted, such purchase price may not be less than par value.
(b) Acceptance . Awards of Restricted Stock must be accepted within a period of 60 days (or such shorter period as the Committee may specify at grant) after the grant date, by executing a Restricted Stock agreement and by paying whatever price (if any) the Committee has designated thereunder.
(c) Legend . Each Participant receiving Restricted Stock shall be issued a stock certificate in respect of such shares of Restricted Stock, unless the Committee elects to use another system, such as book entries by the transfer agent, as evidencing ownership of shares of Restricted Stock. Such certificate shall be registered in the name of such Participant, and shall, in addition to such legends required by applicable securities laws, bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award, substantially in the following form:
The anticipation, alienation, attachment, sale, transfer, assignment, pledge, encumbrance or charge of the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Express, Inc. (the Company) 2010 Incentive Compensation Plan (the Plan) and an Agreement entered into between the registered owner and the Company dated . Copies of such Plan and Agreement are on file at the principal office of the Company.
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(d) Custody . If stock certificates are issued in respect of shares of Restricted Stock, the Committee may require that any stock certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed, and that, as a condition of any grant of Restricted Stock, the Participant shall have delivered a duly signed stock power or other instruments of assignment (including a power of attorney), each endorsed in blank with a guarantee of signature if deemed necessary or appropriate by the Company, which would permit transfer to the Company of all or a portion of the shares subject to the Restricted Stock Award in the event that such Award is forfeited in whole or part.
8.3 Restrictions and Conditions . The shares of Restricted Stock awarded pursuant to the Plan shall be subject to the following restrictions and conditions:
(a) Restriction Period . (i) The Participant shall not be permitted to Transfer shares of Restricted Stock awarded under the Plan during the period or periods set by the Committee (the Restriction Period ) commencing on the date of such Award, as set forth in the Restricted Stock Award Agreement and such agreement shall set forth a vesting schedule and any event that would accelerate vesting of the shares of Restricted Stock. Within these limits, based on service, attainment of Performance Goals pursuant to Section 8.3(a)(ii) and/or such other factors or criteria as the Committee may determine in its sole discretion, the Committee may condition the grant or provide for the lapse of such restrictions in installments in whole or in part, or may accelerate the vesting of all or any part of any Restricted Stock Award and/or waive the deferral limitations for all or any part of any Restricted Stock Award.
(ii) If the grant of shares of Restricted Stock or the lapse of restrictions is based on the attainment of Performance Goals, the Committee shall establish the objective Performance Goals and the applicable vesting percentage of the Restricted Stock applicable to each Participant or class of Participants in writing prior to the beginning of the applicable fiscal year or at such later date as otherwise determined by the Committee and while the outcome of the Performance Goals are substantially uncertain. Such Performance Goals may incorporate provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, without limitation, dispositions and acquisitions) and other similar type events or circumstances. With regard to a Restricted Stock Award that is intended to comply with Section 162(m) of the Code, to the extent that any such provision would create impermissible discretion under Section 162(m) of the Code or otherwise violate Section 162(m) of the Code, such provision shall be of no force or effect.
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(b) Rights as a Stockholder . Except as provided in Section 8.3(a) and this Section 8.3(b) and as otherwise determined by the Committee, the Participant shall have, with respect to the shares of Restricted Stock, all of the rights of a holder of shares of Common Stock of the Company including, without limitation, the right to vote such shares, subject to and conditioned upon the full vesting of shares of Restricted Stock, the right to tender such shares, and the right to receive all dividends and other distributions paid with respect to the Restricted Stock, provided that such dividends or other distributions will be subject to the same vesting requirements as the underlying Restricted Stock and shall be paid at the time the Restricted Stock becomes vested. If dividends or distributions are paid in shares of Common Stock, such shares shall be deposited with the Company and shall be subject to the same restrictions on transferability and forfeitability as the Restricted Stock with respect to which they were paid. The Committee may, in its sole discretion, determine at the time of grant that the payment of dividends shall be deferred until, and conditioned upon, the expiration of the applicable Restriction Period.
(c) Termination . Unless otherwise determined by the Committee at grant or, if no rights of the Participant are reduced, thereafter, subject to the applicable provisions of the Award Agreement and the Plan, upon a Participants Termination for any reason during the relevant Restriction Period, all Restricted Stock still subject to restriction will be forfeited in accordance with the terms and conditions established by the Committee at grant or thereafter.
(d) Lapse of Restrictions . If and when the Restriction Period expires without a prior forfeiture of the Restricted Stock, the certificates for such shares, if any, shall be delivered to the Participant. All legends shall be removed from said certificates at the time of delivery to the Participant, except as otherwise required by applicable law or other limitations imposed by the Committee.
ARTICLE IX
PERFORMANCE AWARDS
9.1 Performance Awards . The Committee may grant a Performance Award to a Participant payable upon the attainment of specific Performance Goals. The Committee may grant Performance Awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code, as well as Performance Awards that are not intended to qualify as performance-based compensation under Section 162(m) of the Code. If the Performance Award is payable in shares of Restricted Stock, such shares shall be transferable to the Participant only upon attainment of the relevant Performance Goal in accordance with Article VIII. If the Performance Award is payable in cash, it may be paid upon the attainment of the relevant Performance Goals either in cash or in shares of Restricted Stock (based on the then current Fair Market Value of such shares), as determined by the Committee, in its sole and absolute discretion. Each Performance Award shall be evidenced by an Award Agreement in such form that is not inconsistent with the Plan and that the Committee may from time to time approve.
Unless otherwise determined by the Committee at grant, each Performance Award shall provide that in the event the Participant engages in Detrimental Activity prior to, or during the one-year period after, any vesting of the Performance Award, the Committee may direct (at any time within one year thereafter) that all of the unvested portion of the Performance Award shall be immediately forfeited to the Company and that the Participant shall pay over to the Company an amount equal to any gain that the Participant realized from any Performance Award that had vested in the period referred to above.
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With respect to Performance Awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code, the Committee shall condition the right to payment of any Performance Award upon the attainment of objective Performance Goals established pursuant to Section 9.2(c).
9.2 Terms and Conditions . Performance Awards awarded pursuant to this Article IX shall be subject to the following terms and conditions:
(a) Earning of Performance Award . At the expiration of the applicable Performance Period, the Committee shall determine the extent to which the Performance Goals established pursuant to Section 9.2(c) are achieved and the percentage of each Performance Award that has been earned.
(b) Non-Transferability . Subject to the applicable provisions of the Award Agreement and the Plan, Performance Awards may not be Transferred during the Performance Period.
(c) Objective Performance Goals, Formulae or Standards . With respect to Performance Awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code, the Committee shall establish the objective Performance Goals for the earning of Performance Awards based on a Performance Period applicable to each Participant or class of Participants in writing prior to the beginning of the applicable Performance Period or at such later date as permitted under Section 162(m) of the Code and while the outcome of the Performance Goals are substantially uncertain. Such Performance Goals may incorporate, if and only to the extent permitted under Section 162(m) of the Code, provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, without limitation, dispositions and acquisitions) and other similar type events or circumstances. To the extent that any such provision would create impermissible discretion under Section 162(m) of the Code or otherwise violate Section 162(m) of the Code, such provision shall be of no force or effect, with respect to Performance Awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code.
(d) Dividends . Unless otherwise determined by the Committee at the time of grant, amounts equal to dividends declared during the Performance Period with respect to the number of shares of Common Stock covered by a Performance Award will not be paid to the Participant.
(e) Payment . Following the Committees determination in accordance with Section 9.2(a), the Company shall settle Performance Awards, in such form (including, without limitation, in shares of Common Stock or in cash) as determined by the Committee, in an amount equal to such Participants earned Performance Awards. Notwithstanding the foregoing, the Committee may, in its sole discretion, award an amount less than the earned Performance Awards and/or subject the payment of all or part of any Performance Award to additional vesting, forfeiture and deferral conditions as it deems appropriate.
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(f) Termination . Subject to the applicable provisions of the Award Agreement and the Plan, upon a Participants Termination for any reason during the Performance Period for a given Performance Award, the Performance Award in question will vest or be forfeited in accordance with the terms and conditions established by the Committee at grant.
(g) Accelerated Vesting . Based on service, performance and/or such other factors or criteria, if any, as the Committee may determine, the Committee may, at or after grant, accelerate the vesting of all or any part of any Performance Award.
ARTICLE X
OTHER STOCK-BASED AND CASH-BASED AWARDS
10.1 Other Stock-Based Awards . The Committee is authorized to grant to Eligible Individuals Other Stock-Based Awards that are payable in, valued in whole or in part by reference to, or otherwise based on or related to shares of Common Stock, including but not limited to, shares of Common Stock awarded purely as a bonus and not subject to restrictions or conditions, shares of Common Stock in payment of the amounts due under an incentive or performance plan sponsored or maintained by the Company or an Affiliate, stock equivalent units, restricted stock units, and Awards valued by reference to book value of shares of Common Stock. Other Stock-Based Awards may be granted either alone or in addition to or in tandem with other Awards granted under the Plan.
Subject to the provisions of the Plan, the Committee shall have authority to determine the Eligible Individuals, to whom, and the time or times at which, such Awards shall be made, the number of shares of Common Stock to be awarded pursuant to such Awards, and all other conditions of the Awards. The Committee may also provide for the grant of Common Stock under such Awards upon the completion of a specified Performance Period.
The Committee may condition the grant or vesting of Other Stock-Based Awards upon the attainment of specified Performance Goals as the Committee may determine, in its sole discretion; provided that to the extent that such Other Stock-Based Awards are intended to comply with Section 162(m) of the Code, the Committee shall establish the objective Performance Goals for the grant or vesting of such Other Stock-Based Awards based on a Performance Period applicable to each Participant or class of Participants in writing prior to the beginning of the applicable Performance Period or at such later date as permitted under Section 162(m) of the Code and while the outcome of the Performance Goals are substantially uncertain. Such Performance Goals may incorporate, if and only to the extent permitted under Section 162(m) of the Code, provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, without limitation, dispositions and acquisitions) and other similar type events or circumstances. To the extent that any such provision would create impermissible discretion under Section 162(m) of the Code or otherwise violate Section 162(m) of the Code, such provision shall be of no force or effect, with respect to Performance Awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code.
10.2 Terms and Conditions . Other Stock-Based Awards made pursuant to this Article X shall be subject to the following terms and conditions:
(a) Non-Transferability . Subject to the applicable provisions of the Award Agreement and the Plan, shares of Common Stock subject to Awards made under this Article X may not be Transferred prior to the date on which the shares are issued, or, if later, the date on which any applicable restriction, performance or deferral period lapses.
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(b) Dividends . Unless otherwise determined by the Committee at the time of Award, subject to the provisions of the Award Agreement and the Plan, the recipient of an Award under this Article X shall not be entitled to receive, currently or on a deferred basis, dividends or dividend equivalents with respect to the number of shares of Common Stock covered by the Award, as determined at the time of the Award by the Committee, in its sole discretion.
(c) Vesting . Any Award under this Article X and any Common Stock covered by any such Award shall vest or be forfeited to the extent so provided in the Award Agreement, as determined by the Committee, in its sole discretion.
(d) Price . Common Stock issued on a bonus basis under this Article X may be issued for no cash consideration. Common Stock purchased pursuant to a purchase right awarded under this Article X shall be priced, as determined by the Committee in its sole discretion.
10.3 Other Cash-Based Awards . The Committee may from time to time grant Other Cash-Based Awards to Eligible Individuals in such amounts, on such terms and conditions, and for such consideration, including no consideration or such minimum consideration as may be required by applicable law, as it shall determine in its sole discretion. Other Cash-Based Awards may be granted subject to the satisfaction of vesting conditions or may be awarded purely as a bonus and not subject to restrictions or conditions, and if subject to vesting conditions, the Committee may accelerate the vesting of such Awards at any time in its sole discretion. The grant of an Other Cash-Based Award shall not require a segregation of any of the Companys assets for satisfaction of the Companys payment obligation thereunder.
10.4 Detrimental Activity . Unless otherwise determined by the Committee at grant, the Award Agreement shall provide that (i) in the event that the Participant engages in Detrimental Activity prior to any exercise, distribution or settlement of any Other Stock-Based Award and/or Other Cash-Based Award, such Other Stock-Based Awards and/or Other Cash-Based Awards held by the Participant shall thereupon terminate and expire, (ii) as a condition of the exercise, distribution or settlement of an Other Stock-Based Award and/or Other Cash-Based Award, the Participant shall be required to certify (or shall be deemed to have certified) at the time of exercise in a manner acceptable to the Company that the Participant is in compliance with the terms and conditions of the Plan and that the Participant has not engaged in, and does not intend to engage in, any Detrimental Activity, and (iii) in the event that the Participant engages in Detrimental Activity during the one-year period commencing on the date of exercise, distribution, or settlement of an Other Stock-Based Award and/or Other Cash-Based Award, the Company shall be entitled to recover from the Participant at any time within one year after such exercise, settlement, or distribution, and the Participant shall pay over to the Company, an amount equal to any gain realized as a result of the exercise, distribution or settlement (whether at the time of exercise, distribution or settlement or thereafter).
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ARTICLE XI
CHANGE IN CONTROL PROVISIONS
11.1 Benefits . In the event of a Change in Control of the Company (as defined below), and except as otherwise provided by the Committee in an Award Agreement, a Participants unvested Award shall not vest and a Participants Award shall be treated in accordance with one of the following methods as determined by the Committee:
(a) Awards, whether or not then vested, shall be continued, assumed, have new rights substituted therefore or be treated in accordance with Section 4.2(d) hereof, as determined by the Committee, and restrictions to which shares of Restricted Stock or any other Award granted prior to the Change in Control are subject shall not lapse upon a Change in Control and the Restricted Stock or other Award shall, where appropriate in the sole discretion of the Committee, receive the same distribution as other Common Stock on such terms as determined by the Committee; provided that the Committee may decide to award additional Restricted Stock or other Awards in lieu of any cash distribution. Notwithstanding anything to the contrary herein, for purposes of Incentive Stock Options, any assumed or substituted Stock Option shall comply with the requirements of Treasury Regulation Section 1.424-1 (and any amendment thereto).
(b) The Committee, in its sole discretion, may provide for the purchase of any Awards by the Company or an Affiliate for an amount of cash equal to the excess of the Change in Control Price (as defined below) of the shares of Common Stock covered by such Awards, over the aggregate exercise price of such Awards. For purposes of this Section 11.1, Change in Control Price shall mean the highest price per share of Common Stock paid in any transaction related to a Change in Control of the Company.
(c) Notwithstanding any other provision herein to the contrary, the Committee may, in its sole discretion, provide for accelerated vesting or lapse of restrictions, of an Award at any time.
11.2 Change in Control . Unless otherwise determined by the Committee in the applicable Award Agreement or other written agreement approved by the Committee, a Change in Control shall be deemed to occur if:
(a) any person, as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of Common Stock of the Company), becoming the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Companys then outstanding securities;
(b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (a), (c), or (d) of this Section 11.2 or a director whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such
26
term is used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board) whose election by the Board or nomination for election by the Companys stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board;
(c) a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person (other than those covered by the exceptions in Section 11.2(a)) acquires more than 50% of the combined voting power of the Companys then outstanding securities shall not constitute a Change in Control of the Company; or
(d) a complete liquidation or dissolution of the Company or the consummation of a sale or disposition by the Company of all or substantially all of the Companys assets other than the sale or disposition of all or substantially all of the assets of the Company to a person or persons who beneficially own, directly or indirectly, 50% or more of the combined voting power of the outstanding voting securities of the Company at the time of the sale.
Notwithstanding the foregoing, with respect to any Award that is characterized as non-qualified deferred compensation within the meaning of Section 409A of the Code, an event shall not be considered to be a Change in Control under the Plan for purposes of payment of any such award unless such event is also a change in ownership, a change in effective control or a change in the ownership of a substantial portion of the assets of the Company within the meaning of Section 409A of the Code.
11.3 Initial Public Offering not a Change in Control . Notwithstanding the foregoing, for purposes of the Plan, the occurrence of the Registration Date or any change in the composition of the Board within one year following the Registration Date shall not be considered a Change in Control.
ARTICLE XII
TERMINATION OR AMENDMENT OF PLAN
12.1 Termination or Amendment . Notwithstanding any other provision of the Plan, the Board may at any time, and from time to time, amend, in whole or in part, any or all of the provisions of the Plan (including any amendment deemed necessary to ensure that the Company may comply with any regulatory requirement referred to in Article XIV or Section 409A of the Code), or suspend or terminate it entirely, retroactively or otherwise; provided, however, that, unless otherwise required by law or specifically provided herein, the rights of a Participant with respect to Awards granted prior to such amendment, suspension or termination, may not be impaired without the consent of such Participant and, provided further, that without the approval
27
of the holders of the Companys Common Stock entitled to vote in accordance with applicable law, no amendment may be made that would (i) increase the aggregate number of shares of Common Stock that may be issued under the Plan (except by operation of Section 4.2); (ii) increase the maximum individual Participant limitations for a fiscal year under Section 4.1(b) (except by operation of Section 4.2); (iii) change the classification of individuals eligible to receive Awards under the Plan; (iv) decrease the minimum option price of any Stock Option or Stock Appreciation Right; (v) extend the maximum option period under Section 6.4; (vi) alter the Performance Goals for Restricted Stock, Performance Awards or Other Stock-Based Awards as set forth in Exhibit A hereto; (vii) award any Stock Option or Stock Appreciation Right in replacement of a canceled Stock Option or Stock Appreciation Right with a higher exercise price than the replacement award, except in accordance with Section 6.4(l); or (viii) require stockholder approval in order for the Plan to continue to comply with the applicable provisions of Section 162(m) of the Code or, to the extent applicable to Incentive Stock Options, Section 422 of the Code. In no event may the Plan be amended without the approval of the stockholders of the Company in accordance with the applicable laws of the State of Delaware to increase the aggregate number of shares of Common Stock that may be issued under the Plan, decrease the minimum exercise price of any Award, or to make any other amendment that would require stockholder approval under Financial Industry Regulatory Authority (FINRA) rules and regulations or the rules of any exchange or system on which the Companys securities are listed or traded at the request of the Company. Notwithstanding anything herein to the contrary, the Board may amend the Plan or any Award Agreement at any time without a Participants consent to comply with applicable law including Section 409A of the Code.
The Committee may amend the terms of any Award theretofore granted, prospectively or retroactively, but, subject to Article IV or as otherwise specifically provided herein, no such amendment or other action by the Committee shall impair the rights of any holder without the holders consent.
ARTICLE XIII
UNFUNDED STATUS OF PLAN
The Plan is intended to constitute an unfunded plan for incentive and deferred compensation. With respect to any payment as to which a Participant has a fixed and vested interest but which are not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any right that is greater than those of a general unsecured creditor of the Company.
ARTICLE XIV
GENERAL PROVISIONS
14.1 Legend . The Committee may require each person receiving shares of Common Stock pursuant to a Stock Option or other Award under the Plan to represent to and agree with the Company in writing that the Participant is acquiring the shares without a view to distribution thereof. In addition to any legend required by the Plan, the certificates for such shares may include any legend that the Committee deems appropriate to reflect any restrictions on Transfer. All certificates for shares of Common Stock delivered under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules,
28
regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed or any national securities exchange system upon whose system the Common Stock is then quoted, any applicable federal or state securities law, and any applicable corporate law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
14.2 Other Plans . Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required, and such arrangements may be either generally applicable or applicable only in specific cases.
14.3 No Right to Employment/Directorship/Consultancy . Neither the Plan nor the grant of any Option or other Award hereunder shall give any Participant or other employee, Consultant or Non-Employee Director any right with respect to continuance of employment, consultancy or directorship by the Company or any Affiliate, nor shall there be a limitation in any way on the right of the Company or any Affiliate by which an employee is employed or a Consultant or Non-Employee Director is retained to terminate his or her employment, consultancy or directorship at any time.
14.4 Withholding of Taxes . The Company shall have the right to deduct from any payment to be made pursuant to the Plan, or to otherwise require, prior to the issuance or delivery of shares of Common Stock or the payment of any cash hereunder, payment by the Participant of, any federal, state or local taxes required by law to be withheld. Upon the vesting of Restricted Stock (or other Award that is taxable upon vesting), or upon making an election under Section 83(b) of the Code, a Participant shall pay all required withholding to the Company. Any statutorily required withholding obligation with regard to any Participant may be satisfied, subject to the consent of the Committee, by reducing the number of shares of Common Stock otherwise deliverable or by delivering shares of Common Stock already owned. Any fraction of a share of Common Stock required to satisfy such tax obligations shall be disregarded and the amount due shall be paid instead in cash by the Participant.
14.5 No Assignment of Benefits . No Award or other benefit payable under the Plan shall, except as otherwise specifically provided by law or permitted by the Committee, be Transferable in any manner, and any attempt to Transfer any such benefit shall be void, and any such benefit shall not in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person who shall be entitled to such benefit, nor shall it be subject to attachment or legal process for or against such person.
14.6 Listing and Other Conditions .
(a) Unless otherwise determined by the Committee, as long as the Common Stock is listed on a national securities exchange or system sponsored by a national securities association, the issuance of shares of Common Stock pursuant to an Award shall be conditioned upon such shares being listed on such exchange or system. The Company shall have no obligation to issue such shares unless and until such shares are so listed, and the right to exercise any Option or other Award with respect to such shares shall be suspended until such listing has been effected.
29
(b) If at any time counsel to the Company shall be of the opinion that any sale or delivery of shares of Common Stock pursuant to an Option or other Award is or may in the circumstances be unlawful or result in the imposition of excise taxes on the Company under the statutes, rules or regulations of any applicable jurisdiction, the Company shall have no obligation to make such sale or delivery, or to make any application or to effect or to maintain any qualification or registration under the Securities Act or otherwise, with respect to shares of Common Stock or Awards, and the right to exercise any Option or other Award shall be suspended until, in the opinion of said counsel, such sale or delivery shall be lawful or will not result in the imposition of excise taxes on the Company.
(c) Upon termination of any period of suspension under this Section 14.6, any Award affected by such suspension which shall not then have expired or terminated shall be reinstated as to all shares available before such suspension and as to shares which would otherwise have become available during the period of such suspension, but no such suspension shall extend the term of any Award.
