<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1998
REGISTRATION NO. 333-50333
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BEBE STORES, INC.
(Exact name of Registrant as specified in its charter)
------------------------
<TABLE>
<S> <C> <C>
CALIFORNIA 5621 94-2450490
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Number) Identification
incorporation or organization) No.)
</TABLE>
------------------------
380 VALLEY DRIVE BRISBANE, CALIFORNIA 94005
(415) 715-3900
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------
MANNY MASHOUF
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BEBE STORES, INC.
380 VALLEY DRIVE
BRISBANE, CALIFORNIA 94005
(415) 715-3900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
ERIC J. LAPP, ESQ. ALAN K. AUSTIN, ESQ.
JOHN M. FOGG, ESQ. SUSAN L. STAPLETON, ESQ.
LILLIEMAE I. STEPHENS, ESQ. JAMES C. CREIGH, ESQ.
Gray Cary Ware & Freidenrich LLP Wilson Sonsini Goodrich & Rosati
400 Hamilton Avenue Professional Corporation
Palo Alto, California 94301-1825 650 Page Mill Road
(650) 328-6561 Palo Alto, California 94304-1050
(650) 493-9300
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 3, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[LOGO]
2,500,000 SHARES
COMMON STOCK
------------------
Of the 2,500,000 shares of Common Stock offered hereby, 1,250,000 shares are
being sold by bebe stores, inc. ("bebe" or the "Company") and 1,250,000 shares
are being sold by a shareholder of the Company (the "Selling Shareholder"). See
"Principal and Selling Shareholder." The Company will not receive any proceeds
from the sale of shares by the Selling Shareholder. Prior to this offering,
there has been no public market for the Common Stock of the Company. It is
estimated currently that the initial public offering price will be between
$11.00 and $13.00 per share. See "Underwriting" for information related to the
method of determining the initial public offering price.
Upon consummation of this offering, Manny Mashouf, the Company's Chief
Executive Officer, President and Chairman of the Board, will own approximately
88.4% (approximately 86.9% if the Underwriters' over-allotment option is
exercised in full) of the outstanding shares of Common Stock. As a result, Mr.
Mashouf will continue to have effective control over the outcome of
substantially all issues submitted to the Company's shareholders, including the
election of all of the Company's directors. See "Principal and Selling
Shareholder."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING AT PAGE 8.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY (1) SHAREHOLDER
<S> <C> <C> <C> <C>
Per Share......... $ $ $ $
Total (2)......... $ $ $ $
</TABLE>
(1) Before deducting estimated offering expenses of $700,000, all of which are
payable by the Company.
(2) The Selling Shareholder has granted the Underwriters a 30-day option to
purchase up to an additional 375,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such over-allotment option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Selling Shareholder will be $ ,
$ , and $ , respectively.
------------------------------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1998.
BANCAMERICA ROBERTSON STEPHENS BEAR, STEARNS & CO. INC.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
[WOMAN IN BEBE CLOTHING]
GATEFOLD
(1) [WOMAN IN BEBE CLOTHING]
(2) [STORE EXTERIOR AND INTERIOR]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON STOCK,
INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS
OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE TRANSACTIONS, SEE
"UNDERWRITING."
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR ANY OFFER TO OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Summary..................................................................................................... 4
Risk Factors................................................................................................ 8
Use of Proceeds............................................................................................. 15
Dividend Policy............................................................................................. 15
Capitalization.............................................................................................. 16
Dilution.................................................................................................... 17
Selected Financial and Operating Data....................................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 19
Business.................................................................................................... 25
Management.................................................................................................. 35
Certain Transactions........................................................................................ 40
Principal and Selling Shareholder........................................................................... 41
Description of Capital Stock................................................................................ 42
Shares Eligible for Future Sale............................................................................. 44
Underwriting................................................................................................ 46
Legal Matters............................................................................................... 47
Experts..................................................................................................... 47
Change in Accountants....................................................................................... 47
Additional Information...................................................................................... 48
Index to Financial Statements............................................................................... F-1
</TABLE>
------------------------
"bebe" and "bebe moda" are registered trademarks of the Company in the
United States and certain foreign jurisdictions. All other trademarks or trade
names referred to in this Prospectus are the property of their respective
owners. The Company was incorporated in California in June 1976.
The Company's principal executive offices are located at 380 Valley Drive,
Brisbane, California 94005, and its telephone number at that address is (415)
715-3900.
3
<PAGE>
SUMMARY
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION. REFERENCES TO A FISCAL YEAR RELATE TO THE
FISCAL YEAR ENDING JUNE 30 OF SUCH YEAR. ALL SHARE NUMBERS IN THIS PROSPECTUS
REFLECT A 2.83-FOR-1 SPLIT IN THE COMPANY'S COMMON STOCK EFFECTED APRIL 9, 1998.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS," AND THE FINANCIAL STATEMENTS AND NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
bebe designs, develops and produces a distinctive line of contemporary
women's apparel and accessories, which it markets under the bebe and bebe moda
brand names through its 85 specialty retail stores located in 21 states. While
bebe attracts a broad audience, the Company's target customers are 18 to 35
year-old women who seek current fashion trends interpreted to suit their
lifestyle needs. The "bebe look," with an unmistakable hint of sensuality,
appeals to a hip, sophisticated, body-conscious woman who takes pride in her
appearance. The bebe customer is a discriminating consumer who demands value in
the form of quality at a competitive price. bebe's broad product offering
includes suits, tops, pants, skirts, dresses, logo and other activewear,
outerwear, and handbags and other accessories. Much of the Company's merchandise
is designed and developed in-house and manufactured to its specifications. The
balance is developed primarily in conjunction with third party apparel
manufacturers or, in some cases, selected directly from these manufacturers'
lines.
Founded by Manny Mashouf, the Company's current Chairman, President and
Chief Executive Officer, bebe opened its first store in San Francisco,
California in 1976 and grew to 73 stores by the end of fiscal 1996. Since the
end of fiscal 1996, bebe has significantly strengthened its management team and
has begun implementing several strategic initiatives which management believes
have contributed to the Company's recent strong performance and positioned it to
support significant growth over the next several years. These initiatives were
directed to all aspects of the Company's operations and in particular the
merchandising, planning, manufacturing and distribution functions. The Company's
merchandising initiatives focused primarily on expansion of its product line to
include a broader array of tops, pants, dresses, accessories and logo items.
While the Company's traditional bebe product offering spoke to the "nine to
five" needs of a young professional woman, the expanded product line provides
head-to-toe lifestyle dressing at a competitive price that easily adapts from
day into evening. Additionally, the logo portion of the product line, which
highlights the bebe logo on a variety of active and casual styles, enhances
brand awareness while providing younger, "aspirational" customers an entry to
the bebe product line at lower price points. The strategic initiatives relating
to the planning, manufacturing and distribution functions primarily involve the
implementation of more sophisticated procedures and a more disciplined approach
to the operational aspects of the business.
The Company's net sales have grown from $18.1 million in fiscal 1993 to
$95.1 million in fiscal 1997, representing a compounded average growth rate of
51.4%. As a result of the management team additions and strategic initiatives
implemented beginning at the end of fiscal 1996, the Company has experienced a
significant improvement in performance. In particular, the Company's net sales
grew from $71.6 million in fiscal 1996 to $95.1 million in fiscal 1997, an
increase of 32.8%, due in part to an increase in comparable store sales of
18.0%. In addition, the Company's income from operations as a percentage of net
sales grew from 0.7% to 8.9% during the same period. Furthermore, for the nine
months ended March 31, 1998, the Company's net sales reached $108.1 million, an
increase of 58.0%, compared to the same nine-month period in fiscal 1997 and its
income from operations increased from 8.1% of net sales to 19.2%.
4
<PAGE>
OPERATING STRATEGY
While the market for women's apparel is extremely large, the Company
believes that the distinctive, contemporary, bebe point-of-view addresses an
underserved market segment and presents the Company with opportunities for
future growth. The Company's objective is to become a global brand, offering
quality merchandise that enhances the spirit and playful sensuality of the
contemporary woman. The principal elements of the Company's operating strategy
to achieve this objective are as follows:
- PROVIDE DISTINCTIVE FASHION THROUGHOUT A BROAD PRODUCT LINE. bebe
merchandisers take their fashion inspiration from throughout the world,
interpreting contemporary ideas for silhouettes, fabrications and colors
into products and styles to meet the everyday lifestyle needs of the bebe
customer. While many of the Company's styles and products are represented
season after season with variations in color, fabric or trim, its
merchandisers are committed to bringing newness into the merchandise mix
in response to emerging trends. bebe's product lines are carefully planned
to represent a broad array of sleek, fashionable goods, with particular
emphasis on career wear, related separates and day-into-evening styles.
The bebe product line is further supported by a broad selection of
accessories that help bebe customers create a distinctive ensemble, while
logo-embellished items provide an entry point for younger, aspirational
customers.
- VERTICALLY INTEGRATE DESIGN, PRODUCTION, MERCHANDISING AND RETAIL
FUNCTIONS. The Company believes that its vertical integration of processes
from design to market coupled with its financial discipline enable it to
produce distinctive quality merchandise of exceptional value. Once a line
is conceived by the merchandise team, bebe maintains flexibility in its
sourcing by subcontracting production of its own designs, developing
exclusive products in conjunction with third party apparel manufacturers,
or selecting merchandise directly from these manufacturers' lines. This
approach also enables the Company to respond quickly to changing fashion
trends, while reducing its risk of excess inventory.
- MANAGE MERCHANDISE MIX. The Company believes that a disciplined approach
to merchandising and a proactive inventory management program is critical
to its success. By actively monitoring sell-through rates and managing the
mix of categories and products in its stores, the Company believes it is
able to respond to emerging trends in a timely manner; minimize its
dependence on any particular category, style or fabrication; and preserve
a balanced, coordinated presentation of merchandise within each store.
- CONTROL DISTRIBUTION OF MERCHANDISE. bebe believes that its brand image is
greatly enhanced by distributing its products exclusively through bebe
stores. This controlled distribution strategy enables the Company to
display the full assortment of its products, control the pricing, visual
presentation and flow of goods, test new products and reinforce the
brand's identity in the eyes of its customers.
- ENHANCE BRAND IMAGE. Through an edgy, high-impact, visual advertising
campaign utilizing print, outdoor, in-store and direct mail communication
vehicles, the Company attracts customers who are intrigued by the
playfully sensual and evocative imagery of the bebe lifestyle. The Company
also offers a line of merchandise branded with the distinctive bebe logo
to increase brand awareness. Within its stores, the Company seeks to
create an upscale boutique environment that further enhances the bebe
brand and builds customer loyalty and demand for bebe merchandise.
Furthermore, the Company trains bebe sales associates to be responsive and
knowledgeable and encourages them to reflect the bebe image.
5
<PAGE>
GROWTH STRATEGY
bebe's objective is to grow its operations in a controlled manner, primarily
through the opening of new stores. After intentionally slowing its store
expansion in fiscal 1997 and 1998 while implementing strategic initiatives begun
in fiscal 1996, the Company believes it is now positioned to accelerate its
store opening program. With seven stores planned for opening in fiscal 1998, six
of which have been opened to date, the Company currently plans to open
approximately 15 stores in each of fiscal 1999 and 2000, the majority of which
will be in existing markets. In addition to its domestic expansion, the Company
is considering international expansion primarily through licensing arrangements
and has entered into a license agreement with a company in Mexico. Additionally,
the Company continually reviews its existing store base and has identified four
underperforming stores that it is considering closing prior to the end of fiscal
1999.
In addition, the Company plans to grow through product line extensions,
introduction of new product categories, such as intimate apparel, and
incremental operational improvements. The Company has recently hired a Vice
President of Licensing to explore opportunities for licensing the bebe name for
the development of product line extensions or new product categories that may
include eyewear, footwear and swimwear.
To support the introduction of new product categories in recent years as
well as to handle higher sales volumes, the Company has developed a store
prototype that is larger than the average of 2,700 square feet for the Company's
existing stores. The Company's new store prototype is approximately 3,000 to
5,000 square feet, although in certain selected markets the Company may open
larger stores.
The Company was founded in 1970 and incorporated under the name Babe, Inc.
in California in June 1976, and changed its name to bebe stores, inc. in April
1998. The Company's principal offices are located at 380 Valley Drive, Brisbane,
CA 94005. The Company's telephone number is 415-715-3900.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............... 1,250,000 shares
Common Stock offered by the Selling Shareholder... 1,250,000 shares
Common Stock to be outstanding after the
offering......................................... 23,889,997 shares (1)
Use of Proceeds................................... Capital expenditures for new, expanded and relocated stores,
improvements to the Company's management information
systems and expansion or relocation of its corporate
offices and distribution center, with the remainder to be
used for working capital and general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol............ BEBE
</TABLE>
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(AS RESTATED)(6)
------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................................ $ 18,077 $ 32,603 $ 65,411 $ 71,563 $ 95,086 $ 68,397 $ 108,072
Cost of sales, including buying and occupancy........ 9,606 17,222 32,653 44,701 53,969 40,300 53,758
--------- --------- --------- --------- --------- --------- ---------
Gross profit......................................... 8,471 15,381 32,758 26,862 41,117 28,097 54,314
Selling, general and administrative expenses......... 7,745 13,015 23,134 26,353 32,649 22,562 33,559
--------- --------- --------- --------- --------- --------- ---------
Income from operations............................... 726 2,366 9,624 509 8,468 5,535 20,755
Interest and other expenses (income), net............ 59 128 87 392 (128) (209) (502)
--------- --------- --------- --------- --------- --------- ---------
Earnings before income taxes......................... 667 2,238 9,537 117 8,596 5,744 21,257
Provision (benefit) for income taxes................. 263 912 4,052 (10) 3,218 2,144 8,715
--------- --------- --------- --------- --------- --------- ---------
Net earnings......................................... $ 404 $ 1,326 $ 5,485 $ 127 $ 5,378 $ 3,600 $ 12,542
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Basic earnings per share (2)......................... $ 0.02 $ 0.06 $ 0.24 $ 0.01 $ 0.24 $ 0.16 $ 0.55
Diluted earnings per share (2)....................... $ 0.02 $ 0.06 $ 0.24 $ 0.01 $ 0.24 $ 0.16 $ 0.53
Basic weighted average shares outstanding (2)........ 22,640 22,640 22,640 22,640 22,640 22,640 22,640
Diluted weighted average shares outstanding (2)...... 22,640 22,640 22,640 22,640 22,651 22,640 23,705
SELECTED OPERATING DATA:
Number of stores:
Opened during period............................... 11 8 24 18 10 7 5
Closed during period............................... 0 0 0 (1) 0 0 (3)
Open at end of period.............................. 24 32 56 73 83 80 85
Net sales per average store (3)...................... $ 958 $ 1,155 $ 1,480 $ 1,065 $ 1,211 $ 884 $ 1,268
Comparable store sales increase (decrease) (4)....... 18.7% 29.5% 35.4% (16.5)% 18.0% 11.3% 43.5%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(5)
--------- ---------------
BALANCE SHEET DATA:
Working capital................................................................................ $ 20,201 $ 33,451
Total assets................................................................................... 46,220 59,470
Long-term debt; including current portion...................................................... 208 208
Shareholders' equity........................................................................... 28,362 41,612
</TABLE>
- ------------
(1) Excludes 1,782,900 shares issuable upon exercise of options outstanding at
March 31, 1998 at a weighted average exercise price of $2.29 per share. See
"Management--Stock Plans."
(2) See Notes 1, 9 and 12 of Notes to Financial Statements for the method used
to calculate earnings per share amounts.
(3) Based on the sum of average monthly net sales per open store for the period.
(4) Based on net sales; stores are considered comparable beginning on the first
day of the first month following the first anniversary of their opening.
(5) As adjusted to reflect the sale of 1,250,000 shares of Common Stock offered
hereby by the Company at an assumed initial public offering price of $12.00
per share, after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company, and the application of
the estimated net proceeds therefrom. See "Use of Proceeds."
7
<PAGE>
(6) Subsequent to the issuance of the Company's financial statements for the
nine month period ended March 31, 1998, the Company's management determined
that an error had been made in the method of accounting for the purchase of
residential property from the Chairman, President and Chief Executive
Officer of the Company in March of 1995. As a reuslt, the financial
statements have been restated from amounts previously reported. (See Note 14
to the financial statements.)
8
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Prospectus that are not purely
historical are forward-looking statements, including without limitation,
statements regarding the Company's expectations, beliefs, intentions or
strategies regarding the future. All forward-looking statements in this document
are based upon information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward-looking statements. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including, but not
limited to, those set forth in the following risk factors and elsewhere in this
Prospectus. In evaluating the Company's business, prospective investors should
consider carefully the following factors in addition to the other information in
this Prospectus.
FASHION AND APPAREL INDUSTRY RISKS
The apparel industry is subject to rapidly evolving fashion trends, shifting
consumer demands and intense competition. The Company believes that its future
success will be dependent, in part, on its ability to anticipate, identify and
capitalize upon emerging fashion trends, including products, styles, fabrics and
colors, and to distinguish itself within the women's apparel market. If, for any
reason, the Company misinterprets the current fashion trends or consumer tastes
shift and the Company fails to respond, consumer demand for bebe products and
the Company's profitability and brand image could be significantly impaired.
Additionally, there can be no assurance that competitors of the Company will not
carry similar designs, thus undermining bebe's distinctive image and potentially
having an adverse effect on the Company's financial condition and results of
operations. See "Business--Merchandising."
MANAGEMENT OF INVENTORY
Success in the apparel industry is dependent on a company's ability to
manage its inventory of merchandise in proportion to the demand for such
merchandise. If bebe miscalculates the consumer demand for its products it may
be faced with significant excess inventory and excess fabric for some products
and missed opportunities for others. Weak sales and resulting markdowns and/or
write-offs could cause the Company's profitability to be significantly impaired
and may have a material adverse effect on the Company's financial condition and
results of operations. See "Business--Merchandising."
RISKS OF GROWTH STRATEGY
The Company's continued growth is dependent, to a significant degree, on its
ability to identify sites and open and operate new stores on a profitable basis.
bebe opened 24 stores in fiscal 1995, 18 stores in fiscal 1996, 10 stores in
fiscal 1997 and six stores through May 15 of fiscal 1998. The Company expects to
open one new store during the remainder of fiscal 1998 and approximately 15
stores in each of fiscal 1999 and 2000. Such expansion may include the opening
in selected markets of flagship stores that will be larger and more expensive to
operate than existing stores. If the Company does not generate sufficient
revenues from these flagship stores to cover their higher costs, the Company's
financial results could be negatively affected. The success of this expansion
plan is dependent upon a number of factors, including the availability of
desirable locations, the successful negotiation of acceptable leases for such
locations, the ability to manage the expansion of the store base, the ability to
source inventory adequate to meet the needs of new stores, the ability to
operate stores profitably once opened, the development of adequate management
information systems to support expanded activity, the ability to recruit and
retain new employees, the availability of capital, and general economic and
business conditions affecting consumer confidence and spending. There can be no
assurance that the Company will be able to achieve its planned expansion on a
timely and profitable basis, if at all. In addition, most of the Company's new
store openings in fiscal 1999 and 2000 will be in existing markets. There can be
no assurance that these openings will not result in reduced net sales volumes
and profitability in existing stores in those markets. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Growth Strategy" and "--Stores."
8
<PAGE>
FUTURE RESULTS OF OPERATIONS
Although the Company has been profitable on an annual basis for each of the
past five fiscal years, profitability rates have varied widely from
quarter-to-quarter and from year-to-year. In particular, in fiscal 1996, the
Company experienced a significant financial downturn due to, among other things,
a significant disruption in supply of the Company's key fabrication, difficulty
in obtaining a replacement fabrication, certain related fashion misjudgments,
failure to obtain product deliveries in a timely manner, rapid expansion of the
Company's store base, and lack of sufficient controls and personnel to support
such expanded activity. There can be no assurance that the Company will remain
profitable in the future. Future results of operations will depend on, among
other things, the number and timing of new store openings and the Company's
ability to identify and capitalize upon changing fashion trends, hire and retain
qualified management and other personnel, maintain appropriate inventory levels,
obtain needed raw materials, identify and negotiate favorable leases for
successful store locations, reduce shrinkage and control operating costs. Future
results of operations will also depend on factors outside of the Company's
control, such as general economic conditions, availability of third party
sourcing and raw materials, and actions of competitors. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Growth Strategy," "--Merchandising," "--Stores" and "--Competition."
The Company believes that the rate of comparable store sales growth achieved
in recent periods is not sustainable and expects that such growth, if any, in
the current and future periods will be more moderate. Furthermore, during these
recent periods of relatively high comparable store sales growth, the Company has
experienced favorable merchandise margins due to strong sell-through rates and
attendant low markdown rates. As comparable store sales growth moderates, the
Company anticipates a decline in merchandise margins and, accordingly, a
reduction in gross margins. In addition, the Company's selling, general and
administrative expenses have decreased as a percentage of net sales in recent
periods due in part to the rapid growth in net sales. However, the Company
believes that such expenses will increase as a percentage of net sales during
the current and the next several quarters as the Company makes planned
investments to its infrastructure and sales growth moderates. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RELIANCE ON MANAGEMENT INFORMATION SYSTEMS
In the past, the Company's investments in information systems have focused
on its core store, merchandise and financial accounting systems. Currently, the
Company's focus is on upgrading its capabilities and systems associated with its
production, merchandise allocation and distribution functions, which have not
kept pace with the Company's growth. The Company intends to make significant
investments to improve existing management information systems and implement new
systems in these areas and to implement them during fiscal 1999. There can be no
assurance that these enhancements will be successfully implemented. Failure to
implement and integrate such systems could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Information Services and Technology."
NEW MANAGEMENT TEAM; DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the efforts of its key employees, particularly
Manny Mashouf, the founder, Chairman, President and Chief Executive Officer. In
addition, most of the Company's officers and other key personnel have joined the
Company since the middle of fiscal 1996 and, therefore, have relatively little
experience with the Company. None of the Company's executive officers is bound
by an employment agreement, and the relationships of such officers with the
Company are, therefore, at will. The Company does not have "key person" life
insurance policies on any of its employees. The loss of the services of Mr.
Mashouf or any of its key officers or employees could have a material adverse
effect on the Company's business, financial condition and results of operations.
Furthermore, the Company will need to hire experienced executive personnel to
support the planned improvements and expansions of its business; however, there
can be no assurance that the Company will be successful in hiring such personnel
in a time frame necessary to manage and support its expansion plans. See
"Management."
9
<PAGE>
The Company's success also depends to a significant degree on its ability to
attract and retain experienced employees. There is substantial competition for
experienced personnel, which the Company expects to continue. Many of the
companies with which bebe competes for experienced personnel have greater
financial resources than the Company. In the past, the Company has experienced
significant turnover of its retail store personnel. The Company's failure to
attract, motivate and retain qualified personnel could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Store Operations."
DEPENDENCE ON INDEPENDENT MANUFACTURING FACILITIES AND RAW MATERIAL SUPPLIERS
The Company does not own any production facilities and therefore is
dependent on third parties for the manufacturing of its products. Company
merchandise designed by the bebe in-house design team is manufactured by
independent manufacturers with raw materials purchased from independent mills
and other suppliers. The Company places all of its orders for production of
merchandise and raw materials by purchase order and does not have any long-term
contracts with any manufacturer or supplier. The Company competes with other
companies for production facilities and raw materials. In the past, particularly
in fiscal 1996, the Company had difficulty obtaining needed quantities of raw
materials on a timely basis because of competition with other apparel vendors
for raw materials. Such failure to obtain sufficient quantities of raw materials
has had an adverse effect on the Company's financial condition in the past and
may in the future. Furthermore, the Company has received in the past, and may
receive in the future, shipments of products from manufacturers that fail to
conform to the Company's quality control standards. In such event, unless the
Company is able to obtain replacement products in a timely manner, the Company
may lose sales. The Company's failure to maintain favorable relationships with
these production facilities and to obtain an adequate supply of quality raw
materials on commercially reasonable terms could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Merchandising" and "--Sourcing, Quality Control and Distribution."
The violation of labor or other laws by an independent manufacturer of the
Company, or the divergence of an independent manufacturer's labor practices from
those generally accepted as ethical in the United States, could have a material
adverse effect on the Company's business, financial condition, results of
operations and brand image. While the Company recently adopted a policy to
monitor the operations of its independent manufacturers by having an independent
firm inspect these manufacturing sites, the Company cannot control the actions
of such manufacturers, and there can be no assurance that these manufacturers
will conduct their businesses using ethical labor practices.
DEPENDENCE ON THIRD PARTY APPAREL MANUFACTURERS
A significant portion of the Company's merchandise is developed in
conjunction with third party apparel manufacturers and, in some cases, selected
directly from these manufacturers' lines. The Company does not have long-term
contracts with any third party apparel manufacturers and purchases all of the
merchandise from such manufacturers by purchase order. Furthermore, the Company
has received in the past, and may receive in the future, shipments of products
from manufacturers that fail to conform to the Company's quality control
standards. In such event, unless the Company is able to obtain replacement
products in a timely manner, the Company may lose sales. There can be no
assurance that third party manufacturers will not supply similar products to the
Company's competitors, will not cease supplying products to the Company
completely or will supply products that satisfy the Company's quality control
standards. See "Business--Merchandising" and "--Sourcing, Quality Control and
Distribution."
RISK OF FOREIGN SOURCING OF APPAREL
The Company purchases its raw materials from mills and other suppliers, a
significant portion of which is purchased from suppliers outside the United
States, primarily in Japan. A significant portion of the manufacturing of its
merchandise is sourced outside the United States, primarily in Europe and Asia.
The Company is subject to the risks associated with doing business abroad. These
risks include adverse fluctuations in currency exchange rates (particularly
those of the U.S. dollar against certain foreign currencies), changes in import
duties or quotas, the
10
<PAGE>
imposition of taxes or other charges on imports, the impact of foreign
government regulation, political unrest, disruption or delays of shipments and
changes in economic conditions in countries in which the Company's suppliers are
located. The occurrence of any one or more of the foregoing could adversely
affect the Company's business, financial condition and results of operations.
See "Business--Sourcing, Quality Control and Distribution."
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries. These agreements, which have been negotiated bilaterally either under
the framework established by the Arrangement Regarding International Trade in
Textiles, known as the Multifiber Agreement, or other applicable treaties,
impose quotas on the amounts and types of merchandise which may be imported into
the United States from these countries. These agreements also allow the United
States to impose restraints at any time on the importation of categories of
merchandise that, under the terms of the agreements, are not currently subject
to specified limits. The Company's imported products are also subject to United
States customs duties which comprise a material portion of the cost of the
merchandise. A substantial increase in customs duties would have an adverse
effect on the Company's business, financial condition and results of operations.
The United States and the countries in which the Company's products are produced
or sold may, from time to time, impose new quotas, duties, tariffs, or other
restrictions, or adversely adjust prevailing quota, duty, or tariff levels, any
of which could have a material adverse effect on the Company's business,
financial condition and results of operations.
In addition, a significant portion of the Company's foreign-supplied
products is produced by manufacturing facilities in China. There have been a
number of recent trade disputes between China and the United States during which
the United States has threatened to impose punitive tariffs and duties on
products imported from China and to withdraw China's "most favored nation" trade
status. The loss of the most favored nation status for China, changes in current
tariff or duty structures or the adoption by the United States of other trade
polices or sanctions adverse to China could have a material adverse effect on
the Company's business, financial condition and results of operations.
DEPENDENCE ON INTELLECTUAL PROPERTY
The Company believes that its trademarks and other proprietary rights are
important to its success and has registered "bebe" and "bebe moda" in the United
States and certain foreign jurisdictions. There can be no assurance that actions
taken by the Company to establish and protect its trademarks and other
proprietary rights will prevent imitation of its products or infringement of its
intellectual property rights by others. In addition there can be no assurance
that others will not resist or seek to block the sale of the Company's products
as violative of their trademark and proprietary rights.
The Company is seeking to register its trademarks in targeted international
markets which it believes represent large potential markets for the Company's
products. In some of these markets, local companies currently have registered
competing marks, and/or regulatory obstacles exist that may prevent the Company
from obtaining a trademark for the bebe name or related names. In such
countries, the Company may be unable to use the bebe name unless it purchases
the right or obtains a license to use the bebe name. There can be no assurance
that the Company will be able to register trademarks in such international
markets, purchase the right or obtain a license to use the bebe name on
commercially reasonable terms, if at all. Failure to obtain either trademark,
ownership or license rights would limit the Company's ability to expand into
certain international markets or enter such markets with the bebe name, and to
capitalize on the value of its brand.
The Company currently is evaluating its opportunities to expand its product
offering and extend its geographic reach through licensing or joint venture
arrangements. The Company has no prior experience with any such arrangements,
and there can be no assurance that such arrangements will be successful.
Furthermore, while the Company intends to maintain control of the presentation
and pricing of bebe merchandise through the terms of any such agreement, there
can be no assurance that any licensee or joint venture partner will comply with
such contractual provisions. Any deviation from the terms of these contracts may
have a material adverse effect on the Company's brand image. See
"Business--Intellectual Property and Proprietary Rights."
11
<PAGE>
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company has experienced historically, and expects to continue to
experience, quarterly fluctuations in its sales volumes and levels of
profitability. The Company tends to generate larger sales and, to an even
greater extent, profitability levels in the first and second quarters (which
include the fall and holiday selling seasons) of its fiscal year. If for any
reason sales were below seasonal norms during the first and second quarters of
its fiscal year, as they were in fiscal 1996, the Company's quarterly and annual
results of operations would be adversely affected. bebe's quarterly financial
performance may also fluctuate widely as a result of a number of other factors
such as the number and timing of new store openings, acceptance of product
offerings, timing of product deliveries, actions by competitors and
effectiveness of advertising campaigns. Due to these factors, the results of
interim periods are not necessarily indicative of the results for the year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality of Business and Quarterly Results."
COMPETITION
The retail and apparel industries are highly competitive and are
characterized by low barriers to entry, and the Company expects competition in
its markets to increase. The primary competitive factors in the Company's
markets include brand name recognition, product styling, product presentation,
product pricing, store ambiance, customer service and convenience. The Company
competes with traditional department stores, specialty store retailers, off-
price retailers and direct marketers for, among other things, raw materials,
market share, retail space, finished goods, sourcing and personnel. Many of
these competitors are larger and have substantially greater financial,
distribution and marketing resources than the Company. Any failure to compete
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "--Fashion and Apparel Industry Risks"
and "Business--Competition."
