UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended July 31, 2007
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
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Commission file number 001-33608
lululemon athletica inc.
(Exact name of registrant as specified in its charter)
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Delaware
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20-3842867
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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2285 Clark Drive, Vancouver, British Columbia
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V5N 3G9
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code:
604-732-6124
Former name, former address and former fiscal year, if changed since last report:
N/A
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act.
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Large Accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
þ
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
At September 10, 2007, there were 46,591,683 shares of the registrants common stock, par
value $0.01 per share, outstanding.
Exchangeable and Special Voting Shares
:
At September 10, 2007, there were outstanding 20,935,041 exchangeable shares of Lulu Canadian
Holding, Inc., a wholly-owned subsidiary of the registrant. Exchangeable shares are exchangeable
for an equal number of shares of the registrants common stock.
In addition, at September 10, 2007, the registrant had outstanding 20,935,041 shares of
special voting stock, through which the holders of exchangeable shares of Lulu Canadian Holding,
Inc. may exercise their voting rights with respect to the registrant. The special voting stock and
the registrants common stock generally vote together as a single class on all matters on which the
common stock is entitled to vote.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
lululemon athletica inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
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July 31,
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January 31,
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2007
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2007
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(unaudited)
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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9,726,553
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$
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16,028,534
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Accounts receivable
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3,457,650
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2,290,665
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Due from related parties
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19,924
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192,302
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Inventories
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23,848,113
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26,628,113
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Prepaid expenses, current deferred taxes and other current assets
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1,226,598
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3,353,129
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38,278,838
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48,492,743
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Property and equipment, net
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27,215,249
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17,737,374
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Goodwill
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898,124
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811,678
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Intangible assets, net
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7,204,504
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2,140,011
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Deferred income taxes
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676,008
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588,397
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Other assets
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9,225,163
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2,522,906
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$
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83,497,886
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$
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72,293,109
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities
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Accounts payable
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$
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4,928,001
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$
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4,932,960
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Accrued liabilities
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11,543,005
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14,520,633
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Income taxes payable
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5,369,615
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9,177,953
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Other current liabilities
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3,294,842
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2,652,491
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25,135,463
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31,284,037
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Deferred income taxes
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183,371
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384,354
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Other liabilities
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5,209,454
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2,678,221
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30,528,288
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34,346,612
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Non-controlling interest
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503,159
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567,699
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Stockholders equity
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Undesignated preferred stock, $0.01 par value, 5,000,000 shares
authorized, none issued and outstanding
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Exchangeable stock, no par value, 30,000,000 shares
authorized, 20,935,041 issued and outstanding
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Special voting stock, $0.00001 par value, 30,000,000 shares
authorized, 20,935,041 issued and outstanding
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209
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209
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Common stock, $0.01 par value, 200,000,000 shares authorized,
44,300,774 issued and outstanding (January 31, 2007 44,290,778 issued and outstanding)
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443,008
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442,908
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Additional paid-in capital
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101,638,066
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98,669,641
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Accumulated deficit
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(52,013,331
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)
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(60,677,395
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Accumulated other comprehensive income
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2,398,487
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(1,056,565
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)
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52,466,439
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37,378,798
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$
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83,497,886
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$
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72,293,109
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See accompanying notes to the interim consolidated financial statements
1
lululemon athletica inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
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Three Months Ended
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Six Months Ended
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July 31,
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July 31,
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2007
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2006
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2007
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2006
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Net revenue
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$
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58,680,944
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$
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32,517,437
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$
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103,470,401
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$
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60,701,017
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Cost of goods sold (including stock-based
compensation of $193,169, $69,783, $362,039 and
$164,059)
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27,434,066
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16,614,142
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49,412,612
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30,278,470
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Gross profit
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31,246,878
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15,903,295
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54,057,789
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30,422,547
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Selling, general and administrative expenses
(including stock-based compensation of $1,367,823,
$719,920, $2,606,486 and $1,170,310)
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21,477,352
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12,667,215
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37,440,130
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21,073,103
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Income from operations
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9,769,526
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3,236,080
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16,617,659
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9,349,444
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Other expense (income), net
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(70,516
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)
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(21,852
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)
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(177,512
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)
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(44,422
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)
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Income before income taxes
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9,840,042
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3,257,932
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16,795,171
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9,393,866
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Provision for income tax
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4,798,355
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1,318,336
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8,247,008
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4,273,098
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Non-controlling interest
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(80,311
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)
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(115,901
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)
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Net income
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$
|
5,121,998
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$
|
1,939,596
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$
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8,664,064
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$
|
5,120,768
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Basic earnings per share
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$
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0.08
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$
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0.03
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$
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0.13
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$
|
0.08
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Diluted income per share
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$
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0.07
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$
|
0.03
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$
|
0.12
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$
|
0.07
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|
|
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|
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|
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|
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Basic weighted average number of shares outstanding
|
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|
65,225,819
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65,225,819
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|
65,225,819
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|
|
65,225,819
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|
|
|
|
|
|
|
|
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|
|
|
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Diluted weighted average number of shares outstanding
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|
68,891,237
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|
68,881,241
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|
68,878,832
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|
68,868,836
|
|
|
|
|
|
|
|
|
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|
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|
See accompanying notes to the interim consolidated financial statements
2
lululemon athletica inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (unaudited)
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Special Voting
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Exchangeable Stock
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Stock
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Common Stock
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|
|
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Accumulated
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|
|
|
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|
|
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|
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|
|
|
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|
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|
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|
|
|
|
|
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|
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Additional
|
|
|
|
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|
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Other
|
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|
|
|
|
|
|
|
|
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Par
|
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|
|
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|
|
Par
|
|
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|
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Par
|
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Paid-in
|
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Accumulated
|
|
|
Comprehensive
|
|
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|
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|
|
Shares
|
|
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Value
|
|
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Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Balance at
January 31, 2007
|
|
|
20,935,041
|
|
|
$
|
|
|
|
|
20,935,041
|
|
|
$
|
209
|
|
|
|
44,290,778
|
|
|
$
|
442,908
|
|
|
$
|
98,669,641
|
|
|
$
|
(60,677,395
|
)
|
|
$
|
(1,056,565
|
)
|
|
$
|
37,378,798
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,664,064
|
|
|
|
|
|
|
|
8,664,064
|
|
Foreign currency
translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,455,052
|
|
|
|
3,455,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,119,116
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,968,525
|
|
|
|
|
|
|
|
|
|
|
|
2,968,525
|
|
Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,996
|
|
|
|
100
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31,
2007
|
|
|
20,935,041
|
|
|
$
|
|
|
|
|
20,935,041
|
|
|
$
|
209
|
|
|
|
44,300,774
|
|
|
$
|
443,008
|
|
|
$
|
101,638,066
|
|
|
$
|
(52,013,331
|
)
|
|
$
|
2,398,487
|
|
|
$
|
52,466,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the interim consolidated financial statements
3
lululemon athletica inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operation activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
8,664,064
|
|
|
$
|
5,120,768
|
|
Items not affecting cash
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,368,539
|
|
|
|
2,139,942
|
|
Stock-based compensation
|
|
|
2,968,525
|
|
|
|
1,334,369
|
|
Deferred income taxes
|
|
|
2,234,304
|
|
|
|
(1,593,979
|
)
|
Non-controlling interest
|
|
|
(115,901
|
)
|
|
|
|
|
Other, including net changes in other non-cash balances
|
|
|
(7,530,441
|
)
|
|
|
1,132,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,589,090
|
|
|
|
8,133,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(9,337,739
|
)
|
|
|
(6,289,969
|
)
|
Acquisition of franchises
|
|
|
(5,000,822
|
)
|
|
|
(580,343
|
)
|
Change in other assets
|
|
|
28,329
|
|
|
|
353,137
|
|
Change in other liabilities
|
|
|
1,768,329
|
|
|
|
169,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,541,903
|
)
|
|
|
(6,347,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from credit facility
|
|
|
1,454,775
|
|
|
|
|
|
Repayment of credit facility
|
|
|
(1,454,775
|
)
|
|
|
|
|
Capital stock issued for cash, net of issuance costs
|
|
|
|
|
|
|
446,419
|
|
Payment of IPO costs
|
|
|
(4,716,788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,716,788
|
)
|
|
|
446,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
1,367,620
|
|
|
|
(60,698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(6,301,981
|
)
|
|
|
2,171,247
|
|
Cash and cash equivalents, beginning of period
|
|
|
16,028,534
|
|
|
|
3,877,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
9,726,553
|
|
|
$
|
6,048,264
|
|
|
|
|
|
|
|
|
See accompanying notes to the interim consolidated financial statements
4
lululemon athletica inc. and Subsidiaries
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of operations
lululemon athletica inc., a Delaware corporation (lululemon and, together with its
subsidiaries unless the context otherwise requires, the Company) is engaged in the design,
manufacture and distribution of healthy lifestyle inspired athletic apparel, which is sold through
a chain of corporate-owned and operated retail stores, independent franchises and a network of
wholesale accounts. The Companys primary markets are Canada, the United States, Japan and
Australia, where 35, 14 and 3 and nil corporate-owned stores were in operation as at July 31, 2007,
respectively.
Basis of presentation
The unaudited consolidated financial statements have been prepared using the U.S. dollar and
are presented in accordance with United States generally accepted accounting principles (GAAP)
for interim financial information and, accordingly, do not include all of the information and
footnotes required by generally accepted accounting principles for complete financial statements.
The consolidated balance sheet at January 31, 2007 and the consolidated statements of
operations for the three months ended July 31, 2006 and the six months ended July 31, 2006 were
combined to include all entities operating under common control and management. The Company
reorganized its corporate structure on July 26, 2007 (note 3). As the combined entities were under
common control prior to and after the reorganization, the reorganization is accounted for in a manner similar to a pooling
of interests.
These unaudited interim condensed consolidated financial statements should be read in
conjunction with the combined consolidated financial statements and related notes for the fiscal year ended
January 31, 2007 included in our recently filed Registration Statement on Form S-1 (file no.
333-142477) relating to its initial public offering of shares of its common stock (the IPO)
completed August 2, 2007 (see note 10).
Our business is affected by the pattern of seasonality common to most retail apparel
businesses. The results for the periods presented are not necessarily indicative of future
financial results.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The unaudited consolidated financial statements include the accounts of lululemon athletica
inc., its wholly owned subsidiaries and Lululemon Japan Inc., a 60% controlled joint venture
entity. All inter-company balances and transactions have been eliminated. In the opinion of management, all adjustments, consisting primarily of normal recurring
accruals, considered necessary for a fair presentation of the Companys results of operations for
the interim periods reported and of its financial condition as of the date of the interim balance
sheet have been included.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, bank balances and short-term deposits with
original maturities of less than three months.
5
Accounts receivable
Accounts receivable primarily arise out of sales to wholesale accounts, sales of material,
royalties on sales owed to the Company by its franchisees and landlord tenant inducements. The allowance for doubtful accounts
represents managements best estimate of probable credit losses in accounts receivable and is
reviewed monthly. Receivables are written off against the allowance when management believes that
the amount receivable will not be recovered.
Inventories
Inventories, consisting of finished goods, raw materials and work in process, are stated at
the lower of cost and market value. Cost is determined using standard costs, which approximate
average costs. For finished goods and work in process, market is defined as net realizable value,
and for raw materials, market is defined as replacement cost. Cost of inventories includes
acquisition and production costs including raw material, labor and an allocation of overhead, as
applicable, and all costs incurred to deliver inventory to the Companys distribution centres
including freight, non-refundable taxes, duty and other landing costs.
The Company periodically reviews its inventories and makes provisions as necessary to
appropriately value obsolete or damaged goods. The amount of the provision is equal to the
difference between the cost of the inventory and its estimated net realizable value based upon
assumptions about future demand, selling prices and market conditions.
Property and equipment
Property and equipment are recorded at cost less accumulated depreciation. Costs related to
software used for internal purposes are capitalized in accordance with the provisions of the
Statement of Position 98-1,
Accounting for Costs of Computer Software Developed or Obtained for
Internal Use
, whereby direct internal and external costs incurred during the application
development stage or for upgrades that add functionality are capitalized. All other costs related
to internal use software are expensed as incurred.
Leasehold improvements are amortized on a straight-line basis over the lesser of the length of
the lease, without consideration of option renewal periods, and the estimated useful life of the
assets, to a maximum of five years. All other property and equipment are amortized using the
declining balance method as follows:
|
|
|
|
|
Furniture and fixtures
|
|
|
20
|
%
|
Computer hardware and software
|
|
|
30
|
%
|
Equipment
|
|
|
30
|
%
|
Vehicles
|
|
|
30
|
%
|
Deferred revenue
Payments received from franchisees for goods not shipped as well as receipts from the sale of
gift cards are treated as deferred revenue. Franchise inventory deposits are included in other
current liabilities and recognized as sales when the goods are shipped. Amounts received in respect
of gift cards are recorded as deferred revenue. When gift cards are redeemed for apparel, the
Company recognizes the related revenue.
Based on historical experience, the Company estimates the value of gift cards not expected to
be redeemed and, to the extent allowed by local laws, amortizes these amounts into income.
Revenue recognition
Sales revenue includes sales of apparel to customers through corporate-owned and operated
retail stores, phone sales, sales through a network of wholesale accounts, initial license and
franchise fees, royalties from franchisees and sales of apparel to franchisees.
6
Sales to customers through corporate-owned retail stores and phone sales are recognized at the
point of sale, net of an estimated allowance for sales returns.
Initial license and franchise fees are recognized when all material services or conditions
relating to the sale of a franchise right have been substantially performed or satisfied by the
Company, provided collection is reasonably assured. Substantial performance is considered to occur
when the franchisee commences operations. Franchise royalties are calculated as a percentage of
franchise sales and are recognized in the month that the franchisee makes the sale.
Sales of apparel to franchisees and wholesale accounts are recognized when goods are shipped
and collection is reasonably assured.
All revenues are reported net of sales taxes collected for various governmental agencies.
Store pre-opening costs
Operating costs incurred prior to the opening of new stores are expensed as incurred.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting
principles in the United States requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Significant areas requiring the use of management estimates
relate to the determination of inventory valuation, depreciation and amortization, impairment of
long-lived assets and goodwill and recognition of breakage on gift cards. Actual amounts could
differ materially from those estimates.
Stock-based compensation
The Company accounts for stock-based compensation using the fair value method as required by
Statement of Financial Accounting Standards No. 123R,
Share Based Payment
(SFAS 123R). The fair
value of awards granted is estimated at the date of grant and recognized as employee compensation
expense on a straight-line basis over the requisite service period with the offsetting credit to
additional paid-in capital. For awards with service and/or performance conditions, the total amount
of compensation cost to be recognized is based on the number of awards expected to vest and is
adjusted to reflect those awards that do ultimately vest. For awards with performance conditions,
the Company recognizes the compensation cost if and when the Company concludes that it is probable
that the performance condition will be achieved. The Company reassesses the probability of
achieving the performance condition at each reporting date. For awards with market conditions, all
compensation cost is recognized irrespective of whether such conditions are met.
Certain employees are entitled to share-based awards from a
principal stockholder of the
Company. These awards are accounted for by the Company as employee compensation expense in
accordance with the above-noted policies.
The Company commenced applying FAS 123R when it introduced stock-based awards for its
employees in the year ended January 31, 2006.
Income taxes
The Company follows the liability method with respect to accounting for income taxes. Deferred
tax assets and liabilities are determined based on temporary differences between the carrying
amounts and the tax basis of assets and liabilities. Deferred income tax assets and liabilities are
measured using enacted tax rates that will be in effect when these differences are expected to
reverse. Deferred income tax assets are reduced by a valuation allowance, if based on the weight of
available evidence, it is more likely than not that some portion or all of the deferred tax assets
will not be realized.
In July 2006, the Financial Accounting Standards Board issued Financial Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
, or FIN 48, which clarifies the accounting for
uncertainty in income taxes recognized in a companys financial statements in accordance with
Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes
. FIN 48 prescribes
a recognition threshold and measurement process for recording in the financial statements uncertain
tax positions taken or expected to be taken in a tax return. Additionally, FIN 48 provides guidance
on the de-recognition,
classification, interest and penalties, accounting in interim periods, and disclosure
requirements for uncertain tax positions. The Company adopted the provisions of FIN 48 beginning February 1,
2007.
7
We file income tax returns in the U.S., Canada and various foreign and state jurisdictions. We
are subject to income tax examination by tax authorities in all jurisdictions from our inception to
date. Our policy is to recognize interest expense and penalties related to income tax matters as
tax expense. At July 31, 2007, we do not have any significant accruals for interest related to
unrecognized tax benefits or tax penalties. Based on the Companys evaluation, there are no
significant uncertain tax positions requiring recognition in accordance with FIN 48.
Recently issued accounting standards
In September 2006, the FASB issued Statement of Financial Accounting Standard No. 157, Fair Value Measurements
(SFAS 157). SFAS No. 157
defines fair value, establishes a framework for measuring fair value in accordance with generally
accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157
applies under other accounting pronouncements that require or permit fair value measurements and
accordingly does not require any new fair value measurements. The provisions of SFAS No. 157 are to
be applied prospectively as of the beginning of the fiscal year in which it is initially applied,
with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance
of retained earnings. The provisions of SFAS No. 157 are effective for fiscal years beginning after
November 15, 2007. The Company is currently evaluating the impact that the adoption of SFAS No. 157
will have on its financial position and results of operations.
In February 2007, the FASB issued Statement of Financial Accounting Standard No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS 159). This Statement
permits entities to choose to measure various financial assets and financial liabilities at fair
value. Unrealized gains and losses on items for which the fair value option has been elected are
reported in earnings. SFAS 159 is effective for the Company beginning January 1, 2008. The Company
is currently evaluating the impact that adopting FAS 159 will have on its financial position and results of operations.
Comparability
Certain comparative amounts have been reclassified to conform to the presentation adopted in
the current period.
8
NOTE 3. STOCKHOLDERS EQUITY
Reorganization in connection with initial public offering
In connection with the IPO, the Company entered into an Agreement and Plan of Reorganization
dated April 26, 2007 (Reorganization Agreement), with all of its shareholders, lululemon usa inc.
(Lulu USA), lululemon athletica canada inc. (LACI), Lulu Canadian Holding, Inc. (LCHI), LIPO
Investments (Canada) Inc. (LIPO), LIPO Investments (USA), Inc. (LIPO USA) and Slinky Financial
ULC: an entity owned by a principal stockholder of the Company, pursuant to which the parties executed
a corporate reorganization of the Company on July 26, 2007, immediately following the execution of
the underwriting agreement entered into in connection with the IPO. In the reorganization, all
outstanding shares of the Company (which consisted of Series A shares and Series TS shares) and all
outstanding shares of LIPO, which was combined with the Company prior to the reorganization, were exchanged
for common shares of the Company or exchangeable shares issued by LCHI. Upon completion of the
reorganization, Lulu USA and LACI became direct or indirect wholly-owned subsidiaries of the Company.
The holders of Series A shares and Series TS shares prior to the reorganization of the Company
received common shares of the Company in exchange for 107,995 Series A shares and 116,994 Series TS shares,
and the holders of the 117,000,361 LIPO shares received either common shares of the Company or a combination of
exchangeable shares of LCHI (wholly owned subsidiary of the Company) plus shares of special voting
stock of the Company, in exchange for their LIPO shares. The exchangeable shares of LCHI and the
special voting shares of the Company, when taken together, are the economic equivalent of the
corresponding common shares of the Company and entitle the holder to one vote on the same basis and
in the same circumstances as one corresponding share of the common shares of the Company. The
exchangeable shares are exchangeable at any time, at the option of the holder on a one-for-one
basis with the corresponding common shares of the Company.
Lulu US repurchased all outstanding shares of its non-participating preferred stock for a
purchase price of $1.00 per share.
Prior to the reorganization, LIPO and LIPO USA had created stock-based compensation plans for
eligible employees of LACI and Lulu USA. The eligible employees were granted options to acquire
shares of LIPO and LIPO USA. The outstanding unvested stock options of LIPO were exchanged for
options of LIPO USA which allow the holder to acquire shares of LIPO USA. Vested LIPO options are
immediately exercised for shares in LIPO and then exchanged for a fraction of an exchangeable share
or common share in the Company. The exercise price and the number of common shares of the Company
subject to the new Company stock options (note 4) were set to preserve the intrinsic value and other terms
and conditions of the LIPO and LIPO USA stock options being exchanged.
For accounting purposes, the corporate reorganization has been reflected as if it had occurred
at January 31, 2007.
Authorized share capital
As part of the reorganization in connection with the initial public offering, the Companys
stockholders approved an amended and restated charter that provides for the issuance of up to
200,000,000 shares of common stock, 5,000,000
shares of undesignated preferred stock and 30,000,000 shares of special voting stock. Upon completion of the
reorganization there were 44,290,778 shares of common stock, 20,935,041 shares of exchangeable stock and 20,935,041 shares of special voting stock
outstanding. Additionally, 10,000,000 shares of common stock are reserved for issuance under the
Company 2007 Equity and Incentive Plan. The Companys stock options outstanding after completion of
the reorganization were 4,479,176. The outstanding stock options issued to purchase shares of LACI
and Lulu US prior to the reorganization were exchanged for options to acquire common shares of the Company at an adjusted
exercise price.
9
Stock split
As part of the reorganization in connection with the initial public offering, on July 26,
2007, a 2.38267841 for one stock split was effected for all authorized, issued, and outstanding
shares of common stock of the Company. All common shares presented in
the consolidated financial statements and the notes to the consolidated financial statements
have been restated to properly reflect the July 26, 2007 stock split.
NOTE 4. STOCK BASED COMPENSATION
In July 2007, the Board adopted, and the Companys stockholders approved in conjunction with
the reorganization of the Company, the 2007 Equity Incentive Plan (the 2007 Plan). Upon completion of the reorganization of the Company (note 3), outstanding
awards under the Companys predecessor plan were exchanged for awards under the 2007 Plan. The Plan provides
for the grants of stock options, stock appreciation rights, restricted stock or restricted stock
units to employees (including officers and directors who are also employees) of the Company or of a
parent or subsidiary of the Company. Stock options granted to date have a 4-year vesting period and
vest a rate of 25% per each year on the anniversary date of the grant. Restricted stock granted
under the Plan vest one year from the date of the grant. To date, no stock appreciation rights or
restricted stock units have been issued under the plan.
For the three months ended July 31, 2007, the Company granted 9,996 shares of restricted
common stock to directors. The restricted common stock vests one year after the grant date. Once
granted, the restricted common stock is included in total shares outstanding but is not included in
the weighted average number of common shares outstanding in each period used to calculate basic
earnings per share until the shares vest.
The following is a summary of the total number of outstanding stock options and restricted
Common stock units issued under the plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Non
|
|
|
|
|
|
|
Outstanding
|
|
|
Weighted Average
|
|
|
Vested Restricted
|
|
|
Weighted Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Common Stock
|
|
|
Exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2007
|
|
|
4,523,839
|
|
|
$
|
0.58
|
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
246,826
|
|
|
|
18.00
|
|
|
|
9,996
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
44,663
|
|
|
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2007
|
|
|
4,726,002
|
|
|
$
|
1.49
|
|
|
|
9,996
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholder sponsored awards
During the year ended January 31, 2006, LIPO and LIPO USA, entities controlled by a principal
stockholder of the Company created stock-based compensation plans (the LIPO Plans) for certain
eligible employees of the Company in order to provide incentive to increase stockholder value.
Under the provisions of the LIPO plans, the eligible employees were granted options to acquire
shares of LIPO and LIPO USA respectively. The board of directors of LIPO and LIPO USA would
exchange the LIPO and LIPO USA shares held in trust for an equivalent number of shares of the
Company to be held by LIPO and LIPO USA, respectively, on the exchange date.
On December 1, 2005, LIPO and LIPO USA each granted 5,295,952 Series A options with an
exercise price of CA$0.00001 and an expiry date of December 1, 2009 and 11,062,179 Series B options
with an expiry date of December 1, 2010, respectively. The LIPO and LIPO USA Series B options had
exercise prices of CA$0.99 and $0.01, respectively. Each Series A option and each Series B option
entitled the holder to acquire one share of common stock of the respective companies.
While all
of the Series A options of both companies vested on December 5, 2005 and were
immediately exercised, 3,549,444 of the common shares of LIPO and LIPO USA issued were designated
as forfeitable. These forfeitable shares are considered to be non-vested for accounting purposes
and were considered not to be earned as of December 5, 2005. These non-vested shares became
non-forfeitable over a four-year requisite service period ending on December 5, 2009. In addition, on
December 5, 2005, 2,239,395 of the Series B options vested, with the remaining options vesting over
a five-year period ending December 5, 2010.
In connection with
the reorganization of the Company, the LIPO Series A awards and vested LIPO Series B awards were
exchanged for exchangeable shares of the Company through a series of transactions. The LIPO Series B unvested options
were cancelled and new LIPO USA Series B stock options with an exercise price of $0.01 were issued using a conversion
factor set out in the reorganization agreement. The cancellation of the LIPO Series B unvested options and the
issuance of the new LIPO USA Series B Stock options occurred with the relative intrinsic value and other terms and
conditions being preserved through the number and terms of new options being granted.
The summary of activity and changes related to forfeitable shares issued under the LIPO Series
A options since inception of the plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Purchase
|
|
|
|
Number of
|
|
|
Price
|
|
|
|
Shares
|
|
|
CA$
|
|
Balance at January 31, 2007
|
|
|
541,394
|
|
|
|
0.00001
|
|
Exercisable at January 31, 2007
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2007
|
|
|
541,394
|
|
|
|
0.00001
|
|
|
|
|
|
|
|
|
Exercisable at July 31, 2007
|
|
|
|
|
|
|
|
|
The Company records compensation expense for forfeitable shares issued under LIPO Series A
over the requisite service period of 5 years. Under the fair value method, compensation expenses
were $266,860 and $306,963 for the three month periods ended July 31, 2006 and 2007, and $514,142
and $584,550 for the six month periods ended July 31, 2006 and 2007, respectively
The summary of option grants, forfeitures, vesting and exercises under the LIPO Series B Plan
since inception is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
Number of
|
|
|
Price
|
|
|
|
options
|
|
|
CA $
|
|
Balance at January 31, 2007
|
|
|
33,303,016
|
|
|
|
0.01
|
|
Exercisable at January 31, 2007
|
|
|
4,110,511
|
|
|
|
0.01
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2007
|
|
|
33,303,016
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
Exercisable at July 31, 2007
|
|
|
4,110,511
|
|
|
|
0.01
|
|
The Company recorded compensation expense for shares issued under the LIPO Series B options,
over the requisite service period of 5 years. Under the fair value method, compensation expenses were $204,083 and $235,473 for the three month periods ended July 31, 2006
and 2007, and $393,778 and $447,865 for the six month periods ended July 31, 2006 and 2007,
respectively.
The LIPO series
B stock options will convert to exchangeable shares upon exercise at a conversion factor as set out in the
Reorganization Agreement. If all of the LIPO Series B options were to vest and are exercised at
July 31, 2007, they would result in the issuance of 1,474,925 exchangeable shares.
Class B LIPO USA Options and LIPO USA Forfeitable Shares issued on exercise Class A LIPO
Options vest as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Class B Options
|
|
|
Forfeitable Shares
|
|
|
Total
|
|
December 5, 2005
|
|
|
2,141,116
|
|
|
|
1,744,816
|
|
|
|
3,885,932
|
|
December 5, 2006
|
|
|
1,969,395
|
|
|
|
1,195,821
|
|
|
|
3,165,216
|
|
December 5, 2007
|
|
|
9,032,783
|
|
|
|
1,195,822
|
|
|
|
10,228,605
|
|
December 5, 2008
|
|
|
8,809,836
|
|
|
|
861,389
|
|
|
|
8,951,225
|
|
December 5, 2009
|
|
|
7,204,148
|
|
|
|
287,706
|
|
|
|
7,491,854
|
|
December 5, 2010
|
|
|
4,145,738
|
|
|
|
|
|
|
4,145,738
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
33,303,016
|
|
|
|
5,285,554
|
|
|
|
38,588,570
|
|
10
NOTE 5. LEGAL PROCEEDINGS
On March 14, 2007, a former executive officer filed suit against the Company for breach
of contract, wrongful dismissal and negligent misrepresentation seeking damages in an unspecified
amount plus costs and intent. The Company believes the claim is without merit and is vigorously defending
against it.
The Company is, from time to time, involved in routine legal matters incidental to its business.
Management believes that the ultimate resolution of any such current proceedings will not have a
material adverse effect on the Companys continued financial position, results of operations or cash flows.
NOTE 6. EARNINGS PER SHARE
In conjunction with the IPO of the Company, the Companys capital structure was reorganized
such that LIPO became an indirect, wholly-owned subsidiary of the Company, and the holders of
preferred shares of the Company acquired common shares of the Company in exchange for their
preferred shares, while the holders of LIPO shares acquired either common shares of the Company or
a combination of exchangeable shares of LCHI plus shares of special voting stock of the Company, in
exchange for their LIPO shares. In connection with the reorganization, each outstanding share of
the Companys common stock was split into 2.38267841 shares of common stock, with a corresponding
effect on outstanding options and exercise prices. The common stock and options outstanding as of
the completion of the reorganization was 65,225,819 shares and 4,479,176 options, respectively. In
addition, the outstanding stock options of Lulu Canada and Lulu US were exchanged for options to
acquire common shares of the Company at an adjusted exercise price. The exercise of options under
the LIPO plans have been excluded as any shares of LAI ultimately issued on exercise of these
options have already been included in the exchangeable shares.
The detail of the computation of basic and diluted earnings per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,121,998
|
|
|
$
|
1,939,596
|
|
|
$
|
8,664,064
|
|
|
$
|
5,120,768
|
|
Basic weighted average number of shares
outstanding
|
|
|
65,225,819
|
|
|
|
65,225,819
|
|
|
|
65,225,819
|
|
|
|
65,225,819
|
|
Basic earnings per share
|
|
$
|
0.08
|
|
|
$
|
0.03
|
|
|
$
|
0.13
|
|
|
$
|
0.08
|
|
Basic weighted average number of shares
outstanding
|
|
|
65,225,819
|
|
|
|
65,225,819
|
|
|
|
65,225,819
|
|
|
|
65,225,819
|
|
Effect of stock options assume exercised
|
|
|
3,665,418
|
|
|
|
3,655,422
|
|
|
|
3,653,013
|
|
|
|
3,643,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of
shares outstanding
|
|
|
68,891,237
|
|
|
|
68,881,241
|
|
|
|
68,878,832
|
|
|
|
68,868,836
|
|
Diluted earnings per share
|
|
$
|
0.07
|
|
|
$
|
0.03
|
|
|
$
|
0.12
|
|
|
$
|
0.07
|
|
Our calculation of weighted average shares include the common stock of the Company as well as
the exchangeable shares of LCHI. Exchangeable shares are the equivalent of common shares in all
respects. All classes of stock have in effect the same rights and share equally in undistributed
net income. For the 3 and 6 months ended July 31, 2007, 246,826
employee and director stock options were dilutive to earnings and are
included in the computation of diluted earnings per share.
NOTE 7. SUPPLEMENTARY FINANCIAL INFORMATION
A summary of certain balance sheet accounts is as follows:
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
January 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
3,457,650
|
|
|
$
|
2,290,665
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,457,650
|
|
|
$
|
2,290,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
23,185,741
|
|
|
$
|
21,310,791
|
|
Work in process
|
|
|
285,965
|
|
|
|
1,634,196
|
|
Raw materials
|
|
|
1,968,407
|
|
|
|
4,644,620
|
|
Provision to reduce inventory to market value
|
|
|
(1,592,000
|
)
|
|
|
(961,494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,848,113
|
|
|
$
|
26,628,113
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
January 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
23,105,254
|
|
|
$
|
15,954,887
|
|
Furniture and fixtures
|
|
|
8,424,236
|
|
|
|
5,287,109
|
|
Computer hardware
|
|
|
2,753,863
|
|
|
|
1,941,252
|
|
Computer software
|
|
|
3,543,181
|
|
|
|
1,591,572
|
|
Equipment
|
|
|
113,658
|
|
|
|
90,808
|
|
Vehicles
|
|
|
92,280
|
|
|
|
83,398
|
|
Accumulated amortization
|
|
|
(10,817,223
|
)
|
|
|
(7,211,652
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,215,249
|
|
|
$
|
17,737,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
Reacquired franchise rights
|
|
$
|
8,466,469
|
|
|
$
|
2,835,441
|
|
Non-competition agreements
|
|
|
844,517
|
|
|
|
769,252
|
|
Accumulated amortization
|
|
|
(2,106,482
|
)
|
|
|
(1,464,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,204,504
|
|
|
$
|
2,140,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
IPO costs
|
|
$
|
6,982,785
|
|
|
$
|
|
|
Prepaid rent, deposits and key money
|
|
|
2,242,378
|
|
|
|
2,522,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,225,163
|
|
|
$
|
2,522,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Settlement of lawsuit
|
|
$
|
|
|
|
$
|
7,228,310
|
|
Inventory in transit
|
|
|
1,313,446
|
|
|
|
1,877,065
|
|
Wages and vacation payable
|
|
|
4,250,021
|
|
|
|
2,816,751
|
|
IPO costs
|
|
|
2,265,997
|
|
|
|
|
|
Sales tax collected
|
|
|
1,425,914
|
|
|
|
927,555
|
|
Other
|
|
|
2,287,627
|
|
|
|
1,670,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,543,005
|
|
|
$
|
14,520,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
Deferred lease liability
|
|
$
|
2,279,755
|
|
|
$
|
1,585,097
|
|
Tenant inducements
|
|
|
2,206,900
|
|
|
|
438,571
|
|
Deferred revenue
|
|
|
4,017,641
|
|
|
|
3,307,044
|
|
Less: Current portion
|
|
|
(3,294,842
|
)
|
|
|
(2,652,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,209,454
|
|
|
$
|
2,678,221
|
|
|
|
|
|
|
|
|
NOTE 8. SUPPLEMENTARY CASH FLOW INFORMATION
Changes in non-cash working capital items:
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
$
|
(1,166,985
|
)
|
|
$
|
(1,602,867
|
)
|
(Increase) decrease in prepaid expenses
|
|
|
(347,519
|
)
|
|
|
209,445
|
|
Decrease in inventories
|
|
|
3,187,355
|
|
|
|
1,477,516
|
|
Decrease in related parties
|
|
|
172,378
|
|
|
|
394,926
|
|
Increase in other current assets
|
|
|
(2,588,060
|
)
|
|
|
(421,029
|
)
|
Decrease in trade accounts payable
|
|
|
(4,961
|
)
|
|
|
(4,367,979
|
)
|
(Decrease) increase in accrued liabilities
|
|
|
(3,038,318
|
)
|
|
|
773,566
|
|
Increase (decrease) in other current liabilities
|
|
|
64,007
|
|
|
|
(207,497
|
)
|
(Decrease) increase in income taxes payable
|
|
|
(3,808,338
|
)
|
|
|
4,876,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(7,530,441
|
)
|
|
$
|
1,132,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
3,341,438
|
|
|
$
|
1,544,652
|
|
Interest paid
|
|
|
1,684
|
|
|
|
9,568
|
|
12
NOTE 9. SEGMENT REPORTING
The Companys reportable segments are comprised of corporate owned stores, franchises and
wholesale, phone sales, warehouse sales and showrooms have been combined into other. There has been
no change in the basis of this segmentation, accounting policies of the segments or the basis of
measurement of segment profit or loss from that disclosed in our recently filed Registration
Statement on Form S-1 (file no. 333-142477). Information for these segments is detailed in the
table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
53,091,644
|
|
|
$
|
26,830,625
|
|
|
$
|
91,099,424
|
|
|
$
|
48,976,692
|
|
Franchises
|
|
|
3,401,038
|
|
|
|
4,481,723
|
|
|
|
8,318,544
|
|
|
|
8,845,633
|
|
Other
|
|
|
2,188,262
|
|
|
|
1,205,089
|
|
|
|
4,052,433
|
|
|
|
2,878,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before general
corporate expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
17,267,439
|
|
|
$
|
7,296,675
|
|
|
$
|
29,444,387
|
|
|
$
|
15,160,788
|
|
Franchises
|
|
|
1,685,989
|
|
|
|
2,333,556
|
|
|
|
4,025,269
|
|
|
|
4,269,027
|
|
Other
|
|
|
1,054,791
|
|
|
|
739,089
|
|
|
|
1,872,148
|
|
|
|
1,253,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expense
|
|
|
10,238,691
|
|
|
|
7,133,240
|
|
|
|
18,724,145
|
|
|
|
11,334,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income
|
|
|
9,769,526
|
|
|
|
3,236,080
|
|
|
|
16,617,659
|
|
|
|
9,349,444
|
|
Other expense (income), net
|
|
|
(70,516
|
)
|
|
|
(21,852
|
)
|
|
|
(177,512
|
)
|
|
|
(44,422
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
9,840,042
|
|
|
$
|
3,257,932
|
|
|
$
|
16,795,171
|
|
|
$
|
9,393,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
5,320,961
|
|
|
$
|
3,499,646
|
|
|
$
|
7,231,448
|
|
|
$
|
5,773,244
|
|
Corporate
|
|
|
1,704,112
|
|
|
|
235,620
|
|
|
|
2,808,505
|
|
|
|
683,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
1,266,615
|
|
|
$
|
918,926
|
|
|
$
|
2,487,046
|
|
|
$
|
1,542,576
|
|
Corporate
|
|
|
170,937
|
|
|
|
287,850
|
|
|
|
403,263
|
|
|
|
517,965
|
|
NOTE 10. SUBSEQUENT EVENTS
On August 2, 2007, the Company completed an initial public offering of 20,930,000 shares of
common stock at a price to the public of $18.00 per share, of which 2,290,909 shares were sold by
the Company 15,909,091 were sold by the selling stockholders, and 2,730,000 shares were sold
by certain of the selling stockholders pursuant to the underwriters over-allotment option. Upon
completing the offering, the Company received net proceeds of
approximately $31,849,817.
13
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Some of the statements contained in this Form 10-Q and any documents incorporated herein by
reference constitute forward-looking statements. Forward-looking statements relate to expectations,
beliefs, projections, future plans and strategies, anticipated events or trends and similar
expressions concerning matters that are not historical facts, such as statements regarding our
future financial condition or results of operations, our prospects and strategies for future
growth, the development and introduction of new products, and the implementation of our marketing
and branding strategies. In many cases, you can identify forward-looking statements by terms such
as may, will, should, expects, plans, anticipates, believes, intends, estimates,
predicts, potential or the negative of these terms or other comparable terminology.
The forward-looking statements contained in this Form 10-Q and any documents incorporated
herein by reference reflect our current views about future events and are subject to risks,
uncertainties, assumptions and changes in circumstances that may cause events or our actual
activities or results to differ significantly from those expressed in any forward-looking
statement. Although we believe that the expectations reflected in the forward-looking statements
are reasonable, we cannot guarantee future events, results, actions, levels of activity,
performance or achievements. Readers are cautioned not to place undue reliance on these
forward-looking statements. A number of important factors could cause actual results to differ
materially from those indicated by the forward-looking statements, including, but not limited to,
those factors described in Managements Discussion and Analysis of Financial Condition and Results
of Operations and Risk Factors. These factors include without limitation:
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our ability to manage our operations at our current size or manage growth
effectively;
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our ability to locate suitable locations to open new stores and to attract customers
to our stores;
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our ability to successfully expand in the United States and other new markets;
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our ability to finance our growth and maintain sufficient levels of cash flow;
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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;
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our ability to effectively market and maintain a positive brand image;
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our ability to maintain recent levels of comparable store sales or average sales per
square foot;
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our ability to continually innovate and provide our consumers with improved products;
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the ability of our suppliers or manufacturers to produce or deliver our products in a
timely or cost-effective manner;
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our lack of long-term supplier contracts;
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our lack of patents or exclusive intellectual property rights in our fabrics and
manufacturing technology;
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our ability to attract and maintain the services of our senior management and key
employees;
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the availability and effective operation of management information systems and other
technology;
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changes in consumer preferences or changes in demand for technical athletic apparel
and other products;
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our ability to accurately forecast consumer demand for our products;
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our ability to accurately anticipate and respond to seasonal or quarterly
fluctuations in our operating results;
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our ability to find suitable joint venture partners and expand successfully outside
North America;
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our ability to maintain effective internal controls; and
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changes in general economic or market conditions, including as a result of political
or military unrest or terrorist attacks.
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14
The forward-looking statements contained in this Form 10-Q reflect our views and assumptions
only as of the date of this Form 10-Q. We undertake no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which the statement is made or to
reflect the occurrence of unanticipated events.
Overview
We believe lululemon is one of the fastest growing designers and retailers of technical
athletic apparel in North America. Our yoga-inspired apparel is marketed under the lululemon
athletica brand name. We offer a comprehensive line of apparel and accessories including fitness
pants, shorts, tops and jackets designed for athletic pursuits such as yoga, dance, running and
general fitness. As of July 31, 2007, our branded apparel was principally sold through 60
corporate-owned and franchise stores that are primarily located in Canada and the United States. We
believe our vertical retail strategy allows us to interact more directly with and gain insights
from our customers while providing us with greater control of our brand. For the second quarter of
fiscal 2007, 82.5% of our net revenue was derived from sales of our products in Canada, 16.2% of
our net revenue was derived from the sales of our products in the United States and 1.3% of our net
revenue was derived from sales of our products in Australia and Japan.
Our net revenue has grown from $40.7 million for fiscal 2004 to $148.9 million for fiscal
2006. This represents a compound annual growth rate of 91.1%. Our net revenue also increased from
$32.5 million for the second quarter of fiscal 2006 to $58.7 million for the second quarter of
fiscal 2007, representing a 80.5% increase. By the end of fiscal 2004, we operated 20 stores
including 14 corporate-owned stores and six franchise stores in Canada, the United States and
Australia. The majority of our stores were located in Canada, with only three corporate-owned
stores in the United States and one franchise store in Australia. Our increase in net revenue from
fiscal 2004 to fiscal 2006 resulted from the addition of 17 retail locations in fiscal 2005 and 14
retail locations in fiscal 2006 and strong comparable store sales growth of 19% and 25% in fiscal
2005 and fiscal 2006, respectively. Our ability to open new stores and grow sales in existing
stores has been driven by increasing demand for our technical athletic apparel and a growing
recognition of the lululemon athletica brand. We believe our superior products, strategic store
locations, inviting store environment, grassroots marketing approach and distinctive corporate
culture are responsible for our strong financial performance.
The two most important determinants of our future net revenue, earnings and cash flow growth
are the successful expansion of our corporate-owned store base and increases in comparable store
sales. Though we expect continued growth in net revenues, we expect our growth rate to decline in
the future relative to the rate of growth we have experienced in historical periods as incremental
revenue is measured against a larger revenue base. Moreover, we expect a significant portion of our
new store growth to be concentrated in the United States. While we believe there is a significant
opportunity to expand our store base in the United States, our brand is still relatively new in the
United States and, therefore, our success is uncertain. To help manage our growth in the United
States, we have hired senior-level employees over the last twelve months with experience in the
United States retail environment. Additionally, we are focused on continuing to grow our comparable
store sales by increasing brand awareness through our community-based marketing efforts, developing
innovative technical athletic apparel that our customers demand and offering a distinctive retail
experience. Future comparable store sales growth will depend on our ability to continue to attract
and retain motivated corporate- and store-level employees that are passionate about the lululemon
athletica vision. Other external factors that could affect our net revenue, earnings and cash
flows, though to a lesser degree than the factors above, include fluctuations in the relative value
of the U.S. dollar compared to the Canadian dollar and general economic conditions in our target
markets.
lululemon was founded in 1998 by Dennis Chip Wilson in Vancouver, Canada. lululemon
athletica inc. (formerly known as Lululemon Corp. and before that as Lulu Holding, Inc.) is the
holding company for all our related entities, including our two primary operating companies
lululemon usa inc. and lululemon athletica canada inc. On August 2, 2007 lululemon athletica inc. completed an
initial public offering.
We have three reportable segments: corporate-owned stores, franchises and other. We report our
segments based on the financial information we use in managing our businesses. While we receive
financial information for each corporate-owned store, we have aggregated all of the corporate-owned
stores into one reportable segment due to the similarities in the economic and other
characteristics of these stores. Our franchises segment accounted for more than 10% of our net
revenues for each of fiscal 2005 and fiscal 2006 and 5.8% of our net revenues for the second
quarter of fiscal 2007. Opening new franchise stores is not a significant
part of our near-term store growth strategy, and we therefore expect that revenue derived from our
franchise stores will eventually comprise less than 10% of the net revenue we report in future
fiscal years, at which time we will reevaluate our segment reporting disclosures. Our other
operations accounted for less than 10% of our revenues in each of fiscal 2005 and fiscal 2006 and
3.7% of our revenues for the second quarter of fiscal 2007.
15
As of July 31, 2007, we sold our products through 52 corporate-owned stores located in Canada,
the United States and Japan. Most of our corporate-owned stores are located in North America, with
only three corporate-owned stores located in Japan. We plan to increase our net revenue in North
America by opening additional corporate-owned stores in new and existing markets. Corporate-owned
stores net revenue accounted for 81.1% of total net revenue for fiscal 2006 and 90.5% of total net
revenue for the second quarter of fiscal 2007.