(d) A Participant shall be required to supply the Company with certificates, representations and information that the Company requests and otherwise cooperate with the Company in obtaining any listing, registration, qualification, exemption, consent or approval the Company deems necessary or appropriate.
14.7 Stockholders Agreement and Other Requirements . Notwithstanding anything herein to the contrary, as a condition to the receipt of shares of Common Stock pursuant to an Award under the Plan, to the extent required by the Committee, the Participant shall execute and deliver a stockholders agreement or such other documentation that shall set forth certain restrictions on transferability of the shares of Common Stock acquired upon exercise or purchase, and such other terms as the Board or Committee shall from time to time establish. Such stockholders agreement or other documentation shall apply to the Common Stock acquired under the Plan and covered by such stockholders agreement or other documentation. The Company may require, as a condition of exercise, the Participant to become a party to any other existing stockholder agreement (or other agreement).
14.8 Governing Law . The Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of Delaware (regardless of the law that might otherwise govern under applicable Delaware principles of conflict of laws).
14.9 Jurisdiction; Waiver of Jury Trial . Any suit, action or proceeding with respect to the Plan or any Award Agreement, or any judgment entered by any court of competent jurisdiction in respect of any thereof, shall be resolved only in the courts of the State of Delaware or the United States District Court for the District of Delaware and the appellate courts having jurisdiction of appeals in such courts. In that context, and without limiting the generality of the foregoing, the Company and each Participant shall irrevocably and unconditionally (a) submit in any proceeding relating to the Plan or any Award Agreement, or for the recognition and enforcement of any judgment in respect thereof (a Proceeding ), to the exclusive jurisdiction of the courts of the State of Delaware, the court of the United States of America for the District of Delaware, and appellate courts having jurisdiction of appeals from any of the foregoing, and agree that all claims in respect of any such Proceeding shall be heard and determined in such Delaware
30
State court or, to the extent permitted by law, in such federal court, (b) consent that any such Proceeding may and shall be brought in such courts and waives any objection that the Company and each Participant may now or thereafter have to the venue or jurisdiction of any such Proceeding in any such court or that such Proceeding was brought in an inconvenient court and agree not to plead or claim the same, (c) waive all right to trial by jury in any Proceeding (whether based on contract, tort or otherwise) arising out of or relating to the Plan or any Award Agreement, (d) agree that service of process in any such Proceeding may be effected by mailing a copy of such process by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such party, in the case of a Participant, at the Participants address shown in the books and records of the Company or, in the case of the Company, at the Companys principal offices, attention General Counsel, and (e) agree that nothing in the Plan shall affect the right to effect service of process in any other manner permitted by the laws of the State of Delaware.
14.10 Construction . Wherever any words are used in the Plan in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply.
14.11 Other Benefits . No Award granted or paid out under the Plan shall be deemed compensation for purposes of computing benefits under any retirement plan of the Company or its Affiliates nor affect any benefit under any other benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the level of compensation.
14.12 Costs . The Company shall bear all expenses associated with administering this Plan, including expenses of issuing Common Stock pursuant to Awards hereunder.
14.13 No Right to Same Benefits . The provisions of Awards need not be the same with respect to each Participant, and such Awards to individual Participants need not be the same in subsequent years.
14.14 Death/Disability . The Committee may in its discretion require the transferee of a Participant to supply it with written notice of the Participants death or Disability and to supply it with a copy of the will (in the case of the Participants death) or such other evidence as the Committee deems necessary to establish the validity of the transfer of an Award. The Committee may also require that the agreement of the transferee to be bound by all of the terms and conditions of the Plan.
14.15 Section 16(b) of the Exchange Act . All elections and transactions under the Plan by persons subject to Section 16 of the Exchange Act involving shares of Common Stock are intended to comply with any applicable exemptive condition under Rule 16b-3. The Committee may establish and adopt written administrative guidelines, designed to facilitate compliance with Section 16(b) of the Exchange Act, as it may deem necessary or proper for the administration and operation of the Plan and the transaction of business thereunder.
14.16 Section 409A of the Code . The Plan is intended to comply with the applicable requirements of Section 409A of the Code and shall be limited, construed and interpreted in accordance with such intent. To the extent that any Award is subject to Section 409A of the Code,
31
it shall be paid in a manner that will comply with Section 409A of the Code, including proposed, temporary or final regulations or any other guidance issued by the Secretary of the Treasury and the Internal Revenue Service with respect thereto. Notwithstanding anything herein to the contrary, any provision in the Plan that is inconsistent with Section 409A of the Code shall be deemed to be amended to comply with Section 409A of the Code and to the extent such provision cannot be amended to comply therewith, such provision shall be null and void. The Company shall have no liability to a Participant, or any other party, if an Award that is intended to be exempt from, or compliant with, Section 409A of the Code is not so exempt or compliant or for any action taken by the Committee or the Company and, in the event that any amount or benefit under the Plan becomes subject to penalties under Section 409A of the Code, responsibility for payment of such penalties shall rest solely with the affected Participants and not with the Company. Notwithstanding any contrary provision in the Plan or Award Agreement, any payment(s) of nonqualified deferred compensation (within the meaning of Section 409A of the Code) that are otherwise required to be made under the Plan to a specified employee (as defined under Section 409A of the Code) as a result of his or her separation from service (other than a payment that is not subject to Section 409A of the Code) shall be delayed for the first six (6) months following such separation from service (or, if earlier, the date of death of the specified employee) and shall instead be paid (in a manner set forth in the Award Agreement) on the payment date that immediately follows the end of such six-month period or as soon as administratively practicable thereafter.
14.17 Successor and Assigns . The Plan shall be binding on all successors and permitted assigns of a Participant, including, without limitation, the estate of such Participant and the executor, administrator or trustee of such estate.
14.18 Severability of Provisions . If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provisions had not been included.
14.19 Payments to Minors, Etc . Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receipt thereof shall be deemed paid when paid to such persons guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Committee, the Board, the Company, its Affiliates and their employees, agents and representatives with respect thereto.
14.20 Agreement . As a condition to the grant of an Award, if requested by the Company and the lead underwriter of any public offering of the Common Stock (the Lead Underwriter ), a Participant shall irrevocably agree not to sell, contract to sell, grant any option to purchase, transfer the economic risk of ownership in, make any short sale of, pledge or otherwise transfer or dispose of, any interest in any Common Stock or any securities convertible into, derivative of, or exchangeable or exercisable for, or any other rights to purchase or acquire Common Stock (except Common Stock included in such public offering or acquired on the public market after such offering) during such period of time following the effective date of a registration statement of the Company filed under the Securities Act that the Lead Underwriter shall specify (the Lock-Up Period ). The Participant shall further agree to sign such documents as may be requested by the Lead Underwriter to effect the foregoing and agree that the Company may impose stop-transfer instructions with respect to Common Stock acquired pursuant to an Award until the end of such Lock-Up Period.
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14.21 Headings and Captions . The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan.
14.22 Section 162(m) of the Code . Notwithstanding any other provision of the Plan to the contrary, (i) prior to the Registration Date and during the Transition Period, the provisions of the Plan requiring compliance with Section 162(m) of the Code for Awards intended to qualify as performance-based compensation shall only apply to the extent required by Section 162(m) of the Code, and (ii) the provisions of the Plan requiring compliance with Section 162(m) of the Code shall not apply to Awards granted under the Plan that are not intended to qualify as performance-based compensation under Section 162(m) of the Code.
14.23 Post-Transition Period . Following the Transition Period, any Award granted under the Plan that is intended to be performance-based compensation under Section 162(m) of the Code, shall be subject to the approval of the material terms of the Plan by a majority of the stockholders of the Company in accordance with Section 162(m) of the Code and the treasury regulations promulgated thereunder.
ARTICLE XV
EFFECTIVE DATE OF PLAN
The Plan shall become effective at 12:01 a.m. Eastern Time on the day that the Companys Registration Statement on Form S-1 for its initial public offering (File No. 333-164906) is declared effective by the Securities and Exchange Commission.
ARTICLE XVI
TERM OF PLAN
No Award shall be granted pursuant to the Plan on or after the tenth anniversary of the earlier of the date that the Plan is adopted or the date of stockholder approval, but Awards granted prior to such tenth anniversary may extend beyond that date; provided that no Award (other than a Stock Option or Stock Appreciation Right) that is intended to be performance-based compensation under Section 162(m) of the Code shall be granted on or after the fifth anniversary of the stockholder approval of the Plan unless the Performance Goals are re-approved (or other designated Performance Goals are approved) by the stockholders no later than the first stockholder meeting that occurs in the fifth year following the year in which stockholders approve the Performance Goals.
ARTICLE XVII
NAME OF PLAN
This Plan shall be known as the Express, Inc. 2010 Incentive Compensation Plan.
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EXHIBIT A
PERFORMANCE GOALS
To the extent permitted under Section 162(m) of the Code, performance goals established for purposes of Awards intended to be performance-based compensation under Section 162(m) of the Code, shall be based on the attainment of certain target levels of, or a specified increase or decrease (as applicable) in one or more of the following performance goals:
|
earnings per share; |
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operating income; |
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gross income; |
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net income (before or after taxes); |
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cash flow; |
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gross profit; |
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gross profit return on investment; |
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gross margin return on investment; |
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gross margin; |
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operating margin; |
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working capital; |
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earnings before interest and taxes; |
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earnings before interest, tax, depreciation and amortization; |
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return on equity; |
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return on assets; |
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return on capital; |
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return on invested capital; |
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net revenues; |
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gross revenues; |
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revenue growth; |
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annual recurring revenues; |
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recurring revenues; |
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license revenues; |
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sales or market share; |
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total shareholder return; |
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economic value added; |
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specified objectives with regard to limiting the level of increase in all or a portion of the Companys bank debt or other long-term or short-term public or private debt or other similar financial obligations of the Company, which may be calculated net of cash balances and/or other offsets and adjustments as may be established by the Committee in its sole discretion; |
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the fair market value of the a share of Common Stock; |
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the growth in the value of an investment in the Common Stock assuming the reinvestment of dividends; or |
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reduction in operating expenses. |
A-1
With respect to Awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code, to the extent permitted under Section 162(m) of the Code, the Committee may, in its sole discretion, also exclude, or adjust to reflect, the impact of an event or occurrence that the Committee determines should be appropriately excluded or adjusted, including:
(a) restructurings, discontinued operations, extraordinary items or events, and other unusual or non-recurring charges as described in Accounting Principles Board Opinion No. 30 and/or managements discussion and analysis of financial condition and results of operations appearing or incorporated by reference in the Companys Form 10-K for the applicable year;
(b) an event either not directly related to the operations of the Company or not within the reasonable control of the Companys management; or
(c) a change in tax law or accounting standards required by generally accepted accounting principles.
Performance goals may also be based upon individual participant performance goals, as determined by the Committee, in its sole discretion. In addition, Awards that are not intended to qualify as performance-based compensation under Section 162(m) of the Code may be based on the performance goals set forth herein or on such other performance goals as determined by the Committee in its sole discretion.
In addition, such performance goals may be based upon the attainment of specified levels of Company (or subsidiary, division, other operational unit or administrative department of the Company) performance under one or more of the measures described above relative to the performance of other corporations. With respect to Awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code, to the extent permitted under Section 162(m) of the Code, but only to the extent permitted under Section 162(m) of the Code (including, without limitation, compliance with any requirements for stockholder approval), the Committee may also:
(a) designate additional business criteria on which the performance goals may be based; or
(b) adjust, modify or amend the aforementioned business criteria.
A-2
Exhibit 10.11
INCENTIVE STOCK OPTION AGREEMENT
PURSUANT TO THE
EXPRESS, INC. 2010 INCENTIVE COMPENSATION PLAN
* * * * *
Participant: ________________________
Grant Date: _________________________
Per Share Exercise Price: $_____
Number of Shares subject to this Option: _____________________
* * * * *
THIS INCENTIVE STOCK OPTION AWARD AGREEMENT (this Agreement ), dated as of the Grant Date specified above, is entered into by and between Express, Inc., a Delaware corporation (the Company ), and the Participant specified above, pursuant to the Express, Inc. 2010 Incentive Compensation Plan, as in effect and as amended from time to time (the Plan ), which is administered by the Committee; and
WHEREAS, it has been determined under the Plan that it would be in the best interests of the Company to grant the incentive stock option provided for herein to the Participant.
NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth and for other good and valuable consideration, the parties hereto hereby mutually covenant and agree as follows:
1. Incorporation By Reference; Plan Document Receipt . This Agreement is subject in all respects to the terms and provisions of the Plan (including, without limitation, any amendments thereto adopted at any time and from time to time unless such amendments are expressly intended not to apply to the award provided hereunder), all of which terms and provisions are made a part of and incorporated in this Agreement as if they were each expressly set forth herein. Any capitalized term not defined in this Agreement shall have the same meaning as is ascribed thereto in the Plan. The Participant hereby acknowledges receipt of a true copy of the Plan and that the Participant has read the Plan carefully and fully understands its content. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control.
2. Grant of Option . The Company hereby grants to the Participant, as of the Grant Date specified above, an incentive stock option (this Option ) to acquire from the Company at the Per Share Exercise Price specified above, the aggregate number of shares of Common Stock specified above (the Option Shares ). Except as otherwise provided by the
Plan, the Participant agrees and understands that nothing contained in this Agreement provides, or is intended to provide, the Participant with any protection against potential future dilution of the Participants interest in the Company for any reason. The Participant shall have no rights as a stockholder with respect to any shares of Common Stock covered by this Option unless and until the Participant has become the holder of record of the shares, and no adjustments shall be made for dividends in cash or other property, distributions or other rights in respect of any such shares, except as otherwise specifically provided for in the Plan or this Agreement.
3. Tax Matters . The Option granted hereby is intended to qualify as an incentive stock option under Section 422 of the Code. Notwithstanding the foregoing, the Option will not qualify as an incentive stock option, among other events, (a) if the Participant disposes of the Option Shares at any time during the two-year period following the date of this Agreement or the one-year period following the date of any exercise of the Option; (b) except in the event of the Participants death or Disability, if the Participant is not employed by the Company, a Parent or a Subsidiary at all times during the period beginning on the date of this Agreement and ending on the day that is three months before the date of any exercise of the Option; or (c) to the extent the aggregate fair market value of the Common Stock subject to incentive stock options held by the Participant which become exercisable for the first time in any calendar year (under all plans of the Company, a Parent or a Subsidiary) exceeds $100,000. For purposes of clause (c) above, the fair market value of the Common Stock shall be determined as of the Grant Date. To the extent that the Option does not qualify as an incentive stock option, it shall not affect the validity of the Option and shall constitute a separate non-qualified stock option. In the event that the Participant disposes of the Option Shares within either two (2) years following the Grant Date or one year following the date of exercise of the Option, the Participant must deliver to the Company, within seven (7) days following such disposition, a written notice specifying the date on which such shares were disposed of, the number of shares so disposed, and, if such disposition was by a sale or exchange, the amount of consideration received.
4. Vesting and Exercise .
(a) Vesting . The Option subject to this grant shall become vested as to [Insert Vesting Terms] , provided the Participant is then employed by the Company and/or one of its Subsidiaries or Affiliates. There shall be no proportionate or partial vesting in the periods prior to each vesting date and all vesting shall occur only on the appropriate vesting date, subject to the Participants continued service with the Company or any of its Subsidiaries on each applicable vesting date.
(b) [Certain Terminations . Any unvested portion of this Option shall immediately become vested upon a Termination due to (i) the Participants death or (ii) the Participants Disability.]
(c) [Change in Control . Any unvested portion of this Option shall immediately become vested upon a Change in Control; provided the Participant is continuously employed by the Company or its Subsidiaries through such date.]
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(d) Effect of Detrimental Activity . The provisions of Section 6.4(c) of the Plan regarding Detrimental Activity shall apply to the Option.
(e) Expiration . Unless earlier terminated in accordance with the terms and provisions of the Plan and/or this Agreement, all portions of this Option (whether vested or not vested) shall expire and shall no longer be exercisable after the expiration of ten (10) years from the Grant Date.
5. Termination . Subject to the terms of the Plan and this Agreement, the Option, to the extent vested at the time of the Participants Termination, shall remain exercisable as follows:
(a) Termination due to Death or Disability . In the event of the Participants Termination by reason of death or Disability, the vested portion of this Option shall remain exercisable until the earlier of (i) one year from the date of such Termination, and (ii) the expiration of the stated term of the Option pursuant to Section 4 hereof.
(b) Termination Without Cause . In the event of the Participants involuntary Termination by the Company without Cause, the vested portion of this Option shall remain exercisable until the earlier of (i) ninety (90) days from the date of such Termination, and (ii) the expiration of the stated term of the Option pursuant to Section 4 hereof.
(c) Voluntary Termination . In the event of the Participants voluntary Termination, the vested portion of this Option shall remain exercisable until the earlier of (i) ninety (90) days from the date of such Termination, and (ii) the expiration of the stated term of the Option pursuant to Section 4 hereof.
(d) Termination for Cause. In the event of the Participants Termination by the Company for Cause, the Option granted hereunder (whether or not vested) shall terminate and expire upon such Termination.
(e) Treatment of Unvested Option upon Termination . Any portion of this Option that is not vested as of the date of the Participants Termination for any reason shall terminate and expire as of the date of such Termination.
6. Method of Exercise and Payment . Subject to Section 9 hereof, to the extent that the Option has become vested and exercisable with respect to a number of shares of Common Stock as provided herein, the Option may thereafter be exercised by the Participant, in whole or in part, at any time or from time to time prior to the expiration of the Option as provided herein and in accordance with Sections 6.4(c) and 6.4(d) of the Plan, including, without limitation, by the delivery of any form of exercise notice as may be required by the Committee and payment in full of the Per Share Exercise Price multiplied by the number of shares of Common Stock underlying the portion of the Option exercised.
7. Non-transferability . The Option, and any rights and interests with respect thereto, issued under this Agreement and the Plan shall not, prior to vesting, be sold, exchanged, transferred, assigned or otherwise disposed of in any way by the Participant (or any beneficiary(ies) of the Participant), other than by testamentary disposition by the Participant or
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the laws of descent and distribution. Any attempt to sell, exchange, transfer, assign, pledge, encumber or otherwise dispose of or hypothecate in any way the Option, or the levy of any execution, attachment or similar legal process upon the Option, contrary to the terms and provisions of this Agreement and/or the Plan shall be null and void and without legal force or effect.
8. Governing Law . All questions concerning the construction, validity and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the choice of law principles thereof.
9. Withholding of Tax . The Company shall have the power and the right to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy any federal, state, local and foreign taxes of any kind (including, but not limited to, the Participants FICA and SDI obligations) which the Company, in its sole discretion, deems necessary to be withheld or remitted to comply with the Code and/or any other applicable law, rule or regulation with respect to the Option and, if the Participant fails to do so, the Company may otherwise refuse to issue or transfer any shares of Common Stock otherwise required to be issued pursuant to this Agreement. Any statutorily required withholding obligation with regard to the Participant may be satisfied by reducing the amount of cash or shares of Common Stock otherwise deliverable upon exercise of the Option.
10. Entire Agreement; Amendment . This Agreement, together with the Plan, contains the entire agreement between the parties hereto with respect to the subject matter contained herein, and supersedes all prior agreements or prior understandings, whether written or oral, between the parties relating to such subject matter. The Committee shall have the right, in its sole discretion, to modify or amend this Agreement from time to time in accordance with and as provided in the Plan. This Agreement may also be modified or amended by a writing signed by both the Company and the Participant. The Company shall give written notice to the Participant of any such modification or amendment of this Agreement as soon as practicable after the adoption thereof.
11. Notices . Any notice hereunder by the Participant shall be given to the Company in writing and such notice shall be deemed duly given only upon receipt thereof by the Chief Financial Officer of the Company. Any notice hereunder by the Company shall be given to the Participant in writing and such notice shall be deemed duly given only upon receipt thereof at such address as the Participant may have on file with the Company.
12. No Right to Employment . Any questions as to whether and when there has been a Termination and the cause of such Termination shall be determined in the sole discretion of the Committee. Nothing in this Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries or its Affiliates to terminate the Participants employment or service at any time, for any reason and with or without cause.
13. Transfer of Personal Data . The Participant authorizes, agrees and unambiguously consents to the transmission by the Company (or any Subsidiary) of any personal data information related to the Option awarded under this Agreement for legitimate business purposes (including, without limitation, the administration of the Plan). This authorization and consent is freely given by the Participant.
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14. Compliance with Laws . The issuance of this Option (and the Shares upon exercise of this Option) pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any foreign and U.S. federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act of 1933, as amended, the 1934 Act and in each case any respective rules and regulations promulgated thereunder) and any other law or regulation applicable thereto. The Company shall not be obligated to issue this Option or any of the Shares pursuant to this Agreement if any such issuance would violate any such requirements.
15. Section 409A . Notwithstanding anything herein or in the Plan to the contrary, the Option is intended to be exempt from the applicable requirements of Section 409A of the Code and shall be limited, construed and interpreted in accordance with such intent.
16. Binding Agreement; Assignment . This Agreement shall inure to the benefit of, be binding upon, and be enforceable by the Company and its successors and assigns. The Participant shall not assign (except as provided by Section 7 hereof) any part of this Agreement without the prior express written consent of the Company.
17. Headings . The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement.
18. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument.
19. Further Assurances . Each party hereto shall do and perform (or shall cause to be done and performed) all such further acts and shall execute and deliver all such other agreements, certificates, instruments and documents as either party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the Plan and the consummation of the transactions contemplated thereunder.
20. Severability . The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.
21. Acquired Rights . The Participant acknowledges and agrees that: (a) the Company may terminate or amend the Plan at any time; (b) the award of the Option made under this Agreement is completely independent of any other award or grant and is made at the sole discretion of the Company; (c) no past grants or awards (including, without limitation, the Option awarded hereunder) give the Participant any right to any grants or awards in the future whatsoever; and (d) any benefits granted under this Agreement are not part of the Participants ordinary salary, and shall not be considered as part of such salary in the event of severance, redundancy or resignation.
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[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the date first written above.
