Table of Contents
Delaware | 5600 | 20-3842867 | ||
(State or other jurisdiction of incorporation or organization) | (Primary standard industrial classification code number) | (I.R.S. employer identification number) |
Barry M. Abelson John P. Duke Pepper Hamilton LLP 3000 Two Logan Square 18th and Arch Streets Philadelphia, PA19103-2799 (215) 981-4000 | Kevin P. Kennedy Simpson Thacher & Bartlett LLP 2550 Hanover Street Palo Alto, CA 94034 (650) 251-5000 |
Table of Contents
Table of Contents
The information in this preliminary 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 preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. |
Per Share | Total | |||||||
Initial public offering price | $ | $ | ||||||
Underwriting discount | $ | $ | ||||||
Proceeds, before expenses, to us | $ | $ | ||||||
Proceeds, before expenses, to the selling stockholders | $ | $ |
Goldman, Sachs & Co. | Merrill Lynch & Co. |
Credit Suisse | UBS Investment Bank |
William Blair & Company |
CIBC World Markets |
Wachovia Securities |
Thomas Weisel Partners LLC |
Table of Contents
Initial Public Offering and Secondary Offering | , 2007 |
Underwriters’ | Net Proceeds to | |||||||||||||||
Price to the | Discounts and | Net Proceeds to | the Selling | |||||||||||||
Public(1) | Commissions | Lululemon(2) | Stockholders(3) | |||||||||||||
Per share(4) | U.S.$ | U.S.$ | U.S.$ | U.S.$ | ||||||||||||
Total offering(5) | U.S.$ | U.S.$ | U.S.$ | U.S.$ |
(1) | The offering price for shares of our common stock has been determined by negotiation between us and the Underwriters.See “Underwriting.” |
(2) | Before deducting expenses of this offering, which are estimated to be approximately U.S.$5,000,000, which will be paid by us out of our general corporate funds. | |
(3) | The Selling Stockholders will pay the Underwriters’ discounts and commissions in respect of the shares of common stock sold by the Selling Stockholders. None of the expenses of the offering will be borne by the Selling Stockholders. Pursuant to the Agreement and Plan of Reorganization dated April 26, 2007, between us, our stockholders and certain other parties, we agreed to pay all expenses of the offering. See “Principal and Selling Stockholders.” | |
(4) | Assumes an initial public offering price of U.S.$11.00 per share (the midpoint of the currently estimated price range of U.S.$10.00 to U.S.$12.00). | |
(5) | Certain of the Selling Stockholders have granted an option to the Underwriters, exercisable in whole or in part for a period of 30 days from the closing of this offering, to purchase up to 2,730,000 additional shares of common stock on the terms as set forth above. If this option is exercised in full, the total Price to the Public, Underwriters’ Discounts and Commissions and Net Proceeds to the Selling Stockholders will be U.S.$ , U.S.$ and U.S.$ , respectively. This prospectus qualifies the distribution of the option and the distribution of the additional shares of common stock sold upon the exercise of the option. See “Underwriting.” |
Table of Contents
Creativity is maximized when you’re living in the moment. |
Table of Contents
Table of Contents
lululemon athletica creates components for people to LIVE LONGER, HEALTHIER AND MORE FUN LIVES. |
Fiscal Year Ended January 31, | Three Months Ended April 30, | |||||||||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | 2006 | 2007 | ||||||||||||||||||||||
High | $ | 0.662 | $ | 0.788 | $ | 0.849 | $ | 0.874 | $ | 0.910 | $ | 0.893 | $ | 0.904 | ||||||||||||||
Low | $ | 0.621 | $ | 0.653 | $ | 0.716 | $ | 0.787 | $ | 0.846 | $ | 0.853 | $ | 0.844 | ||||||||||||||
End of Period | $ | 0.654 | $ | 0.754 | $ | 0.807 | $ | 0.874 | $ | 0.848 | $ | 0.893 | $ | 0.904 | ||||||||||||||
Average | $ | 0.639 | $ | 0.729 | $ | 0.776 | $ | 0.834 | $ | 0.882 | $ | 0.876 | $ | 0.875 |
Page | ||||
1 | ||||
10 | ||||
30 | ||||
32 | ||||
32 | ||||
33 | ||||
41 | ||||
43 | ||||
45 | ||||
48 | ||||
81 | ||||
93 | ||||
99 | ||||
121 | ||||
126 | ||||
130 | ||||
138 | ||||
141 | ||||
145 | ||||
148 | ||||
153 | ||||
153 | ||||
153 | ||||
Intercorporate Relationships | 154 | |||
Material Contracts | 154 | |||
Notice to Investors | 154 | |||
Eligibility for Investment | 155 | |||
Agent for Service in Canada | 155 | |||
Purchasers’ Contractual Right of Action | 155 | |||
Purchasers’ Statutory Rights | 155 | |||
Auditors’ Consent | 156 | |||
F-1 | ||||
Certificate of Lululemon | C-1 | |||
Certificate of the Canadian Underwriters | C-2 |
Fiscal Year Ended January 31, | Three Months Ended April 30, | |||||||||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | 2006 | 2007 | ||||||||||||||||||||||
High | $ | 0.662 | $ | 0.788 | $ | 0.849 | $ | 0.874 | $ | 0.910 | $ | 0.893 | $ | 0.904 | ||||||||||||||
Low | $ | 0.621 | $ | 0.653 | $ | 0.716 | $ | 0.787 | $ | 0.846 | $ | 0.853 | $ | 0.844 | ||||||||||||||
End of Period | $ | 0.654 | $ | 0.754 | $ | 0.807 | $ | 0.874 | $ | 0.848 | $ | 0.893 | $ | 0.904 | ||||||||||||||
Average | $ | 0.639 | $ | 0.729 | $ | 0.776 | $ | 0.834 | $ | 0.882 | $ | 0.876 | $ | 0.875 |
Table of Contents
Table of Contents
• | design and develop innovative athletic apparel that combines performance with style and incorporates real-time customer feedback; | |
• | locate our stores in street locations, lifestyle centers and malls that position each lululemon athletica store as an integral part of its community; | |
• | create an inviting and educational store environment that encourages product trial and repeat visits; and | |
• | market on a grassroots level in each community, including through influential fitness practitioners who embrace and create excitement around our brand. |
1
Table of Contents
2
Table of Contents
• | the possibility that we may not be able to manage operations at our current size or manage growth effectively; | |
• | the possibility that we may not be able to locate suitable locations to open new stores or attract customers to our stores; | |
• | the possibility that we may not be able to successfully expand in the United States and other new markets; | |
• | the possibility that we may not be able to finance our growth and maintain sufficient levels of cash flow; | |
• | increased competition causing us to reduce the prices of our products or to increase significantly our marketing efforts in order to avoid losing market share; |
3
Table of Contents
• | the possibility that we may not be able to effectively market and maintain a positive brand image; | |
• | the possibility that we may not be able to maintain recent levels of comparable store sales or average sales per square foot; | |
• | the possibility that we may not be able to continually innovate and provide our consumers with improved products; | |
• | the possibility that our suppliers or manufacturers may not produce or deliver our products in a timely or cost-effective manner; and | |
• | the dilution of $10.70 per share that new investors will experience upon purchase of our common stock, based on an assumed initial public offering price of $11.00 per share. |
4
Table of Contents
Common stock offered by us | 2,290,909 shares | |
Common stock offered by the selling stockholders | 15,909,091 shares | |
Common stock outstanding after this offering | 75,309,860 shares | |
The number of shares of our common stock outstanding after this offering is based on the assumptions outlined in the bullets below. As described below, the number of shares outstanding after this offering depends in part on the initial public offering price and the effective date of our corporate reorganization. | ||
Use of proceeds | We expect to receive net proceeds from this offering of approximately $18.4 million, based upon an assumed initial public offering price of $11.00 per share, the midpoint of the range set forth on the cover of this prospectus, and after deducting underwriting discounts and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares in this offering by the selling stockholders, including upon the sale of shares if the underwriters exercise their option to purchase additional shares from certain of the selling stockholders in this offering. | |
We intend to use the net proceeds of this offering, together with cash flow from operations, to fund new store openings and working capital, and for other general corporate purposes, which may include general and administrative expenses and potential acquisitions of franchises. For fiscal 2007 and fiscal 2008, we have budgeted an aggregate of $28.0 million to $34.0 million for new store openings, although the actual amounts that we spend on such items may vary. See “Use of Proceeds.” | ||
Risk factors | See “Risk Factors” on page 10 and the other information in this prospectus for a discussion of the factors you should consider before you decide to invest in our common stock. | |
Directed share program | The underwriters have reserved for sale, at the initial public offering price, up to 910,000 shares of our common stock being offered for sale to our business associates, employees, friends and family members of our employees. The number of shares available for sale to the general public in this offering will be reduced to the extent these persons purchased reserved shares. Any reserved shares not purchased will be offered by the underwriters to the general public on the same terms as the other shares. |
Nasdaq Global Market symbol | LULU |
Toronto Stock Exchange symbol | LLL |
5
Table of Contents
• | assumes an initial public offering price of $11.00 per share (the midpoint of the price range set forth on the front cover of this prospectus); | |
• | reflects the consummation of our corporate reorganization on an assumed date of July 24, 2007, and (assuming an initial public offering price of $11.00 per share) the issuance of 48,767,976 shares of our common stock and the issuance by Lulu Canadian Holding, Inc., our wholly owned subsidiary, of 24,250,975 exchangeable shares in connection therewith, as described in “Pre-Offering Transactions” included elsewhere in this prospectus; | |
• | assumes the issuance of 24,250,975 shares of our common stock issuable upon the exchange of all of the exchangeable shares of Lulu Canadian Holding, Inc. to be outstanding as a result of our corporate reorganization; | |
• | assumes the underwriters’ option to purchase additional shares in this offering has not been exercised; |
• | excludes 4,478,726 shares of our common stock issuable upon exercise of options outstanding as of the date of this prospectus under our 2007 Equity Incentive Plan at a weighted average exercise price of $0.58; and |
• | excludes an additional 5,521,274 shares of our common stock reserved for future issuance under our 2007 Equity Incentive Plan, including 230,616 shares of our common stock issuable upon exercise of options expected to be granted in connection with this offering, each with an exercise price equal to the initial public offering price. |
• | A $1.00 increase in the assumed initial public offering price of $11.00 per share would decrease the number of shares of common stock outstanding after this offering by approximately 1,862,000 shares, assuming that our corporate reorganization occurs on July 24, 2007; | |
• | A $1.00 decrease in the assumed initial public offering price of $11.00 per share would increase the number of shares of common stock outstanding after this offering by approximately 2,234,000 shares, assuming that our corporate reorganization occurs on July 24, 2007; and | |
• | If our corporate reorganization occurred five days later or earlier than the assumed date of July 24, 2007, the common stock outstanding after this offering would increase or decrease, respectively, by approximately 21,500 shares, assuming an initial public offering price of $11.00 per share. |
6
Table of Contents
Fiscal Year Ended January 31, | Three Months Ended April 30, | |||||||||||||||||||
2005 | 2006 | 2007 | 2006 | 2007 | ||||||||||||||||
(In thousands, except share data) | ||||||||||||||||||||
Combined consolidated statement of income data: | ||||||||||||||||||||
Net revenue | $ | 40,748 | $ | 84,129 | $ | 148,885 | $ | 28,184 | $ | 44,789 | ||||||||||
Cost of goods sold(1) | 19,448 | 41,177 | 72,903 | 13,664 | 21,979 | |||||||||||||||
Gross profit | 21,300 | 42,952 | 75,982 | 14,519 | 22,811 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative expenses(1) | 10,840 | 26,416 | 52,540 | 8,406 | 15,963 | |||||||||||||||
Principal stockholder bonus | 12,134 | 12,809 | — | — | — | |||||||||||||||
Settlement of lawsuit | — | — | 7,228 | — | — | |||||||||||||||
Income (loss) from operations | (1,674 | ) | 3,727 | 16,213 | 6,113 | 6,848 | ||||||||||||||
Other expenses (income) | ||||||||||||||||||||
Interest income | (11 | ) | (55 | ) | (142 | ) | (26 | ) | (110 | ) | ||||||||||
Interest expense | 46 | 51 | 47 | 3 | 3 | |||||||||||||||
Income (loss) before income taxes | (1,709 | ) | 3,730 | 16,308 | 6,136 | 6,955 | ||||||||||||||
Provision for (recovery of) income taxes | (298 | ) | 2,336 | 8,753 | 2,955 | 3,449 | ||||||||||||||
Non-controlling interest | — | — | (112 | ) | — | (36 | ) | |||||||||||||
Net income (loss) | $ | (1,411 | ) | $ | 1,394 | $ | 7,666 | $ | 3,181 | $ | 3,542 | |||||||||
7
Table of Contents
Fiscal Year Ended January 31, | Three Months Ended April 30, | |||||||||||||||||||
2005 | 2006 | 2007 | 2006 | 2007 | ||||||||||||||||
(In thousands, except share data) | ||||||||||||||||||||
Pro forma weighted average number of shares outstanding(2): | ||||||||||||||||||||
Pro forma basic earnings per share | ||||||||||||||||||||
Common stock equivalent stock | 24,250,975 | 24,250,975 | ||||||||||||||||||
Common stock | 48,767,976 | 48,767,976 | ||||||||||||||||||
Pro forma weighted average diluted number of shares of common stock outstanding | 49,565,399 | 50,139,576 | ||||||||||||||||||
Pro forma common stock equivalent basic and diluted earnings per share(2) | $ | 0.10 | $ | 0.05 | ||||||||||||||||
Pro forma common stock basic and diluted earnings per share(2) | $ | 0.10 | $ | 0.05 | ||||||||||||||||
Selected store data: | ||||||||||||||||||||
Number of corporate-owned stores open at end of period | 14 | 27 | 41 | 30 | 47 | * | ||||||||||||||
Corporate-owned stores sales per gross square foot‡ | $ | 1,328 | $ | 1,279 | $ | 1,411 | $ | 1,277 | $ | 1,447 | ||||||||||
Comparable store sales change | 18 | % | 19 | % | 25 | % | 15 | % | 20 | % |
* | We closed one corporate-ownedoqoqo store on May 15, 2007. |
‡ | Figures for the Three Months Ended April 30, 2006 and 2007, are calculated on the basis of net revenue for the twelve months ended April 30, 2006 and 2007, respectively. |
(1) | Includes stock-based compensation as follows: |
Fiscal Year Ended January 31, | Three Months Ended April 30, | |||||||||||||||||||
2005 | 2006 | 2007 | 2006 | 2007 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Cost of goods sold | $ | — | $ | 755 | $ | 360 | $ | 94 | $ | 169 | ||||||||||
Selling, general and administrative expenses | — | 1,945 | 2,470 | 262 | 1,239 | |||||||||||||||
Total | $ | — | $ | 2,700 | $ | 2,830 | $ | 356 | $ | 1,408 | ||||||||||
(2) | We have not computed basic and diluted earnings per share as the combined consolidated results reflect the results of two separate companies (lululemon athletica inc. and LIPO Investments (Canada) Inc.), each with its own distinct and separate capital structure. As a result of our corporate reorganization, various securities (including Series A preferred stock issued by lululemon athletica inc. and common stock equivalents issued by LIPO Investments (Canada) Inc.) will be exchanged for shares of our common stock based in part on the quotient of the value of accrued but unpaid dividends (which, where applicable, accrue on a daily basis until the consummation of our corporate reorganization) to our initial public offering price. We have accordingly presented pro forma earnings per share for the fiscal year ended January 31, 2007 and for the three months ended April 30, 2007 giving effect to our corporate reorganization as if it had been consummated on the first day of that period. In addition, the outstanding stock options of the two companies will be converted into options to purchase shares of our common stock. See “Pre-Offering Transactions” and note 12 to our combined consolidated financial statements appearing elsewhere in this prospectus. |
8
Table of Contents
• | on an actual basis, derived from our unaudited combined consolidated balance sheet as of April 30, 2007; | |
• | on a “pro forma” basis, giving effect to: |
• | the consummation of our corporate reorganization on an assumed date of July 24, 2007, and (assuming an initial public offering price of $11.00 per share) the issuance of 48,767,976 shares of our common stock; | |
• | the issuance by Lulu Canadian Holding, Inc., our wholly owned subsidiary, of 24,250,975 exchangeable shares in connection therewith, as described in “Pre-Offering Transactions” included elsewhere in this prospectus, and the issuance of 24,250,975 shares of our common stock upon the exchange of the Lulu Canadian Holding exchangeable shares; and |
• | on a “pro forma as adjusted” basis, further reflecting the sale by us of 2,290,909 shares of our common stock in this offering (assuming an initial public offering price of $11.00 per share, and after deducting estimated offering expenses and underwriting discounts and commissions payable by us). |
As of April 30, 2007 | ||||||||||||
Pro Forma | ||||||||||||
Actual | Pro Forma | as Adjusted | ||||||||||
(In thousands) | ||||||||||||
Combined consolidated balance sheet data: | ||||||||||||
Cash and cash equivalents | $ | 4,393 | $ | 4,383 | $ | 22,819 | ||||||
Working capital (excluding cash and cash equivalents) | 8,840 | 8,840 | 8,840 | |||||||||
Property and equipment, net | 21,169 | 21,169 | 21,169 | |||||||||
Total assets | 69,034 | 69,024 | 87,460 | |||||||||
Long term debt | — | — | — | |||||||||
Total stockholders’ equity | 44,490 | 44,490 | 62,926 |
9
Table of Contents
• | identify suitable store locations, the availability of which is outside of our control; | |
• | negotiate acceptable lease terms, including desired tenant improvement allowances; | |
• | hire, train and retain store personnel and field management; | |
• | assimilate new store personnel and field management into our corporate culture; | |
• | source sufficient inventory levels; and | |
• | successfully integrate new stores into our existing operations and information technology systems. |
10
Table of Contents
11
Table of Contents
• | economic downturns in a particular area; | |
• | competition from nearby retailers selling athletic apparel; | |
• | changing consumer demographics in a particular market; | |
• | changing lifestyle choices of consumers in a particular market; and | |
• | the closing or decline in popularity of other businesses located near our store. |
12
Table of Contents
13
Table of Contents
• | introduction of new products may be delayed, which may allow our competitors to introduce similar products in a more timely fashion, which could hurt our goal to be viewed as a leader in technical athletic apparel innovation; | |
• | if our expanded product offerings fail to maintain and enhance our distinctive brand identity, our brand image may be diminished and our sales may decrease; | |
• | implementation of these plans may divert management’s attention from other aspects of our business and place a strain on our management, operational and financial resources, as well as our information systems; and | |
• | incorporation of novel technologies into our products that are not accepted by our customers or that are inferior to similar products offered by our competitors. |
14
Table of Contents
15
Table of Contents
16
Table of Contents
17
Table of Contents
• | the timing of new store openings; | |
• | net revenue and profits contributed by new stores; | |
• | increases or decreases in comparable store sales; | |
• | changes in our product mix; and | |
• | the timing of new advertising and new product introductions. |
• | a substantial increase or decrease in consumer demand for our products or for products of our competitors; | |
• | our failure to accurately forecast customer acceptance for our new products; | |
• | new product introductions or pricing strategies by competitors; |
18
Table of Contents
• | more limited historical store sales information for our newer markets; | |
• | weakening of economic conditions or consumer confidence in future economic conditions, which could reduce demand for discretionary items, such as our products; and | |
• | acts or threats of war or terrorism which could adversely affect consumer confidence and spending or interrupt production and distribution of our products and our raw materials. |
19
Table of Contents
• | increasing our vulnerability to general adverse economic and industry conditions; | |
• | limiting our ability to obtain additional financing; | |
• | requiring a substantial portion of our available cash to pay our rental obligations, thus reducing cash available for other purposes; | |
• | limiting our flexibility in planning for or reacting to changes in our business or in the industry in which we compete; and | |
• | placing us at a disadvantage with respect to some of our competitors. |
20
Table of Contents
21
Table of Contents
• | political unrest, terrorism, labor disputes and economic instability resulting in the disruption of trade from foreign countries in which our products are manufactured; | |
• | the imposition of new laws and regulations, including those relating to labor conditions, quality and safety standards, imports, duties, taxes and other charges on imports, as well as trade restrictions and restrictions on currency exchange or the transfer of funds; | |
• | reduced protection for intellectual property rights, including trademark protection, in some countries, particularly the People’s Republic of China; | |
• | disruptions or delays in shipments; and | |
• | changes in local economic conditions in countries where our manufacturers, suppliers or customers are located. |
22
Table of Contents
23
Table of Contents
24
Table of Contents
25
Table of Contents
• | actual or anticipated fluctuations in quarterly operating results or other operating metrics, such as comparable store sales, that may be used by the investment community; | |
• | changes in financial estimates by us or by any securities analysts who might cover our stock; | |
• | speculation about our business in the press or the investment community; | |
• | conditions or trends affecting our industry or the economy generally; | |
• | stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in the technical athletic apparel industry; | |
• | announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures; | |
• | changes in product mix between high and low margin products; | |
• | capital commitments; | |
• | our entry into new markets; | |
• | timing of new store openings; | |
• | percentage of sales from new stores versus established stores; | |
• | additions or departures of key personnel; | |
• | actual or anticipated sales of our common stock, including sales by our directors, officers or significant stockholders; | |
• | significant developments relating to our manufacturing, distribution, joint venture or franchise relationships; | |
• | customer purchases of new products from us and our competitors; | |
• | investor perceptions of the apparel industry in general and our company in particular; | |
• | major catastrophic events; | |
• | volatility in our stock price, which may lead to higher stock-based compensation expense under applicable accounting standards; and | |
• | changes in accounting standards, policies, guidance, interpretation or principles. |
26
Table of Contents
Number of shares and | ||
% of total outstanding | Date Available for Sale into Public Markets | |
18,200,000, or 24.2% | Immediately after this offering. | |
32,858,885, or 43.6% | 180 days after the date of this prospectus due to contractual obligations andlock-up agreements between the holders of these shares and the underwriters. However, the underwriters can waive the provisions of theselock-up agreements and allow these stockholders to sell their shares at any time, provided their respective one-year holding periods under Rule 144 have expired. | |
24,250,975, or 32.2% | From time to time after the date 180 days after the date of this prospectus upon expiration of their respective one-year holding periods in the U.S. or in Canada. |
27
Table of Contents
28
Table of Contents
• | the classification of our board of directors into three classes, with one class elected each year; | |
• | prohibiting cumulative voting in the election of directors; | |
• | the ability of our board of directors to issue preferred stock without stockholder approval; | |
• | a special meeting of stockholders may only be called by our chairman or Chief Executive Officer, or upon a resolution adopted by an affirmative vote of a majority of the board of directors, and not by our stockholders; | |
• | prohibiting stockholder action by written consent; and | |