As of July 31, 2007, we also had six franchise stores located in North America and two
franchise stores located in Australia. In the past, we have entered into franchise agreements to
distribute lululemon athletica branded products to more quickly disseminate our brand name and
increase our net revenue and net income. In exchange for the use of our brand name and the ability
to operate lululemon athletica stores in certain regions, our franchisees generally pay us a
one-time franchise fee and ongoing royalties based on their gross revenue. Additionally, unless
otherwise approved by us, our franchisees are required to sell only lululemon athletica branded
products, which are purchased from us at a discount to the suggested retail price. Pursuing new
franchise partnerships or opening new franchise stores is not a significant part of our near-term
store growth strategy. In some cases, we may exercise our contractual rights to purchase franchises
where it is attractive to us. Franchises net revenue accounted for 14.3% of total net revenue for
fiscal 2006 and 5.8% of total net revenue for the second quarter of fiscal 2007.
We believe that our athletic apparel has and will continue to appeal to consumers outside of
North America who value its technical attributes as well as its function and style. In 2004, we
opened our first franchise store in Australia. In the second quarter of fiscal 2007 we opened our
second franchise store in Australia. We intend to convert the Australian franchise operations into
a joint venture partnership. In 2005, we opened a franchise store in Japan. In 2006, we terminated
our franchise arrangement and entered into a joint venture agreement with Descente Ltd, or
Descente, a global leader in fabric technology, to operate our stores in Japan. This joint venture
company is named Lululemon Japan Inc. As of July 31, 2007, we operated three stores through
Lululemon Japan Inc. Because we own 60% of the joint venture and maintain control over it, the
financial results of Lululemon Japan Inc. are consolidated and included in our corporate-owned
stores segment. We plan to increase net revenue in markets outside of North America primarily by
opening additional stores with joint venture partners in existing markets as well as opening stores
in new markets with new joint venture partners.
In addition to deriving revenue from sales through our corporate-owned stores and our
franchises, we also derive other net revenue, which includes the sale of our products directly to
wholesale customers, telephone sales to retail customers, including related shipping and handling
charges, warehouse sales and sales through a limited number of company operated showrooms.
Wholesale customers include select premium yoga studios, health clubs and fitness centers.
Telephone sales are taken directly from retail customers through our call center. Warehouse sales
are typically held at one or more times a year to sell slow moving inventory or inventory from
prior seasons to retail customers at discounted prices. Our showrooms are typically small locations
that we open from time to time when we enter new markets and feature a limited selection of our
product offering during select hours. Other net revenue accounted for 4.6% of total net revenue for
fiscal 2006 and 3.7% of total net revenue for the second quarter of fiscal 2007.
We believe that a number of trends relevant to our industry have affected our results and may
continue to do so. Specifically, we believe that there is an increasing appreciation for the health
benefits of yoga and related fitness activities in our markets and that women, our primary
customers, are increasingly embracing an active healthy lifestyle. As such, we believe that
participation in yoga and related fitness activities will continue to grow. There is also an
increasing demand for technical athletic apparel relative to traditional athletic apparel, and we
believe that more people are wearing technical apparel in casual environments to create a healthy
lifestyle perception. The duration and extent of these trends, however, is unknown, and adverse
changes in these trends may negatively impact our net revenue, earnings or cash flows.
Our fiscal year ends on January 31. References to a particular fiscal year refer to the fiscal
year ended or January 31 in the year following the year mentioned.
16
Results of Operations
Three months ended July 31, 2007 compared to three months ended July 31, 2006
The following table summarizes key components of our results of operations for the three
months ended July 31, 2007 and July 31, 2006. The operating results are expressed in dollar
amounts as well as relevant percentages, presented as a percentage of net revenue.
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Three Months Ended July 31
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2007
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2006
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2007
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2006
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(in thousands)
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(percentages)
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Net revenue
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$
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58,681
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$
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32,517
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100.0
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100.0
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Cost of goods sold (including
stock-based compensation expense
of $193 and $70)
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27,434
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16,614
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46.8
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51.1
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Gross profit
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31,247
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15,903
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53.2
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48.9
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Operating expenses:
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Selling, general and administrative expenses (including stock-based
compensation expense of $1,368
and $720)
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21,477
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12,667
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36.6
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39.0
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Income from operations
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9,770
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3,236
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16.6
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10.0
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Other expenses (income)
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(71
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)
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(22
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)
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(0.1
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)
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0.0
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Income before income taxes
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9,840
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3,258
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16.8
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10.0
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Provision for income taxes
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4,798
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1,318
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8.2
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4.1
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Non-controlling interest
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(80
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)
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(0.1
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)
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Net income
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$
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5,122
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$
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1,940
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8.7
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5.9
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Net Revenue
Net revenue increased $26.1 million, or 80.5%, to $58.7 million for the second quarter of
fiscal 2007 from $32.5 million for the second quarter of fiscal 2006. This increase was the result
of increased comparable store sales, and sales from new stores opened. Assuming the average
exchange rate between the Canadian and United States dollars for the second quarter of fiscal 2006
remained constant, our net revenue would have increased $24.2 million or 74.4% for the second
quarter of fiscal 2007.
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Three Months Ended July 31,
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2007
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2006
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(In thousands)
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Net revenue by segment:
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Corporate-owned stores
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$
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53,092
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$
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26,831
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Franchises
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3,401
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4,482
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Other
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2,188
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1,204
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|
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Net revenue
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$
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58,681
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$
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32,517
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Corporate-Owned Stores.
Net revenue from our corporate-owned stores segment increased $26.3
million, or 97.9%, to $53.1 million for the second quarter of fiscal 2007 from $26.8 million for
the second quarter of fiscal 2006. The following contributed to the $26.3 million increase in net
revenue from our corporate-owned stores segment.
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Comparable store sales growth of 30.0% in the second quarter of fiscal 2007.
Assuming the average exchange rate between the Canadian and the United States dollars for
the second quarter of fiscal 2006 remained constant our comparable store sales would have
increased 25.0% for the second 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.
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Net revenue of $11.3 million from 16 corporate-owned stores we opened, consisting
of five in Canada, eight in the United States and three in Japan subsequent to July 31,
2006, the comparative period.
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The acquisition of three Calgary franchise stores in April 2007.
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17
Franchises.
Net revenue from our franchises segment decreased $1.1 million, or 24.1%,
to $3.4 million for the second
quarter of fiscal 2007 from $4.5 million for the second quarter of fiscal 2006. The decrease
in net revenue from our franchises segment consisted primarily of franchises net revenue of $2.4 million
that shifted to corporate-owned stores net revenue when we acquired three franchise stores
in Calgary offset by increased franchise revenue from our remaining franchise locations together
with the contribution of revenue from two new franchise locations in the United States and one new
location in Australia.
Other.
Net revenue from our other segment increased $1.0 million, or 81.7%, to $2.2 million
for the second quarter of fiscal 2007 from $1.2 million for the second quarter of fiscal 2006. The
$1.0 million increase was primarily the result of increased wholesale, phone and showroom sales.
Gross Profit
Gross profit increased $15.3 million, or 96.5%, to $31.2 million for the second quarter of
fiscal 2007 from $15.9 million for the first quarter of fiscal 2006. The increase in gross profit
was driven principally by:
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an increase of $26.3 million in net revenue from our corporate-owned stores
segment;
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an increase of $1.0 million in net revenue from our other segment; and
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This amount was partially offset by:
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an increase in product costs of $8.1 million associated with our sale of goods
through corporate-owned stores, franchises and other segments;
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an increase in occupancy costs of $1.5 million related to an increase in
corporate-owned stores;
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an increase of $0.8 million in expenses related to
distribution costs to support our growth;
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a net increase in the raw materials provision of $0.2 million recorded in current
period from the comparative period; and
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an increase in depreciation of $0.3 million primarily related to an increase in
corporate-owned stores.
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Gross profit as a percentage of net revenue, or gross margin, increased 4.3% to 53.2% for the
second quarter of fiscal 2007 from 48.9% for the second quarter of fiscal 2006. The increase in
gross margin resulted from:
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a decrease in product costs as a percentage of net revenue that contributed to an
increase in gross margin of 1.9% due to an increase in higher margin revenues associated
with the proportionate increase in corporate-owned stores, an increase in product pricing
and fewer markdowns on product;
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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 0.9%;
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a decrease in occupancy costs as a percentage of revenue contributed to an increase
in gross margin of 0.9%; and
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a decrease in depreciation costs as a percentage of revenue contributed to an
increase in gross margin of 0.7%.
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Our costs of goods sold in the second quarter of fiscal 2007 and the second quarter of fiscal
2006 included $0.2 million and $0.1 million, respectively, of stock-based compensation expense.
18
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $8.8 million, or 70.0%, to $21.5
million for the second quarter of fiscal 2007 from $12.7 million for the second quarter of fiscal
2006. As a percentage of net revenue; selling, general and
administrative expenses decreased 2.4% to 36.6% from 39.0%. The $8.8 million increase in
selling, general and administrative expenses was principally comprised of:
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an increase in store employee compensation of $3.5 million or 86.5% related to
opening additional corporate-owned stores;
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an increase in corporate compensation of $2.8 million or 130.6% principally due to
hiring of additional employees to support our growth;
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an increase in other store operating expenses of $2.1 million or 151.4%; and
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an increase in other corporate expenses such as stock based compensation, travel
expenses and rent associated with corporate facilities of $2.2 million or 124%.
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This amount was partially offset by:
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a decrease in professional fees of $1.7 million or 66%.
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Our selling, general and administrative expenses in the second quarter of fiscal 2007 and the
second quarter of fiscal 2006 included $1.4 million and $0.7 million, respectively, of stock-based
compensation expense.
Income from Operations
The increase of $6.5 million in income from operations for the second quarter of fiscal 2007
was primarily due to a $15.3 million increase in gross profit resulting from increased comparable
store sales and additional sales from corporate-owned stores opened, partially offset by an
increase of $8.8 million in selling, general and administrative expenses.
On a segment basis, we determine income from operations without taking into account our
general corporate expenses such as corporate employee costs, travel expenses and corporate rent.
For purposes of our managements analysis of our financial results, we have allocated some general
product expenses to our corporate-owned stores segment. For example, all expenses related to our
production, design and distribution departments have been allocated to this segment.
Income from operations (before general corporate expenses) from:
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our corporate-owned stores segment increased $10.0 million, or 136%, to $17.3
million for the second quarter of fiscal 2007 from $7.3 million for the second quarter of
fiscal 2006 primarily due to an increase in corporate-owned stores gross profit of $15.7
million, offset by an increase of $3.6 million in store employee expenses and an increase
of $2.1 million in other store expenses;
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our franchises segment decreased $0.6 million, or 27.8%, to $1.7 million for the
second quarter of fiscal 2007 from $2.3 million for the first quarter of fiscal 2006
primarily from franchises net revenue of $2.1 included in the comparative period that
shifted to corporate-owned stores net revenue when we acquired three franchise stores in
Calgary offset by increased franchise revenue from our remaining
franchise locations and new locations; and
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our other segment increased $0.3 million, or 42.7%, to $1.1 million for the second
quarter of fiscal 2007 from $0.7 million for the second quarter of fiscal 2006 primarily
due to an increase in revenue of $1.0 million and a decrease of $0.7 million in product
costs.
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19
Provision for Income Taxes
Provision for income taxes increased $3.5 million to $4.8 million for the second quarter of
fiscal 2007 from $1.3 million for
the second quarter of fiscal 2006. For the second quarter of fiscal 2007, our effective tax
rate was 48.7% compared to 40.4% for the second quarter of fiscal 2006. In both the second quarter
of fiscal 2006 and the second quarter of fiscal 2007, we generated losses in the United States
which we were unable to offset against our income in Canada for tax purposes. In the second quarter
of fiscal 2006 and the second quarter of fiscal 2007, we also incurred stock-based compensation
expenses of $0.8 million and $1.6 million, respectively, which were not deductible for tax purposes
during these periods.
Net Income
Net income increased $3.2 million to $5.1 million for the second quarter of fiscal 2007 from
$1.9 million for the second quarter of fiscal 2006. The increase in net income of $3.2 million for
the second quarter of fiscal 2007 was a result of an increase in gross profit of $15.3 million
resulting from increased comparable store sales and additional sales from corporate-owned stores
opened, offset by increases in selling, general and administrative expenses of $8.8 million and an
increase of $3.5 million in provision for income taxes.
Six months ended July 31, 2007 compared to six months ended July 31, 2006
The following table summarizes key components of our results of operations for the six months
ended July 31, 2007 and July 31, 2006. The operating results are expressed in dollar amounts as
well as relevant percentages, presented as a percentage of net revenue.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended July 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
(percentages)
|
|
Net revenue
|
|
$
|
103,470
|
|
|
$
|
60,701
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Cost of goods sold (including stock-based compensation expense of
$362 and $164)
|
|
|
49,412
|
|
|
|
30,278
|
|
|
|
47.8
|
|
|
|
49.9
|
|
Gross profit
|
|
|
54,058
|
|
|
|
30,423
|
|
|
|
52.2
|
|
|
|
50.1
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses (including stock-based
compensation expense of $2,606
and $1,170)
|
|
|
37,440
|
|
|
|
21,073
|
|
|
|
36.2
|
|
|
|
34.7
|
|
Income from operations
|
|
|
16,618
|
|
|
|
9,350
|
|
|
|
16.1
|
|
|
|
15.4
|
|
Other expense (income), net
|
|
|
(177
|
)
|
|
|
(44
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Income before income taxes
|
|
|
16,795
|
|
|
|
9,394
|
|
|
|
16.2
|
|
|
|
15.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
8,247
|
|
|
|
4,273
|
|
|
|
8.0
|
|
|
|
7.1
|
|
Non-controlling interest
|
|
|
(116
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
8,664
|
|
|
$
|
5,121
|
|
|
|
8.4
|
|
|
|
8.4
|
|
Net Revenue
Net revenue increased $42.8 million, or 70.5%, to $103.5 million for the first half of fiscal
2007 from $60.7 million for the first half of fiscal 2006. This increase was the result of
increased comparable store sales and sales from new stores opened. Assuming the average exchange
rate between the Canadian and United States dollars for the first half of fiscal 2006 remained
constant, our net revenue would have increased $41.0 million or 67.5% for the first half of fiscal
2007.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended July 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
Net revenue by segment:
|
|
|
|
|
|
|
|
|
Corporate-owned stores
|
|
$
|
91,099
|
|
|
$
|
48,977
|
|
Franchises
|
|
|
8,319
|
|
|
|
8,846
|
|
Other
|
|
|
4,052
|
|
|
|
2,878
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
103,470
|
|
|
$
|
60,701
|
|
20
Corporate-Owned Stores.
Net revenue from our corporate-owned stores segment increased $42.1
million, or 86.0%, to $91.1 million for the first half of fiscal 2007 from $49.0 million for the
first half of fiscal 2006. The following contributed to the $42.1 million increase in net revenue
from our corporate-owned stores segment.
|
|
|
Comparable store sales growth of 25.0% in the first half of fiscal 2007. Assuming
the average exchange rate between the Canadian and the United States dollars for the
first half of fiscal 2006 remained constant our comparable store sales would have
increased 23.0% for the first half 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.
|
|
|
|
|
Net revenue of $16.1 million from 16 corporate-owned stores we opened, consisting of five in
Canada, eight in the United States and three in Japan subsequent to July 31, 2006, the
comparative period.
|
|
|
|
|
The acquisition of three Calgary franchise stores in April, 2007.
|
Franchises.
Net revenue from our franchises segment decreased $0.5 million, or 6.0%, to $8.3
million for the first half of fiscal 2007 from $8.8 million for the first half of fiscal 2006. The
decrease in net revenue from our franchises segment consisted primarily of franchises net revenue
of $4.7 that shifted to corporate-owned stores net revenue when we acquired three franchise stores
in Calgary offset by increased franchise revenue from our remaining franchise locations together
with the contribution of revenue from two new franchise locations in the United States and one new
location in Australia.
Other.
Net revenue from our other segment increased $1.2 million, or 40.8%, to $4.1 million
for the first half of fiscal 2007 from $2.9 million for the first half of fiscal 2006. The $1.2
million increase was primarily the result of increased wholesale, phone and showroom sales.
Gross Profit
Gross profit increased $23.6 million, or 77.7%, to $54.1 million for the first half of fiscal
2007 from $30.4 million for the first half of fiscal 2006. The increase in gross profit was driven
principally by:
|
|
|
an increase of $42.1 million in net revenue from our corporate-owned stores
segment;
|
|
|
|
|
an increase of $1.2 million in net revenue from our other segment; and
|
This amount was partially offset by:
|
|
|
an increase in product costs of $13.8 million associated with our sale of goods
through corporate-owned stores, franchises and other segments;
|
|
|
|
|
an increase in occupancy costs of $2.9 million related to an increase in
corporate-owned stores;
|
|
|
|
|
an increase of $1.5 million in expenses related to distribution costs to support our growth;
|
|
|
|
|
a net increase in the raw materials provision of $0.4 million recorded in current
period from the comparative period; and
|
|
|
|
|
an increase in depreciation of $0.9 million primarily related to an increase in
corporate-owned stores.
|
21
Gross profit as a percentage of net revenue, or gross margin, increased 2.1% to 52.2% for the
first half of fiscal 2007 from 50.1% for the first half of fiscal 2006. The increase in gross
margin resulted from:
|
|
|
a decrease in product costs as a percentage of net revenue that contributed to a
decrease in gross margin of 1.3% due to an increase in higher margin revenues associated
with the proportionate increase in corporate-owned stores, an increase in product pricing
and fewer markdowns on product; 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 the first half of fiscal 2007 compared to the first half of fiscal 2006 which
contributed to an increase in gross margin of 0.8%.
|
Our costs of goods sold in the first half of fiscal 2007 and the first half of fiscal 2006
included $0.4 million and $0.2 million, respectively, of stock-based compensation expense.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $16.4 million, or 77.7%, to $37.4
million for the first half of fiscal 2007 from $21.1 million for the first half of fiscal 2006. As
a percentage of net revenue, selling, general and administrative expenses increased 1.5% to 36.2%
from 34.7%. The $16.4 million increase in selling, general and administrative expenses was
principally comprised of:
|
|
|
an increase in store employee compensation of $5.9 million or 79.8% related to
opening additional corporate-owned stores;
|
|
|
|
|
an increase in corporate compensation of $5.4 million or 148.7% principally due to
hiring of additional employees to support our growth;
|
|
|
|
|
an increase in other store operating expenses of $3.1 million or 131%;
|
|
|
|
|
an increase in other corporate expenses such as travel expenses and rent associated
with corporate facilities of $1.8 million or 69.4%; and
|
|
|
|
|
an increase in stock-based compensation expense of $1.6 million or 165.3%.
|
This amount was partially offset by:
|
|
|
a decrease in professional fees of $1.6 million or 47.9%.
|
Our selling, general and administrative expenses in the first half of fiscal 2007 and the
first half of fiscal 2006 included $2.6 million and $1.0 million, respectively, of stock-based
compensation expense.
Income from Operations
The increase of $7.3 million in income from operations for the first half of fiscal 2007 was
primarily due to a $23.6 million increase in gross profit resulting from increased comparable store
sales and additional sales from corporate-owned stores opened during fiscal 2006 and the first half
of fiscal 2007, partially offset by an increase of $16.4 million in selling, general and
administrative expenses.
On a segment basis, we determine income from operations without taking into account our
general corporate expenses such as corporate employee costs, travel expenses and corporate rent.
For purposes of our managements analysis of our financial results, we have allocated some general
product expenses to our corporate-owned stores segment. For example, all expenses related to our
production, design and distribution departments have been allocated to this segment.
Income from operations (before general corporate expenses) from:
|
|
|
our corporate-owned stores segment increased $14.3 million, or 94.2%, to $29.4
million for the first half of fiscal 2007 from $15.1 million for the first half of fiscal
2006 primarily due to an increase in corporate-owned stores gross profit of $23.3
million, offset by an increase of $5.9 million in store employee expenses and an increase
of $3.1 million in other store expenses;
|
22
|
|
|
our franchises segment decreased $0.2 million, or 5.7%, to $4.0 million for the
first half of fiscal 2007 from $4.2 million for the first half of fiscal 2006 primarily
from franchises net revenue of $4.7 million included in the comparative period that shifted to
corporate-owned stores net revenue when we acquired three franchise stores in Calgary
offset by increased franchise revenue from our remaining franchise locations; and
|
|
|
|
|
our other segment increased $0.6 million, or 49.3%, to $1.9 million for the first
half of fiscal 2007 from $1.3 million for the first half of fiscal 2006 primarily due to
an increase in revenue of $1.2 million and a increase of $0.6 million in product costs.
|
Provision for Income Taxes
Provision for income taxes increased $4.0 million to $8.2 million for the first half of fiscal
2007 from $4.3 million for the first half of fiscal 2006. For the first half of fiscal 2007, our
effective tax rate was 49.1% compared to 45.5% for the first half of fiscal 2006. In both the first
half of fiscal 2006 and the first half of fiscal 2007, we generated losses in the United States
which we were unable to offset against our income in Canada for tax purposes. In the first half of
fiscal 2006 and the first half of fiscal 2007, we also incurred stock-based compensation expenses
of $1.0 million and $3.0 million, respectively, which were not deductible for tax purposes during
these periods.
Net Income
Net income increased $3.5 million to $8.7 million for the first half of fiscal 2007 from $5.1
million for the first half of fiscal 2006. The increase in net income of $3.5 million for the first
half of fiscal 2007 was a result of an increase in gross profit of $23.6 million resulting from
increased comparable store sales and additional sales from corporate-owned stores opened, offset by
increases in selling, general and administrative expenses of $16.4 million and an increase of $4.0
million in provision for income taxes.
Liquidity and Capital Resources
Our cash requirements are principally for working capital and capital expenditures,
principally the build out cost of new stores, renovations of existing stores, and improvements to
our distribution facility and corporate infrastructure. Our need for working capital is seasonal,
with the greatest requirements from August through the end of November each year as a result of our
inventory build-up during this period for our holiday selling season. Historically, our main
sources of liquidity have been cash flow from operating activities and borrowings under our
existing and previous revolving credit facilities.
At July 31, 2007, our working capital (excluding cash and cash equivalents) was $3.4 million
and our cash and cash equivalents were $9.7 million.
The following presents the major components of net cash flows provided by and used in
operating, investing and financing activities for the periods indicated.
Operating Activities
Operating Activities
consist primarily of net income adjusted for certain non-cash items,
including depreciation and amortization, deferred income taxes, stock-based compensation expense
and the effect of the changes in non-cash working capital items, principally accounts receivable,
inventories, accounts payable and accrued expenses.
For the six months ended July 31, 2007, cash provided by operating activities increased
$1.5 million to $9.6 million compared to cash provided by operating activities of $8.1 million in the
six months ended July 31, 2006. The $1.5 million increase was primarily a result of:
|
|
|
an increase in net income of $3.5 million;
|
|
|
|
|
an increase in items not affecting cash of $6.6 million; and
|
|
|
|
|
offset by a net decrease in other non-cash balances of $8.6 million.
|
23
Investing Activities
Investing Activities
relate entirely to capital expenditures and acquisitions of franchises.
Cash used in investing activities increased $6.2 million to $12.5 million for six months ended July
31, 2007 from $6.3 million for six months ended July 31, 2006. The $6.2 million increase was a
result of our $5.0 million acquisition of three franchise stores in Calgary and an increase in the
purchase of property and equipment resulting primarily from new store openings and IT capital
expenditures of $3.0 million offset by cash provided by tenant inducements of $1.6 million.
Financing Activities
Financing Activities
consist primarily of costs associated with our IPO. Cash used in
financing activities increased to $4.7 million for the six months ended July 31, 2007 from $nil for
the six months ended July 31, 2006.
We believe that our cash from operations, proceeds from our initial public offering and
borrowings available to us under our revolving credit facility, will be adequate to meet our
liquidity needs and capital expenditure requirements for at least the next 24 months. Our cash from
operations may be negatively impacted by a decrease in demand for our products as well as the other
factors described in Risk Factors. In addition, we may make discretionary capital improvements
with respect to our stores, distribution facility, headquarters, or other systems, which we would
expect to fund through the issuance of debt or equity securities or other external financing
sources to the extent we were unable to fund such capital expenditures out of our cash from
operations.
Seasonality
In fiscal 2005 and fiscal 2006, we recognized over 35% of our net revenue in the fourth
quarter due to significant increases in sales during the holiday season. We recognized 48.8% and
11.5% of our net income in the fourth quarter in fiscal 2005 and fiscal 2006, respectively. The
amount of net income attributable to the fourth quarter in fiscal 2006 was substantially impacted
by a lawsuit expense of $7.2 million that was accrued for in the fourth quarter of fiscal 2006.
Despite the fact that we have experienced a significant amount of our net revenue and net income in
the fourth quarter of our fiscal year, we believe that the true extent of the seasonality or
cyclical nature of our business may have been overshadowed by our rapid growth to date.
The level of our working capital reflects the seasonality of our business. We expect
inventory, accounts payable and accrued expenses to be higher in the third and fourth quarters in
preparation for the holiday selling season. Because our products are sold primarily through our
stores, order backlog is not material to our business.
Revolving Credit Facility
In April 2007, we entered into an uncommitted senior secured demand revolving credit facility
with Royal Bank of Canada which replaces our existing credit facility. The revolving credit
facility provides us with available borrowings in an amount up to CDN$20.0 million. The revolving
credit facility must be repaid in full on demand and is available by way of prime loans in Canadian
currency, U.S. base rate loans in U.S. currency, bankers acceptances, LIBOR based loans in U.S.
currency or Euro currency, letters of credit in Canadian currency or U.S. currency and letters of
guaranty in Canadian currency or U.S. currency. The revolving credit facility bears interest on the
outstanding balance in accordance with the following: (i) prime rate for prime loans; (ii) U.S.
base rate for U.S. based loans; (iii) a fee of 1.125% per annum on bankers acceptances; (iv) LIBOR
plus 1.125% per annum for LIBOR based loans; (v) a 1.125% annual fee for letters of credit; and
(vi) a 1.125% annual fee for letters of guaranty. Both Lulu USA and Lululemon FC USA, Inc. provided
Royal Bank of Canada with guarantees and postponements of claims in the amounts of CDN$20.0 million
with respect to Lulu Canadas obligations under the revolving credit facility. The revolving credit
facility is also secured by all of our present and after acquired personal property, including all
intellectual property and all of the outstanding shares we own in our subsidiaries.
24
Off-Balance Sheet Arrangements
We enter into documentary letters of credit to facilitate the international purchase of
merchandise. We also enter into standby letters of credit to secure certain of our obligations,
including insurance programs and duties related to import purchases. As of July 31, 2007, letters
of credit and letters of guaranty totaling $2.1 million have been issued.
Other than these standby letters of credit, we do not have any off-balance sheet arrangements,
investments in special purpose entities or undisclosed borrowings or debt. In addition, we have not
entered into any derivative contracts or synthetic leases.
Critical Accounting Policies
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions. Predicting future events is
inherently an imprecise activity and, as such, requires the use of judgment. Actual results may
vary from estimates in amounts that may be material to the financial statements. An accounting
policy is deemed to be critical if it requires an accounting estimate to be made based on
assumptions about matters that are highly uncertain at the time the estimate is made, and if
different estimates that reasonably could have been used, or changes in the accounting estimates
that are reasonably likely to occur periodically, could materially impact our consolidated
financial statements. Our critical accounting policies and estimates are discussed in our recently
filed Registration Statement on Form S-1 (file no. 333-142477) and in Note 2 included in Item 1 of
Part I of this Quarterly Report on Form 10-Q. We believe that there have been no other significant
changes during the three months ended July 31, 2007 to our critical accounting policies.
Operating Locations
Our operating locations by country, state and province as of July 31, 2007, and the overall
totals as of July 31, 2007, are summarized in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Operating
|
|
|
|
|
|
|
Locations
|
|
|
|
|
Country, Province/State
|
|
Corporate
|
|
|
Franchise
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
|
|
|
|
|
|
|
|
|
|
British Columbia
|
|
|
9
|
|
|
|
2
|
|
|
|
11
|
|
Alberta
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
Saskatchewan
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Ontario
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
Quebec
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Manitoba
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Canadian
|
|
|
35
|
|
|
|
3
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
California
|
|
|
8
|
|
|
|
1
|
|
|
|
9
|
|
Colorado
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Illinois
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Massachusetts
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
New York
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Oregon
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Virginia
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Washington
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total United States
|
|
|
14
|
|
|
|
3
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
Australia
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International
|
|
|
3
|
|
|
|
2
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall total, as of July 31, 2007
|
|
|
52
|
|
|
|
8
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall total, as of January 31, 2007
|
|
|
41
|
|
|
|
10
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
25
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial position due to adverse
changes in financial market prices and rates. Our market risk exposure is primarily a result of
fluctuations in interest rates and foreign currency exchange rates. We do not hold or issue
financial instruments for trading purposes.
Foreign Currency Exchange Risk.
We currently generate a majority of our net revenue in
Canada. The reporting currency for our consolidated financial statements is the U.S. dollar.
Historically, our operations were based largely in Canada. As of July 31, 2007, we operated 38
stores in Canada and three stores in Japan. As a result, we have been impacted by changes in
exchange rates and may be impacted materially for the foreseeable future. For example, because we
recognize net revenue from sales in Canada in Canadian dollars, if the U.S. dollar strengthens it
would have a negative impact on our Canadian operating results upon translation of those results
into U.S. dollars for the purposes of consolidation. The exchange rate of the Canadian dollar
against the U.S. dollar is currently near a multi-year high. Any hypothetical loss in net revenue
could be partially or completely offset by lower cost of sales and lower selling, general and
administrative expenses that are generated in Canadian dollars. A 10% appreciation in the relative
value of the U.S. dollar compared to the Canadian dollar would have resulted in lost income from
operations of approximately $4.8 million for the first half of fiscal 2007. To the extent the ratio
between our net revenue generated in Canadian dollars increases as compared to our expenses
generated in Canadian dollars, we expect that our results of operations will be further impacted by
changes in exchange rates. We do not currently hedge foreign currency fluctuations. However, in the
future, in an effort to mitigate losses associated with these risks, we may at times enter into
derivative financial instruments, although we have not historically done so. These may take the
form of forward sales contracts and option contracts. We do not, and do not intend to, engage in
the practice of trading derivative securities for profit.
Interest Rate Risk.
In April 2007, we entered into an uncommitted senior secured demand
revolving credit facility with Royal Bank of Canada which replaces our existing credit facility.
Because our revolving credit facility bears interest at a variable rate, we will be exposed to
market risks relating to changes in interest rates, if we have a meaningful outstanding balance. At
July 31, 2007, we had no outstanding borrowings on our revolving facility. We do not believe we are
significantly exposed to changes in interest rate risk. We currently do not engage in any interest
rate hedging activity and currently have no intention to do so in the foreseeable future. However,
in the future, if we have a meaningful outstanding balance, in an effort to mitigate losses
associated with these risks, we may at times enter into derivative financial instruments, although
we have not historically done so. These may take the form of forward sales contracts, option
contracts, and interest rate swaps. We do not, and do not intend to, engage in the practice of
trading derivative securities for profit.
ITEM 4.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our
management, including our principal executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and procedures as such term is
defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended
(Exchange Act), as of the end of the period covered by this report. Based on that evaluation, our
management with the participation of our principal executive officer and principal financial officer
concluded that these controls and procedures are effective as of the end of the period covered by
this report to ensure that information required to be disclosed by us in reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms and that information required to be disclosed is
accumulated and communicated to our management, including our principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding required
disclosure.
(b) Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during our
last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
26
PART II
OTHER INFORMATION
ITEM
1.
LEGAL PROCEEDINGS
The
Company is, from time to time, involved in routine legal matters
incidental to its business. Management believes that the ultimate
resolution of any such current proceedings will not have a material
adverse effect on the Companys continued financial position,
results of operations or cash flows.
ITEM 1A.
RISK FACTORS
In addition to other information set forth in this report, you should carefully consider the
risk factors discussed in our Registration Statement on Form S-1 (file no. 333-142477). There have
been no material changes to the risk factors previously disclosed in our Registration Statement on
Form S-1 (file no. 333-142477).
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a) On July 26, 2007 we issued to each of our six non-employee directors 1,666 shares of common
stock in the form of restricted stock in consideration of their service as members of our board of
directors. The restricted stock will vest one year from the date of the grant. The issuance of
these securities was exempt from registration under the Securities in reliance on Section 4(2) or
Regulation D promulgated thereunder relating to sales not involving a public offering. There were
no underwriting discounts or commissions applicable to these transactions.
(b) On July 26, 2007 our registration statement on Form S-1 covering the offering of 18,200,000
shares of our common stock, par value $0.01 per share, commission file number 333-142477 was
declared effective. We sold 2,290,909 shares of common stock in the offering and the selling
stockholders sold 15,909,091 shares of common stock in the offering, not including the
over-allotment option. The offering closed on August 2, 2007 and did not terminate before any
securities were sold. As of the date of filing this report the offering has terminated and all of
the securities registered pursuant to the offering have been sold.
The offering was managed by Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Credit Suisse Securities (USA) LLC, UBS Securities LLC, William Blair & Company LLC,
CIBC World Markets Corp., Wachovia Capital Markets LLC and Thomas Weisel Partners LLC, as
representatives of the several underwriters named in the Registration Statement (the
Underwriters).
The Underwriters exercised an over-allotment option to purchase an additional 2,730,000 shares of
our common stock from certain selling stockholders on August 2, 2007. The total price to
the public for the shares offered and sold in the offering, including the over-allotment, was
$376,740,000.
The amount of expenses (in thousands) incurred for the Companys account in connection with the
offering is as follows:
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Underwriting discounts and commissions
|
|
$
|
2,887
|
|
|
|
|
|
|
Finders Fees
|
|
|
|
|
|
|
|
|
|
Expenses paid to or for our underwriters
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
6,500
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
9,387
|
|
|
|
|
|
27
The foregoing expenses are a reasonable estimate of the expenses incurred by us in the initial
public offering and do not represent the exact amount of expenses incurred.
All of the foregoing expenses were direct or indirect payments to persons other than (i) our
directors, officers or any of their associates; (ii) persons owning ten (10%) or more of our common
stock; or (iii) our affiliates.
The net proceeds (in thousands) of the
offering including the over-allotment option, to us (after
deducting the foregoing expenses) were $31,849,817. On August 2, 2007, the settlement date of the
offering, we received the proceeds from the offering which have been utilized as temporary
investments in cash and cash equivalents.
There has been no material change in the planned use of proceeds from our initial public offering
as described in our final prospectus filed with the SEC pursuant to Rule 424(b).
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 8, 2007, the holders of all of our outstanding capital stock entitled to vote on the
matters below, approved, by a written consent of stockholders:
1) An amendment to our then current amended and restated certificate of incorporation to change our
name from Lululemon Corp. to lululemon athletica inc.
2) An amendment and restatement of our bylaws to (i) explicitly permit electronic communications
in the context of voting, meetings, and notices; (ii) include a classified board provision; (iii)
remove the provision permitting stockholders to act by written consent; and (iv) outline procedures
for nominating persons to our board of directors and filling any vacancy occurring in our board of
directors. The amended and restated bylaws became effective on August 2, 2007.
3) The classification of the members of our board of directors into particular classes as
follows to be effective upon the completion of our initial public offering:
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|
|
|
|
|
|
Term Expiring at Stockholders
|
Name
|
|
Meeting to be held in the year
|
RoAnn Costin
|
|
|
2008
|
|
R. Brad Martin
|
|
|
2008
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|
|
|
|
|
|
Rhoda Pitcher
|
|
|
2009
|
|
Robert Meers
|
|
|
2009
|
|
Steven Collins
|
|
|
2009
|
|
|
|
|
|
|
David Mussafer
|
|
|
2010
|
|
Tom Stemberg
|
|
|
2010
|
|
Dennis Wilson
|
|
|
2010
|
|
On July 6, 2007, the holders of all of our outstanding capital stock entitled to vote on the
matter, approved, by a written consent of stockholders our 2007 Equity Incentive Plan pursuant to
which 10,000,000 shares of our common stock were reserved for issuance.
28
On June 8, 2007, the holders of all of our outstanding capital stock entitled to vote on the
matters below, approved, by a written consent of stockholders:
1) An amendment and restatement of our then current amended and restated certificate of
incorporation which provided for (i) the elimination of all provisions relating to our series A
preferred stock, series B preferred stock and series TS preferred stock, (ii) the confirmation of
our authorized capitalization of 200 million shares of common stock, 30 million shares of special
voting stock and 5 million shares of preferred stock; and (iii) the addition of provisions relating
to the classification of our board of directors. Our amended and restated certificate of
incorporation became effective upon filing with the Delaware Secretary of State on August 2, 2007.
2) The form of indemnification agreement to be entered into with each of our
directors and certain of our executive officers pursuant to which we agree to indemnify these
individuals to the fullest extent permitted by applicable law in connection with their service as
our directors or executive officers.
ITEM 5.
OTHER INFORMATION
Policy for Stockholder Recommendations for Nomination of Directors
Our nominating and corporate governance committee will accept for consideration submissions from
stockholders of recommendations for the nomination of directors. All stockholder nominating
recommendations must be in writing, addressed to our nominating and corporate governance committee care of
our Corporate Secretary at our principal headquarters at 2285 Clark Drive, Vancouver, British
Columbia, Canada, V5N 3G9.
A nominating recommendation must be accompanied by the following information concerning each
recommending stockholder:
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|
the name and address, including telephone number, of the recommending stockholder;
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|
the number of our shares owned by the recommending stockholder and the time period
for which such shares have been held;
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|
if the recommending stockholder is not a stockholder of record, a statement from the
record holder of the shares (usually a broker or bank) verifying the holdings of the
stockholder and a statement from the recommending stockholder of the length of time that
the shares have been held. (Alternatively, the stockholder may furnish a current
Schedule 13D, Schedule 13G, Form 3, Form 4 or Form 5 filed with the Securities and
Exchange Commission reflecting the holdings of the stockholder, together with a
statement of the length of time that the shares have been held); and
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|
A statement from the stockholder as to whether the stockholder has a good faith
intention to continue to hold the reported shares through the date of our next annual
meeting of stockholders.
|
If a recommendation is submitted by a group of two or more stockholders, the information
regarding recommending stockholders must be submitted with respect to each stockholder in the
group.
A nominating recommendation must be accompanied by the following information concerning the
proposed nominee:
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|
the information required by Item 401 of SEC Regulation S-K (providing for disclosure
of the name, address, any arrangements or understanding regarding nomination and five
year business experience of the proposed nominee, as well as information regarding
certain types of legal proceedings within the past five years involving the nominee);
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the information required by Item 403 of SEC Regulation S-K (providing for disclosure
regarding the proposed nominees ownership of our securities);
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|
the information required by Item 404 of SEC Regulation S-K (providing for disclosure
of transactions between us and the proposed nominee valued in excess of $120,000 and
certain other types of business relationships with us);
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|
a description of all relationships between the proposed nominee and the recommending
stockholder and any agreements or understandings between the recommending stockholder
and the nominee regarding the nomination; and
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|
a description of all relationships between the proposed nominee and any of our
competitors, customers, suppliers, labor unions or other persons with special interests
regarding us.
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29
The recommending stockholder must also furnish a statement supporting its view that the
proposed nominee possesses the minimum qualifications prescribed by the nominating and governance
committee for nominees, and briefly describing the contributions that the nominee would be expected
to make to our board of directors and governance. The recommending stockholder must further state
whether, in the stockholders view, the nominee, if elected, would represent all stockholders and
not serve for the purpose of advancing or favoring any particular stockholder or other constituency
of ours.
The nominating recommendation must be accompanied by the consent of the proposed nominee to be
interviewed by our nominating and corporate governance committee, if our nominating and corporate governance committee
chooses to do so in its discretion (and the recommending stockholder must furnish the proposed
nominees contact information for this purpose), and, if nominated and elected, to serve as our
director.
A stockholder (or group of stockholders) wishing to submit a nominating recommendation for an
annual meeting of stockholders must ensure that it is received by our Corporate Secretary, not
later than the 60th day nor earlier than the 90th day prior to the first anniversary of the
preceding years annual meeting; provided, however, that in the event that the date of the annual
meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the
stockholder must be so received not earlier than the 90th day prior to the annual meeting and not
later than the later of the 60th day prior to the annual meeting or the 15th day following the day
on which public announcement of the date of the meeting is first made by us. With respect to our annual meeting of stockholders to be held in 2008, a stockholder
(or any group of stockholders) wishing to submit a nominating recommendation must ensure that it is received by our
Corporate Secretary within 15 days following the day on which public announcement of the date of the meeting is first made by us.
ITEM 6.
EXHIBITS
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Exhibit
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Number
|
|
Description
|
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3.1
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Amended
and Restated Certificate of Incorporation of lululemon athletica inc.
as filed with the Secretary of State of the State of Delaware on
August 2, 2007 (Incorporated by reference to Exhibit 3.1 to the Companys Current
Report on Form 8-K filed with the Securities and Exchange Commission
on August 8, 2007)
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3.2*
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|
Amended and Restated Bylaws of lululemon athletica inc.
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|
|
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|
|
10.1#
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|
lululemon athletica inc. 2007 Equity Incentive Plan (Incorporated by reference to Exhibit 4.1 to
the Companys Registration Statement on Form S-8 (file no. 333-145453) filed with the Securities
and Exchange Commission on August 15, 2007)
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|
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|
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10.2#
|
|
|
Form of Non-Qualified Stock Option Award Agreement under the 2007 Equity Incentive Plan
(Incorporated by reference to Exhibit 10.2 to the Companys Registration Statement on Form S-1
(file no. 333-142477) filed with the Securities and Exchange Commission on July 9, 2007)
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|
|
|
|
|
|
10.3#
|
|
|
Amended and Restated LIPO Investments (USA), Inc. Option Plan and form of Award Agreement
(Incorporated by reference to Exhibit 10.3 to the Companys Registration Statement on Form S-1
(file No. 333-142477) filed with the Securities and Exchange Commission on May 1, 2007)
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|
|
|
|
|
|
10.4*
|
|
|
Amended and Restated Registration Rights Agreement dated as of July 26, 2007 by and among
lululemon athletica inc. and the parties named therein
|
|
|
|
|
|
|
10.5*
|
|
|
Exchange Trust Agreement dated July 26, 2007 between lululemon athletica inc., Lulu Canadian
Holding, Inc. and Computershare Trust Company of Canada
|
|
|
|
|
|
|
10.6*
|
|
|
Exchangeable Share Support Agreement dated July 26, 2007 between lululemon athletica inc.,
Lululemon Callco ULC and Lulu Canadian Holding, Inc.
|
|
|
|
|
|
|
10.7*
|
|
|
Amended and Restated Declaration of Trust for Forfeitable Exchangeable Shares dated July 26, 2007
|
|
|
|
|
|
|
10.8
|
|
|
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) (Incorporated by
reference to Exhibit 10.14 to the Companys Registration Statement on Form S-1 (file no.
333-142477) filed with the Securities and Exchange Commission on July 9, 2007)
|
|
|
|
|
|
|
10.9*
|
|
|
Contribution Agreement dated as of July 26, 2007 by and among lululemon athletica inc., Slinky
Financial ULC and each of the other parties named therein
|
|
|
|
|
|
|
31.1*
|
|
|
Certification by Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)
|
|
|
|
|
|
|
31.2*
|
|
|
Certification by Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)
|
|
|
|
|
|
|
32.1*
|
|
|
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
*
|
|
Filed herewith.
|
|
#
|
|
Indicates management contract or compensatory plan
|
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
lululemon athletica inc
|
|
Dated: September 10, 2007
|
By:
|
*/s/
John Currie
|
|
|
|
JOHN CURRIE
|
|
|
|
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
|
|
31
INDEX TO EXHIBITS
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
|
|
|
3.1
|
|
|
Amended and Restated Certificate of Incorporation of lululemon athletica inc. as filed with the
Secretary of State of the State of Delaware on August 2, 2007
|
|
|
|
|
|
|
3.2
|
|
|
Amended and Restated Bylaws of lululemon athletica inc.
|
|
|
|
|
|
|
10.4
|
|
|
Amended and Restated Registration Rights Agreement dated as of July 26, 2007 by and among
lululemon athletica inc. and the parties named therein
|
|
|
|
|
|
|
10.5
|
|
|
Exchange Trust Agreement dated July 26, 2007 between lululemon athletica inc., Lulu Canadian
Holding, Inc. and Computershare Trust Company of Canada
|
|
|
|
|
|
|
10.6
|
|
|
Exchangeable Share Support Agreement dated July 26, 2007 between lululemon athletica inc.,
Lululemon Callco ULC and Lulu Canadian Holding, Inc.
|
|
|
|
|
|
|
10.7
|
|
|
Amended and Restated Declaration of Trust for Forfeitable Exchangeable Shares dated July 26, 2007
|
|
|
|
|
|
|
10.9
|
|
|
Contribution Agreement dated as of July 26, 2007 by and among lululemon athletica inc., Slinky
Financial ULC and each of the other parties named therein
|
|
|
|
|
|
|
31.1
|
|
|
Certification by Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)
|
|
|
|
|
|
|
31.2
|
|
|
Certification by Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)
|
|
|
|
|
|
|
32.1
|
|
|
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
32
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
LULULEMON CORP.
Effective: August 2, 2007
ARTICLE I
OFFICES
Section 1.1.
Registered Office
. The registered office of Lululemon Corp. (the
Corporation
) shall be in the City of Wilmington, County of New Castle, State of Delaware.
Notwithstanding the foregoing, the registered office may be changed at any time upon a resolution
adopted by the Corporations Board of Directors (the
Board
).