EXPRESS, INC. |
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PARTICIPANT |
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Exhibit 10.12
MASTER SUBLEASE
This MASTER SUBLEASE (this Sublease ) dated as of July 6, 2007 by and between LIMITED BRANDS, INC., a Delaware corporation ( Lessor ), and EXPRESS, LLC, a Delaware limited liability company ( Lessee ).
RECITALS:
A. Lessor is currently the tenant under leases (as amended, modified or supplemented from time to time, collectively, the Prime Leases and each a Prime Lease ) for certain premises described on Exhibit A attached hereto (collectively, the Properties and each a Property , as the context herein may require).
B. Lessor is currently the guarantor under a guaranty agreement (collectively, the Guarantees and each a Guaranty ) with respect to the obligations arising under each Prime Lease.
C. Lessor desires to sublet to Lessee, and Lessee desires to hire and sublease from Lessor, the Properties, on the terms and subject to the conditions contained in this Sublease.
AGREEMENT:
NOW, THEREFORE, for and in consideration of the mutual covenants hereinafter contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the parties hereto hereby agree as follows:
1. Demise .
Pursuant to the terms and subject to the conditions of this Sublease, Lessor does hereby demise and sublease to Lessee, and Lessee does hereby sublease from Lessor, the Properties. Lessee has inspected each of the Properties and is acquainted with its condition and agrees to take the same as is, except and to the extent of disclosures, agreements, representations and warranties inconsistent therewith as set forth in the Unit Purchase Agreement (as defined below) or, subject to Section 2(b)(vii) below, the applicable Prime Lease.
2. Subordination; Incorporation of Prime Lease by Reference .
(a) Lessee acknowledges that Lessor has provided and/or Lessee has received and reviewed a copy of each of the Prime Leases (together with all amendments, modifications, supplements and material correspondence related thereto). This Sublease, with respect to each Property, is subject and subordinate in all respects to the Prime Lease with respect to such Property. Each of Lessor and Lessee agrees that it shall not take any action or fail to take any action in connection with any Property which is a violation of or default under any of the provisions of the Prime Lease with respect to such Property. Lessee hereby assumes and shall fully perform and discharge, with respect to each Property, all the obligations of Lessor as Tenant under the Prime Lease with respect to such Property during the Term (as defined below) and shall abide by and adhere to all restrictions contained in, and all other terms, covenants and conditions of, each Prime Lease, and, except as otherwise provided herein, Lessee acknowledges that Lessor shall have no duty to take any action to comply with the obligations of Lessor as Tenant under each Prime Lease arising during the Term. Lessor represents and warrants that the transactions contemplated by this Sublease and the Master Assignment and Assumption Agreement dated as of the date hereof between Lessor and Lessee (the Master Assignment ) are, with respect to each Property, (i) permitted under the terms of the respective Prime Lease for such Property without the consent of each respective Landlord under each Prime Lease (each a Prime Landlord ) or (ii) if such Prime Lease requires the Prime Landlords consent thereunder, such consent has been obtained (or, subject to Section 21(a) of this Sublease, will be obtained) by Lessor at Lessors sole cost and expense, and Lessor agrees to indemnify, defend and hold harmless Lessee with respect to any Losses (as defined below) incurred by Lessee in connection with the assignment of each Prime Lease to Lessor under the Master Assignment and the subsequent subletting of each Property to Lessee under this Sublease; provided , however , Lessor shall have no obligation and shall not be liable in any manner to Lessee with respect to any Losses that arise by reason of the sale, directly or indirectly, of the stock of Lessee and/or the change of control of Lessee, except as otherwise provided in the Unit Purchase Agreement. Lessors foregoing indemnification, defense and hold harmless obligations shall survive the expiration or termination of this Sublease.
(b) Except to the extent expressly set forth herein to the contrary, all of the terms, provisions, covenants and conditions of the Prime Lease with respect to each Property are hereby incorporated by reference in and made part of this Sublease with respect to such Property with the same force and effect, and binding upon and enforceable between Lessor and Lessee, as though set forth in full herein. For purposes of such incorporation, (i) the term Owner, Landlord or Lessor (or words of similar import) in any Prime Lease shall refer to Lessor under this Sublease, its successors and assigns; (ii) the term Tenant or Lessee (or words of similar import) in any Prime Lease shall refer to Lessee under this Sublease, its successors and assigns; (iii) the term this
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Lease or this Agreement (or words of similar import) in each Prime Lease shall refer to this Sublease; (iv) the term the term of this Lease (or words of similar import) in each Prime Lease shall refer to the Term of this Sublease with respect to the applicable Property; (v) the terms Commencement Date, Expiration Date and Rent (or words of similar import) in each Prime Lease shall each refer to the respective definitions of such terms as are set forth in this Sublease; (vi) references to rules, regulations, requirements and similar terms promulgated or prescribed by Landlord shall refer to those of Prime Landlord, not of Lessor; and (vii) notwithstanding anything herein to the contrary, Lessor assumes no responsibility for any representation, warranty, covenant or obligation made by Prime Landlord under any Prime Lease. The obligations of Lessee hereunder which are to be performed during the Term with respect to each Property shall survive and extend beyond the termination of this Sublease with respect to such Property to the extent such survival is contemplated in this Sublease or in the applicable Prime Lease. If there is any inconsistency or conflict between the provisions of the respective Prime Lease and this Sublease with respect to each Property, the provisions of this Sublease shall control.
3. Term .
(a) The term of this Sublease with respect to any Property (the Term ) shall commence as of the date hereof (the Commencement Date ) and shall expire on the day preceding (the Expiration Date ) the day of expiration of the current term of the Prime Lease with respect to such Property (the Prime Lease Term ), unless sooner terminated as provided herein or in the Transaction Documents (as hereinafter defined). Lessee acknowledges that, except as provided in the immediately following sentence, the Prime Lease Term with respect to any Property shall not include renewal or extension options (or, if the Prime Lease Term with respect to any Property is currently under a renewal or extension option, any additional renewal or extension options) available under the Prime Lease with respect to such Property. Lessee agrees that Lessee shall have no right to exercise, or to cause Lessor to exercise, any renewal or extension terms under the Prime Lease with respect to any Property (unless Lessor is completely and unconditionally released from any and all liability under any Prime Lease and any guaranty in respect thereof or Lessee provides to Lessor a letter of credit in form and amount satisfactory to Lessor from a financial institution acceptable to Lessor securing Lessor from loss with respect to any such liability or guaranty obligation, in which event Lessee shall have the right to exercise, or cause Lessor to exercise, any such renewal or extension terms). In addition, during the 18 month period immediately prior to the scheduled expiration of any Prime Lease, Lessor and Lessee agree to have monthly calls to discuss each partys relative interest in remaining in the pertinent Property, and each party shall in good faith consider the other partys interests, but with no obligation to act or refrain from acting in connection with a new lease or an extension or renewal of any such Prime Lease.
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(b) Except as otherwise expressly provided herein, and subject to Section 13 of this Sublease, Lessor agrees to cooperate (at Lessees request) with Lessee, and Lessee, at Lessees sole cost and expense, shall have the right and power to control all courses of action, in connection with the exercise or the election not to exercise any and all rights of the Tenant under a Prime Lease, including, without limitation, the right to terminate such Prime Lease (including, without limitation, any (i) kick-out or co-tenancy rights, (ii) rights to terminate such Prime Lease in the event of a casualty or condemnation or (iii) rights to terminate such Prime Lease in the event of a default under such Prime Lease by the Prime Landlord thereunder (except for any termination proceedings that result from a default by Lessee under this Sublease or under such Prime Lease), provided Lessee agrees to (x) deliver to Lessor a copy of any termination notice delivered pursuant to clauses (i) and (ii) above to a Prime Landlord under the respective Prime Lease and (y) notify Lessor at least 10 Business Days prior to its intention to deliver a termination notice pursuant to clause (iii) above to a Prime Landlord under the respective Prime Lease. Each party agrees to deliver copies to the other of all notices and material correspondence received or delivered by such party in connection with the matters described above.
(c) Wherever in this Sublease Lessor agrees to cooperate with Lessee, at Lessees request, with respect to matters arising under a Prime Lease, Lessor agrees that Lessor shall not charge Lessee any fees or other expenses, including administrative fees or otherwise, in connection with such cooperation; provided , however , Lessee agrees that all courses of action (as described in subsection (b) above, or otherwise as provided in this Sublease) undertaken at Lessees direction shall be at Lessees sole cost and expense with respect to any amounts charged to Lessee by any Person other than Lessor (or incurred or otherwise payable by Lessee to such other Person).
4. Rent .
(a) Subject to subsection (c) below, commencing on and after the Commencement Date, Lessee shall pay Lessor all monetary obligations of Lessor under each Prime Lease for its respective Property applicable to the Term (including, without limitation, base, fixed or minimum rent, percentage rent, additional rent, common area maintenance charges, real estate taxes and assessments, insurance charges, waste removal charges, merchants association dues, marketing, advertising and other promotional fund contributions, utility charges, HVAC and chilled water charges) (collectively, the Property Rent ).
(b) Commencing on and after the Commencement Date, Lessee shall pay directly to Lessor, at Lessors office at the address designated for notices to Lessor in Section 11(a) hereof, all other amounts payable by Lessee that arise as an independent obligation under this Sublease (the Additional Rent , together with the Property Rent, the Rent ).
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(c) Lessor and Lessee agree to cooperate, and to take all reasonably necessary or desirable actions possible, to arrange for all payments by Lessee of the Property Rent with respect to each Property directly to Prime Landlord with respect to such Property, and, with respect to each Property, to otherwise establish a direct relationship between Prime Landlord and Lessee with respect to all matters arising under the Prime Lease with respect to such Property and this Sublease with respect to such Property. All Property Rent with respect to any Property shall be paid in lawful money of the United States to Prime Landlord with respect to such Property (or, if such Prime Landlord will not agree to such arrangement, then to Lessor at Lessors office at the address designated for notices to Lessor in Section 11(a) hereof in immediately available funds at least two (2) Business Days prior to the date when such Property Rent is due and payable under such Prime Lease), or at such other place as either Prime Landlord or Lessor may designate, as the case may be, by notice to Lessee. Lessor and Lessee agree that it is the intention of Lessor and Lessee to pass all of Lessors obligations (without premium or mark-up) for Property Rent incurred under the Prime Lease during the Term with respect to each Property to Lessee, and Lessee agrees to pay or otherwise reimburse Lessor for all of Lessors obligations for Property Rent incurred with respect to each Prime Leases and each Property. If a Prime Landlord will not accept a direct payment from Lessee of Property Rent under the respective Prime Lease, then, provided Lessee shall have delivered such Property Rent payment to Lessor within the time and in the manner specified in this subsection (c), Lessor shall deliver such payment of Property Rent to such Prime Landlord on or prior to the date when such Property Rent is due and payable under such Prime Lease and in such manner as provided under the respective Prime Lease.
(d) All obligations of Lessee and Lessor under this Section 4 shall survive the termination of the Prime Leases or this Sublease.
5. Alterations .
Lessee shall be permitted to make any alterations or additions to any Property which are permitted under the applicable provisions of the pertinent Prime Lease.
6. Brokers .
Each party represents and warrants to the other that it dealt with no broker (or other person who may claim a commission or similar compensation) in connection with this Sublease, and each party shall defend, indemnify and hold the other harmless from any liability or loss, including, without limitation, reasonable attorneys fees and expenses, based upon an alleged breach of said representation and warranty.
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7. Assignment, Subletting; Subordination .
(a) Except as otherwise set forth herein, Lessee shall not assign this Sublease or allow it to be assigned, in whole or in part, by operation of law or otherwise, or mortgage or pledge the same, or sublet any Property, without the prior written consent of Lessor, which shall not be unreasonably withheld, conditioned or delayed. Notwithstanding anything contained herein to the contrary, any assignment or transfer which may occur by operation of law or otherwise as a consequence of a transfer of interests (whether as a matter of right or pursuant to consent) under the pertinent provisions of the LLC Agreement (as defined in the Unit Purchase Agreement) shall be permitted without the consent of Lessor; provided that, if Lessors financial exposure is increased or otherwise adversely affected as a consequence thereof, then Lessee shall provide to Lessor reasonable security as a consequence thereof. Notwithstanding the foregoing, but subject to the terms of the Prime Lease, Lessee may effect an assignment, transfer or sublet, without the consent of Lessor, to any one of its affiliates, provided, however, that except as otherwise contemplated in the Transaction Documents, if at anytime after such permitted assignment, transfer or sublet the transferee is no longer an affiliate of Lessee, the event terminating such affiliation shall be an assignment, transfer or sublet subject to the preceding sentence. For purposes of this Section 7(a), the term Transaction Documents means the Unit Purchase Agreement, together with all other agreements and documents contemplated thereby executed and delivered by such parties and their respective affiliates with respect to the chain of stores known as Express. If Lessee shall at any time or times during the Term of this Sublease with respect to any Property desire to assign or transfer this Sublease or sublet all or part of any Property, Lessee shall give notice thereof to Lessor, which notice shall be accompanied by all documents or information (if any) otherwise required under the applicable Prime Lease. Subject to the provisions of Section 13 of this Sublease, and in the event that Lessor so consents to any such assignment, transfer or sublet, Lessor agrees to cooperate with Lessee (at Lessees sole cost and expense) in connection with obtaining the applicable Prime Landlords consent, if required, under the applicable Prime Lease.
(b) (i) Lessee acknowledges that any such assignment, transfer or subletting shall be, in each instance, conditional and subject to the requirements of the applicable Prime Lease (including, without limitation, the payment by Lessee of the applicable Prime Landlords fees and expenses in connection with any assignment, transfer or subletting, if such payment is required under such Prime Lease) and to obtaining the written consent of the applicable Prime Landlord under the applicable Prime Lease, if required thereunder. Each assignment, transfer or subletting pursuant to this Section 7 shall be subject to all of the covenants, agreements, terms, provisions and conditions contained in this Sublease.
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(ii) Notwithstanding any assignment, transfer or subletting contemplated under this Section 7, or acceptance of rent or additional rent by Lessor from any subtenant or assignee, Lessee shall and will remain fully liable for the payment of the Rent due and to become due hereunder and for the performance of all the covenants, agreements, terms, provisions and conditions contained in this Sublease on the part of Lessee to be performed during the Term hereof and all acts and omissions of any subtenant or assignee or anyone claiming under or through any subtenant or assignee which shall be in violation of any of the obligations of this Sublease, and any such violation shall be deemed to be a violation by Lessee. Lessee further agrees that notwithstanding any such assignment, transfer or subletting, no other and further assignment, transfer or subletting by Lessee or any person claiming through or under Lessee shall or will be made except upon compliance with and subject to the provisions of this Section 7.
(c) With respect to each and every permitted sublease or subletting under the provisions of this Sublease, it is further agreed:
(i) No subletting with respect to any Property shall be for a term ending later than one day prior to the Expiration Date with respect to such Property, or the earlier termination of this Sublease with respect to such Property; and
(ii) Each sublease shall expressly provide that it is subject and subordinate to this Sublease and to the matters to which this Sublease is or shall be subordinate and that, in the event of termination, re-entry or dispossession by Lessor under this Sublease, Lessor may, at its option, take over all of the right, title and interest of Lessee, as sublessor, under such sublease; provided , so long as such subtenant is not in default under the terms of such sublease or this Sublease (after any applicable notice or cure period), Lessor agrees that Lessor shall not disturb such subtenants use, occupancy and enjoyment of such Property, and Lessor agrees to execute and deliver to such subtenant a non-disturbance agreement in a form reasonable acceptable to Lessor within 20 days of submission to Lessor of such non-disturbance agreement by such subtenant; in addition, such subtenant shall, at Lessors option, attorn to Lessor pursuant to the then executory provisions of such sublease, except that Lessor shall not (x) be liable for any previous act or omission of Lessee under such sublease, (y) be subject to any offset which theretofore accrued to such subtenant against Lessee, or (z) be bound by any previous modification of such sublease not consented to by Lessor (if such consent is required under Section 13 of this Sublease) or by any advance payment of more than one months rent.
(d) The parties hereto hereby acknowledge that, pursuant to the Prime Lease with respect to any Property, this Sublease is subject and subordinate
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to such Prime Lease, and that in the event of termination, re-entry or dispossession by any Prime Landlord under the Prime Lease, such Prime Landlord may, at its option, take over all of the right, title and interest of Lessor, as sublessor, under this Sublease with respect to the applicable Property, and Lessee shall, at such Prime Landlords option, attorn to such Prime Landlord pursuant to the then executory provisions of this Sublease with respect to such Property, except that such Prime Landlord shall not (i) be liable for any previous act or omission of Lessor under this Sublease; (ii) be subject to any offset which theretofore accrued to Lessee against Lessor; or (iii) be bound by any previous modification of this Sublease not previously approved by such Prime Landlord or by any advance payment of more than one months rent. In addition, the parties hereto hereby acknowledge that if Lessor defaults in paying any Property Rent with respect to any Property, the applicable Prime Landlord is authorized to collect any Property Rent due or accruing from Lessee (or any other occupant of the applicable Property) and to apply the amounts collected to such Property Rent, and that any Prime Landlords receipt or acceptance of any payments from Lessee (or any other occupant of the applicable Property) shall not be deemed or construed as releasing Lessor from Lessors obligations under the applicable Prime Lease.
8. Services; Right to Cure Defaults; Remedies; Consents .
(a) Notwithstanding anything to the contrary set forth in this Sublease, Lessor shall have no obligation (and the incorporation by reference of each Prime Lease into this Sublease with respect to each respective Property shall not include any obligation) to render any work, labor, services (including elevator facilities, HVAC, water, cleaning or security services), repairs or restorations to Lessee of any nature whatsoever or to expend any monies for the preservation, maintenance, restoration or repair of the Properties or any portion thereof, and Lessee shall look solely to the applicable Prime Landlord for the furnishing of any services, maintenance, restoration or repairs with respect to any Property to which Lessee may be entitled. Lessor shall in no event be liable to Lessee nor shall the obligations of Lessee hereunder be impaired or the performance thereof excused because of any failure or delay on the applicable Prime Landlords part in furnishing services with respect thereto (except and to the extent the same obligation of Lessor, as Tenant under such Prime Lease, would be so impaired or excused). If any Prime Landlord shall default in any of its obligations to Lessor with respect to any Property, Lessee shall have the right to exercise in its own name and that of Lessor (as Lessors attorney-in-fact, coupled with an interest) all the rights to enforce compliance on the part of such Prime Landlord as are available to Lessor with respect to such Property. Lessor hereby agrees to cooperate with (including, at Lessees request and at Lessees sole expense, exercising reasonable commercial efforts to enforce any Prime Landlords obligations to Lessor under any Prime Lease) and execute, all at Lessees expense, all instruments reasonably required by Lessee to enforce such compliance, and Lessee hereby agrees to indemnify, defend and hold Lessor
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harmless of and from any and all damages, liabilities, obligations, costs, claims, losses, demands, expenses and injuries, including reasonable attorneys fees and expenses, which may be incurred by Lessor in connection with or as a result of such cooperation and execution, except and to the extent of Lessors gross negligence or willful misconduct. Any amount of recovery resulting from such enforcement obtained by either Lessee or Lessor shall be the property of Lessee.
(b) If Lessee fails to perform any of its obligations under this Sublease with respect to a Property and its applicable Prime Lease, Lessor may cure such default, after the giving of notice and the expiration of any applicable grace period (as the same may be extended), when such a period is specified in such Prime Lease, and within a reasonable period where no grace period is specified in this Sublease or in such Prime Lease, and Lessee shall pay Lessor the cost of such cure, including reasonable attorneys fees and expenses, as Additional Rent, within five (5) Business Days after receiving Lessors statement therefor. Lessor shall have the right (but shall not be obligated) to enter the Properties, at reasonable times (which shall be during normal business hours) and upon reasonable notice, and following a default by Lessee at any time, to inspect the Properties or to cure any defaults by Lessee, provided Lessor shall conduct such entries in a manner which does not unreasonably interfere with the operation of Lessees business on such Property. Except for any defaults by Lessee with respect to the payment of Rent, Lessor agrees not to cure any non-monetary defaults that arise under a Prime Lease unless the respective Prime Landlord has notified either Lessor or Lessee of such non-monetary default under such Prime Lease and of such Prime Landlords election to exercise a remedy as a result thereof, it being the intention of the parties hereto that Lessor shall not exercise any rights under this Sublease with respect to non-monetary defaults under a Prime Lease unless the respective Prime Landlord intends to exercise concomitant rights under such Prime Lease because of the same act or omission.
9. Insurance .
(a) Lessee shall maintain, at its sole cost and expense throughout the Term of this Sublease with respect to each Property, insurance in the types and amounts, and subject to the conditions, as are required pursuant to the applicable Prime Lease, as incorporated herein by reference. All such policies shall name Lessor and the applicable Prime Landlord, and any other persons required pursuant to the applicable Prime Lease, as additional insured parties and shall be endorsed to provide that they shall not be canceled without thirty (30) days prior written notice (or, with respect to each Property, such lesser time period as is customary in the jurisdiction where such Property is located, provided such lesser time period shall not be less than the period set forth in the respective Prime Lease) to Lessor and the applicable Prime Landlord. Lessee shall furnish certificates evidencing the required coverage to Lessor, together with such evidence as Lessor shall reasonably deem satisfactory of the payment of premiums thereon, promptly following the execution of this Sublease.
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(b) Lessor and Lessee each hereby waive any and all right that they may have to recover from the other damages for any loss occurring to them by reason of any act or omission of the other, but only to the extent that the waiving party is actually compensated therefor by insurance; provided that this waiver shall be effective only with respect to loss or damage occurring during such time as the waiving partys coverage under the appropriate policy of insurance is not adversely affected by this waiver. If, in order to avoid such adverse effect, an endorsement must be added to any insurance policy required hereunder, Lessor and Lessee shall cause such endorsement immediately to be added and thereafter maintained throughout the Term of this Sublease.
10. Quiet Enjoyment .
Subject to the terms and conditions of each Prime Lease, Lessor acknowledges and agrees that Lessee, upon Lessee paying the Rent and observing and performing all the terms, covenants and conditions to be observed and performed by Lessee under this Sublease with respect to each Property and each Prime Lease with respect to such Property, is entitled to the quiet enjoyment of each Property during the Term of this Sublease applicable thereto.
