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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended November 27, 1994 Commission file number: 33-762
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LEVI STRAUSS ASSOCIATES INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2973849
(State or other jurisdiction (I.R.S Employer
of incorporation or organization) Identification Number)
1155 Battery Street, San Francisco, California 94111
(Address of principal executive offices)
Registrant's telephone number, including area code (415) 544-6000
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO ___
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate value of the registrant's voting stock held by non-affiliates, at
$134 per share (based on the latest independent valuation), was approximately
$52.7 million at January 16, 1995.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date.
Outstanding at
Class of Common Stock January 16, 1995
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Class E common stock, $.10 par value 1,360,546 shares
Class L common stock, $.10 par value 51,256,159 shares
Documents incorporated by reference: None
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FORM 10-K
TABLE OF CONTENTS
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Page
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PART I
Item 1. Business.................................................. 3
Item 2. Properties................................................ 22
Item 3. Legal Proceedings......................................... 23
Item 4. Submission of Matters to a Vote of Security
Holders (in the 1994 fourth quarter)..................... 23
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters.............................. 24
Item 6. Selected Financial Data................................... 25
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 26
Item 8. Financial Statements and Supplementary Data............... 37
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... 76
PART III
Item 10. Directors and Executive Officers of the Registrant........ 77
Item 11. Director and Executive Compensation....................... 83
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................... 93
Item 13. Certain Relationships and Related Transactions............ 96
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K...................................... 99
SIGNATURES......................................................... 105
Financial Statement Schedules...................................... 108
Supplemental Information........................................... 110
Corporate Directory................................................ 111
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All percentage changes in this report are based on unrounded amounts.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Levi Strauss Associates Inc. (the Company) acquired Levi Strauss & Co. (LS&CO.)
in 1985 and is the world's largest brand-name apparel manufacturer. It designs,
manufactures and markets apparel for men, women and children, including jeans,
slacks, shirts, jackets, skirts and fleece. Most of its products are marketed
under the Levi's(R) and Dockers(R) trademarks and are sold in the United States
and in many other locations throughout North and South America, Europe, Asia and
Oceania. These products are produced throughout the world by the Company at
owned and operated facilities or by independent contractors.
The Company's revenues are derived mostly from the sale of jeans and jeans-
related products. Jeans are casual pants, which typically have a four or five
pocket construction and are made of 100 percent cotton denim. Jeans can also be
made of corduroy, twill and other fabrics. These and other jeans-related
products generated approximately 72 percent of the Company's total sales in 1994
($4.4 billion of $6.1 billion) and are the mainstays of the Company's
profitability. Casual sportswear (mostly natural fiber pants and tops marketed
under the Dockers(R) brand) have also become an important source of revenues in
the U.S.
The worldwide apparel market is characterized by constant change and diversity.
It is affected by demographic fluctuations in the consumer population, frequent
shifts in prevailing fashions and styles, international trade and economic
developments, and retailer practices. The Company has historically enjoyed its
largest brand share and customer base for jeans among men, especially those aged
15-24 years old, and, to a lesser extent, those aged 25 and over. The
demographics of the U.S. and many other industrialized countries outside the
U.S. reflect aging populations and declining target markets.
The Company's market success is dependent on the Company's ability to quickly
and effectively initiate and/or respond to changes in market trends and other
consumer preferences, especially now that consumers worldwide are becoming more
price and value conscious and many competitors are offering lower priced and
innovative products. This increasing price consciousness is putting pressure on
brand and product loyalty. The ongoing competitive nature of the apparel
industry and market trends present a continuous risk that new products or market
segments may emerge and compete with the Company's existing products and/or
markets.
The Company's business is also dependent on the quality of service the Company
provides to its customers. Retailers are striving to maintain lower inventory
positions and place orders closer in time to requested delivery dates.
Retailers are also demanding increasing levels of floor-ready and receipt-ready
programs and enhanced store merchandising support. As a result, the Company has
faced increasing pressure from worldwide retailers to improve its product
support and delivery performance. Additionally, the U.S. retail market has
changed in recent years, resulting in more centralized buying practices and
potentially greater credit exposures from customers.
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ORGANIZATION STRUCTURE
The Company's current operating structure consists of two principal
organizations: Levi Strauss North America (LSNA) and Levi Strauss International
(LSI).
LSNA encompasses the Company's businesses in the U.S., Canada and Mexico. As
part of a strategic initiative, the Company aligned its U.S. marketing divisions
according to the Company's Levi's(R), Dockers(R) and Brittania(R) brands (see
Strategic Initiatives section). The LSNA operating structure currently consists
of five principal marketing and/or operating divisions: Levi's(R), Dockers(R),
Canada, Mexico and Brittania Sportswear Ltd. The Levi's(R) division markets
jeans and jeans-related products for men, women and youth. The Dockers(R)
division markets Dockers(R) products and casual products for men, women and
youth. The Canada and Mexico divisions market mostly jeans, jeans-related
products and Dockers(R) products. Brittania Sportswear Ltd. markets the
Brittania(R) line of men's and women's jeans, tops and casual sportswear in the
U.S. Levi's(R) and Dockers(R) men's products are the Company's most important
source of U.S. sales and earnings.
LSI markets jeans and related apparel outside North America and is a major
source of operating income for the Company. LSI is organized along geographic
lines consisting of the Europe, Latin America and Asia Pacific divisions.
Europe is the largest LSI division in terms of sales and profits with the
Company's affiliates in Germany and Italy being the two largest contributors.
Asia Pacific is the second largest LSI division, principally due to the size of
its Japanese operations.
The following table presents U.S. and non-U.S. sales for 1994, 1993 and 1992.
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1994 1993 1992
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(In Millions)
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U.S. operations $3,721 $3,715 $3,483
Non-U.S. operations 2,353 2,177 2,087
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$6,074 $5,892 $5,570
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For additional financial information concerning the U.S. and non-U.S. operations
of the Company, see Note 2 to the Consolidated Financial Statements.
STRATEGIC INITIATIVES
The Company is continuing its process of examining and re-engineering various
aspects of its brand marketing, customer service and operations/distribution
strategies in response to current market and economic trends and in accordance
with its Business Vision (see Business Vision section). The Company believes
its initiatives are essential to staying competitive and meeting the changing
needs of its customers. Summaries of these initiatives are as follows:
Global Brand Alignment
The Company's strategy, as outlined in its Business Vision, is to position its
brands to ensure consistency of image and values to consumers around the world.
The Company is taking the following actions to implement this strategy:
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The Company aligned its U.S. marketing divisions according to the Company's
Levi's(R), Dockers(R) and Brittania(R) brands.
The Company is continuing to analyze its customer base and product
distribution in all markets to ensure that its retail distribution is
consistent with its brand image.
The Company is planning to operate retail stores in the U.S. that sell only
Levi's(R) and Dockers(R) brand products (see U.S. Company-Owned Retail and
Outlet Stores/Retail Joint Venture caption).
The Company's trademarks and brands differentiate its products from those of
competitors. Due to the increasingly global nature of the marketplace, brands
that are marketed in divergent distribution channels in different countries may
confuse retailers and customers and dilute the Company's brand image. To align
its global brand image, the Company is altering its distribution and marketing
procedures. Retailers may react adversely to changes in product distribution,
service levels or other aspects of their customer relationship with the Company.
However, the Company believes that consistent brand image, on a global basis, is
essential to its long-term success and attainment of overall objectives.
Customer Service
The Company believes that retailer expectations for service from manufacturers
are increasing in worldwide markets. These expectations and requirements relate
to all aspects of the relationship between the manufacturer and retailer.
Retailers want manufacturers to develop, deliver and replenish products faster,
deliver retail floor-ready merchandise, participate in retail floor product
presentation and provide ongoing support for the products on the retail floor.
Additionally, manufacturers are expected to establish information systems that
would be compatible with retailer systems and to coordinate invoicing and
payment methods, accordingly. The Company believes that superior customer
service, as well as its product development and marketing ability, will be an
essential element of competitive strength in the coming years. The Company is
engaged in various customer service initiatives in the U.S. and in many non-U.S.
businesses.
U.S. Customer Service Initiative
The Company is reorganizing and re-engineering its entire U.S. operations to
improve customer service, forge stronger relationships with its retail customers
and suppliers and reduce the time it takes to develop products and fill customer
orders. The reorganization will affect the Company's entire U.S. supply chain,
including product development, production and sourcing, sales and distribution
processes, and its information resource systems.
The Company is upgrading its national distribution network and regionally
linking its manufacturing, finishing and distribution facilities. This entails
the modernization, reconfiguration and expansion of facilities, including
purchases of new facilities and equipment. The Company plans to utilize several
regional customer service centers to carry core products and replenishable
seasonal products of each brand for each consumer segment. The Company also
intends to use a national center to store one-time seasonal products.
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Additionally, the Company's initiatives will require information system changes
to support the changes in its business processes, organization and distribution
network. Common data and on-line access for all parts of the supply chain are
critical to reducing leadtimes and building alliances with customers and
suppliers.
The Company's immediate reengineering efforts will focus on delivering
continuing products timely and accurately and delivering floor-ready products to
selected customers so they can make them available to consumers immediately. In
addition, the Company will then focus on changing the process for forging
relationships with suppliers and customers, developing new products, updating
continuing products, replenishing seasonal products, and offering products and
programs to assist customers in differentiating the Company's products from
competitor products.
Since 1993 and over the next several years, the Company plans to incur total
capital expenditures of over $400.0 million to support the new U.S. distribution
network, expanded system requirements, organization and manufacturing changes.
Included in this total capital expenditure projection is over $290.0 million
related to the construction, renovation and retrofitting of new and existing
customer service centers. The total capital expenditure projection amount
includes previously recognized capital expenditures of approximately $81.0
million.
Additionally, the Company plans to spend approximately $450.0 million for
transitional expenses, including costs related to the implementation of new
software applications, reengineering design and planning, implementation of
organization and process changes, training, education and other related
expenses. The total amount for transitional expenses include previously
recognized expenses of approximately $70.0 million. These costs will be
recognized ratably throughout the implementation period and/or as expenses
occur, depending on the nature of the cost and the decisions made related to
this initiative.
LSI Customer Service Initiatives
The LSI customer service initiatives began in late 1993 and encompasses the
Company's affiliates in the Europe, Latin America and Asia Pacific divisions.
The objective of the LSI initiatives is to build the capabilities within the LSI
organization to make customer service a competitive advantage. The LSI customer
service initiatives will be highly selective and focused with a varying degree
of impact and modification to affiliate organizations. It is too early to
determine the amount of capital expenditures and transitional expenses the
Company will incur for the LSI initiatives until the design phase is completed.
It is expected, however, that the total cost will be less than the costs for the
U.S. initiative. These initiatives are expected to be completed over the next
several years.
Rationalization of Supplier Base
In connection with the Company's initiative on customer service, the Company has
been analyzing its supplier base to establish relationships with a reduced
number of suppliers. This analysis involved identifying the Company's current
and future needs, assessing the Company's current suppliers, identifying the
suppliers that could best meet the Company's needs and developing strong
relationships with these suppliers. During 1994, the Company selected the U.S.
fabric and sundries suppliers that will support the U.S. Levi's(R) and
Dockers(R) product lines.
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The selected suppliers will be the primary suppliers the Company will do
business with in the future. The Company is currently working on transition
plans to transfer its fabric and sundries business to the selected suppliers
with minimal disruption to the Company and its suppliers (see Risks of Strategic
Initiatives section).
Alternative Manufacturing Systems
Alternative Manufacturing Systems (AMS) have been implemented in substantially
all of the Company's U.S. sewing plants. Similar programs have been implemented
in the Company's Canada and Brazil facilities. AMS is a team-based approach to
manufacturing, replacing the traditional assembly line. Team-based
manufacturing is designed to improve quality, increase flexibility and morale,
reduce absenteeism and turnover, shorten leadtimes, and decrease repetitive
motion related injuries. The intent of AMS is to enable the Company to respond
more quickly to retail accounts and market trends, while at the same time
reducing production costs. The Company's efforts have contributed to lowering
workers' health and safety costs. The Company continues to modify and refine
AMS in order to maximize benefits associated with the program.
Additionally, the Company continues to benefit from "F.A.S.T." in the U.S.,
which links specific sewing plants to certain finishing centers and customer
service centers to reduce leadtimes, address quality issues on a more timely
basis and decrease the response time in filling customer orders.
U.S. Company-Owned Retail and Outlet Stores/Retail Joint Venture
As part of its efforts to create consistent brand image, the Company is planning
to own and operate retail and outlet stores in the U.S. that sell only Levi's(R)
and Dockers(R) brand products. These stores will include Original Levi's(R)
Stores, Dockers(R) Shops and separate outlet stores, in all cases selling only
Levi's(R) or Dockers(R) products. The Company expects to open approximately 190
of these stores within the next five years. The Company plans to operate
flagship (premier) stores only in key markets and locations most able to help
the Company achieve its primary focus of maintaining a high brand image, such as
downtown urban locations and selected high visibility regional malls. The
Company plans to operate outlet stores dedicated to each brand in areas outside
major markets in key outlet malls. The Company expects to spend approximately
$90.0 million for capital expenditures during the next few years in connection
with this program.
This program is in addition to the plans the Company has with Designs, Inc. to
establish a joint venture that will own and operate, in the northeastern U.S.,
approximately 50 Original Levi's(R) Stores selling only Levi's(R) jeans and
jeans-related products. The Company will have a 30 percent equity interest in
the U.S. joint venture. Venture establishment was approved by the Federal Trade
Commission subsequent to year-end. The venture formed and began operations in
January 1995.
Risks of Strategic Initiatives
The Company is assuming substantial risks in undertaking these initiatives. For
example, it faces disruption of its ongoing business operations during
implementation. Management, other personnel and job definition changes may
distract employees and adversely affect employee
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morale. The Company may incur unplanned additional implementation costs, with a
resulting impact on cash flow and earnings.
The Company will face challenges in developing the information systems necessary
to support new business processes and customer service requirements. The
Company will rely on new materials handling technologies in the new customer
service centers, and must successfully integrate the software that operates the
equipment with its business systems. The Company must also successfully manage
the transition of employees to new positions and train them to meet the
requirements of those positions, including operating effectively in a more team-
based and technology-oriented environment. The changes will occur at the same
time the Company implements a new compensation program that is intended to align
employee efforts with overall Company strategies (see Partners in Performance
caption under Item 11. Director and Executive Compensation).
More broadly, these initiatives involve fundamental changes in the way the
Company operates its business. There are numerous commercial, operating,
financial, legal and other risks and uncertainties presented by the design and
implementation of such programs. Furthermore, the Company is not aware of
undertakings of comparable magnitude in the apparel industry, and cannot predict
with certainty the outcome of these initiatives. Although there can be no
assurance that the Company will successfully design and implement these new
business processes, or that the costs of these initiatives will not exceed
estimates, the Company believes that the re-engineering initiative is essential
to maintain its global competitive position. Additionally, the Company believes
it is important to implement these initiatives at a time when the Company's
market and financial performance is strong.
U.S. OPERATIONS
The Company's U.S. operations are currently organized by its Levi's(R),
Dockers(R) and Brittania(R) brands that, along with Canada and Mexico,
constitute the LSNA organization. Each U.S. division maintains its own
merchandising, sales and advertising staff.
Markets
The Company's current U.S. apparel market is directly affected by consumer
spending, the retail environment and competition. The recovering U.S. economic
environment is experiencing moderate inflation growth, relatively strong
consumer confidence and a strengthening employment situation. Consumer spending
is strong; however, apparel sales are still sluggish, and consumers remain price
sensitive and extremely "value" oriented. Retailers are responsive to consumer
spending patterns and are offering more private label products and demanding
higher levels of service and support from their vendors. Additionally,
competitors are also becoming more aggressive by offering lower priced products.
The Company's strategy in responding to current market conditions focuses on
brand positioning, sensitivity to fashion changes and consumer preferences,
brand enhancement, timely product development, innovative marketing activities
and enhanced relations with retailers and suppliers. As previously described,
superior customer service and efficient product development and manufacturing
are integral elements of the Company's business strategy.
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The U.S. jeans market in 1994 was stable with 1993 levels, with no real growth
expected in 1995. The Company continues to hold a significant market share in
the young men's market. Demand for finished jeans products (garments that have
been laundered or otherwise treated after assembly), including stonewashed and
other wet-processed garments, continues to increase. Over the years, jeans
demand by the male consumer has also included substitute products such as casual
slacks, shorts and fleecewear. The Company believes that these trends are in
part a function of the broad demographic changes noted above. The women's jeans
market tends to be more fragmented among major competitors than jeans for men.
In recognition of the ongoing changes in the jeans market, the Company continues
to add new designs, finishes, fabrications and colors to its traditional product
lines. Ongoing efforts are placed on coordinating with laundry contractors,
textile producers and other companies throughout the world to develop concepts
and processes to promote finishing development leadership and finished product
shade consistency. The growth in new product lines is reflected by the fact
that in 1994 traditional "rigid denim" products sold by the Levi's(R) men's and
youth brands provided 5 percent of total unit sales of those divisions, compared
to 68 percent in 1985.
The casual sportswear market is dynamic, characterized by continuous product
innovation and lower margins than those prevailing in the young men's jeans
market due to higher labor content. The sportswear market, like the jeans
market, is affected by demographic changes and changes in consumer lifestyles
and buying habits. Market research indicates that the male consumer remains
highly brand conscious and brand loyal, and more value-oriented, than the female
consumer who is more price conscious.
Products and Strategy
The Company manufactures and markets basic jeans, branded casual products and
jeans-related products in a wide range of moderately-priced apparel categories.
The 501(R) family of jeans, other basic denim jeans and related jeans products
have traditionally been the Company's key products. In addition to the 501(R)
products, the Levi's(R) men's brand also markets the Red Tab(TM), Orange Tab(TM)
and silverTab(TM) product lines. The Levi's(R) women's brand markets jeans and
knit and woven tops for the 501(R), Red Tab(TM), Orange Tab(TM) and
silverTab(TM) product lines. The Levi's(R) Youth brand markets jeans and casual
youthwear products for the 501(R), Orange Tab(TM), silverTab(TM) and Little
Levi's(TM) product lines. The men's Dockers(R) brand organization manufactures
and markets men's casual and dress slacks and men's knit and woven shirts, under
the Dockers(R) brand name and Levi's(R) Action and Levi's(R) Travelers product
lines. Both the women's and youth Dockers(R) brand markets casual sportswear
under the Dockers(R) product line. Brittania Sportswear Ltd. manufactures and
markets men's and women's jeans, tops and casual sportswear under the
Brittania(R) and Brittgear(TM) labels.
U.S. unit sales of the 501(R) family of jeans decreased 5 percent from 1993 and
decreased 21 percent when comparing 1993 with 1992. The decrease in unit sales
for the 501(R) family of jeans is related to the success of other Company jeans
products, such as Orange Tab(TM) and other Red Tab(TM) products. In addition,
this decrease also related to 501(R) family of products price increases and
various counter-diversion tactics (see Risks of Non-U.S. Operations caption).
The Company's dollar sales for total U.S. jeans offerings totaled approximately
$2.9 billion in 1994. The Company expects 1995 sales of products marketed by the
Levi's(R) men's brand to be relatively stable, compared with 1994.
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Levi's(R) jeans for women product line dollar and unit sales are expected to be
higher in 1995 compared to 1994 due to the offering of more tops, Orange Tab(TM)
products and special sizes. In addition, the line will add emphasis on the
misses market. The Levi's(R) jeans for women product line will be supported by
a new version of the "Women in Motion" advertising campaign in 1995. Levi's(R)
jeans for women are the number one selling jeans in the junior market.
The Company sells Levi's(R) for youth to the boys' and girls' markets.
Traditional blue denim and colored denim bottoms and shorts, loose silhouettes
and coordinating tops were prominent products sold by this division during 1994
and will continue in 1995.
The Dockers(R) product line was one of the most rapidly growing and successful
lines in the U.S. apparel industry since its introduction in 1986. However,
1994 sales of Dockers(R) products declined due to the Company's late entry into
the wrinkle-free market coupled with finishing capacity limitations for men's
Dockers(R) and the repositioning of the women's Dockers(R) business. Unit sales
of Dockers(R) products decreased 21 percent from 1993 and decreased 4 percent
when comparing 1993 with 1992. The Company's 1994 market share of the U.S.
casual market dropped slightly due to the late entry into the growing wrinkle-
free market. The Company expects that sales of Dockers(R) products will be
slightly higher in the 1995 fiscal year due to increased sales for wrinkle-
resistant products.
The Company's Dockers(R) men's product line and men's Levi's(R) loose-fitting
jeans represent a response to demographic and fashion changes. The Company
continues to expand the Dockers(R) product line with new product innovations.
"Performance cottons" include knit tops (made of fine quality cotton treated to
reduce fading, twisting and shrinking) and wrinkle-resistant products. Another
new product innovation entitled "well worn" includes products that are heavily
abraded and washed down. During 1995, the Dockers(R) brand will be
repositioning the Dockers(R) Authentics product line extension that was launched
early in 1994. This repositioning will specifically target men ages 25-30, the
younger end of the core Dockers(R) target market that are loyal Levi's(R) men's
jeans consumers. The revised positioning of the Dockers(R) Authentics product
line is intended to capture the attention of this consumer in department stores
by providing a shopping environment similar to the shopping environment for the
Company's men's jeans products. The products will be developed and marketed
similarly to men's jeans products, based on a narrow fit strategy with fabric
and finish variations.
The women's Dockers(R) product line has suffered from a very weak retail
environment for moderate sportswear products. The Company hopes to see long-
term benefits from its newly repositioned core pants strategy developed earlier
in 1994, which builds off the success of the men's Dockers(R) brand business.
However in the short-term, dollar and unit sales for women's Dockers(R) products
are expected to be slightly lower in 1995.
The Dockers(R) brand for youth markets casual bottoms and tops only in the boy's
market. During 1994 this division successfully introduced cotton wrinkle-
resistant bottoms.
Dollar sales of Levi's(R) men's jeans products accounted for 33 percent in both
1994 and 1993 and 31 percent in 1992 of the worldwide sales of the Company.
U.S. sales of non-jeans-related casual apparel products represented 14 percent,
19 percent and 21 percent of worldwide dollar
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sales in those years. For additional financial information on U.S. operations,
see Note 2 to the Consolidated Financial Statements.
The Brittania(R) brand represents the Company's presence in the growing mass
merchant channel. This channel currently comprises nearly half of the jeans
market. Brittania Sportswear Ltd. offers low-priced, high quality products to
major mass merchant accounts and is a component of the overall U.S. marketing
strategy. The Brittania(R) business is an independent business unit within LSNA
and in 1994 moved its headquarters to Renton, Washington. This decision was
intended to lower costs and strengthen the brand's competitive position in its
marketplace by centralizing operations, sourcing, marketing, accounts receivable
management and distribution functions.
Competition
The Company and its largest competitor in the U.S. jeans market, VF Corporation,
account for approximately one-half of the units sold in the U.S. jeans market.
The Company believes that the combined brand share of its Levi's(R) and
Brittania(R) products in the U.S. jeans market is second only to the combined
share of VF Corporation's four principal brands, Wrangler(R), Lee(R), Rustler(R)
and Lee Riders(R).
The casual apparel market for men and women is characterized by intense
competition, among manufacturers and retailers, and ease of entry for new
producers. Import competition is more prevalent in the casual apparel market
than in the jeans market. Apparel imports have generally lower labor costs and
may exert downward pressure on prices of casual wear products. This situation
is limited by U.S. trade policies that restrict apparel imports through quotas
and tariffs (see Global Sourcing section).
Cotton wrinkle-resistant slacks were introduced by competitors in 1993 and have
changed the casual pants market. Competitor wrinkle-resistant products (e.g.,
Haggar and Savane) are in direct competition with the Company's products.
However, wrinkle-resistant casual pant products offered in the Dockers(R)
product line in 1994 have been widely accepted by consumers due to their quality
(e.g., softness content) and the overall consumer confidence in the brand. (See
Products and Strategy caption.)
The Company is expecting its U.S. unit sales in 1995 to be slightly higher than
1994 due to the strength of the Levi's(R) women's and men's Dockers(R) brands,
despite value-conscious consumers and increased competition, particularly from
private-label products (e.g., Arizona Jean Company(R) brand by J.C. Penney
Company, Inc. and Anchor Blue(R) brand by Miller's Outpost).
Distribution
The Company distributes its products through retail stores that satisfy its
account selection criteria and sell directly to the retail consumer. The Company
does not sell its first quality "in season" products to wholesalers, jobbers or
distributors, and maintains a compliance program to enforce its distribution
policy and to control unauthorized diversionary sales of its products (see Risks
of Non-U.S. Operations caption). The principal channels of distribution of the
Company's products are department stores, specialty stores and national chains,
including J.C. Penney Company, Inc., Sears Roebuck & Co. and Mervyn's Inc. The
Company believes that industry leadership and brand strength of the Company's
core products are maintained through
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the use of traditional distribution channels. U.S. sales to the Company's top 5
retail customers represented 39 percent of total 1994 U.S. dollar sales. The
Company's top 25 customers accounted for approximately 66 percent of the
Company's total U.S. dollar sales. The Company has no long-term contracts or
commitments with any of its customers other than with its retail joint venture
partnership (see U.S. Company-Owned Retail and Outlet Stores/Retail Joint
Venture caption). The loss of any of these major customers could have an
adverse effect on the Company's results and operations. Retail accounts are
currently serviced by approximately 384 sales representatives for the U.S.
divisions.
The Company will also continue developing dedicated U.S. distribution channels,
such as stores that sell only Levi's(R) brand products (see Strategic
Initiatives section) and in-store shops at retailer locations, consistent with
its Business Vision (see Business Vision section).
The Company distributes Brittania(R) products principally through mass merchant
channels, including Kmart Corporation and Target Stores. These two customers
represent approximately 64 percent of Brittania Sportswear Ltd. total sales.
The loss of either of these customers could have an adverse effect on Brittania
Sportswear Ltd.'s results and operations, but not a material effect on the
Company's total results. Brittania Sportswear Ltd. has no long-term contracts
or commitments with any of its customers. Mass merchandisers comprise
approximately 6 percent of the Company's U.S. unit sales for jeans.
Advertising/Marketing
The Company devotes substantial resources to advertising and marketing programs.
In the United States, the Company advertises extensively on radio and television
and in national publications as well as on billboards and other outdoor
displays. It also participates in local co-operative advertising and visual
merchandising programs under which the Company shares advertising costs with
retailers.
In 1994, the Company launched a new 501(R) product line campaign entitled
"501(R) Mystery" and continued several advertising campaigns including a
campaign for loose-fitting jeans for both Levi's(R) men's and Levi's(R) youth
product lines. In addition, during 1994 the Dockers(R) brand launched national,
regional and outdoor advertising campaigns for men's, women's and youth
Dockers(R) products, respectively. In 1994, U.S. advertising expense was $233.5
million, a 5 percent decrease from 1993.
The Company is increasing its use of in-store "shop" presentations in which the
Company influences the way its products are presented at the retail level. The
Company assists retailers in displaying products in a manner intended to enhance
the product's image and promote its quality, and present a consistent brand
message directly to the consumer.
OPERATIONS OUTSIDE THE U.S.
Organization and Products
Operations outside the U.S. were the Company's most profitable businesses on a
per unit basis in 1994. Generally, businesses outside the U.S. record higher
gross profit as a percent of sales than businesses in the U.S., mostly due to
higher overall average unit selling prices. These operations are generally
organized by country, and manufacture and market jeans and related products
outside the U.S.
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Each country's operations within the Europe division are generally responsible
for certain marketing activities, sales, distribution, finance and information
systems. The European headquarters coordinates production, advertising and
merchandising activities for core products and also manages certain information
systems development activities. Merchandising and sourcing activities for non-
core products are decentralized and located in various individual countries.
Canada, Mexico (both included in the LSNA organization), and the countries of
the Latin America and Asia Pacific divisions are primarily staffed with their
own merchandising, sourcing, sales and finance personnel.
Sales for operations outside the U.S. are derived primarily from basic lines of
jeans (particularly the 501(R) product line, other Red Tab(TM) and Orange
Tab(TM) products), tops and other denim apparel. These operations sell directly
to retailers in established markets. Retail accounts are currently serviced by
approximately 399 sales representatives and 30 independent sales agents. Also,
in 1994, the Company continued the rollout of the Dockers(R) line of products in
Europe and New Zealand as well as continuing to offer Dockers(R) products in the
Philippines and Hong Kong. Dollar and unit sales of these products increased
substantially compared to 1993 due to the increased investment in this business
line in 1994.
Manufacturing and distribution activities for non-U.S. marketing divisions are
independent of the Company's U.S. operations. However, in 1994 non-U.S.
operations purchased $124.0 million of products from the Company's U.S.
divisions. This amount is expected to remain stable in 1995.
The Company explores and evaluates new markets on an ongoing basis. In 1994,
the Company commenced operations in India and announced plans to establish
operations in South Africa.
In 1994, net sales from non-U.S. operations were $2.4 billion compared to $2.2
billion in 1993. The Company believes its success in these markets reflects the
Company's brand image and reputation, the continuing focus on core jeans
products and the quality of its retail distribution, including stores that sell
only Levi's(R) products. Considering the continuous changing needs of customers
and consumers, and economic and trade developments (see Global Sourcing
section), there can be no long-term assurances that the Company will maintain
such profitability in these markets. For additional financial information
about non-U.S. operations see Note 2 to the Consolidated Financial Statements.
The Markets, Competition and Strategy
The Company markets products in over 40 countries. As in the U.S., demand for
jeans outside the U.S. is affected by a variety of factors that vary in
importance in different countries, including socio-economic and political
conditions such as consumer spending rates, unemployment, fiscal policies and
inflation. In many countries, jeans are generally perceived as a fashion item
rather than a basic, functional product and, like most apparel items, are
higher-priced relative to the U.S. The non-U.S. jeans markets are more
sensitive to fashion trends than the U.S. market.
Additionally, the retail industry differs from country to country. In certain
countries the Company's primary retail customers are large "chain" retailers
with centralized buying power. In other countries, the retail industry is
comprised of numerous smaller, less centralized shops.
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Some non-U.S. customers are stores that sell only the Company's products and are
independent of the Company. The Company distributes to approximately 1,100
stores outside the U.S. that sell only Levi's(R) brand products. These stores
are strategically positioned in prime locations around the world and offer a
broad selection of premium Levi's(R) products using special retail fixtures and
visual merchandising. Considering the increasingly competitive retail
environment, the Company believes these stores are of strategic importance in
enhancing the brand image of Levi's(R) products. To further enhance the
Levi's(R) brand image, the Company opened one owned and operated "flagship"
store in London during 1994 and plans to open two more stores in Milan and
Madrid in 1995.
Other general factors, including the relative strength or weakness of the U.S.
dollar and competition from local manufacturers, also affect the Company's
financial results in markets outside the U.S. The Company has the largest brand
share and strongest brand image in virtually all of its established non-U.S.
markets. There are numerous local competitors of varying strengths in most of
the Company's principal markets outside the U.S., but there is no single
competitor with a comparable global market presence. However, VF Corporation is
increasing its activity in markets outside the U.S.
In Europe, consumer demand has been less affected by demographic changes
compared to the U.S. Core denim jeans, especially the 501(R) family of
products, continue as key products in Europe and Canada. However, to meet the
service commitments the Company makes to its customers around the world, and
consistent with the customer service initiative in the U.S., the Company is
launching a customer service initiative for the non-U.S. divisions. (See
Strategic Initiatives section.)
Sales in the Asia Pacific division, particularly in Japan, have declined during
the current year, due to soft retail conditions as well as the introduction by
competitors of a lightweight rayon jean. However, sales in other Asia Pacific
affiliates, namely the Philippines and Korea, have increased. The Levi's(R)
brand continues to be the market share leader in Mexico. The Company's Latin
America division activities are mainly in Brazil.
Outside the U.S., advertising themes and strategies vary by country depending on
the culture in each country, while maintaining consistency with the global
positioning of the Levi's(R) brand. The Company utilizes media and point of
sale advertising outside the U.S. Additionally, the Company sponsors concerts
and events. Advertising expenditures for non-U.S. operations were $139.2
million in 1994, a 7 percent increase from 1993.
Risks of Non-U.S. Operations
The Company's non-U.S. operations, including its use of non-U.S. manufacturing
sources (see Global Sourcing section), are subject to the usual risks of doing
business outside the U.S. These risks include adverse fluctuations in currency
exchange rates, changes in import duties or quotas, disruptions or delays in
shipments and transportation, labor disputes, and socio-economic and political
instability. The occurrence of any of these events or circumstances could
adversely affect the Company's operations and results. The Company continually
evaluates the risk of non-U.S. operations when considering capital and
reinvestment alternatives. The Company also uses various currency hedging
strategies to mitigate the effects of currency fluctuations. In addition, it is
not possible to accurately predict the effect that changing political and
economic
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<PAGE>
conditions in Russia and Eastern Europe will have on the Company's ability to
expand those operations.
In many non-U.S. countries, the appeal of Levi's(R) products, particularly the
501(R) family of products, has generated higher prices than those in the U.S.,
which encourages diversion of Levi's(R) products. Accumulators usually buy
products in the U.S. and ship them to non-U.S. countries for sale at a higher
price, but lower than the retail prices charged by authorized retailers in those
countries. Diverters usually procure products in the U.S. at wholesale costs
and ship them to other countries for sale at a profit. These diversion tactics
reduce the availability of products for U.S. consumers and negatively affect the
Company's and retailers' results outside the U.S.
Higher average unit selling prices in the U.S. for certain products have
narrowed the pricing gap between certain U.S. and non-U.S. jeans products, thus
discouraging diversion. However, the risks of increasing prices in the U.S. for
certain products include retailer and consumer resistance to pricing that
exceeds their perception of the value of the Company's products. This is of
particular concern in an environment characterized by difficult economic
conditions and, in the U.S., increasing acceptance of lower priced or private
label products. Also, the Company's distribution policy requires retailers to
limit the number of certain jean products a customer can purchase in U.S.
metropolitan-area stores. The Company ceases business relations with retailers
known to cooperate with diverters.
Additionally, sales of counterfeit Levi's(R) products, mostly made in the
People's Republic of China, occur in key markets on a regular basis. The
Company is concerned about the loss of its reputation with consumers, who may
unknowingly buy counterfeit products, and damage to its business in those
markets. The Company actively searches for and investigates counterfeit
products. It seeks to protect its trademarks and has filed numerous legal
actions against counterfeiters.
The January 16, 1995 earthquake in Kobe, Japan did not affect the Company's
operations in Japan. However, some customers were affected. The Company does
not expect this event to materially impact the Consolidated Financial Statements
of the Company.
GLOBAL SOURCING
Apparel manufacturing in less-developed countries continues to affect global
apparel markets, including the U.S. market. These less-developed countries have
lower labor costs and, in some cases, such as in the production of shirts,
access to less expensive fabrics. The Company's U.S. owned and operated
manufacturing base is trying to stay competitive in jeans production by
achieving shorter leadtimes, production flexibility, meeting production
requirements through AMS (see Alternative Manufacturing Systems caption),
focusing on quality and aggressive cost reduction and productivity improvement.
The Company's imports into the U.S. have significantly increased in the past
seven years in response to overall sales growth in casual wear apparel. These
casual wear products require more sewing and construction time and are,
therefore, not as cost competitive when sourced from the Company's U.S. owned
and operated facilities.
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<PAGE>
In 1994 and 1993, approximately 50 percent and 54 percent, respectively, of the
apparel production units of the Company's U.S. operations were manufactured by
independent contractors. Approximately 45 percent of non-U.S. products in 1994
were manufactured by independent contractors, compared to 49 percent in 1993.
In 1994 and 1993, independent contractors were used for the finishing process
for approximately 70 percent and 72 percent, respectively, of the finished units
of U.S. operations. Approximately 53 percent and 55 percent of the finishing
process for non-U.S. finished units in 1994 and 1993 was performed by
independent contractors.
The Company has a few long-term contracts with certain of its manufacturing
sources and competes with other companies for production facilities and import
quota capacity. Although the Company believes that it has established close
relationships with its manufacturing sources, the Company's future success will
depend in some measure upon its ability to maintain such relationships and, more
broadly, to develop and implement a long-term sourcing plan.
The Company established its Global Sourcing Guidelines (GSG) to provide
direction for selecting contractors and suppliers that provide labor and/or
material utilized in the manufacturing and finishing of its products. These
guidelines address issues that contractors and suppliers can control, for
example, sharing the Company's ethical standards and commitment to the
environment, providing workers with a safe and healthy work environment,
maintaining fair employment practices and complying with legal requirements.
The GSG also prohibits operating in countries that would have an adverse effect
on global brand image or trademarks, expose employees or representatives to
unreasonable risks, violate basic human rights, or threaten the Company's
commercial interests due to political or social turmoil. The GSG possibly
limits some of the Company's sourcing options as well as its access to certain
lower cost production.
Textile trade policy of developed countries has increased the cost of importing
apparel products produced in countries with lower labor costs through quotas and
high tariffs. However, this protection of apparel manufacturers in developed
countries, particularly the U.S., Canada, Australia, the European Free Trade
Association countries and the European Economic Community (EEC), is gradually
being reduced.
The North American Free Trade Agreement (NAFTA) was effective January 1, 1994.
Quotas and tariffs will be phased out on specific goods of North American origin
over a six-to-seven year period. The effect of NAFTA on the sourcing of goods
to and from Mexico will have the most immediate impact on the Company. Once
NAFTA is fully phased-in, the impact on the Company will be an approximate 5 to
18 percent reduction of tariffs on apparel imports from Mexico, and a 20 percent
reduction in tariffs on apparel imports from the U.S. to Mexico.
On December 1, 1994, the U.S. Congress passed the legislation for the U.S.
approval of the General Agreement on Tariffs and Trade (GATT) Uruguay Round; the
agreement was implemented on January 1, 1995. The major provision of the
agreement, which may effect the Company, is the phase-out of the textile and
apparel quota system, the Multifiber Arrangement (MFA). Quotas will be
eliminated on textile and apparel products over a 10 year period. However, the
products selected for the first stage of the quota phase-out (1995-1997) do not
include basic apparel items such as pants and shirts. Therefore, the Company
does not expect
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<PAGE>
that the GATT phase-out of quotas will have an immediate impact on the Company's
sourcing decisions.
Trade legislation which may significantly impact the Company in 1995 would be
the passage of NAFTA-like preferential tariffs for the Caribbean Basin countries
(CBI countries). Legislation for "CBI parity" is likely to be brought before
the U.S. Congress in 1995. The Company sources units in CBI countries and is
assessed duties of 5-18 percent. If the CBI parity legislation were to pass
Congress in 1995, the Company would save between $20 million to $30 million in
annual duties paid to U.S. Customs.
RAW MATERIALS
The Company's primary raw materials include fabrics made from cotton.
Synthetics and blends of synthetics with cotton or wool are used in certain
product lines. Fabric is purchased mostly from U.S. textile producers for U.S.
operations, and from both U.S. and non-U.S. textile producers for operations
outside the U.S. Cone Mills Corp. and Burlington Industries supplied
approximately 29 percent and 14 percent, respectively, of the total volume of
fabrics purchased by the Company for U.S. operations in 1994. Cone Mills Corp.
and Dominion Textiles Incorporated (including Swift Manufacturing Co., its
wholly-owned subsidiary) supplied approximately 17 percent and 8 percent,
respectively, of the Company's fabric purchases for non-U.S. operations in 1994.
Cone Mills Corp. is the sole supplier of 01 denim, the fabric used in
manufacturing 501(R) jeans.
The Company has not recently experienced and does not expect any substantial
difficulty in obtaining raw materials. Its only long-term raw materials
contract with a principal supplier is with Cone Mills Corp. The loss of one or
more of the Company's principal suppliers could have an adverse effect on the
Company's results and operations. As part of its U.S. re-engineering effort,
the Company is rationalizing its supplier base to reduce the number of suppliers
it uses for certain fabrics. The Company also purchases large quantities of
thread and trim (buttons, zippers, snaps, etc.) but is not dependent on any one
supplier for such items.
UNSHIPPED ORDERS AND INVENTORIES
As of November 27, 1994, the Company's unshipped order position for all products
was approximately 105 million units, representing an increase of approximately
10 percent over the comparable date last year. The increase in unshipped orders
was primarily attributable to the U.S. brands in anticipation of stronger first
half 1995 U.S. sales.
The Company's finished goods inventory was approximately $494.6 million at year-
end 1994, which was below the prior year's level. (See Inventories caption
under Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations for additional information.)
Unit cancellations in 1994 decreased 15 percent from 1993, mostly due to
improved inventory management. Additionally, retailers were keeping less
inventory on hand and had been relying on suppliers to provide products on a
more timely basis. This practice by retailers resulted in the high number of
order cancellations in 1993. The Company's initiative on customer service is
expected to result in more accurate demand forecasting and reduced inventory
leadtimes, which in turn are expected to lower order cancellations.
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TRADEMARKS AND LICENSING AGREEMENTS
The Company has a general program concerning the protection and enforcement of
its trademark rights. The Company has registered the Levi's(R) trademark, one
of its most valuable assets, in over 150 countries. The Company owns and has
widely registered other trademarks that it uses in marketing jeans and other
products, the most important of which in terms of product sales are the 501(R),
Dockers(R), Pocket "TAB" Device and ARCUATE Design trademarks. The Company
vigorously defends its trademarks against infringement, including initiating
litigation to protect such trademarks when necessary.
The Company has licensing agreements permitting third parties to manufacture and
market Levi's(R) branded products in countries where the Company has elected not
to, or is unable to, manufacture or market on a direct basis. Additionally, it
has agreements permitting third parties to manufacture and distribute certain
other products, such as shoes, socks and belts, under the Levi's(R), Dockers(R)
and Brittania(R) trademarks.
SEASONALITY
The apparel industry in the United States generally has four selling seasons--
Spring, Summer, Fall and Holiday. New styles, fabrics and colors are introduced
on a regular basis, based on anticipated consumer preferences, and are timed to
coincide with these retail selling seasons. Historically, seasonal selling
schedules to retailers have preceded the related retail season by two to eight
months. Outside the U.S., the apparel industry typically has two seasons--
Spring and Fall. The Company's business is impacted by the general seasonal
trends that are characteristic of the apparel industry.
EMPLOYEES
The Company employs approximately 36,500 people, a majority of whom are
production workers. A substantial number of production workers are employed in
plants where the Company has collective bargaining agreements with recognized
labor unions. The Company considers its employees to be an important asset of
the Company and believes that its relationships with employees are satisfactory.
SOCIAL RESPONSIBILITY
Social responsibility is a matter of strong conviction on the part of the
Company. The Company has a longstanding commitment to equal employment
opportunity, affirmative action and minority purchasing programs. The Company
seeks to be an active corporate citizen in the communities in which it operates
and maintains a Worldwide Code of Business Ethics.
The Company has traditionally supported charitable social investment programs
and intends to maintain its historical practice of charitable giving. During
1994, the Company made a donation of $12.4 million to the Levi Strauss
Foundation. The Company also contributed $.3 million to support matching gifts
to the Red Tab Foundation, which was established to provide emergency financial
assistance to the Company's employees and retirees in the United States. The
Red Tab Foundation is currently in the process of expanding to non-U.S.
affiliates.
The Levi Strauss Foundation made current grant commitments totaling
approximately $9.2 million in 1994 and the Company made additional corporate
charitable contributions of $5.2 million, primarily for international programs.
These include grants in three community
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partnership giving (or staff-directed) areas: AIDS and Disease Prevention,
economic development (projects which seek to enhance the economic options and
opportunities of low-income individuals) and social justice (Project Change, a
race relations program in four U.S. communities). Also included are grants
through the Community Involvement Team program (in which groups of employees or
retirees volunteer their time to review local community needs and then develop
and implement projects to meet those needs), the Corporate Childcare Fund and
the Social Benefits Program (matching gifts and volunteer service programs).
Contributions by the Levi Strauss Foundation have averaged over $8.0 million for
each of the last three years.
BUSINESS VISION
The Company developed its Business Vision to identify its goals and provide
direction for prioritizing all its initiatives and strategies. The Business
Vision is as follows:
We will strive to achieve responsible commercial success in the eyes of our
constituencies, which include stockholders, employees, consumers,
customers, suppliers and communities. Our success will be measured not
only by growth in shareholder value, but also by our reputation, the
quality of our constituency relationships, and our commitment to social
responsibility. As a global company, our businesses in every country will
contribute to our overall success. We will leverage our knowledge of local
markets to take advantage of the global positioning of our brands, our
product and market strengths, our resources and our cultural diversity. We
will balance local market requirements with a global perspective. We will
make decisions which will benefit the Company as a whole rather than any
one component. We will strive to be cost effective in everything we do and
will manage our resources to meet our constituencies' needs. The strong
heritage and values of the Company as expressed through our Mission and
Aspiration Statements will guide all of our efforts. The quality of our
products, services and people is critical to the realization of our
business vision.
We will market value-added, branded casual apparel with Levi's(R) branded
jeans continuing to be the cornerstone of our business. Our brands will be
positioned to ensure consistency of image and values to our consumers
around the world. Our channels of distribution will support this effort
and will emphasize the value-added aspect of our products. To preserve and
enhance consumers' impressions of our brands, the majority of our products
will be sold through dedicated distribution, such as Levi's(R) Only-Stores
and in-store shops. We will manage our products for profitability, not
volume, generating levels of return that meet our financial goals.
We will meet the service commitments that we make to our customers. We
will strive to become both the "Supplier of Choice" and "Customer of
Choice" by building business relationships that are increasingly
interdependent. These relationships will be based upon a commitment to
mutual success and collaboration in fulfilling our customers' and
suppliers' requirements. All business processes in our supply chain--from
product design through sourcing and distribution--will be aligned to meet
these commitments. Our sourcing strategies will support and add value to
our marketing and service objectives. Our
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worldwide owned and operated manufacturing resources will provide
significant competitive advantage in meeting our service and quality
commitments. Every decision within our supply chain will balance cost,
customer requirements, and protection of our brands, while reflecting our
corporate values.
The Company will be the "Employer of Choice" by providing a workplace that
is safe, challenging, productive, rewarding and fun. Our global work force
will embrace a culture that promotes innovation and continuous improvement
in all areas, including job skills, products and services, business
processes, and Aspirational behaviors. The Company will support each
employee's responsibility to acquire new skills and knowledge in order to
meet the changing needs of our business. All employees will share in the
Company's success and commitment to its overall business goals, values and
operating principles. Our organization will be flexible and adaptive,
anticipating and leading change. Teamwork and collaboration will
characterize how we address issues to improve business results.
STATEMENT OF COMPANY MISSION AND ASPIRATIONS
The Company believes that shared goals are as critical to the Company's success
as providing quality products and service and being a leader in the apparel
industry. In order to identify and focus these shared goals, the Company
adopted the following "Statement of Mission and Aspirations":
Mission Statement
The mission of the Company is to sustain responsible commercial success as
a global marketing company of branded casual apparel. We must balance
goals of superior profitability and return on investment, leadership market
positions, and superior products and service. We will conduct our business
ethically and demonstrate leadership in satisfying our responsibilities to
our communities and to society. Our work environment will be safe and
productive and characterized by fair treatment, teamwork, open
communications, personal accountability and opportunities for growth and
development.
Aspirations for the Company
We want a Company that our people are proud of and committed to, where all
employees have an opportunity to contribute, learn, grow and advance based
on merit, not politics or background. We want our people to feel
respected, treated fairly, listened to and involved. Above all, we want
satisfaction from accomplishments and friendships, balanced personal and
professional lives, and to have fun in our endeavors.
When we describe the kind of company we want in the future what we are
talking about is building on the foundation we have inherited: affirming
the best of our Company's traditions, closing gaps that may exist between
principles and practices and updating some of our values to reflect
contemporary circumstances. In order to make our aspirations a reality, we
need:
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New Behaviors: Leadership that exemplifies directness, openness to
influence, commitment to the success of others, willingness to
acknowledge our own contributions to problems, personal accountability,
teamwork and trust. Not only must we model these behaviors but we must
coach others to adopt them.
Diversity: Leadership that values a diverse workforce (age, sex,
ethnic group, etc.) at all levels of the organization, diversity in
experience and a diversity in perspectives. We are committed to taking
full advantage of the rich backgrounds and abilities of all our people
and to promote a greater diversity in positions of influence.
Differing points of view will be sought; diversity will be valued and
honesty rewarded, not suppressed.
Recognition: Leadership that provides greater recognition--both
financial and psychic--for individuals and teams that contribute to our
success. Recognition must be given to all who contribute: those who
create and innovate and also those who continually support the day-to-
day business requirements.
Ethical Management Practices: Leadership that epitomizes the stated
standards of ethical behavior. We must provide clarity about our
expectations and must enforce these standards throughout the
corporation.
Communication: Leadership that is clear about Company, unit, and
individual goals and performance. People must know what is expected of
them and receive timely, honest feedback on their performance and
career aspirations.
Empowerment: Leadership that increases the authority and
responsibility of those closest to our products and customers. By
actively pushing responsibility, trust and recognition into the
organization we can harness and release the capabilities of all our
people.
The Company is providing Aspirations training to employees and attempts to hold
managers and employees accountable for behaviors that are in accordance with
these objectives.
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ITEM 2. PROPERTIES
The Company's headquarters are located at Levi's Plaza in San Francisco,
California. It currently leases approximately 627,000 square feet, of which
81,000 square feet is subleased to others. The Company owns approximately
204,000 square feet of office space adjacent to Levi's Plaza, commonly known as
the Icehouse Building. Currently 198,000 square feet of this office space is
used by the Company and approximately 6,000 square feet is being leased to
others. The Company also leases 137,000 square feet in other locations in San
Francisco and surrounding areas as well as 460,000 square feet in various parts
of the U.S.
The Company owns or leases 91 manufacturing, warehousing and distribution
facilities, aggregating to approximately 9,835,200 square feet, as shown in the
following table:
<TABLE>
<CAPTION>
Owned/(1)/ Leased Total
---------------------- ---------------------- ----------------------
Number Number Number
of Square of Square of Square
Facilities Feet Facilities Feet Facilities Feet
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing and
Warehousing:
U.S. 25 2,711,296 17 1,004,700 42 3,715,996
Non-U.S. 14 1,359,000 8 527,400 22 1,886,400
-- --------- -- --------- -- ---------
39 4,070,296 25 1,532,100 64 5,602,396
Distribution:
U.S. 5 2,195,946 2 480,875 7 2,676,821
Non-U.S. 3 520,700 17 1,035,300 20 1,556,000
-- --------- -- --------- -- ---------
8 2,716,646 19 1,516,175 27 4,232,821
Total 47 6,786,942 44 3,048,275 91 9,835,217
== ========= == ========= == =========
</TABLE>
_________________
/(1)/ Includes properties under capital lease.
The Company believes that its existing facilities are in good operating
condition. The amounts shown in the table include approximately 141,000 square
feet of manufacturing capacity and 667,246 square feet of distribution capacity
currently subleased to others or not in use. See Note 9 to the Consolidated
Financial Statements for additional information about material leases.
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ITEM 3. LEGAL PROCEEDINGS
The Company does not consider any pending legal proceeding to be material. In
the ordinary course of its business the Company has pending, various cases
involving contractual matters, employee-related matters, distribution questions,
product liability claims, trademark infringement and other matters. The Company
believes that these cases are not material in the aggregate in light of the
strength of its legal positions in such matters.
The Company evaluates environmental liabilities on an ongoing basis and, based
on currently available information, does not consider any environmental exposure
to be material to the Company's consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None, during the 1994 fourth quarter.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's outstanding Class L common stock is held primarily by members of
the families of certain descendants of the Company's founder and certain members
of the Company's management. Class E common stock is currently held by the
trustee for the Employee Investment Plan of Levi Strauss Associates Inc.
("EIP"), the Levi Strauss Associates Inc. Employee Long Term Investment and
Savings Plan ("ELTIS") and employees who purchased stock through the Employee
Stock Purchase and Stock Award Plan of Levi Strauss Associates Inc. (ESAP) (see
Note 12 to the Consolidated Financial Statements). There is no established
public trading market for either class of common stock and no shares of common
stock are convertible into shares of any other classes of stock or other
securities. All holders of Class L common stock are parties to, and bound by,
an agreement restricting transfer of the Class L common stock. Additionally,
management Class L stockholders are parties to contracts with the Company
providing for in-service, employment separation-related and post-separation
stock purchases (see Note 17 to the Consolidated Financial Statements for
information relating to the Management Liquidity Program). The outstanding
shares of Class E common stock are subject to restrictions on transfer imposed
by the EIP, ELTIS and ESAP. On January 16, 1995, there were approximately 203
Class L stockholders and 1,204 Class E stockholders.
See Note 20 to the Consolidated Financial Statements for stock valuation and
dividend information.
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ITEM 6. SELECTED FINANCIAL DATA
The following table presents historical income statement data and balance sheet
data of the Company for the past five fiscal years. This data has been derived
from the consolidated financial statements of the Company, which have been
audited by Arthur Andersen LLP, independent public accountants. Unless otherwise
indicated, references to years in this Form 10-K refer to the fiscal years of
the Company.
<TABLE>
<CAPTION>
Fiscal Year/(1)/
----------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(Dollars in Millions Except Per Share Data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $6,074.3 $5,892.5 $5,570.3 $4,902.9 $4,247.2
Stock option charge -- -- 158.0 -- --
Operating income 969.1 851.7 677.4 750.0 622.3
Interest expense 19.8 37.1 53.3 71.4 83.0
Income before
extraordinary loss and
cumulative effects of
changes in accounting
principles 557.5 492.4 360.8 366.5 264.9
Net income 321.0 492.4 360.8 356.7 251.2
Income available for
common stockholders 321.0 492.4 358.9 345.1 243.3
Net income per common
share before extraordinary
loss and cumulative effects
of changes in accounting
principles 10.59 9.38 6.91 6.44 4.28
Net income per common
share 6.10 9.38 6.91 6.26 4.05
Cash dividends declared
per common share 1.30 1.10 3.40 .20 .70
BALANCE SHEET DATA:
Total assets 3,925.3 3,108.7 2,880.7 2,633.4 2,389.9
Long-term debt and
capital lease obligations 16.7 93.1 262.0 432.7 158.7
Redeemable Series A
preferred stock -- -- -- 82.0 81.9
Employee Stock Purchase and
Award Plan common stock 49.7 33.5 16.4 -- --
Management Liquidity
Program common stock 138.6 -- -- -- --
Stockholders' equity 1,471.6 1,251.0 768.2 558.3 641.3
- ---------------
</TABLE>
/(1)/ Fiscal years 1994 and 1993 each contained 52 weeks and ended on November
27, 1994 and November 28, 1993, respectively. Fiscal year 1992 contained
53 weeks and ended on November 29, 1992. Fiscal years 1991 and 1990 each
contained 52 weeks and ended on November 24, 1991 and November 25, 1990,
respectively.
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following summary of results of operations, financial condition and
liquidity discusses data contained in the Consolidated Financial Statements of
the Company. The discussion focuses on 1994, 1993, and 1992 comparisons and
includes analyses of major components of net income, specific balance sheet
items, liquidity and capital resources. (Fiscal years 1994 and 1993 each
contained 52 weeks, while fiscal year 1992 contained 53 weeks.)
RESULTS OF OPERATIONS
Summary
During 1994, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 106 "Employers' Accounting for Postretirement Benefits Other Than
Pensions" and SFAS No. 109 "Accounting for Income Taxes" (see Notes 3 and 11 to
the Consolidated Financial Statements). The after-tax net impact of this
adoption reduced 1994 net income by $236.5 million. Excluding the effects of
adopting both SFAS Nos. 106 and 109, the Company would have achieved record net
income results, exceeding 1993 net income by 13 percent.
Net income for 1994 was $321.0 million, a decrease of 35 percent from 1993.
Contributing to 1994 net income were record sales, lower cost of goods sold,
higher other operating income and lower interest expense. These favorable
results were more than offset by the adoption of SFAS No. 106, higher marketing,
general and administrative expenses and greater 1994 net foreign currency
transaction losses.
Net income for 1993 increased $131.6 million from 1992 mostly due to a stock
option charge that negatively affected 1992 net income (see Stock Option Charge
caption). Excluding the effects of the stock option charge, 1993 net income
would have increased $16.6 million from 1992, due to higher 1993 sales volume, a
lower effective tax rate and lower interest expense. The 1993 net income
increase was partially offset by lower other operating income compared to 1992.
Net income for fiscal year 1995 is expected to be higher than 1994 mostly due to
the negative effect of adopting SFAS No. 106 in 1994. The Company expects
dollar sales in 1995 to increase only slightly due to continued consumer price
sensitivity and value consciousness. Additionally, planned costs in 1995
associated with the Company's U.S. initiative on customer service will also
affect net income (see Additional Information section).
Net Sales
Record dollar sales for 1994 of $6.1 billion increased 3 percent over the prior
year amount of $5.9 billion mostly due to a 6 percent increase in average unit
selling prices that offset a 3 percent decrease in unit sales. Contributing to
the 1994 results were record dollar and unit sales performances by the Europe
division and the U.S. Levi's(R) brand product line. Sales in 1993 increased 6
percent over 1992 sales of $5.6 billion due to record 1993 unit sales and higher
average unit selling prices. Additionally, fiscal years 1994 and 1993 each
contained 52 weeks compared to 53 weeks in 1992.
26
<PAGE>
U.S. dollar sales of $3.7 billion for 1994 were flat with the previous year due
to a 5 percent increase in average unit selling prices that was offset by a 5
percent decrease in unit sales. Contributing to these results were record
overall dollar and unit sales in the Levi's(R) brand product line that were
offset by lower dollar and unit sales in the Dockers(R) product line. The U.S.
Levi's(R) brand achieved record dollar sales for the Levi's(R) men, women and
youth product lines. The Dockers(R) product line decrease reflected finishing
capacity limitations during 1994 for wrinkle-resistant bottoms and the
repositioning of the women's Dockers(R) product line. In the U.S., the
Company's top 25 retail customers currently account for approximately 66 percent
of dollar sales, which represents a 2 percentage point increase over the
previous two years. U.S. dollar sales in 1993 of $3.7 billion increased 7
percent over 1992 mostly due to higher average unit selling prices.
Record dollar sales outside the U.S. of $2.4 billion for 1994 increased 8
percent over the 1993 amount of $2.2 billion substantially due to record dollar
and unit sales in the Europe division, principally higher results by the
Company's affiliates in Italy and Germany. Dollar sales for the Asia Pacific
division were flat compared to the prior year mostly due to the slow economic
recovery, increased product competition (particularly private label) and a
market shift to lower margin products, all occurring in Japan. Dollar sales
outside the U.S. of $2.2 billion in 1993 increased 4 percent over 1992 due to an
increase in unit sales.
Total Company dollar and unit sales for 1995 are expected to increase slightly
from 1994, due to projected increases in dollar and unit sales for the Europe
division, U.S. Levi's(R) women's brand and U.S. Dockers(R) men's brand.
Gross Profit
As a percent of sales, the 1994 gross profit percentage of 40 percent was two
percentage points higher than 1993 and 1992. In dollars, 1994 gross profit
increased 8 percent compared to the prior year period, primarily due to lower
U.S. production costs and higher overall average unit selling prices. Gross
profit for 1993, in dollars, increased 5 percent from 1992 due to higher average
unit selling prices and unit sales.
Lower 1994 U.S. production costs reflected the reversals of $85.9 million of
1994 and prior years workers' health and safety cost accruals. New state
workers' compensation legislation in Texas, the Company's safety programs and
alternative manufacturing systems implementation all had a positive effect on
lowering workers' health and safety costs. These adjustments were partially
offset by 1994 charges of $31.9 million for ongoing postretirement benefit
expenses related to SFAS 106 (see Postretirement Benefits caption). In response
to consumer demand for lower priced products, gross profit was additionally
impacted by the U.S. men's Levi's(R) brand producing a higher percentage of
lower margin Orange Tab(TM) products and a lower percentage of certain higher
margin silverTab(TM) and 501(R) products compared to 1993. This trend is
expected to continue in 1995.
The businesses outside the U.S. continue to record higher gross profit as a
percent of sales than businesses in the U.S., mostly due to higher overall
average unit selling prices. Additionally, compared to the U.S., the non-U.S.
businesses sell a greater proportion of higher margin denim bottoms
(predominately 501(R) and Red Tab(TM) products). The 1994 gross margin
percentage for the businesses outside the U.S. was flat compared to the prior
year period. Higher gross margin
27
<PAGE>
percentages in the Company's affiliates in the Far East (principally Korea and
the Philippines) offset inventory markdowns for basic denim products in Japan.
The markdowns resulted from a change in consumers' preferences from heavy weight
basic denim products to more light-weight denim/rayon blend products. (See
Inventories caption for additional information.)
The businesses outside the U.S. contributed 39 percent of total Company dollar
sales, compared to 37 percent for 1993 and 1992. Additionally, the non-U.S.
businesses represented 50 percent of the Company's 1994 profit contribution
before corporate expenses and taxes, compared to 54 percent in 1993 and 53
percent in 1992. The lower 1994 profit contribution percentage was primarily
due to lower 1994 U.S. production costs compared to 1993.
Marketing, General and Administrative Expenses
As a percentage of sales, marketing, general and administrative expenses of 25
percent for 1994 was 1 percentage point higher than 1993 and 1992. Marketing,
general and administrative expenses, in dollars, for 1994 increased 7 percent
over 1993. This increase was mostly due to higher administrative, selling and
information resource expenses. Marketing, general and administrative expenses
in 1993 increased 6 percent over 1992 due to higher advertising, administrative,
marketing and information resource expenses.
Administrative expense for 1994 increased 12 percent from the comparable 1993
period mostly due to compensation expense related to the adoption of the
Management Liquidity Program (see Management Liquidity Program caption for
additional information), expenses related to customer service initiatives in the
U.S., higher earnings-related compensation costs and varied costs from non-U.S.
affiliates. Administrative expense for 1993 increased 8 percent from 1992
mostly due to volume related commissions expense and higher office facility
costs.
Selling expense for 1994 increased 22 percent over 1993 primarily due to higher
1994 sales and increased staffing required to support new and existing product
lines in the U.S. Selling expense for 1993 increased slightly over 1992.
Marketing expense for 1994 decreased 1 percent from 1993. Marketing expense for
1993 increased 7 percent from 1992, primarily due to additional U.S.
merchandising personnel and higher costs associated with the use of sample
products in the U.S.
Information resource expense for 1994 increased 8 percent compared to the prior
year primarily due to increased compensation and professional fees incurred in
connection with the Company's U.S. initiative on customer service. Information
resource expense for 1993 increased 8 percent from 1992 due to higher lease
costs related to certain telecommunications equipment and depreciation related
to new mainframe computer equipment. The majority of systems and software costs
related to the Company's U.S. initiative to improve customer service are not
expected to occur until 1995 and 1996 (see Additional Information section).
Advertising expense for 1994 decreased 1 percent from the prior year mostly due
to planned reductions in media production expenditures and cooperative
advertising in the U.S. that were partially offset by increased advertising
expense for the Company's affiliates in Germany and Korea. Advertising expense
for 1993 increased 8 percent over 1992 substantially due to U.S.
28
<PAGE>
and Europe advertising campaigns and increased point-of-sale and media
advertising in Europe. (See Business section, under Item 1, for additional
information.)
Stock Option Charge
During 1992, the Company offered a special payment arrangement under the 1985
Stock Option Plan to facilitate the exercise by optionholders of their
outstanding options. As a result of this arrangement, holders of 65 percent of
all outstanding options participated in this arrangement and the Company
recognized a pre-tax stock option charge of $158.0 million for all outstanding
options during 1992. Separately, the Company also recorded compensation expense
for related exercise bonuses and the accelerated use of presently non-vested
options. Additionally, the Company disbursed $41.9 million to pay related
withholding taxes for optionholders and $4.4 million for related exercise
bonuses. A total of 532,368 shares of Class L treasury shares were reissued and
392,755 shares of treasury stock were retired. There were 499,749 options still
outstanding and exercisable after this transaction.
The net change in Stockholders' Equity in 1992 due to these stock option
transactions (including the after-tax effect of the stock option charge) was an
increase of $9.2 million.
Other Operating (Income) Expense, Net
Other operating income, net for 1994 increased $28.9 million from 1993 mostly
due to expenses incurred in 1993 for idle facilities, relocation of certain
operations and costs recognized for a decline in value on existing capital
assets as a result of the Company's U.S. initiative to improve customer service.
Additionally, the Company recorded higher 1994 licensee income. The operating
income increase was partially offset by the recognition in 1994 of costs
associated with environmental-related soil remediation of a facility previously
owned by the Company and income recognized in 1993 from joint ventures. There
was no joint venture income in 1994 due to the consolidation of certain joint
ventures (see Inventory caption for additional information).
Other operating expense, net for 1993 increased $14.3 million from 1992 mostly
due to costs recognized for a decline in value on existing capital assets
related to the Company's U.S. initiative to improve customer service, costs
related to idle facilities, relocating certain operations and establishing new
operations outside the U.S.
Interest Expense
Interest expense decreased 47 percent from 1993 primarily due to lower 1994
average debt balances. Interest expense in 1993 was 30 percent lower than 1992
due to lower interest rates and lower average debt balances. Cash flows from
operations were used to reduce debt levels over the last two years, resulting in
the lower average debt balances. (See Liquidity and Capital Resources caption
for additional information.)
The average interest rate in 1994 was approximately 18 percent compared to 9
percent in 1993 and 10 percent in 1992. The increase over last year reflects
the high interest markets of non-U.S. countries where most of the Company's debt
resides. The average interest rate also reflects the negative impact of the
Company's use of interest rate swap transactions (which were all terminated by
the end of 1994) to hedge interest rate fluctuations. The interest rate swap
transactions were cancelled due to lower average U.S. debt levels. The gains
and losses
29
<PAGE>
recognized from these cancellations were recorded as other (income) expense,
net. (See Note 6 to the Consolidated Financial Statements.)
The Company expects 1995 interest expense related to borrowings to be lower than
1994 due to anticipated lower 1995 average debt levels (see Liquidity and
Capital Resources caption).
Other (Income) Expense, Net
Other expense, net increased $35.1 million in 1994 from the prior year period
mostly due to greater 1994 net foreign currency transaction losses and costs
associated with foreign currency exchange contracts. The net foreign currency
transaction losses were mostly due to the weakening of the U.S. dollar compared
to European currencies and the Japanese Yen during 1994. (See Notes 1 and 7 to
the Consolidated Financial Statements regarding foreign currency exchange
contracts.) Additionally, higher 1994 translation losses were recorded by the
Company's affiliate in Turkey, which operates in a high inflationary
environment. Higher 1994 interest income on investments partially offset the
increase in 1994 other expense, net.
The $6.7 million increase in other income, net for 1993 compared to 1992 was
primarily attributable to lower interest rate swap termination costs and fewer
terminations of lease agreements with tenants. The increase was partially
offset by lower interest income on investments.
Provision for Taxes
The increase in the 1994 provision for taxes compared to 1993 was due to higher
1994 earnings. The 1994 effective tax rate was 40 percent compared to 41
percent in 1993 and 43 percent in 1992. The lower 1994 rate was primarily due
to a change in the mix of U.S. and non-U.S. earnings, lower state taxes and a
decrease in taxes on undistributed earnings of non-U.S. subsidiaries.
The increase in the 1993 provision for taxes compared to 1992 was substantially
due to lower 1992 earnings caused by the stock option charge. The 1993
effective tax rate was 41 percent compared to 43 percent in 1992. The reduction
in the 1993 effective tax rate from 1992 was primarily due to the mix of non-
U.S. and U.S. earnings and the negative effects of the one time stock option
charge in 1992. The stock option charge produced a tax benefit of only 27
percent because of its negative impact on the utilization of foreign tax credits
in 1992. In addition, the 1993 effective tax rate would have been lower, except
for the 1993 U.S. tax bill that increased the U.S. statutory tax rate to 35
percent from 34 percent and, therefore, resulted in a 1 percent increase to the
Company's 1993 full year effective tax rate.
The Company complied with the provisions of SFAS No. 109 "Accounting for Income
Taxes", which requires an asset and liability approach for financial accounting
and reporting of income taxes as of November 29, 1993. The adoption resulted in
an $11.9 million credit to income, which was recorded as a cumulative effect of
changes in accounting principles on the Consolidated Statements of Income. Upon
adoption, deferred tax assets and deferred tax liabilities were adjusted
accordingly. (See Note 3 to the Consolidated Financial Statements for
additional information.)
30
<PAGE>
Postretirement Benefits
The Company recorded a one-time, non-cash charge against earnings of $402.3
million before taxes and $248.4 million after taxes due to the adoption of SFAS
No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions"
effective November 29, 1993. This charge was recorded as a cumulative effect of
a change in accounting principles, net of income tax effects, on the
Consolidated Statements of Income with a corresponding amount recorded to
employee related benefits on the Consolidated Balance Sheet. The adoption of
SFAS No. 106 also resulted in additional ongoing expenses for service and
interest costs related to postretirement benefits, which were $43.0 million in
1994 (see Note 11 to the Consolidated Financial Statements).
FINANCIAL CONDITION AND LIQUIDITY
The following discussion compares the liquidity position and certain balance
sheet items of the Company as of year-end 1994 and 1993.
Trade Receivables
Trade receivables increased 6 percent from 1993 reflecting record fourth quarter
1994 dollar sales. This increase included higher non-U.S. trade receivables as
a result of increased dollar sales in the Company's affiliates in Italy and
Germany. As a percent of sales, trade receivables for year-end 1994 decreased 4
percent from 1993 due to improved collections as a result of the recovering U.S.
economic environment.
Inventories
Inventories at year-end 1994 decreased 1 percent from the prior year period
reflecting a 6 percent decrease in U.S. inventories that was mostly offset by an
11 percent increase in non-U.S. inventories. Inventory turnover for 1994
increased 6 percent from 1993 mostly resulting from sales outpacing inventory
growth in the U.S. Levi's(R) brand.
The reduction in U.S. inventories was due to lower Levi's(R) and Brittania(R)
product line inventories that were partially offset by higher Dockers(R) product
line inventories. The Company's efforts to reduce inventory levels, including
improved production planning, resulted in the lower Levi's(R) brand inventories
at year end. Levi's(R) brand inventories are expected to rise during the first
half of 1995 to meet anticipated demand. The impact of longer leadtimes on
wrinkle-resistant products in 1994 and an anticipated increase in sales during
the first half of 1995 caused the men's Dockers(R) brand work-in-process
inventories to increase during 1994 from year-end 1993.
The increase in inventories outside the U.S. was mostly due to higher projected
1995 sales demand (consisting primarily of denim bottoms) in the Company's
affiliates in Italy and Germany. In addition, inventories in the Europe
division grew in 1994 due to the consolidation of entities that were previously
accounted for by the equity method of accounting.
Inventories in Japan at year-end 1994 were relatively flat compared to 1993.
During 1994, the Company's Japanese affiliate shifted some of its product mix to
denim/rayon blend products in response to a change in consumers' preferences
from basic denim products to light-weight products. As a result of this shift,
inventory markdowns for basic denim products were recorded in Japan during 1994.
The Company is monitoring inventory levels in Japan for 1995.
31
<PAGE>
At year-end 1994, unshipped orders were 10 percent above the previous year and
order cancellations decreased 15 percent from 1993, both mostly due to stronger
anticipated first half 1995 sales in the U.S.
Property, Plant and Equipment
Property, plant and equipment, net for 1994 increased 13 percent from year-end
1993 due to capital expenditures that were partially offset by depreciation
expense during the period. Capital expenditures were $176.4 million in 1994 and
$142.8 million in 1993.
Approximately $71.0 million of 1994 capital expenditures was related to the
Company's U.S. initiative on customer service primarily for the purchase of land
and equipment, and design and engineering costs, for one remodeled and two new
customer service centers. Additionally, U.S. business expenditures included
equipment and leasehold improvements in connection with the data center
relocation outside of California, in accordance with the Company's disaster
recovery plan.
Outside the U.S., a significant portion of capital expenditures were for the
construction of a distribution and administrative office facility and purchase
of new equipment in Germany. This facility is being built to both modernize
work processes and respond to changing customer service needs. Other capital
expenditures outside the U.S. included distribution facility upgrades in France
and Italy, water treatment upgrades for European manufacturing and finishing
facilities, and ongoing expenditures to support non-U.S. affiliates needs.
At year-end 1994, the Company had capital expenditure purchase commitments
outstanding of approximately $249.5 million. Approximately 89 percent of these
commitments are related to the Company's U.S. initiative on customer service and
approximately 6 percent are for other equipment needs in North America. The
remaining commitments are for worldwide general office and facilities needs.
During 1994, the Company negotiated and signed an equipment contract with
Computer Aided Systems, Inc. relating to the purchase and installation of
materials handling systems (including research and development activities) for
the new U.S. customer service centers. Additionally, the Company negotiated and
signed a design, engineering, procurement and construction services agreement
with Fluor Daniel, Inc. relating to the design and construction of the U.S.
customer service center buildings.
The Company anticipates authorizations for capital expenditures of approximately
$196.0 million for new 1995 projects. Spending on projects during the 1995 year
(which included authorizations from previous years) is expected to be $353.0
million, including approximately $207.0 million related to the Company's U.S.
initiative on customer service. Spending requirements have not yet been
determined for the Levi Strauss International (LSI) customer service
initiatives. (See Additional Information section).
Working Capital
Working capital of $1.6 billion at the end of 1994 increased $550.4 million from
year-end 1993 with the current ratio increasing to 2.4 from 1.9. The increase in
working capital was substantially due to higher cash and cash equivalents from
operations.
32
<PAGE>
Liquidity and Capital Resources
The increase of $560.6 million in cash and cash equivalents from year-end 1993
was mostly due to cash provided by operations that was partially used for
purchases of property, plant and equipment and the net repayment of debt.
Remaining cash balances were invested in money market interest bearing
investments maturing under one year. Additionally, the Company anticipates
utilizing a portion of this cash in 1995 to fund costs relating to its global
initiatives on customer service and other capital expenditure projects (see
Additional Information section).
During 1994, the Company renegotiated and amended its primary credit agreement
to reduce its $500.0 million unsecured working capital facility to a $200.0
million 364 day revolving line of credit, which is convertible at the option of
the Company into a three-year term loan. This amendment reflects the lower
financing needs of the Company. Also during 1994, the Company repaid $50.0
million on its working capital loan and repaid its second and third series of
dividend notes payable to Class L stockholders totaling $38.6 million, plus
accrued interest of $2.0 million. At November 27, 1994, the Company had no
borrowings outstanding on its primary credit agreement. At year-end 1994, the
Company's total outstanding debt balance was $66.4 million (mostly outside the
U.S.), 54 percent lower than year-end 1993.
Subsequent to year-end, the Company repaid its fourth and final series of
dividend notes to Class L stockholders for an aggregate amount of $20.6 million,
plus interest accrued of $1.9 million (see Notes 6 and 22 to the Consolidated
Financial Statements for additional information).
The Company uses forward and option currency contracts to reduce the risks of
foreign currency fluctuations on its non-U.S. dollar denominated operations.
The Company's market risk is directly related to fluctuations in the currency
exchange rates. The Company's credit risk is limited to the currency rate
differential for each agreement if a counterparty failed to meet the terms of
the contract. These instruments are executed with credit worthy financial
institutions and the Company does not anticipate nonperformance by any
counterparties. (See Notes 1 and 6 to 8 to the Consolidated Financial
Statements for additional information.)
For information regarding the sale of Class E common stock to the Company's
employee investment plans, see Note 12 to the Consolidated Financial Statements.
Stock Appreciation Rights Grant
In November 1994, the Board of Directors granted 90,000 stock appreciation
rights (SARs) to certain executives at an initial grant value of $129 per SAR.
In addition, stock based awards, based on a valuation of $129 per share, were
granted to two of the five most highly compensated executive officers of the
Company. These executives were given the choice to receive 40,000 SARs each or
participate in a Class L stock purchase arrangement in which the Company would
loan each of these two executives approximately $4.9 million to purchase Class L
stock. These executives have until the end of April 1995 to make their
decision. (See Note 15 to the Consolidated Financial Statements.)
Repurchase of Class L Common Stock
During the first quarter of 1994, the Company purchased 83,949 shares of Class L
common stock, for a total of $9.6 million, held by certain management
stockholders that have left the
33
<PAGE>
employment of the Company. The purchase price of $114 per share was the
appraised value as determined by a valuation obtained in November 1993 from an
independent investment banking firm for the Company's employee stock plans.
(See Note 20 to the Consolidated Financial Statements.)
Management Liquidity Program
During 1994, the Board of Directors and stockholders approved a stock liquidity
program (the "Liquidity Program") for management holders of Class L common
stock. The Liquidity Program allowed the Company to enter into contracts with
then-existing management holders of Class L common stock relating to in-service,
employment separation-related and post-separation stock purchases. Holders of
1,047,280 shares of Class L common stock (including outstanding options)
participate in this program. They may annually sell a specified amount of their
stock to the Company, subject to certain limitations and conditions. The
program also entitles the Company to purchase all of the shares held by a
management holder at the time of separation from employment.
Participating shares were classified on the balance sheet "outside" of
stockholders' equity due to the liquidity feature. As a result of this
Liquidity Program, the Company incurred a pre-tax compensation expense for
participating stock options and related exercise bonus of $6.0 million and $13.2
million, respectively, (based on the current appraised stock value of $134 per
share). In addition, the Company reclassified common stock outside of
stockholders' equity of approximately $138.6 million and recorded a reduction in
stockholders' equity of approximately $132.6 million. Future changes in the
stock valuation will result in periodic adjustments to compensation expense for
participating stock options, participating share balances and retained earnings.
Actual purchases of stock by the Company under the Liquidity Program will result
in cash outflows.
Subsequent to year-end, the Company repurchased and subsequently retired 70,842
shares of management Class L common stock, pursuant to the Liquidity Program, at
the current appraised stock value of $134 per share totaling $9.5 million. (See
Note 17 to the Consolidated Financial Statements.)
Payment of Dividends on Common Stock
In June 1994, the Board of Directors declared a dividend of $.65 per share
(totaling $.9 million), which was paid on August 31, 1994 to Class E
stockholders of record on July 29, 1994. On November 17, 1994, the Board of
Directors declared a dividend of $.65 per share (totaling $.9 million), which
was paid on December 15, 1994 to Class E stockholders of record on December 1,
1994. There were no dividends declared on Class L common stock during 1994.
(See Notes 20 and 22 to the Consolidated Financial Statements for additional
information.)
ADDITIONAL INFORMATION
Strategic Initiatives
The Company is continuing its process of examining and re-engineering various
aspects of its brand marketing, customer service and operations/distribution
strategies. These initiatives include: aligning the Company's U.S. marketing
divisions according to its Levi's(R), Dockers(R) and Brittania(R) brands,
developing a customer base and product distribution system that is consistent
with its brand image, reconfiguring the organization from a functional to a
process
34
<PAGE>
orientation, implementing a team-based approach to manufacturing and opening
Company owned and joint venture retail stores. (See Strategic Initiatives
caption of the Business section, under Item 1, for additional information.)
U.S. Customer Service Initiative
The Company is currently focusing on certain aspects of the U.S. initiative to
be completed within the original time frame of November 1996. The Company will
focus on other areas of the initiative after the initial areas are completed to
mitigate disruption to the Company's ongoing business and strain on Company
resources, including its employees.
Since 1993 and over the next several years, the Company plans to incur total
capital expenditures of over $400.0 million to support the new U.S. distribution
network, expanded system requirements, organization and manufacturing changes.
Included in this total capital expenditure projection is over $290.0 million
related to the construction, renovation and retrofitting of new and existing
customer service centers. The total capital expenditure projection amount
includes previously recognized capital expenditures of approximately $81.0
million.
Additionally, the Company plans to spend approximately $450.0 million for
transitional expenses, including costs related to the implementation of new
software applications, reengineering design and planning, implementation of
organization and process changes, training, education and other related
expenses. The total amount of transitional expenses include previously
recognized expenses of approximately $70.0 million. These costs will be
recognized ratably throughout the implementation period and/or as expenses
occur, depending on the nature of the cost and the decisions made related to
this initiative. (See Strategic Initiatives caption of the Business section,
under Item 1, for additional information.)
LSI Customer Service Initiatives
The LSI customer service initiatives began in late 1993 and encompasses the
Company's affiliates in the Europe, Latin America and Asia Pacific divisions.
The objective of the LSI initiatives is to build the capabilities within the LSI
organization to make customer service a competitive advantage. The LSI customer
service initiatives will be highly selective and focused with a varying degree
of impact and modification to affiliate organizations. It is too early to
determine the amount of capital expenditures and transitional expenses the
Company will incur for the LSI initiatives until the design phase is completed.
It is expected, however, that the total cost will be less than the costs for the
U.S. initiative. These initiatives are expected to be completed over the next
several years. (See Strategic Initiatives caption of the Business section,
under Item 1, for additional information.)
U.S. Company-Owned Retail and Outlet Stores/Retail Joint Venture
The Company is planning to own and operate retail and outlet stores in the U.S.
that sell only Levi's(R) and Dockers(R) brand products. These stores will
include Original Levi's(R) Stores, Dockers(R) Shops and separate outlet stores,
in all cases selling only Levi's(R) or Dockers(R) products. The Company expects
to open approximately 190 of these stores within the next five years. The
Company plans to operate flagship (premier) stores only in key markets and
locations most able to help the Company achieve its primary focus of maintaining
a high brand image, such as downtown urban locations and selected high
visibility regional malls. The
35
<PAGE>
Company plans to operate outlet stores dedicated to each brand in areas outside
major markets in key outlet malls. The Company expects to spend approximately
$90.0 million for capital expenditures during the next few years in connection
with this program.
This program is in addition to the plans the Company has with Designs, Inc. to
establish a joint venture that will own and operate, in the northeastern U.S.,
approximately 50 Original Levi's(R) Stores selling only Levi's(R) jeans and
jeans-related products. The Company will have a 30 percent equity interest in
the U.S. joint venture. Venture establishment was approved by the Federal Trade
Commission subsequent to year-end. The venture formed and began operations in
January 1995. (See Strategic Initiatives caption of the Business section, under
Item 1, for additional information.)
36
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item and not presented on the following pages is
contained in the Supplemental Financial Schedules that are included in this Form
10-K.
37
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
LEVI STRAUSS ASSOCIATES INC. AND SUBSIDIARIES
For the Years Ended November 27, 1994, November 28, 1993 and November 29, 1992
38
<PAGE>
LEVI STRAUSS ASSOCIATES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
November 27, 1994/(1)/ November 28, 1993/(1)/ November 29, 1992/(1)/
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Net sales $ 6,074,321 $ 5,892,479 $ 5,570,290
Cost of goods sold 3,632,406 3,638,152 3,431,469
----------- ----------- -----------
Gross profit 2,441,915 2,254,327 2,138,821
Marketing, general and
administrative expenses 1,493,234 1,394,170 1,309,352
Stock option charge -- -- 157,964
Other operating (income) expense, net (20,448) 8,418 (5,882)
----------- ----------- -----------
Operating income 969,129 851,739 677,387
Interest expense 19,824 37,144 53,303
Other (income) expense, net 18,410 (16,718) (7,479)
----------- ----------- -----------
Income before taxes and cumulative
effects of changes in accounting principles 930,895 831,313 631,563
Provision for taxes 373,402 338,902 270,726
----------- ----------- -----------
Income before cumulative effects of
changes in accounting principles 557,493 492,411 360,837
Cumulative effects of changes in accounting
principles:
Postretirement benefits other than pensions
(SFAS 106), net of applicable income tax
benefits of $153,885 248,429 -- --
Income taxes (SFAS 109) (11,912) -- --
----------- ----------- -----------
Net income 320,976 492,411 360,837
Dividends on preferred stock -- -- 1,895
----------- ----------- -----------
Net income available for common
stockholders $ 320,976 $ 492,411 $ 358,942
=========== =========== ===========
Income per common share:
Income before cumulative effects of
changes in accounting principles $ 10.59 $9.38 $6.91
Postretirement benefits other than
pensions (SFAS 106) 4.72 -- --
Income taxes (SFAS 109) (0.23) -- --
----------- ----------- -----------
Net income $ 6.10 $ 9.38 $ 6.91
=========== =========== ===========
Average common shares outstanding 52,639,433 52,513,160 51,928,655
=========== =========== ===========
</TABLE>
/(1)/ Fiscal years 1994 and 1993 each contained 52 weeks. Fiscal year 1992
contained 53 weeks.