Section 1.2.
Other Offices
. The Corporation may also have offices at such other
places within or without the State of Delaware as the Board may from time to time determine or the
business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1.
Place
. All meetings of the stockholders shall be held at such place
within or without the State of Delaware as shall be designated from time to time by the Board and
stated in the notice of the meeting or in a duly executed waiver thereof.
Section 2.2.
Annual Meetings
. An annual meeting of the stockholders shall be held in
each calendar year within five months after the end of the fiscal year of the Corporation on such
day and at such time and place (within the State of Delaware) as the Board shall fix, at which time
the stockholders shall elect a Board and transact such other business as may properly be brought
before the meeting. Any business may be transacted at the meeting, irrespective of whether the
notice of such meeting contains a reference thereto, except as otherwise provided in these Bylaws,
or by statute.
Section 2.3.
Special Meetings
. Special meetings of stockholders may be called at any
time, but only by the chairman of the Board (the
Chairman of the Board
), the Chief
Executive Officer of the Corporation (the
CEO
), the President, or upon a resolution
adopted upon the affirmative vote of a majority of the whole Board, and not by the stockholders.
Section 2.4.
Notice Of Meetings
. Notice of all stockholders meetings stating the
time, place and the objects for which such meetings are called shall be given by the Chairman of
the Board, the CEO, the President or any vice-president (a
Vice-President
) or the
Secretary (the
Secretary
) or any assistant secretary (an
Assistant Secretary
)
of the Corporation to each stockholder of record entitled to vote at such meeting not less than ten
(10) days or more than sixty (60) days prior to the date of the meeting by written notice delivered
personally, by electronic transmission, mailed or delivered via overnight courier to each
stockholder. If delivered personally, such notice shall be deemed to be delivered when received.
If mailed or
-1-
delivered via overnight courier service, such notice shall be deemed to be delivered when
deposited in the United States Mail in a sealed envelope with postage thereon prepaid, or deposited
with the overnight courier service, as the case may be, addressed to the stockholder at his address
as it appears on the stock record books of the Corporation, unless he shall have filed with the
Secretary a written request that notice intended for him be mailed to some other address, in which
case it shall be mailed to the address designated in such request. If delivered by electronic
transmission, such notice shall be sent consistent with Article X hereof.
Any meeting at which all stockholders entitled to vote have waived or at any time shall waive
notice shall be a legal meeting for the transaction of business, notwithstanding that notice has
not been given as herein before provided. The waiver must be in writing, signed by the stockholder
entitled to the notice, and be delivered to the Corporation for inclusion in the minutes or filing
with the corporate records.
Section 2.5.
Notice for Nominations and Proposals
.
2.5.1.
Annual Meetings
.
(a) Nominations for the election of directors and proposals for any new business to be taken
up at any annual meeting of stockholders may be made by the Board or, as provided in this Section
2.5, by any stockholder of the Corporation entitled to vote generally in the election of directors,
subject to the rights of the holders of preferred stock, if applicable. For nominations or other
business to be properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the Corporation and such other
business must otherwise be a proper matter for stockholder action. To be timely, a stockholders
notice with respect to any annual meeting must be received by the Secretary at the principal
executive offices of the Corporation not later than the 60th day nor earlier than the 90th day
prior to the first anniversary of the preceding years annual meeting; provided, however, that in
the event that the date of the annual meeting is more than sixty (60) days before or more than
sixty (60) days after such anniversary date, notice by the stockholder must be so received not
earlier than the 90th day prior to the annual meeting and not later than the later of the 60th day
prior to the annual meeting or the 15th day following the day on which public announcement of the
date of the meeting is first made by the Corporation; provided further that with respect to the
annual meeting to be held in 2008, notice by the stockholder must be so received not earlier than
March 17, 2008 and not later than the later of April 17, 2008 or the 15th day following the day on
which public announcement of the date of the meeting is first made by the Corporation. In no event
shall the public announcement of an adjournment or postponement of an annual meeting commence a new
time period for the giving of a stockholders notice as described above. A stockholders notice
shall set forth:
(i) as to each person whom the stockholder proposes to nominate for election or reelection as
a director, (A) all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, (B) a description of all
relationships between the proposed nominee and the recommending stockholder and any agreements or
understandings between the recommending stockholder and the nominee regarding the nomination, and
(C) a description of all relationships
-2-
between the proposed nominee and any of the Corporations competitors, customers, suppliers,
labor unions (if any) and any other persons with special interests regarding the Corporation;
(ii) as to any other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and
(iii) as to the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made, (A) the name and address of such stockholder, as they
appear on the Corporations books, the telephone number of such stockholder, and the name, address
and telephone number of such beneficial owner, (B) the class and number of shares of the
Corporation which are owned of record by such stockholder and beneficially by such beneficial owner
and the time period such shares have been held, (C) a representation that such stockholder and
beneficial owner intend to appear in person or by proxy at the meeting, and (D) a representation
that such stockholder and such beneficial owner intend to continue to hold the reported shares
through the date of the Corporations next annual meeting of stockholders. For purposes of
satisfying the requirements of clause (B) of this paragraph with respect to a beneficial owner, the
beneficial owner shall supply to the Corporation either (1) a statement from the record holder of
the shares verifying the holdings of the beneficial owner and indicating the length of time the
shares have been held by such beneficial owner, or (2) a current Schedule 13D, Schedule 13G, Form
3, Form 4 or Form 5 filed with the Securities and Exchange Commission reflecting the holdings of
the beneficial owner, together with a statement of the length of time that the shares have been
held.
(iv) If a recommendation is submitted by a group of two or more stockholders, the information
regarding the recommending stockholders and beneficial owners, if any, must be submitted with
respect to each stockholder in the group and any beneficial owners.
(b) Notwithstanding anything in paragraph (a) of this Section 2.5.1 to the contrary, in the
event that the number of directors to be elected to the Board at the annual meeting is increased
pursuant to an act of the Board and there is no public announcement by the Corporation naming all
of the nominees for director or specifying the size of the increased Board on or before the date
which is 15 days before the latest date by which a stockholder may timely notify the Corporation of
nominations or other business to be brought by a stockholder in accordance with paragraph (a) of
this Section 2.5.1, a stockholders notice required by this Section 2.5.1 shall also be considered
timely, but only with respect to nominees for any new positions created by such increase, if it
shall be received by the Secretary at the principal executive offices of the Corporation not later
than the 15th day following the day on which such public announcement is first made by the
Corporation.
2.5.2.
Special Meetings
. Only such business shall be conducted at a special meeting
of stockholders as shall have been brought before the meeting pursuant to the Corporations notice
of meeting. Nominations of persons for election to the Board at a special meeting of stockholders
at which directors are to be elected pursuant to the Corporations notice
-3-
of meeting may be made (i) by or at the direction of the Board or (ii) provided that the Board
has determined that directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice provided for in this
Section 2.5, who shall be entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section 2.5. In the event the Corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board, any such stockholder
may nominate a person or persons (as the case may be), for election to such position(s) as
specified in the Corporations notice of meeting for inclusion in the stockholders notice required
by Section 2.5.1 of these Bylaws if such nomination shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the close of business on the 90th
day prior to such special meeting and not later than the close of business on the later of the 60th
day prior to such special meeting or the 15th day following the day on which public announcement is
first made of the date of the special meeting and of the nominees proposed by the Board to be
elected at such meeting. In no event shall the public announcement of an adjournment of a special
meeting commence a new time period for the giving of a stockholders notice as described above.
2.5.3.
General
. Only such persons who are nominated in accordance with the procedures
set forth in this Section 2.5 shall be eligible to stand for election to the Board at a meeting of
stockholders, and only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in this Section 2.5.
Except as otherwise provided by law, the Certificate of Incorporation of the Corporation as amended
and restated (the
Certificate of Incorporation
) or these Bylaws, the Chairman of the
Board shall have the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made or proposed, as the case may be, in accordance with the
procedures set forth in this bylaw and, if any proposed nomination or business is not in compliance
with this Section 2.5, to declare that such defective proposal or nomination shall be disregarded.
2.5.4.
Public Announcement
. For purposes of this Section 2.5, public announcement
shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press
or comparable national news service or in a document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange
Act of 1934 as amended (the
Exchange Act
).
2.5.5.
Non-Exclusivity
. If the Corporation is required under Rule 14a-8 under the
Exchange Act to include a stockholders proposal in its proxy statement, such stockholder shall be
deemed to have given timely notice for purposes of this Section 2.5 with respect to such proposal.
Nothing in this Section 2.5 shall be deemed to affect any rights of the holders of any series of
preferred stock of the Corporation to elect directors.
Section 2.6.
Quorum
. Except as may be otherwise provided by law, a majority of the
voting power of all the outstanding shares of the Corporation entitled to vote, represented in
person or by proxy, shall constitute a quorum at a meeting of stockholders. In the event that the
voting power of all a majority of the outstanding shares are represented at any meeting, action on
a matter is approved if the votes cast favoring the action exceed the votes cast opposing the
action, unless the question is one upon which by express provision of law or of the Certificate
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of Incorporation or of these Bylaws a larger or different vote is required, in which case such
express provision shall govern and control the decision of each question. If a quorum of the
shares entitled to vote shall fail to be obtained at any meeting, or in the event of any other
proper business purpose, the chair of the meeting or the holders of a majority of the shares
present, in person or by proxy, may adjourn the meeting to another place, date or time by
announcement to stockholders present in person at the meeting and no other notice of such place,
date or time need be given.
Section 2.7.
Organization
. At every meeting of the stockholders the Chairman of the
Board, or, in his absence, the CEO or the President, or in the absence of the Chairman of the
Board, the CEO and the President, a director or an officer of the Corporation designated by the
Board shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary, shall act
as secretary at all meetings of the stockholders. In the absence from any such meeting of the
Secretary and any Assistant Secretary, the chairman may appoint any person to act as secretary of
the meeting.
Section 2.8.
Closing of Transfer Books or Fixing of Record Date
. For the purpose of
determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not more than sixty (60) days and not
less than ten (10) days prior to the date on which the particular action requiring such
determination of stockholders is to be taken. If the stock transfer books are not closed and no
record date is fixed for the determination of stockholders entitled to notice of or to vote at a
meeting of stockholders, or stockholders entitled to receive payment of a dividend, the date on
which notice of the meeting is mailed or the date on which the resolution of the Board declaring
such dividend is adopted, as the case may be, shall be the record date for such determination of
stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders
has been made as provided in this Section 2.8, such determination shall apply to any adjournment
thereof.
Section 2.9.
Voting Lists
. The officer or agent having charge of the stock transfer
books for common shares of the Corporation shall make available, within two (2) business days after
notice of a meeting is given, a complete list of the stockholders entitled to vote at such meeting
or any adjournment thereof, arranged in alphabetical order, with the address of and the number of
shares held by each stockholder, which list, for a period beginning within two (2) business days
after notice of such meeting is given, shall be subject to inspection by any stockholder at any
time either (a) on a reasonably accessible electronic network, provided that the information
required to gain access to such list is provided with the notice of the meeting, or (b) during
ordinary business hours, at the principal place of business of the Corporation. If the meeting is
to be held at a place, then the list shall be produced and kept at the time and place of the
meeting during the whole time thereof and may be inspected by any stockholder who is present. If
the meeting is to be held solely by means of remote communication, then the list shall also be open
to the examination of any stockholder during the whole time of the meeting on a reasonably
accessible electronic network, and the information required to access such list shall be provided
with the notice of the meeting. In the event of any challenge to the right of any person to vote
at the meeting, the presiding officer at such meeting may rely on said list as proper evidence of
the right of parties to vote at such meeting.
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Section 2.10.
Proxies
. Stockholders of record who are entitled to vote may vote at
any meeting either in person or by written proxy, which shall be filed with the secretary of the
meeting before being voted. Such proxy shall entitle the holders thereof to vote at any
adjournment of such meeting, but shall not be valid after the final adjournment thereof. No proxy
shall be valid after the expiration of eleven (11) months from the date of its execution unless the
stockholder executing it shall have specified therein the length of time it is to continue in
force, which shall be for some limited period. A proxy is revocable by the stockholder unless it
conspicuously states that it is irrevocable and the appointment of the proxy is coupled with an
interest.
Section 2.11.
Voting of Shares
. Except as otherwise provided in the Certificate of
Incorporation or these Bylaws, each share of Common Stock shall have all voting rights accorded to
holders of Common Stock pursuant to the Delaware General Corporation Law (
DGCL
), at the
rate of one vote per share.
Section 2.12.
Business and Order of Business
. At each meeting of the stockholders
such business may be transacted as may properly be brought before such meeting, except as otherwise
provided by law or in these Bylaws. The order of business at all meetings of the stockholders
shall be as determined by the Chairman of the Board, unless otherwise determined by a majority in
interest of the stockholders present in person or by proxy at such meeting and entitled to vote
thereat.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1.
Number
. The number of directors of the Corporation shall be such number,
neither fewer than three (3) nor more than fifteen (15) (exclusive of directors, if any, to be
elected by holders of any class or series of preferred stock of the Corporation, voting separately
as a class), as determined from time to time by the Board. The Board has the power to fix or
change the number of directors, including an increase or decrease in the number of directors, from
time to time as established by the Board. A director need not be a stockholder or a resident of
the State of Delaware.
Section 3.2.
Classification of Board
. The Board shall be divided into three classes,
as more particularly set forth in the Certificate of Incorporation.
Section 3.3.
Powers of Directors
. The Board shall have the entire management of the
business of the Corporation. In the management and control of the property, business and affairs
of the Corporation, the Board is hereby vested with all the powers possessed by the Corporation
itself, so far as this delegation of authority is not inconsistent with the laws of the State of
Delaware, the Certificate of Incorporation, or these Bylaws. The Board shall have the power to
determine what constitutes net earnings, profits, and surplus, respectively, what amount shall be
reserved for working capital and to establish reserves for any other proper purpose, and what
amount shall be declared as dividends, and such determination by the Board shall be final and
conclusive. The Board shall have the power to declare dividends for and on behalf of the
Corporation, which dividends may include or consist of stock dividends.
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Section 3.4.
Regular Meetings of the Board
. Immediately after the annual election of
directors, the newly elected directors may meet at the same place for the purpose of organization,
the election of corporate officers and the transaction of other business; if a quorum of the
directors is then present no prior notice of such meeting shall be required. Other regular
meetings of the Board shall be held at such times and places as the Board by resolution may
determine and specify, and if so determined no notice thereof need be given, provided that, unless
all the directors are present at the meeting at which said resolution is passed, the first meeting
held pursuant to said resolution shall not be held for at least five (5) days following the date on
which the resolution is passed.
Section 3.5.
Special Meetings
. Special meetings of the Board may be held at any time
or place whenever called by the Chairman of the Board, the CEO, the President, the Chief Financial
Officer or the Secretary, or by written request of at least two directors, notice thereof being
given to each director by the Secretary or other officer calling the meeting, or they may be held
at any time without formal notice provided all of the directors are present or those not present
shall at any time waive or have waived notice thereof.
Section 3.6.
Notice
. Notice of any special meetings shall be given at least two (2)
days previously thereto by written notice delivered personally, by telegram, by overnight courier
service, by facsimile communication or by electronic transmission, or at least five (5) days
previously thereto by written notice sent by mail. The time when such notice is received, if
delivered personally, or when such notice is dispatched, if delivered through the mail, by
overnight courier service, by facsimile telecommunication or by electronic transmission, shall be
the time of the giving of the notice.
Section 3.7.
Quorum
. A majority of the members of the Board, as constituted for the
time being, shall constitute a quorum for the transaction of business, but a lesser number may
adjourn any meeting and the meeting may be held as adjourned without further notice. If a quorum
is present when a vote is taken, the affirmative vote of a majority of the directors present is the
act of the Board, except as otherwise provided by law or by these Bylaws. The fact that a director
has an interest in a matter to be voted on by the meeting shall not prevent his being counted for
purposes of a quorum.
Section 3.8.
Action by Directors without a Meeting
. Any action required to be taken
at a meeting of the Board or any committee thereof, or any other action which may be taken at a
meeting of the Board or any committee thereof, may be taken without a meeting if all directors
consent to taking such action without a meeting. The action must be evidenced by one or more
written consents describing the action taken, signed by each such director, and shall be included
in the minutes or filed with the corporate records reflecting the action taken.
Section 3.9.
Meetings by any Form of Communication
. The Board shall have the power to
permit any and all directors to participate in a regular or special meeting by, or conduct the
meeting through the use of any means of communication by which all directors participating may
simultaneously hear each other during the meeting. A director participating in a meeting by this
means is deemed to be present in person at the meeting.
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Section 3.10.
Organization
. At each meeting of the Board, the Chairman of the Board,
or in the absence of the Chairman of the Board, a director designated by the Board shall act as
chairman. The Secretary, or, in the Secretarys absence, any person appointed by the chairman,
shall act as secretary of the meeting.
Section 3.11.
Resignations
. A director may resign at any time by delivering written
notice to the Board, the Chairman of the Board, the CEO, or the President. Resignation is
effective when the notice is delivered, unless the notice specifies a later effective date.
Section 3.12.
Removal of Directors
. No director (other than directors elected by one
or more series of Preferred Stock) may be removed from office by the stockholders except for cause
and then only by the affirmative vote of the holders of two-thirds (66 2/3%) of the voting power of
the then outstanding capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.
Section 3.13.
Vacancies
. Any vacancy occurring in the Board, including vacancies
resulting from an increase in the number of directors, may be filled solely by the affirmative vote
of a majority of the remaining directors, though less than a quorum, and unless the Board of
Directors determines otherwise (and subject to the rights of the holders or any series of preferred
stock), vacancies shall not be filled by stockholders. A director elected to fill any vacancy
shall hold office for a term expiring at the annual meeting of stockholders at which the term of
the class to which he or she has been elected expires, and until such directors successor shall
have been duly elected and qualifies or until his or her earlier death, resignation or removal.
Section 3.14.
Compensation
. By resolution of the Board, the directors may be paid
their expenses, if any, of attendance at each meeting of the Board. No such payment shall preclude
any director from serving the Corporation in any other capacity and receiving compensation
therefor.
ARTICLE IV
COMMITTEES
Section 4.1.
Appointment and Powers
. The Board may create one or more committees,
each committee to consist of two or more directors of the Corporation, which, to the extent
provided in said resolution or in these Bylaws and not inconsistent with the DGCL, shall have and
may exercise the powers of the Board in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board. The Board may abolish any such committee at any
time.
Section 4.2.
Term of Office and Vacancies
. Each member of a committee shall continue
in office until a director to succeed him shall have been elected and shall have qualified, or
until he ceases to be a director or until he shall have resigned or shall have been removed in the
manner hereinafter provided. Any vacancy in a committee shall be filled by the Board.
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Section 4.3.
Organization
. Unless otherwise provided by the Board, each committee
shall appoint a chairman. Each committee shall keep a record of its acts and proceedings and
report the same from time to time to the Board as the Board may require.
Section 4.4.
Resignations
. Any member of a committee may resign from the committee at
any time by giving written notice to the Chairman of the Board, the CEO, the President or the
Secretary. Such resignation shall take effect at the time of the receipt of such notice or at any
later time specified therein, and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 4.5.
Removal
. Any member of a committee may be removed from the committee
with or without cause at any time by resolution of the Board.
Section 4.6.
Meetings
. Regular meetings of each committee, of which no notice shall
be required, shall be held on such days and at such places as the chairman of the committee shall
determine or as shall be fixed by a resolution passed by a majority of all the members of such
committee. Special meetings of each committee will be called by the Secretary at the request of
any two (2) members of such committee, or in such other manner as may be determined by the
committee. Notice of any special meetings shall be given at least two (2) days previously thereto
by written notice delivered personally, by telegram, by overnight courier service, by facsimile
communication or by electronic transmission, or at least five (5) days previously thereto by
written notice sent by mail. Every such notice shall state the date, time and place of the
meeting, but need not state the purposes of the meeting. No notice of any meeting of a committee
shall be required to be given to any alternate. The time when such notice is received, if
delivered personally, or when such notice is dispatched, if delivered through the mail, by
overnight courier service, by facsimile telecommunication or by electronic transmission, shall be
the time of the giving of the notice.
Section 4.7.
Quorum and Manner of Acting
. Unless otherwise provided by resolution of
the Board, a majority of a committee shall constitute a quorum for the transaction of business and
the act of a majority of those present at a meeting at which a quorum is present shall be the act
of such committee, except as otherwise provided by law or by these Bylaws. The members of each
committee shall act only as a committee and the individual members shall have no power as such.
Actions taken at a meeting of any committee shall be reported to the Board at its next meeting
following such committee meeting; provided that, when the meeting of the Board is held within two
(2) days after the committee meeting, such report may be made to the Board at its second meeting
following such committee meeting.
Section 4.8.
Compensation
. Each member of a committee shall be paid such
compensation, if any, as shall be fixed by the Board.
ARTICLE V
WAIVER OF NOTICE
Whenever any notice is required to be given by these Bylaws, the Certificate of Incorporation,
or any laws of the State of Delaware, a waiver thereof in writing signed by the person or persons
entitled to such notice and filed with the minutes or corporate records, whether
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before or after the time stated therein, shall be deemed equivalent thereto. Where the person
or persons entitled to such notice sign the minutes of any stockholders or directors meeting,
which minutes contain the statement that said person or persons have waived notice of the meeting,
then such person or persons are deemed to have waived notice in writing. A stockholders
attendance at a meeting waives objection to lack of notice or defective notice of the meeting,
unless the stockholder at the beginning of the meeting (or promptly upon the stockholders arrival)
objects to holding the meeting or transacting business at the meeting, and also waives objection to
consideration of a particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice, unless the stockholder objects to considering the matter when it
is presented. A directors attendance at or participation in a meeting waives any required notice
to the director of the meeting unless the director at the beginning of the meeting (or promptly
upon the directors arrival) objects to holding the meeting or transacting business at the meeting
and does not thereafter vote for or assent to action taken at the meeting.
ARTICLE VI
OFFICERS
Section 6.1.
Number
. The officers of the Corporation shall be a Chairman of the
Board, CEO, President, Chief Financial Officer, a Chief Operating Officer, one or more
Vice-Presidents (the number thereof to be determined by the Board), a Secretary, and a Treasurer,
each of whom shall be elected by the Board. Such other officers and assistant officers as may be
deemed necessary may be elected or appointed by the Board. Any two or more offices may be held by
the same person, except the offices of CEO and Secretary. The CEO and President may be the same
person, but need not be the same person.
Section 6.2.
Election and Term of Office
. The officers of the Corporation to be
elected by the Board shall be elected annually by the Board at the first meeting of the Board held
after each annual meeting of the stockholders. If the election of officers shall not be held in
such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer
shall hold office until his successor is duly elected and is qualified or until his death or until
he resigns or is removed in the manner hereinafter provided.
Section 6.3.
Removal
. Any officer or agent elected or appointed by the Board may be
removed by the Board whenever in its judgment the best interests of the Corporation would be served
thereby, but such removal shall be without prejudice to the contract rights, if any, of the person
so removed.
Section 6.4.
Vacancies
. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise, may be filled by the Board for the unexpired portion of the
term.
Section 6.5.
Chairman of the Board
. The Chairman of the Board shall preside at all
meetings of the stockholders and the directors. The Chairman of the Board shall represent the
Corporation in all matters involving the stockholders of the Corporation. He shall also perform
such other duties the Board may assign to him from time to time.
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Section 6.6.
Chief Executive Officer
. The CEO shall, in the absence of the Chairman
of the Board, preside at all meetings of the stockholders and shall enforce the observance of the
Bylaws and the rules of order for the meetings of the Board and the stockholders. He shall keep
the Board appropriately informed on the business and affairs of the Corporation. He may sign,
either alone or with the Secretary, an Assistant Secretary or any other proper officer of the
Corporation thereunto authorized by the Board, certificates for shares of the Corporation, any
deed, mortgages, bonds, contracts, or other instruments which the Board has authorized to be
executed, except in cases where the signing and execution thereof shall be expressly delegated by
the Board or by these Bylaws to some other officer or agent of the Corporation, or shall be
required by law to be otherwise signed or executed, and in general shall perform all duties
incident to the office of CEO and such other duties as may be prescribed by the Board from time to
time.
Section 6.7.
President
. The President shall see that all orders and resolutions of
the Board are carried into effect and shall have general and active management of the business of
the Corporation. He or she shall have the authority to execute bonds, mortgages and other
contracts requiring a seal, under the seal of the Corporation, except where required or permitted
by law to be otherwise signed and executed arid except where the signing and execution thereof
shall be expressly delegated by the Board to some other officer or agent of the Corporation. If,
for any reason, the Corporation does not have a Chairman or CEO, or such officers are unable to
act, the President shall assume the duties of those officers as well.
Section 6.8.
Chief Financial Officer and Treasurer
. The Chief Financial Officer shall
also serve as the Treasurer of the Corporation and shall arrange for the keeping of adequate
records of all assets, liabilities and transactions of the corporation. He shall provide for the
establishment of internal controls and see that adequate audits are currently and regularly made.
He shall submit to the CEO, the President, the Chief Operating Officer, the Chairman of the Board
and the Board timely statements of the accounts of the corporation and the financial results of the
operations thereof.
Section 6.9.
Assistant Treasurers
. The Assistant Treasurer or if there shall be more
than one, the Assistant Treasurers in the order determined by the Board (or if there be no such
determination, then in the order of their election), shall, in the absence of the Treasurer or in
the event of his inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the Board may from time
to time prescribe.
Section 6.10.
Chief Operating Officer
. If a Chief Operating Officer is elected, the
Chief Operating Officer shall supervise the operation of the Corporation, subject to the policies
and directions of the Board. He shall provide for the proper operation of the Corporation and
oversee the internal interrelationship amongst any and all departments of the Corporation. He
shall submit to the CEO, the President and the Board timely reports on the operations of the
Corporation.
Section 6.11.
The Vice-Presidents
. In the absence of the CEO and the President or in
the event of their death, inability or refusal to act, the Vice-President (or in the event there be
more than one Vice-President, the Vice-Presidents in the order designated at the time of their
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election, or in the absence of any designation, then in the order of their election) shall
perform the duties of the CEO and the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the CEO and the President. Any Vice-President may
sign, either alone or with the Secretary or an Assistant Secretary, certificates for shares of the
Corporation any deed, mortgages, bonds, contracts or other instruments which the Board has
authorized to be executed, except in cases where the signing and execution thereof shall be
expressly delegated by the Board or by these bylaws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise signed or executed, and shall perform such
other duties as from time to time may be assigned to him by the CEO, the President or by the Board.
Section 6.12.
The Secretary
. The Secretary shall: (a) prepare and keep the minutes of
the stockholders and of the Boards meetings in one or more books provided for that purpose; (b)
see that all notices are duly given in accordance with the provisions of these bylaws or as
required by law; (c) be custodian of the corporate records and of the seal (if any) of the
Corporation and see that said seal is affixed to all documents, the execution of which on behalf of
the Corporation under its seal is duly authorized; (d) keep a register of the post office address
of each stockholder which shall be furnished to the Secretary by such stockholder; (e) sign with
the CEO, the President or a Vice-President certificates for shares of the Corporation, the issuance
of which shall have been authorized by resolution of the Board; (f) have general charge of the
stock transfer books of the Corporation; and (g) in general perform all duties as from time to time
may be assigned to him by the CEO, the President or by the Board.
Section 6.13.
Assistant Secretaries
. The Assistant Secretaries, when authorized by
the Board, may sign with the CEO, the President or a Vice-President certificates for shares of the
Corporation the issuance of which shall have been authorized by a resolution of the Board. The
Assistant Secretaries, in general, shall perform such duties as shall be assigned to them by the
Secretary, or by the CEO, the President or the Board.
Section 6.14.
Registered Agent
. The Board shall appoint a Registered Agent for the
Corporation in accordance with the DGCL and may pay the agent such compensation from time to time
as it may deem appropriate.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
Section 7.1.
Indemnification by Corporation
. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the fact that he or she
is or was a director, officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another Corporation,
partnership, joint venture, trust or other enterprise, against expenses including attorneys fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
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believe his or her conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of
nolo contendere
or its equivalent, shall
not, of itself, create a presumption that the parson did not act in good faith and in a manner
which he or she reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
Section 7.2.
Suit by or in the Right of the Corporation
. The Corporation shall
indemnify any person who was or is a party, or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he or she is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another Corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys fees) actually and reasonably incurred by him or her in
connection with the defense or settlement of such action or suit if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the Corporation unless and
only to the extent that the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 7.3.
Success on the Merits
. To the extent that a director, officer, employee
or agent of the Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 7.1 or Section 7.2 of this Article, or in defense
of any claim, issue or matter therein, he or she shall be indemnified against expenses (including
attorneys fees) actually and reasonably incurred by him or her in connection therewith.
Section 7.4.
Determination that Indemnification is Proper
. Any indemnification under
Section 7.1 or Section 7.2 of this Article (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances because he or she has met
the applicable standard of conduct set forth in such section. Such determination shall be made:
(a) by the Board by a majority vote of a quorum consisting of directors who were not parties
to such action, suit or proceeding; or
(b) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion; or
(c) by the stockholders.
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Section 7.5.
Expenses
. Expenses (including attorneys fees) incurred by an officer or
director in defending a civil, criminal, administrative or investigative action, suit or proceeding
may be paid by the Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the
Corporation as authorized in this Article VII. Such expenses (including attorneys fees) incurred
by other employees and agents may be so paid upon such terms and conditions, if any, as the Board
deems appropriate.
Section 7.6.
Non-Exclusivity of Indemnification Rights
. The indemnification and
advancement of expenses provided by or granted pursuant to the other sections of this Article VII
shall not be deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her official capacity and as to
action in another capacity while holding such office.
Section 7.7.
Insurance
. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another Corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him or her and incurred by him or her in any such capacity,
or arising out of his or her status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability under the provisions of this Article VII.
Section 7.8.
Continuance of Indemnification
. The indemnification and advancement of
expenses provided by or granted pursuant to this Article VII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and administrators of such a
person. The rights to indemnification and advancement of expenses provided by or granted pursuant
to this Article VII shall constitute a contract between the Corporation and each director, officer,
employee or agent of the Corporation in each circumstance, and each such person shall have all
rights available in law or equity to enforce such contract rights against the Corporation. Any
repeal or modification of any provision of this Article VII shall not adversely affect or deprive
any director, officer, employee or agent of any right or protection offered by such provision prior
to such repeal or modification.
Section 7.9.
Definition of the Corporation.
For purposes of this Article VII,
references to the Corporation shall include, in addition to the resulting Corporation, any
constituent corporation (including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person who is or was a
director, officer employee or agent of such constituent Corporation, or is or was serving at the
request of such constituent Corporation as a director, officer, employee or agent of another
Corporation, partnership, joint venture, trust or other enterprise, shall stand in the same
position under this Article VII with respect to the resulting or surviving Corporation as he or she
would have with respect to such constituent Corporation of its separate existence bad continued.
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Section 7.10.
Definition of Other Enterprises
. For purposes of this Article VII,
references to other enterprises shall include employee benefit plans; references to fines shall
include any excise taxes assessed on a person with respect to any employee benefit plan; and
references to serving at the request of the Corporation shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a manner he or she
reasonably believed to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the
Corporation as referred to in this Article VII.
ARTICLE VIII
CONTRACTS, CHECKS AND DEPOSITS
Section 8.1.
Contracts
. The Board may authorize any officer or officers, agent or
agents, to enter into any contract or execute and deliver any instrument in the name of and on
behalf of the Corporation, and such authority may be general or confined to specific instances.
Section 8.2.
Checks, Drafts, etc.
All checks, drafts, or other orders for the payment
of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be
signed by such officer or officers, agent or agents of the Corporation and in such manner as shall
from time to time be determined by resolution of the Board.
Section 8.3.
Deposits
. All funds of the Corporation not otherwise employed shall be
deposited from time to time to the credit of the Corporation in such banks, trust companies or
other depositories as the Board may select.
ARTICLE IX
CERTIFICATES OF STOCK
Section 9.1.
Certificated and Uncertificated Shares of Stock
. The shares of stock of
the Corporation shall be represented by certificates unless the Board shall by resolution provide
that some or all of any class or series of stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until the certificate is
surrendered to the Corporation.
Section 9.2.
Right to Certificate
. Every holder of stock in the Corporation which is
represented by a certificate shall be entitled to have a certificate, signed by or in the name of
the Corporation by the Chairman or Vice-Chairman of the Board, or the CEO, or the President, or a
Vice-President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by him in the Corporation.
Section 9.3.
Statements Setting Forth Rights
. If the Corporation shall be authorized
to issue more than one class of stock or more than one series of any class, the designations,
preferences and relative, participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such preferences and rights
(the
Summary of Rights
) shall be set forth in full or summarized as follows:
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9.3.1.
With Regard to Certificated Shares of Stock
. The Summary of Rights shall be
set forth in full or summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock; provided that, except as otherwise provided in
Section 202 of the DGCL, in lieu of the foregoing requirements, there may be set forth on the face
or back of the certificate which the Corporation shall issue to represent such class or series of
stock of certificated shares, a statement that the Corporation will furnish without charge to each
stockholder who so requests the designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the qualifications, limitations
or restrictions of such preferences and rights.
9.3.2.
With Regard to Uncertificated Shares of Stock
. The Summary of Rights shall be
set forth in full or summarized on a written notice containing the information required by Section
151(f) of the DGCL and shall be sent to the registered owner of the uncertificated shares within a
reasonable time after the issuance or transfer of any uncertificated shares.
Section 9.4.
Facsimile Signature
. Where a certificate is countersigned (a) by a
transfer agent other than the Corporation or its employee, or, (b) by a registrar other than the
Corporation or its employee, the signatures of the officers of the Corporation may be facsimiles.
In case any officer who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the date of issue.
Section 9.5.
Lost Certificates
. Only with respect to certificated shares of stock,
the Board may delegate to its transfer agent the authority to issue without further action or
approval of the Board, a new certificate or certificates in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed,
upon the receipt by the transfer agent of an affidavit of that fact by the person claiming the
certificate of stock to be lost, stolen or destroyed, and upon the receipt from the owner of such
lost, stolen or destroyed certificate, or certificates, or his legal representative of a bond as
indemnity against any claim that may be made with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 9.6.
Transfers of Stock
. The shares of stock of the Corporation shall be
transferred (a) with respect to certificated shares of stock, upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer; provided however that, if such
shares are not restricted as to transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and record the transaction
upon its books or (b) with respect to uncertificated shares of stock, upon duly executed
instructions provided to the Corporation through its duly authorized corporate transfer agent,
registrar or otherwise.
Section 9.7.
Transfer Agents and Registrars
. The Board may appoint one or more
corporate transfer agents and registrars. As a prerequisite to the retention of any corporate
transfer agent for any class of capital stock which includes uncertificated shares of stock, such
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corporate transfer agent shall be required to be eligible to participate in the Direct
Registration System operated by the Depository Trust Corporation.
Section 9.8.
Registered Ownership of Shares
. The Corporation shall be entitled to
treat the person in whose name any share of its stock is registered as the owner thereof for all
purposes and shall not be bound to recognize any equitable or other claim to, or interest in, such
share on the part of any other person, whether or not the Corporation shall have notice thereof,
except as expressly provided by applicable law.
ARTICLE X
NOTICE BY ELECTRONIC TRANSMISSION
Section 10.1.
Notice by Electronic Transmission
. Without limiting the manner by which
notice otherwise may be given effectively to stockholders pursuant to the DGCL, the Certificate of
Incorporation or these Bylaws, any notice to stockholders given by the Corporation under any
provision of the DGCL, the Certificate of Incorporation or these Bylaws shall be effective if given
by a form of electronic transmission consented to by the stockholder to whom the notice is given.
Any such consent shall be revocable by the stockholder by written notice to the Corporation. Any
such consent shall be deemed revoked if: (a) the Corporation is unable to deliver by electronic
transmission two (2) consecutive notices given by the Corporation in accordance with such consent;
and (b) such inability becomes known to the secretary or an assistant secretary of the Corporation
or to the transfer agent, or other person responsible for the giving of notice. However, the
inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or
other action. Any notice given pursuant to Section 10.1 shall be deemed given: (i) if by
facsimile telecommunication, when directed to a number at which the stockholder has consented to
receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which
the stockholder has consented to receive notice; (iii) if by a posting on an electronic network
together with separate notice to the stockholder of such specific posting, upon the later of (A)
such posting and (B) the giving of such separate notice; and (iv) if by any other form of
electronic transmission, when directed to the stockholder. An affidavit of the Secretary or an
Assistant Secretary or of the transfer agent or other agent of the Corporation that the notice has
been given by a form of electronic transmission shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
Section 10.2.
Definition of Electronic Transmission
. An electronic transmission
means any form of communication, not directly involving the physical transmission of paper, that
creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may
be directly reproduced in paper form by such a recipient through an automated process. Any
requirement in these Bylaws for a written or signed document from any person shall be deemed to be
satisfied by an electronic transmission from such person.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1.
Dividends
. Dividends upon the capital stock of the Corporation, subject
to the provisions of the Certificate of Incorporation, if any, may be declared by the
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Board, subject to applicable legal requirements. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation.
Section 11.2.
Reserves
. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the directors from time to
time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for
such other purpose as the directors shall think conclusive to the interest of the Corporation, and
the directors may modify or abolish any such reserve in the manner in which it was created.
Section 11.3.
Fiscal Year
. The fiscal year of the Corporation shall be fixed by
resolution of the Board.
Section 11.4.
Seal
. This Corporation may or may not have a seal and in any event the
failure to affix a corporate seal to any instrument executed by the Corporation shall not affect
the validity thereof. If a seal is adopted, the seal of this Corporation shall include the
following letters cut or engraved thereon: LULULEMON CORP.
ARTICLE XII
AMENDMENTS
Section 12.1.
Amendments
. The Board is expressly authorized to repeal, alter, amend
or rescind these Bylaws. Notwithstanding any other provision of these Bylaws (and notwithstanding
some lesser percentage that may be specified by law), the Bylaws may be repealed, altered, amended
or rescinded by the stockholders of the Corporation as described in the Certificate of
Incorporation or in accordance with the DGCL.
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Exhibit 10.4
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
BY AND AMONG
LULULEMON CORP.
AND
THE HOLDERS LISTED ON SCHEDULES A AND B HERETO
Dated as of July 26, 2007
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This amended and restated Registration Rights Agreement
(this
Agreement
) is
entered into as of July 26, 2007 by and among:
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Lululemon Corp., a Delaware corporation (the
Company
);
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each of the stockholders of the Companys common stock, par value $0.01 per
share (
Common Stock
), whose names and addresses are set forth under
Schedule A
(the A Holders); and
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each of the stockholders of Common Stock, whose names and addresses are set
forth under
Schedule B
(the
B Holders
).
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BACKGROUND
On April 26, 2007, the Company, its stockholders and certain other parties entered into an
Agreement and Plan of Reorganization (the
Agreement and Plan of Reorganization
) pursuant
to which all of the Companys outstanding capital stock was reclassified by conversion into shares
of Common Stock (the
Reorganization
).
The Company previously granted certain of its stockholders registration rights as described in
that certain Registration Rights Agreement, dated December 5, 2005, between the Company and such
stockholders (the
Prior Registration Rights Agreement
). In connection with the
Reorganization, the Company and the stockholders party to the Prior Registration Rights Agreement
desire to amend and restate the Prior Registration Rights Agreement as provided herein.
AGREEMENT
NOW, THEREFORE
, in consideration of the foregoing, and for other good and valuable
consideration, the receipt and sufficiency of which hereby is acknowledged, the parties agree as
follows:
ARTICLE 1
RULES OF CONSTRUCTION AND DEFINITIONS
Section 1.1
Rules of Construction
. In this Agreement, unless otherwise specified or where the context otherwise requires:
(a) the headings of particular provisions of this Agreement are inserted for convenience only
and will not be construed as a part of this Agreement or serve as a limitation or expansion of the
scope of any term or provision of this Agreement;
(b) words importing the singular only shall include the plural and vice versa;
(c) words importing any gender shall include other genders;
(d) the words include, includes or including shall be deemed followed by the words
without limitation;
(e) the words hereof, herein and herewith and words of similar import, shall, unless
otherwise stated, be construed to refer to this Agreement as a whole and not to any particular
provision of this Agreement;
-2-
(f) unless otherwise specified, the term days shall mean calendar days;
(g) a percentage (or a majority) of the Registrable Securities (or, where applicable, any
class of securities) shall be determined based on the number of shares of such securities; and
(h) unless otherwise provided, the currency for all dollar figures included in this Agreement
shall be the US Dollar.
Section 1.2
Defined Terms
. As used in this Agreement, the following terms shall have the following meanings:
Advent
means Advent International Corporation, a Delaware corporation.
Advent Funds
has the meaning set forth in the Company Stockholders Agreement.
Adverse Disclosure
means public disclosure of non-public information relating to a
material proposed acquisition, disposition, financing, reorganization, recapitalization or similar
transaction involving the Company or one of its Affiliates, which disclosure in the good faith
judgment of the Board of Directors, after consultation with external legal counsel, (a) would be
required to be made in any Registration Statement so that such Registration Statement would not be
materially misleading, (b) would not be required to be made at such time but for the filing,
effectiveness or continued use of such Registration Statement and (c) would have a material adverse
effect on the Company or its business or on the Companys ability to effect such material proposed
acquisition, disposition, financing, reorganization, recapitalization or similar transaction.
Adversely Affected Holder
has the meaning set forth in Section 3.6(a).
Affiliate
means, as to any specified Person, (a) any other person controlling,
controlled by or under common control with such specified Person, (b) any other Person of which
such specified Person is an officer, employee, agent, director, shareholder or partner or (c) any
member of the Family Group of such specified Person or of any individual who is an Affiliate of
such specified Person by reason of clause (a) of this definition;
provided, however, that
no Person
shall be deemed an Affiliate of any other Person solely by reason of any investment in the Company
or the Lululemon Group. The term
control
, with respect to any Person, means possession,
direct or indirect, of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities or a partnership interest, by
contract or otherwise. With respect to each of the Institutional Holders, the term Affiliate
shall also include (i) any entity in which such Institutional Holder (or one of its Affiliates) is
a general partner or member, and (ii) each investor in such Institutional Holder, but only in
connection with the liquidation, winding up or dissolution of the Institutional Holder, and only to
the extent of such investors pro rata share in the Institutional Investor. With respect to each
Advent Fund, the term Affiliate shall also include any investment fund managed by Advent.
Aggregate Offering Price
means the aggregate offering price of Registrable
Securities in any offering, calculated based upon the Fair Market Value of the Registrable
Securities, in the case of a Minimum Demand Amount, as of the date that the applicable Request is
delivered, and in the case of a Shelf Underwritten Offering, as of the date that the applicable
Underwriting Notice is delivered.
Agreement
has the meaning set forth in the preamble.
Amendment
has the meaning set forth in Section 3.6(a).
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Beneficial Owner
and
beneficially own
shall be determined in accordance
with Rule 13d-3 promulgated under the Exchange Act.
Board of Directors
means the Companys board of directors.
Business Day
shall mean any day other than (i) a Saturday or Sunday or (ii) a day on
which banks in New York, New York are required or authorized by law, executive order or
governmental decree to be closed.
Certificate of Incorporation
means the Certificate of Incorporation of the Company,
as filed with the Delaware Secretary of State, including, without limitation, any certificate of
designations filed therewith relating to any class or series of capital stock of the Company, as
further amended or supplement from time to time in accordance with the terms thereof.
Common Stock
has the meaning set forth in the recitals.
Company
has the meaning set forth in the preamble and shall include the Companys
successors by merger, acquisition, reorganization or otherwise.
Company Stockholders Agreement
means the Stockholders Agreement by and among the
Company and the Persons listed therein, dated as of the date hereof, as amended from time to time
in accordance with the terms therein, relating to the capital stock, governance and affairs of the
Company.
Counterpart Signature Page
means a counterpart signature page to this Agreement in
substantially the same form of
Schedule C
.
Cutback Notice
has the meaning set forth in Section 2.1(h)(5).
Demand Participation Notice
has the meaning set forth in Section 2.1(d).
Demand Registration
has the meaning set forth in Section 2.1(a).
Demand Right
has the meaning set forth in Section 2.1(a).
Exchange Act
means the Securities Exchange Act of 1934, as amended, and any
successor thereto, and any rules and regulations promulgated thereunder, all as the same shall be
in effect from time to time.
Fair Market Value
means, with respect to any Registrable Securities, (a) if the
Registrable Securities trade on a stock exchange or trading mechanism which publishes the closing
sales price of the Registrable Securities, the average closing sales price, calculated for the five
(5) trading days immediately preceding the date of a determination, (b) if the Registrable
Securities trade on a stock exchange or trading mechanism which does not publish the closing sales
price of the Registrable Securities, then the average of the bid and ask prices, calculated for the
five (5) trading days immediately preceding the date of a determination; or (c) in all other cases
the price determined in good faith by the board of directors of the Company.
Holder
means any holder or holders of Registrable Securities who is a party to this
Agreement or who otherwise agrees in writing to be bound by the provisions of this Agreement
pursuant to Section 3.3.
Incidental Cutback Notice
has the meaning set forth in Section 2.2(b).
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Incidental Registration
means any registration of the Registrable Securities of a
Holder pursuant to Section 2.2(a), but shall exclude any registration which constitutes a Demand
Registration, Shelf Underwritten Offering or non-underwritten offering under a Shelf Registration
Statement.