SENSITIVITY TO ECONOMIC CONDITIONS AND CONSUMER SPENDING
The retail and apparel industries historically have been subject to
substantial cyclical variation. A recession in the general economy or a decline
in consumer spending in the apparel industry could have a material adverse
effect on the Company's financial performance. Purchases of apparel and related
merchandise tend to decline during recessionary periods and may decline at other
times. There can be no assurance that a prolonged economic downturn would not
have a material adverse impact on the Company or that the Company's customers
would continue to make purchases during a recession.
CONTROL BY PRINCIPAL SHAREHOLDER
Upon the completion of this offering, Manny Mashouf, the Chairman, President
and Chief Executive Officer of the Company will beneficially own approximately
88.4% (86.9% if the Underwriters' over-allotment option is exercised) of the
outstanding shares of the Company's Common Stock and as a result, acting alone,
can control the election of directors of the Company and the outcome of all
issues submitted to the shareholders of the Company. These factors may make it
more difficult for a third party to acquire shares, may discourage acquisition
bids for the Company and could limit the price that certain investors might be
willing to pay for shares of Common Stock. Such concentration of stock ownership
may have the effect of delaying, deferring or preventing a change in control of
the Company. See "Principal and Selling Shareholder" and "Description of Capital
Stock."
POTENTIAL ANTI-TAKEOVER EFFECTS
The Board of Directors has authority to issue up to 1,000,000 shares of
Preferred Stock of the Company, $0.001 par value per share ("Preferred Stock"),
and to fix the rights, preferences, privileges and restrictions, including
voting rights, of these shares without any vote or action by the shareholders.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third
12
<PAGE>
party to acquire a majority of the outstanding voting stock of the Company,
thereby delaying, deferring or preventing a change in control of the Company.
Furthermore, such Preferred Stock may have other rights, including economic
rights, senior to the Common Stock, and as a result, the issuance of such
Preferred Stock could have a material adverse effect on the market value of the
Common Stock. The Company has no present plan to issue shares of Preferred
Stock. See "Description of Capital Stock."
DEPENDENCE ON SINGLE FACILITY
The Company currently operates a single corporate office and distribution
center in Brisbane, California. Any serious disruption at this facility whether
due to fire, earthquake or otherwise would have a material adverse effect on the
Company's operations and could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Properties."
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the year
2000.
The Company has created a Year 2000 Task Force, which is implementing a
6-phase plan with the objective of ensuring that its management information
systems will record, store, process, calculate and present calendar dates
falling on or after (and if applicable, spans of time including) January 1, 2000
in the same manner, and with the same functionality as it has in years prior to
2000 (collectively, "Year 2000 Compliant"). The Company believes that this
6-phase plan will be completed by October 31, 1999. There can be no assurance
that this 6-phase plan will be successful or that Year 2000 Compliant issues
will not arise with respect to products furnished by third party manufacturers
or suppliers that may result in unforeseen costs or delays to the Company and
therefore have a material adverse effect on the Company. See
"Business--Information Services and Technology."
SUBSTANTIAL DILUTION
The assumed initial public offering price is substantially higher than the
net tangible book value per share of the outstanding Common Stock. As a result,
purchasers of Common Stock offered hereby will incur immediate, substantial
dilution in the amount of $10.28 per share based on the offering price. The
Company has granted in the past a substantial number of options to purchase
Common Stock to employees and directors as part of their compensation or
remuneration package, and the Company expects that it will continue to grant a
substantial number of options in the future. In addition, the Company adopted a
stock purchase plan that will allow employees an opportunity to purchase shares
below prevailing market value. The Company also may issue shares of Common Stock
in connection with strategic acquisitions or alliances, which could also result
in dilution to shareholders. See "Dilution."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be determined
by negotiations among the Company, the Selling Shareholder and the Underwriters.
There can be no assurance that an active trading market will develop for the
Common Stock or that the Common Stock will trade in the public market at or
above the initial public offering price. See "Underwriting."
The stock market has from time to time experienced extreme price and volume
volatility. In addition, the market price of the Company's Common Stock, like
that of the stock of other retail and apparel companies, may be highly volatile
due to certain risks inherent in the apparel industry. Factors such as
quarter-to-quarter variations in the Company's net sales and earnings and
changes in financial estimates by equity research analysts or other events or
factors could cause the market price of the Common Stock to fluctuate
significantly. Further, due to the volatility of the stock market and the prices
of stocks of retail and apparel companies generally, the price of the Common
Stock could fluctuate for reasons unrelated to the operating performance of the
Company.
13
<PAGE>
ABSENCE OF DIVIDENDS
Following the completion of this offering, the Company intends to retain any
future earnings for use in its business and, therefore, does not anticipate
paying any cash dividends on Common Stock in the foreseeable future. Future
dividend policy will depend on the Company's earnings, capital requirements and
financial condition as well as any restrictions imposed by existing credit
agreements and other factors considered relevant by the Board of Directors. See
"Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock. Upon completion of this offering, the Company will have outstanding an
aggregate of 23,889,997 shares of Common Stock (based upon the number of shares
outstanding as of March 31, 1998 and assuming no exercise of outstanding options
or of the Underwriters' over-allotment option). Of these shares, all of the
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), unless such shares are purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act
("Affiliates"). The remaining 21,389,997 shares of Common Stock held by the
existing shareholders are "restricted securities," as that term is defined in
Rule 144 under the Securities Act ("Restricted Shares"). Restricted Shares may
be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 promulgated under the Securities Act.
As a result of the provisions of Rule 144 and certain contractual restrictions,
no Restricted Shares will be eligible for immediate sale in the public market on
the date of this Prospectus or prior to the expiration of a lock-up period
pursuant to lock-up agreements or provisions under the 1997 Stock Option Plan
(collectively, the "Lock-Up Arrangements") 180 days after the date of this
Prospectus at which time all Restricted Shares will be eligible to be sold,
subject to certain volume and other limitations under Rule 144.
As of March 31, 1998, options to purchase 1,782,900 shares of Common Stock
were outstanding and exercisable, subject to certain vesting and repurchase
restrictions. The Company intends to file a registration statement on Form S-8
under the Securities Act within 90 days after the date of this Prospectus to
register 2,830,000 shares of Common Stock reserved for issuance under the
Company's 1997 Stock Plan and 750,000 shares reserved for issuance under the
Company's 1998 Employee Stock Purchase Plan. See "Management--Stock Plans" and
"Shares Eligible for Future Sale."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,250,000 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $12.00 per share, after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company, are
estimated to be approximately $13,250,000. The Company will not receive any
proceeds from the sale of shares by the Selling Shareholder.
The Company intends to use the net proceeds from this offering as follows:
approximately $8.5 million for capital expenditures for new, expanded and
relocated stores; approximately $1.7 million for new and enhanced management
information systems; approximately $1.5 million for expansion or relocation of
its corporate offices and distribution center; and the remainder for working
capital and general corporate purposes. To the extent the Company receives less
than the maximum anticipated net proceeds from this offering, the proceeds
applied to working capital will be reduced correspondingly. The foregoing uses
of the net proceeds are estimates based on current projections and are subject
to change. The actual amount of the net proceeds of this offering expended for
each purpose may vary significantly depending on many factors, including the
timing and success of the Company's expansion efforts and the implementation of
management information systems enhancements. Management will have broad
discretion in the application of the net proceeds. Pending such uses, the net
proceeds will be invested in investment-grade, interest bearing securities. See
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DIVIDEND POLICY
The Company currently intends to retain its earnings, if any, for use in its
business and does not anticipate paying any cash dividends in the foreseeable
future. In addition, the Company's line of credit agreement prohibits the
payment of cash dividends without the lender's prior approval.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998 on an actual basis and on an as adjusted basis to give effect to the
sale and issuance of the 1,250,000 shares of Common Stock offered hereby by the
Company at an assumed initial public offering price of $12.00 per share and
receipt and application of the estimated net proceeds (after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company) to the Company therefrom. See "Use of Proceeds." This table
should be reviewed in conjunction with the Financial Statements and Notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------
ACTUAL AS ADJUSTED
------------- -------------
<S> <C> <C>
Current portion of long-term debt.................................................. $ 111,579 $ 111,579
------------- -------------
------------- -------------
Long-term debt (1)................................................................. $ 96,302 $ 96,302
Shareholders' equity:
Preferred stock-authorized 1,000,000 shares at $0.001 par value per share; no
shares issued and outstanding................................................... -- --
Common Stock-authorized 40,000,000 shares $0.001 par value; issued and
outstanding 22,639,997, actual; issued and outstanding 23,889,997, as adjusted
(2)............................................................................. 22,640 23,890
Additional paid-in capital....................................................... 5,190,610 18,439,360
Deferred Compensation............................................................ (2,197,488) (2,197,488)
Retained earnings................................................................ 25,345,888 25,345,888
------------- -------------
Total shareholders' equity..................................................... 28,361,650 41,611,650
------------- -------------
Total capitalization......................................................... $ 28,457,952 $ 41,707,952
------------- -------------
------------- -------------
</TABLE>
- ------------
(1) See Note 3 of Notes to Financial Statements.
(2) Excludes 1,782,900 shares issuable upon exercise of options outstanding at
March 31, 1998 at a weighted average exercise price of $2.29 per share. See
"Management--Stock Plans."
16
<PAGE>
DILUTION
As of March 31, 1998, the Company's net tangible book value was
approximately $27,808,000, or $1.23 per share of Common Stock, based on
22,639,997 shares of Common Stock outstanding. Net tangible book value per share
is equal to the Company's total tangible assets less its total liabilities,
divided by the total number of shares of Common Stock outstanding. After giving
effect to the sale by the Company of 1,250,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $12.00 per share, and
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company, the as adjusted net tangible
book value of the Company as of March 31, 1998 would have been approximately
$41,058,000, or $1.72 per share. This represents an immediate increase in net
tangible book value of $0.49 per share of Common Stock to existing shareholders
and an immediate dilution in net tangible book value of $10.28 per share to
investors purchasing shares of Common Stock in this offering. The following
table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share....................................... $ 12.00
Net tangible book value per share as of March 31, 1998.............................. $ 1.23
Increase in net tangible book value per share attributable to new investors......... 0.49
---------
Net tangible book value per share after offering...................................... 1.72
---------
Dilution per share to new investors................................................... $ 10.28
---------
---------
</TABLE>
The following table summarizes, as adjusted as of March 31, 1998, with
respect to existing shareholders and the new investors in this offering, a
comparison of the number of shares of Common Stock acquired from the Company,
the percentage ownership of such shares, the total cash consideration paid, the
percentage of total cash consideration paid and the average price per share.
<TABLE>
<CAPTION>
SHARES PURCHASED (1) TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... 22,639,997 94.8% $ 2,488,250 14.2% $ 0.11
New investors.................. 1,250,000 5.2 15,000,000 85.8 12.00
------------ ----- ------------- -----
23,889,997 100.0% $ 17,488,250 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
- ------------
(1) Sales by the Selling Shareholder in this offering will cause the number of
shares held by existing shareholders to be reduced to 21,389,997 shares, or
89.5% (21,014,997 shares, or 88.0%, if the Underwriters' over-allotment
option is exercised in full), of the total number of shares of Common Stock
to be outstanding after this offering, and will increase the number of
shares held by new investors to 2,500,000 shares, or 10.5% (2,875,000
shares, or 12.0%, if the Underwriters' over-allotment option is exercised in
full), of the total number of shares of Common Stock to be outstanding after
this offering. See "Principal and Selling Shareholder."
The calculation of net tangible book value and other computations above
assume no exercise of outstanding options. As of March 31, 1998, 1,782,900
shares of Common Stock were issuable upon exercise of outstanding stock options
that were immediately exercisable upon grant at a weighted average exercise
price of $2.29 per share. To the extent the outstanding options are exercised,
there will be further dilution to new investors. See "Management--Stock Plans"
and "Shares Eligible for Future Sale."
17
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following selected financial data of the Company is qualified by
reference to, and should be read in conjunction with, the Financial Statements
and Notes thereto and the other financial information appearing elsewhere in
this Prospectus. The following selected statements of operations data for the
years ended June 30, 1995, 1996 and 1997 (as restated) and the nine-month period
ended March 31, 1998 and the balance sheet data as of June 30, 1995, 1996 and
1997 (as restated) and March 31, 1998 are derived from the financial statements
of the Company, which have been audited by Deloitte & Touche LLP, independent
auditors, and, except for the balance sheet data as of June 30, 1995, are
included elsewhere in this Prospectus. The statements of operations data for the
years ended June 30, 1993 and 1994 and the balance sheet data as of June 30,
1993 and 1994 are derived from the unaudited financial statements of the
Company. The selected statement of operations data for the nine-month period
ended March 31, 1997 and the balance sheet data as of March 31, 1997 (as
restated), have been derived from the unaudited financial statements of the
Company. In the opinion of management, all adjustments, consisting of only
normal recurring accruals, considered necessary for a fair presentation have
been made. These historical results are not necessarily indicative of results to
be expected in the future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(AS RESTATED) (4)
------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales...................................... $ 18,077 $ 32,603 $ 65,411 $ 71,563 $ 95,086 $ 68,397 $ 108,072
Cost of sales, including buying and
occupancy.................................... 9,606 17,222 32,653 44,701 53,969 40,300 53,758
--------- --------- --------- --------- --------- --------- ---------
Gross profit................................... 8,471 15,381 32,758 26,862 41,117 28,097 54,314
Selling, general and administrative expenses... 7,745 13,015 23,134 26,353 32,649 22,562 33,559
--------- --------- --------- --------- --------- --------- ---------
Income from operations......................... 726 2,366 9,624 509 8,468 5,535 20,755
Interest and other expenses (income), net...... 59 128 87 392 (128) (209) (502)
--------- --------- --------- --------- --------- --------- ---------
Earnings before income taxes................... 667 2,238 9,537 117 8,596 5,744 21,257
Provision (benefit) for income taxes........... 263 912 4,052 (10) 3,218 2,144 8,715
--------- --------- --------- --------- --------- --------- ---------
Net earnings................................... $ 404 $ 1,326 $ 5,485 $ 127 $ 5,378 $ 3,600 $ 12,542
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Basic earnings per share (1)................... $ 0.02 $ 0.06 $ 0.24 $ 0.01 $ 0.24 $ 0.16 $ 0.55
Diluted earnings per share (1)................. $ 0.02 $ 0.06 $ 0.24 $ 0.01 $ 0.24 $ 0.16 $ 0.53
Basic weighted average shares outstanding
(1).......................................... 22,640 22,640 22,640 22,640 22,640 22,640 22,640
Diluted weighted average shares outstanding
(1).......................................... 22,640 22,640 22,640 22,640 22,651 22,640 23,705
SELECTED OPERATING DATA:
Number of stores:
Opened during period......................... 11 8 24 18 10 7 5
Closed during period......................... 0 0 0 (1) 0 0 (3)
Open at end of period........................ 24 32 56 73 83 80 85
Net sales per average store (2)................ $ 958 $ 1,155 $ 1,480 $ 1,065 $ 1,211 $ 884 $ 1,268
Comparable store sales increase (decrease)
(3).......................................... 18.7% 29.5% 35.4% (16.5)% 18.0% 11.3% 43.5%
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(AS RESTATED) (4)
------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................. $ 487 $ 2,639 $ 2,722 $ 5,462 $ 8,275 $ 6,482 $ 20,201
Total assets.................................... 5,054 11,076 19,239 22,005 29,109 25,078 46,220
Long-term debt, including current portion....... 500 500 321 3,680 320 157 208
Shareholders' equity............................ 1,773 4,577 9,778 9,914 15,295 13,514 28,362
</TABLE>
- ------------
(1) See Notes 1, 9 and 12 of Notes to Financial Statements for the method used
to calculate earnings per share amounts.
(2) Based on the sum of average monthly sales per open store for the period.
(3) Based on net sales; stores are considered comparable beginning on the first
day of the first month following the first anniversary of their opening.
(4) Subsequent to the issuance of the Company's financial statements for the
nine-month period ended March 31, 1998, the Company's management determined
that an error had been made in the method of accounting for the purchase of
residential property from the Chairman, President and Chief Executive
Officer of the Company in March of 1995. As a reuslt, the financial
statements have been restated from amounts previously reported. (See Note 14
to the financial statements.)
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" and elsewhere in this Prospectus. The following section is qualified in
its entirety by the more detailed information, including "Risk Factors," and the
Financial Statements and Notes thereto, appearing elsewhere in this Prospectus.
OVERVIEW
bebe designs, develops and produces a distinctive line of contemporary
women's apparel and accessories, which it markets under the bebe and bebe moda
brand names through its 85 specialty retail stores located in 21 states. The
Company's stores average approximately 2,700 square feet and are located
primarily in regional shopping malls, and in several cases, free-standing street
locations. bebe's broad product offering includes suits, tops, pants, skirts,
dresses, logo and other activewear, outerwear, and handbags and other
accessories. Much of the Company's merchandise is designed and developed
in-house and manufactured to its specifications. The balance is developed
primarily in conjunction with third party apparel manufacturers or, in some
cases, selected directly from these manufacturers' lines.
The Company's net sales have grown from $18.1 million in fiscal 1993 to
$95.1 million in fiscal 1997, representing a compounded average growth rate of
51.4%. After building a strong suiting business in the early 1990's, in fiscal
1995 the Company achieved $65.4 million in net sales with an operating margin of
14.7% and strong comparable store sales growth. However, the Company was
vulnerable because of its dependence on a narrow product line emphasizing
suiting in a limited selection of fabrics and because it had not developed an
adequate infrastructure to keep pace with the growth of its business. During
fiscal 1996, the Company experienced a significant financial downturn due
primarily to a shift in consumer demand away from suits and its signature wool
crepe fabric. As the Company endeavored to meet this shift in consumer demand,
it experienced difficulties in obtaining replacement merchandise in desired
fabrics and colors in a timely manner and made certain related fashion
misjudgments. In addition, the rapid expansion of the Company's store base
during the previous fiscal year without sufficient controls or personnel to
support such expansion magnified this downturn. Together, these factors led to a
significant decline in the Company's comparable store sales of 16.5%, as well as
a decline in operating margins related to a higher incidence of markdowns.
In response to the difficulties encountered in fiscal 1996, bebe has
strengthened significantly its management team and has begun implementing
several strategic initiatives which management believes have contributed to its
recent strong performance and positioned it to support significant new store
growth over the next several years. These initiatives were directed to all
aspects of the Company's operations, particularly the merchandising, planning,
manufacturing and distribution functions. Primarily as a result of these
management team additions and strategic initiatives implemented beginning at the
end of fiscal 1996, the Company has experienced a significant improvement in
performance. In particular, the Company's net sales grew from $71.6 million in
fiscal 1996 to $95.1 million in fiscal 1997, an increase of 32.8%, due in part
to an increase in comparable store sales of 18.0%. In addition, the Company's
income from operations grew from 0.7% of net sales to 8.9% during the same
period. Furthermore, for the nine months ended March 31, 1998, the Company's net
sales reached $108.1 million, an increase of 58.0%, compared to the same
nine-month period in fiscal 1997, and its income from operations increased from
8.1% of net sales to 19.2%.
The Company's comparable store sales growth per quarter for the fiscal
quarter ended March 31, 1997 through the fiscal quarter ended March 31, 1998 was
18.2%, 38.6%, 53.7%, 46.4% and 32.0%, respectively. The Company believes that
the rate of comparable store sales growth achieved in recent periods is not
sustainable and expects that such growth, if any, in the current and future
periods will be more moderate. Furthermore, during these recent periods of
relatively high comparable store sales growth, the Company has experienced
favorable merchandise margins due to strong sell-through rates and attendant low
markdown rates. As comparable store sales growth moderates, the Company
anticipates a decline in merchandise margins and accordingly a reduction in
gross
19
<PAGE>
margins. In addition, the Company's selling, general and administrative expenses
have decreased as a percentage of net sales in recent periods due in part to the
rapid growth in net sales. However, the Company believes that such expenses will
increase as a percentage of net sales during the next several quarters as the
Company makes planned investments to its infrastructure and sales growth
moderates.
The Company's fiscal year ends on June 30 of each calendar year.
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of net
sales for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED JUNE 30, ENDED
MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(AS RESTATED)(3)
------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales, including buying and occupancy
(1)............................................. 49.9 62.5 56.8 58.9 49.7
--------- --------- --------- --------- ---------
Gross profit...................................... 50.1 37.5 43.2 41.1 50.3
Selling, general and administrative expenses
(2)............................................. 35.4 36.8 34.3 33.0 31.1
--------- --------- --------- --------- ---------
Income from operations............................ 14.7 0.7 8.9 8.1 19.2
Interest and other expenses (income), net......... 0.1 0.5 (0.1) (0.3) (0.5)
--------- --------- --------- --------- ---------
Earnings before income taxes...................... 14.6 0.2 9.0 8.4 19.7
Provision (benefit) for income taxes.............. 6.2 -- 3.3 3.1 8.1
--------- --------- --------- --------- ---------
Net earnings...................................... 8.4% 0.2% 5.7% 5.3% 11.6%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Comparable store sales increase (decrease)........ 35.4% (16.5%) 18.0% 11.3% 43.5%
Stores opened during the period................... 24 18 10 7 5
Stores closed during the period................... 0 (1) 0 0 (3)
Stores open at the end of the period.............. 56 73 83 80 85
</TABLE>
- ---------
(1) Cost of sales includes the cost of merchandise, store occupancy costs and
buying costs.
(2) Selling, general and administrative expenses primarily consist of
non-occupancy store costs, corporate overhead and advertising costs.
(3) See Note 14 to the financial statements.
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
NET SALES. Net sales increased to $108.1 million during the nine-month
period ended March 31, 1998 from $68.4 million for the same nine-month period in
fiscal 1997, an increase of $39.7 million, or 58.0%. Of this increase, $29.5
million was attributable to the 43.5% increase in comparable store sales, and
$10.2 million was attributable to stores not included in the comparable store
sales base. The increase in comparable store sales was attributable to a broader
product line offering, strong consumer acceptance of the product line and
improvements in the operational aspects of the Company's business.
GROSS PROFIT. Gross profit, which includes the cost of merchandise, buying
and occupancy, increased to $54.3 million during the nine-month period ended
March 31, 1998 from $28.1 million for the same period in fiscal 1997, an
increase of $26.2 million, or 93.2%. As a percentage of net sales, gross profit
increased to 50.3% during the nine-month period ended March 31, 1998 from 41.1%
during the same nine-month period in fiscal 1997. The increase in gross profit
as a percentage of net sales resulted from higher initial markups and lower
markdowns associated with higher sell-through rates, as well as reduced
occupancy costs as a percentage of net sales resulting from higher average store
sales. In addition, during the nine-month period ended March 31, 1998, the
Company reviewed its fabric inventory and, for fabrics not directly associated
with planned garment production orders, the Company took a charge against cost
of sales and increased its inventory valuation allowance by $1.5 million to
reflect more appropriately the net realizable value of such fabrics. The Company
believes that the gross margins attained during this most recent nine-month
period are not sustainable and that gross margins will likely be lower in the
current and future periods.
20
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, which primarily consist of non-occupancy store costs,
corporate overhead and advertising costs, increased to $33.6 million during the
nine-month period ended March 31, 1998 from $22.6 million for the same
nine-month period in fiscal 1997, an increase of $11.0 million, or 48.7%. As a
percentage of net sales, these expenses decreased to 31.1% during the nine-month
period ended March 31, 1998 from 33.0% during the same nine-month period in
fiscal 1997. This reduction as a percentage of net sales was largely a result of
economies of scale related to the net sales increases offset in part by an
increase in advertising expenses as a percentage of net sales. For the
nine-month period ended March 31, 1998, advertising expense was $4.7 million, or
4.3% of net sales, compared to $1.8 million, or 2.6% of net sales, for the same
nine-month period in fiscal 1997. The Company currently plans to maintain
approximately the same level of advertising as a percentage of net sales in the
future. The Company has recorded deferred compensation of $2.8 million in
connection with option grants in June 1997, of which $528,000 was charged to
expense in the nine-month period ended March 31, 1998. The remaining deferred
compensation expense will be amortized over the vesting period of the options.
See Note 9 of Notes to Financial Statements.
INTEREST AND OTHER EXPENSE (INCOME), NET. The Company generated $502,000 of
interest and other income (net of other expenses) during the nine-month period
ended March 31, 1998 as compared to $209,000 for the same nine-month period in
fiscal 1997. The Company had no borrowings under its line of credit during the
nine months ended March 31, 1998 due to increases in average cash balances
arising from its improved operating results compared to net borrowing in the
same nine-month period in fiscal 1997.
PROVISION (BENEFIT) FOR INCOME TAXES. The effective tax rate for the
nine-month period ended March 31, 1998 was 41.0% as compared to 37.4% in the
same nine-month period in fiscal 1997. The higher effective tax rate for the
nine-month period ended March 31, 1998 was primarily attributable to a higher
applicable federal tax rate and greater profitability in high tax rate states.
See Note 6 of Notes to Financial Statements.
YEARS ENDED JUNE 30, 1997 AND 1996
NET SALES. Net sales increased to $95.1 million in fiscal 1997 from $71.6
million in fiscal 1996, an increase of $23.5 million, or 32.8%. Of this
increase, $12.7 million was attributable to an 18.0% increase in comparable
store sales, and $10.8 million was attributable to stores not included in the
comparable store sales base. The increase in comparable sales was attributable
to a broader product line offering, strong consumer acceptance of the product
line and improvements in the operational aspects of the business.
GROSS PROFIT. Gross profit increased to $41.1 million in fiscal 1997 from
$26.9 million in fiscal 1996, an increase of $14.2 million, or 52.8%. As a
percentage of net sales, gross profit increased to 43.2% in fiscal 1997 from
37.5% in fiscal 1996. The increase in gross profit as a percentage of net sales
resulted from higher initial markups and lower markdowns associated with higher
sell-through rates, as well as reduced occupancy costs as a percentage of net
sales resulting from higher average store sales. In addition, during fiscal
1997, the Company reviewed its fabric inventory and, for fabrics not directly
associated with planned garment production orders, the Company took a charge
against cost of goods sold and increased its inventory valuation allowance by
$442,000 to reflect more appropriately the net realizable value of such fabrics.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $32.6 million in fiscal 1997 from $26.4
million in fiscal 1996, an increase of $6.2 million, or 23.5%. As a percentage
of net sales, these expenses decreased to 34.3% in fiscal 1997 from 36.8% in
fiscal 1996. This reduction as a percentage of net sales was largely due to
economies of scale related to the net sales increases offset in part by expenses
related to additions to the management team and an increase in advertising
expenses as a percentage of net sales. In June of 1997, the Company completed a
review of its entire store base. As a result, the Company established an
impairment reserve for fixed assets (equipment and improvements) related to
certain underperforming stores in the amount of $272,000.
INTEREST AND OTHER EXPENSE (INCOME), NET. The Company generated $128,000 of
interest and other income (net of other expenses) in fiscal 1997 as compared to
$392,000 of net interest and other expense in fiscal 1996. This increase of
$520,000 was due to the gain on sale of property and reduced borrowing needs as
a result of net cash generated from operations in fiscal 1997 as compared to
fiscal 1996.
21
<PAGE>
PROVISION (BENEFIT) FOR INCOME TAXES. The Company's effective tax rate was
37.4% for fiscal 1997 compared to a tax benefit for fiscal 1996. See Note 6 of
Notes to Financial Statements.
YEARS ENDED JUNE 30, 1996 AND 1995
NET SALES. Net sales increased to $71.6 million in fiscal 1996 from $65.4
million in fiscal 1995, an increase of $6.2 million, or 9.5%. Of this increase,
$16.7 million was attributable to stores not included in the comparable store
sales base. This increase was offset significantly by a 16.5% decline in
comparable store sales. The decline in comparable store sales was due to, among
other things, lower sell-through of the Company's merchandise related to
changing consumer trends, a significant disruption in supply of the Company's
key fabrication, difficulty in obtaining replacement fabrication of similar
appeal in desired colors in a timely manner, certain related fashion
misjudgments and failure to manage product deliveries in order to obtain
merchandise in a timely manner.
GROSS PROFIT. Gross profit decreased to $26.9 million in fiscal 1996 from
$32.8 million in fiscal 1995, a decrease of $5.9 million, or 18.0%. As a
percentage of net sales, gross profit decreased to 37.5% in fiscal 1996 from
50.1% in fiscal 1995. The decrease in gross profit as a percentage of net sales
primarily resulted from the decrease in comparable store sales that led to a
high level of markdowns. In addition, the Company experienced increased
occupancy costs as a percentage of net sales related to the decline in average
store sales combined with the significant growth of the Company's store base.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $26.4 million in fiscal 1996 from $23.1
million in fiscal 1995, an increase of $3.3 million, or 14.3%. As a percentage
of net sales, these expenses increased to 36.8% in fiscal 1996 from 35.4% in
fiscal 1995. This increase as a percentage of net sales is primarily related to
the decline in average store sales.
INTEREST AND OTHER EXPENSE (INCOME), NET. Net interest and other expense
increased to $392,000 in fiscal 1996 from $87,000 in fiscal 1995, an increase of
$305,000 as a result of increased net borrowings required to fund operations.
PROVISION (BENEFIT) FOR INCOME TAXES. The Company realized a tax benefit in
fiscal 1996 as a result of minimal taxable earnings offset by certain tax
credits compared to an effective tax rate of 42.5% for fiscal 1995 associated
with greater taxable earnings in fiscal 1995. See Note 6 of Notes to Financial
Statements.
SEASONALITY OF BUSINESS AND QUARTERLY RESULTS
The Company's business varies with general seasonal trends that are
characteristic of the retail and apparel industries. As a result, the Company
generates a disproportionate amount of its annual net sales in the first half of
its fiscal year (which includes the fall and holiday selling seasons) compared
to the second half of its fiscal year. If for any reason the Company's sales
were below seasonal norms during the first half of its fiscal year, as they were
in fiscal 1996, the Company's annual operating results would be affected
adversely. Because of the seasonality of the Company's business, results for any
quarter are not necessarily indicative of results that may be achieved for a
full fiscal year.