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
Page 1 of 2
LEVI STRAUSS ASSOCIATES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
November 27, November 28,
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 813,320 $ 252,673
Trade receivables (less allowance for doubtful
accounts: 1994 - $28,066; 1993 - $28,551) 908,690 858,117
Inventories:
Raw materials 122,947 109,289
Work-in-process 165,180 135,797
Finished goods 494,636 546,754
---------- ----------
Total inventories 782,763 791,840
Deferred tax assets 66,160 70,979
Other current assets 95,005 116,815
---------- ----------
Total current assets 2,665,938 2,090,424
Property, plant and equipment (less accumulated
depreciation: 1994 - $454,376; 1993 - $364,830) 669,606 594,592
Goodwill and other intangibles (less accumulated
amortization: 1994 - $180,920; 1993 - $175,538) 341,355 361,936
Noncurrent deferred tax assets 204,574 20,466
Other assets 43,836 41,242
---------- ----------
$3,925,309 $3,108,660
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt and
capital lease obligations $ 25,974 $ 42,695
Short-term borrowings 23,701 10,094
Accounts payable 286,675 259,747
Accrued liabilities 339,395 370,094
Salaries, wages and employee benefits 279,038 250,291
Taxes payable 142,348 139,641
Dividends payable 1,266 688
---------- ----------
Total current liabilities 1,098,397 1,073,250
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
Page 2 of 2
LEVI STRAUSS ASSOCIATES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
November 27, November 28,
1994 1993
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (continued)
Long-term debt and capital lease obligations -
Less current maturities 16,720 93,050
---------- ----------
Long-term employee related benefits 720,168 293,147
---------- ----------
Long-term tax liability 393,360 334,627
---------- ----------
Minority Interest 36,837 30,047
---------- ----------
Common Stock - Employee Stock Purchase and Award
Plan and Management Liquidity Program:
Class E common stock - $.10 par value;
issued: 1994 - 431,123 shares;
1993 - 300,848 shares (Redemption
value $57,770) 43 30
Class L common stock - $.10 par value;
issued: 1994 - 547,531 shares;
1993 - no shares (Redemption value $138,587) 55 --
Additional paid-in capital, common 188,144 33,475
---------- ----------
Total common stock - Employee Stock Purchase and
Award Plan and Management Liquidity Program 188,242 33,505
---------- ----------
Stockholders' Equity:
Class E common stock - $.10 par value; authorized
100,000,000 shares; issued and outstanding:
1994 - 939,747 shares; 1993 - 894,172 shares 94 89
Class L common stock - $.10 par value; authorized
170,000,000 shares; issued: 1994 - 51,279,219 shares;
1993 - 51,910,699 shares 5,128 5,191
Additional paid-in capital, common 187,369 242,572
Retained earnings 1,227,897 990,130
Translation adjustment 71,623 48,322
Pension liability (701) (16,574)
Treasury stock, at cost - Class E:
1994 - 10,221 shares; 1993 - 1,379 shares;
Class L: 1994 and 1993 - 499,749 shares (19,825) (18,696)
---------- ----------
Total stockholders' equity 1,471,585 1,251,034
---------- ----------
$3,925,309 $3,108,660
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
Page 1 of 3
LEVI STRAUSS ASSOCIATES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Additional Additional
Series B Paid-in Class E Class L Paid-in Total
Preferred Capital Common Common Capital Retained Translation Pension Treasury Stockholders'
Stock (Preferred) Stock Stock (Common) Earnings Adjustment Liability Stock Equity
--------- ----------- ------- ------- -------- -------- ----------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance November 24, 1991 $ 1,417 $ 75,081 $67 $5,230 $114,571 $ 332,006 $ 82,695 $ -- $(52,764) $ 558,303
Redemption of Series B
preferred stock (1,416,623
shares) (1,417) (75,081) (76,498)
Reissuance of Class L
treasury stock (532,368
shares) for stock option
exercises 45,235 19,715 64,950
Retirement of Class L
treasury stock (392,755
shares) for stock options
surrendered (39) (559) (13,945) 14,543 --
Increase to additional
paid-in capital for
unexercised Class L
common stock options 59,220 59,220
Sale and Company contribution
of Class E common stock and
Class E treasury stock to
qualified employee plans
(128,147 shares) 12 11,755 38 11,805
Purchase of Class E treasury
stock (1,786 shares) from
ESAP participants (201) (201)
Dividends on preferred and
common stock (179,963) (179,963)
Net income 360,837 360,837
Net gain on sale and purchase
of subsidiary's treasury
stock 108 108
Translation adjustment (25,268) (25,268)
Pension liability (5,060) (5,060)
------- -------- --- ------ -------- --------- -------- ------- -------- ---------
Balance November 29, 1992 -- -- 79 5,191 230,222 499,043 57,427 (5,060) (18,669) 768,233
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
Page 2 of 3
LEVI STRAUSS ASSOCIATES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Additional Additional
Series B Paid-in Class E Class L Paid-in Total
Preferred Capital Common Common Capital Retained Translation Pension Treasury Stockholders'
Stock (Preferred) Stock Stock (Common) Earnings Adjustment Liability Stock Equity
--------- ----------- ------- ------- -------- -------- ----------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance November 29, 1992 -- -- 79 5,191 230,222 499,043 57,427 (5,060) (18,669) 768,233
Sale and Company contribution
of Class E common stock and
Class E treasury stock to
qualified employee plans
(104,642 shares) 10 12,350 536 12,896
Purchase of Class E treasury
stock (4,638 shares) from
ESAP participants (563) (563)
Dividends on common stock (1,314) (1,314)
Net income 492,411 492,411
Net loss on sale and purchase
of subsidiary's treasury
stock (10) (10)
Translation adjustment (9,105) (9,105)
Pension liability (11,514) (11,514)
------- -------- --- ------ -------- --------- -------- ------- -------- ---------
Balance November 28, 1993 -- -- 89 5,191 242,572 990,130 48,322 (16,574) (18,696) 1,251,034
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
Page 3 of 3
LEVI STRAUSS ASSOCIATES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Additional Additional
Series B Paid-in Class E Class L Paid-in Total
Preferred Capital Common Common Capital Retained Translation Pension Treasury Stockholders'
Stock (Preferred) Stock Stock (Common) Earnings Adjustment Liability Stock Equity
--------- ----------- ------- ------- -------- -------- ----------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance November 28, 1993 -- -- 89 5,191 242,572 990,130 48,322 (16,574) (18,696) 1,251,034
Purchase and retirement of
management Class L common
stock (83,949 shares) (8) (193) (9,369) (9,570)
Adoption of management
liquidity program and
subsequent reclassification
of management Class L
common stock to temporary
equity (547,531 shares and
499,749 options) (55) (60,477) (72,057) (132,589)
Sale and Company contribution
of Class E common stock and
Class E treasury stock to
qualified employee plans
(52,502 shares) 5 5,467 826 6,298
Purchase of Class E treasury
stock (15,769 shares) from
ESAP participants (1,955) (1,955)
Dividends on common stock (1,775) (1,775)
Net income 320,976 320,976
Net loss on sale and
purchase of subsidiary's
treasury stock (8) (8)
Translation adjustment 23,301 23,301
Pension liability 15,873 15,873
------- -------- --- ------ -------- ---------- -------- ------- -------- ----------
Balance November 27, 1994 $ -- $ -- $94 $5,128 $187,369 $1,227,897 $71,623 $ (701) $(19,825) $1,471,585
======= ======== === ====== ======== ========== ======= ======= ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
Page 1 of 2
LEVI STRAUSS ASSOCIATES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
November 27, November 28, November 29,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before cumulative effects of changes in
accounting principles $ 557,493 $ 492,411 $ 362,448
Adjustments to arrive at net cash provided by
operating activities:
Depreciation and amortization 114,986 111,818 97,394
Foreign exchange (gains) losses 30,144 (593) (5,900)
Provision for deferred employee benefits 97,326 35,115 209,902
Payment of deferred employee benefits (32,099) (25,436) (21,367)
Provision for workers' compensation claims 39,859 102,428 95,608
Payment of workers' compensation claims (49,077) (58,665) (53,819)
Increase in trade receivables (42,639) (139,329) (75,940)
(Increase) decrease in inventories 34,743 (67,428) (85,981)
(Increase) decrease in other current assets 6,340 (9,309) (28,221)
Increase in deferred tax assets (2,242) (30,380) (37,191)
Increase (decrease) in accounts payable and
accrued liabilities (38,254) 51,262 34,173
Increase in salaries, wages and employee benefits 46,330 41,376 51,725
Decrease in taxes payable (2,774) (33,789) (62,743)
Increase (decrease) in long-term employee related
benefits (28,190) 568 (45,956)
Increase in long-term tax liabilities 46,931 44,949 71,424
Other, net (9,550) (19,323) (19,627)
--------- --------- ---------
Net cash provided by operating activities 769,327 495,675 485,929
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (176,357) (142,841) (145,619)
Proceeds from sale of property, plant and
equipment 29,586 6,290 783
Increase (decrease) of net investment hedge (5,487) 32,757 (9,362)
Other, net -- -- (5,872)
--------- --------- ---------
Net cash used for investing activities (152,258) (103,794) (160,070)
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
Page 2 of 2
LEVI STRAUSS ASSOCIATES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
November 27, November 28, November 29,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (92,358) (415,716) (512,230)
Proceeds from sale of common stock to
employee plans 21,622 29,512 14,543
Net increase (decrease) in short-term borrowings 13,952 (128,792) 68,438
Purchase of management Class L common stock (9,570) -- --
Dividends paid (3,181) (82,210) (40,259)
Purchase of treasury stock and related fees (1,129) (27) (201)
Proceeds from issuance of long-term debt 11 227,952 327,799
Redemption of preferred stock -- -- (158,778)
Payment of optionholders' taxes relating to
stock option charge -- -- (41,866)
Other, net (464) (4,866) (1,310)
--------- --------- ---------
Net cash used for financing activities (71,117) (374,147) (343,864)
--------- --------- ---------
Effect of exchange rate changes on cash 14,695 (2,763) 144
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 560,647 14,971 (17,861)
Beginning cash and cash equivalents 252,673 237,702 255,563
--------- --------- ---------
Ending cash and cash equivalents $ 813,320 $ 252,673 $ 237,702
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 18,841 $ 36,787 $ 55,543
Income taxes 328,121 364,064 311,972
Non-cash investing and financing activities:
Capital lease obligations incurred -- 409 606
Dividends declared, but not yet paid -
Common stock 1,266 688 157,141
Reclassification of management Class L common
stock out of stockholders' equity due to
Management Liquidity Program 138,587 -- --
Decrease in stockholders' equity due to
Management Liquidity Program (132,589)
Notes issued for payment of dividends -- 77,116 --
Reissuance/retirement of Class L treasury stock -- -- 34,258
Increase in Class L common stock due to
stock option charge and reissuance of
Class L treasury stock -- -- 103,853
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
LEVI STRAUSS ASSOCIATES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Levi Strauss
Associates Inc. (LSAI or the Company) and all subsidiaries. All significant
intercompany items have been eliminated.
Depreciation and Amortization Methods
Property, plant and equipment is carried at cost, less accumulated depreciation.
Depreciation and amortization are computed on a straight-line basis over the
estimated useful lives of the related assets. In the case of certain property
under capital lease, depreciation is computed over the lesser of the useful life
or the lease term.
Income Taxes
Deferred income taxes result from timing differences in the recognition of
revenue, expense and credits for income tax and financial statement purposes.
U.S. Federal income tax and foreign withholding taxes are provided on the
undistributed earnings of non-U.S. subsidiaries to the extent that taxes on the
distribution of such earnings would not be offset by tax credits.
Effective November 29, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". This
statement requires a change from the deferral method of accounting for income
taxes under Accounting Principles Board Opinion No. 11 to the asset and
liability method of accounting for income taxes. Under SFAS No. 109, deferred
tax assets and liabilities are established at the balance sheet date in amounts
that are expected to be recoverable or payable when the difference in the tax
bases and financial statement carrying amounts of assets and liabilities
("temporary differences") reverse. The 1994 adoption was recorded as a
cumulative effect of a change in accounting principles on the Consolidated
Statements of Income.
Restructuring Costs
Restructuring costs for severance are accrued when formal plans to restructure
are adopted, the information has been communicated to affected employees, the
plan specifically identifies certain employee information and involuntary
terminations are expected to occur within one year from the date the plan was
approved. In absence of a formal plan of restructuring for severance, costs are
expensed as incurred. Employee retraining and relocation costs are not
considered restructuring costs and are expensed as incurred. Other costs will
be expensed as incurred or earlier depending on their nature.
Postretirement Benefit Plans
The Company adopted SFAS No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions" effective November 29, 1993. SFAS No. 106
requires the Company to recognize an expense to establish a "transition
obligation", representing the value at the beginning of the year of the
postretirement benefit obligation earned by employees and retirees
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1 (continued)
SIGNIFICANT ACCOUNTING POLICIES
Postretirement Benefit Plans (continued)
in prior periods. This transaction was recorded as a cumulative effect of a
change in accounting principles, net of income taxes, on the Consolidated
Statements of Income. Additionally, the Company recorded an expense for 1994
net periodic costs.
Income Per Common Share
Income per common share is computed by dividing income (after deducting
dividends on preferred stock, if any) by the average number of common shares
outstanding for the period.
Cash Equivalents
All highly liquid investments with an original maturity of three months or less
are included as cash equivalents.
Inventory Valuation
Inventories are valued at the lower of average cost or market and include
materials, labor and manufacturing overhead. Market is calculated on the basis
of anticipated selling price less allowances to maintain the normal gross margin
for each product.
Common Stock - Employee Stock Purchase and Award Plan and Management Liquidity
Program
Stock held by participants of the Employee Stock Purchase and Award Plan (ESAP)
and Management Liquidity Program are classified outside stockholders' equity due
to the put rights attached to Class E and Class L common stock, respectively
(see Notes 12 and 17).
Translation Adjustment
The functional currency for most of the Company's foreign operations is the
applicable local currency. For those operations, assets and liabilities are
translated into U.S. dollars at period-end exchange rates, and income and
expense accounts are translated at average monthly exchange rates. Net exchange
gains or losses resulting from such translation are accumulated as a separate
component of stockholders' equity. The U.S. dollar is the functional currency
for foreign operations in countries with highly inflationary economies, for
which both translation adjustments and gains and losses on foreign currency
transactions are included in other (income) expense, net.
Foreign Exchange Contracts
The Company enters into foreign exchange contracts to hedge against known
foreign currency denominated exposures, particularly dividends and intracompany
royalties, loans and other transactions from its foreign affiliates and
licensees. Market value gains and losses on hedge instruments are recognized
and offset foreign exchange gains or losses on existing exposures. The effects
of exchange rate changes on transactions designated as hedges of net investments
are included in the separate component of stockholders' equity. At November 27,
1994, the net effect of exchange rate changes due to net investment hedge
transactions was a $28.5 million decrease to translation adjustment.
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1 (continued)
SIGNIFICANT ACCOUNTING POLICIES
Foreign Exchange Contracts (continued)
Gains or losses resulting from foreign currency exchange transactions (including
certain foreign currency hedge transactions) and translation adjustments of
foreign operations in countries with highly inflationary economies are included
in other (income) expense, net, and amounted to losses of $51.6 million, $10.0
million and $10.2 million for 1994, 1993 and 1992, respectively.
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2
OPERATIONS
The following table presents information concerning U.S. and non-U.S. operations
(all in the apparel industry).
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
(000's)
<S> <C> <C> <C>
Net Sales to Unaffiliated Customers:
United States $3,721,348 $3,715,054 $3,482,927
Europe 1,542,802 1,332,433 1,367,783
Other non-U.S. 810,171 844,992 719,580
---------- ---------- ----------
$6,074,321 $5,892,479 $5,570,290
========== ========== ==========
Sales Between Operations:
United States $ 124,001 $ 163,627 $ 139,652
Europe 149 32 28
Other non-U.S. 39,767 36,730 34,467
---------- ---------- ----------
$ 163,917 $ 200,389 $ 174,147
========== ========== ==========
Total Sales:
United States $3,845,349 $3,878,681 $3,622,579
Europe 1,542,951 1,332,465 1,367,811
Other non-U.S. 849,938 881,722 754,047
Eliminations (163,917) (200,389) (174,147)
---------- ---------- ----------
$6,074,321 $5,892,479 $5,570,290
========== ========== ==========
Contribution to Income Before Other Charges:
United States $ 572,097 $ 465,889 $ 460,218
Europe 409,227 365,821 362,174
Other non-U.S. 154,529 171,440 151,644
---------- ---------- ----------
1,135,853 1,003,150 974,036
Other Charges:
Stock option charge -- -- 157,964
Corporate expenses, net 185,134 134,693 131,206
Interest expense 19,824 37,144 53,303
---------- ---------- ----------
Income Before Taxes and Cumulative Effects
of Changes in Accounting Principles: $ 930,895 $ 831,313 $ 631,563
========== ========== ==========
Assets:
United States $1,669,954 $1,643,230 $1,480,527
Europe 597,617 490,904 491,491
Other non-U.S. 350,437 361,361 273,355
Corporate 1,307,301 613,165 635,328
---------- ---------- ----------
$3,925,309 $3,108,660 $2,880,701
========== ========== ==========
</TABLE>
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3
INCOME TAXES
The U.S. and non-U.S. components of income before taxes and cumulative effects
of changes in accounting principles are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(000's)
<S> <C> <C> <C>
U.S. $582,321 $474,895 $305,144
Non-U.S. 348,574 356,418 326,419
-------- -------- --------
$930,895 $831,313 $631,563
======== ======== ========
</TABLE>
The provision for taxes consists of the following:
<TABLE>
<CAPTION>
Federal State Non-U.S. Total
-------- -------- -------- --------
(000's)
<S> <C> <C> <C> <C>
1994
- ----
Current $208,119 $ 20,037 $141,215 $369,371
Deferred (1,070) 2,296 2,805 4,031
-------- -------- -------- --------
$207,049 $ 22,333 $144,020 $373,402
======== ======== ======== ========
1993
- ----
Current $177,651 $ 37,578 $157,537 $372,766
Deferred (25,548) (3,350) (4,966) (33,864)
-------- -------- -------- --------
$152,103 $ 34,228 $152,571 $338,902
======== ======== ======== ========
1992
- ----
Current $120,305 $ 45,861 $161,683 $327,849
Deferred (43,597) (9,145) (4,381) (57,123)
-------- -------- -------- --------
$ 76,708 $ 36,716 $157,302 $270,726
======== ======== ======== ========
</TABLE>
At November 27, 1994, cumulative non-U.S. operating losses of $14.6 million
generated by the Company are available to reduce future taxable income primarily
between the years 1995 and 1999. The Company utilized all of its remaining
foreign tax credit carryforwards in 1993.
Income tax expense (benefit) included in translation adjustment was $3.3
million, $(0.1) million and $(8.1) million for 1994, 1993 and 1992,
respectively.
SFAS No. 109 "Accounting for Income Taxes" requires an asset and liability
approach for financial accounting and reporting of income taxes. Under SFAS No.
109, deferred tax assets
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3 (continued)
INCOME TAXES
and liabilities are established at the balance sheet date in amounts that are
expected to be recoverable or payable when the difference in the tax bases and
financial statement carrying amounts of assets and liabilities ("temporary
differences") reverse. The Company complied with the provisions of SFAS No. 109
as of November 29, 1993. The adoption resulted in an $11.9 million credit to
income, which was recorded as a cumulative effect of changes in accounting
principles on the Consolidated Statements of Income. Upon adoption, deferred
tax assets and deferred tax liabilities were adjusted accordingly.
Under SFAS No. 109, adopted as of November 29, 1993, temporary differences which
gave rise to deferred tax assets and liabilities at November 27, 1994 were as
follows:
<TABLE>
<CAPTION>
Deferred Tax Deferred Tax
Assets Liabilities
------------ ------------
<S> <C> <C>
(000's)
Postretirement benefits $173,634 $ --
Employee compensation and benefit plans 163,587 --
Inventory 40,657 --
Depreciation and amortization 28,390 36,669
Foreign exchange gains/losses 16,683 53,764
Restructuring charges 7,347 --
Tax on unremitted non-U.S. earnings -- 75,373
State income tax -- 5,364
Other 11,607 --
-------- --------
$441,905 $171,170
======== ========
</TABLE>
The net deferred tax assets at November 27, 1994 were $270.7 million.
Under the provisions of APB No. 11, the approximate tax effects of timing
differences giving rise to deferred income tax expense (benefit) resulted from:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
(000's)
Employee compensation and benefits $(24,739) $(50,648)
Accrued strategic organization costs (9,888) (6,122)
Undistributed non-U.S. earnings (8,221) 9,729
Inventory capitalization and adjustments 6,008 2,186
Depreciation and amortization 228 (1,836)
Other 2,748 (10,432)
-------- --------
$(33,864) $(57,123)
======== ========
</TABLE>
52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3 (continued)
INCOME TAXES
The Company's effective income tax rate in 1994, 1993 and 1992 differs from the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 34.0%
Changes resulting from:
State income taxes, net of federal income tax benefit 1.5 2.7 4.4
Non-U.S. earnings taxed at different rates,
including withholding taxes 1.4 2.2 1.3
Acquisition-related book and tax bases differences 1.3 1.3 2.2
Stock option charge/(1)/ -- -- 1.7
Other, net 0.9 (0.4) (0.7)
---- ---- ----
Effective rate 40.1% 40.8% 42.9%
==== ==== ====
- -----------------
</TABLE>
/(1)/ The stock option charge, which occurred during the third quarter of 1992,
produced a tax benefit of only 27.2 percent in 1992 because of its
negative impact on the current utilization of foreign tax credits.
The tax aspects of the Omnibus Budget Reconciliation Act of 1993 that was signed
into law by President Clinton on August 10, 1993 will not materially affect the
Company's future tax expense. The primary impact of the new tax law is a one
percent increase in the statutory tax rate.
The consolidated U.S. income tax returns of the Company for 1983 through 1985
are under examination by the Internal Revenue Service (IRS). The examination
includes the review of certain transactions relating to the 1985 leveraged
buyout by the Company of Levi Strauss & Co. The IRS has not yet concluded its
examination. The Company believes it has made adequate provision for income
taxes and interest for all prior periods.
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 4
PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment, including both leased and owned
assets stated at cost, are as follows:
<TABLE>
<CAPTION>
1994 1993
----------------------- ----------------------
Owned Leased Owned Leased
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
(000's)
Land $ 47,228 $ 5,134 $ 41,260 $ 5,134
Buildings and leasehold
improvements 356,263 24,718 347,641 26,276
Machinery and equipment 565,686 6,632 503,501 7,453
Construction in progress 118,321 -- 28,157 --
---------- -------- --------- --------
1,087,498 36,484 920,559 38,863
Accumulated depreciation (437,296) (17,080) (347,690) (17,140)
---------- -------- --------- --------
$ 650,202 $ 19,404 $ 572,869 $ 21,723
========== ======== ========= ========
</TABLE>
The Company has idle facilities and equipment (all in the U.S.), including
closed plants and certain other properties, that are not being depreciated. The
book value of these idle facilities and equipment was $6.9 million at November
27, 1994 and $30.6 million at November 28, 1993. The carrying values of idle
facilities and equipment are not in excess of net realizable value. These
facilities are being offered for sale or lease.
Depreciation expense for 1994, 1993 and 1992 was $94.2 million, $85.5 million
and $73.1 million, respectively.
The Company plans to spend over $400.0 million for capital expenditures over the
next few years in conjunction with its initiative to improve customer service.
(See Business section, under Item 1, for additional information.)
54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 5
INTANGIBLE ASSETS
The components of intangible assets are as follows:
<TABLE>
<CAPTION>
1994 1993
--------- ----------
<S> <C> <C>
Goodwill $351,722 $ 351,722
Acquisition intangibles 67,606 82,714
Tradenames 79,322 77,139
Intangible pension asset 2,518 4,858
Other intangibles 21,107 21,041
-------- ---------
522,275 537,474
Accumulated amortization related to goodwill (81,377) (72,590)
Other accumulated amortization (99,543) (102,948)
-------- ---------
$341,355 $ 361,936
======== =========
</TABLE>
Goodwill, resulting from the 1985 acquisition of Levi Strauss & Co. by Levi
Strauss Associates Inc., is being amortized through the year 2025. Acquisition
intangibles include trained workforce, leasehold interest, research and
development, and licenses. Acquisition intangibles and tradenames were valued
as a result of the 1985 acquisition.
Intangible pension asset is not amortized, but is adjusted each year to
correspond to changes in the minimum pension liability.
Amortization expense for 1994, 1993 and 1992 was $20.5 million, $24.0 million
and $24.0 million, respectively.
55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6
DEBT AND LINES OF CREDIT
Debt and unused lines of credit are summarized below:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
(000's)
Long-Term Debt:
Unsecured:
Dividend notes payable $ 20,564 $ 59,123
Borrowings against working capital facility
at variable interest rates, due in 1997 -- 50,000
Other unsecured indebtedness 2,138 2,352
-------- --------
22,702 111,475
Secured:
Notes payable, at various rates, due in
installments through 1997 7,465 11,183
-------- --------
30,167 122,658
Current maturities (22,981) (42,122)
-------- --------
$ 7,186 $ 80,536
======== ========
Unused Lines of Credit:
Long-term (all U.S.): $200,000 $450,000
Short-term:
U.S. 230,067 272,029
Non-U.S. 345,854 308,422
</TABLE>
Primary Credit Agreement
During 1994, the Company renegotiated and amended its primary credit agreement
to reduce its $500.0 million unsecured working capital facility to a $200.0
million 364 day revolving line of credit, which is convertible at the option of
the Company into a three-year term loan. Under the new revolving line of
credit, commitment fees and interest rate basis points are lower than under the
prior working capital facility.
The primary credit agreement requires the Company to maintain minimum levels of
net worth, leverage and interest coverage. All borrowings under the primary
credit agreement bear interest based on either the lending banks' base rate, the
certificate of deposit rate or the LIBOR rate (at the Company's option) plus an
incremental percentage. The interest rate on borrowings related to the primary
credit agreement was 3.6 percent during 1994.
56
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6 (continued)
DEBT AND LINES OF CREDIT
Primary Credit Agreement (continued)
The Company's prior credit agreement established in 1993 provided for a $500.0
million unsecured working capital facility with more favorable terms than the
previous credit agreement. Commitment fees were paid on the unused portion of
the amounts available for borrowing.
Japanese Yen Credit Line Agreements
In 1993 the Company repaid all its outstanding 4.8 billion Japanese Yen loan
amounts (U.S. dollar equivalent of $38.6 million at the time of repayment) and
subsequently cancelled its two unsecured line of credit agreements with two
Japanese banks for a total of 6.9 billion Japanese Yen.
Other Debt
During 1993, the Company issued four series of notes payable collectively
totaling $77.1 million to Class L stockholders in partial payment of a dividend
declared in November 1992. These notes were payable in four semi-annual
installments commencing June 15, 1993 and bear an interest rate incrementally
above the six-month Treasury Bill rate. During 1993, the Company repaid the
first series of dividend notes to Class L stockholders for an aggregate amount
of $18.0 million, plus accrued interest of $.4 million. During 1994, the
Company repaid the second and third series of dividend notes to Class L
stockholders totaling $38.6 million, plus accrued interest of $2.0 million.
Subsequent to year-end on December 15, 1994, the Company repaid the fourth and
final series of dividend notes to Class L stockholders for an aggregate amount
of $20.6 million, plus accrued interest of $1.9 million.
Principal Debt Payments
The required aggregate long-term debt principal payments, excluding capitalized
leases, for the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
Year Principal Payments
---- ------------------
(000's)
<S> <C>
1995 $22,981
1996 6,999
1997 74
1998 --
1999 --
Thereafter 113
</TABLE>
Short-Term Credit Lines and Stand-By Letters of Credit
The Company has unsecured and uncommitted short-term credit lines available at
various interest rates from various U.S. and non-U.S. banks. These credit
arrangements may be cancelled by the lenders upon notice and generally have no
compensating balance requirements or commitment fees.
57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6 (continued)
DEBT AND LINES OF CREDIT
Short-Term Credit Lines and Stand-By Letters of Credit (continued)
The Company has $96.6 million of standby letters of credit with various
international banks to serve as guarantees by the creditor banks to cover
workers' compensation claims. The Company pays fees on the standby letters of
credit and any borrowings against the letters of credit are subject to interest
at various rates.
Interest Rate Swaps
The Company entered into interest rate swap transactions to hedge existing
floating-rate or fixed-rate liabilities for fixed rates or floating rates. The
net interest to be received or paid on the transactions was recorded as an
adjustment to interest expense.
In 1994, due to lower debt levels, the Company terminated its remaining $100.0
million of interest rate swap agreements that hedged floating-rate liabilities
for fixed rates. The termination resulted in a loss of $2.6 million that was
included in other (income) expense, net.
In 1993, due to lower average debt levels, the Company terminated $100.0 million
of interest rate swap agreements and assigned to a third party a $50.0 million
interest rate swap agreement that hedged fixed-rate liabilities for floating
rates. Additionally, the Company terminated $50.0 million and assigned to a
third party $50.0 million of interest rate swap agreements that hedge floating-
rate liabilities for fixed rates. The Company also terminated a $25.0 million
one-way floating-rate swap transaction. These 1993 transactions resulted in a
net gain of $.4 million that was included in other (income) expense, net. At
year-end 1993, the Company had $100.0 million of interest rate swaps that hedge
floating-rate liabilities for fixed rates.
In 1992, the Company terminated $150.0 million of swap agreements for a net loss
of $5.6 million, included in other (income) expense, net.
Other
The weighted average interest rate on short-term borrowings outstanding at year-
end 1994 and 1993 was 19.0 percent and 20.4 percent, respectively. These rates
were relatively high in 1994 and 1993 as approximately 65 percent and 69 percent
of the short-term borrowings balance outstanding at the end of 1994 and 1993,
respectively, were related to borrowings in Eastern Europe, where the average
interest rate was substantially higher than other Company borrowings.
Note 7
COMMITMENTS AND CONTINGENCIES
The Company has forward currency contracts to buy the aggregate equivalent of
$124.4 million of the following foreign currencies: Netherlands Guilders,
Italian Lire, British Pounds, Finnish Markkaa, French Francs, German Marks,
Swiss Francs and Belgian Francs to hedge currency exposures resulting from
intercompany transactions.
58
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7 (continued)
COMMITMENTS AND CONTINGENCIES
The Company has forward currency contracts to sell the aggregate equivalent of
$530.9 million of the following foreign currencies: Japanese Yen, Swedish
Kroner, Spanish Pesetas, Norwegian Kroner, Netherlands Guilders, Italian Lire,
British Pounds, Finnish Markkaa, French Francs, Danish Kroner, German Marks,
Swiss Francs and Belgian Francs. These contracts hedge currency exposures
resulting from sourcing operations as well as net investment positions,
intercompany royalties and dividend payments. In addition, the Company has
Belgian Franc forward currency contracts to sell the aggregate equivalent of
$132.5 million of the following foreign currencies: German Marks, French
Francs, British Pounds, Greek Drachma, Italian Lire, Netherlands Guilders,
Spanish Pesetas and Swedish Kroner. These contracts hedge currency exposures
resulting from intercompany receivables and payables.
These contracts are at various exchange rates and expire at various dates
through 1996.
In addition, the Company has the right to sell Japanese Yen for $10.0 million.
This contract expires March 1995 and hedges the Company's net investment in its
Japanese affiliate.
Realized and unrealized transaction losses on these contracts included in other
(income) expense, net in 1994 were $21.1 million and $19.0 million,
respectively.
The Company's market risk is directly related to fluctuations in the currency
exchange rates. The Company's credit risk is limited to the currency rate
differential for each agreement, if a counterparty failed to meet the terms of
the contract. These instruments are executed with credit worthy financial
institutions and the Company does not anticipate nonperformance by the
counterparties. See Note 8 for additional information.
The Company evaluates environmental liabilities on an ongoing basis and, based
on currently available information, does not consider any environmental exposure
to be material. Additionally, the Company does not consider any pending legal
proceedings to be material.
Note 8
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts of certain financial instruments have been
determined by the Company, using available market information and appropriate
valuation methodologies. However, considerable judgment is required in
interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange.
59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8 (continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of the Company's financial
instruments, on the balance sheet, at November 27, 1994 and November 28, 1993
are as follows:
<TABLE>
<CAPTION>
1994 1993
-------------------- ---------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
-------- --------- -------- ----------
(000's)
<S> <C> <C> <C> <C>
Long-term debt $ 7,186 $ 7,186 $80,536 $ 80,536
Common stock:
Employee Stock Purchase and Award
Plan (ESAP) 49,655 57,770 33,505 34,297
Management Liquidity Program 138,587 138,587 -- --
Off-balance sheet financial instruments:
Interest rate swap agreements (gain)/
loss position -- -- -- 9,729
Foreign exchange forward contracts (gain)/
loss position -- 20,744 -- (20,133)
Foreign exchange option contracts (gain)/
loss position -- -- -- (293)
</TABLE>
Quoted market prices or dealer quotes are used to determine the estimated fair
value of the majority of interest rate swap agreements, forward exchange
contracts and option contracts. Other techniques, such as the discounted value
of future cash flows, replacement cost, and termination cost have been used to
determine the estimated fair value for long term debt and the remaining
financial instruments. The estimated fair value of the ESAP and management
liquidity program common stock is based on the latest valuation of Class E
common stock.
The carrying values of cash and cash equivalents, trade receivables, current
assets, current maturities of long-term debt, short-term borrowings, taxes and
dividends payable are assumed to approximate fair value. All investments mature
in 90 days or less, therefore the carrying values are considered to approximate
market value.
The fair value estimates presented herein are based on pertinent information
available to the Company as of November 27, 1994 and November 28, 1993.
Although the Company is not aware of any factors that would substantially affect
the estimated fair value amounts, such amounts have not been updated since that
date and, therefore, the current estimates of fair value
60
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8 (continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
at dates subsequent to November 27, 1994 and November 28, 1993 may differ
substantially from these amounts. Additionally, the aggregation of the fair
value calculations presented herein do not represent, and should not be
construed to represent, the underlying value of the Company.
Note 9
LEASES
The Company is obligated under both capital and operating leases for facilities,
office space and equipment.
At November 27, 1994, obligations under long-term leases are as follows:
<TABLE>
<CAPTION>
Type of Lease
--------------------
Capital Operating
------- ---------
(000's)
<S> <C> <C>
Minimum Lease Payments:
1995 $ 3,718 $ 49,083
1996 1,082 43,323
1997 1,045 41,200
1998 1,044 35,819
1999 1,044 34,090
Remaining years 12,925 28,683
------- --------
Total minimum lease payments 20,858 $232,198
========
Amount representing interest (8,331)
-------
Present value of net minimum lease payments 12,527
Current maturities (2,993)
-------
$ 9,534
=======
</TABLE>
The total minimum lease payments on capital and operating leases have not been
reduced by estimated future income of $14.8 million from noncancelable
subleases.
In general, leases relating to real estate include renewal options of up to 20
years. Some leases contain escalation clauses relating to increases in
operating costs. Certain operating leases provide the Company with an option to
purchase the property after the initial lease term at the then-prevailing market
value. Rental expense for 1994, 1993 and 1992 was $84.3 million, $75.1 million
and $67.1 million, respectively.
61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 10
RETIREMENT PLANS
The Company has numerous non-contributory defined benefit retirement plans
covering substantially all employees. It is the Company's policy to fund its
retirement plans based on actuarial recommendations consistent with applicable
laws and income tax regulations. Plan assets, which may be denominated in
foreign currencies and issued by foreign issuers, are invested in a diversified
portfolio of securities including stocks, bonds, real estate investment funds
and cash equivalents. The weighted average expected long-term rate of return on
assets is 9.0 percent. Benefits payable under the plans are based on either
years of service or final average compensation.
The funded status of the plans, as of November 27, 1994 and November 28, 1993,
reconciles with amounts recognized on the balance sheet as follows:
<TABLE>
<CAPTION>
Plans in Which Plans in Which Assets
Accumulated Benefits Exceed Accumulated
Exceed Assets Benefits
-------------------- ---------------------
1994 1993 1994 1993
--------- --------- -------- ---------
(000's)
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefits $119,998 $ 173,279 $ 71,996 $15,563
Non-vested benefits 5,011 10,115 4,675 505
-------- --------- -------- -------
Accumulated benefit obligation 125,009 183,394 76,671 16,068
Impact of future salary increases 112,598 114,476 4,489 3,602
-------- --------- -------- -------
Projected benefit obligation 237,607 297,870 81,160 19,670
Less plan assets at fair value 145,640 158,073 91,917 27,546
-------- --------- -------- -------
Plan assets less than (in excess of)
projected benefit obligation 91,967 139,797 (10,757) (7,876)
Unrecognized net gain (loss) from
plan experience (47,590) (100,590) (3,547) 1,074
Unrecognized prior service cost (8,110) (4,310) (2,092) (242)
Unrecognized net asset (liability)
at transition (12,381) (13,514) 5,263 5,278
Adjustment required to recognize
minimum liability 1,763 21,432 -- --
-------- --------- -------- -------
Accrued (prepaid) pension cost $ 25,649 $ 42,815 $(11,133) $(1,766)
======== ========= ======== =======
</TABLE>
Unrecognized net liabilities at transition (established 1988) are being
amortized primarily on a straight-line basis over 15 years. Past service costs
are amortized on a straight line basis over the average remaining service period
of employees expected to receive benefits.
62
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 10 (continued)
RETIREMENT PLANS
The weighted average discount rate and the rate of increase in future
compensation levels used to determine the actuarial present value of the
projected benefit obligations for the plans were 8.0 percent and 7.0 percent,
respectively, for 1994, 6.6 percent and 6.0 percent, respectively, for 1993 and
7.6 percent and 7.0 percent, respectively, for 1992. Changes in the discount
rate and the rate of increase in future compensation levels used to measure the
1994 pension obligations resulted in increases to those obligations as compared
to the prior year.
During 1994, the Company recorded a minimum liability of $1.8 million for one of
its pension plans. The Company also recorded a corresponding intangible asset
of $1.1 million and, since the required intangible asset exceeded the related
prior service cost, an adjustment to stockholders' equity of $.7 million.
Net pension expense includes the following components:
<TABLE>
<CAPTION>
1994 1993 1992
-------- --------- --------
(000's)
<S> <C> <C> <C>
Service cost of benefits earned during the period $38,181 $ 29,225 $25,031
Interest cost on the projected benefit obligations 22,169 18,722 14,673
Gain on plan assets (8,062) (22,046) (8,974)
Net amortization and deferrals (63) 15,162 3,875
------- -------- -------
Net pension expense $52,225 $ 41,063 $34,605
======= ======== =======
</TABLE>
Note 11
POSTRETIREMENT BENEFIT PLANS
The Company adopted SFAS No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions" effective November 29, 1993. The statement
requires the Company to accrue postretirement benefits (other than pensions)
over the period that an employee becomes fully eligible for benefits.
Previously, the Company used a "pay-as-you-go" method whereby expenses were
recorded as claims were incurred.
Upon adoption of SFAS No. 106, the Company recorded a one-time, non-cash charge
against earnings of $402.3 million before taxes and $248.4 million after taxes.
This transition obligation represents the actuarially determined value, at
November 29, 1993, of the present value of the postretirement benefit obligation
earned by retirees and employees in prior periods. The transition obligation was
recorded in 1994 as a cumulative effect of a change in accounting principles,
net of income tax effects, on the Consolidated Statements of Income.
The Company maintains two plans that provide postretirement defined benefits,
principally health care benefits, to substantially all domestic retirees and
their qualified dependents. These plans have been established with the intention
and expectation that they will continue indefinitely.
63
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 11 (continued)
POSTRETIREMENT BENEFIT PLANS
However, the Company retains the right to amend, curtail or discontinue any
aspect of the plans at any time. Under the Company's current policies, employees
become eligible for these benefits when they reach age 55 with 15 years of
credited service. The plans are contributory as well as containing certain cost-
sharing features, such as deductibles and coinsurance. The plans also provide
for reimbursement of Medicare Part B premiums to participants over age 65. The
accounting for retiree health care benefits anticipates future cost-sharing
changes to the written plan consistent with the Company's expressed intent to
limit, over time, the Medicare Part B premium reimbursement to 50% of the annual
increase in the premium cost. The Company's policy is to fund postretirement
benefits as claims and premiums are paid.
Postretirement benefit costs for 1994, exclusive of the transition obligation,
include the following components:
<TABLE>
<CAPTION>
1994
-------
(000's)
<S> <C>
Service cost of benefits earned during the period $17,515
Interest cost on the accumulated benefits obligation 25,494
-------
Net Postretirement Benefit Costs $43,009
=======
</TABLE>
The actuarial present value of the Accumulated Postretirement Benefits
Obligation (APBO) and amounts recognized on the Company's Consolidated Balance
Sheets at November 27, 1994 are as follows:
<TABLE>
<CAPTION>
1994
--------
(000's)
<S> <C>
APBO attributed to:
Retirees $163,542
Fully eligible active participants 43,792
Other active participants 145,969
--------
APBO 353,303
Less plan assets at fair value --
--------
APBO in excess of plan assets 353,303
Unrecognized net gain 79,324
--------
Accrued postretirement benefit costs $432,627
========
</TABLE>
The discount rate used to determine the APBO was 8.0% and 6.5% at November 27,
1994 and November 29, 1993, respectively. An 11.9% and 5.9% annual rate of
increase in the health care trend rate and Medicare Part B trend rate,
respectively, was assumed for 1994, declining gradually to 5.0% and 2.5% by the
year 2008 and remaining at that rate thereafter. A one
64
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 11 (continued)
POSTRETIREMENT BENEFIT PLANS
percentage point increase in the assumed health care trend rate for each future
year would have increased the service cost and interest cost components of net
postretirement benefit costs by approximately $9.0 million and would have
increased the APBO as of November 27, 1994 by approximately $66.1 million.
Note 12
EMPLOYEE INVESTMENT PLANS
The Company maintains three employee investment plans. The Employee Stock
Purchase and Stock Award Plan of Levi Strauss Associates Inc. (ESAP) is a non-
qualified employee equity program for highly compensated (as defined by the
Internal Revenue Code) employees. The Employee Investment Plan of Levi Strauss
Associates Inc. (EIP) and the Levi Strauss Associates Inc. Employee Long-Term
Investment and Savings Plan (ELTIS) are two qualified plans that cover non-
highly compensated Home Office employees and U.S. field employees.
ESAP
Under the ESAP, eligible employees may invest up to 10 percent of their annual
compensation, through payroll deductions, to directly purchase and hold shares
of Class E common stock. Employee contributions are made on an after-tax basis.
The Company may match 75 percent of the contributions made by employees in
stock. Employees are always 100 percent vested in the Company match. Employees
may elect to have their withholding taxes deducted from their match shares
contributed by the Company. There are various put, call and first refusal
rights associated with Class E common stock obtained through the ESAP. The ESAP
generally prohibits all transfers of shares other than to the Company. Put
rights associated with ESAP entitle participants to sell shares back to the
Company in specified circumstances subject to certain restrictions and
penalties. It also entitles the Company to buy back shares upon termination of
the participant's employment. In all cases, shares are repurchased at the
current appraised value of the shares during the semi-annual employee purchase
periods. The intent of ESAP is to be a long-term investment plan and therefore
the Company does not expect to repurchase large amounts of ESAP shares at any
given time. See Note 20 for stock valuation information.
Shares held by participants of the ESAP are classified outside stockholders'
equity due to the put rights attached to Class E common stock sold through the
ESAP. The redemption value at the time of repurchase would be based on the
latest valuation of Class E common stock.
65
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 12 (continued)
EMPLOYEE INVESTMENT PLANS
ESAP (continued)
The following summary presents ESAP activity for the years ended November 27,
1994, November 28, 1993 and November 29, 1992:
<TABLE>
<CAPTION>
Common Additional
Stock Paid-in Capital Total
------ --------------- -----------
(000's)
<S> <C> <C> <C>
Balance at November 24, 1991 $-- $ -- $ --
Sale of Class E stock to ESAP
(67,771 shares at $84 per share;
34,166 shares at $122 per share) 10 9,851 9,861
Company contribution of Class E stock
to ESAP (44,802 shares at $84 per share;
22,362 shares at $122 per share) 7 6,485 6,492
--- ------- -------
Balance at November 29, 1992 17 16,336 16,353
Sale of Class E stock to ESAP
(27,797 shares at $116 per share;
51,614 shares at $138 per share)/(1)/ 8 10,331 10,339
Company contribution of Class E stock
to ESAP (18,578 shares at
$116 per share; 33,758 shares at
$138 per share) 5 6,808 6,813
--- ------- -------
Balance at November 28, 1993 30 33,475 33,505
Sale of Class E stock to ESAP
(30,233 shares at $114 per share;
49,375 shares at $129 per share)/(1)/ 8 9,849 9,857
Company contribution of Class E stock
to ESAP (16,234 shares at
$114 per share; 34,433 shares at
$129 per share) 5 6,288 6,293
--- ------- -------
Balance at November 27, 1994 $43 $49,612 $49,655
=== ======= =======
</TABLE>
- --------------------------
/(1)/ includes adjustment due to the reissuance of treasury stock purchased in
1993 and 1992, respectively
On January 18, 1995, employees under ESAP purchased 33,362 shares of Class E
common stock from the Company, at $134 per share as determined by the valuation
of an independent
66
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 12 (continued)
EMPLOYEE INVESTMENT PLANS
ESAP (continued)
investment banking firm. The Company contributed 21,181 matching shares before
taxes to these employees at a cost of approximately $2.8 million, which was
included in fiscal 1994 compensation expense.
EIP/ELTIS
Under the qualified plans, eligible employees may contribute up to 10 percent of
their annual compensation to various investment funds, including a fund that
invests in Class E common stock. The Company may match 50 percent of the
contributions made by employees to the fund that invests in Class E common
stock. Effective for fiscal 1994 contributions, the Company may match 50
percent of the contributions made by employees to all funds maintained under the
qualified plans. The additional compensation expense associated with this
change was minimal.
Employees are always 100 percent vested in the Company match. The ELTIS also
includes a company profit sharing provision with payments made at the sole
discretion of the Board of Directors. The EIP allows employees a choice of
either pre-tax or after-tax contributions. Employee contributions under the
ELTIS are on a pre-tax basis only.
During 1994, certain assets of the EIP were transferred to, held by and under
the control of a new trustee, Fidelity Management Trust Company. EIP
participants may currently direct investments among a series of mutual funds
offered under the EIP and managed by the new trustee. These mutual funds
provide participants investment alternatives similar to those previously
available under the EIP as well as increasing participant flexibility in
managing their investments.
During 1994, the qualified plans collectively purchased 10,208 shares at $114
per share as determined by the valuation of an independent investment banking
firm at the time of purchase. There were no shares purchased at $129 per share
due to cash needs of the plan. In addition, the Company contributed 35,367
shares to these plans. It is anticipated that there may be similar cash
requirements for both qualified plans in 1995.
During 1993, the qualified plans collectively purchased 47,351 shares and 14,436
shares at $116 and $138 per share, respectively, as determined by the valuation
of an independent investment banking firm at the time of purchase (the $116
price was based on the independent valuation of $119 per share, less a $3 per
share dividend paid after the valuation was issued but before the stock
purchase). In addition, the Company contributed 38,263 shares to these plans.
During 1992, the qualified plans purchased 35,997 shares and 13,283 shares at
$84 and $122 per share, respectively, and the Company contributed 78,867
matching shares.
It is the Company's intent to have semi-annual sales of Class E common stock to
the EIP, ELTIS and ESAP. However, the frequency of these sales may be dependent
upon business and economic conditions.
67
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 12 (continued)
EMPLOYEE INVESTMENT PLANS
EIP/ELTIS (continued)
On January 18, 1995, ELTIS purchased 2,109 shares of Class E common stock from
the Company at $134 per share as determined by the valuation of an independent
investment banking firm. There were no shares purchased from the EIP due to
cash needs of the plan. In addition, the Company contributed 11,202 shares
(which included a portion related to ELTIS profit sharing) to these plans at a
cost of $1.5 million, which was included in fiscal 1994 compensation expense.
Home Office Cash Performance Sharing Plan
The Company has a Cash Performance Sharing Plan for all Home Office payroll
employees that pays out based on a percentage of base salary and certain Company
earnings criteria. Participants in the management incentive plan can receive up
to 8 percent, while other Home Office employees can receive up to 12 percent, of
their covered compensation (fiscal year salary and non-long-term performance
plan bonus) under this plan. In 1995, the Company will implement a new
performance and pay program replacing this program for salaried employees. (See
Partners in Performance caption under Item 11 for additional information.)
The aggregate cost of providing all aspects of these plans, along with other
savings and compensation plans in 1994, 1993 and 1992 were $52.2 million, $45.4
million and $46.0 million, respectively.
Note 13
MANAGEMENT INCENTIVE PLAN
The Company's Management Incentive Plan ("MIP") provides selected employees with
incentive compensation and provides a tool for recruiting and retaining selected
employees. Under the MIP, the Personnel Committee of the Board of Directors, as
administrator of the MIP, may award discretionary cash payments to selected
employees. Such awards are made on the basis of various factors, including
profit levels, return on investment, salary grade and individual performance.
The amounts charged to expense for the MIP in 1994, 1993 and 1992 were $15.8
million, $13.8 million and $12.8 million, respectively. This plan will be
replaced by a new performance and pay program in 1995 (see Partners in
Performance caption under Item 11 for additional information).
Note 14
LONG-TERM PERFORMANCE PLAN
The Company has a Long-Term Performance Plan ("LTPP"), to provide incentive and
reward performance over time and potential future contributions, for certain
directors, officers and key employees. Under this plan, a number of performance
units are granted to each participant. The value assigned to each unit is based
on the Company achieving a target performance measure over a three-year period,
as determined by a committee of the Board of Directors. Awards are paid in one-
third increments on the third, fourth and fifth anniversaries of the date of the
grant. The amounts charged to expense for the plan in 1994, 1993 and 1992 were
68
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 14 (continued)
LONG-TERM PERFORMANCE PLAN
$29.8 million, $25.7 million and $27.9 million, respectively. This plan will be
replaced by a new performance and pay program in 1996 (see Partners in
Performance caption under Item 11 for additional information).
Note 15
EXECUTIVE STOCK APPRECIATION RIGHTS PLAN
The Levi Strauss Associates Inc. Executive Stock Appreciation Rights Plan was
established in 1992. A total of 90,000 stock appreciation rights (SARS) were
granted in 1994 to certain executives at an initial grant value of $129 per SAR.
These SARs vest over several years and become exercisable commencing in 1997.
In addition, stock based awards, based on a valuation of $129 per share, were
granted to two of the five most highly compensated executive officers of the
Company. These executives were given the choice to receive 40,000 SARs each or
participate in a Class L stock purchase arrangement in which the Company would
loan each of these two executives approximately $4.9 million to purchase Class L
stock. These executives have until the end of April 1995 to make their
decision.
Also during 1994, 17,000 stock appreciation rights granted in 1992 were
forfeited. There were no SAR grants during 1993. A total of 114,000 SARs were
granted in 1992 at an initial grant value of $84 per SAR. The 1992 SARs vest
over several years and become exercisable commencing in 1995. The amounts
charged to expense for the plan (net of forfeitures) in 1994, 1993 and 1992 were
$1.8 million, $.9 million and $.5 million, respectively.
Note 16
STOCK OPTION PLAN
The Company has a 1985 Stock Option Plan (the "Plan") for Class L common stock
under which options are granted at an exercise price determined on the date of
grant by a committee of the Board of Directors. Options under the Plan expire
ten years from the date of grant and become exercisable as determined by the
committee.
During the fourth quarter of 1994, all outstanding options became subject to the
terms of the management liquidity program (see Note 17).
In 1992, the Board of Directors approved a special payment arrangement under the
Plan to facilitate the exercise by optionholders of their outstanding options.
This arrangement accelerated vesting on all non-vested options and allowed each
optionholder to exercise outstanding options by surrendering a portion of these
outstanding options in full payment of the exercise price and related tax
obligations. Holders of 65 percent of all outstanding options participated in
this arrangement. The special arrangement required the recognition of a fiscal
1992 pre-tax stock option charge of $158.0 million for all outstanding options
(the amount equal to the difference between the fair market value of the
underlying shares at the exercise date and at the grant date). Separately, the
Company also recognized compensation expense for related exercise bonuses and
the accelerated use of presently non-vested options. The Company
69
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 16 (continued)
STOCK OPTION PLAN
disbursed $41.9 million to pay related withholding taxes for optionholders (in
exchange for an equal amount of surrendered options) and $4.4 million for
related exercise bonuses. The optionholders participating in this arrangement
exercised 925,123 options resulting in 532,368 reissued treasury shares of Class
L common stock. The Company also retired 392,755 shares of treasury stock,
which was equal to the number of options surrendered. The net change in
Stockholders' Equity (including the after-tax effect of the stock option charge)
was an increase of $9.2 million.
The following summary presents stock option activity for the years ended
November 29, 1992, November 28, 1993 and November 27, 1994:
<TABLE>
<CAPTION>
Options Exercise/Surrender
Outstanding Price
------------ ------------------
<S> <C> <C>
Outstanding at November 24, 1991 1,424,872 $3.50 - 20.20
Exercised (532,368) $3.50 - 20.20
Surrendered (392,755) $3.50 - 20.20
--------- -------------
Outstanding and exercisable at November 29, 1992 499,749 $ 3.50
--------- -------------
No activity during 1993 -- --
Outstanding and exercisable at November 28, 1993 499,749 $ 3.50
--------- -------------
No activity during 1994 -- --
Outstanding and exercisable at November 27, 1994 499,749 $ 3.50
========= =============
</TABLE>
Note 17
MANAGEMENT LIQUIDITY PROGRAM
During 1994, the Board of Directors and stockholders approved a stock liquidity
program (the "Liquidity Program") for management holders of Class L common
stock. The Liquidity Program allowed the Company to enter into contracts with
then-existing management holders of Class L common stock relating to in-service,
employment separation-related and post-separation stock purchases. Holders of
1,047,280 shares of Class L common stock (including outstanding options)
participate in this program. They may annually sell a specified amount of their
stock to the Company, subject to certain limitations and conditions. The
program also entitles the Company to purchase all of the shares held by a
management holder at the time of separation from employment.
Participating shares were classified on the balance sheet "outside" of
stockholders' equity due to the liquidity feature. As a result of this
Liquidity Program, the Company incurred a pre-tax compensation expense for
participating stock options and related exercise bonus of $6.0 million and $13.2
million, respectively, (based on the current appraised stock value of $134 per
share).
70
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 17 (continued)
MANAGEMENT LIQUIDITY PROGRAM
In addition, the Company reclassified common stock outside of stockholders'
equity of approximately $138.6 million and recorded a reduction in stockholders'
equity of approximately $132.6 million. Future changes in the stock valuation
will result in periodic adjustments to compensation expense for participating
stock options, participating share balances and retained earnings. Actual
purchases of stock by the Company under the Liquidity Program will result in
cash outflows.
Subsequent to year-end, the Company repurchased and subsequently retired 70,842
shares of management Class L common stock, pursuant to the Liquidity Program, at
the current appraised stock value of $134 per share totaling $9.5 million.
Note 18
LONG-TERM EMPLOYEE RELATED BENEFITS
The components of long-term employee related benefits are as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(000's)
<S> <C> <C>
Postretirement medical benefits $418,622 $ --
Workers' Compensation 148,445 158,009
Other Deferred Employee Benefits 153,101 135,138
-------- --------
$720,168 $293,147
======== ========
</TABLE>
Included in workers compensation are accrued expenses related to the Company's
program that provides for early identification and treatment of employee
injuries. During 1994, the Company reduced its Workers' Compensation expense by
$85.9 million, which represents a reversal of previously estimated costs for
years 1994 and prior. The reduction was due to the positive effects of new
state workers' compensation legislation in Texas and the Company's safety
programs and alternative manufacturing systems implementation. Other deferred
employee benefits include accrued liabilities for the Company's long-term
performance plan, deferred compensation, benefit restoration, pension and other
plans.
Note 19
SERIES A AND SERIES B PREFERRED STOCK
During 1992, the Company redeemed for cash and permanently retired all
outstanding shares of Series A preferred stock at $170 per share, for an
aggregate of $82.3 million, plus accrued and unpaid dividends of $1.1 million.
The Company used cash from operations to purchase the shares. Dividend
distributions of $4.3 million were paid in 1992. During 1992, all shares of
Series B preferred stock were redeemed and permanently retired during 1992 at
$54 per share for an aggregate of $76.5 million, plus accrued and unpaid
dividends of $3.2 million. Dividend distributions of $3.2 million were paid in
1992.
71
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 20
COMMON STOCK
Restated Certificate of Incorporation
During 1993, holders of a majority of outstanding shares (approximately 60
percent) of the Company approved, by written consent, an amendment and
restatement of the Company's Certificate of Incorporation (the "Restatement").
The Restatement simplifies and shortens the capital stock provisions of the
Certificate of Incorporation. It removes the Company's authority to issue, and
eliminates all references to, Class F common stock, Series A preferred stock and
Series B preferred stock. It does not affect any provisions relating to Class E
common stock or Class L common stock, or make any other changes in the
Certificate of Incorporation.
Currently, the Company has an authorized capital structure consisting of:
270,000,000 shares of common stock, par value $.10 per share, of which
100,000,000 shares are designated Class E common stock and 170,000,000 shares
are designated Class L common stock; plus 10,000,000 shares of preferred stock,
par value $1.00 per share. Class L common stock is subject to a stockholders'
agreement (expiring in April 2001), which limits transfers of the shares.
Additionally, management Class L stockholders are parties to contracts with the
Company providing for in-service, employment separation-related and post-
separation stock purchases (see Note 17 for information relating to the
Management Liquidity Program). The outstanding shares of Class E common stock
are subject to restrictions on transfer imposed by the EIP, ELTIS and ESAP.
Dividends
In November 1994, the Board of Directors declared a dividend of $.65 per share
(totaling $.9 million), which was paid on December 15, 1994 to Class E
stockholders of record on December 1, 1994. In June 1994, the Board of
Directors declared a dividend of $.65 per share (totaling $.9 million), which
was paid on August 31, 1994 to Class E stockholders of record on July 29, 1994.
There were no dividends declared on Class L common stock during 1994.
On November 18, 1993, the Board of Directors declared a dividend of $.55 per
share (totaling $.7 million), which was paid on December 15, 1993 to Class E
stockholders of record on December 1, 1993. In June 1993, the Board of
Directors declared a dividend of $.55 per share, for an aggregate of $.7
million, which was paid on August 27, 1993 to Class E stockholders of record on
July 30, 1993. There were no dividends declared on Class L common stock during
1993.
In November 1992, the Board of Directors declared a dividend of $3.00 per share
(totaling $2.9 million), which was paid on December 15, 1992, to Class E
stockholders of record on December 1, 1992. Also in November 1992, the Board of
Directors declared a dividend of $3.00 per share to Class L stockholders of
record on December 1, 1992, $1.50 of which (totaling $77.1 million) was paid on
December 15, 1992 and $1.50 of which (totaling $77.1 million) is payable in four
semi-annual installments commencing June 15, 1993. The notes issued for these
dividends bear an interest rate incrementally above the six-month Treasury Bill
rate.
72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 20 (continued)
COMMON STOCK
Dividends (continued)
In June 1992, the Board of Directors declared a common stock dividend of $.40
per share (totaling $21.0 million), which was paid on August 14, 1992, to Class
E and Class L stockholders of record on July 31, 1992.
The declaration of future dividends on Class E and Class L common stock is
within the discretion of the Board of Directors of the Company and will depend
upon business conditions, earnings, the financial condition of the Company and
other factors.
Treasury Stock Reissuance/Retirement
As a result of the special payment arrangement under the 1985 Stock Option Plan
(see Note 16), 532,368 shares of Class L treasury stock were reissued and
392,755 shares of Class L treasury stock were retired during 1992. The net
change in Stockholders' Equity (including the after-tax effect of the stock
option charge) was an increase of $9.2 million.
Common Stock - Employee Investment Plans
Class E common stock held by participants of the ESAP (see Note 12) are
classified outside stockholders' equity due to the put rights attached to ESAP
Class E common stock sold. There were no Class E common shares offered for
purchase to ESAP participants prior to 1992. The redemption amount of common
stock sold through the ESAP represents the latest independent valuation of $134
per share.
Class E common stock is appraised, usually twice a year, by an independent
investment banking firm. The latest appraised value of Class E common stock is
used as the price for selling or repurchasing Class E common stock from the EIP
and ELTIS trustee and ESAP participants. The latest appraised value of Class E
common stock is also used as the value for Class L common stock, including
participating shares of the Management Liquidity Program. The investment firm
is instructed to value stock as though there had been a public trading market
for the stock on the valuation date, and to not give consideration to an
acquisition or control premium, or to a private market discount. There is,
however, no assurance that the Company's stock would trade at the price
determined through the independent investing banking firm valuation had there
been a public trading market for the shares on the valuation date.
Common Stock - Management Liquidity Program
Participating Class L shares under the Management Liquidity Program (the
Program) are classified outside stockholders' equity due to the liquidity
feature under the Program (see Note 17). Program shares are shown on the
balance sheet valued at the latest independent valuation of $134 per share.
Repurchase of Class L Common Stock
During the first quarter of 1994, the Company purchased 83,949 shares of Class L
common stock, for a total of $9.6 million, held by certain management
stockholders who left the
73
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 20 (continued)
COMMON STOCK
Repurchase of Class L Common Stock (continued)
employment of the Company. The purchase price of $114 per share was the
appraised value as determined by a valuation obtained in November 1993 from an
independent investment banking firm for the Company's employee stock plans.
Note 21
RELATED PARTIES
See Item 13, Other Transactions, for related parties information.
Note 22
SUBSEQUENT EVENTS
Management Liquidity Program
During the first quarter of 1995, the Company repurchased and subsequently
retired 70,842 shares of management Class L common stock, pursuant to the
management liquidity program, at the current appraised stock value of $134 per
share totaling $9.5 million (see Note 17).
Repayment of Dividend Notes
On December 15, 1994, the Company repaid its fourth and final series of dividend
notes to Class L stockholders for an aggregate amount of $20.6 million, plus
interest accrued of $1.9 million. (See Note 6 for additional information.)
Payment of Dividends
On December 15, 1994, the Company paid to Class E stockholders of record
dividends of $.65 per share, for an aggregate amount of $.9 million. (See Note
20 for additional information.)
Declaration of Dividends
In February 1995, the Board of Directors declared a dividend of $.75 per share
(for an aggregate amount of approximately $39.5 million), payable on March 15,
1995 to Class E and Class L stockholders of record on March 1, 1995.
Sale of Class E Common Stock to Employee Investment Plans
During January 1995, the Company's employee investment plans, collectively,
purchased 35,471 shares of Class E common stock from the Company and the Company
contributed 32,383 matching shares before taxes to these plans. (See Note 12
for additional information.)
Partners in Performance
In early 1995, the Company implemented a new performance and pay program,
Partners in Performance. This program replaces the current cash performance
sharing plan and management incentive plan in 1995 and will replace the long-
term performance plan in 1996. The added cost of this plan is estimated to be
an additional expense of approximately $5.0 million in 1995. (See Partners in
Performance caption under Item 11 for additional information.)
74
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Levi Strauss Associates Inc.:
We have audited the accompanying consolidated balance sheets of Levi Strauss
Associates Inc. (a Delaware corporation) and Subsidiaries as of November 27,
1994 and November 28, 1993, and the related consolidated statements of income,
stockholders' equity and cash flows for the years ended November 27, 1994,
November 28, 1993 and November 29, 1992. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Levi Strauss Associates Inc.
and Subsidiaries as of November 27, 1994 and November 28, 1993, and the results
of their operations and their cash flows for each of the three years in the
period ended November 27, 1994, in conformity with generally accepted accounting
principles.
As explained in Notes 3 and 11 to the Consolidated Financial Statements,
effective November 29, 1993, the Company changed its method of accounting for
income taxes and postretirement benefit plans.
ARTHUR ANDERSEN LLP
San Francisco, California,
January 19, 1995
75
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
76
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The table below identifies the current directors and executive officers of the
Company, along with their offices, positions and ages.
<TABLE>
<CAPTION>
NAME AGE OFFICE AND POSITION
- ---- --- -------------------
<S> <C> <C>
Walter A. Haas, Jr./(1)//(2)/....... 79 Director, Honorary Chairman of the Board of
Directors
Peter E. Haas, Sr./(1)//(2)/........ 76 Director, Chairman of the Executive Committee of
the Board of Directors
Robert D. Haas/(1)//(2)/............ 52 Director, Chairman of the Board of Directors and
Chief Executive Officer
Thomas W. Tusher/(2)/............... 53 Director, President and Chief Operating Officer
Angela Glover Blackwell/(2)//(3)/... 49 Director (Effective February 9, 1994)
Tully M. Friedman/(2)//(3)/......... 53 Director
James C. Gaither/(2)//(4)/.......... 57 Director
Rhoda H. Goldman/(1)//(2)//(4)/..... 70 Director
Peter E. Haas, Jr./(1)//(2)//(3)/... 47 Director
F. Warren Hellman/(3)//(4)/......... 60 Director
James M. Koshland/(2)//(4)/......... 43 Director
Patricia Salas Pineda/(3)//(4)/..... 43 Director
Thomas J. Bauch..................... 51 Senior Vice President, General Counsel and Secretary
R. William Eaton, Jr................ 51 Senior Vice President, Chief Information Officer
Donna J. Goya....................... 47 Senior Vice President, Human Resources
Peter A. Jacobi..................... 51 Senior Vice President, President of Levi Strauss
International
George B. James..................... 57 Senior Vice President, Chief Financial Officer
Robert D. Rockey, Jr................ 53 Senior Vice President, President of Levi Strauss
North America
</TABLE>
- --------------------------
/(1)/ Robert D. Haas is the son of Walter A. Haas, Jr.; Walter A. Haas, Jr. is
the brother of Peter E. Haas, Sr. and Rhoda H. Goldman, and the uncle of
Peter E. Haas, Jr.
/(2)/ Member, Corporate Ethics and Social Responsibility Committee
/(3)/ Member, Audit Committee
/(4)/ Member, Personnel Committee
Note: John F. Kilmartin retired December 5, 1993 and was replaced by Angela
Glover Blackwell.
Directors are divided into three classes of equal number. All directors are and
will be elected by holders of a majority of the outstanding shares of the
Company entitled to vote in the election of directors. Stockholders vote
separately for the election of directors in each class. The first class of
directors consists of Mr. R. D. Haas, Mrs. Goldman, Ms. Blackwell and Mr.
Friedman and the term of office expires at the 1996 annual meeting. The second
class consists of Mr. P.E. Haas, Jr., Mr. W. A. Haas, Jr., Mr. Hellman and Ms.
Pineda and the term of office expires at the 1997 annual meeting. The third
class consists of Mr. Tusher, Mr. P. E. Haas,
77
<PAGE>
Sr., Mr. Gaither and Mr. Koshland and the term of office expires at the 1995
annual meeting of stockholders.
Directors who are elected at an annual meeting of stockholders to succeed those
whose terms then expire will be identified as being directors of the same class
as those they succeed. Staggered board provisions result in the election of
only one-third of the Board at each annual meeting. This arrangement limits the
ability of a person holding enough stock to control the election process from
effecting a rapid change in board composition and therefore may have the effect
of delaying, deferring or preventing a change in control of the Company.
Executive officers serve at the discretion of the Board of Directors.
All members of the Haas family and Mrs. Goldman are direct descendants of the
founder of LS&CO., Levi Strauss.
Walter A. Haas, Jr. became Honorary Chairman of the Board of LS&CO. and the
Company in 1985. He joined LS&CO. in 1939 and held the positions of President
from 1958 to 1970 and Chief Executive Officer from 1958 to 1976. He served as
Chairman of the Board from 1970 to 1981 and Chairman of the Executive Committee
from 1976 until 1985.
Mr. W.A. Haas, Jr. is a trustee of the Business Enterprise Trust. He was
formerly a director of UAL, Inc., United Airlines, Inc., BankAmerica Corporation
and Bank of America, NT & SA. He was appointed to the National Commission on
Public Service, is a former member of the Citizens Commission on Private
Philanthropy and Public Need, a former member of the Trilateral Commission, a
former trustee of the Ford Foundation and has served on the Presidential
Advisory Council for Minority Enterprise. Mr. Haas is also owner and Managing
General Partner of the Oakland Athletics.
Peter E. Haas, Sr. assumed his present position as Chairman of the Executive
Committee of the Board of Directors in March 1989 after serving as Chairman of
the Board of LS&CO. since 1981, and of the Company since 1985. He joined LS&CO.
in 1945 and became President in 1970 and Chief Executive Officer in 1976. He
has served on the Board of LS&CO. since 1948 and has been a director of the
Company since its inception in 1985.
Mr. P.E. Haas, Sr. is a former Associate of the Smithsonian National Board and a
trustee and former Chairman of the Board of Trustees of the San Francisco
Foundation. He is a former director of the Northern California Grantmakers,
Crocker National Corporation and Crocker National Bank, and American Telephone
and Telegraph Co. He is a former President of the United Way of the Bay Area,
the Jewish Community Federation, Aid to Retarded Citizens and the Rosenberg
Foundation and a former member of the Board of Governors of the United Way of
America.
Robert D. Haas assumed his present position as Chairman of the Board of
Directors of the Company and LS&CO. in March 1989. Since 1984, he has served as
Chief Executive Officer of the Company and LS&CO., and was President of the
Company from its inception in 1985 to March 1989. Since he joined LS&CO. in
1973, Mr. Haas served in a number of positions, including Marketing Director and
Group Vice President of LSI, Director of Corporate Marketing Development, Senior
Vice President of Corporate Planning and Policy and President of the New
78
<PAGE>
Business Group. He became President of the Operating Groups in 1980 and was
named Executive Vice President and Chief Operating Officer in 1981. He was
elected to the LS&CO. Board of Directors in 1980 and has been a director of the
Company since its inception in 1985.
Mr. R.D. Haas is an active participant in business and community organizations
and is currently Chairman of the Board of Directors of the Levi Strauss
Foundation, a trustee of the Ford Foundation, an honorary trustee of the
Brookings Institution and an honorary director of the San Francisco AIDS
Foundation. He is also a member of the Conference Board, the Council on Foreign
Relations, the Trilateral Commission, the Bay Area Council, the California
Business Roundtable and a former Director of the American Apparel Association.
Thomas W. Tusher, President and Chief Operating Officer, joined LS&CO. in 1969,
was elected Executive Vice President and Chief Operating Officer in 1984 and
became President and a director of the Company in March 1989. He previously
served as President of the Europe Division, Executive Vice President of the
International Group and was appointed President of LSI in 1980. He was elected
a Vice President of LS&CO. in 1976 and a Senior Vice President in 1977 and was a
director of LS&CO. from 1979 until 1985.
Mr. Tusher is a director of Cakebread Cellars and a former director of Great
Western Financial Corporation and the San Francisco Chamber of Commerce. He is
a member and former Chairman of the Walter A. Haas School of Business Advisory
Board, University of California Berkeley and a member of the Bay Area Sports
Hall of Fame Committee.
Angela Glover Blackwell, elected to the Board in February 1994, is the founder
and former President of Urban Strategies Council, established in 1987. As of
January 23, 1995, she assumed the vice-presidency of the Rockefeller Foundation
in New York. Previously, she served as staff attorney and managing attorney for
Public Advocates, Inc. and served on the board for Common Cause. Ms. Blackwell
currently serves on the boards of the James Irvine Foundation, Children Now, the
Center on Budget and Policy Priorities, the Foundation for Child Development and
the Urban Institute. She also co-chairs the Commission for Positive Change in
the Oakland Public Schools.
Tully M. Friedman, a director since 1985, has been a managing partner of the
private investment firm of Hellman & Friedman since its inception in 1984. From
1979 until 1984, he was a general partner and, later, managing director of
Salomon Brothers Inc. Currently, he is a director of Mattel, Inc., McKesson
Corporation, Western Wireless Corporation, American President Companies, Ltd.
and MobileMedia Corporation. He is a member of the Advisory Committee of Falcon
Cable TV, a trustee and member of the Executive Committee of the American
Enterprise Institute and a director of Stanford Management Company. He is a
former President of the San Francisco Opera Association and a former Chairman of
Mount Zion Hospital and Medical Center.
James C. Gaither, a director since April 1988, is a partner of the law firm of
Cooley, Godward, Castro, Huddleson & Tatum, San Francisco, California. Prior to
beginning his law practice with the firm in 1969, he served as law clerk to the
Honorable Earl Warren, Chief Justice of the United States, Special Assistant to
the Assistant Attorney General in the U.S. Department of Justice and Staff
Assistant to the President of the United States, Lyndon B.
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Johnson. Mr. Gaither is the former President of the Board of Trustees at
Stanford University and is a member of the Board of Trustees of the Carnegie
Endowment for International Peace and for The RAND Corporation. He was formerly
Chairman of the Board of Trustees for the Center for Biotechnology Research and
has served as Chairman of the Board of many educational and philanthropic
organizations in the San Francisco Bay Area. Mr. Gaither is currently a
director of Basic American Inc., the James Irvine Foundation and has served as a
director of several other public and private companies.
Rhoda H. Goldman, a director since 1985, devotes substantial time to public
service. She is a director of Mount Zion Health Systems and a former trustee of
Mount Zion Medical Center of the University of California, San Francisco, Vice
President of the Board of Governors of the San Francisco Symphony, a member of
Foster McGaw Prize Committee, the Goldman Environmental Foundation, the Walter
A. Haas School of Business Advisory Board, University of California Berkeley,
the ARCS Foundation and the Levi Strauss Foundation. She is past President of
Congregation Emanu-El, San Francisco. Additionally, she is Chairperson of the
Stern Grove Festival Association and has served as Chairperson of the
Distribution Committee of the San Francisco Foundation and the Mayor's Holocaust
Memorial Committee.
Peter E. Haas, Jr., a director since 1985, joined LS&CO. in 1972 as Director of
the Minority Purchasing Program. He later transferred to LSI, where he held the
positions of Manager of Financial Analysis, Inventory Planning Manager and
General Merchandising Manager. He became a Vice President and General Manager
in the Menswear Division in 1980, Director of Materials Management for Levi
Strauss USA in 1982 and was Director of Product Integrity of The Jeans Company
from 1984 to February 1989. Mr. P.E. Haas, Jr. is a former President of the
Board of Trustees of Marin Academy and is President of the Board of Directors of
the Red Tab Foundation. Additionally, he is director of the following Boards:
Vassar College, Levi Strauss Foundation, Novato Youth Center (former President),
North Bay Bancorp and The Stern Grove Festival Foundation.
F. Warren Hellman, a director since 1985, has been a managing partner of the
private investment firm of Hellman & Friedman since its inception in 1984.
Previously, he was Managing Director of Lehman Brothers Kuhn Loeb, Inc. Mr.
Hellman is currently a director of American President Companies, Ltd., Williams-
Sonoma, Inc., Franklin Resources, Inc., Il Fornaio America Corporation, DN&E
Walter Co., Children Now, Eagle Industries, Inc., Great America Management &
Investment, Inc., The California Higher Education Policy Center and University
of California San Francisco (UCSF) Foundation. He is a trustee of the Brookings
Institution, a member of the University of California Berkeley Foundation and
Honorary Lifetime Trustee of Mills College.
James M. Koshland, a director since 1985, is a partner of the law firm of Gray,
Cary, Ware & Freidenrich, a Professional Corporation, Palo Alto, California,
with which he has been associated since 1978. Mr. Koshland is Chairman of the
Corporate and Securities Group and a member of the Executive Board of the firm.
He is a director of the Giarretto Institute, the Foundation for the Future of
Menlo-Atherton High School, the Senior Coordinating Council of the Palo Alto
area, and the Executive Committee of the Board of Visitors of Stanford Law
School.
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Patricia Salas Pineda, a director since 1991, is General Counsel and Assistant
Corporate Secretary of New United Motor Manufacturing, Inc., with which she has
been associated since 1984. She is currently a trustee of Mills College and The
RAND Corporation. She was formerly a member and served as President of the Port
of Oakland Commission and was a former member of the KQED, Inc. Board of
Directors and the San Francisco Ballet Association.
Thomas J. Bauch, Senior Vice President, General Counsel and Secretary, joined
LS&CO. in 1977. He was named General Counsel in 1981, elected a Vice President
of LS&CO. in 1982 and assumed his current position as Senior Vice President in
1985. Mr. Bauch has served on the Board of Governors of the Commonwealth Club
and the Board of Visitors of the University of Wisconsin Law School. He has
served on the Board of Directors of the Urban School of San Francisco, the
American Corporate Counsel Association, the Medical Research Institute and as a
legal advisor to the City of Belvedere and the Multicultural Alliance. He was
Chairman of the Bay Area General Counsel Association in 1984.
R. William Eaton, Jr., Senior Vice President and Chief Information Officer,
joined LS&CO. in 1978 as Manager of Information Systems. He became Vice
President for Information Resources of LSI in 1983, was elected a Vice President
of LS&CO. in 1986, was named Chief Information Officer in 1988 and assumed his
current position of Senior Vice President in February 1989. Mr. Eaton is a
former member of the Commonwealth Club and the King's Mountain Community
Association.
Donna J. Goya, Senior Vice President, Human Resources, joined LS&CO. in 1970 and
became the Director of Equal Employment Opportunity and Personnel Policy in
1980. She became Director of Employee Relations and Policy in 1983 and Vice
President of Corporate Personnel in 1984. She was elected a Senior Vice
President in 1986. Ms. Goya is a director of INROADS and is a member of the
Human Resources Roundtable and the National Academy of Human Resources.
Peter A. Jacobi, President of Levi Strauss International, joined the Company in
1970 and was named President of the Youthwear Division in 1981. In 1984, he
became Executive Vice President of the Jeans Company and was subsequently named
President of the Men's Jeans Division. Mr. Jacobi became President of the
European Division of LSI in 1988. In 1991, he assumed the position of President
of Global Sourcing and was elected Senior Vice President. In 1993, he assumed
his current position. Mr. Jacobi is past President of the South-West Apparel
and Textile Manufacturers Association and also served on the Board of Directors
for the Men's Fashion Association. He is a member of the Board of Directors of
the Textile/Clothing Technology Corporation, Advisory Board to the University of
Michigan School of Engineering and the U.C. Berkeley/St. Petersburg (Russia)
School of Management Project.
George B. James, Senior Vice President and Chief Financial Officer, joined the
Company and LS&CO. in 1985. From 1984 to 1985, he was Executive Vice President
and Group President of Crown Zellerbach Corporation and from 1982 to 1984, he
held the position of Executive Vice President and Chief Financial Officer of
Crown Zellerbach Corporation. From 1972 to 1982, he was Senior Vice President
and Chief Financial Officer of Arcata Corporation. Mr. James is a director of
Basic Vegetable Products, Inc., Fiberboard Corp., the San Francisco Chamber of
Commerce, the World Affairs Council, California Pacific Medical Center
Foundation and the
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Committee for Economic Development. In addition, he is a trustee of the San
Francisco Ballet Association and serves as trustee for the Stern Grove Festival
Association and the Zellerbach Family Fund.
Robert D. Rockey, Jr., President of Levi Strauss North America, joined LS&CO. in
1979 and became President of the Womenswear Division in 1983. In 1984, he was
named President of the Europe Division of LSI and, in 1988, he was appointed
President of the Men's Jeans Division. During 1991, Mr. Rockey became President
of U.S. Marketing Divisions and later was elected Senior Vice President. In
1992, he assumed the position of President of Levi Strauss North America. Mr.
Rockey is a director and former President of the South-West Apparel and Textile
Manufacturers Association.
Insider Report Filings
The Company's executive officers and directors are not obligated, under Section
16(a) of the Securities Exchange Act of 1934, to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission.
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ITEM 11. DIRECTOR AND EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors of the Company who are also stockholders or employees of the Company
do not receive any additional compensation for their services as director.
Directors who are not stockholders or employees [Messrs. Kilmartin (before his
retirement effective December 5, 1993) and Gaither and Mss. Blackwell and
Pineda] receive approximately $36,000 in annual compensation during each of
their first five years of service and, beginning in their sixth year of service,
are expected to receive annual compensation of approximately $42,000. Such
payments include an annual cash retainer of $30,000 for each of the first three
years, $20,000 for the fourth year, $10,000 for the fifth year, and $6,000
thereafter. The payments also include fees of $500 per Board and Board
committee meeting attended and award payments under the Company's Long-Term
Performance Plan ("LTPP"). The amount of each type of payment varies depending
on the year of service and the actual value of the LTPP units. Mr. Gaither and
Mss. Blackwell and Pineda each received grants of 350 performance units under
the LTPP in 1994. In 1994, Messrs. Gaither and Kilmartin and Ms. Pineda
received payments under the LTPP of $99,894, $97,448 and $31,633, respectively.
Directors who are not employees or stockholders also receive travel accident
insurance while on Company business and are eligible to participate in a
deferred compensation plan. (See LTPP and deferred compensation plan captions.)
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
F. Warren Hellman and Tully M. Friedman, directors of the Company, are general
partners of Hellman & Friedman, an investment banking firm. Hellman & Friedman
provides financial advisory services to the Company and received $300,407 for
such services in 1994. At November 27, 1994 Messrs. Hellman and Friedman and
their families and other partners of Hellman & Friedman beneficially owned an
aggregate of 1,081,442 shares of Class L common stock. See Item 12, Security
Ownership of Certain Beneficial Owners and Management, for additional
information concerning Mr. Hellman's and Mr. Friedman's beneficial ownership of
Class L common stock.
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SUMMARY COMPENSATION TABLE FOR EXECUTIVE OFFICERS
The following table sets forth summary compensation information for 1994, 1993
and 1992 for each of the five most highly compensated executive officers of the
Company:
<TABLE>
<CAPTION>
Long Term
Compensation
-------------------------
Annual Compensation Awards Payouts
--------------------------------------------------------- ---------- ------------
Securities All
Other Underlying Other
Name and Annual SARs LTIP Compensation
Principal Position Year/(1)/ Salary Bonus/(2)/ Compensation/(3)/ (#)/(4)/ Payouts/(5)/ /(6)/
- ----------------------------- --------- ------------ ---------- ----------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert D. Haas 1994 $1,044,184 $1,374,058 $ -- -- $1,356,521 $990,861
Chairman of the Board and 1993 998,460 1,162,795 -- -- 506,667 871,060
Chief Executive Officer 1992 938,278 1,082,711 1,866,375 -- -- 625,014
Thomas W. Tusher 1994 709,852 785,953 -- -- 1,196,220 465,924
President, Chief Operating 1993 680,056 677,063 -- -- 944,985 624,510
Officer 1992 647,093 642,003 -- -- 626,970 480,384
George B. James 1994 387,260 356,039 -- -- 556,482 188,199
Senior Vice President, 1993 369,292 313,231 -- -- 481,539 160,633
Chief Financial Officer 1992 352,463 287,650 965,538 -- 355,935 107,172
Robert D. Rockey, Jr. 1994 406,419 447,043 -- -- 521,830 240,240
Senior Vice President, 1993 354,959 317,724 -- -- 432,805 179,570
President of Levi Strauss 1992 314,149 297,493 156,539 25,000 368,571 135,028
North America
Peter A. Jacobi 1994 336,156 376,656 -- -- 543,386 234,186
Senior Vice President, 1993 311,692 281,413 -- -- 453,071 163,712
President of Levi Strauss 1992 296,593 251,797 179,883 25,000 368,571 138,755
International
</TABLE>
____________________
/(1)/ Fiscal 1994 and 1993 each contained 52 weeks. Fiscal year 1992 contained
53 weeks.
/(2)/ Bonuses are paid pursuant to the Company's Management Incentive Plan
("MIP") and Cash Performance Sharing Plan. The bonuses include amounts
based upon 1994, 1993 and 1992 performance that will be or were paid in
1995, 1994 and 1993, respectively (see Management Incentive Plan and Home
Office Cash Performance Sharing Plan captions). Amounts paid to Mr. Haas
relating to MIP bonuses were $1,197,500, $1,010,000 and $935,000 for 1994,
1993 and 1992, respectively. Amounts paid to Mr. Haas relating to Cash
Performance Sharing bonuses were $176,558, $152,795 and $147,711 for 1994,
1993 and 1992, respectively. Amounts paid to Mr. Tusher relating to MIP
bonuses were $675,000, $580,000 and $545,000 for 1994, 1993 and 1992,
respectively. Amounts paid to Mr. Tusher relating to Cash Performance
Sharing bonuses were $110,953, $97,063 and $97,003 for 1994, 1993 and
1992, respectively. Amounts paid to Mr. James relating to MIP bonuses were
$300,000, $265,000 and $240,000 for 1994, 1993 and 1992, respectively.
Amounts paid to Mr. James relating to Cash Performance Sharing bonuses
were $56,039, $48,231 and $47,650 for 1994, 1993 and 1992, respectively.
Amounts paid to Mr. Rockey, Jr. relating to MIP bonuses were $389,112,
$271,188 and $254,651 for 1994, 1993 and 1992, respectively. Amounts paid
to Mr. Rockey, Jr. relating to Cash Performance Sharing bonuses were
$57,931, $46,536 and $42,842 for 1994, 1993 and 1992, respectively.
Amounts paid to Mr. Jacobi relating to MIP bonuses were $327,250, $240,043
and $211,449 for 1994, 1993 and 1992, respectively. Amounts paid to Mr.
Jacobi relating to Cash Performance Sharing bonuses were $49,406, $41,370
and $40,348 for 1994, 1993 and 1992, respectively.
/(3)/ Other annual compensation represents partial tax reimbursement cash
bonuses related to certain stock option exercises under the 1985 Stock
Option Plan (see 1985 Stock Option Plan caption).
/(4)/ See detail table under 1992 Stock Appreciation Rights Plan section.
/(5)/ Amounts are paid pursuant to the Company's Long-Term Performance Plan
("LTPP"). The LTPP amounts shown in the table include amounts based on
LTPP units granted in 1989, 1990 and 1991 that were paid in 1992, 1993 and
1994 or deferred to later years (see LTPP caption).
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/(6)/ All other compensation consists of amounts contributed under the Company's
Employee Stock Purchase and Award Plan (ESAP) and amounts contributed
under the Company's benefit restoration plans (BRP). The Internal Revenue
Code (the "Code") limits the amount of benefits that may be paid under
plans qualified by the Code. The BRP will pay any benefits that exceed
such limitations. (See Benefits Plan section for more information about
both plans.) Amounts contributed to Mr. Haas relating to ESAP were
$165,295, $155,958 and $148,646 for 1994, 1993 and 1992, respectively.
Amounts contributed to Mr. Haas relating to BRP were $825,566, $715,102
and $476,368 for 1994, 1993 and 1992, respectively. Amounts contributed to
Mr. Tusher relating to ESAP were $103,808, $99,054 and $108,868 for 1994,
1993 and 1992, respectively. Amounts contributed to Mr. Tusher relating to
BRP were $362,116, $525,456 and $371,516 for 1994, 1993 and 1992,
respectively. Amounts contributed to Mr. James relating to ESAP were
$52,403, $49,140 and $54,876 for 1994, 1993 and 1992, respectively.
Amounts contributed to Mr. James relating to BRP were $135,796, $111,493
and $52,296 for 1994, 1993 and 1992, respectively. Amounts contributed to
Mr. Rockey, Jr. relating to ESAP were $54,214, $47,424 and $47,420 for
1994, 1993 and 1992, respectively. Amounts contributed to Mr. Rockey, Jr.
relating to BRP were $186,026, $132,146 and $87,608 for 1994, 1993 and
1992, respectively. Amounts contributed to Mr. Jacobi relating to ESAP
were $46,270, $42,072 and $34,746 for 1994, 1993 and 1992, respectively.
Amounts contributed to Mr. Jacobi relating to BRP were $187,916, $121,640
and $104,009 for 1994, 1993 and 1992, respectively.
STOCK OPTION AND STOCK APPRECIATION RIGHTS PLANS
1985 Stock Option Plan
In 1985, the Board of Directors of the Company adopted the 1985 Stock Option
Plan (the "1985 Plan"). The 1985 Plan is administered by the Personnel
Committee of the Board of Directors (the "Administrator"). A total of 5,000,000
shares of Class L common stock may be issued upon exercise of options under the
1985 Plan to eligible employees or non-employee directors of the Company
selected by the Board. Options granted under the 1985 Plan are non-qualified
stock options and expire ten years from the date of grant. The Board or the
Administrator determines the exercise price, exercise schedule, the manner in
which payment occurs and any provision for a cash bonus to be paid at or about
the time of exercise of the option. In addition the administrator retains
discretion, subject to plan limits, to modify the terms (e.g., acceleration or
elimination of vesting requirements of outstanding options). There were no
option grants during 1994 or 1993.
During 1994, the Board of Directors and stockholders approved a stock liquidity
program for management holders of Class L common stock (including outstanding
stock options). (See Management Liquidity Program caption under Item 13.,
Certain Relationships and Related Transactions.)
In 1992, the Board of Directors approved a special payment arrangement under the
Plan to facilitate the exercise by optionholders of their outstanding options.
This arrangement accelerated vesting on all non-vested options and allowed each
optionholder to exercise outstanding options by surrendering a portion of these
outstanding options in full payment of the exercise price and related tax
obligations. Holders of 65 percent of all outstanding options participated in
this arrangement. The special arrangement required the recognition of a fiscal
1992 pre-tax stock option charge of $158.0 million for all outstanding options
(the amount equal to the difference between the fair market value of the
underlying shares at the exercise date and at the grant date). Separately, the
Company also recognized compensation expense for related exercise bonuses and
the accelerated use of presently non-vested options. The Company disbursed
$41.9 million to pay related withholding taxes for optionholders (in exchange
for an equal amount of surrendered options) and $4.4 million for related
exercise bonuses. The optionholders participating in this arrangement exercised
925,123 options resulting in 532,368 reissued treasury shares of Class L common
stock. The Company also retired 392,755 shares of treasury stock, which was
equal to the number of options surrendered. The net change in Stockholders'
Equity (including the after-tax effect of the stock option charge) was
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an increase of $9.2 million. See Note 16 to the Consolidated Financial
Statements for additional stock option plan information.
1992 Stock Appreciation Rights Plan
In 1992, the Board of Directors of the Company adopted the 1992 Executive Stock
Appreciation Rights Plan of Levi Strauss Associates Inc. The purpose of the
1992 Executive Stock Appreciation Rights Plan is to attract, retain, motivate
and reward certain executives by giving them an opportunity to participate in
the future success of the Company. The "stock appreciation rights" (SARs), are
tied to and based on changes in the value of the Company's Class E common stock
(Class E common stock is appraised, usually twice a year, by an independent
investment banking firm). Upon exercise, the holder is entitled to receive a
cash payment from the Company equal to the difference in the fair market value
of stock on grant date and exercise date, less related tax withholding. A total
of 500,000 rights may be granted under this plan. SARs awarded under the
Company's plan may not be transferred.