Incidental Registration Notice
has the meaning set forth in Section 2.2(a)(1).
Indemnified Person
has the meaning set forth in Section 2.7(a).
Initiating Holders
means the Holder or Holders who made the Request to initiate a
Demand Registration, together with all Affiliates of such Holder or Holders.
Institutional Holders
has the meaning set forth in the Company Stockholders
Agreement.
Loss
or
Losses
has the meaning set forth in Section 2.7(a).
Minimum Demand Amount
means an amount of Registrable Securities that either (i) is
equal to or greater than 500,000 shares of Common Stock (as such number may be adjusted hereafter
to reflect any stock dividend, subdivision, recapitalization, reclassification, split,
distribution, combination or similar event) or (ii) has an Aggregate Offering Price of at least $5
million.
NASD
means the National Association of Securities Dealers, Inc.
NASDAQ
means The Nasdaq Stock Market, Inc.
Non-Underwritten Period
means, with respect to any offering which is not a Shelf
Registration and which does not contemplate an Underwritten Offering, a period of not less than 180
days (or such shorter period as will terminate when all Registrable Securities covered by such
Registration Statement have been sold or withdrawn).
Participating Holder
means any Holder exercising its right to participate in a
Demand Registration under Section 2.1(d).
Person
or
person
means any individual, firm, limited liability company,
partnership, joint venture, corporation, joint stock company, trust or unincorporated organization,
incorporated or unincorporated association, government (or any department, agency or political
subdivision thereof) or other entity of any kind.
Permitted Transferee
has the meaning set forth in the Stockholders Agreement.
Preferred Stock
has the meaning set forth in the recitals.
Prospectus
means the prospectus included in any Registration Statement, all
amendments and supplements to such prospectus and all material incorporated by reference in such
prospectus.
Registrable Securities
means (a) shares of Common Stock acquired pursuant to the
Agreement and Plan of Reorganization, (b) shares of Common Stock acquired upon the exchange of
exchangeable shares issued by Lululemon Canadian Holding, Inc., a company formed under the laws of
British Columbia and (c) any shares of Common Stock that may be issued or distributed by way of stock
dividend, stock split or other distribution, merger, consolidation, exchange offer,
recapitalization or reclassification or similar transaction, or exercise or conversion of any of
the foregoing;
provided
,
however
, that any of the foregoing securities shall cease to be
Registrable Securities (
x
) to the extent that a Registration Statement with respect to their sale
has been declared effective under the Securities
-5-
Act and they have been disposed of pursuant to
such Registration Statement, (
y
) to the extent that they have been distributed pursuant to Rule 144
or Rule 145 (or any similar provisions then in force) under the Securities Act, or (
z
) at any time
after the ten (10) year anniversary of the date hereof, to the extent that they are eligible for
resale without registration by the Holder thereof under paragraph (k) of Rule 144 (or any similar
provision then in force) under the Securities Act.
registration
means a registration of the Companys securities for sale to the public
under a Registration Statement.
Registration Period
means either the Shelf Period, the Underwritten Period or the
Non-Underwritten Period, as applicable.
Registration Statement
means any registration statement of the Company filed with,
or to be filed with, the SEC under the Securities Act, including the Prospectus, amendments,
supplements and post-effective amendments to such registration statement, and all exhibits to, and
all material incorporated by reference in, such registration statement.
Request
has the meaning set forth in Section 2.1(c).
SEC
means the Securities and Exchange Commission, or any successor U.S. governmental
agency.
Securities Act
means the Securities Act of 1933, as amended, and any successor
thereto, and any rules and regulations promulgated thereunder, all as the same shall be in effect
from time to time.
Shelf Demand
has the meaning set forth in Section 2.1(b).
Shelf Period
means, with respect to any Shelf Registration Statement (other than a
Shelf Underwritten Offering), a period of thirty-six (36) consecutive months (or such shorter
period as will terminate when all Registrable Securities covered by such Registration Statement
have been sold or withdrawn) plus the period of time, if any, during which use of such Shelf
Registration Statement has been suspended pursuant to Section 2.1(g).
Shelf Registration
means a registration effected pursuant to a Shelf Demand.
Shelf Registration Statement
means a Registration Statement of the Company filed
with the SEC on Form S-3 (or any successor form or other appropriate form under the Securities Act)
for an offering to be made on a continuous or delayed basis pursuant to Rule 415 under the
Securities Act (or any similar rule that may be adopted by the SEC) covering the Registrable
Securities.
Shelf Underwritten Offering
means an Underwritten Offering of Registrable Securities
by a Holder pursuant to a take down from a Shelf Registration Statement in accordance with Section
2.1(h)(2).
Similar Securities
means, in connection with any registration of securities of the
Issuer, all securities of the Issuer which are (i) the same as or similar to those being
registered, (ii) convertible into or exchangeable or exercisable for the securities being
registered, or (iii) the same as or similar to the securities into which the securities being
registered are convertible into, exchangeable or exercisable for.
Target Registration
means a Registration Statement filed pursuant to an obligation
incurred by the Company in connection with an acquisition of the stock or assets of another
company.
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Underwritten Offering
means a registration in which securities of the Company are
sold by the Company or a Holder to an underwriter or underwriters on a firm commitment basis for
reoffering to the public, including a Shelf Underwritten Offering.
Underwritten Period
means, with respect to any offering which is an Underwritten
Offering (including a Shelf Underwritten Offering), a period of not less than 180 days plus such
longer period (not to exceed 90 days after such 180th day) as, in the opinion of counsel for the
underwriter or underwriters, is required by law for the delivery of a Prospectus in connection with
the sale of Registrable Securities by an underwriter or dealer.
Underwriting Notice
has the meaning set forth in Section 2.1(h).
Underwriter Cutback Condition
has the meaning set forth in Section 2.2(b).
ARTICLE 2
REGISTRATION RIGHTS
Section 2.1
Demand Registrations
.
(a)
Demand by A Holders and B Holders
. At any time, or from time to time, following
the 180
th
day after the Company has become subject to the periodic reporting
requirements of the Exchange Act, (i) the A Holders who beneficially own a majority of the
outstanding Registrable Securities beneficially owned by all A Holders or (ii) the B Holders who
beneficially own a majority of the outstanding Registrable Securities beneficially owned by all B
Holders, shall have the right to require the Company to register all or part of the Registrable
Securities under the Securities Act (each such right, a
Demand Right
);
provided
, that
each registration made pursuant to a Demand Right must include Registrable Securities in an amount
not less than the Minimum Demand Amount. The Company shall file with the SEC, as expeditiously as
reasonably possible after the initiation of a Demand Right, a Registration Statement relating to
the offer and sale of the Registrable Securities requested to be included therein by the Holders
thereof (each, a
Demand Registration
) in accordance with the methods of distribution
elected by such Holders and shall use its best efforts to cause such Registration Statement to be
declared effective under the Securities Act as expeditiously as reasonably possible thereafter.
The Company shall use its best efforts to keep the Registration Statement relating to such Demand
Registration continuously effective in order to permit the Prospectus forming a part thereof to be
usable by the Holders, the underwriters and any brokers or dealers during the period set forth in
Section 2.1(f). In no event shall (i) the A Holders have the right to require the Company to
effect more than three (3) Demand Registrations pursuant to this Agreement or (ii) the B Holders,
have the right to require the Company to effect more than three (3) Demand Registrations pursuant
to this Agreement, including, in the case of each of clause (i) and (ii) of this sentence, Demand
Registrations which are Shelf Demands as set forth in Section 2.1(b). A registration shall not be
counted as effected for purposes of this Section 2.1 until such time as the applicable
registration statement has been declared effective by the SEC, unless the Initiating Holders
withdraw their request for such registration, elect not to pay the registration expenses therefor,
and forfeit their right to one demand registration statement pursuant to Section 2.6, in which case
such withdrawn registration statement shall be counted as effected for purposes of this Section
2.1.
(b)
Shelf Registrations
. The Initiating Holders shall have the right, at any time
that the Company is legally eligible to file a Shelf Registration Statement, to elect that a Demand
Registration be made pursuant to a Shelf Registration Statement (a
Shelf Demand
);
provided
, that each
registration made pursuant to a Shelf Demand must include Registrable Securities in an amount
not less than the Minimum Demand Amount. If the Company shall receive a Request specifying a Shelf
Demand,
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the Company shall file with the SEC, as expeditiously as reasonably possible after the
initiation of a Shelf Demand, a Shelf Registration Statement relating to the offer and sale of the
Registrable Securities requested to be included therein by the Holders thereof from time to time in
accordance with the methods of distribution elected by such Holders and shall use its best efforts
to cause such Shelf Registration Statement to be declared effective under the Securities Act as
expeditiously as reasonably possible thereafter. The Company shall use its best efforts to keep
the Shelf Registration Statement continuously effective in order to permit the Prospectus forming a
part thereof to be usable by the Holders, the underwriters and any brokers or dealers during the
period set forth in Section 2.1(f).
(c)
Demand Notice
. All requests to initiate a Demand Right must be made by notice (a
Request
):
(1) provided to the Company in writing;
(2) stating that it is a notice to initiate Demand Rights under this Agreement;
(3) stating whether a Shelf Demand is being requested;
(4) identifying the Holder(s) effecting the request; and
(5) stating the number of Registrable Securities to be included and the intended method of
disposition.
After a Request has been given for a Demand Registration or a Shelf Demand another Request cannot
be given until the date that is sixty (60) days following the date of withdrawal or the effective
date of the Registration Statement relating to such previous Demand Registration or Shelf Demand.
(d)
Participations in Demand Rights
. Within five (5) days following receipt of any
Request, the Company shall deliver written notice of such request (a
Demand Participation
Notice
) to all Holders of Registrable Securities other than the Initiating Holders.
Thereafter, the Company shall include in such Demand Registration any additional Registrable
Securities which the Holder or Holders thereof have, within fifteen (15) days after the Demand
Participation Notice has been given, requested in writing be included in such Demand Registration.
All such requests shall specify the aggregate amount of Registrable Securities to be registered.
(e)
Demand Withdrawal
. A Holder may withdraw its Registrable Securities from a Demand
Registration at any time prior to the effective time of the Registration Statement covering the
applicable Demand Registration by giving written notice of such withdraw prior to the effective
time of such Registration Statement. If all Holders withdraw their Registrable Securities from a
Demand Registration, the Company shall cease all efforts to secure registration. The Company shall
not withdraw a Registration Statement relating to a Demand Registration without the written consent
of the Initiating Holders, unless required to do so by law, regulation or upon the request of the
SEC.
(f)
Effective Registration
. The Company shall be deemed to have effected a Demand
Registration if the applicable Registration Statement is declared effective by the SEC and remains
effective as follows:
(1) if it is a Shelf Registration that is not a Shelf Underwritten Offering, it must remain
effective for the Shelf Period;
-8-
(2) if it is a Shelf Registration that is a Shelf Underwritten Offering, it must remain
effective for the Underwritten Period;
(3) if it is not a Shelf Registration and such Registration Statement does not contemplate an
Underwritten Offering, it must remain effective for the Non-Underwritten Period; or
(4) if it is not a Shelf Registration and such Registration Statement contemplates an
Underwritten Offering, it must remain effective for the Underwritten Period.
Notwithstanding the foregoing, no Demand Registration (including any Shelf Demand) shall be deemed
to have been effected if an Underwritten Offering is contemplated by such Demand Registration and
the conditions to closing specified in the applicable underwriting agreement are not satisfied.
Subject to Section 2.1(g), the Company shall not be deemed to have effected a Registration
Statement, or to have used its best efforts to keep the Registration Statement effective, if the
Company voluntarily takes any action or omits to take any action that would result in the inability
of any Holder of Registrable Securities covered by such Registration Statement to be able to offer
and sell any such Registrable Securities during the applicable Registration Period, unless such
action or omission is required by applicable law.
(g)
Delay or Suspension of Registration
. If the filing, initial effectiveness or
continued use of a Registration Statement, including a Shelf Registration Statement, in respect of
a Demand Registration at any time would require the Company to make an Adverse Disclosure, then the
Company may, upon giving prompt written notice of such action to the Holders which are included in
such Demand Registration, delay the filing or initial effectiveness of, or suspend use of, such
Registration Statement;
provided
, that the Company shall not be permitted to do so in the aggregate
pursuant to this Section 2.1(g) and Section 2.2(c), (i) more than two (2) times during any twelve
(12) month period, (ii) for a period exceeding sixty (60) days on any one occasion or (iii) for a
period exceeding one hundred twenty (120) days in any twelve (12) month period. In the event the
Company exercises its rights under the preceding sentence, the Holders agree to suspend, promptly
upon their receipt of the notice referred to above, their use of the Prospectus relating to the
Demand Registration in connection with any sale or offer to sell Registrable Securities. The
Company shall promptly notify the Holders of the expiration of any period during which it exercised
its rights under this Section 2.1(g). The Company agrees that, in the event it exercises its
rights under this Section 2.1(g), it shall, as promptly as reasonably practicable following the
completion or abandonment of the transaction giving rise to the Corporations suspension notice,
and in any event within the time requirements set forth in this Section 2.1(g), file an amendment
to, or a Prospectus supplement with respect to, and otherwise use its best efforts to, update, the
suspended Registration Statement as may be necessary to permit the Holders to resume use thereof in
connection with the offer and sale of their Registrable Securities in accordance with applicable
law. The Company shall not be obligated to effect, or to take any action to effect, any
registration pursuant to this Section 2.1 (i) during the period that is sixty (60) days before the
Companys good faith estimate of the date of filing of, and ending on a date that is one hundred
twenty (120) days after the effective date of, a Company-initiated registration,
provided
,
that the Company is actively employing in good faith commercially reasonable efforts to cause such
Registration Statement to become effective.
(h)
Underwritten Offerings
.
(1)
Demand Registrations
. Any offering pursuant to a Demand Registration, other than
a Shelf Demand, shall be in the form of an Underwritten Offering upon the request of the Holders of
not less than a majority of the Registrable Securities included in any offering pursuant to a
Demand Registration.
-9-
(2)
Shelf Registrations
. At any time that a Shelf Registration Statement is
effective, if any Holder or group of Holders delivers a notice to the Company (an
Underwriting
Notice
) stating that it intends to effect a Shelf Underwritten Offering of all or part of its
Registrable Securities included by it on the Shelf Registration Statement and stating the Aggregate
Offering Price and/or number of the Registrable Securities to be included in the Shelf Underwritten
Offering, then the Company shall amend or supplement the Shelf Registration Statement as may be
necessary in order to enable such Registrable Securities to be distributed pursuant to the Shelf
Underwritten Offering (taking into account the inclusion of Registrable Securities by any other
Holders pursuant to this Section 2.1(h)(2));
provided
, that any Shelf Underwritten Offering must
include Registrable Securities in an amount not less than the Minimum Demand Amount. In connection
with any Shelf Underwritten Offering:
(A) such proposing Holder(s) shall also deliver the Underwriting Notice to all other Holders
and permit each Holder to include its Registrable Securities included on the Shelf Registration
Statement in the Shelf Underwritten Offering if such Holder notifies the proposing Holders and the
Company within 5 Business Days after delivery of the Underwriting Notice to such Holder;
(B) in the event that an Underwriter Cutback Condition occurs with respect to the Registrable
Securities proposed to be included in the Shelf Underwritten Offering, then (1) the number of
Registrable Securities which will be included in the Shelf Underwritten Offering shall only be that
number which, in the good faith opinion of the underwriter, can be included without being likely to
have a significant adverse effect on the price, timing or distribution of the class of securities
offered or the market for the class of securities offered or the Common Stock, and (2) each Holder
shall be entitled to include Registrable Securities in the Shelf Underwritten Offering
pro rata
based on the number of Registrable Securities owned by such Holder as a percentage of the number of
Registrable Securities owned by all Holders seeking to participate in such Shelf Underwritten
Offering, subject to the priority allocation provisions set forth in Section 2.1(h)(5); and
(C) the Underwriting Notice shall state that Holders must respond to the Underwriting Notice
within five (5) Business Days of the delivery thereof.
(3)
Selection of Underwriters
. In the event that a Demand Registration is an
Underwritten Offering (including a Shelf Underwritten Offering), the Initiating Holders in such
Underwritten Offering shall have the right to select the managing underwriter or underwriters for
the offering, which underwriters must be (
x
) nationally recognized investment banking firm(s), and
(
y
) reasonably acceptable to the Company.
(4)
Similar Securities
. Without the prior written consent of the Initiating Holders
and the managing underwriter or managing underwriters of any Underwritten Offering, the Company
shall not include any securities in such Underwritten Offering unless such securities are Similar
Securities.
(5)
Priority of Securities Registered Pursuant to Demand Registrations
. If the
managing underwriter of a proposed Underwritten Offering (other than a Shelf Underwritten Offering,
which shall be governed by Section 2.1(h)(2)(B)) of Registrable Securities included in a Demand
Registration informs the Holders of such Registrable Securities in writing (a
Cutback
Notice
) that, in its or their opinion, the number of securities requested to be included in
such Demand Registration exceeds the number which can be sold in such offering without being likely
to have a significant adverse effect on the price, timing or distribution of the class of
securities offered or the market for the class of securities offered or the Common Stock, then the
Company shall include in such
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registration only the number of Registrable Securities which, in the good faith opinion of
such underwriter, can be included without having such an adverse effect, selected in the following
order:
(A)
first
, the Registrable Securities requested to be included by the Initiating
Holders and the Holders who are Participating Holders with respect thereto, allocated
pro rata
based on the number of Registrable Securities owned by such Holder as a percentage of the number of
Registrable Securities owned by all Holders seeking to participate in such Underwritten Offering;
and
(B)
second
, Similar Securities, if any, requested to be included by the Company or by
other Holders, allocated among them as they shall so determine;
provided, however
, in no event shall any particular Holder be permitted to include in such
registration any Registrable Securities in excess of the number of Registrable Securities which
such Holder originally sought to include in such registration. In the event of a cutback pursuant
to this Section 2.1(h), each of the Holders agrees that it will not include Registrable Securities
in any registration effected pursuant to the Securities Act in a manner that is not in compliance
with the foregoing priorities.
(i)
Registration Statement Form
. Demand Registrations shall be on such appropriate
registration form of the SEC (A) as shall be selected by the Initiating Holders of the Demand
Registration and as shall be reasonably acceptable to the Company, and (B) as shall facilitate and
permit the disposition of the Registrable Securities in accordance with the intended method or
methods of disposition specified in the applicable Holders requests for such registration.
Notwithstanding the foregoing, if, pursuant to a Demand Registration, (
x
) the registration is
proposed to be effected by filing a Registration Statement on Form S-3 (or any successor form under
the Securities Act), (
y
) such registration is in connection with an Underwritten Offering and (
z
)
the managing underwriter or underwriters advises the Company that, in its or their opinion, the
inclusion, rather than the incorporation by reference, of information in the Prospectus is of
material importance to the success of such proposed offering, then such information shall be so
included in such Prospectus.
Section 2.2
Incidental Registrations
.
(a)
Participation
.
(1) At any time, or from time to time, after the Company has become subject to the periodic
reporting requirements of the Exchange Act or otherwise lists shares of its Common Stock on a
recognized securities exchange, Nasdaq or another trading medium, if the Company at any time files
a Registration Statement (other than a Registration Statement filed pursuant to Rule 462(b) under
the Securities Act) with respect to any offering of its securities for its own account or for the
account of any stockholder who holds its securities (other than (A) a registration on Form S-4,
F-4, F-8, F-10 or S-8 or any successor form to such forms, (B) a registration of securities solely
relating to an offering and sale to employees, directors or consultants of the Company pursuant to
any employee stock plan or other employee benefit plan arrangement or (C) a registration of
non-convertible debt securities) then, as expeditiously as reasonably possible, the Company shall
give written notice (the
Incidental Registration Notice
) of such filing to all Holders of
Registrable Securities, and such notice shall offer the Holders of such Registrable Securities the
opportunity to register such number of Registrable Securities as each such Holder may request in
writing. Subject to Section 2.2(b), the Company shall include in such Registration Statement all
such Registrable Securities which are requested to be included therein within fifteen (15) days
after the Incidental Registration Notice is given to such Holders. If at any time after giving
written notice of its intention to register any securities and prior to the effective date of the
Registration Statement filed in connection with such registration, the Company shall determine for
any
-11-
reason not to register or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to each Holder of Registrable Securities and,
(A) in the case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration, and
(B) in the case of a determination to delay registering, shall be permitted to delay
registering any Registrable Securities for the same period as the delay in registering such other
securities.
(2) If the offering described in an Incidental Registration Notice is to be an Underwritten
Offering, then each Holder making a request for its Registrable Securities to be included therein
must, and the Company shall make such arrangements with the underwriters so that each such Holder
may, participate in such Underwritten Offering on the same terms as the Company and other Persons
selling securities in such Underwritten Offering, subject to the provisions of Section 2.4. If the
offering pursuant to such registration is to be on any other basis, then each Holder making a
request for an Incidental Registration pursuant to this Section 2.2(a) must participate in such
offering on such basis.
(3) Each Holder of Registrable Securities making a request for an Incidental Registration
pursuant to this Section 2.2(a) shall be permitted to withdraw all or part of such Holders
Registrable Securities from such Incidental Registration at any time prior to the effective time of
the Registration Statement covering the applicable Incidental Registration by giving written notice
of such withdraw prior to the effective time of such Registration Statement.
(b)
Priority of Incidental Registration
. If the managing underwriter or underwriters
of any proposed Underwritten Offering of securities included in an Incidental Registration informs
the Holders of Registrable Securities sought to be included in such registration pursuant to
Section 2.2(a) in writing (an
Incidental Cutback Notice
) that, in its or their opinion,
the total amount or kind of securities which such Holders and any other Persons intend to include
in such offering exceeds the number which can be sold in such offering without being likely to have
a significant adverse effect on the price, timing or distribution of the class of the securities
offered or the market for the class of securities offered or for the Common Stock (the foregoing,
an
Underwriter Cutback Condition
), then the Company shall include in such registration
only the number of Registrable Securities which, in the good faith opinion of such underwriter can
be included without having such an adverse effect, selected in the following order:
(1) if the registration is being effected by stockholders of the Company pursuant to the
exercise of contractual demand registration rights (other than pursuant to the exercise of Demand
Rights under this Agreement, in which event the provisions of Section 2.1(h)(5) shall govern),
(A)
first
, the securities, if any, being sold by such other stockholders exercising
such demand registration rights, allocated as they and the Company shall so determine;
(B)
second
, the Registrable Securities, if any, requested to be included by the
Holders pursuant to this Section 2.2 allocated
pro rata
based on the number of Registrable
Securities owned by such Holder as a percentage of the number of Registrable Securities held by all
Holders seeking to participate in such registration; and
-12-
(C)
third
, securities, if any, requested to be included by the Company and by any
other stockholders of the Company in accordance with agreements between the Company and such other
stockholders, allocated among them as they shall so determine;
provided, however
, in no event shall any particular Holder be permitted to include in such
registration any Registrable Securities in excess of the number of Registrable Securities which
such Holder originally sought to include in such registration; and
(2) if the registration is being effected by the Company for its own account or is a Target
Registration,
(A)
first
, the securities, if any, being sold by the Company and the Holders of the
Companys securities for whom the Target Registration is undertaken, allocated among them as they
shall so determine;
(B)
second
, the Registrable Securities, if any, requested to be included by the
Holders pursuant to Section 2.2, allocated
pro rata
based on the on the number of Registrable
Securities owned by such Holder as a percentage of the number of Registrable Securities held by all
Holders seeking to participate in such registration; and
(C)
third
, the securities, if any, requested to be included by any other stockholders
of the Company in accordance with agreements between the Company and such other, allocated in
accordance with such agreements;
provided, however
, in no event shall any particular Holder be permitted to include in such
registration any Registrable Securities in excess of the number of Registrable Securities which
such Holder originally sought to include in such registration. In the event of a cutback pursuant
to this Section 2.2(b), each of the Holders agrees that it will not include Registrable Securities
in any registration effected pursuant to the Securities Act in a manner that is not in compliance
with the foregoing priorities set forth in Section 2.2(b)(1) and Section 2.2(b)(2).
(c)
Suspension or Termination of Registration
. If the filing, initial effectiveness
or continued use of a Registration Statement, including a Shelf Registration Statement, in respect
of an Incidental Registration at any time would require the Company to make an Adverse Disclosure,
then the Company may, upon giving prompt written notice of such action to the Holders which are
included in such Incidental Registration, delay the filing or initial effectiveness of, or suspend
use of, such Registration Statement;
provided
, that the Company shall not be permitted to do so in
the aggregate pursuant to this Section 2.2(c) and Section 2.1(g), (i) more than two (2) times
during any twelve (12) month period, (ii) for a period exceeding 60 days on any one occasion or
(iii) for a period exceeding one hundred twenty (120) days in any twelve (12) month period. In the
event the Company exercises its rights under the preceding sentence, promptly upon their receipt of
the notice referred to above the Holders agree to suspend, and in the case of an Underwritten
Offering (including a Shelf Underwritten Offering), the Company and the Holders agree to cause any
underwriter to suspend, their use of the Prospectus relating to the Incidental Registration in
connection with any sale or offer to sell Registrable Securities. The Company shall promptly
notify the Holders of the expiration of any period during which it exercised its rights under this
Section 2.2(c). The Company agrees that, in the event it exercises its rights under this Section
2.2(c), it shall, as promptly as reasonably practicable following the completion or abandonment of
the transaction giving rise to the Corporations suspension notice, and in any event within the
time requirements set forth in this Section 2.2(c), file an amendment to, or a Prospectus
supplement with respect to, and otherwise use its best efforts to, update, the suspended
Registration Statement as may be necessary to permit the Holders to resume use thereof in
connection with the offer
-13-
and sale of their Registrable Securities in accordance with applicable law. Notwithstanding
any other provision of this (c), the Company shall have the right to terminate or withdraw any
registration initiated by it under this (c) before the effective date of such registration, whether
or not any Holder has elected to include Registrable Securities in such registration.
Section 2.3
Registration Procedures
.
(a) In connection with the Companys registration obligations in this Agreement, the Company
will, subject to the limitations set forth herein, use its best efforts to effect any such
registration so as to permit the sale of the applicable Registrable Securities in accordance with
the intended method or methods of distribution thereof as expeditiously as reasonably possible and,
in connection therewith, the Company will:
(1) before filing a Registration Statement or Prospectus, or any amendments or supplements
thereto and in connection therewith, furnish to the managing underwriter or underwriters, if any,
and to one representative of each Holder (and its Affiliates) which has requested that Registrable
Securities be covered by such Registration Statement, copies of all documents prepared to be filed,
which documents will be subject to the review of such underwriters and such Holders and their
respective counsel and not file any Registration Statement or Prospectus or amendments or
supplements thereto to which the Holders of a majority of the Registrable Securities covered by the
same or the underwriter or underwriters, if any, shall reasonably object;
(2) prepare and file with the SEC such amendments or supplements to the applicable
Registration Statement or Prospectus as may be (A) reasonably requested by any selling Holder (to
the extent such request relates to information relating to such Holder), or (B) necessary to keep
such registration effective for the period of time required by this Agreement;
(3) notify the selling Holders of Registrable Securities and the managing underwriter or
underwriters, if any, and (if requested) confirm such advice in writing, as expeditiously as
reasonably possible after notice thereof is received by the Company (A) when the applicable
Registration Statement or any amendment thereto has been filed or becomes effective and when the
applicable Prospectus or any amendment or supplement thereto has been filed, (B) of any written or
material oral comments by the SEC or any request by the SEC or any other federal or state
governmental authority for amendments or supplements to such Registration Statement or Prospectus
or for additional information, (C) of the issuance by the SEC of any stop order suspending the
effectiveness of such Registration Statement or any order preventing or suspending the use of any
preliminary or final Prospectus or the initiation or threat of any proceedings for such purposes
and (D) of the receipt by the Company of any notification with respect to the suspension of the
qualification of the Registrable Securities for offering or sale in any jurisdiction or the
initiation or threat of any proceeding for such purpose;
(4) promptly notify each selling Holder of Registrable Securities and the managing underwriter
or underwriters, if any, when the Company becomes aware of the happening of any event as a result
of which the applicable Registration Statement or Prospectus (as then in effect) contains any
untrue statement of a material fact or omits to state a material fact necessary to make the
statements therein (in the case of the Prospectus and any preliminary Prospectus, in light of the
circumstances under which they were made) not misleading or, if for any other reason it shall be
necessary to amend or supplement such Registration Statement or Prospectus in order to comply with
the Securities Act and, in either case as promptly as reasonably practicable thereafter (except as
otherwise provided under Section 2.1(g) or Section 2.2(c)), prepare and file with the SEC an
amendment or
-14-
supplement to such Registration Statement or Prospectus which will correct such statement or
omission or effect such compliance;
(5) use its best efforts to prevent or obtain at the earliest possible moment the withdrawal
of any stop order with respect to the applicable Registration Statement or other order suspending
the use of any preliminary or final Prospectus;
(6) promptly incorporate in a Prospectus supplement or post-effective amendment to the
applicable Registration Statement such information as the managing underwriter or underwriters, if
any, or the Initiating Holders agree should be included therein relating to the plan of
distribution with respect to such Registrable Securities; and make all required filings of such
Prospectus supplement or post-effective amendment as expeditiously as reasonably possible after
being notified of the matters to be incorporated in such Prospectus supplement or post-effective
amendment;
(7) furnish to each selling Holder of Registrable Securities, its counsel and each managing
underwriter, if any, without charge, as many conformed copies as such Holder or managing
underwriter may reasonably request of the applicable Registration Statement and each amendment
thereto;
(8) deliver to each selling Holder of Registrable Securities and each managing underwriter, if
any, without charge, as many copies of the applicable Prospectus (including each preliminary
Prospectus) as such Holder or managing underwriter may reasonably request, and such other documents
as such selling Holder or managing underwriter may reasonably request in order to facilitate the
disposition of the Registrable Securities by such Holder or underwriter;
(9) on or prior to the date on which the applicable Registration Statement is declared
effective, use its best efforts to register or qualify such Registrable Securities for offer and
sale under the securities or blue sky laws of each state and other jurisdiction of the United
States, as any such selling Holder or underwriter, if any, or their respective counsel reasonably
requests in writing, and do any and all other acts or things reasonably necessary or advisable to
keep such registration or qualification in effect so as to permit the commencement and continuance
of sales and dealings in such jurisdictions for as long as may be necessary to complete the
distribution of the Registrable Securities covered by the Registration Statement;
provided
, that
the Company will not be required to qualify generally to do business in any jurisdiction where it
is not then so qualified or to take any action which would subject it to taxation or general
service of process in any such jurisdiction where it is not then so subject;
(10) cooperate with the selling Holders of Registrable Securities and the managing
underwriter, underwriters or agent, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing any restrictive
legends;
(11) use its best efforts to cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof or the underwriter or
underwriters, if any, to consummate the disposition of such Registrable Securities;
(12) not later than the effective date of the applicable Registration Statement, provide a
CUSIP number for all Registrable Securities and provide the applicable transfer agent with printed
certificates for the Registrable Securities which certificates shall be in a form eligible for
deposit with The Depository Trust Company;
-15-
(13) obtain for delivery to (and addressed to) the underwriter or underwriters, an opinion or
opinions from counsel for the Company dated the date of the closing under the underwriting
agreement, in customary form, scope and substance, which counsel and opinions shall be reasonably
satisfactory to a majority of such Holders and the managing underwriter or underwriters, if any,
and their respective counsel;
(14) in the case of an Underwritten Offering (including a Shelf Underwritten Offering), obtain
for delivery to (and addressed to) the Company and the underwriter or underwriters, a cold comfort
letter from the Companys independent certified public accountants in customary form and covering
such matters of the type customarily covered by cold comfort letters as the managing underwriter or
underwriters reasonably request, dated the date of execution of the underwriting agreement and
brought down to the closing under the underwriting agreement;
(15) cooperate with each selling holder of Registrable Securities and each underwriter or
agent, if any, participating in the disposition of such Registrable Securities and their respective
counsel in connection with any filings required to be made with the NASD;
(16) use its best efforts to comply with all applicable rules and regulations of the SEC and
make generally available to its security holders, as expeditiously as reasonably possible after the
effective date of the applicable Registration Statement, but not later than sixty (60) days after
the date of the most recent fiscal quarter, an earnings statement satisfying the provisions of
Section 11(a) of the Securities Act and the rules and regulations promulgated thereunder;
(17) provide and cause to be maintained a transfer agent and registrar for all Registrable
Securities covered by the applicable Registration Statement from and after a date not later than
the effective date of such Registration Statement;
(18) cause all Registrable Securities of a class covered by the applicable Registration
Statement to be listed on each securities exchange and inter-dealer quotation system on which any
of the Companys securities of such class are then listed or quoted;
(19) make available upon reasonable notice at reasonable times and for reasonable periods for
inspection by representatives appointed by the Holders of a majority of the Registrable Securities
covered by the applicable Registration Statement, by any managing underwriter or underwriters
participating in any disposition to be effected pursuant to such Registration Statement, and by any
attorney, accountant or other agent retained by such sellers or any such managing underwriter, all
pertinent financial and other records, pertinent corporate documents and properties of the Company,
and cause the Companys senior executive officers, directors and employees and the independent
public accountants who have certified its financial statements to make themselves available at
mutually convenient times to discuss the business of the Company and to supply all information
reasonably requested by any such sellers, underwriter or agent thereof in connection with such
Registration Statement as shall be necessary (subject to the Companys compliance with Regulation
FD) to enable them to exercise their due diligence responsibility;
(20) in the case of an Underwritten Offering (including any Shelf Underwritten Offering),
cause the senior executive officers of the Company to participate in the customary road show
presentations that may be reasonably requested by the managing underwriter in any such Underwritten
Offering and otherwise to facilitate, cooperate with, and participate in each proposed offering
contemplated herein and customary selling efforts related thereto;
(21) upon the request of any Holder, promptly amend any Shelf Registration Statement or take
such other action as may be necessary to de-register, remove or withdraw
-16-
all or a portion of the Holders Registrable Shares from a Shelf Registration Statement, as
requested by such Holder; and
(22) use its best efforts to take all other steps necessary to effect the registration of the
Registrable Securities contemplated hereby.
(b) It shall be a condition precedent to the obligations of the Company to take any action
pursuant to this Article 2 with respect to the Registrable Securities of any selling Holder that
each selling Holder of Registrable Securities as to which any registration is being effected shall
furnish to the Company such information regarding the distribution of such Registrable Securities
and such other customary information relating to such Holder and its ownership of the applicable
Registrable Securities as the Company may from time to time reasonably request and as shall be
reasonably required in connection with any Registration Statement. Each Holder of Registrable
Securities agrees to furnish such information to the Company and to reasonably cooperate with the
Company as necessary to enable the Company to comply with the provisions of this Agreement.
(c) Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities
that, upon receipt of any notice from the Company of the happening of any event of the kind
described in Section 2.3(a)(4), such Holder will use its best efforts to discontinue disposition of
its Registrable Securities pursuant to such Registration Statement until such Holders receipt of
the copies of the supplemented or amended Prospectus contemplated by Section 2.3(a)(4), or until
such Holder is advised by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings that are incorporated by reference in the
Prospectus. In the event that the Company shall give any such notice in respect of a Demand
Registration, the period during which the applicable Registration Statement is required to be
maintained effective shall be extended by the number of days during the period from and including
the date of the giving of such notice to and including the date when each seller of Registrable
Securities covered by such Registration Statement either receives the copies of the supplemented or
amended Prospectus contemplated by Section 2.3(a)(4) or is advised in writing by the Company that
the use of the Prospectus may be resumed.
Section 2.4
Underwritten Offerings
.
(a)
Underwriting Agreements
. If requested by the managing underwriter or underwriters
for any Demand Registration that is an Underwritten Offering (including a Shelf Underwritten
Offering), the Company and the Holders of Registrable Securities to be included therein shall enter
into an underwriting agreement with such underwriters, to contain such terms and conditions as are
generally prevailing in agreements of that type, including indemnities no more burdensome to the
indemnifying party and no less favorable to the recipient thereof than those provided in Section
2.7. The Holders of any Registrable Securities to be included pursuant to Section 2.2(a) in any
Incidental Registration that is an Underwritten Offering (excluding any Demand Registration or
Shelf Underwritten Offering) shall enter into such an underwriting agreement at the request of the
Company. No Holder shall be required in any such underwriting agreement to make any
representations or warranties to or agreements with the Company or the underwriters other than
customary representations, warranties or agreements regarding such Holders title to Registrable
Securities and any written information provided by the Holder to the Company expressly for
inclusion in the related registration statement.
(b)
Price and Underwriting Discounts
. In the case of a Demand Registration that is an
Underwritten Offering (including a Shelf Underwritten Offering), the price, underwriting discount
and other financial terms for the sale of the Registrable Securities shall be determined by the
Initiating Holders of such Demand Registration. In the case of any Incidental Registration that is
an Underwritten Offering (excluding any Demand Registration or Shelf Underwritten Offering), such
price,
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discount and other terms shall be determined (i) by the Company in the case of a registration
governed by Section 2.2(b)(2), or (ii) by the holders of a majority of the Registrable Securities
registered for the account of stockholders exercising demand registration rights, in the case of a
registration governed by Section 2.2(b)(1), or in accordance with an agreement among the Company
and such majority holders.
(c)
Participation in Underwritten Offerings
. No Person may participate in an
Underwritten Offering (including a Shelf Underwritten Offering) unless such Person (i) agrees to
sell such Persons securities on the basis provided in any underwriting arrangements approved by
officers of such Persons authorized to approve such arrangements, (ii) executes and delivers the
underwriting agreement and all other documents required under the terms of such underwriting
arrangements and (iii) completes, executes and delivers all questionnaires, powers of attorney,
custody agreements, indemnities and opinions reasonably requested by the Company and customary for
secondary offerings.
Section 2.5
No Inconsistent Agreements; Additional Rights
. The Company will not enter into, and is not currently a party to, any agreement which is
inconsistent with the rights granted to the Holders of Registrable Securities by this Agreement.
If the Company enters into any agreement after the date hereof granting any person registration
rights with respect to any security of the Company which agreement contains any material provisions
more favorable to such person than those set forth in this Agreement, the Company will notify the
Holders and will agree to such amendments to this Agreement as may be necessary to provide these
rights to the Holders.
Section 2.6
Registration Expenses
.
(a) The Company shall pay all of the expenses incurred in connection with its compliance with
Article 2, including (i) all registration and filing fees, and any other fees and expenses
associated with filings required to be made with the SEC or the NASD, (ii) all fees and expenses of
compliance with state securities or blue sky laws, including all reasonable fees and
disbursements of one counsel in connection with any survey of state securities or blue sky laws
and the preparation of any memorandum thereon, (iii) all printing, duplicating, word processing,
messenger, telephone, facsimile and delivery expenses related to the preparation by the Company of
any Registration Statement or Prospectus, agreements with underwriters, and any other ancillary
agreements, certificates or documents arising out of or related to the foregoing (including
expenses of printing certificates for the Registrable Securities in a form eligible for deposit
with The Depository Trust Company and of printing prospectuses), (iv) all fees and disbursements of
counsel for the Company and of all independent certified public accountants of the Company, and (v)
all fees and expenses incurred in connection with the listing of the Registrable Securities on any
securities exchange, Nasdaq, or other trading medium. In addition, in all cases the Company shall
pay its internal expenses (including all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any audit and the fees and expenses of any
Person, including special experts, retained by the Company. In addition, the Company shall pay all
reasonable fees and disbursements of one law firm or other counsel selected by the holders of a
majority of the Registrable Securities being registered, subject to a reasonable cap to be agreed
upon by the Issuer and the holders in light of the laws and regulations existing at the time of the
applicable Registration, and if there exists no material change in legal requirements imposed on
registering holders after the date of this Agreement, then such cap will not exceed $25,000;
provided, however
, that the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Section 2.1 if the registration request is subsequently
withdrawn at the request of the Initiating Holders (in which case the Initiating Holders shall bear
such expenses pro rata based upon the number of Registrable Securities that were to be included in
the withdrawn registration), unless such Holders agree to forfeit their right to one registration
pursuant to Section 2.1.
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(b) The Company shall not be required to pay any other costs or expenses in the course of an
offering of Registrable Securities pursuant to this Agreement, including underwriting discounts and
commissions and transfer taxes attributable to the sale of Registrable Securities and the fees and
expenses of counsel to the Holders or the underwriters, other than pursuant to Section 2.6(a).
Section 2.7
Indemnification
.
(a)
Indemnification by the Company
. The Company agrees to indemnify and hold
harmless, to the full extent permitted by law, each selling Holder of Registrable Securities and
their respective directors, officers and partners, and each Person who controls (within the meaning
of the Securities Act or the Exchange Act) such Persons (each, an
Indemnified Person
)
from and against any and all losses, claims, damages, liabilities (or actions or proceedings in
respect thereof, whether or not such Indemnified Person is a party thereto) and expenses (including
reasonable costs of investigation and legal expenses), joint or several (each, a
Loss
and
collectively
Losses
), arising out of or based upon (i) any misstatement in or omission
from any representation or warranty, or any breach of covenant or agreement, in each case made or
deemed made by the Company in any underwriting or similar agreement entered into by the Company in
connection with any Registration Statement, (ii) any violation by the Company of the Securities Act
or any state securities or blue sky laws, rules or regulations, in either case in connection with
any Registration Statement, (iii) any untrue or alleged untrue statement of a material fact
contained in any Registration Statement under which such Registrable Securities were registered
under the Securities Act (including any final, preliminary or summary Prospectus contained therein
or any amendment thereof or supplement thereto or any documents incorporated by reference therein)
or (iv) any omission or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein (in the case of a Prospectus or preliminary
Prospectus, in light of the circumstances under which they were made) not misleading;
provided
,
however
, that the Company shall not be liable to indemnify an Indemnified Person to the extent that
any such Loss arises out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in any such Registration Statement in reliance upon and in
conformity with written information furnished to the Company by such Holder expressly for use in
the preparation thereof or arises out of or is based upon such Holders failure to deliver a copy
of the Prospectus or any amendments or supplements thereto to a purchaser (if so required) after
the Company has furnished such Holder with a copy of the same. This indemnity shall be in addition
to any liability the Company may otherwise have. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such Holder or any Indemnified
Person and shall survive the transfer of such securities by such Holder. The Company will also
indemnify, if the offering is an Underwritten Offering (including a Shelf Underwritten Offering)
and if requested, underwriters participating in any distribution pursuant to this Agreement, their
officers, directors and partners, and each Person who controls such Persons (within the meaning of
the Securities Act and the Exchange Act) to the same extent as provided above (with appropriate
modifications) with respect to the indemnification of each Holder.
(b)
Indemnification by the Holders
. Each selling Holder of Registrable Securities
agrees (severally and not jointly) to indemnify and hold harmless, to the full extent permitted by
law, the Company, its directors, officers and partners, and each Person who controls the Company
(within the meaning of the Securities Act and the Exchange Act), and each other selling Holder of
Registrable Securities, their respective officers, directors and partners, and each Person who
controls (within the meaning of the Securities Act or the Exchange Act) such Person, from and
against any Losses resulting from (i) any untrue or allegedly untrue statement of a material fact
or any omission or alleged omission of a material fact required to be stated in the Registration
Statement under which such Registrable Securities were registered under the Securities Act
(including any final, preliminary or summary Prospectus contained therein or any amendment thereof
or supplement thereto or any documents incorporated by reference therein), or necessary to make the
statements therein (in the case of
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a Prospectus or preliminary Prospectus, in light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that such untrue statement or omission
had been contained in any information furnished in writing by such selling Holder to the Company
expressly for inclusion in such Registration Statement, and (ii) any misstatement in or omission
from any representation or warranty, or any breach of covenant or agreement, in each case made or
deemed made by such Holder in any underwriting or similar agreement entered by into by such Holder
in connection with the particular registration. Each Holder also shall indemnify any underwriters
of the Registrable Securities, their officers, directors and partners, and each Person who controls
such underwriters (within the meaning of the Securities Act) to the same extent as provided above
with respect to the indemnification of the Company. The liability of any Holder for
indemnification under this Section 2.7 in its capacity as a seller of Registrable Securities shall
not exceed the lesser of (i) that proportion of the total of such losses, claims, damages, expenses
or liabilities indemnified against equal to the proportion of the total securities sold under such
registration statement held by such Investor, and (ii) the amount equal to the net proceeds to
such Holder of the securities sold in any such registration; provided that no selling holder shall
be required to indemnify any Person against any Losses arising from any untrue statement or alleged
untrue statement of a material fact contained in, or omission or alleged omission of a material
fact from, a preliminary Prospectus (or necessary to make the statements therein not misleading)
that has been corrected in the form of Prospectus included in the Registration Statement at the
time it becomes effective, or any amendment or supplement thereto filed with the SEC pursuant to
Rule 424(b) under the Securities Act prior to the time of sale of Registrable Securities that gives
rise to such Losses.
(c)
Indemnification by Securities Industry Professionals
. The Company shall use
commercially reasonable efforts to obtain the agreement of the underwriters, if any, participating
in a particular Underwritten Offering (including a Shelf Underwritten Offering), to provide
indemnities for the benefit of the Company and the Holders of Registrable Securities participating
in the distribution, to the same extent as provided in Section 2.7(b) (with appropriate
modification) with respect to information so furnished in writing by such underwriters specifically
for inclusion in any Prospectus or Registration Statement.