• | our stockholders must comply with advance notice procedures in order to nominate candidates for election to our board of directors or to place stockholder proposals on the agenda for consideration at any meeting of our stockholders. |
29
Table of Contents
• | our ability to manage operations at our current size or manage growth effectively; | |
• | our ability to locate suitable locations to open new stores and to attract customers to our stores; | |
• | our ability to successfully expand in the United States and other new markets; | |
• | our ability to finance our growth and maintain sufficient levels of cash flow; | |
• | increased competition causing us to reduce the prices of our products or to increase significantly our marketing efforts in order to avoid losing market share; | |
• | our ability to effectively market and maintain a positive brand image; | |
• | our ability to maintain recent levels of comparable store sales or average sales per square foot; | |
• | our ability to continually innovate and provide our consumers with improved products; | |
• | the ability of our suppliers or manufacturers to produce or deliver our products in a timely or cost-effective manner; | |
• | our lack of long-term supplier contracts; | |
• | our lack of patents or exclusive intellectual property rights in our fabrics and manufacturing technology; | |
• | our ability to attract and maintain the services of our senior management and key employees; | |
• | the availability and effective operation of management information systems and other technology; | |
• | changes in consumer preferences or changes in demand for technical athletic apparel and other products; | |
• | our ability to accurately forecast consumer demand for our products; | |
• | our ability to accurately anticipate and respond to seasonal or quarterly fluctuations in our operating results; | |
• | our ability to find suitable joint venture partners and expand successfully outside North America; |
30
Table of Contents
• | our ability to maintain effective internal controls; and | |
• | changes in general economic or market conditions, including as a result of political or military unrest or terrorist attacks. |
• | the continued and growing demand for our products; | |
• | the impact of competition; | |
• | the ability to obtain and maintain existing financing on acceptable terms; and | |
• | currency exchange and interest rates. |
31
Table of Contents
32
Table of Contents
• | 108,495 shares of series A preferred stock; and | |
• | 116,994 shares of series TS preferred stock. |
33
Table of Contents
(1) | Dennis Wilson is the controlling stockholder of LIPO Investments (USA) and LIPO Investments (Canada). He holds common shares in these companies in his individual capacity and in his capacity as trustee under a trust arrangement established for the benefit of the other stockholders of these companies, all of whom are Lululemon employees. |
34
Table of Contents
35
Table of Contents
• | its pro rata portion of 52,965,988 shares of our common stock (which we refer to as the common share amount); and | |
• | with respect to each share of our series A preferred stock held by such stockholder, the number of shares of our common stock that is equal to (x) $978.33 (representing the stated value of each such share plus accrued and unpaid dividends through the assumed reorganization date, assuming that such share of series A preferred stock was issued on December 5, 2005), divided by (y) the initial public offering price per share of our common stock. |
36
Table of Contents
• | the LIPO Entities’ pro rata portion of the common share amount; and | |
• | the number of shares of our common stock that is equal to (x) $114,459,361 (representing the stated value of our series TS preferred stock and Lulu Canada class B shares held by the LIPO Entities, plus accrued and unpaid dividends through the assumed reorganization date) divided by (y) the initial public offering price per share of our common stock. |
37
Table of Contents
• | 48,767,976 shares of our common stock assuming an initial public offering price of $11.00 per share and a reorganization date of July 24, 2007; | |
• | 24,250,975 shares of our special voting stock; |
• | options to purchase 4,478,726 shares of our common stock at a weighted average exercise price of $0.58 per share (issued in exchange for the options to purchase shares of Lulu USA common stock or Lulu Canada class C shares); and |
• | options to purchase an additional 230,616 shares of our common stock, each with an exercise price equal to the initial offering price, that are expected to be granted in connection with this offering (but not as part of our corporate reorganization). |
38
Table of Contents
39
Table of Contents
40
Table of Contents
• | on an actual basis, derived from our unaudited combined consolidated balance sheet as of April 30, 2007; | |
• | on a “pro forma” basis, giving effect to: |
• | the consummation of our corporate reorganization on an assumed date of July 24, 2007, and (assuming an initial public offering price of $11.00 per share) the issuance of 48,767,976 shares of our common stock; | |
• | the issuance by Lulu Canadian Holding, Inc., our wholly owned subsidiary, of 24,250,975 shares of its exchangeable common stock in connection therewith, as described in “Pre-Offering Transactions” included elsewhere in this prospectus, and the issuance of 24,250,975 shares of our common stock upon the exchange of the Lulu Canadian Holding exchangeable shares; and |
• | on a “pro forma as adjusted” basis, further reflecting the sale by us of 2,290,909 shares of our common stock in this offering (assuming an initial public offering price of $11.00 per share, and after deducting estimated offering expenses and underwriting discounts and commissions payable by us). |
• | A $1.00 increase in the assumed initial public offering price of $11.00 per share would decrease the number of shares of common stock outstanding after this offering by approximately 1,862,000 shares, assuming that our corporate reorganization occurs on July 24, 2007; | |
• | A $1.00 decrease in the assumed initial public offering price of $11.00 per share would increase the number of shares of common stock outstanding after this offering by approximately 2,234,000 shares, assuming that our corporate reorganization occurs on July 24, 2007; and | |
• | If our corporate reorganization occurred five days later or earlier than the assumed date of July 24, 2007, the common stock outstanding after this offering would increase or decrease, respectively, by approximately 21,500 shares, assuming an initial public offering price of $11.00 per share. |
41
Table of Contents
April 30, 2007 | ||||||||||||
Pro Forma | ||||||||||||
Actual(1) | Pro Forma | as Adjusted(2) | ||||||||||
(In thousands) | ||||||||||||
(Unaudited) | ||||||||||||
Long-term debt | $ | — | $ | — | $ | — | ||||||
Non-controlling interest | 567 | 557 | 557 | |||||||||
Stockholders’ equity: | ||||||||||||
Participating preferred stock, $0.01 par value: 5,570,000 authorized, 225,489 issued and outstanding, actual; none authorized, none issued and outstanding, pro forma and pro forma as adjusted | 2 | — | — | |||||||||
Undesignated preferred stock, $0.01 par value: no shares authorized, actual; 5,000,000 shares authorized, none issued and outstanding, pro forma and pro forma as adjusted | ||||||||||||
Common stock, no par value, actual; $0.01 par value, pro forma and pro forma as adjusted: unlimited shares authorized, 117,000,361 issued and outstanding, actual; 200,000,000 authorized, 73,018,951 issued and outstanding, pro forma; 200,000,000 authorized, 75,309,860 issued and outstanding, pro forma as adjusted | 0 | 730 | 753 | |||||||||
Special voting stock, par value $0.00001 per share: none authorized, issued and outstanding, actual; 30,000,000 authorized, none issued and outstanding, pro forma and pro forma as adjusted | — | — | — | |||||||||
Additional paid-in capital | 100,518 | 99,790 | 118,203 | |||||||||
Accumulated deficit | (57,135 | ) | (57,135 | ) | (57,135 | ) | ||||||
Accumulated other comprehensive income (loss) | 1,106 | 1,106 | 1,106 | |||||||||
Total stockholders’ equity | 44,490 | 44,490 | 62,926 | |||||||||
Total capitalization | $ | 45,058 | $ | 45,048 | $ | 63,484 | ||||||
(1) | Stockholders’ equity and components thereof consist of capital of two related companies, lululemon athletica inc. and LIPO Investments (Canada), Inc. | |
(2) | A $1.00 increase or decrease in the assumed public offering price of $11.00 per share, the midpoint of the range set forth on the cover of this prospectus, would increase or decrease, respectively, each of additional paid-in capital, total stockholders’ equity and total capitalization by $2.1 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 estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
• | 4,478,726 shares of our common stock issuable upon exercise of options outstanding as of April 30, 2007 at a weighted average exercise price of $0.58 per share; and |
• | an additional 5,521,274 shares of our common stock reserved for future issuance under our 2007 Equity Incentive Plan, including 230,616 shares of our common stock issuable upon exercise of options expected to be granted in connection with this offering, each with an exercise price equal to the initial public offering price. |
42
Table of Contents
Assumed initial public offering price per share | $ | 11.00 | ||||||
Pro forma net tangible book value per share as of April 30, 2007 | $ | 0.50 | ||||||
Increase per share attributable to new investors | 0.23 | |||||||
Pro forma net tangible book value per share after this offering | 0.73 | |||||||
Dilution per share to new investors | $ | 10.27 | ||||||
43
Table of Contents
Shares Purchased | Total Consideration | Average Price | ||||||||||||||||||
Number | Percent | Amount | Percent | Per Share | ||||||||||||||||
Existing stockholders | 73,018,951 | 97.0 | % | $ | 93,583,270 | 78.8 | % | $ | 1.28 | |||||||||||
New investors | 2,290,909 | 3.0 | % | $ | 25,199,999 | 21.2 | % | $ | 11.00 | |||||||||||
Total | 75,309,860 | 100.0 | % | $ | 118,783,269 | 100.0 | % | |||||||||||||
• | pro forma net tangible book value per share would remain constant at $0.73 and would not further dilute new investors; | |
• | our existing stockholders, including the holders of these options, would own 77.2%, and our new investors would own 22.8%, of the total number of shares of our common stock outstanding upon the completion of this offering; and |
• | our existing stockholders, including the holders of these options, would have paid 79.2% of total consideration, at an average price per share of $1.24, and our new investors would have paid 20.8% of total consideration. |
44
Table of Contents
45
Table of Contents
Fiscal Year Ended January 31, | Three Months Ended April 30, | |||||||||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | 2006 | 2007 | ||||||||||||||||||||||
(In thousands, except share data) | ||||||||||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||||||||
Combined consolidated statement of income data: | ||||||||||||||||||||||||||||
Net revenue | $ | 5,903 | $ | 18,188 | $ | 40,748 | $ | 84,129 | $ | 148,885 | $ | 28,184 | $ | 44,789 | ||||||||||||||
Cost of goods sold(1) | 3,079 | 8,748 | 19,448 | 41,177 | 72,903 | 13,664 | 21,979 | |||||||||||||||||||||
Gross profit | 2,823 | 9,439 | 21,300 | 42,952 | 75,982 | 14,519 | 22,811 | |||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||
Selling, general and administrative expenses(1) | 1,173 | 4,896 | 10,840 | 26,416 | 52,540 | 8,406 | 15,963 | |||||||||||||||||||||
Principal stockholder bonus | 1,314 | 3,782 | 12,134 | 12,809 | — | — | — | |||||||||||||||||||||
Settlement of lawsuit | — | — | — | — | 7,228 | — | — | |||||||||||||||||||||
Income (loss) from operations | 336 | 761 | (1,674 | ) | 3,727 | 16,213 | 6,113 | 6,848 | ||||||||||||||||||||
Other expenses (income) | ||||||||||||||||||||||||||||
Interest income | — | — | (11 | ) | (55 | ) | (142 | ) | (26 | ) | (110 | ) | ||||||||||||||||
Interest expense | — | 4 | 46 | 51 | 47 | 3 | 3 | |||||||||||||||||||||
Income (loss) before income taxes | 336 | 757 | (1,709 | ) | 3,730 | 16,308 | 6,136 | 6,955 | ||||||||||||||||||||
Provision for (recovery of) income taxes | 41 | 437 | (298 | ) | 2,336 | 8,753 | 2,955 | 3,449 | ||||||||||||||||||||
Non-controlling interest | — | — | — | — | (112 | ) | — | (36 | ) | |||||||||||||||||||
Net income (loss) | $ | 295 | $ | 319 | $ | (1,411 | ) | $ | 1,394 | $ | 7,666 | $ | 3,181 | $ | 3,542 | |||||||||||||
Pro forma weighted average number of shares outstanding(2): | ||||||||||||||||||||||||||||
Pro forma basic earnings per share | ||||||||||||||||||||||||||||
Common stock equivalent stock | 24,250,975 | 24,250,975 | ||||||||||||||||||||||||||
Common stock | 48,767,976 | 48,767,976 | ||||||||||||||||||||||||||
Pro forma weighted average diluted number of shares of common stock outstanding | 49,565,399 | 50,139,576 | ||||||||||||||||||||||||||
Pro forma common stock equivalent basic and diluted earnings per share(2) | $ | 0.10 | $ | 0.05 | ||||||||||||||||||||||||
Pro forma common stock basic and diluted earnings per share(2) | $ | 0.10 | $ | 0.05 |
(1) | Includes stock-based compensation as follows: |
Fiscal Year Ended | Three Months Ended | |||||||||||||||||||
January 31, | April 30, | |||||||||||||||||||
2005 | 2006 | 2007 | 2006 | 2007 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Cost of goods sold | $ | — | $ | 755 | $ | 360 | $ | 94 | $ | 169 | ||||||||||
Selling, general and administrative expenses | — | 1,945 | 2,470 | $ | 262 | $ | 1,239 | |||||||||||||
Total | $ | — | $ | 2,700 | $ | 2,830 | $ | 356 | $ | 1,408 | ||||||||||
(2) | We have not computed basic and diluted earnings per share as the combined consolidated results reflect the results of two separate companies (lululemon athletica inc. and LIPO Investments (Canada) Inc.), each with its own distinct and separate capital structures. As a result of our corporate reorganization, various securities (including Series A preferred stock issued by lululemon athletica inc. and common stock equivalents issued by LIPO Investments (Canada) Inc.) will be exchanged for shares of our common stock based in part on the |
46
Table of Contents
quotient of the value of accrued but unpaid dividends (which, where applicable, accrue on a daily basis until the consummation of our corporate reorganization) to our initial public offering price. We have accordingly presented pro forma earnings per share for the year ended January 31, 2007 and for the three months ended April 30, 2007 giving effect to our corporate reorganization as if it had been consummated on the first day of that period. In addition, the outstanding stock options of the two companies will be converted into options to purchase shares of our common stock. See“Pre-Offering Transactions” and note 12 to our combined consolidated financial statements appearing elsewhere in this prospectus. |
As of | ||||||||||||||||||||||||
As of January 31, | April 30, | |||||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | 2007 | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Combined consolidated balance sheet data: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 433 | $ | 7 | $ | 2,652 | $ | 3,877 | $ | 16,029 | 4,393 | |||||||||||||
Total assets | 2,323 | 11,448 | 21,148 | 41,914 | 71,855 | 69,034 | ||||||||||||||||||
Long term debt | — | 594 | 272 | — | — | — | ||||||||||||||||||
Total stockholders’ equity | 419 | 810 | (604 | ) | 28,052 | 37,379 | 44,490 |
47
Table of Contents
CONDITION AND RESULTS OF OPERATIONS
48
Table of Contents
49
Table of Contents
• | corporate-owned store net revenue, which includes sales to customers through corporate-owned stores (including stores operated by our majority owned joint venture); | |
• | franchises net revenue, which consists of licensing fees and royalties as well as sales of our products to franchises; and | |
• | other net revenue, which includes sales to wholesale accounts, telephone sales, including related shipping and handling charges, warehouse sales and sales from company operated showrooms; |
50
Table of Contents
• | the location of new stores relative to existing stores; | |
• | consumer preferences, buying trends and overall economic trends; | |
• | our ability to anticipate and respond effectively to customer preferences for technical athletic apparel; | |
• | competition; | |
• | changes in our merchandise mix; | |
• | pricing; | |
• | the timing of our releases of new merchandise and promotional events; | |
• | the effectiveness of our grassroots marketing efforts; | |
• | the level of customer service that we provide in our stores; | |
• | our ability to source and distribute products efficiently; and | |
• | the number of stores we open, close (including for temporary renovations) and expand in any period. |
• | the cost of purchased merchandise, inbound freight, duty and non-refundable taxes incurred in delivering goods to our distribution centers; | |
• | the cost of our production and design departments including salaries, stock-based compensation and benefits, and operating expenses; | |
• | the cost of occupancy related to store operations (such as rent and utilities) and the depreciation and amortization related to store-level capital expenditures; | |
• | the cost of our distribution centers (such as rent and utilities) as well as other fees we pay to third parties to operate our distribution centers and the depreciation and amortization related to our distribution centers; | |
• | the cost of outbound freight and handling costs incurred upon shipment of merchandise; and | |
• | shrink and valuation reserves. |
51
Table of Contents
52
Table of Contents
• | the valuation did not coincide with the option grant dates; and | |
• | the valuation incorrectly included a minority interest discount. |
• | in July 2006, management and our board of directors did not believe an initial public offering was possible in the near future because the board of directors was still in the process of augmenting the management team and enhancing infrastructure related to expanding our operations into United States; |
• | in July 2006, we had only seven stores in the United States, four of which were located in California, and, because of our limited experience outside of Canada, there was still uncertainty that our stores would be successful in the United States and that management would be able to identify suitable markets and retail sites; and |
• | in 2006, we were in the process of identifying suitable off-shore manufacturers with the necessary quality standards and capacity to satisfy our current and future manufacturing needs; this process involved meaningful risk requiring significant management focus and attention as well as additional management resources. |
• | in the third and fourth quarter of 2006, we appointed both a Chief Financial Officer and a Chief Operating Officer with past public company roles in a similar capacity; |
• | revenue growth in fiscal 2006 was 77%, to $148.9 million, compared to revenue in fiscal 2005 of $84.1 million; |
• | net revenue, income from operations and net income for the first quarter of fiscal 2007 increased 58.9%, 12.0%, and 11.3%, respectively, from the first quarter of fiscal 2006, outperforming management’s internal estimates; |
53
Table of Contents
• | favorable exchange rate movement between the U.S. dollar and the Canadian dollar in the first five months of fiscal 2007, which was anticipated to have a positive impact on income from operations in fiscal 2007; and |
• | since February 1, 2007, we opened 11 new stores. |
Number of | ||||||||||||||||
Options | Exercise | Original Fair Value | Reassessed Fair Value | |||||||||||||
Grant Date | Granted | Price | Assessment of Options | Assessment of Options | ||||||||||||
July 3, 2006 | 2,898,893 | $ | 0.58 | $ | 0.33 | $ | 0.91 | |||||||||
December 6, 2006 | 5,954 | $ | 0.58 | $ | 0.33 | $ | 8.09 | |||||||||
December 27, 2006 | 1,308,880 | $ | 0.58 | $ | 0.33 | $ | 8.09 | |||||||||
January 3, 2007 | 357,299 | $ | 0.58 | $ | 0.33 | $ | 8.09 |
54
Table of Contents
55
Table of Contents
Fiscal Year Ended January 31, | Three Months Ended April 30, | |||||||||||||||||||
2005 | 2006 | 2007 | 2006 | 2007 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||
Combined consolidated statements of income: | ||||||||||||||||||||
Net revenue | $ | 40,748 | $ | 84,129 | $ | 148,885 | $ | 28,184 | $ | 44,789 | ||||||||||
Cost of goods sold (including stock-based compensation expense of $nil, $755, $359, $94 and $169) | 19,448 | 41,177 | 72,903 | 13,664 | 21,979 | |||||||||||||||
Gross profit | 21,300 | 42,952 | 75,982 | 14,519 | 22,811 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative expenses (including stock-based compensation expense of $nil, $1,945, $2,470, $262 and $1,239) | 10,840 | 26,416 | 52,540 | 8,406 | 15,963 | |||||||||||||||
Principal stockholder bonus | 12,134 | 12,809 | — | — | — | |||||||||||||||
Settlement of lawsuit | — | — | 7,228 | — | — | |||||||||||||||
Income (loss) from operations | (1,674 | ) | 3,727 | 16,213 | 6,113 | 6,848 | ||||||||||||||
Other expenses (income) | ||||||||||||||||||||
Interest income | (11 | ) | (55 | ) | (142 | ) | (26 | ) | (110 | ) | ||||||||||
Interest expense | 46 | 51 | 47 | 3 | 3 | |||||||||||||||
Income (loss) before income taxes | (1,709 | ) | 3,730 | 16,308 | 6,136 | 6,955 | ||||||||||||||
Provision for (recovery of) income taxes | (298 | ) | 2,336 | 8,753 | 2,955 | 3,449 | ||||||||||||||
Non-controlling interest | — | — | (112 | ) | — | (36 | ) | |||||||||||||
Net income (loss) | $ | (1,411 | ) | $ | 1,394 | $ | 7,666 | $ | 3,181 | $ | 3,542 | |||||||||
56
Table of Contents
Fiscal Year Ended January 31, | Three Months Ended April 30, | |||||||||||||||||||
2005 | 2006 | 2007 | 2006 | 2007 | ||||||||||||||||
(% of net revenue) | ||||||||||||||||||||
Net revenue | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |||||||||||||||
Cost of goods sold (including stock-based compensation expense of 0%, 0.9%, 0.2%,0.3% and 0.4%) | 47.7 | 48.9 | 49.0 | 48.5 | 49.0 | |||||||||||||||
Gross profit | 52.3 | 51.1 | 51.0 | 51.5 | 50.9 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative expenses (including stock-based compensation expense of 0%, 2.3%, 1.7%, 0.9% and 2.8%) | 26.6 | 31.4 | 35.3 | 29.8 | 35.6 | |||||||||||||||
Principal stockholder bonus | 29.8 | 15.2 | — | — | — | |||||||||||||||
Settlement of lawsuit | — | — | 4.9 | — | — | |||||||||||||||
Income (loss) from operations | (4.1 | ) | 4.4 | 10.9 | 21.7 | 15.3 | ||||||||||||||
Other expenses (income) | ||||||||||||||||||||
Interest income | (0.0 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.0 | ) | ||||||||||
Interest expense | 0.1 | 0.1 | 0.0 | 0.0 | 0.0 | |||||||||||||||
Income (loss) before income taxes | (4.2 | ) | 4.4 | 11.0 | 21.8 | 15.5 | ||||||||||||||
Provision for (recovery of) income taxes | (0.7 | ) | 2.8 | 5.9 | 10.5 | 7.7 | ||||||||||||||
Non-controlling interest | — | — | (0.0 | ) | — | (0.0 | ) | |||||||||||||
Net income (loss) | (3.5 | ) | 1.7 | 5.1 | 11.3 | 7.9 |
Three Months Ended April 30, | ||||||||
2006 | 2007 | |||||||
(In thousands) | ||||||||
Net revenue by segment: | ||||||||
Corporate-owned stores | $ | 22,146 | $ | 38,008 | ||||
Franchises | 4,364 | 4,918 | ||||||
Other | 1,674 | 1,864 | ||||||
Net revenue | $ | 28,184 | $ | 44,789 |
• | New stores opened during fiscal 2006 prior to sales from such stores becoming part of our comparable store sales base contributed $9.5 million, or 59.9%, of the increase. During fiscal 2006, we opened 13 corporate-owned stores, consisting of 7 in Canada, 5 in the United States and 1 in Japan. |
57
Table of Contents
• | Comparable store sales growth of 20.0% in the first quarter of fiscal 2007 contributed $4.3 million, or 27.2%, of the increase. Assuming the average exchange rate between the Canadian and the United States dollars for the first quarter of fiscal 2006 remained constant, our comparable store sales would have increased $4.4 million or 20.0% for the first quarter of fiscal 2007. The increase in comparable store sales was driven primarily by the strength of our existing product lines, successful introduction of new products and increasing recognition of the lululemon athletica brand name. | |
• | The acquisition of three Calgary franchise stores on April 1, 2007 contributed $1.7 million, or 10.5%, of the increase. | |
• | New stores opened during the first quarter of fiscal 2007 contributed $0.4 million, or 2.4%, of the increase. During the first quarter of fiscal 2007, we opened three corporate-owned stores, consisting of one in Canada, one in the United States and one in Japan. |
• | New and existing wholesale accounts contributed $0.6 million of the increase. | |
• | Phone sales revenue accounted for $0.2 million of the increase. |
• | Warehouse and showroom sales decreased $0.6 million due to no warehouse sales in the first quarter of fiscal 2007 compared to two warehouse sales in the first quarter of fiscal 2006, partially offset by four showrooms open at the end of the first quarter of fiscal 2007 compared to one showroom open at the end of the first quarter of fiscal 2006. |