The plan is administered by a committee of at least two members of the Board of
Directors of the Company who are disinterested persons. The administrative
committee for SARs determines the initial values of the SARs, the exercise
schedule and any other terms or conditions applicable to the SARs that may be
appropriate. In addition, the administrative committee retains discretion,
subject to plan limits, to modify the terms (e.g., acceleration or elimination
of vesting requirements) of SARs.
A total of 90,000 SARs were granted in 1994 to certain executives at an initial
grant value of $129 per SAR. The 1994 grant of SARs vest and become exercisable
over several years commencing in 1997. Twenty percent of these SARs will be
exercisable in 1997, an additional 30 percent in 1998 and the remaining 50
percent in 1999. In addition, stock based awards, based on a valuation of $129
per share, were granted to Robert D. Rockey, Jr. and Peter A. Jacobi. These
executives were given the choice to receive 40,000 SARs each or participate in a
Class L stock purchase arrangement in which the Company would loan each of these
two executives approximately $4.9 million to purchase Class L stock. These
executives have until the end of April 1995 to make their decision.
Also during 1994, 17,000 SARs granted during 1992 were forfeited. There were no
SAR grants during 1993.
A total of 114,000 SARs were granted in 1992 at an initial grant value of $84
per SAR. The 1992 grant of SARs vest and become exercisable over several years
commencing in 1995. One-third of these SARs will be exercisable in 1995, one-
third in 1996 and the remaining third in 1997.
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<PAGE>
The following table presents information for the year ended November 27, 1994
regarding aggregated options/SARs of executive officers of the Company listed in
the Summary Compensation Table.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Year-End Option/SAR Values
-------------------------------------------------------------------------------------------
Number of Dollar Value
Securities of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs Options/SARs
at Year-End at Year-End
Number of ------------ --------------
Shares
Name and Acquired Dollar Value Exercisable/ Exercisable/
Principal Position on Exercise Realized Unexercisable Unexercisable
- ------------------------------ ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Robert D. Haas -- -- -- --
Chairman of the Board and
Chief Executive Officer
Thomas W. Tusher -- -- 499,749/-- $65,217,245/--
President, Chief Operating
Officer
George B. James -- -- -- --
Senior Vice President,
Chief Financial Officer
Robert D. Rockey, Jr. -- -- --/25,000 --/$1,250,000
Senior Vice President,
President of Levi Strauss
North America
Peter A. Jacobi -- -- --/25,000 --/$1,250,000
Senior Vice President,
President of Levi Strauss
International
</TABLE>
LONG-TERM PERFORMANCE PLAN
The Company has a Long-Term Performance Plan ("LTPP") for outside directors,
officers and other key employees, under which performance units are granted to
each participant. The value assigned to each unit is determined at the
discretion of the Personnel Committee of the Board of Directors. The
performance unit value guidelines selected by the Personnel Committee with
respect to existing grants are based on the Company's three-year cumulative net
earnings before tax. Under such guidelines (which are subject to change by the
Personnel Committee), the current forecast value of the units granted in 1994,
1993 and 1992 is $100, $220 and $220 per unit, respectively. The units vest and
are paid in cash in one-third increments on the third, fourth and fifth
anniversaries of the date of grant or the amounts can be deferred at the
election of the participant. The Company will implement a new performance
management and pay program replacing this program in 1996. (See Partners in
Performance caption for additional information.)
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The following table sets forth information relating to Long-Term Performance
Plan units granted in 1994 for the executive officers of the Company listed in
the Summary Compensation Table:
<TABLE>
<CAPTION>
Long-Term Performance Plan - Awards in Last Fiscal Year
- -----------------------------------------------------------------------------------------
Estimated Future
Payments
Under Non-Stock
Price-Based Plans
/(3)//(4)/
----------------------
Performance or
Number Other Period
Name and of Units Until Maturation Dollar Dollar
Principal Position Granted/(1)/ or Payout/(2)/ Threshold Target
- ------------------------------ ------------ ---------------- --------- ----------
<S> <C> <C> <C> <C>
Robert D. Haas 14,000 3-5 years $0 $1,400,000
Chairman of the Board and
Chief Executive Officer
Thomas W. Tusher 8,000 3-5 years 0 800,000
President, Chief Operating
Officer
George B. James 2,200 3-5 years 0 220,000
Senior Vice President,
Chief Financial Officer
Robert D. Rockey, Jr. 3,000 3-5 years 0 300,000
Senior Vice President,
President of Levi Strauss
North America
Peter A. Jacobi 3,000 3-5 years 0 300,000
Senior Vice President,
President of Levi Strauss
International
</TABLE>
_________________
/(1)/ The basis for measuring long-term performance is a corporate three-year
cumulative earnings performance calculation (e.g., an internal calculation
of earnings from operations).
/(2)/ The units vest in three years and are paid out in cash in one-third
increments payable in June 1997, June 1998 and June 1999.
/(3)/ Each LTPP unit is valued at $100.00 if the Company achieves a target level
of corporate earnings performance over a three-year period. Performance
above target levels will produce increases in award values. There is no
cap on the award value; however, the award formula is directly related to
the Company's earnings performance.
/(4)/ Under the terms of the LTPP, the Personnel Committee retains discretion,
subject to plan limits, to modify the terms of outstanding awards to take
into account the effect of unforeseen or extraordinary events and
accounting changes.
MANAGEMENT INCENTIVE PLAN
The Company's Management Incentive Plan ("MIP") provides selected employees with
incentive compensation and provides a tool for recruiting and retaining selected
employees. Under the MIP, the Personnel Committee of the Board of Directors, as
administrator of the MIP, may
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award discretionary cash payments to selected employees. Such awards are made on
the basis of various factors, including profit levels, return on investment,
salary grade and individual performance. In 1995, the Company will implement a
new performance management and pay program replacing this program. (See
Partners in Performance caption for additional information.)
HOME OFFICE CASH PERFORMANCE SHARING PLAN
The Company has a Cash Performance Sharing Plan for all Home Office payroll
employees that pays out based on a percentage of base salary and certain Company
earnings criteria. This cash plan was a transition program for 1991 and 1992
and was extended to 1994. Participants in the MIP can receive up to 8 percent,
while other Home Office employees can receive up to 12 percent, of their covered
compensation (fiscal year salary and non-LTPP bonus) under this plan. In 1995,
the Company will implement a new performance management and pay program
replacing this program for salaried employees. (See Partners in Performance
caption for additional information.)
PARTNERS IN PERFORMANCE
In 1995, the Company will implement a new performance and pay program, Partners
in Performance, for all salaried employees worldwide. This program was designed
to align the objectives of all employees with the strategic objectives of the
Company and interests of the Company shareholders.
To accomplish this goal, all eligible employees will have the opportunity to
earn incentives, both short and long term. The short-term incentive plan will
begin in 1995 and rewards performance measured by business unit and corporate
financial results against pre-established targets. The long-term incentives
will begin in 1996 and are based on a performance unit plan measured by a three-
year cumulative earnings performance calculation and relative total shareholder
return. Partners in Performance will replace the current management incentive
plan, long-term incentive plan and cash performance sharing plan.
DEFERRED COMPENSATION PLAN
The Company has an unfunded Deferred Compensation Plan under which a selected
group of employees may elect to defer receipt until termination of employment of
up to 33 percent of their base salary and 100 percent of their bonus. The
amounts deferred under this plan, plus interest, may be paid prior to
termination in certain hardship circumstances specified in the plan. When
electing to defer a bonus, eligible employees in certain salary grades may also
elect to receive in-service payments of the deferred bonus in five annual
installments. Additionally, amounts deferred under this plan are considered
compensation covered for defined benefit pension purposes (see Home Office
Pension Plan caption). The Company also maintains a similar deferred
compensation plan for outside directors.
BENEFIT PLANS
Home Office Pension Plan
Generally, all Home Office payroll employees, including executive officers,
participate in the Company's Home Office Pension Plan (the "Pension Plan") after
completing one year of service. The Pension Plan, subject to Internal Revenue
Service (IRS) limitations, provides pension benefits based on an individual's
years of service and final average covered compensation
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<PAGE>
(generally, base salary plus bonuses awarded for the five consecutive fiscal
years out of the individual's last ten years of service that produces the
highest average). Contributions by the Company to the Pension Plan cannot be
separately calculated for individual executive officers.
The following table shows the estimated annual benefits payable upon retirement
under the Pension Plan, the benefit restoration plans and Deferred Compensation
Plan to persons in various compensation and years-of-service classifications
prior to mandatory offset of Social Security benefits:
<TABLE>
<CAPTION>
Pension Plan Table
- -----------------------------------------------------------------------------------
Years of Service
----------------------------------------------------------
Remuneration 15 20 25 30 35
- ------------ -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 525,000 $157,500 $210,000 $ 262,500 $ 269,063 $ 275,625
600,000 180,000 240,000 300,000 307,500 315,000
675,000 202,500 270,000 337,500 345,938 354,375
750,000 225,000 300,000 375,000 384,375 393,750
825,000 247,500 330,000 412,500 422,813 433,125
900,000 270,000 360,000 450,000 461,250 472,500
975,000 292,500 390,000 487,500 499,688 511,875
1,050,000 315,000 420,000 525,000 538,125 551,250
1,125,000 337,500 450,000 562,500 576,563 590,625
1,200,000 360,000 480,000 600,000 615,000 630,000
1,275,000 382,500 510,000 637,500 653,438 669,375
1,350,000 405,000 540,000 675,000 691,875 708,750
1,425,000 427,500 570,000 712,500 730,313 748,125
1,500,000 450,000 600,000 750,000 768,750 787,500
1,575,000 472,500 630,000 787,500 807,188 826,875
1,650,000 495,000 660,000 825,000 845,625 866,250
1,725,000 517,500 690,000 862,500 884,063 905,625
1,800,000 540,000 720,000 900,000 922,500 945,000
1,875,000 562,500 750,000 937,500 960,938 984,375
1,950,000 585,000 780,000 975,000 999,375 1,023,750
2,025,000 607,500 810,000 1,012,500 1,037,813 1,063,125
2,100,000 630,000 840,000 1,050,000 1,076,250 1,102,500
2,175,000 652,500 870,000 1,087,500 1,114,688 1,141,875
2,250,000 675,000 900,000 1,125,000 1,153,125 1,181,250
- ------------------
</TABLE>
The preceding table assumes retirement at the age of 65, with payment to the
employee in the form of a single-life annuity. As of year-end 1994, the
credited years of service for Messrs. R.D. Haas, Tusher, James, Rockey, Jr. and
Jacobi were 21, 25, 9, 15 and 24, respectively. The 1994 compensation covered
by the Pension Plan, benefit restoration plans and Deferred Compensation Plan
for Messrs. R.D. Haas, Tusher, James, Rockey, Jr. and Jacobi was $2,206,979,
$1,386,915, $700,491, $724,143, and $617,569, respectively. The 1994
compensation covered by the Pension Plan consists of fiscal year 1994 cash
salary and 1993 bonus paid in 1994 (not including LTPP). These amounts
correspond to the amounts on the Summary Compensation table (see Summary
Compensation Table caption).
The Code limits the amount of pension benefits that may be paid under plans
qualified under the Code such as the Pension Plan. The Company maintains
separate unfunded benefit restoration plans (see the Benefit Restoration Plans
caption) that will pay any retirement benefits under
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<PAGE>
the Pension Plan that exceed such limitations. The five individuals named in
the Summary Compensation Table are participants in the benefit restoration
plans.
The Company has unfunded supplemental pension agreements with Messrs. Tusher and
James which provide specific benefits upon retirement. The cost to the Company
in 1994 of the agreements for Messrs. Tusher and James was $395,400 and $30,400,
respectively.
Benefit Restoration Plans
The Company has two unfunded benefit restoration plans, the Supplemental Benefit
Restoration Plan and the Excess Benefit Restoration Plan, collectively called
the "BRP", that provide eligible employees with benefits that would have been
payable from tax-qualified plans (both defined benefit and defined contribution)
of the Company except for limitations imposed on such benefits under the
Internal Revenue Code (the "Code"). The BRP also provides for the deferral of
an eligible employee's current compensation to the extent that such compensation
cannot be contributed to the Company's investment plans, due to these
limitations, and the restoration of Company matching contributions that could
not be credited under those plans as a result. All employees who are subject to
such limitations are eligible to participate in the BRP. The BRP is
administered by the Administrative Committee of the Retirement Plans.
Employee Investment Plans
The Company maintains three employee investment plans. Two of these plans, the
Employee Investment Plan of Levi Strauss Associates Inc. (EIP) and the Levi
Strauss Associates Inc. Employee Long-Term Investment and Savings Plan (ELTIS),
are qualified plans that cover Home Office employees and U.S. field employees,
respectively. The third plan, the Employee Stock Purchase and Stock Award Plan
of Levi Strauss Associates Inc. (ESAP) is a non-qualified employee equity
program for highly compensated (as defined by the Code) Home Office employees.
Effective December 1990, highly compensated employees were no longer eligible to
contribute to the EIP due to amendments to the EIP, which were made to comply
with certain changes to the Code. The ESAP commenced in 1992 to allow highly
compensated employees to participate in equity ownership.
The ESAP is administered by the Personnel Committee of the Board of Directors.
The Pension Plan and the EIP are administered by the Administrative Committee of
the Retirement Plans of the Company. The Personnel Committee has delegated most
of its routine administrative functions to the Administrative Committee and to
the Employee Benefits Department. The Administrative Committee is appointed by
the Board of Directors and has the general responsibility for the administration
and operation of the plans, including compliance with reporting and disclosure
requirements, establishing and maintaining plan records and determining and
authorizing payments of benefits under the plans.
The qualified plans also established an Investment Committee appointed by the
Board of Directors. The Investment Committee's duties and responsibilities
include (i) reviewing the performance of the trustee under the plans; (ii)
appointing, removing and reviewing the performance of investment managers who
may be delegated the authority to manage plan assets; (iii) establishing
investment standards and policies based upon the objectives of the plans as
communicated by the Administrative Committee; and (iv) performing such other
functions as are specifically assigned to the Investment Committee under the
plans.
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<PAGE>
The foregoing descriptions of the Company's benefit plans and agreements are
only summaries and are qualified in their entirety by reference to such
agreements and plans.
Additional information about certain Company employee plans is contained in
Notes 12 through 16 to the Consolidated Financial Statements.
Contracts with Management Holders of Class L Common Stock
The management liquidity program (the "Liquidity Program") was approved by the
Board of Directors and stockholders in 1994. The Liquidity Program allows the
Company to enter into contracts with management holders of Class L common stock
relating to in-service, employment separation-related and post-separation stock
purchases. This program allows participating management stockholders to
annually sell a specified amount of their stock to the Company, subject to
certain limitations and conditions. The program also entitles the Company to
purchase all of the shares held by a management holder at the time of separation
from employment. (See Management Liquidity Program caption under Item 13.,
Certain Relationships and Related Transactions.)
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 16, 1995, certain information with
regard to the beneficial ownership of Class L common stock and Class E common
stock by each person who beneficially owns more than 5 percent of these
outstanding shares, each of the directors, each of the five most highly
compensated executive officers and all directors and executive officers of the
Company as a group. The business address of all persons listed is 1155 Battery
Street, San Francisco, California 94111.
<TABLE>
<CAPTION>
Additional Number
of Shares in Which
Voting Rights or
Name of Individual Investment Powers Percentage
or Number of Number of Exist or May Be of Shares
Persons in Group Shares Owned Deemed to Exist Total Outstanding/(1)/
- ----------------------------- --------------- ----------------- ---------- ----------------
<S> <C> <C> <C> <C>
Robert D. Haas 3,801,060/(2)/ 392,070/(3)/ 4,193,130 7.97
Thomas W. Tusher 97,147/(4)/ 499,749/(5)/ 596,896 1.13
Peter E. Haas, Sr. 8,754,426/(6)/ 2,961,967/(7)/ 11,716,393 22.27
Walter A. Haas, Jr. 3,741,116 600,000/(8)/ 4,341,116 8.25
Angela Glover Blackwell -- -- -- --
Tully M. Friedman 352,100/(9)/ 90,000/(10)/ 442,100 --
James C. Gaither -- -- -- --
Rhoda H. Goldman 3,722,697/(11)/ -- 3,722,697 7.08
Peter E. Haas, Jr. 4,493,688/(12)/ 11,709/(13)/ 4,505,397 8.56
F. Warren Hellman 574,742/(14)/ 402,000/(15)/ 976,742 1.86
James M. Koshland/(16)/ 45,000 96,000/(17)/ 141,000 --
Patricia Salas Pineda -- -- -- --
Frances K. Geballe 2,739,760/(18)/ -- 2,739,760 5.21
Josephine B. Haas 3,467,424/(19)/ 2,225,294/(20)/ 5,692,718 10.82
Miriam L. Haas 3,000,200/(21)/ -- 3,000,200 5.70
Margaret E. Jones 2,895,710/(22)/ -- 2,895,710 5.50
Daniel E. Koshland, Jr. 2,865,744 152/(23)/ 2,865,896 5.45
Peter A. Jacobi 23,956/(24)/ -- 23,956 --
George B. James 77,803/(25)/ -- 77,803 --
Robert D. Rockey, Jr. 18,070 -- 18,070 --
Directors and executive
officers of the
Company as a group
(18 persons)/(26)//(27)/ 25,816,686 5,053,495 30,870,181 58.67
</TABLE>
- -----------
Note: Class E common stock represents 3 percent of all outstanding common
stock. Employees of the Company may invest in Class E common stock under
the Company's employee investment plans. The Boston Safe Deposit and
Trust Company, trustee for the Company's qualified stock investment
plans, holds approximately 69 percent of all outstanding Class E common
stock. The business address for the Boston Safe Deposit and Trust Company
is 1 Cabot Road, Mail Zone WTO4G, Medford, Massachusetts, 02155-5158. See
Employee Investment Plan caption under Item 11.
/ (1)/ The percentage of shares outstanding is not shown for those amounting to
less than one percent.
/ (2)/ Includes 526,674 shares owned by the spouse and daughter of Mr. Haas and
by trusts for the benefit of his daughter. Mr. Haas disclaims beneficial
ownership of such shares.
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<PAGE>
/ (3)/ Mr. Haas, as trustee, has sole voting and investing power with respect to
these shares. These shares are held by a trust for the benefit of Mr.
Haas' nieces and nephews. Mr. Haas disclaims beneficial ownership of such
shares.
/ (4)/ Does not include 158,996 shares held by a trust for the benefit of the
sons of Mr. Tusher. Mr. Tusher has neither voting nor investing powers
with respect to such shares.
/ (5)/ Represents shares subject to presently exercisable options.
/ (6)/ Does not include 3,000,200 shares owned by Miriam L. Haas, the spouse of
Mr. Haas. Mr. Haas disclaims beneficial ownership of such shares.
/ (7)/ Includes 2,903,167 shares in which Mrs. Josephine B. Haas has sole
investing power and Mr. Haas has sole voting rights; and 58,800 shares
held in trusts for the benefit of his grandnieces and grandnephew in
which Mr. Haas has sole voting and investing power. Mr. Haas disclaims
beneficial ownership of such shares.
/ (8)/ Represents shares owned by the Evelyn and Walter Haas, Jr. Fund in which
Mr. Haas has shared voting and investing powers.
/ (9)/ Does not include 4,600 shares held by a trust for the benefit of Mr.
Friedman's stepson. Mr. Friedman does not have voting or investing powers
with respect to such shares and disclaims beneficial ownership of such
shares.
/(10)/ Represents shares in which Mr. Friedman has sole voting and investing
powers. These shares are held by the Friedman Family Partnership for the
benefit of Mr. Friedman's daughter and stepson and Cherry Street Partners
for the benefit of Mr. Friedman's former spouse. Mr. Friedman disclaims
beneficial ownership of such shares.
/(11)/ Includes 1,000,000 shares owned by Mrs. Goldman's spouse. Mrs. Goldman
disclaims beneficial ownership of such shares. Does not include 2,891,267
shares held by trusts for the benefit of Mrs. Goldman's children,
grandchildren and great-grandchildren. Mrs. Goldman neither has voting
nor investing rights with respect to such shares.
/(12)/ Includes 2,371,872 shares held by trusts for the benefit of Mr. Haas'
children and 150,000 shares held by Peter E. Haas and Joanne C. Haas
Charitable Annuity Lead Trust and 102 shares by the spouse of Mr. Haas.
Mr. Haas disclaims beneficial ownership of such shares.
/(13)/ Represents shares held by a trust for the benefit of Michael S. Haas in
which Mr. Haas has sole voting and investing powers. Mr. Haas disclaims
beneficial ownership of such shares.
/(14)/ Mr. Hellman's shares are held in trusts.
/(15)/ Mr. Hellman has voting and investing powers with respect to these shares
which are held by a trust for the benefit of the daughter of Robert D.
Haas. Mr. Hellman disclaims beneficial ownership of such shares.
/(16)/ James M. Koshland is the son of Daniel E. Koshland, Jr.
/(17)/ Represents shares held by trusts for the benefit of James M. Koshland's
children. Mr. Koshland disclaims beneficial ownership of such shares.
/(18)/ Includes 333,000 shares owned by the spouse of Mrs. Geballe. Mrs.
Geballe disclaims beneficial ownership of such shares.
/(19)/ Includes 2,903,167 shares in which Mrs. Haas has sole investing powers
and Mr. Peter E. Haas, Sr. has sole voting rights.
/(20)/ Includes 1,447,855 shares in which Mrs. Haas has shared voting and
investing powers and 777,439 shares in which Mrs. Haas has sole voting
and investing powers. These shares are held by trusts for the benefit of
the son and daughter of Mrs. Haas. Mrs. Haas disclaims beneficial
ownership of such shares.
/(21)/ Does not include 8,754,426 shares owned by Peter E. Haas, Sr., the spouse
of Mrs. Haas. Mrs. Haas disclaims beneficial ownership of such shares.
/(22)/ Margaret E. Jones is the daughter of Peter E. Haas, Sr. and Josephine B.
Haas.
/(23)/ Represents shares owned by The Koshland Foundation in which Mr. Koshland
has sole voting rights.
/(24)/ Includes 9,300 shares held by trusts for the benefit of Mr. Jacobi's
children.
/(25)/ Includes 63,096 shares held by The James Family Trust and 11,600 shares
held by The James Family Limited Partnership in which Mr. James shares
voting and investing powers.
/(26)/ Includes 499,749 shares subject to presently exercisable options.
/(27)/ As of January 16, 1995, the Company has 203 and 1,204 record owners of
Class L and Class E common stock, respectively.
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<PAGE>
Holders of and Transfer Restrictions on Common Stock.
There is no trading market for outstanding shares of Class E and Class L common
stock. The outstanding shares of Class E common stock are currently held by the
trustee of the ELTIS and EIP and by certain employees under the ESAP. Class E
common stock is subject to certain restrictions on transfer as provided in the
various employee plans. See the Employee Investment Plans caption under Item 11
for additional information. Class L common stock is primarily held by members
of the families of certain descendants of the Company's founder and certain
members of the Company's Board of Directors and management. Under a stockholder
agreement that expires in April 2001, transfer of Class L common stock is
prohibited except to certain transferees, specified members of the stockholder's
family, trusts, charities or other Class L stockholders. Additionally,
management Class L stockholders are parties to contracts with the Company
providing for in-service, employment separation-related and post-separation
stock purchases (see Management Liquidity Program caption under Item 13.,
Certain Relationships and Related Transactions).
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<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT LIQUIDITY PROGRAM
During 1994, the Board of Directors and stockholders approved a stock liquidity
program (the "Liquidity Program") for management holders of Class L common
stock. The Liquidity Program allowed the Company to enter into contracts with
then-existing management holders of Class L common stock relating to in-service,
employment separation-related and post-separation stock purchases. Holders of
1,047,280 shares of Class L common stock (including outstanding options)
participate in this program. They may annually sell a specified amount of their
stock to the Company, subject to certain limitations and conditions. The
program also entitles the Company to purchase all of the shares held by a
management holder at the time of separation from employment.
Participating shares were classified on the balance sheet "outside" of
stockholders' equity due to the liquidity feature. As a result of this
Liquidity Program, the Company incurred a pre-tax compensation expense for
participating stock options and related exercise bonus of $6.0 million and $13.2
million, respectively, (based on the current appraised stock value of $134 per
share). In addition, the Company reclassified common stock outside of
stockholders' equity of approximately $138.6 million and recorded a reduction in
stockholders' equity of approximately $132.6 million. Future changes in the
stock valuation will result in periodic adjustments to compensation expense for
participating stock options, participating share balances and retained earnings.
Actual purchases of stock by the Company under the Liquidity Program will result
in cash outflows.
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<PAGE>
The following table presents information as of November 27, 1994 regarding the
interests of the five most highly compensated executive officers of the Company
in the Management Liquidity Program. The value of the shares listed were
calculated using the most recent valuation by Morgan Stanley & Co. Incorporated
($134 per share as of November 18, 1994).
<TABLE>
<CAPTION>
Name and
Principal Position Number of Shares Value
- ------------------------------ ---------------- ------------
<S> <C> <C>
Robert D. Haas -- --
Chairman of the Board and
Chief Executive Officer
Thomas W. Tusher 749,749/(1)/ $100,466,366
President, Chief Operating
Officer
George B. James 84,129 11,273,286
Senior Vice President,
Chief Financial Officer
Robert D. Rockey, Jr. 15,540 2,082,360
Senior Vice President,
President of Levi Strauss
North America
Peter A. Jacobi 18,688 2,504,192
Senior Vice President,
President of Levi Strauss
International
</TABLE>
___________
/(1)/ This amount includes outstanding options held by Mr. Tusher to purchase
499,749 shares. Those shares, if acquired, are subject to the Program.
Subsequent to year-end, the Company repurchased and subsequently retired 70,842
shares of management Class L common stock, pursuant to the Liquidity Program, at
the current appraised stock value of $134 per share totaling $9.5 million.
ESTATE TAX REPURCHASE POLICY
The Board of Directors has a policy under which the Company will, subject to
certain conditions, offer to repurchase a portion of the shares of Class L
common stock held by the estate of a deceased stockholder in order to assist the
estate in meeting estate tax liabilities. The purchase price will be based on
periodic valuations of Class L common stock conducted by an investment banking
or appraisal firm (see Note 19 to the Consolidated Financial Statements).
Purchases will be made at a discount price reflecting the non-liquidity of large
blocks of stock; the discount will be established by the investment banking or
appraisal firm. Estate repurchase transactions will be subject to, among other
things, compliance with applicable laws governing stock repurchases,
satisfaction of certain financial ratios specified in the resolutions adopting
the policy, and compliance with any limitations on stock repurchases contained
in the Company's credit agreements.
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<PAGE>
OTHER TRANSACTIONS
Rhoda H. Goldman is a director of the Company; her son, John Goldman, is the
controlling person of Richard N. Goldman and Company (RNG), which acts as an
insurance broker for the Company. In 1994, the Company paid RNG approximately
$380,625 in fees and commissions for the placement of insurance programs. RNG's
insurance programs represent approximately 55 percent of worldwide annual
premiums paid by the Company for 1994 property casualty coverage, not including
workers' compensation coverage. The Company believes the premiums paid to RNG
are competitive. At November 27, 1994, Rhoda H. Goldman had no equity interest
in RNG and beneficially owned 3,725,007 shares of the Company's Class L common
stock.
James C. Gaither is a partner of the law firm of Cooley, Godward, Castro,
Huddleson & Tatum. Cooley, Godward, Castro, Huddleson & Tatum provided legal
services to the Company in 1994. James M. Koshland is a partner of the law firm
of Gray, Cary, Ware & Freidenrich. Gray, Cary, Ware & Freidenrich provided
legal services to the Company in 1994.
See Compensation Committee Interlocks and Insider Participation under Item 11
for additional information.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
Consolidated Statements of Income, Years Ended November 27, 1994,
November 28, 1993 and November 29, 1992
Consolidated Balance Sheets, November 27, 1994 and November 28, 1993
Consolidated Statements of Stockholders' Equity, Years Ended November
27, 1994, November 28, 1993 and November 29, 1992
Consolidated Statements of Cash Flows, Years Ended November 27, 1994,
November 28, 1993 and November 29, 1992
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(2) FINANCIAL STATEMENT SCHEDULES
II Reserves
All other schedules have been omitted because they are inapplicable, not
required or the information is included in the financial statements or
notes thereto.
(3) MANAGEMENT CONTRACTS AND COMPENSATORY ARRANGEMENTS
1985 Stock Option Plan and forms of related agreements, exhibit 10a.
Long Term Performance Plan, exhibit 10b.
Management Incentive Plan, exhibit 10c.
Levi Strauss Associates Inc. Excess Benefit Restoration Plan, exhibit
10d.
Levi Strauss Associates Inc. Supplemental Benefit Restoration Plan,
exhibit 10e.
Amendment dated February 9, 1993 to the Levi Strauss Associates Inc.
Excess Benefit Restoration Plan and Levi Strauss Associates Inc.
Supplemental Benefits Restoration Plan, exhibit 10f.
Levi Strauss Associates Inc. Deferred Compensation Plan for Executives
(as amended and restated through August 22, 1994), exhibit 10g.
Amendment and Restatement dated August 22, 1994 to the Levi Strauss
Associates Inc. Deferred Compensation Plan for Executives, exhibit 10h.
Revised Home Office Pension Plan of Levi Strauss Associates Inc.,
exhibit 10j.
Amendment dated November 22, 1994 to the Revised Home Office Pension
Plan, exhibit 10k.
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<PAGE>
Revised Employment Retirement Plan and December 20, 1991 Amendment
thereto, exhibit 10l.
Amendment dated January 10, 1995 to the Revised Employee Retirement
Plan, exhibit 10m.
Employee Stock Purchase and Stock Award Plan of Levi Strauss Associates
Inc., exhibit 10p.
Amendments dated August 5, 1992, March 31, 1992 and January 1, 1992 to
the Employee Stock Purchase and Stock Award Plan of Levi Strauss
Associates Inc., exhibit 10q.
Amendment dated February 9, 1993 to the Employee Stock Purchase and
Stock Award Plan of Levi Strauss Associates Inc., exhibit 10r.
Amendment effective as of March 1, 1993 to the Employee Stock Purchase
and Stock Award Plan of Levi Strauss Associates Inc., exhibit 10s.
Supplemental Pension Agreement dated April 16, 1985 between Levi Strauss
& Co. and Thomas W. Tusher, exhibit 10y.
Supplemental Pension Agreement dated November 12, 1985 between Levi
Strauss & Co. and George B. James, exhibit 10z.
Letter Agreement dated August 29, 1985 between the Company and Thomas W.
Tusher, exhibit 10aa.
Home Office Cash Performance Sharing Plan of Levi Strauss Associates
Inc., exhibit 10cc.
Levi Strauss Associates Inc. 1992 Executive Stock Appreciation Rights
Plan, exhibit 10ee.
Form of Stock Purchase Agreement between Levi Strauss Associates Inc.
and Individual Management Holder of Class L common stock, exhibit 10jj.
Form of Manager Family Member Stock Purchase Agreement between Levi
Strauss Associates Inc. and Thomas W. Tusher, exhibit 10kk.
Form of Manager Family Member Stock Purchase Agreement between Levi
Strauss Associates Inc. and George B. James, exhibit 10ll.
Partners in Performance Annual Incentive Plan of Levi Strauss Associates
Inc. and Subsidiaries, exhibit 10mm.
Partners in Performance Long-Term Incentive Plan of Levi Strauss
Associates Inc. and Subsidiaries, exhibit 10nn.
(4) EXHIBITS
3a Restated Certificate of Incorporation, incorporated by reference
from Exhibit 4 of Form 10-Q filed with the Securities and Exchange
Commission on April 13, 1993.
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<PAGE>
3b Amended By-Laws of the Company, incorporated by reference from
Exhibit 3b of Form 10-K filed with the Securities and Exchange
Commission on February 20, 1992.
4a Form of Series D dividend note, dated as of December 15, 1992, among
the Company and note holders, incorporated by reference from Exhibit
4d of Form 10-K filed with the Securities and Exchange Commission on
February 25, 1993.
4b Form of Class L Stockholders' Agreement, incorporated by reference
from Exhibit (c)(5) of the Company's Issuer Tender Offer Statement
on Schedule 13E-4, including all amendments thereto, initially filed
with the Securities and Exchange Commission on March 4, 1991.
4c Restated Credit Agreement, dated March 17, 1994, among the Company,
Levi Strauss & Co., Bank of America N.T. & S.A. and other financial
institutions named therein, incorporated by reference from Exhibit 4
of Form 10-Q filed with the Securities and Exchange Commission on
April 11, 1994.
4d Amended and Restated Agreement of Master Trust effective as of May
1, 1989 between Levi Strauss Associates Inc. and Boston Safe Deposit
and Trust Company, incorporated by reference from Exhibit 4.6 to the
Company's Registration Statement on Form S-1, filed with the
Securities and Exchange Commission on March 9, 1989 (Reg. No. 33-
27465).
10a 1985 Stock Option Plan and forms of related agreements, incorporated
by reference from Exhibit 10.4 to the Company's Registration
Statement on Form S-1, filed with the Securities and Exchange
Commission on March 9, 1989 (Reg. No. 33-27465).
10b Long Term Performance Plan, incorporated by reference from Exhibit
10.7 to the Company's Registration Statement on Form S-1, filed with
the Securities and Exchange Commission on March 9, 1989 (Reg. No.
33-27465).
10c Management Incentive Plan, incorporated by reference from Exhibit
10.12 to the Company's Registration Statement on Form S-1, filed
with the Securities and Exchange Commission on March 9, 1989 (Reg.
No. 33-27465).
10d Levi Strauss Associates Inc. Excess Benefit Restoration Plan,
incorporated by reference from Exhibit 10e of Form 10-K filed with
the Securities and Exchange Commission on February 20, 1992.
10e Levi Strauss Associates Inc. Supplemental Benefit Restoration Plan,
incorporated by reference from Exhibit 10f of Form 10-K filed with
the Securities and Exchange Commission on February 20, 1992.
10f Amendment dated February 9, 1993 to the Levi Strauss Associates Inc.
Excess Benefit Restoration Plan and Levi Strauss Associates Inc.
Supplemental Benefits Restoration Plan, incorporated by reference
from Exhibit 10d of Form 10-Q filed with the Securities and Exchange
Commission on July 13, 1993.
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<PAGE>
10g Levi Strauss Associates Inc. Deferred Compensation Plan for
Executives (as amended and restated through August 22, 1994),
incorporated by reference from Exhibit 10b of Form 10-Q filed with
the Securities and Exchange Commission on October 11, 1994.
10h Amendment and Restatement dated August 22, 1994 to the Levi Strauss
Associates Inc. Deferred Compensation Plan for Executives.
10i Deferred Compensation Plan for Outside Directors, incorporated by
reference from Exhibit 10.9 to the Company's Registration Statement
on Form S-1, filed with the Securities and Exchange Commission on
March 9, 1989 (Reg. No. 33-27465).
10j Revised Home Office Pension Plan of Levi Strauss Associates Inc.,
incorporated by reference from Exhibit 10j of Form 10-K filed with
the Securities and Exchange Commission on February 23, 1994.
10k Amendment dated November 22, 1994 to the Revised Home Office Pension
Plan.
10l Revised Employee Retirement Plan, incorporated by reference from
Exhibit 10k of Form 10-K filed with the Securities and Exchange
Commission on February 23, 1994.
10m Amendment dated January 10, 1995 to the Revised Employee Retirement
Plan.
10n Levi Strauss Associates Inc. Retirement Plan for Over the Road Truck
Drivers and Dispatchers, incorporated by reference from Exhibit 10l
of Form 10-K filed with the Securities and Exchange Commission on
February 23, 1994.
10o Levi Strauss & Co. Supplemental Unemployment Benefit Plan and
related amendments, incorporated by reference from Exhibit 10m of
Form 10-K filed with the Securities and Exchange Commission on
February 23, 1994.
10p Employee Stock Purchase and Stock Award Plan of Levi Strauss
Associates Inc., incorporated by reference from Exhibit 4.2 to the
Company's Registration Statement on Form S-8, filed with the
Securities and Exchange Commission on June 24, 1991 (Reg. No. 33-
41332).
10q Amendments dated August 5, 1992, March 31, 1992 and January 1, 1992
to the Employee Stock Purchase and Stock Award Plan of Levi Strauss
Associates Inc., incorporated by reference from Exhibit 10q of Form
10-K filed with the Securities and Exchange Commission on February
25, 1993.
10r Amendment dated February 9, 1993 to the Employee Stock Purchase and
Stock Award Plan of Levi Strauss Associates Inc., incorporated by
reference from Exhibit 10a of Form 10-Q filed with the Securities
and Exchange Commission on July 13, 1993.
10s Amendment effective as of March 1, 1993 to the Employee Stock
Purchase and Stock Award Plan of Levi Strauss Associates Inc.,
incorporated by reference from Exhibit 10e of Form 10-Q filed with
the Securities and Exchange Commission on July 13, 1993.
102
<PAGE>
10t Levi Strauss Associates Inc. Employee Long-Term Investment and
Savings Plan, incorporated by reference from Exhibit 4.2 to the
Company's Registration Statement on Form S-8, filed with the
Securities and Exchange Commission on February 9, 1990 (Reg. No. 33-
33415), with amendments incorporated by reference from Exhibit 4.2
to the Company's Registration Statement on Form S-8, filed with the
Securities and Exchange Commission on May 31, 1991 (Reg. No. 33-
40947).
10u Amendments dated July 21, 1992 and March 31, 1992 to the Levi
Strauss Associates Inc. Employee Long-Term Investment and Savings
Plan, incorporated by reference from Exhibit 10s of Form 10-K filed
with the Securities and Exchange Commission on February 25, 1993.
10v Amendment dated February 9, 1993 to the Levi Strauss Associates Inc.
Employee Long-Term Investment and Savings Plan, incorporated by
reference from Exhibit 10c of Form 10-Q filed with the Securities
and Exchange Commission on July 13, 1993.
10w Amendment dated September 26, 1994 to the Levi Strauss Associates
Inc. Employee Long-Term Investment and Savings Plan.
10x Employee Investment Plan of Levi Strauss Associates Inc.
10y Supplemental Pension Agreement dated April 16, 1985 between Levi
Strauss & Co. and Thomas W. Tusher, incorporated by reference from
Exhibit 10.13 to the Company's Registration Statement on Form S-1,
filed with the Securities and Exchange Commission on March 9, 1989
(Reg. No. 33-27465).
10z Supplemental Pension Agreement dated November 12, 1985 between Levi
Strauss & Co. and George B. James, incorporated by reference from
Exhibit 10.14 to the Company's Registration Statement on Form S-1,
filed with the Securities and Exchange Commission on March 9, 1989
(Reg. No. 33-27465).
10aa Letter Agreement dated August 29, 1985 between the Company and
Thomas W. Tusher, incorporated by reference from Exhibit 10.15 to
the Company's Registration Statement on Form S-1, filed with the
Securities and Exchange Commission on March 9, 1989 (Reg. No. 33-
27465).
10bb Agreement dated as of May 1, 1989 between the Company and Boston
Safe Deposit and Trust Company, incorporated by reference from
Exhibit 10.17 to the Company's Registration Statement on Form S-1,
filed with the Securities and Exchange Commission on March 9, 1989
(Reg. No. 33-27465).
10cc Home Office Cash Performance Sharing Plan of Levi Strauss Associates
Inc., incorporated by reference from Exhibit 10z of Form 10-K filed
with the Securities and Exchange Commission on February 23, 1994.
10dd Field Profit Sharing Award Plan of Levi Strauss Associates Inc.,
incorporated by reference from Exhibit 10aa of Form 10-K filed with
the Securities and Exchange Commission on February 23, 1994.
103
<PAGE>
10ee Levi Strauss Associates Inc. 1992 Executive Stock Appreciation
Rights Plan, incorporated by reference from Exhibit 10aa of Form
10-K filed with the Securities and Exchange Commission on February
25, 1993.
10ff Supply Agreement dated as of March 30, 1992, between Levi Strauss &
Co. and Cone Mills Corporation, incorporated by reference from
Exhibit 10bb of Form 10-K filed with the Securities and Exchange
Commission on February 25, 1993.
10gg First Amendment to Supply Agreement dated as of March 30, 1992,
between Levi Strauss & Co. and Cone Mills Corporation, incorporated
by reference from Exhibit 10dd of Form 10-K filed with the
Securities and Exchange Commission on February 23, 1994.
10hh Master Trust Agreement between Levi Strauss Associates Inc. and
Fidelity Management Trust Company, incorporated by reference from
Exhibit 10a of Form 10-Q filed with the Securities and Exchange
Commission on October 11, 1994.
10ii Materials Handling System Agreement dated October 31, 1994, between
Levi Strauss & Co. and Computer Aided Systems, Inc.
10jj Form of Stock Purchase Agreement between Levi Strauss Associates
Inc. and Individual Management Holder of Class L common stock.
10kk Form of Manager Family Member Stock Purchase Agreement between Levi
Strauss Associates Inc. and Thomas W. Tusher.
10ll Form of Manager Family Member Stock Purchase Agreement between Levi
Strauss Associates Inc. and George B. James.
10mm Partners in Performance Annual Incentive Plan of Levi Strauss
Associates Inc. and Subsidiaries.
10nn Partners in Performance Long-Term Incentive Plan of Levi Strauss
Associates Inc. and Subsidiaries.
21 Subsidiaries of Levi Strauss Associates Inc.
23 Consent of Independent Public Accountants.
(b) REPORTS ON FORM 8-K
There were no Reports on Form 8-K filed with the Commission during the
fourth quarter of 1994.
104
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California, on February 9, 1995.
LEVI STRAUSS ASSOCIATES INC.
By Robert D. Haas
---------------------------------
Robert D. Haas
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the following capacities on February 9, 1995.
Signature Title
--------- -----
Director,
Honorary Chairman of the Board of
Walter A. Haas, Jr. Directors
____________________________________
(Walter A. Haas, Jr.)
Director,
Peter E. Haas, Sr. Chairman of the Executive Committee
____________________________________
(Peter E. Haas, Sr.)
Director,
Chairman of the Board of Directors and
Robert D. Haas Chief Executive Officer
____________________________________
(Robert D. Haas)
105
<PAGE>
Signature Title
--------- -----
Angela G. Blackwell Director
_____________________________________
(Angela G. Blackwell)
Director
_____________________________________
(Tully M. Friedman)
James C. Gaither Director
_____________________________________
(James C. Gaither)
Rhoda H. Goldman Director
_____________________________________
(Rhoda H. Goldman)
Peter E. Haas, Jr. Director
_____________________________________
(Peter E. Haas, Jr.)
F. Warren Hellman Director
_____________________________________
(F. Warren Hellman)
106
<PAGE>
Signature Title
--------- -----
Patricia S. Pineda Director
_____________________________________
(Patricia S. Pineda)
James M. Koshland Director
_____________________________________
(James M. Koshland)
Director,
Thomas W. Tusher President and Chief Operating Officer
_____________________________________
(Thomas W. Tusher)
Senior Vice President and
George B. James Chief Financial Officer
_____________________________________
(George B. James)
Vice President, Controller and
Richard D. Murphy Chief Accounting Officer
_____________________________________
(Richard D. Murphy)
107
<PAGE>
SCHEDULE II
LEVI STRAUSS ASSOCIATES INC. AND SUBSIDIARIES
RESERVES
(In Thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------- ------------------- ------------------ ------------ -------------
Balance Additions Balance
at Charged to Deductions at
Allowance for Doubtful Accounts Beginning of Period Costs and Expenses From Reserve End of Period
- ---------------------------------- ------------------- ------------------ ------------ -------------
<S> <C> <C> <C> <C>
Year ended November 27, 1994: $28,551 $5,409 $5,894 $28,066
======= ====== ====== =======
Year ended November 28, 1993: $27,806 $5,032 $4,287 $28,551
======= ====== ====== =======
Year ended November 29, 1992: $31,333 $5,424 $8,951 $27,806
======= ====== ====== =======
</TABLE>
108
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Levi Strauss Associates Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Levi Strauss Associates Inc. included in this Form 10-K
and have issued our report thereon dated January 19, 1995. Our audit was made
for the purpose of forming an opinion on those statements taken as a whole.
Schedule II is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Francisco, California,
January 19, 1995
109
<PAGE>
SUPPLEMENTAL INFORMATION
The 1995 Proxy will be furnished to security holders subsequent to this filing.
110
<PAGE>
CORPORATE DIRECTORY
Executive Office
Robert D. Haas, Chairman of the Board of Directors and Chief Executive Officer
Thomas W. Tusher, President and Chief Operating Officer
Honorary Chairman of the Board of Directors
Walter A. Haas, Jr.
Chairman of the Executive Committee of the Board of Directors
Peter E. Haas, Sr.
Corporate Executive Officers
Thomas J. Bauch -- Senior Vice President, General Counsel & Secretary
R. William Eaton, Jr. -- Senior Vice President, Chief Information Officer
Donna J. Goya -- Senior Vice President, Human Resources
George B. James -- Senior Vice President, Chief Financial Officer
Robert D. Rockey, Jr. -- Senior Vice President, President of Levi Strauss North
America
Peter A. Jacobi -- Senior Vice President, President of Levi Strauss
International
Directors
Angela Glover Blackwell -- Vice President, Rockefeller Foundation/(1)//(3)/
Tully M. Friedman -- General Partner, Hellman & Friedman/(1)//(3)/
James C. Gaither -- Partner, Cooley, Godward, Castro, Huddleson &
Tatum/(2)//(3)/
Rhoda H. Goldman/(2)//(3)/
Peter E. Haas, Sr./(3)/
Peter E. Haas, Jr./(1)//(3)/
Robert D. Haas/(3)/
Walter A. Haas, Jr./(3)/
F. Warren Hellman -- General Partner, Hellman & Friedman/(1)//(2)/
James M. Koshland -- Partner, Gray, Cary, Ware & Freidenrich/(2)//(3)/
Patricia Salas Pineda -- General Counsel, New United Motor Manufacturing,
Inc./(1)//(2)/
Thomas W. Tusher/(3)/
/(1)/ Member, Audit Committee
/(2)/ Member, Personnel Committee
/(3)/ Member, Corporate Ethics and Social Responsibility Committee
Executive Offices:
Levi's Plaza
1155 Battery Street
San Francisco, California 94111
(415) 544-6000
Questions and communications regarding employee investments should be sent to
the Director of Employee Benefits at the above address.
Independent Public Accountants:
Arthur Andersen LLP
111
<PAGE>
EXHIBIT INDEX
3a Restated Certificate of Incorporation, incorporated by reference
from Exhibit 4 of Form 10-Q filed with the Securities and Exchange
Commission on April 13, 1993. --
3b Amended By-Laws of the Company, incorporated by reference from
Exhibit 3b of Form 10-K filed with the Securities and Exchange
Commission on February 20, 1992. --
4a Form of Series D dividend note, dated as of December 15, 1992,
among the Company and note holders, incorporated by reference from
Exhibit 4d of Form 10-K filed with the Securities and Exchange
Commission on February 25, 1993. --
4b Form of Class L Stockholders' Agreement, incorporated by reference
from Exhibit (c)(5) of the Company's Issuer Tender Offer Statement
on Schedule 13E-4, including all amendments thereto, initially
filed with the Securities and Exchange Commission on March 4,
1991. --
4c Restated Credit Agreement, dated March 17, 1994, among the Company,
Levi Strauss & Co., Bank of America N.T. & S.A. and other financial
institutions named therein, incorporated by reference from Exhibit
4 of Form 10-Q filed with the Securities and Exchange Commission on
April 11, 1994. --
4d Amended and Restated Agreement of Master Trust effective as of May
1, 1989 between Levi Strauss Associates Inc. and Boston Safe
Deposit and Trust Company, incorporated by reference from Exhibit
4.6 to the Company's Registration Statement on Form S-1, filed with
the Securities and Exchange Commission on March 9, 1989 (Reg. No.
33-27465). --
10a 1985 Stock Option Plan and forms of related agreements,
incorporated by reference from Exhibit 10.4 to the Company's
Registration Statement on Form S-1, filed with the Securities and
Exchange Commission on March 9, 1989 (Reg. No. 33-27465). --
10b Long Term Performance Plan, incorporated by reference from Exhibit
10.7 to the Company's Registration Statement on Form S-1, filed
with the Securities and Exchange Commission on March 9, 1989 (Reg.
No. 33-27465). --
10c Management Incentive Plan, incorporated by reference from Exhibit
10.12 to the Company's Registration Statement on Form S-1, filed
with the Securities and Exchange Commission on March 9, 1989 (Reg.
No. 33-27465). --
10d Levi Strauss Associates Inc. Excess Benefit Restoration Plan,
incorporated by reference from Exhibit 10e of Form 10-K filed with
the Securities and Exchange Commission on February 20, 1992. --
10e Levi Strauss Associates Inc. Supplemental Benefit Restoration Plan,
incorporated by reference from Exhibit 10f of Form 10-K filed with
the Securities and Exchange Commission on February 20, 1992. --
10f Amendment dated February 9, 1993 to the Levi Strauss Associates
Inc. Excess Benefit Restoration Plan and Levi Strauss Associates
Inc. Supplemental Benefits Restoration Plan, incorporated by
reference from Exhibit 10d of Form 10-Q filed with the Securities
and Exchange Commission on July 13, 1993. --
10g Levi Strauss Associates Inc. Deferred Compensation Plan for
Executives (as amended and restated through August 22, 1994),
incorporated by reference from Exhibit 10b of Form 10-Q filed with
the Securities and Exchange Commission on October 11, 1994. --
10h Amendment and Restatement dated August 22, 1994 to the Levi Strauss
Associates Inc. Deferred Compensation Plan for Executives. 117
10i Deferred Compensation Plan for Outside Directors, incorporated by
reference from Exhibit 10.9 to the Company's Registration Statement
on Form S-1, filed with the Securities and Exchange Commission on
March 9, 1989 (Reg. No. 33-27465). --
10j Revised Home Office Pension Plan of Levi Strauss Associates Inc.,
incorporated by reference from Exhibit 10j of Form 10-K filed with
the Securities and Exchange Commission on February 23, 1994. --
10k Amendment dated November 22, 1994 to the Revised Home Office
Pension Plan. 118
10l Revised Employee Retirement Plan, incorporated by reference from
Exhibit 10k of Form 10-K filed with the Securities and Exchange
Commission on February 23, 1994. --
10m Amendment dated January 10, 1995 to the Revised Employee Retirement
Plan. 119
10n Levi Strauss Associates Inc. Retirement Plan for Over the Road
Truck Drivers and Dispatchers, incorporated by reference from
Exhibit 10l of Form 10-K filed with the Securities and Exchange
Commission on February 23, 1994. --
10o Levi Strauss & Co. Supplemental Unemployment Benefit Plan and
related amendments, incorporated by reference from Exhibit 10m of
Form 10-K filed with the Securities and Exchange Commission on
February 23, 1994. --
10p Employee Stock Purchase and Stock Award Plan of Levi Strauss
Associates Inc., incorporated by reference from Exhibit 4.2 to the
Company's Registration Statement on Form S-8, filed with the
Securities and Exchange Commission on June 24, 1991 (Reg. No. 33-
41332). --
10q Amendments dated August 5, 1992, March 31, 1992 and January 1, 1992
to the Employee Stock Purchase and Stock Award Plan of Levi Strauss
Associates Inc., incorporated by reference from Exhibit 10q of Form
10-K filed with the Securities and Exchange Commission on February
25, 1993. --
10r Amendment dated February 9, 1993 to the Employee Stock Purchase and
Stock Award Plan of Levi Strauss Associates Inc., incorporated by
reference from Exhibit 10a of Form 10-Q filed with the Securities
and Exchange Commission on July 13, 1993. --
10s Amendment effective as of March 1, 1993 to the Employee Stock
Purchase and Stock Award Plan of Levi Strauss Associates Inc.,
incorporated by reference from Exhibit 10e of Form 10-Q filed with
the Securities and Exchange Commission on July 13, 1993. --
10t Levi Strauss Associates Inc. Employee Long-Term Investment and
Savings Plan, incorporated by reference from Exhibit 4.2 to the
Company's Registration Statement on Form S-8, filed with the
Securities and Exchange Commission on February 9, 1990 (Reg. No.
33-33415), with amendments incorporated by reference from Exhibit
4.2 to the Company's Registration Statement on Form S-8, filed with
the Securities and Exchange Commission on May 31, 1991 (Reg. No.
33-40947). --
10u Amendments dated July 21, 1992 and March 31, 1992 to the Levi
Strauss Associates Inc. Employee Long-Term Investment and Savings
Plan, incorporated by reference from Exhibit 10s of Form 10-K filed
with the Securities and Exchange Commission on February 25,
1993. --
10v Amendment dated February 9, 1993 to the Levi Strauss Associates
Inc. Employee Long-Term Investment and Savings Plan, incorporated
by reference from Exhibit 10c of Form 10-Q filed with the
Securities and Exchange Commission on July 13, 1993. --
10w Amendment dated September 26, 1994 to the Levi Strauss Associates
Inc. Employee Long-Term Investment and Savings Plan. 120
10x Employee Investment Plan of Levi Strauss Associates Inc. 123
10y Supplemental Pension Agreement dated April 16, 1985 between Levi
Strauss & Co. and Thomas W. Tusher, incorporated by reference from
Exhibit 10.13 to the Company's Registration Statement on Form S-1,
filed with the Securities and Exchange Commission on March 9, 1989
(Reg. No. 33-27465). --
10z Supplemental Pension Agreement dated November 12, 1985 between Levi
Strauss & Co. and George B. James, incorporated by reference from
Exhibit 10.14 to the Company's Registration Statement on Form S-1,
filed with the Securities and Exchange Commission on March 9, 1989
(Reg. No. 33-27465). --
10aa Letter Agreement dated August 29, 1985 between the Company and
Thomas W. Tusher, incorporated by reference from Exhibit 10.15 to
the Company's Registration Statement on Form S-1, filed with the
Securities and Exchange Commission on March 9, 1989 (Reg. No. 33-
27465). --
10bb Agreement dated as of May 1, 1989 between the Company and Boston
Safe Deposit and Trust Company, incorporated by reference from
Exhibit 10.17 to the Company's Registration Statement on Form S-1,
filed with the Securities and Exchange Commission on March 9, 1989
(Reg. No. 33-27465). --
10cc Home Office Cash Performance Sharing Plan of Levi Strauss
Associates Inc., incorporated by reference from Exhibit 10z of Form
10-K filed with the Securities and Exchange Commission on
February 23, 1994. --
10dd Field Profit Sharing Award Plan of Levi Strauss Associates Inc.,
incorporated by reference from Exhibit 10aa of Form 10-K filed with
the Securities and Exchange Commission on February 23, 1994. --
10ee Levi Strauss Associates Inc. 1992 Executive Stock Appreciation
Rights Plan, incorporated by reference from Exhibit 10aa of Form
10-K filed with the Securities and Exchange Commission on February
25, 1993. --
10ff Supply Agreement dated as of March 30, 1992, between Levi Strauss
& Co. and Cone Mills Corporation, incorporated by reference from
Exhibit 10bb of Form 10-K filed with the Securities and Exchange
Commission on February 25, 1993. --
10gg First Amendment to Supply Agreement dated as of March 30, 1992,
between Levi Strauss & Co. and Cone Mills Corporation, incorporated
by reference from Exhibit 10dd of Form 10-K filed with the
Securities and Exchange Commission on February 23, 1994. --
10hh Master Trust Agreement between Levi Strauss Associates Inc. and
Fidelity Management Trust Company, incorporated by reference from
Exhibit 10a of Form 10-Q filed with the Securities and Exchange
Commission on October 11, 1994. --
10ii Materials Handling System Agreement dated October 31, 1994, between
Levi Strauss & Co. and Computer Aided Systems, Inc. 235
10jj Form of Stock Purchase Agreement between Levi Strauss Associates
Inc. and Individual Management Holder of Class L common stock. 355
10kk Form of Manager Family Member Stock Purchase Agreement between Levi
Strauss Associates Inc. and Thomas W. Tusher. 372
10ll Form of Manager Family Member Stock Purchase Agreement between Levi
Strauss Associates Inc. and George B. James. 392
10mm Partners in Performance Annual Incentive Plan of Levi Strauss
Associates Inc. and Subsidiaries. 410
10nn Partners in Performance Long-Term Incentive Plan of Levi Strauss
Associates Inc. and Subsidiaries. 425
21 Subsidiaries of Levi Strauss Associates Inc. 442
23 Consent of Independent Public Accountants. 446<PAGE>
<PAGE>
Exhibit 10h
-----------
LEVI STRAUSS ASSOCIATES INC.
AMENDMENT AND RESTATEMENT
OF
LEVI STRAUSS ASSOCIATES INC.
DEFERRED COMPENSATION PLAN
FOR EXECUTIVES
WHEREAS, LEVI STRAUSS ASSOCIATES INC. (the "Company") maintains the Levi
Strauss Associates Inc. Deferred Compensation Plan for Executives (the
"Plan");
WHEREAS, pursuant to Article 10 of the Plan, the Board of Directors of
the Company or its delegatee is authorized to amend the Plan at any time and
for any reason;
WHEREAS, the Company desires to amend and restate the Plan to provide
alternative measurement methods with respect to deferred compensation
accounts and effect certain other changes;
WHEREAS, by resolutions duly adopted on June 18, 1992, the Board of
Directors of the Company authorized Robert D. Haas, Chairman of the Board and
Chief Executive Officer, to adopt certain amendments to the Plan and to
delegate to any other officer of the Company the authority to adopt certain
amendments to the Plan;
WHEREAS, on June 1, 1993, Robert D. Haas delegated to Donna J. Goya,
Senior Vice President, the authority to amend the Plan subject to specified
limits, and such delegation has not been amended, rescinded or superseded as
of the date hereof,
WHEREAS, the amendment and restatement effected hereby are within such
limits to the delegated authority of Donna J. Goya;
NOW, THEREFORE, effective April 1, 1994, the Plan is hereby amended and
restated to read as set forth in the exhibit hereto.
IN WITNESS WHEREOF, the undersigned has set her hand hereunto, on August
22, 1994.
--------------------------------------
Donna J. Goya
Senior Vice President<PAGE>
LEVI STRAUSS ASSOCIATES INC.
AMENDMENT
OF
LEVI STRAUSS ASSOCIATES INC.
DEFERRED COMPENSATION PLAN
FOR EXECUTIVES
WHEREAS, LEVI STRAUSS ASSOCIATES INC. (the "Company") maintains the Levi
Strauss Associates Inc. Deferred Compensation Plan for Executives (as amended
and restated through April 1, 1994) (the "Plan");
WHEREAS, pursuant to Article 10 of the Plan, the Board of Directors of
the Company or its delegatee is authorized to amend the Plan at any time and
for any reason;
WHEREAS, the Company desires to amend the Plan;
WHEREAS, by resolutions duly adopted on June 18, 1992, the Board of
Directors of the Company authorized Robert D. Haas, Chairman of the Board and
Chief Executive Officer, to adopt certain amendments to the Plan and to
delegate to any other officer of the Company the authority to adopt certain
amendments to the Plan;
WHEREAS, on June 1, 1993, Robert D. Haas delegated to Donna J. Goya,
Senior Vice President, the authority to amend the Plan subject to specified
limits, and such delegation has not been amended, rescinded or superseded as
of the date hereof,
WHEREAS, the amendments herein are within such limits to the delegated
authority of Donna J. Goya;
NOW, THEREFORE, effective April 1, 1994, Section 6(f) shall be amended
by the addition of a new paragraph at the end of existing Section 6(f), to
read as set forth below:
In the event the Administrative Committee approves a hardship
distribution to an Eligible Employee under this Section 6(f),
deferrals of such Eligible Employee's total compensation
automatically shall be cancelled for the remaining portion of the
calendar year in which the Eligible Employee's request is filed
with the Administrative Committee.
IN WITNESS WHEREOF, the undersigned has set her hand hereunto, on August
22, 1994.
--------------------------------------
Donna J. Goya
Senior Vice President<PAGE>
<PAGE>
Exhibit 10k
-----------
REVISED HOME OFFICE PENSION PLAN
OF
LEVI STRAUSS ASSOCIATES INC.
AMENDMENT
WHEREAS, LEVI STRAUSS ASSOCIATES INC. (the "Company") has adopted the
Revised Home Office Pension Plan of Levi Strauss Associates Inc. (the
"Plan");
WHEREAS, pursuant to Section 20.1 of the Plan, the Board of Directors of
the Company is authorized to amend the Plan at any time and for any reason;
WHEREAS, the Company desires to amend the Plan to provide an early
retirement program;
WHEREAS, by resolutions duly adopted on June 18, 1992, the Board of
Directors of the Company authorized Robert D. Haas, Chairman of the Board and
Chief Executive Officer, to adopt certain amendments to the Plan and to
delegate to any other officer of the Company the authority to adopt certain
amendments to the Plan;
WHEREAS, on June 1, 1993, Robert D. Haas delegated to Donna J. Goya,
Senior Vice President, the authority to amend the Plan, subject to specified
limits, and such delegation has not been amended, rescinded or superseded as
of the date hereof; and
WHEREAS, the amendment herein is within such limits to the delegated
authority of Donna J. Goya;
NOW, THEREFORE, the Plan is amended by the addition of an Addendum, to
read as set forth on the attached exhibit.
IN WITNESS WHEREOF, the undersigned has set her hand hereunto on
November 22, 1994.
--------------------------------------
Donna J. Goya
Senior Vice President<PAGE>
ADDENDUM TO THE
REVISED HOME OFFICE PENSION PLAN
OF
LEVI STRAUSS ASSOCIATES INC.
EARLY RETIREMENT
INCENTIVE PROGRAM
1. Scope. This Addendum to the Plan describes the Early Retirement
Incentive Program (the "Program"), under which eligible Members (as defined
in Section 2 below) may retire and receive benefits under the Plan in
addition to the benefits which would otherwise be payable under the Plan.
2. Eligibility. A Member is eligible for the Program (an "eligible
Member") if:
a. Such Member is on the Home Office payroll of the Company on or
after November 21, 1994;
b. Such Member has at least (i) 15 Years of Service as of June 1,
1995 and is not a Highly Compensated Employee for the Plan
Year ending in 1994, or (ii) 20 Years of Service as of
November 27, 1994 and is a Highly Compensated Employee for the
Plan Year ending in 1994;
c. Such Member is at least age 50 as of (i) June 1, 1995 for a
Member who is not a Highly Compensated Employee for the Plan
Year ending in 1994; or (ii) November 27, 1994 for a Member
who is a Highly Compensated Employee for the Plan Year ending
in 1994; and
d. Such Member was laid off or resigned from employment in the
Company's domestic contracting organization, the Richardson
Technology Center or the LSNA Information Resources
Organization on or after February 1, 1994 and before November
28, 1994, and received severance pay in connection with such
layoff or resignation.
3. Participation. Participation in the Program is completely
voluntary. In order to participate in the Program, an eligible Member shall
elect to participate in the Program by completing an irrevocable written
notice of such Member's acceptance ("Acceptance Notice") of the Program on
the form prescribed for such purpose by the Administrative Committee. The
Acceptance Notice must be received by the Administrative Committee on or
after November 21, 1994 and before June 1, 1995. In addition, the Acceptance
Notice shall be deemed complete only if it includes a retirement date which
occurs on or after the date the eligible Member attains age 50.
4. Benefits.
4.1 In General. Any other provision of the Plan notwithstanding,
an eligible Member who elects to participate in the Program (a "Participating
Member") shall be eligible for an immediate benefit under the Program as of
the retirement date described in Section 3 of this Addendum and such
retirement date shall be deemed to be an Early Retirement Date under the
Plan.
4.2 Amount. The benefit payable under the Plan pursuant to the
Program is the Benefit payable pursuant to Section 7 of the Plan as of the
applicable Early Retirement Date; provided that for purposes of Table A of
Section 7.1, the eligible Member's age shall be deemed to be age 55.
5. Other Plan Provisions.
a. A benefit under this Addendum shall be subject to Section 14.
b. Except as set forth in this Addendum, the provisions of the
Plan shall apply to a benefit payable under the Program.<PAGE>
<PAGE>
Exhibit 10m
-----------
LEVI STRAUSS ASSOCIATES INC.
REVISED EMPLOYEE RETIREMENT PLAN
AMENDMENT
WHEREAS, LEVI STRAUSS ASSOCIATES INC. (the "Company") has adopted the
Levi Strauss Associates Inc. Revised Employee Retirement Plan (the "Plan");
WHEREAS, pursuant to Section 21.1 of the Plan, the Board of Directors of
the Company is authorized to amend the Plan at any time and for any reason;
WHEREAS, the Company desires to amend the Plan to provide an early
retirement program;
WHEREAS, by resolutions duly adopted on June 18, 1992, the Board of
Directors of the Company authorized Robert D. Haas, Chairman of the Board and
Chief Executive Officer, to adopt certain amendments to the Plan and to
delegate to any other officer of the Company the authority to adopt certain
amendments to the Plan;
WHEREAS, on June 1, 1993, Robert D. Haas delegated to Donna J. Goya,
Senior Vice President, the authority to amend the Plan, subject to specified
limits, and such delegation has not been amended, rescinded or superseded as
of the date hereof; and
WHEREAS, the amendment herein is within such limits to the delegated
authority of Donna J. Goya;
NOW, THEREFORE, the Plan is amended by the addition of an Appendix C, to
read as set forth on the attached exhibit.
IN WITNESS WHEREOF, the undersigned has set her hand hereunto on
January 10, 1995.
--------------------------------------
Donna J. Goya
Senior Vice President<PAGE>
APPENDIX C TO THE
LEVI STRAUSS ASSOCIATES INC.
REVISED EMPLOYEE RETIREMENT PLAN
EARLY RETIREMENT
INCENTIVE PROGRAM
1. Scope. This Appendix to the Plan describes the Early Retirement
Incentive Program (the "Program"), under which eligible Members (as defined
in Section 2 below) may retire and receive benefits under the Plan in
addition to the benefits which would otherwise be payable under the Plan.
2. Eligibility. A Member is eligible for the Program (an "eligible
Member") if:
a. Such Member is on the home office payroll of the Company on or
after November 21, 1994;
b. Such Member has at least (i) 15 Years of Service as of June 1,
1995 and is not a Highly Compensated Employee under this Plan
or the Revised Home Office Pension Plan of Levi Strauss
Associates Inc. (the "HOPP") for the Plan Year ending in 1994,
or (ii) 20 Years of Service as of November 27, 1994 and is a
Highly Compensated Employee under this Plan or the HOPP for
the Plan Year ending in 1994;
c. Such Member is at least age 50 as of (i) June 1, 1995 for a
Member who is not a Highly Compensated Employee under this
Plan or the HOPP for the Plan Year ending in 1994; or
(ii) November 27, 1994 for a Member who is a Highly
Compensated Employee under this Plan or the HOPP for the Plan
Year ending in 1994; and
d. Such Member was laid off or resigned from employment in the
Company's domestic contracting organization, the Richardson
Technology Center or the LSNA Information Resources
Organization on or after February 1, 1994 and before November
28, 1994, and received severance pay in connection with such
layoff or resignation.
3. Participation. Participation in the Program is completely
voluntary. In order to participate in the Program, an eligible Member shall
elect to participate in the Program by completing an irrevocable written
notice of such Member's acceptance ("Acceptance Notice") of the Program on
the form prescribed for such purpose by the Administrative Committee. The
Acceptance Notice must be received by the Administrative Committee on or
after November 21, 1994 and before June 1, 1995. In addition, the Acceptance
Notice shall be deemed complete only if it includes a retirement date which
occurs on or after the date the eligible Member attains age 50.
4. Benefits.
4.1 In General. Any other provision of the Plan notwithstanding,
an eligible Member who elects to participate in the Program (a "Participating
Member") shall be eligible for an immediate benefit under the Program as of
the retirement date described in Section 3 of this Appendix C and such
retirement date shall be deemed to be an Early Retirement Date under the
Plan.
4.2 Amount. The benefit payable under the Plan pursuant to the
Program is the Benefit payable pursuant to Section 8 of the Plan as of the
applicable Early Retirement Date; provided that for purposes of Table A of
Section 8.1(b), the eligible Member's age shall be deemed to be age 55.
5. Other Plan Provisions.
a. A benefit under this Appendix C shall be subject to Section
15.
b. Except as set forth in this Appendix C, the provisions of the
Plan shall apply to a benefit payable under the Program.<PAGE>
<PAGE>
Exhibit 10w
-----------
LEVI STRAUSS ASSOCIATES INC.
EMPLOYEE LONG-TERM INVESTMENT
AND SAVINGS PLAN
AMENDMENTS
WHEREAS, LEVI STRAUSS ASSOCIATES INC. (the "Company") has adopted the
Levi Strauss Associates Inc. Employee Long-Term Investment and Savings Plan
(the "Plan");
WHEREAS, pursuant to Section 16.1 of the Plan, the Board of Directors of
the Company is authorized to amend the Plan at any time and for any reason;
WHEREAS, the Company desires to amend the Plan to permit participants to
obtain hardship withdrawals in the event of losses attributable to certain
natural disasters;
WHEREAS, by resolutions duly adopted on June 18, 1992, the Board of
Directors of the Company authorized Robert D. Haas, Chairman of the Board and
Chief Executive Officer, to adopt certain amendments to the Plan and to
delegate to any other officer of the Company the authority to adopt certain
amendments to the Plan;
WHEREAS, on June 1, 1993, Robert D. Haas delegated to Donna J. Goya,
Senior Vice President, the authority to amend the Plan, subject to specified
limits, and such delegation has not been amended, rescinded or superseded as
of the date hereof; and
WHEREAS, the amendments herein are within such limits to the delegated
authority of Donna J. Goya;
NOW, THEREFORE, the Plan is amended as set forth below:
1. Section 8.1(c) is amended as follows:
(a) The word "or" is deleted from the end of current paragraph
(vi);
(b) The period at the end of current paragraph (vii) is deleted
and in place thereof "; or" is added;
(c) A new paragraph (viii) is added to read as set forth below:
"(viii) The loss of income, real
property or personal property as a
result of any natural disaster
specified on Appendix B to the Plan
by any individual or entity
empowered to amend the Plan."
2. A new Appendix B shall be added to the Plan, to read as set forth on
the attached Exhibit hereto.
IN WITNESS WHEREOF, the undersigned has set her hand hereunto as of the
date indicated below.
--------------------------------------
Date Donna J. Goya
Senior Vice President<PAGE>
LEVI STRAUSS ASSOCIATES INC.
----------------------------
EMPLOYEE LONG-TERM INVESTMENT
-----------------------------
AND SAVINGS PLAN
----------------
APPENDIX B
----------
ADDITIONAL ELIGIBLE HARDSHIPS
-----------------------------
In accordance with Section 8.1(c)(viii) of the Plan, losses related to
natural disasters described herein may form a basis for hardship withdrawals.
1. (a) Description of Natural Disaster.
-------------------------------
(b) Limitations.
-----------<PAGE>
<PAGE>
Exhibit 10x
-----------
EMPLOYEE INVESTMENT PLAN OF
---------------------------
LEVI STRAUSS ASSOCIATES INC.
----------------------------
(As Amended and Restated Effective September 1, 1994)<PAGE>
EMPLOYEE INVESTMENT PLAN OF
---------------------------
LEVI STRAUSS ASSOCIATES INC.
----------------------------
(As Amended and Restated Effective September 1, 1994)
TABLE OF CONTENTS
-----------------
Page
SECTION 1 INTRODUCTION AND PERSONS TO WHOM PLAN APPLIES . . . . . 1
1.1 Introduction. . . . . . . . . . . . . . . . . . . . . . 1
1.2 Persons to Whom Plan Applies. . . . . . . . . . . . . . 1
SECTION 2 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . 3
2.1 "Accounts". . . . . . . . . . . . . . . . . . . . . . . 3
2.2 "Act" . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 "Administrative Committee". . . . . . . . . . . . . . . 3
2.4 "Affiliated Company". . . . . . . . . . . . . . . . . . 3
2.5 "Alternate Payee" . . . . . . . . . . . . . . . . . . . 4
2.6 "Annual Additions". . . . . . . . . . . . . . . . . . . 4
2.7 "Annuity Starting Date" . . . . . . . . . . . . . . . . 4
2.8 "Beneficiary" . . . . . . . . . . . . . . . . . . . . . 5
2.9 "Board of Directors". . . . . . . . . . . . . . . . . . 5
2.10 "Break in Service". . . . . . . . . . . . . . . . . . . 5
2.11 "Code". . . . . . . . . . . . . . . . . . . . . . . . . 5
2.12 "Committee" . . . . . . . . . . . . . . . . . . . . . . 5
2.13 "Company" . . . . . . . . . . . . . . . . . . . . . . . 5
2.14 "Compensation". . . . . . . . . . . . . . . . . . . . . 5
2.15 "Domestic Relations Order". . . . . . . . . . . . . . . 7
2.16 "Effective Date". . . . . . . . . . . . . . . . . . . . 7
2.17 "Employee". . . . . . . . . . . . . . . . . . . . . . . 8
2.18 "ESP" . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.19 "Fair Market Value" . . . . . . . . . . . . . . . . . . 9
2.20 "Forfeiture". . . . . . . . . . . . . . . . . . . . . . 9
2.21 "FPSP". . . . . . . . . . . . . . . . . . . . . . . . . 10
2.22 "Fund". . . . . . . . . . . . . . . . . . . . . . . . . 10
2.23 "Highly Compensated Employee" . . . . . . . . . . . . . 10
2.24 "Highly Compensated Former Employee". . . . . . . . . . 12
2.25 "Home Office Salary Grade". . . . . . . . . . . . . . . 12
2.26 "Hour of Service" . . . . . . . . . . . . . . . . . . . 12
2.27 "Inactive Member" . . . . . . . . . . . . . . . . . . . 12
2.28 "Insider" . . . . . . . . . . . . . . . . . . . . . . . 12
2.29 "Investment Committee". . . . . . . . . . . . . . . . . 12
2.30 "Investment Manager". . . . . . . . . . . . . . . . . . 12
2.31 "IRS" . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.32 "Labor Department". . . . . . . . . . . . . . . . . . . 13
2.33 "LSAI Stock". . . . . . . . . . . . . . . . . . . . . . 13
2.34 "LS&CO.". . . . . . . . . . . . . . . . . . . . . . . . 13
2.35 "Matching Account". . . . . . . . . . . . . . . . . . . 13
2.36 "Matching Contribution" . . . . . . . . . . . . . . . . 13
2.37 "Member". . . . . . . . . . . . . . . . . . . . . . . . 13
2.38 "Member Contributions". . . . . . . . . . . . . . . . . 13
2.39 "Membership Date" . . . . . . . . . . . . . . . . . . . 13
2.40 "Misconduct". . . . . . . . . . . . . . . . . . . . . . 13
2.41 "Mutual Fund" . . . . . . . . . . . . . . . . . . . . . 14
2.42 "Nonelective Account" . . . . . . . . . . . . . . . . . 14
2.43 "Nonelective Contribution". . . . . . . . . . . . . . . 14
2.44 "Normal Retirement Age" . . . . . . . . . . . . . . . . 14
2.45 "Participating Company" . . . . . . . . . . . . . . . . 14
2.46 "Plan". . . . . . . . . . . . . . . . . . . . . . . . . 14
2.47 "Plan Benefit". . . . . . . . . . . . . . . . . . . . . 14
2.48 "Plan Year" . . . . . . . . . . . . . . . . . . . . . . 14
2.49 "Post-Tax Account". . . . . . . . . . . . . . . . . . . 14
2.50 "Post-Tax Contributions". . . . . . . . . . . . . . . . 14
2.51 "Pre-Tax Account" . . . . . . . . . . . . . . . . . . . 14
2.52 "Pre-Tax Contributions" . . . . . . . . . . . . . . . . 14
2.53 "Profit Sharing 401(k) Account" . . . . . . . . . . . . 15
2.54 "Profit Sharing Regular Account". . . . . . . . . . . . 15
2.55 "Profit Sharing Contribution" . . . . . . . . . . . . . 15
2.56 "PSP" . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.57 "Qualified Domestic Relations Order". . . . . . . . . . 15
2.58 "Qualified Member". . . . . . . . . . . . . . . . . . . 15
2.59 "Quarter" . . . . . . . . . . . . . . . . . . . . . . . 15
2.60 "Registration Rights Agreement" . . . . . . . . . . . . 15
2.61 "Regulations" . . . . . . . . . . . . . . . . . . . . . 15
2.62 "Required Beginning Date" . . . . . . . . . . . . . . . 15
2.63 "Retiree Coordinator" . . . . . . . . . . . . . . . . . 16
2.64 "Rollover Account". . . . . . . . . . . . . . . . . . . 16
2.65 "Rollover Contributions". . . . . . . . . . . . . . . . 16
2.67 "Surviving Spouse". . . . . . . . . . . . . . . . . . . 17
2.68 "Total Compensation . . . . . . . . . . . . . . . . . . 17
2.69 "Totally and Permanently Disabled". . . . . . . . . . . 19
2.70 "Trust Agreement" . . . . . . . . . . . . . . . . . . . 19
2.71 "Trust Fund". . . . . . . . . . . . . . . . . . . . . . 19
2.72 "Trustee" . . . . . . . . . . . . . . . . . . . . . . . 19
2.73 "Valuation Date". . . . . . . . . . . . . . . . . . . . 19
2.74 "Vested Interest" . . . . . . . . . . . . . . . . . . . 20
2.75 "Year of Service" . . . . . . . . . . . . . . . . . . . 20
SECTION 3 MEMBERSHIP AND TRANSFER . . . . . . . . . . . . . . . . 21
3.1 Commencement of Membership. . . . . . . . . . . . . . . 21
3.2 Rehired and Transferred Employees . . . . . . . . . . . 21
3.3 Suspension of Membership. . . . . . . . . . . . . . . . 21
3.4 Termination of Membership . . . . . . . . . . . . . . . 22
3.5 Highly Compensated Employees. . . . . . . . . . . . . . 22
SECTION 4 MEMBER CONTRIBUTIONS. . . . . . . . . . . . . . . . . . 23
4.1 Election to Make Contributions. . . . . . . . . . . . . 23
4.2 Maximum Pre-Tax Contributions . . . . . . . . . . . . . 23
4.3 Change or Suspension of Contributions . . . . . . . . . 23
4.4 Resumption of Contributions . . . . . . . . . . . . . . 23
4.5 Withholding and Deposit With Trustee; Crediting
Accounts. . . . . . . . . . . . . . . . . . . . . . . 24
4.6 Distribution of Excess Contributions and Deferrals. . . 24
4.7 Rollover Contributions. . . . . . . . . . . . . . . . . 25
SECTION 5 MATCHING AND NONELECTIVE CONTRIBUTIONS. . . . . . . . . 26
5.1 Matching Contribution . . . . . . . . . . . . . . . . . 26
5.2 Nonelective Contribution. . . . . . . . . . . . . . . . 27
5.3 Deposit with Trustee; Crediting Accounts. . . . . . . . 27
5.4 Curtailment or Distribution from Plan of Excess
Aggregate Contributions . . . . . . . . . . . . . . . 28
SECTION 6 PROFIT SHARING CONTRIBUTION . . . . . . . . . . . . . . 29
6.1 Amount and Form . . . . . . . . . . . . . . . . . . . . 29
6.2 Cash Election by Members. . . . . . . . . . . . . . . . 29
6.3 Deposit With Trustee; Crediting Accounts. . . . . . . . 29
6.4 Distribution of Excess Contributions and Deferrals. . . 30
SECTION 7 TRUST FUND, INVESTMENTS AND INVESTMENT DIRECTIONS . . . 32
7.1 Trust Fund. . . . . . . . . . . . . . . . . . . . . . . 32
7.2 Investment of Contributions . . . . . . . . . . . . . . 32
7.3 Reinvestment of Accounts. . . . . . . . . . . . . . . . 34
7.4 Investment by Alternate Payees. . . . . . . . . . . . . 35
7.5 Allocation of Voting Rights . . . . . . . . . . . . . . 35
7.6 Exercise of Voting Rights . . . . . . . . . . . . . . . 36
7.7 Other Instructions by Members . . . . . . . . . . . . . 36
7.8 Participant Directed Accounts . . . . . . . . . . . . . 38
SECTION 8 VALUATIONS AND STATEMENTS . . . . . . . . . . . . . . . 39
8.1 Valuation of Accounts . . . . . . . . . . . . . . . . . 39
8.2 Statements. . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 9 WITHDRAWALS . . . . . . . . . . . . . . . . . . . . . . 40
9.1 Withdrawals from Post-Tax Accounts. . . . . . . . . . . 40
9.2 Withdrawals from Rollover Accounts. . . . . . . . . . . 40
9.3 Hardship Withdrawals. . . . . . . . . . . . . . . . . . 40
9.4 Withdrawals From Stock Fund. . . . . . . . . . . . . . 43
9.5 Payment of Withdrawals. . . . . . . . . . . . . . . . . 43
9.6 Valuation Date. . . . . . . . . . . . . . . . . . . . . 43
9.7 Source of Withdrawals . . . . . . . . . . . . . . . . . 43
9.8 Limitation on Withdrawals by Insiders.. . . . . . . . . 44
9.9 Additional Limitations on Withdrawals . . . . . . . . . 44
9.10 Withdrawals by Alternate Payees . . . . . . . . . . . . 44
SECTION 10 LOANS . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.1 Amount of Loans . . . . . . . . . . . . . . . . . . . . 45
10.2 Terms of Loans. . . . . . . . . . . . . . . . . . . . . 46
10.3 Source of Loans; Application of Loan Payments . . . . . 48
10.4 Default . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 11 PLAN BENEFITS . . . . . . . . . . . . . . . . . . . . . 50
11.1 Vesting in Accounts . . . . . . . . . . . . . . . . . . 50
11.2 Amount of Plan Benefit. . . . . . . . . . . . . . . . . 50
11.3 Valuation of Plan Benefit . . . . . . . . . . . . . . . 50
11.4 Rehire Before Five One-Year Breaks in Service . . . . . 50
11.5 Form of Payment . . . . . . . . . . . . . . . . . . . . 50
11.6 Time of Payment . . . . . . . . . . . . . . . . . . . . 53
11.7 Death Benefit . . . . . . . . . . . . . . . . . . . . . 55
11.8 Limitation on Time of Payment . . . . . . . . . . . . . 55
SECTION 12 ALLOCATION LIMITATIONS. . . . . . . . . . . . . . . . . 56
12.1 Limitation on Annual Additions. . . . . . . . . . . . . 56
12.2 Combined Limitation on Benefits and Contributions . . . 56
12.3 Disposition of Excess Annual Additions. . . . . . . . . 56
SECTION 13 FUNDING POLICY AND METHOD . . . . . . . . . . . . . . . 58
13.1 Contributions . . . . . . . . . . . . . . . . . . . . . 58
13.2 Trust Fund. . . . . . . . . . . . . . . . . . . . . . . 58
13.3 Expenses of the Plan. . . . . . . . . . . . . . . . . . 58
13.4 Cash Requirements . . . . . . . . . . . . . . . . . . . 58
13.5 Independent Accountant. . . . . . . . . . . . . . . . . 59
13.6 Loans from Parties-In-Interest. . . . . . . . . . . . . 59
SECTION 14 BENEFICIARIES . . . . . . . . . . . . . . . . . . . . . 60
SECTION 15 ADMINISTRATION AND OPERATION OF THE PLAN. . . . . . . . 61
15.1 Plan Administrator. . . . . . . . . . . . . . . . . . . 61
15.2 Control and Management of Plan Assets . . . . . . . . . 61
15.3 Trustees and Investment Managers. . . . . . . . . . . . 61
15.4 Committee Membership. . . . . . . . . . . . . . . . . . 62
15.5 Reports to Board of Directors . . . . . . . . . . . . . 63
15.6 Employment of Advisers. . . . . . . . . . . . . . . . . 63
15.7 Limitations on Committee Actions. . . . . . . . . . . . 63
15.8 Committee Meetings. . . . . . . . . . . . . . . . . . . 63
SECTION 16 CLAIMS AND REVIEW PROCEDURES. . . . . . . . . . . . . . 64
16.1 Applications for Benefits . . . . . . . . . . . . . . . 64
16.2 Denial of Applications. . . . . . . . . . . . . . . . . 64
16.3 Requests for Review . . . . . . . . . . . . . . . . . . 64
16.4 Decisions on Review . . . . . . . . . . . . . . . . . . 65
16.5 Exhaustion of Administrative Remedies . . . . . . . . . 65
SECTION 17 TERMINATION OF EMPLOYER PARTICIPATION . . . . . . . . . 66
17.1 Termination by Participating Company. . . . . . . . . . 66
17.2 Effect of Termination . . . . . . . . . . . . . . . . . 66
17.3 IRS Termination Procedure . . . . . . . . . . . . . . . 66
17.4 Termination of the Plan . . . . . . . . . . . . . . . . 67
SECTION 18 AMENDMENT, MERGER OR TERMINATION OF THE PLAN
AND TRUST . . . . . . . . . . . . . . . . . . . . . . 68
18.1 Right to Amend. . . . . . . . . . . . . . . . . . . . . 68
18.2 Plan Merger or Consolidation. . . . . . . . . . . . . . 68
18.3 Termination of the Plan . . . . . . . . . . . . . . . . 68
18.4 Partial Termination of the Plan . . . . . . . . . . . . 68
18.5 Manner of Distribution. . . . . . . . . . . . . . . . . 69
18.6 Restrictions on Liquidation of Trust Upon
Termination . . . . . . . . . . . . . . . . . . . . . 69
SECTION 19 INALIENABILITY OF BENEFITS. . . . . . . . . . . . . . . 71
19.1 No Assignment Permitted. . . . . . . . . . . . . . . . 71
19.2 Return of Contributions . . . . . . . . . . . . . . . . 71
19.3 Qualified Domestic Relations Orders . . . . . . . . . . 72
SECTION 20 TOP-HEAVY PROVISIONS. . . . . . . . . . . . . . . . . . 75
20.1 Determination of Top-Heavy Status . . . . . . . . . . . 75
20.2 Minimum Allocations . . . . . . . . . . . . . . . . . . 76
20.3 Minimum Vesting . . . . . . . . . . . . . . . . . . . . 76
20.4 Effect of Change in Top-Heavy Status on Vesting . . . . 76
20.5 Impact on Maximum Benefits. . . . . . . . . . . . . . . 77
SECTION 21 GENERAL LIMITATIONS AND PROVISIONS. . . . . . . . . . . 78
21.1 No Employment Rights. . . . . . . . . . . . . . . . . . 78
21.2 Payments from the Trust Fund. . . . . . . . . . . . . . 78
21.3 Payments to Minors or Incompetents. . . . . . . . . . . 78
21.4 Lost Members or Other Persons . . . . . . . . . . . . . 78
21.5 Personal Data to the Administrative Committee . . . . . 79
21.6 Insurance Contracts . . . . . . . . . . . . . . . . . . 79
21.7 Notice to the Administrative Committee. . . . . . . . . 79
21.8 Notices to Members and Beneficiaries. . . . . . . . . . 79
21.9 Word Usage. . . . . . . . . . . . . . . . . . . . . . . 79
21.10 Headings. . . . . . . . . . . . . . . . . . . . . . . . 80
21.11 Governing Law . . . . . . . . . . . . . . . . . . . . . 80
21.12 Heirs and Successors. . . . . . . . . . . . . . . . . . 80
21.13 Withholding . . . . . . . . . . . . . . . . . . . . . . 80
APPENDIX A PRIOR PLAN PROVISIONS . . . . . . . . . . . . . . . . . A-1
APPENDIX B BLACKOUT PROVISIONS . . . . . . . . . . . . . . . . . . B-1
APPENDIX C FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . C-1
APPENDIX D ADDITIONAL ELIGIBLE WITHDRAWALS AND LOANS . . . . . . . D-1<PAGE>
EMPLOYEE INVESTMENT PLAN OF
---------------------------
LEVI STRAUSS ASSOCIATES INC.