The following table sets forth certain unaudited statements of operations
data for each of the five quarters ended March 31, 1998, as well as such data
expressed as a percentage of the Company's total net sales for the
22
<PAGE>
periods indicated. This data has been derived from unaudited financial
statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for fair
presentation of such information when read in conjunction with the Company's
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
-----------------------------------------------------------------------------
SEPT. 30,
JUNE 30, 1997 1997 DEC. 31, 1997 MARCH 31, 1998
------------- ------------- ------------- ---------------
MARCH 31, 1997
---------------
(AS
RESTATED)(1)
---------------
<S> <C> <C> <C> <C> <C>
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Net sales................................ $ 23,146 $ 26,689 $ 31,218 $ 43,558 $ 33,296
Gross profit............................. 9,228 13,020 15,653 22,413 16,248
Selling, general and administrative
expenses............................... 7,742 10,086 9,382 13,183 10,994
Income from operations................... 1,486 2,934 6,271 9,230 5,254
Earnings before income taxes............. 1,852 2,852 6,439 9,374 5,444
Net earnings............................. 1,174 1,778 3,797 5,523 3,222
Basic earnings per share................. $ 0.05 $ 0.08 $ 0.17 $ 0.24 $ 0.14
Diluted earnings per share............... $ 0.05 $ 0.08 $ 0.16 $ 0.23 $ 0.13
AS A PERCENTAGE OF NET SALES:
Net sales................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............................. 39.9 48.8 50.1 51.5 48.8
Selling, general and administrative
expenses............................... 33.4 37.8 30.1 30.3 33.0
Income from operations................... 6.4 11.0 20.1 21.2 15.8
Earnings before income taxes............. 8.0 10.7 20.6 21.5 16.4
Net earnings............................. 5.1 6.7 12.2 12.7 9.7
OPERATING DATA:
Comparable store sales increase.......... 18.2% 38.6% 53.7% 46.4% 32.0%
Stores open at end of period............. 80 83 83 85 85
</TABLE>
- ------------
(1) See Note 14 to the financial statements.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of fiscal 1998, and the preceding three years,
bebe has satisfied its cash requirements principally through cash flow from
operations, borrowings under its revolving lines of credit and term loans.
Primary uses of cash have been to purchase merchandise inventory, fund the
construction of new stores and to remodel and renovate stores.
The Company's working capital requirements vary widely throughout the year
and generally peak in the first and second fiscal quarters. At March 31, 1998,
the Company had approximately $22.7 million of cash and cash equivalents on
hand. In addition, the Company had a revolving line of credit, under which it
could borrow or issue letters of credit up to a combined total of $7.0 million.
As of March 31, 1998, there were no borrowings under the line of credit and
letters of credit outstanding totaled $697,000.
Net cash provided by operating activities in fiscal 1997 was $13.0 million,
while net cash used by operating activities was $2.2 million in fiscal 1996. In
fiscal 1995, net cash provided by operating activities was $8.9 million. The
increase in cash provided by operating activities in fiscal 1997 compared to
1996 was primarily the result of increases in income from operations. The
increase in cash used by operating activities in 1996 compared to 1995 was
primarily a result of reduced income from operations.
Net cash used by investing activities was $1.0 million, $1.5 million and
$6.9 million in fiscal 1997, 1996 and 1995, respectively. The primary use of
these funds was for the opening of new stores and, to a lesser degree, the
implementation of new computer systems within the stores and the corporate
office. In addition, in fiscal 1995, the Company incurred approximately $540,000
in tenant improvement costs in connection with the lease of new corporate
offices.
23
<PAGE>
The Company expects to make substantial capital expenditures in connection
with the opening and expansion of stores, the implementation of new systems to
support store and corporate office functions and the expansion or relocation of
its corporate offices and distribution center. The Company estimates that
capital expenditures will be between $3.5 million and $4.5 million in fiscal
1998, of which approximately $1.5 million had been expended as of December 31,
1997, and will be between $9.0 million and $11.0 million in fiscal 1999. The
Company opened six new stores through May 15 of fiscal 1998 and expects to open
one additional store during the remainder of fiscal 1998. The Company also
expects to open approximately fifteen stores in each of fiscal 1999 and 2000,
the majority of which will be in existing markets. During fiscal 1997, new store
construction costs (before tenant allowances) averaged $304,000. The average
gross inventory investment was $108,000 while pre-opening costs, which are
expensed as incurred, averaged approximately $12,500 per store. The average
total cost to build new stores will vary in the future, depending on various
factors, including local construction expenses, changes in store format and
design and tenant improvement allowances.
Net cash used by financing activities was $4.6 million in fiscal 1997 while
net cash provided by financing activities was $4.3 million in fiscal 1996. In
fiscal 1995, net cash used by financing activities was $1.6 million. Net cash
used by financing activities in fiscal 1997 primarily related to the repayment
of the term note and revolving line of credit. In fiscal 1996, net cash provided
by financing activities was related to proceeds from the term note and drawdowns
under the revolving line of credit. Net cash used by financing activities in
fiscal 1995 related to the paydown of amounts outstanding under the revolving
line of credit and repayment of the long term note payable to the Company's then
sole shareholder.
The Company believes that its cash on hand, together with its cash flow from
operations and the net proceeds to the Company from this offering, will be
sufficient to meet its capital and operating requirements through fiscal 1999.
The Company's future capital requirements, however, will depend on numerous
factors, including without limitation, the size and number of new and expanded
stores, investment costs for management information systems, potential
acquisitions and/or joint ventures, and future results of operations.
YEAR 2000 COMPLIANCE
The Company has created a Year 2000 Task Force, which is implementing a
6-phase plan with the objective of ensuring that its management information
systems will record, store, process, calculate and present calendar dates
falling on or after (and if applicable, spans of time including) January 1, 2000
in the same manner, and with the same functionality as it has in years prior to
2000. The costs associated with the implementation of this 6-phase plan are
expected to be approximately $400,000 to $600,000 during fiscal 1998 and 1999.
However, there can be no assurance that this 6-phase plan will be successful or
that the estimated costs associated with its implementation will not materially
exceed current estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, REPORTING
COMPREHENSIVE INCOME, and SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 130 requires that an enterprise
report, by major components and as a single total, the change in its net assets
during the period from nonowner sources; and SFAS No. 131 establishes annual and
interim reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers.
Adoption of these statements will not have a material impact on the Company's
financial position, results of operations or cash flows, and any effect will be
limited to the form and content of its disclosures. Both statements are
effective for fiscal years beginning after December 15, 1997, with earlier
application permitted.
INFLATION
The Company does not believe that inflation has had a material effect on
results of operations for the past three fiscal years. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
24
<PAGE>
BUSINESS
The following discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors" and elsewhere in this Prospectus. The following section is
qualified in its entirety by the more detailed information, including "Risk
Factors," and the Financial Statements and Notes thereto, appearing elsewhere in
this Prospectus.
COMPANY OVERVIEW
bebe designs, develops and produces a distinctive line of contemporary
women's apparel and accessories, which it markets under the bebe and bebe moda
brand names exclusively through its 85 specialty retail stores located in 21
states. While bebe attracts a broad audience, the Company's target customers are
18 to 35 year-old women who seek current fashion trends interpreted to suit
their lifestyle needs. The "bebe look," with an unmistakable hint of sensuality,
appeals to a hip, sophisticated, body-conscious woman who takes pride in her
appearance. The bebe customer is a discriminating consumer who demands value in
the form of quality at a competitive price. bebe's broad product offering
includes suits, tops, pants, skirts, dresses, logo and other activewear,
outerwear, and handbags and other accessories. Much of the Company's merchandise
is designed and developed in-house and manufactured to its specifications. The
balance is developed primarily in conjunction with third party apparel
manufacturers or, in some cases, selected directly from these manufacturers'
lines.
Founded by Manny Mashouf, the Company's current Chairman, President and
Chief Executive Officer, bebe opened its first store in San Francisco,
California in 1976 and grew to 73 stores by the end of fiscal 1996. Since the
end of fiscal 1996, bebe has significantly strengthened its management team and
has begun implementing several strategic initiatives which management believes
have contributed to its recent strong performance and positioned it to support
significant new store growth over the next several years. These initiatives were
directed to all aspects of the Company's operations and in particular the
merchandising, planning, manufacturing and distribution functions. The Company's
merchandising initiatives focused primarily on expansion of its product line to
include a broader array of tops, pants, dresses, accessories and logo items.
While the Company's traditional bebe product offering spoke to the "nine to
five" needs of a young professional woman, the expanded product line provides
head-to-toe lifestyle dressing at a competitive price that easily adapts from
day into evening. Additionally, the logo portion of the product line, which
highlights the bebe logo on a variety of active and casual styles, enhances
brand awareness while providing younger, "aspirational" customers an entry to
the bebe product line at lower price points. The strategic initiatives relating
to the planning, manufacturing and distribution functions primarily involve the
implementation of more sophisticated procedures and a more disciplined approach
to the operational aspects of the business.
bebe reinforces its brand with a distinctive lifestyle image advertising
campaign, using prominent fashion photographers. The Company believes that its
emphasis on non-product specific lifestyle advertising promotes brand awareness
and attracts customers who are intrigued by the playfully sensual and evocative
imagery. The images are communicated to consumers through a variety of vehicles
including fashion magazines, bus shelters, in-store displays and customer
mailings. The Company further enhances the bebe brand image by designing its
stores to create an upscale, inviting, boutique environment.
25
<PAGE>
OPERATING STRATEGY
While the market for women's apparel is extremely large, the Company
believes that the distinctive, contemporary, bebe point-of-view addresses an
underserved market segment and presents the Company with opportunities for
future growth. The Company's objective is to become a global brand, offering
quality merchandise that enhances the spirit and playful sensuality of the
contemporary woman. The principal elements of the Company's operating strategy
to achieve this objective are as follows:
- PROVIDE DISTINCTIVE FASHION THROUGHOUT A BROAD PRODUCT LINE. bebe
merchandisers take their fashion inspiration from throughout the world,
interpreting contemporary ideas for silhouettes, fabrications and colors
into products and styles to meet the everyday lifestyle needs of the bebe
customer. While many of the Company's styles and products are represented
season after season with variations in color, fabric or trim, its
merchandisers are committed to bringing newness into the merchandise mix
in response to emerging trends. bebe's product lines are carefully planned
to represent a broad array of sleek, fashionable goods, with particular
emphasis on career wear, related separates and day-into-evening styles.
The bebe product line is further supported by a broad selection of
accessories that help bebe customers create a distinctive ensemble, while
logo-embellished items provide an entry point for younger, aspirational
customers.
- VERTICALLY INTEGRATE DESIGN, PRODUCTION, MERCHANDISING AND RETAIL
FUNCTIONS. The Company believes that its vertical integration of
processes from design to market coupled with its financial discipline
enable it to produce distinctive quality merchandise of exceptional value.
Once a line is conceived by the merchandise team, bebe maintains
flexibility in its sourcing by subcontracting production of its own
designs, developing exclusive products in conjunction with third party
apparel manufacturers, or selecting merchandise directly from these
manufacturers' lines. This approach also enables the Company to respond
quickly to changing fashion trends, while reducing its risk of excess
inventory.
- MANAGE MERCHANDISE MIX. The Company believes that a disciplined approach
to merchandising and a proactive inventory management program is critical
to its success. By actively monitoring sell-through rates and managing the
mix of categories and products in its stores, the Company believes it is
able to respond to emerging trends in a timely manner; minimize its
dependence on any particular category, style or fabrication; and preserve
a balanced, coordinated presentation of merchandise within each store.
- CONTROL DISTRIBUTION OF MERCHANDISE. bebe believes that its brand image
is greatly enhanced by distributing its products exclusively through bebe
stores. This controlled distribution strategy enables the Company to
display the full assortment of its products, control the pricing, visual
presentation and flow of goods, test new products and reinforce the
brand's identity in the eyes of its customers.
- ENHANCE BRAND IMAGE. Through an edgy, high-impact, visual advertising
campaign utilizing print, outdoor, in-store and direct mail communication
vehicles, the Company attracts customers who are intrigued by the
playfully sensual and evocative imagery of the bebe lifestyle. The Company
also offers a line of merchandise branded with the distinctive bebe logo
to increase brand awareness. Within its stores, the Company seeks to
create an upscale, inviting, boutique environment that further enhances
the bebe brand and builds customer loyalty and demand for bebe
merchandise. Furthermore, the Company trains bebe sales associates to be
responsive and knowledgeable and encourages them to reflect the bebe
image.
GROWTH STRATEGY
bebe's objective is to grow its operations in a controlled manner, primarily
through the opening of new stores. After intentionally slowing its store
expansion in fiscal 1997 and 1998 while implementing strategic initiatives begun
in fiscal 1996, the Company believes it is now positioned to accelerate its
store opening program. With seven stores planned for opening in fiscal 1998, six
of which have been opened to date, the Company currently plans to open
approximately 15 stores in each of fiscal 1999 and 2000, the majority of which
will be in existing markets. In addition to its domestic expansion, the Company
is considering international expansion primarily through licensing arrangements
and has entered into a license agreement with a company in Mexico. Additionally,
the Company continually reviews its store base and has identified four
underperforming stores that it is considering closing prior to the end of fiscal
1999.
26
<PAGE>
In addition, the Company plans to grow through product line extensions,
introduction of new product categories, such as intimate apparel and incremental
operational improvements. The Company has recently hired a Vice President of
Licensing to explore opportunities for licensing the bebe name for the
development of product line extensions or new product categories that may
include eyewear, footwear and swimwear.
To support the introduction of new product categories in recent years as
well as to handle higher sales volumes, the Company has developed a store
prototype that is larger than the average of 2,700 square feet for the Company's
existing stores. The Company's new store prototype is approximately 3,000 to
5,000 square feet, although in certain selected markets the Company may open
larger stores. As opportunities arise, the Company also may expand certain
existing stores.
MERCHANDISING
The Company's merchandising strategy is to provide current, timely fashions
in a broad array of categories to suit the lifestyle needs of its customers. All
of the Company's merchandise is marketed under the bebe or bebe moda brand
names. Much of this merchandise is designed and developed in-house and
manufactured to the Company's specifications. The balance is developed primarily
in conjunction with third party apparel manufacturers or, in some cases,
selected directly from these manufacturers' lines.
PRODUCT CATEGORIES. After building a strong suiting business in the early
1990's, the Company diversified its product line in response to a decrease in
demand for its suiting in fiscal 1996. The Company significantly increased the
breadth of its product offerings by expanding categories such as related
separates, dresses, leather, logo and accessories and began to plan and monitor
its business by product classifications during fiscal 1997 and 1998. As volume
has increased in these expanded categories, the Company's dependence on suiting
has declined. While each category's contribution as a percentage of total net
sales varies seasonally, each of the product classifications is represented
throughout the year.
bebe regularly evaluates new categories that may be appropriate for
introduction and is currently producing an intimate apparel product line which
the Company plans to introduce into stores in the fall of 1998. Additionally,
the Company believes opportunities exist for other new product categories such
as eyewear, swimwear and footwear, although these categories are not currently
under development.
PRODUCT DEVELOPMENT. The Company takes a disciplined approach to the
product development process. The goal of this approach is to allow its merchants
to gain as much information as possible concerning product sell-through and
current fashion trends before making fabric or product purchase commitments. The
process is controlled by a detailed product development calendar which
highlights key color selection, fabric order, pattern development and production
order deadlines. The deadlines are established to ensure an adequate flow of
inventory into the stores. While the product development calendar is established
on a seasonal basis, commitments are made semi-monthly based on current sales
and fashion trends thereby enhancing the Company's ability to react promptly to
customer demand. In collaboration with the merchandising teams, designers
continuously develop new styles to be presented at monthly product review and
selection meetings. Styles presented at these meetings incorporate variations on
existing styles in an effort to capitalize further on the more popular
silhouettes or, to a lesser extent, entirely new styles and fabrications that
respond to emerging trends or customer preferences.
In addition, the product development process is supported by a detailed
merchandising plan. This merchandising plan includes sales, inventory and
profitability targets for each product classification and is reconciled with the
Company's store sales plan, a compilation of individual store sales projections.
On a semi-monthly basis, the merchandising plan is updated to reflect current
sales and inventory trends and distributed throughout the merchandising
department. The updated merchandising plan is used to adjust production orders
as needed to meet inventory and sales targets. If bebe miscalculates consumer
demand for its products, it may be faced with significant excess inventory and
fabric for some products and missed opportunities for others. Weak sales and
resulting markdowns could cause the Company's profitability to be impaired.
27
<PAGE>
MARKETING
The Company in recent years initiated an extensive image advertising program
which addresses the lifestyles and aspirations of its target customers. Through
an edgy, high-impact, visual advertising campaign, the Company attracts
customers who are intrigued by the playfully sensual and evocative imagery. The
Company believes that its emphasis on non-product specific lifestyle advertising
promotes brand awareness and supports numerous product line expansion
opportunities. Since fiscal 1997, the Company has retained an outside
advertising agency to create and implement a lifestyle advertising campaign in
conjunction with the Company. This campaign, which emphasizes a forward-looking
view of fashion, is communicated to consumers through a variety of vehicles
including fashion magazines, bus shelters, in-store displays and customer
mailings. In addition, the Company maintains a public relations department to
communicate directly with fashion editors and supply them with a continuous flow
of product information. On occasion, the Company has co-sponsored promotional
events with fashion magazines, such as Elle, Glamour, Marie Claire and Vanity
Fair.
STORES
STORE LOCATIONS AND ENVIRONMENT. As of the date of this Prospectus, bebe
operated 85 stores in 21 states. The Company's stores average approximately
2,700 square feet and are primarily located in regional shopping malls, and in
several cases, free-standing street locations. The Company's stores are designed
to create a clean, upscale boutique environment, featuring hardwood or marble
floors and recessed lighting. Glass exteriors allow passersby to see easily into
the store. The open floor design allows customers to readily view the majority
of the merchandise on display while store fixtures allow for the efficient
display of garments and accessories. An average store has between 14 and 20
product display bays with a flexible modular design that can be transformed
easily to handle display racks, storage racks or shelving units.
Stores are provided specific merchandise display directions on a weekly or
bi-weekly basis from the corporate office based on currently available
merchandise receipts. bebe's in-store product presentation utilizes a variety of
different fixtures to highlight the product line's breadth and versatility.
Complete outfits are displayed throughout the store using garments from a
variety of product categories. By emphasizing outfits in this manner, the
Company allows the customer to see how different pieces can be combined to
create multiple ensembles.
28
<PAGE>
The following map and store list shows the number of bebe stores in each
state and the cities in which stores are located as of the date of this
Prospectus:
[MAP OF STORE LOCATIONS IN THE UNITED STATES]
<TABLE>
<S> <C>
ARIZONA (2)
- ---------------------------
Scottsdale
Tempe*
CALIFORNIA (28)
- ---------------------------
Camarillo*
Corte Madera
La Jolla
Los Angeles (11):
Beverly Hills (2)
Brea
Canoga Park
Glendale
Redondo Beach
Santa Anita
Santa Monica
Sherman Oaks
Thousand Oaks
West Los Angeles
Milpitas*
Montclair
Newport Beach
Ontario*
Sacramento
San Diego
San Francisco (3)
San Jose
San Mateo
Santa Ana
Stanford
Walnut Creek
FLORIDA (9)
- ---------------------------
Boca Raton
Brandon
Fort Lauderdale
Miami (2)
Palm Beach
Sanford
Sawgrass*
Tampa
GEORGIA (4)
- ---------------------------
Atlanta (4)
HAWAII (1)
- ---------------------------
Honolulu
ILLINOIS (4)
- ---------------------------
Chicago (4):
Michigan Avenue
Northbrook
Schaumburg
Skokie
INDIANA (1)
- ---------------------------
Indianapolis
MARYLAND (2)
- ---------------------------
Annapolis
Bethesda
- ---------------------------
MASSACHUSETTS (4)
- ---------------------------
Boston (2)
Burlington
Natick
MICHIGAN (2)
- ---------------------------
Novi
Troy
MINNESOTA (1)
- ---------------------------
Minnetonka
NEW JERSEY (3)
- ---------------------------
Hackensack
Menlo Park
Woodridge
NEW YORK (6)
- ---------------------------
Garden City
Nanuet
Manhattan (3)
White Plains
NEVADA (3)
- ---------------------------
Henderson
Las Vegas (2)
NORTH CAROLINA (1)
- ---------------------------
Charlotte
- ---------------------------
OHIO (1)
- ---------------------------
Cincinnati
PENNSYLVANIA (2)
- ---------------------------
King of Prussia
Willow Grove
TENNESSEE (1)
- ---------------------------
Knoxville
TEXAS (4)
- ---------------------------
Austin
Dallas
Grapevine*
Houston
VIRGINIA (2)
- ---------------------------
Arlington
McLean
WASHINGTON (3)
- ---------------------------
Auburn*
Bellevue
Seattle
WASHINGTON D.C. (1)
- ---------------------------
Washington D.C.
</TABLE>
- ------------
* Outlet store.
29
<PAGE>
The following table highlights the number of stores opened and closed in
each of the last seven fiscal years and the nine-month period ended March 31,
1998:
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------------- ---------
1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of stores:
Open at beginning of period.................. 6 8 13 24 32 56 73 83
Opened..................................... 4 5 11 8 24 18 10 5
Closed..................................... (2) 0 0 0 0 (1) 0 (3)
---- ---- ---- ---- ---- ---- ----- --
Open at end of period........................ 8 13 24 32 56 73 83 85
---- ---- ---- ---- ---- ---- ----- --
---- ---- ---- ---- ---- ---- ----- --
</TABLE>
EXPANSION OPPORTUNITIES. In developing its store opening plan, the Company,
in conjunction with a real estate consulting firm, in fiscal 1997 developed a
profile of current customers and applied the profile to the largest 150
metropolitan areas in the United States. The Company currently operates bebe
stores in 37 of these top geographic market areas and has identified additional
geographic markets that it believes can support one or more bebe stores. In
addition, management believes that there is a significant opportunity to expand
the number of stores in most of the markets within which bebe stores are
currently located. The Company, in conjunction with its real estate consultant,
also has identified specific mall and street locations within each market to be
considered for new bebe store locations. In selecting a specific site, the
Company looks for high traffic locations primarily in regional shopping centers
and in free-standing street locations. Proposed sites are evaluated based on the
traffic pattern, co-tenancies, average sales per square foot achieved by
neighboring stores, lease economics and other factors considered important
within the specific location.
The Company opened five new stores during the nine months ended March 31,
1998, one store in May 1998 and expects to open one additional store during the
remainder of fiscal 1998. The Company also plans to open approximately 15 stores
in each of fiscal 1999 and 2000, the majority of which will be in existing
markets. The Company's new store prototype is approximately 3,000 to 5,000
square feet, although in certain selected markets the Company may open larger
stores. Additionally, in selected markets the Company may open high-profile
flagship stores that will be designed to enhance further the bebe image. The
Company currently plans to open approximately two such flagship stores ranging
in size from approximately 5,000 to 7,000 square feet in each of fiscal 1999 and
2000.
During fiscal 1997, the average new store size was approximately 3,300
square feet. New store construction costs (before tenant allowances) averaged
$304,000. The average gross inventory investment was $108,000 while pre-opening
costs, which are expensed as incurred, averaged approximately $12,500 per store.
bebe stores typically have achieved profitability at the store operating level
within the first full quarter of operation; however, there can be no assurance
that the Company's stores will do so in the future. Actual store growth and
future store profitability and rates of return will depend on a number of
factors which include, but are not limited to, individual store economics and
suitability of sites that become available. Because of their higher cost
structure, flagship stores are not expected to achieve operating margins
comparable to the Company's other stores.
In addition to opening new stores, the Company plans to expand or relocate
four existing stores to larger spaces within the same malls during calendar
1998. The Company believes that as awareness of bebe's brand name increases,
product lines expand and stores mature, additional expansion may be warranted.
The Company's ability to expand will depend on a number of factors,
including the availability of desirable locations, the negotiation of acceptable
leases and the Company's ability to manage expansion and to source adequate
inventory. There can be no assurance that the Company will be able to achieve
its planned expansion on a timely and profitable basis, if at all. Furthermore,
there can be no assurance that store openings in existing markets will not
result in reduced net sales volumes and profitability in existing stores in
those markets.
30
<PAGE>
OUTLET STORES. As of March 31, 1998, seven of the Company's 85 stores were
located in outlet malls throughout the United States. The Company originally
used these outlet stores to dispose of slow moving inventory in order to promote
a better merchandise presentation within the specialty stores. More recently,
the Company has rounded out the inventory of its outlet stores with casual logo
styles at full price and, to a lesser extent, garments specifically bought or
produced for the outlet stores.
During fiscal 1997, the average new outlet store size was approximately
3,000 square feet. New store construction costs (before tenant allowances)
averaged approximately $149,000, and the average inventory investment was
approximately $103,000. Of the seven stores planned to be opened in fiscal 1998,
two that have been opened to date were outlet stores. Of the 15 stores planned
to be opened in fiscal 1999, two are expected to be outlet stores.
STORE CLOSURES. In 1996, the Company initiated a program to monitor more
vigorously the financial performance of its stores and, from time to time, has
closed in the past and will close in the future, stores that it does not
consider to be viable. Many of the store leases contain early termination
options which allow the Company to close the stores in certain specified years
of the leases if certain minimum sales levels are not achieved. The Company
closed three stores during the nine-month period ended March 31, 1998 and one
additional store in April 1998. The Company has reviewed its existing store base
and has identified four underperforming stores that it is considering closing
prior to the end of fiscal 1999.
STORE OPERATIONS
Store operations are organized into five regions and seventeen districts.
Each region is managed by a regional manager, and each district is managed by a
district manager. Each regional manager is typically responsible for three to
four districts, and each district manager is typically responsible for three to
six stores. Each store is typically staffed with two to four managers in
addition to hourly sales associates.
The Company seeks to instill enthusiasm and dedication in its store
management personnel and sales associates through incentive programs and regular
communication with the stores. Sales associates receive commissions on sales
with a guaranteed minimum compensation. Store managers receive base compensation
plus incentive compensation based on sales. Regional and district managers
receive base compensation plus incentive compensation based on meeting
profitability benchmarks.
The Company has well-established store operating policies and procedures and
utilizes an in-store training regimen for all new store employees. Merchandise
presentation instructions, which include photographs of fixture presentations,
are provided to the stores on a weekly basis by the Visual Merchandising staff.
Detailed product descriptions also are provided to sales associates to enable
them to gain familiarity with bebe product offerings. The Company offers bebe
sales associates a discount on bebe merchandise to encourage them to wear the
Company's apparel and reflect the bebe image while on the selling floor. In
addition, the Company has developed a store management training program which
allows new district managers and certain field management personnel to receive
training at the corporate offices.
As part of its focus on better procedures and controls, the Company
established a Loss Prevention Department in fiscal 1997 to develop and implement
better programs for controlling losses. The initial results have been
encouraging. These programs include installing electronic article surveillance
systems in all stores, monitoring returns, voids, employee sales and deposits,
and educating store personnel on loss prevention.
SOURCING, QUALITY CONTROL AND DISTRIBUTION
All of the Company's merchandise is marketed under the bebe or bebe moda
brand names. Much of this merchandise is designed and developed in-house and
manufactured to the Company's specifications. The balance is developed primarily
in conjunction with third party apparel manufacturers or, in some cases,
selected directly from these manufacturers' lines. When contracting for the
production of merchandise, the Company uses a combination of facilities,
primarily located in California, and, to a lesser degree, foreign manufacturers,
to produce garments
31
<PAGE>
based on designs, patterns and detailed specifications produced by the Company.
bebe uses computer aided design (CAD) systems to develop its patterns and
production markers as part of its product development process. Sample garments
are fit tested prior to production to validate the accuracy of the patterns.
After being received at the Company's distribution facility, a percentage of
receipts are inspected and fit tested a second time. The Company recently
implemented a formalized quality control program which involves inspection of
merchandise and fabrics upon receipt at the Company's distribution center.
Garments that do not pass inspection are returned to the manufacturer for rework
or accepted at reduced prices for sale in the Company's outlet stores.
All of the Company's merchandise is received, inspected, processed,
warehoused and distributed through its distribution center that is adjacent to
its corporate offices. Details about each receipt are supplied to merchandise
planners who determine how the product should be distributed among the stores
based on current inventory levels, sales trends and specific product
characteristics. Advance shipping notices are electronically communicated to the
stores and any goods not shipped are stored for replenishment purposes.
Merchandise typically is shipped to the stores on a weekly basis using common
carriers; however, during peak selling periods shipments may be made twice or
even three times a week.
The Company does not have any long-term contracts with any manufacturer or
supplier and places all of its orders by purchase order. The failure to obtain
sufficient quantities of manufacturing capacity or raw materials would have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company has received in the past, and may receive in
the future, shipments of products from manufacturers that fail to conform to the
Company's quality control standards. In such event, unless the Company is able
to obtain replacement products in a timely manner, the Company may lose sales
which could have an adverse effect on operating results.
COMPETITION
The Company believes it distinguishes itself from its competitors primarily
through its distinctive, contemporary point-of-view and product design, in
combination with exceptional quality and value to the consumer. However, the
retail and apparel industries are highly competitive and are characterized by
low barriers to entry, and the Company expects competition in its markets to
increase. The primary competitive factors in the Company's markets include brand
name recognition, product styling, product presentation, product pricing, store
ambiance, customer service and convenience. The Company competes with
traditional department stores, specialty store retailers, off-price retailers
and direct marketers for, among other things, raw materials, market share,
retail space, finished goods, sourcing and personnel. Many of these competitors
are larger and have substantially greater financial, distribution and marketing
resources than the Company. Any failure to compete would have a material adverse
effect on the Company's business, financial condition and results of operations.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
TRADEMARKS AND SERVICE MARKS. The Company believes that its trademarks and
other proprietary rights are important to its success and has registered "bebe"
and "bebe moda" in the United States and certain foreign jurisdictions. The
Company is seeking to register its trademarks in targeted international markets
which it believes represent large potential markets for the Company's products.