• | an increase of $15.9 million in net revenue from our corporate-owned stores segment; | |
• | an increase of $0.6 million in net revenue from our franchises segment; and | |
• | an increase of $0.2 million in net revenue from our other segment. |
• | an increase in product costs of $5.6 million associated with our sale of goods through corporate-owned stores, franchises and other segments; | |
• | an increase in occupancy costs of $1.4 million related to an increase in corporate-owned stores; | |
• | an increase of $0.7 million in expenses related to our production, design and distribution departments (including stock-based compensation expense) principally due to the hiring of additional employees to support our growth; and | |
• | an increase in depreciation of $0.6 million primarily related to an increase in corporate-owned stores. |
58
Table of Contents
• | an increase in occupancy costs in new markets that contributed to a decrease in gross margin of 1.0%; and | |
• | an increase in depreciation that contributed to a decrease in gross margin of 0.5%. |
• | a decrease in product costs as a percentage of net revenue that contributed to an increase in gross margin of 0.5% due to an increase in pricing to our franchises, partially offset by an increased percentage of our net revenue being derived from our factory outlet stores, which generate lower gross margins than our other corporate-owned stores, and a short-term increase in expenses during our transition to the use of more off-shore manufacturers; and | |
• | a decrease in expenses related to our production, design and distribution departments (including stock-based compensation expense) as a percentage of net revenue from fiscal 2005 to fiscal 2006 which contributed to an increase in gross margin of 0.5%. |
• | an increase in corporate compensation of $3.6 million or 48.2% principally due to hiring of additional employees to support our growth; | |
• | an increase in store employee compensation of $2.3 million or 31.0% related to opening additional corporate-owned stores; | |
• | an increase in other corporate expenses such as travel expenses and rent associated with corporate facilities of $0.3 million or 4.0%; and | |
• | an increase in other store operating expenses such as supplies, packaging and credit card fees of $0.9 million or 12.3%. |
59
Table of Contents
• | our corporate-owned stores segment increased $4.3 million, or 54.8%, to $12.2 million for the first quarter of fiscal 2007 from $7.9 million for the first quarter of fiscal 2006 primarily due to an increase in corporate-owned stores gross profit of $7.6 million, offset by an increase of $2.3 million in store employee expenses and an increase of $0.9 million in other store expenses; | |
• | our franchises segment increased $0.4 million, or 20.9%, to $2.3 million for the first quarter of fiscal 2007 from $1.9 million for the first quarter of fiscal 2006 primarily due to an increase of $0.2 million in royalty revenue and an increase of $0.2 million in gross profit associated with our sale of our products to franchises; and | |
• | our other segment increased $0.3 million, or 58.8%, to $0.8 million for the first quarter of fiscal 2007 from $0.5 million for the first quarter of fiscal 2006 primarily due to an increase in revenue of $0.2 million and a decrease of $0.1 million in product costs. |
60
Table of Contents
Fiscal Year Ended January 31, | ||||||||
2006 | 2007 | |||||||
(In thousands) | ||||||||
Net revenue by segment: | ||||||||
Corporate-owned stores | $ | 65,578 | $ | 120,733 | ||||
Franchises | 14,555 | 21,360 | ||||||
Other | 3,997 | 6,792 | ||||||
Net revenue | $ | 84,129 | $ | 148,885 |
• | New stores opened during fiscal 2005 prior to sales from such stores becoming part of our comparable store sales base contributed $22.2 million or 40.3% of the increase. During fiscal 2005, we opened 13 corporate-owned stores, consisting of 12 in Canada and 1 in the United States. | |
• | New stores opened during fiscal 2006 contributed $16.7 million or 30.3% of the increase. During fiscal 2006, we opened 13 corporate-owned stores, consisting of 7 in Canada, 5 in the United States and 1 in Japan. | |
• | Comparable store sales in fiscal 2006 contributed $16.2 million or 29.4% of the increase. Assuming the average exchange rate between the Canadian and the United States dollars for fiscal 2005 remained constant, our comparable store sales would have increased $12.8 million or 20% for fiscal 2006. The increase in comparable store sales on a constant currency basis was driven primarily by the strength of our existing product lines, successful introduction of new products and increasing recognition of the lululemon athletica brand name. |
• | Warehouse and showroom sales accounted for $2.1 million or 73.7% of the increase due to four warehouse sales in fiscal 2006 compared to one new warehouse sale in fiscal 2005 and three showrooms open at the end of fiscal 2006 compared to one showroom open at the end of fiscal 2005. | |
• | Phone sales revenue accounted for $0.5 million or 17.9% of the increase. | |
• | New wholesale accounts at fitness clubs and yoga studios in the United States accounted for $0.2 million or 8.4% of the increase. |
61
Table of Contents
• | an increase of $55.2 million in net revenue from our corporate-owned stores segment; | |
• | an increase of $6.8 million in net revenue from our franchises segment; and | |
• | an increase of $2.8 million net revenue from in our other segment. |
• | an increase in product costs of $22.2 million associated with our sale of goods through corporate-owned stores, franchises and other segments; | |
• | an increase in occupancy costs of $6.1 million due to higher occupancy costs in new markets; | |
• | an increase of $1.9 million in expenses related to our production, design and distribution departments (including stock-based compensation expense) principally due to the hiring of additional employees to support our growth, partially offset by the absence in fiscal 2006 of the cash bonus paid to employees in fiscal 2005 in conjunction with our recapitalization; and | |
• | an increase in depreciation of $1.6 million related to opening new corporate-owned stores. |
• | higher occupancy costs in new markets that contributed to a decrease in gross margin of 2.1%; and | |
• | an increase in depreciation that contributed to a decrease in gross margin of 0.3% related to opening new corporate-owned stores. |
• | a decrease in product costs as a percentage of net revenue that contributed to an increase in gross margin of 0.7% due to an increase in pricing to our franchises and wholesale customers, partially offset by an increased percentage of our net revenue being derived from our oqoqo and factory outlet stores, which generate lower gross margins than our other corporate-owned stores, and a short-term increase in expenses during our transition to the use of more off-shore manufacturers; and | |
• | a decrease in expenses related to our production, design and distribution departments (including stock-based compensation expense) as a percentage of net revenue from fiscal 2005 to fiscal 2006 which contributed to an increase in gross margin of 1.6%. |
• | $7.8 million or 29.9% resulted from an increase in store employee compensation related to opening additional corporate-owned stores; | |
• | $5.1 million or 19.4% resulted from an increase in consulting fees paid to third parties to analyze and implement new accounting and logistics processes and from an increase in fees |
62
Table of Contents
associated with retaining professional search firms in connection with identifying qualified senior management candidates; |
• | $4.6 million or 17.7% resulted from an increase in corporate compensation principally due to hiring of additional employees to support our growth, partially offset by the absence in fiscal 2006 of the cash bonus paid to employees in fiscal 2005 in conjunction with our recapitalization; | |
• | $3.9 million or 15.1% resulted from an increase in other corporate expenses such as travel expenses and rent associated with corporate facilities; | |
• | $3.6 million or 13.7% resulted from an increase in other store operating expenses such as supplies, packaging, and credit card fees; and | |
• | $0.6 million or 2.1% resulted from an increase in depreciation resulting from our move into a new corporate headquarters at the beginning of fiscal 2006. |
• | our corporate-owned stores segment increased $17.0 million, or 82.2%, to $37.8 million for fiscal 2006 from $20.7 million for fiscal 2005 primarily due to an increase in corporate-owned stores gross profit of $28.4 million, offset by an increase of $7.8 million in store employee expenses and an increase of $3.6 million in other store expenses; |
63
Table of Contents
• | our franchises segment increased $3.4 million to $10.7 million for fiscal 2006 from $7.3 million for fiscal 2005 primarily due to an increase of $2.4 million in royalty revenue and an increase of $0.9 million in gross profit associated with our sale of our products to franchises; and | |
• | our other segment increased $1.3 million to $2.7 million for fiscal 2006 from $1.5 million for fiscal 2005 primarily due to an increase in revenue of $2.8 million, offset by an increase of $1.5 million in product costs. |
64
Table of Contents
Fiscal Year Ended January 31, | ||||||||
2005 | 2006 | |||||||
(In thousands) | ||||||||
Net revenue by segment: | ||||||||
Corporate-owned stores | $ | 29,906 | $ | 65,578 | ||||
Franchises | 7,363 | 14,555 | ||||||
Other | 3,480 | 3,997 | ||||||
Net revenue | $ | 40,748 | $ | 84,129 |
• | New stores opened during fiscal 2004 prior to sales from such stores becoming part of our comparable store sales base contributed $11.0 million or 30.7% of the increase. During fiscal 2004, we opened seven corporate-owned stores, consisting of five in Canada and two in the United States. | |
• | New stores opened during fiscal 2005 contributed $19.6 million or 54.9% of the increase. During fiscal 2005, we opened 13 corporate-owned stores, consisting of 12 in Canada and 1 in the United States. | |
• | Comparable store sales in fiscal 2005 contributed $5.1 million or 14.4% of the increase. Assuming the average exchange rate between the Canadian and the United States dollars for fiscal 2004 remained constant, our comparable store sales would have increased $3.1 million or 12% for fiscal 2005. The increase in comparable store sales on a constant currency basis was driven primarily by the strength of our existing product lines, successful introduction of new products and increasing recognition for the lululemon athletica brand name. |
• | An increase of $0.4 million from warehouse and showroom revenue due to increased sales at our one warehouse sale in fiscal 2005 compared to our one warehouse sale in fiscal 2004 and the addition of one showroom in fiscal 2005 where none existed in fiscal 2004. | |
• | An increase of $0.3 million in wholesale revenue. |
65
Table of Contents
• | an increase of $35.7 million in net revenue from our corporate-owned stores segment; | |
• | an increase of $7.2 million in net revenue from our franchises segment; and | |
• | an increase of $0.5 million net revenue from in our other segment. |
• | an increase in product costs of $14.5 million associated with our sale of goods through corporate-owned stores, franchises and other segments; | |
• | an increase in occupancy costs of $2.1 million due to higher occupancy costs in new markets; | |
• | an increase of $4.0 million in expenses related to our production, design and distribution departments due to an increase in compensation from an employee stock compensation program introduced in December 2005 and a cash bonus paid to employees of these departments in conjunction with our recapitalization in December 2005; and | |
• | an increase in depreciation of $1.1 million related to opening new corporate-owned stores. |
• | an increase in expenses related to our production, design and distribution departments that contributed to a decrease in gross margin of 2.6%; | |
• | an increase in occupancy costs that contributed to a decrease in gross margin of 0.4%; and | |
• | an increase in depreciation that contributed to a decrease in gross margin of 0.7%. |
• | an increase of $6.7 million or 42.8% in corporate employee costs due to hiring additional employees, an increase in stock-based compensation from stock grants made under an employee stock compensation program introduced in December 2005 and a cash bonus paid to corporate employees in conjunction with our recapitalization in December 2005; | |
• | an increase of $5.5 million or 35.6% in store employee compensation related to opening additional corporate-owned stores; |
66
Table of Contents
• | an increase of $1.8 million or 11.7% in other corporate expenses such as travel expenses and rent associated with corporate facilities; | |
• | an increase of $1.3 million or 8.3% in other store operating expenses such as supplies, packaging, and credit card fees; | |
• | an increase of $0.4 million or 2.5% in professional fees; and | |
• | an increase of $0.3 million or 1.6% in depreciation. |
• | our corporate-owned stores segment increased $10.9 million, or 111.8%, to $20.7 million for fiscal 2005 from $9.8 million for fiscal 2004 primarily due to an increase in corporate-owned stores gross profit of $17.8 million, partially offset by an increase of $5.5 million in store employee expenses and an increase of $1.3 million in other store expenses; | |
• | our franchises segment increased $4.2 million to $7.3 million for fiscal 2005 from $3.1 million for fiscal 2004 primarily due to an increase of $2.3 million in royalty revenue and an increase of $1.9 million in gross profit associated with our sale of our products to franchises; and | |
• | our other segment decreased $0.3 million to $1.5 million for fiscal 2005 from $1.8 million for fiscal 2004 primarily due to our decision to cease operation of our retail website and a decline |
67
Table of Contents
in the profitability of our one warehouse sale in fiscal 2005 as compared to fiscal 2004, notwithstanding the increase in net revenue from the sale in fiscal 2005. |
• | greater losses in the United States in fiscal 2005 which we are unable to offset against our income in Canada for tax purposes; and | |
• | an increase in stock-based compensation expenses from $0 in fiscal 2004 to $2.7 million in fiscal 2005, which were not deductible for tax purposes during these periods. |
68
Table of Contents
Fiscal 2005 | Fiscal 2006 | Fiscal 2007 | ||||||||||||||||||||||||||||||||||
First | Second | Third | Fourth | First | Second | Third | Fourth | First | ||||||||||||||||||||||||||||
Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | ||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||||||||
Combined consolidated statements of income: | ||||||||||||||||||||||||||||||||||||
Net revenue | $ | 15,630 | $ | 17,126 | $ | 19,984 | $ | 31,390 | $ | 28,184 | $ | 32,517 | $ | 35,968 | $ | 52,216 | 44,789 | |||||||||||||||||||
Cost of goods sold | 8,207 | 7,940 | 9,613 | 15,416 | 13,664 | 16,614 | 17,227 | 25,397 | 21,979 | |||||||||||||||||||||||||||
Gross profit | 7,423 | 9,186 | 10,371 | 15,973 | 14,519 | 15,903 | 18,740 | 26,819 | 22,811 | |||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 3,574 | 4,473 | 5,338 | 13,032 | 8,406 | 12,667 | 14,046 | 17,421 | 15,963 | |||||||||||||||||||||||||||
Principal stockholder bonus | 3,667 | 4,634 | 4,508 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Settlement of lawsuit | — | — | — | — | — | — | — | 7,228 | — | |||||||||||||||||||||||||||
Income (loss) from operations | 182 | 79 | 525 | 2,941 | 6,113 | 3,236 | 4,694 | 2,170 | 6,848 | |||||||||||||||||||||||||||
Other expenses (income) Interest income | (16 | ) | (27 | ) | (6 | ) | (6 | ) | (26 | ) | (34 | ) | (52 | ) | (30 | ) | (110 | ) | ||||||||||||||||||
Interest expense | 10 | 8 | 15 | 19 | 3 | 12 | 8 | 23 | 3 | |||||||||||||||||||||||||||
Income (loss) before income taxes | 188 | 98 | 516 | 2,929 | 6,136 | 3,258 | 4,738 | 2,176 | 6,955 | |||||||||||||||||||||||||||
Provision for (recovery of) income taxes | (31 | ) | (41 | ) | 160 | 2,249 | 2,955 | 1,318 | 3,132 | 1,348 | 3,449 | |||||||||||||||||||||||||
Non-controlling interest | — | — | — | — | — | — | (58 | ) | (54 | ) | (36 | ) | ||||||||||||||||||||||||
Net income (loss) | $ | 219 | $ | 139 | $ | 356 | $ | 680 | $ | 3,181 | $ | 1,940 | $ | 1,664 | $ | 882 | $ | 3,542 | ||||||||||||||||||
Selected store data: | ||||||||||||||||||||||||||||||||||||
Number of stores open at end of period | 24 | 26 | 30 | 37 | 40 | 42 | 46 | 51 | 54 |
Fiscal 2005 | Fiscal 2006 | Fiscal 2007 | ||||||||||||||||||||||||||||||||||
First | Second | Third | Fourth | First | Second | Third | Fourth | First | ||||||||||||||||||||||||||||
Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | ||||||||||||||||||||||||||||
(% of net revenue) | ||||||||||||||||||||||||||||||||||||
Net revenue | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |||||||||||||||||||||||||||
Cost of goods sold | 52.5 | 46.4 | 48.1 | 49.1 | 48.5 | 51.1 | 47.9 | 48.6 | 49.0 | |||||||||||||||||||||||||||
Gross profit | 47.5 | 53.6 | 51.9 | 50.9 | 51.5 | 48.9 | 52.1 | 51.4 | 50.9 | |||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 22.9 | 26.1 | 26.7 | 41.5 | 29.8 | 39.0 | 39.1 | 33.4 | 35.6 | |||||||||||||||||||||||||||
Principal stockholder bonus | 23.5 | 27.1 | 22.6 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Settlement of lawsuit | — | — | — | — | — | — | — | 13.8 | — | |||||||||||||||||||||||||||
Income (loss) from operations | 1.2 | 0.5 | 2.6 | 9.4 | 21.7 | 10.0 | 13.1 | 4.2 | 15.3 | |||||||||||||||||||||||||||
Other expenses (income) | ||||||||||||||||||||||||||||||||||||
Interest income | (0.1 | ) | (0.2 | ) | (0.0 | ) | (0.0 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.0 | ) | ||||||||||||||||||
Interest expense | 0.1 | 0.0 | 0.1 | 0.1 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||||||||||||||||||||||
Income (loss) before income taxes | 1.2 | 0.6 | 2.6 | 9.3 | 21.8 | 10.0 | 13.2 | 4.2 | 15.5 | |||||||||||||||||||||||||||
Provision for (recovery of) income taxes | (0.2 | ) | (0.2 | ) | 0.8 | 7.2 | 10.5 | 4.1 | 8.7 | 2.6 | 7.7 | |||||||||||||||||||||||||
Non-controlling interest | — | — | — | — | — | — | (0.2 | ) | (0.1 | ) | (0.0 | ) | ||||||||||||||||||||||||
Net income (loss) | 1.4 | 0.8 | 1.8 | 2.2 | 11.3 | 6.0 | 4.6 | 1.7 | 7.9 |
69
Table of Contents
70
Table of Contents
Three Months Ended | ||||||||||||||||||||
Fiscal Year Ended January 31, | April 30, | |||||||||||||||||||
2005 | 2006 | 2007 | 2006 | 2007 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Net income (Loss) for the period | $ | (1,411 | ) | $ | 1,394 | $ | 7,666 | $ | 3,181 | $ | 3,542 | |||||||||
Items not affecting cash: | ||||||||||||||||||||
Depreciation and amortization | 1,123 | 2,466 | 4,619 | 893 | 1,504 | |||||||||||||||
Deferred income taxes | (107 | ) | (175 | ) | (3,077 | ) | (801 | ) | 2,375 | |||||||||||
Loss on property and equipment | — | — | 230 | — | — | |||||||||||||||
Stock-based compensation | — | 2,700 | 2,830 | 356 | 1,408 | |||||||||||||||
Non-controlling interest | — | 10 | 563 | (5 | ) | — | ||||||||||||||
Changes in non-cash working capital items | 5,737 | (16,677 | ) | 12,869 | (1,493 | ) | (14,421 | ) | ||||||||||||
Cash flows from (used by) operating activities | $ | 5,342 | $ | (10,282 | ) | $ | 25,699 | $ | 2,133 | $ | (5,594 | ) |
• | an increase in income taxes payable of $3.8 million and a decrease of $5.4 million in the first quarter of fiscal 2006 and the first quarter of fiscal 2007, respectively; | |
• | an increase in accrued liabilities of $0.1 million and a decrease of $7.2 million in the first quarter of fiscal 2006 and the first quarter of fiscal 2007, respectively; and | |
• | a decrease in trade accounts payable of $4.7 million and $1.9 million in the first quarter of fiscal 2006 and the first quarter of fiscal 2007, respectively. |
71
Table of Contents
Fiscal Year Ended | Three Months Ended | |||||||||||||||||||
January 31, | April 30, | |||||||||||||||||||
2005 | 2006 | 2007 | 2006 | 2007 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Purchase of property and equipment | $ | (3,806 | ) | $ | (7,846 | ) | $ | (12,414 | ) | $ | (2,761 | ) | $ | (3,045 | ) | |||||
Acquisition of franchises | — | (461 | ) | (512 | ) | — | (5,001 | ) | ||||||||||||
Cash flows from investing activities | $ | (3,806 | ) | $ | (8,307 | ) | $ | (12,926 | ) | $ | (2,761 | ) | $ | (8,045 | ) |
72
Table of Contents
Fiscal Year Ended | Three Months Ended | |||||||||||||||||||
January 31, | April 30, | |||||||||||||||||||
2005 | 2006 | 2007 | 2006 | 2007 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Capital stock issued for cash — net of issuance costs | $ | — | $ | 93,037 | $ | 446 | $ | — | $ | — | ||||||||||
Payment of IPO Costs | — | — | — | — | (453 | ) | ||||||||||||||
Distribution to principal stockholder | — | (69,005 | ) | — | — | — | ||||||||||||||
Repayment of long-term debt | (300 | ) | 634 | — | — | — | ||||||||||||||
Funds received from principal stockholder loan | 4,325 | 7,832 | 222 | — | — | |||||||||||||||
Funds repaid on principal stockholder loan | (2,527 | ) | (11,143 | ) | — | — | — | |||||||||||||
Change in bank indebtedness | (65 | ) | — | — | — | 1,455 | ||||||||||||||
Cash flows from financing activities | $ | 1,433 | $ | 20,086 | $ | 669 | $ | — | $ | 1,002 |
73
Table of Contents
74
Table of Contents
Payments due by Period | ||||||||||||||||||||
(Year Ended January 31,) | ||||||||||||||||||||
Contractual Obligations | 2008 | 2009 | 2010 | 2011 | Thereafter | |||||||||||||||
(In thousands) | ||||||||||||||||||||
Operating Leases (minimum rent)* | $ | 8,797 | $ | 9,823 | $ | 9,056 | $ | 7,384 | $ | 34,675 |
* | Includes $250, $250, $250, $250 and $270 for fiscal 2007, fiscal 2008, fiscal 2009, fiscal 2010 and thereafter for one store lease which has been terminated on May 15, 2007. |
75
Table of Contents
76
Table of Contents
Furniture and fixtures | 20 | % | ||
Computer hardware and software | 30 | % | ||
Equipment | 30 | % | ||
Vehicles | 30 | % |
77
Table of Contents
78
Table of Contents
79
Table of Contents
80
Table of Contents
• | design and develop innovative athletic apparel that combines performance with style and incorporates real-time customer feedback; | |
• | locate our stores in street locations, lifestyle centers and malls that position each lululemon athletica store as an integral part of its community; | |
• | create an inviting and educational store environment that encourages product trial and repeat visits; and | |
• | market on a grassroots level in each community, including through influential fitness practitioners who embrace and create excitement around our brand. |
81
Table of Contents
• | Premium Active Brand. lululemon athletica stands for leading a healthy, balanced and fun life. We believe customers associate the lululemon athletica brand with high quality premium athletic apparel that incorporates technically advanced materials, innovative functional features and style. We believe our focus on women differentiates us and positions lululemon athletica to address a void in the growing market for women’s athletic apparel. The premium nature of our brand is reinforced by our vertical retail strategy and our selective distribution through yoga studios and fitness clubs that we believe are the most influential within the fitness communities of their respective markets. We believe this approach allows us to further control our brand image and merchandising. While our brand has its roots in yoga, our products are increasingly being designed and used for other athletic and casual lifestyle pursuits. We work with local athletes and fitness practitioners to enhance our brand awareness and broaden our product appeal. | |
• | Distinctive Retail Experience. We locate our stores in street locations, lifestyle centers and malls that position lululemon athletica stores to be an integral part of their communities. Our retail concept is based on a community-centric philosophy designed to offer customers an inviting and educational experience. We believe that this environment encourages product trial, purchases and repeat visits. We coach our store sales associates, who we refer to as “educators”, to develop a personal connection with each guest. Our educators embody our core values and |
82
Table of Contents
are typically experienced fitness practitioners. They receive approximately 30 hours of in-house training within the first three months of the start of their employment and are well prepared to explain the technical and innovative design aspects of each product. Each of our stores features a community board with local information regarding yoga, fitness and other activities. Our educators also serve as knowledgeable references for information on fitness classes, instructors and events in the local community. We believe that these characteristics contribute to the productivity of our stores which exhibit strong operating metrics, including sales per square foot and average payback period on new store investments. |