----------------------------
As Amended and Restated Effective September 1, 1994
SECTION 1 INTRODUCTION AND PERSONS TO WHOM PLAN APPLIES.
- --------- ---------------------------------------------
1.1 Introduction. Effective November 27, 1953, the Profit Sharing
Plan of Levi Strauss & Co. (the "PSP") was established to provide eligible
employees ("Employees") with a beneficial interest in the profits of Levi
Strauss & Co. Effective August 6, 1985, the Frozen Profit Sharing Plan of
Levi Strauss & Co. (the "FPSP") was established to hold certain accounts
previously held under the Stock Purchase and Investment Plan of Levi
Strauss & Co. (the "SPIP"). Effective August 6, 1985, the Employee Savings
Plan of Levi Strauss & Co. (the "ESP") was established to provide Employees
with a program of regular savings supplemented by Matching Contributions that
was similar to aspects of the SPIP.
Effective October 1, 1988, the PSP and the FPSP were merged into the
ESP. Effective August 1, 1989, the ESP was amended, restated and renamed the
Employee Investment Plan of Levi Strauss Associates Inc. (the "EIP"). The
EIP was amended from time to time after August 1, 1989, to comply with
certain provisions of relevant law or implement other changes desired by Levi
Strauss Associates Inc.
Levi Strauss Associates Inc. amended and restated the EIP, effective
November 27, 1989 (the "Effective Date"), to comply with the Tax Reform Act
of 1986 and other applicable legislation. By this amendment and restatement
(the "Plan"), Levi Strauss Associates Inc. intends to amend the EIP,
effective September 1, 1994 (the "Effective Date"), to effect certain plan
design changes, including changes relating to a change in recordkeeper. Levi
Strauss Associates Inc. intends that the Plan continue to qualify as a profit
sharing plan under section 401(a) and related sections of the Code and as a
cash or deferred arrangement under section 401(k) of the Code and that the
trust established under the Plan continue to qualify as a tax-exempt trust
under section 501(a) of the Code.
This amended and restated Plan is generally effective on September 1,
1994. Certain provisions of the Plan which were in effect on or after
November 27, 1989, but which were amended before September 1, 1994 are
included in Appendix A.
1.2 Persons to Whom Plan Applies. This Plan document is not a new
Plan which succeeds the Plan as previously in effect, but is an amendment and
restatement of the Plan as in effect before the Effective Date. The amount,
right to and form of any benefits under the Plan, of each Member who is an
Employee on and after the Effective Date, or of persons claiming benefits
through such a Member will be determined under this Plan. The amount, right
to and form of any benefits under this Plan, of each Member who has separated
from Service with Levi Strauss Associates Inc. or an Affiliated Company, or
of persons who are claiming benefits through such a Member, will be
determined in accordance with the provisions of the Plan in effect on the
date of the Member's separation from Service, except as may otherwise be
expressly provided under this Plan, or unless the Member again becomes an
Employee on or after the Effective Date. This amended and restated Plan will
not reduce any Member's Plan Benefit under the Plan, as determined on the
date immediately preceding the Effective Date, and this Plan will be
construed accordingly.
SECTION 2. DEFINITIONS.
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When used in this Plan document the following terms will have the
following meanings:
2.1 "Accounts" means, to the extent applicable to a Member, one or
more of the following accounts:
(a) Matching Account;
(b) Nonelective Account;
(c) Post-Tax Account;
(d) Pre-Tax Account;
(e) Profit Sharing 401(k) Account;
(f) Profit Sharing Regular Account; and
(g) Rollover Account.
2.2 "Act" means the Employee Retirement Income Security Act of 1974,
as amended, and any Regulations or rulings issued under the Act.
2.3 "Administrative Committee" means the committee appointed to
administer the Plan as described in Section 15.4.
2.4 "Affiliated Company" means:
(a) A corporation that is a member of a controlled group of
corporations (as defined in section 414(b) of the Code) which includes Levi
Strauss Associates Inc.;
(b) Any trade or business (whether or not incorporated) that is in
common control (as defined in section 414(c) of the Code) with Levi Strauss
Associates Inc.;
(c) An organization (whether or not incorporated) that is a member
of an affiliated service group (as defined in section 414(m) of the Code)
which includes Levi Strauss Associates Inc.;
(d) Any other entity required to be aggregated with Levi Strauss
Associates Inc. under section 414(o) of the Code; or
(e) Any other entity designated as an Affiliated Company by the
Board of Directors.
2.5 "Alternate Payee" means the spouse, former spouse, child or other
dependent of a Member who is recognized by a Domestic Relations Order as
having a right to receive all, or a portion, of a Member's Plan Benefit.
2.6 "Annual Additions" means the sum of the following additions to the
Member's Accounts for the Plan Year:
(a) The amount of employer contributions and forfeitures allocated
to the Member under any qualified defined contribution plan maintained by the
Company and any Affiliated Company, including Profit Sharing Contributions,
Matching Contributions, Nonelective Contributions and Forfeitures under this
Plan;
(b) The aggregate employee contributions which the Member
contributes to all qualified retirement plans maintained by the Company and
all Affiliated Companies, including Post-Tax Contributions to this Plan;
(c) The amount of contributions made on behalf of the Member to
any qualified defined contribution plan maintained by the Company and all
Affiliated Companies under an election by the Member under a qualified cash
or deferred arrangement, including Pre-Tax Contributions to this Plan; and
(d) Contributions allocated to any individual medical benefit
account (within the meanings of sections 415(l) and 419A(d)(2) of the Code)
that is established for the Member.
Employee contributions will be determined without regard to any rollover
contributions (as defined in sections 402(a)(5), 403(a)(4), 403(b)(8) and
403(d)(3) of the Code) and without regard to any employee contributions to a
simplified employee pension plan which are excludable from income under
section 408(k)(6) of the Code. In addition, the 25% of compensation
limitation described in section 415(c)(1)(B) of the Code will not apply to
any contribution for medical benefits (within the meaning of section
419A(f)(2) of the Code) after the Member's separation from Service which is
treated as an Annual Addition.
2.7 "Annuity Starting Date" means the first day of the first month for
which an amount is payable as an annuity. The Annuity Starting Date for a
Member who elects (with the consent of his or her spouse if the Member is
legally married) to receive his or her Plan Benefit in a form other than an
annuity in accordance with Section 11.5, is the first day on which all events
(including the passing of the day on which benefit payments are scheduled to
begin) have occurred which entitle the Member to receive his or her first
benefit payment from the Plan.
2.8 "Beneficiary" means the beneficiary or beneficiaries designated by
a Member under Section 3.1 and Section 14 (or any other person or persons
designated as such under applicable law) to receive the amount, if any,
payable under the Plan upon the Member's death.
2.9 "Board of Directors" means the Board of Directors of Levi Strauss
Associates Inc. The Board of Directors may delegate to any committee,
subcommittee or any of its members, or to any agent, its authority to perform
any act under the Plan, including without limitation those matters involving
the exercise of discretion. Any such delegation of discretion will be
subject to revocation at any time at the discretion of the Board of
Directors. Any reference to the Board of Directors in connection with such
delegated authority will be deemed a reference to the delegate or delegates.
2.10 "Break in Service" means a period of at least 12 consecutive
months, beginning on the date Service ends, during which a person has not
performed 1 Hour of Service (or been treated as performing Service) under
Section 2.66, as determined by the Administrative Committee.
2.11 "Code" means the Internal Revenue Code of 1986, as amended, and
any Regulations or rulings issued under the Code.
2.12 "Committee" means the Administrative Committee or Investment
Committee, as applicable.
2.13 "Company" means Levi Strauss Associates Inc., LS&CO. and each
other Participating Company or any of them.
2.14 "Compensation" means a Member's compensation for a Plan Year paid
by the Company for services while an Employee and a Member during that Plan
Year, including salary, wages, fees, commissions, bonuses, incentive
compensation and overtime pay. "Compensation" also includes the Member's
Member Contributions to the Plan for the Plan Year and any amounts
contributed by the Member to a cafeteria plan maintained by the Company under
section 125 of the Code. Back pay awards will be included in Compensation
only for the Plan Year in which the back pay award is made and the amount to
be included will be limited to the amount attributable to that Plan Year,
regardless of mitigation of damages.
If a Member is a territory manager, an account manager or an account
executive, or any of the 3, for the entire Plan Year (or portion of the Plan
Year during which he or she is a Member), his or her Compensation for
purposes of determining the Member's share of any allocation of Matching
Contributions, Profit Sharing Contributions and Forfeitures will not exceed
the following limits, as determined by the Administration Committee:
(a) The Compensation of a territory manager at the time as of
which the allocation is made will not exceed the maximum for the Home Office
Salary Grade 5 salary range in effect at the end of such Plan Year;
(b) The Compensation of an account manager at the time as of which
the allocation is made will not exceed the maximum for the Home Office Salary
Grade 6 salary range in effect at the end of such Plan Year; and
(c) The Compensation of an account executive at the time as of
which the allocation is made will not exceed the maximum for the Home Office
Salary Grade 7 salary range in effect at the end of such Plan Year.
In the case of a Member who is working abroad or who is working for a
foreign subsidiary of the Company, but continues to be paid from the home
office of the Company, "Compensation" will be the amount determined by the
Administrative Committee to be the amount that would have been paid to the
Member had he or she been on a domestic payroll of the Company.
"Compensation" will not include:
(a) Matching Contributions, Nonelective Contributions or Profit
Sharing Contributions to the Plan under Sections 5 and 6 or amounts paid to
the Member according to an election under Section 6.2;
(b) Amounts paid or contributed to any group insurance plan or
other employee benefit plan established or maintained by the Company or an
Affiliated Company, except as provided above;
(c) Relocation expenses;
(d) Ordinary income recognized by the employee related to the
exercise of any right granted under a stock option plan maintained by the
Company or an Affiliated Company;
(e) Compensation paid by the Company or an Affiliated Company as
a nonrecurring or special bonus, tax reimbursement or award;
(f) Payments under the Company's long-term performance plan;
(g) Severance payments;
(h) Payments from the Company's Long Term Disability Plan;
(i) "Imputed income;" or
(j) "Perks."
"Imputed Income" means the amount of income recognized by a Member who
receives Company paid life insurance in excess of $50,000 and such other
amounts the Administrative Committee determines to be imputed income to the
Member under the Code. "Perks" include, but are not limited to, Company paid
parking, Company provided car allowances, and the flexible perk allowances
provided to certain Members which may be used by the Member for financial
counseling or planning; tax preparation or advice; excess medical expenses;
physical examinations; additional life insurance, disability insurance,
accidental death and dismemberment insurance or liability insurance; business
lunch club dues or legal expenses.
For Plan Years beginning on and after the Effective Date, Compensation
for any Plan Year in excess of $200,000 or any successor limitation as
provided for the Plan Year in section 401(a)(17) of the Code (as adjusted as
provided under section 401(a)(17) of the Code) will be disregarded. In
determining the Compensation of a Member, the family aggregation rules of
section 414(q)(6) of the Code will apply, except that in applying these
rules, the term "family" will include only the spouse of the Member and any
lineal descendants of the Member who have not reached age 19 before the close
of the Plan Year.
A Member's Compensation will be determined by the Administrative
Committee and such determination will be conclusive and binding on all
persons.
2.15 "Domestic Relations Order" means any judgment, decree or order
(including approval of a property settlement agreement) that:
(a) Relates to the provision of child support, alimony payments or
marital property rights to a spouse, former spouse, child or other dependent
of a Member; and
(b) Is entered or made under the domestic relations or community
property laws of any state.
2.16 "Effective Date" means November 27, 1989, except as expressly
stated otherwise in this document or as required to comply with the Tax
Reform Act of 1986, as amended, and other applicable legislation.
2.17 "Employee" means any person who is employed by the Company
excluding:
(a) Any employee of LS&CO, who is not paid from the home office of
Levi Strauss Associates Inc.
(b) Any employee of a Participating Company other than LS&CO. who
is not paid on a salary or commission basis; or
(c) Any stocktaker, service representative, Retiree Coordinator or
"Temporary Employee;"
(d) Any employee who is not employed in a state or territory of
the United States or who receives no remuneration from the Company that
constitutes income from sources within the United States (within the meaning
of section 861(a)(3) of the Code);
(e) Any alien who:
(i) Receives remuneration from the Company which
constitutes income from sources within the United States (within the
meaning of section 861(a)(3) of the Code); and
(ii) Has been transferred by the Company from a job outside
the United States to a job within the United States, during any period
with respect to which the alien is benefiting (by reason of accruing a
benefit or making or having contributions made on the alien's behalf)
under:
(A) A retirement plan established or maintained outside
of the United States by a foreign subsidiary (including a domestic
subsidiary operating abroad) or foreign division of the Company;
or
(B) The Levi Strauss International Retirement Plan for
Third Country National Employees or any successor or similar plan
maintained by the Company or any Affiliated Company;
(f) A United States citizen locally hired by a foreign subsidiary
(including a domestic subsidiary operating abroad) or foreign division of the
Company;
(g) Any employee who is included in a unit of employees covered by
a negotiated collective-bargaining agreement which does not provide for his
or her membership in the Plan;
(h) A "leased employee" (as defined in section 414(n) or section
414(o) of the Code) who is providing services to the Company or an Affiliated
Company;
(i) Any employee who is covered by an individual employment
contract that expressly provides he or she will not be eligible for
membership in the Plan;
(j) An employee who is included in a group or classification of
employees on the payroll of a company designated by the Board of Directors as
not being eligible to participate in the Plan; or
(k) A Highly Compensated Employee, with respect to the eligibility
to make Member Contributions or receive an allocation of Matching
Contributions, Nonelective Contributions, Profit Sharing Contributions and
Forfeitures only.
A member of the board of directors of the Company is not eligible for
membership in the Plan unless he or she is also an Employee of the Company.
The Board of Directors may on a nondiscriminatory basis, designate as an
Employee a person described in (c), (d), (f) or (j) above. Such designation
must be made in writing after receiving the advice of counsel.
A "Temporary Employee" means a person who:
(i) Is hired to fill, for a period not to exceed 6 calendar
months, a position which arises from either an emergency situation or
the temporary absence of an Employee; or
(ii) Is subject, as a condition of such employment, to
termination without prior notice at any time.
A person's status as an Employee will be determined by the
Administrative Committee, and such determination will be conclusive and
binding on all persons.
2.18 "ESP" means the Employee Savings Plan of Levi Strauss & Co. as in
effect before August 1, 1989.
2.19 "Fair Market Value" means the value of a share of LSAI Stock,
determined by the latest independent appraisal of the value of LSAI Stock
obtained by the Investment Committee. If LSAI Stock is offered to the public
under the Registration Rights Agreement, "Fair Market Value" will mean the
net proceeds realized by the Trustee in selling shares of LSAI Stock under
such offering until LSAI Stock is reappraised or until a public market for
LSAI Stock arises.
2.20 "Forfeiture" means the portion of a Member's Matching Account and
Profit Sharing Regular Account which is forfeited under Section 11.1. The
term "Forfeiture" also includes that portion of a Member's Profit Sharing
Account that was forfeited on account of the Member's separation from service
before November 26, 1990, and amounts forfeited under the ESP and PSP before
August 1, 1989.
2.21 "FPSP" means the Frozen Profit Sharing Plan of Levi Strauss & Co.
as in effect before October 1, 1988.
2.22 "Fund" means any of the investment funds described in Section 7.1.
2.23 "Highly Compensated Employee" means an Employee who:
(a) During the preceding Plan Year:
(i) Was at any time a 5% owner of the Company or an
Affiliated Company (as defined in section 416(i)(1) of the Code);
(ii) Received "compensation" from the Company or an
Affiliated Company in excess of $75,000 (as adjusted under Regulations
or rulings issued by the IRS);
(iii) Received "compensation" from the Company or an
Affiliated Company in excess of $50,000 (as adjusted under Regulations
or rulings issued by the IRS) and was in the top 20% of employees of the
Company and all Affiliated Companies when ranked on the basis of
"compensation" paid during such Plan Year (referred to as the "Top Paid
Group" under IRS Regulations); or
(iv) Was at any time an officer of the Company or an
Affiliated Company and received "compensation" greater than 50% of the
amount in effect under section 415(b)(1)(A) of the Code; or
(b) During the Plan Year:
(i) Was at any time a 5% owner of the Company or an
Affiliated Company (as defined in section 416(i)(1) of the Code); or
(ii) Satisfies the requirements of paragraphs (ii), (iii),
or (iv) of Section 2.23(a) and is a member of the group consisting of
the 100 employees of the Company and all Affiliated Companies paid the
greatest "compensation" during the Plan Year.
For purposes of determining the number of employees in the Top Paid
Group for a Plan Year, the following employees, as described in section
414(q)(8) and section 414(q)(11) of the Code, will be excluded:
(i) Those who have not completed 6 months of service;
(ii) Those who normally work less than 17-1/2 hours per
week;
(iii) Those who normally work less than 6 months during any
year;
(iv) Those who have not attained age 21;
(v) Those subject to a collective bargaining agreement; and
(vi) Nonresident aliens who receive no earned income from
sources within the United States.
The Administrative Committee will determine whether an employee is an
officer based on the responsibilities of the employee with the Company or an
Affiliated Company. Of those employees determined to be officers, no more
than 50 employees (or, if less, the greater of 3 employees or 10% of the
employees, excluding all employees described in section 414(q)(8) and section
414(q)(11) of the Code) will be treated as officers. Further, if no officer
receives the level of "compensation" described in Section 2.23(a)(iv), the
highest paid officer of the Company and all Affiliated Companies will be
treated as a Highly Compensated Employee described in Section 2.23(a)(iv).
For purposes of determining whether an employee is a Highly Compensated
Employee only, any person who is a member of the family of a 5% owner or of
a Highly Compensated Employee in the group consisting of the 10 Highly
Compensated Employees paid the greatest "compensation" during the Plan Year:
(i) Will not be considered a separate employee; and
(ii) Any "compensation" paid to the person and any Company
or Employee contributions made on behalf of the person will be treated
as if it were paid to or on behalf of the 5% owner or Highly Compensated
Employee.
For purposes of the immediately preceding sentence, the term "family" means,
with respect to any employee, the employee's spouse and lineal ascendants or
descendants and the spouses of such lineal ascendants or descendants.
"Compensation" for purposes of this Section 2.23 means Total
Compensation as defined in Section 2.68 of the Plan, determined without
regard to section 125 of the Code (regarding contributions to a cafeteria
plan); section 402(a)(8) of the Code (regarding contributions to a 401(k)
plan) and section 402(h)(1)(B) of the Code (regarding contributions to a
simplified employee pension plan); and in the case of employer contributions
made under a salary reduction agreement, without regard to section 403(b)
(regarding annuity contracts).
2.24 "Highly Compensated Former Employee" means a former employee who
separates from Service before the beginning of the Plan Year and who was a
Highly Compensated Employee for either:
(a) The employee's year of separation from Service; or
(b) Any Plan Year ending on or after the employee's 55th birthday.
An employee who performs no services for the Company or an Affiliated Company
during the Plan Year will be treated as a former employee.
2.25 "Home Office Salary Grade" means the LS&CO. job classification
system for home office employees as in effect from time to time.
2.26 "Hour of Service" means an hour of employment for which an
Employee is paid or is entitled to payment for the performance of duties as
determined under the Labor Department Regulations governing the computation
of hours of service.
2.27 "Inactive Member" means an individual participating in the Plan
under Sections 3.3, 3.5 and 4.7.
2.28 "Insider" means a Member who is subject to Section 16(a) of the
Securities Exchange Act of 1934, as amended.
2.29 "Investment Committee" means the committee appointed to manage and
control the Plan's assets as described in Section 15.4.
2.30 "Investment Manager" means a person who is appointed to direct the
investment of all or any part of the Trust Fund under Section 15.2 and is
either a bank, an insurance company or a registered investment adviser under
the Investment Advisers Act of 1940 and who has acknowledged in writing that
it is a fiduciary with respect to the Plan.
2.31 "IRS" means the United States Internal Revenue Service.
2.32 "Labor Department" means the United States Department of Labor.
2.33 "LSAI Stock" means shares of common or preferred stock of Levi
Strauss Associates Inc. that have been authorized for issuance to or
ownership by the Trustee.
2.34 "LS&CO." means Levi Strauss & Co., a Delaware corporation.
2.35 "Matching Account" means the account maintained for a Member to
hold the Member's Matching Contributions.
2.36 "Matching Contribution" means the contribution made by the Company
under Section 5.1.
2.37 "Member" means a person who is either an "Active Member" who
participates in all features of the Plan or an "Inactive Member" who only
participates in certain features of the Plan under Sections 3.3, 3.5 or 4.7.
2.38 "Member Contributions" means Post-Tax Contributions and/or Pre-Tax
Contributions.
2.39 "Membership Date" means the first day of each payroll period.
2.40 "Misconduct" means that a person:
(a) Has committed an act of embezzlement, fraud or theft with
respect to the property of the Company or an Affiliated Company or any person
with whom the Company or an Affiliated Company does business;
(b) Has deliberately disregarded the rules of the Company or an
Affiliated Company in such a manner as to cause material loss, damage or
injury to, or otherwise endanger the property or employees of the Company or
an Affiliated Company;
(c) Has made any unauthorized disclosure of any of the secrets or
confidential information of the Company or an Affiliated Company;
(d) Has engaged in any conduct that constitutes unfair competition
with the Company or an Affiliated Company;
(e) Has induced any person to breach any contract with the Company
or an Affiliated Company; or
(f) Has sold Company or an Affiliated Company products to an
unauthorized account or has assisted an authorized account in wholesaling
Company or an Affiliated Company products.
2.41 "Mutual Fund" means a regulated investment company, as defined in
section 851 of the Code.
2.42 "Nonelective Account" means the account maintained for a Member to
hold the Member's Nonelective Contributions.
2.43 "Nonelective Contribution" means the contribution made by the
Company under Section 5.2.
2.44 "Normal Retirement Age" means age 65.
2.45 "Participating Company" means LS&CO. or any Affiliated Company,
the board of directors or equivalent governing body of which adopts the Plan
and the Trust Agreement by appropriate action with the written consent of the
Board of Directors. Any Affiliated Company which so adopts the Plan will be
deemed to appoint Levi Strauss Associates Inc., the Administrative Committee,
the Investment Committee and the Trustee as its exclusive agents to exercise
on its behalf all of the power and authority conferred under this Plan, or by
the Trust Agreement, upon the Company. The authority of Levi Strauss
Associates Inc., the Committees and the Trustee to act as such agents will
continue until the Plan is terminated as to the Affiliated Company and the
relevant portion of the Trust Fund has been distributed by the Trustee as
provided in Section 17.2.
2.46 "Plan" means this Employee Investment Plan of Levi Strauss
Associates Inc., as amended from time to time.
2.47 "Plan Benefit" means the benefit distributable to a Member or
Beneficiary under Section 11.
2.48 "Plan Year" means the annual period corresponding to LS&CO.'s
fiscal year for federal income tax purposes.
2.49 "Post-Tax Account" means the account maintained for a Member to
hold the Member's Post-Tax Contributions.
2.50 "Post-Tax Contributions" means the post-tax contributions made by
a Member under Section 4.1.
2.51 "Pre-Tax Account" means the account maintained for a Member to
hold the Member's Pre-Tax Contributions.
2.52 "Pre-Tax Contributions" means the contributions made to the Plan
on behalf of a Member under Section 4.
2.53 "Profit Sharing 401(k) Account" means the account maintained for
the Member consisting of Profit Sharing Contributions which the Member could
have elected to receive in cash under Section 6.2.
2.54 "Profit Sharing Regular Account" means the account maintained for
a Member consisting of Profit Sharing Contributions which the Member could
not have elected to receive in cash under Section 6.2.
2.55 "Profit Sharing Contribution" means the contribution made by the
Company under Section 6.
2.56 "PSP" means the Profit Sharing Plan of Levi Strauss & Co. as in
effect before October 1, 1988.
2.57 "Qualified Domestic Relations Order" means a Domestic Relations
Order that satisfies the requirements described in Section 19.3.
2.58 "Qualified Member" means a Member who has reached age 63, or who
has reached age 53 and completed at least 13 Years of Service.
2.59 "Quarter" means each quarter of the calendar year.
2.60 "Registration Rights Agreement" means the registration rights
agreement entered into by Levi Strauss Associates Inc. and the Trustee, as
amended from time to time, under which the Trustee may require Levi Strauss
Associates Inc. under certain circumstances to register LSAI Stock under the
Securities Act of 1933.
2.61 "Regulations" means the applicable regulations issued under the
Code or the Act by the IRS or the Labor Department or any other governmental
authority and any temporary rules promulgated by such authorities pending the
issuance of such regulations.
2.62 "Required Beginning Date" generally means April 1 of the calendar
year following the calendar year in which the Member attains age 70-1/2.
However, the Required Beginning Date for a Member who is not a 5% owner,
within the meaning of section 416(i)(1)(B)(i) of the Code, who attained age
70-1/2 during 1988 and had not retired by the Effective Date, will be April
1, 1990. In addition, the Required Beginning Date for a Member who attained
age 70-1/2 before January 1, 1988, and who was not a 5% owner, within the
meaning of section 416(i)(1)(B)(i) of the Code, during any Plan Year ending
with or within the Plan Year in which he or she reached age 66-1/2, or any
subsequent year, is the April 1 following the later of the calendar year in
which the Member reaches age 70-1/2 or retires. Lastly, the Required
Beginning Date for a Member who filed a written election under section 242(b)
of the Tax Equity and Fiscal Responsibility Act of 1982 before January 1,
1984, will be the date specified in such election if the election satisfies
all of the applicable requirements specified by the IRS, as determined by the
Administrative Committee.
2.63 "Retiree Coordinator" means a retired Employee of the Company who
resumes employment with the Company or an Affiliated Company on a temporary
basis for the purpose of providing personal relations type services to other
retired employees of the Company or an Affiliated Company.
2.64 "Rollover Account" means the account maintained for a Member to
hold the Member's Rollover Contributions.
2.65 "Rollover Contributions" means the rollover contributions made by
a Member under Section 4.7.
2.66 "Service" means employment (whether or not as an Employee) with
the Company or an Affiliated Company. Service will begin on the date an
Employee first performs 1 Hour of Service for the Company or an Affiliated
Company. Service will end on the earlier of:
(a) The date the Employee retires;
(b) The date the Employee dies;
(c) The date the Employee terminates employment; or
(d) The first anniversary of the date the Employee is absent from
Service for any other reason (e.g. an authorized leave of absence as
described in paragraphs (i) and (ii), etc. below).
Subject to any applicable rules of the Administrative Committee (which
rules will be uniformly applicable to all Employees similarly situated),
Service includes:
(i) Periods of vacation;
(ii) Periods of absence whether or not the Employee is paid,
not to exceed 12 calendar months, authorized by the Company for
sickness, temporary disability or personal reasons;
(iii) Periods of service in the Armed Forces of the United
States, if and to the extent required by the Military Selective Services
Act, as amended, or any other federal law of similar import; provided
that the Employee returns to Service with the Company or an Affiliated
Company within the time his or her employment rights are protected by
such law; and
(iv) Any period of 12 consecutive months or less, beginning
on the first day of a month after a Member terminates employment and
ending on the last day of the month preceding the Member's reemployment
date, if the Member performs at least 1 Hour of Service within the first
month of reemployment.
If an Employee is on a leave of absence for more than 12 months, the
Employee will be deemed to have quit and terminated Service as of the end of
such 12 month period if the Employee fails to abide by the terms and
conditions of such leave (which may include a requirement of reemployment),
as established from time to time by the Administrative Committee. If an
Employee retires, dies or terminates employment while on leave of absence,
vacation, holiday or jury duty or while disabled or sick, his or her Service
will terminate on the earlier of:
(i) The date of such retirement, death or termination; or
(ii) 12 months after the start of a leave, vacation or
holiday or onset of disability or sickness.
All Service will be aggregated, whether or not such Service is performed
consecutively, and every partial month will be deemed to be one full month of
Service.
An Employee's Period of Service will be determined by the Administrative
Committee and such determination will be conclusive and binding on all
persons.
2.67 "Surviving Spouse" means, with respect to any deceased member, the
individual (if any) who is considered to be the spouse of such Member under
local law at the time of such Member's death.
2.68 "Total Compensation" means all wages, salaries, and fees for
professional services and other amounts received during the Plan Year for
personal services actually rendered in the course of employment with the
Company or an Affiliated Company (including, but not limited to, commissions
paid sales representatives, account executives and account managers,
compensation for services on the basis of a percentage of profits,
commissions on insurance premiums, tips, bonuses, fringe benefits,
reimbursements and other expenses under a nonaccountable plan as described in
section 1.62 of the Code) determined without regard to any exclusions from
income under section 931 and section 933 of the Code. "Total Compensation"
will also include:
(a) In the case of a Member who is an employee within the meaning
of section 401(c) of the Code, the Member's earned income (as described under
section 401(c)(2) of the Code) determined without regard to any exclusions
from gross income similar to those under section 931 and section 933 of the
Code;
(b) Any foreign earned income as defined under section 911(b) of
the Code, regardless of whether such income is excludable from the gross
income of the Member under section 911 of the Code;
(c) Amounts described in sections 104(a)(3), 105(a) and 105(b) of
the Code, but only to the extent that such amounts are includable in the
gross income of the Member;
(d) Amounts paid or reimbursed by the Company or an Affiliated
Company for moving expenses incurred by the Member, but only to the extent
that such amounts are not deductible by the Member under section 217 of the
Code;
(e) The value of a nonqualified stock option granted to the Member
by the Company or an Affiliated Company, but only to the extent that the
value of the option is includable in the gross income of the Member for the
taxable year when granted; and
(f) The amount includable in the gross income of the Member upon
making an election described in section 83(b) of the Code.
"Total Compensation" will not include:
(a) Company contributions to a plan of deferred compensation that,
to the extent that before the application of the limitations under section
415 of the Code to that plan, the contributions are not includable in the
Member's gross income for federal income tax purposes in the taxable year of
the Member in which the contributions are made;
(b) Company contributions under a simplified employee pension plan
described in section 408(k) of the Code to the extent that such contributions
are not considered as compensation for the taxable year in which contributed;
(c) Any distributions from a plan of deferred compensation
regardless of whether such amounts are includable in gross income of the
Member for federal income tax purposes in the taxable year of distribution;
(d) Amounts realized from the exercise of a nonqualified stock
option;
(e) Amounts realized when restricted stock (or property) held by
the Member either becomes freely transferable or is no longer subject to a
substantial risk of forfeiture;
(f) Amounts realized from the sale, exchange or other distribution
of stock acquired under an incentive stock option; and
(g) Other amounts that receive special tax benefits, such as
premiums for group term life insurance (but only to the extent that the
premiums are not includable in the gross income of the Member) or
contributions made by an employer (whether or not under a salary reduction
arrangement) towards the purchase of an annuity contract described in section
403(b) of the Code (whether or not the contributions are excluded from the
gross income of the Member.
For Plan Years beginning on and after the Effective Date, Total
Compensation in excess of $200,000 or any successor limitation as provided
for the Plan Year in Section 401(a)(17) of the Code, (as adjusted as provided
under section 401(a)(17) of the Code) will be disregarded. In determining
the Total Compensation of a Member, the family aggregation rules under
section 414(q) of the Code will apply, except that in applying those rules,
the term "family" will only include the spouse of the Member and any lineal
descendants of the Member who have not reached age 19 before the close of the
Plan Year.
2.69 "Totally and Permanently Disabled" means the Member is eligible to
receive disability benefits under the Federal Social Security Act or,
alternatively, has been determined to be totally and permanent disabled by
the Administrative Committee based on competent medical evidence.
2.70 "Trust Agreement" means the trust agreement or agreements between
Levi Strauss Associates Inc. and a Trustee under which the assets of the Plan
are managed.
2.71 "Trust Fund" means the trust fund or funds consisting of the
assets of the Plan and maintained by the Trustee under the Plan and Trust
Agreement.
2.72 "Trustee" means the trustee or trustees of the Trust Fund.
2.73 "Valuation Date" means any business day.
2.74 "Vested Interest" means the nonforfeitable interest of a Member in
a particular Account, determined in accordance with Section 11.1.
2.75 "Year of Service" means a 12 month period of Service in which the
Member has Service under Section 2.66. A Member's Years of Service will be
determined by the Administrative Committee and such determination will be
conclusive and binding on all persons.
SECTION 3 MEMBERSHIP AND TRANSFER.
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3.1 Commencement of Membership. Each Employee who was a Member in the
Plan on the Effective Date will continue to be a Member. Each Employee who
was not a Member in the Plan on the Effective Date, will become a Member in
the Plan on the first day of the pay period coinciding with or next following
the day on which he or she completes a Year of Service. Upon becoming a
Member, an Employee will designate a Beneficiary under Section 2.8 and
Section 14.
3.2 Rehired and Transferred Employees. A former Employee who is
rehired, will be eligible to begin or resume membership in the Plan on the
first day of the first pay period coinciding with or next following the date
he or she attains or returns to the status of an Employee and has completed
a Year of Service. Similarly, an employee of the Company or an Affiliated
Company who becomes an Employee after the Membership Date following his or
her completion of a Year of Service, will be eligible to begin or resume
membership in the Plan on the first day of the first pay period of any month
coinciding with or next following the date he or she attains or returns to
the status of an Employee.
3.3 Suspension of Membership. A Member's membership in the Plan will
be suspended under the applicable paragraph (a) or (b) below.
(a) Change in Employment Status. A Member's membership in the
Plan will be suspended for any period during which the Member is an employee
of the Company or an Affiliated Company but not an Employee. A Member whose
participation is suspended under this Section 3.3(a) may not make Member
Contributions or receive any allocation of Nonelective Contributions, Profit
Sharing Contributions or Forfeitures with respect to the period of
suspension.
(b) Withdrawals from Post-Tax Account. A Member's membership in
the Plan will be suspended for at least 3 fiscal months following certain
withdrawals from his or her Post-Tax Account as provided in Section 9.1. A
Member whose Membership is suspended under this Section 3.3(b) may not make
Member Contributions, but may receive an allocation of Nonelective
Contributions, Profit Sharing Contributions or Forfeitures with respect to
the period of suspension.
A suspended Member's Accounts will continue to share in the income, gains,
losses and expenses of the Trust Fund.
3.4 Termination of Membership. A Member's membership in the Plan will
end when his or her Plan Benefit has been distributed or on the date of his
or her death, whichever occurs first.
3.5 Highly Compensated Employees. Any Employee who is a Highly
Compensated Employee will only be eligible for membership in the Plan as an
Inactive Member, provided that he or she otherwise satisfies the eligibility
requirements of Section 3.1. An Inactive Member will not be eligible to make
Member Contributions under Section 4 of the Plan or to receive any allocation
of Matching Contributions, Nonelective Contributions, Profit Sharing
Contributions or Forfeitures under Section 5 and Section 6 of the Plan. An
Inactive Member will, however, be eligible to:
(a) Make Rollover Contributions to the Plan under Section 4.7;
(b) Direct the investment of his or her Accounts under Section 7;
(c) Make withdrawals from his or her Accounts under Section 9; and
(d) Obtain Plan loans under Section 10.
An Inactive Member will continue to be subject to the remaining provisions of
the Plan. The Administrative Committee will periodically determine whether
Members in the Plan are Highly Compensated Employees and any such Member's
status will change from an Active Member to an Inactive Member as soon as
practicable after the Administration Committee makes such determination.
SECTION 4 MEMBER CONTRIBUTIONS.
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4.1 Election to Make Contributions. A Member whose membership is not
suspended under Section 3.3 or Section 3.5 may elect, as of the first day of
any pay period in any month, to begin making Member Contributions to the Plan
in 1% increments, up to a maximum of 10% of his or her Compensation. The
Member may elect to make such Member Contributions either as Pre-Tax
Contributions or as Post-Tax Contributions. A Member's election to make Pre-
Tax Contributions will constitute an election (for federal tax purposes and,
wherever permitted, for state and local tax purposes) to have his or her
taxable Compensation reduced by the amount of all Pre-Tax Contributions.
4.2 Maximum Pre-Tax Contributions. The sum of a Member's Pre-Tax
Contributions to the Plan for any calendar year and the portion of the
Member's Profit Sharing Contribution which the Member could have received in
cash during such calendar year (if the Member does not elect to receive such
portion under Section 6.2) will not exceed $7,000 (as adjusted under section
402(g)(5) of the Code for cost of living increases). If any Member's Pre-Tax
Contributions are affected by this limitation, the Member will continue to
make such contributions as Post-Tax Contributions to the Plan unless the
Member elects to suspend such Contributions as provided in Section 4.3.
4.3 Change or Suspension of Contributions. A Member, at any time, may
change the rate of his or her Member Contributions within the dollar
limitation described in Section 4.1 or may change the nature of such Member
Contributions as Pre-Tax Contributions or Post-Tax Contributions by filing
the prescribed form with the Administrative Committee, or by utilizing such
other notification procedure as is prescribed by the Administrative
Committee. A Member may suspend all Member Contributions by filing the
prescribed form with the Administrative Committee, or by utilizing such other
notification procedure as is prescribed by the Administrative Committee.
Such changes in rate or nature of contributions or suspension will be
effective as soon as reasonably practicable after the date the form is filed
with or notice is received by the Administrative Committee.
4.4 Resumption of Contributions. A Member who has suspended all
Member Contributions under Section 4.3 may resume Member Contributions at any
time by filing the prescribed advance notice with the Administrative
Committee. The resumption in contributions will be effective as soon as
reasonably practicable after the applicable notice is received by the
Administrative Committee.
4.5 Withholding and Deposit With Trustee; Crediting Accounts. All
Member Contributions to the Plan will be withheld through payroll deductions
from the Member's Compensation and will be paid to the Trustee as soon as
reasonably practicable following the end of the pay period in which they are
withheld. A Member's Pre-Tax Contributions will be credited to his or her
Pre-Tax Account and the Member's Post-Tax Contributions will be credited to
his or her Post-Tax Account.
4.6 Distribution of Excess Contributions and Deferrals.
(a) Excess Contributions. If a Member who is a Highly Compensated
Employee makes Pre-Tax Contributions which constitute "Excess Contributions"
(as defined in section 401(k)(8)(B) of the Code and the Regulations issued
under such Code section which are expressly incorporated by this reference)
with respect to a Plan Year, such Excess Contributions (and the earnings on
such contributions) will be distributed to the Member after the end of such
Plan Year. Such distribution will be made as soon as administratively
practicable, but in no event later than the end of the next Plan Year. Pre-
Tax Contributions and any earnings on such contributions directed by the
Highly Compensated Employees having the highest rate of Pre-Tax Contributions
(as a percentage of Compensation) will be refunded first under the provisions
of the applicable Regulations. Any refund of Pre-Tax Contributions and
earnings on such contributions will be limited to the amount that, in the
judgment of the Administrative Committee, will result in the Plan satisfying
the requirements of section 401(k)(3)(A) of the Code. Nonelective
Contributions which are considered elective contributions under section
1.401(k)-1(g)(7)(i) of the Code shall be handled as Pre-Tax Contributions
under this Section 4.6(a).
(b) Excess Deferrals. If a Member makes Pre-Tax Contributions
which constitute "Excess Deferrals" (as defined in section 402(g)(2)(A) of
the Code and the Regulations issued under such Code section which are
expressly incorporated by this reference) to one or more plans with respect
to a calendar year, the Member may allocate the Excess Deferrals among the
plans to which such deferrals were made and notify the Administrative
Committee in writing by March 1 of the next calendar year of the Excess
Deferrals allocated to the Plan. Upon the Administrative Committee's receipt
of such notice, the amount of the Excess Deferrals designated by the Member
(and any earnings on such amount) will be distributed to the Member by April
15 of such year.
(c) Excess Aggregate Contributions. If a Member who is a Highly
Compensated Employee makes Post-Tax Contributions which constitute "Excess
Aggregate Contributions" (as defined in section 401(m)(6)(B) of the Code and
the Regulations issued under such Code section which are expressly
incorporated by this reference) with respect to a Plan Year, such Excess
Aggregate Contributions (and any earnings on such contributions) will be
distributed to the Member by the end of the next Plan Year. Post-Tax
Contributions and any earnings on such contributions directed by the Highly
Compensated Employees having the highest rate of Post-Tax Contributions (as
a percentage of Compensation) will be refunded first under the provisions of
applicable Regulations. Any refund of Post-Tax Contributions and earnings
will be limited to the amount that, in the judgment of the Administrative
Committee, will result in the Plan satisfying the requirements of section
401(m)(3) of the Code.
4.7 Rollover Contributions. An Employee may make a Rollover
Contribution to the Plan in an amount equal to all or part of a previous
distribution from a plan that, at the time of the distribution, met the
requirements of section 401(a) of the Code. The Rollover Contribution must
be made in cash within 60 days after its receipt by the Employee either from
the qualified plan or from an individual retirement account which meets the
requirements of section 408 of the Code and has only been used to hold
qualified plan distributions. A Rollover Contribution will be permitted only
if the Employee establishes that:
(a) The Rollover Contribution includes no assets other than those
attributable to employer contributions, earnings on employer contributions
and earnings on employee contributions under plans qualified under section
401(a) of the Code; and
(b) If the amount was received by the Employee from a qualified
plan, the Rollover Contribution qualifies as an "eligible rollover
distribution" under section 402(c)(4) of the Code; or
(c) If the amount was received by the Employee from an individual
retirement account, which contains funds described in Section 4.7(a) only,
the distribution from such account represented a total distribution of such
account.
The Rollover Contribution will be paid to the Trustee as soon as practicable,
credited to the Employee's Rollover Account and invested as described in
Section 7. If it is determined that a Member's Rollover Contribution
mistakenly failed to qualify under the Code as a tax-free rollover, then the
balance in the Member's Rollover Account attributable to the mistaken
contribution immediately will be segregated from all other Plan assets,
treated as a nonqualified trust established by and for the benefit of the
Member, and distributed to the Member. Such a mistaken contribution will be
deemed never to have been a part of the Plan.
SECTION 5 MATCHING AND NONELECTIVE CONTRIBUTIONS.
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5.1 Matching Contribution. Except as provided below, for each period
(an "Accumulation Period") during a Plan Year with respect to which a
transfer of Member Contributions to the Stock Fund is permitted in accordance
with Section 7.2(b), the Company will make a Matching Contribution to the
Plan in an amount equal to 50% of each Member's Member Contributions for the
Accumulation Period. The Matching Contribution will be reduced by any amount
which cannot be allocated to the Member because of the contribution
limitation described in Section 12.1, or with respect to territory
representatives, account executives and account managers only, the limit on
Compensation under Section 2.14. The Board of Directors may determine in its
sole discretion that:
(a) No Matching Contribution will be made for a particular Plan
Year or portion of a Plan Year;
(b) A lesser Matching Contribution will be made, in view of
Company performance, and economic and financial conditions prevailing and
anticipated at the time; or
(c) A greater Matching Contribution will be made for a particular
Plan Year or portion of a Plan Year.
No Matching Contribution will be made for a Member unless he or she:
(a) Is an Employee on the last day of the final preceding payroll
period with respect to which a Member may make a Contribution which would be
matched by a portion of such Matching Contribution;
(b) Ceased to be an Employee during the Plan Year:
(i) After attaining age 55 and completing 15 years of
Service;
(ii) After attaining Normal Retirement Age;
(iii) By reason of death; or
(iv) By reason of Total and Permanent Disability,
and his or her Accounts have not been distributed under Section 11.
The Matching Contribution may be made in the form of cash or in the form
of shares of LSAI Stock, or a combination of both.
5.2 Nonelective Contribution. In order to enable the Plan to satisfy
the provisions of section 401(k) or section 401(m) of the Code, the Company
may elect to make a Nonelective Contribution to the Plan for each Plan Year
in an amount, if any, as the Board of Directors in its sole discretion may
determine. Except to the extent necessary to satisfy the requirements of
section 401(k) or section 401(m) of the Code, no Nonelective Contribution
will be made for a Member unless he or she:
(a) Is an Employee on the date as of which a Nonelective
Contribution is allocated; or
(b) Ceased to be an Employee during the Plan Year:
(i) After attaining age 55 and completing 15 years of
Service;
(ii) After attaining age 65;
(iii) By reason of death; or
(iv) By reason of Total and Permanent Disability,
and his or her Accounts have not been distributed under Section 11.
The Nonelective Contribution may be made in the form of cash or in the
form of shares of LSAI Stock, or a combination of both.
5.3 Deposit with Trustee; Crediting Accounts. The Matching
Contribution for any Plan Year will be paid to the Trustee at the time when
Member Contributions designated for investment in the Stock Fund are
transferred to the Stock Fund under Section 7.2 and will be allocated among
Members in proportion to their Member Contributions during the Accumulation
Period to any Fund. A Member's share of the Matching Contribution will be
allocated and credited to the Member's Matching Account as of the earlier of:
(a) The date the Matching Contribution is made to the Plan; or
(b) The end of the Plan Year during which the Member Contributions
with respect to which such Matching Contribution is made.
Forfeitures arising under Section 11.1 with respect to any Member's Matching
Account during a Plan Year will be allocated among other Members as an
additional Matching Contribution for such Plan Year and credited to such
Members' Matching Accounts.
The Nonelective Contribution will be paid to the Trustee after such
contribution is authorized by the Board of Directors, but no later than 12
months after the end of the Plan Year in which such contribution is made.
The amount allocated to each Member's Nonelective Account will be determined
by the Board of Directors, or if the Board declines to make such
determination, the Administrative Committee. A Member's Nonelective
Contribution will be allocated and credited to the Member's Nonelective
Account as of the end of the Plan Year with respect to which the Nonelective
Contribution is made. Nothing in this Section 5.3 will be construed as
requiring an allocation of a Nonelective Contribution to be made on behalf of
any Highly Compensated Employee within the meaning of section 401(k) or
section 401(m) of the Code.
5.4 Curtailment or Distribution from Plan of Excess Aggregate
Contributions. If any Matching Contribution and/or Nonelective Contribution
otherwise allocable to a Member who is a Highly Compensated Employee would
constitute an "Excess Aggregate Contribution" (as defined in section
401(m)(6)(B) of the Code and the Regulations issued under such Code section
which are expressly incorporated by this reference) with respect to the Plan
Year, then:
(a) The Matching Contribution and/or Nonelective Contribution will
not be made to the Plan, if the Matching Contribution and/or Nonelective
Contribution has not been made to the Plan as of the date on which the
Matching and/or Nonelective Contributions are determined to constitute an
Excess Aggregate Contribution; or
(b) The Matching Contribution and/or Nonelective Contribution (and
any earnings on such contributions) will be distributed to the Member by the
end of the next Plan Year, if the Matching Contribution and/or Nonelective
Contribution has been made to the Plan before the date on which the Matching
and/or Nonelective Contributions are determined to constitute an Excess
Aggregate Contribution.
The Matching Contribution and/or Nonelective Contribution made on behalf
of Highly Compensated Employees having the highest rate of Matching
Contribution and/or Nonelective Contribution will be reduced and/or
distributed first, under the terms of the applicable Regulations. Any
reduction and/or distribution of a Matching Contribution and/or Nonelective
Contribution made will be limited to the amount which, in the judgment of the
Administrative Committee, is expected to meet the requirements of section
401(m)(6)(B) of the Code.
SECTION 6 PROFIT SHARING CONTRIBUTION.
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6.1 Amount and Form. The Company may make a Profit Sharing
Contribution to the Plan for each Plan Year in such amount as may be
determined by the Board of Directors. The Profit Sharing Contribution will
be reduced by:
(a) An amount equal to the Forfeitures attributable to Members'
Profit Sharing Accounts that were allocated to Members for the preceding Plan
Year; and
(b) The amount which Members elect to receive directly in cash
under Section 6.2.
No Profit Sharing Contribution will be made for any Plan Year if such
contribution would result in the Plan failing to satisfy the requirements of
section 410(b) of the Code. The Profit Sharing Contribution may be made in
the form of cash, in the form of other property acceptable to the Trustee, or
a combination of both.
6.2 Cash Election by Members. Each Member who is an Employee may
elect to receive as a direct cash payment from the Company an amount the
Administrative Committee estimates would equal 1/3 of the Profit Sharing
Contribution and Forfeitures, if any, otherwise allocable to the Member's
Profit Sharing Account for such Plan Year under Section 6.3. A Member must
make an election to receive a cash payment by filing the prescribed form with
the Administrative Committee by a date determined by the Administrative
Committee which is no later than the last day of a Plan Year. No cash
payment will be made to a Member who does not make a timely election to
receive such payment. A Member will be deemed to have elected to have
received a cash payment if the Member ceases to be an employee after the last
working day of the Plan Year but before the date such cash payment is made
or, alternatively, is receiving no Compensation from the Company or an
Affiliated Company for services as an employee on such date.
6.3 Deposit With Trustee; Crediting Accounts. The Profit Sharing
Contribution for any Plan Year will be paid to the Trustee on or before the
due date (including extensions) for filing the Company's consolidated federal
income tax return for such Plan Year. The Profit Sharing Contribution for a
Plan Year will be allocated among Members who are Employees on the last
working day of such Plan Year in proportion to each such Member's
Compensation for such Plan Year including, in the case of a Member who was a
Member for only part of the Plan Year, amounts that would have been
Compensation if the Member had been a Member for the full Plan Year. Subject
to Section 6.2, a Member's share of the Profit Sharing Contribution will be
credited to the Member's Profit Sharing 401(k) Account and/or Profit Sharing
Regular Account, as appropriate.
Except as provided in the next following sentence, forfeitures arising
under Section 11.1 with respect to any Member's Profit Sharing Account during
a Plan Year will be allocated among other Active Members who are Employees on
the last working day of such Plan Year as a Profit Sharing Contribution for
such Plan Year and, will be credited to such Active Members' Profit Sharing
401(k) Account or Profit Sharing Regular Account, as appropriate. However,
in the Plan Year ending in 1994, forfeitures under Section 11.1 as of June
30, 1994, will be allocated among Active Members who are employees on June
30, 1994 (and credited as provided in the immediately preceding sentence),
and forfeitures under Section 11.1 with respect to a Member's Profit Sharing
Account as of the end of the Plan Year ending in 1994 will be allocated among
Active Members who are employees on the last working day of the Plan Year
(and credited as provided in the immediately preceding sentence).
6.4 Distribution of Excess Contributions and Deferrals.
(a) Excess Contributions. To the extent that a Member who is a
Highly Compensated Employee does not elect to receive a portion of the Profit
Sharing Contribution for a Plan Year in cash under Section 6.2 and such
portion would constitute an "Excess Contribution" (as defined in section
401(k)(8)(B) of the Code and the Regulations under such Code section which
are expressly incorporated by this reference) with respect to such Plan Year,
the amount of the Member's Profit Sharing Contribution as may constitute an
Excess Contribution will be paid directly to the Member after the end of such
Plan Year as if the Member had elected to receive such portion in cash under
Section 6.2. Such distribution will be made as soon as administratively
practicable, but in no event later than the end of the next Plan Year. The
Profit Sharing Contribution and any earnings on such contribution allocated
to Highly Compensated Employees having the highest rate of Profit Sharing
Contribution (as a percentage of Compensation) will be distributed first
under the provisions of the applicable Regulations. Any distribution of the
Profit Sharing Contribution and earnings will be limited to the amount that,
in the judgement of the Administrative Committee, will result in the Plan
satisfying the requirements of section 401(k)(8)(B) of the Code.
(b) Excess Deferral. To the extent that a Member does not elect
to receive a portion of the Profit Sharing Contribution otherwise payable
directly to the Member during a calendar year under Section 6.2 and such
portion would constitute an "Excess Deferral" (as defined in section
402(g)(2)(A) of the Code) with respect to such calendar year, such portion as
may constitute an Excess Deferral will be paid directly to the Member as if
the Member had elected to receive such portion in cash under Section 6.2.
Such distribution will be made by April 15 of the next calendar year.
SECTION 7 TRUST FUND, INVESTMENTS AND INVESTMENT DIRECTIONS.
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7.1 Trust Fund.
(a) In General. All contributions to the Plan will be held by the
Trustee for investment and reinvestment as part of the Trust Fund under the
Trust Agreement. The Trust Fund will consist of the Funds designated on
Appendix C to the Plan. One of such Funds will be designated as the Fund
which will hold Member Contributions designated for potential investment in
the Stock Fund (the "Holding Account").
(b) Stock Fund. One of the Funds available for investment of the
Trust Funds will be the Stock Fund. The Stock Fund will be invested and
reinvested in LSAI Stock to the extent LSAI Stock is available for purchase
by the Trustee in accordance with Section 7.2, and in cash or interest-
bearing short-term debt obligations of any kind (i) pending investment in
LSAI Stock or (ii) to the extent required to pay expenses of the Plan or meet
anticipated cash distributions to Members and Beneficiaries, as determined
and directed by the Administrative Committee. The Stock Fund will consist of
all Stock Fund investments held by the Trustee and all cash held by the
Trustee which is derived from dividends, interest or other income from Stock
Fund investments, contributions to be invested in the Stock Fund and proceeds
from the sale or redemption of Stock Fund investments.
7.2 Investment of Contributions. A Member's share of any Profit
Sharing Contribution and Forfeitures under Section 5.3 allocated to his or
her Profit Sharing 401(k) Account and Profit Sharing Regular Account and all
Member Contributions will be deposited in the Fund designated by the Member
for such investment in 1% increments (provided, however that these
allocations will be in 20% increments until the end of the Blackout Period
commencing on August 1, 1994) of such contribution as directed by the Member
in accordance with procedures established by the Administrative Committee.
A Member's investment directions will remain in effect until changed by the
Member. If the Member fails to file any investment directions, his or her
share of any Profit Sharing Contribution allocated to his or her Profit
Sharing 401(k) Account and Profit Sharing Regular Account will be deposited
in the Fund designated in Appendix C for investment of contributions for
which no investment direction has been received. All Matching Contributions
and Forfeitures under Section 6.3, if any, and Nonelective Contributions will
be deposited in the Stock Fund.
Generally, twice each Plan Year, the Investment Committee will obtain an
independent appraisal of the Fair Market Value of LSAI Stock. The Investment
Committee will notify the Trustee of such Fair Market Value promptly after
completion of the appraisal.
(a) If Fair Market Value of LSAI Stock Exceeds Adequate
Consideration. If the Trustee determines that the Fair Market Value of LSAI
Stock exceeds "Adequate Consideration" for such LSAI Stock within the meaning
of section 3(18) of the Act, all Member Contributions that are held in the
Holding Account and any earnings on such contributions will be transferred to
an alternative Fund as designated by the Member, and no Matching Contribution
will be made with respect to such Member Contributions unless the Investment
Committee effects a "Suspension" as described below.
The Investment Committee will effect a Suspension, in its sole
discretion, by determining that the Member Contributions held in the Holding
Account and earnings on such contributions will remain in the Holding Account
rather than be transferred to another Fund. If the Investment Committee
effects a Suspension, the Administrative Committee, in such manner and under
such procedures as it deems appropriate, will promptly provide Members whose
Member Contributions and earnings are subject to the Suspension the
opportunity to elect whether such amounts will remain held in the Holding
Account. If the Member fails to file an election on the prescribed form by
the date determined by the Administrative Committee, such amounts will remain
held in the Holding Account subject to the remaining provisions of the Plan.
If a Member elects to have such amounts transferred to another Fund, such
amounts will be transferred to such other Fund.
(b) If Fair Market Value of LSAI Stock Does Not Exceed Adequate
Consideration. Conversely, if the Trustee determines that the Fair Market
Value of LSAI Stock does not exceed Adequate Consideration for such stock,
the Administrative Committee will notify Members of such Fair Market Value.
Each Member who has Member Contributions held in the Holding Account will
have the opportunity to elect to have such Member Contributions and any
earnings on such contributions transferred to any Fund in 1% increments of
such Member Contributions and earnings. If a Member files such an election
in the prescribed manner by the date determined by the Administrative
Committee, the Member's Member Contributions that are invested in the Holding
Account and any earnings on such contributions will be transferred to the
Fund or Funds elected by the Member. If a Member fails to file such an
election by the date determined by the Administrative Committee, the Member's
Member Contributions that are invested in the Holding Account and any
earnings on such contributions automatically will be transferred to the Stock
Fund. At the time when Member Contributions and earnings are transferred to
the Stock Fund, the Company will make a Matching Contribution under Section
5.1 unless the Board of Directors determines that no Matching Contribution
will be made.
The Trustee will seek to acquire LSAI Stock for the Stock Fund at a
price no greater than Fair Market Value to the extent that any cash Matching
Contributions and Forfeitures and Nonelective Contributions deposited in the
Stock Fund and Member Contributions transferred to Stock Fund exceed the cash
requirements of the Stock Fund as determined by the Administrative Committee.
The Trustee may acquire LSAI Stock from a "Party-in-Interest" (as defined in
section 3(14) of the Act) or a "Disqualified Person" (as defined in section
4975(e)(2) of the Code) for no more than Adequate Consideration in accordance
with the requirements of section 408(e) of the Act.
7.3 Reinvestment of Accounts. A Member may elect to change the
investment of his or her Accounts under the applicable paragraph (a) or (b),
subject to the limitations of paragraphs (c) and (d).
(a) General Rules Regarding Reinvestment of Accounts. On any
business day, a Member may elect to transfer amounts invested in any
Fund other than the Stock Fund among such Funds in 1% increments of the
balance credited to the Member's Accounts invested in such Funds as of such
day. A Member may make such an election in the manner prescribed by the
Administrative Committee.
(b) Rules Regarding Reinvestment of Accounts by Qualified Members.
As of any business day, a Qualified Member (i.e., any Member who has reached
age 63, or attained age 53 and completed at least 13 Years of Service) may
elect to have amounts credited to his or her Accounts invested in the Stock
Fund liquidated and the net proceeds transferred to any other Fund in 1%
increments by filing the notice prescribed by the Administrative Committee.
A Qualified Member may make only 1 such election in any Plan Year.
(c) Certain Limitations on Reinvestments by Insiders. A Qualified
Member who is an Insider may reinvest amounts credited to his or her Accounts
invested in the Stock Fund only by making an irrevocable election to reinvest
within the period beginning on the 3rd business day following the date for
the release of the financial data specified in paragraph (e)(1)(ii) of Rule
16b-3 under the Securities Exchange Act of 1934 and ending on the 12th
business day following such date.
(d) Certain Limitations on Reinvestments Due to Liquidity of the
Trust Fund. Subject to section 401(a)(28)(B) of the Code, the Investment
Committee may determine that it is not feasible for the Trustee to prudently
liquidate and transfer the necessary amount from one Fund to another in
accordance with Members' reinvestment elections. If the Investment Committee
so determines, it will advise the Administrative Committee which will direct
that such steps be taken as it considers necessary or desirable for the
protection of Members' Accounts, including a pro rata reduction in the amount
transferred with respect to each Member, or the scheduling of transfers over
a period consistent with prudent liquidation.
7.4 Investment by Alternate Payees. The Administrative Committee will
determine, in its sole and absolute discretion, if an Alternate Payee is
entitled to a portion of a Member's Accounts under the terms of a Qualified
Domestic Relations Order. If the Administrative Committee so determines, it
will segregate the Alternate Payee's portion of the Member's Accounts into a
separate Matching Account, Nonelective Account, Post-Tax Account, Pre-Tax
Account, Profit Sharing Account and Rollover Account as appropriate. The
Alternate Payee will only be entitled to direct the investment of his or her
Accounts under the provisions of this Section 7 in the same manner, at the
same times, and subject to the same conditions as Members in the Plan.
7.5 Allocation of Voting Rights. Except as specifically authorized in
this Section 7.5, the Trustee will vote all shares of LSAI Stock held in the
Trust Fund at the direction of the Investment Committee.
If the stockholders of Levi Strauss Associates Inc. are entitled to vote
with respect to any of the following matters, then only in connection with
such matters, the Trustee will vote the shares of LSAI Stock held in the
Trust Fund in accordance with the Members' directions to the Trustee as
provided in Section 7.6:
(a) Any merger or consolidation of Levi Strauss Associates Inc.
with any other corporation, unless the stockholders of Levi Strauss
Associates Inc. immediately before the merger or consolidation would own
(immediately after the merger or consolidation) equity securities of the
surviving corporation or acquiring corporation or a parent entity possessing
more than 5/6 of the voting power of the surviving corporation or acquiring
corporation or parent entity;
(b) Any plan of complete liquidation of Levi Strauss Associates
Inc.;
(c) Any dissolution of Levi Strauss Associates Inc.; or
(d) Any plan or agreement for the sale or disposition by Levi
Strauss Associates Inc. of all or substantially all of its assets, unless the
stockholders of Levi Strauss Associates Inc. immediately before the sale or
disposition would own (immediately after the sale or disposition) equity
securities of the acquiring entity or a parent entity possessing more than
5/6 of the voting power of the acquiring entity or parent entity.
7.6 Exercise of Voting Rights. When Members are entitled to direct
the voting of LSAI Stock under Section 7.5, each Member will be entitled to
direct the Trustee with respect to the voting of all whole and fractional
shares of LSAI Stock which are allocated to his or her Accounts (or
represented by units allocated to such Accounts) as of the last Valuation
Date coinciding with or preceding the applicable record date. The
Administrative Committee will conclusively determine the number of the shares
of LSAI Stock that are subject to each Member's voting instructions and will
advise the Trustee accordingly.
Before any annual or special meeting at which LSAI Stock will be voted
on the matters described in Section 7.5, the Board of Directors will cause to
be delivered to each Member the proxy statement and any related materials
prepared for holders of LSAI Stock, a request for written voting
instructions, and the voting instructions form prescribed by the Board of
Directors for this purpose. Each Member who wishes to exercise his or her
voting rights must complete and return such form to the Trustee before the
date prescribed by the Board of Directors. Once received by the Trustee, a
Member's voting instructions may be revoked, subject to such conditions as
the Trustee may impose.
Any shares of LSAI Stock with respect to which the Trustee receives
timely, written voting instructions from Members will be voted by the Trustee
in accordance with such instructions on the matters described in Section 7.5.
The Trustee also will determine the ratio of affirmative votes, negative
votes and abstentions with respect to each matter described in Section 7.5
for which it has received timely voting instructions from Members. The
Trustee will then vote on such matters all shares of LSAI Stock allocated to
Members' Accounts with respect to which it has not received timely voting
instructions in accordance with the ratios so determined. If the Trustee
determines that voting such shares in accordance with such ratios would
violate its fiduciary responsibilities under the Act, it will vote such
shares of stock in accordance with such fiduciary requirements. The Trustee
will aggregate any fractional shares and, after rounding down to the next
lower integer if the total is not a whole number, will vote an equivalent
number of whole shares of LSAI Stock.
For purposes of this Section 7.6, each Member will be a "Named
Fiduciary" as defined under section 402(a) of the Act with respect to the
shares of LSAI Stock allocated to his or her Accounts.
7.7 Other Instructions by Members.
(a) Sale to Levi Strauss Associates Inc. of LSAI Stock. Except as
provided in this Section 7.7 and in the Registration Rights Agreement, the
Trustee may sell LSAI Stock held in the Trust Fund only to Levi Strauss
Associates Inc.
(b) Acquisition Offers. If any person or group makes an offer to
acquire all or part of the outstanding LSAI Stock ("Acquisition Offer"), the
Trustee will tender the LSAI Stock held in the Trust Fund to such person or
group only to the extent that it has been directed to do so by Members.
"Acquisition Offers" will not include:
(i) Any offer to purchase LSAI Stock by Levi Strauss
Associates Inc.;
(ii) Any offer to purchase less than 5% of all of the
outstanding shares of common stock of Levi Strauss Associates Inc.,
including LSAI Stock held in the Trust Fund; or
(iii) Any public offering of LSAI Stock under the
Registration Rights Agreement.
In the event of an Acquisition Offer, each Member will be entitled to
instruct the Trustee confidentially (on a form to be prescribed by the
Administrative Committee) with respect to the disposition of those shares of
LSAI Stock which then would be subject to the Member's voting instructions
under Section 7.6. If the Trustee receives such an instruction by a date
determined by the Trustee and communicated to Members, the Trustee will
tender such LSAI Stock in accordance with such instruction. Any LSAI Stock
as to which the Trustee does not receive instructions within such period will
not be tendered by the Trustee.
The Trustee will obtain and distribute to each Member all appropriate
materials pertaining to the Acquisition Offer, including any statement of the
position of Levi Strauss Associates Inc. with respect to such offer issued
under Regulation 14e-2 promulgated under the Securities Exchange Act of 1934,
as soon as practicable after such materials are issued. If Levi Strauss
Associates Inc. is not required to or fails to issue such statement within 5
business days after the commencement of such offer, the Trustee will
distribute such materials to each Member without such statement by Levi
Strauss Associates Inc. and will separately distribute such statement, if
any, as soon as practicable after it is issued. Levi Strauss Associates Inc.
may require verification of the Trustee's compliance with the Members'
confidential voting instructions by an independent auditor selected by Levi
Strauss Associates Inc.
For purposes of this Section 7.7(b), each Member will be a "Named
Fiduciary" as defined under section 402(a) of the Act with respect to the
shares of LSAI Stock allocated to his or her Accounts.
(c) Acquisitions by Levi Strauss Associates Inc. If Levi Strauss
Associates Inc. makes an offer to purchase LSAI Stock the Investment
Committee will determine whether, and to what extent, the Plan will sell LSAI
Stock to Levi Strauss Associates Inc. in connection with such offer.
7.8 Participant Directed Accounts. It is intended that transactions
by members pursuant to this Section 7 satisfy the conditions set forth in
Department of Labor Regulation Section 2550.404c-1, except to the extent that
such transactions are not covered by such regulation.
SECTION 8 VALUATIONS AND STATEMENTS.
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8.1 Valuation of Accounts. As of each Valuation Date, the
Administrative Committee will value each Member's Accounts at fair market
value and will adjust such Accounts to reflect the Member's share of any
realized or unrealized investment income, gains, losses and expenses of the
Fund or Funds in which the Accounts were invested which have accrued since
the preceding Valuation Date. For this and all other purposes under the
Plan, LSAI Stock will be taken into account at its Fair Market Value.
8.2 Statements. The Administrative Committee will prepare and
distribute a statement to each Member at least annually. Such statement will
reflect the status of the Member's Accounts (including the fair market value
thereof) and will contain such other information as the Administrative
Committee may prescribe.
SECTION 9 WITHDRAWALS.
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9.1 Withdrawals from Post-Tax Accounts. A Member may withdraw all or
part (in 1% increments) of the balance credited to his or her Post-Tax
Account invested in any Fund (other than the Stock Fund) or combination of
such Funds. In addition, unless the withdrawal is for:
(a) The purchase of the Member's primary residence; or
(b) The payment of expenses relating to the post-secondary
education of the Member or the Member's spouse or children, including
expenses for tuition fees, room, board or books,
the Member will be suspended from making Member Contributions for at least 3
fiscal months following any such withdrawal. The Member may resume making
Member Contributions following the suspension period as of the first pay
period commencing in any Quarter by filing the prescribed form with the
Administrative Committee in advance.
9.2 Withdrawals from Rollover Accounts. A Member may withdraw all or
part (in 1% increments) of the balance credited to his or her Rollover
Account invested in any Fund or combination of such Funds. The Member will
not be suspended from making Member Contributions for making any withdrawal
under this Section 9.2.
9.3 Hardship Withdrawals. A Member may make withdrawals from his or
her Accounts for reasons of hardship as specified in paragraphs (a), (b), and
(c) below.
(a) Post-Tax Account, Rollover Account, Pre-Tax Account and Profit
Sharing 401(k) Account. A Member may withdraw all or part of the Member's
Post-Tax Account, Rollover Account, Pre-Tax Account (excluding earnings
credited to such Account after November 27, 1988) and Profit Sharing 401(k)
Account (excluding earnings credited to such Account after November 27, 1988)
invested in any Fund (other than the Stock Fund) or any combination of such
Funds (excluding contributions made with respect to any period during which
the Member was a resident of the United Kingdom), if the Member becomes
Totally and Permanently Disabled or if the amount of the withdrawal is needed
to meet an "Immediate and Heavy Financial Need" of the Member arising solely
from one or more of the following:
(i) Expenses for extraordinary and unreimbursed medical or
hospital expenses incurred by the Member, the Member's spouse, any
dependent of the Member or a nondependent parent or child of the Member;
(ii) Amounts necessary for the Member, the Member's spouse,
any dependent of the Member, or a nondependent parent or child of the
Member to obtain medical or hospital care;
(iii) The payment of tuition and related educational expenses
for the next 12 months of post-secondary education for the Member, the
Member's spouse or child, or any dependent of the Member;
(iv) The payment of expenses incurred by the Member in
purchasing his or her primary residence;
(v) The need to prevent the eviction of the Member from his
or her primary residence or foreclosure on the mortgage of the Member's
primary residence;
(vi) The payment of funeral expenses for a family member or
relative of the Member;
(vii) The loss of income resulting from an abbreviated work
schedule required by the Member's health, the loss of employment by the
Member's working spouse, garnishment of the Member's wages or material
reduction in the compensation of the Member or the Member's working
spouse from such Member's or spouse's primary employer; or
(viii) The loss of income, real property or personal property
as a result of any natural disaster as specified on Appendix D to the
Plan by any individual or entity empowered to amend the Plan.
(b) Matching Account and Profit Sharing Regular Account. In
addition, a Member may withdraw:
(i) All or part of the Member's Matching Account and the
Vested Interest in his or her Profit Sharing Regular Account (excluding
contributions made with respect to any period during which the Member
was a resident of the United Kingdom) invested in any Fund (other than
the Stock Fund) or any combination of such Funds, if the amount of the
withdrawal is needed to meet an Immediate and Heavy Financial Need of
the Member due to:
(A) Funeral Expenses for a family member or relative of
the Member;
(B) An abbreviated work schedule required by the
Member's health, a loss of income due to health, the loss of
employment by the Member's working spouse or garnishment of the
Member's wages; or
(C) The payment of extraordinary and unreimbursed
medical or hospital expenses incurred by a nondependent parent or
child of the Member; and
(ii) All or part of the Member's Vested Interest in his or
her Profit Sharing Regular Account (excluding any Profit Sharing
Contributions made with respect to any period during which the Member
was a resident of the United Kingdom) invested in any Fund (other than
the Stock Fund) or any combination of such Funds, if the amount of the
withdrawal is needed to meet Immediate and Heavy Financial Needs of the
Member arising from:
(A) Foreclosure on the mortgage of the primary
residence of the Member; or
(B) The loss of income, real property or personal
property as a result of any other natural disaster as specified on
Appendix D to the Plan by any individual or entity empowered to
amend the Plan.
(c) General Limits on Hardship Withdrawals. A Member will not be
suspended from making Member Contributions for making any such withdrawal.
An amount will be considered necessary to satisfy the Member's Immediate and
Heavy Financial Need only if the Administrative Committee determines that the
need cannot be relieved by any of the following:
(i) Reimbursement or compensation by insurance or
otherwise;
(ii) Reasonable liquidation of the Member's assets,
including assets of the Member's spouse and minor children that are
reasonably available to the Member, to the extent such liquidation
would not itself cause an immediate and heavy financial need;
(iii) Cessation of Member Contributions; or
(iv) A loan from the Member's Accounts under
Section 10.1 or a loan from a commercial source on reasonable
commercial terms.
Unless the Member requests otherwise, the amount of the Member's
hardship withdrawal will include the amount of any federal, state or local
taxes or any penalties reasonably anticipated to result from the withdrawal.
Such sums will be withheld at the time such hardship withdrawal is
distributed to the Member.
9.4 Withdrawals From Stock Fund. The portion of a Member's Accounts
invested in the Stock Fund (except for amounts credited to the Member's
Nonelective Account) may be withdrawn under Section 9.1 or 9.3 upon receipt
of the prescribed notice by the Administrative Committee (except that no such
withdrawal will be permitted on and from the date the Company is advised of
the new value for LSAI Stock under Section 7 and until such new value is
utilized for the calculation of the value of the Stock Funds at the time when
Member Contributions and Matching Contributions are invested in the Stock
Fund), but only to the extent the Administrative Committee determines that
there is sufficient cash available in the Stock Fund to permit such
withdrawal.
9.5 Payment of Withdrawals. A Member may request a withdrawal by
providing the prescribed notice with the Administrative Committee. A
withdrawal will be paid to the Member in cash as soon as reasonably
practicable after the Administrative Committee receives the prescribed notice
and determines that the withdrawal request meets the requirements of Section
9.1 (regarding withdrawals from Post-Tax Accounts), Section 9.2 (regarding
withdrawals from Rollover Accounts), Section 9.3 (regarding hardship
withdrawals) or Section 9.4 (regarding withdrawals from the Stock Fund), as
applicable.
9.6 Valuation Date. The value of a Member's Accounts will be
determined as of the Valuation Date which occurs on or most recently prior to
the effective date of the withdrawal.
9.7 Source of Withdrawals. A Member's Accounts, to the extent
available with respect to such Hardship withdrawal, will be liquidated to the
extent necessary to fund a hardship withdrawal under Section 9.3 in the
following order of priority:
(a) Post Tax-Account;
(b) Rollover Account;
(c) Pre-Tax Account;
(d) Profit Sharing 401(k) Account; and
(e) Profit Sharing Regular Account and Matching Account.
Except as provided above, within any Account, amounts invested in each Fund
will be liquidated in order from the lowest risk Fund to the highest risk
Fund. The determination of the relative risk of each Fund shall be made by
the Investment Committee, in its sole discretion, from time to time.
If the Investment Committee determines that it is not feasible for the
Trustee to prudently liquidate the necessary amount invested in any Fund in
accordance with Members' withdrawal requests, the Investment Committee will
so advise the Administrative Committee which will direct that such steps be
taken as it considers necessary or desirable for the protection of Members'
Accounts, including the reordering of liquidation priorities or a pro rata
reduction in the amount of each Member's withdrawal.
9.8 Limitation on Withdrawals by Insiders. A Member who is an Insider
may withdraw as of any date amounts credited to his Accounts invested in the
Stock Fund only by making an irrevocable election to make such a withdrawal
at least 6 months before the last day on which a Member other than an Insider
must submit an election to make a withdrawal as of such date.
9.9 Additional Limitations on Withdrawals. In no event may a Member
withdraw any amount under this Section 9 which at the time of the intended
withdrawal funds a loan under Section 10.
9.10 Withdrawals by Alternate Payees. An Alternate Payee who is
entitled to a portion of a Member's Accounts under the terms of a Qualified
Domestic Relations Order may withdraw amounts from his or her Accounts under
this Section 9 in the same manner, at the same times and subject to the same
conditions as Members in the Plan.
SECTION 10 LOANS.
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10.1 Amount of Loans.
(a) Profit Sharing Regular Account. A Member may borrow up to
100% of the Member's Vested Interest in his or her Profit Sharing Regular
Account to the extent that such amount may be used to secure the promissory
note with respect to such loan under Section 10.2(a). Such a loan will be
permitted only if the Administrative Committee determines that:
(i) The proceeds of the loan will be used to acquire,
construct or rehabilitate the Member's primary residence, or to
refinance any loan or loans previously made to the Member by a third
party for any of these purposes;
(ii) The loan is required by the Member for the payment of
expenses relating to the post-secondary education of the Member or the
Member's spouse or children, including expenses for tuition, fees, room,
board or books; or
(iii) The loan is required by the Member due to the loss of
income, real property or personal property as a result of any natural
disaster as specified on Appendix D to the Plan by any individual or
entity empowered to amend the Plan.
(b) Profit Sharing 401(k) Account. A Member may borrow up to 100%
of the balance credited to his or her Profit Sharing 401(k) Account for
expenses relating to the post-secondary education of the Member or the
Member's spouse or children, including expenses for tuition, fees, room,
board or books.
(c) Post-Tax, Pre-Tax, Matching and Rollover Accounts.
(i) Effective on and after a date determined by the
Administrative Committee and announced to Members, a Member may borrow
up to 100% of the balance credited to his or her Matching Account and/or
Pre-Tax Account. A loan from the Member's Pre-Tax Account will be
permitted only if the Administrative Committee determines that the
Member is Totally and Permanently Disabled or that the proceeds will be
used to satisfy a hardship described in Section 9.3(a)(i) through
Section 9.3(a)(viii).
(ii) A Member may borrow up to 100% of the balance credited
to his or her Post-Tax Account and/or Rollover Account. Such loans will
be permitted for any reason, but will be subject to Section 10.1(d)
(regarding the maximum loan amount), Section 10.2 (regarding loan
terms), Section 10.3 (regarding source of loans) and Section 10.4
(regarding events of default), in addition to other applicable
provisions of the Plan. In no case will a Member be permitted to borrow
any portion of such Accounts invested in the Stock Fund or the Holding
Account.
(d) Additional Limitations. No loan will be permitted from the
portion of any Account invested in the Stock Fund. No loan will be granted
to the extent it would cause the aggregate balance of all loans a Member has
outstanding under the Plan to exceed the lesser of:
(i) $50,000, less the amount by which such aggregate
balance has been reduced by repayments of principal during the one-year
period ending on the day before the new loan is made; or
(ii) 50% of the Member's Vested Interest in all of the
Member's Accounts.
The amount of any loan must be a multiple of $100 and may not be less than
$1,000. Only 4 loans to a Member may be outstanding at any time (no more
than 2 of which may be for the acquisition, construction or rehabilitation of
the Member's primary residence, or to refinance any loan or loans previously
made by a third party for these purposes).
(e) Vested Interest and Value of Accounts. The Member's Vested
Interest in an Account and the value of the balance credited to such Account
will be determined as of the latest Valuation Date preceding the date the
loan application is submitted for which information is then available.
10.2 Terms of Loans. All loans will be on such terms and conditions as
the Administrative Committee may determine, and must satisfy the following
requirements:
(a) Adequate Security. All loans will be made under a promissory
note secured by:
(i) The residence of the Member, in the case of a loan
under Section 10.1(a)(i) (regarding the acquisition, construction or
rehabilitation of the Member's primary residence);
(ii) The residence of the Member to the extent agreed upon
by the Member and the Administrative Committee, in the case of a loan
for expenses for the post-secondary education of the Member or the
Member's spouse or children which is made from the Member's Profit
Sharing Regular Account under 10.1(a)(ii), or the Member's Post-Tax
Account or the Member's Rollover Account under Section 10.1(c)(ii); and
(iii) The Account or Accounts that funded the loan to the
extent that such Account or Accounts fund the loan.
No loans will be secured by the Member's Account or Accounts in an amount
greater than 50% of the Vested Interest and value of the balance of the
Account of such Member at the time such loan was made.
(b) Substantially Level Payment. All loans will be subject to a
substantially level payment schedule, as determined by the Administrative
Committee, with payments to be made at least quarterly and whenever possible
to be made through semi-monthly payroll deductions. If loan payments are not
made for a period of up to 365 days due to the Member's temporary absence
from active work, such missed payments may be made:
(i) In a single sum after the Member returns to active
work;
(ii) Ratably over the remaining period of the loan;
(iii) In a single sum together with the final payment
provided for under the note; or
(iv) In another manner mutually agreed upon by the Member
and the Administrative Committee.
However, loan repayments by a Member who has been absent temporarily must
recommence by the end of the one-year period following the date the Member's
temporary absence began or, if earlier, upon the first paycheck after the
Member's return to active work.
(c) Reasonable Rate of Interest. All loans will bear interest at
a fixed rate determined by the Administrative Committee based upon the prime
interest rate in effect at a commercial bank as of the first day of the month
immediately preceding the date on which the loan application is received plus
1%, unless such rate would not be "reasonable" as defined by section
408(b)(3) of the Act, in which case a "reasonable" rate of interest will be
used.
(d) Repayment in Full. All loans will provide for repayment in
full, whether from the Member's Accounts or otherwise, on or before the
earlier of:
(i) 5 years after the date the loan is made (15 years after
the date the loan is made if the loan is used to acquire the Member's
principal residence); or
(ii) The date the Member's Plan Benefit is distributed under
Section 11.
10.3 Source of Loans; Application of Loan Payments. As soon as
administratively practical following the approval of a loan by the
Administrative Committee, the amount of the loan will be distributed to the
Member from the vested portion of the Member's Accounts that are being used
to fund the loan, in the following order of priority:
(a) Post-Tax Account;
(b) Rollover Account;
(c) Pre-Tax Account;
(d) Profit Sharing 401(k) Account;
(e) Profit Sharing Regular Account; and
(f) Matching Account.
If less than the entire amount of any Account is required to fund the
loan, amounts invested in the Funds will be liquidated to fund the loan in
order from the lowest risk Fund to the highest risk Fund. The determination
of the relative risk of each Fund shall be made by the Investment Committee,
in its sole discretion, from time to time.
If the Investment Committee determines that it is not feasible for the
Trustee to prudently liquidate the necessary amount invested in any Fund in
accordance with Members' loan requests, the Investment Committee will so
advise the Administrative Committee. The Administrative Committee will
direct that such steps be taken as it considers necessary or desirable for
the protection of Members' Accounts, including the reordering of liquidation
priorities or a pro rata reduction in the amount of each Member's loan. The
promissory note executed by the Member will be reflected in reporting the
balance of the Member's Account or Accounts that funded the loan. Principal
and interest payments will be credited to the Member's Account or Accounts in
proportion to the extent that such Account or Accounts funded the loan. Such
principal and interest payments shall be invested in Funds in proportion to
the extent that the funds loaned to the Member were invested in such Funds at
the time such loan was made to the Member. [I understand that the point
addressed in the last sentence remains open to discussion.]
10.4 Default. If the Administrative Committee determines that a
Member's loan obligation is in default, it will take such actions as it deems
necessary or appropriate to cause the Plan to realize on its security for the
loan. Those actions may include, without limitation, a demand for payment in
full, and a distribution of the Member's promissory note to the Member, which
will be deemed an involuntary withdrawal from the Member's Accounts in an
amount equal to the principal balance of the loan, whether or not the
withdrawal would otherwise be permitted on a voluntary basis. No
distribution of a Member's promissory note and involuntary withdrawal will
occur with respect to a loan from the Member's Pre-Tax Contributions Account
or Nonelective Account before the earliest of the events specified in Section
18.6. Any loss caused by the nonpayment or other default on a Member's loan
obligation will be borne solely by the Member's Accounts. A Member who is
temporarily absent from work will not be considered to be in default for the
period which is the lesser of (i) 365 days from the date the Member begins
the temporary leave of absence on (ii) the date the Member is no longer
considered to be temporarily absent from work.
SECTION 11 PLAN BENEFITS.
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11.1 Vesting in Accounts. A Member's Vested Interest in his or her
Accounts shall be 100% at all times.
11.2 Amount of Plan Benefit. If a Member ceases to be an Employee for
any reason or becomes Totally and Permanently Disabled while an Employee, the
Member (or, in the event of a Member's death, the Member's Beneficiary) will
be entitled to receive a Plan Benefit equal to the Member's Vested Interest
in his or her Accounts.
11.3 Valuation of Plan Benefit. The value of the Vested Interest in a
Member's Accounts to be distributed as a Plan Benefit will be determined as
of the Valuation Date which occur on or most recently prior to immediately
preceding the later of the date of termination of the Member's employment or
the date on which the distribution is requested.
11.4 Rehire Before Five One-Year Breaks in Service. If a Member who
suffered a Forfeiture of his or her Profit Sharing Regular Account before the
Effective Date for reasons other than Misconduct, or suffered Forfeiture of
amounts accumulated under the ESP or PSP, is rehired as an Employee before
the date on which the Member incurs a 60 consecutive month Break in Service,
an amount equal to the amount which became a Forfeiture will be restored to
the Member's Profit Sharing Account or Matching Account, as appropriate. In
the case of a Member who ceased to be an Employee and suffered a Forfeiture
due to the Employee's pregnancy, the birth of the Employee's child, the
placement of a child with the Employee in connection with the adoption of the
child by the Employee or the care of the Employee's child immediately
following the child's birth or adoption, "84" will be substituted for "60" in
the preceding sentence. The first source for amounts restored under this
Section 11.4 will be recent Forfeitures of other Members which have not yet
been reallocated under Section 5.3 or Section 6.1. To the extent such
Forfeitures are insufficient, the Participating Company that employed the
Member will make a special contribution in the amount required.
11.5 Form of Payment. Unless a Member (or Beneficiary) elects
otherwise, the Member's Plan Benefit will be paid in the form of a lump sum
in cash. If the value of the Member's Plan Benefit exceeds $3,500, the
Member (or Beneficiary) may elect to have all or a portion of such Plan
Benefit paid in one of the following forms by filing the prescribed form with
the Administrative Committee:
(a) Installments. The Member (or Beneficiary) may elect to have
the Member's Plan Benefit paid in the form of monthly or annual installments,
as determined under Section 11.5(a)(i) or Section 11.5(a)(ii) below:
(i) Monthly Installments. The Member's Plan Benefit will
be paid in monthly installments over a period not exceeding the
reasonable life expectancy of the Member (or Beneficiary), as determined
under the mortality table specified in Section 25 of the Revised Home
Office Pension Plan of Levi Strauss Associates Inc. The amount of each
monthly installment will be determined by dividing the value of the
portion of the Member's Plan Benefit remaining in the Trust Fund by the
number of installments elected less the number of installments already
paid.
(ii) Annual or Monthly Installments. The Member's Plan
Benefit will be paid in annual installments over the life expectancy of
the Member (or Beneficiary) or the joint life expectancy of the Member
and the Member's Beneficiary, where the amount of each annual
installment is determined by dividing the value of the Member's Plan
Benefit remaining in the Trust Fund by the applicable life expectancy.
Alternatively, such payment may be made in monthly installments not
exceeding the life expectancy of the Member (or Beneficiary) or the
joint life expectancy of the Member and the Member's Beneficiary at the
request of the Member (or Beneficiary). The applicable life expectancy
for purposes of this Section 11.5(a)(ii) will be determined annually in
a manner consistent with section 401(a)(9)(D) of the Code.
(b) Annuity Contract. The Member (or Beneficiary) may elect to
have the Member's Plan Benefit paid in the form of a single premium annuity
contract purchased from an insurer. The normal form of annuity contract for
a single Member will be a life annuity contract which will provide the Member
with a monthly income for his or her life. The normal form of annuity
contract for a married Member will be a joint and survivor annuity contract
which will provide the Member with a monthly income for his or her life, and
upon his or her death, a monthly income to his or her spouse, in an amount
not less than 50% nor more than 100% of the amount that was payable to the
Member. If the Member dies before the Annuity Starting Date, his or her
spouse will be entitled to a survivor's annuity contract which will provide
the spouse with a monthly income for his or her life equal to 50% of the
amount that would have been paid to the Member if his or her annuity payments
had begun on the date of the Member's death.
If the Member elects that only a portion of his Plan Benefit be paid in
the form of installments or an annuity, then the remainder of such benefit
will be paid in a lump sum.
A married Member may elect another form of annuity or may designate
another joint annuitant with his or her spouse's consent. The spouse's
consent must:
(i) Be in writing;
(ii) Acknowledge the effect of the alternate form of annuity
or specifically identify the alternate joint annuitant;
(iii) Be witnessed by a notary public; and
(iv) Be given within 90 days before the Annuity Starting
Date.
The spouse's consent to receive an alternate form of annuity or the
designation of a Beneficiary will not be binding on a subsequent spouse if
the Member remarries. The Member may revoke such an election at any time
before the Annuity Starting Date in which case the Member's benefit will be
paid in the form of a joint and survivor annuity to the Member and his or her
spouse, unless the Member elects an alternate form of benefit or Beneficiary
designation with his or her spouse's consent. If benefits are payable to a
joint annuitant other than the Member's spouse, the present value of the
benefits payable to the joint annuitant will not exceed 50% of the present
value of the benefits payable to the Member (determined as of the Annuity
Starting Date).
