Lululemon 2014 Annual Report Download - page 59

Table of Contents
officers of the Company. On January 17, 2014, plaintiffs filed an amended complaint, operative in both actions. In that amended complaint,
plaintiffs challenge certain public disclosures and conduct relating to the March 2013 sheer Luon issue, the June 2013 announcement regarding
the resignation of the Company's former CEO, Christine Day, and certain stock trades executed by Mr. Wilson and Ms. Day in the months
leading up to that announcement. Plaintiffs allege violations of Section 14(a) of the Securities Exchange Act and breach of fiduciary duty, unjust
enrichment, abuse of control, and gross mismanagement. On April 9, 2014, the Court dismissed all of plaintiffs' claims due to plaintiffs' failure
to make a pre-suit demand. On May 9, 2014, plaintiff in the Canty action filed a notice of appeal to the United States Court of Appeals for the
Second Circuit. The Court of Appeals has scheduled an oral argument on the appeal on March 27, 2015. The Company believes there is no merit
to the appeal.
On July 2, 2013, plaintiff Houssam Alkhoury filed a putative shareholder class action entitled Alkhoury v. lululemon athletica inc. , et al.,
No. 13
-CV-4596 (S.D.N.Y.) against lululemon, a certain director and a certain officer of the Company (collectively, "Defendants"). On October
1, 2013, the Court appointed Louisiana Sheriffs' Pension & Relief Fund as Lead Plaintiff and on November 1, 2013, Lead Plaintiff filed a
consolidated class action complaint on behalf of a proposed class of purchasers of lululemon stock between September 7, 2012 through June 11,
2013 (the "Complaint"). In its Complaint, Lead Plaintiff asserted causes of action under Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934 against Defendants based on certain public disclosures made by the Company relating to lululemon's product quality and the March
2013 sheer Luon issue. On January 15, 2014, Lead Plaintiff filed a consolidated amended class action complaint (the "Amended Complaint") on
behalf of a proposed class of purchasers of lululemon stock between September 7, 2012 through January 10, 2014. In its Amended Complaint,
Lead Plaintiff added new claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on certain of lululemon's public
disclosures related to the Company's ongoing quality control improvements and the impact of those improvements on the Company's financial
results. On April 18, 2014, the Court dismissed all of Lead Plaintiff's claims for failure to state a claim. Lead Plaintiff filed a notice of appeal of
this decision and filed its appeal brief on August 1, 2014. The Company filed a reply on October 23, 2014, Lead Plaintiff filed a further reply on
November 6, 2014, and a hearing has been scheduled for May 8, 2015. The Company believes there is no merit to the appeal.
On May 3, 2013, plaintiff Hallandale Beach Police Officers and Firefighters' Personnel Retirement Fund filed a books-and-records action
in the Delaware Court of Chancery entitled Hallandale Beach Police Officers and Firefighters' Personnel Retirement Fund v. lululemon
athletica inc. , C.A. No. 8522-VCP (Del. Ch.) under 8 Del. C. Sec. 220 based on a demand letter it sent to the Company on April 17, 2013 to
request certain lululemon records relating to the March 2013 sheer Luon issue and revisions to the Company's executive bonus plan. The
Company moved to dismiss the complaint on May 28, 2013. On June 14, 2013, plaintiff sent a supplemental demand letter that requested
additional records from the Company relating to the Company's announcement that Christine Day intended to resign as the Company's Chief
Executive Officer, and certain stock trades executed by the Company's then-Chairman, Mr. Wilson, prior to the Company's announcement
regarding Ms. Day. On July 1, 2013, plaintiff filed an amended complaint to incorporate allegations relating to the June 14, 2013 supplemental
demand letter. The Company moved to dismiss the amended complaint on August 15, 2013, and in response to this filing, plaintiffs served the
Company with a new demand letter and then filed a second amended complaint on November 4, 2013. The Company moved to dismiss the
second amended complaint on December 4, 2013 and the Court held argument on the motion on February 5, 2014. On April 2, 2014, the Court
rejected the majority of books and records sought by plaintiff and ordered the Company to produce a narrow category of documents relating to
one trade made by the Company's former Chairman. On June 11, 2014 the Court consolidated this action with the action captioned Laborers'
District Council Construction Industry Pension Fund v. lululemon athletica inc.,
C.A. No. 9039-VCP (Del. Ch.) which is described above. On
June 13, 2014 Plaintiffs filed a Motion to Enforce the Court's April 2, 2014 Telephonic Rulings and Compel in Camera Inspection of Withheld
and Redacted Documents. The Court held a hearing on the Motion to Enforce on December 1, 2014 and the judgment on the Motion remains
pending. The Company believes there is no merit to the Motion.
The Company has indemnification agreements with certain of its current and former officers and directors that may require it, among other
things, to indemnify such current or former officers and directors against certain liabilities that may arise by reason of their status or service as
directors or officers and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified.
The Company is unable at this time to predict the amount of its legal expenses associated with these proceedings and any settlement or
damages associated with these matters. In the event that the Company is unsuccessful in its defense, or if the Company pursues settlement with
regard to any of these actions, the Company could be required to pay significant final settlement amounts and/or judgments that exceed the limits
of its insurance policies or the carriers may decline to fund such final settlements and/or judgments, which could have a material adverse effect
on the Company's financial condition and liquidity. Regardless of whether any of the claims asserted against the Company in these actions are
valid, or whether the Company is ultimately held liable, such litigation may be expensive to defend and may divert resources away from the
Company's operations and negatively impact earnings. Further, the Company may not be able to obtain adequate insurance to protect it from
these types of litigation matters or extraordinary business losses.
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