• | Innovative Design Process. We offer high-quality premium apparel that is designed for performance, comfort, functionality and style. We attribute our ability to develop superior products to a number of factors, including: |
• | Our feedback-based design process through which our design and product development team proactively and frequently seek input from our customers and local fitness practitioners; | |
• | Close collaboration with our third-party suppliers to formulate innovative and technically advanced fabrics and features for our products; and | |
• | Although we typically bring products from design to market in 8 to 10 months, our vertical retail strategy enables us to bring select products to market in as little as one month, thereby allowing us to respond quickly to customer feedback, changing market conditions and apparel trends. |
• | Community-Based Marketing Approach. We differentiate lululemon athletica through an innovative, community-based approach to building brand awareness and customer loyalty. We use a multi-faceted grassroots marketing strategy that includes partnering with local fitness practitioners and retail educators and creating in-store community boards. To create excitement and reinforce the premium image for our brand, we often initiate our grassroots marketing efforts in advance of opening our first store. Each of our stores has a dedicated community coordinator who organizes fitness or philanthropic events that heighten the image of our brand in the community. We believe this grassroots approach allows us to successfully increase brand awareness and broaden our appeal while reinforcing our premium brand image. | |
• | Deep Rooted Culture Centered on Training and Personal Growth. We believe our core values and distinctive corporate culture allow us to attract passionate and motivated employees who are driven to succeed and share our vision. We provide our employees with a supportive, goal-oriented environment and encourage them to reach their full professional, health and personal potential. We offer programs such as personal development workshops and goal coaching to assist our employees in realizing their long-term objectives. We believe our relationship with our employees is exceptional and a key contributor to our success. The passion and dedication of our employees allows us to execute on our business strategy which promotes repeat visits and strengthens our brand loyalty. | |
• | Experienced Management Team with Proven Ability to Execute. Our founder, Mr. Wilson, leads our design team and plays a central role in corporate strategy and in promoting our distinctive corporate culture. Our Chief Executive Officer, Robert Meers, whose experience includes 15 years at Reebok International Ltd., most recently serving as the chief executive officer of the Reebok brand from 1996 to 1999, joined us in December 2005. Messrs. Wilson and Meers have assembled a management team with a complementary mix of retail, design, operations, product sourcing and marketing experience from leading apparel and retail companies such as Abercrombie & Fitch Co., Limited Brands, Inc., Nike, Inc. and Reebok. We believe our management team is well positioned to execute the long-term growth strategy for our business. |
83
Table of Contents
• | Grow our Store Base in North America. As of July 1, 2007, our products were sold through 59 stores, including 38 in Canada and 17 in the United States. We expect that most of our near-term store growth will occur in the United States. We have demonstrated strong sales to date in the United States, supporting the portability of our brand and retail concept. We plan to add new stores to strengthen existing markets and selectively enter new markets in the United States and Canada. We anticipate opening between 20 and 25 stores in fiscal 2007 and between 30 and 35 additional stores in fiscal 2008 in the United States and Canada. |
• | Increase our Brand Awareness. We will continue to increase brand awareness and customer loyalty through our grassroots marketing efforts and planned store expansion. In existing markets, our community coordinators organize frequent events and generate excitement around our brand to enhance our profile in the local community. We also seek to cluster our new stores within a given area when appropriate to leverage our community marketing efforts. Our ability to initiate our grassroots marketing efforts in advance of selected store openings allows us to actively develop brand awareness in new markets. We believe that increased brand awareness will result in increased comparable-store sales and sales productivity over time. | |
• | Introduce New Product Technologies. We remain focused on developing and offering products that incorporate technology-enhanced fabrics and performance features that differentiate us in the market. Collaborating with leading fabric manufacturers, we have jointly developed and trademarked names for innovative fabrics such as Luon and Silverescent, and natural stretch fabrics using organic elements such as bamboo, soy, and seaweed. Among our ongoing efforts, we are jointly developing encapsulation enhanced fabrics to provide advanced features such as UV protection and temperature control. In addition, we will continue to develop differentiated manufacturing techniques that provide greater support, protection, and comfort. We believe that incorporating new technologies into our products will reinforce the authenticity and appeal of our products and encourage brand loyalty. | |
• | Broaden the Appeal of our Products. We will selectively seek opportunities to expand the appeal of our brand to improve store productivity and increase our overall addressable market. To enhance our product appeal, we intend to: |
• | Grow our Men’s Business. We believe the premium quality and technical rigor of our products will continue to appeal to men and that there is an opportunity to expand our men’s business as a proportion of our total sales. | |
• | Expand our Product Categories. We plan to expand our product offerings in complementary existing and new categories such as bags, undergarments, outerwear and sandals. | |
• | Increase the Range of Athletic Activities our Products Target. We expect customers to increasingly purchase our products for activities such as running, dance and general fitness as we educate them on the versatility of our products and expand our offering. |
• | Expand Beyond North America. As of July 1, 2007, we operated three stores in Japan through a joint venture and one franchise store in Australia, which we intend to transition to a joint venture. Given the attractive demographics of and our early success in both markets, we plan to open additional stores in Japan and Australia with our joint venture partners. Over time, we intend to pursue additional joint venture opportunities in other Asian and European markets. We believe partnering in these regions reduces our risk and improves the probability of success in these markets, as we are able to leverage our partners’ local market knowledge and existing infrastructure. |
84
Table of Contents
Corporate-Owned | Franchise | |||||||
Canada | Stores | Stores | ||||||
British Columbia | 9 | 2 | ||||||
Ontario | 14 | – | ||||||
Alberta | 7 | – | ||||||
Quebec | 4 | – | ||||||
Manitoba | 1 | – | ||||||
Saskatchewan | – | 1 | ||||||
Total Canada | 35 | 3 | ||||||
United States | ||||||||
California | 8 | 1 | ||||||
Colorado | – | 1 | ||||||
Illinois | 2 | – | ||||||
Massachusetts | 1 | – | ||||||
New York | 1 | – | ||||||
Oregon | 1 | – | ||||||
Virginia | 1 | – | ||||||
Washington | – | 1 | ||||||
Total United States | 14 | 3 | ||||||
International | ||||||||
Japan | 3 | – | ||||||
Australia | – | 1 | ||||||
Total International | 3 | 1 | ||||||
85
Table of Contents
Corporate-Owned Stores | Total | |||||||||||||||
Opened or Repurchased From | Corporate-Owned | |||||||||||||||
Franchisees | Stores at | |||||||||||||||
Fiscal Year | Canada | U.S. | International | End of Period | ||||||||||||
Prior to 2002 | 1 | – | – | 1 | ||||||||||||
2002 | 1 | – | – | 2 | ||||||||||||
2003 | 4 | 1 | – | 7 | ||||||||||||
2004 | 5 | 2 | – | 14 | ||||||||||||
2005 | 12 | 1 | – | 27 | ||||||||||||
2006 | 7 | 5 | 2 | 41 | ||||||||||||
2007 YTD | 5* | 5 | 1 | 52 | ||||||||||||
Total Stores as of July 1, 2007 | 35 | 14 | 3 | 52 | ||||||||||||
* | Gives effect to the closing of one corporate-ownedoqoqostore on May 15, 2007. |
86
Table of Contents
87
Table of Contents
• | Luon, included in more than half of our products, wicks away moisture, moves with the body and is designed to eliminate irritation; | |
• | Silverescentincorporates silver directly into the fabric to reduce odors as a result of the antibacterial properties of the silver in the fabric; and | |
• | Vitasea, derived from a seaweed compound, releases amino acids, minerals and vitamins directly into the skin. |
88
Table of Contents
89
Table of Contents
90
Table of Contents
91
Table of Contents
Approximate | Lease | |||||||||
Location | Use | Square Feet | Renewal Date | |||||||
Vancouver, BC | Executive and Administrative Offices | 30,000 | January 2009 | |||||||
Vancouver, BC | Distribution Center | 50,000 | January 2008 |
92
Table of Contents
Name and | ||||||
Municipality of Residence | Age | Position | ||||
Dennis J. Wilson Vancouver, British Columbia | 52 | Chairman of the Board of Directors and Chief Product Designer | ||||
Steven J. Collins Boston, Massachusetts | 38 | Director | ||||
RoAnn Costin Boston, Massachusetts | 54 | Director | ||||
R. Brad Martin Memphis, Tennessee | 55 | Director | ||||
Robert Meers Pasadena, California | 63 | Director and Chief Executive Officer | ||||
David M. Mussafer Boston, Massachusetts | 44 | Director | ||||
Rhoda M. Pitcher Clyde Hill, Washington | 52 | Director | ||||
Thomas G. Stemberg Chestnut Hill, Massachusetts | 58 | Director | ||||
John E. Currie North Vancouver, British Columbia | 51 | Chief Financial Officer | ||||
Mike J. Tattersfield Columbus, Ohio | 41 | Chief Operating Officer |
93
Table of Contents
94
Table of Contents
• | the Class I directors will be Ms. Costin and Mr. Martin, whose terms will expire at the annual meeting of stockholders to be held in 2008; | |
• | the Class II directors will be Ms. Pitcher, Mr. Collins and Mr. Meers, whose terms will expire at the annual meeting of stockholders to be held in 2009; and | |
• | the Class III directors will be Messrs. Mussafer, Stemberg and Wilson, whose terms will expire at the annual meeting of stockholders to be held in 2010. |
95
Table of Contents
• | review and assess the adequacy of the Audit Committee and its charter at least annually; | |
• | evaluate, determine the selection of, and if necessary, the replacement/rotation of, our independent public accountants; | |
• | review our audited financial statements; | |
• | review whether interim accounting policies and significant events or changes in accounting estimates were considered by our independent public accountants to have affected the quality of our financial reporting; | |
• | review our financial reports and other information submitted to any governmental body or the public; | |
• | review with management and our independent public accountants their judgments about the quality of disclosures in our financial statements; | |
• | obtain from our independent public accountants their recommendation regarding our internal controls and review management’s report on its assessment of the design and effectiveness of our internal controls; | |
• | review our major financial risk exposures; | |
• | pre-approve all audit and permitted non-audit services and related fees; | |
• | establish, review and update periodically our code of business conduct and ethics; | |
• | establish and review policies for approving related party transactions between us and our directors, officers or employees; | |
• | adopt procedures for receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters; and | |
• | adopt regular and separate systems of reporting to our Audit Committee by management and our internal auditors regarding controls and operations of our business units. |
96
Table of Contents
• | Evaluates the performance of our executive officers in light of the goals and objectives of our compensation programs; | |
• | Annually evaluates each of our executive officers’ performance; | |
• | Reviews and approves our compensation programs; | |
• | Reviews and recommends new executive compensation programs; | |
• | Annually reviews the operation and efficacy of our executive compensation programs; | |
• | Periodically reviews that executive compensation programs comport with the compensation committee’s stated compensation philosophy; | |
• | Establishes and periodically reviews policies in the area of management perquisites; | |
• | Reviews and recommends to the board of directors the terms of any employment agreements entered into with executive officers; | |
• | Reviews and recommends to the board of directors the appropriate structure and amount of compensation for our directors; | |
• | Reviews and approves material changes in our employee benefit plans; | |
• | Establishes and periodically reviews policies for the administration of our equity compensation plans; and | |
• | Reviews the adequacy of the Compensation Committee and its charter and recommends any proposed changes to the board of directors not less than annually. |
97
Table of Contents
98
Table of Contents
• | attract, retain, motivate and reward talented executives; | |
• | tie annual and long-term compensation incentives to achievement of specified performance objectives inherent in our business strategy; | |
• | create long-term value for our stockholders by aligning the interests of our executives with those of our stockholders; and | |
• | provide our executives with a total compensation package that recognizes individual contributions, as well as overall business results. |
• | base salary; | |
• | annual cash incentives linked to corporate and individual performance; | |
• | long-term incentive awards in the form of equity-based compensation; and | |
• | other benefits such as automobile and housing allowances, reimbursement of relocation expense and tax consulting services. |
99
Table of Contents
• | corporate performance and the performance of each individual executive officer; | |
• | new responsibilities delegated to each executive officer during the year; and | |
• | competitive marketplace for executive talent, including a comparison of base salaries for comparable positions at other similarly situated companies operating in the retail apparel industry. |
100
Table of Contents
Fiscal 2006 Base Salary | ||||||||
Name | (CDN$) | (US$)(1) | ||||||
Robert Meers | 600,000 | 529,200 | ||||||
Mike J. Tattersfield | 392,111 | 345,842 | ||||||
John E. Currie | 325,000 | 286,650 | ||||||
James Jones | 280,000 | 246,960 | ||||||
Dennis J. Wilson | 250,000 | 220,500 | ||||||
Brian Bacon | 186,000 | 164,052 |
(1) | The dollar amounts shown in this column reflect the US$ equivalent of the amounts paid to the executive officers listed. The amounts were converted to U.S. dollars from Canadian dollars using the average of the exchange rates on the last business day of each month during fiscal 2006. Applying this formula to fiscal 2006, CDN$1.00 was equal to US$0.882. |
Name | Fiscal 2007 Base Salary | |||
Robert Meers | CDN$ | 600,000 | ||
Mike J. Tattersfield | CDN$ | 392,111 | ||
John E. Currie | CDN$ | 325,000 | ||
Dennis J. Wilson | CDN$ | 250,000 |
101
Table of Contents
Fiscal 2006 Bonus | ||||||||
Name | (CDN$) | (US$)(1) | ||||||
Robert Meers | 213,800 | 188,572 | ||||||
Dennis J. Wilson | 80,200 | 70,736 | ||||||
Mike J. Tattersfield(2) | 39,000 | 34,398 | ||||||
Brian Bacon | 24,000 | 21,168 |
(1) | The dollar amounts shown in this column reflect the US$ equivalent of the amounts paid to the named executive officers listed. The amounts were converted to U.S. dollars from Canadian dollars using the average of the exchange rates on the last business day of each month during fiscal 2006. Applying this formula to fiscal 2006, CDN$1.00 was equal to US$0.882. | |
(2) | Mr. Tattersfield’s performance bonus was pro-rated based on the number of days he was employed by us during the year. |
• | align management with our strategic plan and critical performance goals; | |
• | encourage teamwork and collaboration; | |
• | motivate and reward achievement of specific, measurable company-based as well as individual annual performance objectives; | |
• | provide payouts commensurate with our performance; and | |
• | provide competitive total compensation opportunities. |
102
Table of Contents
• | EBITDA, after deduction of all executive and management bonus payments; | |
• | adjusted operating margin, which is equal to our EBITDA less other net revenue divided by our retail sales; | |
• | comparable store sales, which relates to net revenue of corporate-owned stores that have been open for at least 12 months; and | |
• | annual inventory turnover, which is equal to our annual cost of goods sold divided by our average quarterly inventory. |
103
Table of Contents
• | the executive officer’s position, responsibility and anticipated contributions toward stockholder value; | |
• | the objective of providing a competitive total compensation package to attract highly skilled executives; and | |
• | the allocation between cash and equity compensation, with the goal of providing the appropriate mix of each to properly retain and motivate each executive officer over a period of time. |
104
Table of Contents
105
Table of Contents
Option | All Other | |||||||||||||||||||||||
Name and | Salary | Bonus | Awards | Compensation | Total | |||||||||||||||||||
Principal Position | Fiscal Year | ($) | ($)(1) | ($)(2) | ($)(3) | ($) | ||||||||||||||||||
Robert Meers(4) | 2006 | 529,200 | 188,572 | 624,996 | 41,331 | 1,384,099 | ||||||||||||||||||
Chief Executive Officer | 2005 | 41,700 | 83,400 | — | 6,107 | 131,207 | ||||||||||||||||||
2004 | — | — | — | — | — | |||||||||||||||||||
John E. Currie(5) | 2006 | 20,580 | — | 55,434 | — | 76,014 | ||||||||||||||||||
Chief Financial Officer | 2005 | — | — | — | — | — | ||||||||||||||||||
2004 | — | — | — | — | — | |||||||||||||||||||
Dennis J. Wilson | 2006 | 220,500 | 70,736 | — | 36,928 | 328,164 | ||||||||||||||||||
Chairman and | 2005 | 521,250 | 12,809,142 | — | 3,023 | 13,333,415 | ||||||||||||||||||
Chief Product Designer | 2004 | 199,626 | 12,134,019 | — | — | 12,333,645 | ||||||||||||||||||
Mike J. Tattersfield(6) | 2006 | 28,820 | 106,449 | 80,842 | 12,882 | 228,993 | ||||||||||||||||||
Chief Operating Officer | 2005 | — | — | — | — | — | ||||||||||||||||||
2004 | — | — | — | — | — | |||||||||||||||||||
Brian Bacon(7) | 2006 | 164,052 | 21,168 | 2,310 | 17 | 187,547 | ||||||||||||||||||
Controller | 2005 | 108,420 | 133,357 | 182,195 | 11 | 423,983 | ||||||||||||||||||
2004 | 72,446 | 8,400 | — | — | 80,846 | |||||||||||||||||||
James Jones(8) | 2006 | 134,917 | 49,882 | — | 101,220 | 286,019 | ||||||||||||||||||
Chief HR, Culture & | 2005 | — | — | — | — | — | ||||||||||||||||||
Training Officer | 2004 | — | — | — | — | — |
(1) | For fiscal 2006, bonuses consist of: (a) payments made pursuant to discretionary performance bonuses to the following individuals in the following amounts: Mr. Meers — $188,572, Mr. Wilson — $70,736, Mr. Tattersfield — $34,398 and Mr. Bacon — $21,168; and (b) payments made pursuant to signing bonuses to the following individuals in the following amounts: Mr. Tattersfield — $72,051 and Mr. Jones — $49,882. | |
For fiscal 2005, bonuses consist of: (a) a signing bonus paid to Mr. Meers in the amount of $83,400; (b) a bonus paid to Mr. Wilson in the amount of $12,809,142 that is equal to our Canadian taxable income for that year |
106
Table of Contents
above a particular threshold; and (c) a one time special bonus and a discretionary bonus paid to Mr. Bacon in the amount of $87,334 and $46,023, respectively. | ||
For fiscal 2004, bonuses consist of: (a) a bonus paid to Mr. Wilson in the amount of $12,134,019 that is equal to our Canadian taxable income for that year above a particular threshold; and (b) a discretionary bonus paid to Mr. Bacon in the amount of $8,400. | ||
(2) | This column reflects the dollar amount recognized for financial accounting reporting purposes for the fiscal year in accordance with SFAS 123(R). See the “Grants of Plan Based Awards Table” for information on stock options granted to our named executives officers in fiscal 2006 (and, with respect to Mr. Bacon, fiscal 2005 as well). These amounts reflect our accounting expense for these awards, and do not correspond to the actual value that will be realized by the executive officer. The assumptions used in the calculation of the amounts are described in note 11 to our combined consolidated financial statements included in this prospectus. | |
(3) | For fiscal 2006, all other compensation consist of: (a) payments made on behalf of Mr. Meers for housing and other living expenses in the amount of $28,823 and for expenses associated with a vehicle lease in the amount of $12,508; (b) imputed interest in connection with an interest free loan we made to Mr. Wilson in the amount of $36,917; (c) payments made on behalf of Mr. Tattersfield for housing and other living expenses in the amount of $12,747 and for a Canadian work permit in the amount of $132; (d) payments made on behalf of Mr. Jones for housing, living and relocation expenses in the amount of $59,009 and travel expenses in the amount of $42,211; portions of Mr. Jones’ reimbursed expenses are in dispute between us and Mr. Jones; and (e) life insurance premiums paid on behalf of the following individuals in the following amounts: Mr. Wilson — $12, Mr. Tattersfield — $3 and Mr. Bacon — $17. | |
For fiscal 2005, all other compensation consists of: (a) payments made on behalf of Mr. Meers for housing and other living expenses in the amount of $5,208 and for expenses associated with a vehicle lease in the amount of $899; (b) imputed interest in connection with an interest free loan we made to Mr. Wilson in the amount of $3,007; and (c) life insurance premiums paid on behalf of the following individuals in the following amounts: Mr. Wilson — $16 and Mr. Bacon $11. | ||
(4) | Mr. Meers joined us as our Chief Executive Officer in December 2005. | |
(5) | Mr. Currie joined us as our Chief Financial Officer in January 2007. | |
(6) | Mr. Tattersfield joined us as our Chief Operating Officer in November 2006. | |
(7) | Mr. Bacon, although no longer an executive officer, served as our principal financial officer during fiscal 2004, fiscal 2005 and fiscal 2006. | |
(8) | Mr. Jones joined us as an employee in April 2006. Mr. Jones left our employ in January 2007. |
107
Table of Contents
All Other | ||||||||||||||||||||||||||||||||
Option | Grant Date | |||||||||||||||||||||||||||||||
Awards: | Exercise or | Fair Value | ||||||||||||||||||||||||||||||
Estimated Future Payouts Under | Number of | Base Price | of Stock | |||||||||||||||||||||||||||||
Equity Incentive Plan Awards | Securities | of Option | and Option | |||||||||||||||||||||||||||||
Approval | Threshold | Target | Maximum | Underlying | Awards | Awards | ||||||||||||||||||||||||||
Name | Grant Date | Date | (#) | (#) | (#) | Options | ($/Sh) | ($) | ||||||||||||||||||||||||
Robert Meers(1) | 07/03/06 | 01/27/06 | 15,546 | — | 200,728 | 301,091 | 0.49 | 449,997 | ||||||||||||||||||||||||
07/03/06 | 01/27/06 | 70,382 | — | 914,049 | 1,371,073 | 0.60 | 2,049,987 | |||||||||||||||||||||||||
John E. Currie | 01/03/07 | 12/27/06 | — | — | — | 64,335 | 0.49 | 520,290 | ||||||||||||||||||||||||
01/03/07 | 12/27/06 | — | — | — | 292,964 | 0.60 | 2,370,210 | |||||||||||||||||||||||||
Mike J. Tattersfield | 12/27/06 | 12/27/06 | — | — | — | 75,058 | 0.49 | 607,005 | ||||||||||||||||||||||||
12/27/06 | 12/27/06 | — | — | — | 341,791 | 0.60 | 2,765,245 | |||||||||||||||||||||||||
Brian Bacon | 12/27/06 | 12/27/06 | — | — | — | 2,144 | 0.49 | 17,343 | ||||||||||||||||||||||||
12/27/06 | 12/27/06 | — | — | — | 9,765 | 0.60 | 79,007 | |||||||||||||||||||||||||
James Jones(2) | 12/27/06 | 12/27/06 | — | — | — | 8,578 | 0.49 | 69,372 | ||||||||||||||||||||||||
12/27/06 | 12/27/06 | — | — | — | 39,061 | 0.60 | 316,028 |
(1) | Mr. Meers performance-vested options will vest pursuant to certain return multiples received in connection with the sale of substantially all of our assets or the sale by certain of our stockholders of at least 80% of their capital stock in one transaction or a series of transactions. | |
(2) | None of Mr. Jones’ stock options had vested at the time he left our employ and all of his options terminated according to their terms. |
Equity Incentive | ||||||||||||||||||||||||||||
Plan Awards: | Market | |||||||||||||||||||||||||||
Number of | Number of | Number of | Number of | Value of | ||||||||||||||||||||||||
Securities | Securities | Securities | Shares or | Shares or | ||||||||||||||||||||||||
Underlying | Underlying | Underlying | Option | Units of | Units of | |||||||||||||||||||||||
Unexercised | Unexercised | Unexercised | Exercise | Option | Stock That | Stock That | ||||||||||||||||||||||