In some of these markets, local companies currently have registered competing
marks, and/or regulatory obstacles exist that may prevent the Company from
obtaining a trademark for the bebe name or related names. In such countries, the
Company may be unable to use the bebe name unless it purchases the right or
obtains a license to use the bebe name. There can be no assurance that the
Company will be able to register trademarks in such international markets,
purchase the right or obtain a license to use the bebe name on commercially
reasonable terms, if at all. Failure to obtain either trademark, ownership or
license rights would limit the Company's ability to expand into certain
international markets or enter such markets with the bebe name, and to
capitalize on the value of its brand.
32
<PAGE>
LICENSING. The Company strives to provide its customers with high quality
products and to maintain a consistent image in all of its advertising and
marketing programs. bebe currently is evaluating opportunities to expand its
product offerings and extend its geographic reach through licensing or joint
venture arrangements. Accordingly, although to date the Company has received
substantially no revenue from any licensing source, it may from time to time
selectively enter into licensing or joint venture agreements with third parties.
In entering into such licensing and joint venture agreements, the Company will
seek to preserve the integrity of its brand name by closely monitoring the
design and quality of the products sold by such licensees or joint venture
partners and by controlling the manner in which the Company's products are
advertised, marketed and distributed. In addition to distributing such new
products through bebe stores, the Company may elect to distribute these licensed
products with the bebe logo through other channels. The Company recently hired a
Vice President of Licensing to develop this program. See "Management."
The Company also believes that opportunities may exist to license the bebe
brand name internationally to licensees who will open bebe stores. As an initial
test, the Company has recently signed a licensing agreement with a Mexican
company to open and operate a retail bebe store in Mexico City. Under this
agreement, the Company provides the use of its name, store design and
advertising images, and the licensee purchases its inventory from the Company.
INFORMATION SERVICES AND TECHNOLOGY
The Company is committed to utilizing technology to enhance its competitive
position. To this end, the Company recently hired an experienced Vice President
of Information Technology to lead the Company's efforts in this area. bebe's
information systems provide integration of the store, merchandising,
distribution and financial systems. The core business systems, which consist of
both purchased and internally developed software, run on a UNIX platform and are
accessed over a Company-wide network providing corporate employees with access
to all key business applications. Daily sales and cash deposit information are
electronically collected from the stores' point-of-sale terminals nightly.
During this process, the Company also obtains information concerning inventory
receipts and transfers (primarily to the outlet stores) and sends to the stores
pricing, markdown and shipment notification data. In addition, the Company
collects customer names and addresses to update its customer database. The
merchandising staff evaluates the sales and inventory information collected from
the stores to make key merchandise planning decisions, including replenishment
and markdowns. These decisions enhance the Company's ability to optimize sales
while limiting markdowns and minimizing inventory risk by properly marking down
slow selling styles, reordering existing styles and effectively distributing new
inventory receipts to the stores.
In the past, the Company's investments in information systems have focused
on its core store, merchandise and financial accounting systems. Currently, the
Company's focus is on upgrading its capabilities and systems associated with its
production, merchandise allocation and distribution functions, which have not
kept pace with the Company's growth. The Company intends to make significant
investments to improve existing management information systems and implement new
systems in these areas and to implement them during fiscal 1999. Additionally,
the Company has created a Year 2000 Task Force, which is implementing a 6-phase
plan with the objective of ensuring that its management information systems will
be Year 2000 Compliant. The Company believes that this 6-phase plan will be
completed by October 31, 1999. There can be no assurance that the Company will
be successful with the implementation of these new systems or plans. Failure to
implement and integrate such systems or plans could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Risk Factors--Reliance on Management Information Systems" and "--Year 2000
Compliance."
33
<PAGE>
PROPERTIES
As of March 31, 1998, the Company's 85 stores, all of which are leased,
encompassed approximately 231,000 total square feet. The typical store lease is
for a 10-year term and requires the Company to pay a base rent and a percentage
rent if certain minimum sales levels are achieved. Many of the leases provide
the Company a lease termination option in certain specified years of the lease
if certain minimum sales levels are not achieved. In addition, leases for
locations typically require the Company to pay property taxes, utilities and
repairs and maintenance. In addition, leases for mall locations also may require
the Company to pay common area maintenance fees.
The Company's corporate headquarters and distribution center are located in
an approximately 70,000 square foot leased facility located at 380 Valley Drive
in Brisbane, California. The lease expires in August 2001. The Company is
currently seeking alternative or additional space for its administrative offices
and distribution center in order to accommodate its future needs and believes it
will be able to obtain such space on commercially reasonable terms.
EMPLOYEES
As of March 31, 1998, the Company had approximately 940 employees, of whom
approximately 210 were employed in general and administrative functions at the
corporate offices and distribution center. The remaining 730 employees were
employed in store operations. Of these remaining employees, approximately 274
were full-time employees and 456 were employed on a part-time basis. None of the
Company's employees is represented by a labor union, and the Company believes
its relationship with its employees is good.
LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation relating to
claims arising out of its operations. As of the date of this Prospectus, the
Company is not engaged in any legal proceedings that are expected, individually
or in the aggregate, to have a material adverse effect on the Company's
business, financial condition or results of operations.
34
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL
The following table sets forth certain information with respect to the
executive officers, directors and other officers and key personnel of the
Company as of March 31, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Manny Mashouf (1)...................................... 59 Chairman, President and Chief Executive Officer
Greg Scott (1)......................................... 35 Vice President of Merchandising
Blair Lambert (1)...................................... 40 Chief Financial Officer
Neda Mashouf........................................... 35 Director and Design Director
Barbara Bass (2)....................................... 47 Director
Corrado Federico (2)................................... 57 Director
Philip Schlein (2)..................................... 63 Director
Julie Elliott.......................................... 34 Director of Stores
George Arvan........................................... 51 Vice President of Sourcing and Production
Karen Ioli............................................. 38 Vice President of Licensing
Tim Millen............................................. 38 Vice President of Information Technology
Bonnie Schultz......................................... 47 Executive Director of Human Resources
</TABLE>
- ------------
(1) Executive Officer.
(2) Member, Audit Committee and Compensation Committee.
MANNY MASHOUF founded the Company and has served as Chairman, Chief
Executive Officer and President of the Company since the Company's incorporation
in 1976. Mr. Mashouf is the husband of Neda Mashouf, a Director of the Company,
and the father of Paul Mashouf, the Secretary of the Company.
GREG SCOTT has served as the Company's senior merchant since January 1996.
From January 1994 to January 1996, Mr. Scott was a Senior Merchant at AnnTaylor,
Inc., a women's apparel retail company. From January 1993 to January 1994, Mr.
Scott served as a merchant at Henri Bendel, a women's apparel retailer. From
September 1985 to January 1993, Mr. Scott was employed by Macy's West, a
subsidiary of Federated Department Stores, Inc., most recently as a buyer.
BLAIR LAMBERT has served as Chief Financial Officer of the Company since
June 1996. From 1988 to 1996, Mr. Lambert was employed by Esprit de Corp, Inc.,
a wholesaler and retailer of junior and children's apparel, footwear and
accessories ("Esprit"), most recently as Corporate Vice President of Finance.
Mr. Lambert is a Certified Public Accountant.
NEDA MASHOUF has served as a Director of the Company since September 1984
and has been employed by the Company since 1984, most recently as Design
Director. Ms. Mashouf is the wife of Manny Mashouf, the Chairman, President and
Chief Executive Officer of the Company.
BARBARA BASS has served as a Director of the Company since February 1997.
Since 1993, Ms. Bass has served as the President of the Gerson Bakar Foundation.
From 1989 to 1992, Ms. Bass served as President and Chief Executive Officer of
the Emporium Weinstock Division of Carter Hawley Hale Stores, Inc., a department
store chain. Ms. Bass also serves on the Board of Directors of Starbucks
Corporation, DFS Group Limited and The Bombay Company, Inc.
CORRADO FEDERICO has served as a Director of the Company since November
1996. Since 1991, Mr. Federico has served as the President of Corado, Inc., a
land development firm. From 1986 to 1991, Mr. Federico held the position of
President and Chief Executive Officer of Esprit. Mr. Federico also serves on the
Board of Directors of Hot Topic, Inc.
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<PAGE>
PHILIP SCHLEIN has served as a Director of the Company since December 1996.
Since April 1985, Mr. Schlein has been a general partner of U.S. Venture
Partners, a venture capital firm specializing in retail and consumer products
companies. From January 1974 to January 1985, Mr. Schlein served as President
and Chief Executive Officer of Macy's California, a division of R. H. Macy & Co,
Inc., a department store chain. Mr. Schlein also serves on the Board of
Directors of Ross Stores, Inc., ReSound Corporation, Quick Response Services and
Burnham Pacific Properties, Inc.
JULIE ELLIOTT has been employed with the Company since June 1989, most
recently as Director of Stores. From October 1986 to June 1989, Ms. Elliott was
employed by The Limited, Inc., a women's apparel retailer.
GEORGE ARVAN has served as the Vice President of Sourcing and Production of
the Company since September 1997. Prior to his employment with bebe, Mr. Arvan
founded New Planet Sourcing, an apparel sourcing company, and served as its
President from September 1996 to September 1997. During the period from 1991 to
1996, Mr. Arvan was the Chief Operating Officer of Berkeley Shirt Company, a
men's wholesale apparel company.
KAREN IOLI has served as Vice President of Licensing of the Company since
January 1998. From January 1996 to January 1998, Ms. Ioli served as Vice
President of Licensing for Mossimo, Inc., an apparel wholesale company. From
July 1992 to September 1995, Ms. Ioli was employed by Guess?, Inc., an apparel
retail and wholesale company, as Vice President of Licensing.
TIM MILLEN has served as Vice President of Information Technology of the
Company since November 1997. From July 1996 to November 1997, Mr. Millen served
as Vice President of Information Systems for AZ3 Inc. (d.b.a. BCBG), a women's
apparel retail and wholesale company. From August, 1994 to July 1996, Mr. Millen
served as Vice President of Management Information Systems for Francine Browner
Inc., an apparel wholesale company. From 1991 to 1994, Mr. Millen was an
independent information technology consultant, focusing on the retail and
wholesale apparel market.
BONNIE SCHULTZ has served as the Executive Director of Human Resources of
the Company since October 1997. From July 1993 to September 1997, Ms. Schultz
served as Director of Human Resources for Host Marriott Corporation, a hotel
company. From October 1982 to June 1993, Ms. Schultz was employed by Target
Stores, a subsidiary of Dayton Hudson Corporation, a retail company, most
recently as a Regional Human Resources Director.
BOARD OF DIRECTORS COMMITTEES
The Audit Committee, which consists of all of the non-employee directors,
oversees actions taken by the Company's independent auditors, recommends the
engagement of auditors and reviews the results and scope of the audit and other
services provided by the Company's independent auditors, reviews and evaluates
the Company's control functions and reviews the Company's investment policy.
The Compensation Committee, which consists of all of the non-employee
directors makes recommendations to the Board of Directors concerning salaries
and incentive compensation for employees and consultants of the Company. The
Compensation Committee also administers the Company's 1997 Stock Plan. Prior to
June 1997 the Board of Directors made recommendations regarding compensation for
employees and consultants of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee, which was established in April 1998, is
comprised of the three outside members of the Board of Directors, Ms. Bass, Mr.
Federico and Mr. Schlein.
DIRECTOR COMPENSATION
The Company's non-employee directors are paid a fee of $500 for each meeting
of the Board of Directors which they attend. The Company also reimburses all
directors for their expenses incurred in attending such
36
<PAGE>
meetings. In addition, certain directors have been granted options to purchase
Common Stock in the past, and options may be granted to directors of the Company
in the future. Specifically, each of Ms. Bass, Mr. Federico and Mr. Schlein have
received options to purchase 212,250 shares of the Company's Common Stock, at an
exercise price of $1.77 per share.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to (i) the Chief
Executive Officer and (ii) the Company's other most highly compensated executive
officers (collectively with the Chief Executive Officer, the "Named Executive
Officers") for services rendered in all capacities to the Company during the
fiscal year ended June 30, 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------
----------------------- NO. OF SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($)(1) UNDERLYING OPTIONS COMPENSATION ($)
- -------------------------------------------------- ---------- ----------- ------------------ -----------------
<S> <C> <C> <C> <C>
Manny Mashouf .................................... $ 449,921 $ 155,754 -- $ 1,572(2)
Chairman, President and
Chief Executive Officer
Greg Scott ....................................... 159,288 50,210 141,500 --
Vice President of
Merchandising
Blair Lambert .................................... 139,694 43,373 141,500 --
Chief Financial Officer
</TABLE>
- ------------
(1) Bonuses are based on Company net sales and profitability targets.
(2) Represents a matching contribution by the Company to Mr. Mashouf's 401(k)
contribution. See "--401(k) Plan."
The following table sets forth information regarding stock options granted
during the fiscal year ended June 30, 1997 to each of the Named Executives
Officers:
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------------------- ANNUAL RATES OF STOCK
NUMBER OF % OF TOTAL OPTIONS PRICE APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OPTION TERM (3)
UNDERLYING OPTIONS EMPLOYEES IN FISCAL PRICE PER EXPIRATION ----------------------
NAME GRANTED (1) 1997 (2) SHARE DATE 5% 10%
- ----------------------------- ------------------ ------------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Manny Mashouf................ -- -- -- -- -- --
Greg Scott................... 141,500 8.9% $ 1.77 6/30/07 $ 157,510 $ 399,161
Blair Lambert................ 141,500 8.9 1.77 6/30/07 157,510 399,161
</TABLE>
- ------------
(1) These options were granted under the Company's 1997 Stock Plan. The options
granted are immediately exercisable, but are subject to repurchase in the
event that the optionee's employment with the Company ceases for any reason.
The Company's right of repurchase generally lapses over a four-year period,
as to 1/5th of the shares one year from the grant date, 1/60th of the shares
in each of the successive twelve months and 1/40th of the shares in each of
the successive 24 months with full lapse of the repurchase option occurring
on the fourth anniversary date. The options have a 10-year term, subject to
earlier termination in certain situations related to termination of
employment. See "--Stock Plans."
(2) Based on a total of 1,587,630 options granted to all employees, consultants
and directors during fiscal 1997.
(3) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.
37
<PAGE>
The following table provides specified information concerning unexercised
options held as of June 30, 1997 by each of the Named Executive Officers. No
options to purchase Common Stock were exercised in the fiscal year ended June
30, 1997.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
VALUE OF UNEXERCISED IN-THE- MONEY
UNEXERCISED OPTIONS AT 6/30/97 OPTIONS AT 6/30/97 (1)
-------------------------------- ------------------------------------
NAME EXERCISABLE (2) UNEXERCISABLE EXERCISABLE (2) UNEXERCISABLE
- ------------------------------------------------------ ------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Manny Mashouf......................................... -- -- -- --
Greg Scott............................................ 141,500 -- -- --
Blair Lambert......................................... 141,500 -- -- --
</TABLE>
- ------------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option at June 30, 1997 as determined by the
Company's Board of Directors ($1.77) and the exercise price of the Named
Executive Officer's option ($1.77).
(2) Under the 1997 Stock Plan, options granted are immediately exercisable, but
are subject to repurchase in the event that the optionee's employment with
the Company ceases for any reason. The Company's right of repurchase
generally lapses over a four-year period, as to 1/5th of the shares one year
from the grant date, 1/60th of the shares in each of the successive 12
months and 1/40th of the shares in each of the successive 24 months with
full lapse of the repurchase option occurring on the fourth anniversary
date.
STOCK PLANS
1997 STOCK PLAN
In June 1997, the Board of Directors adopted and the Company's then sole
shareholder approved the 1997 Stock Plan to recognize the contributions made to
the Company by its employees and certain consultants or advisors, to provide
these individuals with additional incentives to devote themselves to the
Company's future success and to improve the Company's ability to attract, retain
and motivate individuals upon whom the Company's sustained growth and financial
success depend. The 1997 Stock Plan is also intended as an additional incentive
to directors of the Company who are not employees of the Company to serve on the
Board of Directors and to devote themselves to the future success of the
Company. Awards under the 1997 Stock Plan may be made to all employees,
directors, consultants or advisors of the Company.
The 1997 Stock Plan is administered by the Compensation Committee. The
aggregate maximum number of shares of Common Stock available for award under the
1997 Stock Plan is 2,830,000 shares (subject to adjustment to reflect changes in
the Company's capitalization). Options granted under the 1997 Stock Plan may be
either incentive stock options ("ISO's"), non-qualified stock options, stock
purchase rights or stock awards. ISO's are intended to qualify as "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code.
Unless an option is specifically designated at the time of grant as an ISO,
options under the 1997 Stock Plan will be non-qualified options.
The exercise price of the options will be determined by the Board of
Directors or the Compensation Committee, although the exercise price of an ISO
will be at least 100% of the fair market value of a share of Common Stock on the
date it is granted, or at least 110% of the fair market value of a share of
Common Stock on the date the option is granted if the recipient owns, directly
or by attribution under Section 424(d) of the Internal Revenue Code, shares
possessing more than 10% of the total combined voting power of all classes of
stock of the Company. No awards can be made under the 1997 Stock Plan after June
26, 2007. The maximum term of an ISO granted under the 1997 Stock Plan shall not
exceed 10 years from the date of grant or five years from the date of grant if
the recipient on the date of grant owns, directly or by attribution under
Section 424(d) of the Internal Revenue Code, shares possessing more than 10% of
the total combined voting power of all classes of stock of the Company.
The options granted are immediately exercisable, but are subject to
repurchase in the event that the optionee's employment with the Company ceases
for any reason. The Company's right of repurchase generally lapses over a
38
<PAGE>
four-year period, as to 1/5th of the shares one year from the grant date, 1/60th
of the shares in each of the successive 12 months and 1/40th of the shares in
each of the successive 24 months with full lapse of the repurchase option
occurring on the fourth anniversary date. The options have a 10-year term,
subject to earlier termination in certain situations related to termination of
employment. Additionally, in the event of a Change of Control (as defined in the
1997 Stock Plan), options granted to the outside directors and Mr. Lambert shall
accelerate and become fully vested and the Company's right of repurchase shall
lapse.
As of March 31, 1998, the Company had granted options to purchase an
aggregate of 1,913,080 shares of Common Stock at exercise prices ranging from
$1.77 to $5.65 per share under the 1997 Stock Plan, of which 1,782,900 were
outstanding, exercisable and subject to repurchase by the Company under certain
circumstances as of such date.
1998 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company's Board of Directors and approved by the shareholders of
the Company on April 7, 1998. A total of 750,000 shares of Common Stock has been
reserved for issuance under the Purchase Plan. The Purchase Plan, which is
intended to qualify under Section 423 of the Code, is administered by the Board
of Directors or by a committee appointed by the Board of Directors. Generally,
the Purchase Plan will allow eligible employees to purchase the Company's Common
Stock in an amount which may not exceed 10% of the employee's compensation. The
Purchase Plan will be implemented by an initial 24-month offering period, which
will be comprised of four, six-month purchase periods. Shares will be purchased
on the last day of each purchase period (a "Purchase Date") at a price equal to
85% of the lower of fair market value of the Company's Common Stock on the first
day of the offering period or the Purchase Date. The first offering period of
the Purchase Plan will begin on the effective date of this offering. The Board
of Directors (or committee thereof) may amend or terminate the Purchase Plan at
any time.
401(k) PLAN
The Company maintains a retirement and deferred saving plan for its
employees (the "401(k) Plan") that is intended to qualify as a tax-qualified
plan under the Internal Revenue Code of 1986, as amended. The 401(k) Plan
provides that each participant may contribute up to 15% of his or her pre-tax
gross compensation (up to a statutory limit, which was $10,000 in calendar year
1998). Under the 401(k) Plan, the Company may make discretionary matching
contributions. The Company's contributions to the 401(k) Plan in fiscal 1996 and
1997 were $35,947 and $32,688, respectively. A matching contribution made by the
Company vests at 20% per year commencing on the first anniversary of a
participant's date of employment with the Company. All amounts contributed by
participant's and earnings on such contributions are fully vested at all times.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company may indemnify its directors,
officers, employees and agents to the fullest extent permitted by law.
The Company has entered into agreements to indemnify its directors and
officers, in addition to the indemnification provided for in the Company's
Amended and Restated Articles of Incorporation (the "Amended and Restated
Articles"). These agreements, among other things, indemnify the Company's
directors and officers for certain expenses (including attorneys' fees),
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of the Company,
arising out of such person's services as a director or officer of the Company,
any subsidiary of the Company or any other company or enterprise to which the
person provides services at the request of the Company. The Company believes
that these provisions and agreements are necessary to attract and retain
qualified directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required. The Company is not aware of any threatened litigation or
39
<PAGE>
proceeding that might result in a claim for such indemnification except for
litigation threatened by a former employee of the Company, which the Company
believes is not material and against which the Company intends to defend itself
vigorously.
CERTAIN TRANSACTIONS
In March 1995, the Company purchased from Manny Mashouf, the Chairman,
President and Chief Executive Officer of the Company, certain residential
property for $800,000, the price at which such property had been listed for sale
in the residential market for more than one year. In February 1997, the Company
sold the property to an unaffiliated third party for $693,000, net of selling
costs.
During the last three fiscal years, Mr. Mashouf has loaned to or borrowed
from the Company various amounts of cash ranging from loans to the Company of up
to $500,000 and advances on bonuses from the Company of up to $150,000. Loans to
the Company by Mr. Mashouf bore interest at an annual rate of 10%. The Company
did not accrue interest on advances on bonuses to Mr. Mashouf. As of March 31,
1998, there were no borrowings due to Mr. Mashouf from the Company or advances
owed to the Company by Mr. Mashouf.
40
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDER
The following table sets forth certain information regarding the beneficial
ownership of Common Stock, as of March 31, 1998 as adjusted to reflect the sale
of the shares of Common Stock offered hereby by (a) each person or entity known
by the Company to own beneficially more than 5% of the outstanding shares of
Common Stock, (b) each director of the Company, (c) each of the Named Executive
Officers and (d) all directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING (1) AFTER OFFERING (1)
------------------------- NUMBER OF SHARES -------------------------
NAME OF BENEFICIAL OWNERS NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------------------- ------------ ----------- ------------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Manny Mashouf (2).............................. 22,639,997 100.0% 1,250,000 21,389,997 89.5%
Barbara Bass (3)............................... 212,250 * -- 212,250 *
Corrado Federico (3)........................... 212,250 * -- 212,250 *
Neda Mashouf (4)............................... 22,639,997 100.0 -- 21,389,997 89.5
Philip Schlein (3)............................. 212,250 * -- 212,250 *
Greg Scott (5)................................. 141,500 * -- 141,500 *
Blair Lambert (5).............................. 141,500 * -- 141,500 *
All directors and executive officers as a group
(7 persons) (6).............................. 23,559,747 100.0% 1,250,000 22,309,747 89.9%
</TABLE>
- ------------
* Represents less than 1% of the total outstanding.
(1) Number of shares beneficially owned and the percentage of shares
beneficially owned are based on (i) 22,639,997 shares outstanding as of
March 31, 1998 and (ii) 23,889,997 shares outstanding after this offering
assuming no exercise of the Underwriter's over-allotment option. If such
option is exercised in full, the number of shares outstanding after the
offering will be 23,889,997 and the number of shares beneficially owned by
Mr. Mashouf after the offering will be 21,014,997 (88.0%). Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. All shares of Common Stock subject to options currently
exercisable or exercisable within 60 days after March 31, 1998 are deemed to
be outstanding and to be beneficially owned by the person holding such
options for the purpose of computing the number of shares beneficially owned
and the percentage of ownership of such person, but are not deemed to be
outstanding and to be beneficially owned for the purpose of computing the
percentage of ownership of any other person. Except as indicated in the
footnotes to the table and subject to applicable community property laws,
based on information provided by the persons named in the table, such
persons have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(2) Mr. Mashouf's address is c/o bebe stores, inc., 380 Valley Drive, Brisbane,
California 94005. Includes 262,780 shares held by trusts for Mr. Mashouf's
children, as to which shares Mr. Mashouf disclaims beneficial ownership. Mr.
Mashouf is the Chairman, President and Chief Executive Officer of the
Company.
(3) Represents 212,250 shares issuable upon exercise of options, all of which
are subject to vesting and the Company's right of repurchase under certain
circumstances within 60 days of March 31, 1998.
(4) Consists of shares, of which Ms. Mashouf disclaims beneficial ownership,
held by Mr. Mashouf (22,377,217 shares prior to the offering and 21,127,217
shares after the offering), Ms. Mashouf's husband, and 262,780 shares held
by trusts for Mr. Mashouf's children.
(5) Represents 141,500 shares issuable upon exercise of options, all of which
are subject to vesting and the Company's right of repurchase under certain
circumstances within 60 days of March 31, 1998.
(6) Includes an aggregate of 919,750 shares issuable pursuant to options
currently exercisable held by the directors and officers, all of which are
subject to vesting and the Company's right of repurchase under certain
circumstances within 60 days of March 31, 1998. Includes 262,780 shares held
by trusts for Mr. Mashouf's children, as to which shares Mr. and Ms. Mashouf
disclaim beneficial ownership.
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 40,000,000 shares of
Common Stock, $0.001 par value per share, and 1,000,000 shares of Preferred
Stock, $0.001 par value per share. The following summary of the Company's
capital stock does not purport to be complete and is qualified in its entirety
by reference to the Amended and Restated Articles and Bylaws, copies of which
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
As of March 31, 1998, there were 22,639,997 shares of Common Stock held of
record by five shareholders. Immediately after the completion of this offering,
the Company estimates that there will be outstanding an aggregate of 23,889,997
shares of Common Stock. An additional 2,830,000 shares have been reserved for
issuance of options, of which 1,782,900 shares are subject to currently
outstanding and exercisable options, subject to certain vesting and repurchase
restrictions.
COMMON STOCK
VOTING RIGHTS. Under the Amended and Restated Articles and Bylaws, holders
of Common Stock will not have cumulative voting rights after the Company becomes
a "listed corporation" (as defined in Section 301.5 of the California
Corporations Code). Until such time, holders of Common Stock will be able to
cumulate votes for the election of directors. The Company anticipates that it
will qualify as a "listed corporation", thus terminating the cumulative voting
rights of the holders of Common Stock, as of the first annual meeting of
shareholders following this offering. On all other matters, holders of Common
Stock are entitled to cast one vote for each share owned.
DIVIDEND, PREEMPTIVE AND LIQUIDATION RIGHTS. The holders of Common Stock
are entitled to participate in cash dividends, pro rata based on the number of
shares held, when, as and if declared by the Board of Directors out of funds
legally available therefor. See "Dividend Policy." Such holders do not have any
preemptive or other rights to subscribe for additional shares. All holders of
Common Stock are entitled to share ratably in any assets for distribution to
shareholders upon the liquidation, dissolution or winding up of the Company.
There are no conversion, redemption or sinking fund provisions applicable to the
Common Stock.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock are available for future
issuance without shareholder approval except as required by law or applicable
requirements of the Nasdaq National Market ("Nasdaq"). For example, current
Nasdaq rules require approval by a company's shareholders if the number of
shares of Common Stock to be issued in a particular transaction or series of
related transactions equals or exceeds 20% of the number of shares of Common
Stock outstanding immediately prior to such issuance. These additional shares
may be utilized for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans.
The existence of authorized but unissued and unreserved Common Stock may
enable the Board of Directors to issue shares to persons friendly to current
management which could render more difficult or discourage an attempt to obtain
control of the Company by means of a proxy contest, tender offer, merger, or
otherwise, and thereby protect the continuity of the Company's management.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 1,000,000 shares of
Preferred Stock and to fix the rights, preferences, privileges and restrictions,
including voting rights, of these shares without any vote or action by the
shareholders. Accordingly, the rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company, thereby delaying, deferring or preventing a change in
control of the Company.
42
<PAGE>
Furthermore, such Preferred Stock may have other rights, including economic
rights, senior to the Common Stock, and as a result, the issuance of such
Preferred Stock could have a material adverse effect on the market value of the
Common Stock.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is American Securities
Transfer & Trust, Inc.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 23,889,997 shares of
Common Stock outstanding (based upon shares of Common Stock outstanding as of
March 31, 1998 and assuming no exercise of outstanding options, or the
Underwriters over-allotment option). Of these shares, the 1,250,000 shares being
sold by the Company and the 1,250,000 shares being sold by the Selling
Shareholder in this offering, plus any additional shares sold upon exercise of
the Underwriters' over-allotment option, will be freely tradable without
restriction or further registration under the Securities Act, except that any
shares purchased by "affiliates" of the Company, as that term is defined in Rule
144 under the Securities Act ("Affiliates"), may generally only be sold in
compliance with the limitations of Rule 144 described below. The remaining
21,389,997 shares of Common Stock (the "Restricted Shares") held by existing
shareholders upon completion of this offering are "restricted" securities within
the meaning of Rule 144 and may not be sold except in compliance with the
registration requirements of the Securities Act or an applicable exemption under
the Securities Act, including an exemption pursuant to Rule 144.
LOCK-UP ARRANGEMENTS
All shareholders of the Company (who in aggregate hold 22,639,997 shares of
Common Stock) and all holders of options exercisable for Common Stock (who in
the aggregate have the right to purchase 1,782,900 shares of Common Stock), have
agreed, pursuant to certain lock-up agreements or certain provisions under the
1997 Stock Plan, that they will not, without the prior written consent of
BancAmerica Robertson Stephens, offer, sell contract to sell or otherwise
dispose of any shares of Common Stock beneficially owned by them (except for
shares sold in this offering) for a period of 180 days after the date of this
Prospectus. BancAmerica Robertson Stephens may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject to
lock-up agreements. See "Underwriting."
SALES OF RESTRICTED SHARES
Upon the expiration of the 180-day lock-up period, all of the 21,389,997
Restricted Shares will eligible for sale in the public market pursuant to Rule
144.
In general, under Rule 144, a person (or persons whose shares are
aggregated) including an Affiliate, who has beneficially owned shares for at
least one year (including the holding period of certain prior owners), will be
entitled to sell in "brokers' transactions" or to market makers, within any
three-month period commencing 90 days after the Company becomes subject to the
reporting requirements of Section 13 or 15 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), a number of shares that does not exceed
the greater of (i) one percent (1%) of the then-outstanding shares of Common
Stock (approximately 238,900 shares immediately after this offering based upon
shares of Common Stock outstanding as of March 31, 1998 and assuming no exercise
of outstanding options, or the Underwriters over-allotment option) or (ii) the
average weekly trading volume of the Common Stock during the four calendar weeks
immediately preceding such sale, subject, generally, to the filing of a Form 144
with the Commission with respect to such sales and certain other limitations and
restrictions relating to manner of sale and availability of public information.