(d)
Conduct of Indemnification Proceedings
. Any Person entitled to indemnification
hereunder will (i) give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification (provided, that any delay or failure to so notify the
indemnifying party shall relieve the indemnifying party of its obligations hereunder only to the
extent, if at all, that it is actually and materially prejudiced by reason of such delay or
failure) and (ii) permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the Indemnified Person;
provided
, that any Person entitled to
indemnification hereunder shall have the right to select and employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such counsel shall be at the
expense of such Person unless (A) the indemnifying party has agreed in writing to pay such fees or
expenses, (B) the indemnifying party shall have failed to assume the defense of such claim within a
reasonable time after having received notice of such claim from the Person entitled to
indemnification hereunder and to employ counsel reasonably satisfactory to such Person, (C) in the
reasonable judgment of any such Person, based upon advice of its counsel, a conflict of interest
exists or may potentially exist between such Person and the indemnifying party with respect to such
claims or (D) the Indemnified Person has reasonably concluded (based on advice of counsel) that
there may be legal defenses available to it or other indemnified parties that are different from or
in addition to those available to the indemnifying party (in the case of (B), (C) and (D), if the
Person notifies the indemnifying party in writing that such Person elects to employ separate
counsel at the expense of the indemnifying party, the indemnifying party shall not have the right
to assume the defense of such claim on behalf of such Person). If such defense is not assumed by
the indemnifying party, the indemnifying party will not be subject to any liability for any
settlement made without its consent, but such consent may not be unreasonably withheld;
provided
,
that an indemnifying party may withhold its consent to any settlement involving the
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imposition of equitable remedies or involving the imposition of any material obligations on
such indemnifying party other than financial obligations for which such Indemnified Person will be
indemnified hereunder. No indemnifying party shall consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term thereof the giving by the claimant
or plaintiff to each Indemnified Person of an unconditional release from all liability in respect
to such claim or litigation. The indemnifying party or parties shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm (together with one firm of local
counsel) at any one time for all Indemnified Parties unless (
x
) the employment of more than one
counsel has been authorized in writing by the indemnifying party or parties, (
y
) a conflict or
potential conflict exists or may exist (based on advice of counsel to an Indemnified Person)
between such Indemnified Person and the other Indemnified Parties or (
z
) an Indemnified Person has
reasonably concluded (based on advice of counsel) that there may be legal defenses available to it
that are different from or in addition to those available to the other Indemnified Parties, in each
of which cases the indemnifying party shall be obligated to pay the reasonable fees and expenses of
such additional counsel or counsels.
(e)
Contribution
. If for any reason the indemnification provided for in Section
2.7(a) and Section 2.7(b) is unavailable to an Indemnified Person or insufficient to hold it
harmless as contemplated by Section 2.7(a) and Section 2.7(b), then the indemnifying party shall
contribute to the amount paid or payable by the Indemnified Person as a result of such Loss in such
proportion as is appropriate to reflect the relative fault of the indemnifying party on the one
hand and the Indemnified Person on the other. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information supplied by the
indemnifying party or the Indemnified Person and the parties relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or omission.
Notwithstanding anything in this Section 2.7(e) to the contrary, no indemnifying party (other than
the Company) shall be required pursuant to this Section 2.7(e) to contribute any amount in excess
of the amount by which the net proceeds received by such indemnifying party from the sale of
Registrable Securities in the offering to which the Losses of the Indemnified Parties relate
exceeds the amount of any damages which such indemnifying party has otherwise been required to pay
by reason of such untrue statement or omission. The parties to this Agreement agree that it would
not be just and equitable if contribution pursuant to this Section 2.7(e) were determined by pro
rata allocation or by any other method of allocation that does not take account of the equitable
considerations referred to in this Section 2.7(e). No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent misrepresentation.
Section 2.8
Rules 144 and 144A
. The Company covenants that, from and after the time it becomes subject to the periodic
reporting requirements of the Exchange Act, it will file the reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC
thereunder (or, if the Company thereafter is no longer required to file such reports, it will, upon
the request of any Holder of Registrable Securities, make publicly available other information so
long as necessary to permit sales pursuant to Rule 144 and 144A under the Securities Act), and it
will take such further action as any Holder of Registrable Securities may reasonably request, all
to the extent required from time to time to enable such Holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the exemptions provided by
(i) Rule 144 or 144A or Regulation S under the Securities Act, as such Rules may be amended from
time to time, or (ii) any similar rule or regulation hereafter adopted by the SEC. Upon the request
of any Holder of Registrable Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements and, if not, the specifics thereof.
-21-
Section 2.9
Holdback
. The parties acknowledge that they are parties to the Stockholders Agreement which contains
restrictions on the sale of securities during specified periods of time in connection with the
Companys filing of a Registration Statement.
Section 2.10
Canadian Registration
. If, after the 180
th
day following the date of the final prospectus relating to the
initial public offering of the Companys Common Stock, the Company files a prospectus with any
Canadian provincial securities commission from time to time, the Company will use its best efforts
to facilitate and enable the Holders to make a secondary offering of Registrable Securities in
Canada to the fullest extent permitted by applicable securities laws, subject to the approval by
the underwriters or agents involved in the offering and the applicable securities regulators.
ARTICLE 3
MISCELLANEOUS
Section 3.1
Injunctive Relief
. It is hereby agreed and acknowledged that it will be impossible to measure in money the
damages that would be suffered if the parties fail to comply with any of the obligations herein
imposed on them and that in the event of any such failure, an aggrieved Person will be irreparably
damaged and will not have an adequate remedy at law. Any such Person shall, therefore, be entitled
(in addition to any other remedy to which it may be entitled in law or in equity) to injunctive
relief, including specific performance, to enforce such obligations, without the requirement that a
bond be posted and, if any action should be brought in equity to enforce any of the provisions of
this Agreement, none of the parties to this Agreement shall raise the defense that there is an
adequate remedy at law. Notwithstanding the foregoing, no Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any registration pursuant to this Agreement as
the result of any controversy that might arise with respect to the interpretation or implementation
of Section 2 hereof.
Section 3.2
Notices
. All notices or other communications which are required or permitted hereunder shall be in
writing and sufficient if delivered by hand, by facsimile transmission, by registered or certified
mail, postage pre-paid, or by courier or overnight carrier, to the Persons at the addresses set
forth in
Schedule A
and
Schedule B
in the case of a Holder and to the address set
forth below in the case of the Company (or at such other address as may be provided hereunder), and
shall be deemed to have been delivered (a) on the date of delivery if delivered personally, or by
telecopy or facsimile, upon confirmation of receipt, (b) on the first Business Day following the
date of dispatch if delivered by a recognized next-day courier service, or (c) on the fifth
Business Day following the date of mailing if delivered by registered or certified mail return
receipt requested, postage prepaid:
if to the Company to:
Lululemon Corp.
2285 Clark Drive
Vancouver, BC Canada
V5N 3G9
Facsimile:
Attention: Chief Executive Officer
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with copies to:
Advent International Corporation
75 State Street
Boston, MA 02109
Facsimile: (617) 951-0568
Attention: Steven J. Collins
and
Pepper Hamilton LLP
3000 Two Logan Square
Eighteenth & Arch Streets
Philadelphia, PA 19103
Facsimile: (215) 981-4750
Attention: Robert A. Friedel
Section 3.3
Successors, Assigns and Transferees
.
(a) The registration rights of any Holder under this Agreement with respect to any Registrable
Securities may be transferred and assigned;
provided
, that no such assignment shall be binding upon
or obligate the Company to any such transferee or assignee unless and until the Company shall have
received notice of such assignment as herein provided and a written agreement of the assignee to be
bound by the provisions of this Agreement by executing a Counterpart Signature Page; and provided
further that the registration rights of any Holder under this Agreement may not be transferred or
assigned to any employee or former employee of the Company or any of its subsidiaries. Any
transfer or assignment made other than as provided in the first sentence of this Section 3.3(a)
shall be null and void.
(b)
Schedule A
and
Schedule B
shall be deemed to be amended to add any party
delivering a Counterpart Signature Page pursuant to this Section 3.3(a).
(c) This Agreement shall be binding upon and shall inure to the benefit of the parties to this
Agreement, and their respective successors and permitted assigns.
Section 3.4
Choice of Law; Jurisdiction; Venue; WAIVER OF JURY TRIAL
.
(a) This Agreement shall be construed and enforced in accordance with the laws of the State of
Delaware without regard to the application of the principles of conflicts or choice of laws.
(b) Each of the parties hereto hereby submit to the exclusive jurisdiction of the federal or
state courts of the State of Delaware with respect to any action or legal proceeding commenced by
either of them with respect to this Agreement. Each of them irrevocably waives any objection they
now have or hereafter may have respecting the venue of any such action or proceeding brought in
such a court or respecting the fact that such court is an inconvenient forum and consents to the
service of process in any such action or proceeding by means of registered or certified mail,
return receipt requested, in care of the address set forth herein or at such other address as
either of them shall furnish in writing to the other.
(c) THE PARTIES HERETO EACH HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING
ANY MATTER (WHETHER SOUNDING IN
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TORT, CONTRACT, FRAUD OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATING TO THIS AGREEMENT.
Section 3.5
Severability
. Whenever possible, each provision or portion of any provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law but if any provision
or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or portion of any provision in such
jurisdiction, and this agreement will be reformed, construed and enforced in such jurisdiction as
if such invalid, illegal or unenforceable provision or portion of any provision had never been
contained therein.
Section 3.6
Amendment; Waiver
.
(a) This Agreement may not be amended or modified and waivers and consents to departures from
the provisions hereof (each, an
Amendment
) may not be given, except by an instrument or
instruments in writing making specific reference to this Agreement and signed by the Company and
the Holders of Registrable Securities representing at least a majority of the aggregate Registrable
Securities held by the Holders;
provided
,
however
, that any Amendment that treats any Holder in a
series or class of stock (the
Adversely Affected Holder
) in a manner which is
disproportionate and adverse relative to its treatment of the other Holders in such series or class
of stock shall require the consent of the Adversely Affected Holder. For purposes of the foregoing
sentence, the A Holders shall be considered a group of Holders and the B Holders shall be
considered a group of Holders. Each Holder of any Registrable Securities at the time or
thereafter outstanding shall be bound by any Amendment authorized by this Section 3.6(a). For
purposes of this Section 3.6(a), determinations of whether an Amendment disproportionately effects
any Holder or group of Holders, or whether the Amendment provides a disproportionate benefit to any
Holder or group of Holders, shall be based on such Holders (or groups) contractual rights as of
the time of the Amendment.
(b) The waiver by any party to this Agreement of a breach of any provision of this Agreement
shall not operate or be construed as a further or continuing waiver of such breach or as a waiver
of any other or subsequent breach. Except as otherwise expressly provided herein, no failure on
the part of any party to exercise, and no delay in exercising, any right, power or remedy
hereunder, or otherwise available in respect hereof at law or in equity, shall operate as a waiver
thereof, nor shall any single or partial exercise of such right, power or remedy by such party
preclude any other or further exercise thereof or the exercise of any other right, power or remedy.
Section 3.7
Counterparts; Facsimile Signatures
. This Agreement may be executed in any number of separate counterparts and by the parties to
this Agreement in separate counterparts each of which when so executed, including by facsimile
signature, shall be deemed to be an original and all of which together shall constitute one and the
same agreement.
Section 3.8
Entire Agreement
. This Agreement constitutes the entire agreement and understanding between the parties hereto
and supersedes any and all prior agreements and understandings, written or oral, relating to the
subject matter of this Agreement.
[
Signature Page Follows
]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date
first written above.
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LULULEMON CORP.
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By:
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/s/ Robert Meers
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Name:
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Robert Meers
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Title:
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Chief Executive Officer
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A HOLDERS:
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ADVENT INTERNATIONAL GPE V LIMITED PARTNERSHIP
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ADVENT INTERNATIONAL GPE V-A LIMITED PARTNERSHIP
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ADVENT INTERNATIONAL GPE V-B LIMITED PARTNERSHIP
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ADVENT INTERNATIONAL GPE V-G LIMITED PARTNERSHIP
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ADVENT INTERNATIONAL GPE V-I LIMITED PARTNERSHIP
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By:
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GPE V GP Limited Partnership, General Partner
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By:
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Advent International LLC, General Partner
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By:
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Advent International Corporation, Manager
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By:
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/s/ Steven J. Collins
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Name: Steven J. Collins
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Title: Vice President
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ADVENT PARTNERS III LIMITED PARTNERSHIP
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ADVENT PARTNERS GPE V LIMITED PARTNERSHIP
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ADVENT PARTNERS GPE V-A LIMITED PARTNERSHIP
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ADVENT PARTNERS GPE V-B LIMITED PARTNERSHIP
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By:
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Advent International LLC, General Partner
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By:
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Advent International Corporation, Manager
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By:
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/s/ Steven J. Collins
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Name: Steven J. Collins
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Title: Vice President
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BROOKE PRIVATE EQUITY ADVISORS FUND I-A, L.P.
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By:
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Brooke Private Equity Advisors, L.P., its General Partner
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By:
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Brooke Private Equity Management LLC, its General Partner
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By:
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/s/ John Brooke
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Name: John Brooke
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Title: Manager
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BROOKE PRIVATE EQUITY ADVISORS FUND I (D), L.P.
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By:
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Brooke Private Equity Advisors, L.P., its General Partner
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By:
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Brooke Private Equity Management LLC, its General Partner
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By:
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/s/ John Brooke
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Name: John Brooke
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Title: Manager
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HIGHLAND CAPITAL PARTNERS VI LIMITED PARTNERSHIP
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By:
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Highland Management Partners VI Limited Partnership, its General Partner
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By:
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Highland Management Partners VI, Inc., its General Partner
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By:
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/s/ Paul E. Maeder
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Authorized Officer
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HIGHLAND CAPITAL PARTNERS VI-B LIMITED PARTNERSHIP
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By:
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Highland Management Partners VI Limited Partnership, its General Partner
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By:
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Highland Management Partners VI, Inc., its General Partner
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By:
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/s/ Paul E. Maeder
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Authorized Officer
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HIGHLAND ENTREPRENEURS FUND VI LIMITED PARTNERSHIP
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By:
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HEF VI Limited Partnership, its General Partner
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By:
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Highland Management Partners VI, Inc., its General Partner
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By:
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/s/ Paul E.
Maeder
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Authorized Officer
|
/s/ Susanne Conrad
Susanne Conrad
/s/ R. Brad Martin
R. Brad Martin
/s/ Rhoda Pitcher
Rhoda Pitcher
B HOLDERS:
DENNIS WILSON
By:
/s/ Dennis Wilson
Name: Dennis Wilson
Title: Authorized Signatory
FIVE BOYS INVESTMENT, ULC
By:
/s/ Dennis Wilson
Name:
Title: Authorized Signatory
OYOYO HOLDINGS, INC.
By:
/s/ Dennis Wilson
Name:
Title: Authorized Signatory
LIPO INVESTMENTS (USA) INC.
By:
/s/ Dennis Wilson
Name: Dennis Wilson
Title: Authorized Signatory
SLINKY FINANCIAL ULC
By:
/s/ Dennis Wilson
Name: Dennis Wilson
Title: Authorized Signatory
SCHEDULE A
A Holders
|
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Name of Stockholder
|
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Address for Notice
|
Advent International GPE V Limited Partnership
Advent International GPE V-A Limited Partnership
Advent International GPE V-B Limited Partnership
Advent International GPE V-G Limited Partnership
Advent International GPE V-I Limited Partnership
Advent Partners III Limited Partnership
Advent Partners GPE V Limited Partnership
Advent Partners GPE V-A Limited Partnership
Advent Partners GPE V-B Limited Partnership
|
|
c/o Advent International Corporation
75 State Street
Boston, MA 02109
Facsimile: (617) 951-0568
Attention: Steven J. Collins
with a copy to:
Pepper Hamilton LLP
3000 Two Logan Square
Eighteenth & Arch Streets
Philadelphia, PA 19103
Facsimile: (215) 981-4750
Attention: Robert A. Friedel
|
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|
|
Brooke Private Equity Advisors Fund I-A, L.P.
Brooke Private Equity Advisors Fund I (D), L.P.
|
|
c/o Brooke Private Equity Advisors
84 State Street, Suite 320
Boston, MA 02109
Attention: Charlie Bridge
Facsimile Number: (617) 227-4128
with a copy to:
c/o Brooke Private Equity Advisors
84 State Street, Suite 320
Boston, MA 02109
Attention: John Brooke
Facsimile Number: (617) 227-4128
|
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Highland Capital Partners VI Limited Partnership
Highland Capital Partners VI-B Limited Partnership
Highland Entrepreneurs Fund VI Limited Partnership
|
|
c/o Highland Capital Partners, Inc.
92 Hayden Avenue
Lexington, Massachusetts 02421
Facsimile: (781) 861-5499
Attention: Kathleen A. Barry,
Chief Financial Officer
with a copy to:
Goodwin Procter LLP
53 State Street
Boston MA 02109
Facsimile Number: (617) 523-1231
Attention: William J. Schnoor, Jr.
|
Susanne Conrad
|
|
1312 Cedar St
Santa Monica, CA 90405
Facsimile Number:___
|
A-1
|
|
|
Name of Stockholder
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|
Address for Notice
|
R. Brad Martin
|
|
c/o RBM Venture Co.
1025 Cherry Rd.
Memphis, TN 38117
Facsimile Number:___
|
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Rhoda Pitcher
|
|
8610 NE 23rd PL
Clyde Hill WA 98004
Facsimile Number: ___
|
A-2
SCHEDULE B
B Holders
|
|
|
Name of Stockholder
|
|
Address for Notice
|
Dennis Wilson
|
|
#2 2108 West 4
th
Avenue
Vancouver, BC, V6K 1N6
Attention: Dennis Wilson
Facsimile Number: (604) 737-7267
with a copy to:
McCullough OConnor Irwin LLP
#1100 888 Dunsmuir St.
Vancouver, BC V6C 3K4
Facsimile: (604) 687-7099
Attention: Jonathan McCullough
|
|
|
|
Five Boys Investment ULC
|
|
#2 2108 West 4
th
Avenue
Vancouver, BC, V6K 1N6
Attention: Dennis Wilson
Facsimile Number: (604) 737-7267
with a copy to:
McCullough OConnor Irwin LLP
#1100 888 Dunsmuir St.
Vancouver, BC V6C 3K4
Facsimile: (604) 687-7099
Attention: Jonathan McCullough
|
|
|
|
Oyoyo Holdings, Inc.
|
|
#2 2108 West 4
th
Avenue
Vancouver, BC, V6K 1N6
Attention: Dennis Wilson
Facsimile Number: (604) 737-7267
with a copy to:
McCullough OConnor Irwin LLP
#1100 888 Dunsmuir St.
Vancouver, BC V6C 3K4
Facsimile: (604) 687-7099
Attention: Jonathan McCullough
|
B-1
|
|
|
Name of Stockholder
|
|
Address for Notice
|
LIPO Investments (USA) Inc.
|
|
#2 2108 West 4
th
Avenue
Vancouver, BC, V6K 1N6
Attention: Dennis Wilson
Facsimile Number: (604) 737-7267
with a copy to:
McCullough OConnor Irwin LLP
#1100 888 Dunsmuir St.
Vancouver, BC V6C 3K4
Facsimile: (604) 687-7099
Attention: Jonathan McCullough
|
|
|
|
Slinky Financial ULC
|
|
#2 2108 West 4
th
Avenue
Vancouver, BC, V6K 1N6
Attention: Dennis Wilson
Facsimile Number: (604) 737-7267
with a copy to:
McCullough OConnor Irwin LLP
#1100 888 Dunsmuir St.
Vancouver, BC V6C 3K4
Facsimile: (604) 687-7099
Attention: Jonathan McCullough
|
B-2
Exhibit 10.5
EXCHANGE TRUST AGREEMENT
Between:
LULULEMON ATHLETICA INC.
- and -
LULU CANADIAN HOLDING INC.
- and -
COMPUTERSHARE TRUST COMPANY OF CANADA
July 26, 2007
TABLE OF CONTENTS
|
|
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|
|
ARTICLE 1 DEFINITIONS
|
|
|
1
|
|
|
|
1.1
|
|
Definitions
|
|
|
1
|
|
|
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|
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|
|
ARTICLE 2 PURPOSE OF AGREEMENT
|
|
|
5
|
|
|
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2.1
|
|
Establishment of Trust
|
|
|
5
|
|
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|
|
ARTICLE 3 EXCHANGE RIGHT AND AUTOMATIC EXCHANGE
|
|
|
5
|
|
|
|
3.1
|
|
Grant and Exercise of the Exchange Right
|
|
|
5
|
|
|
|
3.2
|
|
Legended Share Certificates
|
|
|
5
|
|
|
|
3.3
|
|
General Exercise of Exchange Right
|
|
|
6
|
|
|
|
3.4
|
|
Purchase Price
|
|
|
6
|
|
|
|
3.5
|
|
Exercise Instructions
|
|
|
6
|
|
|
|
3.6
|
|
Delivery of Lululemon Common Shares; Effect of Exercise
|
|
|
7
|
|
|
|
3.7
|
|
Exercise of Exchange Right Subsequent to Retraction
|
|
|
8
|
|
|
|
3.8
|
|
Stamp or Other Transfer Taxes
|
|
|
8
|
|
|
|
3.9
|
|
Notice of Insolvency Event
|
|
|
8
|
|
|
|
3.10
|
|
Qualification of Lululemon Common Shares
|
|
|
9
|
|
|
|
3.11
|
|
Lululemon Common Shares
|
|
|
9
|
|
|
|
3.12
|
|
Automatic Exchange on Liquidation of Lululemon
|
|
|
9
|
|
|
|
3.13
|
|
Withholding Rights
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 4 CONCERNING THE TRUSTEE
|
|
|
12
|
|
|
|
4.1
|
|
Powers and Duties of the Trustee
|
|
|
12
|
|
|
|
4.2
|
|
No Conflict of Interest
|
|
|
13
|
|
|
|
4.3
|
|
Dealings with Transfer Agents, Registrars, etc.
|
|
|
13
|
|
|
|
4.4
|
|
Books and Records
|
|
|
13
|
|
|
|
4.5
|
|
Income Tax Returns and Reports
|
|
|
14
|
|
|
|
4.6
|
|
Indemnification Prior to Certain Actions by Trustee
|
|
|
14
|
|
|
|
4.7
|
|
Action of Beneficiaries
|
|
|
14
|
|
|
|
4.8
|
|
Reliance Upon Declarations
|
|
|
15
|
|
|
|
4.9
|
|
Evidence and Authority to Trustee
|
|
|
15
|
|
|
|
4.10
|
|
Experts, Advisers and Agents
|
|
|
16
|
|
|
|
4.11
|
|
Investment of Moneys Held by Trustee
|
|
|
16
|
|
|
|
4.12
|
|
Trustee Not Required to Give Security
|
|
|
17
|
|
|
|
4.13
|
|
Trustee Not Bound to Act on Request
|
|
|
17
|
|
|
|
4.14
|
|
Authority to Carry on Business
|
|
|
17
|
|
|
|
4.15
|
|
Conflicting Claims
|
|
|
17
|
|
|
|
4.16
|
|
Acceptance of Trust
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 5 COMPENSATION
|
|
|
18
|
|
|
|
5.1
|
|
Fees and Expenses of the Trustee
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 6 INDEMNIFICATION AND LIMITATION OF LIABILITY
|
|
|
18
|
|
|
|
6.1
|
|
Indemnification of the Trustee
|
|
|
18
|
|
|
|
6.2
|
|
Limitation of Liability
|
|
|
19
|
|
i
|
|
|
|
|
|
|
|
|
ARTICLE 7 CHANGE OF TRUSTEE
|
|
|
19
|
|
|
|
7.1
|
|
Resignation
|
|
|
19
|
|
|
|
7.2
|
|
Removal
|
|
|
20
|
|
|
|
7.3
|
|
Successor Trustee
|
|
|
20
|
|
|
|
7.4
|
|
Notice of Successor Trustee
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 8 LULULEMON SUCCESSORS
|
|
|
20
|
|
|
|
8.1
|
|
Certain Requirements in Respect of Combination, etc.
|
|
|
20
|
|
|
|
8.2
|
|
Vesting of Powers in Successor
|
|
|
21
|
|
|
|
8.3
|
|
Wholly-Owned Subsidiaries
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 9 AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS
|
|
|
21
|
|
|
|
9.1
|
|
Amendments, Modifications, etc.
|
|
|
21
|
|
|
|
9.2
|
|
Ministerial Amendments
|
|
|
22
|
|
|
|
9.3
|
|
Meeting to Consider Amendments
|
|
|
22
|
|
|
|
9.4
|
|
Changes in Capital of Lululemon and Exchangeco
|
|
|
22
|
|
|
|
9.5
|
|
Execution of Supplemental Trust Agreements
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 10 TERMINATION
|
|
|
23
|
|
|
|
10.1
|
|
Term
|
|
|
23
|
|
|
|
10.2
|
|
Survival of Agreement
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
ARTICLE 11 GENERAL
|
|
|
24
|
|
|
|
11.1
|
|
Notices
|
|
|
24
|
|
|
|
11.2
|
|
Notice to Beneficiaries
|
|
|
25
|
|
|
|
11.3
|
|
Interpretation
|
|
|
25
|
|
|
|
11.4
|
|
Severability
|
|
|
25
|
|
|
|
11.5
|
|
Counterparts
|
|
|
26
|
|
|
|
11.6
|
|
Governing Law
|
|
|
26
|
|
|
|
11.7
|
|
Assignment
|
|
|
26
|
|
|
|
11.8
|
|
Enforcement
|
|
|
26
|
|
|
|
11.9
|
|
No Waiver
|
|
|
26
|
|
|
|
11.10
|
|
Expenses
|
|
|
27
|
|
|
|
11.11
|
|
Privacy
|
|
|
27
|
|
|
|
11.12
|
|
Trustee Not Bound to Act
|
|
|
27
|
|
|
|
11.13
|
|
Third Party Interests
|
|
|
28
|
|
|
|
11.14
|
|
Further Assurances
|
|
|
28
|
|
ii
EXCHANGE TRUST AGREEMENT
MEMORANDUM OF AGREEMENT
made as of the 26
th
day of July, 2007.
AMONG:
LULULEMON ATHLETICA INC.
, a corporation existing under the laws of the State of Delaware
(
Lululemon
),
AND:
LULU CANADIAN HOLDING INC.
, a company existing under the laws of British Columbia
(
Exchangeco
),
AND:
COMPUTERSHARE TRUST COMPANY OF CANADA
, a trust company incorporated under the laws of Canada
(
Trustee
).
WHEREAS
in connection with an arrangement agreement (the
Arrangement Agreement
) dated as of April
26, 2007 among Lululemon, Lululemon Callco ULC (
Callco
), Exchangeco, LIPO Investments (USA), Inc.
and LIPO Investments (Canada) Inc. (
LIPO Canada
), Exchangeco is to issue Exchangeable Shares to
holders of common shares of LIPO Canada pursuant to the Arrangement contemplated in the Arrangement
Agreement;
AND WHEREAS
pursuant to the Arrangement Agreement, Lululemon, Exchangeco and Callco have agreed to
execute an exchange trust agreement substantially in the form of this Agreement;
NOW THEREFORE
in consideration of the respective covenants and agreements provided in this
Agreement and for other good and valuable consideration (the receipt and sufficiency of which are
hereby acknowledged), the parties hereto covenant and agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions
In this Agreement, the following terms shall have the following meanings:
Agreement
means this Exchange Trust Agreement as it may be amended or supplemented from time to
time;
Arrangement
means an arrangement under Part 9, Division 5 of the BCA on the terms and subject to
the conditions set out in the Plan of Arrangement, to which plan these share provisions are
attached as Appendix 1, subject to any amendments or variations thereto made in accordance with
Article 6 of the Arrangement Agreement or Article 6 of the Plan of Arrangement or made at the
direction of the Court in the Final Order;
Arrangement Agreement
means the arrangement agreement made as of the 26
th
day of
April, 2007 among Lululemon, Callco, Exchangeco, LIPO Investments (USA), Inc. and LIPO Investments
(Canada), Inc., as amended, supplemented and/or restated in accordance therewith prior to the
Effective Date, providing for, among other things, the Arrangement;
Automatic Exchange Rights
means the benefit of the obligation of Lululemon, to effect the
automatic exchange of Exchangeable Shares for Lululemon Common Shares pursuant to Section 3.12;
BCA
means the
Business Corporations Act
(British Columbia), as amended;
Beneficiaries
means the registered holders from time to time of Exchangeable Shares, other than
Lululemon and its subsidiaries;
Board of Directors
means the board of directors of Exchangeco;
Business Day
means any day on which commercial banks are generally open for business in
Vancouver, British Columbia, other than a Saturday, a Sunday or a day observed as a holiday in
Vancouver, British Columbia under the laws of the Province of British Columbia;
Canadian Dollar Equivalent
means, in respect of an amount expressed in a currency other than
Canadian dollars (the
Foreign Currency Amount
) at any date, the product obtained by multiplying
(a) the Foreign Currency Amount by (b) the noon spot exchange rate on such date for such foreign
currency expressed in Canadian dollars as reported by the Bank of Canada or, in the event such spot
exchange rate is not available, such exchange rate on such date for such foreign currency expressed
in Canadian dollars as may be deemed by the Board of Directors to be appropriate for such purpose;
Court
means the Supreme Court of British Columbia;
Current Market Price
means, in respect of a Lululemon Common Share on any date, the Canadian
Dollar Equivalent of the average of the closing bid and asked prices of the Lululemon Common Shares
during a period of 20 consecutive trading days ending not more than three trading days before such
date on the NASDAQ, or, if the Lululemon Common Shares are not then listed on the NASDAQ, on such
other stock exchange or automated quotation system on which the Lululemon Common Shares are listed
or quoted, as the case may be, as may be selected by the Board of Directors for such purpose;
provided however, that if in the opinion of the Board of Directors the public distribution or
trading activity of the Lululemon Common Shares during such period does not create a market which
reflects the fair market value of a Lululemon Common Share, then the Current Market Price of a
Lululemon Common Share shall be determined by the Board of Directors, in good faith and in its sole
discretion, and provided
2
further that any such selection, opinion or determination by the Board of Directors shall be
conclusive and binding;
Effective Date
means the date following the grant of the Final Order on which the parties to the
Arrangement Agreement that the conditions set forth in Article 5 of the Arrangement Agreement have
been satisfied or waived (or on such other date as the parties may agree);
Effective Time
means the time on the Effective Date at which the Arrangement becomes effective;
Exchange Right
has the meaning assigned in Section 3.1;
Exchangeable Share
means a share in the class of non-voting exchangeable shares in the capital of
Exchangeco;
Exchangeable Share Provisions
means the rights, privileges, restrictions and conditions attaching
to the Exchangeable Shares, which rights, privileges, restrictions and conditions shall be
substantially in the form and content as set out in Appendix 1 of the Plan of Arrangement;
Final Order
means the order of the Court approving the Plan of Arrangement, granted pursuant to
section 291(4) of the BCA, as such order may be amended at any time prior to the Effective Date or,
if appealed, then, unless such appeal is withdrawn or denied, as affirmed;
Indemnified Parties
has the meaning assigned in Section 6.1;
Insolvency Event
means the institution by Exchangeco of any proceeding to be adjudicated a
bankrupt or insolvent or to be wound up, or the consent of Exchangeco to the institution of
bankruptcy, insolvency or winding-up proceedings against it, or the filing of a petition, answer or
consent seeking dissolution or winding-up under any bankruptcy, insolvency or analogous laws,
including without limitation the
Companies Creditors Arrangement Act
(Canada) and the
Bankruptcy
and Insolvency Act
(Canada), and the failure by Exchangeco to contest in good faith any such
proceedings commenced in respect of Exchangeco within 30 days of becoming aware thereof, or the
consent by Exchangeco to the filing of any such petition or to the appointment of a receiver, or
the making by Exchangeco of a general assignment for the benefit of creditors, or the admission in
writing by Exchangeco of its inability to pay its debts generally as they become due, or Exchangeco
not being permitted, pursuant to solvency requirements of applicable law, to redeem any Retracted
Shares pursuant to Section 6.6 of the Exchangeable Share Provisions;
Liquidation Call Right
has the meaning assigned in the Plan of Arrangement;
Liquidation Event
has the meaning assigned in Section 3.12(b);
Liquidation Event Effective Date
has the meaning assigned in Section 3.12(c);
Lululemon Common Share
means a share of common stock, par value U.S. $0.01, in the capital of
Lululemon and any other securities into which such share may be changed;
Lululemon Successor
has the meaning assigned in Section 8.1(a);
3
NASDAQ
means the NASDAQ Global Market;
Officers Certificate
means, with respect to Lululemon or Exchangeco, as the case may be, a
certificate signed by any officer or director of Lululemon or Exchangeco, as the case may be;
Person
includes any individual, firm, partnership, joint venture, venture capital fund,
association, trust, trustee, executor, administrator, legal personal representative, estate, group,
body corporate, corporation, company, unincorporated association or organization, government body,
syndicate or other entity, whether or not having legal status;
Plan of Arrangement
means the plan of arrangement substantially in the form and content of
Exhibit B to the Arrangement Agreement and any amendments or variations thereto made in accordance
with Article 6 of the Arrangement Agreement or Article 6 of the Plan of Arrangement or made at the
direction of the Court in the Final Order;
Redemption Call Right
has the meaning assigned in the Plan of Arrangement;
Reorganization Agreement
means the Agreement and Plan of Reorganization dated as of the
26
th
day of April, 2007 by and among Lululemon, Lululemon Athletica USA, Inc., Lululemon
Athletica Inc., LIPO Investments (USA), Inc., LIPO Investments (Canada), Inc., Callco, Exchangeco
and certain other parties;
Retracted Shares
has the meaning assigned in Section 3.7;
Retraction Call Right
has the meaning assigned in the Exchangeable Share Provisions;
subsidiary
means, with respect to a specified body corporate, any body corporate of which more
than 50% of the outstanding shares ordinarily entitled to elect a majority of the board of
directors thereof (whether or not shares of any other class or classes shall or might be entitled
to vote upon the happening of any event or contingency) are at the time owned directly or
indirectly by such specified body corporate and shall include any body corporate, partnership,
joint venture or other entity over which it exercises direction or control or which is in a like
relation to a subsidiary;
Support Agreement
means the Support Agreement to be made among Lululemon, Callco and Exchangeco,
which shall be substantially in the form and content of Exhibit D to the Reorganization Agreement,
with such changes thereto as the parties thereto, acting reasonably, may approve, in accordance
with the terms thereof;
Trust
means the trust created by this Agreement;
Trust Estate
means any securities, the Exchange Right, the Automatic Exchange Rights and any
money or other property which may be held by the Trustee from time to time pursuant to this
Agreement;
Trustee
means Computershare Trust Company of Canada and, subject to the provisions of Article 7,
includes any successor trustee.
4
ARTICLE 2
PURPOSE OF AGREEMENT
2.1 Establishment of Trust
The purpose of this Agreement is to create the Trust for the benefit of the Beneficiaries, as
herein provided. The Trustee will hold the Exchange Right and the Automatic Exchange Rights in
order to enable the Trustee to exercise such rights, in each case as trustee for and on behalf of
the Beneficiaries as provided in this Agreement.
ARTICLE 3
EXCHANGE RIGHT AND AUTOMATIC EXCHANGE
3.1 Grant and Exercise of the Exchange Right
Lululemon hereby grants to the Trustee as trustee for and on behalf of, and for the use and benefit
of, the Beneficiaries the right (the
Exchange Right
), upon the occurrence and during the
continuance of an Insolvency Event, to require Lululemon to purchase from each or any Beneficiary
all or any part of the Exchangeable Shares held by the Beneficiary and the Automatic Exchange
Rights, all in accordance with the provisions of this Agreement. Lululemon hereby acknowledges
receipt from the Trustee as trustee for and on behalf of the Beneficiaries of good and valuable
consideration (and the adequacy thereof) for the grant of the Exchange Right and the Automatic
Exchange Rights by Lululemon to the Trustee. During the term of the Trust and subject to the terms
and conditions of this Agreement, the Trustee shall possess and be vested with all rights in
respect of the Exchange Right and the Automatic Exchange Rights and shall be entitled to exercise
all of the rights and powers of an owner with respect to the Exchange Right and the Automatic
Exchange Rights, provided that the Trustee shall:
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(a)
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hold the Exchange Right and the Automatic Exchange Rights and the legal title
thereto as trustee solely for the use and benefit of the Beneficiaries in accordance
with the provisions of this Agreement; and
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(b)
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except as specifically authorized by this Agreement, have no power or authority
to exercise or otherwise deal in or with the Exchange Right or the Automatic Exchange
Rights, and the Trustee shall not exercise any such rights for any purpose other than
the purposes for which the Trust is created pursuant to this Agreement.
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3.2 Legended Share Certificates
Exchangeco will cause each certificate issued representing Exchangeable Shares to bear an
appropriate legend notifying the Beneficiaries of:
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(a)
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their right to instruct the Trustee with respect to the exercise of the
Exchange Right in respect of the Exchangeable Shares held by a Beneficiary; and
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(b)
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the Automatic Exchange Rights.
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3.3 General Exercise of Exchange Right
The Exchange Right shall be and remain vested in and exercisable by the Trustee. Subject to Section
4.15, the Trustee shall exercise the Exchange Right only on the basis of instructions received
pursuant to this Article 3 from Beneficiaries entitled to instruct the Trustee as to the exercise
thereof. To the extent that no instructions are received from a Beneficiary with respect to the
Exchange Right, the Trustee shall not exercise or permit the exercise of the Exchange Right.
3.4 Purchase Price
The purchase price payable by Lululemon for each Exchangeable Share to be purchased by Lululemon
under the Exchange Right shall be an amount per Exchangeable Share equal to (a) the Current Market
Price of a Lululemon Common Share on the last Business Day prior to the day of closing of the
purchase and sale of such Exchangeable Share under the Exchange Right, which shall be satisfied in
full by Lululemon causing to be sent to such holder one Lululemon Common Share, plus (b) to the
extent not paid by Exchangeco on the designated payment date therefor, an additional amount equal
to and in satisfaction of the full amount of all declared and unpaid dividends on each such
Exchangeable Share held by such holder on any dividend record date which occurred prior to the
closing of the purchase and sale. In connection with each exercise of the Exchange Right, Lululemon
shall provide to the Trustee an Officers Certificate setting forth the calculation of the purchase
price for each Exchangeable Share. The purchase price for each such Exchangeable Share so purchased
may be satisfied only by Lululemon delivering or causing to be delivered to the Trustee, on behalf
of the relevant Beneficiary, one Lululemon Common Share and on the applicable payment date a cheque
for the balance, if any, of the purchase price without interest (but less any amounts withheld
pursuant to Section 3.13). Upon payment by Lululemon of such purchase price, the relevant
Beneficiary shall cease to have any right to be paid any amount in respect of declared and unpaid
dividends on each such Exchangeable Share by Exchangeco.
3.5 Exercise Instructions
Subject to the terms and conditions herein set forth, a Beneficiary shall be entitled, upon the
occurrence and during the continuance of an Insolvency Event, to instruct the Trustee to exercise
the Exchange Right with respect to all or any part of the Exchangeable Shares registered in the
name of such Beneficiary on the books of Exchangeco. To cause the exercise of the Exchange Right by
the Trustee, the Beneficiary shall deliver to the Trustee, in person or by certified or registered
mail, at its principal office in Calgary or at such other places in Canada as the Trustee may from
time to time designate by written notice to the Beneficiaries, the certificates, if any,
representing the Exchangeable Shares which such Beneficiary desires Lululemon to purchase, duly
endorsed in blank for transfer, and accompanied by such other documents and instruments as may be
required to effect a transfer of Exchangeable Shares and such additional documents and instruments
as the Trustee, Exchangeco or Lululemon may reasonably require together with (a) a duly completed
form of notice of exercise of the Exchange Right in form and substance satisfactory to the Trustee,
Lululemon and Exchangeco, stating (i) that the Beneficiary thereby instructs the Trustee to
exercise the Exchange Right so as to require Lululemon to purchase from the Beneficiary the number
of Exchangeable Shares specified therein, (ii) that such Beneficiary
6
has good title to and owns all such Exchangeable Shares to be acquired by Lululemon, free and clear
of all liens, claims and encumbrances, (iii) the names in which the Lululemon Common Shares
issuable in connection with the exercise of the Exchange Right are to be issued and (iv) the names
and addresses of the persons to whom such Lululemon Common Shares should be delivered and (b)
payment (or evidence satisfactory to the Trustee, Exchangeco, and Lululemon of payment) of the
taxes (if any) payable as contemplated by Section 3.8 of this Agreement. If only a part of the
Exchangeable Shares are to be purchased by Lululemon under the Exchange Right, the balance of such
Exchangeable Shares shall be issued to the holder at the expense of Exchangeco either by a new
certificate or through the direct registration system.
3.6 Delivery of Lululemon Common Shares; Effect of Exercise
Promptly after the receipt of the notice of exercise of the Exchange Right, together with such
documents and instruments of transfer required by Section 3.5 (and payment of taxes, if any payable
as contemplated by Section 3.8 or evidence thereof), the Trustee shall notify Lululemon and
Exchangeco of its receipt of the same, which notice to Lululemon and Exchangeco shall constitute
exercise of the Exchange Right by the Trustee on behalf of the holder of such Exchangeable Shares,
and Lululemon shall promptly thereafter deliver or cause to be delivered to the Trustee (which
delivery may be in the form of a certificate or in book-entry form through the direct registration
system), for delivery to the Beneficiary of such Exchangeable Shares (or to such other persons, if
any, properly designated by such Beneficiary) the number of Lululemon Common Shares issuable in
connection with the exercise of the Exchange Right, and on the applicable payment date cheques for
the balance, if any, of the total purchase price therefor without interest (but less any amounts
withheld pursuant to Section 3.13); provided, however, that no such delivery shall be made unless
and until the Beneficiary requesting the same shall have paid (or provided evidence satisfactory to
the Trustee, Exchangeco, and Lululemon of the payment of) the taxes (if any) payable as
contemplated by Section 3.8 of this Agreement. Immediately upon the giving of notice by the Trustee
to Lululemon and Exchangeco of the exercise of the Exchange Right as provided in this Section 3.6,
the closing of the transaction of purchase and sale contemplated by the Exchange Right shall be
deemed to have occurred and the holder of such Exchangeable Shares shall be deemed to have
transferred to Lululemon, all of such holders right, title and interest in and to such
Exchangeable Shares and the related interest in the Trust Estate and shall cease to be a holder of
such Exchangeable Shares and shall not be entitled to exercise any of the rights of a holder in
respect thereof, other than the right to receive his proportionate part of the total purchase price
therefor, unless the requisite number of Lululemon Common Shares is not allotted, issued and
delivered by Lululemon, to the Trustee within five Business Days of the date of the giving of such
notice by the Trustee or the balance of the purchase price, if any, is not paid by Lululemon, on
the applicable payment date therefor, in which case the rights of the Beneficiary shall remain
unaffected until such Lululemon Common Shares are so allotted, issued and delivered, and the
balance of the purchase price, if any, has been paid, by Lululemon. Upon delivery by Lululemon to
the Trustee of such Lululemon Common Shares, and the balance of the purchase price, if any, the
Trustee shall deliver such Lululemon Common Shares to such Beneficiary (or to such other persons,
if any, properly designated by such Beneficiary), either in the form of a certificate or in
book-entry form through the direct registration system. Concurrently with such Beneficiary ceasing
to be a holder of Exchangeable Shares, the Beneficiary shall be considered and deemed for all
purposes to be the holder of the Lululemon Common Shares delivered to it pursuant to the Exchange
Right.
7
3.7 Exercise of Exchange Right Subsequent to Retraction
In the event that a Beneficiary has exercised its right under Article 6 of the Exchangeable Share
Provisions to require Exchangeco to redeem any or all of the Exchangeable Shares held by the
Beneficiary (the
Retracted Shares
) and is notified by Exchangeco pursuant to Section 6.6 of the
Exchangeable Share Provisions that Exchangeco will not be permitted as a result of solvency
requirements of applicable law to redeem all such Retracted Shares, and provided that Callco shall
not have exercised the Retraction Call Right with respect to the Retracted Shares and that the
Beneficiary has not revoked the retraction request delivered by the Beneficiary to Exchangeco
pursuant to Section 6.1 of the Exchangeable Share Provisions and provided further that the Trustee
has received written notice of same from Exchangeco or Lululemon (which, in such circumstances,
Lululemon covenants to provide or cause to be provided to the Trustee), the retraction request will
constitute and will be deemed to constitute notice from the Beneficiary to the Trustee instructing
the Trustee to exercise the Exchange Right with respect to those Retracted Shares that Exchangeco
is unable to redeem. In any such event, Exchangeco hereby agrees with the Trustee and in favour of
the Beneficiary promptly to forward or cause to be forwarded to the Trustee all relevant materials
delivered by the Beneficiary to Exchangeco or to the transfer agent of the Exchangeable Shares
(including without limitation, a copy of the retraction request delivered pursuant to Section 6.1
of the Exchangeable Share Provisions) in connection with such proposed redemption of the Retracted
Shares and the Trustee will thereupon exercise the Exchange Right with respect to the Retracted
Shares that Exchangeco is not permitted to redeem and will require Lululemon to purchase such
shares in accordance with the provisions of this Article 3.