The Administrative Committee will provide to each Member who elects to
receive an annuity a written explanation in nontechnical language containing
the following information:
(i) A description of the terms and conditions of the joint
and survivor annuity and the single life annuity;
(ii) A statement that the Member may elect during the
Election Period described below to waive the joint and survivor annuity
or life annuity by electing any optional form of benefit provided under
the Plan;
(iii) A statement that the Member may revoke the waiver of
the joint and survivor annuity or life annuity during the Election
Period and the effect of such revocation;
(iv) Notice of the requirement that the Member's spouse must
consent to the waiver of the joint and survivor annuity and election of
any optional form of benefit;
(v) A general explanation of the financial effect of
election of each of the optional forms of benefit provided under the
Plan; and
(vi) A statement that the Member may request an explanation
of the specific financial effect, in terms of monthly payments, on the
Member's Plan Benefit of making an election.
The Election Period will begin 90 days before the Annuity Starting Date
and end on the Annuity Starting Date, unless the Member requests additional
information from the Administrative Committee, in which case it will end no
later than 90 days after the Member receives such additional information.
During the Election Period any election not to take the joint and survivor
annuity or life annuity will be revocable. Upon the expiration of the
Election Period, any election made will be irrevocable and the Member will
not be required nor eligible to make an election if no election had been
made.
(c) Direct Transfer. Effective January 1, 1993, a Member (or
eligible Beneficiary) may elect to have the Member's Plan Benefit paid by a
direct transfer to a plan qualified under section 401(a) of the Code which
accepts direct transfer contributions, an individual retirement account
described in section 408(a) of the Code, an individual retirement annuity
described in section 408(b) of the Code (other than an endowment contract),
or an annuity plan described in section 403(a) of the Code. The Member (or
Beneficiary) may elect to have his or her Plan Benefit paid in the form of a
direct transfer at any time after the Administrative Committee provides the
Member with notice of the direct transfer option as required by section
402(f) of the Code (the "Section 402(f) Notice").
11.6 Time of Payment. A Member's Plan Benefit will be paid in full or
will begin to be paid on the Member's Required Beginning Date. However,
subject to the rules stated in paragraphs (a), (b), and (c) below, a Member
may elect to receive his or her Plan Benefit earlier, on or as soon as
reasonably practicable after the Member ceases to be an Employee.
The following rules will govern benefit payments from the Plan.
(a) Mandatory Cashout of Benefits Less than $3,500. Except as
provided in Section 11.6(b), a Member's Plan Benefit will be paid in a lump
sum cash payment as soon as reasonably practicable after the Member ceases to
be an Employee if the value of his or her Plan Benefit does not exceed
$3,500. Alternatively, effective January 1, 1993, a Member may elect to have
his or her Plan Benefit paid by a direct transfer to a plan qualified under
section 401(a) of the Code which accepts direct transfer contributions, an
individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code (other
than an endowment contract), or an annuity plan described in section 403(a)
of the Code. The Member may elect to have his or her Plan Benefit paid in
the form of a direct transfer at any time after the Administrative Committee
provides the Member with notice of the direct transfer option as required by
section 402(f) of the Code (the "Section 402(f) Notice").
(b) Insufficient Cash in the Stock Fund. If the Administrative
Committee determines that the cash available in the Stock Fund is
insufficient for the payment of a Member's Plan Benefit, the payment will be
delayed until the Administrative Committee determines that sufficient cash is
available. Except as provided in Section 11.6(c) (regarding Code section
401(a)(9) compliance) and in Section 11.8 (regarding limitations on the time
of distribution), no benefit payment delayed under the Plan will be made
later than:
(i) 1 year after the last day of the Plan Year in which the
Member ceases to be an Employee by reason of reaching Normal Retirement
Age, Total and Permanent Disability or death;
(ii) 5 years after the last day of the Plan Year in which
the Member ceases to be an Employee for any other reason; or
(iii) The Member's Required Beginning Date.
If a payment with respect to an Account invested in the Stock Fund has
been delayed to the Member's Required Beginning Date and the Administrative
Committee determines that the cash in the Stock Fund is insufficient to make
such payment, LSAI Stock will be paid to the Member or Beneficiary unless the
Company redeems sufficient shares of LSAI Stock at Fair Market Value to make
such payment in cash.
(c) Section 401(a)(9) Compliance. All benefit payments under the
Plan will be made in accordance with the minimum distribution and incidental
benefit requirements of section 401(a)(9) of the Code, which require
generally that certain minimum amounts be paid to the Member each calendar
year, beginning with the calendar year in which the Member's Required
Beginning Date occurs, in order to assure that certain minimum amounts be
paid to the Member and that only "incidental" benefits be provided to the
Member's Beneficiaries. Furthermore, any payment option required by section
401(a)(9) of the Code will override and supersede any inconsistent payment
provision provided for in the Plan.
11.7 Death Benefit. If a Member dies before the payment of his or her
Plan Benefit has begun, then the Member's Beneficiary will be entitled to
receive the Member's Plan Benefit as soon as reasonably practicable after the
Beneficiary files a claim with the Administrative Committee on the prescribed
form. If the Beneficiary fails to file the prescribed claim form, the
Member's Plan Benefit will be paid in full to the Beneficiary no later than
the last day of the calendar year which is 5 years after the Member's death.
If the Member dies after installment payments have begun under Section
11.5(a), the remainder of the Member's Plan Benefit will be paid to the
Member's Beneficiary in a single lump sum as soon as reasonably practicable
after the Member's death.
11.8 Limitation on Time of Payment. Unless a Member elects otherwise,
payment of his or her Plan Benefit will occur or begin not later than 60 days
after the latest of the following:
(a) The last day of the Plan Year in which the Member reaches
Normal Retirement Age;
(b) The last day of the Plan Year in which the Member ceases to be
an Employee;
(c) The earliest date on which the Administrative Committee can
reasonably ascertain the amount of the Member's Plan Benefit; or
(d) The earliest date on which the Administrative Committee can
reasonably locate the Member (or his or her Beneficiary).
In no event, however, will the payment of a Member's Plan Benefit begin later
than the Member's Required Beginning Date.
SECTION 12 ALLOCATION LIMITATIONS.
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12.1 Limitation on Annual Additions. The Annual Additions allocated to
a Member for any Plan Year will not exceed the lesser of the following:
(a) $30,000 (or, if greater, 1/4 of the dollar limitation for
defined benefit plans in effect under section 415(b)(1)(A) of the Code) as
adjusted to take into account changes in the cost of living;
(b) 25% of the Member's Total Compensation for such Plan Year.
If a Member's Annual Additions would exceed the above limitation, then
such Annual Additions will be reduced by reducing the components of such
additions, as necessary, in the order in which they are listed in Section
2.6.
The Plan Year will be the "limitation year" (as defined under section
415 of the Code) unless the Board of Directors designates another 12
consecutive month period as the limitation year under a written resolution
adopted by the Board of Directors.
12.2 Combined Limitation on Benefits and Contributions. If a Member
also participates in one or more qualified defined benefit plans (as defined
in section 414(j) of the Code) maintained by the Company or any Affiliated
Company, the Member's benefits under any of the qualified defined benefit
plans will be reduced to the extent necessary to ensure that the sum of the
"Defined Benefit Fraction" (as defined in section 415(e)(2) of the Code) for
the Plan Year plus the "Defined Contribution Fraction" (as defined in section
415(e)(3) of the Code) for the Plan Year does not exceed 1.0.
12.3 Disposition of Excess Annual Additions. Any Annual Additions
under this Plan that cannot be allocated to a Member because of the
limitation in Section 12.1 will be processed as follows:
(a) Any Profit Sharing Contribution and Forfeitures attributable
to Profit Sharing Accounts that cannot be allocated to the Member will be
deducted from the amount of the Profit Sharing Contribution which otherwise
would be made under Section 6, but such reduction will not affect the amounts
allocable under Section 6.3 to Members whose Profit Sharing Contribution
component of Annual Additions is not reduced.
(b) Any Matching Contribution and Forfeitures attributable to
Matching Accounts that cannot be allocated to the Member will be deducted
from the amount of the Matching Contribution which otherwise would be made
under Section 5.1, but such reduction will not affect the amounts allocable
under Section 5.3 to Members whose Matching Contribution component of Annual
Additions is not reduced.
(c) Any Nonelective Contribution that cannot be allocated to the
Member will be deducted from the amount of any Nonelective Contribution which
otherwise would be made under Section 5.2, but such reduction will not affect
the amounts allocable under Section 5.3 to Members whose Nonelective
Contribution portion of Annual Additions is not reduced.
(d) Any Post-Tax Contributions made by the Member (increased by
any income or reduced by any losses allocable to such Contributions) will be
returned to the Member in cash.
(e) Any Pre-Tax Contributions will be credited to a suspense
account on behalf of the Member. All amounts credited to such account will
be treated as Pre-Tax Contributions for successive Plan Years and will be
allocated annually to the Member under Section 4 (to the extent such
allocation is not prohibited by Section 12.1) until exhausted. No gains or
losses will be credited to the suspense account and no additional Pre-Tax
Contributions, or any Matching Contribution, Nonelective Contribution or
Profit Sharing Contribution will be made by or on behalf of the Member so
long as any amount remains in the suspense account.
SECTION 13 FUNDING POLICY AND METHOD.
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13.1 Contributions. The Administrative Committee will make
arrangements for the collection of Member Contributions as provided in
Section 4. The Company will make Matching Contributions, Nonelective
Contributions and Profit Sharing Contributions to the Plan as provided in
Sections 5 and 6.
13.2 Trust Fund. All monies, securities or other property received as
contributions under the Plan will be delivered to the Trustee under the Trust
Fund, to be managed, invested, reinvested and distributed in accordance with
the Plan, the Trust Agreement, and any agreement with an insurance company or
other financial institution constituting a part of the Plan and Trust
Agreement.
13.3 Expenses of the Plan. The expenses of administering the Plan will
include but not be limited to:
(a) The fees and expenses of any employee and of the Trustee for
the performance of their duties under the Trust Agreement;
(b) The expenses incurred by the members of the Administrative
Committee and of the Investment Committee in the performance of their duties
under the Plan (including reasonable compensation for any legal counsel,
certified public accountants and actuaries and any outside agents and cost of
services provided for the Plan); and
(c) All other proper charges and disbursements of the Trustee or
the members of the Administrative Committee and of the Investment Committee
(including settlements of claims or legal actions approved by counsel to the
Plan).
The expenses of administering the Plan may be paid out of the Trust Fund
if the Participating Companies do not pay such expenses directly in such
proportions as determined by the Administrative Committee. An election by
the Participating Companies to pay all or a part of the above expenses
directly will not bind such companies as to their rights to elect, with
respect to the same or other expenses, at any other time to have such
expenses paid from the Trust Fund or to have the Trustee reimburse the
Participating Companies for expenditures already made. In estimating costs
under the Plan, administrative costs may be anticipated.
13.4 Cash Requirements. From time to time the Administrative Committee
will estimate the Plan Benefits, withdrawals and administrative expenses to
be paid out of the Trust Fund during the period for which the estimate is
made and will also estimate the contributions to be made to the Plan during
that period. The Administrative Committee will inform the Trustee and each
Investment Manager of the estimated cash needs of, and contributions to, the
Plan during the periods for which the estimates are made. The estimates will
be made on an annual, quarterly, monthly or other basis, as the
Administrative Committee may determine.
13.5 Independent Accountant. The Administrative Committee will engage
an independent qualified public accountant to conduct such examinations and
to express such opinions as may be required by section 103(a)(3) of the Act.
The Administrative Committee may remove and discharge the person so engaged,
in which event it will engage a successor independent qualified public
accountant to perform such examinations and to express such opinions.
13.6 Loans from Parties-In-Interest. The Investment Committee, in its
sole discretion, may borrow money or receive credit from a party-in-interest
(within the meaning of Section 3(14) of ERISA), providing such loan or
extension of credit satisfies the applicable conditions of Department of
Labor Prohibited Transactions Class Exemption No. 80-26, or such successor
exemption which may from time to time be applicable, and otherwise satisfies
the prohibited transactions provisions of ERISA and the Code. The proceeds
of such a loan shall be allocated to such investment fund or funds as the
Investment Committee deems appropriate. In connection with such a loan or
extension of credit, the Investment Committee or its designee may execute
such promissory notes or loan or other documents as it deems appropriate.
SECTION 14 BENEFICIARIES.
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If no Beneficiary designation is in effect under Section 2.8 at the time
of a Member's death, or if no designated Beneficiary survives the Member, the
payment of the Member's Plan Benefit, if any, will be made to the following
persons in the order listed:
(a) To the Member's Surviving Spouse, if any;
(b) If the Member has no Surviving Spouse, then to his or her
children;
(c) If the Member has no living children, then to his or her
parents;
(d) If the Member has no living parents, then to his or her
brothers and sisters; or
(e) If the Member has no living brothers and sisters, then to his
or her estate.
The Administrative Committee will, in its sole and absolute discretion,
determine the right of such persons to receive the Member's Plan Benefit, if
any. If the Administrative Committee is in doubt as to the right of any
person to receive such benefit, the Administrative Committee may direct the
Trustee to retain such benefit, without liability for any interest, until the
rights to such benefit are determined, or, alternatively, may direct the
Trustee to pay such benefit into any court of appropriate jurisdiction and
such payment will be a complete discharge of the liability of the Plan and
the Trust Fund.
SECTION 15 ADMINISTRATION AND OPERATION OF THE PLAN.
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15.1 Plan Administrator. The Administrative Committee is the "Plan
Administrator" of the Plan (as such term is defined in the Act) and the
"Named Fiduciary" as defined in section 402(a) of the Act with respect to the
operation and administration of the Plan. The Administrative Committee will
make such rules and regulations and take any other actions to administer the
Plan as it may deem appropriate. The Administrative Committee may adopt
periods in which advance notice required under the Plan must be given and
will communicate such periods to Employees. The Administrative Committee
will have sole discretion to interpret the terms of the Plan and to determine
eligibility for benefits under the objective criteria described in the Plan.
The Administrative Committee's rules, interpretations, computations and
actions will be conclusive and binding on all persons.
In administering the Plan, the Administrative Committee (a) will act in
a nondiscriminatory manner to the extent required by section 401(a) and
related sections of the Code, and (b) will at all times discharge its duties
in accordance with the standards described in section 404(a)(1) of the Act.
15.2 Control and Management of Plan Assets. The Investment Committee
is the "Named Fiduciary" as defined in section 402(a) of the Act with respect
to the management and control of the assets of the Plan, but only to the
extent that it will have the authority to:
(a) Appoint 1 or more trustees to hold the assets of the Plan in
trust and to enter into a trust agreement with each trustee it appoints;
(b) Appoint 1 or more Investment Managers for any assets of the
Plan and to enter into an investment management agreement with each
Investment Manager it appoints;
(c) Direct the investment of any Plan assets not assigned to an
Investment Manager or to the Trustee; and
(d) Perform such other functions as are specifically assigned to
the Investment Committee under the Plan.
15.3 Trustees and Investment Managers. Each trustee appointed under
Section 15.2 will have the exclusive authority and discretion to manage and
control the Plan assets held in trust by it, except to the extent that:
(a) The Investment Committee directs how those assets will be
invested;
(b) The Investment Committee allocates the authority to manage
those assets to one or more Investment Managers; or
(c) The Plan prescribes how those assets will be invested.
Each Investment Manager appointed under Section 13.2 will have the
exclusive authority to manage, including the power to acquire and dispose of,
the Plan assets assigned to it by the Investment Committee, except to the
extent that the Plan prescribes how those assets will be invested. The
Trustee and each Investment Manager will be solely responsible for
diversifying the investment, in accordance with section 404(a)(1)(C) of the
Act, of the Plan assets assigned to them by the Investment Committee, except
to the extent that the Investment Committee directs or the Plan prescribes
how those assets will be invested.
15.4 Committee Membership. Both the Administrative Committee and the
Investment Committee will consist of at least 3 members. Each member will be
appointed by, will remain in office at the will of, and may be removed, with
or without cause, by, the Board of Directors. Any member of either Committee
may resign at any time. The Board of Directors will designate the chairman
of each Committee.
To the maximum extent permitted by law, no member of either Committee
will be personally liable by reason of any contract or other instrument
executed by him or her or on his or her behalf in his or her capacity as a
member of such Committee nor for any mistake of judgment made in good faith.
The Company will indemnify and hold harmless, directly from its own assets
(including the proceeds of any insurance policy the premiums of which are
paid from the Company's own assets), each member of the Administrative
Committee and Investment Committee and each other officer, employee or
director of the Company to whom any duty or power relating to the
administration or interpretation of the Plan or to the management and control
of the assets of the Plan may be delegated or allocated, against any cost or
expense (including counsel fees) or liability (including any sum paid in
settlement of a claim with the approval of the Company) arising out of any
act or omission to act in connection with the Plan, unless arising out of
such person's own fraud or willful misconduct.
15.5 Reports to Board of Directors. Each Committee will report to the
Board of Directors, or to its designee for this purpose, annually and at such
other times specified by the Board of Directors or such designee, concerning
the matters for which it is responsible under the Plan.
15.6 Employment of Advisers. The Administrative Committee and the
Investment Committee may make use of employees of the Company or outside
agents as they require or may deem advisable for purposes of performing their
respective duties under the Plan. Either Committee may rely upon the written
opinion or advice of counsel provided by the Company, fairness opinions
provided by investment bankers and written opinions or advice by actuaries or
accountants engaged by the Administrative Committee. Either Committee may
delegate to any such agent or to any subcommittee or member of the Committee
its authority to perform any act under the Plan, including, without
limitation, those matters involving the exercise of discretion. Any such
delegation of discretion will be subject to revocation at any time at the
discretion of the appropriate Committee.
15.7 Limitations on Committee Actions. No member of either Committee
will be entitled to act on or decide any matter relating solely to himself or
herself or any of his or her rights or benefits under the Plan. The members
of the Administrative Committee and of the Investment Committee will not
receive any special compensation for serving in their capacities as members
of such Committees but will be reimbursed for any reasonable expenses
incurred in performing their Committee duties. Except as otherwise required
by the Act, no bond or other security will be required of either Committee or
any Committee member in any jurisdiction. Any person may serve on both
Committees, and any member of either Committee, any subcommittee or agent to
whom either Committee delegates any authority, and any other person or group
of persons, may serve in more than one fiduciary capacity (including service
both as a trustee and an administrator) with respect to the Plan.
15.8 Committee Meetings. Each Committee will establish its own
procedures and the time and place for its meetings, and provide for the
keeping of minutes of all meetings. A majority of the members of a Committee
will constitute a quorum for the transaction of business at a meeting of the
Committee. Any action of a Committee may be taken upon the affirmative vote
of a majority of the members of the Committee at a meeting or, at the
direction of its Chairman, without a meeting by "mail," telegraph or
telephone, provided that all of the members of the Committee are informed by
mail, telegraph or telephone of their right to vote on the proposal and of
the outcome of the vote. "Mail" will include any written or electronic
interoffice communication.
SECTION 16 CLAIMS AND REVIEW PROCEDURES.
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16.1 Applications for Benefits. Any application for a Plan Benefit
must be submitted to the Administrative Committee at the Company's principal
office. Such application must be in writing on the prescribed form and must
be signed by the applicant.
16.2 Denial of Applications. In the event that any application for a
Plan Benefit is denied in whole or in part, the Administrative Committee will
notify the applicant in writing of the right to a review of the denial. The
written notice will state, in a manner reasonably calculated to be understood
by the applicant:
(a) The specific reasons for the denial;
(b) The specific references to the Plan provisions on which the
denial was based;
(c) A description of any information or material necessary to
perfect the application;
(d) An explanation of why such material is necessary; and
(e) An explanation of the Plan's review procedure.
The written notice will be given to the applicant within 90 days after the
Administrative Committee receives the application, unless special
circumstances require an extension of time for processing the application.
In no event will the extension exceed a period of 90 days from the end of the
initial 90-day period. If an extension is required, written notice of the
need for the extension will be given to the applicant before the end of the
initial 90-day period. The notice will indicate the special circumstances
requiring an extension of time and the date by which the Administrative
Committee expects to give a decision. If written notice is not given to the
applicant within the initial 90-day period, then the application will be
deemed to have been denied (for purposes of Section 16.3) upon the expiration
of such period.
16.3 Requests for Review. Any person whose application for a Plan
Benefit is denied in whole or in part (or such person's duly authorized
representative) may appeal the denial by submitting to the Administrative
Committee a request for a review of such application within 60 days after
receiving written notice of the denial. The Administrative Committee will
give the applicant or such representative an opportunity to review pertinent
documents (except legally privileged materials) in preparing such request for
review and to submit issues and comments in writing. The request for review
must be in writing and must be addressed to the Company's principal office.
The request for review must state all of the grounds on which it is based,
all facts in support of the request and any other matters which the applicant
deems pertinent. The Administrative Committee may require the applicant to
submit such additional facts, documents or other material as it may deem
necessary or appropriate in making its review.
16.4 Decisions on Review. The Administrative Committee will act upon
each request for review within 60 days after it receives the request, unless
special circumstances require an extension of time for processing, but in no
event will the decision on review be given more than 120 days after the
Administrative Committee receives the request for review. If an extension is
required, written notice of the need for the extension will be given to the
applicant before the end of the initial 60-day period. The Administrative
Committee will give prompt, written notice of its decision to the applicant.
If the Administrative Committee confirms the denial of the application for
benefits in whole or in part, the notice will state, in a manner calculated
to be understood by the applicant, the specific reasons for the denial and
specific references to the Plan provisions on which the decision is based.
To the extent that the Administrative Committee overrules the denial of the
application for a Plan Benefit, such benefit will be paid to the applicant.
16.5 Exhaustion of Administrative Remedies. No legal or equitable
action for a Plan Benefit will be brought unless and until the claimant has:
(a) Submitted a written application for a Plan Benefit in
accordance with Section 16.1;
(b) Been notified that the application is denied;
(c) Filed a written request for a review of the application in
accordance with Section 16.3; and
(d) Been notified in writing that the Administrative Committee has
affirmed the denial of the application.
A Member may bring an action without completing the above steps after the
Administrative Committee has failed to act on the claim within the time
prescribed in Section 16.2 and Section 16.4.
SECTION 17 TERMINATION OF EMPLOYER PARTICIPATION.
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17.1 Termination by Participating Company. Any Participating Company
may terminate its participation in the Plan by giving the Board of Directors
prior written notice specifying a termination date which will be the last day
of a month at least 60 days after the date such notice is received by the
Board of Directors. If the specified termination date is not at least 60
days after the date the notice of termination is received by the Board of
Directors, the specified termination date will automatically be changed to
the last day of the first month which is at least 60 days after the date the
notice is received. The Board of Directors may waive such 60 day notice
requirement and terminate the Participating Company's participation in the
Plan as of any earlier date. The Board of Directors may also terminate any
Participating Company's participation in the Plan, as of any termination date
specified by the Board of Directors, for the failure of the Participating
Company to make proper contributions, to comply with any other provision of
the Plan, or for any other reason the Board of Directors deems appropriate.
In any event, the Administrative Committee will promptly notify the IRS and
other appropriate governmental authorities under Sections 17.3 and 18.3 of
the Plan.
17.2 Effect of Termination. Upon termination of the Plan as to any
Participating Company, the interest in the Accounts of any Members who were
or are currently employed by such Participating Company will become fully
vested and nonforfeitable and no amount will subsequently be payable under
the Plan to or with respect to such Members except as provided in this
Section 17.2. Subject to any conditions which the IRS or any other
governmental authority may impose, the Administrative Committee will direct
the Trustee to segregate that portion of the Trust Fund attributable to the
Members' Accounts of that Participating Company. To the maximum extent
permitted by the Code and the Act, any rights of Members or former Members of
that Participating Company and their Beneficiaries and other eligible
survivors will be unaffected by a termination of the Plan as to such
Participating Company.
17.3 IRS Termination Procedure. If the Plan is terminated with respect
to a Participating Company, the Administrative Committee or the appropriate
Company office must submit the Plan to the IRS for a determination that the
termination of the Plan with respect to the Participating Company will not
adversely affect the qualified status of the Plan and the Trust Fund under
sections 401(a) and 501(a) of the Code. No distributions of assets will be
made in connection with the termination of the Plan until the IRS has issued
a determination as to the effect of such termination. The Participating
Company may, by written notice delivered to the Administrative Committee and
the Trustee, waive its right to apply for such a determination. Any such
waiver request must be approved by the Board of Directors.
17.4 Termination of the Plan. If the Plan is terminated with respect
to all Participating Companies, the provisions of this Section 17 will be
applied to each of the Participating Companies individually or collectively
as determined by the Administrative Committee in its sole and absolute
discretion.
SECTION 18 AMENDMENT, MERGER OR TERMINATION OF THE PLAN AND TRUST.
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18.1 Right to Amend. The Board of Directors have the right at any
time, to modify, alter or amend this Plan, in whole or in part, prospectively
or retroactively. No amendment will reduce any Member's Plan Benefit,
calculated as of the date on which the amendment is adopted, except to the
extent as may be appropriate or necessary to enable the Plan and Trust Fund
to continue to satisfy the requirements of section 401(a) and section 501(a)
of the Code or other applicable law. Any such amendment will be evidenced by
an instrument in writing duly executed, acknowledged and delivered to the
Administrative Committee and the Trustee. If the Plan is amended by the
Board of Directors after it is adopted by an Affiliated Company, unless
otherwise expressly provided, it will be treated as so amended by the
Affiliated Company without the necessity of any action on the part of the
Affiliated Company.
18.2 Plan Merger or Consolidation. The Board of Directors reserves the
right to merge or consolidate this Plan with any other plan or to direct the
Trustee to transfer the assets held in the Trust Fund and/or the liabilities
of this Plan to any other plan or to accept a transfer of assets and
liabilities from any other plan. In the event of the merger or consolidation
of this Plan and the Trust Fund with any other plan, or a transfer of assets
or liabilities to or from the Trust Fund to or from any other such plan, then
each Member will be entitled to a benefit immediately after the merger,
consolidation or transfer (determined as if the Plan was then terminated)
that is equal to or greater than the benefit he or she would have been
entitled to receive immediately before such merger, consolidation or transfer
(if this Plan had then terminated).
18.3 Termination of the Plan. The Board of Directors hopes and expects
to continue the Plan indefinitely. Nevertheless, to the full extent
permitted by law, the Board of Directors reserves the right to terminate the
Plan or to completely discontinue contributions under the Plan. As required
by law, before the termination or discontinuance of contributions, the Board
of Directors, or its designee, will notify the Administrative Committee, the
Trustee, or any other fiduciary of its intent to terminate the Plan or to
discontinue contributions under the Plan. Upon such termination or
discontinuance of contributions, the interest of each Member in his or her
Accounts will become fully vested and nonforfeitable.
18.4 Partial Termination of the Plan. Upon a curtailment of the Plan
or a discontinuance of the Plan with respect to a group or class of Members
that constitutes a "Partial Termination" under section 411(d)(3) of the Code,
the interest of each Member in his or her Accounts will become fully vested
and nonforfeitable. If a Partial Termination occurs, the Accounts of the
Members affected by the Partial Termination will be segregated by the Trustee
and used to pay benefits under the Plan to such Members in accordance with
Section 18.5 as though the Plan had been completely terminated.
Alternatively, the Administrative Committee may postpone benefit payments to
those Members until their subsequent termination of Service with the Company
in accordance with other provisions of the Plan.
18.5 Manner of Distribution. Upon termination of the Plan, the
Administrative Committee may, in its sole and absolute discretion, direct the
Trustee to convert the Trust Fund into cash and liquidate it by making
benefit payments to Members in accordance with the modes of payment provided
for in Section 11.5. Alternatively, with the consent of the Board of
Directors, or its designee, the Administrative Committee may direct the
Trustee to hold the Members' Plan Benefit in the Trust Fund until such
Members or their Beneficiaries become eligible to receive benefit payments
under the terms and provisions of this Plan.
18.6 Restrictions on Liquidation of Trust Upon Termination. In no
event, however, will a Member's Nonelective Account and Pre-Tax Account be
distributed before the first to occur of the following events:
(a) The Member's retirement;
(b) The Member's death;
(c) The Member's disability (as determined by the Administrative
Committee);
(d) The Member's termination of employment;
(e) The Member's attainment of age 59-1/2;
(f) The termination of the Plan, provided that neither the Company
nor an Affiliated Company maintains a successor plan;
(g) The disposition, to a corporation that is not an Affiliated
Company, of substantially all of the assets (within the meaning of section
409(d)(2) of the Code) used by the Company in the trade or business in which
the Member is employed, provided that the Member continues employment with
the transferee corporation and the Company continues to maintain the Plan; or
(h) The disposition, to a corporation that is not an Affiliated
Company, of the Company's interest in a subsidiary in which the Member is
employed, provided that the Member continues employment with the subsidiary
and the Company continues to maintain the Plan.
A distribution may be made under (f), (g), or (h) above only if it
constitutes a total distribution of the entire balance of the Member's
Accounts.
SECTION 19 INALIENABILITY OF BENEFITS.
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19.1 No Assignment Permitted. Except as may otherwise be required by
law, no amount payable at any time under the Plan and the Trust Agreement
will be used or diverted for purposes other than for the exclusive benefit of
Members and their Beneficiaries. No amount payable at any time under the
Plan and the Trust Agreement will be subject in any manner to alienation by
anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment,
charge or encumbrance of any kind nor in any manner be subject to the debts
or liabilities of any Member, Beneficiary or Alternate Payee. Any attempt to
so alienate or subject any such amount will be void. If any Member,
Beneficiary or Alternate Payee attempts to, or alienates, sells, transfers,
assigns, pledges, attaches or otherwise encumbers any amount payable under
the Plan and Trust Agreement, or any portion of such amount, or if by reason
of his or her bankruptcy or any other event, such amount would be made
subject to his or her debts or liabilities, or would otherwise not be enjoyed
by him or her, then the Administrative Committee, if it so elects, may direct
that such amount be withheld and that such amount or any portion of such
amount be paid or applied to or for the benefit of such person, his or her
spouse, children or other dependents or any of them, in such manner and
proportion as the Administrative Committee may deem proper.
The following arrangements are not prohibited under the Plan:
(a) Arrangements for the withholding of tax from benefit
distributions;
(b) Arrangements for the recovery of benefit overpayments; or
(c) Arrangements for direct deposit of benefit payments to an
account in a bank, savings and loan association or credit union (provided
that such arrangement is not part of an arrangement constituting an
assignment or alienation).
In addition, the return of Company Contributions under Section 19.2 and
the creation, assignment or recognition of a right to all or a portion of a
Member's Plan Benefit under a Qualified Domestic Relations Order under
Section 19.3 will not violate this Section 19.1.
19.2 Return of Contributions. All Pre-Tax Contributions, Nonelective
Contributions, Matching Contributions and Profit Sharing Contributions are
expressly conditioned upon the deductibility of such contributions under
section 404 of the Code. If the deduction of any Pre-Tax Contributions,
Nonelective Contribution, Matching Contribution or Profit Sharing
Contribution is disallowed, then the amount for which a deduction is
disallowed will be returned to the appropriate Participating Company within
12 months after the date of the disallowance. In addition, if any Pre-Tax
Contributions, Nonelective Contribution, Matching Contribution or Profit
Sharing Contribution is made as a result of a mistake of fact, such
contribution may be repaid to the appropriate Participating Company within 12
months after it is made. Any Pre-Tax Contributions, Nonelective
Contribution, Matching Contribution or Profit Sharing Contribution so
returned will be reduced to reflect losses but will not be increased to
reflect gains or income. Any Pre-Tax Contributions so returned will be paid
to the Member from whom it was withheld.
19.3 Qualified Domestic Relations Orders. The Administrative Committee
will honor the terms of a Qualified Domestic Relations Order that satisfies
the following requirements.
(a) Requirements. In accordance with section 414(p) of the Code,
a Domestic Relations Order will not be treated as a Qualified Domestic
Relations Order unless it satisfies all of the following conditions:
(i) The Domestic Relations Order clearly specifies the name
and last known mailing address (if any) of the Member and the name and
last known mailing address of each Alternate Payee covered by the order,
the amount or percentage of the Member's Plan Benefit to be paid to each
Alternate Payee or the manner in which such amount or percentage is to
be determined, and the number of payments or period to which such order
applies.
(ii) The Domestic Relations Order specifically indicates
that it applies to this Plan.
(iii) The Domestic Relations Order does not require this Plan
to provide any type or form of benefit, or any option, not otherwise
provided under the Plan, and it does not require the Plan to provide
increased benefits.
(iv) The Domestic Relations Order does not require the
payment of all or a portion of a Member's Plan Benefit to an Alternate
Payee which is required to be paid to another Alternate Payee under
another order previously determined to qualify as a Qualified Domestic
Relations Order.
(b) Early Commencement of Payments to Alternate Payees. A
Domestic Relations Order requiring payment to an Alternate Payee before a
Member has separated from employment may qualify as a Qualified Domestic
Relations Order as long as the order does not require payment before the
Member's "Earliest Retirement Age," which is the earliest date on which the
Member could elect to receive a Plan Benefit. If the order requires payments
to begin after a Member's Earliest Retirement Age before the Member's actual
retirement, the amount of the payments must be determined as if the Member
had begun receiving benefit payments on the date on which the payments are to
begin under the order, but taking into account only the value of the Member's
Accounts at that time. The Plan Benefit payable to an Alternate Payee will
not be recalculated upon the Member's actual retirement.
(c) Alternate Payment Forms. The Domestic Relations Order may
call for the payment of the Member's Plan Benefit to an Alternate Payee in
any form in which benefits may be paid under the Plan to the Member, other
than in the form of a qualified joint and survivor annuity, as defined in
section 417(b) of the Code, with respect to the Alternate Payee and his or
her subsequent spouse.
(d) Processing of Qualified Domestic Relations Orders. The
Administrative Committee will promptly notify the Member, and any Alternate
Payee (including any Alternate Payee who may be entitled to benefits under a
previously received Qualified Domestic Relations Order) of the receipt of any
Domestic Relations Order which could qualify as a Qualified Domestic
Relations Order. At the same time, the Administrative Committee will advise
the Member and each Alternate Payee of the Plan provisions relating to the
determination of the qualified status of such orders.
Within a reasonable period of time after receipt of a copy of the
Domestic Relations Order, the Administrative Committee will determine whether
the order is a Qualified Domestic Relations Order and notify the Member and
each Alternate Payee of its determination. The determination of the status
of a Domestic Relations Order as a Qualified Domestic Relations Order will be
made in accordance with such uniform and nondiscriminatory rules and
procedures as may be adopted by the Administrative Committee from time to
time. If monthly benefits are presently being paid with respect to a Member
named in a Domestic Relations Order which may qualify as a Qualified Domestic
Relations Order, or if the Member's Plan Benefit becomes payable after
receipt of the order, the Administrative Committee will notify the Trustee to
segregate and hold the amounts which would be payable to the Alternate Payee
or payees designated in the order if the order is ultimately determined to be
a Qualified Domestic Relations Order.
If the Administrative Committee determines that the Domestic Relations
Order is a Qualified Domestic Relations Order within 18 months of receipt of
the order, the Administrative Committee will instruct the Trustee to pay the
segregated amounts (plus any earnings on such amounts) to the Alternate Payee
specified in the Qualified Domestic Relations Order. Conversely, if within
the same 18 month period the Administrative Committee determines that the
Domestic Relations Order is not a Qualified Domestic Relations Order, or if
the status of the order as a Qualified Domestic Relations Order is not
resolved, the Administrative Committee will instruct the Trustee to pay the
segregated amounts (plus any earnings on such amounts) to the person or
persons who would have been entitled to such amounts if the order had not
been entered. If the Administrative Committee determines that a Domestic
Relations Order is a Qualified Domestic Relations Order after the close of
the 18 month period mentioned above, the determination will be applied
prospectively only. The determination of the Administrative Committee as to
the status of a Domestic Relations Order as a Qualified Domestic Relations
Order will be binding and conclusive on all interested parties, present and
future, subject to the claims review provisions of Section 16.
(e) Responsibility of Alternate Payees. Any person claiming to be
an Alternate Payee under a Qualified Domestic Relations Order will be
responsible for supplying the Administrative Committee with a certified or
otherwise authenticated copy of the order and any other information or
evidence that the Administrative Committee deems necessary in order to
substantiate the person's claim or the status of the order as a Qualified
Domestic Relations Order.
SECTION 20 TOP-HEAVY PROVISIONS.
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20.1 Determination of Top-Heavy Status. If the Plan becomes "Top
Heavy," the provisions of this Section 20 will become operative. The Plan
will be Top Heavy for a Plan Year if, on the last day of the prior Plan Year
(the "Determination Date"), the cumulative balances credited to the Accounts
of all Members who are "Key Employees" under the Plan exceed 60% of the
cumulative balances credited to the Accounts of all Members under the Plan.
The Plan will be "Super Top Heavy" if, on the Determination Date, the
cumulative balances credited to the Accounts of all Members who are "Key
Employees" under the Plan exceed 90% of the cumulative balances credited to
the Accounts of all Members.
A "Key Employee" means a key employee as defined in section 416 of the
Code.
If the Administrative Committee, in its sole and absolute discretion,
but under the provisions of section 416 of the Code, determines that the Plan
is a constituent in an "Aggregation Group", this Plan will be considered Top
Heavy or Super Top Heavy only if the Aggregation Group is a "Top Heavy Group"
or a "Super Top Heavy Group."
An "Aggregation Group" includes:
(a) Each plan intended to qualify under section 401(a) of the Code
sponsored by the Company or an Affiliated Company in which 1 or more Key
Employees participate;
(b) Each other plan of the Company or an Affiliated Company that
is considered in conjunction with such plans in determining whether or not
the discrimination and coverage requirements of section 401(a)(4) and section
410 of the Code are satisfied; and
(c) In the discretion of the Administrative Committee, any other
such plan of the Company or an Affiliated Company, which, when considered in
conjunction with the plans referred to above, satisfies the nondiscrimination
and coverage requirements of section 401(a)(4) and section 410 of the Code.
A "Top Heavy Group" is an Aggregation Group in which the sum (determined
as of the Determination Date) of the aggregate of the amounts credited to the
accounts of Key Employees under all "defined contribution plans" (as defined
in section 414(i) of the Code) included in such group plus the present value
of the cumulative accrued benefits for Key Employees under all "defined
benefit plans" (as defined in section 414(j) of the Code) included in such
group, exceed 60% of the total of such amounts for all employees and
beneficiaries covered by such plans. A "Super Top Heavy Group" is an
Aggregation Group for which the sum so determined for Key Employees exceeds
90% of the sum so determined for all employees and beneficiaries. Such
determination will be made by the Administrative Committee in accordance with
section 416 of the Code.
20.2 Minimum Allocations. For any Plan Year during which the Plan is
a Top-Heavy Plan, the Matching Contributions, Nonelective Contributions,
Profit Sharing Contributions (other than the portion of the Profit Sharing
Contributions and Forfeitures which could have been received in cash in
accordance with Section 6.2) and Forfeitures allocated under this Plan and
employer contributions and forfeitures allocated under any other defined
contribution plan of the Aggregation Group, on behalf of any Member who is
(a) employed on the last regularly scheduled working day of the Plan Year,
and (b) who is not a Key Employee will not be less than a percentage of the
Member's Total Compensation, equal to the lesser of:
(a) 3%; or
(b) The percentage equal to the largest percentage that any Key
Employee for that Plan Year receives of Pre-Tax Contributions, Matching
Contributions, Nonelective Contributions, Profit Sharing Contributions and
Forfeitures allocated on behalf of that Key Employee's Total Compensation for
that Plan Year, as limited by Section 20.5 below.
The minimum allocation will be determined without regard to any
contributions made or benefits available under the federal Social Security
Act.
20.3 Minimum Vesting. If a Member (other than a Member who did not
complete any Period of Service after the Plan became a Top-Heavy Plan) ceases
to be an Employee while the Plan is a Top-Heavy Plan and after such Member
has completed 3 or more Years of Service, such Member's Vested Interest in
his or her Matching Account and Profit Sharing Regular Account will be 100%
and will no longer be subject to forfeiture for an act of Misconduct under
11.1. If a Member ceases to be an Employee while the Plan is a Top-Heavy
Plan and before the Member has completed 3 Years of Service, the Member's
Vested Interest in his or her Matching Account and Profit Sharing Regular
Account will be determined in accordance with Section 11.1.
20.4 Effect of Change in Top-Heavy Status on Vesting. If the Plan at
any time is a Top-Heavy Plan and later ceases to be a Top-Heavy Plan, each
Member who is credited with 3 or more Years of Service as of the last day of
the last Plan Year in which the Plan is a Top-Heavy Plan will continue to
have a 100% Vested Interest in his or her Matching Account and Profit Sharing
Regular Account. Each Member who is credited with fewer than 3 Years of
Service as of the last day of the last Plan Year in which the Plan is a Top-
Heavy Plan will have his or her Vested Interest in his or her Matching
Account and Profit Sharing Regular Account determined under Section 11.1
(unless and until the Plan again becomes a Top-Heavy Plan).
20.5 Impact on Maximum Benefits. For any Plan Year in which the Plan
is a Top-Heavy Plan, the number "1.00" will be substituted for the number
"1.25" wherever it appears in section 415(e)(2) and section 415(e)(3) of the
Code. Such substitution will not have the effect of reducing any benefit
accrued under a defined benefit plan maintained by a Participating Company
before the first day of the Plan Year in which this provision becomes
applicable.
SECTION 21 GENERAL LIMITATIONS AND PROVISIONS.
- ---------- ----------------------------------
21.1 No Employment Rights. Nothing in the Plan will be deemed to give
any employee the right to be retained in the employment of the Company or an
Affiliated Company or affect the right of the Company or an Affiliated
Company to terminate a person's employment with or without cause.
21.2 Payments from the Trust Fund. The Trust Fund will be the sole
source of benefits under the Plan and, except as otherwise required by the
Act, the Company, the Administrative Committee and the Investment Committee
assume no liability or responsibility for payment of such benefits. Each
Member, Beneficiary or other person who will claim the right to any payment
under the Plan will be entitled to look only to the Trust Fund for such
payment and will not have the right, claim or demand for such amount against
the Company, the Administrative Committee or the Investment Committee or any
member of the Committees, or any employee or member of the board of directors
of the Company.
21.3 Payments to Minors or Incompetents. If the Administrative
Committee finds that any person to whom any amount is payable under the Plan
is unable to care for his or her affairs because of illness or accident, or
is a minor, or has died, then any payment due him or her or his or her estate
(unless a prior claim therefore has been made by a duly appointed legal
representative) may, if the Administrative Committee so elects, be paid to
his or her spouse, a child, a relative, an institution maintaining or having
custody of such person, or any other person deemed by the Administrative
Committee to be a proper recipient on behalf of such person otherwise
entitled to payment. Any such payment will be a complete discharge of the
liability of the Plan and the Trust Fund.
21.4 Lost Members or Other Persons. If the Administrative Committee is
unable to locate a Member, Beneficiary or other person who is entitled to
receive a benefit under the Plan, the Administrative Committee may (but need
not) direct that such benefit be applied to reduce the Company Matching
Contribution and/or Profit Sharing Contribution to the Plan. If the person
later makes a claim for his or her benefit before the date final
distributions are made from the Trust Fund following the termination of the
Plan, the Company that employed the Member with respect to whom the benefit
is payable, will reinstate such benefit (without income, gains or other
adjustment) by making a special contribution to the Plan as soon as
reasonably practicable after such claim is made. However, if the benefit
would have been lost by reason of escheat under applicable state law, then
the benefit will not be subject to reinstatement. If the Plan is terminated
and final distributions are made from the Trust Fund before the applicable
escheat period has expired, the Administrative Committee may transfer the
affected person's benefits to an individual retirement account established
for such person.
21.5 Personal Data to the Administrative Committee. Each Member must
file with the Administrative Committee such pertinent information concerning
himself or herself, his or her Beneficiary or any other person as the
Administrative Committee may specify, and no member, Beneficiary or other
person will have any rights to any benefit under the Plan unless such
information is filed by or with respect to him or her. The Administrative
Committee is entitled to rely on personal data given to it by a Member.
21.6 Insurance Contracts. If the payment of any benefit under the Plan
is provided for by a contract with an insurance company the payment of such
benefit will be subject to all the provisions of such contract.
21.7 Notice to the Administrative Committee. All elections,
designations, requests, notices, instructions and other communications from
a Participating Company, a Member, Beneficiary, or other person to the
Administrative Committee, required or permitted under the Plan, will be:
(a) In such form as is prescribed from time to time by the
Administrative Committee;
(b) Mailed by first-class mail or delivered to such location as
will be specified by the Administrative Committee, or provide by electronic
means, including telephone, as permitted by the Administrative Committee; and
(c) Deemed to have been given and delivered only upon actual
receipt by the Administrative Committee or its designee at the location.
21.8 Notices to Members and Beneficiaries. All notices, statements,
reports and other communications from a Participating Company or the
Administrative Committee or Investment Committee to any employee, Member,
Beneficiary or other person (other than the Administrative Committee)
required or permitted under the Plan will be deemed to have been duly given
when delivered to, or when mailed by first-class mail, postage prepaid and
addressed to, the employee, Member, Beneficiary or other person at his or her
address last appearing on the records of the Administrative Committee.
21.9 Word Usage. Whenever used in the Plan, the masculine gender
includes the feminine, and wherever the context of the Plan dictates, the
plural will be read as the singular and the singular as the plural. Uses of
the term "Sections" as a cross-reference will be to other Sections contained
in the Plan and not to another instrument, document or publication unless
specifically stated otherwise.
21.10 Headings. The titles and headings of Sections are included for
convenience of reference only and are not to be considered in construing the
provisions of the Plan.
21.11 Governing Law. The Plan and all rights under the Plan will be
interpreted and construed in accordance with California law except to the
extent such law is preempted by the Act and the Code.
21.12 Heirs and Successors. All of the provisions of the Plan will be
binding upon all persons who will be entitled to any benefits under the Plan,
their heirs and legal representatives.
21.13 Withholding. Payment of benefits under this Plan will be subject
to applicable law governing the withholding of taxes from benefit payments,
and the Trustee and Administrative Committee will be authorized to withhold
taxes from the payment of any benefits under the Plan, in accordance with
applicable law.
IN WITNESS WHEREOF, LEVI STRAUSS ASSOCIATES INC. has caused this Plan to
be executed and its corporate seal to be hereunto affixed by its duly
authorized officers, as of this _____ day of August, 1994.
LEVI STRAUSS ASSOCIATES INC.
By:
------------------------------------
Its:
--------------------------------
ATTEST:
By:
------------------------------------<PAGE>
EMPLOYEE INVESTMENT PLAN OF
---------------------------
LEVI STRAUSS ASSOCIATES INC.
----------------------------
(As Amended and Restated Effective November 27, 1989)
APPENDIX A
----------
PRIOR PLAN PROVISIONS
---------------------
This Appendix A states the provisions of the Plan in effect on or after
the Effective Date (November 27, 1989) which were amended before November 1,
1993. The provisions of the Plan in effect as of November 1, 1993 are
presented in the main text of this amended and restated Plan.
1. Effective before November 21, 1990, Section 2.1 of the Plan, then
designated as Section 18.1, read as follows:
18.1 "Accounts" means, to the extent applicable to a
Member, one or more of the following accounts: Matching
Account, Post-Tax Account, Pre-Tax Account, Profit Sharing
Account and Rollover Account.
2. Effective before November 21, 1990, Section 2.6 of the Plan, then
designated as Section 15.4, read as follows:
15.4 Annual Additions. For purposes of this
Section 15, a Member's "Annual Additions" for a Plan Year
will equal the sum of the following:
(a) The amount of employer contributions and
forfeitures allocated to the Member as of any date within
such Plan Year under any qualified defined contribution plan
maintained by the Affiliated Group, including Profit Sharing
Contributions, Matching Contributions and Forfeitures under
this Plan;
(b) The aggregate employee contributions which the
Member contributes during such Plan Year to all qualified
retirement plans maintained by the Affiliated Group,
including Post-Tax Contributions to this Plan; and
(c) The amount of contributions made on behalf of
the Member for such Plan Year to any qualified defined
contribution plan maintained by the Affiliated Group under a
salary deferral election by the Member under a qualified cash
or deferred arrangement, including Pre-Tax Contributions to
this Plan.
3. Effective August 13, 1990, the following clause was added to the end of
the fourth sentence of Section 2.8 of the Plan, then designated as
Section 10.9:
"or the Administrative Committee is satisfied the spouse
cannot be located."
4. Before November 26, 1990, an account executive's Compensation under
Section 2.14 of the Plan could not exceed the maximum for the Home
Office Salary Grade 6 salary range in effect at the end of such a Plan
Year.
5. Effective before August 13, 1990, the last paragraph of 2.17 of the
Plan, then designated as Section 18.46, read as follows:
18.46 "Temporary Employee" means a person who:
(a) Is hired to fill, for a period not to exceed
six calendar months, a position which arises from either an
emergency situation or from the temporary absence of an
Eligible Employee;
(b) Is subject, as a condition of such employment,
to termination without prior notice at any time; and
(c) Does not complete a 365-day Period of Service.
6. Effective before November 21, 1990, Section 2.17 of the Plan, then
designated as Section 18.10, read as follows:
18.10 "Eligible Employee" means an Employee of a
Participating Company who is paid from the home office of the
Company. The Board of Directors, in designating a
Participating Company, may specify that only certain named
Employees or only certain classifications of Employees of
such Participating Company will be "Eligible Employees," in
which event all other Employees of such Participating Company
will not be "Eligible Employees." In addition, the term
"Eligible Employee" will not include an Employee who is:
(a) Included in a unit of employees covered by a
collective-bargaining agreement that does not provide that
such Employee will be eligible to participate in the Plan;
(b) A stocktaker, service representative, retiree
coordinator or Temporary Employee;
(c) A nonresident alien who receives no
remuneration from a Participating Company that constitutes
income from sources within the United States (within the
meaning of section 861(a)(3) of the code);
(d) Any alien who (i) receives remuneration from
the Company which constitutes income from sources within the
United States (within the meaning of Section 861(a)(3) of the
Code) and (ii) has been transferred by the Company from a job
outside the United States to a job within the United States,
during any period in respect of which the alien is benefiting
(by reason of accruing a benefit or making or having
contributions made on such alien's behalf) under (A) a
retirement plan established or maintained outside of the
United States by a foreign subsidiary (including a domestic
subsidiary operating abroad) or foreign division of the
Company or (B) the Levi Strauss International Retirement Plan
for Third Country National Employees or any successor or
similar plan maintained by the Company or any member of the
Affiliated Group;
(e) A United States citizen locally hired by a
foreign subsidiary (including a domestic subsidiary operating
broad) or foreign division of a Participating Company;
(f) Not paid on a salary or commission basis;
(g) Covered by an individual employment contract
that expressly provides that he or she will not be eligible
for membership in the Plan; or
(h) A "leased employee" (as defined in
section 414(n) of the Code) who is providing services to a
member of the Affiliated Group.
The Board of Directors on a nondiscriminatory basis may
designate as an Eligible Employee any person described in
(c), (d), (e) or (f) above. Such designation must be made in
writing after receiving the advice of counsel.
A person's status as an Eligible Employee will be
determined by the Administrative Committee and such
determination will be conclusive and binding on all persons.
7. Effective on and after November 26, 1990, Section 2.17 of the Plan, then
designated as Section 18.10, was amended to exclude Highly Compensated
Employees as Eligible Employees for purposes of making Member
Contributions and for receiving an allocation of Matching Contributions,
Nonelective Contributions, Profit Sharing Contributions and Forfeitures
under the Plan.
8. Effective before November 21, 1990, Section 2.34 of the Plan, then
designated as Section 18.23, read as follows:
18.23 "Matching Contributions" means the contribution
made by the Participating Companies under Section 4.
9. Effective before November 26, 1990, Section 2.35 of the Plan, then
designated as Section 18.24, read as follows:
18.24 "Member" means a person who participates in the
Plan under Section 2.
10. Effective before July 1, 1991, Section 2.37 of the Plan, then designated
as Section 18.12, read as follows:
18.12 "Entry Date" means December 1 and June 1 of each
Plan Year.
11. Section 2.40 and Section 2.41 of the Plan, then designated as Section
18.28 and Section 18.29, were added to the Plan, effective on and after
November 21, 1990.
12. Section 3.5 of the Plan, then designated as Section 2.5, was added to
the Plan effective on and after November 26, 1990.
13. Effective before November 21, 1990, Section 5 of the Plan, then
designated as Section 4, read as follows:
SECTION 4. MATCHING CONTRIBUTIONS.
--------- ----------------------
4.1 Amount and Form. The Participating Companies will
make a Matching Contribution to the Plan for each Plan Year
in an amount equal to 50% of each Member's Member
Contributions for such Plan Year which are transferred to
Fund C under Section 6.2. The Board of Directors may
determine that no Matching Contribution will be made for a
particular Plan Year or portion of a Plan Year, or may
determine that a lesser Matching Contribution will be made,
in view of Company performance and economic and financial
conditions prevailing and anticipated at the time. The Board
of Directors also may determine in its sole discretion that
a greater Matching Contribution will be made for a particular
Plan Year or portion of a Plan Year. No Matching
Contribution will be made for a Member unless he or she (a)
is an Employee on the date as of which a Matching
Contribution is allocated or (b) ceased to be an Employee
during the Plan Year after attaining age 55 and completing 15
years of Service, after attaining age 65 or by reason of
death and his or her Account has not been distributed under
Section 10. Matching Contributions may be made in the form
of cash or in the form of shares of Stock, or a combination
of both.
4.2 Deposit With Trustee; Crediting Accounts.
Matching Contributions for any Plan Year will be paid to the
Trustee at the time when Member Contributions are transferred
to Fund C under Section 6.2 and will be allocated among
Members in proportion to their Member Contributions which are
transferred to Fund C. A Member's share of the Matching
Contributions will be allocated and credited to the Member's
Matching Account as of the earlier of the date the Matching
Contributions are made to the Plan or the end of the Plan
Year during which the Member made the Member Contributions
with respect to which such Matching Contributions are made.
Forfeitures arising under Section 10.4 with respect to any
Member's Matching Account during a Plan Year will be
allocated among other Members as additional Matching
Contributions for such Plan Year and credited to such
Members' Matching Accounts.
4.3 Curtailment or Distribution of Excess Aggregate
Contributions. If any Matching Contributions otherwise
allocable to a Member would constitute "excess aggregate
contributions" (as defined in section 401(m)(6)(B) of the
Code) with respect to a Plan Year, then such matching
contributions will be treated in accordance with paragraph
(a) or (b):
(a) Such Matching Contributions will not be made
to the Plan, if the Matching Contributions have not been
made to the Plan as of the date on which such Matching
Contributions are determined to constitute excess
aggregate contributions, or
(b) Such Matching Contributions (and any earnings
on such Matching Contributions) will be distributed to
the Member no later than 2-1/2 months after the end of
the Plan Year, if such Matching Contributions have been
made to the Plan before the date as of which the Matching
Contributions are determined to constitute excess
aggregate contributions.
14. Effective before January 1, 1993, Section 4.7 of the Plan read as
follows:
4.7 Rollover Contributions. An Employee may make a
Rollover Contribution to the Plan in an amount equal to all
or part of a previous distribution from a plan that, at the
time of the distribution, met the requirements of section
401(a) of the Code. The Rollover Contribution must be made in
cash within 60 days after its receipt by the Employee either
from the qualified plan or an individual retirement account
which meets the requirements of section 408 of the Code. A
Rollover Contribution shall be permitted only if the Employee
establishes that:
(a) The Rollover Contribution includes no assets
other than those attributable to employer contributions,
earnings on employer contributions and earnings on
employee contributions under plans qualified under
section 401(a) of the Code;
(b) Such Contribution includes no assets other
than those attributable to a qualified total
distribution, as defined in section 402(a)(S)(E)(i) of
the Code; and
(c) If the amount was received by the Employee
from an individual retirement account, the distribution
from such account represented a total distribution
thereof.
The Rollover Contribution shall be paid to the Trustee as
soon as practicable, credited to the Employee's Rollover
Account and invested as described in Section 7. If it is
determined that a Member' 5 Rollover Contribution mistakenly
failed to qualify under the Code as a tax-free rollover, then
the balance in the Member' 5 Rollover Account attributable to
the mistaken contribution immediately shall be segregated
from all other Plan assets, treated as a nonqualified trust
established by and for the benefit of the Member, and
distributed to the Member. Such a mistaken contribution
shall be deemed never to have been a part of the Plan.
15. Effective before November 26, 1990, the following sentence appeared at
the end of Section 6.2 of the Plan, then designated as Section 5.2:
Forfeitures arising under Section 10.5 with respect to any
Member's Profit Sharing Account during a Plan Year will be
allocated among other Members who are Employees on the last
working day of such Plan Year as additional Profit Sharing
Contributions for such Plan Year and, subject to Section 5.2,
will be credited to such Members' Profit Sharing Accounts.
16. Fund E was added to the Plan, as an investment option under Section 7.1,
effective March 1, 1991.
17. Effective before November 21, 1990, Section 7.2 of the Plan, then
designated as Section 6.2, read as follows:
6.2 Investment of Contributions. A Member's share of
any Profit Sharing Contribution and Forfeitures attributable
to Profit Sharing Accounts will be deposited in Fund A, Fund
B, Fund D and/or Fund H in 25% increments of such
Contribution and Forfeitures as directed by the Member in
accordance with procedures established by the Administrative
Committee. A Member's investment directions for Profit
Sharing Contributions and Forfeitures will remain in effect
until changed by the Member. If the Member fails to file any
investment directions, his or her share of any Profit Sharing
Contribution and Forfeitures attributable to Profit Sharing
Accounts will be deposited in Fund D. All Matching
Contributions will be deposited in Fund C. All Member
Contributions initially will be deposited in the Segregated
Account. Twice each Plan Year, the Investment Committee will
obtain an independent appraisal of the Fair Market Value of
Stock. The Investment Committee will notify the Trustee of
such Fair Market Value promptly after completion of the
appraisal. If the Trustee determines that the Fair Market
Value exceeds adequate consideration for Stock within the
meaning of section 3(18) of ERISA, all Member Contributions
that are invested in the Segregated Account and any earnings
on such contributions will be transferred from the Segregated
Account to Fund D, and no Matching Contribution will be made
with respect to such Member Contributions. If the Trustee
determines that the Fair Market Value does not exceed
adequate consideration for stock, the Administrative
Committee will notify Members of such Fair Market Value and
the Company's stockholders of the Trustee's intention to
purchase Stock. Each Member who has Member Contributions
invested in the Segregated Account will have the opportunity
to elect to have such Member Contributions and any earnings
on such contributions transferred from the Segregated Account
to Fund A, Fund B, Fund C, Fund D and/or Fund H in 25%
increments of such Member Contributions and earnings. If a
Member files such an election on the prescribed form by the
date determined by the Administrative Committee, the Member's
Member Contributions that are invested in the Segregated
Account and any earnings on such contributions will be
transferred to the Fund(s) elected by the Member. If a
Member fails to file such an election on the prescribed form
by the date determined by the Administrative Committee, the
Member's Member Contributions that are invested in the
Segregated Account and any earnings on such contributions
automatically will be transferred to Fund C. At the time
when Member Contributions and earnings are transferred to
Fund C, the Participating Companies will make a Matching
Contribution under Section 4.1 unless the Board of Directors
determines that no Matching contribution will be made. The
Trustee will seek to acquire Stock for Fund C at a price no
greater than Fair Market Value to the extent any cash
Matching Contributions deposited in Fund C and Member
Contributions transferred to Fund C exceed the cash
requirements of Fund C as determined by the Administrative
Committee. The Trustee may acquire Stock from a party-in-
interest or a disqualified person for no more than adequate
consideration (as defined in section 3(18) of ERISA) in
accordance with the requirements of section 408(e) of ERISA.
If any Member's Member Contributions in excess of the
cash requirements of Fund C have not been invested in Stock
when the Fair Market Value of Stock is next determined
because insufficient Stock was available to the Trustee, the
Member may elect to have such Member Contributions and any
earnings on such contributions transferred to Fund A, Fund B,
Fund D and/or Fund H in 25% increments in accordance with
procedures established by the Administrative Committee. In
the absence of such an election, the Member Contributions and
earnings will remain in Fund C for investment in Stock at the
new Fair Market Value to the extent Stock is available. Any
Matching Contributions and earnings on such contributions
that have not been invested in Stock will remain in Fund C,
whether or not the Member elects to transfer the excess
Member Contributions to another Fund.
Any Member who requests a distribution of his or her Plan
Benefit under Section 10 before a date on which Matching
Contributions are made to the Plan will be deemed to have
elected not to invest in Fund C such Member's Member
Contributions and earnings on such contributions which were
held in the Segregated Account immediately before such
request.
18. Before May 31, 1991, Member investment directions had to be in
increments of 25% of the Member's Accounts.
19. Effective on and after October 29, 1990, Section 7.2 of the Plan, then
designated as Section 6.2, was amended to give the Investment Committee
the discretion to effect a "Suspension."
20. Before July 1, 1991, the phrase "as of the last day of each quarter
during a Plan Year" in Section 7.3 of the Plan, then designated as
Section 6.2, was replaced by the phrase "as of the last day of each
Quarter."
21. Section 7.4 of the Plan, then designated as Section 6.4, was added to
the Plan effective on and after January 1, 1991.
22. Effective before February 28, 1991 clause (i) of Section 7.7 of the
Plan, then designated as section 17.5, read as follows:
(i) any offer to purchase stock by the Company if
it is for purposes of making cash distributions under the
Plan.
23. Section 7.7(c) of the Plan, then designated as Section 17.5(b), was
added to the Plan, effective on and after February 28, 1991.
24. Effective with respect to Hardship Withdrawals made before August 13,
1990, the final paragraph of Section 9.3 of the Plan, then designated as
Section 8.3, was not applicable.
25. The last clause of Section 9.3(a)(vii) became effective for hardship
withdrawals made after May 3, 1993.
26. Effective before the issuance of final regulations under section 401(k)
of the Code, the Plan provided for hardship withdrawals from Members'
Nonelective Accounts.
27. Effective with respect to withdrawals made before November 21, 1990,
Section 9.4 of the Plan, then designated as Section 8.4, read as
follows:
8.4 Withdrawals From Fund C. The portion of a
Member's Accounts invested in Fund C may be withdrawn under
Section 8.1 or 8.3 at the time when Member Contributions and
Matching Contributions are invested in Fund C, but only to
the extent the Administrative Committee determines that there
is sufficient cash available in Fund C to permit the
withdrawal.
28. Effective with respect to withdrawals made before November 21, 1990,
Section 9.5 of the Plan, then designated as Section 8.5, read as
follows:
8.5 Payment of Withdrawals. A Member may request a
withdrawal by filing the prescribed form with the
Administrative Committee. A withdrawal will be paid in cash
soon as reasonably practicable after the Administrative
Committee receives the prescribed form and determines that
the withdrawal request meets the requirements of Section 8.1,
8.2 or 8.3, as applicable.
29. Effective with respect to withdrawals made before June 25, 1990, Section
9.7 of the Plan, then designated as Section 8.7, read as follows:
A Member's Accounts will be liquidated to the extent
necessary to fund a withdrawal under Section 8.3 in the
following order of priority: Post-Tax Account, Rollover
Account, Pre-Tax Account, Profit Sharing Account and Matching
Account. Within a Member's Profit Sharing Account, the
portion attributable to amounts which the Member could have
elected to receive in cash under Section 5.2 will be
liquidated only after the balance of the Member's Vested
Interest in his or her Profit Sharing Account has been
liquidated. Within any Account, amounts invested in each
Fund will be liquidated in the following order of priority:
Fund D, Fund B, Fund H and Fund A. If the Investment
Committee determines that it is not feasible for the Trustee
to prudently liquidate the necessary amount invested in any
Fund in accordance with Members' withdrawal requests, the
Investment Committee will so advise the Administrative
Committee which will direct that such steps be taken as it
considers necessary or desirable for the protection of
Members' Accounts, including the reordering of liquidation
priorities or a pro rata reduction in the amount of each
Member's withdrawal.
30. Effective with respect to withdrawals made after June 25, 1990, but
before November 21, 1990, Section 9.7 of the Plan, then designated as
Section 8.7, read as follows:
8.7 Source of Withdrawals. A Member's Accounts will
be liquidated to the extent necessary to fund a withdrawal
under Section 8.3 in the following order of priority: Post
Tax-Account (excluding any portion of such Account held in
Fund C or the Segregated Account within Fund D), Rollover
Account, Pre-Tax Account (excluding any portion of such
Account held in Fund C or the Segregated Account within Fund
D), the portion of the Member's Profit Sharing Account
attributable to amounts which the Member could have elected
to receive in cash under Section 5.2, the portion of the
Member's Post-Tax Account held in the Segregated Account
within Fund D, the portion of the Member's Pre-Tax Account
held in the Segregated Account within Fund D, the portion of
the Member's Post-Tax Account held in Fund C, the portion of
the Member's Pre-Tax Account held in Fund C, the balance of
the Member's Profit Sharing Account, the Matching Account and
the Nonelective Account. Except as provided above, within
any Account, amounts invested in each Fund will be liquidated
in the following order of priority; Fund D, Fund B, Fund H
and Fund A.
31. Effective before April 1, 1990, Section 10.1(a) of the Plan, then
designated as Section 9.1(a), read as follows:
(a) Profit Sharing Account. A Member may borrow an
amount from his or her Profit Sharing Account not exceeding
100% of the Member's Vested Interest in such Account. Such
a loan will be permitted only if the Administrative Committee
determines that (i) the proceeds of the loan will be used to
acquire, construct or rehabilitate the Member's primary
residence, or to refinance any loan or loans previously made
to the Member by a third party for any of the foregoing
purposes; or (ii) such loan is required by the Member for
reasons set forth in Section 8.3(g).
32. Effective before March 1, 1991, Section 10.1(b) of the Plan, then
designated as Section 9.1(b), read as follows:
(b) After-Tax, Pre-Tax, Matching and Rollover
Accounts. Effective on and after a date determined by the
Administrative Committee and announced to Members, a Member
may borrow an amount from his or her Post-Tax Account,
Rollover Account, Matching Account and/or Pre-Tax Account not
exceeding 100% of the balance credited to such Accounts. A
loan from the Member's Pre-Tax Account will be permitted only
if the Administrative Committee determines that the Member is
Totally and Permanently Disabled or that the proceeds will be
used for a purpose described in Section 8.3(a) through (f).
33. Effective before April 1, 1990 Section 10.1(d) of the Plan, then
designated as Section 9.1(c), read as follows:
(c) Additional Limitations. No loan will be permitted
from the portion of any Account invested in Fund C. No loan
will be granted to the extent it would cause the aggregate
balance of all loans a Member has outstanding under the Plan
to exceed the least of (i) $50,000, less the amount by which
such aggregate balance has been reduced by repayments of
principal during the one-year period ending on the day before
the new loan is made; (ii) 50% of the Member's Vested
Interest in all of the Member's Accounts; or (iii) the amount
that can be repaid with level monthly payments, including
interest, equal to 15% of the Member's monthly base
Compensation. The amount of any loan will be a multiple of
$100 and will not be less than $1,000. In addition, only 2
loans to a Member may be outstanding at any time, and a
Member may apply for a loan no more than twice in any Plan
Year.
34. Effective before April 1, 1990 Section 10.2 of the Plan, then designated
as Section 9.2, read as follows:
9.2 Terms of Loans. All loans will be on such terms
and conditions as the Administrative Committee may determine,
provided that all loans will:
(a) Be made under a promissory note secured by (i)
the residence that the Member acquires, in the case of a loan
from the Member's Profit Sharing Account, and (ii) the
Account(s) that funded the loan;
(b) Be subject to a substantially level payment
schedule, as determined by the Administrative Committee, with
payments to be made at least quarterly and whenever possible
to be made through semi-monthly payroll deductions;
(c) Bear interest at a fixed rate determined by
the Administrative Committee based upon the prime interest
rate in effect at a commercial bank as of the first day of
December, March, June or September immediately preceding the
date on which the loan is approved, plus 1%; and
(d) Provide for repayment in full, whether from
the Member's Accounts or otherwise, on or before the earlier
of (i) 5 years after the date the loan is made (15 years
after the date the loan is made if the loan is used to
acquire the Member's principal residence) or (ii) the date
the Member's Plan Benefit is distributed under Section 10.
35. Effective for the Period beginning April 1, 1990, and ending
November 20, 1990, Section 10.2 of the Plan, then designated as Section
9.2, read as follows:
9.2 Terms of Loans. All loans will be on such terms
and conditions as the Administrative Committee may determine,
provided that all loans will:
(a) Be made under a promissory note secured by
(i) the residence of the Member, in the
case of a loan under Section 9.1(a)(i) or, to the extent
agreed upon by the Member and the Administrative Committee,
in the case of the loan under 9.1(a)(ii) for reasons set
forth in 8.1(b); and
(ii) the Account(s) that funded the loan
to the extent that such Account(s) funds the loan; provided,
however that:
(A) in the case of a loan made on or
after April 1, 1990, under 9.1(a)(i), or a loan made
under 9.1(a)(ii) and secured by the Member's residence,
the Plan's security interest in the Member's Profit
Sharing Account will not extend to the portion of such
Account attributable to amounts which the Member could
have elected to receive in cash under Section 5.2
("Elective Profit Sharing Contributions"); and
(B) in the case of any other loan
made under Section 9.1(a)(ii), the promissory note with
respect to such loan will be secured by portions of the
Account other than Elective Profit Sharing Contributions
only to the extent that the amount of such loan exceeds
the amount of Elective Profit Sharing Contributions
available to secure such promissory note;
(b) Be subject to a substantially level payment
schedule, as determined by the Administrative Committee, with
payments to be made at least quarterly and whenever possible
to be made through semi-monthly payroll deductions; provided,
however, that in the event that payments are not made for a
period of up to 90 days due to the Member's temporary absence
from active work, such payments may be made (i) in a single
sum after the Member returns to active work, (ii) ratably
over the remaining period of the loan, (iii) in a single sum
together with the final payment provided for under the note,
or (iv) in another manner mutually agreed upon by the Member
and the Administrative Committee;
(c) Bear interest at a fixed rate determined by
the Administrative Committee based upon the prime interest
rate in effect at a commercial bank as of the first day of
December, March, June or September immediately preceding the
date on which the loan is approved, plus 1%; and
(d) Provide for repayment in full, whether from
the Member's Accounts or otherwise, on or before the earlier
of (i) 5 years after the date the loan is made (15 years
after the date the loan is made if the loan is used to
acquire the Member's principal residence) or (ii) the date
the Member's Plan Benefit is distributed under Section 10.
36. Effective November 21, 1990, Section 10.2 of the Plan, then designated
as Section 9.2, was amended to read as set forth in this amended and
restated Plan.
37. Effective with respect to loans made before March 1, 1991, Section 10.3
of the Plan, then designated as Section 9.3, read as follows:
9.3 Source of Loans; Application of Loan Payments. As
of the first day of the month following the date the
Administrative Committee approves a loan, the amount of the
loan will be paid to the Member from the vested portion of
the Member's Accounts that are being used to fund the loan,
in the following order of priority: Post-Tax Account,
Rollover Account, Pre-Tax Account, Profit Sharing Account,
and the portion attributable to amounts which the Member
could have elected to receive in cash under Section 5.2 will
be used to fund a loan only after the balance of the Member's
Vested Interest in his or her Profit Sharing Account has been
so used. Amounts invested in Fund A, Fund B and Fund H will
be liquidated and transferred to Fund D for disbursement from
Fund D. for disbursement from Fund D. If less than the
entire amount of any Account is required to fund the loan,
amounts invested in the Funds will be liquidated to fund the
loan in the following order of priority: Fund D, Fund B, Fund
H and Fund A. If the Investment Committee determines that it
is not feasible for the Trustee to prudently liquidate the
necessary amount invested in any Fund in accordance with
Members' loan requests, the Investment Committee will so
advise the Administrative Committee which will direct that
such steps be taken as it considers necessary or desirable
for the protection of Members' Accounts, including the
reordering of liquidation priorities or a pro rata reduction
in the amount of each Member's loan. The promissory note
executed by the Member will be deposited in the Member's
Account(s) that funded the loan. Principal and interest
payments will be credited to the Member's Account(s) that
funded the loan and invested in Fund D.
38. Effective with respect to loans made before November 26, 1990, the
second to last sentence of Section 10.4 of the Plan, then designated as
Section 9.4, read as follows:
If an involuntary withdrawal from the Member's Profit Sharing
Account is declared, the Member's Vested Interest in such
Account will be determined as provided in Section 12.2.
39. Effective before November 26, 1990, Section 11.1(a) of the Plan, then
designated as Section 10.1(a), read as follows:
(a) A Member's Vested Interest in his or her Pre-
Tax Account, Post-Tax Account and Rollover Account (if any)
will be 100% at all times. Except as provided in
Section 10.1(c), a Member's Vested Interest in his or her
Matching Account will be 100% at all times.
40. Effective before November 26, 1990, Section 11.1(b) and (c) of the Plan,
then designated as Section 10.1(b) and (c), read as follows:
(b) A Member's Vested Interest in the portion of
his or her Profit Sharing Account attributable to amounts
which the Member could have elected to receive in cash under
Section 5.2 will be 100% at all times. The Member's Vested
Interest in the remainder of his or her Profit Sharing
Account will be 100% if the Member attains age 65 as an
Employee, dies while an Employee or becomes Totally and
Permanently Disabled while an Employee. Until a Member's
Vested Interest in the remainder of such Account becomes 100%
under the preceding sentence, the Member's Vested Interest in
the remainder of such Account will be determined according to
the following schedule based on the Member's completed Years
of Service:
<TABLE>
<CAPTION>
Completed
Years of Service Vested Interest
---------------- ---------------
<S> <C>
Less than 1 0%
1 20%
2 40%
3 60%
4 80%
5 or more 100%
</TABLE>
(c) If the Administrative Committee determines
that any Member who has not reached age 65 and who has
completed less than 5 Years of Service engaged in any act of
misconduct while an Employee, the Member will have no Vested
Interest in his or her Matching Account and the Member's
Vested Interest in his or her Profit Sharing Account will
consist solely of the amounts described in the first sentence
of Section 10.1(b). The balance of such Accounts will be
forfeited under Section 10.5.
41. Effective before November 26, 1990, Section 10.2 of the Plan read as
follows:
10.2 Vesting After Prior Withdrawals or Distributions.
Section 10.1(b) will be applied as set forth in the following
sentence in the case of any Member who received one or more
prior withdrawals or distributions from his or her Profit
Sharing Account under Section 8, 9.4 or this Section 10, who
subsequently remained an Employee or was rehired as an
Employee and whose Vested Interest in the entire Profit
Sharing Account is not yet 100%. The Member's Vested
Interest in such Account will be determined by first applying
the appropriate percentage under the schedule in Section
10.1(b) to the sum of the value of such Account plus the
aggregate value of the Member's prior withdrawals or
distributions from such Account, and then subtracting the
aggregate value of such prior withdrawals or distributions.
42. Effective before November 26, 1990, Section 10.5 of the Plan read as
follows:
10.5 Forfeitures. If a Member ceases to be an Employee
during a Plan Year and is not rehired as an Employee on or
before the date the Member incurs a 1-year Service Break,
then the portion of the Member's Profit Sharing Account in
excess of the Member's Vested Interest will become a
Forfeiture as of such date.
43. Effective before August 6, 1990, Section 11.5(a) of the Plan, then
designated as Section 10.7(a), read as follows:
(a) Monthly installments over a period not
exceeding the reasonable life expectancy of the Member (or
Beneficiary), as determined under the mortality table
specified in Appendix B to the Revised Home Office Pension
Plan of Levi Strauss & Co. The amount of each installment
will be determined by dividing the value of the portion of
the Plan Benefit remaining in the Trust Fund by the number of
installments elected less the number of installments already
paid.
44. Effective before August 1, 1989, Section 12.2 of the Plan, then
designated as Section 15.2, read as follows:
15.2 Combined Limitation on Benefits and Contributions.
Except as otherwise permitted under ERISA, the Tax Equity an
Fiscal Responsibility Act of 1982 and the Tax Reform Act of
1986, the sum of a Member's defined benefit plan fraction and
his or her defined contribution plan fraction will not exceed
1.0 with respect to any Plan Year. For purposes of this
Section 15.2, the terms "defined benefit plan fraction" and
"defined contribution plan fraction" will have the meaning
given to such terms by section 415(e) of the Code and the
regulations thereunder. If a Member would exceed the above
limitation, then such Member's benefits under any qualified
defined benefit plan(s) that may be maintained by the
Affiliated Group will be reduced as necessary to allow his or
her Annual Additions to equal the maximum permitted by law
and the Plan.
45. Effective before November 21, 1990, Section 12.3 of the Plan, then
designated as Section 15.3, read as follows:
15.3 Disposition of Excess Annual Additions. Any
Annual Additions under this Plan that cannot be allocated to
a Member because of the limitation described in Section 15.1
will be processed as follows:
(a) Profit Sharing Contributions and Forfeitures
attributable to Profit Sharing Accounts that cannot be
allocated to the Member will be deducted from the amount of
Profit Sharing Contributions which otherwise would be made
under Section 5, but such reduction will not affect the
amounts allocable under Section 5.3 to Members whose Profit
Sharing Contribution component of Annual Additions is not
reduced.
(b) Matching Contributions and Forfeitures
attributable to Matching Accounts that cannot be allocated to
the Member will be deducted from the amount of Matching
Contributions which otherwise would be made under Section 4,
but such reduction will not affect the amounts allocable
under Section 4.2 to Members whose Matching Contribution
component of Annual Additions is not reduced.
(c) Post-Tax Contributions made by the Member
(increased by any income or reduced by any losses allocable
to such Contributions) will be returned to the Member in
cash.
(d) Pre-Tax Contributions made by the Member will
be reduced under Section 3.4. Any Pre-Tax Contributions that
cannot be handled in accordance with Section 3.4 will be
credited to a suspense account on behalf of the Member. All
amounts credited to such account will be treated as Pre-Tax
Contributions for successive Plan Years and will be allocated
annually to the Member under Section 3 (to the extent such
allocation is not prohibited by Section 15.1) until
exhausted. No gains or losses will be credited to such
account and no additional Pre-Tax Contributions, Matching
Contributions or Profit Sharing Contributions will be made by
or on behalf of the Member so long as any amount remains in
such account.
46. Effective before November 21, 1990, Section 13.1 of the Plan, then
designated as 11.1, read as follows:
11.1 Contributions. The Administrative Committee will
make arrangements for the collection of Member Contributions
as provided in Section 3. The Company will cause the
Participating Companies to make Matching Contributions and
Profit Sharing Contributions to the Plan as provided in
Sections 4 and 5.
47. Effective before November 21, 1990, Section 18.3 of the Plan, then
designated as Section 14.3, read as follows:
14.3 Effect of Termination. Upon termination of the
Plan, no assets of the Plan will revert to any Participating
Company or be used for, or diverted to, purposes other than
the exclusive purpose of providing benefits to Members and
Beneficiaries and of defraying the reasonable expenses of
termination. Upon termination of the Plan or upon complete
discontinuance of contributions, the Vested Interest of each
Member in his or her Matching Account and entire Profit
Sharing Account will be 100%. (Each Member's Vested Interest
in his or her Pre-Tax Account, Post-Tax Account and Rollover
Account is 100% at all times.)
48. Effective before November 21, 1990, Section 20.2 of the Plan, then
designated as paragraph (b) in Appendix A, read as follows:
(b) Minimum Allocations. For any Plan Year during
which the Plan is a Top-Heavy Plan, the Pre-Tax
Contributions, Matching Contributions, Profit Sharing
Contributions and Forfeitures allocated under this Plan and
employer contributions and forfeitures allocated under any
other defined contribution plan of the Aggregation Group on
behalf of any Member who is employed on the last regularly
scheduled working day of the Plan Year and who is not a Key
Employee will not be less than a percentage of the Member's
Total Compensation equal to the lesser of (i) 3%; or (ii) the
percentage equal to the largest percentage that any Key
Employee for that Plan Year receives of Pre-Tax
Contributions, Matching Contributions, Profit Sharing
Contributions and Forfeitures allocated on behalf of that Key
Employee's Total Compensation for that Plan Year as limited
by (e) below. The minimum allocation will be determined
without regard to any contributions made or benefits
available under the Federal Social Security Act.
49. Effective before November 21, 1990, Section 20.2 of the Plan, then
designated as Section 17.7, read as follows:
17.7 Return of Contributions. All Pre-Tax
Contributions, Matching Contributions and Profit Sharing
Contributions are expressly conditioned upon the
deductibility of such Contributions under section 404 of the
Code. If the deduction of any such Contribution is
disallowed, then the amount for which a deduction is
disallowed will be returned to the appropriate Participating
Company within 12 months after the date of the disallowance.
In addition, if any Member Contribution, Matching
Contribution or Profit Sharing Contribution is made as a
result of a mistake of fact, such Contribution may be repaid
to the appropriate Participating Company within 12 months
after it is made. Any such Contribution returned under this
Section 17.7 will be reduced to reflect losses but will not
be increased to reflect gains or income. Any Member
Contribution returned under this Section 17.7 will be paid to
the Member from whom it was withheld.
50. Effective for the period beginning January 1, 1990 and ending July 16,
1990, Appendix C to the Plan, read as follows:
As of January 1, 1990, Members will not make Member
Contributions as Pre-Tax Contributions.
51. Effective on and after July 17, 1990, Appendix C to the Plan read as
follows:
As of January 1, 1990, Members will not make Member
Contributions as Pre-Tax Contributions; provided, however,
that after July 16, 1990, such provision will not apply to
any Member who is not a "Highly Compensated Employee," within
the meaning of section 414(q) of the Code.<PAGE>
EMPLOYEE INVESTMENT PLAN OF
---------------------------
LEVI STRAUSS ASSOCIATES INC.
----------------------------
APPENDIX B
----------
BLACKOUT PROVISIONS
-------------------
1. In General. Any person or entity authorized to amend the Plan, or
any person or entity designated in writing by such person or entity (the
"Blackout Coordinator"), may establish a Blackout Period, as defined below,
in the event that the Blackout Coordinator determines that such a Blackout
Period is necessary or appropriate in the administration of the Plan.
2. Definitions.
(a) A Blackout Period is a period of time during which Affected
Requests shall not be processed or effected.
(b) An Affected Request is any of the following requests by a
Member (or Beneficiary) for an action or an event under the Plan, or any of
the following Plan functions or events:
(i) Reinvestment of Accounts pursuant to Section 7 of the
Plan;
(ii) Valuation of Accounts and distribution of statements
pursuant to Section 8 of the Plan;
(iii) Withdrawals pursuant to Section 9 of the Plan;
(iv) Loans pursuant to Section 10 of the Plan; and
(v) Distribution of Plan Benefits pursuant to Section 11 of
the Plan.
In addition, the Blackout Coordinator, in its declaration of the
Blackout Period or in any supplementary action regarding the Blackout Period,
may designate as Affected Requests any other requests by a Member (or
Beneficiary) or other Plan functions or events which are otherwise allowed or
provided for under the Plan, or may declare that specified requests or Plan
functions or events encompassed by (b)(i)-(v) above shall not constitute
Affected Requests, for all or a designated portion of the Blackout Period.
3. Duration. The duration of the Blackout Period shall be determined
by the Blackout Coordinator, in its sole discretion.
4. Effect of Blackout Period. Affected Requests will be held by the
Administrative Committee until the end of the Blackout Period. At the end of
the Blackout Period, the Administrative Committee shall reconfirm the
Member's (or Beneficiary's) eligibility for or desire with respect to any
Affected Request which had been submitted by such Member (or Beneficiary),
but which had not been processed as a result of the Blackout Period. Other
Plan functions or events which would have occurred if not for the Blackout
Period, will be processed automatically after the expiration of the Blackout
Period.<PAGE>
EMPLOYEE INVESTMENT PLAN OF
---------------------------
LEVI STRAUSS ASSOCIATES INC.
----------------------------
APPENDIX C
----------
FUNDS
-----
- - Fidelity Money Market Trust: Retirement Money Market Portfolio
- - Fidelity Investment Grade Bond Fund
- - Fidelity Asset Manager: Income
- - Fidelity Asset Manager
- - Fidelity Asset Manager: Growth
- - Fidelity Magellan Fund
- - Fidelity Contrafund
- - Fidelity Overseas Fund
- - Sponsor Stock Fund
The Fund designated as the Holding Account referenced in Section 7.1
shall be the Fidelity Retirement Government Money Market Portfolio.
The Fund designated as the Fund to receive contributions for which no
proper Member investment direction has been received shall be the Fidelity
Retirement Government Money Market Portfolio.<PAGE>
EMPLOYEE INVESTMENT PLAN OF
---------------------------
LEVI STRAUSS ASSOCIATES INC.
----------------------------
APPENDIX D
----------
ADDITIONAL ELIGIBLE WITHDRAWALS AND LOANS
-----------------------------------------
In accordance with Sections 9.3(a)(viii), 9.3(b)(ii)(B) and
10.1(a)(iii), losses relating to natural disasters described herein may form
a basis for withdrawals or loans.
1. (a) Description of Natural Disaster.
-------------------------------
(b) Limitations.
-----------<PAGE>
<PAGE>
Exhibit 10ii
------------
MATERIALS HANDLING SYSTEM AGREEMENT
between
COMPUTER AIDED SYSTEMS, INC.
and
LEVI STRAUSS & CO.