In addition, a person (or person whose shares are aggregated), who is not deemed
to have been an Affiliate at any time during the 90 days immediately preceding
the sale and who has beneficially owned shares proposed to be sold for at least
two years, is entitled to sell such shares under Rule 144 (k) without regard to
limitations described above.
OPTIONS
In general, under Rule 701 under the Securities Act, any employee, director,
consultant or advisor of the Company who purchases shares from the Company in
connection with a compensatory stock or option plan or other written
compensatory agreement is entitled to resell such shares without having to
comply with the public information, holding period, volume limitation or notice
provisions of Rule 144, and Affiliates are eligible to resell such shares 90
days after the effective date of this offering in reliance on Rule 144, subject
to the provisions of the Lock-Up Arrangements.
44
<PAGE>
As of March 31, 1998, options to purchase 1,782,900 shares were outstanding
and exercisable under the 1997 Stock Plan. Upon expiration of the 180-day
lock-up period and subject to certain vesting and repurchase restrictions, all
the shares issued pursuant to the exercise of these stock options may be re-sold
pursuant to Rule 701. In addition, 1,047,100 shares of Common Stock are reserved
for issuance under the 1997 Stock Plan. The Company intends to file a
registration statement on Form S-8 under the Securities Act within 90 days after
the date of this Prospectus to register the shares issuable under the 1997 Stock
Plan. Such registration statement is expected to become effective upon filing of
such Form S-8. After the effective date of such registration statement and the
expiration of the lock-up period, shares of Common Stock issued under the 1997
Stock Plan will be immediately eligible for sale in the public market, subject
to certain vesting, repurchase and exercisability restrictions.
45
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancAmerica Robertson
Stephens and Bear, Stearns & Co. Inc. (the "Representatives"), have severally
agreed with the Company and the Selling Shareholder, subject to the terms and
conditions of the Underwriting Agreement, to purchase the number of shares of
Common Stock set forth opposite their respective names below. The Underwriters
are committed to purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ---------------------------------------------------------------------------- ----------------
<S> <C>
BancAmerica Robertson Stephens..............................................
Bear, Stearns & Co. Inc.....................................................
----------------
Total..................................................................... 2,500,000
----------------
----------------
</TABLE>
The Representatives have advised the Company and the Selling Shareholder
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession of not in
excess of $ per share, of which $ may be reallowed to other dealers.
After the initial public offering, the offering price, concession and
reallowance to dealers may be reduced by the Representatives. No such reduction
shall change the amount of proceeds to be received by the Company as set forth
on the cover page of this Prospectus.
The Selling Shareholder has granted to the Underwriters an option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to 375,000 additional shares of Common Stock at the same price per
share as the Company and the Selling Shareholder will receive for the 2,500,000
shares that the Underwriters have agreed to purchase. To the extent that the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage of such additional
shares that the number of shares of Common Stock to be purchased by it shown in
the above table represents as a percentage of the 2,500,000 shares offered
hereby. If purchased, such additional shares will be sold by the Underwriters on
the same terms as those on which the 2,500,000 shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Shareholder against certain civil
liabilities, including liabilities under the Securities Act.
Each officer and director of the Company, and all shareholders of the
Company, have agreed with the Representatives for a period of 180 days after the
date of this Prospectus (the "Lock-Up Period"), subject to certain exceptions,
not to offer to sell, contract to sell, or otherwise, sell, dispose of, loan,
pledge or grant any rights with respect to any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock, or any securities
convertible into or exchangeable for shares of Common Stock now owned or
hereafter acquired directly by such holders or with respect to which they have
or hereafter acquire the power of disposition, without the prior written consent
of BancAmerica Robertson Stephens. BancAmerica Robertson Stephens may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to the Lock-Up Arrangements. Pursuant to pre-existing
agreements, all shareholders and holders of options to purchase Common Stock
have agreed not to sell shares issuable upon the exercise of options for at
least 180 days after the effective date of the Registration Statement without
the prior written consent of the Company. In addition, the Company has agreed
that during the Lock-Up Period, the Company will not, without the prior written
consent of BancAmerica Robertson Stephens, subject to certain exceptions, issue,
sell, contract to sell, or otherwise dispose of, any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock or any securities
convertible into, exercisable for or exchangeable for shares of Common Stock
other than the Company's sale of shares in this offering, the issuance of Common
Stock upon the exercise of outstanding options and the Company's issuance of
options and stock under the 1997 Stock Plan.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock is
being determined through negotiations among the Company, the Selling Shareholder
and the Representatives. Among the factors considered in such negotiations are
prevailing market
46
<PAGE>
conditions, certain financial information of the Company, market valuations of
other companies that the Company and the Representatives believe to be
comparable to the Company, estimates of the business potential of the Company,
the present state of the Company's development and other factors deemed
relevant.
The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
The Representatives have advised the Company that certain persons
participating in this offering may engage in transactions, including stabilizing
bids, syndicate covering transactions or the imposition of penalty bids that may
have the effect of stabilizing or maintaining the market price of the Common
Stock at a level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the Common Stock on behalf of
the Underwriters for the purpose of fixing or maintaining the price of the
Common Stock. A "syndicate covering transaction" is the bid for or the purchase
of the Common Stock on behalf of the Underwriters to reduce a short position
incurred by the Underwriters in connection with this offering. A "penalty bid"
is an arrangement permitting the Representatives to reclaim the selling
concession otherwise accruing to an Underwriter or syndicate member in
connection with the offering if the Common Stock originally sold by such
Underwriter or syndicate member is purchased by the Representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such Underwriter or syndicate member. The Representatives have advised the
Company that such transactions may be effected on Nasdaq or otherwise and, if
commenced, may be discontinued at any time.
From time to time, the Company purchases commercial paper from BancAmerica
Robertson Stephens. In addition, the Company has a line of credit with Bank of
America, National Trust and Savings Association ("Bank of America"), which is an
affiliate of BancAmerica Robertson Stephens. The Company also uses Bank of
America for its cash management services.
LEGAL MATTERS
The validity of the issuance of shares of Common Stock offered hereby will
be passed upon for the Company by Gray Cary Ware & Freidenrich LLP, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
EXPERTS
The financial statements as of June 30, 1996 and 1997 and March 31, 1998 and
for each of the three years ended June 30, 1997 and the nine-month period ended
March 31, 1998 included in this Prospectus and the related financial statement
schedule included elsewhere in the registration statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the registration statement, and are included
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
CHANGE IN ACCOUNTANTS
Effective June 1996, the Company's Board of Directors engaged Deloitte &
Touche LLP as its independent auditors to replace Wilson, McCall & Daoro, who
were dismissed as auditors of the Company as of May 6, 1996. In connection with
the audit of the prior fiscal year ended June 30, 1995 (the first full year
audit of the Company's financial statements) and through the date of dismissal,
there were no disagreements with Wilson, McCall & Daoro on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope and procedures which, if not resolved to the satisfaction of Wilson,
McCall & Daoro, would have caused them to make reference to the matter in their
report. The report of Wilson, McCall & Daoro on the financial statements of the
Company for the year ended June 30, 1995 did not contain an adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope, or accounting principle. The decision to change accountants was approved
by the Board of Directors.
47
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and in the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement, exhibits and schedules. Statements contained in
this Prospectus regarding the contents of any contract or any other document are
summaries and, in each such instance, reference is hereby made to the copy of
such contracts and other documents filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement, and the exhibits and schedules thereto,
may be inspected without charge at the public reference facilities maintained by
the Commission at 450 Fifth Street N.W., Judiciary Plaza, Washington, D.C.,
20549, and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor: New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of all or any
part thereof may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Judiciary Plaza, Washington, DC 20549 at the
prescribed rates. Also, the Commission maintains a Website that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Website is http://www.sec.gov.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Independent Auditors' Report................................................................................ F-2
Balance Sheets.............................................................................................. F-3
Statements of Operations.................................................................................... F-4
Statements of Shareholders' Equity.......................................................................... F-5
Statements of Cash Flows.................................................................................... F-6
Notes to Financial Statements............................................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
bebe stores, inc.
We have audited the accompanying balance sheets of bebe stores, inc. (dba
bebe) as of June 30, 1996 and 1997 and March 31, 1998 and the related statements
of operations, shareholders' equity, and cash flows for the years ended June 30,
1995, 1996 and 1997 and the nine-month period ended March 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of bebe stores, inc. as of June 30, 1996 and
1997 and March 31, 1998, and the results of its operations and its cash flows
for the years ended June 30, 1995, 1996 and 1997 and the nine-month period ended
March 31, 1998 in conformity with generally accepted accounting principles.
As discussed in Note 14, the accompanying 1995, 1996 and 1997 financial
statements have been restated.
Deloitte & Touche LLP
San Francisco, California
May 6, 1998 (May 30, 1998 as to Note 14)
F-2
<PAGE>
BEBE STORES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF MARCH 31,
-------------------------- ---------------
1996 1997 1998
------------ ------------ ---------------
(AS RESTATED, SEE NOTE 14)
--------------------------
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and equivalents.............................................. $ 1,760,612 $ 9,191,919 $ 22,741,554
Marketable securities............................................. 78,262 80,390
Receivables:
Income tax refund............................................... 1,721,648 17,378
Construction allowance.......................................... 404,815 296,656 123,366
Other (net of allowance of $13,500, $76,668 and $46,851)........ 48,557 40,201 195,107
Inventories, net.................................................. 8,310,729 9,461,698 11,016,322
Deferred income taxes............................................. 204,857 451,217 1,265,765
Prepaid and other................................................. 112,011 86,901 276,127
------------ ------------ ---------------
Total current assets.......................................... 12,641,491 19,626,360 35,618,241
Equipment and improvements, net..................................... 7,890,433 7,539,461 8,067,981
Assets held for sale................................................ 357,259
Deferred income taxes............................................... 373,734 1,131,625 1,792,206
Other assets........................................................ 742,455 811,848 741,601
------------ ------------ ---------------
Total other assets............................................ 1,473,448 1,943,473 2,533,807
------------ ------------ ---------------
Total assets........................................................ $ 22,005,372 $ 29,109,294 $ 46,220,029
------------ ------------ ---------------
------------ ------------ ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable.................................................. $ 3,211,460 $ 5,064,629 $ 6,873,547
Accrued liabilities............................................... 1,995,184 5,604,430 7,373,817
Revolving line of credit.......................................... 969,287
Current portion of long-term debt................................. 845,950 151,746 111,579
Income taxes payable.............................................. 33,975 530,354 1,058,428
Note due to shareholder........................................... 123,685
------------ ------------ ---------------
Total current liabilities..................................... 7,179,541 11,351,159 15,417,371
Long-term debt...................................................... 2,710,053 168,099 96,302
Deferred rent....................................................... 2,201,595 2,295,453 2,344,706
------------ ------------ ---------------
Total liabilities................................................... 12,091,189 13,814,711 17,858,379
Commitments and contingencies
Shareholders' equity:
Preferred stock-authorized 1,000,000 shares at $0.001 par value
per share; no shares issued and outstanding
Common stock-authorized 40,000,000 shares at $0.001 par value per
share; issued and outstanding 22,639,997 shares.................. 22,640 22,640 22,640
Additional paid-in capital........................................ 2,465,610 5,270,610 5,190,610
Deferred compensation............................................. (2,805,000) (2,197,488)
Retained earnings................................................. 7,425,933 12,806,333 25,345,888
------------ ------------ ---------------
Total shareholders' equity.................................... 9,914,183 15,294,583 28,361,650
------------ ------------ ---------------
Total liabilities and shareholders' equity.......................... $ 22,005,372 $ 29,109,294 $ 46,220,029
------------ ------------ ---------------
------------ ------------ ---------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
BEBE STORES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
---------------------------------------- --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(AS RESTATED, SEE NOTE 14)
------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales..................... $ 65,410,936 $ 71,562,769 $ 95,086,125 $ 68,397,034 $108,072,493
Cost of sales, including
buying and occupancy........ 32,652,584 44,701,044 53,968,849 40,299,861 53,757,891
------------ ------------ ------------ ------------ ------------
Gross profit.................. 32,758,352 26,861,725 41,117,276 28,097,173 54,314,602
Selling, general and
administrative expenses..... 23,134,431 26,353,003 32,648,788 22,562,418 33,558,889
------------ ------------ ------------ ------------ ------------
Income from operations........ 9,623,921 508,722 8,468,488 5,534,755 20,755,713
Other expense (income):
Interest Expense............ 86,904 349,001 216,618 194,022 17,613
Interest Income............. (121,809) (42,487) (646,168)
Other....................... 43,059 (222,278) (360,659) 126,537
------------ ------------ ------------ ------------ ------------
Earnings before income
taxes....................... 9,537,017 116,662 8,595,957 5,743,879 21,257,731
Provision (benefit) for income
taxes....................... 4,051,738 (10,235) 3,218,063 2,144,203 8,715,670
------------ ------------ ------------ ------------ ------------
Net earnings.................. $ 5,485,279 $ 126,897 $ 5,377,894 $ 3,599,676 $ 12,542,061
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Basic earnings per share...... $ 0.24 $ 0.01 $ 0.24 $ 0.16 $ 0.55
Diluted earnings per share.... $ 0.24 $ 0.01 $ 0.24 $ 0.16 $ 0.53
Basic weighted average shares
outstanding................. 22,639,997 22,639,997 22,639,997 22,639,997 22,639,997
Diluted weighted average
shares outstanding.......... 22,639,997 22,639,997 22,650,871 22,639,997 23,705,312
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
BEBE STORES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ADDITIONAL
NUMBER OF PAID-IN DEFERRED RETAINED
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS TOTAL
----------- --------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of July 1, 1994.............. 22,639,997 $ 22,640 $ 2,465,610 $ 2,088,940 $ 4,577,190
Net earnings............................ 5,485,279 5,485,279
Distribution to shareholder............. (284,000) (284,000)
----------- --------- ----------- ------------- ------------ ------------
Balance as of June 30, 1995 (As
Restated, See Note 14)................ 22,639,997 22,640 2,465,610 7,290,219 9,778,469
Net earnings............................ 126,897 126,897
Unrealized gain on marketable
securities............................ 8,817 8,817
----------- --------- ----------- ------------- ------------ ------------
Balance as of June 30, 1996 (As
Restated, See Note 14)................ 22,639,997 22,640 2,465,610 7,425,933 9,914,183
Net earnings............................ 5,377,894 5,377,894
Deferred compensation................... 2,805,000 $(2,805,000) 0
Unrealized gain on marketable
securities............................ 2,506 2,506
----------- --------- ----------- ------------- ------------ ------------
Balance as of June 30, 1997 (As
Restated, See Note 14)................ 22,639,997 22,640 5,270,610 (2,805,000) 12,806,333 15,294,583
Net earnings............................ 12,542,061 12,542,061
Amortization of deferred compensation... (80,000) 607,512 527,512
Unrealized gain on marketable
securities............................ (2,506) (2,506)
----------- --------- ----------- ------------- ------------ ------------
Balance as of March 31, 1998 (As
Restated, See Note 14)................ 22,639,997 $ 22,640 $ 5,190,610 $(2,197,488) $ 25,345,888 $ 28,361,650
----------- --------- ----------- ------------- ------------ ------------
----------- --------- ----------- ------------- ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
BEBE STORES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
---------------------------------- -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ----------- ----------
(AS RESTATED, SEE NOTE 14)
-----------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings..................................... $5,485,279 $ 126,897 $5,377,894 $3,599,676 $12,542,061
Adjustments to reconcile net earnings to cash
provided (used) by operating activities:
Non-cash compensation expense.................. 527,512
Depreciation and amortization.................. 1,094,943 1,291,365 1,802,538 1,311,796 1,584,910
Net loss (gain) on disposal of property........ 78,887 58,927 (163,808) (227,670) 209,982
Net (gain) loss on sales of securities......... 70,310 (12,369)
Impairment loss................................ 271,543
Net loss from partnership...................... 83,444 79,171 74,910 14,755
Deferred income taxes.......................... (255,294) 102,505 (1,146,305) (665,527) (1,475,082)
Deferred rent.................................. 537,232 1,081,863 842,035 506,390 (112,531)
Changes in operating assets and liabilities:
Receivables.................................. (19,446) (1,678,035) 1,712,625 1,680,336 (138,067)
Inventories.................................. (1,910,047) (335,558) (1,150,969) (696,380) (1,554,623)
Other assets................................. (228,738) (98,145) (269,965) (97,704) (39,701)
Prepaid expenses............................. 106,650 (27,011) 25,110 (583,325) (189,227)
Accounts payable............................. 540,341 (104,413) 1,853,169 1,487,239 1,808,918
Accrued liabilities.......................... 446,080 890,958 3,283,514 1,812,091 1,973,242
Income taxes payable......................... 2,828,534 (3,566,025) 530,354 193,060 528,074
---------- ---------- ---------- ----------- ----------
Net cash provided (used) by operating
activities................................ 8,858,175 (2,189,870) 13,042,645 8,319,982 15,680,223
Cash flows from investing activities:
Purchase of equipment and improvements........... (6,418,526) (1,608,078) (1,716,637) (1,299,517) (2,098,075)
Proceeds from sales of equipment................. 22,288 1,029
Sale (purchase) of rental real estate............ (369,000) 693,007 693,007
Purchase of marketable securities................ (291,965) (253,915) (379)
Proceeds from sale of marketable securities...... 390,384 390,967 121 77,883
---------- ---------- ---------- ----------- ----------
Net cash used by investing activities...... (6,689,107) (1,471,026) (1,001,721) (606,389) (2,019,163)
Cash flows from financing activities:
Borrowings from (repayments to) shareholder...... (660,002) 55,104 (123,685) (123,686) 539
Net proceeds from (repayments on) revolving line
of credit....................................... (937,995) 969,287 (969,287) (969,288)
Repayments on capital leases & other............. (168,945) (51,300) (111,964)
Proceeds from term loan.......................... 4,084,367
Repayment of term loan........................... (780,354) (3,347,700) (3,347,700)
Distribution to shareholder...................... (220,430)
---------- ---------- ---------- ----------- ----------
Net cash provided (used) by financing
activities................................ (1,818,427) 4,328,404 (4,609,617) (4,491,974) (111,425)
Net increase in cash............................... 350,641 667,508 7,431,307 3,221,619 13,549,635
Cash:
Beginning of year................................ 742,463 1,093,104 1,760,612 1,760,612 9,191,919
---------- ---------- ---------- ----------- ----------
End of year...................................... $1,093,104 $1,760,612 $9,191,919 $4,982,231 $22,741,554
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
Supplemental information:
Cash paid for interest........................... $ 86,905 $ 177,313 $ 216,617 $ 193,716 $ 17,193
---------- ---------- ---------- ----------- ----------
Cash paid for income taxes....................... $1,797,035 $5,123,567 $3,907,703 $3,215,610 $10,080,337
---------- ---------- ---------- ----------- ----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE BUSINESS--bebe stores, inc. (dba bebe), the "Company,"
designs, develops and produces a distinctive line of contemporary women's
apparel and accessories, which it markets under the bebe and bebe moda brand
names primarily through its 85 specialty retail stores.
STOCK SPLIT--The Company's Board of Directors authorized an eight
thousand-for-one split of its common stock in the form of a stock dividend for
shareholders of record at the close of business on June 26, 1997. Share and per
share amounts in the accompanying financial statements have been restated to
give effect to the stock split (See also Note 13).
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from those estimates.
CASH AND EQUIVALENTS represent cash and short-term, highly liquid
investments with original maturities of three months or less.
MARKETABLE SECURITIES (classified as available-for-sale securities) are
reported at fair value. Fair values are based on quoted market prices.
Unrealized gains and losses are excluded from income and are reported as an
increase or decrease in shareholders' equity.
INVENTORIES, net are stated at the lower of FIFO (first-in, first-out) cost
or market. Cost includes certain indirect purchasing, merchandise handling and
storage costs.
EQUIPMENT AND IMPROVEMENTS, NET are stated at cost. Depreciation on
equipment is computed using the double declining balance method for items
purchased prior to July 1, 1995 and the straight-line method is used for all
improvements as well as equipment purchased after July 1, 1995. Equipment and
improvements are depreciated over the estimated useful lives of the related
assets ranging from three to 12 years.
LEASING COMMISSIONS associated with negotiating new store leases are
capitalized in other assets and amortized over the lease term. Accumulated
amortization on leasing commissions at June 30, 1996 and 1997 and March 31, 1998
was $117,866, $176,571 and $230,516, respectively.
LONG-TERM INVESTMENT--The Company owns 48.35% of a limited partnership and
accounts for the investment using the equity method. Accordingly, the
investment, which is included in other assets, is carried at cost, adjusted for
the Company's percentage share of the partnership's cumulative net income or
loss.
DEFERRED RENT--Many of the Company's operating leases contain predetermined
fixed increases of the minimum rental rate during the initial lease term. For
these leases, the Company recognizes the related rental expense on a
straight-line basis and records the difference between the amount charged to
expense and the rent paid as deferred rent.
STORE PREOPENING COSTS--Costs associated with the opening or remodeling of
stores, such as preopening rent and payroll, are charged to expense as incurred.
ADVERTISING COSTS--Costs associated with advertising are charged to expense
when the advertising first takes place. Advertising costs were $1,624,000,
$1,560,000 and $2,861,162, respectively, during fiscal 1995, 1996 and 1997. For
the nine months ended March 31, 1997 and 1998, advertising expense was
$1,843,841 and $4,690,196, respectively.
F-7
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES are accounted for using an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax consequences,
expected future events are considered other than changes in the tax law or
rates.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying values of cash
and equivalents, investments, receivables, accounts payable, and long-term debt
approximates their estimated fair values.
IMPAIRMENT OF LONG-LIVED ASSETS--The Company adopted Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF as of June 30, 1997. Whenever events
or changes in circumstances have indicated that the carrying amount of its
assets might not be recoverable, the Company, using its best estimates based on
reasonable and supportable assumptions and projections, has reviewed for
impairment the carrying value of long-lived assets. The Company has identified a
group of underperforming stores and anticipates the closure of some of these
locations in the future. Included in selling, general and administrative
expenses for fiscal 1997 is $271,543 related to the recognition of an impairment
loss. There were no expenses related to impairment loss for the nine-month
period ended March 31, 1998.
STOCK-BASED COMPENSATION--The Company accounts for stock-based awards to
employees using the intrinsic value-based method under Accounting Principles
Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. The
Company has adopted the disclosure provisions of SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION.
EARNINGS PER SHARE--In February 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 128, EARNINGS PER SHARE, which requires dual
presentation of basic earnings per share ("EPS") and diluted EPS on the face of
all statements of operations issued after December 15, 1997 for all entities
with complex capital structures. Basic EPS is computed as net earnings divided
by the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur from common shares
issuable through stock options.
NEW ACCOUNTING PRONOUNCEMENTS--In June 1997, the FASB issued SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 31, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 130 requires that an enterprise
report, by major components and as a single total, the change in its net assets
during the period from nonowner sources; and SFAS No. 131 establishes annual and
interim reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers.
Adoption of these statements will not significantly impact the Company's
financial position, results of operations or cash flows and any effect will be
limited to the form and content of its disclosures. Both statements are
effective for fiscal years beginning after December 15, 1997.
INTERIM FINANCIAL STATEMENTS--The accompanying unaudited interim financial
statements, in the opinion of management, include all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the financial
position as of March 31, 1997, and the interim results of operations and cash
flows for the nine months ended March 31, 1997. The results of operations for
the nine-month period ended March 31, 1997 are not necessarily indicative of the
results to be expected for the full year. The information in the notes to
financial statements which relates to the nine-month period ended March 31, 1997
is unaudited.
RECLASSIFICATIONS--Certain reclassifications have been made to the prior
year financial statements to conform with the financial statement presentation
as of and for the nine-month period ended March 31, 1998.
F-8
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION--Net sales consist of all product sales, net of returns,
paid by check, credit card, cash, gift certificate or store credit. Gift
certificates sold are carried as a liability and no sale is recognized until the
gift certificate is redeemed. Similarly, customers may receive a store credit in
exchange for returned goods. Store credits are carried as a liability until
redeemed.
2. INVENTORIES
The Company's inventories consist of:
<TABLE>
<CAPTION>
AS OF
AS OF JUNE 30, MARCH 31,
--------------------------- ---------------
1996 1997 1998
------------ ------------- ---------------
<S> <C> <C> <C>
Raw materials................................... $ 2,620,452 $ 2,785,382 $ 4,999,003
Merchandise available for sale.................. 6,070,277 7,497,872 8,318,920
------------ ------------- ---------------
Total........................................... 8,690,729 10,283,254 13,317,923
Less: valuation allowance....................... (380,000) (821,556) (2,301,601)
------------ ------------- ---------------
Inventories, net................................ $ 8,310,729 $ 9,461,698 $ 11,016,322
------------ ------------- ---------------
------------ ------------- ---------------
</TABLE>
Included in the valuation allowance at March 31, 1998 is a reserve for raw
materials not directly associated with planned garment production.
3. CREDIT FACILITIES
Debt consists of the following:
<TABLE>
<CAPTION>
AS OF
AS OF JUNE 30, MARCH 31,
------------------------- ---------------
1996 1997 1998
------------ ----------- ---------------
<S> <C> <C> <C>
Term loan......................................... $ 3,347,700
Note due to shareholder........................... 123,685
Capital leases.................................... $ 157,495 $ 94,014
Note payable...................................... 208,303 162,350 113,867
------------ ----------- ---------------
Total............................................. 3,679,688 319,845 207,881
Less: current portion............................. (969,635) (151,746) (111,579)
------------ ----------- ---------------
Total long-term debt.............................. $ 2,710,053 $ 168,099 $ 96,302
------------ ----------- ---------------
------------ ----------- ---------------
</TABLE>
As of June 30, 1997 and March 31, 1998, the Company had a revolving line of
credit, with a facility for letters of credit, with interest at the bank's
reference rate (which was 8.5% as of June 30, 1997 and March 31, 1998) allowing
for up to $7 million in borrowings including outstanding letters of credit. As
of June 30, 1997 and March 31, 1998 there was $751,391 and $697,028,
respectively, outstanding in letters of credit. The line expired on April 1,
1998 and was replaced by a $5,000,000 revolving line of credit (See also Note
13).
As of June 30, 1997 and March 31, 1998 the line of credit was secured by
certain personal property of the Company, primarily inventories, receivables and
trademarks. This credit facility required the Company to comply with several
financial covenants, including but not limited to a minimum current ratio,
minimum tangible net
F-9
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. CREDIT FACILITIES (CONTINUED)
worth, and maximum liabilities to tangible net worth. In addition, under the
line of credit, cash dividends could not be paid without the prior consent of
the lending institution. As of June 30, 1997 and March 31, 1998, the Company was
in compliance with such covenants.
The Company purchased 48.35% of a real estate partnership in fiscal 1994.
The note payable of $162,350 and $113,867 at June 30, 1997 and March 31, 1998 is
the remaining amount due on the purchase. The note will be paid off in
increments through fiscal year 2001.
Scheduled maturities of debt outstanding at March 31, 1998 are as follows:
<TABLE>
<S> <C>
Three months ended June 30, 1998.................................. $ 23,559
Fiscal year ending June 30,
1999.............................................................. 105,113
2000.............................................................. 65,606
2001.............................................................. 20,801
---------
Total minimum payments............................................ 215,079
Less: imputed interest............................................ (7,198)
---------
Present value of future minimum payments.......................... $ 207,881
---------
---------
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
AS OF MARCH
AS OF JUNE 30, 31,
-------------------------- ------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Employee compensation.............................. $ 1,060,244 $ 1,287,263 $1,987,550
Sales and use taxes................................ 370,214 546,120 800,078
Store credits and gift certificates................ 160,321 1,371,839 1,728,928
Lease termination costs............................ 1,687,327 1,355,223
Other.............................................. 404,405 711,881 1,502,038
------------ ------------ ------------
Total.............................................. $ 1,995,184 $ 5,604,430 $7,373,817
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Other accrued liabilities relate primarily to advertising, percentage rents,
employee benefits and certain store expenses.
5. OPERATING LEASES
The Company has operating leases for its retail store locations, corporate
headquarters, distribution center and certain office equipment. Store leases
typically provide for payment by the Company of operating expenses, real estate
taxes and additional rent based on a percentage of net sales if a specified net
sales target is exceeded. In addition, certain leases have escalation clauses
and provide for terms of renewal and/or early termination based on the net sales
volumes achieved.
Rent expense for the years ended June 30, 1995, 1996 and 1997 was
$7,397,035, $11,066,614 and $13,481,105, respectively, and $10,005,817 and
$11,531,658 for the nine-month periods ended March 31, 1997 (unaudited) and
1998, respectively. Rent expense includes percentage rent and other
lease-required expenses for the years ended June 30, 1995, 1996 and 1997 of
$2,511,224, $3,741,920 and $4,776,148, respectively, and $3,581,124 and
$4,455,467 for the nine-month periods ended March 31, 1997 (unaudited) and 1998,
respectively.