3.8 Stamp or Other Transfer Taxes
Upon any sale of Exchangeable Shares to Lululemon pursuant to the Exchange Right or the Automatic
Exchange Rights, the Lululemon Common Shares to be delivered in connection with the payment of the
total purchase price therefor shall be issued in the name of the Beneficiary of the Exchangeable
Shares so sold or in such names as such Beneficiary may otherwise direct in writing without charge
to the holder of the Exchangeable Shares so sold; provided, however, that such Beneficiary (a)
shall pay (and none of Lululemon, Exchangeco or the Trustee shall be required to pay) any
documentary, stamp, transfer or other taxes that may be payable in respect of any transfer involved
in the issuance or delivery of such shares to a person other than such Beneficiary or (b) shall
have evidenced to the satisfaction of the Trustee, Lululemon and Exchangeco that such taxes, if
any, have been paid.
3.9 Notice of Insolvency Event
As soon as practicable following the occurrence of an Insolvency Event or any event that with the
giving of notice or the passage of time or both would be an Insolvency Event, Exchangeco and
Lululemon shall give written notice thereof to the Trustee. As soon as practicable following the
receipt of notice from Exchangeco and Lululemon of the occurrence of an Insolvency Event, or upon
the Trustee becoming aware of an Insolvency Event, the Trustee will mail to each Beneficiary, at
the expense of Lululemon (such funds to be received in advance), a notice of such Insolvency Event
in the form provided by Lululemon, which notice shall contain a brief statement of the rights of
the Beneficiaries with respect to the Exchange Right.
8
3.10 Qualification of Lululemon Common Shares
Lululemon covenants that if any Lululemon Common Shares (or other shares or securities into which
Lululemon Common Shares may be reclassified or changed as contemplated by section 2.7 of the
Support Agreement) to be issued and delivered pursuant to the Exchange Right or the Automatic
Exchange Rights require registration or qualification with or approval of or the filing of any
document, including any prospectus or similar document, or the taking of any proceeding with or the
obtaining of any order, ruling or consent from any governmental or regulatory authority under any
Canadian or United States federal, provincial or state law or regulation or pursuant to the rules
and regulations of any regulatory authority or the fulfillment of any other Canadian or United
States federal, provincial or state legal requirement before such shares may be issued and
delivered by Lululemon, to the initial holder thereof or in order that such shares (or such other
shares or securities) may be freely traded thereafter (other than any restrictions of general
application on transfer by reason of a holder being a control person for purposes of Canadian
provincial securities law or an affiliate of Lululemon for purposes of United States federal or
state securities law), Lululemon will in good faith expeditiously take all such actions and do all
such things as are necessary or desirable to cause such Lululemon Common Shares (or such other
shares or securities) to be and remain duly registered, qualified or approved under United States
or Canadian law, as the case may be; provided, however, that Lululemons obligations in this
Section 3.10 shall be limited to the obligations set forth in Section 6.4 of the Reorganization
Agreement. Lululemon will in good faith expeditiously take all such actions and do all such things
as are reasonably necessary or desirable to cause all Lululemon Common Shares (or such other shares
or securities) to be delivered pursuant to the Exchange Right or the Automatic Exchange Rights to
be listed, quoted or posted for trading on all stock exchanges and quotation systems on which
outstanding Lululemon Common Shares (or such other shares or securities) have been listed by
Lululemon and remain listed and are quoted or posted for trading at such time.
3.11 Lululemon Common Shares
Lululemon hereby represents, warrants and covenants that the Lululemon Common Shares issuable as
described herein will be duly authorized and validly issued as fully paid and non-assessable and
shall be free and clear of any lien, claim or encumbrance, other than those encumbrances placed by
applicable securities law or otherwise contractually agreed to by the holder thereof.
3.12 Automatic Exchange on Liquidation of Lululemon
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(a)
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Lululemon will give the Trustee written notice of each of the following events
at the time set forth below:
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(i)
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in the event of any determination by the board of directors of
Lululemon to institute voluntary liquidation, dissolution or winding-up
proceedings with respect to Lululemon or to effect any other distribution of
assets of Lululemon among its shareholders for the purpose of winding up its
affairs, at least 60 days prior to the proposed effective date of such
liquidation, dissolution, winding-up or other distribution; and
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(ii)
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as soon as practicable following the earlier of (A) receipt by
Lululemon of notice of, and (B) Lululemon otherwise becoming aware of, any
threatened or instituted claim, suit, petition or other proceedings with
respect to the involuntary liquidation, dissolution or winding-up of Lululemon
or to effect any other distribution of assets of Lululemon among its
shareholders for the purpose of winding up its affairs, in each case where
Lululemon has failed to contest in good faith any such proceeding commenced in
respect of Lululemon within 30 days of becoming aware thereof.
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(b)
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As soon as practicable following receipt by the Trustee from Lululemon of
notice of any event (a
Liquidation Event
) contemplated by Section 3.12(a)(i) or
3.12(a)(ii) above, the Trustee will give notice thereof to the Beneficiaries. Such
notice shall be provided to the Trustee by Lululemon and shall include a brief
description of the automatic exchange of Exchangeable Shares for Lululemon Common
Shares provided for in Section 3.12(c).
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(c)
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In order that the Beneficiaries will be able to participate on a
pro rata
basis
with the holders of Lululemon Common Shares in the distribution of assets of Lululemon
in connection with a Liquidation Event, on the fifth Business Day prior to the
effective date (the
Liquidation Event Effective Date
) of a Liquidation Event all of
the then outstanding Exchangeable Shares shall be automatically exchanged for Lululemon
Common Shares. To effect such automatic exchange, Lululemon shall purchase on the fifth
Business Day prior to the Liquidation Event Effective Date each Exchangeable Share then
outstanding and held by Beneficiaries, and each Beneficiary shall sell the Exchangeable
Shares held by it at such time, for a purchase price per share equal to (i) the Current
Market Price of a Lululemon Common Share on the fifth Business Day prior to the
Liquidation Event Effective Date, which shall be satisfied in full by Lululemon issuing
to the Beneficiary one Lululemon Common Share, and (ii) to the extent not paid by
Exchangeco, an additional amount equal to and in satisfaction of the full amount of all
declared and unpaid dividends on each such Exchangeable Share held by such holder on
any dividend record date which occurred prior to the date of the exchange. Lululemon
shall provide the Trustee with an Officers Certificate in connection with each
automatic exchange setting forth the calculation of the purchase price for each
Exchangeable Share.
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(d)
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On the fifth Business Day prior to the Liquidation Event Effective Date, the
closing of the transaction of purchase and sale contemplated by the automatic exchange
of Exchangeable Shares for Lululemon Common Shares shall be deemed to have occurred,
and each Beneficiary shall be deemed to have transferred to Lululemon, all of the
Beneficiarys right, title and interest in and to such Beneficiarys Exchangeable
Shares and the related interest in the Trust Estate, any right of each such Beneficiary
to receive declared and unpaid dividends from Exchangeco shall be deemed to be
satisfied and discharged and each such Beneficiary shall cease to be a holder of such
Exchangeable Shares and Lululemon shall deliver to the Beneficiary the Lululemon Common
Shares
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issuable upon the automatic exchange of Exchangeable Shares for Lululemon Common
Shares and on the applicable payment date shall deliver to the Trustee for delivery
to the Beneficiary a cheque for the balance, if any, of the total purchase price for
such Exchangeable Shares without interest but less any amounts withheld pursuant to
Section 3.13. Concurrently with such Beneficiary ceasing to be a holder of
Exchangeable Shares, the Beneficiary shall be considered and deemed for all purposes
to be the holder of the Lululemon Common Shares issued pursuant to the automatic
exchange of Exchangeable Shares for Lululemon Common Shares and the certificates, if
any, held by the Beneficiary previously representing the Exchangeable Shares
exchanged by the Beneficiary with Lululemon pursuant to such automatic exchange
shall thereafter be deemed to represent Lululemon Common Shares delivered to the
Beneficiary by Lululemon pursuant to such automatic exchange. Upon the request of a
Beneficiary and the surrender by the Beneficiary of Exchangeable Share certificates,
if any, deemed to represent Lululemon Common Shares, duly endorsed in blank and
accompanied by such instruments of transfer as Lululemon may reasonably require,
Lululemon shall deliver or cause to be delivered to the Beneficiary the Lululemon
Common Shares of which the Beneficiary is the holder (which delivery may be in the
form of a certificate or, in whole or in part, in book entry form through the direct
registration system).
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3.13 Withholding Rights
Lululemon, Exchangeco and the Trustee shall be entitled to deduct and withhold from any dividend or
any consideration otherwise payable under this Agreement to any holder of Exchangeable Shares or
Lululemon Common Shares such amounts as Lululemon, Exchangeco or the Trustee is required or
permitted to deduct and withhold with respect to such payment (i) under the
Income Tax Ac
t (Canada)
(the
ITA
), the United States Internal Revenue Code of 1986 or any provision of provincial, state,
local or foreign tax law, in each case as amended or succeeded or (ii) required or permitted in
order to comply with section 116 of the ITA or any corresponding provisions of provincial laws. The
Trustee may act on the advice of counsel with respect to such matters. To the extent that amounts
are so withheld, such withheld amounts shall be treated for all purposes as having been paid to the
holder of the shares in respect of which such deduction and withholding was made, provided that
such withheld amounts are actually remitted to the appropriate taxing authority. To the extent that
the amount so required to be deducted or withheld from any payment to a holder exceeds the cash
portion of the consideration otherwise payable to the holder, Lululemon, Exchangeco and the Trustee
are hereby authorized to sell or otherwise dispose of such portion of the consideration as is
necessary to provide sufficient funds to Lululemon, Exchangeco or the Trustee, as the case may be,
to enable it to comply with such deduction or withholding requirement and Lululemon, Exchangeco or
the Trustee shall notify the holder thereof and remit to such holder any unapplied balance of the
net proceeds of such sale. Lululemon represents and warrants that, based upon facts currently
known to it, it has no current intention, as at the date of this Agreement, to deduct or withhold
from any dividend paid to holders of Exchangeable Shares any amounts under the United States
Internal Revenue Code of 1986.
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ARTICLE 4
CONCERNING THE TRUSTEE
4.1 Powers and Duties of the Trustee
The rights, powers, duties and authorities of the Trustee under this Agreement, in its capacity as
Trustee of the Trust, shall include:
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(a)
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receiving the grant of the Exchange Right and the Automatic Exchange Rights
from Lululemon as Trustee for and on behalf of the Beneficiaries in accordance with the
provisions of this Agreement;
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(b)
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exercising the Exchange Right and enforcing the benefit of the Automatic
Exchange Rights, in each case in accordance with the provisions of this Agreement, and
in connection therewith receiving from Beneficiaries Exchangeable Shares and other
requisite documents and distributing to such Beneficiaries Lululemon Common Shares and
cheques, if any, to which such Beneficiaries are entitled upon the exercise of the
Exchange Right or pursuant to the Automatic Exchange Rights, as the case may be;
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(c)
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holding title to the Trust Estate;
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(d)
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investing any moneys forming, from time to time, a part of the Trust Estate as
provided in this Agreement;
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(e)
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taking action on its own initiative or at the direction of a Beneficiary or
Beneficiaries to enforce the obligations of Lululemon, and Exchangeco under this
Agreement; and
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(f)
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taking such other actions and doing such other things as are specifically
provided in this Agreement.
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In the exercise of such rights, powers, duties and authorities the Trustee shall have (and is
granted) such incidental and additional rights, powers, duties and authority not in conflict with
any of the provisions of this Agreement as the Trustee, acting in good faith and in the reasonable
exercise of its discretion, may deem necessary, appropriate or desirable to effect the purpose of
the Trust. Any exercise of such discretionary rights, powers, duties and authorities by the Trustee
shall be final, conclusive and binding upon all persons.
The Trustee in exercising its rights, powers, duties and authorities hereunder shall act honestly
and in good faith and with a view to the best interests of the Beneficiaries and shall exercise the
care, diligence and skill that a reasonably prudent trustee would exercise in comparable
circumstances.
The Trustee shall not be bound to give notice or do or take any act, action or proceeding by virtue
of the powers conferred on it hereby unless and until it shall be specifically required to do so
under the terms hereof; nor shall the Trustee be required to take any notice of, or to do, or to
take any act, action or proceeding as a result of any default or breach of any provision hereunder,
12
unless and until notified in writing of such default or breach, which notices shall distinctly
specify the default or breach desired to be brought to the attention of the Trustee, and in the
absence of such notice the Trustee may for all purposes of this Agreement conclusively assume that
no default or breach has been made in the observance or performance of any of the representations,
warranties, covenants, agreements or conditions contained herein.
4.2 No Conflict of Interest
The Trustee represents to Lululemon and Exchangeco that at the date of execution and delivery of
this Agreement there exists no material conflict of interest in the role of the Trustee as a
fiduciary hereunder and the role of the Trustee in any other capacity. The Trustee shall, within 90
days after it becomes aware that such material conflict of interest exists, either eliminate such
material conflict of interest or resign in the manner and with the effect specified in Article 7.
If, notwithstanding the foregoing provisions of this Section 4.2, the Trustee has such a material
conflict of interest, the validity and enforceability of this Agreement shall not be affected in
any manner whatsoever by reason only of the existence of such material conflict of interest. If the
Trustee contravenes the foregoing provisions of this Section 4.2, any interested party may apply to
a court of competent jurisdiction in British Columbia for an order that the Trustee be replaced as
Trustee hereunder.
4.3 Dealings with Transfer Agents, Registrars, etc.
Lululemon and Exchangeco irrevocably authorize the Trustee, from time to time, to:
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(a)
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consult, communicate and otherwise deal with the respective registrars and
transfer agents, and with any such subsequent registrar or transfer agent, of the
Exchangeable Shares and Lululemon Common Shares; and
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(b)
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requisition, from time to time, (i) from any such registrar or transfer agent
any information readily available from the records maintained by it which the Trustee
may reasonably require for the discharge of its duties and responsibilities under this
Agreement and (ii) from the transfer agent of Lululemon Common Shares, and any
subsequent transfer agent of such shares, the share certificates issuable upon the
exercise from time to time of the Exchange Right and pursuant to the Automatic Exchange
Rights.
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Lululemon and Exchangeco irrevocably authorize their respective registrars and transfer agents to
comply with all such requests.
4.4 Books and Records
The Trustee shall keep available for inspection by Lululemon and Exchangeco at the Trustees
principal office in Calgary correct and complete books and records of account relating to the Trust
created by this Agreement, including without limitation, all relevant data relating to mailings and
instructions to and from Beneficiaries and all transactions pursuant to the Exchange Right and the
Automatic Exchange Rights. On or before February 15, 2008, and on or before February
15
th
in every year thereafter the Trustee shall transmit to Lululemon and Exchangeco a
brief report, dated as of January 31
st
of that year, with respect to:
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(a)
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the property and funds comprising the Trust Estate as of that date;
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(b)
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the number of exercises of the Exchange Right, if any, and the aggregate number
of Exchangeable Shares received by the Trustee on behalf of Beneficiaries in
consideration of the delivery by Lululemon of Lululemon Common Shares in connection
with the Exchange Right, during the fiscal year ended on such January 31
st
;
and
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(c)
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any action taken by the Trustee in the performance of its duties under this
Agreement which it had not previously reported and which, in the Trustees opinion,
materially affects the Trust Estate.
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4.5 Income Tax Returns and Reports
The Trustee shall, to the extent necessary, prepare and file on behalf of the Trust appropriate
United States and Canadian income tax returns and any other returns or reports as may be required
by applicable law or pursuant to the rules and regulations of any securities exchange or other
trading system through which the Exchangeable Shares are traded. In connection therewith, the
Trustee may obtain the advice and assistance of such experts or advisors as the Trustee considers
necessary or advisable (who may be experts or advisors to Lululemon or Exchangeco). If requested by
the Trustee, Lululemon or Exchangeco shall retain qualified experts or advisors for the purpose of
providing such tax advice or assistance.
4.6 Indemnification Prior to Certain Actions by Trustee
The Trustee shall exercise any or all of the rights, duties, powers or authorities vested in it by
this Agreement at the request, order or direction of any Beneficiary upon such Beneficiary
furnishing to the Trustee reasonable funding, security or indemnity against the costs, expenses and
liabilities which may be incurred by the Trustee therein or thereby, provided that no Beneficiary
shall be obligated to furnish to the Trustee any such security or indemnity in connection with the
exercise by the Trustee of any of its rights, duties, powers and authorities with respect to the
Exchange Right pursuant to Article 3, subject to Section 4.15, and with respect to the Automatic
Exchange Rights pursuant to Article 3.
None of the provisions contained in this Agreement shall require the Trustee to expend or risk its
own funds or otherwise incur financial liability in the exercise of any of its rights, powers,
duties, or authorities unless funded, given security and indemnified as aforesaid.
4.7 Action of Beneficiaries
No Beneficiary shall have the right to institute any action, suit or proceeding or to exercise any
other remedy authorized by this Agreement for the purpose of enforcing any of its rights or for the
execution of any trust or power hereunder unless the Beneficiary has requested the Trustee to take
or institute such action, suit or proceeding and furnished the Trustee with the funding, security
or indemnity referred to in Section 4.6 and the Trustee shall have failed to act within a
reasonable time thereafter. In such case, but not otherwise, the Beneficiary shall be entitled to
take proceedings in any court of competent jurisdiction such as the Trustee might have taken; it
being understood and intended that no one or more Beneficiaries shall have any right in any
14
manner whatsoever to affect, disturb or prejudice the rights hereby created by any such action, or
to enforce any right hereunder or the Exchange Rights or the Automatic Exchange Rights except
subject to the conditions and in the manner herein provided, and that all powers and trusts
hereunder shall be exercised and all proceedings at law shall be instituted, had and maintained by
the Trustee, except only as herein provided, and in any event for the equal benefit of all
Beneficiaries.
4.8 Reliance Upon Declarations
The Trustee shall not be considered to be in contravention of any of its rights, powers, duties and
authorities hereunder if, when required, it acts and relies in good faith upon statutory
declarations, certificates, opinions or reports furnished pursuant to the provisions hereof or
required by the Trustee to be furnished to it in the exercise of its rights, powers, duties and
authorities hereunder if such statutory declarations, certificates, opinions or reports comply with
the provisions of Section 4.9, if applicable, and with any other applicable provisions of this
Agreement.
4.9 Evidence and Authority to Trustee
Lululemon and/or Exchangeco shall furnish to the Trustee evidence of compliance with the conditions
provided for in this Agreement relating to any action or step required or permitted to be taken by
Lululemon, and/or Exchangeco or the Trustee under this Agreement or as a result of any obligation
imposed under this Agreement, including, without limitation, in respect of the Exchange Right or
the Automatic Exchange Rights and the taking of any other action to be taken by the Trustee at the
request of or on the application of Lululemon and/or Exchangeco promptly if and when:
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(a)
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such evidence is required by any other section of this Agreement to be
furnished to the Trustee in accordance with the terms of this Section 4.9; or
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(b)
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the Trustee, in the exercise of its rights, powers, duties and authorities
under this Agreement, gives Lululemon and/or Exchangeco written notice requiring it to
furnish such evidence in relation to any particular action or obligation specified in
such notice.
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Such evidence shall consist of an Officers Certificate of Lululemon and/or Exchangeco or a
statutory declaration or a certificate made by persons entitled to sign an Officers Certificate
stating that any such condition has been complied with in accordance with the terms of this
Agreement.
Whenever such evidence relates to a matter other than the Exchange Right or the Automatic Exchange
Rights or the taking of any other action to be taken by the Trustee at the request or on the
application of Lululemon and/or Exchangeco, and except as otherwise specifically provided herein,
such evidence may consist of a report or opinion of any solicitor, attorney, auditor, accountant,
appraiser, valuer, engineer or other expert or any other person whose qualifications give authority
to a statement made by him, provided that if such report or opinion is furnished by
15
a director, officer or employee of Lululemon and/or Exchangeco it shall be in the form of an
Officers Certificate or a statutory declaration.
Each statutory declaration, Officers Certificate, opinion or report furnished to the Trustee as
evidence of compliance with a condition provided for in this Agreement shall include a statement by
the person giving the evidence:
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(c)
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declaring that he/she has read and understands the provisions of this Agreement
relating to the condition in question;
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(d)
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describing the nature and scope of the examination or investigation upon which
he/she based the statutory declaration, certificate, statement or opinion; and
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(e)
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declaring that he/she has made such examination or investigation as he/she
believes is necessary to enable him to make the statements or give the opinions
contained or expressed therein.
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4.10 Experts, Advisers and Agents
The Trustee may:
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(a)
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in relation to this Agreement act and rely on the opinion or advice of or
information obtained from any solicitor, attorney, auditor, accountant, appraiser,
valuer, engineer or other expert, whether retained by the Trustee or by Lululemon
and/or Exchangeco or otherwise, and may retain or employ such assistants as may be
necessary to the proper discharge of its powers and duties and determination of its
rights hereunder and may pay proper and reasonable compensation for all such legal and
other advice or assistance as aforesaid; and
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(b)
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employ such agents and other assistants as it may reasonably require for the
proper determination and discharge of its powers and duties hereunder, and may pay
reasonable remuneration for all services performed for it (and shall be entitled to
receive reasonable remuneration for all services performed by it) in the discharge of
the trusts hereof and compensation for all disbursements, costs and expenses made or
incurred by it in the discharge of its duties hereunder and in the management of the
Trust.
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4.11 Investment of Moneys Held by Trustee
Unless otherwise provided in this Agreement, any moneys held by or on behalf of the Trustee which
under the terms of this Agreement may or ought to be invested or which may be on deposit with the
Trustee or which may be in the hands of the Trustee may be invested and reinvested in the name or
under the control of the Trustee, in trust for Exchangeco, in securities in which, under the laws
of the Province of British Columbia, trustees are authorized to invest trust moneys, provided that
such securities are stated to mature within two years after their purchase by the Trustee, and the
Trustee shall so invest such moneys on the written direction of Exchangeco. Pending the investment
of any moneys as hereinbefore provided, such moneys may be deposited in the name of the Trustee in
any chartered bank in Canada or, with the consent of
16
Exchangeco, in the deposit department of the Trustee or any other loan or trust company authorized
to accept deposits under the laws of Canada or any province thereof at the rate of interest then
current on similar deposits. Any income earned in respect of the Trust Estate which is not used by
the Trustee as provided in this Agreement shall be accumulated by the Trustee and added to the
capital of the Trust Estate.
4.12 Trustee Not Required to Give Security
The Trustee shall not be required to give any bond or security in respect of the execution of the
trusts, rights, duties, powers and authorities of this Agreement.
4.13 Trustee Not Bound to Act on Request
Except as in this Agreement otherwise specifically provided, the Trustee shall not be bound to act
in accordance with any direction or request of Lululemon and/or Exchangeco or of the directors
thereof until a duly authenticated copy of the instrument or resolution containing such direction
or request shall have been delivered to the Trustee, and the Trustee shall be empowered to act upon
any such copy purporting to be authenticated and believed by the Trustee to be genuine.
4.14 Authority to Carry on Business
The Trustee represents to Lululemon and Exchangeco that at the date of execution and delivery by it
of this Agreement it is authorized to carry on the business of a trust company in each of the
Provinces of Canada but if, notwithstanding the provisions of this Section 4.14, it ceases to be so
authorized to carry on business, the validity and enforceability of this Agreement and the Exchange
Right and the Automatic Exchange Rights shall not be affected in any manner whatsoever by reason
only of such event but the Trustee shall, within 90 days after ceasing to be authorized to carry on
the business of a trust company in any Province of Canada, either become so authorized or resign in
the manner and with the effect specified in Article 7.
4.15 Conflicting Claims
If conflicting claims or demands are made or asserted with respect to any interest of any
Beneficiary in any Exchangeable Shares, including any disagreement between the heirs,
representatives, successors or assigns succeeding to all or any part of the interest of any
Beneficiary in any Exchangeable Shares, resulting in conflicting claims or demands being made in
connection with such interest, then the Trustee shall be entitled, at its sole discretion, to
refuse to recognize or to comply with any such claims or demands. In so refusing, the Trustee may
elect not to exercise any Exchange Rights or Automatic Exchange Rights subject to such conflicting
claims or demands and, in so doing, the Trustee shall not be or become liable to any person on
account of such election or its failure or refusal to comply with any such conflicting claims or
demands. The Trustee shall be entitled to continue to refrain from acting and to refuse to act
until:
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(a)
|
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the rights of all adverse claimants with respect to the Exchange Right or
Automatic Exchange Rights subject to such conflicting claims or demands have been
adjudicated by a final judgment of a court of competent jurisdiction; or
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17
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(b)
|
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all differences with respect to the Exchange Right or Automatic Exchange Rights
subject to such conflicting claims or demands have been conclusively settled by a valid
written agreement binding on all such adverse claimants, and the Trustee shall have
been furnished with an executed copy of such agreement certified to be in full force
and effect.
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If the Trustee elects to recognize any claim or comply with any demand made by any such adverse
claimant, it may in its discretion require such claimant to furnish such surety bond or other
security satisfactory to the Trustee as it shall deem appropriate to fully indemnify it as between
all conflicting claims or demands.
4.16 Acceptance of Trust
The Trustee hereby accepts the Trust created and provided for by and in this Agreement and agrees
to perform the same upon the terms and conditions herein set forth and to hold all rights,
privileges and benefits conferred hereby and by law in trust for the various persons who shall from
time to time be Beneficiaries, subject to all the terms and conditions herein set forth.
ARTICLE 5
COMPENSATION
5.1 Fees and Expenses of the Trustee
Lululemon and Exchangeco jointly and severally agree to pay the Trustee reasonable compensation for
all of the services rendered by it under this Agreement and will reimburse the Trustee for all
reasonable expenses (including, but not limited to, taxes other than taxes based on the net income
of the Trustee, fees paid to legal counsel and other experts and advisors and travel expenses) and
disbursements, including the cost and expense of any suit or litigation of any character and any
proceedings before any governmental agency reasonably incurred by the Trustee in connection with
its duties under this Agreement; provided that Lululemon and Exchangeco shall have no obligation to
reimburse the Trustee for any expenses or disbursements paid, incurred or suffered by the Trustee
in any suit or litigation in which the Trustee is determined to have acted in bad faith or with
negligence, recklessness or wilful misconduct.
ARTICLE 6
INDEMNIFICATION AND LIMITATION OF LIABILITY
6.1 Indemnification of the Trustee
Lululemon and Exchangeco jointly and severally agree to indemnify and hold harmless the Trustee and
each of its directors, officers, employees and agents appointed and acting in accordance with this
Agreement (collectively, the
Indemnified Parties
) against all claims, losses, damages, reasonable
costs, penalties, fines and reasonable expenses (including reasonable expenses of the Trustees
legal counsel) which, without fraud, negligence, recklessness, wilful misconduct or bad faith on
the part of such Indemnified Party, may be paid, incurred or suffered by the Indemnified Party by
reason or as a result of the Trustees acceptance or administration of the Trust, its compliance
with its duties set forth in this Agreement, or any written or oral instruction delivered to the
Trustee by Lululemon or Exchangeco pursuant hereto.
18
In no case shall Lululemon or Exchangeco be liable under this indemnity for any claim against any
of the Indemnified Parties unless Lululemon and Exchangeco shall be notified by the Trustee of the
written assertion of a claim or of any action commenced against the Indemnified Parties, promptly
after any of the Indemnified Parties shall have received any such written assertion of a claim or
shall have been served with a summons or other first legal process giving information as to the
nature and basis of the claim. Subject to clause (ii) below, Lululemon and Exchangeco shall be
entitled to participate at their own expense in the defence and, if Lululemon and Exchangeco so
elect at any time after receipt of such notice, any of them may assume the defence of any suit
brought to enforce any such claim. The Trustee shall have the right to employ separate counsel in
any such suit and participate in the defence thereof, but the fees and expenses of such counsel
shall be at the expense of the Trustee unless: (i) the employment of such counsel has been
authorized by Lululemon or Exchangeco; or (ii) the named parties to any such suit include both the
Trustee and Lululemon or Exchangeco and the Trustee shall have been advised by counsel acceptable
to Lululemon or Exchangeco that there may be one or more legal defences available to the Trustee
that are different from or in addition to those available to Lululemon or Exchangeco and that, in
the judgment of such counsel, would present a conflict of interest were a joint representation to
be undertaken (in which case Lululemon and Exchangeco shall not have the right to assume the
defence of such suit on behalf of the Trustee but shall be liable to pay the reasonable fees and
expenses of counsel for the Trustee). This indemnity shall survive the termination of this
Agreement and the resignation or removal of the Trustee.
6.2 Limitation of Liability
The Trustee shall not be held liable for any loss which may occur by reason of depreciation of the
value of any part of the Trust Estate or any loss incurred on any investment of funds pursuant to
this Agreement, except to the extent that such loss is attributable to the fraud, negligence,
recklessness, wilful misconduct or bad faith on the part of the Trustee.
ARTICLE 7
CHANGE OF TRUSTEE
7.1 Resignation
The Trustee, or any Trustee hereafter appointed, may at any time resign by giving written notice of
such resignation to Lululemon and Exchangeco specifying the date on which it desires to resign,
provided that such notice shall not be given less than sixty (60) days before such desired
resignation date unless Lululemon and Exchangeco otherwise agree and provided further that such
resignation shall not take effect until the date of the appointment of a successor trustee and the
acceptance of such appointment by the successor trustee. Upon receiving such notice of resignation,
Lululemon and Exchangeco shall promptly appoint a successor trustee, which shall be a corporation
organized and existing under the laws of Canada and authorized to carry on the business of a trust
company in all provinces of Canada, by written instrument in duplicate, one copy of which shall be
delivered to the resigning trustee and one copy to the successor trustee. Failing the appointment
and acceptance of a successor trustee, a successor trustee may be appointed by order of a court of
competent jurisdiction upon application of one or more of the parties to this Agreement. If the
retiring trustee is the party initiating an application for the appointment of a successor trustee
by order of a court of competent jurisdiction, Lululemon and
19
Exchangeco shall be jointly and severally liable to reimburse the retiring trustee for its legal
costs and expenses in connection with same.
7.2 Removal
The Trustee, or any trustee hereafter appointed, may (provided a successor trustee is appointed) be
removed at any time on not less than 30 days prior notice by written instrument executed by
Lululemon and Exchangeco, in duplicate, one copy of which shall be delivered to the trustee so
removed and one copy to the successor trustee.
7.3 Successor Trustee
Any successor trustee appointed as provided under this Agreement shall execute, acknowledge and
deliver to Lululemon and Exchangeco and to its predecessor trustee an instrument accepting such
appointment. Thereupon the resignation or removal of the predecessor trustee shall become effective
and such successor trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, duties and obligations of its predecessor under this Agreement, with the
like effect as if originally named as trustee in this Agreement. However, on the written request of
Lululemon and Exchangeco or of the successor trustee, the trustee ceasing to act shall, upon
payment of any amounts then due it pursuant to the provisions of this Agreement, execute and
deliver an instrument transferring to such successor trustee all the rights and powers of the
trustee so ceasing to act. Upon the request of any such successor trustee, Lululemon and Exchangeco
and such predecessor trustee shall execute any and all instruments in writing for more fully and
certainly vesting in and confirming to such successor trustee all such rights and powers.
7.4 Notice of Successor Trustee
Upon acceptance of appointment by a successor trustee as provided herein, Lululemon and Exchangeco
shall cause to be mailed notice of the succession of such trustee hereunder to each Beneficiary
specified in a List. If Lululemon or Exchangeco shall fail to cause such notice to be mailed within
10 days after acceptance of appointment by the successor trustee, the successor trustee shall cause
such notice to be mailed at the expense of Lululemon and Exchangeco.
ARTICLE 8
LULULEMON SUCCESSORS
8.1 Certain Requirements in Respect of Combination, etc.
Lululemon shall not consummate any transaction (whether by way of reconstruction, reorganization,
consolidation, merger, transfer, sale, lease or otherwise) whereby all or substantially all of its
undertaking, property and assets would become the property of any other person or, in the case of a
merger, of the continuing corporation resulting therefrom unless, but may do so if:
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(a)
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such other person or continuing corporation (herein called the Lululemon
Successor
), by operation of law, becomes, without more, bound by the terms and
provisions of this Agreement or, if not so bound, executes, prior to or
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20
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contemporaneously with the consummation of such transaction, a trust agreement
supplemental hereto and such other instruments (if any) as are satisfactory to the
Trustee, acting reasonably, and in the opinion of legal counsel to the Trustee are
reasonably necessary or advisable to evidence the assumption by the Lululemon
Successor of liability for all moneys payable and property deliverable hereunder and
the covenant of such Lululemon Successor to pay and deliver or cause to be delivered
the same and its agreement to observe and perform all the covenants and obligations
of Lululemon under this Agreement; and
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(b)
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such transaction shall, to the satisfaction of the Trustee, acting reasonably,
and in the opinion of legal counsel to the Trustee, be upon such terms and conditions
as substantially to preserve and not to impair in any material respect any of the
rights, duties, powers and authorities of the Trustee or of the Beneficiaries
hereunder.
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8.2 Vesting of Powers in Successor
Whenever the conditions of Section 8.1 have been duly observed and performed, the Trustee,
Lululemon Successor and Exchangeco shall, if required by Section 8.1, execute and deliver the
supplemental trust agreement provided for in Article 9 and thereupon Lululemon Successor shall
possess and from time to time may exercise each and every right and power of Lululemon under this
Agreement in the name of Lululemon or otherwise and any act or proceeding by any provision of this
Agreement required to be done or performed by the board of directors of Lululemon or any officers
of Lululemon may be done and performed with like force and effect by the directors or officers of
such Lululemon Successor.
8.3 Wholly-Owned Subsidiaries
Subject to section 2.13 of the Support Agreement, nothing herein shall be construed as preventing
the amalgamation or merger of any wholly-owned direct or indirect subsidiary of Lululemon with or
into Lululemon or the winding-up, liquidation or dissolution of any wholly-owned subsidiary of
Lululemon provided that all of the assets of such subsidiary are transferred to Lululemon or
another wholly-owned direct or indirect subsidiary of Lululemon and any such transactions are
expressly permitted by this Article 8.
ARTICLE 9
AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS
9.1 Amendments, Modifications, etc.
This Agreement may not be amended or modified except by an agreement in writing executed by
Lululemon, Exchangeco and the Trustee and approved by the Beneficiaries in accordance with Section
11.2 of the Exchangeable Share Provisions.
21
9.2 Ministerial Amendments
Notwithstanding the provisions of Section 9.1, the parties to this Agreement may in writing, at any
time and from time to time, without the approval of the Beneficiaries, amend or modify this
Agreement for the purposes of:
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(a)
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adding to the covenants of any or all parties hereto for the protection of the
Beneficiaries hereunder provided that the board of directors of each of Exchangeco and
Lululemon shall be of the good faith opinion that such additions will not be
prejudicial to the rights or interests of the Beneficiaries;
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(b)
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making such amendments or modifications not inconsistent with this Agreement as
may be necessary or desirable with respect to matters or questions which, in the good
faith opinion of the board of directors of each of Lululemon and Exchangeco and in the
opinion of the Trustee, having in mind the best interests of the Beneficiaries it may
be expedient to make, provided that such boards of directors and the Trustee, acting on
the advice of counsel, shall be of the opinion that such amendments and modifications
will not be prejudicial to the interests of the Beneficiaries; or
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(c)
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making such changes or corrections which, on the advice of counsel to
Lululemon, Exchangeco and the Trustee, are required for the purpose of curing or
correcting any ambiguity or defect or inconsistent provision or clerical omission or
mistake or manifest error, provided that the Trustee, acting on the advice of counsel,
and the board of directors of each of Lululemon and Exchangeco shall be of the opinion,
acting in good faith, that such changes or corrections will not be prejudicial to the
rights and interests of the Beneficiaries.
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9.3 Meeting to Consider Amendments
Exchangeco, at the request of Lululemon, shall call a meeting or meetings of the Beneficiaries for
the purpose of considering any proposed amendment or modification requiring approval pursuant
hereto. Any such meeting or meetings shall be called and held in accordance with the articles of
Exchangeco, the Exchangeable Share Provisions and all applicable laws.
9.4 Changes in Capital of Lululemon and Exchangeco
At all times after the occurrence of any event contemplated pursuant to section 2.7 or 2.8 of the
Support Agreement or otherwise, as a result of which the rights, privileges, restrictions or
conditions of either Lululemon Common Shares or the Exchangeable Shares or both are in any way
changed, this Agreement shall forthwith be amended and modified as necessary in order that it shall
apply with full force and effect,
mutatis mutandis
, to all new securities into which Lululemon
Common Shares or the Exchangeable Shares or both are so changed and the parties hereto shall
execute and deliver a supplemental trust agreement giving effect to and evidencing such necessary
amendments and modifications.
22
9.5 Execution of Supplemental Trust Agreements
No amendment to or modification or waiver of any of the provisions of this Agreement otherwise
permitted hereunder shall be effective unless made in writing and signed by all of the parties
hereto. From time to time, Lululemon and Exchangeco (when authorized by a resolution of their
respective board of directors) and the Trustee may, subject to the provisions of this Agreement,
and they shall, when so directed by the provisions of this Agreement, execute and deliver by their
proper officers, trust agreements or other instruments supplemental hereto, which thereafter shall
form part hereof, for any one or more of the following purposes:
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(a)
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evidencing the succession of Lululemon Successors and the covenants of and
obligations assumed by each such Lululemon Successor in accordance with the provisions
of Article 8 and the successors of any successor trustee in accordance with the
provisions of Article 7;
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(b)
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making any additions to, deletions from or alterations of the provisions of
this Agreement or the Exchange Right or the Automatic Exchange Rights which, in the
opinion of the Trustee, will not be prejudicial to the interests of the Beneficiaries
or are, in the opinion of counsel to the Trustee, necessary or advisable in order to
incorporate, reflect or comply with any legislation the provisions of which apply to
Lululemon, Exchangeco, the Trustee or this Agreement; and
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(c)
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for any other purposes not inconsistent with the provisions of this Agreement,
including without limitation, to make or evidence any amendment or modification to this
Agreement as contemplated hereby, provided that, in the opinion of the Trustee, the
rights of the Trustee and Beneficiaries will not be prejudiced thereby.
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ARTICLE 10
TERMINATION
10.1 Term
The Trust created by this Agreement shall continue until the earliest to occur of the following
events:
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(a)
|
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no outstanding Exchangeable Shares are held by a Beneficiary;
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(b)
|
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each of Lululemon and Exchangeco elects in writing to terminate the Trust and
such termination is approved by the Beneficiaries in accordance with Section 11.2 of
the Exchangeable Share Provisions; and
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(c)
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21 years after the death of the last survivor of the descendants of His Majesty
King George VI of Canada and the United Kingdom of Great Britain and Northern Ireland
living on the date of the creation of the Trust.
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10.2 Survival of Agreement
This Agreement shall survive any termination of the Trust and shall continue until there are no
Exchangeable Shares outstanding held by a Beneficiary; provided, however, that the provisions of
Article 5 and Article 6 shall survive any such termination of this Agreement.
ARTICLE 11
GENERAL
11.1 Notices
All notices, requests, claims, demands, waivers and other communications under this Agreement shall
be in writing and shall be deemed given (a) five Business Days following sending by registered or
certified mail, postage prepaid, (b) when sent, if sent by facsimile, provided that the facsimile
transmission is promptly confirmed by telephone, (c) when delivered, if delivered personally to the
intended recipient and (d) one Business Day following sending by overnight delivery via a courier
service that is nationally recognized in the U.S. and Canada and, in each case, addressed to a
party at the following address for such party.
If to Lululemon or Exchangeco, to:
2285 Clark Drive
Vancouver, British Columbia
V5N 3G9
Fax: (604) 847-6124
Attention: Corporate Secretary
with a copy to:
McCarthy Tétrault LLP
1300-777 Dunsmuir Street
Vancouver, British Columbia
V7Y 1K2
Fax: (604) 622-5615
Attention: Richard Balfour
24
If to the Trustee, to:
Suite 710, 530-8
th
Avenue SW
Calgary, Alberta
T2P 3S8
Fax: (403) 267-6598
Attention: Manager, Corporate Trust
or to such other address(es) as shall be furnished in writing by any such party to the other party
hereto in accordance with the provisions of this Section 11.1.
11.2 Notice to Beneficiaries
Any and all notices to be given and documents to be sent to any Beneficiaries may be sent to the
address of such Beneficiary shown on the register of holders of Exchangeable Shares in any manner
permitted by the by-laws of Exchangeco from time to time in force in respect of notice to
shareholders and shall be deemed to be received (if given or sent in such manner) at the time
specified in such by-laws, the provisions of which by-laws shall apply
mutatis mutandis
to notices
or documents as aforesaid sent to Beneficiaries.
11.3 Interpretation
When a reference is made in this Agreement to an Article or a section, such reference shall be to
an Article or a section of this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Whenever the words include, includes or
including are used in this Agreement, they shall be deemed to be followed by the words without
limitation. The terms this Agreement, hereof, herein and hereunder and similar expressions
refer to this Agreement and not to any particular Article, section or other portion hereof and
include any agreement or instrument supplementary or ancillary hereto. Words importing the singular
number only shall include the plural and vice versa. Words importing any gender shall include all
genders. If any date on which any action is required to be taken under this Agreement is not a
Business Day, such action shall be required to be taken on the next succeeding Business Day.
11.4 Severability
If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced
by any rule or law, or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially adverse to any party.
Upon such determination that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
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11.5 Counterparts
This Agreement may be executed in one or more counterparts, all of which shall be considered one
and the same agreement and shall become effective when one or more counterparts have been signed by
each of the parties hereto and delivered to the other parties.
11.6 Governing Law
This Agreement shall be governed by, and construed in accordance with, the laws of the Province of
British Columbia and the laws of Canada applicable therein, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
11.7 Assignment
Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall
be assigned, in whole or in part, by operation of law or otherwise by any of the parties hereto
without the prior written consent of the other parties. Any purported assignment without such
consent shall be void. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of, and be enforceable by, the parties hereto and their respective successors
and assigns.
11.8 Enforcement
The parties hereto agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties hereto shall be entitled to an
injunction or injunctions to prevent breaches of any provision of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of competent jurisdiction in
the Province of British Columbia, this being in addition to any other remedy to which they are
entitled at law or in equity. In addition, each of the parties hereto (a) consents to submit itself
to the personal jurisdiction of any court of competent jurisdiction in the Province of British
Columbia, in the event any dispute arises out of this Agreement, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any
such court, (c) agrees that it will not bring any action relating to this Agreement in any court
other than any court of competent jurisdiction in the Province of British Columbia, and (d) waives
any right to trial by jury with respect to any action related to or arising out of this Agreement.
11.9 No Waiver
No provisions of this Agreement shall be deemed waived by any party, unless such waiver is in
writing and signed by the authorized representatives of the person against whom it is sought to
enforce such waiver.
26
11.10 Expenses
Except as expressly set forth in this Agreement, all costs and expenses and third party fees, paid
or incurred in connection with this Agreement shall be paid in accordance with section 11.2 of the
Reorganization Agreement.
11.11 Privacy
The parties acknowledge that federal and/or provincial legislation that addresses the protection of
individuals personal information (collectively,
Privacy Laws
) applies to obligations and
activities under this Agreement. Despite any other provision of this Agreement, no party shall
take or direct any action that would contravene, or cause any other party to contravene, applicable
Privacy Laws. Lululemon and Exchangeco shall, prior to transferring or causing to be transferred
personal information to the Trustee, obtain and retain required consents of the relevant
individuals to the collection, use and disclosure of their personal information, or shall have
determined that such consents either have previously been given and upon which the parties can rely
or are not required under the Privacy Laws. The Trustee shall use commercially reasonable efforts
to ensure that its services hereunder comply with Privacy Laws. Specifically, the Trustee agrees:
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(a)
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to have a designated chief privacy officer;
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(b)
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to maintain policies and procedures to protect personal information and to
receive and respond to any privacy complaint or inquiry;
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(c)
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to use personal information solely for the purposes of providing the Trustees
services under or ancillary to this Agreement and not to use it for any other purpose
except with the consent of or direction from Lululemon, Exchangeco or the individual
whose personal information is involved;
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(d)
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not to sell or otherwise improperly disclose personal information to any third
party; and
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(e)
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to employ administrative, physical and technological safeguards to reasonably
secure and protect personal information against loss, theft, or unauthorized access,
use or modification.
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11.12 Trustee Not Bound to Act
The Trustee shall retain the right not to act and shall not be liable for refusing to act if, due
to a lack of information or for any other reason whatsoever, the Trustee, in its sole judgment,
determines that such act might cause it to be in non-compliance with any applicable anti-money
laundering or anti-terrorist legislation, regulation or guideline. Further, should the Trustee, in
its sole judgment, determine at any time that its acting under this Agreement has resulted in its
being in non-compliance with any applicable anti-money laundering or anti-terrorist legislation,
regulation or guideline, then it shall have the right to resign on 10 days written notice to
Lululemon and Exchangeco, provided that (i) the Trustees written notice shall describe the
27
circumstances of such non-compliance; and (ii) if such circumstances are rectified to the Trustees
satisfaction within such 10 day period, then such resignation shall not be effective.
11.13 Third Party Interests
Lululemon and Exchangeco hereby represent to the Trustee that any account to be opened by, or
interest to held by, the Trustee in connection with this Agreement, for or to the credit of
Lululemon or Exchangeco, is not intended to be used by or on behalf of any third party other than
the Beneficiaries, as expressly provided in this Agreement.