Options (#) | Options (#) | Unearned | Price | Expiration | Have Not | Have Not | ||||||||||||||||||||||
Name | Exercisable | Unexercisable | Options (#) | ($) | Date | Vested (#) | Vested ($) | |||||||||||||||||||||
Robert Meers | 75,273 | 225,818 | (2) | 200,728 | (1) | 0.49 | 01/16/16 | — | — | |||||||||||||||||||
342,768 | 1,028,305 | (2) | 914,049 | (1) | 0.60 | 01/16/16 | — | — | ||||||||||||||||||||
John Currie | — | 64,335 | (3) | — | 0.49 | 01/02/17 | — | — | ||||||||||||||||||||
— | 292,964 | (3) | — | 0.60 | 01/02/17 | — | — | |||||||||||||||||||||
Mike J. Tattersfield | — | 75,058 | (4) | — | 0.49 | 12/26/16 | — | — | ||||||||||||||||||||
— | 341,791 | (4) | — | 0.60 | 12/26/16 | — | — | |||||||||||||||||||||
Brian Bacon | — | 2,144 | (5) | — | 0.49 | 12/26/16 | — | — | ||||||||||||||||||||
— | 9,765 | (5) | — | 0.60 | 12/26/16 | — | — | |||||||||||||||||||||
19,826 | (6)(7) | 122,202 | (7)(8) | — | 0.18 | (7)(9) | 12/31/10 | — | — | |||||||||||||||||||
— | — | — | — | — | 10,170 | (7)(10) | 111,870 | |||||||||||||||||||||
— | — | — | — | — | 46,771 | (7)(11) | 514,481 | |||||||||||||||||||||
James Jones | — | 8,578 | — | 0.49 | (12 | ) | — | — | ||||||||||||||||||||
— | 39,061 | — | 0.60 | (12 | ) | — | — |
(1) | The options will vest pursuant to certain return multiples received in connection with a sale of substantially all of our assets or the sale by certain of our stockholders of at least 80% of their capital stock in one transaction or a series of transactions. |
108
Table of Contents
(2) | The options will vest in equal installments on each of January 27, 2008, 2009 and 2010 provided that Mr. Meers remains employed with us. | |
(3) | The options will vest 25% per year on each of January 3, 2008, 2009, 2010 and 2011 provided that Mr. Currie remains employed with us. | |
(4) | The options will vest 25% per year on each of December 27, 2007, 2008, 2009 and 2010 provided that Mr. Tattersfield remains employed with us. | |
(5) | The options will vest 25% per year on each of December 27, 2007, 2008, 2009 and 2010 provided that Mr. Bacon remains employed with us. | |
(6) | Represents 19,826 shares of our common stock that will be issued to Mr. Bacon upon exercise of his options to purchase 355,068 common shares of LIPO USA. Upon exercise of such options, LIPO USA will deliver shares of our common stock it holds in lieu of common shares of LIPO USA. See “Employee Benefit Plans — Stockholder Sponsored Plans — LIPO Investments (USA), Inc.” | |
(7) | Assumes (a) that our corporate reorganization described in “Pre-Offering Transactions” elsewhere in this prospectus has been completed, and (b) an initial public offering price of $11.00 per share. | |
(8) | Represents 122,202 shares of our common stock that may be issued to Mr. Bacon upon exercise of his options to purchase 2,364,713 common shares of LIPO USA. Upon exercise of such options, LIPO USA will deliver shares of our common stock it holds in lieu of common shares of LIPO USA. The options to purchase common shares of LIPO USA will vest as follows: 717,582 options will vest on December 5, 2007; 717,582 options will vest on December 5, 2008; 596,720 options will vest on December 5, 2009 and 332,829 options will vest on December 5, 2010. See “Employee Benefit Plans — Stockholder Sponsored Plans — LIPO Investments (USA), Inc.” | |
(9) | Represents the equivalent per share exercise price per option as if the option was being exchanged directly into shares of our common stock. Each outstanding option to purchase common shares of LIPO USA has a per share exercise price equal to CDN$0.01. | |
(10) | Represents 10,170 shares of our common stock that may be issued to Mr. Bacon upon the vesting and exchange of restricted stock awards to purchase 180,353 common shares of LIPO USA. The restricted stock awards to purchase common shares of LIPO USA will vest as follows: 76,346 shares will vest on December 5, 2007, 76,346 shares will vest on December 5, 2008 and 27,661 shares will vest on December 5, 2009. | |
(11) | Represents restricted exchangeable shares of Lulu Canadian Holding, Inc. that are held by Mr. Wilson, in trust for the benefit of Mr. Bacon. Upon vesting, Mr. Wilson will transfer the vested exchangeable shares to Mr. Bacon. If Mr. Bacon’s employment with us terminates, his unvested exchangeable shares will be forfeited. The exchangeable shares will vest as follows: 19,779 exchangeable shares will vest on December 5, 2007, 19,799 exchangeable shares will vest on December 5, 2008 and 7,173 exchangeable shares will vest on December 5, 2009. | |
(12) | None of Mr. Jones’ stock options had vested at the time he left our employ and all of his options terminated according to their terms. |
109
Table of Contents
Optioned Shares | Exercise Price | |||||||||||
(#) | ($) | Expiration Date | ||||||||||
Executive Officers | 200,728 | 0.49 | (1) | 01/26/16 | ||||||||
914,049 | 0.60 | (1) | 01/26/16 | |||||||||
301,091 | 0.49 | 01/26/16 | ||||||||||
1,371,073 | 0.60 | 01/26/16 | ||||||||||
64,335 | 0.49 | 01/02/17 | ||||||||||
292,964 | 0.60 | 01/02/17 | ||||||||||
75,058 | 0.49 | 12/26/16 | ||||||||||
341,791 | 0.60 | 12/26/16 | ||||||||||
Non-Executive Directors | 10,079 | 0.49 | 01/26/16 | |||||||||
45,897 | 0.60 | 01/26/16 | ||||||||||
Employees and Others | 5,039 | 0.49 | 01/26/16 | |||||||||
22,948 | 0.60 | 01/26/16 | ||||||||||
2,144 | 0.49 | 08/14/16 | ||||||||||
9,764 | 0.60 | 08/14/16 | ||||||||||
147,959 | 0.49 | 12/26/16 | ||||||||||
673,807 | 0.60 | 12/26/16 |
(1) | Represents performance vested options that will vest pursuant to certain return multiples received in connection with the sale of substantially all of our assets or the sale by certain of our stockholders of at least 80% of their capital stock in one transaction or a series of transactions. |
Optioned Shares | Exercise Price | |||||||||||
(#) | ($) | Expiration Date | ||||||||||
Executive Officers | — | — | — | |||||||||
Non-Executive Directors | — | — | — | |||||||||
Employees and Others | 1,582,140 | (1) | $ | 0.18 | (2) | 12/31/10 |
(1) | Represents shares of our common stock that may be issued to our employees upon exercise of their options to purchase 30,604,625 common shares of LIPO USA. Upon exercise of such options, LIPO USA will deliver shares of our common stock it holds in lieu of common shares of LIPO USA See “— Employee Benefit Plans — Stockholder Sponsored Plans — LIPO Investments (USA), Inc.” | |
(2) | Represents the equivalent per share exercise price per option as if the option was being exchanged directly into shares of our common stock. Each outstanding option to purchase common shares of LIPO USA has a per share exercise price equal to CDN$0.01. |
110
Table of Contents
Stock Awards | ||||||||
Value Realized | ||||||||
Number of Shares | on Vesting | |||||||
Name | Acquired on Vesting (#)(1) | ($)(1) | ||||||
Brian Bacon | 4,262 | (2) | 46,882 | |||||
19,799 | (3) | 217,789 |
(1) | Assumes (a) that our corporate reorganization described in “Pre-Offering Transactions” elsewhere in this prospectus has been completed, and (b) an initial public offering price of $11.00 per share. | |
(2) | Represents 4,262 shares of our common stock that may be issued to Mr. Bacon upon the vesting of 76,346 restricted stock awards to purchase common shares of LIPO Investments (USA), Inc. | |
(3) | Represents 19,799 exchangeable shares of Lulu Canadian Holding, Inc. that are held by Mr. Wilson, in trust for the benefit of Mr. Bacon. Upon vesting, Mr. Wilson will transfer the vested exchangeable shares in the name of Mr. Bacon. If Mr. Bacon is no longer employed with us, his unvested exchangeable shares will be forfeited. |
Change in | ||||||||||||||||||||||||||||
Pension Value | ||||||||||||||||||||||||||||
Fees Earned | Non-Equity | and Nonqualified | ||||||||||||||||||||||||||
or Paid in | Stock | Option | Incentive Plan | Deferred | All Other | |||||||||||||||||||||||
Cash | Awards | Awards | Compensation | Compensation | Compensation | Total | ||||||||||||||||||||||
Name | ($) | ($) | ($)(1) | ($) | Earnings | ($) | ($) | |||||||||||||||||||||
Susanne Conrad(2) | 23,318 | — | 12,690 | (3) | — | — | 94,004 | (4) | 130,012 | |||||||||||||||||||
Rhoda Pitcher | 23,318 | — | 12,690 | (5) | — | — | 225,566 | (6) | 261,574 |
(1) | This column reflects the dollar amount recognized for financial accounting reporting purposes for the fiscal year in accordance with SFAS 123(R). See the “Grants of Plan Based Awards Table” for information on stock options granted to our named executives officers in fiscal 2006. These amounts reflect our accounting expense for these awards, and do not correspond to the actual value that will be recognized by the executive officer. The assumptions used in the calculation of the amounts are described in note 11 to our combined consolidated financial statements included in this prospectus. | |
(2) | Ms. Conrad served as a director of ours from December 2005 until March 2007. Mr. Wilson, our Chairman and Chief Product Designer, is Ms. Conrad’sbrother-in-law. | |
(3) | As of January 31, 2007, Ms. Conrad had outstanding options to purchase 55,976 shares of our common stock, 13,994 of which had previously vested. In connection with her resignation from our board of directors on March 29, 2007, Ms. Conrad forfeited 27,987 of her outstanding options, our board of directors immediately accelerated an additional 13,993 of her options to purchase shares of our common stock and extended the exercise period of her vested options until December 31, 2007. The grant date fair value of the option award in accordance with SFAS 123(R) is equal to $0.91. | |
(4) | Represents a stock-based compensation expense recognized by us in the amount of $94,004 in connection with the sale by us to Ms. Conrad of 250 shares of series A preferred stock. |
111
Table of Contents
(5) | As of January 31, 2007, Ms. Pitcher had outstanding options to purchase 55,976 shares of our common stock. The grant date fair value of the option award in accordance with SFAS 123(R) is equal to $0.91. | |
(6) | All other compensation for Ms. Pitcher consists of the following: (a) fees and expenses paid to Ms. Pitcher for human resources consulting services provided to us in the amount of $131,562 and (b) a stock-based compensation expense recognized by us in the amount of $94,004 in connection with the sale by us to Ms. Pitcher of 250 shares of series A preferred stock. |
• | Each non-employee director will be paid an annual cash retainer (pro rated for partial-year service) of $30,000. | |
• | The chair of our Audit Committee will be paid an additional $15,000 annual retainer, and the chair of our Compensation Committee will be paid an annual retainer of $10,000. | |
• | In addition, each non-employee director will be paid meeting fees of (1) $1,000 per regular or special meeting for in-person attendance, (2) $500 per committee meeting, and (3) $500 per regular or special board meeting for telephone participation. | |
• | Directors will be reimbursed for reasonable expenses incurred in connection with attending meetings of the board of directors or its committees. | |
• | Equity compensation will consist of (1) an annual grant of restricted stock awards under our 2007 Equity Incentive Plan having a fair value at the time of grant equal to $30,000, subject to one year vesting and (2) an annual option grant under our 2007 Equity Incentive Plan having a fair value at the time of grant equal to $80,000 subject to four year vesting at 25% per year on each anniversary of the grant date. Other than the first equity grant under the policy, such annual non-employee grants will be made at the conclusion of each annual meeting of stockholders if the director is then a member of our board of directors. Stock option grants will have a 10-year term and an exercise price equal to the fair market value on the date of grant. The first equity grants under the policy will be made on the date of this prospectus with an exercise price equal to the initial public offering price. |
112
Table of Contents
• | payment of all accrued and unpaid base salary through the date of such termination; | |
• | payment for all unused vacation and personal days accrued through the date of such termination; | |
• | monthly severance payments equal to one-twelfth of his base salary as of the date of termination for a period equal to the greater of 24 months or the period remaining until December 5, 2009; and | |
• | payment of any otherwise unpaid annual bonus payable to him with respect to the fiscal year ending prior to the date of such termination. |
• | dishonesty by Mr. Meers in the course of his employment or the misappropriation of funds by Mr. Meers; | |
• | a material breach of any agreement with or duty owed to us; | |
• | a refusal to perform the lawful and reasonable directives of our board of directors; or | |
• | any other conduct that would constitute just cause at common law. |
• | participate in a company that competes against us in the United States or Canada; | |
• | become interested in a company that competes against us; | |
• | influence or attempt to influence any of our employees, consultants, suppliers, licensors, licensees, contractors, agents, strategic partners, distributors, customers or other persons to terminate or modify such person’s agreement or arrangement with us or any of our affiliates; or | |
• | solicit for employment or employ or retain (or arrange to have any other person or entity employ or retain) any person who has been employed or retained by us or any of our affiliates within the prior 12 months. |
113
Table of Contents
• | payment of all accrued and unpaid base salary through the date of such termination; | |
• | payment for all unused vacation and personal days accrued through the date of such termination; | |
• | monthly severance payments equal to one-twelfth of his base salary as of the date of such termination for a period of twenty-four months; and | |
• | payment of any otherwise unpaid annual bonus payable with respect to the fiscal year ending prior to the date of such termination. |
• | theft, embezzlement, fraud, or similar acts of misconduct or misappropriation by Mr. Wilson; | |
• | a material breach of any agreement with or duty owed to us; | |
• | a refusal to perform the lawful and reasonable directives of our board of directors; | |
• | any other conduct that would constitute just cause at common law. |
• | participate in a company that competes against us in the United States or Canada; | |
• | become interested in a company that competes against us; | |
• | influence or attempt to influence any of our employees, consultants, suppliers, licensors, licensees, contractors, agents, strategic partners, distributors, customers or other persons to terminate or modify such person’s agreement or arrangement with us or any of our affiliates; or |
114
Table of Contents
• | solicit for employment or employ or retain (or arrange to have any other person or entity employ or retain) any person who has been employed or retained by us or any of our affiliates within the prior 12 months. |
115
Table of Contents
Intrinsic Value of | Intrinsic Value of | |||||||||||
Time-Vested Options | Performance-Vested Options | |||||||||||
Subject to | that vest as a result of an | |||||||||||
Salary Continuation | Acceleration | Investor Sale | ||||||||||
(CDN$) | ($) (1) | ($) (1) | ||||||||||
Termination Without Cause | 1,700,000 | (2) | — | — | ||||||||
Change in Control | — | 13,063,347 | (3)(4) | — | ||||||||
Investor Sale | — | — | 8,932,424 | (4)(5) |
(1) | An Investor Sale may also constitute a Change in Control for purposes of accelerated vesting of Mr. Meers’ time-vested options, however, for the purposes of this disclosure, we have assumed each to be discrete transactions. |
(2) | This amount represents Mr. Meers’ monthly base salary for a period of 34 months (i.e., February 1, 2007 — December 5, 2009). Such amount will be payable over a 34 month period. |
(3) | This amount represents the intrinsic value as of January 31, 2007 of the time-vested portion of Mr. Meers’ stock options that would become vested on an accelerated basis upon a Change in Control. For purposes of this calculation, we have determined the intrinsic value based on the difference between the option exercise price of $0.58 and an assumed Change in Control price equal to the midpoint of the estimated per share offering price range of our common stock indicated on the cover page of this prospectus. |
(4) | Because the amounts actually realized with respect to any option grant will depend on the price of our common stock on the date the award is exercised, the amount may or may not ultimately reflect the actual value that could be realized by Mr. Meers with respect to this award. |
(5) | This amount represents the intrinsic value as of January 31, 2007 of the performance vested portion of Mr. Meers’ stock option that would become vested upon an Investor Sale on that date. For purposes of this calculation, we have assumed that the price paid in connection with that Investor Sale will be equal to the midpoint of the estimated per share offering price range of our common stock indicated on the cover page of this prospectus. This price will, in turn, determine the return realized by our principal investors; their return will, in turn, determine the portion of the option that then becomes vested. Based on this price, the performance vested portion of the option would become vested with respect to 857,650 shares. |
Salary | ||||
Continuation | ||||
(CDN$) | ||||
Termination Without Cause | 500,000 | (1) |
(1) | This amount represents Mr. Wilson’s monthly base salary for a period of 24 months. Such amount will be payable over a 24 month period. |
Continuation | ||||||||
of Medical | ||||||||
Salary Continuation | Benefits | |||||||
(CDN$) | (CDN$) | |||||||
Termination Without Cause | 392,112 | (1) | 17,382 | (2) |
(1) | This amount represents Mr. Tattersfield’s monthly base salary for a period of 12 months. Such amount will be payable in either a lump sum or monthly at our discretion. |
(2) | This amount represents the estimated cost to us to provide Mr. Tattersfield with medical benefits for a period of 12 months. |
116
Table of Contents
117
Table of Contents
118
Table of Contents
• | the acquisition by any person of direct or indirect ownership of securities representing more than 50% of the voting power of our then outstanding stock; | |
• | our consolidation, share exchange, reorganization or merger resulting in our stockholders immediately prior to such event not owning at least a majority of the voting power of the resulting entity’s securities outstanding immediately following such event; | |
• | the sale of substantially all of our assets; | |
• | our liquidation or dissolution; or | |
• | the occurrence of any similar transaction deemed by our board of directors to be a change of control. |
119
Table of Contents
120
Table of Contents
• | We issued an aggregate of 107,995 shares of our series A preferred stock resulting in aggregate proceeds to us of approximately $92.8 million. Of these shares, 85,796 shares of series A preferred stock were issued to funds managed by our affiliate, Advent International Corporation, resulting in aggregate proceeds to us of approximately $73.7 million. | |
• | We issued 116,994 shares of our series TS preferred stock to one of our then current stockholders, an entity controlled by Mr. Wilson, in exchange for 115,594 shares of participating preferred stock of lululemon usa inc. |
121
Table of Contents
122
Table of Contents
123
Table of Contents
124
Table of Contents
• | Our Audit Committee approves or ratifies such transaction in accordance with the terms of the policy; or | |
• | the chair of our Audit Committee pre-approves or ratifies such transaction and the amount involved in the transaction is less than $100,000, provided that for the Related Party Transaction to continue it must be approved by our Audit Committee at its next regularly scheduled meeting. |
125
Table of Contents
• | each person, or group of affiliated persons, known by us to own beneficially more than 5% of our outstanding shares of common stock; | |
• | each of our directors; | |
• | the selling stockholders; | |
• | each of our named executive officers; and | |
• | all of our current executive officers and directors as a group. |
Shares Beneficially | Shares | Shares Beneficially | ||||||||||||||||||
Owned Before Offering | Being | Owned After Offering | ||||||||||||||||||
Beneficial Owner | Number | Percentage | Offered | Number | Percentage | |||||||||||||||
Dennis Wilson(1) | 36,399,425 | 49.8 | % | 6,818,182 | 29,581,243 | 39.3 | % | |||||||||||||
Advent International Corporation(2) | 27,785,536 | 38.1 | % | 7,222,220 | 20,563,316 | 27.3 | % | |||||||||||||
Highland Capital Partners(3) | 6,994,963 | 9.6 | % | 1,818,182 | 5,176,781 | 6.9 | % | |||||||||||||
Brooke Private Equity Advisors(4) | 194,313 | * | 50,507 | 143,806 | * | |||||||||||||||
Steven J. Collins | — | * | — | — | * | |||||||||||||||
RoAnn Costin | — | * | — | — | * | |||||||||||||||
R. Brad Martin | — | * | — | — | * | |||||||||||||||
Robert Meers(5) | 418,041 | * | — | 418,041 | * | |||||||||||||||
David Mussafer(6) | 27,785,536 | 38.1 | % | 7,222,220 | 20,563,316 | 27.3 | % | |||||||||||||
Rhoda Pitcher(7) | 91,643 | * | — | 91,643 | * | |||||||||||||||
Thomas Stemberg | — | * | — | — | * | |||||||||||||||
Brian Bacon(8) | 137,178 | * | — | 137,178 | * | |||||||||||||||
John Currie | — | * | — | — | * | |||||||||||||||
James Jones | — | * | — | — | * | |||||||||||||||
Mike Tattersfield | — | * | — | — | * | |||||||||||||||
All directors and executive officers as a group (10 persons)(1)(5)(6)(7) | 64,694,645 | 88.1 | % | 14,040,402 | 50,654,243 | 66.9 | % |
* | Less than 1%. |
126
Table of Contents
(1) | Includes 22,150,284 shares of our common stock issuable upon the exchange of an equal number of exchangeable shares of Lulu Canadian Holding, Inc. held by Mr. Wilson, 6,820,059 shares of our common stock held by LIPO Investments (USA), Inc., with respect to which Mr. Wilson exercises voting control, 6,818,182 shares of our common stock held by Slinky Financial ULC, an entity Mr. Wilson controls, 608,100 shares of our common stock issuable upon the exchange of an equal number of exchangeable shares of Lulu Canadian Holding, Inc. held by Mr. Wilson as trustee and 2,800 shares of our common stock issuable upon the exchange of an equal number of exchangeable shares of Lulu Canadian Holding, Inc. held by Five Boys Investments ULC, an entity which Mr. Wilson controls. In the offering, Slinky Financial ULC will be entitled to sell 6,818,182 shares of our common stock. Immediately prior to this offering, Mr. Wilson will beneficially own 36,399,425 shares (or 49.8%) of our common stock, or 47.0% of our common stock on a fully diluted basis. Immediately after this offering, Mr. Wilson will beneficially own 29,581,243 shares, (or 39.3%) of our common stock, or 37.1% of our common stock on a fully diluted basis. | |