F-10
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. OPERATING LEASES (CONTINUED)
Future minimum lease payments under operating leases at March 31, 1998 are
as follows:
<TABLE>
<S> <C>
Fiscal year ending June 30:
1999............................. $ 9,553,604
2000............................. 9,625,479
2001............................. 9,451,577
2002............................. 8,903,306
2003............................. 8,474,740
Thereafter....................... 19,595,922
-----------
Total minimum lease payments....... $65,604,628
-----------
-----------
</TABLE>
6. INCOME TAXES
A summary of the provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH
FISCAL YEAR ENDED JUNE 30, 31,
---------------------------------- -------------------------
1995 1996 1997 1997 1998
---------- --------- ----------- ----------- -----------
(AS RESTATED)
<S> <C> <C> <C> <C> <C>
-----------------------------------------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal.......................... $3,287,130 $(179,740) $ 3,545,749 $ 1,996,021 $ 7,974,790
State............................ 1,019,902 67,000 676,565 671,655 2,215,962
---------- --------- ----------- ----------- -----------
4,307,032 (112,740) 4,222,314 2,667,676 10,190,752
Deferred:
Federal.......................... (255,294) 102,505 (705,259) (287,746) (1,087,547)
State............................ (298,992) (235,727) (387,535)
---------- --------- ----------- ----------- -----------
(255,294) 102,505 (1,004,251) (523,473) (1,475,082)
---------- --------- ----------- ----------- -----------
Provision (benefit)............ $4,051,738 $ (10,235) $ 3,218,063 $ 2,144,203 8,715,670
---------- --------- ----------- ----------- -----------
---------- --------- ----------- ----------- -----------
</TABLE>
Temporary differences arise primarily from certain accruals, including
California franchise taxes, which are not currently deductible for tax purposes,
and differences between financial and tax depreciation methods. Deferred income
taxes are recognized for tax consequences of temporary differences by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax basis of existing assets
and liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
F-11
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
A reconciliation of the statutory federal income tax rate with the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE NINE MONTHS ENDED
30, MARCH 31,
----------------------- -------------------
1995 1996 1997 1997 1998
----- ------- ----- ----------- -----
(AS RESTATED)
-------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal statutory rate............. 35.0% 35.0% 35.0% 35.0% 35.0%
State rate, net of federal
benefit.......................... 6.3 9.9 5.5 4.8 5.6
Valuation adjustment............... 0.3 4.4 (1.2)
Benefit of graduated rate.......... (1.0) (1.0) (1.2)
Tax credits........................ (68.6) (1.0) (0.4)
Permanent items and other.......... 1.9 11.5 0.3 (2.4) 0.8
----- ------- ----- --- -----
Effective tax rate................. 42.5% (8.8)% 37.4% 37.4% 41.0%
----- ------- ----- --- -----
----- ------- ----- --- -----
</TABLE>
Significant components of the Company's deferred tax assets (liabilities)
are as follows:
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF MARCH 31,
-------------------------- ------------------
1997 1998
1996 ------------ ------------------
------------
(AS
RESTATED)
<S> <C> <C> <C>
Current:
Inventory reserve.......................... $ 160,962 $ 357,133 $ 1,322,728
State taxes................................ 101,055 (96,547)
Accrued vacation........................... 90,895 57,615 61,897
Uniform capitalization..................... (19,881) (90,145) (120,989)
Other accruals............................. 12,186 25,559 98,676
------------ ------------ ------------------
Total current............................ 244,162 451,217 1,265,765
Noncurrent:
Basis difference in assets held for sale... 184,000
Depreciation............................... 147,920 280,795 792,152
Store closure accrual...................... 709,930 552,797
Deferred rent.............................. 147,153 140,900 195,211
Deferred compensation...................... 229,311
Other...................................... 22,735
------------ ------------ ------------------
Total noncurrent......................... 479,073 1,131,625 1,792,206
------------ ------------ ------------------
Valuation allowance........................ (144,644)
------------ ------------ ------------------
Net deferred tax assets...................... $ 578,591 $ 1,582,842 $ 3,057,971
------------ ------------ ------------------
------------ ------------ ------------------
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Company had
established a valuation allowance for 100% of the net state deferred asset at
June 30, 1996 due to the uncertainty of realizing future tax benefits from its
state net operating loss carryforwards (NOLs) and other deferred tax assets.
Since the benefits of the NOLs are now expected to be realized, the Company was
able to reverse the entire valuation allowance in fiscal 1997.
F-12
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The Company has committed to the acquisition of low income tax credits from
a real estate partnership totaling $214,479 through fiscal 2000. The Company
utilized $80,428 of credits in fiscal 1997 and the nine-month period ended March
31, 1998 to reduce its federal income taxes payable. (See note 3.)
7. EQUIPMENT AND IMPROVEMENTS
Equipment and improvements consist of the following:
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF MARCH 31,
-------------------------- ---------------
1996 1997 1998
------------ ------------ ---------------
<S> <C> <C> <C>
Leasehold improvements............................................... $ 6,148,752 $ 6,435,588 $ 7,330,288
Furniture, fixtures, equipment and vehicles.......................... 3,265,417 3,156,982 3,937,285
Computer hardware and software....................................... 1,415,590 1,890,684 1,986,681
Assets under capital leases.......................................... 459,444 469,621
Construction in progress............................................. 155,972 161,818 128,806
------------ ------------ ---------------
Total.............................................................. 10,985,731 12,104,516 13,852,681
Less accumulated depreciation and amortization....................... 3,095,298 4,565,055 5,784,700
------------ ------------ ---------------
Equipment and improvements, net...................................... $ 7,890,433 $ 7,539,461 $ 8,067,981
------------ ------------ ---------------
------------ ------------ ---------------
</TABLE>
8. EMPLOYEE BENEFIT PLAN
In fiscal 1995, the Company implemented a 401(k) pension plan for all
eligible employees. Employees are eligible to participate in the plan if they
have been employed by the Company for one year, have reached age 21, and work at
least 1,000 hours annually. Generally, employees can defer up to 15% of their
gross wages up to the maximum limit allowable under the Internal Revenue Code.
The employer can make a discretionary matching contribution for the employee.
Employer contributions to the plan for the years ended June 30, 1996 and 1997
were $35,947 and $32,688, respectively. No matching payments have been made by
the Company for the nine months ended March 31, 1997 and 1998.
9. STOCK OPTIONS
On June 26, 1997 the Board of Directors adopted the 1997 Stock Plan (the
"Stock Plan"). Options granted under the Stock Plan have a ten-year term and may
be either incentive stock options, non-qualified stock options, stock purchase
rights or stock awards. The Company has reserved 2,830,000 shares of common
stock for issuance under the Stock Plan.
The options granted are immediately exercisable, but are subject to
repurchase at the original exercise price in the event that the optionee's
employment with the Company ceases for any reason. The Company's right of
repurchase generally lapses over a four-year period as follows: 20% in each of
the first two years after the grant date and 30% in the third and fourth years
after the grant date, with full lapse of the repurchase option occurring on the
fourth anniversary date.
F-13
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS (CONTINUED)
The following summarizes all stock option transactions for the year ended
June 30, 1997 and the nine-month period ended March 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES OUTSTANDING PRICE PER SHARE
------------------ -----------------
<S> <C> <C>
Balance, June 30, 1996
Options granted............................................................. 1,587,630 $ 1.77
----------
Balance, June 30, 1997...................................................... 1,587,630 1.77
Options granted............................................................. 325,450 5.65
Options canceled............................................................ (130,180) 4.30
----------
Balance, March 31, 1998..................................................... 1,782,900 $ 2.29
----------
----------
</TABLE>
The options granted in June 1997 resulted in deferred compensation of
$2,805,000 (assuming all such options become fully vested) to be amortized over
the vesting period of the related options, of which, $527,512 was expensed for
the nine-month period ended March 31, 1998. As of June 30, 1997 and March 31,
1998, there were 1,242,370 and 1,047,100 shares available for future grant.
The following table summarizes information about stock options outstanding
at March 31, 1998:
<TABLE>
<CAPTION>
EXERCISABLE OPTIONS NOT
SUBJECT TO REPURCHASE
OPTIONS OUTSTANDING (VESTED)
---------------------------------------- -------------------------
WEIGHTED NUMBER OF WEIGHTED
WEIGHTED AVERAGE AVERAGE OPTIONS AT AVERAGE
EXERCISE NUMBER OF REMAINING LIFE EXERCISE MARCH 31, EXERCISE
PRICE OPTIONS (IN YEARS) PRICE 1998 PRICE
- ------------- ---------- ----------------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
$1.77 1,542,350 9.25 $1.77 -- $1.77
5.65 240,550 9.75 5.65 -- 5.65
</TABLE>
The Company accounts for the Stock Plan in accordance with APB Opinion No.
25, under which no compensation cost has been recognized for stock option awards
granted at fair market value. Had compensation expense for the Stock Plan been
determined based on the fair value at the grant dates for awards under the Stock
Plan, consistent with the method of SFAS No. 123, the Company's net earnings,
basic EPS and diluted EPS would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
---------------- ------------------
<S> <C> <C> <C>
(AS RESTATED)
Net income As reported................................................ $ 5,377,894 $ 12,542,061
Pro forma.................................................. 5,376,160 12,412,155
Basic EPS As reported................................................ $ 0.24 $ 0.55
Pro forma.................................................. 0.24 0.55
Diluted EPS As reported................................................ $ 0.24 $ 0.53
Pro forma.................................................. 0.24 0.52
</TABLE>
F-14
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS (CONTINUED)
The weighted average fair value of options granted during the fiscal year
ended June 30, 1997 and the nine months ended March 31, 1998 was $2.44 and
$1.64, respectively. The fair value of each option grant was estimated on the
date of the grant using the minimum value method with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
--------------------- -----------------------
<S> <C> <C>
Expected dividend rate..................................................... 0.0% 0.0%
Expected volatility........................................................ 0.0% 0.0%
Risk-free interest rate.................................................... 6.0% 5.7%
Expected lives (years)..................................................... 8.0 6.0
</TABLE>
10. LITIGATION
The Company is subject to legal proceedings and claims that arise in the
ordinary course of business. Management believes, based on the advice of
counsel, that ultimate resolution of these matters will not have a material
adverse effect on the financial statements taken as a whole.
11. RELATED PARTY TRANSACTIONS
In March 1995, the Company purchased in cash and note from Manny Mashouf,
the Chairman, President and Chief Executive Officer of the Company, certain
residential property for $800,000, the price at which such property had been
listed for sale in the residential market for more than one year. In February
1997, the Company sold the property to an unaffiliated third party for $693,000,
net of selling costs.
During the last three fiscal years, Mr. Mashouf has loaned to or borrowed
from the Company various amounts of cash ranging from loans to the Company of up
to $500,000 and advances on bonuses from the Company of up to $150,000. Loans to
the Company by Mr. Mashouf bore an annual interest rate of 10%. The Company did
not accrue interest on advances on bonuses to Mr. Mashouf. As of March 31, 1998,
there were no borrowings due to Mr. Mashouf from the Company or advances owed to
the Company by Mr. Mashouf.
12. EARNINGS PER SHARE
Under SFAS No. 128, the Company provides dual presentation of EPS on a basic
and diluted basis. The Company's granting of certain stock options resulted in
potential dilution of basic EPS. The following table summarizes the difference
between basic weighted average shares outstanding and diluted weighted average
shares outstanding used to compute diluted EPS.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
---------------------------------- ------------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic weighted average number of
shares outstanding............... 22,639,997 22,639,997 22,639,997 22,639,997 22,639,997
Incremental shares from assumed
issuance of stock options........ 10,874 1,065,315
---------- ---------- ---------- ----------- ----------
Diluted weighted average number of
shares outstanding............... 22,639,997 22,639,997 22,650,871 22,639,997 23,705,312
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
</TABLE>
F-15
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. EARNINGS PER SHARE (CONTINUED)
The number of incremental shares from the assumed issuance of stock options
is calculated applying the treasury stock method.
13. SUBSEQUENT EVENTS
LINE OF CREDIT. On April 1, 1998, the Company entered into an unsecured
commercial line of credit agreement with a bank which provides for borrowings
and issuance of letters of credit of up to $5,000,000 and expires on April 1,
2000. The outstanding balance bears interest at either the bank's reference rate
or the LIBOR rate plus 1.75 percentage points. The agreement requires
maintenance of certain financial covenants and total liabilities to tangible net
worth ratios, and places restrictions on capital expenditures and the payment of
cash dividends and repurchase of shares.
STOCK SPLIT AND CHANGE IN PAR VALUE. On April 7, 1998, the Company's Board
of Directors authorized a 2.83-for-1 stock split and restated its common stock
par value from $0.00 to $0.001 per share. Accordingly, a transfer was made from
additional paid-in capital to common stock. All information in the financial
statements concerning common shares and per share amounts have been restated to
give retroactive effect to the stock split and change in par value.
PREFERRED STOCK. On April 7, 1998, the Company shareholders granted the
Board of Directors the authority to issue up to 1,000,000 shares of $0.001 par
value preferred stock and to fix the rights, preferences, privileges and
restrictions including voting rights, of these shares without any further vote
or approval by the shareholders.
STOCK PURCHASE PLAN. On April 7, 1998, the Company's 1998 Employee Stock
Purchase Plan (the "Plan") was adopted and approved by the shareholders. A total
of 750,000 shares of common stock has been reserved for issuance under the Plan.
Generally, the Plan will allow eligible employees to purchase the Company's
common stock in an amount which may not exceed 10% of the employee's
compensation. The Plan will be implemented by an initial 24-month offering
period, which will generally be comprised of four, six-month purchase periods.
Shares will be purchased on the last day of each purchase period (a "Purchase
Date") at a price equal to 85% of the lower of fair market value of the
Company's common stock on the first day of the offering period or the Purchase
Date. The Board (or committee thereof) may amend or terminate the Purchase Plan
at any time.
14. RESTATEMENT OF FINANCIAL STATEMENTS
Subsequent to the issuance of the Company's financial statements for the
nine-month period ended March 31, 1998, the Company's management determined that
an error had been made in the method of accounting for the purchase of
residential property from the Chairman, President and Chief Executive Officer of
the Company in March 1995 (see Note 11). The Company purchased the property from
the Chairman, President and Chief Executive Officer at an amount in excess of
his basis in the property. This difference should have been recorded as a
F-16
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. RESTATEMENT OF FINANCIAL STATEMENTS (CONTINUED)
distribution to owner. As a result, the financial statements for the fiscal
years ended June 30, 1995, 1996 and 1997 and the nine-month period ended March
31, 1997 (unaudited) have been restated from the amounts previously reported as
follows:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
---------------------------------------------------------------------- ----------------------
1995 1996 1997 1997
---------------------- ---------------------- ---------------------- ----------------------
AS AS AS AS
PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AS OF:
Assets held for
sale................ $ 794,058 $ 366,652 $ 693,712 $ 357,259
Deferred income
taxes............... 140,600 286,378 231,680 373,734
Income taxes
payable............. 33,975
Retained earnings..... 7,580,664 7,290,219 7,654,307 7,425,933
FOR THE PERIOD ENDED:
Selling, general and
administrative
expenses............ 23,138,025 23,134,431 26,363,957 26,353,003
Other expense
(income)............ 123,059 43,059 $ 114,175 $ (222,278) $ (24,206) $ (360,659)
Earnings before income
taxes............... 9,533,423 9,537,017 25,708 116,662 8,259,504 8,595,957 5,407,426 5,743,879
Provision (benefit)
for income taxes.... 4,050,516 4,051,738 (47,935) (10,235) 3,109,985 3,218,063 2,036,125 2,144,203
Net earnings.......... $5,482,907 $5,485,279 $ 73,643 $ 126,897 $5,149,519 $5,377,894 $3,371,301 $3,599,676
Basic earnings per
share............... $ 0.00 $ 0.01 $ 0.23 $ 0.24 $ 0.15 $ 0.16
Diluted earnings per
share............... $ 0.00 $ 0.01 $ 0.23 $ 0.24 $ 0.15 $ 0.16
</TABLE>
F-17
<PAGE>
[WOMAN IN BEBE CLOTHING]
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions payable by the Registrant in connection with the sale
of the Common Stock being registered. The Company is paying all of the expenses
incurred on behalf of the Selling Shareholder (other than underwriting discounts
and commissions). All amounts shown are estimates except for the registration
fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
-----------
<S> <C>
SEC Registration Fee.................................................... $ 11,026
NASD Filing Fee......................................................... 4,238
Nasdaq National Market Application Fee.................................. 27,795
Printing and Engraving Expenses......................................... 100,000
Legal Fees and Expenses................................................. 200,000
Accounting Fees and Expenses............................................ 300,000
Transfer Agent and Registrar Fees....................................... 2,500
Miscellaneous Expenses.................................................. 54,441
-----------
Total................................................................. $ 700,000
-----------
-----------
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The California Corporations Code provides for the indemnification of
directors, officers, employees and agents of the corporation under certain
circumstances set forth in section 317. Section 317 permits a corporation to
indemnify its agents, typically directors and officers, for expenses incurred or
settlements or judgments paid in connection with certain legal proceedings. Only
those legal proceedings arising out of such persons' actions as agents of the
corporation may be grounds for indemnification.
Whether or not indemnification may be paid in a particular case depends upon
whether the agent wins, loses or settles the suit and upon whether a third party
or the corporation itself is the plaintiff. The section provides for mandatory
indemnification, no matter who the plaintiff is, when an agent is successful on
the merits of a suit. In all other cases, indemnification is permissive.
If the agent loses or settles a suit brought by a third party, he or she may
be indemnified for expenses incurred and settlements or judgments paid. Such
indemnification may be authorized upon finding that the agent acted in good
faith and in a manner he or she reasonably believed to be in the best interests
of the corporation.
If the agent loses or settles a suit brought by or on behalf of the
corporation, his or her right to indemnification is more limited. If he or she
is adjudged to be liable to the corporation, the court in which such proceeding
was held must determine whether it would be fair and reasonable to indemnify him
or her for expenses which such court shall determine. If the agent settles such
a suit with court approval, he or she may be indemnified for expenses incurred
upon a finding that the agent acted in good faith and in a manner he or she
reasonably believed to be in the best interest of the corporation and, in
addition, that he or she acted with the care, including reasonable inquiry of an
ordinarily prudent person.
The indemnification discussed above may be authorized by a majority vote of
the disinterested directors or shareholders (the person to be indemnified is
excluded from voting his or her shares) or the court in which the proceeding was
brought. The corporation's Board of Directors makes all decisions regarding the
indemnification of its officers and directors on a case-by-case basis.
II-1
<PAGE>
Any provision in the corporation's Articles of Incorporation or Bylaws
contained in a shareholder or director resolution that indemnifies its officers
or directors must be consistent with section 317. Moreover, such a provision may
prohibit permissive, but not mandatory, indemnification as described above.
Lastly, a corporation has the power to purchase indemnity insurance for its
agents even if it would not have the power to indemnify them.
The Registrant's Amended and Restated Articles of Incorporation authorize
the Board of Directors to provide indemnification of its agents through bylaw
provisions or indemnification agreements, or both, in excess of the
indemnification otherwise permitted by section 317, subject to the limits on
such excess indemnification set forth in section 204 of the California
Corporations Code.
The Registrant has entered into agreements to indemnify its directors and
officers. These agreements, among other things, indemnify the Registrant's
directors and officers for certain expenses (including attorneys' fees),
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of the Registrant,
arising out of such person's services as a director or officer of the
Registrant, any subsidiary of the Registrant or any other Registrant or
enterprise to which the person provides services at the request of the
Registrant.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the act and is therefore unenforceable.
See also related undertakings in Item 17 below.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In June 1997 and December 1997, the Registrant issued to its directors and
employees options to purchase an aggregate of 1,913,080 shares of Common Stock,
at exercise prices ranging from $1.77 to $5.65 per share, pursuant to the
Registrant's 1997 Stock Plan. The granting of these stock options did not
require registration under the Securities Act, as amended (the "Securities
Act"), or an exemption therefrom, insofar as such grants did not involve a
"sale" of securities as such term is used in Section 2(3) of the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Articles of Incorporation of the Registrant.
3.2* Certificate of Correction of the Amended and Restated Articles of Incorporation of the Registrant.
3.3* Bylaws of the Registrant.
4.1* Specimen certificate representing the Common Stock (in standard printer form, not provided).
5.1* Opinion of Gray Cary Ware & Freidenrich LLP.
10.1 1997 Stock Plan.
10.2 1998 Employee Stock Purchase Plan.
10.3* Form of Indemnification Agreement.
10.4* Standard Industrial/Commercial-Tenant Lease-Net dated August 8, 1994 between the Registrant and
California State Teachers' Retirement System, as amended (lease for corporate headquarters and
distribution center in Brisbane, California).
10.5+* Retail Store License Agreement between the Registrant and Bebe Moda S.A. de C.V., a Mexican company,
effective as of April 1, 1998.
11.1* Statement of Computation of Net Earnings Per Share.
16.1* Letter from Wilson, McCall & Daoro dated April 10, 1998 regarding change in certifying accountants.
16.2 Letter from Wilson, McCall & Daoro dated May 28, 1998 regarding change in certifying accountants.
23.1 Independent Auditors' Consent and Report on Schedule.
23.2* Consent of Gray Cary Ware & Freidenrich LLP (see Exhibit 5.1).
24.1* Power of Attorney.
27.1 Financial Data Schedule (EDGAR filed version only).
</TABLE>
- ------------
* Previously filed.
+ Confidential treatment has been requested.
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered therein,
and the Offerings of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Brisbane, State of California, on the 3rd day of June, 1998.
<TABLE>
<S> <C> <C>
BEBE STORES, INC.
By: /s/ BLAIR W. LAMBERT
-----------------------------------------
Blair W. Lambert
VICE PRESIDENT, FINANCE AND CHIEF
FINANCIAL OFFICER (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
Manny Mashouf* Officer and Chairman of
- ------------------------------ the Board (Principal June 2, 1998
Manny Mashouf Executive Officer)
Vice President, Finance
/s/ BLAIR W. LAMBERT and Chief Financial
- ------------------------------ Officer (Principal June 2, 1998
Blair W. Lambert Financial and Accounting
Officer)
Neda Mashouf*
- ------------------------------ Director June 2, 1998
Neda Mashouf
Barbara Bass*
- ------------------------------ Director June 2, 1998
Barbara Bass
Corrado Federico*
- ------------------------------ Director June 2, 1998
Corrado Federico
Philip Schlein*
- ------------------------------ Director June 2, 1998
Philip Schlein
</TABLE>
<TABLE>
<S> <C>
*By: /s/ BLAIR W. LAMBERT
--------------------------------------
Blair W. Lambert
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
SCHEDULE II
BEBE STORES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C
-----------------------
COLUMN B ADDITIONS
------------ ----------------------- COLUMN E
COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D -------------
- ------------------------------------ BEGINNING OF COSTS AND OTHER ---------- BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTION END OF PERIOD
- ------------------------------------ ------------ ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995
Inventory obsolescence reserve...... $ 200,000 $ 200,000 $ 400,000
Allowance for doubtful accounts
receivable........................ 5,000 105,969 $ 75,969 35,000
Deferred tax asset valuation
allowance......................... 35,990 66,654 102,644
------------ ---------- ----------- ---------- -------------
$ 240,990 $ 372,623 $ $ 75,969 $ 537,644
------------ ---------- ----------- ---------- -------------
------------ ---------- ----------- ---------- -------------
YEAR ENDED JUNE 30, 1996
Inventory obsolescence reserve...... $ 400,000 $ 80,000 $ 100,000 $ 380,000
Allowance for doubtful accounts
receivable........................ 35,000 53,587 75,087 13,500
Deferred tax asset valuation
allowance......................... 102,644 42,000 144,644
------------ ---------- ----------- ---------- -------------
$ 537,644 $ 175,587 $ $ 175,087 $ 538,144
------------ ---------- ----------- ---------- -------------
------------ ---------- ----------- ---------- -------------
YEAR ENDED JUNE 30, 1997
Inventory obsolescence reserve...... $ 380,000 $ 441,556 $ 821,556
Allowance for doubtful accounts
receivable........................ 13,500 78,649 $ 15,481 76,668
Deferred tax asset valuation
allowance......................... 144,644 144,644
Reserve for store closures.......... 271,543 271,543
------------ ---------- ----------- ---------- -------------
$ 538,144 $ 791,748 $ $ 160,125 $ 1,169,767
------------ ---------- ----------- ---------- -------------
------------ ---------- ----------- ---------- -------------
NINE-MONTH PERIOD ENDED MARCH 31,
1998
Inventory obsolescence reserve...... $ 821,556 $1,637,182 $ 157,137 $ 2,301,601
Allowance for doubtful accounts
receivable........................ 76,668 59,631 89,448 46,851
Reserve for store closures.......... 271,543 (92,896) (204,241) 382,888
------------ ---------- ----------- ---------- -------------
$1,169,767 $1,696,813 $ (92,896) $ 42,344 $ 2,731,340
------------ ---------- ----------- ---------- -------------
------------ ---------- ----------- ---------- -------------
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Articles of Incorporation of the Registrant.
3.2* Certificate of Correction of the Amended and Restated Articles of Incorporation of the
Registrant.
3.3* Bylaws of the Registrant.
4.1* Specimen certificate representing the Common Stock (in standard printer form, not provided).
5.1* Opinion of Gray Cary Ware & Freidenrich LLP.
10.1 1997 Stock Plan.
10.2 1998 Employee Stock Purchase Plan.
10.3* Form of Indemnification Agreement.
10.4* Standard Industrial/Commercial-Tenant Lease-Net dated August 8, 1994 between the Registrant
and California State Teachers' Retirement System, as amended (lease for corporate
headquarters and distribution center in Brisbane, California).
10.5+* Retail Store License Agreement between the Registrant and Bebe Moda S.A. de C.V., a Mexican
company, effective as of April 1, 1998.
11.1* Statement of Computation of Net Earnings Per Share.
16.1* Letter from Wilson, McCall & Daoro dated April 10, 1998 regarding change in certifying
accountants.
16.2 Letter from Wilson, McCall & Daoro dated May 28, 1998 regarding change in certifying
accountants.
23.1 Independent Auditors' Consent and Report on Schedule.
23.2* Consent of Gray Cary Ware & Freidenrich LLP (see Exhibit 5.1).
24.1* Power of Attorney.
27.1 Financial Data Schedule (EDGAR filed version only).
</TABLE>
- ------------
* Previously filed.
+ Confidential treatment has been requested.
<PAGE>
bebe stores, inc.
1997 STOCK PLAN
(As Amended Effective ____________, 1998)
<PAGE>
TABLE OF CONTENTS
Page
----
1. Establishment and Purpose . . . . . . . . . . . . . . . . . . . . . . . 1
2. Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Committees of the Board of Directors . . . . . . . . . . . . . . . 1
(b) Authority of the Board of Directors. . . . . . . . . . . . . . . . 1
3. Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) General Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Ten-Percent Shareholders . . . . . . . . . . . . . . . . . . . . . 2
4. Stock Subject to Plan . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) Basic Limitation . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Additional Shares. . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Terms and Conditions of Awards or Sales . . . . . . . . . . . . . . . . 2
(a) Stock Purchase Agreement . . . . . . . . . . . . . . . . . . . . . 2
(b) Duration of Offers and Nontransferability of Rights. . . . . . . . 2
(c) Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(d) Withholding Taxes. . . . . . . . . . . . . . . . . . . . . . . . . 3
(e) Restrictions on Transfer of Shares and Vesting . . . . . . . . . . 3
(f) Accelerated Vesting. . . . . . . . . . . . . . . . . . . . . . . . 3
6. Terms and Conditions of Options . . . . . . . . . . . . . . . . . . . . 3
(a) Stock Option Agreement . . . . . . . . . . . . . . . . . . . . . . 3
(b) Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 3
(c) Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(d) Withholding Taxes. . . . . . . . . . . . . . . . . . . . . . . . . 4
(e) Exercisability . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(f) Accelerated Exercisability . . . . . . . . . . . . . . . . . . . . 4
(g) Basic Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(h) Nontransferability . . . . . . . . . . . . . . . . . . . . . . . . 4
(i) Termination of Service (Except by Death) . . . . . . . . . . . . . 4
(j) Leaves of Absence. . . . . . . . . . . . . . . . . . . . . . . . . 5
(k) Death of Optionee. . . . . . . . . . . . . . . . . . . . . . . . . 5
(l) No Rights as a Shareholder . . . . . . . . . . . . . . . . . . . . 5
(m) Modification, Extension and Assumption of Options. . . . . . . . . 5
(n) Restrictions on Transfer of Shares and Vesting . . . . . . . . . . 6
(o) Accelerated Vesting. . . . . . . . . . . . . . . . . . . . . . . . 6
7. Payment for Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) General Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) Surrender of Stock . . . . . . . . . . . . . . . . . . . . . . . . 6
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
(c) Services Rendered. . . . . . . . . . . . . . . . . . . . . . . . . 6
(d) Promissory Note. . . . . . . . . . . . . . . . . . . . . . . . . . 6
(e) Exercise/Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(f) Exercise/Pledge. . . . . . . . . . . . . . . . . . . . . . . . . . 7
8. Adjustment of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Mergers and Consolidations . . . . . . . . . . . . . . . . . . . . 7
(c) Reservation of Rights. . . . . . . . . . . . . . . . . . . . . . . 7
9. Securities Law Requirements . . . . . . . . . . . . . . . . . . . . . . 8
(a) General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(b) Financial Reports. . . . . . . . . . . . . . . . . . . . . . . . . 8
10. No Retention Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 8
11. Duration and Amendments . . . . . . . . . . . . . . . . . . . . . . . . 8
(a) Term of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . 8
(b) Right to Amend or Terminate the Plan . . . . . . . . . . . . . . . 8
(c) Effect of Amendment or Termination . . . . . . . . . . . . . . . . 9
12. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
13. Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
-ii-
<PAGE>
bebe stores, inc.
1997 STOCK PLAN
1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer selected individuals an opportunity to
acquire a proprietary interest in the success of the Company, or to increase
such interest, by purchasing Shares of the Company's Stock. The Plan provides
both for the direct award or sale of Shares and for the grant of Options to
purchase Shares. Options granted under the Plan may include Nonstatutory
Options ("NSOs") as well as Incentive Stock Options ("ISOs") intended to qualify
under Section 422 of the Code.
Capitalized terms are defined in Section 12.
2. ADMINISTRATION.
(a) COMMITTEES OF THE BOARD OF DIRECTORS. The Plan may be
administered by one or more Committees. Each Committee shall consist of two or
more members of the Board of Directors who have been appointed by the Board of
Directors. Each Committee shall have such authority and be responsible for such
functions as the Board of Directors has assigned to it. If no Committee has
been appointed, the entire Board of Directors shall administer the Plan. Any
reference to the Board of Directors in the Plan shall be construed as a
reference to the Committee (if any) to whom the Board of Directors has assigned
a particular function.
(b) AUTHORITY OF THE BOARD OF DIRECTORS. Subject to the provisions
of the Plan, the Board of Directors shall have full authority and discretion to
take any actions it deems necessary or advisable for the administration of the
Plan. All decisions, interpretations and other actions of the Board of
Directors shall be final and binding on all Purchasers, all Optionees and all
persons deriving their rights from a Purchaser or Optionee.