11.14 Further Assurances
From time to time, as and when requested by any party, each party shall execute and deliver, or
cause to be executed and delivered, all such documents and instruments and shall take, or cause to
be taken, all such further or other actions, as such other party may reasonably deem necessary or
desirable to consummate the transactions contemplated by this Agreement.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly executed as of the date
first above written.
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LULULEMON ATHLETICA INC.
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By :
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/s/ John Currie
Chief Financial Officer
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LULU CANADIAN HOLDING INC.
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By :
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/s/ John Currie
Chief Financial Officer
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COMPUTERSHARE TRUST COMPANY OF CANADA
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By :
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/s/ Cristian Couchot
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Professional, Corporate Trust
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By :
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/s/ Dan Sander
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Professional, Corporate Trust
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28
Exhibit 10.6
EXCHANGEABLE SHARE SUPPORT AGREEMENT
Between
LULULEMON ATHLETICA INC.
- and -
LULULEMON CALLCO ULC
- and -
LULU CANADIAN HOLDING INC.
July 26, 2007
TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS
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1
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1.1
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Defined Terms
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1
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ARTICLE 2 COVENANTS OF LULULEMON, CALLCO AND EXCHANGECO
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2
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2.1
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Covenants Regarding Exchangeable Shares
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2
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2.2
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Segregation of Funds
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3
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2.3
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Reservation of Lululemon Common Shares
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3
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2.4
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Notification of Certain Events
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3
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2.5
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Delivery of Lululemon Common Shares to Exchangeco and Callco
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4
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2.6
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Qualification of Lululemon Common Shares
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4
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2.7
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Economic Equivalence
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5
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2.8
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Tender Offers
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8
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2.9
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Ownership of Outstanding Shares
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8
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2.10
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Lululemon and Subsidiaries Not to Vote Exchangeable Shares
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8
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2.11
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Rule 10b-18 Purchases
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9
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2.12
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Restriction on Voluntary Dissolution and Continuance
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9
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2.13
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Mailings to Registered Holders of Exchangeable Shares
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9
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2.14
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Other Materials
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9
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2.15
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Distribution of Written Materials
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9
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ARTICLE 3 LULU SUCCESSORS
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10
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3.1
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Certain Requirements in Respect of Combination, etc.
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10
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3.2
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Vesting of Powers in Successor
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10
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3.3
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Wholly-Owned Subsidiaries
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10
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ARTICLE 4 GENERAL
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11
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4.1
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Term
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11
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4.2
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Changes in Capital of Lululemon and Exchangeco
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11
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4.3
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Severability
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11
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4.4
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Amendments, Modifications
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11
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4.5
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Ministerial Amendments
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11
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4.6
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Meeting to Consider Amendments
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12
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4.7
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Amendments Only in Writing
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12
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4.8
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Notices
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12
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4.9
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Interpretation
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14
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4.10
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Counterparts
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14
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4.11
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Governing Law
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15
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4.12
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Assignment
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15
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4.13
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Enforcement
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15
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4.14
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No Waiver
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15
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4.15
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Expenses
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15
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4.16
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Assurances
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i
SUPPORT AGREEMENT
MEMORANDUM OF AGREEMENT
made as of the 26
th
day of July, 2007.
AMONG:
LULULEMON ATHLETICA INC.
, a corporation existing under the laws of
the State of Delaware corporation
(
Lululemon
)
AND:
LULULEMON CALLCO ULC
, an unlimited liability company existing under
the laws of the Province of Alberta
(
Callco
)
AND:
LULU CANADIAN HOLDING, INC.
, a company existing under the laws of
the Province of British Columbia
(
Exchangeco
)
WHEREAS
in connection with an arrangement agreement (the
Arrangement Agreement
) dated as of April
26, 2007 among Lululemon, Callco, Exchangeco, LIPO Investments (USA), Inc. and LIPO Investments
(Canada) Inc. (
LIPO Canada
), Exchangeco is to issue exchangeable shares (the
Exchangeable
Shares
) to holders of common shares of LIPO Canada pursuant to the plan of arrangement (the
Arrangement
) contemplated by the Arrangement Agreement;
AND WHEREAS
, pursuant to the Arrangement Agreement, Lululemon, Callco and Exchangeco have agreed to
execute a support agreement substantially in the form of this Agreement;
NOW THEREFORE
in consideration of the respective covenants and agreements provided in this
Agreement and for other good and valuable consideration (the receipt and sufficiency of which are
hereby acknowledged), the parties hereto covenant and agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms
Each term denoted herein by initial capital letters and not otherwise defined herein shall have the
meaning ascribed thereto in the rights, privileges, restrictions and conditions (collectively, the
Exchangeable Share Provisions
) attaching to the Exchangeable Shares attached as
1
Appendix 1 to the Plan of Arrangement as set out in the Articles of Arrangement of Exchangeco,
unless the context requires otherwise.
ARTICLE 2
COVENANTS OF LULULEMON, CALLCO AND EXCHANGECO
2.1 Covenants Regarding Exchangeable Shares
So long as any Exchangeable Shares not owned by Lululemon or its subsidiaries are outstanding,
Lululemon will:
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(a)
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not declare or pay any dividend on the Lululemon Common Shares unless (i) in
the case of a cash dividend on Lululemon Common Shares, (A) Exchangeco shall
simultaneously declare or pay, as the case may be, an equivalent dividend as provided
for in the Exchangeable Share Provisions on the Exchangeable Shares, and (B) Exchangeco
shall have sufficient money or other assets available to enable the due declaration and
the due and punctual payment, in accordance with applicable law, of any such dividend
on the Exchangeable Shares or (ii) in the case of a stock dividend on Lululemon Common
Shares, (A) Exchangeco shall subdivide the Exchangeable Shares in lieu of a stock
dividend thereon as provided for in the Exchangeable Share Provisions and (B)
Exchangeco shall have sufficient authorized but unissued securities available to enable
such subdivision;
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(b)
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advise Exchangeco sufficiently in advance of the declaration by Lululemon of
any dividend on the Lululemon Common Shares and take all such other actions as are
reasonably necessary, in co-operation with Exchangeco, to ensure that (i) the
respective declaration date, record date and payment date for a dividend on the
Exchangeable Shares shall be the same as the declaration date, record date and payment
date for the corresponding dividend on the Lululemon Common Shares or (ii) the record
date and effective date for the subdivision of Exchangeable Shares shall be the same as
the record date and payment date for the stock dividend on the Lululemon Common Shares;
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(c)
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ensure that the record date for any dividend declared on the Lululemon Common
Shares is not less than 10 Business Days after the declaration date of such dividend;
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(d)
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take all such actions and do all such things as are reasonably necessary or
desirable to enable and permit Exchangeco, in accordance with applicable law, to pay
and otherwise perform its obligations with respect to the satisfaction of the
Liquidation Amount, the Retraction Price or the Redemption Price in respect of each
issued and outstanding Exchangeable Share (other than Exchangeable Shares owned by
Lululemon or its subsidiaries) upon the liquidation, dissolution or winding-up of
Exchangeco, the delivery of a Retraction Request by a holder of Exchangeable Shares or
a redemption of Exchangeable Shares by Exchangeco, as the case may be, including
without limitation all such actions and all such things as are necessary or desirable
to enable and permit Exchangeco to cause to be
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2
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delivered Lululemon Common Shares to the holders of Exchangeable Shares in
accordance with the provisions of Article 5, Article 6, or Article 7, as the case
may be, of the Exchangeable Share Provisions; and
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(e)
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take all such actions and do all such things as are reasonably necessary or
desirable to enable and permit Callco, in accordance with applicable law, to perform
its obligations arising upon the exercise by it of the Liquidation Call Right, the
Retraction Call Right or the Redemption Call Right, including without limitation all
such actions and all such things as are necessary or desirable to enable and permit
Callco to cause to be delivered Lululemon Common Shares to the holders of Exchangeable
Shares in accordance with the provisions of the Liquidation Call Right, the Retraction
Call Right or the Redemption Call Right, as the case may be.
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2.2 Segregation of Funds
Lululemon and Callco will cause Exchangeco to deposit a sufficient amount of funds in a separate
account of Exchangeco and segregate a sufficient amount of such other assets and property as is
necessary to enable Exchangeco to pay dividends when due and to pay or otherwise satisfy its
respective obligations under Article 5, Article 6, or Article 7 of the Exchangeable Share
Provisions, as applicable.
2.3 Reservation of Lululemon Common Shares
Lululemon hereby represents, warrants and covenants in favour of Callco and Exchangeco that
Lululemon has reserved for issuance and will, at all times while any Exchangeable Shares (other
than Exchangeable Shares held by Lululemon or its subsidiaries) are outstanding, keep available,
free from pre-emptive and other rights, out of its authorized and unissued capital stock such
number of Lululemon Common Shares (or other shares or securities into which the Lululemon Common
Shares may be reclassified or changed as contemplated by Section 2.7 hereof) (a) as is equal to the
sum of (i) the number of Exchangeable Shares issued and outstanding from time to time (other than
Exchangeable Shares held by Lululemon or its subsidiaries), and (ii) the number of Exchangeable
Shares issuable upon the exercise of all rights to acquire Exchangeable Shares outstanding from
time to time; and (b) as are now and may hereafter be required to enable and permit Lululemon and
Callco to meet their obligations under the Exchange Trust Agreement and under any other security or
commitment pursuant to which Callco may now or hereafter be required to deliver Lululemon Common
Shares, to enable and permit Callco to meet its obligations under each of the Liquidation Call
Right, the Retraction Call Right and the Redemption Call Right and to enable and permit Exchangeco
to meet its respective obligations hereunder and under the Exchangeable Share Provisions.
2.4 Notification of Certain Events
In order to assist Lululemon and Callco to comply with its obligations hereunder and to permit
Callco to exercise the Liquidation Call Right, the Retraction Call Right and the Redemption Call
Right, Exchangeco will notify Lululemon and Callco of each of the following events at the time set
forth below:
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(a)
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in the event of any determination by the board of directors of Exchangeco to
institute voluntary liquidation, dissolution or winding-up proceedings with respect to
Exchangeco or to effect any other distribution of the assets of Exchangeco among its
shareholders for the purpose of winding up its affairs, at least 60 days prior to the
proposed effective date of such liquidation, dissolution, winding-up or other
distribution;
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(b)
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promptly, upon the earlier of receipt by Exchangeco of notice and Exchangeco
otherwise becoming aware of any threatened or instituted claim, suit, petition or other
proceedings with respect to the involuntary liquidation, dissolution or winding-up of
Exchangeco or to effect any other distribution of the assets of Exchangeco among its
shareholders for the purpose of winding up its affairs;
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(c)
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promptly, upon receipt by Exchangeco of a Retraction Request;
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(d)
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on the same date on which notice of redemption is given to holders of
Exchangeable Shares, upon the determination of a Redemption Date in accordance with the
Exchangeable Share Provisions; and
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(e)
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as soon as practicable upon the issuance by Exchangeco of any Exchangeable
Shares or rights to acquire Exchangeable Shares (other than the issuance of
Exchangeable Shares and rights to acquire Exchangeable Shares in exchange for
outstanding LIPO Canada common shares pursuant to the Arrangement).
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2.5 Delivery of Lululemon Common Shares to Exchangeco and Callco
In furtherance of its obligations under Sections 2.1(d) and 2.1(e) hereof, upon notice from
Exchangeco or Callco of any event that requires Exchangeco or Callco, to cause to be delivered
Lululemon Common Shares to any registered holder of Exchangeable Shares, Lululemon shall, in any
manner deemed appropriate by it, provide or cause to be provided to Exchangeco or Callco, either in
the form of a share certificate or in book entry form through the direct registration system, the
requisite number of Lululemon Common Shares to be received by, and issued to or to the order of,
the former holder of the surrendered Exchangeable Shares, as Exchangeco or Callco shall direct. All
such Lululemon Common Shares shall be duly authorized and validly issued as fully paid and
non-assessable and shall be free and clear of any lien, claim or encumbrance.
2.6 Qualification of Lululemon Common Shares
Lululemon covenants that if any Lululemon Common Shares (or other shares or securities into which
Lululemon Common Shares may be reclassified or Changed as contemplated by Section 2.7 hereof) to be
issued and delivered hereunder (including for greater certainty, pursuant to the Exchangeable Share
Provisions or pursuant to the Exchange Right or the Automatic Exchange Rights) require registration
or qualification with or approval of or the filing of any document, including any prospectus or
similar document, or the taking of any proceeding with or the obtaining of any order, ruling or
consent from any governmental or regulatory authority under any Canadian or United States federal,
provincial or state securities or other law
4
or regulation or pursuant to the rules and regulations of any securities or other regulatory
authority or the fulfillment of any other United States or Canadian legal requirement before such
shares (or such other shares or securities) may be issued by Lululemon and delivered by Callco or
Exchangeco, as the case may be, to the registered holder of Exchangeable Shares thereof or in order
that such shares (or such other shares or securities) may be freely traded thereafter (other than
any restrictions of general application on transfer by reason of a holder being a control person
for purposes of Canadian provincial securities law or an affiliate of Lululemon for purposes of
United States federal or state securities law), Lululemon will in good faith expeditiously take all
such actions and do all such things as are necessary or desirable to cause such Lululemon Common
Shares (or such other shares or securities) to be and remain duly registered, qualified or approved
under United States and/or Canadian law, as the case may be; provided, however, that Lululemons
obligations in this Section 2.6 shall be limited to the obligations set forth in Section 6.4 of the
Reorganization Agreement. Lululemon will in good faith expeditiously take all such actions and do
all such things as are reasonably necessary or desirable to cause all Lululemon Common Shares (or
such other shares or securities) to be delivered hereunder to be listed, quoted or posted for
trading on all stock exchanges and quotation systems on which outstanding Lululemon Common Shares
(or such other shares or securities) have been listed by Lululemon and remain listed and are quoted
or posted for trading at such time.
2.7 Economic Equivalence
So long as any Exchangeable Shares not owned by Lululemon or its subsidiaries are outstanding:
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(a)
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Other than as permitted in Section 2.1, Lululemon will not without the prior
approval of Exchangeco and the prior approval of the holders of the Exchangeable Shares
given in accordance with Section 11.2 of the Exchangeable Share Provisions:
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(i)
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issue or distribute Lululemon Common Shares (or securities
exchangeable for or convertible into or carrying rights to acquire Lululemon
Common Shares) to the holders of all or substantially all of the then
outstanding Lululemon Common Shares by way of a stock dividend or other
distribution, other than an issue of Lululemon Common Shares (or securities
exchangeable for or convertible into or carrying rights to acquire Lululemon
Common Shares) to holders of Lululemon Common Shares who (A) exercise an option
to receive dividends in Lululemon Common Shares (or securities exchangeable for
or convertible into or carrying rights to acquire Lululemon Common Shares) in
lieu of receiving cash dividends, or (B) pursuant to any dividend reinvestment
plan; or
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(ii)
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issue or distribute rights, options or warrants to the holders
of all or substantially all of the then outstanding Lululemon Common Shares
entitling them to subscribe for or to purchase Lululemon Common Shares (or
securities exchangeable for or convertible into or carrying rights to acquire
Lululemon Common Shares); or
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(iii)
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issue or distribute to the holders of all or substantially all
of the then outstanding Lululemon Common Shares (A) shares or securities of
Lululemon of any class other than Lululemon Common Shares (other than shares
convertible into or exchangeable for or carrying rights to acquire Lululemon
Common Shares), (B) rights, options or warrants other than those referred to in
Section 2.7(a)(ii) above, (C) evidences of indebtedness of Lululemon, or (D)
assets of Lululemon,
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unless the same or the economic equivalent on a per share basis of such rights,
options, securities, shares, evidences of indebtedness or other assets is issued or
distributed simultaneously to holders of the Exchangeable Shares.
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(b)
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Lululemon will not without the prior approval of Exchangeco and the prior
approval of the holders of the Exchangeable Shares given in accordance with Section
11.2 of the Exchangeable Share Provisions:
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(i)
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subdivide, redivide or change the then outstanding Lululemon
Common Shares into a greater number of Lululemon Common Shares; or
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(ii)
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reduce, combine, consolidate or change the then outstanding
Lululemon Common Shares into a lesser number of Lululemon Common Shares; or
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(iii)
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reclassify or otherwise change the Lululemon Common Shares or
effect an amalgamation, merger, reorganization or other transaction affecting
the Lululemon Common Shares,
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unless the same or an economically equivalent change shall simultaneously be made
to, or in, the rights of the holders of the Exchangeable Shares.
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(c)
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Lululemon will ensure that the record date for any event referred to in Section
2.7(a) or 2.7(b) above, or (if no record date is applicable for such event) the
effective date for any such event, is not less than five Business Days after the date
on which such event is declared or announced by Lululemon (with contemporaneous
notification thereof by Lululemon to Exchangeco).
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(d)
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The Board of Directors shall determine, in good faith and in its sole
discretion, economic equivalence for the purposes of any event referred to in Section
2.7(a) or 2.7(b) above and each such determination shall be conclusive and binding on
Lululemon and its shareholders. In making each such determination, the following
factors shall, without excluding other factors determined by the Board of Directors to
be relevant, be considered by the Board of Directors:
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(i)
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in the case of any stock dividend or other distribution payable
in Lululemon Common Shares, the number of such shares issued in proportion to
the number of Lululemon Common Shares previously outstanding;
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(ii)
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in the case of the issuance or distribution of any rights,
options or warrants to subscribe for or purchase Lululemon Common Shares (or
securities exchangeable for or convertible into or carrying rights to acquire
Lululemon Common Shares), the relationship between the exercise price of each
such right, option or warrant and the Current Market Price;
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(iii)
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in the case of the issuance or distribution of any other form
of property (including without limitation any shares or securities of Lululemon
of any class other than Lululemon Common Shares, any rights, options or
warrants other than those referred to in Section 2.7(d)(ii) above, any
evidences of indebtedness of Lululemon or any assets of Lululemon), the
relationship between the fair market value (as determined by the Board of
Directors in the manner above contemplated) of such property to be issued or
distributed with respect to each outstanding Lululemon Common Share and the
Current Market Price;
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(iv)
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in the case of any subdivision, redivision or change of the
then outstanding Lululemon Common Shares into a greater number of Lululemon
Common Shares or the reduction, combination, consolidation or change of the
then outstanding Lululemon Common Shares into a lesser number of Lululemon
Common Shares or any amalgamation, merger, reorganization or other transaction
affecting Lululemon Common Shares, the effect thereof upon the then outstanding
Lululemon Common Shares; and
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(v)
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in all such cases, the general taxation consequences of the
relevant event to holders of Exchangeable Shares to the extent that such
consequences may differ from the general taxation consequences to holders of
Lululemon Common Shares as a result of differences between taxation laws of
Canada and the United States (except for any differing consequences arising as
a result of differing marginal taxation rates and without regard to the
individual circumstances of holders of Exchangeable Shares).
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(e)
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Exchangeco agrees that, to the extent required, upon due notice from Lululemon,
Exchangeco will use its best efforts to take or cause to be taken such steps as may be
necessary for the purposes of ensuring that appropriate dividends are paid or other
Distributions are made by Exchangeco, or subdivisions, redivisions or Changes are made
to the Exchangeable Shares, in order to implement the required economic equivalent with
respect to the Lululemon Common Shares and Exchangeable Shares as provided for in this
Section 2.7. Without limiting the generality of the foregoing, the Board of Directors
of Exchangeco may, acting in good faith, adjust the number of Lululemon Common Shares
into which an Exchangeable Share is exchangeable (which initially is one) to reflect
the economic equivalent of the relationship between the Lululemon Common Shares and the
Exchangeable Shares.
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7
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(f)
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Nothing in this Agreement shall affect the rights of Exchangeco to redeem (or
Callco to purchase pursuant to the Redemption Call Right) Exchangeable Shares, as
applicable in the event of a Lululemon Extraordinary Distribution.
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2.8 Tender Offers
In the event that a tender offer, share exchange offer, issuer bid, take-over bid or similar
transaction with respect to Lululemon Common Shares (an
Offer
) is proposed by Lululemon or is
proposed to Lululemon or its shareholders and is recommended by the board of directors of
Lululemon, or is otherwise effected or to be effected with the consent or approval of the board of
directors of Lululemon, and the Exchangeable Shares are not redeemed by Exchangeco or purchased by
Callco pursuant to the Redemption Call Right, Lululemon will use its reasonable efforts
expeditiously and in good faith to take all such actions and do all such things as are necessary or
desirable to enable and permit holders of Exchangeable Shares (other than Lululemon and its
subsidiaries) to participate in such Offer to the same extent or on an economically equivalent
basis as the holders of Lululemon Common Shares, without discrimination. Without limiting the
generality of the foregoing, Lululemon will use its reasonable efforts expeditiously and in good
faith to ensure that holders of Exchangeable Shares may participate in each such Offer without
being required to retract Exchangeable Shares as against Exchangeco (or, if so required, to ensure
that any such retraction shall be effective only upon, and shall be conditional upon, the closing
of such Offer and only to the extent necessary to tender or deposit to the Offer). Nothing herein
shall affect the rights of Exchangeco to redeem (or Callco to purchase pursuant to the Redemption
Call Right) Exchangeable Shares, as applicable, in the event of a Lululemon Control Transaction.
2.9 Ownership of Outstanding Shares
Without the prior approval of Exchangeco and the prior approval of the holders of the Exchangeable
Shares given in accordance with Section 11.2 of the Exchangeable Share Provisions, Lululemon
covenants and agrees in favour of Exchangeco that, as long as any outstanding Exchangeable Shares
are owned by any person other than Lululemon or any of its subsidiaries, Lululemon will be and
remain the direct or indirect beneficial owner of all issued and outstanding voting shares in the
capital of Exchangeco and Callco.
2.10 Lululemon and Subsidiaries Not to Vote Exchangeable Shares
Lululemon covenants and agrees that it will appoint and cause to be appointed proxyholders with
respect to all Exchangeable Shares held by it and its subsidiaries for the sole purpose of
attending each meeting of holders of Exchangeable Shares in order to be counted as part of the
quorum for each such meeting. Lululemon further covenants and agrees that it will not, and will
cause its subsidiaries not to, exercise any voting rights which may be exercisable by holders of
Exchangeable Shares from time to time pursuant to the Exchangeable Share Provisions or pursuant to
the provisions of the Act (or any successor or other corporate statute by which Exchangeco may in
the future be governed) with respect to any Exchangeable Shares held by it or by its subsidiaries
in respect of any matter considered at any meeting of holders of Exchangeable Shares.
8
2.11 Rule 10b-18 Purchases
Nothing contained in this Agreement, including without limitation the obligations of Lululemon
contained in Section 2.8, shall limit the ability of Lululemon, Callco or Exchangeco to make a
Rule 10b-18 Purchase of Lululemon Common Shares pursuant to Rule 10b-18 of the United States
Securities Exchange Act of 1934, as amended.
2.12 Restriction on Voluntary Dissolution and Continuance
Lululemon shall not, and agrees to cause Callco to not, take any action relating to (a) a voluntary
liquidation, dissolution or winding-up of Exchangeco or its successors or Callco or its successors,
as the case may be, prior to the Redemption Date or (b) the continuance or other transfer of the
corporate existence of Exchangeco to any jurisdiction outside of Canada prior to the Redemption
Date.
2.13 Mailings to Registered Holders of Exchangeable Shares
With respect to each meeting of shareholders of Lululemon at which holders of Lululemon Common
Shares are entitled to vote and with respect to all written consents sought by Lululemon from its
shareholders including the holders of Lululemon Common Shares, Lululemon will mail or cause to be
mailed (or otherwise communicate in the same manner as Lululemon utilizes in communications to
holders of Lululemon Common Shares subject to applicable regulatory requirements) to each
registered holder of Exchangeable Shares, such mailing or communication to commence on the same day
as the mailing or notice (or other communication) with respect thereto is commenced by Lululemon to
its shareholders a copy of such notice, together with any related materials, including, without
limitation, any proxy or information statement, to be provided to shareholders of Lululemon, to the
extent that such materials have not already been provided to holders of Special Voting Shares.
2.14 Other Materials
As soon as reasonably practicable after receipt by Lululemon or holders of Lululemon Common Shares
(if such receipt is known by Lululemon) of any material sent or given by or on behalf of a third
party to holders of Lululemon Common Shares generally, including without limitation, dissident
proxy and information circulars (and related information and material) and tender and exchange
offer circulars (and related information and material), Lululemon shall use its reasonable efforts
to obtain and deliver a copy thereof (unless the same has been provided directly to registered
holders of Exchangeable Shares by such third party) to each holder of Exchangeable Share as soon as
possible thereafter, to the extent that such materials have not already been provided to holders of
Special Voting Shares. Lululemon will also make available for inspection by any registered holder
of Exchangeable Shares at its principal executive offices in the City of Vancouver copies of all
such materials.
2.15 Distribution of Written Materials
Any written materials distributed by Lululemon pursuant to this Agreement shall be sent by mail (or
otherwise communicated in the same manner as Lululemon utilizes in communications to holders of
Lululemon Common Shares subject to applicable regulatory requirements) to each
9
holder of Exchangeable Share at its address as shown on the books of Exchangeco. Lululemon agrees
not to communicate with holders of Lululemon Common Shares with respect to such written materials
otherwise than by mail unless such method of communication is also used by it for communication
with the registered holders of Exchangeable Shares. Exchangeco shall provide or cause to be
provided to Lululemon for purposes of communication, on a timely basis and without charge or other
expense a current list of registered holders of Exchangeable Shares.
ARTICLE 3
LULU SUCCESSORS
3.1 Certain Requirements in Respect of Combination, etc.
Lululemon shall not consummate any transaction (whether by way of reconstruction, reorganization,
consolidation, merger, transfer, sale, lease or otherwise) whereby all or substantially all of its
undertaking, property and assets would become the property of any other person or, in the case of a
merger, of the continuing corporation resulting therefrom unless, but may do so if:
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(a)
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such other person or continuing corporation (the
Lululemon Successor
) by
operation of law, becomes bound by the terms and provisions of this Agreement or, if
not so bound, executes, prior to or contemporaneously with the consummation of such
transaction, an agreement supplemental hereto and such other instruments (if any) as
are reasonably necessary or advisable to evidence the assumption by the Lululemon
Successor of liability for all moneys payable and property deliverable hereunder and
the covenant of such Lululemon Successor to pay and deliver or cause to be delivered
the same and its agreement to observe and perform all the covenants and obligations of
Lululemon under this Agreement; and
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(b)
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such transaction shall be upon such terms and conditions as substantially to
preserve and not to impair in any material respect any of the rights, duties, powers
and authorities of the other parties hereunder.
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3.2 Vesting of Powers in Successor
Whenever the conditions of Section 3.1 have been duly observed and performed, the parties, if
required by Section 3.1, shall execute and deliver the supplemental agreement provided for in
Section 3.1(a) and thereupon the Lululemon Successor shall possess and from time to time may
exercise each and every right and power of Lululemon under this Agreement in the name of Lululemon
or otherwise and any act or proceeding by any provision of this Agreement required to be done or
performed by the board of directors of Lululemon or any officers of Lululemon may be done and
performed with like force and effect by the directors or officers of such Lululemon Successor.
3.3 Wholly-Owned Subsidiaries
Nothing herein shall be construed as preventing the amalgamation or merger of any wholly-owned
direct or indirect subsidiary of Lululemon with or into Lululemon or, subject to
10
Section 2.12 hereof, the winding-up, liquidation or dissolution of any wholly-owned subsidiary of
Lululemon provided that all of the assets of such subsidiary are transferred to Lululemon or
another wholly-owned direct or indirect subsidiary of Lululemon and any such transactions are
expressly permitted by this Article 3.
ARTICLE 4
GENERAL
4.1 Term
This Agreement shall come into force and be effective as of the date hereof and shall terminate and
be of no further force and effect at such time as no Exchangeable Shares (or securities or rights
convertible into or exchangeable for or carrying rights to acquire Exchangeable Shares) are held by
any person other than Lululemon and any of its subsidiaries.
4.2 Changes in Capital of Lululemon and Exchangeco
At all times after the occurrence of any event contemplated pursuant to Sections 2.7 and 2.8 hereof
or otherwise, as a result of which either Lululemon Common Shares or the Exchangeable Shares or
both are in any way Changed, this Agreement shall forthwith be amended and modified as necessary in
order that it shall apply with full force and effect,
mutatis mutandis
, to all new securities into
which Lululemon Common Shares or the Exchangeable Shares or both are so Changed and the parties
hereto shall execute and deliver an agreement in writing giving effect to and evidencing such
necessary amendments and modifications.
4.3 Severability
If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced
by any rule or law, or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially adverse to any party.
Upon such determination that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
4.4 Amendments, Modifications
This Agreement may not be amended or modified except by an agreement in writing executed by
Exchangeco, Callco and Lululemon and approved by the holders of the Exchangeable Shares in
accordance with Section 11.2 of the Exchangeable Share Provisions.
4.5 Ministerial Amendments
Notwithstanding the provisions of Section 4.4, the parties to this Agreement may in writing at any
time and from time to time, without the approval of the holders of the Exchangeable Shares, amend
or modify this Agreement for the purposes of:
11
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(a)
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adding to the covenants of any or all parties provided that the board of
directors of each of Exchangeco, Callco and Lululemon shall be of the good faith
opinion that such additions will not be prejudicial to the rights or interests of the
holders of the Exchangeable Shares;
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(b)
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making such amendments or modifications not inconsistent with this Agreement as
may be necessary or desirable with respect to matters or questions which, in the good
faith opinion of the board of directors of each of Exchangeco, Callco and Lululemon, it
may be expedient to make, provided that each such board of directors shall be of the
good faith opinion that such amendments or modifications will not be prejudicial to the
rights or interests of the holders of the Exchangeable Shares; or
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(c)
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making such Changes or corrections which, on the advice of counsel to
Exchangeco, Callco and Lululemon, are required for the purpose of curing or correcting
any ambiguity or defect or inconsistent provision or clerical omission or mistake or
manifest error, provided that the boards of directors of each of Exchangeco, Callco and
Lululemon shall be of the good faith opinion that such Changes or corrections will not
be prejudicial to the rights or interests of the holders of the Exchangeable Shares.
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4.6 Meeting to Consider Amendments
Exchangeco, at the request of Lululemon, shall call a meeting or meetings of the holders of the
Exchangeable Shares for the purpose of considering any proposed amendment or modification requiring
approval pursuant to Section 4.4 hereof. Any such meeting or meetings shall be called and held in
accordance with the articles of Exchangeco, the Exchangeable Share Provisions and all applicable
laws.
4.7 Amendments Only in Writing
No amendment to or modification or waiver of any of the provisions of this Agreement otherwise
permitted hereunder shall be effective unless made in writing and signed by all of the parties
hereto.
4.8 Notices
All notices, requests, claims, demands, waivers and other communications under this Agreement shall
be in writing and shall be deemed given (a) five Business Days following sending by registered or
certified mail, postage prepaid, (b) when sent, if sent by facsimile, provided that the facsimile
transmission is promptly confirmed by telephone, (c) when delivered, if delivered personally to the
intended recipient, and (d) one Business Day following sending by overnight delivery via a courier
service that is nationally recognized in the U.S. and Canada and, in each case, addressed to a
party at the following address for such party:
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(a)
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If to Lululemon, to:
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2285 Clark Drive
Vancouver, British Columbia
V5N 3G9
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Fax: (604) 847-6124
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Attention: Corporate Secretary
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with a copy to:
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McCarthy Tetrault LLP
1300-777 Dunsmuir Street
Vancouver, British Columbia
V7Y 1K2
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Fax: (604) 622-5615
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Attention: Richard Balfour
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(b)
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If to Exchangeco, to:
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2285 Clark Drive
Vancouver, British Columbia
V5N 3G9
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Fax: (604) 847-6124
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Attention: Corporate Secretary
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with a copy to:
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McCarthy Tetrault LLP
1300-777 Dunsmuir Street
Vancouver, British Columbia
V7Y 1K2
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Fax: (604) 622-5615
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Attention: Richard Balfour
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(c)
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If to Callco, to:
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2285 Clark Drive
Vancouver, British Columbia
V5N 3G9
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Fax: (604) 847-6124
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Attention: Corporate Secretary
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with a copy to:
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McCarthy Tetrault LLP
1300-777 Dunsmuir Street
Vancouver, British Columbia
V7Y 1K2
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Fax: (604) 622-5615
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Attention: Richard Balfour
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or to such other address(es) as shall be furnished in writing by any such party to the other party
hereto in accordance with the provisions of this Section 4.8.
4.9 Interpretation
When a reference is made in this Agreement to an Article or a section, such reference shall be to
an Article or a section of this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Whenever the words include, includes or
including are used in this Agreement, they shall be deemed to be followed by the words without
limitation. The terms this Agreement, hereof, herein and hereunder and similar expressions
refer to this Agreement and not to any particular Article, section or other portion hereof and
include any agreement or instrument supplementary or ancillary hereto. Words importing the singular
number only shall include the plural and vice versa. Words importing any gender shall include all
genders. If any date on which any action is required to be taken under this Agreement is not a
Business Day, such action shall be required to be taken on the next succeeding Business Day. For
the purposes of this Agreement, a Business Day means any day on which commercial banks are
generally open for business in Vancouver, British Columbia, other than a Saturday, a Sunday or a
day observed as a holiday in Vancouver, British Columbia under the laws of the Province of British
Columbia or the federal laws of Canada.
4.10 Counterparts
This Agreement may be executed in one or more counterparts, all of which shall be considered one
and the same Agreement and shall become effective when one or more counterparts have been signed by
each of the parties hereto and delivered to the other parties.
14
4.11 Governing Law
This Agreement shall be governed by, and construed in accordance with, the laws of the Province of
British Columbia and the laws of Canada applicable therein, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
4.12 Assignment
Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall
be assigned, in whole or in part, by operation of law or otherwise by any of the parties hereto
without the prior written consent of the other parties. Any purported assignment without such
consent shall be void. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of, and be enforceable by, the parties hereto and their respective successors
and assigns.
4.13 Enforcement
The parties hereto agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties hereto shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the
terms and provisions of this Agreement in any court of competent jurisdiction in the Province of
British Columbia, this being in addition to any other remedy to which they are entitled at law or
in equity. In addition, each of the parties hereto (a) consents to submit itself to the personal
jurisdiction of any court of competent jurisdiction in the Province of British Columbia, in the
event any dispute arises out of this Agreement, (b) agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any such court, (c)
agrees that it will not bring any action relating to this Agreement in any court other than any
court of competent jurisdiction in the Province of British Columbia, and (d) waives any right to
trial by jury with respect to any action related to or arising out of this Agreement.
4.14 No Waiver
No provisions of this Agreement shall be deemed waived by any party, unless such waiver is in
writing and signed by the authorized representatives of the person against whom it is sought to
enforce such waiver.
4.15 Expenses
Except as expressly set forth in this Agreement, all costs and expenses and third party fees, paid
or incurred in connection with this Agreement shall be paid in accordance with section 11.2 of the
Reorganization Agreement.
15
4.16 Assurances
From time to time, as and when requested by any party, each party shall execute and deliver, or
cause to be executed and delivered, all such documents and instruments and shall take, or cause to
be taken, all such further or other actions, as such other party may reasonably deem necessary or
desirable to consummate the transactions contemplated by this Agreement.
IN WITNESS WHEREOF
, the parties hereto have caused this Agreement to be duly executed as of the
date first above written.
LULULEMON ATHLETICA INC.
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By :
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/s/ John Currie
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Chief Financial Officer
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LULULEMON CALLCO ULC
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By :
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/s/ John Currie
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Chief Financial Officer
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LULU CANADIAN HOLDING INC.
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By :
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/s/ John Currie
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Chief Financial Officer
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16
Exhibit 10.7
AMENDED AND RESTATED
DECLARATION OF TRUST
Forfeitable Exchangeable Shares
July 26th, 2007
TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS
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1
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1.1
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Definitions
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1
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ARTICLE 2 PURPOSE OF TRUST DECLARATION
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4
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2.1
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Continuance of Trust
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4
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ARTICLE 3 PROVISIONS APPLICABLE TO FORFEITABLE SHARES
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4
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3.1
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Forfeitable Shares
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4
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3.2
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Trustee Agreements Related to Forfeitable Shares
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4
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3.3
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Voting Rights
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5
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3.4
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Forfeiture of Shares
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5
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3.5
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Ceasing to be Forfeitable Shares
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5
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ARTICLE 4 CONCERNING THE TRUSTEE
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5
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4.1
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Powers and Duties of the Trustee
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5
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4.2
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Income Tax Returns and Reports
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6
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4.3
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Action of Beneficial Holders
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7
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4.4
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Reliance Upon Declarations
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7
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4.5
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Trustee Not Required to Give Security
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7
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4.6
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Conflicting Claims
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7
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4.7
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Acceptance of Trust
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8
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ARTICLE 5 LIMITATION OF LIABILITY
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8
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5.1
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Limitation of Liability
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8
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ARTICLE 6 CHANGE OF TRUSTEE
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8
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6.1
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Resignation
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8
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6.2
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Successor Trustee
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9
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6.3
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Declaration of Trustee
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9
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6.4
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Notice of Successor Trustee
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9
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ARTICLE 7 AMENDMENTS AND SUPPLEMENTAL TRUST DECLARATIONS
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9
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7.1
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Amendments, Modifications, etc.
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9
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7.2
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Ministerial Amendments
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9
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7.3
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Meeting to Consider Amendments
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10
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7.4
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Execution of Supplemental Trust Declarations
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10
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ARTICLE 8 TERMINATION
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10
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8.1
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Term
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10
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8.2
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Survival of Trust Declaration
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11
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ARTICLE 9 GENERAL
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11
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9.1
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Notices
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11
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9.2
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Interpretation
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11
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9.3
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Severability
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12
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9.4
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Counterparts
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12
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9.5
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Governing Law
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12
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9.6
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Enforcement
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12
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9.7
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No Waiver
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12
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9.8
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Expenses
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13
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9.9
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Further Assurances
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13
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APPENDIX A FORFEITABLE SHARE PROVISIONS
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AMENDED AND RESTATED DECLARATION OF TRUST
Forfeitable Exchangeable Shares
THIS DECLARATION OF TRUST
is made as of the 26th day of July, 2007, by
Dennis Wilson
(the
Trustee
).
WHEREAS
pursuant to a stock option plan (the
Option Plan
) of LIPO Investments (Canada) Inc.(
LIPO
Canada
) dated December 1, 2005, Dennis Wilson (the
Trustee
) was appointed as trustee of the Plan
to hold legal title to the shares of LIPO Canada issued on the exercise of options granted under
the Option Plan;
AND WHEREAS
pursuant to the provisions of the Option Plan certain options granted under the Option
Plan were issued and designated as forfeitable shares and held in trust by the Trustee for the
benefit of the holders thereof subject to certain repurchase and other rights;
AND WHEREAS
in connection with an arrangement agreement (the
Arrangement Agreement
) dated as of
April 26, 2007 among Lululemon Corp. (
Lululemon
), Lululemon Callco ULC (
Callco
), Lulu Canadian
Holding, Inc. (
Exchangeco
), LIPO Investments (USA), Inc. and LIPO Canada, all shares of LIPO
Canada, including the forfeitable shares were exchanged with Exchangeco for exchangeable shares
(
Exchangeable Shares
) of Exchangeco, and none of the Trustee nor the former holders of the
options granted under the Option Plan are now shareholders or option holders of LIPO Canada, so
that it is impractical to continue to record the terms of the trust in the Option Plan;
AND WHEREAS
pursuant to the Arrangement Agreement, the Trustee has agreed to enter into a
declaration of trust substantially in the form of this Trust Declaration, to amend and restate the
trust which was created under the Option Plan, to record the terms pursuant to which the Trustee
will hold Exchangeable Shares issued in respect of forfeitable shares;
NOW THEREFORE
this Declaration records the terms on which the Trustee will hold the Trust Estate
(as defined below) in trust for the benefit of the Beneficial Holders on the terms hereof:
ARTICLE 1
DEFINITIONS
1.1 Definitions
In this Trust Declaration, the following terms shall have the following meanings:
Arrangement
means the arrangement under part 9, division 5 of the BCA on the terms and subject to
the conditions set out in the Plan of Arrangement, subject to any amendments or variations thereto
made in accordance with Article 6 of the Arrangement Agreement or Article 6 of the Plan of
Arrangement or made at the direction of the Court in the Final Order.
BCA
means the
Business Corporations Act
(British Columbia), as amended.
Beneficial Holders
has the meaning assigned in Section 3.1.
Board of Directors
means the board of directors of Exchangeco.
Business Day
means any day on which commercial banks are generally open for business in
Vancouver, British Columbia and New York, New York, other than a Saturday, a Sunday or a day
observed as a holiday in Vancouver, British Columbia under the laws of the Province of British
Columbia or the federal laws of Canada or in New York, New York under the laws of the State of New
York or the federal laws of the United States of America.
Court
means the Supreme Court of British Columbia.
Declaration of Trust
means this Declaration of Trust as it may be amended or supplemented from
time to time.
Effective Date
means the date following the grant of the Final Order on which the parties to the
Arrangement Agreement agree the Arrangement becomes effective.
Effective Time
means the time on the Effective Date at which the Arrangement becomes effective.
Eligible Person
means any individual regularly employed on a full-time or part-time basis by
Lululemon or any company in which Lululemon is a direct or indirect shareholder or with which
Lululemon does not act at arms length or other persons who perform management or consulting
services for Lululemon or any company in which Lululemon is a direct or indirect shareholder or
with which Lululemon does not act at arms length in any such case on an ongoing basis.
Exchange Trust Agreement
means the Agreement made between Lululemon, Callco, the Company and a
third party trustee in connection with the Plan of Arrangement, substantially in the form and
content of Exhibit C annexed to the Reorganization Agreement with such changes thereto as the
parties to the Arrangement Agreement, acting reasonably, may agree, a copy of which is available at
the registered office of the Company.
Exchangeable Share Provisions
means the rights, privileges, restrictions and conditions attaching
to the Exchangeable Shares, which rights, privileges, restrictions and conditions shall be
substantially as set out in Appendix 1 of the Plan of Arrangement.
Exchangeable Shares
means the non-voting exchangeable shares in the capital of Exchangeco, having
substantially the rights, privileges, restrictions and conditions set out in the Exchangeable Share
Provisions.
Final Order
means the order of the Court approving the Plan of Arrangement as such order may be
amended at any time prior to the Effective Date or, if appealed, then, unless such appeal is
withdrawn or denied, as affirmed.
Forfeitable Shares
means those Exchangeable Shares issued pursuant to the Plan of Arrangement in
exchange for LIPO Canada Shares which were designated as forfeitable shares pursuant to the LIPO
Option Plan, until such shares cease to be forfeitable in accordance with the conditions set out in
Appendix A.
Government Entity
means any federal, provincial, state, local or foreign government or any court
of competent jurisdiction, administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign.
Insolvency Event
means the institution by Exchangeco of any proceeding to be adjudicated a
bankrupt or insolvent or to be wound up, or the consent of Exchangeco to the institution of
bankruptcy, insolvency or winding-up proceedings against it, or the filing of a petition, answer or
consent seeking dissolution or winding-up under any bankruptcy, insolvency or analogous laws,
including without limitation the
Companies Creditors Arrangement Act
(Canada) and the
Bankruptcy
and Insolvency Act
(Canada), and the failure by Exchangeco to contest in good faith any such
proceedings commenced in respect of Exchangeco within 30 days of becoming aware thereof, or the
consent by Exchangeco to the filing of any such petition or to the appointment of a receiver, or
the making by Exchangeco of a general assignment for the benefit of creditors, or the admission in
writing by Exchangeco of its inability to pay its debts generally as they become due, or Exchangeco
not being permitted, pursuant to solvency requirements of applicable law, to redeem any Retracted
Shares pursuant to Section 6.6 of the Exchangeable Share Provisions.
Lock-Up Agreement
means the lock-up agreement entered into by each of the Beneficial Holders
pursuant to the terms of the Reorganization Agreement.
Lululemon Common Stock
means the common stock of Lululemon, par value US$0.01 per share and any
other securities into which such shares may be changed.
person
means any individual, a general or limited partnership, a corporation, a trust, a joint
venture, an unincorporated organization, a limited liability entity, any other entity and any
Government Entity.
Plan of Arrangement
means the plan of arrangement substantially in the form and content of
Exhibit B to the Arrangement Agreement and any amendments or variations thereto made in accordance
with Article 6 of the Arrangement Agreement or Article 6 of the Plan of Arrangement or made at the
direction of the Court.
Reorganization Agreement
means the Agreement and Plan of Reorganization dated April 26, 2007 by
and among Lululemon, Exchangeco, LIPO Canada, LIPO USA and certain other parties;
Subsidiary
of any person means any corporation or other organization whether incorporated or
unincorporated of which at least a majority of the securities or interests having by the terms
thereof ordinary voting power to elect at least a majority of the board of directors or others
performing similar functions with respect to such corporation or other organization is directly or
indirectly owned or controlled (i) by such person, (ii) by any one or more of its subsidiaries, or
(iii) by such person and one or more of its subsidiaries; provided, however, that no person that is
not directly or indirectly wholly-owned by any other person shall be a subsidiary of such other
person unless such other person controls, or has the right, power or ability to control, that
person.
Trust
means the trust created by this Trust Declaration.
Trust Estate
means the Forfeitable Shares, any other securities and any money or other property
which may be held by the Trustee from time to time pursuant to this Trust Declaration.
Trustee
means Dennis Wilson and, subject to the provisions of Article 6, includes any successor
trustee.