11. Notices .
(a) All consents, approvals, requests, notices, copies or other communication (collectively Notices ) required or desired to be delivered under this Sublease shall be in writing, and transmitted by facsimile machine or inter-connected computer systems, with a copy to be delivered promptly thereafter by reputable overnight courier, addressed to the parties at the addresses first above written. Notice shall be deemed given on the date of receipt by the addressee, if received on a Business Day, or the first Business Day following receipt, if received on a non-Business Day. Addresses for Notice are as follows:
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Lessor : | Limited Brands, Inc. | |
Three Limited Parkway | ||
Columbus, Ohio 43230 | ||
Attention: Real Estate Department/Managing Real Estate Attorney | ||
Facsimile: (614) 415-7900 | ||
copy to | Limited Brands, Inc. | |
Three Limited Parkway | ||
Columbus, Ohio 43230 | ||
Attention: Lease Administration Department | ||
Facsimile: (614) 415-6002 |
Lessor and Lessee each agree to promptly deliver to each other (i) copies of any and all notices delivered to a Prime Landlord by such party or received by such party from such Prime Landlord and (ii) other material correspondence to or from a Prime Landlord and such party.
(b) Either party may, by Notice pursuant to Section 11(a), change the address, person or officer, and include additional Notice recipients, to which all Notices are to be sent thereafter.
(c) Solely for the purpose of this Sublease, wherever in the Prime Lease with respect to any Property a time is specified for the giving of any notice or the making of any demand by Lessee thereunder, such time is hereby changed (for the purpose of this Sublease with respect to such Property only) by adding three (3) Business Days thereto, and wherever in the Prime Lease with respect to such Property a time is specified for the giving of any notice or the making of any demand by Lessor thereunder, such time is hereby changed (for the purpose of this Sublease with respect to such Property only) by subtracting three (3) Business Days therefrom. Wherever in the Prime Lease with respect to any Property a time is specified within which Lessee thereunder must give notice, perform or make a demand following an event, or within which Lessee must perform or respond to any notice, request or demand previously given or made by Lessor thereunder, or to comply with any obligation on Lessees part thereunder, such time is hereby changed (for the purpose of this Sublease with respect to such Property only) by subtracting three (3) Business Days therefrom. Wherever in the Prime Lease with respect to any Property a time is specified within which Lessor thereunder must give notice, perform or make a demand following an event, or within which Lessor must respond to any notice, request or demand previously given or made by Lessee thereunder, or to comply with any obligation on Lessors part thereunder, such time is hereby changed (for the purpose of this Sublease with respect to such Property only) by adding three (3) Business Days thereto. It is the purpose and intent of the foregoing provisions to provide Lessor with time within which to transmit to any Prime Landlord any notices or demands received from Lessee, and to transmit to Lessee any notices or demands received from any
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Prime Landlord. Notwithstanding anything to the contrary contained herein, the provisions of this Section 11(c) shall not apply to any Notices or demands made by Lessor or Lessee that arise solely under this Sublease and do not require delivery to or from a Prime Landlord under the respective Prime Lease.
12. Indemnity .
(a) Lessee shall defend, indemnify and hold harmless Lessor and its employees, officers, directors, partners and agents against and from any and all losses, damages, claims, liabilities, demands, fines, suits, actions, proceedings, orders, decrees and judgments (collectively, Losses ) of any kind or nature by, or in favor of, anyone whomsoever, and against and from any and all costs, damages and expenses, including attorneys fees, resulting from, or in connection with (i) loss of life, bodily or personal injury or property damage arising, directly or indirectly, out of, or from, or on account of any accident or other occurrence in, upon or from Lessees occupancy of the Properties during the Term hereof (including any holdover periods by Lessee); (ii) a breach by Lessee of this Sublease or any Prime Lease (following the expiration of applicable notice and cure periods), except and to the extent any breach by Lessee of a Prime Lease results solely from Lessors breach of such Prime Lease; or (iii) the use and occupancy of the Properties or any construction, repair, alterations or improvements therein or appurtenances thereto by or on behalf of Lessee or anyone holding by, through or under Lessee or its employees, agents or invitees, and except as otherwise provided in subsection (b) below, except and only to the extent such Losses result from the gross negligence or willful misconduct of Lessor, its employees, agents, or invitees. Lessee agrees that Losses shall include any damages, costs and expenses incurred or suffered by Lessor which are caused by Lessees holdover of any Property beyond the Term of this Sublease with respect to such Property.
(b) Lessor shall defend, indemnify and hold harmless Lessee and its employees, officers, directors, partners and agents against and from any and all Losses of any kind or nature by, or in favor of, anyone whomsoever, and against and from any and all costs, damages and expenses, including attorneys fees, resulting from, or in connection with (i) loss of life, bodily or personal injury or property damage arising, directly or indirectly, out of, or from, or on account of any accident or other occurrence in, upon or from the Properties during the Term hereof; (ii) a breach by Lessor of this Sublease or any Prime Lease (following the expiration of applicable notice and cure periods), except and to the extent any breach by Lessor of a Prime Lease results solely from Lessees breach of such Prime Lease or this Sublease; or (iii) the use and occupancy of the Properties or any construction, repair, alterations or improvements therein or appurtenances thereto by or on behalf of Lessor, and, with respect to subsections (b)(i) and (b)(iii) (but not subsection (b)(ii)), only to the extent such Losses result from the gross negligence or willful misconduct of Lessor, its employees, agents, or invitees.
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13. Amendments to Prime Lease/Sublease .
(a) Neither Lessor nor Lessee shall amend, modify, supplement or otherwise alter in any manner the provisions of any Prime Lease, this Sublease or any other agreement with respect to any Property without in each instance the prior written consent of the other, which consent shall not be unreasonably withheld.
(b) Lessor shall have no obligation to provide any guarantee or other assurance for any lease or sublease entered into, modified or amended by Lessee after the Commencement Date or for any renewal or extension of any Prime Lease beyond the original Prime Lease Term, without Lessors consent, beyond any Guaranty or assurance in existence as of the date hereof; provided, Lessor shall reaffirm a Guaranty of its respective Prime Lease for the period until the expiration of the original Prime Lease Term, if expressly required by such Prime Landlord, in connection with an amendment or modification of such Prime Lease, provided that, except as set forth in Section 3(a) hereof, such reaffirmation shall not extend or renew the Prime Lease Term, increase the obligations of Lessor thereunder or otherwise materially or adversely affect Lessor.
14. Successors .
Subject to Section 7 and Section 22, the covenants and agreements herein contained shall bind and inure to the benefit of Lessor and Lessee and their respective permitted successors and assigns.
15. Captions .
The captions or headings of paragraphs in this Sublease are inserted for convenience only, and shall not be considered in construing the provisions hereof if any question of intent should arise.
16. Severability .
If any provisions of this Sublease shall be held to be invalid or unenforceable, the validity and enforceability of the remaining provisions of this Sublease shall not be affected thereby.
17. Governing Law .
With respect to each Property, this Sublease shall be construed in accordance with, and governed by, the laws of the state in which such Property is located.
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18. Further Assurances/Reasonableness and Good Faith .
Lessor and Lessee shall execute, acknowledge and deliver such instruments and take such other action as may be necessary to carry out their rights and obligations under this Sublease, including the execution of any agreement or instrument required by any Prime Landlord under any Prime Lease. In addition to the provisions of Section 4(c) of this Sublease, Lessor and Lessee agree to cooperate and to take all reasonably necessary or desirable actions in order to establish a direct relationship between the applicable Prime Landlord and Lessee with respect to all matters related to each Property. Whenever this Sublease grants Lessor or Lessee the right to take action, exercise discretion or make other determinations regarding a Property or this Sublease, each party agrees to act reasonably, timely and in good faith unless a different standard is specified herein.
19. Sublease Subject to Unit Purchase Agreement .
This Sublease is being entered into in connection with the transactions contemplated by that certain Unit Purchase Agreement dated as of May 15, 2007 among Lessor, LBI, Express Investment Corp., Limited Brands Store Operations, Inc. and Express Holding, LLC, as amended (the Unit Purchase Agreement ). Lessor and Lessee agree that this Sublease shall be subject to the terms of the Unit Purchase Agreement and, if there is any conflict or inconsistency between the terms of this Sublease and the terms of the Unit Purchase Agreement, the terms of the Unit Purchase Agreement shall control; provided , however , Lessor and Lessee agree that this Section 19 shall not be applicable to the provisions of Section 22 of this Sublease. Defined terms used but not defined herein shall have the meanings ascribed to such terms in the Unit Purchase Agreement.
20. Waiver of Lien .
Lessor hereby waives and relinquishes any landlords lien, right of levy or distraint, claim, security interest or other interest Lessor may now or hereafter have in or with respect to any of the Personal Property of Lessee. For purposes of this Sublease, Lessees Personal Property shall include all of Lessees personal property, including inventory and equipment, but shall not include plumbing and electrical fixtures, heating, ventilation and air conditioning, wall and floor coverings, walls or ceilings and other fixtures not constituting trade fixtures. Lessor agrees to execute and deliver a Landlord waiver and collateral access agreement to such effect in a form reasonably acceptable to Lessor.
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21. Recission of this Sublease; Termination in Connection with Release of Guaranty .
(a) Lessor and Lessee agree that, with respect to each Property and its respective Prime Lease, if the respective Prime Landlord challenges the assignment of such Prime Lease pursuant to the Master Assignment and the subsequent subletting of such Property to Lessee pursuant to this Sublease, or otherwise makes any allegations that such transactions do not comply with the provisions of the respective Prime Lease, then Lessor shall have the right (to be exercised or not exercised in Lessors sole discretion) to deem the Master Assignment and this Sublease rescinded and declared null and void as of the date hereof with respect to such Property; provided, Lessor shall indemnify, defend and hold harmless Lessee from any Losses arising in connection with such rescission in accordance with Section 2(a) of this Sublease, and such obligation shall survive the termination or expiration of this Sublease.
(b) Lessee agrees that Lessor shall have the right to negotiate with any Prime Landlord in order to effect the release of any Guaranty, and Lessee shall endeavor to obtain any such release of a Guaranty to the same extent that the Company (as defined in the Unit Purchase Agreement) is so obligated under Section 7.04 of the Unit Purchase Agreement. The Sublease shall terminate from time to time with respect to one or more Properties, if the Prime Landlord of the applicable Prime Lease shall have relieved Lessor of its obligations under such Prime Lease and any Guaranty thereunder pursuant to a written agreement reasonably acceptable to Lessor, provided that, Lessor shall (with the consent of the applicable Prime Landlord, if required) (i) cause the reassignment of the Prime Lease to Lessee and (ii) otherwise secure for Lessee the benefits, subject to the obligations, of the Prime Lease related thereto (other than rights or options to extend the term thereof in accordance with the provisions of Section 3(a) hereof).
22. Restrictions on Assignment by Lessor .
Lessor shall not assign or otherwise transfer this Sublease or the Master Assignment (or any interest therein) without in each instance the prior written consent of Lessee, which consent may be granted or withheld in Lessees sole and absolute discretion; provided , however , Lessee shall not unreasonably withhold, condition or delay such consent for any assignment or other transfer by Lessor to a wholly-owned (directly or indirectly) subsidiary of Lessor, provided (i) such transferee shall assume in full the punctual performance of all of Lessors obligations (and Lessor shall remain directly, primarily, absolutely and unconditionally liable for and otherwise guarantee such transferees performance of such obligations as guarantor and surety) under this Sublease and the Master Assignment; (ii) the rights of Lessee under this Sublease and the Master Assignment shall not be impaired or otherwise adversely affected by such assignment or other transfer by Lessor hereunder; (iii) Lessor shall, as a condition precedent to such assignment or transfer, execute and deliver to Lessee a guaranty and suretyship agreement, in form and substance reasonably acceptable to Lessee,
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reaffirming Lessors obligations and undertakings set forth herein; and (iv) such assignment or other transfer is permitted under the Prime Lease or Prime Landlords consent has been obtained.
23. WAIVER OF JURY TRIAL .
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS SUBLEASE OR THE TRANSACTIONS CONTEMPLATED HEREBY.
24. Counterparts .
This Sublease may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
[The remainder of this page intentionally left blank.]
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IN WITNESS WHEREOF, Lessor and Lessee have caused this Sublease to be executed and delivered by their duly authorized officers as of the date first written above.
Lessor: | LIMITED BRANDS, INC. | |||
By: |
/s/ Timothy J. Faber |
|||
Timothy J. Faber | ||||
Its: | Vice President Treasury, Mergers & Acquisitions | |||
Lessee: | EXPRESS, LLC | |||
By: |
/s/ Douglas L. Williams |
|||
Douglas L. Williams | ||||
Its: | Senior Vice President Enterprise General Counsel |
Master Sublease
EXHIBIT A - Subleased Properties
Store # |
Center Name |
Center # | City | State | Lease # | Lease Type | Tenant Corp. |
Lease
Status |
Expiration
Date |
|||||||||||
1 |
FIFTH AVE, NY-1373 | 1373 | NEW YORK | NY | 11876 | OFC | EXP | LSE IN EFF | 07/31/2014 | |||||||||||
2 |
764 | AVON MARKETPLACE-2032 | 2032 | AVON | CT | 5534 | STR | EXP | LSE IN EFF | 11/30/2009 | ||||||||||
3 |
617 | BASSETT PLACE-72 | 72 | EL PASO | TX | 737 | STR | EXP | LSE IN EFF | 01/31/2008 | ||||||||||
4 |
880 | BAY TERRACE-2045 | 2045 | BAYSIDE | NY | 5687 | STR | EXP | LSE IN EFF | 01/31/2010 | ||||||||||
5 |
210 | BONITA LAKES-2162 | 2162 | MERIDIAN | MS | 6721 | STR | EXP | LSE IN EFF | 01/31/2008 | ||||||||||
6 |
632 | BOYNTON BEACH-119 | 119 |
BOYNTON
BEACH |
FL | 138 | STR | EXP | LSE IN EFF | 04/30/2008 | ||||||||||
7 |
456 | BROADWAY (SOHO)-37411 | 37411 | NEW YORK | NY | 9154 | STR | EXP | LSE IN EFF | 01/31/2017 | ||||||||||
8 |
193 | BRUNSWICK SQ-138 | 138 | E BRUNSWICK | NJ | 5583 | STR | EXP | MTM | 01/31/2007 | ||||||||||
9 |
892 | CASTLETON SQ-166 | 166 | INDIANAPOLIS | IN | 3212 | STR | EXP | MTM | 01/31/2007 | ||||||||||
10 |
374 | CHARLESTON PLACE, SHOPS AT -183 | 183 | CHARLESTON | SC | 3973 | STR | EXP | LSE IN EFF | 08/31/2007 | ||||||||||
11 |
562 | COLUMBUS AVE, NY-1640 | 1640 | NEW YORK | NY | 2860 | STR | EXP | LSE IN EFF | 09/30/2007 | ||||||||||
12 |
1540 | CROSS COUNTY, NY-254 | 254 | YONKERS | NY | 6079 | STR | EXP | LSE IN EFF | 01/31/2008 | ||||||||||
13 |
160 | FLORIDA-357 | 357 | ORLANDO | FL | 1473 | STR | EXP | LSE IN EFF | 01/31/2012 | ||||||||||
14 |
913 | GREAT LAKES-419 | 419 | MENTOR | OH | 2697 | STR | EXP | LSE IN EFF | 01/31/2008 | ||||||||||
15 |
522 | HAMILTON-444 | 444 | MAYS LANDING | NJ | 1230 | STR | EXP | MTM | 01/31/2007 | ||||||||||
16 |
530 | HARLEM IRVING-456 | 456 | NORRIDGE | IL | 803 | STR | EXP | LSE IN EFF | 01/31/2010 | ||||||||||
17 |
1778 | HARLEM IRVING-456 | 456 | NORRIDGE | IL | 5478 | STR | EXP | LSE IN EFF | 01/31/2010 | ||||||||||
18 |
232 | HUNTINGTON-485 | 485 | BARBOURSVILLE | WV | 334 | STR | EXP | LSE IN EFF | 01/31/2008 | ||||||||||
19 |
755 | KING OF PRUSSIA PLAZA-516 | 516 |
KING OF
PRUSSIA |
PA | 5143 | STR | EXP | LSE IN EFF | 01/31/2009 | ||||||||||
20 |
59 | LENOX SQ-550 | 550 | ATLANTA | GA | 6405 | STR | EXP | LSE IN EFF | 01/31/2008 | ||||||||||
21 |
400 | LEXINGTON AVE, NY-552 | 552 | NEW YORK | NY | 3772 | STR | EXP | LSE IN EFF | 02/29/2008 | ||||||||||
22 |
128 | LOUISIANA, MALL OF-2021 | 2021 | BATON ROUGE | LA | 6648 | STR | EXP | LSE IN EFF | 01/31/2010 | ||||||||||
23 |
1630 | LOUISIANA, MALL OF-2021 | 2021 | BATON ROUGE | LA | 6635 | STR | EXP | LSE IN EFF | 01/31/2008 | ||||||||||
24 |
770 | MADISON AVE, NY-584 | 584 | NEW YORK | NY | 8114 | STR | EXP | LSE IN EFF | 02/28/2010 | ||||||||||
25 |
678 | MALL DEL NORTE-593 | 593 | LAREDO | TX | 5610 | STR | EXP | LSE IN EFF | 01/31/2010 | ||||||||||
26 |
1474 | MALL DEL NORTE-593 | 593 | LAREDO | TX | 5617 | STR | EXP | MTM | 01/31/2007 | ||||||||||
27 |
480 | N. MICHIGAN AVE, IL-1763 | 1763 | CHICAGO | IL | 3968 | STR | EXP | LSE IN EFF | 01/31/2011 | ||||||||||
28 |
561 | NORTHPARK, MO-1400 | 1400 | JOPLIN | MO | 2426 | STR | EXP | LSE IN EFF | 01/31/2010 | ||||||||||
29 |
1298 | NORTHPARK, MO-1400 | 1400 | JOPLIN | MO | 5288 | STR | EXP | LSE IN EFF | 01/31/2010 | ||||||||||
30 |
938 | NIORTHSHORE-731 | 731 | PEABODY | MA | 4966 | STR | EXP | LSE IN EFF | 01/31/2008 | ||||||||||
31 |
98 | PLAZA, NC-1864 | 1864 | GREENVILLE | NC | 5498 | STR | EXP | MTM | 01/31/2007 | ||||||||||
32 |
129 | QUAIL SPRINGS-846 | 846 |
OKLAHOMA
CITY |
OK | 3201 | STR | EXP | MTM | 01/31/2007 | ||||||||||
33 |
1112 | QUAIL SPRINGS-846 | 846 |
OKLAHOMA
CITY |
OK | 4785 | STR | EXP | LSE IN EFF | 09/28/2007 | ||||||||||
34 |
921 | RIVER CENTER-867 | 867 | SAN ANTONIO | TX | 4880 | STR | EXP | LSE IN EFF | 01/31/2008 | ||||||||||
35 |
836 | SOUTH BEACH COLLINS AVE, FL-2024 | 2024 | MIAMI | FL | 5601 | STR | EXP | LSE IN EFF | 06/30/2008 | ||||||||||
36 |
969 | STEINWAY ST-1003 | 1003 | ASTORIA | NY | 13157 | STR | EXP | LSE IN EFF | 01/31/2014 | ||||||||||
37 |
878 | STONERIDGE-1005 | 1005 | PLEASANTON | CA | 957 | STR | EXP | LSE IN EFF | 08/31/2009 | ||||||||||
38 |
582 | THAMES ST-2076 | 2076 | NEWPORT | Rl | 5940 | STR | EXP | LSE IN EFF | 08/31/2008 | ||||||||||
39 |
1326 | VISTA RIDGE-1721 | 1721 | LEWISVILLE | TX | 5959 | STR | EXP | LSE IN EFF | 01/31/2008 | ||||||||||
40 |
517 | WASHINGTON ST-1248 | 1248 | BOSTON | MA | 1736 | STR | EXP | LSE IN EFF | 06/30/2007 | ||||||||||
41 |
885 | WEST COVINA, THE PLAZA AT-1164 | 1164 | WEST COVINA | CA | 225 | STR | EXP | LSE IN EFF | 01/31/2009 | ||||||||||
42 |
397 | WESTGATE, SC-1487 | 1487 | SPARTANBURG | SC | 4040 | STR | EXP | LSE IN EFF | 01/31/2008 | ||||||||||
43 |
90 | WHEATON TOWN SQ-1866 | 1866 | WHEATON | IL | 4484 | STR | EXP | LSE IN EFF | 01/31/2008 | ||||||||||
44 |
279 | YORKTOWN-1233 | 1233 | LOMBARD | IL | 4285 | STR | EXP | MTM | 01/31/2007 | ||||||||||
45 |
186 | MACARTHUR-12408 * | 12408 | NORFOLK | VA | 8089 | STR | EXP | LSE IN EFF | 11/30/2009 | ||||||||||
46 |
207 | CHERRY CREEK-188 * | 188 | DENVER | CO | 4264 | STR | EXP | LSE IN EFF | 01/31/2010 | ||||||||||
47 |
109 | WESTFARMS-1177* | 1177 | FARMINGTON | CT | 1843 | STR | EXP | LSE IN EFF | 01/31/2011 | ||||||||||
48 |
813 | INTERNATIONAL PLAZA-40620 * | 40620 | TAMPA | FL | 10589 | STR | EXP | LSE IN EFF | 01/31/2012 | ||||||||||
49 |
787 | WELLINGTON GREEN, THE MALL AT-40622 * | 40622 |
VILLAGE OF
WELLINGTON |
FL | 10590 | STR | EXP | LSE IN EFF | 01/31/2012 | ||||||||||
50 |
416 | WILLOWBEND, THE SHOPS AT-40640* | 40640 | PLANO | TX | 11276 | STR | EXP | LSE IN EFF | 01/31/2012 | ||||||||||
51 |
336 | BEVERLY CENTER-105 * | 105 | LOS ANGELES | CA | 2698 | STR | EXP | LSE IN EFF | 01/31/2013 | ||||||||||
52 |
806 | FAIRLANE TOWN-325 * | 325 | DEARBORN | Ml | 154 | STR | EXP | LSE IN EFF | 01/31/2014 |
Note: * Indicates Taubman leases with Limited Brands, Inc. guaranty
Schedule updated as of 6/20/07
Exhibit 10.13
RESTRICTED STOCK AGREEMENT
PURSUANT TO THE
EXPRESS, INC. 2010 INCENTIVE COMPENSATION PLAN
* * * * *
Participant:
Grant Date:
Number of Shares of
Restricted Stock granted:
* * * * *
THIS RESTRICTED STOCK AWARD AGREEMENT (this Agreement ), dated as of the Grant Date specified above, is entered into by and between Express, Inc., a Delaware corporation organized in the State of Delaware (the Company ), and the Participant specified above, pursuant to the Express, Inc. 2010 Incentive Compensation Plan, as in effect and as amended from time to time (the Plan ), which is administered by the Committee; and
WHEREAS, it has been determined under the Plan that it would be in the best interests of the Company to grant the shares of Restricted Stock provided herein to the Participant.
NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth and for other good and valuable consideration, the parties hereto hereby mutually covenant and agree as follows:
1. Incorporation By Reference; Plan Document Receipt . This Agreement is subject in all respects to the terms and provisions of the Plan (including, without limitation, any amendments thereto adopted at any time and from time to time unless such amendments are expressly intended not to apply to the award provided hereunder), all of which terms and provisions are made a part of and incorporated in this Agreement as if they were each expressly set forth herein. Any capitalized term not defined in this Agreement shall have the same meaning as is ascribed thereto in the Plan. The Participant hereby acknowledges receipt of a true copy of the Plan and that the Participant has read the Plan carefully and fully understands its content. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control.
2. Grant of Restricted Stock Award . The Company hereby grants to the Participant, as of the Grant Date specified above, the number of shares of Restricted Stock specified above. Except as otherwise provided by the Plan, the Participant agrees and understands that nothing contained in this Agreement provides, or is intended to provide, the Participant with any protection against potential future dilution of the Participants interest in the Company for any reason. Subject to Section 5, the Participant shall not have the rights of a stockholder in respect of the shares underlying this Award until such shares are delivered to the Participant in accordance with Section 4.
3. Vesting .
(a) The Restricted Stock subject to this grant shall become unrestricted and vested as to [Vesting Terms] , provided the Participant is then employed by the Company and/or one of its Subsidiaries or Affiliates. There shall be no proportionate or partial vesting in the periods prior to each vesting date and all vesting shall occur only on the appropriate vesting date, subject to the Participants continued service with the Company or any of its Subsidiaries on each applicable vesting date.
(b) [ Certain Terminations . All unvested shares of Restricted Stock shall immediately become vested upon a Termination due to (i) the Participants death or (ii) the Participants Disability ] .
(c) [ Change in Control . All unvested shares of Restricted Stock shall immediately become vested upon a Change in Control; provided the Participant is continuously employed by the Company or its Subsidiaries through such date. ]
(d) Effect of Detrimental Activity . The provisions of Section 8.1 of the Plan regarding Detrimental Activity shall apply to the Restricted Stock.
(e) Forfeiture . [Subject to Section (b),] all unvested shares of Restricted Stock shall be immediately forfeited upon the Participants Termination for any reason.
4. Period of Restriction; Delivery of Unrestricted Shares . During the Period of Restriction, the Restricted Stock shall bear a legend as described in Section 8.2(c) of the Plan. When shares of Restricted Stock awarded by this Agreement become vested, the Participant shall be entitled to receive unrestricted shares and if the Participant's stock certificates contain legends restricting the transfer of such shares, the Participant shall be entitled to receive new stock certificates free of such legends (except any legends requiring compliance with securities laws).
5. Dividends and Other Distributions; Voting . Participants holding Restricted Stock shall be entitled to receive all dividends and other distributions paid with respect to such shares, provided that any such dividends or other distributions will be subject to the same vesting requirements as the underlying Restricted Stock and shall be paid at the time the Restricted Stock becomes vested pursuant to Section 3. If any dividends or distributions are paid in shares, the shares shall be deposited with the Company and shall be subject to the same restrictions on transferability and forfeitability as the Restricted Stock with respect to which they were paid. The Participant may exercise full voting rights with respect to the Restricted Stock granted hereunder.
6. Non-transferability . The shares of Restricted Stock, and any rights and interests with respect thereto, issued under this Agreement and the Plan shall not, prior to vesting, be sold, exchanged, transferred, assigned or otherwise disposed of in any way by the Participant (or any beneficiary(ies) of the Participant), other than by testamentary disposition by the Participant or the laws of descent and distribution. Any attempt to sell, exchange, transfer, assign, pledge,
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encumber or otherwise dispose of or hypothecate in any way any of the Restricted Stock, or the levy of any execution, attachment or similar legal process upon the Restricted Stock, contrary to the terms and provisions of this Agreement and/or the Plan shall be null and void and without legal force or effect.
7. Governing Law . All questions concerning the construction, validity and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the choice of law principles thereof.
8. Withholding of Tax . The Company shall have the power and the right to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy any federal, state, local and foreign taxes of any kind (including, but not limited to, the Participants FICA and SDI obligations) which the Company, in its sole discretion, deems necessary to be withheld or remitted to comply with the Code and/or any other applicable law, rule or regulation with respect to the Restricted Stock and, if the Participant fails to do so, the Company may otherwise refuse to issue or transfer any shares of Common Stock otherwise required to be issued pursuant to this Agreement. Any statutorily required withholding obligation with regard to the Participant may be satisfied by reducing the amount of cash or shares of Common Stock otherwise deliverable to the Participant hereunder.
9. Section 83(b) . If the Participant properly elects (as required by Section 83(b) of the Code) within 30 days after the issuance of the Restricted Stock to include in gross income for federal income tax purposes in the year of issuance the fair market value of such shares of Restricted Stock, the Participant shall pay to the Company or make arrangements satisfactory to the Company to pay to the Company upon such election, any federal, state or local taxes required to be withheld with respect to the Restricted Stock. If the Participant shall fail to make such payment, the Company shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Participant any federal, state or local taxes of any kind required by law to be withheld with respect to the Restricted Stock, as well as the rights set forth in Section 8 hereof. The Participant acknowledges that it is the Participants sole responsibility, and not the Companys, to file timely and properly the election under Section 83(b) of the Code and any corresponding provisions of state tax laws if the Participant elects to utilize such election.
10. Legend . All certificates representing the Restricted Stock shall have endorsed thereon the legend set forth in Section 8.2(c) of the Plan. Notwithstanding the foregoing, in no event shall the Company be obligated to deliver to the Participant a certificate representing the Restricted Stock prior to the vesting dates set forth above.
11. Securities Representations . The shares of Common Stock are being issued to the Participant and this Agreement is being made by the Company in reliance upon the following express representations and warranties of the Participant. The Participant acknowledges, represents and warrants that:
(a) The Participant has been advised that the Participant may be an affiliate within the meaning of Rule 144 under the Securities Act of 1933, as amended (the Act ), and in connection therewith the Company is relying in part on the Participants representations set forth in this Section 11.
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(b) If the Participant is deemed an affiliate within the meaning of Rule 144 of the Act, the shares of Common Stock must be held indefinitely unless an exemption from any applicable resale restriction is available or the Company files an additional registration statement (or a re-offer prospectus) with regard to the shares of Common Stock and the Company is under no obligation to register the shares of Common Stock (or to file a re-offer prospectus).
(c) If the Participant is deemed an affiliate within the meaning of Rule 144 of the Act, the Participant understands that the exemption from registration under Rule 144 will not be available unless (i) a public trading market then exists for the Common Stock of the Company, (ii) adequate information concerning the Company is then available to the public, and (iii) other terms and conditions of Rule 144 or any exemption therefrom are complied with; and that any sale of the shares of Common Stock may be made only in limited amounts in accordance with such terms and conditions.
12. Entire Agreement; Amendment . This Agreement, together with the Plan, contains the entire agreement between the parties hereto with respect to the subject matter contained herein, and supersedes all prior agreements or prior understandings, whether written or oral, between the parties relating to such subject matter. The Committee shall have the right, in its sole discretion, to modify or amend this Agreement from time to time in accordance with and as provided in the Plan. This Agreement may also be modified or amended by a writing signed by both the Company and the Participant. The Company shall give written notice to the Participant of any such modification or amendment of this Agreement as soon as practicable after the adoption thereof.
13. Notices . Any notice hereunder by the Participant shall be given to the Company in writing and such notice shall be deemed duly given only upon receipt thereof by the General Counsel of the Company. Any notice hereunder by the Company shall be given to the Participant in writing and such notice shall be deemed duly given only upon receipt thereof at such address as the Participant may have on file with the Company.
14. Acceptance . As required by Section 8.2 of the Plan, the Participant shall forfeit the Restricted Stock if the Participant does not execute this Agreement with a period of 60 days from the date the Participant receives this Agreement (or such other period as the Committee shall provide).
15. No Right to Employment . Any questions as to whether and when there has been a Termination and the cause of such Termination shall be determined in the sole discretion of the Committee. Nothing in this Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries or Affiliates to terminate the Participants employment or service at any time, for any reason and with or without cause.
16. Transfer of Personal Data . The Participant authorizes, agrees and unambiguously consents to the transmission by the Company (or any Subsidiary) of any personal data information related to the Restricted Stock awarded under this Agreement for legitimate business purposes (including, without limitation, the administration of the Plan). This authorization and consent is freely given by the Participant.
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17. Compliance with Laws . The issuance of the Restricted Stock or unrestricted shares pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any foreign and U.S. federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act of 1933, as amended, the 1934 Act and in each case any respective rules and regulations promulgated thereunder) and any other law or regulation applicable thereto. The Company shall not be obligated to issue the Restricted Stock or any of the shares pursuant to this Agreement if any such issuance would violate any such requirements.
18. Section 409A . Notwithstanding anything herein or in the Plan to the contrary, the shares of Restricted Stock are intended to be exempt from the applicable requirements of Section 409A of the Code and shall be limited, construed and interpreted in accordance with such intent.
19. Binding Agreement; Assignment . This Agreement shall inure to the benefit of, be binding upon, and be enforceable by the Company and its successors and assigns. The Participant shall not assign (except as provided by Section 6 hereof) any part of this Agreement without the prior express written consent of the Company.
20. Headings . The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement.
21. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument.
22. Further Assurances . Each party hereto shall do and perform (or shall cause to be done and performed) all such further acts and shall execute and deliver all such other agreements, certificates, instruments and documents as either party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the Plan and the consummation of the transactions contemplated thereunder.
23. Severability . The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.
24. Acquired Rights . The Participant acknowledges and agrees that: (a) the Company may terminate or amend the Plan at any time; (b) the award of Restricted Stock made under this Agreement is completely independent of any other award or grant and is made at the sole discretion of the Company; (c) no past grants or awards (including, without limitation, the Restricted Stock awarded hereunder) give the Participant any right to any grants or awards in the future whatsoever; and (d) any benefits granted under this Agreement are not part of the Participants ordinary salary, and shall not be considered as part of such salary in the event of severance, redundancy or resignation.
* * * * *
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IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the date first written above.
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Exhibit 10.17
NONQUALIFIED STOCK OPTION AGREEMENT
PURSUANT TO THE
EXPRESS, INC. 2010 INCENTIVE COMPENSATION PLAN
* * * * *
Participant:
Grant Date:
Per Share Exercise Price: $
Number of Shares subject to this Option:
* * * * *
THIS NON-QUALIFIED STOCK OPTION AWARD AGREEMENT (this Agreement ), dated as of the Grant Date specified above, is entered into by and between Express, Inc., a Delaware corporation (the Company ), and the Participant specified above, pursuant to the Express, Inc. 2010 Incentive Compensation Plan, as in effect and as amended from time to time (the Plan ), which is administered by the Committee; and
WHEREAS, it has been determined under the Plan that it would be in the best interests of the Company to grant the non-qualified stock option provided for herein to the Participant.
NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth and for other good and valuable consideration, the parties hereto hereby mutually covenant and agree as follows:
1. Incorporation By Reference; Plan Document Receipt . This Agreement is subject in all respects to the terms and provisions of the Plan (including, without limitation, any amendments thereto adopted at any time and from time to time unless such amendments are expressly intended not to apply to the award provided hereunder), all of which terms and provisions are made a part of and incorporated in this Agreement as if they were each expressly set forth herein. Any capitalized term not defined in this Agreement shall have the same meaning as is ascribed thereto in the Plan. The Participant hereby acknowledges receipt of a true copy of the Plan and that the Participant has read the Plan carefully and fully understands its content. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control. No part of the Option granted hereby is intended to qualify as an incentive stock option under Section 422 of the Code.
2. Grant of Option . The Company hereby grants to the Participant, as of the Grant Date specified above, a non-qualified stock option (this Option ) to acquire from the Company at the Per Share Exercise Price specified above, the aggregate number of shares of
Common Stock specified above (the Option Shares ). Except as otherwise provided by the Plan, the Participant agrees and understands that nothing contained in this Agreement provides, or is intended to provide, the Participant with any protection against potential future dilution of the Participants interest in the Company for any reason. The Participant shall have no rights as a stockholder with respect to any shares of Common Stock covered by this Option unless and until the Participant has become the holder of record of the shares, and no adjustments shall be made for dividends in cash or other property, distributions or other rights in respect of any such shares, except as otherwise specifically provided for in the Plan or this Agreement.
3. Vesting and Exercise .
(a) Vesting . The Options subject to this grant shall become vested as to [Insert Vesting Terms] , provided the Participant is then employed by the Company and/or one of its Subsidiaries or Affiliates. There shall be no proportionate or partial vesting in the periods prior to each vesting date and all vesting shall occur only on the appropriate vesting date, subject to the Participants continued service with the Company or any of its Subsidiaries on each applicable vesting date.
(b) [ Certain Terminations . Any unvested portion of this Option shall immediately become vested upon a Termination due to (i) the Participants death or (ii) the Participants Disability. ]
(c) [ Change in Control . Any unvested portion of this Option shall immediately become vested upon a Change in Control; provided the Participant is continuously employed by the Company or its Subsidiaries through such date. ]
(d) Effect of Detrimental Activity . The provisions of Section 6.4(c) of the Plan regarding Detrimental Activity shall apply to the Option.
(e) Expiration . Unless earlier terminated in accordance with the terms and provisions of the Plan and/or this Agreement, all portions of this Option (whether vested or not vested) shall expire and shall no longer be exercisable after the expiration of ten (10) years from the Grant Date.
4. Termination . Subject to the terms of the Plan and this Agreement, the Options, to the extent vested at the time of the Participants Termination, shall remain exercisable as follows:
(a) Termination due to Death or Disability . In the event of the Participants Termination by reason of death or Disability, the vested portion of this Option shall remain exercisable until the earlier of (i) one year from the date of such Termination, and (ii) the expiration of the stated term of the Option pursuant to Section 3 hereof.
(b) Termination Without Cause . In the event of the Participants involuntary Termination by the Company without Cause, the vested portion of this Option shall remain exercisable until the earlier of (i) ninety (90) days from the date of such Termination, and (ii) the expiration of the stated term of the Option pursuant to Section 3 hereof.
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(c) Voluntary Termination . In the event of the Participants voluntary Termination, the vested portion of this Option shall remain exercisable until the earlier of (i) ninety (90) days from the date of such Termination, and (ii) the expiration of the stated term of the Option pursuant to Section 3 hereof.
(d) Termination for Cause . In the event of the Participants Termination by the Company for Cause, all Options granted hereunder (whether or not vested) shall terminate and expire upon such Termination.
(e) Treatment of Unvested Options upon Termination . Any portion of this Option that is not vested as of the date of the Participants Termination for any reason shall terminate and expire as of the date of such Termination.
5. Method of Exercise and Payment . Subject to Section 8 hereof, to the extent that the Option has become vested and exercisable with respect to a number of shares of Common Stock as provided herein, the Option may thereafter be exercised by the Participant, in whole or in part, at any time or from time to time prior to the expiration of the Option as provided herein and in accordance with Sections 6.4(c) and 6.4(d) of the Plan, including, without limitation, by the delivery of any form of exercise notice as may be required by the Committee and payment in full of the Per Share Exercise Price multiplied by the number of shares of Common Stock underlying the portion of the Option exercised.
6. Non-transferability . The Options, and any rights and interests with respect thereto, issued under this Agreement and the Plan shall not, prior to vesting, be sold, exchanged, transferred, assigned or otherwise disposed of in any way by the Participant (or any beneficiary(ies) of the Participant), other than by testamentary disposition by the Participant or the laws of descent and distribution. Notwithstanding the foregoing, the Committee may, in its sole discretion, permit the Options to be Transferred to a Family Member for no value, provided that such Transfer shall only be valid upon execution of a written instrument in form and substance acceptable to the Committee in its sole discretion evidencing such Transfer and the transferees acceptance thereof signed by the Participant and the transferee, and provided, further, that the Options may not be subsequently Transferred otherwise than by will or by the laws of descent and distribution or to another Family Member (as permitted by the Committee in its sole discretion) in accordance with the terms of the Plan and this Agreement, and shall remain subject to the terms of the Plan and this Agreement. Any attempt to sell, exchange, transfer, assign, pledge, encumber or otherwise dispose of or hypothecate in any way the Options, or the levy of any execution, attachment or similar legal process upon the Options, contrary to the terms and provisions of this Agreement and/or the Plan shall be null and void and without legal force or effect.
7. Governing Law . All questions concerning the construction, validity and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the choice of law principles thereof.
8. Withholding of Tax . The Company shall have the power and the right to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy any federal, state, local and foreign taxes of any kind (including, but not limited to, the
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Participants FICA and SDI obligations) which the Company, in its sole discretion, deems necessary to be withheld or remitted to comply with the Code and/or any other applicable law, rule or regulation with respect to the Option and, if the Participant fails to do so, the Company may otherwise refuse to issue or transfer any shares of Common Stock otherwise required to be issued pursuant to this Agreement. Any statutorily required withholding obligation with regard to the Participant may be satisfied by reducing the amount of cash or shares of Common Stock otherwise deliverable upon exercise of the Option.
9. Entire Agreement; Amendment . This Agreement, together with the Plan, contains the entire agreement between the parties hereto with respect to the subject matter contained herein, and supersedes all prior agreements or prior understandings, whether written or oral, between the parties relating to such subject matter. The Committee shall have the right, in its sole discretion, to modify or amend this Agreement from time to time in accordance with and as provided in the Plan. This Agreement may also be modified or amended by a writing signed by both the Company and the Participant. The Company shall give written notice to the Participant of any such modification or amendment of this Agreement as soon as practicable after the adoption thereof.
10. Notices . Any notice hereunder by the Participant shall be given to the Company in writing and such notice shall be deemed duly given only upon receipt thereof by the Chief Financial Officer of the Company. Any notice hereunder by the Company shall be given to the Participant in writing and such notice shall be deemed duly given only upon receipt thereof at such address as the Participant may have on file with the Company.
11. No Right to Employment . Any questions as to whether and when there has been a Termination and the cause of such Termination shall be determined in the sole discretion of the Committee. Nothing in this Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries or its Affiliates to terminate the Participants employment or service at any time, for any reason and with or without cause.
12. Transfer of Personal Data . The Participant authorizes, agrees and unambiguously consents to the transmission by the Company (or any Subsidiary) of any personal data information related to the Option awarded under this Agreement for legitimate business purposes (including, without limitation, the administration of the Plan). This authorization and consent is freely given by the Participant.
13. Compliance with Laws . The issuance of this Option (and the Shares upon exercise of this Option) pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any foreign and U.S. federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act of 1933, as amended, the 1934 Act and in each case any respective rules and regulations promulgated thereunder) and any other law or regulation applicable thereto. The Company shall not be obligated to issue this Option or any of the Shares pursuant to this Agreement if any such issuance would violate any such requirements.
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14. Section 409A . Notwithstanding anything herein or in the Plan to the contrary, the Option is intended to be exempt from the applicable requirements of Section 409A of the Code and shall be limited, construed and interpreted in accordance with such intent.
15. Binding Agreement; Assignment . This Agreement shall inure to the benefit of, be binding upon, and be enforceable by the Company and its successors and assigns. The Participant shall not assign (except as provided by Section 6 hereof) any part of this Agreement without the prior express written consent of the Company.
16. Headings . The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement.
17. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument.
18. Further Assurances . Each party hereto shall do and perform (or shall cause to be done and performed) all such further acts and shall execute and deliver all such other agreements, certificates, instruments and documents as either party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the Plan and the consummation of the transactions contemplated thereunder.
19. Severability . The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.
20. Acquired Rights . The Participant acknowledges and agrees that: (a) the Company may terminate or amend the Plan at any time; (b) the award of Options made under this Agreement is completely independent of any other award or grant and is made at the sole discretion of the Company; (c) no past grants or awards (including, without limitation, the Options awarded hereunder) give the Participant any right to any grants or awards in the future whatsoever; and (d) any benefits granted under this Agreement are not part of the Participants ordinary salary, and shall not be considered as part of such salary in the event of severance, redundancy or resignation.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the date first written above.
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Exhibit 10.18
STOCK APPRECIATION RIGHTS AGREEMENT
PURSUANT TO THE
EXPRESS, INC. 2010 INCENTIVE COMPENSATION PLAN
* * * * *
Participant:
Grant Date:
Base Price: $
Number of Shares subject to this SAR:
* * * * *
THIS STOCK APPRECIATION RIGHTS AGREEMENT (this Agreement ), dated as of the Grant Date specified above, is entered into by and between Express, Inc., a Delaware corporation (the Company ), and the Participant specified above, pursuant to the Express, Inc. 2010 Incentive Compensation Plan, as in effect and as amended from time to time (the Plan ), which is administered by the Committee; and
WHEREAS, it has been determined under the Plan that it would be in the best interests of the Company to grant the stock appreciation rights ( SAR ) provided for herein to the Participant.
NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth and for other good and valuable consideration, the parties hereto hereby mutually covenant and agree as follows:
1. Incorporation By Reference; Plan Document Receipt . This Agreement is subject in all respects to the terms and provisions of the Plan (including, without limitation, any amendments thereto adopted at any time and from time to time unless such amendments are expressly intended not to apply to the award provided hereunder), all of which terms and provisions are made a part of and incorporated in this Agreement as if they were each expressly set forth herein. Any capitalized term not defined in this Agreement shall have the same meaning as is ascribed thereto in the Plan. The Participant hereby acknowledges receipt of a true copy of the Plan and that the Participant has read the Plan carefully and fully understands its content. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control.