October 31, 1994<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. PROJECT AND DOCUMENT OVERVIEW . . . . . . . . . . . . . . . . . . . 3
2.1 Basic Transaction . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Importance of the Project . . . . . . . . . . . . . . . . . . 3
2.3 This Document . . . . . . . . . . . . . . . . . . . . . . . . 4
3. SCOPE OF WORK AND PERFORMANCE . . . . . . . . . . . . . . . . . . . 6
3.1 Basic Scope . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Responsibility and Dedication . . . . . . . . . . . . . . . . 6
3.3 Staffing. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4 Vendors . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.5 Deviations from Basic System Documents. . . . . . . . . . . . 9
3.6 Design Coordination . . . . . . . . . . . . . . . . . . . . . 9
3.7 Shipments and Deliveries. . . . . . . . . . . . . . . . . . . 10
3.8 Work-site Activities. . . . . . . . . . . . . . . . . . . . . 10
4. SOFTWARE AND SYSTEM DESIGN. . . . . . . . . . . . . . . . . . . . . 12
4.1 Software Development. . . . . . . . . . . . . . . . . . . . . 12
4.2 Viruses . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Licenses, Generally . . . . . . . . . . . . . . . . . . . . . 13
4.4 Object Code License . . . . . . . . . . . . . . . . . . . . . 15
4.5 Base Code License . . . . . . . . . . . . . . . . . . . . . . 16
4.6 Source Code and Basic System Documents. . . . . . . . . . . . 17
4.7 Protection. . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.8 Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.9 Documentation . . . . . . . . . . . . . . . . . . . . . . . . 20
4.10 Interfaces. . . . . . . . . . . . . . . . . . . . . . . . . . 20
5. CHANGES IN THE SCOPE OF WORK. . . . . . . . . . . . . . . . . . . . 21
5.1 General Rule. . . . . . . . . . . . . . . . . . . . . . . . . 21
5.2 Effect of Change Orders . . . . . . . . . . . . . . . . . . . 22
5.3 Building-related and Other Project-related
Developments. . . . . . . . . . . . . . . . . . . . . . . . 22
6. LS&CO. AND FD ROLE. . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 FD Background . . . . . . . . . . . . . . . . . . . . . . . . 23
6.2 FD Role . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.4 Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7. ACCEPTANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.1 Testing . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2 Punchlists. . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.3 System Final Acceptance . . . . . . . . . . . . . . . . . . . 28
7.4 Project Final Acceptance. . . . . . . . . . . . . . . . . . . 29
8. SPARE PARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.1 Initial Supply. . . . . . . . . . . . . . . . . . . . . . . . 29
8.2 Future Purchases. . . . . . . . . . . . . . . . . . . . . . . 30
8.3 Parts Inventory and Use . . . . . . . . . . . . . . . . . . . 30
9. PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.1 Compensation Overview . . . . . . . . . . . . . . . . . . . . 31
9.2 Equipment Fixed Price . . . . . . . . . . . . . . . . . . . . 32
9.3 Payment for Development Activities. . . . . . . . . . . . . . 32
9.4 Additional Agreements Regarding Compensation. . . . . . . . . 35
9.5 Payment Mechanics . . . . . . . . . . . . . . . . . . . . . . 37
9.6 Other Money Matters . . . . . . . . . . . . . . . . . . . . . 38
9.7 Reconciliation and Confirmation . . . . . . . . . . . . . . . 38
9.8 Retention . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.9 Effect of Partial Payment . . . . . . . . . . . . . . . . . . 41
9.10 Right to Withhold . . . . . . . . . . . . . . . . . . . . . . 41
9.11 Disputes. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.12 Final Payment . . . . . . . . . . . . . . . . . . . . . . . . 43
9.13 Final Final Payment . . . . . . . . . . . . . . . . . . . . . 45
9.14 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . 45
10. WARRANTY AND POST-ACCEPTANCE MATTERS. . . . . . . . . . . . . . . . 48
10.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . 48
10.2 Warranty. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
10.3 Warranty Qualifications . . . . . . . . . . . . . . . . . . . 49
10.4 Warranty Obligation . . . . . . . . . . . . . . . . . . . . . 54
10.5 Post-Acceptance Support . . . . . . . . . . . . . . . . . . . 56
10.6 Problem Response. . . . . . . . . . . . . . . . . . . . . . . 57
10.7 Other Post-Acceptance Software Matters. . . . . . . . . . . . 59
10.8 Training. . . . . . . . . . . . . . . . . . . . . . . . . . . 60
10.9 Post-Maintenance Support after Warranty Periods . . . . . . . 61
11. LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
11.1 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 61
11.2 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . 64
11.3 Mechanics . . . . . . . . . . . . . . . . . . . . . . . . . . 67
11.4 Intellectual Property Rights Problems . . . . . . . . . . . . 68
11.5 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . 70
12. OTHER REPRESENTATIONS, WARRANTIES AND AGREEMENTS. . . . . . . . . . 74
12.1 Representations and Warranties. . . . . . . . . . . . . . . . 74
12.2 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . 76
12.3 McKesson Repayment. . . . . . . . . . . . . . . . . . . . . . 77
12.4 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . 77
12.5 Material Litigation . . . . . . . . . . . . . . . . . . . . . 77
12.6 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
12.7 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
12.8 Document Ownership. . . . . . . . . . . . . . . . . . . . . . 78
12.9 Beta Site . . . . . . . . . . . . . . . . . . . . . . . . . . 79
12.10 Little Rock . . . . . . . . . . . . . . . . . . . . . . . . . 79
12.11 Corporate Standing. . . . . . . . . . . . . . . . . . . . . . 80
12.12 Work under the Letter Agreements. . . . . . . . . . . . . . . 80
13. OWNERSHIP AND ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . 81
13.1 CASI Principal Shareholders . . . . . . . . . . . . . . . . . 81
13.2 Assignments . . . . . . . . . . . . . . . . . . . . . . . . . 82
13.3 LS&CO. Ownership. . . . . . . . . . . . . . . . . . . . . . . 83
14. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . 83
14.1 Confidential Information. . . . . . . . . . . . . . . . . . . 83
14.2 Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
14.3 Access to Systems . . . . . . . . . . . . . . . . . . . . . . 86
15. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
15.1 Generally . . . . . . . . . . . . . . . . . . . . . . . . . . 86
15.2 Termination by CASI . . . . . . . . . . . . . . . . . . . . . 87
15.3 Effect of Termination by CASI . . . . . . . . . . . . . . . . 88
15.4 Suspension. . . . . . . . . . . . . . . . . . . . . . . . . . 89
15.5 Completion Risk Events. . . . . . . . . . . . . . . . . . . . 90
15.6 Effect of Declaration of a Completion Risk Event. . . . . . . 92
15.7 Impact on Licenses. . . . . . . . . . . . . . . . . . . . . . 96
15.8 Effect on Other Provisions. . . . . . . . . . . . . . . . . . 97
16. OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
16.1 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . 98
16.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
16.3 LS&CO. Project Representative . . . . . . . . . . . . . . . . 101
16.4 Further Assurances. . . . . . . . . . . . . . . . . . . . . . 101
16.5 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
16.6 Lawyers . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
16.7 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . 102
16.8 Severability. . . . . . . . . . . . . . . . . . . . . . . . . 102
16.9 Interpretative Principles . . . . . . . . . . . . . . . . . . 103
16.10 Conflicting Provisions. . . . . . . . . . . . . . . . . . . . 103
16.11 No Third Party Benefit. . . . . . . . . . . . . . . . . . . . 103
16.12 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . 104
16.13 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
16.14 Employment Laws . . . . . . . . . . . . . . . . . . . . . . . 104
16.15 Days. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
16.16 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 105
16.17 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 106<PAGE>
MATERIALS HANDLING SYSTEM AGREEMENT
THIS IS A MATERIALS HANDLING SYSTEM AGREEMENT dated October 31, 1994,
between COMPUTER AIDED SYSTEMS, INC., a California corporation ("CASI"), and
LEVI STRAUSS & CO., a Delaware corporation ("LS&CO.").
B A C K G R O U N D
A. CASI designs, builds and installs an integrated automated
materials handling system it calls the Flexmaster(R) system. That system
consists of various equipment components, designed and built by CASI, driven
by proprietary software developed by CASI.
B. LS&CO. is the world's largest apparel manufacturer. It is, as
part of an extensive reengineering of its North American operations, building
new product distribution centers (known as "customer service centers" or
"CSCs") in Henderson, Nevada and Hebron, Kentucky. It is also retrofitting
an existing CSC in Canton, Mississippi. Timely and successful completion of
the CSC work is critical to the success of the reengineering effort.
C. LS&CO. for some months studied available materials handling
technologies for use in its new CSCs. It examined various alternatives and
concluded that the Flexmaster(R) system would likely best meet LS&CO.'s
needs. LS&CO. also concluded, however, that its requirements, including
those relating to volumes, SKUs, customer order profiles, value-added
services capability and worker wellness, could not be met by the
Flexmaster(R) system without changes to that system.
D. In 1992, LS&CO. (with its consultant, Andersen Consulting)
and CASI began discussing the use of the Flexmaster(R) system in these new
CSCs. They concluded that LS&CO. should fund CASI's research and development
of a system (known as the "Quic System 2020") intended to meet LS&CO.'s
requirements, with the objective of installing that system in the new CSCs.
In March 1993, LS&CO. and CASI signed the first of a series of "interim
agreements" providing for that activity and current funding. CASI did and is
doing that work, and LS&CO. paid and is paying for it. CASI also is working
with LS&CO. and Fluor Daniel, Inc., LS&CO.'s general contractor for the new
CSC buildings and project manager, in analyzing CASI's resources, and on
various "long-lead" time aspects of the project.
E. CASI and LS&CO. have not, however, prepared a comprehensive
description of CASI's work going forward. That is the purpose of this
Agreement.
CASI AND LS&CO. AGREE AS FOLLOWS:
1. Definitions
-----------
Certain terms used in this Agreement are defined in the Glossary
accompanying this Agreement. The Glossary also identifies sections of this
Agreement where other terms are defined.
2. Project and Document Overview
-----------------------------
2.1 Basic Transaction. CASI will develop, design and build, and
then install and support, on a concurrent, parallel basis, the Kentucky
System, the Nevada System and the Mississippi System, and will develop and
license to LS&CO. the Licensed Software. In exchange, LS&CO. will pay CASI
the amounts specified in Section 9. CASI is to perform its Work in the
manner and on the Project Schedule contemplated by this Agreement.
2.2 Importance of the Project
(a) The Project is enormously important to both CASI and
LS&CO. For CASI, successful execution of a high-visibility project for the
world's largest apparel company could propel its growth and presence in the
logistics community and create substantial value for its shareholders. It
could be a showcase for the Flexmaster(R) system (particularly for CASI's
Mandate(R) software) and the genesis of new projects arising out of a
relationship with FD, one of the world's largest engineering and construction
firms. For LS&CO., successful execution is essential in order for it to meet
the customer service requirements that are at the heart of its North American
reengineering effort. The work could help establish LS&CO. as an operational
as well as marketing leader in the industry.
(b) The scale and importance of the Project create
corresponding risks and exposures for both CASI and LS&CO. CASI has never
executed a multi-site project. Materials handling is its only business. The
Project is the principal source of CASI's cashflow. Satisfaction of LS&CO.
business requirements require research and creation of material flow and work
processes and development of custom software. The Buildings are being
"designed around" the System; a mid-stream change to a different material
handling system would have enormous out-of-pocket and business disruption
costs to LS&CO.
(c) With these factors in mind, CASI and LS&CO. developed the
working arrangement described in this Agreement, including the rules relating
to software development, access and protection, payment, interactions with FD
and completion of the Project should difficulties arise. A principal
objective is the correlation and application of the combined resources and
energies of CASI, LS&CO. and FD toward successful completion of the Project.
2.3 This Document. This Agreement is the comprehensive statement
of the agreement between CASI and LS&CO. The Agreement consists of both its
text and its exhibits:
- Section 3 of this Agreement describes CASI's scope of
work and basic performance and installation obligations.
Section 4 focuses on software development and licensing.
Section 5 describes the procedure for changing CASI's
work or schedule. Section 6 describes FD's role and the
interactions among FD, CASI and LS&CO. Section 7 reviews
individual System acceptance procedures. Section 8 is
about spare parts. Section 9 describes CASI's
compensation and the mechanics of payment. Section 10
contains CASI's warranty and addresses post-acceptance
support. Section 11 describes insurance requirements,
indemnification and remedial matters. Section 12
contains other representations, warranties and
agreements. Section 13 relates to certain financial and
ownership matters. Section 14 describes confidentiality
obligations. Section 15 contains termination, project
completion and "freedom from obligations" provisions.
Finally, Section 16 contains more general contractual
administration and interpretation and "boilerplate"
provisions.
- The exhibits contain a technical description of the
System, including functional requirements and the
specific components and requirements for each of the
Kentucky, Nevada and Mississippi Systems. They also
include the Project Schedule and information about
Building access, Vendors, testing and acceptance, payment
mechanics and other matters relating to CASI and the
Project.
This Agreement terminates and replaces the existing Letter Agreements and is
intended to apply to all work already performed, and the Work to be
performed, by CASI.
3. Scope of Work and Performance
-----------------------------
3.1 Basic Scope. CASI shall continue the design, engineering and
fabrication of each System, including the continuing research and development
of individual System design and the Licensed Software, and shall install,
inspect, test and service each System, all in accordance with this Agreement
(the "Work"). By the Project Final Acceptance Date, CASI shall have turned
over to LS&CO. Systems meeting the applicable Completion Criteria. The
remainder of this Section 3 provides more detail about CASI's
responsibilities and focuses on management, procurement and Equipment and
Hardware installation activities. Software development, testing,
documentation and installation are of course critical components of CASI's
scope; they are addressed in Section 4. CASI's obligations (for example,
those described in Section 3.2(b) and 3.3) are subject to adjustment through
the process described in Section 5.
3.2 Responsibility and Dedication
(a) CASI shall perform all of the Work in a good and
workmanlike manner, in accordance with the standards for projects of similar
design and complexity and with applicable laws, including those relating to
occupational safety and health, and in accordance with the Project Schedule.
It shall be solely responsible for the management, planning, techniques,
sequences, procedures, means, timing and coordination of the Work. It shall
be solely responsible for studying and understanding the location and design
of each Building and the conditions under which it will perform the Work, and
for planning and performing the Work in light of those conditions.
(b) Except for (i) design and production work for GAP Inc.
(or any affiliate of GAP Inc.) as part of CASI's support obligations to GAP
Inc. (which CASI represents will not affect the Work or its ability to meet
the Project Schedule) or (ii) work performed for any LS&CO. affiliate, CASI
will not without LS&CO.'s prior written approval: (A) undertake any design
work for anyone other than LS&CO. until the design element of the Work is
completed or (B) undertake any in-house production of Equipment or Hardware
components for anyone else until CASI has completed all vertical transfer
units and insert/extract units for all three Systems. (These rules, as are
those described in Section 3.3, may be changed or "relaxed" as contemplated
by Sections 5.3 and 15.4.)
3.3 Staffing. CASI shall supply all the managers, supervisors and
laborers for the Work. In particular, the CASI employees identified in
Exhibit P shall work on the Project "full time" or "LS&CO. Priority 1" (as so
indicated in that exhibit) until their respective elements of the Work are
completed; CASI shall not replace or reassign them without first obtaining
LS&CO.'s approval. CASI shall replace any (not just "key") employees whom
LS&CO. identifies as unsatisfactory if that employee continues to be
unsatisfactory after a 30-day corrective period and shall advise LS&CO. of
any replacements; this activity shall not affect LS&CO.'s rights under
Section 15.5. Additional requirements relating to employment matters are
contained in Sections 3.8(d) and 16.14.
3.4 Vendors
(a) CASI may use and is using Vendors for certain portions of
the Work; indeed, Work to be performed by Vendors represents approximately
51% of the total cost of the Work. Those Vendors with commitments in excess
of $4 million ("Major Vendors") are identified on Exhibit K. CASI is fully
responsible for the work and activities of its Vendors and for their failure
to perform. If any Vendor does not adequately prosecute or perform its
duties, CASI will at LS&CO.'s request and at CASI's cost replace that Vendor
and otherwise see that the Work is properly completed. CASI shall furnish to
LS&CO. in writing the names of, and will not retain unless LS&CO. approves,
any other Vendors proposed for "Major Vendor" roles.
(b) CASI's Major Vendor Agreements shall be in writing.
Vendor Agreements with Major Vendors shall: (i) contain appropriate warranty,
confidentiality, insurance and indemnification provisions and (ii) provide
for assignment of the Vendor Agreement to LS&CO. as contemplated by Section
15.6. CASI has provided to LS&CO. a form of amendment to the Vendor
Agreements for the Major Vendors and represented to LS&CO. that it will use
its best efforts to obtain approval of the amendment from the Major Vendors
and that, upon approval, the amendment will "govern" and "control" the
matters described in clauses (i) and (ii) for the respective terms of those
Vendor Agreements. On that basis, and assuming the amendment is approved by
all Major Vendors in the form provided to LS&CO., LS&CO. confirms that the
Vendor Agreements for the Major Vendors will satisfy these requirements in
all material respects. CASI shall give LS&CO. a copy of any proposed or
existing Vendor Agreement (with the price deleted). CASI shall also give
LS&CO. all service manuals, operating instructions, warranties (to the extent
transferable, in the case of non-Major Vendors) and the like received from
each Vendor relating to System components upon completion by that Vendor of
its work.
3.5 Deviations from Basic System Documents. CASI shall design,
build and install the Systems described in the Basic System Documents.
LS&CO.'s approval of Basic System Documents shall not relieve CASI of any
obligations under the Agreement, or be considered an assumption of
responsibility by LS&CO. for the accuracy or adequacy of CASI's inputs into
those materials. CASI shall not deviate materially from the Basic System
Documents without prior written approval from LS&CO. through the Change Order
process described in Section 5. CASI shall tell LS&CO. about those
immaterial changes.
3.6 Design Coordination. FD is designing and constructing, and is
responsible for, each Building. CASI shall interact with FD in coordinating
each System's design with each Building's design and construction. For
example, CASI shall timely communicate to FD its requirements with respect to
design and construction matters that are LS&CO.'s or FD's responsibility,
including field surveys, elevations and baselines; excavations, drainage and
foundations; loads; Building support and suspension of System components;
electricity, water and lighting; floor, roof and wall opening; conduit and
wiring and the like. Any changes to the design or construction of a Building
or a System resulting from CASI's providing incorrect or incomplete
information shall be at CASI's cost and expense.
3.7 Shipments and Deliveries. CASI shall perform and have full
responsibility for purchasing, estimating quantities and material take-offs.
At each Building, it shall promptly unload shipments, store them in approved
locations and deliver from storage materials as needed. It shall keep
appropriate records of all shipments. As explained in Section 6, FD will
assist CASI in meeting its procurement needs and is responsible for arranging
all shipments to the Buildings of materials and equipment used by CASI.
3.8 Work-site Activities
(a) Coordination of activities at the three work sites is
essential to the efficient and timely completion of the Project. To that
end, CASI shall interact and cooperate with FD in coordinating CASI's
storage, material flows and installation activities, and shall comply in all
material respects with FD's work site general conditions. For example, as it
will with others supplying materials and services, FD may assign reasonable
work areas to CASI. CASI shall cooperate with FD in sequencing CASI's
activities on site in order to minimize interference with other activities at
the site. CASI shall confine its operations to the assigned areas, and shall
provide and pay for any off-site space it may desire. CASI shall keep each
of its work areas free from the accumulation of waste materials and rubbish
caused by its operations. CASI's Building access requirements are contained
in Exhibit I. Exhibit G contains additional information about worksite
activities.
(b) CASI shall inspect all Work performed by CASI and any of
its Vendors. It shall at its expense reject all defective Work, materials or
equipment, correct them and remove defective materials from the work sites.
(c) CASI shall supply and maintain all of its installation
equipment. All of it must be in proper operating condition, suitable for the
safe and efficient performance of the Work. CASI shall provide safe and
convenient storage space for all of its tools and equipment.
(d) CASI shall be responsible for the safety of its employees
and Vendors. It shall comply with all applicable provisions of federal,
state and municipal safety laws, including, without limitation, the
Occupational Safety and Health Act of 1970. It shall comply with FD's safety
program, including substance testing of all individuals on the work sites.
If CASI believes that there is an unsafe working condition which is caused by
FD or by one of FD's subcontractors, CASI shall report it to FD.
(e) CASI shall conduct its Work in a manner to avoid the risk
of loss, theft, or damage by vandalism, sabotage or any other means at each
Building, including continuing inspection and correction of any deficiencies.
In addition, CASI shall comply with LS&CO.'s and FD's security requirements
for the Buildings.
(f) CASI shall obtain all installation and other licenses,
permits and inspections necessary for its Work. CASI shall not, under any
circumstances, cause or permit the discharge, emission or release of any
hazardous substance and/or waste, pollutant, contaminant or other substance
in violation of any applicable laws. CASI shall be responsible for
compliance with all hazardous waste, health and safety, notice, training, and
environmental protection laws, rules, regulations and requirements applicable
to the Work. CASI shall report to the appropriate governmental agencies all
discharges, releases and spills of hazardous substances and/or wastes
required to be reported by CASI by law and shall immediately notify LS&CO. of
these incidents.
(g) CASI may ship extra material to each work site at its
expense. Surplus material shall remain CASI's property; CASI shall remove it
within a reasonable time after completion of installation at that site.
4. Software and System Design
--------------------------
4.1 Software Development. CASI shall develop the Licensed
Software in accordance with the development plan attached as Exhibit Y and
the Licensed Software Specifications to be delivered as described in Exhibit
B. It shall do that Work in a good and workmanlike manner using professional
personnel and in accordance with the standards for projects of similar design
and complexity.
4.2 Viruses. CASI shall not introduce a virus with any software
it uses in connection with the development of the Licensed Software. CASI
shall also use its best efforts to prevent the introduction of any virus into
the Licensed Software. Finally, CASI confirms that none of the Licensed
Software shall contain any embedded device or code (for example, a time bomb)
that is intended to obstruct or prevent LS&CO.'s use of the Licensed Software
in any way, nor will CASI disable LS&CO.'s use of the Licensed Software.
4.3 Licenses, Generally
(a) Sections 4.4, 4.5 and 4.6 explain various "licenses" CASI
is granting to LS&CO. Those licenses have these purposes:
- The "Licensed Software Object Code" licenses, in
basic terms, permit LS&CO. to "run" the three
Systems. They also permit LS&CO. to use the
Licensed Software at the Little Rock CSC and, as
explained in Section 4.4, at CSCs or other
locations operated by LS&CO. anywhere in the
world. Finally, they permit LS&CO. to use the
Licensed Software to complete the Systems if CASI
does not.
- The "Licensed Software Source Code" licenses, in
basic terms, permit LS&CO. to use the "source
code" in maintaining the Systems, and in
completing the Systems if CASI does not.
- Finally, the "Basic System Documents" and
"Completion Documents" licenses permit LS&CO. to
use the System designs, plan, specifications and
drawings to complete the Systems (including
Equipment and Hardware as well as Licensed
Software) if CASI does not.
Other provisions relate to how LS&CO. learns about the Licensed Software (for
example, through documentation and compilation exercises), how LS&CO. pays
for it and how LS&CO. protects it, a subject of great importance to CASI.
Finally, the impact on these licenses of a "termination" of this Agreement is
explained in Section 15.7.
(b) More explanation about the "operative" language that
follows: software license agreements typically recite that a license is
"fully-paid" if the licensor grants it free of charge, or if the licensee
pays for it in a lump sum and there are no on-going royalties associated with
the continuation of the license. Agreements also typically recite that the
license is "perpetual" and "irrevocable" or, alternatively, specify an
expiration date or termination procedure. Agreements often identify
"locations" and "fields of use." LS&CO. and CASI, mindful of the complexity
created by the "staged payment" arrangement described in Section 9 and the
"Completion Risk Event" concept described in Section 15, believe it more
efficient to state, in simple terms, their agreement. To that end:
- All of the licenses granted by CASI to LS&CO. are
currently effective. They do not "spring" into
effectiveness upon some future event, whether it
be completion of development by CASI, full
payment by LS&CO. or declaration of a "Completion
Risk Event" by LS&CO.
- None of the licenses granted by CASI to LS&CO.
are as of the date of this Agreement "fully
paid." They will be "fully paid" only when
LS&CO. makes the payments required by Section 9.
- None of the licenses permits LS&CO. to use the
Licensed Software for any purpose other than for
its activities in the wholesale and retail
apparel business.
- None of the licenses are "exclusive" to LS&CO.
They are all non-exclusive.
- LS&CO. is entitled to use the Licensed Software
if CASI installs any System or Systems as
contemplated or if LS&CO. installs any System or
Systems after declaring a Completion Risk Event,
in accordance with Sections 9.3 and 15.
- All of the licenses are "perpetual," in that they
do not expire on a fixed date. They are,
however, "subject to termination" in the limited
cases described in Section 15.7.
These principles apply to the licenses formally "granted" by CASI in Sections
4.4, 4.5 and 4.6; those sections should be so read and understood.
4.4 Object Code License. CASI hereby grants to LS&CO. a license
to use the Licensed Software Object Code, the associated end user
documentation and future releases actually provided to LS&CO. under Section
10, for LS&CO.'s internal operations at the Kentucky, Mississippi and Nevada
CSCs, at the Little Rock CSC (see Section 12.10), and at other LS&CO.-
operated locations (including of course Additional Sites), all as reasonably
required to use and/or maintain the Licensed Software Object Code.
4.5 Base Code License; Additional Sites
(a) Subject to Section 4.5(b), CASI hereby grants LS&CO. a
license to use the Licensed Software Base Code for LS&CO.'s internal
operations at other LS&CO.-operated locations, whether in existence today or
established in the future, anywhere in the world (together, the "Additional
Sites"). As described in Section 10,7, each Software Upgrade purchased by
LS&CO. shall be available for use with each System and at Additional Sites
for a one-time purchase price.
(b) This license shall be effective with respect to
Additional Sites where LS&CO. intends to operate a materials handling system
(that is, a new CSC) only if LS&CO. complies with this procedure: LS&CO.
shall notify CASI when LS&CO. intends to construct or renovate such an
Additional Site using the Licensed Software. If CASI wishes to and so
advises LS&CO. within 30 days after receiving that notice, LS&CO. shall
negotiate exclusively with CASI, in good faith for a 90-day period after
receipt of CASI's notice, to determine if they can reach agreement on CASI's
providing any or all of the preliminary materials handling system design and
engineering services, hardware design and engineering, fabrication,
installation and software customization services for that Additional Site.
If they do not in that 90-day period sign a definitive agreement or letter of
intent to that effect, then LS&CO. shall be free after that period to
negotiate with and retain another party to provide those services or to
perform those services itself, and to use the Licensed Software Base Code at
the Additional Site. That all said, LS&CO. of course shall not be obligated
to initiate these discussions with CASI if during the course of or after the
completion of the Project:
- LS&CO. declared a Completion Risk Event;
- any Final Acceptance Date occurred after the date
set for that event in the Project Schedule; or
- CASI breached in any material respect any of its
material obligations under Sections 3, 4, 6,
7, 8, 9.12, 9.13, 9.14, 10, 11, 12.2,
12.5, 12.7, 12.9, 13.2, 14, 15.8 or 16.14
and, after receiving written notice of the breach
from LS&CO., failed to timely cure it, it being
understood that LS&CO. shall not be obligated to
initiate the discussions if LS&CO. suffered any
adverse financial impact as a result of the
breach.
The business rationale for this rule is simple: LS&CO. should not be
obligated to work with CASI on an Additional Site project if CASI has not
successfully performed the Project.
4.6 Source Code and Basic System Documents
(a) From now through the Project Final Acceptance Date, CASI
shall deliver to LS&CO. the most current (final, not working draft) versions
of the Licensed Software Source Code, Licensed Software Object Code and Basic
System Documents as they become available. Promptly after the Final
Acceptance Date for a System, CASI shall provide LS&CO. with an updated
user's version of the Licensed Software Source Code and of the Basic System
Documents, diagnostics and simulations for that System.
(b) CASI hereby grants LS&CO. a license to use, modify and
reproduce the Licensed Software Source Code, the Licensed Software Object
Code, the Basic System Documents and the Completion Documents, for purposes
of completing development, installation and testing of the Systems after
declaration of a Completion Risk Event. Upon LS&CO.'s request, from now
until the Project Final Acceptance Date, CASI shall make available to LS&CO.,
at CASI, the most current versions of the Completion Documents as they become
available.
(c) CASI hereby grants LS&CO. a license to use, modify, and
reproduce the Licensed Software Source Code as needed: (i) to change
parameters and access frequencies within allowable parameters described in
the user documentation, provided that LS&CO. shall advise CASI, before or
promptly after making the changes, of the settings that are being used to
facilitate CASI's support and (ii) to make any other changes to the Licensed
Software Source Code, and changes in external access to the Licensed Software
Source Code, provided that, in the clause (ii) situation, LS&CO. shall first
obtain CASI's written consent before making those changes. LS&CO. must
comply with these notice and consent requirements (both clauses (i) and (ii))
only for as long as CASI is providing warranty or maintenance services to
LS&CO. under Section 10. As described in that section, compliance by LS&CO.
is a condition to CASI's obligations to perform under that section.
(d) Upon CASI's initial delivery to LS&CO. of a complete,
fully documented copy of the Licensed Software Source Code or any updated
version, CASI shall, at LS&CO.'s request and in the presence of an LS&CO.
technical representative, compile the Licensed Software Source Code and test
the resulting object code to verify that the Licensed Software Source Code is
sufficient and complete. They shall do that work at CASI.
4.7 Protection. LS&CO. shall "protect" the Licensed Software
Object Code and Licensed Software Source Code in the manner described in
Exhibit S. LS&CO. may, at its option, place the Licensed Software Source
Code with a third party experienced in source code escrows and who is
approved by CASI, but LS&CO. will have complete power to obtain its release.
Thus, any such arrangement will be a "two-way" escrow between LS&CO. and the
escrow agent.
4.8 Patents. CASI shall not: (a) assert against LS&CO. any
Intellectual Property Rights, including, without limitation, patent rights
arising under any United States or foreign patent now owned by, or later
issued or assigned to, CASI, applicable to any System as it exists on its
Final Acceptance Date, including the Licensed Software, regardless of whether
CASI completes the Work as contemplated by this Agreement or LS&CO. completes
installation of the Systems after declaring a Completion Risk Event or (b)
require any fees or royalties from LS&CO. based upon any such Intellectual
Property Right other than of course those contemplated by Section 9 of this
Agreement. A list showing CASI's current patents issued and applied for is
attached as Exhibit L.
4.9 Documentation; Disaster Recovery. Software development and
installation is critical to the success of the Project. Because of that,
CASI must carefully manage development, testing and installation, document
its work in a manner such that loss of key personnel would not jeopardize the
work and maintain appropriate backup such that a fire, earthquake or the like
at CASI's home office would not result in irretrievable loss. To that end,
Exhibit T describes documentation requirements and scheduling and CASI's
disaster recovery plan. CASI shall meet those requirements and maintain that
plan until the Project Final Acceptance Date.
4.10 Interfaces. Development and installation of "interfaces"
between the Licensed Software and LS&CO. software also is critical to
successful (from LS&CO.'s perspective) completion of the Project. LS&CO.,
not CASI, shall be ultimately responsible for the performance and outcome of
the Interface work. CASI shall cooperate with LS&CO. and its consultants
(including, for example, by participating in work sessions) as LS&CO. does
that work. Exhibit B describes in more detail CASI's participation and the
limitations on its responsibilities. LS&CO. confirms that it, not CASI,
shall be responsible to licensors to LS&CO. of software that may be modified
as part of the interface work.
5. Changes in the Scope of Work
----------------------------
5.1 General Rule
(a) LS&CO. may order changes in the Work by so advising CASI
in writing. Upon request by LS&CO., CASI shall prepare and forward to LS&CO.
a proposed "Change Order." It shall contain a description, and if
appropriate, feasibility assessment, of the change, a written estimate of
related costs and any proposed adjustment in the Compensation or Project
Schedule. LS&CO. shall reimburse CASI for the reasonable costs incurred by
CASI to prepare Change Orders. LS&CO. shall advise CASI in writing of
LS&CO.'s approval or disapproval of the Change Order. If LS&CO. approves it,
CASI shall perform the Work as described in the Change Order, and any
approved adjustment to the Compensation and the Project Schedule shall become
effective.
(b) As contemplated by Section 3.5, CASI shall deliver the
Systems described in the Basic System Documents on the Project Schedule.
Prior to making any proposed change in its Work other than as permitted by
Section 3.5, or if it believes a change in the Compensation or Project
Schedule is appropriate, CASI shall advise LS&CO. in writing that CASI
believes a change is necessary. If LS&CO. agrees, LS&CO. shall advise CASI
by way of a request for a proposed Change Order and thereafter the Change
Order shall be handled as if initiated by LS&CO.
5.2 Effect of Change Orders. LS&CO. assumes no obligation to pay
for changes in or additional Work performed by CASI or to adjust the Project
Schedule absent an effective Change Order, except for reasonable actions
necessitated by risk of injury to person or damage to System components or
changes arising from mutually-agreed Force Majeure Conditions. Except for
any agreed-upon adjustments, all terms of this Agreement (including, without
limitation, those relating to the Project Schedule and the Compensation)
shall apply to the Work contemplated by any approved Change Order. Some
legal aspects: no Change Order shall release or exonerate in any way the
surety on any bond given by CASI or any Vendor in connection with this
Agreement, and LS&CO. shall not be required to provide notice to the surety
of any change. In addition, no course of conduct between LS&CO. and CASI,
nor express or implied acceptance of any change, and no claim that LS&CO. has
been unjustly enriched by any alteration or addition to the scope of Work,
shall be the basis of any claim by CASI for an increase in the Compensation
or a change in the scope of Work or Project Schedule.
5.3 Building-related and Other Project-related Developments. Each
party shall promptly advise the other of Building construction delays or
other developments at the Buildings or other project-related developments
that could materially affect the schedule for the Work or the Compensation,
such as suspensions under section 15.4, Force Majeure Conditions and
downsizing of the Project. LS&CO. shall thereafter consult with CASI and
together they shall mutually determine appropriate changes, if any, to the
Project Schedule, Compensation or the nature or sequence of the Work and
prepare, if necessary, an appropriate Change Order or action under or
amendment to this Agreement. (For example, it may be appropriate for CASI to
take on projects it would otherwise be prevented from taking on because of
Section 3.2(b), or to reassign or replace employees that it would otherwise
be prevented from reassigning or replacing because of Section 3.3.)
6. LS&CO. and FD Role
------------------
6.1 FD Background. Since CASI began working with LS&CO. LS&CO.
retained FD as general contractor for the construction of the Buildings.
Because:
- of the obvious need for effective interaction between
CASI and the construction general contractor at both the
design and installation phases of the Project;
- LS&CO., as a shared customer of FD and CASI, views their
work as a single deliverable (that is, operating customer
service centers); and
- LS&CO. was and is concerned about whether CASI possessed
sufficient resources to complete successfully a multi-
site installation;
LS&CO., CASI and FD explored various ways of structuring their relationships.
For example, CASI and FD discussed joint venture and teaming arrangements,
and signed a letter of cooperation; a copy is attached as Exhibit H. FD
completed and reviewed with CASI a study of CASI's resources and processes,
proposed various means by which FD could assist CASI and developed a
compensation arrangement in which FD's compensation from LS&CO. could be tied
to CASI's success.
6.2 FD Role
(a) As a result of this work, LS&CO., CASI and FD have agreed
to an arrangement, described in Exhibit G, in which FD will act as LS&CO.'s
agent and as an additional resource for LS&CO. and CASI on various aspects of
the Work. It also contemplates the creation of a "Management Team,"
comprised of representatives of CASI, LS&CO. and FD, empowered to oversee and
coordinate Project-related activities, and to resolve operational problems
and conflicts as they may arise. Finally, it provides that FD will be
responsible for arranging and tracking CASI and Vendor shipments and
transportation of materials and equipment to the Buildings. This arrangement
is intended to enable CASI to draw on the resources of FD in completing
successfully the Project, to provide LS&CO. with greater assurances about
successful and timely installation of the Systems and to directly align the
incentives of FD and CASI. In order for this arrangement to work:
- CASI must provide FD with reasonable access to
CASI's facilities, personnel and Major Vendors;
- CASI must provide FD with reasonable access, for
review purposes, to CASI's drawings, software
documentation and other documents;
- FD must provide CASI with assurances about FD's
protection of and respect for CASI technology and
trade secrets; and
- all participants must approach the interactions
as part of the effort to leverage off existing
resources and expertise.
CASI and LS&CO. agree to comply with these requirements. They underlie the
review, inspection, meeting and assistance arrangements described in Exhibit
G.
(b) That said, CASI is and must remain ultimately responsible
for its Work. FD's role shall be to monitor and assist, not to dictate, and
(other than as to work-site general conditions as described in Exhibit I and
Section 3.8) CASI shall be free to accept or reject FD's suggestions. CASI
shall, however, advise the Management Team and LS&CO. of material disputes or
difficulties with FD, and participate with LS&CO. and FD in good faith
attempts to resolve the problem.
(c) Some "legal" explanation of this arrangement: CASI is an
independent contractor. The relationships created by this Agreement are
intended to and shall be contractual in nature. This Agreement does not
create any partnership, joint venture, employment, agency, fiduciary or other
relationship between CASI and LS&CO., or between CASI and FD. (FD, however,
is under this Agreement acting as LS&CO.'s "agent.") CASI does not have the
ability to bind or act as the representative of LS&CO. or FD. Neither LS&CO.
nor FD has the ability to bind or act as the representative of CASI. CASI
also, by signing this Agreement, releases FD from and against any claims,
demands or causes of action CASI may now or in the future have against FD
relating to this arrangement (including particularly FD's role as LS&CO.'s
agent), regardless of whether they are based on contract, tort (including
negligence), strict liability or other legal theory, except for claims under
any separate confidentiality agreement between FD and CASI.
6.3 Inspection
(a) LS&CO. may at all reasonable times inspect the Work, and
all material, supplies and equipment for the Work, at each Building and at
CASI's and, as CASI will arrange as contemplated by Exhibit G, its Major
Vendors', facilities. These inspections, however, will not be intended as
first line quality control (that is CASI's responsibility) and shall in no
way limit CASI's obligations or otherwise impair LS&CO.'s rights.
(b) LS&CO. may reject defective Work. If so, CASI at its
expense shall correct it.
6.4 Meetings . CASI, as requested by LS&CO., shall participate in
meetings to discuss the Work. For example, it shall participate in the
engineering progress review meetings and in software development review
sessions described in Exhibit G, as well as in other meetings (for example,
sessions relating to software interface work) requested by LS&CO.) It also
shall provide to LS&CO. reports requested by LS&CO. in addition to those
submitted to or produced by the Management Team.
7. Acceptance
----------
7.1 Testing. Timely and tightly-planned and executed testing and
debugging of each System is essential to Project success. Accordingly, CASI
shall, using appropriate senior personnel, test each System in accordance
with the System testing and acceptance plan attached to this Agreement as
Exhibit D (the "Testing Plan") and at the times specified in the Project
Schedule. As described in that Testing Plan, LS&CO. may participate in all
testing and debugging efforts, including physically observing testing
activities and reviewing written test results. In all events, CASI shall
review test results and debugging plans with LS&CO. and respond adequately to
LS&CO.'s criticisms or suggestions. CASI shall correct all material problems
identified (by both CASI and LS&CO.) in each testing stage before proceeding
to the next stage. (This Section 7.1 only describes general principles
underlying the Testing Plan; the detail is contained in the Testing Plan.)
7.2 Punchlists. During "production testing" and correction for
each System, as described in Exhibit D, CASI and LS&CO. shall inspect each
component of the System, conduct any additional testing and prepare two
"punchlists," one identifying major problems and one identifying minor
problems. ("Major" problems are those that affect the ability of a System to
meet the Completion Criteria.) CASI shall begin correcting both types of
problems.
7.3 System Final Acceptance
(a) CASI shall notify LS&CO. when CASI believes it has
corrected all "major punchlist" items. At that time, CASI and LS&CO. shall
once again inspect the System and conduct any additional tests LS&CO. may
desire to confirm that the System meets the Completion Criteria. Once the
System meets the Completion Criteria, LS&CO. shall "Finally Accept" the
System, and deliver to CASI a certificate to that effect. That act
represents "System Final Acceptance" and the date of that act is the "System
Final Acceptance Date." CASI of course shall complete the remaining "minor"
punchlist items, as-built drawings and other post-acceptance work.
(b) "System Final Acceptance" has these principal
implications: (i) CASI may be entitled to the Final Payment for the accepted
System, as explained in Section 9.12 or Section 9.13; (ii) CASI may be
entitled to release of retained amounts and other payments, as explained in
Section 9.8; (iii) the Warranty Period begins to run with respect to the
accepted System, as explained in Section 10.4; (iv) LS&CO. will have full
operational control, management and responsibility for the accepted System;
and (v) CASI's liability with respect to the accepted System becomes more
limited as described in Section 11.5. (These implications are the same for
the System Final Acceptances for all three Systems, it being understood that
System Final Acceptance for the last of the Systems to be completed has
additional implications, as described in Section 7.4.)
7.4 Project Final Acceptance. "Project Final Acceptance"
occurs on the date the requirements described in Section 9.13 are satisfied,
and it corresponds with the System Final Acceptance Date for the last
accepted System. It has these principal implications: (i) CASI may be
entitled to the Final Final Payment, as explained in Section 9.13; (ii) CASI
may be entitled to a Licensed Software milestone payment as described in
Section 9.3; (iii) CASI may be entitled to release of retained amounts and
other payments, as explained in Section 9.8; (iv) CASI may be entitled to the
Incentive Payment described in Section 9.4; and (v) CASI will be relieved of
the various information-provision obligations described in Sections 12.3-12.5
and certain of the insurance requirements as described in Section 11.1.
8. Spare Parts
-----------
8.1 Initial Supply. By March 28, 1995, CASI shall submit to
LS&CO. a written description, for each system of a recommended spare parts
inventory, and a written list of recommended suppliers of those parts. That
inventory recommendation shall also identify which parts CASI considers to be
"covered" by its Intellectual Property Rights. LS&CO. shall review the
recommendation within 60 days after receipt and (assuming of course agreement
on pricing) commit to purchase from CASI those spare parts LS&CO. wishes to
purchase, it being understood that the cost of these spare parts is not
included in the Compensation. CASI shall purchase, manufacture and assemble
those selected spare parts into kits or individual units that will be clearly
marked with a specific CASI identification number, part description and
information about which sub-assembly or assemblies for which the part is to
be used. CASI shall deliver to LS&CO. all spare parts for a particular
System no less than 90 days before starting the "production acceptance
testing" phase of the testing of that System.
8.2 Future Purchases. Going forward, CASI shall not be obligated
to maintain any spare parts inventory of its own at any CSC or at any CASI-
operated location. Accordingly, after those initial purchases, LS&CO. may
buy spare parts from any supplier, except for those parts which are "covered"
by CASI's Intellectual Property Rights. LS&CO. shall be obligated to
purchase from CASI, and CASI shall be obligated to make and sell to LS&CO.,
those "covered" spare parts from CASI (or, if CASI is no longer operating,
any successor to CASI's business capable of producing them in the time and
with the quality CASI could have produced them) for so long as the relevant
part is "covered," at a price equal to 150% of CASI's then-current cost for
that "covered" spare part. CASI shall promptly supply LS&CO. with any
supporting documentation requested by LS&CO. relating to CASI's costs.
8.3 Parts Inventory and Use. LS&CO. shall be responsible for
keeping and maintaining adequate numbers and kinds of spare parts on hand at
each CSC. During the Warranty Period applicable to each System, CASI shall
be free to use substitute parts and materials as needed from the spare parts
inventory at that facility in order for CASI to replace any defective or non-
conforming parts or materials. CASI shall thereafter provide LS&CO. with new
or refurbished replacement parts or materials to be added back to the LS&CO.
spare parts inventory at that CSC. If CASI provides LS&CO. with any
replacement parts or materials, CASI may keep all the replaced defective or
non-conforming parts and materials. During the applicable Warranty Period,
CASI shall pay all shipping costs, both to and from CASI or other location,
associated with the removals, reinstallations and replacements of parts
contemplated by this Section 8.3, and shall be responsible for arranging for
and tracking those shipments.
9. Payment
-------
9.1 Compensation Overview. CASI's compensation for the Work has
several elements. Those elements, and the mechanics of payment, are
described in this Section 9. In general, LS&CO. shall pay CASI specified
amounts for Equipment and Hardware fabrication and installation, and for
research and development activities (the "Development Activities" described
in Section 9.3). LS&CO. shall each month pay CASI a portion of those amounts
but, as explained in this Section 9, the actual amount payable will be a
function of:
- in the case of Equipment and Hardware fabrication, and,
separately stated, installation, CASI's charges for and
"percent completed" of the actual Work done in a payment
period, as contemplated by the Schedule of Values, and
the application of a "retention" arrangement; and
- in the case of Development Activities, CASI's costs and
charges for the actual Work done in a payment period,
and the application of an "incentive milestone"
arrangement.
LS&CO. has paid CASI for CASI's work on behalf of LS&CO. under the Letter
Agreements. Sections 9.4 and 12.12 contain additional information about
payments under the Letter Agreements.
9.2 Equipment Fixed Price. In exchange for CASI's performance of
the remainder of the Work relating to Equipment and Hardware fabrication and
installation, and as may be adjusted as described in this Section 9, LS&CO.
shall pay CASI a fixed price of $124,741,061 (the "Equipment Fixed Price").
The Equipment Fixed Price reflects these key elements:
<TABLE>
<S> <C>
Equipment and Hardware design and fabrication $100,644,621
(amount shown reflects full release of related
retention amounts)
Equipment and Hardware installation 24,096,440
</TABLE>
Exhibit J, the Schedule of Values, allocates the Equipment Fixed Price on a
per System, component-by-component basis.
9.3 Payment for Development Activities
(a) CASI, on LS&CO.'s behalf and through LS&CO. funding, is
engaging in continuing research and development activities relating to the
development of the Licensed Software, process development (including
development of related Hardware components), systems integration and
workstation development (collectively, the "Development Activities"). The
budget for Development Activities is $11 million, including $4.5 million for
additional activities relating to development and installation of the
Licensed Software (the "Licensed Software Development Activities"). To
date, LS&CO. under the Letter Agreements has paid CASI $2,383,254 of that
amount. Going forward, LS&CO., through the Application for Payment process
described in Section 9.5, will reimburse and pay CASI $8,616,746 (the
"Development Activities Expenses") for its continuing Development Activities
efforts. Exhibit Y is a Licensed Software Development Plan showing the
expected manner and timeframe for the remaining Licensed Software Development
Activities.
(b) In addition, LS&CO. shall pay CASI additional amounts in
respect of the Licensed Software Development Activities only if CASI achieves
result-oriented milestones:
<TABLE>
<CAPTION>
Milestone Event: Achievement Date: Amount:
<S> <C> <C>
Certification Test (Hayward) January 1, 1996 $ 250,000
Begin First Site Production Test August 5, 1996 $ 250,000
Project Final Acceptance Date December 31, 1996 $ 1 million
Total: $1.5 million
</TABLE>
In each case, LS&CO. shall pay CASI the entire amount if CASI achieves the
milestone event before or within 30 days after the specified achievement
date. If CASI achieves the milestone event during the period beginning 30
days after and ending 60 days after the specified achievement date, LS&CO.
shall pay CASI no less than 75% of the specified amount, with the actual
amount determined by prorating daily from day 31 to reach a maximum reduction
of 25% at day 60. If CASI achieves the milestone event during the period
beginning 60 days after and ending 90 days after the specified achievement
date, LS&CO. shall pay CASI no less than 25% of the specified amount, with
the actual amount determined by prorating daily from day 61 to reach a
maximum reduction of 75% at day 90. LS&CO. shall not be obligated to pay
CASI any amount in respect of the milestone if CASI does not achieve it
within 90 days after the specified achievement date. (The $6 million
represented by adding these milestone amounts to the $4.5 million in Licensed
Software Development Activities costs referred to in Section 9.3(a) is called
the "Licensed Software Total Amount.")
(c) This Agreement contemplates various situations in which
the Project or Work may materially change over time. For example, Section
15.5 describes "Completion Risk Events" that permit LS&CO. to "take over" and
complete the Project on its own. Sections 5 and 15 allow for "downsizing" by
LS&CO. of the Project. This Section 9.3(c) describes how the "staged
payment" arrangement for the Licensed Software works in these contexts:
- If LS&CO. declares a Completion Risk Event but
CASI, as contemplated by Sections 15.6(b) and
15.7, continues performing Licensed Software
Development Activities, then the payment rules
are not affected; LS&CO. shall continue to pay as
provided in Sections 9.3(a) and (b).
- If LS&CO. declares a Completion Risk Event and
takes over Licensed Software Development
Activities, then LS&CO. shall no longer be
obligated to pay all or some of the Licensed
Software Total Amount as provided in Sections
9.3(a) and (b). Instead, it shall be obligated
to pay the difference, if any, between (i) $6
million and (ii) its costs of completion of the
Licensed Software Development Activities and the
amount previously paid to CASI under Sections
9.3(a) and (b) for Licensed Software Development
Activities and related milestone achievements.
If the amount described in clause (ii) is greater
than $6 million, then of course LS&CO. has no
obligation to pay CASI any amount.
- If LS&CO. reduces the scope of the Project to,
for example, installation of only one System, and
CASI continues performing Licensed Software
Development Activities, then the payment rules
are not affected; LS&CO. shall continue to pay as
provided in Sections 9.3(a) and (b).
9.4 Additional Agreements Regarding Compensation
(a) The Equipment Fixed Price, the Development Activities
Expenses, the software milestone payments described in Section 9.3(b), the
Incentive Payment described in Section 9.4(c) and the amount described in
Section 9.4(e) are referred to collectively as the "Compensation."
(b) Except as described in section 9.4(f) or as may be
agreed through the Change Order process described in Section 5, LS&CO. shall
have no obligation in any case to pay CASI any amounts in respect of the Work
in excess of the Compensation. In particular, that is so regardless of: (i)
nonperformance or pricing changes by Vendors; (ii) errors or omissions in
the Basic System Documents; (iii) correction of defective work by CASI or by
Vendors; or (iv) changes initiated by CASI unless they have been approved
through the Change Order process. (Change Orders providing for price
increases may result from, for example, demonstrated cost increases caused by
the use of union labor or difficulties in obtaining timely Building access.)
(c) In addition to the amounts described in Sections 9.2 and
9.3, LS&CO. shall also pay CASI the sum of $350,000 (the "Incentive Payment")
if the Project Final Acceptance Date occurs on or before the date that is 30
days before the date identified in the Project Schedule (as it may be amended
over time) as the Project Final Acceptance Date.
(d) The amounts shown for the Equipment Fixed Price and the
Development Activities Expenses include the October 1994 Application for
Payment. CASI and LS&CO. have not yet but must reconcile the September 1994
Application for Payment.
(e) One of the early Letter Agreements established a project
management role and budget of $5 million for CASI. To date, LS&CO. has paid
CASI $3,780,885 of that amount. Going forward, LS&CO. shall pay CASI,
through the Application for Payment process described in Section 9.5, the
remaining $1,219,115.
(f) Section 10 provides for performance by CASI of "post-
acceptance" services. LS&CO. shall pay CASI $3,055,000 for those services.
The payment mechanics are separate from those for the Compensation; they are
described in Exhibit X.
9.5 Payment Mechanics. CASI shall submit to LS&CO. each month
(either by the first day or as soon thereafter as it can) a document, in the
form attached as Exhibit M, describing:
- on a component-by-component, Building-by-Building, line-
item basis, CASI's estimated charges for Equipment,
Hardware and installation for the next one month period,
with the estimates derived from the Schedule of Values,
and less the retention contemplated by Section 9.8, plus
the amount of Reimbursable Taxes paid by CASI (and to be
reimbursed by LS&CO. to CASI) for the prior period;
- CASI's estimated charges for project management
activities as contemplated by Section 9.4(e);
- CASI's estimated Development Activities Expenses, as
described in Section 9.3(a);
- any retention release or milestone payment amounts due
CASI as contemplated by Sections 9.3 and 9.8; and
- the nature and impact of any Change Orders approved for
action during that period.
This document is an "Application for Payment." CASI shall also provide
LS&CO. with supporting documentation reasonably requested by LS&CO. Review
of that documentation shall not delay LS&CO.'s payment to CASI;
discrepancies in the Application for Payment shall be reconciled or adjusted
through the process described in Section 9.7. LS&CO. shall, within ten days
after receipt of an Application for Payment, pay the amount stated in that
document. It shall do so by wire transferring the funds to the account
identified by CASI from time to time in the form described in Exhibit N.
9.6 Other Money Matters. In recognition of the benefits to CASI
of this "estimate/advance/reconciliation" payment arrangement, CASI shall
promptly contact LS&CO., and obtain LS&CO.'s prior written approval, if it
anticipates that it will exceed by 10% or more the estimated charges in
respect of any activity or in the aggregate during the period covered by any
Application for Payment. If LS&CO. does not object or respond within five
days, LS&CO. shall be considered to have approved the matter. If it does
object, CASI and LS&CO. shall consult and resolve the matter. CASI
understands that prompt payment of Vendors is of critical importance.
9.7 Reconciliation and Confirmation
(a) No later than 15 days after the end of each calendar
month, CASI shall provide to LS&CO. a written comparison, in the form
attached as Exhibit M, of the prior month's estimate (as reflected in the
Application for Payment) against the actual performance and completion of
those items during the month. This is a "Reconciliation Statement." It
shall be certified as to accuracy by a CASI officer. CASI shall also supply
or make available to LS&CO. supporting documentation reasonably requested by
LS&CO. to verify completion and use of the funds. "Reasonably requested"
documents include, among others, invoices and bills of sale (with costs
deleted), title documents and evidences of insurance. Finally, CASI shall
supply to LS&CO. the lien release materials described in Section 12.7.
(b) If CASI and LS&CO. determine after review of a
Reconciliation Statement and supporting documents that LS&CO. paid CASI more
than the amount attributable to the Work actually performed by CASI during
the month, then CASI shall credit LS&CO for the full amount of the
difference. It shall reflect that credit in the next Application for
Payment.
(c) If CASI and LS&CO. determine after review of a
Reconciliation Statement and supporting documents that the payment did not
fully compensate CASI for the Work actually performed during the month, then
LS&CO. shall pay CASI the full amount of that difference. CASI will reflect
that amount in the next Application for Payment.
9.8 Retention
(a) LS&CO. shall "retain" (keep) a portion of the Equipment
Fixed Price and shall "release" (pay) that amount as described in this
Section 9.8. Each Application for Payment submitted before the Mechanical
Installation Complete Milestone for a System shall reflect, for each such
System, a retention of 5% of the total estimated amount for Equipment and
Hardware for that month. LS&CO. shall release those retained amounts with
respect to a System as follows:
- 25% upon achievement of the Mechanical
Installation Complete Milestone;
- 25% upon achievement of the System Complete
Milestone;
- 25% upon the System Final Acceptance Date; and
- 25% upon the Project Final Acceptance Date.
In each case, LS&CO. shall release to CASI the entire amount if CASI achieves
the milestone event before or within 30 days after the specified milestone
date. If CASI achieves the milestone event during the period beginning 30
days after and ending 60 days after the specified achievement date, LS&CO.
shall release to CASI no less than 75% of the specified amount, with the
actual amount determined by prorating daily from day 31 to reach a maximum
reduction of 25% at day 60. If CASI achieves the milestone event during the
period beginning 60 days after and ending 90 days after the specified
achievement date, LS&CO. shall release to CASI no less than 25% of the
specified amount, with the actual amount determined by prorating daily from
day 61 to reach a maximum reduction of 75% at day 90. LS&CO. shall not be
obligated to release to CASI any amount in respect of the milestone if CASI
does not achieve it within 90 days after the specified achievement date.
(b) CASI shall notify LS&CO. in writing whether or not it has
met each milestone described in Section 9.3(b) or 9.8(a) and the amount it
believes is owing in respect of that achievement. If CASI states that it has
met a milestone, then LS&CO., within 30 days after receipt of that notice,
shall notify CASI of LS&CO.'s concurrence with or rejection of that
statement. If LS&CO. concurs, LS&CO. shall pay CASI the appropriate amount
within five days after sending its "concurrence" notice. (In addition,
LS&CO. shall not going forward continue retaining amounts in respect of "now-
met" Section 9.8 milestones.) If LS&CO. expressly rejects CASI's assertion
that CASI has met a milestone, or does not give any notice to CASI during
that 30-day period, then CASI and LS&CO. shall meet within five days after
rejection or expiration and resolve the problem. LS&CO. thereafter shall
promptly pay to CASI any amounts they have agreed are owing.
9.9 Effect of Partial Payment. Payments by LS&CO. (including the
Final Payment) of course shall not be considered approval or acceptance of
all or any portion of the Project or relieve CASI of any of its obligations
under this Agreement.
9.10 Right to Withhold. LS&CO. shall not be obligated to make
payment to CASI of any Application for Payment to the extent that:
(a) any amounts are due and owing by CASI to LS&CO. under
Section 11.2, it being understood that the amount withheld shall not exceed
the amount owing and that the withhold is subject to the limitations
contained in Section 11.5;
(b) Any part of the Application for Payment is attributable
to Work which is defective or not performed in accordance with this
Agreement, it being understood that LS&CO. will pay for Work which is
performed in accordance with the Basic System Documents, Completion Documents
and related plans and specifications and is not defective;
(c) CASI has failed to make payments to Vendors for material
and labor used in the Work for which LS&CO. has already made payment to CASI
and CASI has no valid reason (for example, breach by the Vendor) for that
non-payment;
(d) The portion of the Compensation then remaining unpaid
(including retentions) in LS&CO.'s good faith opinion will not be sufficient
to complete the Work in accordance with the Basic System Documents and CASI
has not submitted an acceptable plan to LS&CO. for "covering the difference";
or
(e) LS&CO. has declared a Completion Risk Event under Section
15.
Upon correction of these problems, LS&CO. will pay the amounts withheld,
less the dollar amount of any loss or damage it incurred.
9.11 Disputes; Interest. If LS&CO. withholds any portion of an
Application for Payment and the dispute is later resolved in favor of CASI,
then LS&CO., promptly after resolution of the dispute, shall pay interest (on
the amount determined to be owing to CASI) from the date which is five days
after the date the payment was due, and that interest shall be added to the
principal of the disputed amount. This interest shall accrue against the sum
due at the rate equal to the then reference rate ("prime rate") of interest
being charged by Bank of America at its San Francisco banking office plus 1%,
but not in excess of the maximum rate allowed by law. In all events, and
assuming that LS&CO. is not in material breach of its payment obligations
under Section 9, CASI shall not stop or alter Work during the time these
disputes are being handled. It is understood that if LS&CO. withholds
payments on the basis of a good faith "colorable claim" under Section 9.10,
then that withhold, even if later resolved in favor of CASI, shall not be
considered a "material breach" of LS&CO.'s payment obligations under Section
9 and therefore grounds for neither Work stoppage nor termination under
Section 15.2.
9.12 Final Payment. After development of the punchlists described
in Section 7.2, for each of the first two Systems to be completed, CASI shall
prepare a final Application for Payment for that System. It shall as usual
reflect an estimate of remaining charges (that is, the remaining portion of
the Compensation attributable to that System, including charges for
completion of the punchlist work), Reimbursable Taxes then due, retention
amounts releasable (if at all), retention amounts not yet releasable
(including as described in the last two sentences of this Section 9.12) and
remaining amounts payable, if any, in respect of Licensed Software
Development Activities. LS&CO. shall not be obligated to make this "Final
Payment" until all of these requirements are satisfied with respect to that
System:
(a) CASI has completed all Work in accordance with this
Agreement and the System Documentation (except of course for the Work
described in the last paragraph of Section 9.12);
(b) CASI has delivered final lien waivers from itself and all
Major Vendors;
(c) there exists "System Final Acceptance" of the System;
(d) CASI has delivered to LS&CO. its written certification,
and supporting documentation, if requested, that CASI has paid in full all of
its bills and claims against it relating to the System, and all Reimbursable
Taxes, except for those identified in the certificate or otherwise approved
by LS&CO.;
(e) CASI has discharged (or bonded against) all liens filed
against LS&CO. or any Building as a result of the Work on the System and has
delivered to LS&CO. complete and final lien releases from, or bonds relating
to, all Major Vendors; and
(f) CASI has provided LS&CO. with the documentation and
information described in Exhibit V and with keys for any locks relating to
that System, it being understood that CASI has other post-Final Payment
documentation obligations (for example, "as-built" drawings).
That said, LS&CO. may retain amounts in respect of two CASI post-acceptance
obligations. First, CASI must complete minor punchlist work. LS&CO. may
retain, until that work is completed, an amount equal to 200% of the
estimated cost of that work. Second, CASI must deliver, within 90 days after
individual System Final Acceptance, "as-built" drawings for that System.
LS&CO. may retain, until those drawings are delivered, an amount equal to
$25,000. LS&CO. will pay these retained amounts upon completion and approval
of the drawings.
9.13 Final Final Payment. At the time CASI prepares the punchlists
for the last of the Systems to be completed, it shall prepare an Application
for Payment for that System on the basis described in Section 9.12, and shall
reflect in that application any additional amounts (for example, the
retentions relating to earlier-completed Systems, the final software
milestone payment or the Incentive Payment) that may be releasable or payable
by reason of Project Final Acceptance. LS&CO. will not be obligated to make
this "Final Final Payment" until all of the requirements described in Section
9.12(a)-(f) are satisfied for that last System and requirements (d) and (e)
remain satisfied with respect to the other two Systems. Upon satisfaction of
those requirements, LS&CO. will make the Final Final Payment to CASI. (The
minor punchlist and as-built rules described in Section 9.12 shall be
applicable to this last System to be completed.)
9.14 Tax Matters
(a) Subject to Section 9.14(b), CASI shall:
- administer and pay all Reimbursable Taxes when
due;
- cooperate with LS&CO. in planning for Subject
Taxes and execute those plans, using in all cases
reasonable efforts to minimize the amount of
Subject Taxes and any related penalties, interest
or other assessments, with those efforts
including, without limitation, the actions
described in Exhibit Z;
- cooperate with LS&CO. in any dispute relating to
Subject Taxes, whether at any administrative or
judicial level (with expense reimbursement from
LS&CO. except as provided in Section 9.14(b));
- advise LS&CO. within 15 days after it is
notified, formally or informally, of any such
dispute;
- permit LS&CO. at LS&CO.'s discretion to control
any such proceeding, provided that LS&CO. shall
be liable for all additional Subject Taxes,
including interest and penalties, that may
result;
- discharge at its expense any liens relating to
Reimbursable Taxes attaching because of its
failure to pay Reimbursable Taxes for which
LS&CO. has paid CASI;
- account for and use its best efforts to cause its
Major Vendors to account for the costs associated
with the Work (for example, those relating to
purchases of System components or installation
services) using accounting methods and
conventions reasonably requested by LS&CO.; and
- be responsible for any of its taxes associated
with the Work other than the Reimbursable Taxes,
including, without limitation, income, gross
receipts and like taxes, and, as contemplated by
Section 16.14, unemployment, social security and
other taxes relating to its employees.
"Subject Taxes" means sales, use, service, service use, value added, personal
property, asset, contractor, lease, license, customs, duties, imposts or like
assessments associated with the Work, including those relating to the
purchase and sale of System components, the purchase, lease or use of
installation equipment or attributable to services provided by CASI or its
subcontractors. "Reimbursable Taxes" means Subject Taxes which are actually
paid by CASI. They do not include income, franchise, social security,
unemployment compensation, workers' compensation or like taxes. That said,
the agreements described in the second, third, fourth, fifth and seventh
bullet-points shall also apply to LS&CO.'s federal and state income taxes as
they are affected by the Work.
(b) Reimbursable Taxes are pure "pass-through," actually-paid
costs; that is, LS&CO. shall timely reimburse CASI (without retention) for
these payments and they are not reflected in or in any way affect the
Compensation. LS&CO. shall through the payment process described in Sections
9.5-9.7 timely reimburse to CASI (without retention) all Reimbursable Taxes
and related interest, penalties and other charges. That said, if LS&CO. has
instructed CASI as to the filing and payment of any Reimbursable Taxes and
CASI has not taken the actions requested by LS&CO., then LS&CO. shall have no
obligation to reimburse CASI for any resulting penalties, interest or other
charges, or to reimburse CASI for CASI's expenses in cooperating with LS&CO.
to resolve the disputes or problems arising from these causes. Assuming no
conduct of that type on CASI's part, LS&CO. shall be responsible for all
Reimbursable Taxes, including related interest, penalties and other charges
determined or later assessed upon audit or the like, to the extent that
LS&CO. has not already been billed for and paid these amounts to CASI, and
LS&CO. shall reimburse CASI for CASI's out-of-pocket expenses in cooperating
with LS&CO. to resolve any dispute.
10. Warranty and Post-Acceptance Matters
------------------------------------
10.1 Introduction. Section 10 is about two subjects. CASI's
warranties about the Systems, and certain limitations on those warranties,
are described in Sections 10.2 and 10.3. Post-acceptance support
arrangements (as well as CASI's warranty corrective obligations) are
described in Sections 10.4 through 10.9. Post-acceptance support covers
CASI's role in Equipment, Hardware and Licensed Software maintenance,
Software Upgrades, System problem response and repair and employee training.
Warranty obligations, by their nature, are also "post-acceptance" activities,
in that they relate to problems with a System after that System's Final
Acceptance Date. In some measure, they overlap, because the CASI personnel
on site as described in Section 10.5 will be the first CASI resources to
address System problems that may have warranty implications. Because of this
overlap, and because of the critical importance of maintaining System
operation and performance, CASI and LS&CO. believe it efficient to focus
their post-acceptance relationship around problem response and employee
education.
10.2 Warranty. CASI warrants to LS&CO. that, with respect to each
System, when finally delivered and installed by CASI and accepted by LS&CO.
as of the System Final Acceptance Date for that System:
(a) that System, including each component of that System,
will be of new manufacture and consist of first-class parts and materials;
(b) that System, including each component of that System,
shall be free from all errors and defects, latent or patent, in parts,
material, workmanship, and design;
(c) that System shall meet the Completion Criteria for that
System;
(d) the Licensed Software installed for that System shall
perform as specified in the Performance Standards; and
(e) that System shall meet and, going forward, shall meet,
the Performance Standards.
10.3 Warranty Qualifications
(a) CASI's warranties about the Licensed Software do not
extend or apply to or include:
(i) problems caused by operation of the Licensed
Software on any hardware configuration, or in any operating environment
(for example, an operating system), other than as specified in the
Licensed Software Specifications (which provide for testing on the
computer hardware, operating system and upwardly compatible systems
platforms on which the Licensed Software is designed to run).
(ii) problems caused by operation of the Licensed
Software in conjunction with any computer program (for example,
"terminate and stay resident" utility programs) other than as specified
in the Licensed Software Specifications;
(iii) problems caused by any copy of the Licensed
Software that is modified by any person other than CASI or its Vendors;
(iv) problems caused by use of the Licensed Software
other than in accordance with the most current operating instructions
for that release as delivered by CASI to LS&CO.;
(v) problems caused by defects, problems or failures
of software not developed or provided (from third party vendors) by
CASI;
(vi) problems caused by bugs caused by the negligence
or unauthorized actions of LS&CO. or any other person except CASI or its
Vendors;
(vii) determining whether the Licensed Software will
achieve the results desired by LS&CO., except to the extent those
requirements are incorporated in the Performance Standards;
(viii) ensuring the accuracy of any input data provided
by parties other than CASI and used with the Licensed Software;
(ix) establishing adequate data backup provisions for
backing up LS&CO.'s data;
(x) establishing adequate operational backup
provisions (for example, alternate manual operation plans) in the event
of a defect or malfunction that impedes the anticipated operation of the
Licensed Software; and
(xi) problems caused by changes to the Licensed Source
not approved by CASI under Section 4.6(c).
(b) CASI's warranties about the Licensed Software also do not
include:
(i) any warranty that the functions performed by the
Licensed Software will meet LS&CO.'s requirements or will operate in the
combinations that may be selected for use by LS&CO., except to the
extent that those requirements are incorporated in the Performance
Standards;
(ii) any warranty that the operation of the Licensed
Software will be free of errors which do not materially affect
functionality as described in the Performance Standards; and
(iii) any warranty that all defects in the Licensed
Software that are not material with respect to functionality as
described in the Performance Standards will be corrected.
(c) CASI's warranties about the Equipment and Hardware do not
extend or apply to or include:
(i) problems caused by operation of the System,
including the Equipment and Hardware, other than in conjunction with,
and in accordance with the most current operating instructions for, the
most current Licensed Software delivered by CASI to LS&CO.;
(ii) problems caused by operation of the System,
including the Equipment and Hardware, in conjunction with any equipment
and hardware, other than as provided or approved by CASI;
(iii) problems caused by defects, bugs or failures of
equipment and hardware not provided or approved by CASI;
(iv) problems caused by any Equipment or Hardware that
is modified by LS&CO. or any third person except CASI or its Vendors;
(v) problems caused by use of the System, including
the Equipment and Hardware, other than in accordance with the most
current operating procedures, instructions and manuals therefor as
delivered by CASI to LS&CO.;
(vi) problems caused by maintenance or preventative
maintenance of the System, including the Equipment and Hardware, other
than in accordance with the most current procedures, instructions and
manuals therefor as delivered by CASI to LS&CO.;
(vii) problems caused by defects, bugs, failures or
problems that arise as a result of the failure to maintain, including
the failure to undertake and provide all preventative maintenance for,
the System, including the Equipment and Hardware, in accordance with the
most current procedures, instructions and manuals therefor as delivered
by CASI to LS&CO.
(viii) problems caused by defects, bugs, failures or
problems caused by normal wear and tear or the negligent or unauthorized
actions of LS&CO. or any other person except CASI or its Vendors.
(ix) determining whether the System, including the
Equipment and Hardware, will achieve the results or meet the
requirements desired by LS&CO., except to the extent that those results
or requirements are incorporated into the Performance Standards; and
(x) establishing adequate operational backup
provisions (for example, alternate manual operation plans) in the event
of a defect or malfunction that impedes the anticipated operation of the
System, including the Equipment and Hardware, it being understood that
this qualification does not limit the warranty with respect to the
defect or malfunction itself.
(d) CASI's warranties about each System, including Equipment,
Hardware and Licensed Software, are subject to the following:
EXCEPT AS EXPRESSLY STATED IN THIS SECTION 10, CASI MAKES
NO WARRANTIES, EXPRESS OR IMPLIED, BY OPERATION OF LAW OR
OTHERWISE, RELATING TO SYSTEM DESIGN, FABRICATION,
INSTALLATION, SUPPORT, PARTS, MATERIALS, WORKMANSHIP OR
OPERATION, INCLUDING, WITHOUT LIMITATION, IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE OR ARISING FROM A COURSE OF DEALING OR
USAGE OF TRADE.
LS&CO. acknowledges that this waiver of implied warranties is "conspicuous"
within the meaning of Section 2316(2) of the California Commercial Code.
(e) CASI shall not be responsible or liable, and shall not
make any allowances, for any warranty or post-acceptance support services, or
other work, performed by any third party other than Vendors or other persons
retained by CASI to perform the activity. That said, CASI shall be
responsible for the performance and outcome of work performed by LS&CO.
employees under CASI's supervision as contemplated by Section 10.5.
10.4 Warranty Obligation
(a) CASI shall, during the applicable Warranty Period for
each System, at its cost and expense, remedy, repair or replace (with new
first class or fully refurbished parts and materials), any defective or non-
conforming Equipment, Hardware or Licensed Software, correct any defective or
non-conforming workmanship and take any other necessary actions, to ensure
that that System conforms to the warranties described in Section 10.2, as
qualified in Section 10.3. Sections 10.5 through 10.6 describe how CASI and
LS&CO. shall respond to System problems, including those requiring the
corrective work contemplated by the preceding sentence. The remainder of
this Section 10.4 describes other aspects of the warranty obligation.
(b) The warranty for each System begins on the System Final
Acceptance Date for that System and ends on midnight (Pacific time) on the
date of the first anniversary of that System Final Acceptance Date. That
one-year period is a "Warranty Period."
(c) LS&CO. must notify CASI of all warranty claims within 15
days after the end of the Warranty Period applicable to that System. As
described in Section 10.6, CASI and LS&CO. will during the Warranty Period
focus first on resolving problems with a System, and then on determining the
cause of the problem. Given that, the participation of On-site CASI
Personnel in evaluating and responding to a problem shall be considered
"notice of a warranty claim" to CASI. LS&CO. may also provide notice through
a formal writing delivered to CASI.
(d) All replacement parts and materials and all remedied or
corrected workmanship for a System shall be considered "warranted" as
otherwise provided in this Section 10 but only through and until the
expiration of the Warranty Period for that System.
(e) CASI shall do all of its warranty work in a good and
workmanlike manner using qualified personnel.
(f) As contemplated by Section 3.4(b), Vendor Agreements with
Major Vendors do and will include warranties made by the Major Vendor. At
the time of System Final Acceptance of a System, and without further action,
CASI shall be considered to have assigned those warranties to LS&CO. CASI
shall at LS&CO.'s expense provide all assistance reasonably requested by
LS&CO. in enforcing those warranties. In addition, CASI, upon its receipt of
any third party service manuals or non-Major Vendor warranties relating to a
System, shall provide those manuals to LS&CO., and shall be considered to
have assigned those warranties to LS&CO. to the extent assignable. The
warranty assignment and assistance provisions provided for in this Section
10.4(f) are not intended to relieve CASI of any of its warranty obligations,
but they are simply designed to ensure another "avenue of recourse" for
LS&CO. with respect to those elements.
10.5 Post-Acceptance Support
(a) During a Warranty Period for a System, CASI shall
maintain at that CSC, for the times and purposes described in Exhibit X, the
personnel identified in Exhibit X (referred to as the "On-site CASI
Personnel") and shall perform the services described in Exhibit X. In
addition, CASI shall provide home office support described in Exhibit X. If
LS&CO. should require additional CASI (on-site) software personnel, then
LS&CO. shall so notify CASI and CASI shall reasonably supply them. LS&CO.
shall pay CASI for reasonable travel and living expenses of these additional
software personnel and their burdened direct labor cost, with a mark-up of a
1.5 multiplier applied to the direct labor and a 1.25 multiplier applied to
travel and living expenses. CASI shall promptly supply LS&CO. with any
supporting documentation reasonably requested by LS&CO. relating to CASI's
costs and charges.
(b) During the applicable Warranty Periods, LS&CO. shall make
available LS&CO. maintenance personnel at each CSC for supervision and
training by CASI. In order to facilitate the training process, these LS&CO.
personnel will in most cases perform ("hands-on") warranty corrective work
and routine maintenance activities. The On-site CASI Personnel will in those
cases plan and supervise their work, and CASI shall be responsible for its
performance and outcome. The On-site CASI Personnel also will work with the
LS&CO. personnel during the Warranty Periods to establish a full tailored
schedule of regular inspection and preventative maintenance procedures for
each System.
10.6 Problem Response
(a) If a problem with a System arises during a Warranty
Period, LS&CO. shall promptly notify the On-site CASI Personnel. CASI shall,
using whatever combination of On-site CASI Personnel, CASI home office
personnel, LS&CO. personnel and other persons it finds appropriate, identify
and, working with the LS&CO. personnel at the CSC, address, discharge any
related warranty obligations and otherwise attempt to resolve the problem in
the manner described in this Section 10. CASI shall perform all of these
activities in a good and workmanlike manner using qualified personnel.
LS&CO. shall make, at its expense, adequate space and utilities available to
CASI in order for CASI to do this work. CASI's use of spare parts maintained
at a CSC in doing this work is described in Section 8.3.
(b) During a Warranty Period, CASI's key objective in
responding to any problem (whether or not it is covered by CASI's warranty)
shall be the prompt and efficient correction of the problem (and attempted
correction of non-warranted problems) at minimal disruption to CSC
operations. (For example, CASI shall attempt to supply a temporary fix or
make a reasonable attempt to make an emergency bypass of the problem with the
Licensed Software if it yields incorrect results as it works on developing a
"permanent" fix.) As such, if it is later determined that the problem is not
covered by CASI's warranty (for example, if the problem resulted from misuse
of the System or as a result of a subject described in the warranty
qualifications contained in Section 10.3), LS&CO. shall promptly pay CASI for
that repair work. LS&CO. shall pay CASI for reasonable travel and living
expenses of its personnel and the burdened direct labor cost of the
individual or individuals who perform such (non-warranty-related) corrective
services, with a mark-up of a 1.5 multiplier applied to the direct labor and
a 1.25 multiplier applied to travel and living expenses. The "causation"
analysis as to whether a problem is or is not covered by CASI's Warranty and
any payment reconciliation shall not delay CASI's attempt to resolve the
problem. CASI makes no guaranty that it can satisfactorily fix or resolve
problems not covered by its warranty, and CASI offers no warranty with
respect to CASI repairs of non-warranted problems.
(c) CASI shall consult with LS&CO. about these activities
and, consistent with its "minimal disruption" objective, shall not take any
action that would affect System or CSC operations without first obtaining
LS&CO.'s approval of the activity.
10.7 Other Post-Acceptance Software Matters
(a) In addition to the on-site and remote support of the
Licensed Software contemplated by Section 10.5, CASI shall, going forward,
make available to LS&CO. for purchase all Maintenance Releases and Software
Upgrades developed by CASI, and related education and installation support,
relating to the Licensed Software. These Maintenance Releases and Software
Upgrades shall include both the relevant source code and object code. If
LS&CO. chooses to buy any Maintenance Releases or Software Upgrades, the
source code and object code automatically shall become part of the Licensed
Software Source Code and Licensed Software Object Code under this Agreement,
which LS&CO. is obligated to protect under Section 4.7 of this Agreement.
(b) CASI will price the Maintenance Releases and Software
Upgrades on the basis of standard CASI pricing methodology and standard
industry mark-ups. That said, the price shall not exceed the lowest per site
price CASI charges any of its other customers, and LS&CO. need pay only one
"per site" fee in order to be able to use the Maintenance Releases and
Software Upgrades at all three CSCs. In addition, CASI will provide
Maintenance Releases to LS&CO. free of charge during the Warranty Periods, it
being understood that supply of those Maintenance Releases shall not operate
to lengthen any Warranty Period. CASI will also supply to LS&CO., free of
charge, error corrections known to CASI relating to the Licensed Software as
they may be developed by CASI.
(c) CASI will provide LS&CO. with standard warranties,
subject to standard limitations and exclusions, about the Maintenance
Releases and Software Upgrades purchased by LS&CO. In particular, CASI will
warrant to LS&CO. that the Maintenance Releases and Software Upgrades will
not materially degrade the performance or functioning of the Licensed
Software, or materially impair (after an initial learning period) LS&CO.'s
ability to support the operation of the Licensed Software, all in accordance
with the Performance Standards.
(d) CASI acknowledges that it cannot, during the Warranty
Period, offer to LS&CO. more than two CASI-initiated Maintenance Releases, or
more than one CASI-initiated Software Upgrade.
(e) The Maintenance Release and Software Upgrade obligations
described in this Section 10.7 are not "Warranty Period" rules and are not
subject to CASI and LS&CO. being party to a "post-Warranty Period" service
agreement contemplated by Section 10.9.
10.8 Training. During the applicable Warranty Periods, the On-site
CASI Personnel shall provide in-depth and on-going operational, preventative
maintenance and maintenance training and education to LS&CO. personnel. CASI
and LS&CO. shall jointly develop the curriculum, teaching materials and
schedule for these training programs. In addition, as contemplated by
Section 10.6, LS&CO. personnel shall be free to participate in diagnostic and
repair work as part of their general "System education" efforts. Additional
information about Licensed Software training is contained in Exhibit B.
10.9 Post-Maintenance Support after Warranty Periods. LS&CO. shall
advise CASI, at least 90 days prior to the expiration of the Warranty Period
for each System, if LS&CO. wants CASI to continue to provide any or all of
CASI's Equipment, Hardware and/or Licensed Software support services, on a
full-time or limited basis, after the expiration of the applicable Warranty
Period, for that System. If it does, then CASI shall provide LS&CO. with a
proposed price for those requested services. CASI's pricing for the
requested services shall be on the basis of standard CASI pricing methodology
and, if applicable, good faith adjustments. If LS&CO. accepts CASI's
proposed pricing, at least 30 days before the end of the applicable Warranty
Period, then CASI shall provide the agreed-upon services without
interruption. Otherwise, CASI shall have no obligation to continue to
provide any post-Warranty Period services for LS&CO.
11. Liability
---------
11.1 Insurance
(a) From now until the Project Final Acceptance Date, CASI
shall obtain and maintain in force these insurance coverages:
(i) Worker's Compensation Insurance, including
occupational illness or disease coverage, or other similar social
insurance in accordance with the laws of the state exercising
jurisdiction over the employee and Employer's Liability Insurance with
a limit of $5,000,000 per occurrence.
(ii) Commercial General, Automobile and Excess
Liability Insurance, written on occurrence policy forms, with a minimum
total combined single limit of $20,000,000 per occurrence for bodily
injury and property damage. Contractual Liability, Products and
Completed Operations Liability, Broad Form Property Damage Liability,
and explosion, collapse and underground hazard coverage shall be
provided under the Commercial General and Excess Liability policies.
The policies shall be endorsed to name FD and LS&CO. and their
affiliates as additional insureds.
(iii) Tools and Equipment Insurance, covering physical
damage to or loss of all major tools and equipment, office furniture and
equipment, and vehicles for which CASI is responsible throughout the
course of the work.
(b) The insurance coverages obtained by CASI shall be primary
and non-contributing with respect to any other insurance or self insurance
which may be maintained by LS&CO. Contractor's Commercial General Liability
and Automobile Liability Insurance policies shall contain a cross-liability
or severability of interest clause. CASI shall obtain from each of its
insurers a waiver of subrogation in favor of FD and LS&CO. and their
affiliates with respect to losses arising out of or in connection with the
Work. CASI shall cause its insurance underwriters to issue Certificates of
Insurance satisfactory in form to LS&CO. (ACCORD form or equivalent)
evidencing that the coverages, coverage extensions, policy endorsements and
waivers of subrogation required under this Agreement are maintained in force
and that not less than 30 days written notice will be given to LS&CO. prior
to any material modification or cancellation of the policies. CASI shall
provide LS&CO. with certificates of insurance evidencing that all coverages
required under this Agreement have been procured and are in effect. A
description of CASI's coverages is attached as Exhibit O.
(c) CASI shall be responsible for seeing that Kosan
Crisplant, a Major Vendor, obtains and maintains appropriate Ocean Marine
Cargo Insurance covering materials and equipment that Kosan Crisplant will
ship to the Buildings; LS&CO. shall bear no risk of loss or in any way be
responsible in those materials or shipments. CASI shall obtain and provide
to LS&CO. upon request the related certificates of insurance and like
evidences of coverage. From now until the Project Final Acceptance Date,
LS&CO. shall be responsible for seeing that FD obtains and maintains adequate
and appropriate transit insurance covering all materials FD is responsible
for shipping to the Buildings under Section 6. CASI shall not be
responsible for obtaining that insurance. LS&CO. shall also be responsible
for seeing that FD provides to CASI upon request the related certificates of
insurance and like evidences of coverage.
(d) It is understood that FD has obtained Builder's Risk
Insurance under which both CASI and LS&CO. are additional named insureds.
CASI shall supply FD with information reasonably requested by FD in
connection with that Builder's Risk insurance including, without limitation,
charges for CASI and Vendor materials and equipment for purposes of
declarations of values to the carrier. From now until the Project Final
Acceptance Date, LS&CO. shall be responsible for seeing that FD maintains
that insurance. CASI shall not be responsible for obtaining any Builder's
Risk Insurance. LS&CO. shall also be responsible for seeing that FD provides
to CASI upon request the related certificates of insurance and like evidences
of coverage.
(e) It is understood that the insurance coverages obtained by
FD described in Sections 11.1(c) and (d) shall be primary and non-
contributing with respect to any other insurance or self insurance which may
be maintained by CASI and that FD shall obtain, from each of these insurers,
a waiver of subrogation in favor of CASI with respect to losses arising out
of or in connection with losses insured by that insurance. Finally, it is
understood that a complete lapse in the Builder's Risk coverage for CASI
shall be treated as a "suspension" under Section 15.4, and that LS&CO. shall
be responsible for arranging these FD-supplied coverages should FD fail to
obtain and maintain them.
11.2 Indemnity
(a) CASI shall defend, indemnify and hold harmless LS&CO. and
any of its employees or agents (together, the "LS&CO. Indemnified Parties")
from and against any and all claims, actions, liabilities, obligations,
damages, losses, demands, recoveries, deficiencies, costs or expenses,
including, without limitation, reasonable attorneys' fees and expenses,
(collectively, "Claims") which any of the LS&CO. Indemnified Parties may
suffer or incur connected with, resulting from or arising out of:
(i) the inaccuracy in any material respect of any
representation or the material breach of any warranty made by CASI in
this Agreement, any Exhibit or in any Application for Payment,
including, without limitation, the representation contained in Section
12.1(a);
(ii) any failure by CASI to perform, carry out or
comply with any of its material obligations under this Agreement;
(iii) any infringement or violation, or any alleged
infringement or violation, of any third party's Intellectual Property
Rights or other rights relating to any System, any component of any
System, any other aspect of the Work or LS&CO.'s possession or use of
any System in accordance with this Agreement; and
(iv) injury to any person or property related to
performance of the Work, including, without limitation, any negligent or
intentional act of CASI, anyone directly or indirectly employed by CASI,
any CASI-retained Vendor or anyone for whose act CASI may be liable, but
only to the extent that it is not caused by a LS&CO. Indemnified Party.
These indemnity obligations shall not limit or otherwise affect any other
right or obligation of CASI or any LS&CO. Indemnified Party.
(b) LS&CO. shall defend, indemnify and hold harmless CASI and
any of its employees or agents (together, the "CASI Indemnified Parties")
from and against any and all Claims which any of the CASI Indemnified Parties
may suffer or incur connected with, resulting from or arising out of:
(i) the inaccuracy in any material respect of any
representation or the material breach of any warranty made by LS&CO. in
this Agreement, any Exhibit or in any Application for Payment;
(ii) any failure by LS&CO. to perform, carry out or
comply with any of its material obligations under this Agreement,
including, without limitation, its obligations under Sections 4.7 and
14;
(iii) the acts of FD (or any person for whose act FD may
be liable) under this Agreement, other than breaches by FD of its
separate confidentiality agreement with CASI, to the extent that CASI in
Section 6.2(c) has released FD from liability therefor;
(iv) injury to any person or property related to
performance of the Work caused by LS&CO., including, without limitation,
any negligent or intentional act of LS&CO., anyone directly or
indirectly employed by LS&CO., or anyone for whose act LS&CO. may be
liable, but only to the extent that it is not caused by a CASI
Indemnified Party;
(v) any changes made by LS&CO. to the Licensed
Software Source Code not pre-approved in writing by CASI; and
(vi) CASI's access to LS&CO.'s host computer and
software (for example, claims by third party licensors to LS&CO. of that
software).
These indemnity obligations shall not limit or otherwise affect any other
right or obligation of LS&CO. or any CASI Indemnified Party.
11.3 Mechanics. These are the mechanics of the indemnity rules:
(a) An indemnified party shall promptly notify the
indemnifying party of a claim but failure or delay by the indemnified party
in giving this notice shall not reduce or otherwise affect the indemnifying
party's indemnification obligations, except to the extent that the failure or
delay shall have materially prejudiced its ability to defend against, settle,
or satisfy the Claim or materially increased the cost of doing so.
(b) The indemnifying party at its expense shall have the
right to pay, compromise, settle or otherwise dispose of any Claim. Unless
the indemnified party otherwise agrees, however, no settlement shall limit,
restrict or otherwise affect the right of the indemnified party to carry on
or conduct its business (then or in the future) or require any payment to be
made by any indemnified party, or limit, restrict, make more expensive or
less profitable or otherwise adversely affect the manner in which the
indemnified party carries on or conducts its business (then or in the
future). In addition, the indemnifying party shall not enter into any
settlement which does not include the delivery by the settling third party of
a full and final release of all of the indemnified parties from any and all
liability with respect to the Claim.
(c) The indemnifying party at its expense shall defend,
subject to the indemnified party being able to reasonably monitor and
participate in such defense (including the selection of counsel reasonably
satisfactory to both), the indemnified party from any Claims. The
indemnified party at all times may employ its own counsel, but the fees and
expenses of this counsel shall be at the indemnified party's own expense
unless the indemnifying party authorizes the employment in connection with
the defense of Claims, or unless the indemnifying party has not employed
counsel to take charge of the defense of any Claims within a reasonable
period after receiving notice of the Claim; the indemnifying party shall pay
in both the cases the fees and expenses of this counsel. That all said,
LS&CO. may in its sole discretion decide to defend a Claim itself and thereby
not "tender" the defense to CASI, but with the consequence that CASI shall
not be obligated to indemnify LS&CO. in respect of that Claim or its defense.
(LS&CO. of course may pursue what other remedies it may have against CASI
(for example, breach of representation) relating to that Claim.).
(d) CASI shall provide notice to LS&CO. immediately upon the
commencement or threat of any action brought against CASI whose outcome may
affect the rights of any LS&CO. Indemnified Party including, particularly,
actions relating to CASI's Intellectual Property Rights. LS&CO. shall
provide notice to CASI immediately upon the commencement or threat of any
action brought against LS&CO. whose outcome may affect the rights of any CASI
Indemnified Party.
11.4 Intellectual Property Rights Problems
(a) The validity and soundness of CASI's Intellectual
Property Rights in the System and the Work is obviously a critical concern
for both CASI and LS&CO. A third party whose rights are infringed could have
a claim for damages. That third party could stop or, even with a baseless
threat, delay completion of the Work. Ultimately, it could prevent LS&CO.
from using the System.