(c) ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
(d) COMMITTEE COMPLYING WITH SECTION 162(m). If the Company (or any
Parent or Subsidiary) is a "publicly held corporation" within the meaning of
Section 162(m), the Board of Directors may establish a committee of "outside
directors" within the meaning of Section 162(m) to approve any grants under the
Plan which might reasonably be anticipated to result in the payment of employee
remuneration that would otherwise exceed the limit on employee remuneration
deductible for income tax purposes pursuant to Section 162(m).
3. ELIGIBILITY.
(a) GENERAL RULE. Only Employees, Outside Directors and Consultants
shall be eligible for the grant of Options or the direct award or sale of
Shares. For purposes of the
1
<PAGE>
foregoing sentence, "Employees," "Outside Directors" and "Consultants" shall
include prospective Employees, prospective Outside Directors and prospective
Consultants to whom Options or Shares are granted in connection with written
offers of an employment or other service relationship with the Company (or any
Parent or Subsidiary). Only Employees shall be eligible for the grant of ISOs.
(b) TEN-PERCENT SHAREHOLDERS. An individual who owns more than 10%
of the total combined voting power of all classes of outstanding stock of the
Company, its Parent or any of its Subsidiaries shall not be eligible to be
granted an ISO unless (i) the Exercise Price is at least 110% of the Fair Market
Value of a Share on the date of grant, and (ii) the ISO, by its terms is not
exercisable after the expiration of five years from the date of grant. For
purposes of this Subsection (b), in determining stock ownership, the attribution
rules of Section 424(d) of the Code shall be applied.
4. STOCK SUBJECT TO PLAN.
(a) BASIC LIMITATION. The aggregate number of Shares that may be
issued under the Plan (upon exercise of Options or other rights to acquire
Shares) shall not exceed one million (1,000,000) Shares, subject to adjustment
pursuant to Section 8. The number of Shares that are subject to Options or other
rights outstanding at any time under the Plan shall not exceed the number of
Shares that then remain available for issuance under the Plan. The Company,
during the term of the Plan, shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of the Plan.
(b) ADDITIONAL SHARES. In the event that any outstanding Option or
other right for any reason expires or is canceled or otherwise terminated, the
Shares allocable to the unexercised portion of such Option or other right shall
again be available for the purposes of the Plan. In the event that Shares
issued under the Plan are reacquired by the Company pursuant to any forfeiture
provision, right of repurchase or right of first refusal, such Shares shall
again be available for the purposes of the Plan, except that the aggregate
number of Shares which may be issued upon the exercise of ISOs shall in no event
exceed one million (1,000,000) Shares (subject to adjustment pursuant to
Section 8).
5. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) STOCK PURCHASE AGREEMENT. Each award or sale of Shares under the
Plan (other than upon exercise of an Option) shall be evidenced by a Stock
Purchase Agreement between the Purchaser and the Company. Such award or sale
shall be subject to all applicable terms and conditions of the Plan and may be
subject to any other terms and conditions which are not inconsistent with the
Plan and which the Board of Directors deems appropriate for inclusion in a Stock
Purchase Agreement. The provisions of the various Stock Purchase Agreements
entered into under the Plan need not be identical.
(b) DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS. Any right
to acquire Shares under the Plan (other than an Option) shall automatically
expire if not exercised by the Purchaser within 30 days after the grant of such
right was communicated to the Purchaser by the
2
<PAGE>
Company in writing. Such right shall not be transferable and shall be
exercisable only by the Purchaser to whom such right was granted.
(c) PURCHASE PRICE. The Purchase Price of Shares to be offered under
the Plan shall not be less than 85% of the Fair Market Value of such Shares, and
a higher percentage may be required by Section 3(b). Subject to the preceding
sentence, the Purchase Price shall be determined by the Board of Directors at
its sole discretion. The Purchase Price shall be payable in a form described in
Section 7.
(d) WITHHOLDING TAXES. As a condition to the purchase of Shares, the
Purchaser shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such purchase.
(e) RESTRICTIONS ON TRANSFER OF SHARES AND VESTING. Any Shares
awarded or sold under the Plan shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Board of Directors may determine. Such restrictions shall
be set forth in the applicable Stock Purchase Agreement and shall apply in
addition to any restrictions that may apply to holders of Shares generally.
(f) ACCELERATED VESTING. Unless the applicable Stock Purchase
Agreement provides otherwise, any right to repurchase a Purchaser's Shares at
the original Purchase Price (if any) upon termination of the Purchaser's Service
shall lapse and all of such Shares shall become vested if (i) the Company is
subject to a Change in Control and (ii) the repurchase right is not assigned to
the entity that employs the Purchaser immediately after the Change in Control or
to its parent or subsidiary.
6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions of
the Plan and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Board of Directors deems appropriate
for inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical.
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or an NSO.
(c) EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than 100% of the
Fair Market Value of a Share on the date of grant, and a higher percentage may
be required by Section 3(b). The Exercise Price of an NSO shall not be less
than 85 % of the Fair Market Value of a Share on the date of grant. Subject to
the preceding two sentences, the Exercise Price under any Option shall
3
<PAGE>
be determined by the Board of Directors at its sole discretion. The Exercise
Price shall be payable in a form described in Section 7.
(d) WITHHOLDING TAXES. As a condition to the exercise of an Option,
the Optionee shall make such arrangements as the Board of Directors may require
for the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such exercise. The Optionee shall
also make such arrangements as the Board of Directors may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with the disposition of Shares acquired by
exercising an Option.
(e) EXERCISABILITY. Each Stock Option Agreement shall specify the
date when all or any installment of the Option is to become exercisable. The
exercisability provisions of any Stock Option Agreement shall be determined by
the Board of Directors at its sole discretion.
(f) ACCELERATED EXERCISABILITY. Unless the applicable Stock Option
Agreement provides otherwise, all of an Optionee's Options shall become
exercisable in full if (i) the Company is subject to a Change in Control,
(ii) such Options do not remain outstanding, (iii) such Options are not assumed
by the surviving corporation or its parent and (iv) the surviving corporation or
its parent does not substitute options with substantially the same terms for
such Options.
(g) BASIC TERM. The Stock Option Agreement shall specify the term of
the Option. The term of an ISO shall not exceed 10 years from the date of
grant, and a shorter term may be required by Section 3(b). Subject to the
preceding sentence, the Board of Directors at its sole discretion shall
determine when an Option is to expire.
(h) NONTRANSFERABILITY OF ISOS. No Option shall be transferable by
the Optionee other than by beneficiary designation, will or the laws of descent
and distribution. An Option may be exercised during the lifetime of the
Optionee only by the Optionee or by the Optionee's guardian or legal
representative. No Option or interest therein may be transferred, assigned,
pledged or hypothecated by the Optionee during the Optionee's lifetime, whether
by operation of law or otherwise, or be made subject to execution, attachment or
similar process. Notwithstanding the foregoing, an NSO shall be assignable or
transferable to the extent permitted by the Board of Directors and set forth in
the Stock Option Agreement evidencing such Option.
(i) TERMINATION OF SERVICE (EXCEPT BY DEATH). Unless otherwise
specified in the Stock Option Agreement, if an Optionee's Service terminates for
any reason other than the Optionee's death, then the Optionee's Options shall
expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (g)
above;
(ii) The date three months after the termination of the
Optionee's Service for any reason other than Disability; or
(iii) The date six months after the termination of the
Optionee's Service by reason of Disability.
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The Optionee may exercise all or part of the Optionee's Options at any time
before the expiration of such Options under the preceding sentence, but only to
the extent that such Options had become exercisable before the Optionee's
Service terminated (or became exercisable as a result of the termination) and
the underlying Shares had vested before the Optionee's Service terminated (or
vested as a result of the termination). The balance of such Options shall lapse
when the Optionee's Service terminates. In the event that the Optionee dies
after the termination of the Optionee's Service but before the expiration of the
Optionee's Options, all or part of such Options may be exercised (prior to
expiration) by the executors or administrators of the Optionee's estate or by
any person who has acquired such Options directly from the Optionee by
beneficiary designation, bequest or inheritance, but only to the extent that
such Options had become exercisable before the Optionee's Service terminated (or
became exercisable as a result of the termination) and the underlying Shares had
vested before the Optionee's Service terminated (or vested as a result of the
termination).
(j) LEAVES OF ABSENCE. For purposes of Subsection (i) above, Service
shall be deemed to continue while the Optionee is on a bona fide leave of
absence, if such leave was approved by the Company in writing and if continued
crediting of Service for this purpose is expressly required by the terms of such
leave or by applicable law (as determined by the Company).
(k) DEATH OF OPTIONEE. Unless otherwise specified in the Stock
Option Agreement, if an Optionee dies while the Optionee is in Service, then the
Optionee's Options shall expire on the earlier of the following dates:
(i) The expiration date determined pursuant to Subsection (g)
above;
or
(ii) The date 12 months after the Optionee's death.
All or part of the Optionee's Options may be exercised at any time before the
expiration of such Options under the preceding sentence by the executors or
administrators of the Optionee's estate or by any person who has acquired such
Options directly from the Optionee by beneficiary designation, bequest or
inheritance, but only to the extent that such Options had become exercisable
before the Optionee's death or became exercisable as a result of the death. The
balance of such Options shall lapse when the Optionee dies.
(l) NO RIGHTS AS A SHAREHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by the Optionee's Option until such person becomes entitled to receive
such Shares by filing a notice of exercise and paying the Exercise Price
pursuant to the terms of such Option.
(m) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares
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and at the same or a different Exercise Price. The foregoing notwithstanding,
no modification of an Option shall, without the consent of the Optionee, impair
the Optionee's rights or increase the Optionee's obligations under such Option.
(n) RESTRICTIONS ON TRANSFER OF SHARES AND VESTING. Any Shares
issued upon exercise of an Option shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Board of Directors may determine. Such restrictions shall
be set forth in the applicable Stock Option Agreement and shall apply in
addition to any restrictions that may apply to holders of Shares generally. Any
right to repurchase an Optionee's Shares at the original Exercise Price upon
termination of the Optionee's Service shall lapse at least as rapidly as the
schedule set forth in Subsection (e) above. Any such repurchase right may be
exercised only within 90 days after the termination of the Optionee's Service
for cash or for cancellation of indebtedness incurred in purchasing the Shares.
(o) ACCELERATED VESTING. Unless the applicable Stock Option
Agreement provides otherwise, any right to repurchase an Optionee's Shares at
the original Exercise Price upon termination of the Optionee's Service shall
lapse and all of such Shares shall become vested if (i) the Company is subject
to a Change in Control and (ii) the repurchase right is not assigned to the
entity that employs the Optionee immediately after the Change in Control or to
its parent or subsidiary.
7. PAYMENT FOR SHARES.
(a) GENERAL RULE. The entire Purchase Price or Exercise Price of
Shares issued under the Plan shall be payable in cash or cash equivalents at the
time when such Shares are purchased, except as otherwise provided in this
Section 7.
(b) SURRENDER OF STOCK. To the extent that a Stock Option Agreement
so provides, payment may be made all or in part with Shares owned by the
Optionee or the Optionee's representative. Such Shares shall be surrendered to
the Company in good form for transfer and shall be valued at their Fair Market
Value on the date when the Option is exercised. This Subsection (b) shall not
apply to the extent that acceptance of Shares in payment of the Exercise Price
would cause the Company to recognize compensation expense with respect to the
Option for financial reporting purposes.
(c) SERVICES RENDERED. At the discretion of the Board of Directors,
Shares may be awarded under the Plan in consideration of services rendered to
the Company, a Parent or a Subsidiary prior to the award.
(d) PROMISSORY NOTE. To the extent that a Stock Option Agreement or
Stock Purchase Agreement so provides, all or a portion of the Exercise Price or
Purchase Price (as the case may be) of Shares issued under the Plan may be paid
with a full-recourse promissory note. The Shares shall be pledged as security
for payment of the principal amount of the promissory note and interest thereon.
The interest rate payable under the terms of the promissory note shall not be
less than the minimum rate (if any) required to avoid the imputation of
additional interest under the Code. Subject to the foregoing, the Board of
Directors (at its sole discretion) shall
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specify the term, interest rate, amortization requirements (if any) and other
provisions of such note.
(e) EXERCISE/SALE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to a securities broker approved by the Company to sell Shares and to deliver all
or part of the sales proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.
(f) EXERCISE/PLEDGE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to pledge Shares to a securities broker or lender approved by the Company, as
security for a loan, and to deliver all or part of the loan proceeds to the
Company in payment of all or part of the Exercise Price and any withholding
taxes.
8. ADJUSTMENT OF SHARES.
(a) GENERAL. In the event of a subdivision of the outstanding Stock,
a declaration of a dividend payable in Shares, a declaration of an extraordinary
dividend payable in a form other than Shares in an amount that has a material
effect on the Fair Market Value of the Stock, a combination or consolidation of
the outstanding Stock into a lesser number of Shares, a recapitalization, a
spin-off, a reclassification or a similar occurrence, the Board of Directors
shall make appropriate adjustments in one or more of (i) the number of Shares
available for future grants under Section 4, (ii) the number of Shares covered
by each outstanding Option or (iii) the Exercise Price under each outstanding
Option.
(b) MERGERS AND CONSOLIDATIONS. In the event that the Company is a
party to a merger or consolidation, outstanding Options shall be subject to the
agreement of merger or consolidation. Such agreement, without the Optionees'
consent, may provide for:
(i) The continuation of such outstanding Options by the
Company (if the Company is the surviving corporation);
(ii) The assumption of the Plan and such outstanding Options by
the surviving corporation or its parent;
(iii) The substitution by the surviving corporation or its
parent of options with substantially the same terms for such outstanding
Options; or
(iv) The cancellation of such outstanding Options without
payment of any consideration.
(c) RESERVATION OF RIGHTS. Except as provided in this Section 8, an
Optionee or Purchaser shall have no rights by reason of (i) any subdivision or
consolidation of shares of stock of any class, (ii) the payment of any dividend
or (iii) any other increase or decrease in the number of shares of stock of any
class. Any issuance by the Company of shares of stock of any
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class, or securities convertible into shares of stock of any class, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number or Exercise Price of Shares subject to an Option. The grant of an Option
pursuant to the Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure, to merge or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
9. SECURITIES LAW REQUIREMENTS.
(a) GENERAL. Shares shall not be issued under the Plan unless the
issuance and delivery of such Shares comply with (or are exempt from) all
applicable requirements of law, including (without limitation) the Securities
Act of 1933, as amended, the rules and regulations promulgated thereunder, state
securities laws and regulations, and the regulations of any stock exchange or
other securities market on which the Company's securities may then be traded.
(b) FINANCIAL REPORTS. Each Optionee and Purchaser shall be given
access to information concerning the Company equivalent to that information
generally made available to the Company's common shareholders.
10. NO RETENTION RIGHTS.
Nothing in the Plan or in any right or Option granted under the Plan shall
confer upon the Purchaser or Optionee any right to continue in Service for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Company (or any Parent or Subsidiary employing or retaining
the Purchaser or Optionee) or of the Purchaser or Optionee, which rights are
hereby expressly reserved by each, to terminate his or her Service at any time
and for any reason, with or without cause.
11. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors, subject to the
approval of the Company's shareholders. In the event that the shareholders fail
to approve the Plan within 12 months after its adoption by the Board of
Directors, any grants of Options or sales or awards of Shares that have already
occurred shall be rescinded, and no additional grants, sales or awards shall be
made thereafter under the Plan. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the Shares
available for issuance under the Plan have been issued and all restrictions on
such Shares under the terms of the Plan and the agreements evidencing Options
and awards granted under the Plan have lapsed. However, all ISOs shall be
granted, if at all, within ten (10) years from the earlier of the date the Plan
is adopted by the Board of Directors or the date the Plan is duly approved by
the shareholders of the Company. Notwithstanding the foregoing, if the maximum
number of Shares issuable pursuant to the Plan as provided in Section 4 has been
increased at any time (other than pursuant to Section 8), all ISOs shall be
granted, if at all, within ten (10) years from the earlier of (i) the date on
which the latest such increase in the maximum number of Shares issuable under
the Plan was approved by the
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shareholders of the Company or (ii) the date such amendment was adopted by the
Board of Directors.
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors may
amend, suspend or terminate the Plan at any time and for any reason; provided,
however, that any amendment of the Plan which increases the number of Shares
available for issuance under the Plan (except as provided in Section 8), or
which materially changes the class of persons who are eligible for the grant of
ISOs, shall be subject to the approval of the Company's shareholders.
Shareholder approval shall not be required for any other amendment of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or
sold under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under the Plan.
12. DEFINITIONS.
(a) "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company, as constituted from time to time.
(b) "CHANGE IN CONTROL" shall mean:
(i) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate reorganization,
unless 50% or more of the combined voting power of the continuing or surviving
entity's securities outstanding immediately after such merger, consolidation or
other reorganization is owned by persons who were shareholders of the Company
immediately prior to such merger, consolidation or other reorganization, in
substantially the same proportions as their ownership of Company stock prior to
the transaction; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" shall mean a committee of the Board of Directors, as
described in Section 2(a).
(e) "COMPANY" shall mean bebe stores, inc., a California corporation.
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(f) "CONSULTANT" shall mean an individual who performs bona fide
services for the Company, a Parent or a Subsidiary as a consultant or advisor,
excluding Employees and Outside Directors.
(g) "DISABILITY" shall mean that the Optionee is unable to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment.
(h) "EMPLOYEE" shall mean any individual who is a common-law employee
of the Company, a Parent or a Subsidiary.
(i) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(j) "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Board of Directors in
the applicable Stock Option Agreement.
(k) "FAIR MARKET VALUE" shall mean, as of any date, the value of a
Share as determined by the Board of Directors, in its sole discretion, subject
to the following:
(i) If, on such date, there is a public market for the Stock,
the Fair Market Value of a Share shall be the closing sale price of a Share (or
the mean of the closing bid and asked prices of a Share if the Stock is so
quoted instead) as quoted on the Nasdaq National Market, the Nasdaq Small-Cap
Market or such other national or regional securities exchange or market system
constituting the primary market for the Stock, as reported in the WALL STREET
JOURNAL or such other source as the Company deems reliable. If the relevant
date does not fall on a day on which the Stock has traded on such securities
exchange or market system, the date on which the Fair Market Value shall be
established shall be the last day on which the Stock was so traded prior to the
relevant date, or such other appropriate day as shall be determined by the Board
of Directors, in its sole discretion.
(ii) If, on such date, there is no public market for the Stock,
the Fair Market Value of a Share shall be as determined by the Board of
Directors in good faith.
(l) "INSIDER" shall mean an officer or a director of the Company or
any other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(m) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(n) "NSO" shall mean a stock option not described in Sections 422(b)
or 423(b) of the Code.
(o) "OPTION" shall mean an ISO or an NSO granted under the Plan and
entitling the holder to purchase Shares.
(p) "OPTIONEE" shall mean an individual who holds an Option.
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(q) "OUTSIDE DIRECTOR" shall mean a member of the Board of Directors
who is not an Employee.
(r) "PARENT" shall mean any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent
on a date after the adoption of the Plan shall be considered a Parent commencing
as of such date.
(s) "PLAN" shall mean this bebe stores, inc. 1997 Stock Plan.
(t) "PURCHASE PRICE" shall mean the consideration for which one Share
may be acquired under the Plan (other than upon exercise of an Option), as
specified by the Board of Directors.
(u) "PURCHASER" shall mean an individual to whom the Board of
Directors has offered the right to acquire Shares under the Plan (other than
upon exercise of an Option).
(v) "RULE 16b-3" shall mean Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.
(w) "SECTION 162(m)" shall mean Section 162(m) of the Code.
(x) "SERVICE" shall mean service as an Employee, Outside Director or
Consultant. Service shall not be deemed to have terminated merely because of a
change in the capacity in which an individual renders Service to the Company (or
any Parent or Subsidiary) or a change in the corporation for which the
individual renders such Service, provided that there is no interruption or
termination of the individual's Service.
(y) "SHARE" shall mean one share of Stock, as adjusted in accordance
with Section 8 (if applicable).
(z) "STOCK" shall mean the Common Stock of the Company.
(aa) "STOCK OPTION AGREEMENT" shall mean the agreement between the
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to the Optionee's Option.
(bb) "STOCK PURCHASE AGREEMENT" shall mean the agreement between the
Company and a Purchaser who acquires Shares under the Plan which contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.
(cc) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A
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corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.
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13. EXECUTION.
The undersigned hereby certifies that the foregoing is the bebe stores,
inc. 1997 Stock Plan as amended through May 19, 1998.
bebe stores, inc.
By: /s/ Manny Mashouf
---------------------
Title: President
------------------
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bebe stores, inc.
1998 EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The bebe stores, inc. 1998 Employee Stock
Purchase Plan (the "PLAN") is hereby established effective as of the effective
date of the initial registration by the Company of its Stock under Section 12 of
the Securities Exchange Act of 1934, as amended (the "EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan is to advance the interests
of Company and its shareholders by providing an incentive to attract, retain and
reward Eligible Employees of the Participating Company Group and by motivating
such persons to contribute to the growth and profitability of the Participating
Company Group. The Plan provides such Eligible Employees with an opportunity to
acquire a proprietary interest in the Company through the purchase of Stock.
The Company intends that the Plan qualify as an "employee stock purchase plan"
under Section 423 of the Code (including any amendments or replacements of such
section), and the Plan shall be so construed.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Any term not expressly defined in the Plan but
defined for purposes of Section 423 of the Code shall have the same definition
herein. Whenever used herein, the following terms shall have their respective
meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company.
If one or more Committees have been appointed by the Board to administer the
Plan, "Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means a committee of the Board duly
appointed to administer the Plan and having such powers as shall be specified by
the Board. Unless the powers of the Committee have been specifically limited,
the Committee shall have all of the powers of the Board granted herein,
including, without limitation, the power to amend or terminate the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law.
(d) "COMPANY" means bebe stores, inc. (dba "bebe"), a
California corporation, or any successor corporation thereto.
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(e) "COMPENSATION" means, with respect to any Offering
Period, base wages or salary, commissions, overtime, bonuses, annual awards,
other incentive payments, shift premiums and all other compensation paid in cash
during such Offering Period before deduction for any contributions to any plan
maintained by a Participating Company and described in Section 401(k) or Section
125 of the Code. Compensation shall not include reimbursements of expenses,
allowances, long-term disability, workers' compensation or any amount deemed
received without the actual transfer of cash or any amounts directly or
indirectly paid pursuant to the Plan or any other stock purchase or stock option
plan, or any other compensation not included above.
(f) "ELIGIBLE EMPLOYEE" means an Employee who meets the
requirements set forth in Section 5 for eligibility to participate in the Plan.
(g) "EMPLOYEE" means a person treated as an employee of a
Participating Company for purposes of Section 423 of the Code. A Participant
shall be deemed to have ceased to be an Employee either upon an actual
termination of employment or upon the corporation employing the Participant
ceasing to be a Participating Company. For purposes of the Plan, an individual
shall not be deemed to have ceased to be an Employee while such individual is on
any military leave, sick leave or other bona fide leave of absence approved by
the Company of ninety (90) days or less. In the event an individual's leave of
absence exceeds ninety (90) days, the individual shall be deemed to have ceased
to be an Employee on the ninety-first (91st) day of such leave unless the
individual's right to reemployment with the Participating Company Group is
guaranteed either by statute or by contract. The Company shall determine in
good faith and in the exercise of its discretion whether an individual has
become or has ceased to be an Employee and the effective date of such
individual's employment or termination of employment, as the case may be. For
purposes of an individual's participation in or other rights, if any, under the
Plan as of the time of the Company's determination, all such determinations by
the Company shall be final, binding and conclusive, notwithstanding that the
Company or any governmental agency subsequently makes a contrary determination.
(h) "ENTRY DATE" means, (1) the Offering Date of an
Offering Period, or (2) with respect to persons who first become Eligible
Employees after the commencement of the Initial Offering Period but prior to the
commencement of the final Purchase Period of the Initial Offering Period, the
first day of the Purchase Period following the date on which such person becomes
an Eligible Employee.
(i) "FAIR MARKET VALUE" means, as of any date, if there is
then a public market for the Stock, the closing price of a share of Stock (or
the mean of the closing bid and asked prices if the Stock is so quoted instead)
as quoted on the Nasdaq National Market, the Nasdaq Small-Cap Market or such
other national or regional securities exchange or market system constituting the
primary market for the Stock, as reported in THE WALL STREET JOURNAL or such
other source as the Company deems reliable. If the relevant date does not fall
on a day on which the Stock has traded on such securities exchange or market
system, the date on which the Fair Market Value shall be established shall be
the last day on which the Stock was so traded prior to the relevant date, or
such other appropriate day as shall be determined by the Board, in its sole
discretion. If there is then no public market for the Stock, the Fair Market
Value on any relevant date shall be as determined by the Board. Notwithstanding
the foregoing, the Fair Market Value per share of Stock on the Effective Date
shall be deemed to be the public offering price set forth
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in the final prospectus filed with the Securities and Exchange Commission in
connection with the initial public offering of the Stock.
(j) "INITIAL OFFERING PERIOD" means the Offering Period
commencing on the Effective Date and ending on July 31, 2000.
(k) "OFFERING" means an offering of Stock as provided in
Section 6.
(l) "OFFERING DATE" means, for any Offering, the first day
of the Offering Period with respect to such Offering.
(m) "OFFERING PERIOD" means a period established in
accordance with Section 6.
(n) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(o) "PARTICIPANT" means an Eligible Employee who has become
a participant in an Offering Period in accordance with Section 7 and remains a
participant in accordance with the Plan.
(p) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation designated by the Board as a corporation
the Employees of which may, if Eligible Employees, participate in the Plan. The
Board shall have the sole and absolute discretion to determine from time to time
which Parent Corporations or Subsidiary Corporations shall be Participating
Companies.
(q) "PARTICIPATING COMPANY GROUP" means, at any point in
time, the Company and all other corporations collectively which are then
Participating Companies.
(r) "PURCHASE DATE" means the last day of (1) any Purchase
Period during the Initial Offering Period, or (2) an Offering Period which
begins after the end of the Initial Offering Period.
(s) "PURCHASE PERIOD" means a period established in
accordance with Section 6.1 or 6.3.
(t) "PURCHASE PRICE" means the price at which a share of
Stock may be purchased under the Plan, as determined in accordance with Section
9.
(u) "PURCHASE RIGHT" means an option granted to a
Participant pursuant to the Plan to purchase such shares of Stock as provided in
Section 8, which the Participant may or may not exercise during the Offering
Period in which such option is outstanding. Such option arises from the right
of a Participant to withdraw any accumulated payroll deductions of the
Participant not previously applied to the purchase of Stock under the Plan and
to terminate participation in the Plan at any time during an Offering Period.
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(v) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 4.2.
(w) "SUBSCRIPTION AGREEMENT" means a written agreement in
such form as specified by the Company, stating an Employee's election to
participate in the Plan and authorizing payroll deductions under the Plan from
the Employee's Compensation.
(x) "SUBSCRIPTION DATE" means the last business day prior
to an Entry Date or such other date as the Company shall establish.
(y) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular.
Use of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered
by the Board. All questions of interpretation of the Plan, of any form of
agreement or other document employed by the Company in the administration of the
Plan, or of any Purchase Right shall be determined by the Board and shall be
final and binding upon all persons having an interest in the Plan or the
Purchase Right. Subject to the provisions of the Plan, the Board shall
determine all of the relevant terms and conditions of Purchase Rights granted
pursuant to the Plan; provided, however, that all Participants granted Purchase
Rights pursuant to the Plan shall have the same rights and privileges within the
meaning of Section 423(b)(5) of the Code. All expenses incurred in connection
with the administration of the Plan shall be paid by the Company.
3.2 AUTHORITY OF OFFICERS. Any officer of the Company shall have
the authority to act on behalf of the Company with respect to any matter, right,
obligation, determination or election that is the responsibility of or that is
allocated to the Company herein, provided that the officer has apparent
authority with respect to such matter, right, obligation, determination or
election.
3.3 POLICIES AND PROCEDURES ESTABLISHED BY THE COMPANY. The
Company may, from time to time, consistent with the Plan and the requirements of
Section 423 of the Code, establish, change or terminate such rules, guidelines,
policies, procedures, limitations, or adjustments as deemed advisable by the
Company, in its sole discretion, for the proper administration of the Plan,
including, without limitation, (a) a minimum payroll deduction amount required
for participation in an Offering, (b) a limitation on the frequency or number of
changes permitted in the rate of payroll deduction during an Offering, (c) an
exchange ratio applicable to amounts withheld in a currency other than United
States dollars, (d) a payroll deduction greater
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than or less than the amount designated by a Participant in order to adjust for
the Company's delay or mistake in processing a Subscription Agreement or in
otherwise effecting a Participant's election under the Plan or as advisable to
comply with the requirements of Section 423 of the Code, and (e) determination
of the date and manner by which the Fair Market Value of a share of Stock is
determined for purposes of administration of the Plan.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be _____________ (_____________ ) and shall
consist of authorized but unissued or reacquired shares of Stock, or any
combination thereof. If an outstanding Purchase Right for any reason expires or
is terminated or canceled, the shares of Stock allocable to the unexercised
portion of such Purchase Right shall again be available for issuance under the
Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, or in the event of any merger (including a merger effected for the
purpose of changing the Company's domicile), sale of assets or other
reorganization in which the Company is a party, appropriate adjustments shall be
made in the number and class of shares subject to the Plan and each Purchase
Right and in the Purchase Price. If a majority of the shares which are of the
same class as the shares that are subject to outstanding Purchase Rights are
exchanged for, converted into, or otherwise become (whether or not pursuant to
an Ownership Change Event) shares of another corporation (the "NEW SHARES"), the
Board may unilaterally amend the outstanding Purchase Rights to provide that
such Purchase Rights are exercisable for New Shares. In the event of any such
amendment, the number of shares subject to, and the Purchase Price of, the
outstanding Purchase Rights shall be adjusted in a fair and equitable manner, as
determined by the Board, in its sole discretion. Notwithstanding the foregoing,
any fractional share resulting from an adjustment pursuant to this Section 4.2
shall be rounded down to the nearest whole number, and in no event may the
Purchase Price be decreased to an amount less than the par value, if any, of the
stock subject to the Purchase Right. The adjustments determined by the Board
pursuant to this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY.