(2) | Includes 3,700,377 shares owned by Advent International GPE V Limited Partnership, 9,190,381 shares owned by Advent International GPE V-A Limited Partnership, 7,765,415 shares owned by Advent International GPE V-B Limited Partnership, 5,932,392 shares owned by Advent International GPE V-G Limited Partnership, 890,279 shares owned by Advent International GPE V-I Limited Partnership, 47,931 shares owned by Advent Partners III Limited Partnership, 128,894 shares owned by Advent Partners GPE V Limited Partnership, 47,931 shares owned by Advent Partners GPE V-A Limited Partnership and 81,936 shares owned by Advent Partners GPE V-B Limited Partnership (collectively, the “Advent Funds”) prior to the offering. The Advent Funds collectively purchased their interest in shares of our capital stock on December 5, 2005. Immediately prior to this offering, the Advent Funds will own 27,785,536 shares (or 38.1%) of our common stock, or 35.9% of our common stock on a fully diluted basis. In the offering, Advent International GPE V Limited Partnership will be entitled to sell 961,829 shares of our common stock (or a total of 1,250,666 shares if the underwriters exercise in full their option to purchase additional shares), Advent International GPE V-A Limited Partnership will be entitled to sell 2,388,831 shares of our common stock (or a total of 3,106,197 shares if the underwriters exercise in full their option to purchase additional shares), Advent International GPE V-B Limited Partnership will be entitled to sell 2,018,443 shares of our common stock (or a total of 2,624,582 shares if the underwriters exercise in full their option to purchase additional shares), Advent International GPE V-G Limited Partnership will be entitled to sell 1,541,991 shares of our common stock (or a total of 2,005,051 shares if the underwriters exercise in full their option to purchase additional shares), Advent International GPE V-I Limited Partnership will be entitled to sell 231,408 shares of our common stock (or a total of 300,900 shares if the underwriters exercise in full their option to purchase additional shares), Advent Partners III Limited Partnership will be entitled to sell 12,459 shares of our common stock (or a total of 16,200 shares if the underwriters exercise in full their option to purchase additional shares), Advent Partners GPE V Limited Partnership will be entitled to sell 33,503 shares of our common stock (or a total of 43,564 shares if the underwriters exercise in full their option to purchase additional shares), Advent Partners GPE V-A Limited Partnership will be entitled to sell 12,459 shares of our common stock (or a total of 16,200 shares if the underwriters exercise in full their option to purchase additional shares) and Advent Partners GPE V-B Limited Partnership will be entitled to sell 21,297 shares of our common stock (or a total of 27,693 shares if the underwriters exercise in full their option to purchase additional shares). Immediately after this offering, the Advent Funds will own 20,563,316 shares (or 27.3%) of our common stock, or 25.8% of our common stock on a fully diluted basis. If the underwriters exercise in full their option to purchase additional shares, the Advent Funds will beneficially own 18,394,483 shares (or 24.4%) of our common stock, or 23.1% of our common stock on a fully diluted basis. Advent International Corporation is the managing member of Advent International LLC which is the general partner of GPE GP Limited Partnership which is the general partner of each of Advent International GPE V Limited Partnership, Advent International GPE V-A Limited Partnership, Advent International GPE V-B Limited Partnership, Advent International GPEV-G Limited Partnership and Advent International GPEV-I Limited Partnership. Advent International Corporation is the managing member of Advent International LLC which is the general partner of each of Advent Partners III Limited Partnership, Advent Partners GPE V Limited Partnership, Advent Partners GPE V-A Limited Partnership and Advent Partners GPE V-B Limited Partnership. Advent International Corporation exercises voting and investment power over the shares held by each of these entities and may be deemed to have beneficial ownership of these shares. The address of Advent International Corporation and each of the funds listed above is c/o Advent International Corporation, 75 State Street, Boston, MA 02109. | |
(3) | Includes 4,377,882 shares owned by Highland Capital Partners VI Limited Partnership (“Highland Capital VI”), 2,400,097 shares owned by Highland Capital Partners VI-B Limited Partnership (“Highland Capital VI-B”), and 216,984 shares owned by Highland Entrepreneurs’ Fund VI Limited Partnership (“Highland Entrepreneurs’ |
127
Table of Contents
Fund” and together with Highland Capital VI and Highland Capital VI-B, the “Highland Investing Entities”) prior to this offering. The Highland Investing Entities collectively purchased their shares of our capital stock on December 5, 2005. Immediately prior to this offering, the Highland Investing Entities will own 6,994,963 shares (or 9.6%) of our common stock, or 9.0% of our common stock on a fully diluted basis. In the offering, Highland Capital VI will be entitled to sell 1,137,931 shares of our common stock (or a total of 1,479,652 shares if the underwriters exercise in full their option to purchase additional shares), Highland Capital VI-B will be entitled to sell 623,851 shares of our common stock (or a total of 811,193 shares if the underwriters exercise in full their option to purchase additional shares), and Highland Entrepreneurs’ Fund will be entitled to sell 56,400 shares of our common stock (or a total of 73,337 shares if the underwriters exercise in full their option to purchase additional shares). Immediately after this offering, the Highland Investing Entities will own 5,176,781 shares (or 6.9%) of our common stock, or 6.5% of our common stock on a fully diluted basis. If the underwriters exercise in full their option to purchase additional shares, the Highland Investing Entities will beneficially own 4,630,781 shares (or 6.2%) of our common stock, or 5.8% of our common stock on a fully diluted basis. Highland Management Partners VI Limited Partnership (“HMP”) is the general partner of Highland Capital VI and Highland Capital VI-B. HEF VI Limited Partnership (“HEF”) is the general partner of Highland Entrepreneurs’ Fund. Highland Management Partners VI, Inc. (“Highland Management”) is the general partner of both HMP and HEF. Robert J. Davis, Robert F. Higgis, Paul A. Maeder, Daniel J. Nova, Jon G. Auerbach, Sean M. Dalton, Corey M. Mulloy, and Fergal J. Mullen are the managing directors of Highland Management (together, the “Managing Directors”). Highland Management, as the general partner of the general partners of the Highland Investing Entities, may be deemed to have beneficial ownership of the shares held by the Highland Investing Entities. The Managing Directors have shared voting and investment control over all the shares held by the Highland Investing Entities and therefore may be deemed to share beneficial ownership of the shares held by Highland Investing Entities by virtue of their status as controlling persons of Highland Management. Each of the Managing Directors disclaims beneficial ownership of the shares held by the Highland Investing Entities, except to the extent of such Managing Director’s pecuniary interest therein. The address for the entities affiliated with Highland Capital Partners is 92 Hayden Avenue, Lexington, MA 02421. | ||
(4) | Includes 155,451 shares owned by Brooke Private Equity Advisors Fund I-A, Limited Partnership and 38,862 shares owned by Brooke Private Equity Advisors Fund I (D), Limited Partnership (collectively, the “Brooke Funds”) prior to this offering. The Brooke Funds collectively purchased their interest in shares of our capital stock on December 5, 2005. Immediately prior to this offering, the Brooke Funds will own 194,313 shares (or 0.3%) of our common stock, or 0.3% of our common stock on a fully diluted basis. In the offering, Brooke Private Equity AdvisorsFund I-A, Limited Partnership will be entitled to sell 40,406 shares of our common stock (or a total of 52,540 shares if the underwriters exercise in full their option to purchase additional shares) and Brooke Private Equity Advisors Fund I (D), Limited Partnership will be entitled to sell 10,101 shares of our common stock (or a total of 13,134 shares if the underwriters exercise in full their option to purchase additional shares). Immediately after this offering, the Brooke Funds will own 143,806 shares (or 0.2%) of our common stock, or 0.2% of our common stock on a fully diluted basis. If the underwriters exercise in full their option to purchase additional shares, the Brooke Funds will beneficially own 128,639 shares (or 0.2%) of our common stock, or 0.2% of our common stock on a fully diluted basis. Brooke Private Equity Advisors, L.P. is the general partner of Brooke Private Equity Management, LLC which is the general partner of each of Brooke Private Equity AdvisorsFund I-A and Brook Private Equity Advisors Fund I(D). Brooke Private Equity Advisors, L.P. as the managing member of the general partner of each of the Brooke Funds, may be deemed to have beneficial ownership of the shares held by each of these entities. Voting and investment power over the shares beneficially owned by Brooke Private Equity Advisors L.P. is shared by Peter A. Brooke, John F. Brooke and H.J. von der Goltz. The address of Brooke Private Equity Advisors and each of the funds listed above isc/o Brooke Private Equity Advisors, 114 State Street, 6th Floor, Boston, MA 02109. | |
(5) | Includes 418,041 shares of our common stock issuable upon exercise of options held by Mr. Meers that may be exercised within 60 days of July 24, 2007. | |
(6) | Mr. Mussafer is the Managing Director of Advent International Corporation and may be deemed to beneficially own the shares held by the Advent Funds. Immediately prior to this offering, Advent International Corporation will beneficially own 27,785,536 shares (or 38.1%) of our common stock, or 35.9% of our common stock on a fully diluted basis. Immediately after this offering, Advent International Corporation will beneficially own 20,563,316 shares (or 27.3%) of our common stock, or 25.8% of our common stock on a fully diluted basis. If the underwriters exercise in full their option to purchase additional shares, Advent International Corporation will beneficially own 18,394,483 shares (or 24.4%) of our common stock, or 23.1% of the shares of common stock on a fully diluted basis, of which Mr. Mussafer will be deemed to beneficially owned. Mr. Mussafer disclaims beneficial ownership of all shares held by Advent International Corporation. |
128
Table of Contents
(7) | Includes 13,994 shares of our common stock issuable upon exercise of options held by Ms. Pitcher that may be exercised within 60 days of July 24, 2007. Immediately prior to this offering, Ms. Pitcher will own 77,649 shares or (0.1%) of our common stock, or 0.1% of our common stock on a fully diluted basis. Immediately after this offering, Ms. Pitcher will own 77,649 shares (or 0.1%) of our common stock, or 0.1% of our common stock on a fully diluted basis. | |
(8) | Includes 107,691 shares of our common stock issuable upon the exchange of an equal number of exchangeable shares of Lulu Canadian Holding, Inc. held by Mr. Bacon, 19,826 shares of our common stock issuable upon the exchange of vested options to purchase common shares of LIPO Investments (USA), Inc. and 9,661 shares of our common stock issuable upon the exchange of nonforfeitable shares to purchase common shares of LIPO Investments (USA), Inc. Immediately prior to this offering, Mr. Bacon will own 137,178 shares (or 0.2%) of our common stock, or 0.2% of our common stock on a fully diluted basis. Immediately after this offering, Mr. Bacon will own 137,178 shares (or 0.2%) of our common stock, or 0.2% of our common stock on a fully diluted basis. |
129
Table of Contents
• | restricting dividends on the common stock; | |
• | diluting the voting power of the common stock; | |
• | impairing the liquidation rights of the common stock; or | |
• | delaying or preventing a change in our control without further action by the stockholders. |
130
Table of Contents
• | Any holder of exchangeable shares is entitled at any time to require Lulu Canadian Holding to redeem any or all of the exchangeable shares registered in such holder’s name in exchange for one share of our common stock for each exchangeable share presented and surrendered, plus a cash payment in an amount equal to any accrued and unpaid dividends on such exchangeable shares at the time of redemption. However, shares of our common stock issuable upon an exchange of exchangeable shares will not be delivered other than pursuant to an effective registration statement filed with the SEC, which we will not file prior to the first anniversary of the closing of this offering, or pursuant to an exemption from registration under U.S. and Canadian securities laws. The right of a holder of exchangeable shares to require Lulu Canadian Holding to redeem such holder’s exchangeable shares is referred to herein as the put right. | |
• | If we declare a dividend on our common stock, the holders of exchangeable shares are entitled to receive from Lulu Canadian Holding the same dividend, or an economically equivalent dividend, on their exchangeable shares. | |
• | Holders of exchangeable shares are not entitled to receive notice of or to attend any meeting of the stockholders of Lulu Canadian Holding or to vote at any such meeting, except as required by law or as specifically provided in the exchangeable share conditions. | |
• | Lulu Canadian Holding will have the right to force the exchange of all exchangeable shares for shares of our common stock (and payment of any accrued and unpaid dividends on the |
131
Table of Contents
exchangeable shares) at any time after the earlier of (i) the 40th anniversary of our corporate reorganization, (ii) the date on which fewer than 10% of the originally issued exchangeable shares remain outstanding or (iii) the occurrence of certain specified events such as a change of control of us. The right of Lulu Canadian Holding to force the exchange of all exchangeable shares is referred to herein as the call right. |
• | The right of holders of exchangeable shares to require Lulu Canadian Holding to redeem their exchangeable shares and the right of Lulu Canadian Holding to redeem the exchangeable shares, both as described above, are subject to the overriding right of Lululemon Callco ULC, or Callco, our wholly owned subsidiary, to purchase such shares at a rate of one share of our common stock for each exchangeable share, together with all declared and unpaid dividends on such exchangeable share. | |
• | Holders of exchangeable shares will be entitled to vote their special voting shares. |
• | no outstanding exchangeable shares or shares or rights convertible into or exchangeable for exchangeable shares are held by a beneficiary (other than by us or any of our subsidiaries); and | |
• | we and Lulu Canadian Holding together elect in writing to terminate the exchange trust agreement and such termination is approved by the beneficiaries as set forth in the provisions to the exchangeable shares. |
132
Table of Contents
• | Lulu Canadian Holding and we will take all actions and do all things as are reasonably necessary or desirable to enable and permit it and us, in accordance with applicable law, to perform our respective obligations and complete all such actions and all such things as are necessary or desirable to enable and permit us to deliver or cause to be delivered shares of our common stock to the holders of exchangeable shares who exercise their put rights. | |
• | Lulu Canadian Holding, Callco and we will take all such actions and do all things as are necessary or desirable to enable and permit them and us, in accordance with applicable law, to perform our respective obligations arising upon the exercise by Lulu Canadian Holding or Callco of their rights to acquire exchangeable shares, including without limitation all such actions and all such things as are necessary or desirable to enable and permit us to deliver or cause to be delivered shares of our common stock to the holders of exchangeable shares in accordance with the provisions of the such rights. | |
• | Neither we nor Lulu Canadian Holding may take any action in order to liquidate, dissolve orwind-up, each a voluntary liquidation, or proceed with any voluntary liquidation, unless the other concurrently takes action to voluntarily liquidate or proceeds with a voluntary liquidation. |
133
Table of Contents
• | any breach of their duty of loyalty to the corporation or the stockholder; | |
• | acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; |
134
Table of Contents
• | unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or | |
• | any transaction from which the director derived an improper personal benefit. |
135
Table of Contents
• | prior to such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested holder; | |
• | upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers and by employee stock plans 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; and | |
• | on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of the stockholders, and not by written consent, |
136
Table of Contents
by the affirmative vote of at least 662/3% of the outstanding voting stock that is not owned by the interested stockholder. |
• | Section 203 defines business combination to include the following: | |
• | any merger or consolidation involving the corporation and the interested stockholder; | |
• | any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; | |
• | subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; | |
• | any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the corporation beneficially owned by the interested stockholder; or | |
• | the receipt by the interested stockholder of the benefit of any loss, advances, guarantees, pledges, or other financial benefits by or through the corporation. |
137
Table of Contents
Shares Eligible | ||||||
Days after Date of this Prospectus | for Sale | Comment | ||||
180 days | 32,858,885 | Lock-up terminates; shares eligible for sale under Rule 144 and Rule 701 | ||||
Thereafter | 24,250,975 | Shares eligible for sale upon expiration of their respective one-year holding period |
138
Table of Contents
• | one percent of the number of shares of our common stock then outstanding, which will equal 753,099 shares immediately after this offering; and | |
• | the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. |
• | by persons other than affiliates, subject only to themanner-of-sale provisions of Rule 144; and | |
• | by affiliates, subject to themanner-of-sale, current public information, and filing requirements of Rule 144. |
139
Table of Contents
140
Table of Contents
• | an individual who is not a citizen or resident of the U.S.; | |
• | a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) that is not organized or created in or under the laws of the United States or any State thereof or the District of Columbia; | |
• | an estate that is not taxable in the United States on its worldwide income; or | |
• | a trust that (i) is not subject to primary supervision over its administration by a U.S. court or is not subject to the control of a U.S. person with respect to all substantial trust decisions and (ii) has not elected to be treated as a U.S. person pursuant to applicable Treasury regulations. |
• | the discussion assumes that anon-U.S. holder holds our common stock as a capital asset and that thenon-U.S. holder does not have a special tax status, such as a financial institution, an insurance company, a hybrid entity, a tax-exempt organization or a broker-dealer or trader in securities; | |
• | the discussion does not consider tax consequences that depend upon anon-U.S. holder’s particular tax situation; | |
• | the discussion does not consider special tax rules that may apply to anon-U.S. holder who holds our common stock as part of a straddle, hedge, conversion transaction, synthetic security or other integrated investment; | |
• | the discussion does not consider special tax provisions that may be applicable to anon-U.S. holder that has relinquished U.S. citizenship or residence; | |
• | the discussion does not cover U.S. federal gift tax consequences, state, local ornon-U.S. tax consequences; |
141
Table of Contents
• | the discussion does not consider the tax consequences for stockholders, partners, owners or beneficiaries of anon-U.S. holder; and | |
• | we have not requested a ruling from the Internal Revenue Service, or IRS, on the tax consequences of owning the common stock. As a result, the IRS could disagree with portions of this discussion. |
• | the gain is effectively connected with a trade or business conducted by thenon-U.S. holder in the United States and, if required by an applicable tax treaty, the gain is attributable to a permanent establishment maintained by thenon-U.S. holder in the United States, in which case |
142
Table of Contents
the gain will be subject to U.S. federal income tax on a net income basis at the regular graduated rates and in the manner applicable to U.S. persons, unless an applicable treaty provides otherwise, and, if thenon-U.S. holder is a foreign corporation, the branch profits tax described above may also apply; |
• | we are or have been a United States real property holding corporation, or USRPHC, for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the period that thenon-U.S. holder held our common stock; in this case, thenon-U.S. holder may be subject to U.S. federal income tax on its net gain derived from the disposition of our common stock at regular graduated rates. Generally, a corporation is a USRPHC if the fair market value of its U.S. real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use in a trade or business. If we are, or were to become, a USRPHC, gain realized upon disposition of our common stock by anon-U.S. holder that did not directly or indirectly own more than 5% of our common stock during the shorter of the five-year period ending on the date of disposition or the period that thenon-U.S. holder held our common stock generally would not be subject to U.S. federal income tax, provided that our common stock is “regularly traded on an established securities market” within the meaning of Section 897(c)(3) of the Code. We believe that we are not currently, and we do not anticipate becoming in the future, a USRPHC; or | |
• | if anon-U.S. holder (i) is an individual, (ii) holds the common stock as a capital asset, (iii) is present in the United States for 183 or more days during the taxable year of the sale and (iv) certain conditions are met, then thenon-U.S. holder will be subject to a flat 30% tax on the gain derived from the sale, which may be offset by U.S. source capital losses, even though thenon-U.S. holder is not considered a resident of the U.S. |
143
Table of Contents
144
Table of Contents
145
Table of Contents
146
Table of Contents
147
Table of Contents
Underwriter | Number of Shares | |||
Goldman, Sachs & Co. | ||||
Merrill Lynch, Pierce, Fenner & Smith | ||||
Incorporated | ||||
Credit Suisse Securities (USA) LLC | ||||
UBS Securities LLC | ||||
William Blair & Company, L.L.C. | ||||
CIBC World Markets Corp. | ||||
Wachovia Capital Markets, LLC | ||||
Thomas Weisel Partners LLC | ||||
Total | 18,200,000 | |||
No Exercise | Full Exercise | |||||||
Per Share | $ | $ | ||||||
Total | $ | $ |
No Exercise | Full Exercise | |||||||
Per Share | $ | $ | ||||||
Total | $ | $ |
148
Table of Contents
149
Table of Contents
150
Table of Contents
(a) | to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; | |
(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) | 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 which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive. |
1.1 | it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, or FSMA) received by it in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and | |
1.2 | it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom. |
151
Table of Contents
152
Table of Contents
153
Table of Contents
154
Table of Contents
155
Table of Contents
• | combined consolidated balance sheets of Lululemon as at January 31, 2006 and January 31, 2007; and | |
• | combined consolidated statement of income (loss), stockholders’ equity and comprehensive income (loss) and cash flows for each of the years in the three-year period ended January 31, 2007. |
156
Table of Contents
Combined Consolidated Financial Statements: | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 |
F-1
Table of Contents
Chartered Accountants
Vancouver, British Columbia, Canada
June 19, 2007
F-2
Table of Contents
January 31, | January 31, | April 30, | ||||||||||
2006 | 2007 | 2007 | ||||||||||
(Unaudited) | ||||||||||||
ASSETS | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 3,877,017 | $ | 16,028,534 | $ | 4,392,601 | ||||||
Accounts receivable | 1,300,281 | 2,290,665 | 3,547,888 | |||||||||
Due from related parties | 273,723 | 192,302 | 191,739 | |||||||||
Inventories | 21,077,881 | 26,628,113 | 25,405,576 | |||||||||
Prepaid expenses and other current assets | 688,422 | 830,231 | 1,061,911 | |||||||||
Deferred income taxes | — | 2,522,898 | — | |||||||||
27,217,324 | 48,492,743 | 34,599,715 | ||||||||||
Property and equipment, net | 10,426,795 | 18,822,239 | 21,168,786 | |||||||||
Goodwill | 840,325 | 811,678 | 864,851 | |||||||||
Intangible assets, net | 2,441,739 | 2,140,011 | 7,366,543 | |||||||||
Deferred income taxes | 186,772 | 588,397 | 616,287 | |||||||||
Other non-current assets | 801,012 | 999,470 | 4,418,302 | |||||||||
$ | 41,913,967 | $ | 71,854,538 | $ | 69,034,484 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Current liabilities | ||||||||||||
Credit facility | $ | — | $ | — | $ | 1,454,775 | ||||||
Trade accounts payable | 5,877,048 | 4,932,960 | 3,078,628 | |||||||||
Due to related parties | 632,541 | — | — | |||||||||
Accrued liabilities | 2,987,708 | 14,520,633 | 10,192,194 | |||||||||
Income taxes payable | 497,124 | 9,177,953 | 3,731,705 | |||||||||
Other current liabilities | 2,247,646 | 2,652,491 | 2,909,734 | |||||||||
12,242,067 | 31,284,037 | 21,367,036 | ||||||||||
Other liabilities | 1,073,409 | 2,239,650 | 2,345,580 | |||||||||
Deferred income taxes | 536,707 | 384,354 | 264,009 | |||||||||
13,852,183 | 33,908,041 | 23,976,625 | ||||||||||
Non-controlling interest | 10,000 | 567,699 | 567,360 | |||||||||
Commitments and contingencies(note 14) | ||||||||||||
Stockholders’ Equity | ||||||||||||
Common stock | ||||||||||||
Common stock of LIPO Investments (Canada) Inc., without par value; unlimited shares authorized; 117,000,361 shares issued and outstanding as of January 31, 2006, January 31, 2007 and April 30, 2007 | 1 | 1 | 1 | |||||||||
Preferred stock | ||||||||||||
Participating preferred stock of lululemon athletica inc., $0.01 par value; issuable in series; 5,750,000 shares authorized as of January 31, 2006 and 2007; 224,989 shares issued and outstanding as of January 31, 2006; 225,489 issued and outstanding as of January 31, 2007 and April 30, 2007 | 2,250 | 2,255 | 2,255 | |||||||||