(b) Accordingly, this Agreement contains a number of rules
relating to the subject. Exhibit L is a list of CASI's patents. In Section
12.1(a), CASI formally confirms to LS&CO. that there is no basis for a third
party infringement claim. In Section 11.2(a)(iii), CASI confirms that it
will indemnify LS&CO. against any such claim. Section 11.4(c) addresses the
practical but critical issue of actual completion and use if there is a
problem, choate or inchoate.
(c) If a third party alleges, formally or informally, that
CASI or LS&CO. is or would infringe or violate that third party's
Intellectual Property Rights or other rights by reason of the design,
fabrication, installation or use of a System or any component of any System,
or by reason of any other aspect of the Work, or, if in LS&CO.'s reasonable
opinion, there exist circumstances suggesting the substantial likelihood or
possibility of such a claim, then CASI, at its expense and as approved by
LS&CO. shall: (i) procure for LS&CO., in form and content satisfactory to
LS&CO., the right to continue using the System; (ii) replace or modify the
System so that it becomes non-infringing, it being understood, however, that
the System as modified or replaced must continue to meet the Performance
Standards; or (iii) take those other actions as may be appropriate given the
credibility, scope and timing of the allegation or claim. Needless to say,
CASI shall fix the problem as quickly as possible and in a manner that is
approved by LS&CO. LS&CO., upon such a fix, shall not be entitled to
additional remedies against CASI for the Intellectual Property Rights
problem, unless of course the fix proves ultimately to be, or later becomes,
infringing, and LS&CO. faces a Claim to that effect.
11.5 Remedies
(a) This Agreement obviously creates a number of legal
obligations and exposures for both CASI and LS&CO. They believe it desirable
to both review and state the principal "remedies" for violations of those
obligations. That is the purpose of this Section 11.5.
(b) The first remedial principle is that, after Final
Acceptance of a System, LS&CO.'s sole remedy for liability of CASI with
respect to that System for defective design, fabrication, installation,
support, parts, materials, workmanship or operation of that System
(including, without limitation, the System's failure to later meet
Performance Standards or injury to property) shall be the warranty and
service remedies described in Section 10. This "exclusive remedy" rule shall
not apply, however, to problems associated with infringement or alleged
infringement by that System of a third party's Intellectual Property Rights
or with disablement or damage to the System by reason of any intentional act
of CASI, its employees, agents or representatives.
(c) The second remedial principle is that monetary damage
remedies are limited as both kind and amount. Neither CASI nor LS&CO. shall
be liable to the other for any indirect, loss of profit, loss of use, loss of
production, products liability, incidental, special or consequential damages
arising out of or in connection with any breach of any provision of this
Agreement, regardless of whether that party has been advised of the
likelihood of these damages arising from a breach. That said, this
limitation shall not apply to any claim:
- by CASI based on a disclosure of the Licensed
Software Source Code or Licensed Software Object
Code that is the result of a violation of Section
4.7; or
- by LS&CO., directly or by way of indemnification,
arising from a breach of the representation
contained in Section 12.1(a) or the
indemnification obligation contained in Section
11.2(a)(iii).
MOREOVER, LS&CO.'S CUMULATIVE LIABILITY TO CASI, AND CASI'S CUMULATIVE
LIABILITY TO LS&CO., FOR ANY AND ALL BREACHES OF OR OTHER MATTERS RELATING TO
THIS AGREEMENT (INCLUDING, WITHOUT LIMITATION, THE MATTERS NOTED IN THE
PRECEDING BULLET-POINTS, AMOUNTS THAT MAY BE OWING UNDER THE INDEMNIFICATION
OBLIGATIONS CONTAINED IN SECTION 11.2 AND AMOUNTS THAT MAY BE OWING AFTER
"PURSUIT OF LEGAL REMEDIES" AS CONTEMPLATED AND PERMITTED BY SECTIONS 15.3
AND 15.6), SHALL NOT IN EITHER CASE EXCEED $10 MILLION. (THIS CAP DOES NOT
AFFECT ANY AMOUNTS THAT MAY BE OWING BY LS&CO. TO CASI UNDER SECTION 9 OR IN
RESPECT OF DEMOBILIZATION COSTS UNDER SECTION 15.)
(d) The third remedial principle is that, subject to these
restrictions including the restrictions on monetary damages, both CASI and
LS&CO. shall be entitled to pursue whatever other remedies may be available
to it for breaches of obligations created under this Agreement, whether those
remedies are expressly created here or are otherwise available under
applicable law. To be clear about those "otherwise available" remedies:
- Both CASI and LS&CO. shall be entitled to seek
injunctive relief for breaches of the
confidentiality and public disclosure obligations
contained in Section 14, it being mutually
acknowledged that damages may be an inadequate
remedy.
- LS&CO. shall be entitled to injunctive relief
with respect to breaches of Section 12.2 and
15.6, it being acknowledged by CASI that damages
may be an inadequate remedy.
- CASI shall be entitled to injunctive relief with
respect to breaches of Section 4.7, 12.8 and
14.3, it being acknowledged by LS&CO. that
damages may be an inadequate remedy.
- LS&CO. shall be entitled to specific performance
of the provisions of Sections 4.6 and 15.6(b)
and, in that context, the rights of specific
performance and replevin contemplated by Section
2716 of the California Commercial Code.
- CASI shall be limited in its pursuit of claims
against FD as provided in Section 6.2(c).
This articulation of remedies for particular problems does not necessarily
mean that the same or similar remedies are not available for other types of
problems; this simply is intended to confirm CASI's and LS&CO.'s agreement
that the articulated remedies are and shall be available.
(e) The fourth remedial principle is that CASI and LS&CO.
shall try to resolve disputes, about both the Work (for example, Change
Orders, Force Majeure Conditions and Building-related developments) and the
interpretation of this Agreement, in good faith, quickly and by themselves.
To that end, they shall work through the "Management Team" process described
in Exhibit G. If there is a dispute not "within the jurisdiction" of the
Management Team (for example, a dispute about the "exclusivity" rule
described in Section 12.2), then each of their respective project managers
(presently, Robert Doty of CASI and John Serlin of LS&CO.) shall meet within
five days after written request by either party and try to solve the problem.
If they are unable to do so within 15 days after the meeting request, then
the chief executive officer of CASI and the head of logistics at LS&CO.
(presently, Jim O'Donnell of CASI and Dick Westrich of LS&CO.) shall meet
within ten days after expiration of that 15-day period. If they unable to
solve the problem within 15 days after their meeting, then either CASI or
LS&CO. may suggest that the problem be submitted to Judicial Arbitration and
Mediation Service, Inc., in San Francisco, for arbitration or mediation.
Neither CASI nor LS&CO. is required to accept that suggestion and, at that
point, may "pursue its legal remedies" as it sees fit.
(f) The fifth remedial principle is that, except in specific
and limited cases, CASI shall continue performing the Work, the various
licenses granted under Section 4 shall remain effective and LS&CO. shall
continuing paying CASI, during the pendency of any dispute or breach or
alleged breach of an obligation under this Agreement. To that end, CASI
shall not stop, delay or alter its Work during any such period unless the
problem is a material breach by LS&CO. of its payment obligations under
Section 9. (For example, CASI may not stop Work if LS&CO. has breached, or
CASI believes LS&CO. has breached, a confidentiality obligation under Section
14.) Similarly, LS&CO. shall not withhold any payments to CASI during any
such period except as specifically permitted under Section 9.10. (Section
15.7 explains the license termination rules.)
(g) The sixth and final remedial principle is that this
Agreement creates specific responses for particular problems. For example,
Section 9.10 provides for payment withholding in certain cases, and Section
11.2 contains specific entitlements and procedures for indemnification. In
specific but limited circumstances, CASI or LS&CO. may terminate this
Agreement or LS&CO. may declare a Completion Risk Event. Those matters are
described in Section 15.
12. Other Representations, Warranties and Agreements
------------------------------------------------
12.1 Representations and Warranties. CASI represents and warrants
to LS&CO. that:
(a) neither any System nor any material component of any
System, including any material component of the Equipment, Hardware and
Licensed Software, violates or infringes any Intellectual Property Right or
other right of any third party (as contemplated by Section 11.2(a)(iii),
these "materiality qualifications" do not limit CASI's indemnification
obligations);
(b) all three Systems and all components of all three
Systems, including the Equipment, Hardware and Licensed Software, and all
licenses granted to LS&CO., are and shall be free and clear of all security
interests, liens, claims or other encumbrances and CASI has not and will not
take any action, or allow any third party to take any action, that will or
may have the effect of placing a lien, security interest, claim or
encumbrance on any System or any System component or any license granted
under this Agreement, it being understood that Section 12.7 describes some
specific rules relating to mechanics' liens relating to the Work and should
be read as a qualification of this representation;
(c) all CASI employees or Vendors who have written or created
and/or who will write and create any Licensed Software or design any
Equipment or Hardware are or will be obligated to assign their rights to CASI
(an example of CASI's current assignment document is attached as Exhibit Q);
(d) running the Licensed Software will not require licensing
by LS&CO. of any software developed or sold by any person other than CASI
except as identified in Exhibit R;
(e) CASI is not a party to any litigation, arbitration or
other matter that may reasonably have a materially adverse affect on its
ability to timely complete the Project; and
(f) CASI is a corporation duly organized, validly existing
and in good standing under the laws of the State of California. CASI is
qualified to do business in and is in good standing in Nevada, Kentucky and
Mississippi. CASI has all requisite power and authority to own, lease and
operate its properties, to carry on its present business and to enter into
and perform this Agreement. The signing, delivery and performance by CASI of
this Agreement has been duly and validly authorized by all necessary
corporate action on the part of CASI. This Agreement constitutes a valid and
binding obligation of CASI and is enforceable against CASI in accordance with
its terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws that generally affect creditors and
except as may be limited by general principles of equity. The signing,
delivery and performance of this Agreement by CASI will not: (i) violate or
conflict with any provision of its articles of incorporation or bylaws, (ii)
violate, conflict with, result in a breach or termination of, or result in
the loss of any benefit under, any contract or other instrument to which CASI
is a party or by which it or any of its assets is bound, (iii) result in the
creation of any lien on any assets; (iv) violate any judgment, order,
injunction, decree or award that binds CASI or any of its assets or (v)
constitute a violation of law.
12.2 Exclusivity. To the extent permitted by law, from now until
January 1, 2000, CASI shall not design, install, sell, or otherwise make
available all or any part of the System, or any similar system, or permit
access to the Beta Site of any known or "reasonably should-be-known"
representative of VF Corp., Haggar Apparel Co. or Farah Manufacturing Co., or
any existing or future subsidiary, parent or affiliate or successor (by way
of merger, consolidation, liquidation, sale of substantially all assets or
material trademark license identified to CASI by LS&CO.) of any of those
companies.
12.3 McKesson Repayment. At least once every three months from now
until the Project Final Acceptance Date, CASI shall provide LS&CO. with
sufficient evidence that CASI has timely paid all monies due and owing to
McKesson Corporation with respect to CASI's prior repurchase of certain
license rights from McKesson Corporation.
12.4 Balance Sheet. From now until the Project Final Acceptance
Date, CASI shall: (i) within 45 days of the end of each CASI fiscal quarter,
provide LS&CO. with its unaudited balance sheet and (ii) within 75 days
after the end of each CASI fiscal year, provide LS&CO. with a balance sheet
audited by its outside accounting firm.
12.5 Material Litigation. From now until the Project Final
Acceptance Date, CASI shall provide written notification and information to
LS&CO. within 15 days of the filing by or service against CASI of any
litigation, arbitration or other proceeding by or against it, which
litigation, arbitration or other proceeding could reasonably have a
materially adverse effect upon CASI's ability to timely complete the Work in
accordance with this Agreement or could result in a judgment of the type
described in Section 15.5.
12.6 Title. Title to any piece of Equipment or Hardware shall pass
from CASI to LS&CO. upon its delivery to and placement within the Building.
Risk of loss to any piece of Equipment or Hardware shall pass from CASI upon
delivery to the shipper. (That said, CASI shall be responsible for any
damage it may cause to those materials once there arrive at the Buildings,
including, for example, damage caused by unpacking, improperly storing them
or moving them.)
12.7 Liens
(a) Every time CASI delivers a Reconciliation Statement, CASI
shall provide to LS&CO. a partial lien waiver (excluding amounts retained),
in the various forms required by applicable laws, relating to the period
covered by the Reconciliation Statement. In addition, CASI shall provide
LS&CO. with partial lien waivers and similar documents that may be reasonably
requested by LS&CO.'s title insurers, lenders and the like.
(b) CASI shall promptly pay its Vendors and taxing
authorities. It shall keep the Work-in-progress and Buildings free and clear
of liens or other claims by Vendors or taxing authorities relating to
Reimbursable Taxes. In all events, if at any time a notice of lien is filed
against LS&CO. by a Vendor or any other person for whom CASI is responsible,
CASI shall within 45 days discharge, remove or bond that lien or claim to
LS&CO.'s reasonable satisfaction. If it does not, LS&CO. may discharge or
otherwise dispose of the claim, and CASI shall reimburse LS&CO. for the
latter's costs and expenses in doing so, including reasonable attorneys'
fees. In addition, every time it delivers a Reconciliation Statement, CASI
shall provide to LS&CO. a partial lien waiver from each Major Vendor, in the
various forms required by applicable laws, relating to the period covered by
the Reconciliation Statement. If the Major Vendor refuses to provide such a
document, CASI shall promptly furnish a bond reasonably satisfactory to
LS&CO.
12.8 Document Ownership. LS&CO. confirms that CASI owns the Basic
System Documents and Completion Documents. LS&CO. is entitled to use them
only for purposes of the Project, including completion of the Systems if it
declares a Completion Risk Event and, in the case of the Basic System
Documents, operation of the Systems after installation. It is not entitled,
for example, to use them to equip an Additional Site. LS&CO. shall return
any Completion Documents in its possession after the earlier of the Project
Final Acceptance Date (that is, a CASI completion of the Project), a
termination by CASI of this Agreement under Section 15.2, LS&CO.'s
abandonment or completion itself of the installation of the Systems or, upon
CASI's request, the date six months after LS&CO., under Section 15.4,
directed CASI to suspend or reduce all or a substantial portion of the Work
and has not, during that six month period, directed CASI to resume
performance of all or a substantial portion of the remaining Work.
12.9 Beta Site. CASI operates a "Beta Site" at its Hayward
headquarters. It shall keep the Beta Site intact and in operation until the
later of one year after the Project Final Acceptance Date or the last day
CASI is obligated, under Section 10 or otherwise, to provide service or
maintenance activities to LS&CO. after the Project Final Acceptance Date.
(That said, CASI may propose to LS&CO. that the Beta Site be dismantled
earlier; CASI and LS&CO. shall jointly make a decision.) At the time of
"tear-down" of the Beta Site, CASI shall be entitled to keep all of its
components, other than the OCIS, Kosan sorter and Flexpac components; it
shall return those, at its expense, to LS&CO.
12.10 Little Rock. LS&CO. intends to retain CASI to customize and
install Mandate(R) software for use at LS&CO.'s Little Rock CSC. The terms
of that agreement shall be modeled on and consistent with the provisions in
this Agreement relating to Licensed Software, including Section 4, Section 10
and Section 12.1. LS&CO. and CASI shall try to complete and sign that
agreement by December 31, 1994; failure to do so shall not be considered a
breach of this Agreement by either LS&CO. or CASI.
12.11 Corporate Standing. From now until the end of the latest
Warranty Period to expire, CASI shall maintain its corporate existence, its
corporate "good standing" in California and its qualification to do business
and good standing in Nevada, Kentucky and Mississippi. This is important
because loss of any of those statuses could jeopardize CASI's ability to
perform Work or proceed against Vendors in those jurisdictions.
12.12 Work under the Letter Agreements
(a) As noted in the "Background" section, LS&CO. funded CASI
activities under the Letter Agreements. CASI did this work on LS&CO.'s
behalf and at LS&CO.'s risk; that is, LS&CO. was obligated to pay CASI
whether or not the research was successful, with no right to recover the
funds if was not and no warranties "backing up" the work. This Section
12.12(a) confirms that the licenses and other rights granted LS&CO. under
this Agreement encompass the intellectual property developed by CASI under
the Letter Agreements, including, without limitation, the analysis of
material flows, the basic design and "lay-out" of the System, the design of
individual System components and the related documentation. This Section
12.12(a) also confirms that the warranties contained in Section 10 apply only
to completed and "Finally Accepted" Systems (and not to work performed under
the Letter Agreements), and do not entitle LS&CO. to recover amounts or
otherwise "obtain redress" under the Letter Agreements.
(b) LS&CO., with (at LS&CO.'s expense) Andersen Consulting,
participated heavily in System design. Their contributions are reflected
throughout, particularly with respect to overall System layout and to the
design and ergonomic engineering of the various work stations. This Section
12.12(b) confirms that LS&CO.: (a) grants to CASI a perpetual, exclusive
(other than of course to LS&CO.), irrevocable, royalty-free, fully paid
license to use, in the Systems and in Flexmaster(R) design and installation
projects and any other systems for other CASI customers anywhere in the
world, all design elements, features and enhancements developed by LS&CO.
for the Systems, and (b) shall not assert against CASI any Intellectual
Property Rights, including, without limitation, patent rights arising under
any United States or foreign patent now owned by, or later issued or assigned
to, LS&CO., applicable to any of these design elements, features or
enhancements, or require any fees or royalty from CASI based upon any such
Intellectual Property Right. Finally, LS&CO. and Andersen Consulting shall
have no continuing obligations or responsibilities to CASI with respect to
any of these design elements, features or enhancements.
13. Ownership and Assignment
------------------------
13.1 CASI Principal Shareholders. Concurrently with the signing of
this Agreement, Holmes-Hally Industries and James V. O'Donnell (the
"Principal Shareholders") are entering into a separate agreement with LS&CO.
in the form attached as Exhibit W.
13.2 Assignments
(a) Neither CASI nor LS&CO. may assign its right or delegate
its duties under this Agreement without the prior written consent of the
other party, except that, as elaborated in Section 13.2(b), LS&CO. may,
without obtaining CASI's consent, do so to any person to whom ownership of
the Buildings may be transferred. In all cases, the assignee or delegee must
confirm in writing to the other party its agreement to be bound by this
Agreement, and no assignment or delegation shall relieve the assigning or
delegating party of any of its obligations. In addition, and in all events,
from now until the expiration of the last of the Warranty Periods, CASI shall
not issue any CASI securities or engage in any merger, consolidation or sale
of substantially all assets transaction, if that transaction would result in
the Principal Shareholders (or their permitted transferees, as contemplated
by Exhibit W) collectively owning securities representing less than thirty
percent (30%) of the voting control in CASI or the entity holding CASI's
assets, without LS&CO.'s prior written consent. LS&CO. shall not withhold
its consent if CASI can demonstrate to LS&CO.'s satisfaction that the
transaction would not jeopardize CASI's timely and complete performance of
its obligations under this Agreement.
(b) LS&CO. may transfer ownership of a Building and the
System located in the Building to an affiliate or to a third party. If it
transfers a System to an affiliate, then the affiliate shall be treated as a
"full" assignee and delegee under this Agreement. For example, it shall be
entitled to access the Licensed Software Source Code. If it transfers a
System to a third party, then the third party shall be entitled only to use
the Licensed Software Object Code for that System, and shall have no rights
to the Licensed Software Source Code, Licensed Software Base Code, Basic
System Documents or Completion Documents for use at the transferred site or
at any other location.
13.3 LS&CO. Ownership. LS&CO. confirms to CASI that it is a
wholly-owned subsidiary of Levi Strauss Associates Inc., a Delaware
corporation.
14. Confidentiality
---------------
14.1 Confidential Information
(a) CASI and LS&CO. are obviously telling each other a great
deal of sensitive information. For example, design of each System required
LS&CO. to share with CASI proprietary information about LS&CO. regional
distribution volumes. CASI, of course, "bared" its technology to LS&CO.
With that (and the sheer volume of data and paper exchanged over time) in
mind, CASI and LS&CO. agree to this set of rules:
(b) CASI shall not disclose to any third party any
Confidential Information provided by LS&CO. LS&CO. shall not disclose to any
third party any Confidential Information provided by CASI. That said, they
may disclose it only to those officers, directors, employees, accountants,
lawyers, lenders, investment bankers, Major Vendors and consultants as have
actual need for this information in connection with their involvement with
the Project. For example, CASI's lawyers, lenders and stockholders have no
"actual need" to see or use LS&CO. regional distribution volumes, and that
data shall not be made available to them. CASI and LS&CO. shall be
responsible for improper disclosures by their respective permitted third
party users and, of course, by their employees and other persons for whose
acts they may be liable. (FD is not considered a "third party user" under
this Section 14; the separate FD/CASI confidentiality agreement governs all
matters relating to the use by FD of CASI confidential information.)
(c) CASI and LS&CO. (and any of their permitted third party
users) shall use Confidential Information provided by the other solely in
connection with the evaluation, design, fabrication, installation and
performance of the Project and the operation and maintenance of the Systems.
(d) If there is an inadvertent disclosure or unauthorized use
of Confidential Information, CASI or LS&CO., as the case may be, shall take
all reasonable actions to prevent any further disclosure or unauthorized use.
This provision shall not be understood as requiring CASI or LS&CO. to file
any legal actions to enforce confidentiality or to prevent unauthorized use
of the Confidential Information.
(e) Any legally required disclosure (for example, in response
to a subpoena or governmental investigation or disclosure requirement) shall
not be considered a violation of these rules but the party facing that
disclosure obligation shall promptly advise the other party of the impending
disclosure.
(f) Neither CASI nor LS&CO. shall have any obligation to the
other with respect to any particular Confidential Information which is
disclosed to CASI or LS&CO. (the "receiving party") by the other if:
- the Confidential Information was known to the
receiving party at the time of initial
disclosure to the receiving party; or
- the Confidential Information is or becomes
publicly known or otherwise enters the public
domain through no wrongful act of the receiving
party; or
- the Confidential Information is received by the
receiving party from a third party which has no
obligation to maintain it in confidence; or
- the Confidential Information is later developed
independently by the receiving party without use
of any Confidential Information.
14.2 Price. CASI shall not, except as permitted by Section 14.1 or
as otherwise approved in writing by LS&CO., disclose to any person the amount
paid by LS&CO. to CASI for the development and installation of the Systems.
That said, CASI may disclose that the price paid by LS&CO. for the Work
exceeded $100 million, and it may disclose in its financial statements the
actual amount paid by LS&CO.
14.3 Access to Systems
(a) CASI, including its officers, directors, employees, sales
and marketing agents, other agents, suppliers, vendors, and potential
customers (other than the persons set forth in Section 12.2) may, upon at
least five days advance notice to LS&CO., enter the Buildings and view,
inspect and monitor the performance and operation of each of the Systems.
They may also visit the Little Rock CSC on the same basis.
(b) LS&CO. shall cooperate with CASI in order to allow the
Beta Site and each System to serve as showcase facilities for the
Flexmaster(R) system.
(c) CASI shall have the right to make one film of each System
(and of the Little Rock operation) (for a total of four films) following the
System Final Acceptance Date for that System. LS&CO. shall have the right to
approve the content of each film. LS&CO. shall cooperate with CASI in order
to allow CASI to make those films. CASI shall pay the cost of producing
those films. LS&CO. may, at its expense, obtain from CASI one or more copies
of the films for its own use. CASI shall not make any of the films available
to any of the persons identified in Section 12.2 prior to January 1, 2000.
15. Termination; Completion Risk Events
-----------------------------------
15.1 Generally. The termination rules in this Section 15 reflect
the theme of this Agreement: the Project is of enormous importance to both
CASI and LS&CO. From CASI's perspective, it must have the ability to "free
up" its (essentially fully-dedicated) resources and move on to new
opportunities if LS&CO. does not pay properly for the Work or if the Work is
suspended for an extended period due to Building construction, LS&CO.
"reconsideration" or other difficulties. From LS&CO.'s perspective,
installation of the System on a timely basis is critical to the success of
its reengineering efforts. Accordingly, it must have the ability typically
afforded to project owners: the ability to "step in" and complete a project
using the vendor's resources if the vendor fails to perform. This is a
complex and unpalatable (to both CASI and LS&CO.) scenario but one for which
the legal and commercial mechanics must be in place.
15.2 Termination by CASI. CASI may terminate this Agreement if:
(a) LS&CO. or LSAI becomes insolvent, makes a general
assignment for the benefit of creditors, files a voluntary petition of
bankruptcy, is wound up, liquidated or dissolved (voluntarily or otherwise
but not as part of a corporate internal reorganization), suffers the
appointment of a receiver for its business or assets or has a petition under
any bankruptcy or insolvency law filed against it and that petition is not
dismissed within 60 days; or
(b) LS&CO. breaches a material payment obligation under
Section 9 of this Agreement and fails to cure the breach within 10 days after
receiving written notice of the breach, it being understood that a proper
(or, as explained in Section 9.10, good faith "colorable claim") payment
withhold under Section 9.10 shall not be treated as such a "breach." CASI
shall effect the termination by providing to LS&CO. a written notice to that
effect. That termination will have the consequences described in Section
15.3.
15.3 Effect of Termination by CASI. These are the consequences of
a termination by CASI under Section 15.2: (a) on the effective date of the
termination, CASI will be discharged and free of all of its "going forward"
obligations under this Agreement, except for those contained in Sections 4.8,
9.14, 11.2(a)(iii), 11.3, 11.5, 12.7, 12.9, 14.1, 14.2, 15.3, 15.7, and
15.8; (b) on the effective date of the termination, LS&CO. will be
discharged and free of all of its "going forward" obligations under this
Agreement, except for those contained in Sections 4.7, 4.8, 9.14, 11.2(b),
11.3, 11.5, 12.8, 12.9, 12.12, 14.1, 15.3, 15.7, and 15.8; (c) LS&CO. shall
pay CASI for Work completed prior to the termination date and for
Demobilization Costs; (d) LS&CO. shall pay CASI all amounts retained in
respect of the Equipment Fixed Price and not yet paid under Section 9.8; and
(e) LS&CO. shall pay to CASI a percentage of all unpaid (whether or not
earned) Licensed Software milestone payments described in Section 9.3(b), up
to a maximum amount of $1,500,000 (that percentage shall be determined by
multiplying a fraction, the numerator of which shall be the number of days
from February 19, 1993 until the termination date, and the denominator of
which shall be 1,411 (that is, the number of days from February 19, 1993
until the scheduled Project Final Acceptance Date), times that remaining
unpaid amount)). CASI shall also be free to pursue its legal remedies and
shall not be obligated to return any amounts to LS&CO., unless of course
LS&CO. prevails on a counterclaim or the like in a legal proceeding.
15.4 Suspension
(a) LS&CO. may at any time, by giving written notice to CASI
as contemplated by Section 5.3, suspend the Work, or any portion of the Work,
at any or all of the Buildings. It shall pay CASI for completed Work and for
the reasonable out-of-pocket costs of standing-by and demobilization,
including cancellation charges of Vendors or rental of additional storage
space for Work-in-progress (together, "Demobilization Costs"), and work with
CASI in determining the appropriateness of redeployment of CASI resources to
other Buildings or other changes in the Work plan, Project Schedule or
Compensation.
(b) If at any time LS&CO. directs CASI to suspend or reduce
all or a substantial portion of the Work and that suspension or reduction
lasts for 60 days or more, then CASI may notify LS&CO. of its election to be
relieved from its obligations under Sections 3.2(b) and 3.3. If LS&CO. does
not within seven days after receipt of that notice direct CASI to resume all
or a substantial portion of the remaining Work, then CASI shall be considered
"free" of those Section 3.2(b) and 3.3 restrictions and, as a result, may
take on new projects and redirect its resources.
(c) In addition, on the date six months after LS&CO., under
this Section 15.4, has directed CASI to suspend or reduce all or a
substantial portion of the Work and has not, during that six month period,
directed CASI to resume performance of all or a substantial portion of the
remaining Work, LS&CO. shall pay CASI all amounts retained in respect of the
Equipment Fixed Price and not yet paid under Section 9.8, and shall pay to
CASI a percentage of all unpaid (whether or not earned) Licensed Software
milestone payments described in Section 9.3(b), up to a maximum amount of
$1,500,000 (that percentage shall be determined by multiplying a fraction,
the numerator of which shall be the number of days from February 19, 1993
until that six month date, and the denominator of which shall be 1,411 (that
is, the number of days from February 19, 1993 until the scheduled Project
Final Acceptance Date), times that remaining unpaid amount)). LS&CO. shall
also at CASI's request return to CASI all Completion Documents then in
LS&CO.'s possession.
(d) That all said, CASI shall during such a suspension or
reduction remain obligated to perform the Work and shall resume its
performance, in accordance with a mutually-agreed remobilization plan, upon
receipt from LS&CO. of a written notice to that effect. In addition, it is
understood that a direction by LS&CO. to CASI to delay or defer Work because
of Force Majeure Conditions is not a "suspension" or "reduction."
15.5 Completion Risk Events. LS&CO. may declare a "Completion Risk
Event" if:
- CASI becomes insolvent (other than as a result of a
material breach by LS&CO. of this Agreement), makes a
general assignment for the benefit of creditors, files a
voluntary petition of bankruptcy, is wound up, liquidated
or dissolved (voluntarily or otherwise), suffers the
appointment of a receiver for its business or assets or
has a petition under any bankruptcy or insolvency law
filed against it and that petition is not dismissed
within 60 days; or
- CASI breaches a material obligation under this Agreement
and fails to cure the breach within 30 days after
receiving written notice of the breach, provided that
the "cure date" shall be extended to 90 days (in total,
counting the first 30) if CASI is diligently working to
correct the problem throughout the entire 90 day period;
- Six or more of the 12 employees identified in Exhibit P
leave the employ of CASI (other than to join LS&CO. or
FD) in any six-month period and CASI fails to assign
replacements for each of them, satisfactory to LS&CO.,
within 90 days after each individual's departure;
- CASI suffers any judgment that exceeds its applicable
insurance coverage by more than $5,000,000 if that
judgment is not satisfied, superseded, discharged or
stayed (by appeal or otherwise) within 60 days after its
entry;
- CASI fails to achieve a Milestone Event within 30 days
after the scheduled date for that event, as that date may
be adjusted by Change Order (for example, one resulting
from a Force Majeure Condition), provided that the "cure
date" shall be extended to 90 days (in total, counting
the first 30) if CASI is diligently working to achieve
the Milestone Event throughout the entire 90 day period;
or
- Two or more of the Major Vendors terminate, cancel or
suspend their work under their Vendor Agreement, as a
result of a material breach by CASI of its obligations
under the applicable Vendor Agreement.
Before declaring a Completion Risk Event, LS&CO. shall send to CASI a written
notice of its intent to do so, including a brief explanation of its reasons.
At CASI's request, LS&CO. will participate in a meeting, to be held within
ten days after delivery of that notice, at which CASI may present a workplan
or whatever assurances it wishes to offer LS&CO. that CASI can complete the
Project in accordance with this Agreement and the Project Schedule, or short
of that, how it can participate in completion of the Project by reducing its
scope. For example, it may propose focusing on one or two System
installations, or on software development or System testing or training.
(This, in effect, is a preview of the discussions contemplated by Section
15.6(b).) In all events, within three days after that meeting, LS&CO. shall
advise CASI, in writing, that it has declared, or will not declare, a
Completion Risk Event. This decision shall be entirely within LS&CO.'s
discretion.
15.6 Effect of Declaration of a Completion Risk Event. LS&CO.
shall have two options if it declares a Completion Risk Event:
(a) First, it may abandon installation of the Systems and
terminate the Agreement. LS&CO. shall effect the termination by providing to
CASI a written notice to that effect. If it does that, then: (i) on the
effective date of the termination, CASI will be discharged and free of all of
its "going forward" obligations under this Agreement, except for those
contained in Sections 4.8, 9.14, 11.2(a), 11.3, 11.5, 12.2, 12.9, 14.1, 14.2,
15.6, 15.7 and 15.8; (ii) on the effective date of the termination, LS&CO.
will be discharged and free of all of its "going forward" obligations under
this Agreement, except for those contained in Sections 4.7, 4.8, 9.14,
11.2(b), 11.3, 11.5, 12.8, 12.12, 12.9, 14.1, 14.2, 14.3, 15.6, 15.7 and
15.8; (iii) LS&CO. shall pay CASI for Work completed prior to the
termination date (less proper withholds, if any, under Section 9.10); and
(iv) if the Completion Risk Event was on the basis described in the first or
second bullet points of Sections 15.5, LS&CO. shall be free to pursue its
legal remedies.
(b) Second, it may decide to complete the installation of the
Systems. In that case:
- If the Completion Risk Event "relates" to one
System only (for example, if CASI has "ignored"
one System in order to focus its resources on the
other two), LS&CO. and CASI shall attempt to
negotiate in good faith (but neither are bound to
enter into) a Change Order addressing the scope
and pricing of CASI's continued work on the
unaffected Systems. If, however, the Completion
Risk Event "relates" to more than one System,
LS&CO. shall not be obligated to participate in
such a negotiation. Unless the Completion Risk
Events is "Project-wide" (for example, as
described in the first, third and fourth bullet
points of Section 15.5) or "relates" to
development of the Licensed Software, CASI shall
be entitled to continue performing (and being
paid for) its Licensed Software Development
Activities under Section 4 and Section 9.3;
- LS&CO. may complete the development, installation
and testing of the Systems through use of its
rights under Section 4.6;
- CASI shall make its employees reasonably
available to LS&CO for consultation and LS&CO.
may solicit and offer employment to any CASI or
Vendor employee, it being understood that CASI
shall be considered to have waived its rights
with respect to any nondisclosure obligations
which it may have under any nondisclosure or
employment agreements with these employees or
Vendors to the extent necessary for these
employees to assist LS&CO. in completing the
Systems;
- CASI shall promptly deliver to LS&CO. complete
copies, in tangible or electronic form, of the
Licensed Software Source Code, the Licensed
Software Object Code, the Licensed Software Base
Code, the Basic System Documents and the
Completion Documents, in their most current form,
for purposes of completing the Systems and for
facilitating LS&CO.'s exercise of its rights
under Sections 4.3, 4.4, 4.5 and 4.6, it being
understood that use of the Basic System Documents
and Completion Documents is limited by Section
12.8;
- upon request by LS&CO., CASI shall assign to
LS&CO., in form and content satisfactory to
LS&CO., CASI's title to materials and equipment
for the Work and all Vendor Agreements and other
documents or authorizations required by LS&CO. to
complete the Systems, it being understood that
CASI shall remain solely responsible for any of
its pre-assignment obligations to Vendors and
other persons party to contracts being assigned
to LS&CO.;
- CASI will be discharged and free of all of its
"going forward" obligations under this Agreement,
except for those contained in Sections 4.8, 9.14,
11.2(a), 11.3, 11.5, 12.2, 12.9, 14.1, 14.2,
15.6, 15.7 and 15.8;
- LS&CO. will be discharged and free of all of its
"going forward" obligations under this Agreement,
except for those contained in Sections 4.7, 4.8,
9.14, 11.2(b), 11.3, 11.5, 12.12, 12.8, 12.9,
14.1, 14.2, 14.3, 15.6, 15.7 and 15.8;
- LS&CO. shall pay CASI for Work completed prior to
the termination date (less proper withholds, if
any, under Section 9.10);
- LS&CO. may be obligated to pay CASI additional
amounts for the Licensed Software as described in
the second bullet-point of Section 9.3(c); and
- if the Completion Risk Event was on the basis
described in the first or second bullet points of
Sections 15.5, LS&CO. shall be free to pursue its
legal remedies.
Additional implications are explained in Sections 9.3(c), 15.7 and 15.8.
15.7 Impact on Licenses
(a) In Section 4, CASI grants licenses to LS&CO. that permit
LS&CO. to use the Licensed Software Object Code, the Licensed Software Source
Code, the Basic System Documents and the Completion Documents. Those
licenses have various purposes. First, on the assumption that CASI will
complete the Project, they of course permit LS&CO. to use the Licensed
Software in operating and maintaining the Systems. Second, they permit
LS&CO. to complete and operate the Systems should LS&CO. declare a Completion
Risk Event and decide to complete the installations. Third, they permit
LS&CO. to use the Licensed Software Base Code at Additional Sites.
(b) "Termination" is a blunt concept in this context but its
impact on the licenses must be articulated:
- there is no impact on the licenses if LS&CO.
declares a Completion Risk Event and decides to
complete the installations (that is, they are in
existence and they all remain in effect);
- the licenses terminate if LS&CO. takes the action
described in Section 15.6(a); and
- the licenses terminate if LS&CO. materially
breaches its Licensed Software payment
obligations under Section 9.3 and on that basis
CASI terminates the Agreement under Section 15.2,
it being understood that CASI can terminate the
licenses for that reason only, regardless of
breach by LS&CO. of any other provision of this
Agreement, and it being further understood that
in no case may CASI terminate a license with
respect to an individual System after System
Final Acceptance or completion by LS&CO. of that
System. LS&CO. is free to prevent termination by
paying in full the amounts owing under Section
9.3.
If there is a revocation of the licenses, LS&CO. at CASI's request shall
return all Confidential Information relating to the Licensed Software, and
also copies of operating and maintenance manuals.
15.8 Effect on Other Provisions. The general provisions contained
in Section 16, including both "affirmative obligation" (for example, Sections
16.4 and 16.14) and "contract administration/interpretation" provisions (for
example, Sections 16.2 and 16.8) shall remain in effect for as long as other
(labeled in this Section 15, "going forward") obligations remain in effect
after a "termination" of this Agreement or declaration of a Completion Risk
Event. In addition, to the extent that CASI continues working after a
Completion Risk Event, the relevant provisions of this Agreement (for
example, Sections 3, 4 and 5-10) shall remain applicable to those activities
and deliverables.
16. Other Matters
-------------
16.1 Force Majeure. Any delays in or failure of performance by
LS&CO. or CASI, other than payment of money, shall not constitute a default
if and to the extent those delays or failures of performance are caused by
occurrences (collectively, "Force Majeure Conditions") beyond the reasonable
control of LS&CO., or CASI, as the case may be. These occurrences include,
without limitation: Acts of God or a public enemy; expropriation or
confiscation of facilities; compliance with any order or request of any
governmental authority; act of war; rebellion or sabotage or resulting
damage; fires, floods, explosions and accidents; riots or strikes or other
concerted acts of workmen, whether direct or indirect; delayed or inadequate
access to the Buildings; acts of the other party or of third parties; or any
causes, whether or not of the same class or kind as these, which are not
within the control of LS&CO., or CASI, respectively, and which by the
exercise of reasonable diligence, LS&CO., or CASI, respectively, is unable to
prevent. (That said, neither CASI nor LS&CO. is required to settle strikes
or other labor controversies by acceding to the demands of the opposing
party.) In all cases, no Force Majeure Condition shall be cause for a delay
in a Final Acceptance Date or other milestone date or an increase in the
Compensation unless CASI shall make a written claim to LS&CO. for an
extension of the applicable date or increase in the Compensation, as the case
may be, within 30 days of the occurrence giving rise to the claim, together
with an explanation of the reason for the delay or increase. (CASI need make
only one claim if there is a continuing delay.) Any claim by CASI for delay
or increase in the Compensation due to a Force Majeure Condition shall be
waived if not submitted by CASI within that 30 day period. If CASI makes a
timely claim, it shall concurrently or promptly after making that claim give
to LS&CO. a proposed Change Order, and CASI and LS&CO. shall handle that
proposal under Section 5. Force Majeure Conditions shall not relieve a party
of liability in the event of its failure to use reasonable diligence to
remedy the problem. No claim for delay shall be allowed for LS&CO.'s failure
to interpret the Basic System Documents until 30 days after written request
is made for that interpretation and then not unless the failure to provide
such interpretation is the sole cause of delay.
16.2 Notices. Before the Project Final Acceptance Date, any notice
under this Agreement shall be given by mail or by courier delivery or
facsimile transmission addressed to:
If to LS&CO.: Levi Strauss & Co.
c/o Fluor Daniel, Inc.
12790 Merit Drive, Suite 200
Dallas, Texas 75251
Attention: John Serlin, Project Leader
T: (214) 450-4570
F: (214) 450-4580
with copies to: Levi Strauss & Co.
1155 Battery Street, LS/5
San Francisco, California 94111
Attention: Keith Judd
T: (415) 544-7077
F: (415) 544-7922
Levi Strauss & Co.
1155 Battery Street, LS/7
San Francisco, California 94111
Attention: General Counsel
T: (415) 544-7411
F: (415) 544-7650
Fluor Daniel, Inc.
100 Fluor Daniel Drive
Greenville, South Carolina 29607-2762
Attention: S. P. Mitchell
T: (803) 281-5221
F: (803) 281-8818
Fluor Daniel, Inc.
12790 Merit Drive, Suite 200
Dallas, Texas 75251
Attention: M. S. Hopkins, Project Director
Levi Strauss & Co. Regional Distribution
Network Project
T: (214) 450-4100
F (214) 450-4101
If to CASI: Computer Aided Systems, Inc.
30991 San Clemente Street
Hayward, California 94544
Attn: James V. O'Donnell
T: (510) 429-2800
F: (510) 475-7481
with copies to: Anderson, Ablon, Lewis & Gale
3435 Wilshire Boulevard, Suite 2000
Los Angeles, California 90010
Attention: Harris D. Bass
T: (213) 388-3385
F: (213) 388-8432
Pettit & Martin
101 California Street
San Francisco, California 94111-5881
Attn: Robert Burke or Robert L. Nelson, Jr.
T: (415) 434-4000
F: (415) 982-4608
After the Project Final Acceptance Date, copies of notices need not be sent
to the two FD recipients. These addresses may be changed by delivery of a
notice to that effect to the other party. Notices given in the manner
contemplated by this Section 16.2 shall be considered "given" two business
days after deposit in the mail or the first business day after the date of
delivery to a courier or facsimile transmission, as the case may be.
16.3 LS&CO. Project Representative. LS&CO. shall designate a
LS&CO. Project Representative. On the date of this Agreement, that person is
John Serlin. The LS&CO. Project Representative and his or her designees
shall have the sole authority on behalf of LS&CO. to approve any Change
Orders. LS&CO. may change the designation of each LS&CO. Project
Representative by providing written notice to that effect to CASI.
16.4 Further Assurances; Records
(a) CASI and LS&CO. shall sign those other documents and take
those other actions as the other may reasonably request in order to effect
the relationships and activities contemplated by this Agreement and to
account for and document those activities.
(b) To that end, CASI shall account, on a System-by-System
basis, for all charges associated with the Work in a manner acceptable to
LS&CO., and shall maintain other appropriate records, as requested by LS&CO.,
relating to the Work. CASI shall keep its records for at least two years
after the Project Final Acceptance Date. CASI shall also use reasonable
efforts to see that its Major Vendors maintain appropriate accounting and
other records. LS&CO. may upon appropriate notice and with appropriate
"screening" devices in place (for example, to prevent disclosure of profit
margins and the like) review and copy those records as part of its regular
accounting, tax, financial, legal and related functions.
16.5 Time. Time is of the essence in this Agreement, including the
Project Schedule, each and every term of this Agreement, and each and every
date contained in the Project Schedule and this Agreement.
16.6 Lawyers. If there is any controversy, claim or dispute
between CASI and LS&CO. arising out of or relating to this Agreement that
results in the filing of a lawsuit, the prevailing party in that litigation
shall be entitled to recover from the loser its costs and expenses,
including, but not limited to, reasonable attorneys' fees and reasonable
expert fees incurred in connection with that matter. This rule applies only
if case is resolved by judicial action or arbitration; it does not apply if
the case is settled. CASI and LS&CO. confirm that they were each
represented by "big firm" and other counsel in the negotiation of this
Agreement.
16.7 Survival. Except as provided in Section 15, all
representations and warranties contained in this Agreement shall remain in
effect, regardless of any investigations or examinations made by or on behalf
of any party and shall survive the signing, delivery and termination of this
Agreement.
16.8 Severability. If any term, provision, covenant or condition
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the provisions shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
16.9 Interpretative Principles
(a) This Agreement contemplates a number of situations where
one party must obtain "approvals" or "consents" from, or is entitled to
"direct" or obtain documents or actions from, the other party. In order to
aid the readability of this rather lengthy and complex document, and in
recognition of principles of commercial law, LS&CO. and CASI did not include
the typical explicit "reasonableness" qualifications to those provisions.
It is understood that, except where specifically stated, all of those
entitlements and decisions are subject to a "commercial reasonableness"
standard.
(b) Similarly, this Agreement contains a number of provisions
whose effect and meaning is affected by other provisions. Rather than
seeding the document with numerous "subject to" or "unless suspended or
terminated" phrases and the like, CASI and LS&CO. decided to state more
generally their intent and rely on principles of contract interpretation,
including particularly that articulated in Section 1641 of the California
Civil Code ("the whole of a contract is to be taken together, so as to give
effect to every part, if reasonably practicable, each clause helping to
interpret the other").
16.10 Conflicting Provisions. If there is any conflict between this
Agreement and any of the Exhibits, then the text of this Agreement shall
control.
16.11 No Third Party Benefit. This Agreement is for the exclusive
benefit of LS&CO. and CASI and not for the benefit of any third party.
16.12 Entire Agreement; Modifications. This Agreement and its
Exhibits contain the entire agreement between CASI and LS&CO. and represent
the final, complete and exclusive statement of LS&CO. and CASI and supersede
any and all prior or contemporaneous agreements, communications,
arrangements or understandings between CASI and LS&CO. including, without
limitation, the Letter Agreements. This Agreement may not be explained or
supplemented by any prior course of dealings between CASI and LS&CO. or by
usage or trade and shall not be considered modified by terms and conditions
contained in other documents prepared by LS&CO. or CASI including, without
limitations, Applications for Payment, progress reports or the like. This
Agreement may be modified only as stated in and by a writing signed by LS&CO.
and CASI which refers specifically to this Agreement and states that it is
amending this Agreement. No amendment of this Agreement shall release or
exonerate in any way the surety on any bond given by CASI or any Vendor in
connection with this Agreement, and LS&CO. shall not be required to provide
notice to the surety of any amendment.
16.13 Waiver. No waiver of any of the provisions and conditions or
granting of any consent shall be valid, unless in writing and signed by the
party against whom enforcement of that waiver or consent is sought. Waiver
of any default or breach of this Agreement or of any provision of this
Agreement (including those relating to time of performance) shall not be
considered a waiver of any later default or breach or of any provisions of
this Agreement.
16.14 Employment Laws. In performing the Work, CASI shall comply
fully with all applicable federal, state or local legislation relating to
employment. CASI shall not discriminate against any employee because of
race, creed, color, sex, or national origin. This applies to but is not
limited to: employment, promotion, demotion or transfer; recruitment
advertising; layoff or termination; rates of pay or other forms of
compensation; and selection of persons for training, including
apprenticeships. LS&CO. has no responsibility or liability for treating
CASI's employees as employees of LS&CO. for the purpose of safety or of
keeping records, making reports or paying of any payroll taxes or
contribution, and CASI shall indemnify and hold LS&CO. harmless and reimburse
it for any expense or liability incurred under statutes in connection with
employees of CASI. CASI shall keep and have available all necessary records
and make all payments, reports, collections and deductions and otherwise do
any and all things so as to fully comply with all federal, state and local
laws, ordinances and regulations with respect to its employees, so as to
fully relieve and protect LS&CO. from any and all responsibility or liability
(other than, of course, for changes in the Compensation resulting from Change
Orders, if any, relating to the use of union labor) in regard to the hire,
tenure or conditions of employment of employees and their hours of work and
rates of the payment of their work and the keeping of records, making of
reports, and the payment, collection and/or deduction of federal, state,
commonwealth and local taxes, contributions, pension funds, welfare funds, or
similar assessments relating to its employees.
16.15 Days. Reference in this Agreement to "days" means calendar,
not business, days.
16.16 Governing Law. This Agreement is to be governed by,
interpreted under, and construed in accordance with, the laws of the State of
California.
16.17 Counterparts. This Agreement may be signed in any number of
counterparts.
* * * *
IN WITNESS WHEREOF, CASI and LS&CO. signed and delivered this
Agreement on the date appearing in its first paragraph.
COMPUTER AIDED SYSTEMS, INC.
By: /s/James V. O'Donnell
---------------------
James V. O'Donnell
Chairman and
Chief Executive Officer
LEVI STRAUSS & CO.
By: /s/Robert D. Rockey
---------------------
Robert D. Rockey
Senior Vice President<PAGE>
GLOSSARY
This is the Glossary that accompanies the Materials Handling System
Agreement dated October 31, 1994, between Computer Aided Systems, Inc. and
Levi Strauss & Co. References to "Sections" and "Exhibits" are to those of
the Agreement.
* * * *
"Additional Sites" is defined in Section 4.5.
"Affiliate" means, with respect to any person, any other entity or
person which directly or indirectly controls, is controlled by, or is under
common control with, the specified person. "Person" means any natural person
or entity. "Control" means the direct or indirect ownership of stock or
other equity interests, or contract or other rights, representing at least
30% of the equity interests of the issuing person, or entitling their holder
to elect at least 50% of the directors or similar functionaries of the
issuing person.
"Application for Payment" is defined in Section 9.5.
"Basic System Documents" means this Agreement but including only the
following exhibits: the Scope of CSC Project, System Software, List of
Equipment, Third Party Software and Facility Overview Drawings documents
attached as Exhibits A, B, C, R and U, and the Licensed Software
Specifications to be delivered as described in Exhibit B, all as may be
amended under Section 16.12 or changed through the Change Order process from
time to time.
"Begin First Site Production Test" is defined in Exhibit F.
"Building" means, as appropriate, the Kentucky CSC building, the
Nevada CSC building or the (retrofitted) Mississippi CSC building.
"CASI" means Computer Aided Systems, Inc., a California corporation.
"CASI Indemnified Party" is defined in Section 11.2(b).
"Certification Test Milestone" is defined in Exhibit F.
"Change Order" is defined in Section 5.1.
"Claim" is defined in Section 11.2(a).
"Compensation" is defined in Section 9.4(a).
"Completion Criteria" means, as determined through the testing
process contemplated by Section 7 and Exhibit D: (i) the System is
fabricated and installed substantially as described in the Basic System
Documents; (ii) the System is able to satisfy the Minimum Throughput
Requirements; and (iii) the System is free of errors which materially affect
functionality as described in the Performance Standards.
"Completion Documents" means the Basic System Documents, all plans,
specifications and drawings for the Systems and all other internal documents
which are sufficient to enable a contractor reasonably skilled in the areas
of materials handling systems to complete the fabrication and installation of
the Systems and to permit a programmer reasonable skilled in QNX to complete
development of the Licensed Software.
"Completion Risk Event" is defined in Section 15.5.
"Confidential Information" of LS&CO. means only: (a) regional
distribution volumes and capacity; (b) the actual price of the Project (but
see Section 14.2); (c) the Project Schedule; and (d) the host interface
software and related documentation.
"Confidential Information" of CASI means only: (a) the Licensed
Software Source Code; (b) the Licensed Software Object Code; (c) the
Software Upgrades and Maintenance Releases; (d) the Completion Documents;
(e) the "as-built" drawings contemplated by Section 9.12; (f) the CASI
financial statements to be delivered under Section 12.4; and (g) the
interfaces developed by CASI.
"CSC" means an LS&CO. customer service center.
"Demobilization Costs" is defined in Section 15.4.
"Development Activities" is defined in Section 9.3(a).
"Development Activities Expenses" is defined in Section 9.3(a).
"Equipment" means all of the equipment components of a System. The
principal Equipment components are identified in Exhibit C.
"Equipment Fixed Price" is defined in Section 9.2.
"FD" means Fluor Daniel, Inc., a California corporation.
"Final Final Payment" is defined in Section 9.13.
"Final Payment" is defined in Section 9.12.
"Finally Accepted" is defined in Section 7.3.
"Force Majeure Conditions" is defined in Section 16.1.
"Hardware" means the computer hardware, terminals, workstations and
peripherals components of a System. Information about them is contained in
Exhibit C.
"Incentive Payment" is defined in Section 9.4(c).
"Intellectual Property Rights" means rights under patent law,
copyright law, trademark law, trade secret law, moral rights law, unfair
competition law, semiconductor chip protection law or other similar rights.
"Letter Agreements" means the letter agreements between LS&CO. and
CASI dated March 19, 1993, May 13, 1993, July 27, 1993, December 1, 1993 and
March 1, 1994.
"Licensed Software" means the software described in the Licensed
Software Specifications and being licensed by CASI to LS&CO. under the
Agreement.
"Licensed Software Base Code" means the Licensed Software Object
Code as installed in the Nevada System on the System Final Acceptance Date
for that System, together with any Maintenance Releases which LS&CO. receives
as a result of warranty or software maintenance services and/or any Software
Upgrades which LS&CO. purchases from CASI.
"Licensed Software Development Activities" is defined in Section
9.3(a).
"Licensed Software Development Plan" is attached as Exhibit Y.
"Licensed Software Object Code" means the machine readable, object
code version of the Licensed Software.
"Licensed Software Source Code" means, with respect to Licensed
Software, a series of instructions or statements in an English-like high
level computer language such as FORTRAN, C, PASCAL or LISP, or in a
relatively low-level language (such as the assembly language for a particular
processor) which is normally readable by people trained in the particular
computer language in question. The documentation comprising the Licensed
Software Source Code includes a complete copy in machine readable form of the
Licensed Software Source Code and the Licensed Software Object Code, a
complete copy of any design documentation and user documentation for the
Licensed Software, and complete instructions for compiling and linking every
part of the Licensed Software Source Code into executable forms, for purposes
of enabling verification of the completeness of the Licensed Software Source
Code, with those instructions including identification of all compilers,
library packages and linkers used to generate object code, in each case
excluding information relevant only to the operating system platform.
"Licensed Software Specifications" means the specifications to be
delivered as described in Exhibit B.
"Licensed Software Total Amount" is defined in Section 9.3(b).
"LS&CO." means Levi Strauss & Co., a Delaware corporation.
"LS&CO. Indemnified Party" is defined in Section 11.2(a).
"LS&CO. Project Representative" is defined in Section 16.3.
"Major Vendors" is defined in Section 3.4(a).
"Maintenance Release" means any revision in the Licensed Software or
documentation that would maintain compatibility, or enhance the operation, of
the existing operation or functionality of, the Licensed Software but does
not rise to the level of a Software Upgrade.
"Mechanical Installation Complete Milestone" is defined in Exhibit
F.
"Milestone Event" are those milestones described in Exhibit F.
"Minimum Throughput Requirements" means the machine (non-human)
throughput capacity of a System as described in Exhibit E.
"On-site CASI Personnel" is defined in Section 10.5(a).
"Performance Standards" means "how a System is to work;" they are
the standards and requirements for performance of a System as described in
the Scope of CSC Project, System Software and Machine Throughput Requirements
documents attached as Exhibits A, B and E and in the Licensed Software
Specifications to be delivered as described in Exhibit B. A System meets
the Performance Standards if it performs, provides the material functionality
and generates the machine throughput as described in those documents.
"Principal Shareholders" is defined in Section 13.1.
"Project" means the design and installation of the Kentucky System,
the Nevada System and the Mississippi System.
"Project Final Acceptance Date" is defined in Section 7.4.
"Project Schedule" is the schedule for completion of the Project
attached as Exhibit AA.
"Reconciliation Statement" is defined in Section 9.7.
"Reimbursable Taxes" is defined in Section 9.14.
"Schedule of Values" means the document containing an allocation of
the Compensation on a per System, component-by-component basis, and projects
cash flow requirements throughout the Project. It is attached as Exhibit J.
"Software Upgrade" means a release of the Licensed Software which is
relevant to the casual apparel business and which includes substantial new
functionality in addition to that provided by the Licensed Software Base
Code.
"Subject Taxes" is defined in Section 9.14.
"System" means the Licensed Software, Equipment and Hardware
comprising the QUIC System 2020 to be installed at the Kentucky CSC (the
"Kentucky System"), the Nevada CSC (the "Nevada System") and the Mississippi
CSC (the "Mississippi System").
"System Complete Milestone" is defined in Exhibit F.
"System Final Acceptance" and "System Final Acceptance Date" are
defined in Section 7.3.
"Testing Plan" is defined in Section 7.1. It is attached as Exhibit
D.
"Vendors" means all vendors, contractors and subcontractors (other
than FD or any Affiliate of FD) performing Work-related services for or
supplying System components to CASI.
"Warranty Period" is defined in Section 10.4.
"Work" is defined in Section 3.1.<PAGE>
<PAGE>
Exhibit 10jj
------------
STOCK PURCHASE AGREEMENT
------------------------
THIS IS A STOCK PURCHASE AGREEMENT, dated October 28, 1994 (the
"Agreement"), between LEVI STRAUSS ASSOCIATES INC., a Delaware corporation
("LSAI") and [NAME], an individual (the "Stockholder").
B A C K G R O U N D
----------------------------
The Stockholder is a senior manager of LSAI or of one of its
principal subsidiaries. He owns, by reason of exercises of stock options
granted by LSAI to him, shares of LSAI's Class L common stock. That stock is
not publicly traded, and its transfer is restricted under an agreement among
LSAI and all of the holders of Class L stock. LSAI and the Stockholder
believe it desirable that the Stockholder be able to sell, and LSAI be able
to repurchase, these shares, on the basis described in this Agreement. Those
"put" and "call" arrangements are the subjects of this Agreement.
LSAI AND THE STOCKHOLDER AGREE AS FOLLOWS:
1. Definitions
-----------
These terms have these meanings:
" Additional Call Period" means the 30-day period after the release
of the next Valuation if the applicable Termination of Employment occurs more
than 90 days after the release of the Valuation immediately preceding the
Termination of Employment.
"Affiliated Group" means the group of corporations consisting of LSAI
and its Subsidiaries.
"Annual Block" means a block of Option Shares equal in number to:
the greater of: (a) 25% of the number of total Option Shares on the date of
this Agreement or (b) the minimum number of shares of LSAI Stock which must
be sold by the Stockholder in order for the sale of Option Shares to be
treated as an exchange, rather than as a dividend, under either Section
302(b)(2) or 302(b)(3) of the Code, determined as of the Annual Block
Measurement Date and taking into account any other shares of LSAI Stock owned
by the Stockholder and any shares the ownership of which is attributed to the
Stockholder under Section 318 of the Code. If, by reason of sales of Option
Shares by the Stockholder (under this Agreement or otherwise), the
Stockholder may in the future hold a block of Option Shares smaller in number
than 25% of the Option Shares on the date of this Agreement, then "Annual
Block" means that number of "remaining" Option Shares, so long as the
repurchase would meet the "exchange, not dividend" standard contemplated by
clause (b) of this definition and Section 2.2(b) of this Agreement.
"Annual Block Measurement Date" means the date of completion of a
Transaction contemplated by Section 2 of this Agreement.
"Annual Put Period" means the 30-day period after the release of the
Year-end Valuation in any year.
"Beneficiary" means the estate of the Stockholder and, if the estate
distributes the Option Shares after the Stockholder' s death, the person or
entity who holds the Option Shares after distribution by the estate.
"Call Notice" has the meaning given it in Section 4.7 of this
Agreement.
"Class L Agreement" means the Class L Stockholders Agreement, dated
as of April 30, 1991, among LSAI and all of the holders of LSAI's Class L
common stock, including the Stockholder, as it may be amended, and any
replacement of or successor to that agreement.
"Code" means the Internal Revenue Code of 1986, as amended and as it
may be amended, and any successor statute.
"Disability" has the meaning given to that term under the defined
benefit pension plan of LSAI applicable to the Stockholder or, if no such
plan is applicable, the Revised Home Office Pension Plan or any successor to
that plan (the "HOPP") or, if the HOPP is terminated, under the HOPP as in
effect immediately prior to its termination.
"Estimated Pre-tax Earnings" means LSAI's estimated consolidated net
income for a fiscal year (excluding the impact of extraordinary items and
changes in accounting principles), as determined by LSAI's chief financial
officer at a time determined by that officer before the release of the Year-
end Valuation for that fiscal year. The determination of Estimated Pre-tax
Earnings by that officer shall be final and binding on both LSAI and the
Stockholder.
"Fair Market Value" means, as of any date, the value of LSAI's Class
E common stock as determined in the most recent valuation ("Valuation") of
that stock obtained by LSAI for use in valuing shares of Class E stock for
issuance under its employee investment and stock purchase plans. (Class E
stock and Class L stock are considered for purposes of this Agreement to have
the same value.)
"LSAI Stock" means the Class L common stock of LSAI (including the
Option Shares), the Class E common stock of LSAI and any other class of LSAI
capital stock outstanding on or after the date of this Agreement and as may
be affected by Section 7.2 of this Agreement.
"Option Shares" means all shares of LSAI's Class L common stock
acquired by the Stockholder through either the exercise of stock options
granted to the Stockholder by LSAI or by purchase from LSAI as a condition to
receiving those stock option grants, of which on the date of this Agreement
the Stockholder holds both legal and beneficial ownership, and any shares
that may be acquired after the date of this Agreement upon exercise of
outstanding stock options held by the Stockholder on the date of this
Agreement. "Option Shares" do not include any shares of Class L stock
acquired in any other manner (for example, in connection with the formation
of HHF Corp.), any Class E shares (for example, those acquired through
participation in the Employee Stock Purchase and Stock Award Plan) or any
shares of Class L stock acquired in any other manner (for example, through a
purchase from another holder of Class L stock.)
"Put Notice" has the meaning given it in Section 3.5 of this
Agreement.
"Put Window Period" means the 90-day period after release of a
Valuation.
"Subsidiary" means a corporation (other than LSAI) in an unbroken
chain of corporations beginning with LSAI if each of the corporations, other
than the last corporation in the unbroken chain, owns stock possessing 50
percent or more of the total combined voting power of all classes of stock in
one or the other corporations in the chain.
"Termination of Employment" means a cessation of employment (whether
initiated by the Stockholder or by the employer or by reason of the death or
Disability of the Manager) with any member of the Affiliated Group, if the
Stockholder is not employed immediately thereafter by another member of the
Affiliated Group.
"Transaction" means a purchase of Option Shares under Section 2, 3
or 4 of this Agreement.
"Valuation" is defined in the definition of Fair Market Value.
"Valuation Date" means the release date of any Valuation.
"Year-end Valuation" means the Valuation last released in a fiscal
year, or such other Valuation as determined by LSAI in its sole discretion.
2. Stockholder Annual Put Rights
-----------------------------
SUBJECT TO SECTION 6 OF THIS AGREEMENT:
2.1 Annual Put. During the Annual Put Period in any year, the
Stockholder may require LSAI to, and LSAI will be obligated to, repurchase an
Annual Block.
2.2 Limitations
(a) LSAI and persons in addition to the Stockholder are parties
to agreements creating the same "annual put rights" described in Section 2.1
in favor of those persons. LSAI will not be obligated to complete a
repurchase initiated by the Stockholder under Section 2.1 of this Agreement
if the aggregate purchase price for all annual put exercises in that year
exceeds ten percent of Estimated Pre-tax Earnings. LSAI in its sole
discretion decides whether there is such an excess. If it so decides, it may
choose not to repurchase any shares of Class L stock from any person,
including the Stockholder, who has exercised under these agreements these
annual put rights; that is, there will be no proration, first-in-line or
other allocation mechanism designed to permit partial sales.
(b) LSAI is obligated under Section 2.1 of this Agreement to
purchase Option Shares only if the Stockholder has sufficient Option Shares
in order to "assemble" an Annual Block; that is, LSAI will not be obligated
to complete a repurchase initiated by the Stockholder under Section 2.1 if
LSAI concludes, in its sole discretion, that the repurchase will be treated
as a dividend rather than an exchange described in Section 302(b)(2) or
302(b)(3) of the Code.
2.3 Mechanics
(a) The Stockholder shall exercise a put right created by this
Section 2 by delivering to LSAI, during an Annual Put Period:
- a written notice (a "Annual Put Notice") in the
form attached to this Agreement as Exhibit 2.3;
- the stock certificate or certificates representing
the Option Shares described in the Annual Put
Notice, properly endorsed for transfer by the
Stockholder; and
- those other documents that LSAI may reasonably
request.
(b) LSAI shall review the Annual Put Notice and begin
determining the Annual Block. It may seek further information about LSAI
Stock owned by or attributed to the Stockholder; the Stockholder shall
cooperate with LSAI in developing that information and analysis.
(c) Within ten days after the end of the Annual Put Period,
LSAI shall advise the Stockholder in writing either that:
- LSAI will not complete the Transaction because one
or more of the conditions described in Section 2.2
is not satisfied or LSAI, on the basis described in
Section 6 of this Agreement, decided not to
complete it; or
- it will complete the Transaction, stating the
number of Option Shares comprising the Annual
Block, it being understood that the Annual Block
may comprise more than 25% of the Option Shares,
and that, in that case, the Stockholder may need to
deliver additional stock certificates.
If LSAI notifies the Stockholder that it will complete the Transaction and
concludes that the materials submitted are in proper form, then, subject to
Section 6 of this Agreement, LSAI shall thereafter issue its check, in the
amount of the purchase price, to the Stockholder, accept the Option Shares
and cancel or replace the related stock certificates, and the Transaction
shall be considered concluded. If it questions the tender materials, it
shall contact the Stockholder in writing, and thereafter it and the
Stockholder shall cooperate in an effort to resolve the situation. If they
cannot resolve it to LSAI's satisfaction within five days after the date of
that notice, LSAI in its sole discretion will not be obligated to complete
the Transaction.
(d) The Stockholder acknowledges that the Annual Block
Measurement Date is the date of completion of the Transaction, and that other
transactions involving shares of LSAI Stock (including, without limitation,
shares that may be attributed to the Stockholder under Section 318 of the
Code) in the period from date of the Annual Put Notice to and including the
Annual Block Measurement Date, may affect the final determination of the
Annual Block. The Stockholder agrees to advise LSAI of any such transactions
promptly. If there is such a transaction and the Annual Block changes in
amount, the Stockholder shall be bound to sell that new number of Option
Shares.
2.4 Irrevocability. The Stockholder may not withdraw his Annual Put
Notice after submission; it is irrevocable.
2.5 Purchase Price. The purchase price for the Transactions
described in this Section 2 shall be the Fair Market Value per share of the
Option Shares being tendered to LSAI, as stated in the Year-end Valuation
whose release began the applicable Annual Put Period.
3. Disability and Death Put Rights
-------------------------------
SUBJECT TO SECTION 6 OF THIS AGREEMENT:
3.1 Disability. During any Put Window Period occurring at the time
of, or during the five-year period after, Termination of Employment by reason
of Disability, the Stockholder (or his conservator or representative, as the
case may be) may require LSAI to, and LSAI will be obligated to, repurchase
all of the Option Shares then held by the Stockholder, provided that any such
purchase will, as determined by LSAI in its sole discretion, be treated as an
exchange, rather than as a dividend, under either Section 302(b)(2) or
302(b)(3) of the Code.
3.2 Death
(a) During any Put Window Period occurring at the time of, or
during the five-year period after, Termination of Employment by reason of the
death of the Stockholder, the Beneficiary may require LSAI to, and LSAI will
be obligated to, repurchase all of the Option Shares held by the Stockholder
at the time of death, provided that any such purchase will, as determined by
LSAI in its sole discretion, be treated as an exchange, rather than as a
dividend, under either Section 302(b)(2) or 302(b)(3) of the Code.
(b) If the Termination of Employment is by any other reason,
and the Stockholder should die while still holding Option Shares (that is,
LSAI has not exercised its call rights under Section 4 of this Agreement and
the Stockholder has not previously sold all of the Option Shares under
Section 2 of this Agreement or otherwise disposed of the Option Shares), the
Beneficiary may require LSAI to, and LSAI will be obligated to, repurchase
all of the Option Shares then held, during any Put Window Period occurring at
the time of, or during the five-year period after, the death of the
Stockholder, provided that any such purchase will, as determined by LSAI in
its sole discretion, be treated as an exchange, rather than as a dividend,
under either Section 302(b)(2) or 302(b)(3) of the Code.
3.3 Purchase Price. The purchase price in all of the Transactions
described in this Section 3 shall be the Fair Market Value of the Option
Shares being tendered to LSAI, as stated in the Valuation whose release began
the Put Window Period during which the put was exercised. Examples of the
application of the put rules appear in the document attached to this
Agreement as Exhibit 3.3.
3.4 No Partial Puts. The Stockholder or Beneficiary, in exercising
a put right under this Section 3, must sell all of the Option Shares then
owned both legally and beneficially by the Stockholder or Beneficiary. He or
she cannot sell or seek to sell only a portion of those Option Shares.
3.5 Mechanics
(a) The Stockholder or Beneficiary shall exercise a put right
created by this Section 3 by delivering to LSAI, during a Put Window Period:
- a written notice (a "Put Notice") in the form
attached to this Agreement as Exhibit 3.5;
- the stock certificate or certificates representing
the Option Shares described in the Put Notice,
properly endorsed for transfer by the Stockholder;
and
- those other documents that LSAI may reasonably
request.
(b) LSAI shall promptly review the Put Notice and accompanying
documents. If it concludes that the tender complies with this Agreement,
then, subject to Section 6 of this Agreement, LSAI shall thereafter issue its
check, in the amount of the purchase price, to the Stockholder or the
Beneficiary, accept the Option Shares and cancel the related stock
certificates, and the Transaction shall be considered concluded. If it
questions the tender, it shall contact the Stockholder or Beneficiary in
writing, and thereafter it and the Stockholder or Beneficiary shall cooperate
in an effort to resolve the situation. If they cannot resolve it to LSAI's
satisfaction within five days after the date of that notice, LSAI in its sole
discretion is not obligated to complete the Transaction.
3.6 Irrevocability. The Stockholder may not withdraw his Put Notice
after submission; it is irrevocable.
3.7 Interrelationship of Sections 2 and 3. A Stockholder or
Beneficiary entitled to exercise put rights under this Section 3 may exercise
annual put rights under Section 2 of this Agreement and later exercise a
Section 3 disability- or death-related put with respect to his or her
remaining Option Shares.
4. LSAI Call Rights
----------------
SUBJECT TO SECTION 6 OF THIS AGREEMENT:
4.1 Termination of Employment. For 90 days after Termination of
Employment for any reason (including, without limitation, death or
Disability), and again during the first Additional Call Period, if any,
occurring after the end of that 90-day period, LSAI shall be entitled to
repurchase all of the Option Shares then held by the Stockholder, provided
that any such purchase will, as determined by LSAI in its sole discretion, be
treated as an exchange rather than as a dividend under either Section
302(b)(2) or 302(b)(3) of the Code.
4.2 Additional Disability-Related Call. For 90 days after the
expiration of the five-year period described in Section 3.1 of this
Agreement, and again during the first Additional Call Period, if any,
occurring after the end of that 90-day period, LSAI shall be entitled to
purchase all of the Option Shares then held by the Stockholder or
Beneficiary, provided that any such purchase will, as determined by LSAI in
its sole discretion, be treated as an exchange rather than as a dividend
under either Section 302(b)(2) or 302(b)(3) of the Code.
4.3 Additional Death-Related Call. For 90 days after the expiration
of either of the five-year periods described in Sections 3.2(a) and (b) of
this Agreement, and again during the first Additional Call Period, if any,
occurring after the end of that 90-day period, LSAI shall be entitled to
purchase all of the Option Shares then held by the Beneficiary, provided that
any such purchase will, as determined by LSAI in its sole discretion, be
treated as an exchange rather than as a dividend under either Section
302(b)(2) or 302(b)(3) of the Code.
4.4 Unilateral Right. LSAI may exercise its repurchase rights under
this Section 4 whether or not the Stockholder or Beneficiary wishes to sell;
the Stockholder or Beneficiary will be obligated to sell upon delivery of a
Call Notice. LSAI may make its decision in its sole discretion, without
regard to the tax or other financial consequences to the Stockholder or
Beneficiary, and without regard to decisions it makes with respect to other
persons who are parties to like agreements.
4.5 Purchase Price. The purchase price in all of the Transactions
described in this Section 4 shall be the Fair Market Value of the Option
Shares being repurchased by LSAI, as stated in the Valuation most recently
released before the date LSAI gives the Call Notice. For example, if LSAI
gives the Call Notice during an Additional Call Period, the purchase price
shall be the Fair Market Value stated in the Valuation that began that
Additional Call Period. Examples of the application of the put and call
rules appear in the document attached to this Agreement as Exhibit 3.3.
4.6 No Partial Calls. LSAI, in exercising a call right under this
Section 4, must purchase all of the Option Shares then held by the
Stockholder or Beneficiary. It cannot purchase or seek to purchase only a
portion of those Option Shares.
4.7 Mechanics
(a) LSAI may exercise a call right created by this Section 4 by
delivering, during any of the periods described in this Section 4, to the
Stockholder or Beneficiary, a written notice (the "Call Notice") in the form
attached to this Agreement as Exhibit 4.7. Within 15 business days after
receiving that Call Notice, the Stockholder or Beneficiary shall deliver to
LSAI the stock certificate or certificates representing the Option Shares,
properly endorsed for transfer, a copy of the Call Notice signed by the
Stockholder or Beneficiary in the space provided for that signature and any
other documents that LSAI may reasonably request.
(b) Upon receipt and approval of those materials, LSAI shall
thereafter issue and deliver to the Stockholder or Beneficiary its check in
payment of the purchase price for the Option Shares, and the transaction
shall be considered concluded.
(c) LSAI shall be free to complete the transaction even if the
Stockholder fails to deliver the stock certificates; in that case, the
Stockholder shall supply LSAI at its request with the "lost certificate"
assurances contemplated by Bylaw 45 of LSAI's bylaws.
4.8 Waiver. LSAI may waive any of the limitations on the exercise
of its call rights under this section, other than those relating to the time
the call rights may be exercised and the purchase price of the Option Shares.
5. Impact on Stockholder
---------------------
5.1 Class L Agreement. The Stockholder holds the Option Shares
subject to the Class L Agreement. Except as contemplated by Section 5.3 of
this Agreement, this Agreement does not in any way limit or otherwise affect
the rights and obligations created by the Class L Agreement, including,
without limitation, the restrictions on transfer of the Option Shares imposed
by Section 2 of that agreement, and the Stockholder remains free to transfer
the Option Shares as permitted by the Class L Agreement. Except as may be
stated in that successor or replacement document, this Agreement shall not be
affected by a successor to or replacement of the Class L Agreement.
5.2 Puts Personal
(a) Except as described in Section 5.2(b), the put rights
created by this Agreement are "personal" to the Stockholder. That is, they
do not "run with the Option Shares." If the Stockholder transfers the Option
Shares to another person, that person will not be entitled to exercise the
put rights and to sell the Option Shares under Sections 2 and 3 of this
Agreement.
(b) The Stockholder is presently or may become married. Should
that marriage dissolve and the Stockholder's spouse acquire Option Shares as
a result of a property settlement or other disposition, these rules shall
apply:
- with respect to the annual put rights created by
Section 2 of this Agreement, the Stockholder and
the ex-spouse shall hold the rights as a "unit;"
that is, the Option Shares, even though held by
different holders, shall be treated as a single
block, and the "unit" shall be in the same position
as the Stockholder was prior to the disposition.
As a result, the Stockholder and the ex-spouse
must, between themselves, determine which Option
Shares, if any, will be sold in a given year. For
example, assume that the Stockholder owns 100
Option Shares prior to the dissolution, and his
Annual Block is 25 Option Shares. In the
dissolution, the Stockholder transfers 50 Option
Shares to his ex-spouse. It is up to the
Stockholder and the ex-spouse to agree to the
"composition" of those 25 Option Shares (all his,
all hers or a combination) if either wishes to
exercise annual put rights in a particular year.
In all events, however, LSAI shall have no
obligation to purchase the Option Shares unless the
sale, in LSAI's sole discretion, would be treated
as an exchange, rather than as a dividend, under
either Section 302(b)(2) or 302(b)(3) of the Code,
with respect to the seller or, if both the
Stockholder and the ex-spouse are selling, both
sellers. In all cases, LSAI will accept only
Annual Put Notices signed by both the Stockholder
and the ex-spouse, even if only one of them is
selling during a particular Annual Put Period.
- with respect to the put rights created by Section 3
of this Agreement, the ex-spouse will have those
rights but they will be tied to the employment
status of the Manager. For example, the ex-spouse
may put her Option Shares to LSAI after the
Stockholder's Termination of Employment by reason
of Disability. The ex-spouse may exercise those
rights even if the Stockholder does not exercise
his or her corresponding rights at the same time.
- with respect to the call rights created by Section
4 of this Agreement, the ex-spouse, like all
transferees of the Stockholder, will be bound by
Section 5.3 of this Agreement.
The ex-spouse shall, in selling shares under this Agreement, be subject to
all of the limitations and document delivery conditions applicable to the
Stockholder.
5.3 Calls Attach. By entering into this Agreement, the Stockholder
agrees that the call rights created by this Agreement shall bind a transferee
of the Option Shares; that is, they will run with the Option Shares. Should
the Stockholder transfer the Option Shares to another person (whether before
or after a Termination of Employment), LSAI will be entitled to exercise the
call rights and buy the Option Shares from that transferee (or his or her
later transferees) under Section 4 of this Agreement. For example, if the
Stockholder transfers the Option Shares to his children before Termination of
Employment, LSAI would be entitled to purchase the Option Shares from those
children (or their transferees) at the time of Termination of Employment or
later (for example, upon the death of the Stockholder), as provided in
Section 4. The Stockholder understands that the certificates representing
the Option Shares will bear a conspicuous legend describing this right. The
Stockholder further understands that he may not transfer the Option Shares
without first providing to LSAI a document, in the form attached as Exhibit
5.3 to this Agreement, signed by the transferee and confirming the continuing
effectiveness of LSAI's call rights after the transfer and the transferee's
obligations to provide the documents described in Section 4.7 of this
Agreement.
5.4 Voting and Dividends. This Agreement does not affect in any way
the Stockholder's right to exercise any voting or other rights attributable
to ownership of the Option Shares, or to receive dividends or the like in
respect of the Option Shares. (Section 7.3 of this Agreement explains that
this Agreement does not restrict or affect in any way the Stockholder's
ability to participate in general repurchase transactions.)
5.5 No Right to Employment. No provision of this Agreement confers
upon the Stockholder any right to continue in the employ of LSAI or any
Subsidiary, or affects LSAI's or a Subsidiary's right to terminate the
employment of the Stockholder at any time, with or without cause.
5.6 No Impact on Benefits. No payments by LSAI under this Agreement
shall be taken into account in determining any benefits of the Stockholder
under any compensation, pension, retirement, savings, profit sharing, group
insurance, welfare or other employee benefit plan of LSAI or any Subsidiary.
The Stockholder's entry into this Agreement shall not affect in any way his
rights or benefits under any of those plans.
5.7 No Rights To Other Sales. No provision of this Agreement
entitles the Stockholder to sell Option Shares back to LSAI if Termination of
Employment occurs for any reason other than Death or Disability; the
Stockholder's only entitlement shall be the annual put rights created under
Section 2 of this Agreement. This Agreement does not speak to or affect in
any way other termination situations. In addition, this Agreement does not
entitle the Stockholder (or any other person) to sell shares of LSAI Stock
other than the Option Shares. The references in the definition of "Annual
Block" to other LSAI Stock owned and to shares of LSAI Stock to whom
ownership is attributed are solely for definitional and tax purposes, and are
not intended to and do not create any right in favor of any person to sell
those shares to LSAI. However, the ownership of LSAI Stock by others may
affect the ability of the Stockholder to sell Option Shares under this
Agreement.
5.8 No Right to Special Disclosure. LSAI has no duty or obligation
to disclose individually to the Stockholder or a Beneficiary, the Stockholder
and any Beneficiary shall have no right to be individually advised by LSAI
of, and the Stockholder and any Beneficiary have no duty or obligation to
disclose to LSAI, any material information relating to LSAI, at any time
prior to, at the time of, or in connection with, LSAI's repurchase of Option
Shares under Sections 2, 3 or 4 of this Agreement.
5.9 Tax-related Documentation. If necessary for purposes of
qualifying a transaction under Section 3 of this Agreement as an exchange
under Section 302(b)(3) of the Code, LSAI is specifically authorized (without
in any way limiting its rights to request any other documentation) to require
evidence satisfactory to LSAI that the agreement required by Section
302(c)(2) of the Code has been executed and filed by the Stockholder with the
appropriate official of the Internal Revenue Service and that such agreement
has been complied with as of the date of sale.
6. Limitations on Repurchases
--------------------------
6.1 Limitations. LSAI is not obligated to complete a Transaction
initiated under Sections 2, 3 or 4 of this Agreement if:
(a) the Transaction would, as determined by LSAI in its sole
discretion: (i) result in the violation of any applicable law, including,
without limitation, those laws limiting LSAI's ability to repurchase its
capital stock, fraudulent conveyance laws and securities laws (including Rule
10b-6 and Rule 10b-13 under the Securities Exchange Act of 1934, as amended)
or (ii) violate or conflict with the provisions of the certificate of
incorporation of LSAI or of any agreement or instrument to which LSAI or any
member of the Affiliated Group is a party or by which it is bound, whether
now or in the future, it being understood that LSAI is free to create or bind
itself to any provision that limits or restricts its ability to purchase
Option Shares under this agreement;
(b) there shall have been threatened, instituted, or pending
any action or proceeding by any governmental, regulatory, or administrative
agency or authority or tribunal, domestic or foreign, or by any other person,
domestic or foreign, before any court or governmental, regulatory, or
administrative authority or agency or tribunal, domestic or foreign, which
challenges or seeks to make illegal, or to delay or otherwise directly or
indirectly to restrain, prohibit, or otherwise affect the Transaction, the
acquisition of Option Shares in a Transaction, or otherwise relates in any
manner to the Transaction or this Agreement; or in LSAI's sole discretion,
and irrespective of whether it is directed at or affects the Transaction as
such, could materially affect LSAI's business, financial condition, income,
operations, or prospects or otherwise materially impair in any way the
contemplated future conduct of LSAI's business;
(c) there shall have been any action threatened, pending, or
taken, or any approval withheld, or any statute, rule, regulation, judgment,
order, or injunction threatened, invoked, proposed, sought, promulgated,
enacted, entered, amended, enforced, or considered to apply to the
Transaction, this Agreement or to LSAI, by any court or any government or
governmental, regulatory, or administrative agency or authority or tribunal,
domestic or foreign, which, in LSAI's sole discretion, would or might
directly or indirectly result in any of the consequences referred to in this
Section 6.1;
(d) there shall have occurred or be continuing since the
applicable Valuation Date: (i) the declaration of any banking moratorium or
suspension of payments in respect of banks in the United States (whether or
not mandatory); (ii) any general suspension of trading in, or limitation on
prices for, securities on any United States national securities exchange or
in the over-the-counter market; (iii) the commencement of a war, armed
hostilities, or any other national or international crisis directly or
indirectly involving the United States; (iv) any limitation (whether or not
mandatory) by any governmental, regulatory, or administrative agency or
authority on, or any event which, in LSAI's sole discretion, might affect,
the extension of credit by banks or other lending institutions in the United
States; (v) any change in the general political, market, economic, or
financial conditions in the United States or abroad that could have a
material adverse effect on the business, condition (financial or otherwise),
income, operations, or prospects of LSAI; or (vi) a decline in either the Dow
Jones Industrial Average or the Standard and Poor's Index of 500 Industrial
Companies by an amount in excess of 10% measured from the Valuation Date of
the Valuation to be used in determining the purchase price in the Transaction
to the date of issuance of the Annual Put Notice, Put Notice or Call Notice,
as the case may be;
(e) any change shall have occurred or been threatened in the
business, condition (financial or otherwise), income, operations, stock
ownership, or prospects of LSAI, which is or may be material to LSAI, as
determined by LSAI in its sole discretion;
(f) a tender or exchange offer for any or all of the shares of
Class L stock, or any merger, business combination, or other similar
transaction with or involving LSAI, shall have been proposed, announced, or
made by any person;
(g) the Stockholder fails to deliver the documents contemplated
by Sections 2.3(e), 3.5(a), 4.7 or 5.9, as the case may be, of this
Agreement, or fails to cooperate with LSAI as contemplated by Section 2.3(c)
of this Agreement; or
(h) LSAI concludes, in its sole discretion, that the
Transaction will be treated as a dividend, rather than as an exchange, under
Section 302(b)(2) or 302(b)(3) of the Code.
6.2 LSAI's Decision. LSAI in its sole discretion decides whether
any of the events or circumstances described in Section 6.1 have occurred or
are occurring. If it so concludes, then, in its sole discretion, it may
reject a pending or later-issued Annual Put Notice or Put Notice or revoke a
pending Call Notice, as the case may be. These rules are for LSAI's sole
benefit. It may assert them regardless of the circumstances giving rise to
the event (including its own action or inaction), or it may ignore them and
proceed with the Transaction. In addition, LSAI may assert or ignore them
with respect to a Transaction, regardless of whether it makes the same
decision with respect to transactions (contemporaneous or not) involving
other persons who are parties to like agreements.
6.3 Consequences. LSAI exercise of its rights under this Section
6 shall have these consequences:
- If LSAI has rejected a Put Notice and the Stockholder or
Beneficiary otherwise would have no further opportunities
to exercise that put right (for example, if the Stockholder
attempted to exercise the put immediately before the end of
the five-year period following Termination of Employment by
reason of Disability), then the Stockholder or Beneficiary
(again subject to this Section 6, including this Section
6.3) shall be entitled to exercise the put during the next
Put Window Period. If the Stockholder does not exercise
the put at that time, then it shall expire, and the
Stockholder's or Beneficiary's only entitlement shall be
the annual put rights created under Section 2 of this
Agreement.
- If LSAI has rejected an Annual Put Notice or Put Notice and
the Stockholder or Beneficiary would otherwise have later
opportunities to exercise that put, then the rejection
shall have no special impact.
- If LSAI has revoked a Call Notice and LSAI otherwise would
no have further opportunities to exercise that call right,
then LSAI (again subject to this Section 6, including this
Section 6.3) shall be entitled to exercise the call during
the 30-day period following the next Valuation Date.
- If LSAI has revoked a Call Notice and LSAI would otherwise
have later opportunities to exercise the call, then the
revocation shall have no special impact.
7. Capital Structure Transactions
------------------------------
7.1 No Limit on LSAI. No provision of this Agreement limits the
right or ability of LSAI or any Subsidiary at any time to reclassify,
recapitalize or otherwise change its capital or debt structure or to merge,
consolidate, convey any or all of its assets, dissolve, liquidate, windup or
otherwise reorganize, or to repurchase or offer to repurchase, by tender
offer, application of an estate tax repurchase policy or otherwise, shares of
LSAI Stock held by the Stockholder or by other persons. That is so
regardless of the impact of such a transaction on: (i) "capital" or "surplus"
under the Delaware General Corporation Law; (ii) funds available for
repurchases; (iii) the determination of the Annual Block; or (iv) any other
relevant matter. The Stockholder understands that, as provided by the
federal securities laws and as contemplated by Section 6.1 of this Agreement,
LSAI cannot purchase, and is not obligated to purchase, Option Shares under
this Agreement, during the period beginning at the time a tender offer or
exchange offer by LSAI for LSAI Stock is publicly announced or otherwise made
known to the holders of LSAI Stock and ending at the time shares tendered in
response to that offer may be accepted or rejected by LSAI. As a result,
put rights are effectively not exercisable during such a period, even if an
Annual Put Period or Put Window Period occurs during that period. Section
6.3 explains the consequences of such a development.
7.2 Adjustment. If the Option Shares are changed by reason of a
stock split, stock dividend or recapitalization, or if they are converted
into or exchanged for other securities as a result of a merger, consolidation
or like transaction, this Agreement shall remain applicable to the Option
Shares or the new securities, as the case may be, and in the manner
determined by LSAI in its sole discretion.