2. Grant of SAR . The Company hereby grants to the Participant, as of the Grant Date, a SAR on the number of shares specified above. This SAR represents the right, upon exercise, to receive either [cash or] a number of shares of Common Stock, [or a
combination of cash and shares of Common Stock,] with a Fair Market Value on the date of exercise equal [, in each case,] to the product of (i) the aggregate number of shares with respect to which this SAR is exercised and (ii) the excess of (A) the Fair Market Value of a share of Common Stock as of the date of exercise over (B) the SAR Base Price specified above. The Participant shall have no rights as a stockholder with respect to any shares of Common Stock covered by this SAR unless and until the Participant has become the holder of record of the shares, and no adjustments shall be made for dividends in cash or other property, distributions or other rights in respect of any such shares, except as otherwise specifically provided for in the Plan or this Agreement.
3. Vesting and Exercise .
(a) Vesting . The SARs subject to this grant shall become vested as to [Vesting Terms] , provided the Participant is then employed by the Company and/or one of its Subsidiaries or Affiliates. There shall be no proportionate or partial vesting in the periods prior to each vesting date and all vesting shall occur only on the appropriate vesting date, subject to the Participants continued service with the Company or any of its Subsidiaries on each applicable vesting date.
(b) [ Certain Terminations . Any unvested portion of this SAR shall immediately become vested upon a Termination due to (i) the Participants death or (ii) the Participants Disability. ]
(c) [ Change in Control . Any unvested portion of this SAR shall immediately become vested upon a Change in Control; provided the Participant is continuously employed by the Company or its Subsidiaries through such date. ]
(d) Effect of Detrimental Activity . The provisions of Section 7.4(c) of the Plan regarding Detrimental Activity shall apply to the SAR.
(e) Expiration . Unless earlier terminated in accordance with the terms and provisions of the Plan and/or this Agreement, all portions of this SAR (whether or not vested) shall expire and shall no longer be exercisable after the expiration of ten (10) years from the Grant Date.
4. Termination . Subject to the terms of the Plan and this Agreement, this SAR, to the extent vested at the time of the Participants Termination, shall remain exercisable as follows:
(a) Termination due to Death or Disability . In the event of the Participants Termination by reason of death or Disability, the vested portion of this SAR shall remain exercisable until the earlier of (i) one year from the date of such Termination, and (ii) the expiration of the stated term of the SARs pursuant to Section 3 hereof.
(b) Termination Without Cause . In the event of the Participants involuntary Termination by the Company without Cause, the vested portion of this SAR shall remain exercisable until the earlier of (i) ninety (90) days from the date of such Termination, and (ii) the expiration of the stated term of the SARs pursuant to Section 3 hereof.
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(c) Voluntary Termination . In the event of the Participants voluntary Termination, the vested portion of this SAR shall remain exercisable until the earlier of (i) ninety (90) days from the date of such Termination, and (ii) the expiration of the stated term of the SARs pursuant to Section 3 hereof.
(d) Termination for Cause . In the event of the Participants Termination by the Company for Cause, all portions of this SAR (whether or not vested) shall terminate and expire upon such Termination.
(e) Treatment of Unvested SARs upon Termination . Any portion of this SAR that is not vested as of the date of the Participants Termination for any reason shall terminate and expire as of the date of such Termination.
5. Method of Exercise . Subject to Section 8 hereof, to the extent that all or a portion of this SAR has become vested and exercisable, such portion of the SAR may thereafter be exercised by the Participant, in whole or in part, at any time or from time to time prior to the expiration of the Option as provided herein and in accordance with Sections 7.4(c) and 7.4(d) of the Plan, including, without limitation, by the delivery of any form of exercise notice as may be required by the Committee.
6. Non-transferability . This SAR, and any rights and interests with respect thereto, issued under this Agreement and the Plan shall not, prior to vesting, be sold, exchanged, transferred, assigned or otherwise disposed of in any way by the Participant (or any beneficiary(ies) of the Participant), other than by testamentary disposition by the Participant or the laws of descent and distribution. Any attempt to sell, exchange, transfer, assign, pledge, encumber or otherwise dispose of or hypothecate in any way this SAR, or the levy of any execution, attachment or similar legal process upon this SAR, contrary to the terms and provisions of this Agreement and/or the Plan shall be null and void and without legal force or effect.
7. Governing Law . All questions concerning the construction, validity and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the choice of law principles thereof.
8. Withholding of Tax . The Company shall have the power and the right to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy any federal, state, local and foreign taxes of any kind (including, but not limited to, the Participants FICA and SDI obligations) which the Company, in its sole discretion, deems necessary to be withheld or remitted to comply with the Code and/or any other applicable law, rule or regulation with respect to the SARs and, if the Participant fails to do so, the Company may otherwise refuse to issue or transfer any shares of Common Stock otherwise required to be issued pursuant to this Agreement. Any statutorily required withholding obligation with regard to the Participant may be satisfied by reducing the amount of cash or shares of Common Stock otherwise deliverable upon exercise of the SARs.
9. Entire Agreement; Amendment . This Agreement, together with the Plan, contains the entire agreement between the parties hereto with respect to the subject matter
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contained herein, and supersedes all prior agreements or prior understandings, whether written or oral, between the parties relating to such subject matter. The Committee shall have the right, in its sole discretion, to modify or amend this Agreement from time to time in accordance with and as provided in the Plan. This Agreement may also be modified or amended by a writing signed by both the Company and the Participant. The Company shall give written notice to the Participant of any such modification or amendment of this Agreement as soon as practicable after the adoption thereof.
10. Notices . Any notice hereunder by the Participant shall be given to the Company in writing and such notice shall be deemed duly given only upon receipt thereof by the Chief Financial Officer of the Company. Any notice hereunder by the Company shall be given to the Participant in writing and such notice shall be deemed duly given only upon receipt thereof at such address as the Participant may have on file with the Company.
11. No Right to Employment . Any questions as to whether and when there has been a Termination and the cause of such Termination shall be determined in the sole discretion of the Committee. Nothing in this Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries or its Affiliates to terminate the Participants employment or service at any time, for any reason and with or without cause.
12. Transfer of Personal Data . The Participant authorizes, agrees and unambiguously consents to the transmission by the Company (or any Subsidiary) of any personal data information related to the SARs awarded under this Agreement for legitimate business purposes (including, without limitation, the administration of the Plan). This authorization and consent is freely given by the Participant.
13. Compliance with Laws . The issuance of this SAR (and the shares of Common Stock upon exercise of this SAR) pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any foreign and U.S. federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act of 1933, as amended, the 1934 Act and in each case any respective rules and regulations promulgated thereunder) and any other law or regulation applicable thereto. The Company shall not be obligated to issue this SAR or any of the shares pursuant to this Agreement if any such issuance would violate any such requirements.
14. Section 409A . Notwithstanding anything herein or in the Plan to the contrary, this SAR award is intended to be exempt from the applicable requirements of Section 409A of the Code and shall be limited, construed and interpreted in accordance with such intent.
15. Binding Agreement; Assignment . This Agreement shall inure to the benefit of, be binding upon, and be enforceable by the Company and its successors and assigns. The Participant shall not assign (except as provided by Section 6 hereof) any part of this Agreement without the prior express written consent of the Company.
16. Headings . The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement.
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17. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument.
18. Further Assurances . Each party hereto shall do and perform (or shall cause to be done and performed) all such further acts and shall execute and deliver all such other agreements, certificates, instruments and documents as either party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the Plan and the consummation of the transactions contemplated thereunder.
19. Severability . The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.
20. Acquired Rights . The Participant acknowledges and agrees that: (a) the Company may terminate or amend the Plan at any time; (b) the award of SARs made under this Agreement is completely independent of any other award or grant and is made at the sole discretion of the Company; (c) no past grants or awards (including, without limitation, the SARs awarded hereunder) give the Participant any right to any grants or awards in the future whatsoever; and (d) any benefits granted under this Agreement are not part of the Participants ordinary salary, and shall not be considered as part of such salary in the event of severance, redundancy or resignation.
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IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the date first written above.
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Exhibit 10.19
RESTRICTED STOCK UNIT AGREEMENT
PURSUANT TO THE
EXPRESS, INC. 2010 INCENTIVE COMPENSATION PLAN
* * * * *
Participant:
Grant Date:
Number of Restricted Stock Units granted:
* * * * *
THIS RESTRICTED STOCK UNIT AWARD AGREEMENT (this Agreement ), dated as of the Grant Date specified above, is entered into by and between Express, Inc., a Delaware corporation organized in the State of Delaware (the Company ), and the Participant specified above, pursuant to the Express, Inc. 2010 Incentive Compensation Plan, as in effect and as amended from time to time (the Plan ), which is administered by the Committee; and
WHEREAS, it has been determined under the Plan that it would be in the best interests of the Company to grant the Restricted Stock Units ( RSUs ) provided herein to the Participant.
NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth and for other good and valuable consideration, the parties hereto hereby mutually covenant and agree as follows:
1. Incorporation By Reference; Plan Document Receipt . This Agreement is subject in all respects to the terms and provisions of the Plan (including, without limitation, any amendments thereto adopted at any time and from time to time unless such amendments are expressly intended not to apply to the award provided hereunder), all of which terms and provisions are made a part of and incorporated in this Agreement as if they were each expressly set forth herein. Any capitalized term not defined in this Agreement shall have the same meaning as is ascribed thereto in the Plan. The Participant hereby acknowledges receipt of a true copy of the Plan and that the Participant has read the Plan carefully and fully understands its content. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control.
2. Grant of Restricted Stock Unit Award . The Company hereby grants to the Participant, as of the Grant Date specified above, the number of RSUs specified above. Except as otherwise provided by the Plan, the Participant agrees and understands that nothing contained in this Agreement provides, or is intended to provide, the Participant with any protection against potential future dilution of the Participants interest in the Company for any reason. Subject to Section 5, the Participant shall not have the rights of a stockholder in respect of the shares underlying this Award until such shares are delivered to the Participant in accordance with Section 4.
3. Vesting and Payment.
(a) The RSUs subject to this grant shall become unrestricted and vested as to [Vesting Terms] , provided the Participant is then employed by the Company and/or one of its Subsidiaries or Affiliates. There shall be no proportionate or partial vesting in the periods prior to each vesting date and all vesting shall occur only on the appropriate vesting date, subject to the Participants continued service with the Company or any of its Subsidiaries on each applicable vesting date.
(b) [Certain Terminations . All unvested RSUs shall immediately become vested upon a Termination due to (i) the Participants death or (ii) the Participants Disability. ]
(c) [ Change in Control . All unvested RSUs shall immediately become vested upon a Change in Control; provided the Participant is continuously employed by the Company or its Subsidiaries through such date.]
(d) Effect of Detrimental Activity . The provisions of Section 10.4 of the Plan regarding Detrimental Activity shall apply to the RSUs.
(e) Forfeiture . [Subject to Section 3(b),] all unvested RSUs shall be immediately forfeited upon the Participants Termination for any reason.
4. Delivery of Shares .
(a) General . Subject to Section 4(b) and the provisions of the Plan, the Company shall deliver to the Participant the number of shares of Common Stock equal to the aggregate number of vested RSUs on the first to occur of [(i) [Specified Date], (ii) a Change in Control or (iii) the 30th day following a Termination] . In no event shall a Participant be entitled to receive any shares with respect to any unvested or forfeited portion of the RSU.
(b) Blackout Periods . If the Participant is subject to any Company blackout policy or other trading restriction imposed by the Company on the date such distribution would otherwise be made pursuant to Section 4(a), such distribution shall be instead made on the earlier of (i) the date the Participant is not subject to any such policy or restriction and (ii) the later of (A) the end of the calendar year in which such distribution would otherwise have been made and (B) a date that is immediately prior to 2.5 months following the date such distribution would otherwise have been made.
5. Dividends and Other Distributions . Participants holding RSUs shall be entitled to receive all dividends and other distributions paid with respect to such shares, provided that any such dividends or other distributions will be subject to the same vesting requirements as the underlying RSUs and shall be paid at the time the RSUs becomes vested pursuant to Section 3. If any dividends or distributions are paid in shares, the shares shall be deposited with the Company and shall be subject to the same restrictions on transferability and forfeitability as the RSUs with respect to which they were paid.
6. Non-transferability . The RSUs, and any rights and interests with respect thereto, issued under this Agreement and the Plan shall not, prior to vesting, be sold, exchanged,
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transferred, assigned or otherwise disposed of in any way by the Participant (or any beneficiary(ies) of the Participant), other than by testamentary disposition by the Participant or the laws of descent and distribution. Any attempt to sell, exchange, transfer, assign, pledge, encumber or otherwise dispose of or hypothecate in any way the RSUs, or the levy of any execution, attachment or similar legal process upon the RSUs, contrary to the terms and provisions of this Agreement and/or the Plan shall be null and void and without legal force or effect.
7. Governing Law . All questions concerning the construction, validity and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the choice of law principles thereof.
8. Withholding of Tax . The Company shall have the power and the right to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy any federal, state, local and foreign taxes of any kind (including, but not limited to, the Participants FICA and SDI obligations) which the Company, in its sole discretion, deems necessary to be withheld or remitted to comply with the Code and/or any other applicable law, rule or regulation with respect to the RSUs and, if the Participant fails to do so, the Company may otherwise refuse to issue or transfer any shares of Common Stock otherwise required to be issued pursuant to this Agreement. Any statutorily required withholding obligation with regard to the Participant may be satisfied by reducing the amount of cash or shares of Common Stock otherwise deliverable to the Participant hereunder.
9. Entire Agreement; Amendment . This Agreement, together with the Plan, contains the entire agreement between the parties hereto with respect to the subject matter contained herein, and supersedes all prior agreements or prior understandings, whether written or oral, between the parties relating to such subject matter. The Committee shall have the right, in its sole discretion, to modify or amend this Agreement from time to time in accordance with and as provided in the Plan. This Agreement may also be modified or amended by a writing signed by both the Company and the Participant. The Company shall give written notice to the Participant of any such modification or amendment of this Agreement as soon as practicable after the adoption thereof.
10. Notices . Any notice hereunder by the Participant shall be given to the Company in writing and such notice shall be deemed duly given only upon receipt thereof by the Chief Financial Officer of the Company. Any notice hereunder by the Company shall be given to the Participant in writing and such notice shall be deemed duly given only upon receipt thereof at such address as the Participant may have on file with the Company.
11. No Right to Employment . Any questions as to whether and when there has been a Termination and the cause of such Termination shall be determined in the sole discretion of the Committee. Nothing in this Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries or its Affiliates to terminate the Participants employment or service at any time, for any reason and with or without cause.
12. Transfer of Personal Data . The Participant authorizes, agrees and unambiguously consents to the transmission by the Company (or any Subsidiary) of any personal
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data information related to the RSU awarded under this Agreement for legitimate business purposes (including, without limitation, the administration of the Plan). This authorization and consent is freely given by the Participant.
13. Compliance with Laws . This issuance of RSUs (and the shares underlying the RSUs) pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any foreign and U.S. federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act of 1933, as amended, the 1934 Act and in each case any respective rules and regulations promulgated thereunder) and any other law or regulation applicable thereto. The Company shall not be obligated to issue this RSU or any of the shares pursuant to this Agreement if any such issuance would violate any such requirements.
14. Binding Agreement; Assignment . This Agreement shall inure to the benefit of, be binding upon, and be enforceable by the Company and its successors and assigns. The Participant shall not assign (except as provided by Section 6 hereof) any part of this Agreement without the prior express written consent of the Company.
15. Headings . The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement.
16. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument.
17. Further Assurances . Each party hereto shall do and perform (or shall cause to be done and performed) all such further acts and shall execute and deliver all such other agreements, certificates, instruments and documents as either party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the Plan and the consummation of the transactions contemplated thereunder.
18. Severability . The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.
19. Acquired Rights . The Participant acknowledges and agrees that: (a) the Company may terminate or amend the Plan at any time; (b) the award of RSUs made under this Agreement is completely independent of any other award or grant and is made at the sole discretion of the Company; (c) no past grants or awards (including, without limitation, the RSUs awarded hereunder) give the Participant any right to any grants or awards in the future whatsoever; and (d) any benefits granted under this Agreement are not part of the Participants ordinary salary, and shall not be considered as part of such salary in the event of severance, redundancy or resignation.
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IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the date first written above.
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Exhibit 10.22
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the Agreement ) is made and entered into as of , 2010 between Express, Inc., a Delaware corporation (the Company ), and [ ] ( Indemnitee ).
WHEREAS, highly competent persons have become more reluctant to serve corporations as directors or officers or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;
WHEREAS, the Board of Directors of the Company (the Board ) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself. The Bylaws of the Company (the Bylaws ) require indemnification of the officers and directors of the Company. Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware ( DGCL ). The Bylaws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the Board, officers of the Company and other persons with respect to indemnification;
WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons;
WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Companys stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;
WHEREAS, this Agreement is a supplement to and in furtherance of the Bylaws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder;
WHEREAS, Indemnitee may not be willing to serve as an officer or director without adequate protection, and the Company desires Indemnitee to serve in such capacity; Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified; and
[WHEREAS, Indemnitee has certain rights to indemnification and/or insurance provided by Golden Gate Private Equity, Inc. ( Golden Gate ) or affiliates of Golden Gate which Indemnitee and Golden Gate intend to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided herein, with the Companys acknowledgement and agreement to the foregoing being a material condition to Indemnitees willingness to serve on the Board.] 1
[WHEREAS, Indemnitee has certain rights to indemnification and/or insurance provided by Limited Brands, Inc. ( Limited Brands ) or affiliates of Limited Brands which Indemnitee and Limited Brands intend to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided herein, with the Companys acknowledgement and agreement to the foregoing being a material condition to Indemnitees willingness to serve on the Board.] 2
NOW, THEREFORE, in consideration of Indemnitees agreement to serve as a director or officer from and after the date hereof, the parties hereto agree as follows:
1. Indemnity of Indemnitee . The Company hereby agrees to hold harmless and indemnify Indemnitee to the fullest extent permitted by law, as such may be amended from time to time. In furtherance of the foregoing indemnification, and without limiting the generality thereof:
(a) Proceedings other than Proceedings by or in the Right of the Company . Indemnitee shall be entitled to the rights of indemnification provided in this Section l(a) if, by reason of his Corporate Status (as hereinafter defined), Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding (as hereinafter defined) other than a Proceeding by or in the right of the Company. Pursuant to this Section 1(a) , Indemnitee shall be indemnified against all Expenses (as hereinafter defined), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him, or on his behalf, in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal Proceeding, had no reasonable cause to believe Indemnitees conduct was unlawful.
(b) Proceedings by or in the Right of the Company . Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(b) if, by reason of his Corporate Status, Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company. Pursuant to this Section 1(b) , Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee, or on Indemnitees behalf, in connection with such Proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; provided , however , if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware shall determine that such indemnification may be made.
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Only for Golden Gate directors. |
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Only for Limited Brands directors. |
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(c) Indemnification for Expenses of a Party Who is Wholly or Partly Successful . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified to the maximum extent permitted by law, as such may be amended from time to time, against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section 1(c) and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
2. Additional Indemnity . In addition to, and without regard to any limitations on, the indemnification provided for in Section 1 of this Agreement, the Company shall and hereby does indemnify and hold harmless Indemnitee against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf if, by reason of his Corporate Status, he is, or is threatened to be made, a party to or participant in any Proceeding (including a Proceeding by or in the right of the Company), including, without limitation, all liability arising out of the negligence or active or passive wrongdoing of Indemnitee. The only limitation that shall exist upon the Companys obligations pursuant to this Agreement shall be that the Company shall not be obligated to make any payment to Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Sections 6 and 7 hereof) to be unlawful.
3. Contribution .
(a) Whether or not the indemnification provided in Sections 1 and 2 hereof is available, in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not, without the Indemnitees prior written consent, enter into any such settlement of any action, suit or proceeding (in whole or in part) unless such settlement (i) provides for a full and final release of all claims asserted against Indemnitee and (ii) does not impose any Expense, judgment, fine, penalty or limitation on Indemnitee.
(b) Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall contribute to the amount of
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Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction from which such action, suit or proceeding arose; provided , however , that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the events that resulted in such expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which the law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.
(c) The Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.
(d) To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding, and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).
4. Indemnification for Expenses of a Witness . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness, or is made (or asked to) respond to discovery requests, in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.
5. Advancement of Expenses . Notwithstanding any other provision of this Agreement, the Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitees Corporate Status within thirty (30) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by
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Indemnitee and shall include or be preceded or accompanied by a written undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Any advances and undertakings to repay pursuant to this Section 5 shall be unsecured and interest free.
6. Procedures and Presumptions for Determination of Entitlement to Indemnification . It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under the DGCL and public policy of the State of Delaware. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement:
(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification. Notwithstanding the foregoing, any failure of Indemnitee to provide such a request to the Company, or to provide such a request in a timely fashion, shall not relieve the Company of any liability that it may have to Indemnitee unless, and to the extent that, such failure actually and materially prejudices the interests of the Company.
(b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 6(a) hereof, a determination with respect to Indemnitees entitlement thereto shall be made in the specific case by one of the following four methods, which shall be at the election of the Board: (1) by a majority vote of the Disinterested Directors (as hereinafter defined), even though less than a quorum, (2) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum, (3) if there are no Disinterested Directors, or if the Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee, or (4) if so directed by the Board, by the stockholders of the Company; provided , however , that if a Change in Control has occurred, the determination with respect to Indemnitees entitlement to indemnification shall be made by Independent Counsel. For purposes hereof, Disinterested Directors are those members of the Board who are not parties to the action, suit or proceeding in respect of which indemnification is sought by Indemnitee.