Additional paid-in capital | 95,834,516 | 99,110,502 | 100,518,035 | |||||||||
Accumulated deficit | (68,343,726 | ) | (60,677,395 | ) | (57,135,332 | ) | ||||||
Accumulated other comprehensive income (loss) | 558,743 | (1,056,565 | ) | 1,105,540 | ||||||||
28,051,784 | 37,378,798 | 44,490,499 | ||||||||||
$ | 41,913,967 | $ | 71,854,538 | $ | 69,034,484 | |||||||
Director | Director |
F-3
Table of Contents
Fiscal Year Ended January 31, | Three Months Ended April 30, | |||||||||||||||||||
2005 | 2006 | 2007 | 2006 | 2007 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Net revenue | $ | 40,748,376 | $ | 84,129,093 | $ | 148,884,834 | $ | 28,183,582 | $ | 44,789,456 | ||||||||||
Cost of goods sold (including stock-based compensation expense of $nil, $754,765, $359,543, $94,276 and $168,870) | 19,448,431 | 41,176,981 | 72,903,112 | 13,664,329 | 21,978,546 | |||||||||||||||
Gross profit | 21,299,945 | 42,952,112 | 75,981,722 | 14,519,253 | 22,810,910 | |||||||||||||||
Operating expenses | ||||||||||||||||||||
Selling, general and administrative expenses (including stock-based compensation expense of $nil, $1,945,151, $2,470,029 $262,387 and $1,238,663) | 10,840,138 | 26,416,262 | 52,539,998 | 8,405,887 | 15,962,780 | |||||||||||||||
Principal stockholder bonus | 12,134,019 | 12,809,142 | — | — | — | |||||||||||||||
Settlement of lawsuit | — | — | 7,228,310 | — | — | |||||||||||||||
Income (loss) from operations | (1,674,212 | ) | 3,726,708 | 16,213,414 | 6,113,366 | 6,848,130 | ||||||||||||||
Other expenses (income) | ||||||||||||||||||||
Interest income | (10,686 | ) | (54,562 | ) | (141,736 | ) | (25,948 | ) | (110,051 | ) | ||||||||||
Interest expense | 45,549 | 51,020 | 47,348 | 3,377 | 3,055 | |||||||||||||||
34,863 | (3,542 | ) | (94,388 | ) | (22,571 | ) | (106,996 | ) | ||||||||||||
Income (loss) before income taxes | (1,709,075 | ) | 3,730,250 | 16,307,802 | 6,135,937 | 6,955,126 | ||||||||||||||
Provision for (recovery of) income taxes | (298,043 | ) | 2,336,146 | 8,753,336 | 2,954,762 | 3,448,653 | ||||||||||||||
Non-controlling interest | — | — | (111,865 | ) | — | (35,590 | ) | |||||||||||||
Net income (loss) | $ | (1,411,032 | ) | $ | 1,394,104 | $ | 7,666,331 | $ | 3,181,175 | $ | 3,542,063 | |||||||||
Pro forma weighted average number of shares outstanding: | ||||||||||||||||||||
Pro forma basic earnings per share: | ||||||||||||||||||||
Common stock equivalent stock | 24,250,975 | 24,250,975 | ||||||||||||||||||
Common stock | 48,767,976 | 48,767,976 | ||||||||||||||||||
Pro forma weighted average diluted number of shares of common stock outstanding | 49,565,399 | 50,139,576 | ||||||||||||||||||
Pro forma common stock equivalent basic and diluted earnings per share | $ | 0.10 | $ | 0.05 | ||||||||||||||||
Pro forma common stock basic and diluted earnings per share | $ | 0.10 | $ | 0.05 |
F-4
Table of Contents
Accumulated | ||||||||||||||||||||||||||||||||||||
Other | Total | |||||||||||||||||||||||||||||||||||
Lululemon | Lululemon | Additional | Retained | Comprehensive | Comprehensive | Total | ||||||||||||||||||||||||||||||
Athletica Inc. | Athletica USA Inc. | Paid-in | Earnings | Income | Income | Stockholders’ | ||||||||||||||||||||||||||||||
Amount | Amount | Capital | (Deficit) | (Loss) | (Loss) | Equity | ||||||||||||||||||||||||||||||
Shares | $ | Shares | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Balance at January 31, 2004 | 100 | 2 | 100 | 100,000 | 678,329 | 31,439 | 809,770 | |||||||||||||||||||||||||||||
Net income | (1,411,032 | ) | (1,411,032 | ) | (1,411,032 | ) | ||||||||||||||||||||||||||||||
Foreign currency translation adjustment | (2,923 | ) | (2,923 | ) | (2,923 | ) | ||||||||||||||||||||||||||||||
Balance at January 31, 2005 * | 100 | 2 | 100 | 100,000 | — | (732,703 | ) | 28,516 | (1,413,955 | ) | (604,185 | ) | ||||||||||||||||||||||||
lululemon | ||||||||||||||||||||||||||||||||||||
athletica inc. | LIPO Investments (Canada), Inc. | |||||||||||||||||||||||||||||||||||
Amount | Amount | |||||||||||||||||||||||||||||||||||
Shares | $ | Shares | $ | $ | ||||||||||||||||||||||||||||||||
Issued Series A preferred stock — net of share issuance costs on December 5, 2005 | 107,995 | 1,080 | 92,043,184 | 92,044,264 | ||||||||||||||||||||||||||||||||
Issued Series TS preferred stock on December 5, 2005** | 116,994 | 1,170 | 1,091,416 | 1,092,586 | ||||||||||||||||||||||||||||||||
Issued common stock on December 5, 2005** | 115,253,853 | 1 | 1 | |||||||||||||||||||||||||||||||||
Elimination of subsidiaries capital stock** | (100,002 | ) | ||||||||||||||||||||||||||||||||||
Issued restricted shares on December 5, 2005 (note 11) | 1,746,508 | — | ||||||||||||||||||||||||||||||||||
Distribution to principal stockholder on December 5, 2005 | (69,005,127 | ) | (69,005,127 | ) | ||||||||||||||||||||||||||||||||
Stock-based compensation | 2,699,916 | 2,699,916 | ||||||||||||||||||||||||||||||||||
Net income | 1,394,104 | 1,394,104 | 1,394,104 | |||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | 530,227 | 530,227 | 530,227 | |||||||||||||||||||||||||||||||||
Balance at January 31, 2006 | 224,989 | 2,250 | 117,000,361 | 1 | 95,834,516 | (68,343,726 | ) | 558,743 | 1,924,331 | 28,051,784 | ||||||||||||||||||||||||||
Issued Series A preferred stock | 500 | 5 | 634,422 | 634,427 | ||||||||||||||||||||||||||||||||
Stock-based compensation | 2,641,564 | 2,641,564 | ||||||||||||||||||||||||||||||||||
Net income | 7,666,331 | 7,666,331 | 7,666,331 | |||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | (1,615,308 | ) | (1,615,308 | ) | (1,615,308 | ) | ||||||||||||||||||||||||||||||
Balance at January 31, 2007 | 225,489 | 2,255 | 117,000,361 | 1 | 99,110,502 | (60,677,395 | ) | (1,056,565 | ) | 6,051,023 | 37,378,798 | |||||||||||||||||||||||||
Stock-based compensation (Unaudited) | 1,407,533 | 1,407,533 | ||||||||||||||||||||||||||||||||||
Net income (Unaudited) | 3,542,063 | 3,542,063 | 3,542,063 | |||||||||||||||||||||||||||||||||
Foreign currency translation adjustment (Unaudited) | 2,162,105 | 2,162,105 | 2,162,105 | |||||||||||||||||||||||||||||||||
Balance at April 30, 2007 (Unaudited) | 225,489 | 2,255 | 117,000,361 | 1 | 100,518,035 | (57,135,332 | ) | 1,105,540 | 5,704,168 | 44,490,499 | ||||||||||||||||||||||||||
* | The balance of capital for LAI and Lulu US was $100,000 and $2, respectively on December 5, 2005. | |
** | Issued in exchange for interests in Lulu US and Lululemon Athletica Inc. resulting in the elimination of share capital amounts for these two companies from total stockholders’ equity. |
F-5
Table of Contents
Fiscal Year Ended January 31, | Three Months Ended April 30, | |||||||||||||||||||
2005 | 2006 | 2007 | 2006 | 2007 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Cash flows from operating activities | ||||||||||||||||||||
Net income (loss) for the year | $ | (1,411,032 | ) | $ | 1,394,104 | $ | 7,666,331 | $ | 3,181,175 | $ | 3,542,063 | |||||||||
Items not affecting cash | ||||||||||||||||||||
Depreciation and amortization | 1,122,686 | 2,466,298 | 4,618,512 | 892,896 | 1,503,738 | |||||||||||||||
Deferred income taxes | (107,142 | ) | (174,901 | ) | (3,076,876 | ) | (800,844 | ) | 2,374,662 | |||||||||||
Loss on property and equipment | — | — | 229,950 | — | — | |||||||||||||||
Stock-based compensation | — | 2,699,916 | 2,829,572 | 356,663 | 1,407,533 | |||||||||||||||
Non-controlling interest | — | 10,000 | 562,587 | (4,888 | ) | (339 | ) | |||||||||||||
Changes in non-cash working capital items | 5,737,198 | (16,677,486 | ) | 12,869,203 | (1,492,501 | ) | (14,421,197 | ) | ||||||||||||
5,341,710 | (10,282,069 | ) | 25,699,279 | 2,132,501 | (5,593,540 | ) | ||||||||||||||
Cash flows from investing activities | ||||||||||||||||||||
Purchase of property and equipment | (3,805,512 | ) | (7,846,264 | ) | (12,413,833 | ) | (2,761,205 | ) | (3,044,588 | )) | ||||||||||
Acquisition of franchises | — | (460,567 | ) | (511,850 | ) | — | (5,000,822 | ) | ||||||||||||
(3,805,512 | ) | (8,306,831 | ) | (12,925,683 | ) | (2,761,205 | ) | (8,045,410 | ) | |||||||||||
Cash flows from financing activities | ||||||||||||||||||||
Capital stock issued for cash — net of issuance costs | — | 93,036,851 | 446,419 | — | — | |||||||||||||||
Payment of IPO costs | — | — | — | — | (452,937 | ) | ||||||||||||||
Distribution to principal stockholder | — | (69,005,127 | ) | — | — | — | ||||||||||||||
Repayment of long-term debt | (299,636 | ) | (634,467 | ) | — | — | — | |||||||||||||
Funds received from principal stockholder loan | 4,325,346 | 7,831,694 | 222,440 | — | — | |||||||||||||||
Funds repaid on principal stockholder loan | (2,527,250 | ) | (11,143,141 | ) | — | — | — | |||||||||||||
Change in bank indebtedness | (65,141 | ) | — | — | — | 1,454,775 | ||||||||||||||
1,433,319 | 20,085,810 | 668,859 | — | 1,001,838 | ||||||||||||||||
Effect of exchange rate changes on cash | (317,743 | ) | (271,667 | ) | (1,290,938 | ) | 270,729 | 1,001,179 | ||||||||||||
Increase (decrease) in cash and cash equivalents | 2,651,774 | 1,225,243 | 12,151,517 | (357,975 | ) | (11,635,933 | ) | |||||||||||||
Cash and cash equivalents — Beginning of period | — | 2,651,774 | 3,877,017 | 3,877,017 | 16,028,534 | |||||||||||||||
Cash and cash equivalents — End of period | $ | 2,651,774 | $ | 3,877,017 | $ | 16,028,534 | $ | 3,519,042 | $ | 4,392,601 | ||||||||||
F-6
Table of Contents
1 | Nature of Operations and Basis of Presentation |
F-7
Table of Contents
2 | Summary of Significant Accounting Policies |
F-8
Table of Contents
Furniture and fixtures | 20% | |||
Computer hardware and software | 30% | |||
Equipment | 30% | |||
Vehicles | 30% |
F-9
Table of Contents
F-10
Table of Contents
F-11
Table of Contents
F-12
Table of Contents
F-13
Table of Contents
F-14
Table of Contents
3 | Inventories |
January 31, | January 31, | April 30, | ||||||||||
2006 | 2007 | 2007 | ||||||||||
(Unaudited) | ||||||||||||
Finished goods | $ | 13,076,666 | $ | 21,310,791 | $ | 23,161,246 | ||||||
Work in process | 1,868,569 | 1,634,196 | 547,465 | |||||||||
Raw materials | 6,377,275 | 4,644,620 | 2,847,848 | |||||||||
Provision to reduce inventory to market value | (244,629 | ) | (961,494 | ) | (1,150,983 | ) | ||||||
$ | 21,077,881 | $ | 26,628,113 | $ | 25,405,576 | |||||||
4 | Property and Equipment |
January 31, 2006 | ||||||||||||
Accumulated | ||||||||||||
Cost | Amortization | Net | ||||||||||
$ | $ | $ | ||||||||||
Leasehold improvements | 8,857,568 | 2,121,163 | 6,736,405 | |||||||||
Furniture and fixtures | 2,764,784 | 412,300 | 2,352,484 | |||||||||
Computer hardware | 1,190,913 | 435,414 | 755,499 | |||||||||
Computer software | 867,620 | 375,798 | 491,822 | |||||||||
Equipment | 71,109 | 18,315 | 52,794 | |||||||||
Vehicles | 86,341 | 48,550 | 37,791 | |||||||||
13,838,335 | 3,411,540 | 10,426,795 | ||||||||||
F-15
Table of Contents
January 31, 2007 | ||||||||||||
Accumulated | ||||||||||||
Cost | Amortization | Net | ||||||||||
$ | $ | $ | ||||||||||
Leasehold improvements | 17,039,752 | 4,713,551 | 12,326,201 | |||||||||
Furniture and fixtures | 5,287,109 | 1,051,952 | 4,235,157 | |||||||||
Computer hardware | 1,941,252 | 770,278 | 1,170,974 | |||||||||
Computer software | 1,591,572 | 582,748 | 1,008,824 | |||||||||
Equipment | 90,808 | 37,102 | 53,706 | |||||||||
Vehicles | 83,398 | 56,021 | 27,377 | |||||||||
26,033,891 | 7,211,652 | 18,822,239 | ||||||||||
April 30, 2007 | ||||||||||||
Accumulated | ||||||||||||
Cost | Amortization | Net | ||||||||||
$ | $ | $ | ||||||||||
(Unaudited) | ||||||||||||
Leasehold improvements | 18,495,993 | 5,905,495 | 12,590,498 | |||||||||
Furniture and fixtures | 6,614,297 | 1,379,956 | 5,234,341 | |||||||||
Computer hardware | 2,463,004 | 937,926 | 1,525,078 | |||||||||
Computer software | 2,422,252 | 690,558 | 1,731,694 | |||||||||
Equipment | 103,498 | 43,670 | 59,828 | |||||||||
Vehicles | 88,860 | 61,513 | 27,347 | |||||||||
30,187,904 | 9,019,118 | 21,168,786 | ||||||||||
5 | Goodwill and Intangible Assets — Net |
January 31, | January 31, | April 30, | ||||||||||
2006 | 2007 | 2007 | ||||||||||
(Unaudited) | ||||||||||||
Balance — Beginning of the period | $ | 771,375 | $ | 840,325 | $ | 811,678 | ||||||
Foreign currency translation | 68,950 | (28,647 | ) | 53,173 | ||||||||
Balance — End of period | $ | 840,325 | $ | 811,678 | $ | 864,851 | ||||||
F-16
Table of Contents
January 31, 2006 | ||||||||||||
Accumulated | ||||||||||||
Cost | Amortization | Net | ||||||||||
$ | $ | $ | ||||||||||
Reacquired franchise rights | 2,681,031 | 608,037 | 2,072,994 | |||||||||
Non-competition agreements | 790,167 | 421,422 | 368,745 | |||||||||
3,471,198 | 1,029,459 | 2,441,739 | ||||||||||
January 31, 2007 | ||||||||||||
Accumulated | ||||||||||||
Cost | Amortization | Net | ||||||||||
$ | $ | $ | ||||||||||
Reacquired franchise rights | 2,835,441 | 904,980 | 1,930,461 | |||||||||
Non-competition agreements | 769,252 | 559,702 | 209,550 | |||||||||
3,604,693 | 1,464,682 | 2,140,011 | ||||||||||
April 30, 2007 | ||||||||||||
Accumulated | ||||||||||||
Cost | Amortization | Net | ||||||||||
$ | $ | $ | ||||||||||
(Unaudited) | ||||||||||||
Reacquired franchise rights | 8,130,367 | 940,024 | 7,190,343 | |||||||||
Non-competition agreements | 813,229 | 637,029 | 176,200 | |||||||||
8,943,596 | 1,577,053 | 7,366,543 | ||||||||||
Twelve Month Period Ended April 30, | $ | |||
(Unaudited) | ||||
2008 | 744,787 | |||
2009 | 896,750 | |||
2010 | 845,868 | |||
2011 | 845,868 | |||
2012 | 845,868 | |||
2013 and beyond | 3,187,402 | |||
7,366,543 | ||||
F-17
Table of Contents
$ | ||||
(Unaudited) | ||||
Inventory | 407,355 | |||
Prepaid and other current assets | 52,492 | |||
Property and equipment | 500,274 | |||
Reacquired franchise rights | 5,006,059 | |||
Total assets acquired | 5,966,180 | |||
Deferred revenue | 403,359 | |||
Total liabilities assumed | 403,359 | |||
Net assets acquired | 5,562,821 | |||
6 | Other Non-current Assets |
January 31, | January 31, | April 30, | ||||||||||
2006 | 2007 | 2007 | ||||||||||
(Unaudited) | ||||||||||||
IPO Costs | $ | — | $ | — | $ | 3,213,825 | ||||||
Other | 801,012 | 999,470 | 1,204,477 | |||||||||
$ | 801,012 | $ | 999,470 | $ | 4,418,302 | |||||||
F-18
Table of Contents
7 | Accrued Liabilities |
January 31, | January 31, | April 30, | ||||||||||
2006 | 2007 | 2007 | ||||||||||
(Unaudited) | ||||||||||||
Settlement of lawsuit (note 14) | $ | — | $ | 7,228,310 | $ | — | ||||||
Accrued inventory in transit | 1,037,338 | 1,877,065 | 1,266,128 | |||||||||
Wages and vacation payable | 940,604 | 2,816,751 | 2,992,092 | |||||||||
IPO costs | — | — | 2,155,549 | |||||||||
Sales tax collected | 534,351 | 927,555 | 1,243,900 | |||||||||
Other | 475,415 | 1,670,952 | 2,534,525 | |||||||||
$ | 2,987,708 | $ | 14,520,633 | $ | 10,192,194 | |||||||
8 | Other Liabilities |
January 31, | January 31, | April 30, | ||||||||||
2006 | 2007 | 2007 | ||||||||||
(Unaudited) | ||||||||||||
Deferred lease liability | $ | 711,633 | $ | 1,585,097 | $ | 1,848,668 | ||||||
Deferred revenue | 2,609,422 | 3,307,044 | 3,406,646 | |||||||||
3,321,055 | 4,892,141 | 5,255,314 | ||||||||||
Less: Current portion | 2,247,646 | 2,652,491 | 2,909,734 | |||||||||
$ | 1,073,409 | $ | 2,239,650 | $ | 2,345,580 | |||||||
9 | Long-term Debt and Credit Facilities |
F-19
Table of Contents
10 | Combined Stockholders’ Equity |
F-20
Table of Contents
F-21
Table of Contents
F-22
Table of Contents
11 | Equity Incentive Compensation Plans |
F-23
Table of Contents
F-24
Table of Contents
LIPO Investments (Canada), Inc. | LIPO Investments (USA), Inc. | |||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||||||||
Exercise | Average | Exercise | Average | |||||||||||||||||||||
Number of | Price | Contract Life | Number of | Price | Contract Life | |||||||||||||||||||
options | CA$ | (Months) | Options | CA$ | (Months) | |||||||||||||||||||
Granted | 11,062,179 | 0.99 | 11,062,179 | 0.01 | ||||||||||||||||||||
Outstanding at January 31, 2006 | 11,062,179 | 0.99 | 59 | 11,062,179 | 0.01 | 59 | ||||||||||||||||||
Exercisable at January 31, 2006 | 2,239,395 | 0.99 | 59 | 2,239,395 | 0.01 | 59 | ||||||||||||||||||
Forfeited | 585,902 | 0.99 | 585,902 | 0.01 | ||||||||||||||||||||
Outstanding at January 31, 2007 | 10,476,277 | 0.99 | 47 | 10,476,277 | 0.01 | 47 | ||||||||||||||||||
Exercisable at January 31, 2007 | 4,307,262 | 0.99 | 47 | 4,307,262 | 0.01 | 47 | ||||||||||||||||||
Outstanding at April 30, 2007 (Unaudited) | 10,476,277 | 0.99 | 44 | 10,476,277 | 0.01 | 44 | ||||||||||||||||||
Exercisable at April 30, 2007 (Unaudited) | 4,307,262 | 0.99 | 41 | 4,307,262 | 0.01 | 41 | ||||||||||||||||||
LIPO Investments (Canada), Inc. | LIPO Investments (USA), Inc. | |||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||||||||
Purchase | Average | Purchase | Average | |||||||||||||||||||||
Number of | Price | Contract Life | Number of | Price | Contract Life | |||||||||||||||||||
Shares | CA$ | (Months) | Shares | CA$ | (Months) | |||||||||||||||||||
Granted | 5,295,952 | 0.00001 | 5,295,952 | 0.00001 | ||||||||||||||||||||
Vested | 1,746,508 | 0.00001 | 1,746,508 | 0.00001 | ||||||||||||||||||||
Unvested at January 31, 2006 | 3,549,444 | 0.00001 | 47 | 3,549,444 | 0.00001 | 47 | ||||||||||||||||||
Forfeited | 10,798 | 0.00001 | 10,798 | 0.00001 | ||||||||||||||||||||
Vested | 1,197,999 | 0.00001 | 1,197,999 | 0.00001 | ||||||||||||||||||||
Unvested at January 31, 2007 | 2,340,647 | 0.00001 | 35 | 2,340,647 | 0.00001 | 35 | ||||||||||||||||||
Unvested at April 30, 2007 (Unaudited) | 2,340,647 | 0.00001 | 32 | 2,340,647 | 0.00001 | 32 | ||||||||||||||||||
F-25
Table of Contents
Number of Options/Shares Vesting | Number of Options/Shares Vesting | |||||||||||||||||||||||
LIPO Investments (Canada), Inc. | LIPO Investments (USA), Inc. | |||||||||||||||||||||||
Forfeitable | Series B | Forfeitable | Series B | |||||||||||||||||||||
Vesting Date | Shares | Options | Total | Shares | Options | Total | ||||||||||||||||||
December 5, 2005 | 1,746,508 | 2,239,395 | 3,985,903 | 1,746,508 | 2,239,395 | 3,985,903 | ||||||||||||||||||
December 5, 2006 | 1,197,999 | 2,067,867 | 3,265,866 | 1,197,999 | 2,067,867 | 3,265,866 | ||||||||||||||||||
December 5, 2007 | 1,197,999 | 2,067,867 | 3,265,866 | 1,197,999 | 2,067,867 | 3,265,866 | ||||||||||||||||||
December 5, 2008 | 863,566 | 2,019,682 | 2,883,248 | 863,566 | 2,019,682 | 2,883,248 | ||||||||||||||||||
December 5, 2009 | 289,880 | 1,669,519 | 1,959,399 | 289,880 | 1,669,519 | 1,959,399 | ||||||||||||||||||
December 5, 2010 | — | 997,849 | 997,849 | — | 997,849 | 997,849 | ||||||||||||||||||
5,295,952 | 11,062,179 | 16,358,131 | 5,295,952 | 11,062,179 | 16,358,131 | |||||||||||||||||||
Dividend yield | 0 | % | ||
Expected volatility | 45 | % | ||
Risk-free interest rate | 5 | % | ||
Weighted-average expected life of option (years) | 5.0 |
F-26
Table of Contents
Lululemon Athletica Inc. | Lululemon Athletica USA Inc. | |||||||||||||||||||||||
Weighted | Weighted | Weighted | Weighted | |||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||||
Exercise | Contract | Exercise | Contract | |||||||||||||||||||||
Number of | Price | Life | Number of | Price | Life | |||||||||||||||||||
Options | $ | (Months) | Options | $ | (Months) | |||||||||||||||||||
Granted | 1,451,000 | 1.18 | 118 | 1,451,000 | 0.21 | 118 | ||||||||||||||||||
Forfeited | (20,000 | ) | 1.18 | 119 | (20,000 | ) | 0.21 | 119 | ||||||||||||||||
1,431,000 | 1.18 | 118 | 1,431,000 | 0.21 | 118 | |||||||||||||||||||
Outstanding at January 31, 2007 | ||||||||||||||||||||||||
Exercisable | 187,250 | 1.18 | 115 | 187,250 | 0.21 | 115 | ||||||||||||||||||
Not vested | 1,243,750 | 1.18 | 119 | 1,243,750 | 0.21 | 119 | ||||||||||||||||||
Total | 1,431,000 | 1.18 | 115 | 1,431,000 | 0.21 | 115 | ||||||||||||||||||
Forfeited | (13,750 | ) | 1.18 | 115 | (13,750 | ) | 0.21 | 119 | ||||||||||||||||
Outstanding at April 30, 2007 | ||||||||||||||||||||||||
Exercisable | 193,125 | 1.18 | 112 | 193,125 | 0.21 | 112 | ||||||||||||||||||
Not vested | 1,224,125 | 1.18 | 116 | 1,224,125 | 0.21 | 116 | ||||||||||||||||||
Total | 1,417,250 | 1.18 | 112 | 1,417,250 | 0.21 | 112 | ||||||||||||||||||
F-27
Table of Contents
Lululemon | Lululemon | |||||||
Athletica Inc. | Athletica USA Inc. | |||||||
June 15, 2007 | 5,000 | 5,000 | ||||||
December 27, 2007 | 131,250 | 131,250 | ||||||
January 3, 2008 | 37,500 | 37,500 | ||||||
January 27, 2008 | 181,375 | 181,375 | ||||||
December 27, 2008 | 131,250 | 131,250 | ||||||
January 3, 2009 | 37,500 | 37,500 | ||||||
January 27, 2009 | 181,375 | 181,375 | ||||||
December 27, 2009 | 131,250 | 131,250 | ||||||
January 3, 2010 | 37,500 | 37,500 | ||||||
January 27, 2010 | 181,375 | 181,375 | ||||||
December 27, 2010 | 131,250 | 131,250 | ||||||
January 3, 2011 | 37,500 | 37,500 | ||||||
1,224,125 | 1,224,125 | |||||||
Lululemon | Lululemon | |||||||
Athletica Inc. | Athletica USA Inc. | |||||||
Dividend yield | 0 | % | 0 | % | ||||
Expected volatility | 50 | % | 50 | % | ||||
Risk-free interest rate | 5 | % | 5 | % | ||||
Weighted-average life | 7.0 | 7.0 |
F-28
Table of Contents
12 | Earnings Per Share |
F-29
Table of Contents
Quarter | ||||||||
Fiscal Year | Ended | |||||||
Ended | April 30, 2007 | |||||||
Jan 31, 2007 | (Unaudited) | |||||||
Net income | $ | 7,666,331 | $ | 3,542,063 | ||||
Income allocated to common stock equivalent stockholders | $ | 2,546,134 | $ | 1,176,386 | ||||
Income allocated to common stockholders | $ | 5,120,197 | $ | 2,365,677 | ||||
Pro forma weighted average common stock equivalent stock outstanding | 24,250,975 | 24,250,975 | ||||||
Pro forma weighted average common stock outstanding | 48,767,976 | 48,767,976 | ||||||
Pro forma basic earnings per common stock equivalent share | $ | 0.10 | $ | 0.05 | ||||
Pro forma basic earnings per common share | $ | 0.10 | $ | 0.05 | ||||
Diluted | ||||||||
Pro forma basic weighted average number of shares of common stock outstanding | 48,767,976 | 48,767,976 | ||||||
Pro forma effect of stock options assumed exercised | 796,514 | 1,370,691 | ||||||
Pro forma impact of conversion of non-participating stock of Lulu US | 909 | 909 | ||||||
Pro forma diluted weighted average number of shares of common shares outstanding | 49,565,399 | 50,139,576 | ||||||
Pro forma diluted earnings per common share | $ | 0.10 | $ | 0.05 |
F-30
Table of Contents
Pro forma basic and diluted earnings per common stock equivalent share | $ | 0.003 | $ | 0.001 | ||||
Pro forma basic and diluted earnings per common share | $ | 0.003 | $ | 0.001 |
13 | Common Control Transaction |
14 | Commitments and Contingencies |
Year ending January 31, | US$ | |||
2008 | 8,796,902 | |||
2009 | 9,822,764 | |||
2010 | 9,056,498 | |||
2011 | 7,383,664 | |||
Thereafter | 34,675,481 |
F-31
Table of Contents
15 | Related Party Transactions and Balances |
January 31, | January 31, | April 30, | ||||||||||
2006 | 2007 | 2007 | ||||||||||
(Unaudited) | ||||||||||||
Due from related parties | ||||||||||||
Controlling stockholder | $ | 222,440 | $ | — | $ | — | ||||||
Franchises controlled by related parties | — | 192,302 | 191,739 | |||||||||
Franchises under common control | 51,283 | — | — | |||||||||
$ | 273,723 | $ | 192,302 | $ | 191,739 | |||||||
Due to related parties | ||||||||||||
Franchises controlled by related parties | $ | 36,947 | $ | — | $ | — | ||||||
Other companies under common control | 595,594 | — | — | |||||||||
$ | 632,541 | $ | — | $ | — | |||||||
F-32
Table of Contents
F-33
Table of Contents
16 | Supplemental Cash Flow Information |
January 31, | January 31, | January 31, | April 30, | April 30, | ||||||||||||||||
2005 | 2006 | 2007 | 2006 | 2007 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Increase in accounts receivable | $ | (134,847 | ) | $ | (663,245 | ) | $ | (1,153,663 | ) | $ | (44,601 | ) | $ | (1,257,223 | ) | |||||
Increase in prepaid expenses | (74,455 | ) | (553,983 | ) | (141,809 | ) | 520,224 | (182,831 | ) | |||||||||||
Increase in inventories | (4,329,108 | ) | (10,693,625 | ) | (5,430,998 | ) | (254,357 | ) | 1,629,892 | |||||||||||
Decrease (increase) in related parties | — | 531,529 | (765,980 | ) | 133,938 | 563 | ||||||||||||||
(Increase) decrease in other current assets | 18,986 | (681,480 | ) | (194,362 | ) | (532,149 | ) | (51,543 | ) | |||||||||||
Increase (decrease) in trade accounts payable | 21,013 | 4,571,376 | (1,228,825 | ) | (4,670,278 | ) | (1,854,332 | ) | ||||||||||||
Increase (decrease) in accrued liabilities | 9,259,771 | (11,062,197 | ) | 11,532,925 | 57,168 | (7,219,291 | ) | |||||||||||||
Increase in other current liabilities | 1,115,005 | 1,823,963 | 1,571,086 | (530,781 | ) | (40,184 | ) | |||||||||||||
Increase (decrease) in income taxes payable | (139,167 | ) | 50,176 | 8,680,829 | 3,828,335 | (5,446,248 | ) | |||||||||||||
$ | 5,737,198 | $ | (16,677,486 | ) | $ | 12,869,203 | $ | (1,492,501 | ) | $ | (14,421,197 | ) | ||||||||
Cash paid for income taxes | $ | (56,434 | ) | $ | 2,466,900 | $ | 3,091,552 | $ | 3,091,552 | $ | 6,715,845 | |||||||||
Interest paid | $ | 45,549 | $ | 51,020 | $ | 47,348 | $ | 3,377 | $ | 3,055 |
17 | Income Taxes |
January 31, | January 31, | January 31, | April 30, | |||||||||||||