ARTICLE 2
PURPOSE OF TRUST DECLARATION
2.1 Continuance of Trust
Effective as at the time of the amendment of the Option Plan pursuant to the Plan of Arrangement,
the trust established by the Option Plan is hereby continued for the benefit of the Beneficial
Holders from time to time, and the Trustee agrees to hold the Forfeitable Shares and the Trust
Estate as trustee for the Beneficial Holders on the terms set out in this Trust Declaration.
ARTICLE 3
PROVISIONS APPLICABLE TO FORFEITABLE SHARES
3.1 Forfeitable Shares
Upon completion of the Plan of Arrangement, the Forfeitable Shares shall be issued to and
registered in the name of the Trustee, to be held in trust for the respective beneficial holders
(the
Beneficial Holders
) thereof pursuant to the terms of this Article 3. Shares which are
designated as Forfeitable Shares will be entitled to become non-forfeitable in accordance with the
conditions set out in Appendix A.
3.2 Trustee Agreements Related to Forfeitable Shares
The Trustee acknowledges and agrees that, other than as set forth in this Trust Declaration:
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(a)
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the Trustee will hold legal title to the Forfeitable Shares as nominee, agent
and trustee for the benefit and account of the respective Beneficial Holders thereof as
principal and beneficial owner subject to and in accordance with this Article 3 and
subject to the terms and conditions of any transfer, deed, shareholder agreement or
other instrument, document or encumbrance pertaining to the Forfeitable Shares;
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(b)
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subject to forfeiture pursuant to Section 3.4, any benefit, interest, profit or
advantage arising out of or accruing from such Forfeitable Shares is and will continue
to be a benefit, interest, profit or advantage of the Beneficial Holder and if received
by the Trustee will be received and held by the Trustee for the use, benefit and
advantage of the Beneficial Holder and the Trustee will account to the Beneficial
Holder for any money or other consideration paid to or to the order of the Trustee in
connection with the Trust Estate;
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(c)
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the Trustee may at his discretion, whether on his own initiative or upon the
direction of such Beneficial Holder, act as the agent of the Beneficial Holder, as
principal, in respect of any matter relating to such Forfeitable Shares or the
performance or observance of any contract or Agreement relating to the Forfeitable
Shares; and
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(d)
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the Trustee will have the full right and power to execute and deliver, under
seal and otherwise, any shareholder agreement or other instrument or document
pertaining to the Forfeitable Shares without delivering proof to any person (including,
without limitation, any other party to any such instrument or document) of its
authority to do so and any person may act in reliance on any such instrument or
document and for all purposes any such instrument or document will be binding on the
Beneficial Holder.
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3.3 Voting Rights
Notwithstanding anything to the contrary contained herein, the Trustee shall have sole power in his
absolute discretion to exercise the voting rights with respect to all Forfeitable Shares
outstanding, from time to time, for his own benefit, until such shares cease to be Forfeitable
Shares.
3.4 Forfeiture of Shares
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(a)
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Upon the date on which a holder of Forfeitable Shares ceases to be an Eligible
Person then the Trustee shall repurchase all Forfeitable Shares which it holds on
behalf of such holder including any benefit, interest, profit or advantage which may
have arisen or may in the future arise out of or accrue from such Forfeitable Shares,
for cash in an amount equal to the price paid for the shares of LIPO Canada upon
issuance thereof which were exchanged for such Forfeitable Shares pursuant to the Plan
of Arrangement.
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(b)
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Immediately following the payment of the purchase price referred to in Section
3.4(a) the Trustee shall distribute such funds to the Beneficial Holder and the Trustee
shall be the sole registered and beneficial owner of such Forfeitable Shares and all
such benefits, interest, profit or advantage.
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3.5 Ceasing to be Forfeitable Shares
Upon the later of (a) an Exchangeable Share ceasing to be a Forfeitable Share and (b) the expiry of
the Lock-Up Agreement to which the Beneficial Holder is a party, the provisions of this Article 3
shall cease to apply to such Share and legal title will pass to the Beneficial Holder thereof who
shall thenceforth be the sole legal and beneficial owner thereof. Promptly thereafter the Trustee
shall direct Exchangecos transfer agent to reregister such share in the name of such Beneficial
Holder, direct Exchangeco to deliver or cause to be delivered such re-registered share certificate
to the Beneficial Holder promptly after receipt thereof from the transfer agent and pay over to the
Beneficial Holder all benefits, interest, profit or advantage which have been received by the
Trustee in respect of such Forfeitable Shares.
ARTICLE 4
CONCERNING THE TRUSTEE
4.1 Powers and Duties of the Trustee
In addition to the rights set out in Article 3, but subject to his duties and obligations
hereunder, the Trustee will have in his capacity as Trustee of the Trust, the unfettered discretion
at any time and from time to time to administer the Trust Estate in whatever manner the Trustee may
determine, as if
he were the sole owner of the Trust Estate, including, without limitation, the power, duty and
authority to:
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(a)
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hold title to the Trust Estate;
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(b)
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invest any moneys forming, from time to time, a part of the Trust Estate as
provided in this Trust Declaration;
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(c)
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accelerate the vesting provisions attached to some or all of the Forfeitable
Shares;
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(d)
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consent to the transfer of a beneficial interest in the Forfeitable Shares to
an Eligible Person;
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(e)
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exchange the Forfeitable Shares or any part of the Trust Estate for other
property; and
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(f)
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take such other actions and doing such other things as are specifically
provided in this Trust Declaration.
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In the exercise of such rights, powers, duties and authorities the Trustee shall have (and is
granted) such incidental and additional rights, powers, duties and authority not in conflict with
any of the provisions of this Trust Declaration as the Trustee, acting in good faith and in the
reasonable exercise of its discretion, may deem necessary, appropriate or desirable to effect the
purpose of the Trust. Any exercise of such discretionary rights, powers, duties and authorities by
the Trustee shall be final, conclusive and binding upon all persons.
The Trustee in exercising its rights, powers, duties and authorities hereunder shall act honestly
and in good faith and with a view to the best interests of the Beneficial Holders and shall
exercise the care, diligence and skill that a reasonable person would exercise in comparable
circumstances.
The Trustee shall not be bound to give notice or do or take any act, action or proceeding by virtue
of the powers conferred on it hereby unless and until he shall be specifically required to do so
under the terms hereof; nor shall the Trustee be required to take any notice of, or to do, or to
take any act, action or proceeding as a result of any default or breach of any provision hereunder,
unless and until notified in writing of such default or breach, which notices shall distinctly
specify the default or breach desired to be brought to the attention of the Trustee, and in the
absence of such notice the Trustee may for all purposes of this Trust Declaration conclusively
assume that no default or breach has been made in the observance or performance of any of the
representations, warranties, covenants, agreements or conditions contained herein.
4.2 Income Tax Returns and Reports
The Trustee shall, to the extent necessary, prepare and file on behalf of the Trust appropriate
United States and Canadian income tax returns and any other returns or reports as may be required
by applicable law or pursuant to the rules and regulations of any securities exchange or other
trading system through which the Exchangeable Shares are traded. In connection therewith, the
Trustee may obtain the advice and assistance of such experts or advisors as the Trustee considers
necessary or advisable (who may be experts or advisors to Lululemon or Exchangeco).
4.3 Action of Beneficial Holders
No Beneficial Holder shall have the right to institute any action, suit or proceeding or to
exercise any other remedy authorized by this Trust Declaration for the purpose of enforcing any of
its rights or for the execution of any trust or power hereunder unless the Beneficial Holder has
requested the Trustee to take or institute such action, suit or proceeding and the Trustee shall
have failed to act within a reasonable time thereafter. In such case, but not otherwise, the
Beneficial Holder shall be entitled to take proceedings in any court of competent jurisdiction such
as the Trustee might have taken; it being understood and intended that no one or more Beneficial
Holders shall have any right in any manner whatsoever to affect, disturb or prejudice the rights
hereby created by any such action, or to enforce any right hereunder, except subject to the
conditions and in the manner herein provided, and that all powers and trusts hereunder shall be
exercised and all proceedings at law shall be instituted, had and maintained by the Trustee, except
only as herein provided, and in any event for the equal benefit of all Beneficial Holders.
4.4 Reliance Upon Declarations
The Trustee shall not be considered to be in contravention of any of his rights, powers, duties and
authorities hereunder if, when required, it acts and relies in good faith upon statutory
declarations, certificates, opinions or reports furnished pursuant to the provisions hereof or
required by the Trustee to be furnished to it in the exercise of its rights, powers, duties and
authorities hereunder if such statutory declarations, certificates, opinions or reports comply with
the provisions of this Trust Declaration.
4.5 Trustee Not Required to Give Security
The Trustee shall not be required to give any bond or security in respect of the execution of the
trusts, rights, duties, powers and authorities of this Trust Declaration.
4.6 Conflicting Claims
If conflicting claims or demands are made or asserted with respect to any interest of any
Beneficial Holder in any Exchangeable Shares, including any disagreement between the heirs,
representatives, successors or assigns succeeding to all or any part of the interest of any
Beneficial Holder in any Exchangeable Shares, resulting in conflicting claims or demands being made
in connection with such interest, then the Trustee shall be entitled, at its sole discretion, to
refuse to recognize or to comply with any such claims or demands. In so refusing, the Trustee may
elect not to exercise any rights hereunder subject to such conflicting claims or demands and, in so
doing, the Trustee shall not be or become liable to any person on account of such election or its
failure or refusal to comply with any such conflicting claims or demands. The Trustee shall be
entitled to continue to refrain from acting and to refuse to act until:
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(a)
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the rights of all adverse claimants with respect to the rights subject to such
conflicting claims or demands have been adjudicated by a final judgment of a court of
competent jurisdiction; or
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(b)
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all differences with respect to the other rights subject to such conflicting
claims or demands have been conclusively settled by a valid written agreement binding
on all
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such adverse claimants, and the Trustee shall have been furnished with an executed
copy of such agreement certified to be in full force and effect.
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If the Trustee elects to recognize any claim or comply with any demand made by any such adverse
claimant, it may in its discretion require such claimant to furnish such surety bond or other
security satisfactory to the Trustee as it shall deem appropriate to fully indemnify it as between
all conflicting claims or demands.
4.7 Acceptance of Trust
The Trustee hereby accepts the Trust created and provided for by and in this Trust Declaration and
agrees to perform the same upon the terms and conditions herein set forth and to hold all rights,
privileges and benefits conferred hereby and by law in trust for the various persons who shall from
time to time be Beneficial Holders, subject to all the terms and conditions herein set forth.
ARTICLE 5
LIMITATION OF LIABILITY
5.1 Limitation of Liability
The Trustee shall not be held liable for any loss or damage relating to any matter regarding the
Trust or the performance of its duties and obligations hereunder, including, without limitation,
any loss which may occur by reason of depreciation of the value of any part of the Trust Estate or
any loss incurred on any investment of funds pursuant to this Trust Declaration, except to the
extent that such loss is attributable to the fraud, gross negligence, recklessness, wilful
misconduct or bad faith on the part of the Trustee.
The Trustee will not be liable to the Trust or to any Beneficial Holder for the acts, omissions,
receipts, neglects or defaults of any person, firm or corporation employed or engaged by it as
permitted hereunder, or for joining in any receipt or act of conformity, or for any loss, damage or
expense caused to the Trust through the insufficiency or deficiency of any security in or upon
which any of the monies of or belonging to the Trust shall be laid out or invested, or for any loss
or damage arising from the bankruptcy, insolvency or tortious act of any person, firm or
corporation with whom or which the Trust Estate or any part of it shall be lodged or deposited, or
for any loss occasioned by error in judgment or oversight on the part of the Trustee, or for any
other loss, damage or misfortune which may happen in the execution by the Trustee of his duties
hereunder, except to the extent that the Trustee does not meet the standard of care set out in
Section 4.1 and except as set out in this Article 5.
ARTICLE 6
CHANGE OF TRUSTEE
6.1 Resignation
The Trustee, or any Trustee hereafter appointed, may at any time resign by appointing a successor
trustee provided that such resignation shall not take effect until the date of the appointment of a
successor trustee and the acceptance of such appointment by the successor trustee.
6.2 Successor Trustee
Any successor trustee appointed as provided under this Trust Declaration shall execute an
instrument accepting such appointment. Thereupon the resignation or removal of the predecessor
trustee shall become effective and such successor trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, duties and obligations of its
predecessor under this Trust Declaration, with the like effect as if originally named as trustee in
this Trust Declaration.
6.3 Declaration of Trustee
If the Trustee dies during the term of this Trust before he has resigned and appointed a successor
trustee, the persons who are the executors and trustees of the last will and testament of the
Trustee will have the right to appoint a successor trustee of the Trust.
6.4 Notice of Successor Trustee
Upon acceptance of appointment by a successor trustee as provided herein, the successor trustee
shall cause to be mailed notice of the succession of such trustee hereunder to each Beneficial
Holder.
ARTICLE 7
AMENDMENTS AND SUPPLEMENTAL TRUST DECLARATIONS
7.1 Amendments, Modifications, etc.
This Trust Declaration may not be amended or modified except by an Agreement in writing executed by
the Trustee and approved by the Beneficial Holders in accordance with Section 10.2 of the
Exchangeable Share Provisions.
7.2 Ministerial Amendments
Notwithstanding the provisions of Section 7.1, the Trustee may in writing, at any time and from
time to time, without the approval of the Beneficial Holders, amend or modify this Trust
Declaration for the purposes of:
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(a)
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adding to the covenants of any or all parties hereto for the protection of the
Beneficial Holders hereunder if the Trustee is of the good faith opinion that such
additions will not be prejudicial to the rights or interests of the Beneficial Holders;
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(b)
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making such amendments or modifications not inconsistent with this Trust
Declaration as may be necessary or desirable with respect to matters or questions
which, in the good faith opinion of the Trustee, having in mind the best interests of
the Beneficial Holders it may be expedient to make, provided that the Trustee, acting
on the advice of counsel, is of the opinion that such amendments and modifications will
not be prejudicial to the interests of the Beneficial Holders; or
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(c)
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making such changes or corrections which, on the advice of counsel to the
Trustee, are required for the purpose of curing or correcting any ambiguity or defect
or inconsistent provision or clerical omission or mistake or manifest error, provided
that
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the Trustee, acting on the advice of counsel is of the opinion that such changes or
corrections will not be prejudicial to the rights and interests of the Beneficial
Holders.
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7.3 Meeting to Consider Amendments
The Trustee will request Exchangeco to call a meeting or meetings of the Beneficial Holders for the
purpose of considering any proposed amendment or modification requiring approval pursuant hereto.
Any such meeting or meetings shall be called and held in accordance with the articles of
Exchangeco, the Exchangeable Share Provisions and all applicable laws.
7.4 Execution of Supplemental Trust Declarations
No amendment to or modification or waiver of any of the provisions of this Trust Declaration
otherwise permitted hereunder shall be effective unless made in writing and signed by the Trustee.
From time to time, the Trustee may, subject to the provisions of this Trust Declaration, execute
and deliver, trust agreements or other instruments supplemental hereto, which thereafter shall form
part hereof, for any one or more of the following purposes:
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(a)
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making any additions to, deletions from or alterations of the provisions of
this Trust Declaration, which, in the opinion of the Trustee, will not be prejudicial
to the interests of the Beneficial Holders or are, in the opinion of counsel to the
Trustee, necessary or advisable in order to incorporate, reflect or comply with any
legislation the provisions of which apply to Lululemon, Exchangeco, the Trustee or this
Trust Declaration; and
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(b)
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for any other purposes not inconsistent with the provisions of this Trust
Declaration, including without limitation, to make or evidence any amendment or
modification to this Trust Declaration as contemplated hereby, provided that, in the
opinion of the Trustee, the rights of the Trustee and Beneficial Holders will not be
prejudiced thereby.
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ARTICLE 8
TERMINATION
8.1 Term
The Trust created by this Trust Declaration shall continue until the earliest to occur of the
following events:
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(a)
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no outstanding Forfeitable Shares are held by the Trustee;
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(b)
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the Trustee elects in writing to terminate the Trust and such termination is
approved by the Beneficial Holders in accordance with section 10.2 of the Exchangeable
Share Provisions; and
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(c)
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21 years after the death of the last survivor of the descendants of His Majesty
King George VI of Canada and the United Kingdom of Great Britain and Northern Ireland
living on the date of the creation of the Trust.
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8.2 Survival of Trust Declaration
This Trust Declaration shall survive any termination of the Trust and shall continue until there
are no Forfeitable Shares outstanding held by the Trustee; provided, however, that the provisions
of Article 5 shall survive any such termination of this Trust Declaration.
ARTICLE 9
GENERAL
9.1 Notices
All notices, requests, claims, demands, waivers and other communications under this Trust
Declaration shall be in writing and shall be deemed given (a) five Business Days following sending
by registered or certified mail, postage prepaid, (b) when sent, if sent by facsimile, provided
that the facsimile transmission is promptly confirmed by telephone, (c) when delivered, if
delivered personally to the intended recipient and (d) one Business Day following sending by
overnight delivery via a courier service that is nationally recognized in the U.S. and Canada and,
in each case, addressed to a party at the following address for such party.
If to the Trustee, to:
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Dennis Wilson
#2 2108 West 4th Avenue
Vancouver, BC V6K 1N6
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If to the Beneficial Holders to the last address in the central securities register for Exchangeco.
or to such other address(es) as shall be furnished in writing by any such party to the other party
hereto in accordance with the provisions of this Section 9.1.
9.2 Interpretation
When a reference is made in this Trust Declaration to an Article or a section, such reference shall
be to an Article or a section of this Trust Declaration unless otherwise indicated. The table of
contents and headings contained in this Trust Declaration are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Trust Declaration. Whenever the words
include, includes or including are used in this Trust Declaration, they shall be deemed to be
followed by the words without limitation. The terms this Trust Declaration, hereof, herein
and hereunder and similar expressions refer to this Trust Declaration and not to any particular
Article, section or other portion hereof and include any agreement or instrument supplementary or
ancillary hereto. Words importing the singular number only shall include the plural and vice
versa. Words importing any gender shall include all genders. If any date on which any action is
required to be taken under this Trust Declaration is not a Business Day, such action shall be
required to be taken on the next succeeding Business Day.
9.3 Severability
If any term or other provision of this Trust Declaration is invalid, illegal or incapable of being
enforced by any rule or law, or public policy, all other conditions and provisions of this Trust
Declaration shall nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner materially adverse
to any party. Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Trust
Declaration so as to effect the original intent of the parties as closely as possible to the end
that the transactions contemplated hereby are fulfilled to the extent possible.
9.4 Counterparts
This Trust Declaration may be executed in one or more counterparts, all of which shall be
considered one and the same Trust Declaration and shall become effective when one or more
counterparts have been signed by each of the parties hereto and delivered to the other parties.
9.5 Governing Law
This Trust Declaration shall be governed by, and construed in accordance with, the laws of the
Province of British Columbia and the laws of Canada applicable therein, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
9.6 Enforcement
The parties hereto agree that irreparable damage would occur in the event that any of the
provisions of this Trust Declaration were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties hereto shall be entitled to an
injunction or injunctions to prevent breaches of any provision of this Trust Declaration and to
enforce specifically the terms and provisions of this Trust Declaration in any court of competent
jurisdiction in the Province of British Columbia, this being in addition to any other remedy to
which they are entitled at law or in equity. In addition, each of the parties hereto (a) consents
to submit itself to the personal jurisdiction of any court of competent jurisdiction in the
Province of British Columbia, in the event any dispute arises out of this Trust Declaration, (b)
agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court, (c) agrees that it will not bring any action relating to
this Trust Declaration in any court other than any court of competent jurisdiction in the Province
of British Columbia, and (d) waives any right to trial by jury with respect to any action related
to or arising out of this Trust Declaration.
9.7 No Waiver
No provisions of this Trust Declaration shall be deemed waived by any party, unless such waiver is
in writing and signed by the authorized representatives of the person against whom it is sought to
enforce such waiver.
9.8 Expenses
Except as expressly set forth in this Trust Declaration, all costs and expenses and third party
fees, paid or incurred in connection with this Trust Declaration shall be paid in accordance with
section 7.6 of the Arrangement Agreement.
9.9 Further Assurances
From time to time, as and when requested by any party, each party shall execute and deliver, or
cause to be executed and delivered, all such documents and instruments and shall take, or cause to
be taken, all such further or other actions, as such other party may reasonably deem necessary or
desirable to consummate the transactions contemplated by this Trust Declaration.
IN WITNESS WHEREOF the Trustee has caused this Trust Declaration to be duly executed under seal as
of the date first above written.
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By :
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/s/ Dennis Wilson
DENNIS WILSON
, in his capacity as trustee
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APPENDIX A
RELEASE CONDITIONS ATTACHED TO FORFEITABLE SHARES
The number of Exchangeable Shares which cease to be forfeitable on the dates set out below shall be
determined by multiplying the appropriate number in the chart below by the Exchange Ratio (as defined in the
Plan of Arrangement).
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|
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|
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Beneficial Holder
|
|
December 5, 2007
|
|
December 5, 2008
|
|
December 5, 2009
|
|
Total
|
Darrell Kopke
|
|
|
238,312
|
|
|
|
111,122
|
|
|
|
27,662
|
|
|
|
377,096
|
|
Deanne Schweitzer
|
|
|
158,875
|
|
|
|
74,082
|
|
|
|
18,439
|
|
|
|
251,396
|
|
Christopher Ng
|
|
|
48,525
|
|
|
|
48,525
|
|
|
|
27,661
|
|
|
|
124,711
|
|
Shannon Wilson
|
|
|
105,917
|
|
|
|
49,388
|
|
|
|
12,292
|
|
|
|
167,597
|
|
Delaney Schweitzer
|
|
|
59,702
|
|
|
|
43,214
|
|
|
|
10,756
|
|
|
|
113,672
|
|
Julianne Lee
|
|
|
52,084
|
|
|
|
52,084
|
|
|
|
13,829
|
|
|
|
117,997
|
|
Bree Stanlake
|
|
|
45,128
|
|
|
|
45,128
|
|
|
|
13,832
|
|
|
|
104,088
|
|
Karen Wyder
|
|
|
73,513
|
|
|
|
61,735
|
|
|
|
15,364
|
|
|
|
150,612
|
|
Brian Bacon
|
|
|
76,346
|
|
|
|
76,346
|
|
|
|
27,661
|
|
|
|
180,353
|
|
Chloe Gow-Jarret
|
|
|
50,147
|
|
|
|
33,954
|
|
|
|
8,452
|
|
|
|
92,553
|
|
Cassandra Sze
|
|
|
30,695
|
|
|
|
27,781
|
|
|
|
6,916
|
|
|
|
65,392
|
|
Erin Westelman
|
|
|
22,546
|
|
|
|
22,546
|
|
|
|
9,989
|
|
|
|
55,081
|
|
David Andru
|
|
|
10,372
|
|
|
|
10,372
|
|
|
|
10,373
|
|
|
|
31,117
|
|
Jenna Hills
|
|
|
35,730
|
|
|
|
27,781
|
|
|
|
6,914
|
|
|
|
70,425
|
|
Laura Rowse
|
|
|
20,219
|
|
|
|
20,219
|
|
|
|
11,525
|
|
|
|
51,963
|
|
Lisa Fuhrman
|
|
|
27,578
|
|
|
|
27,578
|
|
|
|
8,453
|
|
|
|
63,609
|
|
Kerry Brown
|
|
|
17,692
|
|
|
|
17,692
|
|
|
|
14,137
|
|
|
|
49,521
|
|
Jeremy Wong
|
|
|
27,049
|
|
|
|
24,694
|
|
|
|
6,147
|
|
|
|
57,890
|
|
Bonnie Fung
|
|
|
7,171
|
|
|
|
7,171
|
|
|
|
7,172
|
|
|
|
21,514
|
|
Erica Larsen
|
|
|
935
|
|
|
|
935
|
|
|
|
935
|
|
|
|
2,805
|
|
Andrea Murray
|
|
|
51,458
|
|
|
|
43,214
|
|
|
|
10,757
|
|
|
|
105,429
|
|
Jeramiah Morris
|
|
|
24,303
|
|
|
|
24,303
|
|
|
|
6,915
|
|
|
|
55,521
|
|
Diana Mulvey
|
|
|
11,525
|
|
|
|
11,525
|
|
|
|
11,525
|
|
|
|
34,575
|
|
TOTAL
|
|
|
1,195,822
|
|
|
|
861,389
|
|
|
|
287,706
|
|
|
|
2,344,917
|
|
Exhibit 10.9
CONTRIBUTION AGREEMENT
This Contribution Agreement (the
Agreement
) is made this 26th day of July, 2007, by
and among (i) lululemon athletica inc., a Delaware corporation (the
Company
), (ii) Slinky
Financial ULC, an Alberta unlimited company (
Slinky Financial
), (iv) each of the persons
listed under the heading Advent Holders on the signature pages hereto (the
Advent
Holders
), (v) each of the persons listed under the heading Highland Holders on the signature
pages hereto (the
Highland Holders
), and (vi) each of the persons listed under the
heading Brooke Holders on the signature pages hereto (the
Brooke Holders
, and together
with Slinky Financial, the Advent Holders and the Highland Holders, the
Holders
).
Capitalized terms used, but not otherwise defined herein, shall have the meaning set forth in the
Underwriting Agreement (as defined below in the Background section of this Agreement).
BACKGROUND
Subject to the terms and conditions stated in the Underwriting Agreement, dated of even date
herewith, by and among the Company, the underwriters named in Schedule I thereto (the
Underwriters
) and the Holders (the
Underwriting Agreement
), the Holders propose
to sell the aggregate number of shares of Companys common stock, par value $0.01 per share (the
Common Stock
) stated therein in connection with the Companys initial public offering
(the
Offering
).
Section 11 of the Securities Act of 1933, as amended (the
Securities Act
) provides
for the imposition of civil liability on certain specified persons, including underwriters, in
connection with registered public offerings if the registration statement relating to the Offering
contains an untrue statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading (a
Material
Misstatement or Omission
). Although the Holders are merely selling shares of Common Stock in
the Offering and are not functioning as underwriters in connection with the Offering, as part of
the regulatory review of the Registration Statement by the Securities and Exchange Commission, the
Company has been required to disclose in the prospectus included in the Registration Statement a
statement concerning the potential status of the Holders as underwriters within the meaning of
Section 11 of the Securities Act.
The Company and the Holders are party to that certain Agreement and Plan of Reorganization,
dated April 26, 2007 (the
Reorganization Agreement
) which provides that the Company will
indemnify the Holders for any losses, claims, damages, liabilities and expenses arising out of or
based upon, among other things, (i) any misstatement in or omission from any representation or
warranty, or any breach of covenant or agreement, in each case made or deemed made by the Company
in any underwriting or similar agreement entered into by the Company in connection with any
registration statement, including, the Underwriting Agreement, (ii) any untrue or alleged untrue
statement of a material fact contained in any registration statement under which the Common Stock
were registered under the Securities Act (including any final, preliminary or summary prospectus
contained therein or any amendment thereof or supplement thereto or any documents incorporated by
reference therein), and (iii) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein (in the case of a
prospectus or preliminary prospectus, in light of the circumstances under which they were made) not
misleading.
In connection with the Offering, the Company and the Holders desire to enter into this
Agreement to provide for contribution with respect to any liability that any Holder may incur under
Section 11 of the Securities Act subject to the terms provided herein.
-1-
AGREEMENT
NOW, THEREFORE
, in consideration of the foregoing, and for other good and valuable
consideration, the receipt and sufficiency of which hereby is acknowledged, the parties intending
to be legally bound hereto agree as follows:
ARTICLE I
CONTRIBUTION BY THE HOLDERS
Section 1.1.
Right to Seek Contribution
.
(a) In the event that a Holder becomes liable for any losses, claims, damages or liabilities
under the Securities Act, Canadian Securities Laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based upon a
determination by a court of competent jurisdiction that such Holder is an underwriter for purposes
of Section 11 of the Securities Act (
Underwriter Liability
), such Holder shall be
entitled to request that the Company and the other Holders contribute to the requesting Holders
Underwriter Liability, subject, in each case, to the limitations set forth herein. A Holder who
seeks the contribution to such Holders Underwriter Liability from the Company and the other
Holders is referred to herein as the
Claimant
and the Holders who are requested to
contribute to a Claimants request for contribution are referred to herein as the
Contributing
Holders
.
(b) The parties hereto acknowledge that Section 11 of the Securities Act provides for
liability for specified persons in addition to underwriters, including,
inter alia
, for any person
who signs the Registration Statement. Nevertheless, the rights of contribution and other terms and
conditions of this Agreement are not intended to give rise to any rights or obligations of the
parties hereto with respect to any losses, claims, damages or liabilities which any Holder may
incur pursuant to Section 11 of the Securities Act other than Underwriter Liability. Further,
nothing in this Agreement is intended to alter any rights or obligations the parties hereto may
have under any law, regulation, contract or otherwise, with respect to any losses, claims, damages
or liabilities which any Holder may incur pursuant to Section 11 of the Securities Act other than
Underwriter Liability.
Section 1.2.
Claim Notice.
A Claimant shall notify in writing (the
Claim
Notice
) the Company and the other Holders promptly after the Claimant has knowledge that it
shall be responsible or otherwise liable for an Underwriter Liability. The Claim Notice shall
include (a) the amount of the Underwriter Liability to be paid or paid by the Claimant, (b) the
amount of legal or other expenses reasonably incurred by the Claimant in connection with
investigating or defending any action, suit or proceeding which gave rise to the Underwriter
Liability (and not including any legal or other expenses incurred by the Claimant relating to the
enforcement of the Claimants rights under this Agreement), (c) the total amount of any Recovered
Amounts (as defined in Section 1.5), (d) a brief summary of the facts underlying or otherwise
pertaining to the Underwriter Liability, and (e) wire transfer instructions for the account(s) to
which the Claimant would like the Company and the Contributing Holders to remit their Contribution
Amounts (as defined Section 1.3(b)). A Claimant shall be required to notify the Company and the
Contributing Holders promptly of any change in any of the foregoing information.
Section 1.3.
Contribution
.
(a) Subject to the terms, conditions and limitations set forth herein, the Company and the
Contributing Holders shall contribute towards the Claimants Underwriter Liability on a
pro rata
basis in accordance with their respective Contribution Percentages. Each of the Company and the
Contributing Holders shall contribute towards a Claimants Underwriter Liability by delivering
their respective Contribution Amounts to the Claimant within ten (10) New York Business Days
following their receipt of evidence of
-2-
payment of an Underwriter Liability by such Claimant, in accordance with the wire transfer
instructions set forth in the corresponding Claim Notice.
(b) The
Contribution Amount
of the Company and the Holders with respect to a
Claimants Underwriter Liability, means the Contribution Percentage of the Company or such Holder,
as the case may be,
multiplied
by the amount by which (i) the amount of such Underwriter Liability
as set forth in the corresponding Claim Notice, exceeds (ii) any Recovered Amounts received by the
Claimant. As used herein,
Contribution Percentage
means, with respect to the Company and
each Holder, the percentage obtained by
dividing
(
x
) the number of shares of Common Stock sold by
the Company or such Holder, as the case may be, pursuant to the Underwriting Agreement, by (
y
) the
aggregate number of shares of Common Stock sold by the Company and all Holders pursuant to the
Underwriting Agreement.
(c) If the contribution provided for in this Section 1.3 is unavailable to or insufficient to
reimburse a Claimant for a Underwriter Liability, then the Company and each of the Holders
(including the Claimant) shall contribute to the Underwriter Liability in such proportion as is
appropriate to reflect the relative benefits received by the Company and the Holders from the
offering of the Shares. If, however, the allocation provided by the immediately preceding sentence
is not permitted by applicable law, then the Company and each Holder (including the Claimant) shall
contribute to the Underwriter Liability in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company and the Holders in connection
with the statements or omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Holders shall be deemed to be in the same proportion as
the gross proceeds from the Offering received by the Company and each of the Holders. The relative
fault shall be determined by reference to, among other things, whether the misrepresentation or
alleged misrepresentation, the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information supplied by the
Company or a Holder and their relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Holders agree that it would not
be just and equitable if contributions pursuant to this Section 1.3(c) were determined by
pro rata
allocation or by any other method of allocation which does not take account of the equitable
considerations referred to in this Section 1.3(c). The amount paid or payable by a Claimant as a
result of a Underwriter Liability shall be deemed to include any legal or other expenses reasonably
incurred by the Claimant in connection with investigating or defending any such action or claim.
Section 1.4.
Limitations on Contributions
.
(a) Notwithstanding any provision herein to the contrary, no Holder shall be required to
contribute any amount under this Agreement to the extent that such contribution, together with any
amounts required to be paid by such Holder pursuant to the indemnification provisions of the
Underwriting Agreement, any amounts required to be paid by such Holder pursuant to that certain
Indemnification Contribution Agreement, dated the date of this Agreement, by and among Dennis
Wilson and the Holders (the
Indemnification Contribution Agreement
), or otherwise arising
out of any Material Misstatement or Omission (in each such case without double-counting the same
payment obligation), exceed the amount of gross proceeds received by such Holder from the sale of
shares of Common Stock in the Offering, and the obligation of the Holders to make a payment under
this Agreement with respect to any Underwriter Liability shall be reduced by any Recovered Amounts.
(b) Notwithstanding any provision herein to the contrary, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent misrepresentation.
-3-
(c) The Companys and the Holders obligations under this Agreement to contribute to an
Underwriter Liability are several in proportion to their respective amounts of gross proceeds
received in the Offering, and not joint.
(d) The terms of this Agreement and the Indemnification Contribution Agreement shall be
applied equitably so that no person shall be entitled to indemnification and/or contribution for
the same liability under both agreements.
Section 1.5.
Reimbursement of Recovered Amounts
.
(a) If any Contributing Holder other than the Company has contributed to a Claimants
Underwriter Liability hereunder, and the Claimant receives Recovered Amounts, then the Claimant
shall promptly notify such Contributing Holder of such facts and shall deliver to such Contributing
Holder its Contribution Percentage of the Recovered Amounts within five (5) New York Business Days
after receipt of such Recovered Amounts, unless the Recovered Amounts had already been taken into
account in computing the Contributing Holders Contribution Amount under clause (ii) of Section
1.3(b). Any funds required to be paid by the Claimant to any Contributing Holder pursuant to this
Section 1.5 shall be delivered to such Contributing Holder via wire transfer to the account
designated in writing by such Contributing Holder from time to time.
(b) For purposes of this Agreement, the term
Recovered Amounts
shall mean any amount
received by a Claimant from a source other than the Contributing Holders with respect to such
Claimants Underwriter Liability, including, without limitation:
(i) any payment received from the Company in accordance with Section 6.2(f) of the Agreement
and Plan of Reorganization, dated April 26, 2007, by and among the Company, Lululemon Athletica
USA, Inc., LIPO Investments (USA) Inc., LIPO Investments (Canada) Inc., Lulu Canadian Holding Inc.,
and the parties listed on Schedules I and II thereto (the
Reorganization Agreement
), or
otherwise, with respect to or otherwise in connection with such Underwriter Liability;
(ii) any contribution towards such Underwriter Liability from any person other than the
Contributing Holders, including pursuant to any applicable insurance policy; or
(iii) any full or partial reimbursement of such Underwriter Liability from a person to whom
the Claimant paid such Underwriter Liability.
ARTICLE II
INDEMNIFICATION BY THE COMPANY
Section 2.1.
Acknowledgement of Indemnification Obligations
. The Company hereby
acknowledges and agrees that in connection with the Offering and the filing of the Registration
Statement, the Company is required to indemnify the Holders in the manner and to the extent
provided in Section 6.2(f) of the Reorganization Agreement.
Section 2.2.
No Limitation of Companys Indemnification Obligations
. The Company
hereby acknowledges and agrees that this Agreement shall in no way limit the Companys
indemnification obligations under Section 6.2(f) of the Reorganization Agreement or otherwise
excuse the Company from indemnifying the Holders as provided in Section 6.2(f) of the
Reorganization Agreement.
-4-
ARTICLE III
MISCELLANEOUS
Section 3.1.
No Agreement as to Underwriter Status
. The execution of this Agreement
shall not be construed as an admission or other confirmation that any of the Holders are
underwriters within the meaning of Section 11 of the Securities Act or otherwise.
Section 3.2.
Effective Date and Termination
. This Agreement shall be effective as of
the date first written above and, if the Underwriting Agreement has not been entered into on or
before December 31, 2007, this Agreement shall terminate on December 31, 2007.
Section 3.3.
Rules of Construction
. In this Agreement, unless otherwise specified or
where the context otherwise requires: (a) the headings of particular provisions of this Agreement
are inserted for convenience only and will not be construed as a part of this Agreement or serve as
a limitation or expansion on the scope of any term or provision of this Agreement; (b) words
importing any gender shall include other genders; (c) words importing the singular only shall
include the plural and vice versa; (d) the words include, includes or including shall be
deemed to be followed by the words without limitation; (e) the words hereof, herein and
herewith and words of similar import shall, unless otherwise stated, be construed to refer to
this Agreement as a whole and not to any particular provision of this Agreement; (f) unless the
context otherwise requires, references to Articles or Sections shall be to Articles or Sections
of this Agreement; (g) references to any person include the successors and permitted assigns of
such person; (h) references to any agreement or contract, unless otherwise stated, are to such
agreement or contract as amended, modified or supplemented from time to time in accordance with the
terms hereof and thereof; and (i) the parties hereto have participated jointly in the negotiation
and drafting of this Agreement; accordingly, in the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly by the parties
hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party hereto
by virtue of the authorship of any provisions of this Agreement.
Section 3.4.
Notices
. All statements, requests, notices and agreements hereunder
shall be in writing, and shall be delivered or sent by mail, telex or facsimile transmission to the
parties hereto at their respective addresses as set forth on the signature pages hereto. Any such
statements, requests, notices or agreements shall take effect upon receipt thereof.
Section 3.5.
Benefits of Agreement; Assignment
. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Except as expressly provided herein, this Agreement shall not
confer any rights or remedies upon any individual or entity other than the foregoing. This
Agreement may not be assigned, in whole or in part, by any party, whether by operation of law or
otherwise, without the consent of the other parties hereto,
provided, that
any such party may
assign its right to receive a payment entitled to be received by such party pursuant to this
Agreement as if such assignee were an original signatory to this Agreement.
Section 3.6.
Governing Law
. This Agreement shall be construed and enforced in
accordance with the laws of the State of New York without regard to the application of the
principles of conflicts or choice of laws.
Section 3.7.
Jurisdiction
. Each of the parties hereto submits to the jurisdiction of
the courts of the State of New York and the courts of the United States of America located in the
State of New York over any suit, action or proceeding with respect to this Agreement or the
transactions contemplated hereby. Any suit, action or proceeding with respect to this Agreement
may be brought only in the courts of the State of New York or the courts of the United States of
America, in each case, located in the Borough of Manhattan, City of New York, State of New York.
Each of the parties hereto waives any objection that it may have to the venue
-5-
of such suit, action or proceeding in any such court or that such suit, action or proceeding
in such court was brought in an inconvenient forum and agrees not to plead or claim the same.
Section 3.8.
WAIVER OF JURY TRIAL
. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
Section 3.9.
Entire Agreement
. This Agreement supersedes all prior agreements among
the parties with respect to the subject matter hereof. This Agreement contains the entire
agreement among the parties with respect to the subject matter hereof except where expressly
otherwise stated herein. The parties acknowledge that (a) the Reorganization Agreement,
Underwriting Agreement and Indemnification Contribution Agreement contain separate indemnification
and contribution provisions which are independent of the obligations of the parties hereto and (b)
the indemnification and contribution provisions of the Reorganization Agreement, Underwriting
Agreement and Indemnification Contribution Agreement do not conflict with the terms hereof.
Section 3.10.
Severability
. Any provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining provisions hereof,
and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 3.11.
Counterparts
. This Agreement may be executed in any number of
counterparts, which when taken together, shall constitute but one and the same instrument. Any and
all counterparts may be executed by facsimile.
[
Signature Page Follows
]
-6-
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date
first written above.
|
|
|
|
|
|
|
|
|
lululemon athletica inc.
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Robert Meers
|
|
|
|
|
Name: Robert Meers
|
|
|
|
|
Title: Authorized Person
|
|
|
|
|
|
|
|
|
|
|
|
Address for Notices:
|
|
|
|
|
|
|
|
|
|
|
|
Address for Notices:
|
|
|
|
|
c/o lululemon athletica inc.
|
|
|
|
|
1945 McLean Drive
|
|
|
|
|
Vancouver, BC, V5N3J7
|
|
|
|
|
Attention: Chief Executive Officer
|
|
|
|
|
Facsimile Number: (604) 874-6124
|
|
|
|
|
|
|
|
|
|
|
|
SLINKY INVESTMENTS ULC
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
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/s/ Dennis Wilson
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Name: Dennis Wilson
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Title: Authorized Person
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Address for Notices:
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#2 - 2108 West 4
th
Avenue
Vancouver, BC, V6K 1N6
Attention: Dennis Wilson
Facsimile Number: (604) 737-7267
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with a copy to (which shall not constitute notice):
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McCullough OConnor Irwin LLP
#1100 888 Dunsmuir St.
Vancouver, BC V6C 3K4
Facsimile: (604) 687-7099
Attention: Jonathan McCullough
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/s/ Dennis Wilson
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Dennis Wilson
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Address for Notices:
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#2 - 2108 West 4
th
Avenue
Vancouver, BC, V6K 1N6
Attention: Dennis Wilson
Facsimile Number: (604) 737-7267
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with a copy to (which shall not constitute notice):
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McCullough OConnor Irwin LLP
#1100 888 Dunsmuir St.
Vancouver, BC V6C 3K4
Facsimile: (604) 687-7099
Attention: Jonathan McCullough
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ADVENT HOLDERS:
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ADVENT INTERNATIONAL GPE V LIMITED PARTNERSHIP
ADVENT INTERNATIONAL GPE V-A LIMITED PARTNERSHIP
ADVENT INTERNATIONAL GPE V-B LIMITED PARTNERSHIP
ADVENT INTERNATIONAL GPE V-G LIMITED PARTNERSHIP
ADVENT INTERNATIONAL GPE V-I LIMITED PARTNERSHIP
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By:
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GPE V GP Limited Partnership, General Partner
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By:
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Advent International LLC, General Partner
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By:
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Advent International Corporation, Manager
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By:
Name:
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/s/ Steven J. Collins
Steven J. Collins
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Title:
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Vice President
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ADVENT PARTNERS III LIMITED PARTNERSHIP
ADVENT PARTNERS GPE V LIMITED PARTNERSHIP
ADVENT PARTNERS GPE V-A LIMITED PARTNERSHIP
ADVENT PARTNERS GPE V-B LIMITED PARTNERSHIP
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By:
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Advent International LLC, General Partner
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By:
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Advent International Corporation, Manager
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By:
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/s/ Steven J. Collins
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Name:
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Steven J. Collins
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Title:
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Vice President
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Address for Notices:
c/o Advent International Corporation
75 State Street
Boston, MA 02109
Facsimile: (617) 951-0568
Attention: Steven J. Collins
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with a copy to (which shall not constitute notice):
Pepper Hamilton LLP
3000 Two Logan Square
Eighteenth & Arch Streets
Philadelphia, PA 19103
Facsimile: (215) 981-4750
Attention: Barry M. Abelson
Robert A. Friedel
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HIGHLAND HOLDERS
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HIGHLAND CAPITAL PARTNERS VI LIMITED PARTNERSHIP
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By:
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Highland Management Partners VI Limited Partnership, its General
Partner
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By:
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Highland Management Partners VI, Inc., its General Partner
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By:
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/s/ Sean M. Dalton
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Name:
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Sean M. Dalton
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Title:
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Managing General Partner
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HIGHLAND CAPITAL PARTNERS VI-B LIMITED PARTNERSHIP
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By:
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Highland Management Partners VI Limited Partnership, its General
Partner
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By:
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Highland Management Partners VI, Inc., its General Partner
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By:
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/s/ Sean M. Dalton
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Name:
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Sean M. Dalton
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Title:
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Managing General Partner
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HIGHLAND CAPITAL ENTREPRENEURS FUND VI LIMITED PARTNERSHIP
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By:
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HEF VI Limited Partnership, its General Partner
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By:
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Highland Management Partners VI, Inc., its General Partner
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By:
Name:
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/s/ Sean M. Dalton
Sean M. Dalton
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Title:
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Managing General Partner
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Address for Notices:
c/o Highland Capital Partners, Inc.
92 Hayden Avenue
Lexington, Massachusetts 02421
Facsimile: (781) 861-5499
Attention: Kathleen A. Barry, Chief Financial Officer
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with a copy to (which shall not constitute notice):
Goodwin Procter LLP
53 State Street
Boston MA 02109
Facsimile Number: (617) 523-1231
Attention: William J. Schnoor, Jr.
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BROOKE HOLDERS:
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BROOKE PRIVATE EQUITY ADVISORS FUND I-A, L.P.
BROOKE PRIVATE EQUITY ADVISORS FUND I(D), L.P.
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By:
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Brooke Private Equity Advisors, L.P., its General Partner
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By:
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Brooke Private Equity Management LLC,
its General Partner
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By:
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/s/ John Brooke
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Name:
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John Brooke
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Title:
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Manage
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Address for Notices:
c/o Brooke Private Equity Advisors
84 State Street, Suite 320
Boston, MA 02109
Attention: Charlie Bridge
Facsimile Number: 617-227-4128
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with a copy to (which shall not constitute notice):
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Attention:
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Facsimile Number:
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