(c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel, the Independent Counsel shall be selected as provided in this Section 6(c) . If a Change in Control has not occurred, the Independent Counsel shall be selected by the Board (including a vote of a majority of the Disinterested Directors if obtainable), and the Company shall give written notice to the Indemnitee advising him of the identity of the Independent Counsel so selected. Indemnitee may, within 10 days after such written notice of selection shall have been given, deliver to the Company a written objection to such selection; provided , however , that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel as defined in Section 13 of this Agreement, and the objection shall set forth with particularity the factual basis
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of such assertion. Absent a proper and timely objection, the Person so selected shall act as Independent Counsel. If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If a Change in Control has occurred, the Independent Counsel shall be selected by the Indemnitee (unless the Indemnitee shall request that such selection be made by the Board, in which event the preceding sentence shall apply), and approved by the Board (which approval shall not be unreasonably withheld). If (i) an Independent Counsel is to make the determination of entitlement pursuant to this Section 6 , and (ii) within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 6(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by Indemnitee to the Companys selection of Independent Counsel and/or for the appointment as Independent Counsel of a Person selected by the court or by such other Person as the court shall designate, and the Person with respect to whom all objections are so resolved or the Person so appointed shall act as Independent Counsel under Section 6(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 6(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 6(c) , regardless of the manner in which such Independent Counsel was selected or appointed.
(d) In making a determination with respect to entitlement to indemnification hereunder, the Person making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence. Neither the failure of the Company (including by its directors or independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
(e) Indemnitee shall be deemed to have acted in good faith if Indemnitees action is based on the records or books of account of the Enterprise (as hereinafter defined), including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. Whether or not the foregoing provisions of this Section 6(e) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
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(f) If the Person empowered or selected under this Section 6 to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided , however , that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the Person making such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto; and provided , further , that the foregoing provisions of this Section 6(f) shall not apply if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 6(b) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination, the Board or the Disinterested Directors, if appropriate, resolve to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat.
(g) Indemnitee shall cooperate with the Person making such determination with respect to Indemnitees entitlement to indemnification, including providing to such Person upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any Independent Counsel, member of the Board or stockholder of the Company shall act reasonably and in good faith in making a determination regarding Indemnitees entitlement to indemnification under this Agreement. Any costs or expenses (including attorneys fees and disbursements) incurred by Indemnitee in so cooperating with the Person making such determination shall be borne by the Company (irrespective of the determination as to Indemnitees entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(h) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any action, claim or proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
(i) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself
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adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.
7. Remedies of Indemnitee .
(a) In the event that (i) a determination is made pursuant to Section 6 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 5 of this Agreement, (iii) no determination of entitlement to indemnification is made pursuant to Section 6(b) of this Agreement within ninety (90) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to this Agreement within ten (10) days after receipt by the Company of a written request therefor or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 6 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of Indemnitees entitlement to such indemnification, contribution or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Except as set forth herein, the provisions of Delaware law (without regard to its conflict-of-law rules) shall apply to any such arbitration. The Company shall not oppose Indemnitees right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 7 shall be conducted in all respects as a de novo trial, or arbitration, on the merits, and Indemnitee shall not be prejudiced by reason of the adverse determination under Section 6(b) . In any judicial proceeding or arbitration commenced pursuant to this Section 7 , Indemnitee shall be presumed to be entitled to indemnification under this Agreement and the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, and the Company may not refer to or introduce into evidence any determination pursuant to Section 6(b) of this Agreement adverse to Indemnitee for any purpose. If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 7 , Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 5 until a final determination is made with respect to Indemnitees entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).
(c) If a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 7 , absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees misstatement not materially misleading in connection with the application for indemnification, or (ii) a prohibition of such indemnification under applicable law.
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(d) In the event that Indemnitee, pursuant to this Section 7 , seeks a judicial adjudication of his rights under, or to recover damages for breach of, this Agreement, or to recover under any directors and officers liability insurance policies maintained by the Company, the Company shall pay on his behalf, in advance, any and all expenses (of the types described in the definition of Expenses in Section 13 of this Agreement) actually and reasonably incurred by him in such judicial adjudication, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of expenses or insurance recovery.
(e) The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 7 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement. The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefore) advance, to the extent not prohibited by law, such expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors and officers liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.
(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.
8. Non-Exclusivity; Survival of Rights; Insurance; Primacy of Indemnification; Subrogation .
(a) The rights of indemnification and to receive advancement of expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation of the Company (the Charter ), the Bylaws, any agreement, a vote of stockholders, a resolution of directors or otherwise, of the Company. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the DGCL, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under the Charter, Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
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(b) The Company shall obtain and maintain in effect during the entire period for which the Company is obligated to indemnify Indemnitee under this Agreement, one or more policies of insurance with reputable insurance companies to provide the directors and officers of the Company with coverage for losses from wrongful acts and omissions and to ensure the Companys performance of its indemnification obligations under this Agreement. Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such officer or director under such policy or policies. In all such insurance policies, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee with the same rights and benefits as are accorded to the most favorably insured of the Companys directors and officers. At the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.
(c) [The Company hereby acknowledges that Indemnitee has certain rights to indemnification, advancement of expenses and/or insurance provided by Golden Gate and certain affiliates that, directly or indirectly, (i) are controlled by, (ii) control or (iii) are under common control with, Golden Gate (collectively, the Fund Indemnitors ). The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement and the Charter or Bylaws of the Company (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Fund Indemnitors, and (iii) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Fund Indemnitors are express third party beneficiaries of the terms of this Section 8(c) .] OR [The Company hereby acknowledges that Indemnitee has certain rights to indemnification, advancement of expenses and/or insurance provided by Limited Brands and certain affiliates that, directly or indirectly, (i) are controlled by, (ii) control or (iii) are under common control with, Limited Brands (collectively, the Limited Brands Indemnitors ). The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of the Limited Brands Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement and the Charter or Bylaws of the Company (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have
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against the Limited Brands Indemnitors, and (iii) that it irrevocably waives, relinquishes and releases the Limited Brands Indemnitors from any and all claims against the Limited Brands Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Limited Brands Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Limited Brands Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Limited Brands Indemnitors are express third party beneficiaries of the terms of this Section 8(c) .]
(d) [Except as provided in Section 8(c) above,] in the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee [(other than against the Fund Indemnitors)], who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
(e) [Except as provided in Section 8(c) above,] the Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.
(f) [Except as provided in Section 8(c) above,] the Companys obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise.
9. Exception to Right of Indemnification . Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:
(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; [ provided , that the foregoing shall not affect the rights of Indemnitee or the [Fund Indemnitors // Limited Brands Indemnitors] set forth in Section 8(c) above]; or
(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act (as hereinafter defined), or similar provisions of state statutory law or common law; or
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(c) for reimbursement to the Company of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company in each case as required under the Exchange Act; or
(d) in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Company has joined in or the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation, (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law, or (iii) the Proceeding is one to enforce Indemnitees rights under this Agreement.
10. Non-Disclosure of Payments . Except as expressly required by the securities laws of the United States of America, neither party shall disclose any payments under this Agreement unless prior approval of the other party is obtained. If any payment information must be disclosed, the Company shall afford the Indemnitee an opportunity to review all such disclosures and, if requested, to explain in such statement any mitigating circumstances regarding the events to be reported.
11. Duration of Agreement . All agreements and obligations of the Company contained herein shall continue upon the later of (i) ten (10) years after the date that Indemnitee shall have ceased to serve as a director or officer of the Company or a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee served at the request of the Company, and (ii) one (1) year after the final termination of any Proceeding (including any rights of appeal thereto) in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any Proceeding commenced by Indemnitee pursuant to Section 7 of this Agreement relating thereto (including any rights of appeal of any Section 7 Proceeding. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.
12. Security . To the extent requested by Indemnitee and approved by the Board, the Company may at any time and from time to time provide security to Indemnitee for the Companys obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to Indemnitee, may not be revoked or released without the prior written consent of Indemnitee.
13. Definitions . For purposes of this Agreement:
(a) Beneficial Owner shall have the meaning given to such term in Rule 13d-3 under the Exchange Act; provided , however , that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.
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(b) Change in Control shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:
(i) Acquisition of Stock by Third Party . Any Person (as defined below), other than Golden Gate and its affiliates and other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the Beneficial Owner (as defined above), directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Companys then outstanding securities;
(ii) Change in Board of Directors . During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in Section 13(b)(i) , 13(b)(iii) or 13(b)(iv) ) whose election by the Board or nomination for election by the Companys stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Board;
(iii) Corporate Transactions . The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity; and
(iv) Liquidation . The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement or series of agreements for the sale or disposition by the Company of all or substantially all of the Companys assets, or, if such approval is not required, the decision by the Board to proceed with such a liquidation, sale, or disposition in one transaction or a series of related transactions.
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(c) Corporate Status describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company, any direct or indirect subsidiary of the Company, or of any other corporation, partnership, joint venture, trust, employee benefit plan or other Enterprise that such person is or was serving at the express written request of the Company.
(d) Disinterested Director means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
(e) Enterprise shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary.
(f) Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
(g) Expenses shall include all reasonable attorneys fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding, or responding to, or objecting to, a request to provide discovery in any Proceeding. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, including without limitation the premium, security for, and other costs relating to any cost bond, supersede as bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.
(h) Independent Counsel means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Independent Counsel shall not include any Person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitees rights under this Agreement. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
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(i) Person shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided , however , that Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.
(j) Proceeding includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which Indemnitee was, is or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was an officer or director of the Company, by reason of any action taken by him or of any inaction on his part while acting as an officer or director of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise; in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement; including one pending on or before the date of this Agreement, but excluding one initiated by an Indemnitee pursuant to Section 7 of this Agreement to enforce his rights under this Agreement.
14. Severability . If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (i) the validity, legality, and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (ii) such provision or provisions shall be deemed reformed to the fullest extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (iii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby. Without limiting the generality of the foregoing, this Agreement is intended to confer upon Indemnitee indemnification rights to the fullest extent permitted by applicable laws.
15. Enforcement and Binding Effect .
(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director, officer or key employee of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director, officer or key employee of the Company.
(b) Without limiting any of the rights of Indemnitee under the Charter or Bylaws of the Company as they may be amended from time to time, this Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.
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(c) The indemnification and advancement of expenses provided by, or granted pursuant to this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or of any other Enterprise at the Companys request, and shall inure to the benefit of Indemnitee and his spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.
(d) The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.
(e) The Company and Indemnitee agree herein that a monetary remedy for breach of this Agreement, at some later date, may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm. Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm and that by seeking injunctive relief and/or specific performance, Indemnitee shall not he precluded from seeking or obtaining any other relief to which he may be entitled. The Company and Indemnitee further agree that Indemnitee shall be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertaking in connection therewith. The Company acknowledges that in the absence of a waiver, a bond or undertaking may be required of Indemnitee by the court, and the Company hereby waives any such requirement of such a bond or undertaking.
16. Modification and Waiver . No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
17. Notice By Indemnitee . Indemnitee agrees promptly to notify the Company in writing upon being served with or otherwise receiving any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder. The failure to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.
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18. Notices . All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent:
(a) To Indemnitee at the address set forth below Indemnitees signature hereto.
(b) To the Company at:
Express, Inc.
One Limited Parkway
Columbus, Ohio 43230
Attention: Matthew C. Moellering
Fax: (614) 415-4858
or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.
19. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. This Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
20. Headings . The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
21. Usage of Pronouns . Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate.
22. Governing Law and Consent to Jurisdiction . This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict-of-laws rules. The Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the Delaware Court ), and not in any other state or federal court in the United States of America or any court in any other country, (ii) generally and unconditionally consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (iv) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum. The foregoing consent to jurisdiction shall not constitute general consent to service of process in the state for any purpose except as provided above, and shall not be deemed to confer rights on any Person other than the parties to this Agreement.
[T HE R EMAINDER OF T HIS P AGE I S I NTENTIONALLY L EFT B LANK .]
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IN WITNESS WHEREOF , the parties hereto have executed this Agreement on and as of the day and year first written above.
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S IGNATURE P AGE TO
I NDEMNIFICATION A GREEMENT
Exhibit 10.23
, 2010
Express, Inc.
One Limited Parkway
Columbus, Ohio 43230
Re: | Advancement and Indemnification Rights |
In light of recent court decisions concerning the rights of corporate directors and officers (including directors designated by sponsor shareholder investors) to advancement of expenses and indemnification, Limited Brands, Inc. ( Limited Brands ) and Express, Inc. (the Company ) have agreed to enter into this Letter Agreement (this Agreement ) to clarify their understandings with respect to certain matters. Capitalized terms not defined elsewhere in this Agreement are used herein as defined in Section 3 .
This agreement clarifies certain rights of Limited Brands with respect to any persons designated by Limited Brands or any Limited Brands Affiliate to serve as a director, officer, board observer, partner, trustee, fiduciary, manager, employee, agent, consultant or advisor, or functional or foreign equivalent of the foregoing, of or to any of the Company or successors or direct or indirect parents or subsidiaries of the Company (individually, including the Company, an Express Company , and collectively, including the Company, the Express Companies ) or of or to any partnership or joint venture of which any Express Company is a partner or member (collectively, the Limited Brands Designees and collectively referred to as the Indemnitees , and individually as an Indemnitee ), whether such right exists pursuant to any Organizational Document or any other agreement or document.
The parties intend that (i) the Express Companies are and shall at all times be the indemnitors of first resort with respect to any and all matters for which advancement of expenses and indemnification are provided by the Express Companies to or on behalf of any Indemnitee, without regard to the time of any related claims and liabilities or of any act, statement or omission relating thereto, (ii) the Express Companies shall advance expenses and/or indemnify each Indemnitee on a primary basis, and (iii) any Indemnitee may be required to seek advancement of expenses and/or indemnification from any other potential source of such advancement or indemnification (including from any other Indemnitee) only if, and to the extent, that the Express Companies are legally and/or financially unable to advance expenses and/or indemnify, as the case may be, to or on behalf of such Indemnitee.
In consideration of the mutual agreements herein contained, and other good and valuable consideration - including the agreement of the Limited Brands Designees to serve one or more Express Companies (including without limitation on the board of directors or similar governing body thereof) - the receipt and sufficiency of which is hereby acknowledged, all parties intending to be legally bound hereby agree as follows:
1. Company is Primary Indemnitor .
Each of the undersigned Express Companies hereby acknowledges and agrees that (a) each of the undersigned Express Companies is an indemnitor of first resort; (b) the obligations of the Express Companies to each Indemnitee are primary, and any obligations of Limited Brands or any Limited Brands Affiliate or other Indemnitee to provide advancement of expenses or indemnification for any Losses incurred by Indemnitee and for which any Express Company has agreed (or is otherwise obligated) to indemnify Indemnitee (whether under any Organizational Document or any other agreement or document) are secondary; and (c) if Limited Brands or any Limited Brands Affiliate or other Indemnitee, is obligated to pay, or pays, or causes to be paid for any reason, any expense or Loss which any Express Company is otherwise obligated (whether under any Organizational Document or other document or agreement) to pay to or on behalf of Indemnitee, then (x) Limited Brands, such Limited Brands Affiliate or other Indemnitee, as the case may be, shall be fully subrogated to and otherwise succeed to all rights of Indemnitee with respect to such payment, including with respect to rights to claim such amounts from any of the Express Companies; and (y) each of the undersigned Express Companies shall jointly and severally reimburse, indemnify and hold harmless (or cause one or more other Express Companies to reimburse, indemnify and hold harmless) Limited Brands, such Limited Brands Affiliate or other Indemnitee, as the case may be, for all such payments actually made by such entity or person on behalf of or for the benefit of Indemnitee.
2. Specific Waiver of Subrogation, Contribution. etc.
Each of the undersigned Express Companies hereby unconditionally and irrevocably waives, relinquishes and releases (and covenants and agrees not to exercise, and to cause each affiliate of any Express Company not to exercise), any claims or rights that any Express Company may now have or hereafter acquire against any Indemnitee (in any capacity) that arise from or relate to the existence, payment, performance or enforcement of one of the Express Companies obligations under this Agreement or under any indemnification obligation (whether pursuant to any other contract, any Organizational Document or otherwise), including any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of any Indemnitee against any other Indemnitee, whether such claim, remedy or right arises in equity or under contract, statute, common law or otherwise, including any right to claim, take or receive from any Indemnitee, directly or indirectly, in cash or other property or by set-off or in any other manner, any payment or security or other credit support on account of such claim, remedy or right.
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3. Definitions . As used in this Agreement, the phrase including shall not be deemed to be a term of limitation but rather shall be construed to mean including, without limitation and the following terms are used with the meaning set forth herein:
(a) | Limited Brands Affiliate means any entity that, directly or indirectly, (i) is controlled by, (ii) controls or (iii) is under common control with, Limited Brands (excluding any Express Company). |
(b) | Losses means any and all damages, judgments, liabilities, assessments, fines, penalties, amounts paid in settlement, fees and costs (including attorneys fees and costs) or other losses. |
(c) | Organizational Document means an entitys certificate of incorporation, bylaws, partnership agreement, limited liability company agreement, operating agreement, indemnification agreement, or other similar or equivalent agreement or document. |
4. Miscellaneous .
(a) | This Agreement may be amended, modified, extended or terminated as to any Express Company (and the provisions hereof may be waived) only by a written agreement specifically identified as such and signed by Limited Brands and the relevant Express Company. No oral amendment, modification or waiver of this Agreement shall be effective. |
(b) | An Indemnitees rights under this Agreement and any Organizational Document or other agreement or document that gives rise to indemnification and/or advancement rights are present contractual rights that shall fully vest upon any Indemnitees first service as a director, officer, board observer, fiduciary, partner, trustee, manager, employee, agent or functional or foreign equivalent of any of the foregoing of any of the Express Companies. No amendment, alteration or repeal of this Agreement or any other such agreement or document or of any provision hereof or thereof validly effected shall limit or restrict any right of Indemnitee under this Agreement or such agreement or document in respect of any act, omission or statement of such Indemnitee occurring prior to such amendment, alteration or repeal. |
(c) | Nothing in this Agreement shall be construed to require any Limited Brands Designee to serve as a director, officer or agent of any Express Company (or in any other capacity). No Indemnitees rights hereunder shall be limited or impaired in any way if such Indemnitee ceases, for any reason, to serve or provide services to any Express Company. |
(d) | To the extent permitted by applicable choice-of-law principles, this Agreement and all claims arising out of or based upon this Agreement or relating to the subject matter hereof shall be governed by and construed in accordance with the domestic substantive laws of the State of Delaware without giving effect to any choice- or conflict-of-law principles or rules that would result in the application of the domestic substantive law of any other jurisdiction. |
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(e) | Except as, and to the extent, expressly provided herein, (i) no right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise, so long as such right or remedy does not conflict with any right or remedy provided hereunder, (ii) any and all rights to advancement of expenses and/or indemnification to which each Indemnitee has ever been, is or may in the future be entitled from the Express Companies shall remain unchanged by this Agreement, and (iii) the assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy. To the extent that any term or condition of this Agreement conflicts with any term or condition under any other agreement or document to which any Express Company or Indemnitee is a party or by which any of them are otherwise bound (whether pursuant to an Organizational Document or any other agreement or document) with respect to the subject matter of this Agreement, the terms and conditions of this Agreement shall control. Each Express Company hereby waives the right to enforce any rights under such other agreement to the extent that such rights or remedies conflict with any rights, remedies or other provisions hereunder. |
(f) | Each Indemnitee that is not a direct party hereunder is and shall be considered an express and intended third-party beneficiary hereunder and shall be entitled to enforce this Agreement to the same extent as a party hereunder. |
(g) | If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (i) the validity, legality and enforceability of the remaining provisions of this Agreement (including each portion of any section or subsection of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; (ii) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties expressed herein; and (iii) to the fullest extent possible, the provisions of this Agreement (including each portion of any section or subsection of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby. |
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(h) | This Agreement may be executed in any number of counterparts and by each of the parties in separate counterparts (any of which may be delivered by facsimile or pdf), each of which when so executed will be deemed to be an original and all of which together will constitute one and the same instrument. |
[T HE R EMAINDER OF T HIS P AGE I S I NTENTIONALLY L EFT B LANK .]
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Very truly yours, | ||
LIMITED BRANDS, INC. | ||
By: | ||
Name: | ||
Title: |
ACKNOWLEDGED AND AGREED TO as of the date of this letter.
EXPRESS COMPANIES | ||
Express, Inc. | ||
By: | ||
Name: | ||
Title: | ||
Express Topco LLC | ||
By: | ||
Name: | ||
Title: | ||
Express Holding, LLC | ||
By: | ||
Name: | ||
Title: | ||
Express, LLC | ||
By: | ||
Name: | ||
Title: | ||
Express Finance Corp. | ||
By: | ||
Name: | ||
Title: | ||
Express GC, LLC | ||
By: | ||
Name: | ||
Title: |
S IGNATURE P AGE TO I NDEMNITY P RIORITY A GREEMENT
Exhibit 10.24
, 2010
Express, Inc.
One Limited Parkway
Columbus, Ohio 43230
Re: | Advancement and Indemnification Rights |
In light of recent court decisions concerning the rights of corporate directors and officers (including directors designated by sponsor shareholder investors) to advancement of expenses and indemnification, Golden Gate Private Equity, Inc. ( Golden Gate ) and Express, Inc. (the Company ) have agreed to enter into this Letter Agreement (this Agreement ) to clarify their understandings with respect to certain matters. Capitalized terms not defined elsewhere in this Agreement are used herein as defined in Section 3 .
This Agreement clarifies certain rights of (i) Golden Gate; (ii) any Golden Gate Affiliate or other persons or entities providing management, advisory, consulting or other services at the direction or request of Golden Gate or any Golden Gate Affiliate to or for the benefit of the Company or any successors or direct or indirect parents or subsidiaries of the Company (individually, including the Company, an Express Company , and collectively, including the Company, the Express Companies ); (iii) any Fund; (iv) any persons designated by Golden Gate, any Golden Gate Affiliate or any Fund to serve as a director, officer, board observer, partner, trustee, fiduciary, manager, employee, agent, consultant or advisor, or functional or foreign equivalent of the foregoing, of or to any of the Express Companies or of or to any partnership or joint venture of which any Express Company is a partner or member (collectively, the Golden Gate Designees ); and (v) any direct or indirect partners (including general partners), shareholders, members (including managing members), affiliates, controlling persons, subsidiaries, directors, officers, fiduciaries, managers, employees and agents of any of the foregoing (those persons and entities identified in (i), (ii), (iii), (iv) and (v) are herein referred to collectively as the Indemnitees , and individually as an Indemnitee ), whether such right exists pursuant to any Organizational Document or any other agreement or document.