2005 | 2006 | 2007 | 2007 | |||||||||||||
(Unaudited) | ||||||||||||||||
Income (loss) before income taxes | $ | (1,709,075 | ) | $ | 3,730,250 | $ | 16,307,802 | $ | 6,955,126 | |||||||
Tax at statutory rate of 34% | (581,086 | ) | 1,268,285 | 5,544,652 | 2,364,743 | |||||||||||
Non-deductible compensation expense | — | 897,352 | 912,465 | 476,776 | ||||||||||||
Non-deductible expenses | 90,549 | 47,123 | 9,601 | 4,309 | ||||||||||||
Other — U.S. state taxes | 2,500 | 21,908 | 11,240 | 2,702 | ||||||||||||
Change in valuation allowance | 122,071 | 28,359 | 1,808,368 | 474,162 | ||||||||||||
Foreign tax rate differential | — | 38,957 | 214,844 | 86,864 | ||||||||||||
Other | 67,923 | 34,162 | 252,166 | 39,097 | ||||||||||||
Provision for (recovery of) income taxes | $ | (298,043 | ) | $ | 2,336,146 | $ | 8,753,336 | $ | 3,448,653 | |||||||
F-34
Table of Contents
2006 | 2007 | |||||||
$ | $ | |||||||
Deferred tax assets | ||||||||
Net operating losses | 232,452 | 1,866,777 | ||||||
Inventories | 4,132 | 50,362 | ||||||
Plant and equipment | — | 395,233 | ||||||
Deferred lease liability | 209,609 | 343,814 | ||||||
Lawsuit | — | 2,522,898 | ||||||
446,193 | 5,179,084 | |||||||
Deferred tax liabilities | ||||||||
Plant and equipment | 14,138 | — | ||||||
Intangible assets | 522,569 | 384,354 | ||||||
536,707 | 384,354 | |||||||
Gross deferred tax (liability) asset | (90,514 | ) | 4,794,730 | |||||
Valuation allowance | (259,421 | ) | (2,067,789 | ) | ||||
Net deferred tax (liability) asset | (349,935 | ) | 2,726,941 | |||||
$ | ||||
2023 | 179,511 | |||
2024 | 359,032 | |||
2026 | 61,354 | |||
2027 | 4,384,281 | |||
4,984,178 | ||||
F-35
Table of Contents
2005 | 2006 | 2007 | ||||||||||
$ | $ | $ | ||||||||||
Net income before taxes | ||||||||||||
Domestic | (498,545 | ) | (150,047 | ) | (2,229,966 | ) | ||||||
Foreign | (1,210,530 | ) | 3,880,297 | 18,537,768 | ||||||||
(1,709,075 | ) | 3,730,250 | 16,307,802 | |||||||||
Current taxes | ||||||||||||
Federal | — | — | — | |||||||||
State | 2,500 | 21,908 | 11,240 | |||||||||
Foreign | (198,101 | ) | 2,493,089 | 11,818,972 | ||||||||
Total current | (195,601 | ) | 2,514,997 | 11,830,212 | ||||||||
Deferred taxes | �� | |||||||||||
Federal | — | — | — | |||||||||
State | — | — | — | |||||||||
Foreign | (102,442 | ) | (178,851 | ) | (3,076,876 | ) | ||||||
Total deferred | (102,442 | ) | (178,851 | ) | (3,076,876 | ) | ||||||
(Recovery of) provision for income taxes | (298,043 | ) | 2,336,146 | 8,753,336 | ||||||||
18 | Segmented Financial Information |
F-36
Table of Contents
January 31, | January 31, | January 31, | April 30, | April 30, | ||||||||||||||||
2005 | 2006 | 2007 | 2006 | 2007 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Net revenue | ||||||||||||||||||||
Corporate-owned stores | $ | 29,905,624 | $ | 65,577,622 | $ | 120,732,774 | $ | 22,146,069 | $ | 38,007,778 | ||||||||||
Franchises | 7,362,992 | 14,554,606 | 21,360,005 | 4,363,910 | 4,917,506 | |||||||||||||||
Other | 3,479,760 | 3,996,865 | 6,792,055 | 1,673,603 | 1,864,172 | |||||||||||||||
$ | 40,748,376 | $ | 84,129,093 | $ | 148,884,834 | $ | 28,183,582 | $ | 44,789,456 | |||||||||||
Income from operations before general corporate expense | ||||||||||||||||||||
Corporate-owned stores | $ | 9,796,555 | $ | 20,744,932 | $ | 37,789,660 | $ | 7,864,114 | $ | 12,176,948 | ||||||||||
Franchises | 3,102,826 | 7,297,532 | 10,655,095 | 1,935,470 | 2,339,280 | |||||||||||||||
Other | 1,807,809 | 1,483,829 | 2,735,322 | 514,591 | 817,356 | |||||||||||||||
14,707,190 | 29,526,293 | 51,180,077 | 10,314,175 | 15,333,584 | ||||||||||||||||
General corporate expense | 16,381,402 | 25,799,585 | 34,966,663 | 4,200,809 | 8,485,454 | |||||||||||||||
Net operating income (loss) | (1,674,212 | ) | 3,726,708 | 16,213,414 | 6,113,366 | 6,848,130 | ||||||||||||||
Net interest expense (income) | 34,863 | (3,542 | ) | (94,388 | ) | (22,571 | ) | (106,996 | ) | |||||||||||
Income (loss) before income taxes | $ | (1,709,075 | ) | $ | 3,730,250 | $ | 16,307,802 | $ | 6,135,937 | $ | 6,955,126 | |||||||||
Capital expenditures | ||||||||||||||||||||
Corporate-owned stores | $ | 2,806,242 | $ | 6,096,870 | $ | 11,274,993 | ||||||||||||||
Corporate | 999,270 | 2,283,503 | 1,995,391 | |||||||||||||||||
$ | 3,805,512 | $ | 8,380,373 | $ | 13,270,384 | |||||||||||||||
Depreciation | ||||||||||||||||||||
Corporate-owned stores | $ | 449,251 | $ | 1,520,878 | $ | 3,077,574 | ||||||||||||||
Corporate | 295,446 | 549,069 | 1,105,715 | |||||||||||||||||
$ | 744,697 | $ | 2,069,947 | $ | 4,183,289 |
F-37
Table of Contents
2005 | 2006 | 2007 | ||||||||||
$ | $ | $ | ||||||||||
Canada | 37,936,384 | 76,983,758 | 129,706,897 | |||||||||
United States | 2,511,121 | 6,469,631 | 17,363,904 | |||||||||
Asia and Australia | 300,871 | 675,704 | 1,814,033 | |||||||||
40,748,376 | 84,129,093 | 148,884,834 | ||||||||||
2006 | 2007 | |||||||
$ | $ | |||||||
Canada | 9,308,017 | 13,500,195 | ||||||
United States | 1,118,778 | 5,049,599 | ||||||
Asia and Australia | — | 272,445 | ||||||
10,426,795 | 18,822,239 | |||||||
19 | Financial Instruments |
F-38
Table of Contents
20 | Variable Interest Entity |
21 | Seasonal Nature of the Business |
F-39
Table of Contents
By: | By: | |
Chief Executive Officer | Chief Financial Officer |
By: | By: | |
Director | Director |
C-1
Table of Contents
Goldman Sachs Canada Inc. | Merrill Lynch Canada Inc. | |
By: | By: |
Credit Suisse Securities (Canada) Inc. | UBS Securities Canada Inc. | |
By: | By: |
C-2
Table of Contents
Table of Contents
Table of Contents
BRETHE DEEPLY and appreciate the moment. Living in the moment. Living in the moment could be the meaning of life. |
Table of Contents
Goldman, Sachs & Co. | Merrill Lynch & Co. |
Credit Suisse | UBS Investment Bank |
William Blair & Company |
CIBC World Markets |
Wachovia Securities |
Thomas Weisel Partners LLC |
Table of Contents
Table of Contents
Item 13. | Other Expenses of Issuance and Distribution. |
Amount | ||||
to be Paid | ||||
SEC registration fee | $ | 7,737 | ||
NASD filing fee | 23,500 | |||
The Nasdaq Global Market and Toronto Stock Exchange listing fees | 354,000 | |||
Blue sky fees and expenses | 10,000 | |||
Printing and Engraving expenses | 800,000 | |||
Legal fees and expenses | 3,050,000 | |||
Accounting fees and expenses | 725,000 | |||
Transfer agent and registrar fees | 20,000 | |||
Miscellaneous | 9,763 | |||
Total | $ | 5,000,000 | ||
* | To be filed by amendment |
Item 14. | Indemnification of Directors and Officers. |
Item 15. | Recent Sales of Unregistered Securities. |
II-1
Table of Contents
• | On December 5, 2005, we issued an aggregate of 107,995 shares of our series A preferred stock to certain investors resulting in aggregate proceeds to us of approximately $92.8 million. Of these shares, 85,796 shares of series A preferred stock were issued to funds managed by our affiliate, Advent International Corporation, resulting in aggregate proceeds to us of approximately $73.7 million. The issuance of these securities was exempt from registration under the Securities Act in reliance on Section 4(2) thereof or Regulation D promulgated thereunder relating to sales not involving a public offering. | |
• | On December 5, 2005, we issued 116,994 shares of our series TS preferred stock to one of our then current stockholders in exchange for 115,594 shares of participating preferred stock of lululemon usa inc. (Lulu USA) The issuance of these securities was exempt from registration under the Securities Act in reliance on Section 4(2) thereof or Regulation D promulgated thereunder relating to sales not involving a public offering or Regulation S promulgated under the Securities Act, with respect to securities offered and sold outside the United States to investors who were neither citizens nor residents of the United States. | |
• | On June 13, 2006, we issued an aggregate of 250 shares of our series A preferred stock to one of our directors resulting in aggregate proceeds to us of CDN$250,000. The issuance of these securities was exempt from registration under the Securities Act in reliance on Section 4(2) thereof or Regulation D promulgated thereunder relating to sales not involving a public offering. | |
• | On July 6, 2006, we issued an aggregate of 250 shares of our series A preferred stock to one of our directors resulting in aggregate proceeds to us of CDN$250,000. The issuance of these securities was exempt from registration under the Securities Act in reliance on Section 4(2) thereof or Regulation D promulgated thereunder relating to sales not involving a public offering. | |
• | On April 26, 2007, we entered into an agreement with our stockholders, Lulu USA, lululemon canada inc. (Lulu Canada), LIPO Investments (Canada), Inc. (LIPO Investments Canada), Lulu Canadian Holding, Inc. (Lulu Canadian Holding) and Dennis Wilson, in his individual capacity and in his capacity as trustee pursuant to a trust arrangement established for the benefit of the minority stockholders of LIPO Canada and LIPO USA, pursuant to which we agreed to the following issuances of our capital stock in order to effect a reorganization whereby Lulu USA and Lulu Canada will in effect become our direct or indirect wholly-owned subsidiaries. This reorganization will occur immediately following the effectiveness of this registration statement. We refer to this date as the reorganization date. |
• | Series A Preferred Stock. Each holder of our series A preferred stock will be entitled to receive: |
• | its pro rata portion of 52,965,985 shares of our common stock (which we refer to as the common share amount); and | |
• | with respect to each share of series A preferred stock held by such stockholder, the number of shares of our common stock that is equal to (x) $978.33 (representing the stated value of each such share, plus accrued and unpaid dividends through the assumed reorganization date, assuming that such share of series A preferred stock was issued on December 5, 2005), divided by (y) the initial public offering price per share of our common stock. |
II-2
Table of Contents
• | Shares Held by LIPO USA and LIPO Canada. LIPO USA and LIPO Canada, or the LIPO Entities, are the holding companies formed by Mr. Wilson to hold his interests in the company, Lulu USA , and Lulu Canada. In our corporate reorganization, we and Lulu Canadian Holding will issue a combination of shares of our common stock and exchangeable shares of Lulu Canadian Holding, respectively, in exchange for the securities of our company, Lulu USA and Lulu Canada that are held by the LIPO Entities in the following amount (the LIPO Share Amount): |
• | the LIPO Entities’ pro rata portion of the common share amount; and | |
• | the number of shares of our common stock that is equal to (x) $114,459,361 (representing the stated value of our series TS preferred stock and Lulu Canada class B shares held by the LIPO Entities, plus accrued and unpaid dividends through the assumed reorganization date), divided by (y) the initial public offering price per share of our common stock. |
• | Lulu USA and Lulu Canada Stock Options. Each option to purchase shares of Lulu USA common stock or Lulu Canada class C shares will automatically adjust and become options to purchase shares of our common stock at an adjusted exercise price. Upon completion of this option adjustment, we will have outstanding options to purchase 4,478,726 shares of our common stock at a weighted average per share exercise price of $0.58. |
II-3
Table of Contents
Item 16. | Exhibits and Financial Statement Schedules. |
Exhibit | ||||
Number | Description of Document | |||
1 | .1 | Form of Underwriting Agreement | ||
2 | .1(1) | Agreement and Plan of Reorganization dated as of April 26, 2007, by and among the parties named therein | ||
3 | .1(1) | Amended and Restated Certificate of Incorporation of lululemon athletica inc. as filed with the Secretary of State of the State of Delaware on December 2, 2005 | ||
3 | .2(1) | Certificate of Correction to the Amended and Restated Certificate of Incorporation of lululemon athletica inc. as filed with the Secretary of State of the State of Delaware on January 12, 2006 | ||
3 | .3(1) | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of lululemon athletica inc. as filed with the Secretary of State of the State of Delaware on March 27, 2007 | ||
3 | .4(3) | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of lululemon athletica inc. as filed with the Secretary of State of the State of Delaware on June 12, 2007 | ||
3 | .5 | Form of Amended and Restated Certificate of Incorporation of lululemon athletica inc. (to become effective immediately prior to the effectiveness of this offering) | ||
3 | .6 | Form of Amended and Restated Certificate of Incorporation of lululemon athletica inc. (to become effective immediately upon completion of this offering) | ||
3 | .7(1) | Bylaws of lululemon athletica inc. | ||
3 | .8(3) | Form of Amended and Restated Bylaws of lululemon athletica inc. (to become effective immediately upon completion of this offering) | ||
4 | .1 | Form of Specimen Common Stock Certificate of lululemon athletica inc. | ||
5 | .1 | Opinion of Pepper Hamilton LLP | ||
10 | .1# | lululemon athletica inc. 2007 Equity Incentive Plan | ||
10 | .2# | Form of Non-Qualified Stock Option Award Agreement under the 2007 Equity Incentive Plan | ||
10 | .3(1)# | Amended and Restated LIPO Investments (USA), Inc. Option Plan and form of Award Agreement | ||
10 | .4(1)# | Employment and Restrictive Covenant Agreement with Robert Meers dated as of December 5, 2005 | ||
10 | .5(1)# | Employment and Restrictive Covenant Agreement with Dennis Wilson dated as of December 5, 2005 | ||
10 | .6(2) | Offer Letter with Mike Tattersfield dated as of October 4, 2006, as amended on April 25, 2007 | ||
10 | .7(1)# | Offer Letter with John Currie dated December 20, 2006 | ||
10 | .8(1) | Stockholders Agreement dated December 5, 2005 among lululemon athletica inc. and the persons listed on Schedule A thereto | ||
10 | .9(1) | Registration Rights Agreement dated December 5, 2005 by and among lululemon athletica inc. and the Investors named therein | ||
10 | .10(1) | Form of Amended and Restated Registration Rights Agreement between the parties named therein | ||
10 | .11(1) | Form of Exchange Trust Agreement between lululemon athletica inc. and Lulu Canadian Holding, Inc. and Computershare Trust Company of Canada | ||
10 | .12(1) | Form of Exchangeable Share Support Agreement between lululemon athletica inc. and Lululemon Callco ULC and Lulu Canadian Holding, Inc. | ||
10 | .13 | Form of Amended and Restated Declaration of Trust for Forfeitable Exchangeable Shares, by and among the parties named therein | ||
10 | .14 | Amended and Restated Arrangement Agreement dated as of June 18, 2007, by and among the parties named therein (including Plan of Arrangement and Exchangeable Share Provisions) | ||
10 | .15(1) | Credit Facility between lululemon canada inc. and Royal Bank of Canada dated as of April 11, 2007. |
II-4
Table of Contents
Exhibit | ||||
Number | Description of Document | |||
10 | .16 | Form of Indemnification Agreement between lululemon athletica inc. and its directors and certain officers | ||
10 | .17(1) | Lease for 2285 Clark Drive, Vancouver, British Columbia, Canada dated as of January 25, 2006 | ||
10 | .18(1) | Lease for 507 West Broadway, Vancouver, British Columbia, Canada dated as of July 14, 2006 | ||
10 | .19(1) | Lease for 2955 Hebb Street, Vancouver, British Columbia, Canada dated as of October 21, 2004 | ||
10 | .20(1) | Lease Expansion and Amending Agreement for 2955 Hebb Street, Vancouver, British Columbia, Canada dated as of August 16, 2005 | ||
10 | .21(1) | Lease for 5595 Trapp Avenue, Burnaby, British Columbia, Canada dated as of December 15, 2006 | ||
10 | .22(1) | Outside Director Compensation Plan | ||
10 | .23(2) | Stock Purchase Agreement dated as of December 5, 2005 by and among lululemon athletica inc., Highland Funds, AdventInternational GPE V-A Limited Partnership, lululemon usa inc., Oyoyo Holdings, Inc., LIPO Investments (USA) Inc. and Dennis Wilson | ||
10 | .24(2) | Subscription Agreement dated as of April 12, 2006 between Susanne Conrad and lululemon athletica inc. | ||
10 | .25(2) | Subscription Agreement dated as of April 12, 2006 between Rhoda Pitcher and lululemon athletica inc. | ||
10 | .26(2) | Franchise Agreement dated August 1, 2005 between lululemon canada inc. and Ryan Smith and Kim Smith, on behalf of themselves and CB Ventures | ||
10 | .27(2) | Franchise Agreement dated October 16, 2002 between lululemon canada inc. and Oqqo Enterprises | ||
10 | .28(2) | Franchise Agreement Amendment dated December 20, 2006 between lululemon canada inc. and Oqqo Enterprises | ||
10 | .29(2) | Franchise Agreement Amendment No. 2 dated January 2, 2007 between lululemon canada inc. and Oqqo Enterprises | ||
10 | .30(2) | Franchise Agreement dated October 15, 2004 between lululemon canada inc. and Lululemon Athletica (Australia) Pty. Ltd. | ||
10 | .31(2) | Agreement dated January 31, 2007 by and among David Andrew Lawn, lululemon canada inc. and Lululemon Athletica (Australia) Pty. Ltd. (including certain amendments to the franchise agreement) | ||
21 | .1(3) | Subsidiaries of lululemon athletica inc. | ||
23 | .1 | Consent of PricewaterhouseCoopers LLP | ||
23 | .2 | Consent of Pepper Hamilton LLP (included in Exhibit 5.1) | ||
24 | .1(1) | Powers of Attorney (included in the signature page to the registration statement) |
# | Indicates management contract or compensatory plan |
(1) | Previously filed as an exhibit to the registrant’s Registration Statement onForm S-1 (fileNo. 333-142477) filed with the Commission on May 1, 2007 | |
(2) | Previously filed as an exhibit to the registrant’s Amendment No. 1 to the Registration Statement onForm S-1 filed with the Commission on June 11, 2007 | |
(3) | Previously filed as an exhibit to the registrant’s Amendment No. 2 to the Registration Statement onForm S-1 filed with the Commission on June 19, 2007 |
Item 17. | Undertakings. |
II-5
Table of Contents
II-6
Table of Contents
By: | /s/ John E. Currie John E. Currie Chief Financial Officer |
Signature | Title | Date | ||||
* | Director and Chief Executive Officer (Principal Executive Officer) | July 9, 2007 | ||||
/s/ John E. Currie | Chief Financial Officer (Principal Financial and Accounting Officer) | July 9, 2007 | ||||
* | Chairman of the Board | July 9, 2007 | ||||
* | Director | July 9, 2007 | ||||
* | Director | July 9, 2007 | ||||
* | Director | July 9, 2007 | ||||
* | Director | July 9, 2007 | ||||
* | Director | July 9, 2007 | ||||
* | Director | July 9, 2007 |
* By: | /s/ John E. Currie John E. Currie Attorney in-fact |
II-7
Table of Contents
Exhibit | ||||
Number | Description of Document | |||
1 | .1 | Form of Underwriting Agreement | ||
2 | .1(1) | Agreement and Plan of Reorganization dated as of April 26, 2007, by and among the parties named therein | ||
3 | .1(1) | Amended and Restated Certificate of Incorporation of lululemon athletica inc. as filed with the Secretary of State of the State of Delaware on December 2, 2005 | ||
3 | .2(1) | Certificate of Correction to the Amended and Restated Certificate of Incorporation of lululemon athletica inc. as filed with the Secretary of State of the State of Delaware on January 12, 2006 | ||
3 | .3(1) | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of lululemon athletica inc. as filed with the Secretary of State of the State of Delaware on March 27, 2007 | ||
3 | .4(3) | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of lululemon athletica inc. as filed with the Secretary of State of the State of Delaware on June 12, 2007 | ||
3 | .5 | Form of Amended and Restated Certificate of Incorporation of lululemon athletica inc. (to become effective immediately prior to the effectiveness of this offering) | ||
3 | .6 | Form of Amended and Restated Certificate of Incorporation of lululemon athletica inc. (to become effective immediately upon completion of this offering) | ||
3 | .7(1) | Bylaws of lululemon athletica inc. | ||
3 | .8(3) | Form of Amended and Restated Bylaws of lululemon athletica inc. (to become effective immediately upon completion of this offering) | ||
4 | .1 | Form of Specimen Common Stock Certificate of lululemon athletica inc. | ||
5 | .1 | Opinion of Pepper Hamilton LLP | ||
10 | .1# | lululemon athletica inc. 2007 Equity Incentive Plan | ||
10 | .2# | Form of Non-Qualified Stock Option Award Agreement under the 2007 Equity Incentive Plan | ||
10 | .3(1)# | Amended and Restated LIPO Investments (USA), Inc. Option Plan and form of Award Agreement | ||
10 | .4(1)# | Employment and Restrictive Covenant Agreement with Robert Meers dated as of December 5, 2005 | ||
10 | .5(1)# | Employment and Restrictive Covenant Agreement with Dennis Wilson dated as of December 5, 2005 | ||
10 | .6(2) | Offer Letter with Mike Tattersfield dated as of October 4, 2006, as amended on April 25, 2007 | ||
10 | .7(1)# | Offer Letter with John Currie dated December 20, 2006 | ||
10 | .8(1) | Stockholders Agreement dated December 5, 2005 among lululemon athletica inc. and the persons listed on Schedule A thereto | ||
10 | .9(1) | Registration Rights Agreement dated December 5, 2005 by and among lululemon athletica inc. and the Investors named therein | ||
10 | .10(1) | Form of Amended and Restated Registration Rights Agreement between the parties named therein | ||
10 | .11(1) | Form of Exchange Trust Agreement between lululemon athletica inc., Lulu Canadian Holding, Inc. and Computershare Trust Company of Canada | ||
10 | .12(1) | Form of Exchangeable Share Support Agreement between lululemon athletica inc., Lululemon Callco ULC and Lulu Canadian Holding, Inc. | ||
10 | .13 | Form of Amended and Restated Declaration of Trust for Forfeitable Exchangeable Shares, by and among the parties named therein | ||
10 | .14 | Amended and Restated Arrangement Agreement dated as of June 18, 2007, by and among the parties named therein (including Plan of Arrangement and Exchangeable Share Provisions) | ||
10 | .15(1) | Credit Facility between lululemon canada inc. and Royal Bank of Canada dated as of April 11, 2007. | ||
10 | .16 | Form of Indemnification Agreement between lululemon athletica inc. and its directors and certain officers | ||
10 | .17(1) | Lease for 2285 Clark Drive, Vancouver, British Columbia, Canada dated as of January 25, 2006 | ||
10 | .18(1) | Lease for 507 West Broadway, Vancouver, British Columbia, Canada dated as of July 14, 2006 |
II-8
Table of Contents
Exhibit | ||||
Number | Description of Document | |||
10 | .19(1) | Lease for 2955 Hebb Street, Vancouver, British Columbia, Canada dated as of October 21, 2004 | ||
10 | .20(1) | Lease Expansion and Amending Agreement for 2955 Hebb Street, Vancouver, British Columbia, Canada dated as of August 16, 2005 | ||
10 | .21(1) | Lease for 5595 Trapp Avenue, Burnaby, British Columbia, Canada dated as of December 15, 2006 | ||
10 | .22(1) | Outside Director Compensation Plan | ||
10 | .23(2) | Stock Purchase Agreement dated as of December 5, 2005 by and among lululemon athletica inc., Highland Funds, AdventInternational GPE V-A Limited Partnership, lululemon usa inc., Oyoyo Holdings, Inc., LIPO Investments (USA) Inc. and Dennis Wilson | ||
10 | .24(2) | Subscription Agreement dated as of April 12, 2006 between Susanne Conrad and lululemon athletica inc. | ||
10 | .25(2) | Subscription Agreement dated as of April 12, 2006 between Rhoda Pitcher and lululemon athletica inc. | ||
10 | .26(2) | Franchise Agreement dated August 1, 2005 between lululemon canada inc. and Ryan Smith and Kim Smith, on behalf of themselves and CB Ventures | ||
10 | .27(2) | Franchise Agreement dated October 16, 2002 between lululemon canada inc. and Oqqo Enterprises | ||
10 | .28(2) | Franchise Agreement Amendment dated December 20, 2006 between lululemon canada inc. and Oqqo Enterprises | ||
10 | .29(2) | Franchise Agreement Amendment No. 2 dated January 2, 2007 between lululemon canada inc. and Oqqo Enterprises | ||
10 | .30(2) | Franchise Agreement dated October 15, 2004 between lululemon canada inc. and Lululemon Athletica (Australia) Pty. Ltd. | ||
10 | .31(2) | Agreement dated January 31, 2007 by and among David Andrew Lawn, lululemon canada inc. and Lululemon Athletica (Australia) Pty. Ltd. (including certain amendments to the franchise agreement) | ||
21 | .1(3) | Subsidiaries of lululemon athletica inc. | ||
23 | .1 | Consent of PricewaterhouseCoopers LLP | ||
23 | .2 | Consent of Pepper Hamilton LLP (included in Exhibit 5.1) | ||
24 | .1(1) | Powers of Attorney (included in the signature page to the registration statement) |
# | Indicates management contract or compensatory plan |
(1) | Previously filed as an exhibit to the registrant’s Registration Statement onForm S-1 (fileNo. 333-142477) filed with the Commission on May 1, 2007 | |
(2) | Previously filed as an exhibit to the registrant’s Amendment No. 1 to the Registration Statement onForm S-1 filed with the Commission on June 11, 2007 | |
(3) | Previously filed as an exhibit to the registrant’s Amendment No. 2 to the Registration Statement onForm S-1 filed with the Commission on June 19, 2007 |
II-9