5.1 EMPLOYEES ELIGIBLE TO PARTICIPATE. Each Employee of a
Participating Company is eligible to participate in the Plan and shall be deemed
an Eligible Employee.
5.2 EXCLUSION OF CERTAIN SHAREHOLDERS. Notwithstanding any
provision of the Plan to the contrary, no Employee shall be granted a Purchase
Right under the Plan if, immediately after such grant, such Employee would own
or hold options to purchase stock of the Company or of any Parent Corporation or
Subsidiary Corporation possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of such corporation, as
determined in accordance with Section 423(b)(3) of the Code. For purposes of
this Section 5.2,
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the attribution rules of Section 424(d) of the Code shall apply in determining
the stock ownership of such Employee.
6. OFFERINGS.
6.1 INITIAL OFFERING PERIOD. Except as otherwise set forth below,
the Plan shall be implemented by sequential Offerings of approximately
twenty-four (24) months duration (an "OFFERING PERIOD"); provided, however, that
the first Offering Period shall commence on the Effective Date and end on July
31, 2000 (the "INITIAL OFFERING PERIOD"). The Initial Offering Period shall
consist of four (4) consecutive Purchase Periods of approximately six (6) months
duration. The Purchase Period commencing on the Offering Date of the Initial
Offering Period shall end on January 31, 1999. Additional Purchase Periods
shall commence on February 1, 1999, August 1, 1999 and February 1, 2000. A
Purchase Period commencing on February 1 shall end on the next July 31 and a
Purchase Period commencing on August 1 shall end on the next January 31. If the
first or last day of a Purchase Period is not a day on which the national
securities exchanges or Nasdaq Stock Market are open for trading, the Company
shall specify the trading day that will be deemed the first or last day, as the
case may be, of the Purchase Period.
6.2 SUBSEQUENT OFFERING PERIODS. After the completion of the
Initial Offering Period, subsequent Offering Periods shall commence on the first
day of February and August of each year and end on the last day of the July and
January, respectively, occurring thereafter. If the first or last day of an
Offering Period is not a day on which the national securities exchanges or
Nasdaq Stock Market are open for trading, the Company shall specify the trading
day that will be deemed the first or last day, as the case may be, of the
Offering Period.
6.3 DISCRETION TO VARY DURATION OF OFFERING PERIODS.
Notwithstanding the foregoing, the Board may establish a different duration for
one or more Offering Periods or different commencing or ending dates for such
Offering Periods, and may provide that such Offering Periods may be comprised of
one or more Purchase Periods; provided, however, that no Offering Period may
have a duration exceeding twenty-seven (27) months.
7. PARTICIPATION IN THE PLAN.
7.1 INITIAL PARTICIPATION. An Eligible Employee may become a
Participant in an Offering Period by delivering a properly completed
Subscription Agreement to the office designated by the Company not later than
the close of business for such office on the Subscription Date established by
the Company for the applicable Entry Date. An Eligible Employee who does not
deliver a properly completed Subscription Agreement to the Company's designated
office on or before the Subscription Date shall not participate in the Plan for
that Offering Period or for any subsequent Offering Period unless such Eligible
Employee subsequently delivers a properly completed Subscription Agreement to
the appropriate office of the Company on or before the Subscription Date for
such subsequent Offering Period. An Employee who becomes an Eligible Employee
after the Offering Date of an Offering Period (other than the Initial Offering
Period) shall not be eligible to participate in such Offering Period but may
participate in any subsequent Offering Period provided such Employee is still an
Eligible Employee as of the Offering Date of such subsequent Offering Period.
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7.2 CONTINUED PARTICIPATION. A Participant shall automatically
participate in the next Offering Period commencing immediately after the final
Purchase Date of each Offering Period in which the Participant participates
provided that such Participant remains an Eligible Employee on the Offering Date
of the new Offering Period and has not either (a) withdrawn from the Plan
pursuant to Section 12.1 or (b) terminated employment as provided in Section 13.
A Participant who may automatically participate in a subsequent Offering Period,
as provided in this Section, is not required to deliver any additional
Subscription Agreement for the subsequent Offering Period in order to continue
participation in the Plan. However, a Participant may deliver a new
Subscription Agreement for a subsequent Offering Period in accordance with the
procedures set forth in Section 7.1 if the Participant desires to change any of
the elections contained in the Participant's then effective Subscription
Agreement.
8. RIGHT TO PURCHASE SHARES.
8.1 GRANT OF PURCHASE RIGHT. Except as set forth below, each
Participant in an Offering Period shall be automatically granted, on his or her
Entry Date, a Purchase Right consisting of an option to purchase shares of Stock
with the amount of payroll deductions accumulated during the Offering Period.
However, in no event may a Participant purchase shares of Stock under the Plan
during any twelve-month period which have a Fair Market Value in excess of eight
thousand dollars ($8,000. For purposes of the foregoing sentence, the Fair
Market Value shall be determined as of the Entry Date. In addition, the Board,
in its discretion, may establish, for any future Offering Period, a limit on the
number of shares which may be acquired by any Participant during such Offering
Period.
8.2 CALENDAR YEAR PURCHASE LIMITATION. Notwithstanding any
provision of the Plan to the contrary, no Participant shall be granted a
Purchase Right which permits his or her right to purchase shares of Stock under
the Plan to accrue at a rate which, when aggregated with such Participant's
rights to purchase shares under all other employee stock purchase plans of a
Participating Company intended to meet the requirements of Section 423 of the
Code, exceeds Twenty-Five Thousand Dollars ($25,000) in Fair Market Value (or
such other limit, if any, as may be imposed by the Code) for each calendar year
in which such Purchase Right is outstanding at any time. For purposes of the
preceding sentence, the Fair Market Value of shares purchased during a given
Offering Period shall be determined as of the Entry Date for such Offering
Period. The limitation described in this Section 8.2 shall be applied in
conformance with applicable regulations under Section 423(b)(8) of the Code.
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9. PURCHASE PRICE.
The Purchase Price at which each share of Stock may be acquired in
an Offering Period upon the exercise of all or any portion of a Purchase Right
shall be established by the Board; provided, however, that the Purchase Price
shall not be less than eighty-five percent (85%) of the lesser of (a) the Fair
Market Value of a share of Stock on the Participant's Entry Date for the
Offering Period or (b) the Fair Market Value of a share of Stock on the Purchase
Date. Unless otherwise provided by the Board prior to the commencement of an
Offering Period, the Purchase Price for that Offering Period shall be
eighty-five percent (85%) of the lesser of (a) the Fair Market Value of a share
of Stock on the Participant's Entry Date, or (b) the Fair Market Value of a
share of Stock on the Purchase Date.
10. ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION.
Shares of Stock acquired pursuant to the exercise of all or any
portion of a Purchase Right may be paid for only by means of payroll deductions
from the Participant's Compensation accumulated during the Offering Period for
which such Purchase Right was granted, subject to the following:
10.1 AMOUNT OF PAYROLL DEDUCTIONS. Except as otherwise provided
herein, the amount to be deducted under the Plan from a Participant's
Compensation on each payday during an Offering Period (after the Participant's
Entry Date) shall be determined by the Participant's Subscription Agreement.
The Subscription Agreement shall set forth the percentage of the Participant's
Compensation to be deducted on each payday during an Offering Period (after the
Participant's Entry Date) in whole percentages of not less than one percent (1%)
(except as a result of an election pursuant to Section 10.3 to stop payroll
deductions made effective following the first payday during an Offering after
the Participant's Entry Date) or more than ten percent (10%). Notwithstanding
the foregoing, the Board may change the limits on payroll deductions effective
as of any future Offering Date.
10.2 COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll deductions shall
commence on the first payday following the Entry Date and shall continue to the
end of the Offering Period unless sooner altered or terminated as provided
herein.
10.3 ELECTION TO CHANGE OR STOP PAYROLL DEDUCTIONS. During an
Offering Period, a Participant may elect to increase or decrease the rate of or
to stop deductions from his or her Compensation by delivering to the Company's
designated office an amended Subscription Agreement authorizing such change on
or before the "Change Notice Date." The "CHANGE NOTICE DATE" shall be a date
prior to the beginning of the first pay period for which such election is to be
effective as established by the Company from time to time and announced to the
Participants. A Participant who elects to decrease the rate of his or her
payroll deductions to zero percent (0%) shall nevertheless remain a Participant
in the current Offering Period unless such Participant withdraws from the Plan
as provided in Section 12.1.
10.4 ADMINISTRATIVE SUSPENSION OF PAYROLL DEDUCTIONS. The Company
may, in its sole discretion, suspend a Participant's payroll deductions under
the Plan as the Company
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deems advisable to avoid accumulating payroll deductions in excess of the amount
that could reasonably be anticipated to purchase the maximum number of shares of
Stock permitted during a calendar year under the limit set forth in Section 8.3.
Payroll deductions shall be resumed at the rate specified in the Participant's
then effective Subscription Agreement at the beginning of the next Purchase
Period the Purchase Date of which falls in the following calendar year.
10.5 PARTICIPANT ACCOUNTS. Individual bookkeeping accounts shall
be maintained for each Participant. All payroll deductions from a Participant's
Compensation shall be credited to such Participant's Plan account and shall be
deposited with the general funds of the Company. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose.
10.6 NO INTEREST PAID. Interest shall not be paid on sums deducted
from a Participant's Compensation pursuant to the Plan.
10.7 VOLUNTARY WITHDRAWAL FROM PLAN ACCOUNT. A Participant may
withdraw all or any portion of the payroll deductions credited to his or her
Plan account and not previously applied toward the purchase of Stock by
delivering to the Company's designated office a written notice on a form
provided by the Company for such purpose. A Participant who withdraws the
entire remaining balance credited to his or her Plan account shall be deemed to
have withdrawn from the Plan in accordance with Section 12.1. Amounts withdrawn
shall be returned to the Participant as soon as practicable after the withdrawal
and may not be applied to the purchase of shares in any Offering under the Plan.
The Company may from time to time establish or change limitations on the
frequency of withdrawals permitted under this Section, establish a minimum
dollar amount that must be retained in the Participant's Plan account, or
terminate the withdrawal right provided by this Section.
11. PURCHASE OF SHARES.
11.1 EXERCISE OF PURCHASE RIGHT. On each Purchase Date of an
Offering Period, each Participant who has not withdrawn from the Plan and whose
participation in the Offering has not terminated before such Purchase Date shall
automatically acquire pursuant to the exercise of the Participant's Purchase
Right the number of whole shares of Stock determined by dividing (a) the total
amount of the Participant's payroll deductions accumulated in the Participant's
Plan account during the Offering Period and not previously applied toward the
purchase of Stock by (b) the Purchase Price. However, in no event shall the
number of shares purchased by the Participant during an Offering Period exceed
the number of shares subject to the Participant's Purchase Right. No shares of
Stock shall be purchased on a Purchase Date on behalf of a Participant whose
participation in the Offering or the Plan has terminated before such Purchase
Date.
11.2 PRO RATA ALLOCATION OF SHARES. In the event that the number
of shares of Stock which might be purchased by all Participants in the Plan on a
Purchase Date exceeds the number of shares of Stock available in the Plan as
provided in Section 4.1, the Company shall make a pro rata allocation of the
remaining shares in as uniform a manner as shall be practicable
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and as the Company shall determine to be equitable. Any fractional share
resulting from such pro rata allocation to any Participant shall be disregarded.
11.3 DELIVERY OF CERTIFICATES. As soon as practicable after each
Purchase Date, the Company shall arrange the delivery to each Participant, as
appropriate, of a certificate representing the shares acquired by the
Participant on such Purchase Date; provided that the Company may deliver such
shares to a broker that holds such shares in street name for the benefit of the
Participant. Shares to be delivered to a Participant under the Plan shall be
registered in the name of the Participant, or, if requested by the Participant,
in the name of the Participant and his or her spouse, or, if applicable, in the
names of the heirs of the Participant.
11.4 RETURN OF CASH BALANCE. Any cash balance remaining in a
Participant's Plan account following any Purchase Date shall be refunded to the
Participant as soon as practicable after such Purchase Date. However, if the
cash to be returned to a Participant pursuant to the preceding sentence is an
amount less than the amount that would have been necessary to purchase an
additional whole share of Stock on such Purchase Date, the Company may retain
such amount in the Participant's Plan account to be applied toward the purchase
of shares of Stock in the subsequent Purchase Period or Offering Period, as the
case may be.
11.5 TAX WITHHOLDING. At the time a Participant's Purchase Right
is exercised, in whole or in part, or at the time a Participant disposes of some
or all of the shares of Stock he or she acquires under the Plan, the Participant
shall make adequate provision for the foreign, federal, state and local tax
withholding obligations of the Participating Company Group, if any, which arise
upon exercise of the Purchase Right or upon such disposition of shares,
respectively. The Participating Company Group may, but shall not be obligated
to, withhold from the Participant's compensation the amount necessary to meet
such withholding obligations.
11.6 EXPIRATION OF PURCHASE RIGHT. Any portion of a Participant's
Purchase Right remaining unexercised after the end of the Offering Period to
which the Purchase Right relates shall expire immediately upon the end of the
Offering Period.
11.7 REPORTS TO PARTICIPANTS. Each Participant who has exercised
all or part of his or her Purchase Right shall receive, as soon as practicable
after the Purchase Date, a report of such Participant's Plan account setting
forth the total payroll deductions accumulated prior to such exercise, the
number of shares of Stock purchased, the Purchase Price for such shares, the
date of purchase and the cash balance, if any, remaining immediately after such
purchase that is to be refunded or retained in the Participant's Plan account
pursuant to Section 11.4. The report required by this Section may be delivered
in such form and by such means, including by electronic transmission, as the
Company may determine.
12. WITHDRAWAL FROM OFFERING OR PLAN.
12.1 VOLUNTARY WITHDRAWAL FROM THE PLAN. A Participant may
withdraw from the Plan by signing and delivering to the Company's designated
office a written notice of withdrawal on a form provided by the Company for such
purpose. Such withdrawal may be elected at any time prior to the end of an
Offering Period; provided, however, that if a Participant
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withdraws from the Plan after the Purchase Date of a Purchase Period, the
withdrawal shall not affect shares of Stock acquired by the Participant on such
Purchase Date. A Participant who voluntarily withdraws from the Plan is
prohibited from resuming participation in the Plan in the same Offering from
which he or she withdrew, but may participate in any subsequent Offering by
again satisfying the requirements of Sections 5 and 7.1. The Company may
impose, from time to time, a requirement that the notice of withdrawal from the
Plan be on file with the Company's designated office for a reasonable period
prior to the effectiveness of the Participant's withdrawal.
12.2 RETURN OF PAYROLL DEDUCTIONS. Upon a Participant's voluntary
withdrawal from the Plan pursuant to Sections 12.1, the Participant's
accumulated payroll deductions which have not been applied toward the purchase
of shares of Stock shall be refunded to the Participant as soon as practicable
after the withdrawal, without the payment of any interest, and the Participant's
interest in the Plan shall terminate. Such accumulated payroll deductions to be
refunded in accordance with this Section may not be applied to any other
Offering under the Plan.
13. TERMINATION OF EMPLOYMENT OR ELIGIBILITY.
Upon a Participant's ceasing, prior to a Purchase Date, to be an
Employee of the Participating Company Group for any reason, including
retirement, disability or death, or the failure of a Participant to remain an
Eligible Employee, the Participant's participation in the Plan shall terminate
immediately. In such event, the payroll deductions credited to the
Participant's Plan account since the last Purchase Date shall, as soon as
practicable, be returned to the Participant or, in the case of the Participant's
death, to the Participant's legal representative, and all of the Participant's
rights under the Plan shall terminate. Interest shall not be paid on sums
returned pursuant to this Section 13. A Participant whose participation has
been so terminated may again become eligible to participate in the Plan by again
satisfying the requirements of Sections 5 and 7.1.
14. CHANGE IN CONTROL.
14.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company: (i) the
direct or indirect sale or exchange in a single or series of related
transactions by the shareholders of the Company of more than fifty percent (50%)
of the voting stock of the Company; (ii) a merger or consolidation in which the
Company is a party; (iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or (iv) a liquidation or
dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the shareholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
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outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
14.2 EFFECT OF CHANGE IN CONTROL ON PURCHASE RIGHTS. In the event
of a Change in Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may assume the Company's rights and obligations under the Plan.
If the Acquiring Corporation elects not to assume the Company's rights and
obligations under outstanding Purchase Rights, the Purchase Date of the then
current Purchase Period shall be accelerated to a date before the date of the
Change in Control specified by the Board, but the number of shares of Stock
subject to outstanding Purchase Rights shall not be adjusted. All Purchase
Rights which are neither assumed by the Acquiring Corporation in connection with
the Change in Control nor exercised as of the date of the Change in Control
shall terminate and cease to be outstanding effective as of the date of the
Change in Control.
15. NONTRANSFERABILITY OF PURCHASE RIGHTS.
A Purchase Right may not be transferred in any manner otherwise than
by will or the laws of descent and distribution and shall be exercisable during
the lifetime of the Participant only by the Participant.
16. COMPLIANCE WITH SECURITIES LAW.
The issuance of shares under the Plan shall be subject to compliance
with all applicable requirements of federal, state and foreign law with respect
to such securities. A Purchase Right may not be exercised if the issuance of
shares upon such exercise would constitute a violation of any applicable
federal, state or foreign securities laws or other law or regulations or the
requirements of any securities exchange or market system upon which the Stock
may then be listed. In addition, no Purchase Right may be exercised unless
(a) a registration statement under the Securities Act of 1933, as amended, shall
at the time of exercise of the Purchase Right be in effect with respect to the
shares issuable upon exercise of the Purchase Right, or (b) in the opinion of
legal counsel to the Company, the shares issuable upon exercise of the Purchase
Right may be issued in accordance with the terms of an applicable exemption from
the registration requirements of said Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares under the Plan shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of a
Purchase Right, the Company may require the Participant to satisfy any
qualifications that may be necessary or appropriate, to
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evidence compliance with any applicable law or regulation, and to make any
representation or warranty with respect thereto as may be requested by the
Company.
17. RIGHTS AS A SHAREHOLDER AND EMPLOYEE.
A Participant shall have no rights as a shareholder by virtue of the
Participant's participation in the Plan until the date of the issuance of a
certificate for the shares purchased pursuant to the exercise of the
Participant's Purchase Right (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 4.2. Nothing herein shall confer upon a Participant any
right to continue in the employ of the Participating Company Group or interfere
in any way with any right of the Participating Company Group to terminate the
Participant's employment at any time.
18. LEGENDS.
The Company may at any time place legends or other identifying
symbols referencing any applicable federal, state or foreign securities law
restrictions or any provision convenient in the administration of the Plan on
some or all of the certificates representing shares of Stock issued under the
Plan. The Participant shall, at the request of the Company, promptly present to
the Company any and all certificates representing shares acquired pursuant to a
Purchase Right in the possession of the Participant in order to carry out the
provisions of this Section. Unless otherwise specified by the Company, legends
placed on such certificates may include but shall not be limited to the
following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN
EMPLOYEE STOCK PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY
SHALL NOTIFY THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE
REGISTERED HOLDER HEREOF. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED
UNDER THE PLAN IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF ANY
NOMINEE)."
19. NOTIFICATION OF SALE OF SHARES.
The Company may require the Participant to give the Company prompt
notice of any disposition of shares acquired by exercise of a Purchase Right
within two years from the date of granting such Purchase Right or one year from
the date of exercise of such Purchase Right. The Company may require that until
such time as a Participant disposes of shares acquired upon exercise of a
Purchase Right, the Participant shall hold all such shares in the Participant's
name (or, if elected by the Participant, in the name of the Participant and his
or her spouse but not in the name of any nominee) until the lapse of the time
periods with respect to such Purchase Right referred to in the preceding
sentence. The Company may direct that the certificates evidencing
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shares acquired by exercise of a Purchase Right refer to such requirement to
give prompt notice of disposition.
20. NOTICES.
All notices or other communications by a Participant to the Company
under or in connection with the Plan shall be deemed to have been duly given
when received in the form specified by the Company at the location, or by the
person, designated by the Company for the receipt thereof.
21. INDEMNIFICATION.
In addition to such other rights of indemnification as they may have
as members of the Board or officers or employees of the Participating Company
Group, members of the Board and any officers or employees of the Participating
Company Group to whom authority to act for the Board or the Company is delegated
shall be indemnified by the Company against all reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such person is liable for gross
negligence, bad faith or intentional misconduct in duties; provided, however,
that within sixty (60) days after the institution of such action, suit or
proceeding, such person shall offer to the Company, in writing, the opportunity
at its own expense to handle and defend the same.
22. AMENDMENT OR TERMINATION OF THE PLAN.
The Board may at any time amend or terminate the Plan, except that
(a) such termination shall not affect Purchase Rights previously granted under
the Plan except as permitted under the Plan, provided that the Board may
terminate the Plan (and any Offerings thereunder) on any Purchase Date if the
Board determines that such termination is in the best interests of the Company
and its stockholders, and (b) no amendment may adversely affect a Purchase Right
previously granted under the Plan (except to the extent permitted by the Plan or
as may be necessary to qualify the Plan as an employee stock purchase plan
pursuant to Section 423 of the Code or to obtain qualification or registration
of the shares of Stock under applicable federal, state or foreign securities
laws). In addition, an amendment to the Plan must be approved by the
shareholders of the Company within twelve (12) months of the adoption of such
amendment if such amendment would authorize the sale of more shares than are
authorized for issuance under the Plan or would change the definition of the
corporations that may be designated by the Board as Participating Companies. In
the event that the Board approves an amendment to increase the number of shares
authorized for issuance under the Plan (the "ADDITIONAL SHARES"), the Board, in
its sole discretion, may specify that such Additional Shares may only be issued
pursuant to Purchase Rights granted after the date on which the stockholders of
the Company approve such
14
<PAGE>
amendment, and such designation by the Board shall not be deemed to have
adversely affected any Purchase Right granted prior to the date on which the
stockholders approve the amendment.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that
the foregoing bebe stores, inc. 1998 Employee Stock Purchase Plan was duly
adopted by the Board of Directors of the Company on April 7, 1998.
/s/ Paul Mashouf
------------------------------
Secretary
15
<PAGE>
BEBE STORES, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
NAME (Please print):
--------------------------------------------------------
(Last) (First) (Middle)
/ / Original Application for the Offering Period beginning ___________, 199__.
/ / Change in Payroll Deduction rate effective with the pay period
ending _________________, 199__.
I hereby elect to participate in the 1998 Employee Stock Purchase Plan (the
"PLAN") of bebe stores, inc. (the "COMPANY") and subscribe to purchase shares of
the Company's Stock in accordance with this Subscription Agreement and the Plan.
I hereby authorize payroll deductions in the amount of ________ percent (in
whole percentages not less than 1% (unless an election to stop deductions is
being made) or more than 10%) of my "COMPENSATION" on each payday throughout the
"OFFERING PERIOD" in accordance with the Plan. I understand that these payroll
deductions will be accumulated for the purchase of shares of Stock at the
applicable purchase price determined in accordance with the Plan. I understand
that, except as otherwise provided by the Plan, I will automatically purchase
shares on each Purchase Date under the Plan unless I withdraw from the Plan by
giving written notice on a form provided by the Company or unless my employment
terminates.
I understand that I will automatically participate in each subsequent
Offering that commences immediately after the last day of an Offering in which I
am participating until I withdraw from the Plan by giving written notice on a
form provided by the Company or my employment terminates.
Shares I purchase under the Plan should be issued in the name(s) set forth
below. (Shares may be issued in the participant's name alone or together with
the participant's spouse as community property or in joint tenancy.)
NAME(S):
--------------------------------------------------------------
ADDRESS:
--------------------------------------------------------------
MY SOCIAL SECURITY NUMBER:
------------------------------------------------
I agree to make adequate provision for the federal, state, local and
foreign tax withholding obligations, if any, which may arise upon my purchase of
shares under the Plan and/or my disposition of such shares. The Company may,
but will not be obligated to, withhold from my compensation the amount necessary
to meet such withholding obligations.
I agree that, unless otherwise permitted by the Company, until I dispose of
the shares I purchased under the Plan, I will hold such shares in the name(s)
entered above (and not in the name of any nominee) for at least two years from
the first day of the Offering Period in which, and at least one year from the
Purchase Date on which, I acquired such shares.
I AGREE THAT I WILL NOTIFY THE CHIEF FINANCIAL OFFICER OF THE COMPANY IN
WRITING WITHIN 30 DAYS AFTER ANY SALE, GIFT, TRANSFER OR OTHER DISPOSITION OF
ANY KIND PRIOR TO THE END OF THE PERIODS REFERRED TO IN THE PRECEDING PARAGRAPH
(A "DISQUALIFYING DISPOSITION") OF ANY SHARES I PURCHASED UNDER THE PLAN. I
FURTHER AGREE THAT IF I DO NOT RESPOND WITHIN 30 DAYS OF THE DATE OF A
DISQUALIFYING DISPOSITION SURVEY DELIVERED TO ME BY CERTIFIED MAIL, THE COMPANY
MAY TREAT MY NONRESPONSE AS MY NOTICE TO THE COMPANY OF A DISQUALIFYING
DISPOSITION AND MAY COMPUTE AND REPORT TO THE INTERNAL REVENUE SERVICE THE
ORDINARY INCOME I MUST RECOGNIZE UPON SUCH DISQUALIFYING DISPOSITION.
I am familiar with the provisions of the Plan and agree to participate in
the Plan subject to all of its provisions. I understand that the Board of
Directors of the Company reserves the right to terminate the Plan or to amend
the Plan and my right to purchase stock under the Plan to the extent provided by
the Plan. I understand that the effectiveness of this Subscription Agreement is
dependent upon my eligibility to participate in the Plan.
Date: Signature:
----------------------- -----------------------------
<PAGE>
BEBE STORES, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
NAME (Please print):
--------------------------------------------------------
(Last) (First) (Middle)
I hereby elect to withdraw from the Offering under the bebe stores, inc.
1998 Employee Stock Purchase Plan (the "PLAN") which began on
______________________, 19____ and in which I am currently participating (the
"CURRENT OFFERING").
ELECT EITHER A OR B BELOW:
/ / A. I elect to terminate immediately my participation in the Current
Offering and in the Plan.
I request that the Company cease all further payroll deductions
from my Compensation under the Plan (provided that I have given
sufficient notice prior to the next payday). I request that all
payroll deductions credited to my account under the Plan (if any)
not previously used to purchase shares under the Plan shall NOT be
used to purchase shares on the next Purchase Date of the Current
Offering. Instead, I request that all such amounts be paid to me
as soon as practicable. I understand that this election
immediately terminates my interest in the Current Offering and in
the Plan.
/ / B. I elect to terminate my participation in the Current Offering and
in the Plan following my purchase of shares on next Purchase Date
of the Current Offering.
I request that the Company cease all further payroll deductions
from my Compensation under the Plan (provided that I have given
sufficient notice prior to the next payday). I request that all
payroll deductions credited to my account under the Plan (if any)
not previously used to purchase shares under the Plan shall be
used to purchase shares on the next Purchase Date of the Current
Offering to the extent permitted by the Plan. I understand that
this election will terminate my interest in the Current Offering
and in the Plan immediately following such purchase. I request
that any cash balance remaining in my account under the Plan after
my purchase of shares be paid to me as soon as practicable.
I understand that by making this election I am terminating my interest
in the Plan and that no further payroll deductions will be made (provided that I
have given sufficient notice prior to the next payday) unless I elect in
accordance with the Plan to become a participant in another Offering under the
Plan by filing a new Subscription Agreement with the Company.
Date: Signature:
------------------------ -----------------------------
<PAGE>
[WILSON, McCALL & ASSOCIATES LLP LETTERHEAD]
May 28, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We have read the section entitled Change in Accountants in Amendment
No. 2 to Registration Statement of Form S-1 of bebe stores, inc. (formerly Babe,
Inc., the "Company") to be filed with the Securities and Exchange Commission
on or about May 29, 1998 and concur with the statements contained therein. In
particular, we agree with the statement that there were no disagreements with
the Company through the date of our dismissal, May 6, 1996, on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which if not resolved to our satisfaction,
would have caused us to make reference to the matter in our report.
Very truly yours,
WILSON, McCALL & ASSOCIATES LLP
Formerly WILSON, McCALL & DAORO
/s/ Daniel R. McCall
Daniel R. McCall
DRM/pa
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
Board of Directors
bebe stores, inc.
We consent to the use in this Amendment No. 2 to the Registration Statement
No. 333-50333 of bebe stores, inc. on Form S-1 of our report dated May 6, 1998,
May 30, 1998 as to Note 14 (which expresses an unqualified opinion and includes
an explanatory paragraph relating to the restatement described in Note 14)
appearing in the Prospectus, which is a part of this Registration Statement, and
to the references to us under the headings "Selected Financial and Operating
Data" and "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of bebe stores, inc.,
listed in Item 16(b). This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Deloitte & Touche LLP
San Francisco, California
June 2, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ________ AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1997
<PERIOD-END> MAR-31-1998 JUN-30-1997
<CASH> 22741554 9191919
<SECURITIES> 0 80390
<RECEIVABLES> 365324 430903
<ALLOWANCES> 46851 76668
<INVENTORY> 11016322 9461698
<CURRENT-ASSETS> 35618241 19626360
<PP&E> 13852681 12104516
<DEPRECIATION> 5784700 4565055
<TOTAL-ASSETS> 46220029 29109294
<CURRENT-LIABILITIES> 15417371 11351159
<BONDS> 0 0
0 0
0 0
<COMMON> 22640 22640
<OTHER-SE> 28339010 15271943
<TOTAL-LIABILITY-AND-EQUITY> 46220029 29109294
<SALES> 108072493 95086125
<TOTAL-REVENUES> 108072493 95086125
<CGS> 53757891 53968849
<TOTAL-COSTS> 33558889 32648788
<OTHER-EXPENSES> 126537 (222,278)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 17613 216618
<INCOME-PRETAX> 21257731 8595957
<INCOME-TAX> 8715670 3218063
<INCOME-CONTINUING> 12542061 5,377,894
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 12542061 5,377,894
<EPS-PRIMARY> 0.55 0.24
<EPS-DILUTED> 0.53 0.24
</TABLE>