The parties intend that (i) the Express Companies are and shall at all times be the indemnitors of first resort with respect to any and all matters for which advancement of expenses and indemnification are provided by the Express Companies to or on behalf of any Indemnitee, without regard to the time of any related claims and liabilities or of any act, statement or omission relating thereto, (ii) the Express Companies shall advance expenses and/or indemnify each Indemnitee on a primary basis, and (iii) any Indemnitee may be required to seek advancement of expenses and/or indemnification from any other potential source of such advancement or indemnification (including from any other Indemnitee) only if, and to the extent, that the Express Companies are legally and/or financially unable to advance expenses and/or indemnify, as the case may be, to or on behalf of such Indemnitee.
In consideration of the mutual agreements herein contained, and other good and valuable consideration - including the agreement of the Golden Gate Designees to serve one or more Express Companies (including without limitation on the board of directors or similar governing body thereof) - the receipt and sufficiency of which is hereby acknowledged, all parties intending to be legally bound hereby agree as follows:
1. Company is Primary Indemnitor .
Each of the undersigned Express Companies hereby acknowledges and agrees that (a) each of the undersigned Express Companies is an indemnitor of first resort; (b) the obligations of the Express Companies to each Indemnitee are primary, and any obligations of Golden Gate, any Golden Gate Affiliate or any Fund or other Indemnitee to provide advancement of expenses or indemnification for any Losses incurred by Indemnitee and for which any Express Company has agreed (or is otherwise obligated) to indemnify Indemnitee (whether under any Organizational Document or any other agreement or document) are secondary; and (c) if Golden Gate, or any Golden Gate Affiliate, Fund or other Indemnitee, is obligated to pay, or pays, or causes to be paid for any reason, any expense or Loss which any Express Company is otherwise obligated (whether under any Organizational Document or other document or agreement) to pay to or on behalf of Indemnitee, then (x) Golden Gate, such Golden Gate Affiliate, Fund or other Indemnitee, as the case may be, shall be fully subrogated to and otherwise succeed to all rights of Indemnitee with respect to such payment, including with respect to rights to claim such amounts from any of the Express Companies; and (y) each of the undersigned Express Companies shall jointly and severally reimburse, indemnify and hold harmless (or cause one or more other Express Companies to reimburse, indemnify and hold harmless) Golden Gate, such Golden Gate Affiliate, Fund or other Indemnitee, as the case may be, for all such payments actually made by such entity or person on behalf of or for the benefit of Indemnitee.
2. Specific Waiver of Subrogation, Contribution. etc.
Each of the undersigned Express Companies hereby unconditionally and irrevocably waives, relinquishes and releases (and covenants and agrees not to exercise, and to cause each affiliate of any Express Company not to exercise), any claims or rights that any Express Company may now have or hereafter acquire against any Indemnitee (in any capacity) that arise from or relate to the existence, payment, performance or enforcement of one of the Express Companies obligations under this Agreement or under any indemnification obligation (whether pursuant to any other contract, any Organizational Document or otherwise), including any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of any Indemnitee against any other Indemnitee, whether such claim, remedy or right arises in equity or under contract, statute, common law or otherwise, including any right to claim, take or receive from any Indemnitee, directly or indirectly, in cash or other property or by set-off or in any other manner, any payment or security or other credit support on account of such claim, remedy or right.
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3. Definitions . As used in this Agreement, the phrase including shall not be deemed to be a term of limitation but rather shall be construed to mean including, without limitation and the following terms are used with the meaning set forth herein:
(a) | Golden Gate Affiliate means any entity that, directly or indirectly, (i) is controlled by, (ii) controls or (iii) is under common control with, Golden Gate; provided, that, under no circumstances shall any portfolio company of Golden Gate (including any Express Company) be deemed a Golden Gate Affiliate hereunder. |
(b) | Fund means any investment fund formed or managed by Golden Gate or any Golden Gate Affiliate or for which any Golden Gate Affiliate serves as an investment adviser, and any other partnership, limited liability company or other legal entity that is a Golden Gate Affiliate which, directly or indirectly, owns equity securities of the Company or any other Express Company. |
(c) | Losses means any and all damages, judgments, liabilities, assessments, fines, penalties, amounts paid in settlement, fees and costs (including attorneys fees and costs) or other losses. |
(d) | Organizational Document means an entitys certificate of incorporation, bylaws, partnership agreement, limited liability company agreement, operating agreement, indemnification agreement, or other similar or equivalent agreement or document. |
4. Miscellaneous .
(a) | This Agreement may be amended, modified, extended or terminated as to any Express Company (and the provisions hereof may be waived) only by a written agreement specifically identified as such and signed by Golden Gate and the relevant Express Company. No oral amendment, modification or waiver of this Agreement shall be effective. |
(b) |
An Indemnitees rights under this Agreement and any Organizational Document or other agreement or document that gives rise to indemnification and/or advancement rights are present contractual rights that shall fully vest upon any Indemnitees first service as a director, officer, board observer, fiduciary, partner, trustee, manager, employee, agent or functional or foreign equivalent of any of the foregoing of any of the Express Companies. No amendment, alteration or repeal of this Agreement or any other such agreement or document or of any provision hereof or thereof validly effected shall limit or restrict any right of |
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Indemnitee under this Agreement or such agreement or document in respect of any act, omission or statement of such Indemnitee occurring prior to such amendment, alteration or repeal. |
(c) | Nothing in this Agreement shall be construed to require: (i) Golden Gate, any Golden Gate Affiliate or any other person or entity to provide management, advisory, consulting or other services, or (ii) any Golden Gate Designee to serve as a director, officer or agent of any Express Company (or in any other capacity). No Indemnitees rights hereunder shall be limited or impaired in any way if such Indemnitee ceases, for any reason, to serve or provide services to any Express Company. |
(d) | To the extent permitted by applicable choice-of-law principles, this Agreement and all claims arising out of or based upon this Agreement or relating to the subject matter hereof shall be governed by and construed in accordance with the domestic substantive laws of the State of Delaware without giving effect to any choice- or conflict-of-law principles or rules that would result in the application of the domestic substantive law of any other jurisdiction. |
(e) | Except as, and to the extent, expressly provided herein, (i) no right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise, so long as such right or remedy does not conflict with any right or remedy provided hereunder, (ii) any and all rights to advancement of expenses and/or indemnification to which each Indemnitee has ever been, is or may in the future be entitled from the Express Companies shall remain unchanged by this Agreement, and (iii) the assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy. To the extent that any term or condition of this Agreement conflicts with any term or condition under any other agreement or document to which any Express Company or Indemnitee is a party or by which any of them are otherwise bound (whether pursuant to an Organizational Document or any other agreement or document) with respect to the subject matter of this Agreement, the terms and conditions of this Agreement shall control. Each Express Company hereby waives the right to enforce any rights under such other agreement to the extent that such rights or remedies conflict with any rights, remedies or other provisions hereunder. |
(f) | Each Indemnitee that is not a direct party hereunder is and shall be considered an express and intended third-party beneficiary hereunder and shall be entitled to enforce this Agreement to the same extent as a party hereunder. |
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(g) | If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (i) the validity, legality and enforceability of the remaining provisions of this Agreement (including each portion of any section or subsection of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; (ii) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties expressed herein; and (iii) to the fullest extent possible, the provisions of this Agreement (including each portion of any section or subsection of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby. |
(h) | This Agreement may be executed in any number of counterparts and by each of the parties in separate counterparts (any of which may be delivered by facsimile or pdf), each of which when so executed will be deemed to be an original and all of which together will constitute one and the same instrument. |
[T HE R EMAINDER OF T HIS P AGE I S I NTENTIONALLY L EFT B LANK .]
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Very truly yours, | ||
GOLDEN GATE PRIVATE EQUITY, INC. | ||
By: | ||
Name: | ||
Title: |
ACKNOWLEDGED AND AGREED TO as of the date of this letter.
EXPRESS COMPANIES | ||
Express, Inc. | ||
By: | ||
Name: | ||
Title: | ||
Express Topco LLC | ||
By: | ||
Name: | ||
Title: | ||
Express Holding, LLC | ||
By: | ||
Name: | ||
Title: | ||
Express, LLC | ||
By: | ||
Name: | ||
Title: | ||
Express Finance Corp. | ||
By: | ||
Name: | ||
Title: | ||
Express GC, LLC | ||
By: | ||
Name: | ||
Title: |
S IGNATURE P AGE TO I NDEMNITY P RIORITY A GREEMENT
Exhibit 10.25
AMENDMENT NO. 2
TO CREDIT AGREEMENT
This AMENDMENT NO. 2 TO CREDIT AGREEMENT (this Amendment ), dated as of April 26, 2010, by and among EXPRESS TOPCO LLC, a Delaware limited liability company ( Borrower ); the Lenders identified on the signature pages hereto; and KKR SCF LOAN ADMINISTRATION, LLC, a Delaware limited liability company, as administrative agent (in such capacity, together with its successors in such capacity, Administrative Agent ) for the Lenders, amends that certain Credit Agreement, dated as of June 26, 2008 (as amended, the Credit Agreement ), by and among the Borrower; the financial institutions who are or hereafter become parties thereto as Lenders; and the Administrative Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Credit Agreement.
RECITALS
A. WHEREAS, the Borrower, the Administrative Agent and the Lenders have agreed to amend the Credit Agreement on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the continued performance by the Borrower of its promises and obligations under the Credit Agreement and the other Loan Documents, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Administrative Agent and the Lenders hereby agree as follows:
1. Amendments to Credit Agreement .
(a) Amendment to Section 2.07(a) . Section 2.07(a) of the Credit Agreement is hereby amended by adding the following proviso after the table appearing in such section: provided, that, if the Term B Loans are paid in full prior to the second year anniversary of the Closing Date substantially concurrently with, and with the proceeds of, an IPO, then the redemption price for such prepayment shall be 106.00%.
(b) Amendment to Section 2.07(c)(iv) . Section 2.07(c)(iv) of the Credit Agreement is hereby amended by deleting the reference to 50% and replacing it with 100%.
(c) Amendment to Section 5.01(a). Section 5.01(a) of the Credit Agreement is hereby amended by adding the following clause at the end of such Section:
provided further for the fiscal year ended on January 30, 2010, such annual audit report and related deliveries shall not be due until June 30, 2010;
2. Miscellaneous .
(a) Headings . The various headings of this Amendment are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Amendment or any provisions hereof.
(b) Counterparts . This Amendment may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by facsimile transmission (or by electronic mail of a pdf copy) shall be effective as delivery of a manually executed counterpart thereof.
(c) Interpretation . No provision of this Amendment shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such partys having or being deemed to have structured, drafted or dictated such provision.
(d) Complete Agreement; Conflict of Terms . This Amendment constitutes the complete agreement between the parties with respect to the subject matter hereof, and supersedes any prior written or oral agreements, writings, communications or understandings of the parties with respect thereto. In the event of any inconsistency between the provisions of this Amendment and any provision of the Credit Agreement, the terms and provisions of this Amendment shall govern and control.
(e) Representations, Warranties and Covenants .
(i) Borrower hereby represents and warrants that this Amendment and the Credit Agreement as amended by this Amendment constitute the legal, valid and binding obligations of Borrower, enforceable against it in accordance with their respective terms except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors rights generally or by equitable principles relating to enforceability.
(ii) Borrower hereby represents and warrants that its execution, delivery and performance of this Amendment and its performance of the Credit Agreement as amended by this Amendment, have been duly authorized by all necessary corporate action and do not: (1) contravene the terms of Borrowers Organizational Documents, (2) violate any law or regulation, or any order or decree of any court or Governmental Authority; (3) conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which Borrower is a party or by which Borrower or any of its property is bound, (4) result in the creation or imposition of any Lien upon any of the property of Borrower; or (5) require the consent or approval of any Governmental Authority or any other person.
(iii) Borrower hereby represents and warrants that (1) no Default or Event of Default has occurred and is continuing and (2) all of the representations and warranties of Borrower contained in the Credit Agreement and in each other Loan Document (other than representations and warranties which, in accordance with their express terms, are made only as of an earlier specified date) are true and correct in all material respects (without duplication of any materiality qualifier contained therein) as of the date of execution and delivery hereof or thereof as though made on and as of such date.
(f) Reaffirmation, Ratification and Acknowledgment; Reservation . Borrower hereby (1) ratifies and reaffirms all of its payment and performance obligations, contingent or otherwise, under each Loan Document, (2) agrees and acknowledges that such ratification and reaffirmation is not a condition to the continued effectiveness of such Loan Documents, and (3) agrees that neither such ratification and reaffirmation, nor the Administrative Agents or any Lenders solicitation of such ratification and reaffirmation, constitutes a course of dealing giving rise to any obligation or condition requiring a similar or any other ratification or reaffirmation from the Borrower with respect to any subsequent modifications to the Credit Agreement or the other Loan Documents. The Credit Agreement
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is in all respects ratified and confirmed. Each of the Loan Documents, and in the case of the Pledge Agreement, the Liens created thereby, shall remain in full force and effect and is hereby ratified and confirmed. This Amendment shall constitute a Loan Document for purposes of the Credit Agreement.
(g) Governing Law . THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
(h) Effect . Upon the effectiveness of this Amendment, each reference in the Credit Agreement to this Agreement, hereunder, hereof or words of like import shall mean and be a reference to the Credit Agreement as amended hereby and each reference in the other Loan Documents to the Credit Agreement, thereunder, thereof, or words of like import shall mean and be a reference to the Credit Agreement as amended hereby. Except as expressly provided in this Amendment, all of the terms, conditions and provisions of the Credit Agreement and the other Loan Documents shall remain the same. The Borrower hereby represents and warrants to each Lender and the Administrative Agent that all authorizations, consents and approvals of the Borrowers board of directors and shareholders, and all other persons, necessary to permit the Borrower to execute and deliver this Amendment and to perform its obligations hereunder and under the Credit Agreement as amended hereby, and to permit the Lenders and the Administrative Agent to enforce such obligations, have been obtained.
(i) No Novation or Waiver . Except as specifically set forth in this Amendment, the execution, delivery and effectiveness of this Amendment shall not (1) limit, impair, constitute a waiver by, or otherwise affect any right, power or remedy of, the Administrative Agent or any Lender under the Credit Agreement or any other Loan Document, (2) constitute a waiver of any provision in the Credit Agreement or in any of the other Loan Documents or of any Default or Event of Default that may have occurred and be continuing or (3) except as expressly provided herein, alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or in any of the other Loan Documents, all of which are ratified and affirmed in all respects and shall continue in full force and effect.
(j) Administrative Agents Expenses . Without limiting the provisions of Section 9.03(a) of the Credit Agreement, the Borrower hereby agrees to promptly reimburse the Administrative Agent for all of the reasonable out-of-pocket expenses, including, without limitation, reasonable attorneys fees, it has heretofore or hereafter incurred or incurs in connection with the preparation, negotiation and execution of this Amendment.
(k) Effectiveness . This Amendment will become effective as of the date hereof when the Administrative Agent shall have received a counterpart signature page to this Amendment signed by the Borrower and the Lenders.
[Signature Pages Follow]
3
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written.
EXPRESS TOPCO LLC | ||||||
By: |
/s/ Matt Moellering |
|||||
Name: | Matt Moellering | |||||
Title: |
4
KKR SCF LOAN ADMINISTRATION LLC, as Administrative Agent |
||||||
By: |
/s/ Roshan Chagan |
|||||
Name: | Roshan Chagan | |||||
Title: | Authorized Signatory |
5
KKR STRATEGIC CAPITAL HOLDINGS 1-B, LTD., as a Lender | ||||
By: |
/s/ Roshan Chagan |
|||
Name: | Roshan Chagan | |||
Title: | Authorized Signatory |
6
KKR STRATEGIC CAPITAL INSTITUTIONAL FUND, LTD., as a Lender | ||||
By: |
/s/ Roshan Chagan |
|||
Name: | Roshan Chagan | |||
Title: | Authorized Signatory |
7
KKR STRATEGIC CAPITAL FUND MRO TRUST, as a Lender | ||||
By: |
/s/ Roshan Chagan |
|||
Name: | Roshan Chagan | |||
Title: | Authorized Signatory |
8
KKR FINANCIAL HOLDINGS, LTD., as a Lender | ||||
By: |
/s/ Roshan Chagan |
|||
Name: | Roshan Chagan | |||
Title: | Authorized Signatory |
9
OREGON PUBLIC EMPLOYEES RETIREMENT FUND, as a Lender | ||||
By: |
/s/ Roshan Chagan |
|||
Name: | Roshan Chagan | |||
Title: | Authorized Signatory |
10
KKR STRATEGIC CAPITAL OVERSEAS FUND MRO LTD., as a Lender | ||||
By: |
/s/ Roshan Chagan |
|||
Name: | Roshan Chagan | |||
Title: | Authorized Signatory |
11
MERITAGE FUND, LTD., as a Lender | ||||||
By: |
/s/ Nat Simons |
|||||
Name: | Nat Simons | |||||
Title: | Authorized Person |
12
GGC UNLEVERED CREDIT OPPORTUNITIES, LLC, a Delaware limited liability company, as a Lender | ||||
By: |
/s/ David Dominik |
|||
Name: | David Dominik | |||
Title: | Manager |
13
EXPRESS INVESTMENT CORP., a Delaware corporation, as a Lender |
||||||
By: |
/s/ Peter Morrow |
|||||
Name: | Peter Morrow | |||||
Title: |
14
Exhibit 10.26
April 26, 2010
Mr. Michael F. Devine, III
Executive VP, CFO
Coach, Inc.
516 W. 34th Street
New York, NY 10001
Dear Michael:
On behalf of Express Parent LLC (to be renamed Express, Inc.) (the Company), I am extremely pleased to invite you to become a member of the Companys Board of Directors (the Board). We believe that your skills, expertise and knowledge will prove very helpful to the Company and its stockholders. In addition to your normal Board duties, your responsibilities will include that of Chairman of the Audit Committee and the Companys Audit Committee Financial Expert.
In connection with your service as a director, you will be eligible for equity grants under the Express, Inc. 2010 Incentive Compensation Plan (the 2010 Plan), which will become effective upon the completion of the Companys initial public offering of common stock (the IPO). Your equity incentive compensation package under the 2010 Plan will be equivalent to the equity incentive packages offered to the Companys Vice Presidents.
In addition to equity compensation, you will be entitled to receive cash compensation of (1) an Annual Retainer of $100,000 for your service as a director, (2) an Audit Committee Annual Retainer of $10,000 and (3) a Chairman of the Audit Committee Annual Retainer of $15,000. You will be reimbursed for reasonable out-of-pocket expenses incurred by you in connection with your services to the Company in accordance with the Companys established policies. In addition, you will be covered by the Companys D&O insurance and given an opportunity to execute the Companys standard director indemnification agreement.
Our expectation is that the Board will meet at least quarterly. The various committees of the Board will also meet on a schedule to be determined. It is our expectation that you will participate in those meetings in person to the extent possible. We also ask that you make yourself available to participate in various telephonic meetings from time to time.
Please note that this offer is contingent upon your qualification as an independent director under applicable NYSE rules and consummation of the IPO.
Mr. Michael F. Devine, III
April 26, 2010
Page 2
Your services on the Board will be in accordance with, and subject to, the Companys Bylaws and the Certificate of Incorporation, as such may be amended from time to time. In accepting this offer, you are representing to us that (1) you do not know of any conflict that would restrict you from becoming a director of the Company and (2) you will not provide the Company with any documents, records or other confidential information belonging to any other parties.
To accept this offer, please sign below and return the fully executed letter to us. You should keep one copy of this letter for your own records. This letter sets forth the terms of your service with the Company and supersedes any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by a duly authorized representative of the Company and by you.
We are looking forward to having you join us at the Company. We believe that your enthusiasm and past experience will be an asset to the Company and that you will have a positive impact on the organization. If you have any questions, please call me at (415) 983-2707.
Sincerely,
Express Parent LLC (name to be changed to Express, Inc.) |
/s/ Stefan L. Kaluzny |
Stefan L. Kaluzny Chairman of the Board |
Accepted and agreed to this
28th day of April, 2010
/s/ Michael F. Devine, III |
Michael F. Devine, III |
2
Exhibit 16.1
April 29, 2010
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Ladies and Gentlemen:
We have read the disclosure under the caption Change in Accountants in the Amendment No. 5 to the Registration Statement on Form S-1 dated April 30, 2010, of Express Parent LLC and are in agreement with the statements contained in the first and second paragraphs on page 151 therein. We have no basis to agree or disagree with other statements of the registrant contained therein.
/s/ Ernst & Young LLP
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Amendment No. 5 to the Registration Statement on Form S-1 (No. 333-164906) of our report dated March 25, 2010 relating to the financial statements of Express Parent LLC, which appears in such Registration Statement. We also consent to the references to us under the headings Experts, Summary Historical and Pro Forma Consolidated Financial and Operating Data, Selected Historical Consolidated Financial and Operating Data, and Change in Accountants, in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Columbus, Ohio
April 29, 2010
Exhibit 23.2
Consent of Independent Registered Public Accounting Firm
We consent to the references to our firm under the captions Experts, Change in Accountants, Summary Historical and Pro Forma Consolidated Financial and Operating Data, and Selected Historical Consolidated Financial and Operating Data, and to the use of our report dated May 2, 2008, except for Note 1 (as it pertains to segment disclosure and the impact of the recapitalization of the Company) and Notes 7 and 12, as to which the date is February 15, 2010, in this Amendment No. 5 to the Registration Statement (Form S-1 No. 333-164906) and related Prospectus of Express Parent LLC for the registration of shares of its common stock.
/s/ Ernst & Young LLP
Columbus, Ohio
April 29, 2010
Exhibit 99.1
Consent of Director Designee
Express Parent LLC, to be renamed Express, Inc., has filed a Registration Statement on Form S-1 with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the Securities Act), in connection with the initial public offering of common stock of Express, Inc. In connection therewith, I hereby consent, pursuant to Rule 438 of the Securities Act, to be named as a designee to the board of directors of Express, Inc. in the Registration Statement, as may be amended from time to time. I also consent to the filing of this consent as an exhibit to such Registration Statement and any amendments thereto.
/s/ Michael F. Devine, III |
Michael F. Devine, III |
Dated: April 23, 2010