7.3 No Effect on Right to Participate. No provision of this
Agreement limits or otherwise affects the right of the Stockholder to
participate, as a holder of Class L stock, in any tender offer,
recapitalization, exchange offer or other capital stock transaction initiated
by LSAI or by a third party.
7.4 Impact of Public Trading. This Agreement shall terminate if and
at the time the Class L stock, or any security (issued by LSAI or a third
party) into which the Class L may be converted, is or becomes listed for
trading on a national stock exchange or national market system, including,
without limitation, the NASDAQ National Market System.
8. No Advice
---------
By signing below, the Stockholder is confirming that LSAI has made
no warranties or representations to the Stockholder about the tax, financial
or legal consequences of any of the transactions contemplated by this
Agreement, and that the Stockholder is not in any manner relying on LSAI for
advice about, or an assessment of, those consequences.
9. Unfunded Status
---------------
LSAI's obligations under this Agreement are not "funded." LSAI has
no obligation to set aside or segregate any funds or other assets in order to
meet those obligations. Neither LSAI nor any of its directors, officers or
agents shall be considered a trustee of any monies that may be payable under
this Agreement. LSAI's obligations are solely contractual in nature, and are
not secured by, and should not be considered secured by, any lien or
encumbrance on any property of LSAI or of any other member of the Affiliated
Group.
10. Entire Agreement; Amendment
---------------------------
This Agreement and its exhibits contain all of the terms and
conditions agreed upon by LSAI and the Stockholder relating to its subject
matter, represent the final, complete and exclusive statement of LSAI and the
Stockholder, and supersede any and all prior or contemporaneous agreements,
negotiations, correspondence, understandings and communications between LSAI
and the Stockholder, whether oral or written. This Agreement may be amended
only as stated in and by a writing signed by LSAI and the Stockholder which
refers specifically to this Agreement and states that it is amending this
Agreement.
11. Binding Effect; Assignment
--------------------------
This Agreement shall be binding upon the successors and permitted
assigns of LSAI and the Stockholder. (Section 5.3 explains the impact of
this Agreement on transferees of the Option Shares.) LSAI may, without
obtaining the consent of the Stockholder, freely assign its rights and
delegate its duties (either directly or by operation of law) under this
Agreement to: (i) any affiliate of LSAI (including, without limitation, Levi
Strauss & Co. ("LS&CO.") or any subsidiary of LS&CO. or LSAI, whether in
existence now or formed in the future); (ii) any successor to LSAI by merger
or consolidation; or (iii) any purchaser of all or substantially all of the
assets of LSAI or LS&CO. The Stockholder may not assign his rights or
delegate his duties without the express, prior written consent of LSAI.
12. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the state of California.
13. Further Assurances
------------------
LSAI and the Stockholder shall sign those other documents and take
those other actions as the other may reasonably request in order to effect
the transactions contemplated by this Agreement.
14. Notices
-------
Any notice under this Agreement (including, without limitation,
Annual Put Notices, Put Notices, Call Notices and notices of Valuations)
shall be given by mail or by courier delivery or facsimile transmission
addressed to:
If to LSAI:
Levi Strauss Associates Inc.
Levi's Plaza
1155 Battery Street/LS-7
San Francisco, CA 94111
Attn.: Corporate Secretary
Facsimile: 415/544-7650
If to the Stockholder:
[name]
Levi Strauss & Co.
Levi's Plaza
1155 Battery Street
San Francisco, CA 94111
Those addresses may be changed by delivery of a notice to that effect to the
other party. Notices given in the manner contemplated by this Section 14
shall be considered "given" two business days after deposit in the mail or
the first business day after the date of delivery to a courier or facsimile
transmission, as the case may be.
15. Release
-------
This Agreement contains several references to "release(s)" of
valuations. "Release" here means the date LSAI sends notice to the
Stockholder of a Valuation; LSAI shall send to the Stockholder such a notice
within three days after receipt by LSAI of a Valuation from the banking firm
making that Valuation.
16. Multiple Beneficiaries
----------------------
If there is more than one Beneficiary, each such Beneficiary shall
have the rights and obligations of a "Beneficiary" under this Agreement with
respect to his or her Option Shares, and shall be treated for all purposes as
an independent contracting party.
17. Days
----
References to "days" in this Agreement (for example, in the
definition of "Additional Call Period" and in Section 2.3) means calendar,
not business, days.
18. Counterparts
------------
This Agreement may be signed in any number of counterparts.
* * * *
IN WITNESS WHEREOF, LSAI and the Stockholder signed and delivered
this Agreement on, and it became effective on, the date appearing in the
first paragraph of this Agreement.
LEVI STRAUSS ASSOCIATES INC.
By:
--------------------------------
Name: George B. James
Title: Senior Vice President and
Chief Financial Officer
STOCKHOLDER
---------------------------------------
[NAME]<PAGE>
<PAGE>
Exhibit 10kk
------------
MANAGER FAMILY MEMBER STOCK PURCHASE AGREEMENT
----------------------------------------------
THIS IS A MANAGER FAMILY MEMBER STOCK PURCHASE AGREEMENT, dated
October 28, 1994 (the "Agreement"), between LEVI STRAUSS ASSOCIATES INC., a
Delaware corporation ("LSAI") and THE THOMAS AND PAULINE TUSHER 1976 FAMILY
TRUST, AS AMENDED, THOMAS W. TUSHER, TRUSTEE (THE "STOCKHOLDER").
B A C K G R O U N D
----------------------------
The Stockholder is the trustee under a trust established by a senior
manager of LSAI or of one of its principal subsidiaries. The trustee
acquired shares of LSAI's Class L common stock from that manager; the manager
had obtained the shares by exercising stock options granted to him by LSAI.
That stock is not publicly traded, and its transfer is restricted under an
agreement among LSAI and all of the holders of Class L stock. LSAI and the
Stockholder believe it desirable that the Stockholder be able to sell, and
LSAI be able to repurchase, these shares, on the basis described in this
Agreement. Those "put" and "call" arrangements are the subjects of this
Agreement.
LSAI AND THE STOCKHOLDER AGREE AS FOLLOWS:
1. Definitions
-----------
These terms have these meanings:
"Additional Call Period" means the 30-day period after the release
of the next Valuation if the applicable Termination of Employment occurs more
than 90 days after the release of the Valuation immediately preceding the
Termination of Employment.
"Affiliated Group" means the group of corporations consisting of LSAI
and its Subsidiaries.
"Annual Block" means a block of Option Shares equal in number to:
the greater of: (a) 25% of the number of total Option Shares held on the
date of this Agreement by the Family Group or (b) the minimum number of
shares of LSAI Stock which must be sold by the Family Group in order for the
sale of Option Shares to be treated, as to each member of the Family Group
who is a seller of Option Shares, as an exchange, rather than as a dividend,
under either Section 302(b)(2) or 302(b)(3) of the Code, determined as of the
Annual Block Measurement Date and taking into account any other shares of
LSAI Stock owned by the Family Group and any shares the ownership of which is
attributed to the Family Group under Section 318 of the Code. If, by reason
of sales of Option Shares by the Family Group (under this Agreement or
otherwise), the Family Group may in the future hold a block of Option Shares
smaller in number than 25% of the Option Shares on the date of this
Agreement, then "Annual Block" means that number of "remaining" Option
Shares, so long as the repurchase would meet the "exchange, not dividend"
standard contemplated by clause (b) of this definition and Section 2.4 of
this Agreement as to each member of the Family Group who is a seller at that
time of Option Shares.
"Annual Block Measurement Date" means the date of completion of a
Transaction contemplated by Section 2 of this Agreement.
"Annual Put Period" means the 30-day period after the release of the
Year-end Valuation in any year.
"Call Notice" has the meaning given it in Section 4.7 of this
Agreement.
"Class L Agreement" means the Class L Stockholders Agreement, dated
as of April 30, 1991, among LSAI and all of the holders of LSAI's Class L
common stock, including the Stockholder, as it may be amended, and any
replacement of or successor to that agreement.
"Code" means the Internal Revenue Code of 1986, as amended and as it
may be amended, and any successor statute.
"Disability" has the meaning given to that term under the defined
benefit pension plan of LSAI applicable to the Manager or, if no such plan is
applicable, the Revised Home Office Pension Plan or any successor to that
plan (the "HOPP") or, if the HOPP is terminated, under the HOPP as in effect
immediately prior to its termination.
"Estimated Pre-tax Earnings" means LSAI's estimated consolidated net
income for a fiscal year (excluding the impact of extraordinary items and
changes in accounting principles), as determined by LSAI's chief financial
officer at a time determined by that officer before the release of the Year-
end Valuation for that fiscal year. The determination of Estimated Pre-tax
Earnings by that officer shall be final and binding on both LSAI and the
Stockholder.
"Fair Market Value" means, as of any date, the value of LSAI's Class
E common stock as determined in the most recent valuation ("Valuation") of
that stock obtained by LSAI for use in valuing shares of Class E stock for
issuance under its employee investment and stock purchase plans. (Class E
stock and Class L stock are considered for purposes of this Agreement to have
the same value.)
"Family Group" means the Thomas and Pauline Tusher 1976 Family Trust,
as amended, Thomas W. Tusher, Trustee; the Gregory Malcom Tusher 1988
Irrevocable Trust under Agreement dated 03/04/88, D.G. Menchetti, Trustee;
and William H. Plageman, Jr., Trustee, Tusher Family 1988 Irrevocable Trust
f/b/o Michael Scott Tusher under agreement dated March 4, 1988 and any person
who later becomes a Stockholder under this Agreement or under the comparable
stock purchase agreements between LSAI and the other members of the Family
Group. References to the Family Group should be understood as meaning, as
the context may require, "members of the Family Group" or "any member of the
Family Group."
"Family Group Representative" means William A. Quinby or his or her
successor, as contemplated by Section 2.2 of this Agreement.
"LSAI Stock" means the Class L common stock of LSAI (including the
Option Shares), the Class E common stock of LSAI and any other class of LSAI
capital stock outstanding on or after the date of this Agreement and as may
be affected by Section 7.2 of this Agreement.
"Manager" means Thomas W. Tusher.
"Option Shares" means all shares of LSAI's Class L common stock
acquired by the Stockholder from the Manager, which shares were initially
acquired by the Manager through either the exercise by the Manager of stock
options granted to the Stockholder by LSAI or by purchase from LSAI as a
condition to receiving those stock option grants, of which on the date of
this Agreement the Stockholder has ownership, and any shares that may be
acquired by the Stockholder after the date of this Agreement following
exercise of outstanding stock options held by the Manager on the date of this
Agreement and transfer of those newly-acquired shares to the Stockholder.
"Option Shares" do not include any shares of Class L stock acquired in any
other manner (for example, in connection with the formation of HHF Corp.),
any Class E shares (for example, those acquired through participation by the
Manager in the Employee Stock Purchase and Stock Award Plan) or any shares of
Class L stock acquired in any other manner (for example, through a purchase
from another holder of Class L stock.)
"Put Notice" has the meaning given it in Section 3.5 of this
Agreement.
"Put Window Period" means the 90-day period after release of a
Valuation.
"Stockholder" means Thomas W. Tusher, trustee, or any successor
trustee, of the Thomas and Pauline Tusher 1976 Family Trust, as amended, and
to the extent that there are distributions of Option Shares from that trust
to any or all of the beneficiaries mentioned in that trust agreement, those
distributees and their successors in interest by inheritance, gift, devise or
bequest, including any distributee pursuant to the exercise of any limited
power of appointment conferred therein, and to the extent he or she holds
Option Shares, Thomas W. Tusher and Pauline Tusher. Notwithstanding the
foregoing, for purposes of Sections 2 and 3 of this Agreement, the definition
of Stockholder does not include any transferee for value (except any such
transferee that is a beneficiary under the trust), and does not include any
transferee without consideration who is not either a beneficiary or potential
beneficiary under the trust, or a beneficiary pursuant to the exercise of any
limited power of appointment conferred in the trust. That all said, for
purposes of Section 4 of this Agreement, the definition of Stockholder shall
include, in addition to the trustee and any successor trustee, all
beneficiaries or distributees under the trust, whether by distribution or
exercise of a limited power of appointment, and their successors in interest
or transferees, whether for or without value, and any "Permitted Transferee"
under the Class L Agreement. The term "Stockholder" shall be interpreted in
the singular or the plural as the context indicates or may require.
"Subsidiary" means a corporation (other than LSAI) in an unbroken
chain of corporations beginning with LSAI if each of the corporations, other
than the last corporation in the unbroken chain, owns stock possessing 50
percent or more of the total combined voting power of all classes of stock in
one or the other corporations in the chain.
"Termination of Employment" means a cessation of employment (whether
initiated by the Manager or by the employer or by reason of the death or
Disability of the Manager) of the Manager by any member of the Affiliated
Group, if the Manager is not employed immediately thereafter by another
member of the Affiliated Group.
"Transaction" means a purchase of Option Shares under Section 2, 3
or 4 of this Agreement.
"Valuation" is defined in the definition of Fair Market Value.
"Valuation Date" means the release date of any Valuation.
"Year-end Valuation" means the Valuation last released in a fiscal
year, or such other Valuation as determined by LSAI in its sole discretion.
2. Stockholder Annual Put Rights
-----------------------------
SUBJECT TO SECTION 6 OF THIS AGREEMENT:
2.1 Generally
(a) Each member of the Family Group owns Option Shares. With
respect to the repurchase rights created by this Section 2 of this Agreement,
these Option Shares, even though held by different holders, shall be treated
as a single block, and the Family Group shall be treated as a single "unit"
or actor. As a result, the members of the Family Group must, among
themselves, determine which Option Shares they hold, if any, will comprise
the Annual Block shares and will be tendered for sale in a given year. It is
up to them to determine the "composition" of those Option Shares if more than
one member of the Family Group wishes to exercise annual put rights in a
particular year.
(b) The "Family Group" concept is relevant only for purposes of
the annual put rights created by this Section 2. It is has no impact on the
put rights created by Section 3 or the call rights created by Section 4 of
this Agreement. For example, LSAI need not exercise its Section 4 rights
with respect to all members of a Family Group; it may in its sole discretion
choose to purchase Option Shares from no members, only one member, only some
members or all members.
2.2 Family Group Representative
(a) LSAI provide notices and other communications under this
Agreement to the Family Group by delivering them to each member of the Family
Group and to the Family Group Representative. LSAI shall be entitled to rely
entirely, without investigation or inquiry, upon directions, notices and
information (including, without limitation, Annual Put Notices specifying
which member's Option Shares are to be sold in a given year) provided to it
by the Family Group Representative. That is so even if LSAI receives
contrary directions, notices or information from other members of the Family
Group; all directions, notices and information provided to LSAI by the Family
Group Representative shall be binding upon each member of the Family Group.
(b) The Family Group may replace the Family Group
Representative at any time by delivering to LSAI a written notice to that
effect, signed by each member of the Family Group, including the to-be-
replaced Family Group Representative. If the Family Group Representative
dies, resigns or otherwise is unable to serve, the Family Group shall appoint
a successor as promptly as practicable by delivering to LSAI a notice to that
effect, signed by each member of the Family Group. LSAI shall have no
obligation to deliver or accept any directions, notices or other information
to or from any member of the Family Group until a successor is so appointed.
2.3 Annual Put. During the Annual Put Period in any year, the
Family Group may require LSAI to, and LSAI will be obligated to, repurchase
an Annual Block.
2.4 Limitations
(a) LSAI and persons in addition to the members of the Family
Group are parties to agreements creating the same or similar "annual put
rights" described in Section 2.3 in favor of those persons. LSAI will not be
obligated to complete a repurchase initiated by the Family Group under
Section 2.3 of this Agreement if the aggregate purchase price for all annual
put exercises in that year exceeds ten percent of Estimated Pre-tax Earnings.
LSAI in its sole discretion decides whether there is such an excess. If it
so decides, it may choose not to repurchase any shares of Class L stock from
any person, including the Family Group, who has exercised under these
agreements these annual put rights; that is, there will be no proration,
first-in-line or other allocation mechanism designed to permit partial sales.
(b) LSAI is obligated under Section 2.3 of this Agreement to
purchase Option Shares only if the Family Group has sufficient Option Shares
in order to "assemble" an Annual Block.
(c) LSAI is not obligated to complete a repurchase initiated by
the Family Group under Section 2.3 if LSAI concludes, in its sole discretion,
that the repurchase will be treated as a dividend rather than an exchange
described in Section 302(b)(2) or 302(b)(3) of the Code with respect to any
member of the Family Group.
2.5 Mechanics
(a) The Family Group shall exercise a put right created by this
Section 2 by the Family Group Representative delivering to LSAI, during an
Annual Put Period:
- a written notice (a "Annual Put Notice") in the
form attached to this Agreement as Exhibit 2.5;
- the stock certificate or certificates representing
the Option Shares described in the Annual Put
Notice, properly endorsed for transfer by the
appropriate members of the Family Group; and
- those other documents that LSAI may reasonably
request.
(b) LSAI shall review the Annual Put Notice and begin
determining the Annual Block. It may seek further information about LSAI
Stock owned by or attributed to the Family Group; the Family Group shall
cooperate with LSAI in developing that information and analysis.
(c) Within ten days after the end of the Annual Put Period,
LSAI shall advise the Family Group Representative in writing either that:
- LSAI will not complete the Transaction because one
or more of the conditions described in Section 2.4
is not satisfied or LSAI, on the basis described in
Section 6 of this Agreement, decided not to
complete it; or
- it will complete the Transaction, stating the
number of Option Shares comprising the Annual
Block, it being understood that the Annual Block
may comprise more than 25% of the Option Shares,
and that, in that case, the Family Group (i) must
decide upon the composition of those additional
Option Shares (that is, which member or member will
sell them) and (ii) may need to deliver additional
stock certificates.
If LSAI notifies the Family Group Representative that it will complete the
Transaction and concludes that the materials submitted are in proper form,
then, subject to Section 6 of this Agreement, LSAI shall thereafter issue its
check or checks, in the amount of the purchase price or prices and to the
order of the appropriate members of the Family Group, deliver that check or
those checks to the Family Group Representative for delivery to the Family
Group, accept the Option Shares and cancel or replace the related stock
certificates, and the Transaction shall be considered concluded. If it
questions the tender materials, it shall contact the Family Group
Representative in writing, and thereafter it and the Family Group shall
cooperate in an effort to resolve the situation. If they cannot resolve it
to LSAI's satisfaction within five days after the date of that notice, LSAI
in its sole discretion will not be obligated to complete the Transaction.
(d) The Family Group acknowledges that the Annual Block
Measurement Date is the date of completion of the Transaction, and that other
transactions involving shares of LSAI Stock (including, without limitation,
shares that may be attributed to any member of the Family Group under Section
318 of the Code) in the period from date of the Annual Put Notice to and
including the Annual Block Measurement Date, may affect the final
determination of the Annual Block. The Family Group agrees to advise LSAI of
any such transactions promptly. If there is such a transaction and the
Annual Block changes in amount, the Family Group shall be bound to sell that
new number of Option Shares.
2.6 Irrevocability. The Family Group may not withdraw its Annual
Put Notice after submission; it is irrevocable.
2.7 Purchase Price. The purchase price for the Transactions
described in this Section 2 shall be the Fair Market Value per share of the
Option Shares being tendered to LSAI, as stated in the Year-end Valuation
whose release began the applicable Annual Put Period.
3. Disability and Death Put Rights
-------------------------------
SUBJECT TO SECTION 6 OF THIS AGREEMENT:
3.1 Disability. During any Put Window Period occurring at the time
of, or during the five-year period after, Termination of Employment by reason
of Disability of the Manager, the Stockholder may require LSAI to, and LSAI
will be obligated to, repurchase all of the Option Shares then held by the
Stockholder, provided that any such purchase will, as determined by LSAI in
its sole discretion, be treated as an exchange, rather than as a dividend,
under either Section 302(b)(2) or 302(b)(3) of the Code.
3.2 Death
(a) During any Put Window Period occurring at the time of, or
during the five-year period after, Termination of Employment by reason of the
death of the Manager, the Stockholder may require LSAI to, and LSAI will be
obligated to, repurchase all of the Option Shares then held by the
Stockholder, provided that any such purchase will, as determined by LSAI in
its sole discretion, be treated as an exchange, rather than as a dividend,
under either Section 302(b)(2) or 302(b)(3) of the Code.
(b) If the Termination of Employment is by any other reason,
and the Manager should die while the Stockholder is still holding Option
Shares (that is, LSAI has not exercised its call rights under Section 4 of
this Agreement and the Stockholder has not previously sold all of the Option
Shares under Section 2 of the Agreement or otherwise disposed of the Option
Shares), the Stockholder may require LSAI to, and LSAI will be obligated to,
repurchase all of the Option Shares then held by the Stockholder, during any
Put Window Period occurring at the time of, or during the five-year period
after, the death of the Manager, provided that any such purchase will, as
determined by LSAI in its sole discretion, be treated as an exchange, rather
than as a dividend, under either Section 302(b)(2) or 302(b)(3) of the Code.
(c) If after the death of the Manager a Stockholder should die
while any Stockholder is still holding Option Shares, then any of the
Stockholders then holding Option Shares may require LSAI to, and LSAI will be
obligated to, repurchase all of the Option Shares so held during any Put
Window Period occurring at the time, or during the five-year period after the
death of that Stockholder, provided that any such purchase will, as
determined by LSAI in its sole discretion, be treated as an exchange, rather
than as a dividend, under either Section 302(b)(2) or 302(b)(3) of the Code.
3.3 Purchase Price. The purchase price in all of the Transactions
described in this Section 3 shall be the Fair Market Value of the Option
Shares being tendered to LSAI, as stated in the Valuation whose release began
the Put Window Period during which the put was exercised. Examples of the
application of the put rules appear in the document attached to this
Agreement as Exhibit 3.3.
3.4 No Partial Puts. The Stockholder, in exercising a put right
under this Section 3, must sell all of the Option Shares then owned by the
Stockholder. He or she cannot sell or seek to sell only a portion of those
Option Shares.
3.5 Mechanics
(a) The Stockholder shall exercise a put right created by this
Section 3 by delivering to LSAI, during a Put Window Period:
- a written notice (a "Put Notice") in the form
attached to this Agreement as Exhibit 3.5;
- the stock certificate or certificates representing
the Option Shares described in the Put Notice,
properly endorsed for transfer by the Stockholder;
and
- those other documents that LSAI may reasonably
request.
(b) LSAI shall promptly review the Put Notice and accompanying
documents. If it concludes that the tender complies with this Agreement,
then, subject to Section 6 of this Agreement, LSAI shall thereafter issue its
check, in the amount of the purchase price, to the Stockholder, accept the
Option Shares and cancel the related stock certificates, and the Transaction
shall be considered concluded. If it questions the tender, it shall contact
the Stockholder in writing, and thereafter it and the Stockholder shall
cooperate in an effort to resolve the situation. If they cannot resolve it
to LSAI's satisfaction within five days after the date of that notice, LSAI
in its sole discretion is not obligated to complete the Transaction.
3.6 Irrevocability. The Stockholder may not withdraw a Put Notice
after submission; it is irrevocable.
3.7 Interrelationship of Sections 2 and 3. A Stockholder entitled
to exercise put rights under this Section 3 may exercise annual put rights
under Section 2 of this Agreement and later exercise a Section 3 disability-
or death-related put with respect to its, his or her remaining Option Shares.
4. LSAI Call Rights
----------------
SUBJECT TO SECTION 6 OF THIS AGREEMENT:
4.1 Termination of Employment. For 90 days after Termination of
Employment of the Manager for any reason (including, without limitation,
death or Disability), and again during the first Additional Call Period, if
any, occurring after the end of that 90-day period, LSAI shall be entitled to
repurchase all of the Option Shares then held by the Stockholder, provided
that any such purchase will, as determined by LSAI in its sole discretion, be
treated as an exchange rather than as a dividend under either section
302(b)(2) or 302(b)(3) of the Code.
4.2 Additional Disability-Related Call. For 90 days after the
expiration of the five-year period described in Section 3.1 of this
Agreement, and again during the first Additional Call Period, if any,
occurring after the end of that 90-day period, LSAI shall be entitled to
purchase all of the Option Shares then held by the Stockholder, provided that
any such purchase will, as determined by LSAI in its sole discretion, be
treated as an exchange rather than as a dividend under either section
302(b)(2) or 302(b)(3) of the Code.
4.3 Additional Death-Related Call. For 90 days after the expiration
of any of the five-year periods described in Sections 3.2(a), (b) and (c) of
this Agreement, and again during the first Additional Call Period, if any,
occurring after the end of that 90-day period, LSAI shall be entitled to
purchase all of the Option Shares then held by the Stockholder, provided that
any such purchase will, as determined by LSAI in its sole discretion, be
treated as an exchange rather than as a dividend under either section
302(b)(2) or 302(b)(3) of the Code.
4.4 Unilateral Right. LSAI may exercise its repurchase rights under
this Section 4 whether or not the Stockholder wishes to sell; the Stockholder
will be obligated to sell upon delivery of a Call Notice. LSAI may make its
decision in its sole discretion, without regard to the tax or other financial
consequences to the Stockholder, and without regard to decisions it makes
with respect to other persons who are parties to like agreements.
4.5 Purchase Price. The purchase price in all of the Transactions
described in this Section 4 shall be the Fair Market Value of the Option
Shares being repurchased by LSAI, as stated in the Valuation most recently
released before the date LSAI gives the Call Notice. For example, if LSAI
gives the Call Notice during an Additional Call Period, the purchase price
shall be the Fair Market Value stated in the Valuation that began that
Additional Call Period. Examples of the application of the put and call
rules appear in the document attached to this Agreement as Exhibit 3.3.
4.6 No Partial Calls. LSAI, in exercising a call right under this
Section 4, must purchase all of the Option Shares then held by the
Stockholder. It cannot purchase or seek to purchase only a portion of those
Option Shares.
4.7 Mechanics
(a) LSAI may exercise a call right created by this Section 4 by
delivering, during any of the periods described in this Section 4, to the
Stockholder, a written notice (the "Call Notice") in the form attached to
this Agreement as Exhibit 4.7. Within 15 business days after receiving that
Call Notice, the Stockholder shall deliver to LSAI the stock certificate or
certificates representing the Option Shares, properly endorsed for transfer,
a copy of the Call Notice signed by the Stockholder in the space provided for
that signature and any other documents that LSAI may reasonably request.
(b) Upon receipt and approval of those materials, LSAI shall
thereafter issue and deliver to the Stockholder its check in payment of the
purchase price for the Option Shares, and the transaction shall be considered
concluded.
(c) LSAI shall be free to complete the transaction even if the
Stockholder fails to deliver the stock certificates; in that case, the
Stockholder shall supply LSAI at its request with the "lost certificate"
assurances contemplated by Bylaw 45 of LSAI's bylaws.
4.8 Waiver. LSAI may waive any of the limitations on the exercise
of its call rights under this section, other than those relating to the time
the call rights may be exercised and the purchase price of the Option Shares.
5. Impact on Stockholder
---------------------
5.1 Class L Agreement. The Stockholder holds the Option Shares
subject to the Class L Agreement. Except as contemplated by Section 5.3 of
this Agreement, this Agreement does not in any way limit or otherwise affect
the rights and obligations created by the Class L Agreement, including,
without limitation, the restrictions on transfer of the Option Shares imposed
by Section 2 of that agreement, and the Stockholder remains free to transfer
the Option Shares as permitted by the Class L Agreement. Except as may be
stated in that successor or replacement document, this Agreement shall not be
affected by a successor to or replacement of the Class L Agreement.
5.2 Put Coverage
(a) The definition of "Stockholder" contained in Section 1
explains to what extent the put rights created by Sections 2 and 3 are
available to transferees of the Option Shares.
(b) If as a result of a property settlement or other
disposition in connection with a marital dissolution involving the
Stockholder, the spouse of the Stockholder acquires Option Shares, these
rules shall apply:
- with respect to the annual put rights created by
Section 2 of this Agreement, the Stockholder and
the ex-spouse shall hold the rights as a "unit;"
that is, the Option Shares, even though held by
different Stockholders, shall be treated as a
single block, and the "unit" shall be in the same
position as the Stockholder was prior to the
disposition, including, without limitation, as a
member of the Family Group. As a result, the
Stockholder and the ex-spouse must, between
themselves, determine which of the unit's Option
Shares, if any, will be sold in a given year, and
must interact as a unit with the other members of
the Family Group. For example, assume that the
Stockholder owns 100 Option Shares prior to the
dissolution, and his Annual Block is 25 Option
Shares. In the dissolution, the Stockholder
transfers 50 Option Shares to his ex-spouse. It is
up to the Stockholder and the ex-spouse to agree to
the "composition" of those 25 Option Shares (all
his, all hers or a combination) if either wishes to
exercise annual put rights in a particular year,
and to interact with the other members of the
Family Group in including those shares in a
particular Transaction. In all events, however,
LSAI shall have no obligation to purchase the
Option Shares unless the sale, in LSAI's sole
discretion, would be treated as an exchange, rather
than as a dividend, under either Section 302(b)(2)
or 302(b)(3) of the Code, with respect to each
member of the Family Group who is selling Option
Shares at that time. In all cases, LSAI will
accept only Annual Put Notices signed by both the
Family Group Representative and the ex-spouse,
whether or not the ex-spouse is a seller during a
particular Annual Put Period.
- with respect to the put rights created by Section 3
of this Agreement, the ex-spouse will have those
rights but they will be tied to the employment
status of the Manager. For example, the ex-spouse
may put her Option Shares to LSAI after Termination
of Employment by reason of Disability. The ex-
spouse may exercise those rights even if the holder
does not exercise his corresponding rights at the
same time.
- with respect to the call rights created by Section
4 of this Agreement, the ex-spouse, like all
transferees of the holder, will be bound by Section
5.3 of this Agreement.
The ex-spouse shall, in selling shares under this Agreement, be subject to
all of the limitations and document delivery conditions applicable to the
holder.
5.3 Calls Attach. By entering into this Agreement, the Stockholder
agrees that the call rights created by this Agreement shall bind any
transferee of the Option Shares, regardless of how that transferee acquired
the Option Shares; that is, they will run with the Option Shares. Should the
Stockholder transfer the Option Shares to another person (whether before or
after a Termination of Employment), LSAI will be entitled to exercise the
call rights and buy the Option Shares from that transferee (or his or her
later transferees) under Section 4 of this Agreement. For example, if the
Stockholder transfers the Option Shares before Termination of Employment,
LSAI would be entitled to purchase the Option Shares from that transferee (or
any later transferees) at the time of Termination of Employment or later (for
example, upon the death of the Stockholder), as provided in Section 4. The
Stockholder understands that the certificates representing the Option Shares
will bear a conspicuous legend describing this right. The Stockholder
further understands that he may not transfer the Option Shares without first
providing to LSAI a document, in the form attached as Exhibit 5.3 to this
Agreement, signed by the transferee and confirming the continuing
effectiveness of LSAI's call rights after the transfer and the transferee's
obligations to provide the documents described in Section 4.7 of this
Agreement.
5.4 Voting and Dividends. This Agreement does not affect in any way
the Stockholder's right to exercise any voting or other rights attributable
to ownership of the Option Shares, or to receive dividends or the like in
respect of the Option Shares. (Section 7.3 of this Agreement explains that
this Agreement does not restrict or affect in any way the Stockholder's
ability to participate in general repurchase transactions.)
5.5 No Right to Employment. No provision of this Agreement confers
upon the Manager any right to continue in the employ of LSAI or any
Subsidiary, or affects LSAI's or a Subsidiary's right to terminate the
employment of the Manager at any time, with or without cause.
5.6 No Impact on Benefits. No payments by LSAI under this Agreement
shall be taken into account in determining any benefits of the Manager under
any compensation, pension, retirement, savings, profit sharing, group
insurance, welfare or other employee benefit plan of LSAI or any Subsidiary.
The Stockholder's entry into this Agreement shall not affect in any way the
Manager's rights or benefits under any of those plans.
5.7 No Rights To Other Sales. No provision of this Agreement
entitles the Stockholder to sell Option Shares back to LSAI if Termination of
Employment occur for any reason other than Death or Disability; the
Stockholder's only entitlement shall be the annual put rights created under
Section 2 of this Agreement. This Agreement does not speak to or affect in
any way other termination situations. In addition, this Agreement does not
entitle the Stockholder (or any other person) to sell shares of LSAI Stock
other than the Option Shares. The references in the definition of "Annual
Block" to other LSAI Stock owned and to shares of LSAI Stock to whom
ownership is attributed are solely for definitional and tax purposes, and are
not intended to and do not create any right in favor of any person to sell
those shares to LSAI. However, ownership of LSAI Stock by others may affect
the ability of the Stockholder to sell Option Shares under this Agreement.
5.8 No Right to Special Disclosure. Subject to Sections 2.2(a), 14
and 15 of this Agreement, LSAI has no duty or obligation to disclose
individually to the Stockholder, the Manager or any other person, and neither
the Stockholder, the Manager nor any other person has any duty or obligation
to disclose to LSAI, any material information relating to LSAI, at any time
prior to, at the time of, or in connection with, LSAI's repurchase of Option
Shares under Sections 2, 3 or 4 of this Agreement.
5.9 Tax-related Documentation. If necessary for purposes of
qualifying a transaction under Section 3 of this Agreement as an exchange
under Section 302(b)(3) of the Code, LSAI is specifically authorized (without
in any way limiting its rights to request any other documentation) to require
evidence satisfactory to LSAI that the agreement required by Section
302(c)(2) of the Code has been executed and filed by the Stockholder with the
appropriate official of the Internal Revenue Service and that such agreement
has been complied with as of the date of sale.
6. Limitations on Repurchases
--------------------------
6.1 Limitations. LSAI is not obligated to complete a Transaction
initiated under Sections 2, 3 or 4 of this Agreement if:
(a) the Transaction would, as determined by LSAI in its sole
discretion: (i) result in the violation of any applicable law, including,
without limitation, those laws limiting LSAI's ability to repurchase its
capital stock, fraudulent conveyance laws and securities laws (including Rule
10b-6 and Rule 10b-13 under the Securities Exchange Act of 1934, as amended)
or (ii) violate or conflict with the provisions of the certificate of
incorporation of LSAI or of any agreement or instrument to which LSAI or any
member of the Affiliated Group is a party or by which it is bound, whether
now or in the future, it being understood that LSAI is free to create or bind
itself to any provision that limits or restricts its ability to purchase
Option Shares under this Agreement;
(b) there shall have been threatened, instituted, or pending
any action or proceeding by any governmental, regulatory, or administrative
agency or authority or tribunal, domestic or foreign, or by any other person,
domestic or foreign, before any court or governmental, regulatory, or
administrative authority or agency or tribunal, domestic or foreign, which
challenges or seeks to make illegal, or to delay or otherwise directly or
indirectly to restrain, prohibit, or otherwise affect the Transaction, the
acquisition of Option Shares in a Transaction, or otherwise relates in any
manner to the Transaction or this Agreement; or in LSAI's sole discretion,
and irrespective of whether it is directed at or affects the Transaction as
such, could materially affect LSAI's business, financial condition, income,
operations, or prospects or otherwise materially impair in any way the
contemplated future conduct of LSAI's business;
(c) there shall have been any action threatened, pending, or
taken, or any approval withheld, or any statute, rule, regulation, judgment,
order, or injunction threatened, invoked, proposed, sought, promulgated,
enacted, entered, amended, enforced, or considered to apply to the
Transaction, this Agreement or to LSAI, by any court or any government or
governmental, regulatory, or administrative agency or authority or tribunal,
domestic or foreign, which, in LSAI's sole discretion, would or might
directly or indirectly result in any of the consequences referred to in this
Section 6.1;
(d) there shall have occurred or be continuing since the
applicable Valuation Date: (i) the declaration of any banking moratorium or
suspension of payments in respect of banks in the United States (whether or
not mandatory); (ii) any general suspension of trading in, or limitation on
prices for, securities on any United States national securities exchange or
in the over-the-counter market; (iii) the commencement of a war, armed
hostilities, or any other national or international crisis directly or
indirectly involving the United States; (iv) any limitation (whether or not
mandatory) by any governmental, regulatory, or administrative agency or
authority on, or any event which, in LSAI's sole discretion, might affect,
the extension of credit by banks or other lending institutions in the United
States; (v) any change in the general political, market, economic, or
financial conditions in the United States or abroad that could have a
material adverse effect on the business, condition (financial or otherwise),
income, operations, or prospects of LSAI; (vi) a decline in either the Dow
Jones Industrial Average or the Standard and Poor's Index of 500 Industrial
Companies by an amount in excess of 10% measured from the Valuation Date of
the Valuation to be used in determining the purchase price in the Transaction
to the date of issuance of the Annual Put Notice, Put Notice or Call Notice,
as the case may be;
(e) any change shall have occurred or been threatened in the
business, condition (financial or otherwise), income, operations, stock
ownership, or prospects of LSAI, which is or may be material to LSAI, as
determined by LSAI in its sole discretion;
(f) a tender or exchange offer for any or all of the shares of
Class L stock, or any merger, business combination, or other similar
transaction with or involving LSAI, shall have been proposed, announced, or
made by any person;
(g) the Stockholder fails to deliver the documents contemplated
by Sections 2.5, 3.5(a), 4.7 or 5.9, as the case may be, of this Agreement,
or fails to cooperate with LSAI as contemplated by Section 2.5(c) of this
Agreement; or
(h) LSAI concludes, in its sole discretion, that the
Transaction will be treated as a dividend, rather than as an exchange, under
Section 302(b)(2) or 302(b)(3) of the Code.
6.2 LSAI's Decision. LSAI in its sole discretion decides whether
any of the events or circumstances described in Section 6.1 have occurred or
are occurring. If it so concludes, then, in its sole discretion, it may
reject a pending or later-issued Annual Put Notice or Put Notice or revoke a
pending Call Notice, as the case may be. These rules are for LSAI's sole
benefit. It may assert them regardless of the circumstances giving rise to
the event (including its own action or inaction), or it may ignore them and
proceed with the Transaction. In addition, it may assert or ignore them with
respect to a Transaction regardless of whether it makes the same decision
with respect to transactions (contemporaneous or not) involving other persons
who are parties to like agreements.
6.3 Consequences. LSAI exercise of its rights under this Section
6 shall have these consequences:
- If LSAI has rejected a Put Notice and the Stockholder
otherwise would have no further opportunities to exercise
that put right (for example, if the Stockholder attempted
to exercise the put immediately before the end of the five-
year period following Termination of Employment by reason
of Disability), then the Stockholder (again subject to this
Section 6, including this Section 6.3) shall be entitled to
exercise the put during the next Put Window Period. If the
Stockholder does not exercise the put at that time, then it
shall expire, and the Stockholder's only entitlement shall
be the annual put rights created under Section 2 of this
Agreement.
- If LSAI has rejected an Annual Put Notice or Put Notice and
the Stockholder would otherwise have later opportunities to
exercise that put, then the rejection shall have no special
impact.
- If LSAI has revoked a Call Notice and LSAI otherwise would
no have further opportunities to exercise that call right,
then LSAI (again subject to this Section 6, including this
Section 6.3) shall be entitled to exercise the call during
the 30-day period following the next Valuation Date.
- If LSAI has revoked a Call Notice and LSAI would otherwise
have later opportunities to exercise the call, then the
revocation shall have no special impact.
7. Capital Structure Transactions
------------------------------
7.1 No Limit on LSAI. No provision of this Agreement limits the
right or ability of LSAI or any Subsidiary at any time to reclassify,
recapitalize or otherwise change its capital or debt structure or to merge,
consolidate, convey any or all of its assets, dissolve, liquidate, windup or
otherwise reorganize, or to repurchase or offer to repurchase, by tender
offer, application of an estate tax repurchase policy or otherwise, shares of
LSAI Stock held by the Stockholder or by other persons. That is so
regardless of the impact of such a transaction on: (i) "capital" or "surplus"
under the Delaware General Corporation Law; (ii) funds available for
repurchases; (iii) the determination of the Annual Block; or (iv) any other
relevant matter. The Stockholder understands that, as provided by the
federal securities laws and as contemplated by Section 6.1 of this Agreement,
LSAI cannot purchase, and is not obligated to purchase, Option Shares under
this Agreement, during the period beginning at the time a tender offer or
exchange offer by LSAI for LSAI Stock is publicly announced or otherwise made
known to the holders of LSAI Stock and ending at the time shares tendered in
response to that offer may be accepted or rejected by LSAI. As a result,
put rights are effectively not exercisable during such a period, even if an
Annual Put Period or Put Window Period occurs during that period. Section
6.3 explains the consequences of such a development.
7.2 Adjustment. If the Option Shares are changed by reason of a
stock split, stock dividend or recapitalization, or if they are converted
into or exchanged for other securities as a result of a merger, consolidation
or like transaction, this Agreement shall remain applicable to the Option
Shares or the new securities, as the case may be, and in the manner
determined by LSAI in its sole discretion.
7.3 No Effect on Right to Participate. No provision of this
Agreement limits or otherwise affects the right of the Stockholder to
participate, as a holder of Class L stock, in any tender offer,
recapitalization, exchange offer or other capital stock transaction initiated
by LSAI or by a third party.
7.4 Impact of Public Trading. This Agreement shall terminate if
and at the time the Class L stock, or any security (issued by LSAI or a third
party) into which the Class L may be converted, is or becomes listed for
trading on a national stock exchange or national market system, including,
without limitation, the NASDAQ National Market System.
8. No Advice
---------
By signing below, the Stockholder is confirming that LSAI has made
no warranties or representations to the Stockholder about the tax, financial
or legal consequences of any of the transactions contemplated by this
Agreement, and that the Stockholder is not in any manner relying on LSAI for
advice about, or an assessment of, those consequences.
9. Unfunded Status
---------------
LSAI's obligations under this Agreement are not "funded." LSAI has
no obligation to set aside or segregate any funds or other assets in order to
meet those obligations. Neither LSAI nor any of its directors, officers or
agents shall be considered a trustee of any monies that may be payable under
this Agreement. LSAI's obligations are solely contractual in nature, and are
not secured by, and should not be considered secured by, any lien or
encumbrance on any property of LSAI or of any other member of the Affiliated
Group.
10. Entire Agreement; Amendment
---------------------------
This Agreement and its exhibits contain all of the terms and
conditions agreed upon by LSAI and the Stockholder relating to its subject
matter, represent the final, complete and exclusive statement of LSAI and the
Stockholder, and supersede any and all prior or contemporaneous agreements,
negotiations, correspondence, understandings and communications between LSAI
and the Stockholder, whether oral or written. This Agreement may be amended
only as stated in and by a writing signed by LSAI and the Stockholder which
refers specifically to this Agreement and states that it is amending this
Agreement.
11. Binding Effect; Assignment
--------------------------
This Agreement shall be binding upon the successors and permitted
assigns of LSAI and the Stockholder. (Section 5.3 explains the impact of
this Agreement on transferees of the Option Shares.) LSAI may, without
obtaining the consent of the Stockholder, freely assign its rights and
delegate its duties (either directly or by operation of law) under this
Agreement to: (i) any affiliate of LSAI (including, without limitation, Levi
Strauss & Co. ("LS&CO.") or any subsidiary of LS&CO. or LSAI, whether in
existence now or formed in the future); (ii) any successor to LSAI by merger
or consolidation; or (iii) any purchaser of all or substantially all of the
assets of LSAI or of LS&CO. The Stockholder may not assign its rights or
delegate its duties without the express, prior written consent of LSAI.
12. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the state of California.
13. Further Assurances
------------------
LSAI and the Stockholder shall sign those other documents and take
those other actions as the other may reasonably request in order to effect
the transactions contemplated by this Agreement.
14. Notices
-------
Any notice under this Agreement (including, without limitation,
Annual Put Notices, Put Notices, Call Notices and notices of Valuations)
shall be given by mail or by courier delivery or facsimile transmission
addressed to:
If to LSAI:
Levi Strauss Associates Inc.
Levi's Plaza
1155 Battery Street/LS-7
San Francisco, CA 94111
Attn.: Corporate Secretary
Facsimile: 415/544-7650
If to the Stockholder:
The Thomas and Pauline Tusher 1976 Family Trust,
as amended, Thomas W. Tusher, Trustee
c/o Thomas W. Tusher
Levi Strauss & Co.
Levi's Plaza
1155 Battery Street
San Francisco, CA 94111
If to the Family Group Representative:
William A. Quinby
1999 Harrison Street
Oakland, CA 94612
Those addresses may be changed by delivery of a notice to that effect to the
other party. Notices given in the manner contemplated by this Section 14
shall be considered "given" two business days after deposit in the mail or
the first business day after the date of delivery to a courier or facsimile
transmission, as the case may be.
15. Release
-------
This Agreement contains several references to "release(s)" of
valuations. "Release" here means the date LSAI sends notice to the
Stockholder of a Valuation; LSAI shall send to the Stockholder such a notice
within three days after receipt by LSAI of a Valuation from the banking firm
making that Valuation.
16. Days
----
References to "days" in this Agreement (for example, in the
definition of "Additional Call Period" and in Section 2.3) means calendar,
not business, days.
17. Counterparts
------------
This Agreement may be signed in any number of counterparts.
* * * *
IN WITNESS WHEREOF, LSAI and the Stockholder signed and delivered
this Agreement on, and it became effective on, the date appearing in the
first paragraph of this Agreement.
LEVI STRAUSS ASSOCIATES INC.
--------------------------------------
Name: George B. James
Title: Senior Vice President and
Chief Financial Officer
STOCKHOLDER
--------------------------------------
THE THOMAS AND PAULINE TUSHER
1976 FAMILY TRUST, AS AMENDED,
THOMAS W. TUSHER, TRUSTEE
ACKNOWLEDGMENT BY FAMILY
GROUP REPRESENTATIVE:
- --------------------------------------
WILLIAM A. QUINBY
The Stockholder's signature confirms
his approval of the Family Group
Representative.<PAGE>
<PAGE>
Exhibit 10ll
------------
MANAGER FAMILY MEMBER STOCK PURCHASE AGREEMENT
----------------------------------------------
THIS IS A MANAGER FAMILY MEMBER STOCK PURCHASE AGREEMENT, dated
October 28, 1994 (the "Agreement"), between LEVI STRAUSS ASSOCIATES INC., a
Delaware corporation ("LSAI") and THE JAMES FAMILY TRUST, GEORGE B. JAMES
AND BEVERLY B. JAMES, TRUSTEES, U/T/A DATED SEPTEMBER 13, 1973 (THE
"STOCKHOLDER").
B A C K G R O U N D
----------------------------
The Stockholder is a trust established by a senior manager of LSAI
or of one of its principal subsidiaries. It acquired shares of LSAI's Class
L common stock from that manager; the manager had obtained the shares by
exercising stock options granted to him by LSAI. That stock is not publicly
traded, and its transfer is restricted under an agreement among LSAI and all
of the holders of Class L stock. LSAI and the Stockholder believe it
desirable that the Stockholder be able to sell, and LSAI be able to
repurchase, these shares, on the basis described in this Agreement. Those
"put" and "call" arrangements are the subjects of this Agreement.
LSAI AND THE STOCKHOLDER AGREE AS FOLLOWS:
1. Definitions
-----------
These terms have these meanings:
" Additional Call Period" means the 30-day period after the release
of the next Valuation if the applicable Termination of Employment occurs more
than 90 days after the release of the Valuation immediately preceding the
Termination of Employment.
"Affiliated Group" means the group of corporations consisting of LSAI
and its Subsidiaries.
"Annual Block" means a block of Option Shares equal in number to:
the greater of: (a) 25% of the number of total Option Shares on the date of
this Agreement or (b) the minimum number of shares of LSAI Stock which must
be sold by the Stockholder in order for the sale to be treated as an
exchange, rather than as a dividend, under either Section 302(b)(2) or
302(b)(3) of the Code, determined as of the Annual Block Measurement Date and
taking into account any other shares of LSAI stock owned by the Stockholder
and any shares the ownership of which is attributed to the Stockholder under
Section 318 of the Code. If, by reason of sales of Option Shares by the
Stockholder (under this Agreement or otherwise), the Stockholder may in the
future hold a block of Option Shares smaller in number than 25% of the Option
Shares on the date of this Agreement, then "Annual Block" means that number
of "remaining" Option Shares, so long as the repurchase would meet the
"exchange, not dividend" standard contemplated by clause (b) of this
definition and Section 2.2(b) of this Agreement.
"Annual Block Measurement Date" means the date of completion of a
Transaction contemplated by Section 2 of this Agreement.
"Annual Put Period" means the 30-day period after the release of the
Year-end Valuation in any year.
"Beneficiary" means the estate of a Trust Beneficiary holding Option
Shares and, if the Stockholder or estate distributes Option Shares after the
death of the Trust Beneficiary, the person or entity who holds the Option
Shares after that distribution.
"Call Notice" has the meaning given it in Section 4.7 of this
Agreement.
"Class L Agreement" means the Class L Stockholders Agreement, dated
as of April 30, 1991, among LSAI and all of the holders of LSAI's Class L
common stock, including the Stockholder, as it may be amended, and any
replacement of or successor to that agreement.
"Code" means the Internal Revenue Code of 1986, as amended and as it
may be amended, and any successor statute.
"Disability" has the meaning given to that term under the defined
benefit pension plan of LSAI applicable to the Manager or, if no such plan is
applicable, the Revised Home Office Pension Plan or any successor to that
plan (the "HOPP") or, if the HOPP is terminated, under the HOPP as in effect
immediately prior to its termination.
"Estimated Pre-tax Earnings" means LSAI's estimated consolidated net
income for a fiscal year (excluding the impact of extraordinary items and
changes in accounting principles), as determined by LSAI's chief financial
officer at a time determined by that officer before the release of the Year-
end Valuation for that fiscal year. The determination of Estimated Pre-tax
Earnings by that officer shall be final and binding on both LSAI and the
Stockholder.
"Fair Market Value" means, as of any date, the value of LSAI's Class
E common stock as determined in the most recent valuation ("Valuation") of
that stock obtained by LSAI for use in valuing shares of Class E stock for
issuance under its employee investment and stock purchase plans. (Class E
stock and Class L stock are considered for purposes of this Agreement to have
the same value.)
"LSAI Stock" means the Class L common stock of LSAI (including the
Option Shares), the Class E common stock of LSAI and any other class of LSAI
capital stock outstanding on or after the date of this Agreement and as may
be affected by Section 7.2 of this Agreement.
"Manager" means George B. James.
"Option Shares" means all shares of LSAI's Class L common stock
acquired by the Stockholder from the Manager, which shares were initially
acquired by the Manager through either the exercise by the Manager of stock
options granted to the Stockholder by LSAI or by purchase from LSAI as a
condition to receiving those stock option grants, of which on the date of
this Agreement the Stockholder has ownership, and any shares that may be
acquired by the Stockholder after the date of this Agreement following
exercise of outstanding stock options held by the Manager on the date of this
Agreement and transfer of those newly-acquired shares to the Stockholder.
"Option Shares" do not include any shares of Class L stock acquired in any
other manner (for example, in connection with the formation of HHF Corp.),
any Class E shares (for example, those acquired through participation by the
Manager in the Employee Stock Purchase and Stock Award Plan) or any shares of
Class L stock acquired in any other manner (for example, through a purchase
from another holder of Class L stock.)
"Put Notice" has the meaning given it in Section 3.5 of this
Agreement.
"Put Window Period" means the 90-day period after release of a
Valuation.
"Stockholder" means the Stockholder and, following the distribution,
if any, of the Option Shares to the Trust Beneficiary, the Trust Beneficiary.
"Subsidiary" means a corporation (other than LSAI) in an unbroken
chain of corporations beginning with LSAI if each of the corporations, other
than the last corporation in the unbroken chain, owns stock possessing 50
percent or more of the total combined voting power of all classes of stock in
one or the other corporations in the chain.
"Termination of Employment" means a cessation of employment (whether
initiated by the Manager or by the employer or by reason of the death or
Disability of the Manager) of the Manager by any member of the Affiliated
Group, if the Manager is not employed immediately thereafter by another
member of the Affiliated Group.
"Transaction" means a purchase of Option Shares under Section 2, 3
or 4 of this Agreement.
"Trust Beneficiary" means the beneficiary of the trust which is the
Stockholder.
"Valuation" is defined in the definition of Fair Market Value.
"Valuation Date" means the release date of any Valuation.
"Year-end Valuation" means the Valuation last released in a fiscal
year, or such other Valuation as determined by LSAI in its sole discretion.
2. Stockholder Annual Put Rights
-----------------------------
SUBJECT TO SECTION 6 OF THIS AGREEMENT:
2.1 Annual Put. During the Annual Put Period in any year, the
Stockholder may require LSAI to, and LSAI will be obligated to, repurchase an
Annual Block.
2.2 Limitations
(a) LSAI and persons in addition to the Stockholder are parties
to agreements creating the same "annual put rights" described in Section 2.1
in favor of those persons. LSAI will not be obligated to complete a
repurchase initiated by the Stockholder under Section 2.1 of this Agreement
if the aggregate purchase price for all annual put exercises in that year
exceeds ten percent of Estimated Pre-tax Earnings. LSAI in its sole
discretion decides whether there is such an excess. If it so decides, it may
choose not to repurchase any shares of Class L stock from any person,
including the Stockholder, who has exercised under these agreements these
annual put rights; that is, there will be no proration, first-in-line or
other allocation mechanism designed to permit partial sales.
(b) LSAI is obligated under Section 2.1 of this Agreement to
purchase Option Shares only if the Stockholder has sufficient Option Shares
in order to "assemble" an Annual Block; that is, LSAI will not be obligated
to complete a repurchase initiated by the Stockholder under Section 2.1 if
LSAI concludes, in its sole discretion, that the repurchase will be treated
as a dividend rather than an exchange described in Section 302(b)(2) or
302(b)(3) of the Code.
2.3 Mechanics
(a) The Stockholder shall exercise a put right created by this
Section 2 by delivering to LSAI, during an Annual Put Period:
- a written notice (a "Annual Put Notice") in the
form attached to this Agreement as Exhibit 2.3;
- the stock certificate or certificates representing
the Option Shares described in the Annual Put
Notice, properly endorsed for transfer by the
Stockholder; and
- those other documents that LSAI may reasonably
request.
(b) LSAI shall review the Annual Put Notice and begin
determining the Annual Block. It may seek further information about LSAI
Stock owned by or attributed to the Stockholder; the Stockholder shall
cooperate with LSAI in developing that information and analysis.
(c) Within ten days after the end of the Annual Put Period,
LSAI shall advise the Stockholder in writing either that:
- LSAI will not complete the Transaction because one
or more of the conditions described in Section 2.2
is not satisfied or LSAI, on the basis described in
Section 6 of this Agreement, decided not to
complete it; or
- it will complete the Transaction, stating the
number of Option Shares comprising the Annual
Block, it being understood that the Annual Block
may comprise more than 25% of the Option Shares,
and that, in that case, the Stockholder may need to
deliver additional stock certificates.
If LSAI notifies the Stockholder that it will complete the Transaction and
concludes that the materials submitted are in proper form, then, subject to
Section 6 of this Agreement, LSAI shall thereafter issue its check, in the
amount of the purchase price, to the Stockholder, accept the Option Shares
and cancel or replace the related stock certificates, and the transaction
shall be considered concluded. If it questions the tender materials, it
shall contact the Stockholder in writing, and thereafter it and the
Stockholder shall cooperate in an effort to resolve the situation. If they
cannot resolve it to LSAI's satisfaction within five days after the date of
that notice, LSAI in its sole discretion will not be obligated to complete
the Transaction.
(d) The Stockholder acknowledges that the Annual Block
Measurement Date is the date of completion of the Transaction, and that other
transactions involving shares of LSAI Stock (including, without limitation,
shares that may be attributed to the Stockholder under Section 318 of the
Code) in the period from date of the Annual Put Notice to and including the
Annual Block Measurement Date, may affect the final determination of the
Annual Block. The Stockholder agrees to advise LSAI of any such transactions
promptly. If there is such a transaction and the Annual Block changes in
amount, the Stockholder shall be bound to sell that new number of Option
Shares.
2.4 Irrevocability. The Stockholder may not withdraw her Annual Put
Notice after submission; it is irrevocable.
2.5 Purchase Price. The purchase price for the Transactions
described in this Section 2 shall be the Fair Market Value of the Option
Shares being tendered to LSAI, as stated in the Year-end Valuation whose
release began the applicable Annual Put Period.
3. Disability and Death Put Rights
-------------------------------
SUBJECT TO SECTION 6 OF THIS AGREEMENT:
3.1 Disability. During any Put Window Period occurring at the time
of, or during the five-year period after, Termination of Employment by reason
of Disability of the Manager, the Stockholder may require LSAI to, and LSAI
will be obligated to, repurchase all of the Option Shares then held by the
Stockholder, provided that any such purchase will, as determined by LSAI in
its sole discretion, be treated as an exchange, rather than as a dividend,
under either Section 302(b)(2) or 302(b)(3) of the Code.
3.2 Death
(a) During any Put Window Period occurring at the time of, or
during the five-year period after, Termination of Employment by reason of the
death of the Manager, the Stockholder may require LSAI to, and LSAI will be
obligated to, repurchase all of the Option Shares then held by the
Stockholder, provided that any such purchase will, as determined by LSAI in
its sole discretion, be treated as an exchange, rather than as a dividend,
under either Section 302(b)(2) or 302(b)(3) of the Code.
(b) If the Termination of Employment is by any other reason,
and the Manager should die while the Stockholder is still holding Option
Shares (that is, LSAI has not exercised its call rights under Section 4 of
this Agreement and the Stockholder has not previously sold all of the Option
Shares under Section 2 of the Agreement or otherwise disposed of the Option
Shares), the Stockholder may require LSAI to, and LSAI will be obligated to,
repurchase all of the Option Shares then held by the Stockholder, during any
Put Window Period occurring at the time of, or during the five-year period
after, the death of the Manager, provided that any such purchase will, as
determined by LSAI in its sole discretion, be treated as an exchange, rather
than as a dividend, under either Section 302(b)(2) or 302(b)(3) of the Code.
(c) If after the death of the Manager the Trust Beneficiary
should die while the Stockholder or Trust Beneficiary is still holding Option
Shares, the Stockholder or the Beneficiary, as the case may be, may require
LSAI to, and LSAI will be obligated to, repurchase the Option Shares so held,
during any Put Window Period occurring at the time of, or during the five-
year period after, the death of the Trust Beneficiary, provided that any such
purchase will, as determined by LSAI in its sole discretion, be treated as an
exchange, rather than as a dividend, under either Section 302(b)(2) or
302(b)(3) of the Code.
3.3 Purchase Price. The purchase price in all of the Transactions
described in this Section 3 shall be the Fair Market Value of the Option
Shares being tendered to LSAI, as stated in the Valuation whose release began
the Put Window Period during which the put was exercised. Examples of the
application of the put rules appear in the document attached to this
Agreement as Exhibit 3.3.
3.4 No Partial Puts. The Stockholder or Beneficiary, in exercising
a put right under this Section 3, must sell all of the Option Shares then
owned by the Stockholder or Beneficiary. He or she cannot sell or seek to
sell only a portion of those Option Shares.
3.5 Mechanics
(a) The Stockholder or Beneficiary shall exercise a put right
created by this Section 3 by delivering to LSAI, during a Put Window Period:
- a written notice (a "Put Notice") in the form
attached to this Agreement as Exhibit 3.5;
- the stock certificate or certificates representing
the Option Shares described in the Put Notice,
properly endorsed for transfer by the Stockholder;
and
- those other documents that LSAI may reasonably
request.
(b) LSAI shall promptly review the Put Notice and accompanying
documents. If it concludes that the tender complies with this Agreement,
then, subject to Section 6 of this Agreement, LSAI shall thereafter issue its
check, in the amount of the purchase price, to the Stockholder or the
Beneficiary, accept the Option Shares and cancel the related stock
certificates, and the Transaction shall be considered concluded. If it
questions the tender, it shall contact the Stockholder or Beneficiary in
writing, and thereafter it and the Stockholder or Beneficiary shall cooperate
in an effort to resolve the situation. If they cannot resolve it to LSAI's
satisfaction within five days after the date of that notice, LSAI in its sole
discretion is not obligated to complete the Transaction.
3.6 Irrevocability. The Stockholder or Beneficiary may not withdraw
a Put Notice after submission; it is irrevocable.
3.7 Interrelationship of Sections 2 and 3. A Stockholder or
Beneficiary entitled to exercise put rights under this Section 3 may
exercise annual put rights under Section 2 of this Agreement and later
exercise a Section 3 disability- or death-related put with respect to its,
his or her remaining Option Shares.
4. LSAI Call Rights
----------------
SUBJECT TO SECTION 6 OF THIS AGREEMENT:
4.1 Termination of Employment. For 90 days after Termination of
Employment of the Manager for any reason (including, without limitation,
death or Disability), and again during the first Additional Call Period, if
any, occurring after the end of that 90-day period, LSAI shall be entitled to
repurchase all of the Option Shares then held by the Stockholder, provided
that any such purchase will, as determined by LSAI in its sole discretion, be
treated as an exchange rather than as a dividend under either section
302(b)(2) or 302(b)(3) of the Code.
4.2 Additional Disability-Related Call. For 90 days after the
expiration of the five-year period described in Section 3.1 of this
Agreement, and again during the first Additional Call Period, if any,
occurring after the end of that 90-day period, LSAI shall be entitled to
purchase all of the Option Shares then held by the Stockholder or
Beneficiary, provided that any such purchase will, as determined by LSAI in
its sole discretion, be treated as an exchange rather than as a dividend
under either section 302(b)(2) or 302(b)(3) of the Code.
4.3 Additional Death-Related Call. For 90 days after the expiration
of any of the five-year periods described in Sections 3.2(a), (b) and (c) of
this Agreement, and again during the first Additional Call Period, if any,
occurring after the end of that 90-day period, LSAI shall be entitled to
purchase all of the Option Shares then held by the Stockholder or the
Beneficiary, provided that any such purchase will, as determined by LSAI in
its sole discretion, be treated as an exchange rather than as a dividend
under either section 302(b)(2) or 302(b)(3) of the Code.
4.4 Unilateral Right. LSAI may exercise its repurchase rights under
this Section 4 whether or not the Stockholder or Beneficiary wishes to sell;
the Stockholder or Beneficiary will be obligated to sell upon delivery of a
Call Notice. LSAI may make its decision in its sole discretion, without
regard to the tax or other financial consequences to the Stockholder or
Beneficiary, and without regard to decisions it makes with respect to other
persons who are parties to like agreements.
4.5 Purchase Price. The purchase price in all of the Transactions
described in this Section 4 shall be the Fair Market Value of the Option
Shares being repurchased by LSAI, as stated in the Valuation most recently
released before the date LSAI gives the Call Notice. For example, if LSAI
gives the Call Notice during an Additional Call Period, the purchase price
shall be the Fair Market Value stated in the Valuation that began that
Additional Call Period. Examples of the application of the put and call
rules appear in the document attached to this Agreement as Exhibit 3.3.
4.6 No Partial Calls. LSAI, in exercising a call right under this
Section 4, must purchase all of the Option Shares then held by the
Stockholder or Beneficiary. It cannot purchase or seek to purchase only a
portion of those Option Shares.
4.7 Mechanics
(a) LSAI may exercise a call right created by this Section 4 by
delivering, during any of the periods described in this Section 4, to the
Stockholder or Beneficiary, a written notice (the "Call Notice") in the form
attached to this Agreement as Exhibit 4.7. Within 15 business days after
receiving that Call Notice, the Stockholder or Beneficiary shall deliver to
LSAI the stock certificate or certificates representing the Option Shares,
properly endorsed for transfer, a copy of the Call Notice signed by the
Stockholder or Beneficiary in the space provided for that signature and any
other documents that LSAI may reasonably request.
(b) Upon receipt and approval of those materials, LSAI shall
thereafter issue and deliver to the Stockholder or Beneficiary its check in
payment of the purchase price for the Option Shares, and the transaction
shall be considered concluded.
(c) LSAI shall be free to complete the transaction even if the
Stockholder or Beneficiary fails to deliver the stock certificates; in that
case, the Stockholder or Beneficiary shall supply LSAI at its request with
the "lost certificate" assurances contemplated by Bylaw 45 of LSAI's bylaws.
4.8 Waiver. LSAI may waive any of the limitations on the exercise
of its call rights under this section, other than those relating to the time
the call rights may be exercised and the purchase price of the Option Shares.
5. Impact on Stockholder
---------------------
5.1 Class L Agreement. The Stockholder holds the Option Shares
subject to the Class L Agreement. Except as contemplated by Section 5.3 of
this Agreement, this Agreement does not in any way limit or otherwise affect
the rights and obligations created by the Class L Agreement, including,
without limitation, the restrictions on transfer of the Option Shares imposed
by Section 2 of that agreement, and the Stockholder remains free to transfer
the Option Shares as permitted by the Class L Agreement. Except as may be
stated in that successor or replacement document, this Agreement shall not be
affected by a successor to or replacement of the Class L Agreement.
5.2 Puts Personal
(a) Except as described in Section 5.2(b) and 5.2(c), the put
rights created by this Agreement are "personal" to the Stockholder. That is,
they do not "run with the Option Shares." If the Stockholder transfers the
Option Shares to another person, that person will not be entitled to exercise
the put rights and to sell the Option Shares under Sections 2 and 3 of this
Agreement.
(b) The Stockholder is a trust. Under its terms, it may
distribute the Option Shares. If that happens and the Trust Beneficiary or
Beneficiary is the distributee, that person shall be treated as the
"Stockholder," and shall be entitled to the same put and other rights created
by this Agreement in favor of, and shall be subject to the same limitations
imposed upon, the Stockholder.
(c) Should the Trust Beneficiary or Beneficiary acquire Option
Shares in a distribution from the Stockholder and, if later as a result of a
property settlement or other disposition in connection with a marital
dissolution involving such a Trust Beneficiary or Beneficiary, the spouse of
that person acquires Option Shares, these rules shall apply:
- with respect to the annual put rights created by
Section 2 of this Agreement, the holder and the ex-
spouse shall hold the rights as a "unit;" that is,
the Option Shares, even though held by different
holders, shall be treated as a single block, and
the "unit" shall be in the same position as the
holder was prior to the disposition. As a result,
the holder and the ex-spouse must, between
themselves, determine which of the unit's Option
Shares, if any, will be sold in a given year. For
example, assume that the holder owns 100 Option
Shares prior to the dissolution, and his Annual
Block is 25 Option Shares. In the dissolution, the
holder transfers 50 Option Shares to his ex-spouse.
It is up to the holder and the ex-spouse to agree
to the "composition" of those 25 Option Shares (all
his, all hers or a combination) if either wishes to
exercise annual put rights in a particular year.
In all events, however, LSAI shall have no
obligation to purchase the Option Shares unless the
sale, in LSAI's sole discretion, would be treated
as an exchange, rather than as a dividend, under
either Section 302(b)(2) or 302(b)(3) of the Code,
with respect to the seller or, if both the holder
and the ex-spouse are selling, both sellers. In
all cases, LSAI will accept only Annual Put Notices
signed by both the holder and the ex-spouse,
whether or not the ex-spouse is a seller during a
particular Annual Put Period.
- with respect to the put rights created by Section 3
of this Agreement, the ex-spouse will have those
rights but they will be tied to the employment
status of the Manager. For example, the ex-spouse
may put her Option Shares to LSAI after Termination
of Employment by reason of Disability. The ex-
spouse may exercise those rights even if the holder
does not exercise his corresponding rights at the
same time.
- with respect to the call rights created by Section
4 of this Agreement, the ex-spouse, like all
transferees of the holder, will be bound by Section
5.3 of this Agreement.
The ex-spouse shall, in selling shares under this Agreement, be subject to
all of the limitations and document delivery conditions applicable to the
holder.
5.3 Calls Attach. By entering into this Agreement, the Stockholder
agrees that the call rights created by this Agreement shall bind a transferee
of the Option Shares; that is, they will run with the Shares. Should the
Stockholder (or, later, the Beneficiary) transfer the Shares to another
person (whether before or after a Termination of Employment and including a
distribution to the Trust Beneficiary), LSAI will be entitled to exercise the
call rights and buy the Shares from that transferee (or his or her later
transferees) under Section 4 of this Agreement. For example, if the
Stockholder transfers the Shares before Termination of Employment, LSAI would
be entitled to purchase the Shares from that transferee (or any later
transferees) at the time of Termination of Employment or later (for example,
upon the death of the Stockholder), as provided in Section 4. The
Stockholder understands that the certificates representing the Shares will
bear a conspicuous legend describing this right. The Stockholder further
understands that he may not transfer the Shares without first providing to
LSAI a document, in the form attached as Exhibit 5.3 to this Agreement,
signed by the transferee and confirming the continuing effectiveness of
LSAI's call rights after the transfer and the transferee's obligations to
provide the documents described in Section 4.7 of this Agreement.
5.4 Voting and Dividends. This Agreement does not affect in any way
the Stockholder's right to exercise any voting or other rights attributable
to ownership of the Option Shares, or to receive dividends or the like in
respect of the Option Shares. (Section 7.3 of this Agreement explains that
this Agreement does not restrict or affect in any way the Stockholder's
ability to participate in general repurchase transactions.)
5.5 No Right to Employment. No provision of this Agreement confers
upon the Manager any right to continue in the employ of LSAI or any
Subsidiary, or affects LSAI's or a Subsidiary's right to terminate the
employment of the Manager at any time, with or without cause.
5.6 No Impact on Benefits. No payments by LSAI under this Agreement
shall be taken into account in determining any benefits of the Manager under
any compensation, pension, retirement, savings, profit sharing, group
insurance, welfare or other employee benefit plan of LSAI or any Subsidiary.
The Stockholder's entry into this Agreement shall not affect in any way the
Manager's rights or benefits under any of those plans.
5.7 No Rights To Other Sales. No provision of this Agreement
entitles the Stockholder to sell Option Shares back to LSAI if Termination of
Employment occur for any reason other than Death or Disability; the
Stockholder's only entitlement shall be the annual put rights created under
Section 2 of this Agreement. This Agreement does not speak to or affect in
any way other termination situations. In addition, this Agreement does not
entitle the Stockholder (or any other person) to sell shares of LSAI Stock
other than the Option Shares. The references in the definition of "Annual
Block" to other LSAI Stock owned and to shares of LSAI Stock to whom
ownership is attributed are solely for definitional and tax purposes, and are
not intended to and do not create any right in favor of any person to sell
those shares to LSAI. However, ownership of LSAI Stock by others may affect
the ability of the Stockholder to sell Option Shares under this Agreement.
5.8 No Right to Special Disclosure. LSAI has no duty or obligation
to disclose individually to the Stockholder, the Trust Beneficiary, the
Beneficiary or the Manager, the Stockholder, the Trust Beneficiary, the
Manager and any Beneficiary shall have no right to be individually advised by
LSAI of, and the Stockholder, the Trust Beneficiary, the Manager and any
Beneficiary have no duty or obligation to disclose to LSAI, any material
information relating to LSAI, at any time prior to, at the time of, or in
connection with, LSAI's repurchase of Option Shares under Sections 2, 3 or 4
of this Agreement.
5.9 Tax-related Documentation. If necessary for purposes of
qualifying a transaction under Section 3 of this Agreement as an exchange
under Section 302(b)(3) of the Code, LSAI is specifically authorized (without
in any way limiting its rights to request any other documentation) to require
evidence satisfactory to LSAI that the agreement required by Section
302(c)(2) of the Code has been executed and filed by the Stockholder with the
appropriate official of the Internal Revenue Service and that such agreement
has been complied with as of the date of sale.
6. Limitations on Repurchases
--------------------------
6.1 Limitations. LSAI is not obligated to complete a Transaction
initiated under Sections 2, 3 or 4 of this Agreement if:
(a) the Transaction would, as determined by LSAI in its sole
discretion: (i) result in the violation of any applicable law, including,
without limitation, those laws limiting LSAI's ability to repurchase its
capital stock, fraudulent conveyance laws and securities laws (including Rule
10b-6 and Rule 10b-13 under the Securities Exchange Act of 1934, as amended)
or (ii) violate or conflict with the provisions of the certificate of
incorporation of LSAI or of any agreement or instrument to which LSAI or any
member of the Affiliated Group is a party or by which it is bound, whether
now or in the future, it being understood that LSAI is free to create or bind
itself to any provision that limits or restricts its ability to purchase
Option Shares under this Agreement;
(b) there shall have been threatened, instituted, or pending
any action or proceeding by any governmental, regulatory, or administrative
agency or authority or tribunal, domestic or foreign, or by any other person,
domestic or foreign, before any court or governmental, regulatory, or
administrative authority or agency or tribunal, domestic or foreign, which
challenges or seeks to make illegal, or to delay or otherwise directly or
indirectly to restrain, prohibit, or otherwise affect the Transaction, the
acquisition of Option Shares in a Transaction, or otherwise relates in any
manner to the Transaction or this Agreement; or in LSAI's sole discretion,
and irrespective of whether it is directed at or affects the Transaction as
such, could materially affect LSAI's business, financial condition, income,
operations, or prospects or otherwise materially impair in any way the
contemplated future conduct of LSAI's business;
(c) there shall have been any action threatened, pending, or
taken, or any approval withheld, or any statute, rule, regulation, judgment,
order, or injunction threatened, invoked, proposed, sought, promulgated,
enacted, entered, amended, enforced, or considered to apply to the
Transaction, this Agreement or to LSAI, by any court or any government or
governmental, regulatory, or administrative agency or authority or tribunal,
domestic or foreign, which, in LSAI's sole discretion, would or might
directly or indirectly result in any of the consequences referred to in this
Section 6.1;
(d) there shall have occurred or be continuing since the
applicable Valuation Date: (i) the declaration of any banking moratorium or
suspension of payments in respect of banks in the United States (whether or
not mandatory); (ii) any general suspension of trading in, or limitation on
prices for, securities on any United States national securities exchange or
in the over-the-counter market; (iii) the commencement of a war, armed
hostilities, or any other national or international crisis directly or
indirectly involving the United States; (iv) any limitation (whether or not
mandatory) by any governmental, regulatory, or administrative agency or
authority on, or any event which, in LSAI's sole discretion, might affect,
the extension of credit by banks or other lending institutions in the United
States; (v) any change in the general political, market, economic, or
financial conditions in the United States or abroad that could have a
material adverse effect on the business, condition (financial or otherwise),
income, operations, or prospects of LSAI; (vi) a decline in either the Dow
Jones Industrial Average or the Standard and Poor's Index of 500 Industrial
Companies by an amount in excess of 10% measured from the Valuation Date of
the Valuation to be used in determining the purchase price in the Transaction
to the date of issuance of the Annual Put Notice, Put Notice or Call Notice,
as the case may be;
(e) any change shall have occurred or been threatened in the
business, condition (financial or otherwise), income, operations, stock
ownership, or prospects of LSAI, which is or may be material to LSAI, as
determined by LSAI in its sole discretion;
(f) a tender or exchange offer for any or all of the shares of
Class L stock, or any merger, business combination, or other similar
transaction with or involving LSAI, shall have been proposed, announced, or
made by any person;
(g) the Stockholder fails to deliver the documents contemplated
by Sections 2.3(e), 3.5(a), 4.7 or 5.9, as the case may be, of this
Agreement, or fails to cooperate with LSAI as contemplated by Section 2.3(c)
of this Agreement; or
(h) LSAI concludes, in its sole discretion, that the
Transaction will be treated as a dividend, rather than as an exchange, under
Section 302(b)(2) or 302(b)(3) of the Code.
6.2 LSAI's Decision. LSAI in its sole discretion decides whether
any of the events or circumstances described in Section 6.1 have occurred or
are occurring. If it so concludes, then, in its sole discretion, it may
reject a pending or later-issued Annual Put Notice or Put Notice or revoke a
pending Call Notice, as the case may be. These rules are for LSAI's sole
benefit. It may assert them regardless of the circumstances giving rise to
the event (including its own action or inaction), or it may ignore them and
proceed with the Transaction. In addition, it may assert or ignore them with
respect to a Transaction regardless of whether it makes the same decision
with respect to transactions (contemporaneous or not) involving other persons
who are parties to like agreements.
6.3 Consequences. LSAI exercise of its rights under this Section
6 shall have these consequences:
- If LSAI has rejected a Put Notice and the Stockholder or
Beneficiary otherwise would have no further opportunities
to exercise that put right (for example, if the Stockholder
attempted to exercise the put immediately before the end of
the five-year period following Termination of Employment by
reason of Disability), then the Stockholder or Beneficiary
(again subject to this Section 6, including this Section
6.3) shall be entitled to exercise the put during the next
Put Window Period. If the Stockholder does not exercise
the put at that time, then it shall expire, and the
Stockholder's or Beneficiary's only entitlement shall be
the annual put rights created under Section 2 of this
Agreement.
- If LSAI has rejected an Annual Put Notice or Put Notice and
the Stockholder or Beneficiary would otherwise have later
opportunities to exercise that put, then the rejection
shall have no special impact.
- If LSAI has revoked a Call Notice and LSAI otherwise would
no have further opportunities to exercise that call right,
then LSAI (again subject to this Section 6, including this
Section 6.3) shall be entitled to exercise the call during
the 30-day period following the next Valuation Date.
- If LSAI has revoked a Call Notice and LSAI would otherwise
have later opportunities to exercise the call, then the
revocation shall have no special impact.
7. Capital Structure Transactions
------------------------------
7.1 No Limit on LSAI. No provision of this Agreement limits the
right or ability of LSAI or any Subsidiary at any time to reclassify,
recapitalize or otherwise change its capital or debt structure or to merge,
consolidate, convey any or all of its assets, dissolve, liquidate, windup or
otherwise reorganize, or to repurchase or offer to repurchase, by tender
offer, application of an estate tax repurchase policy or otherwise, shares of
LSAI Stock held by the Stockholder or by other persons. That is so
regardless of the impact of such a transaction on: (i) "capital" or "surplus"
under the Delaware General Corporation Law; (ii) funds available for
repurchases; (iii) the determination of the Annual Block; or (iv) any other
relevant matter. The Stockholder understands that, as provided by the
federal securities laws and as contemplated by Section 6.1 of this Agreement,
LSAI cannot purchase, and is not obligated to purchase, Option Shares under
this Agreement, during the period beginning at the time a tender offer or
exchange offer by LSAI for LSAI Stock is publicly announced or otherwise made
known to the holders of LSAI Stock and ending at the time shares tendered in
response to that offer may be accepted or rejected by LSAI. As a result,
put rights are effectively not exercisable during such a period, even if an
Annual Put Period or Put Window Period occurs during that period. Section
6.3 explains the consequences of such a development.
7.2 Adjustment. If the Option Shares are changed by reason of a
stock split, stock dividend or recapitalization, or if they are converted
into or exchanged for other securities as a result of a merger, consolidation
or like transaction, this Agreement shall remain applicable to the Option
Shares or the new securities, as the case may be, and in the manner
determined by LSAI in its sole discretion.
7.3 No Effect on Right to Participate. No provision of this
Agreement limits or otherwise affects the right of the Stockholder to
participate, as a holder of Class L stock, in any tender offer,
recapitalization, exchange offer or other capital stock transaction initiated
by LSAI or by a third party.
7.4 Impact of Public Trading. This Agreement shall terminate if and
at the time the Class L stock, or any security (issued by LSAI or a third
party) into which the Class L may be converted, is or becomes listed for
trading on a national stock exchange or national market system, including,
without limitation, the NASDAQ National Market System.
8. No Advice
---------
By signing below, the Stockholder is confirming that LSAI has made
no warranties or representations to the Stockholder about the tax, financial
or legal consequences of any of the transactions contemplated by this
Agreement, and that the Stockholder is not in any manner relying on LSAI for
advice about, or an assessment of, those consequences.
9. Unfunded Status
---------------
LSAI's obligations under this Agreement are not "funded." LSAI has
no obligation to set aside or segregate any funds or other assets in order
to meet those obligations. Neither LSAI nor any of its directors, officers
or agents shall be considered a trustee of any monies that may be payable
under this Agreement. LSAI's obligations are solely contractual in nature,
and are not secured by, and should not be considered secured by, any lien or
encumbrance on any property of LSAI or of any other member of the Affiliated
Group.
10. Entire Agreement; Amendment
---------------------------
This Agreement and its exhibits contain all of the terms and
conditions agreed upon by LSAI and the Stockholder relating to its subject
matter, represent the final, complete and exclusive statement of LSAI and the
Stockholder, and supersede any and all prior or contemporaneous agreements,
negotiations, correspondence, understandings and communications between LSAI
and the Stockholder, whether oral or written. This Agreement may be amended
only as stated in and by a writing signed by LSAI and the Stockholder which
refers specifically to this Agreement and states that it is amending this
Agreement.
11. Binding Effect; Assignment
--------------------------
This Agreement shall be binding upon the successors and permitted
assigns of LSAI and the Stockholder. (Section 5.3 explains the impact of
this Agreement on transferees of the Option Shares.) LSAI may, without
obtaining the consent of the Stockholder, freely assign its rights and
delegate its duties (either directly or by operation of law) under this
Agreement to: (i) any affiliate of LSAI (including, without limitation, Levi
Strauss & Co. ("LS&CO.") or any subsidiary of LS&CO. or LSAI, whether in
existence now or formed in the future); (ii) any successor to LSAI by merger
or consolidation; or (iii) any purchaser of all or substantially all of the
assets of LSAI or of LS&CO. The Stockholder may not assign its rights or
delegate its duties without the express, prior written consent of LSAI.
12. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the state of California.
13. Further Assurances
------------------
LSAI and the Stockholder shall sign those other documents and take
those other actions as the other may reasonably request in order to effect
the transactions contemplated by this Agreement.
14. Notices
-------
Any notice under this Agreement (including, without limitation,
Annual Put Notices, Put Notices, Call Notices and notices of Valuations)
shall be given by mail or by courier delivery or facsimile transmission
addressed to:
If to LSAI:
Levi Strauss Associates Inc.
Levi's Plaza
1155 Battery Street/LS-7
San Francisco, CA 94111
Attn.: Corporate Secretary
Facsimile: 415/544-7650
If to the Stockholder:
James Family Trust
c/o George B. James
Levi Strauss & Co.
Levi's Plaza
1155 Battery Street
San Francisco, CA 94111
Those addresses may be changed by delivery of a notice to that effect to the
other party. Notices given in the manner contemplated by this Section 14
shall be considered "given" two business days after deposit in the mail or
the first business day after the date of delivery to a courier or facsimile
transmission, as the case may be.
15. Release
-------
This Agreement contains several references to "release(s)" of
valuations. "Release" here means the date LSAI sends notice to the
Stockholder of a Valuation; LSAI shall send to the Stockholder such a notice
within three days after receipt by LSAI of a Valuation from the banking firm
making that Valuation.
16. Multiple Beneficiaries
----------------------
If there is more than one Trust Beneficiary or Beneficiary, each such
person shall have the rights and obligations of a "Trust Beneficiary" or
"Beneficiary," as the case may be, under this Agreement with respect to his
or her Option Shares, and shall be treated for all purposes as an independent
contracting party.
17. Days
----
References to "days" in this Agreement (for example, in the
definition of "Additional Call Period" and in Section 2.3) means calendar,
not business, days.
18. Counterparts
------------
This Agreement may be signed in any number of counterparts.
* * * *
IN WITNESS WHEREOF, LSAI and the Stockholder signed and delivered
this Agreement on, and it became effective on, the date appearing in the
first paragraph of this Agreement.
LEVI STRAUSS ASSOCIATES INC.
--------------------------------------
Name: George B. James
Title: Senior Vice President and
Chief Financial Officer
STOCKHOLDER
THE JAMES FAMILY TRUST, GEORGE B. JAMES
AND BEVERLY B. JAMES, TRUSTEES,
U/T/A DATED SEPTEMBER 13, 1973
--------------------------------------
GEORGE B. JAMES, TRUSTEE
--------------------------------------
BEVERLY B. JAMES, TRUSTEE<PAGE>
<PAGE>
Exhibit 10mm
------------
PARTNERS IN PERFORMANCE
ANNUAL INCENTIVE PLAN
Levi Strauss Associates Inc. and Subsidiaries
CONFIDENTIAL
------------<PAGE>
ABOUT THIS MATERIAL
- -------------------
This document describes how the Annual Incentive Plan works. It explains:
- Purpose of the Plan;
- Who administers the Plan;
- Who is eligible to receive incentives;
- How incentive targets are set;
- How funds for incentives are generated;
- How the amount of a Participant's incentive is determined;
- When incentives are paid; and
- What happens in the event of termination of employment.
For more specific information on how the Plan works, refer to the Partners in
Performance Compensation Guidelines. This material also refers to other
compensation and human resources programs. While it may be used as a stand
alone reference document, a broader understanding of all the Company
compensation programs and the Performance Management Process will provide
important perspective.<PAGE>
CONTENTS
- --------
Page
----
Annual Incentive Plan 1
Appendix One: Glossary of Terms 9<PAGE>
ANNUAL INCENTIVE PLAN
- ---------------------
The Annual Incentive Plan rewards individual and team contributions to the
Company's objectives during the year. The amount of incentive earned depends
on the financial performance of the Company and the performance of each
individual Participant.
Purpose of Plan
- ---------------
- Serve as a single plan covering salaried employees worldwide.
- Align employee and shareholder interests.
- Provide a financial incentive for meeting annual corporate and
individual objectives.
- Encourage and reward team performance.
- Provide managers the ability to recognize and reward key contributors
and reinforce the Performance Management Process.
- Tie the incentive opportunity to external competitive practices, and
internally to the Company's total compensation objectives.
Effective Date
- --------------
- The Plan starts on the first day of the 1995 fiscal year.
Plan Administration
- -------------------
- The Plan is administered under the direction of the Personnel Committee
of the Board of Directors (the Committee). The Committee's
determinations and interpretations shall be binding on all Participants.
Responsibilities include approving:
-- Design and interpretation of the Plan;
-- Incentive participation rates;
-- Financial performance measures;
-- Incentive pool funding sources and weights;
-- Company financial objectives;
-- Final incentive pool; and
-- Other terms and conditions that may be recommended by the Chief
Executive Officer or Chief Operating Officer.
- During any period of time in which the Company and its officers and
directors are subject to the requirements imposed by Section 16 of the
Securities Exchange Act of 1934 (the "Act") and the Plan is considered
a plan subject to Rule 16b-3 under the Act, the Committee shall be
composed of "disinterested persons" as defined in Rule 16b-3. The
Committee may delegate administrative responsibilities to Company
employees and may delegate to Company management the authority to
approve amendments to the Plan. It may not do so if it would result in
the Plan not being administered by "disinterested persons" at a time
when it is required to be so administered.
Eligibility
- -----------
- All salaried employees worldwide who meet the participation criteria are
Participants in the Plan. Specific participation criteria is determined
on a country-by-country basis.
Annual Incentive Agreement
- --------------------------
- At the start of each year, an incentive agreement is created for each
participant that documents the terms, conditions, and rights as
determined by the Committee. Terms include such factors as the target
incentive amount, timing and form of payments, termination events, and
at-will employment.
Performance Period
- ------------------
- The Plan operates on a twelve month cycle which coincides with the
Company's fiscal year.
Target Amounts for Participants
- -------------------------------
- Incentive Target Amounts are set near the beginning of each fiscal year
for each Participant. The annual Target Amount for each Participant is
determined by multiplying the Participant's annual base salary in effect
for the Plan's fiscal year by a participation rate. The Participation
Rate is based on the Participant's salary grade and is expressed as a
percent of annual base salary. The participation rates are:
<TABLE>
<CAPTION>
Incentive Participation Rate
(% of Base Salary)
-----------------------------
<S> <C>
GLT 45/50%
Grades 13/14 40%
Grade 12 35%
Grade 11/35 30%
Grade 10/33/34 25%
Grade 9/32 20%
Grade 30 20%
Chain NAM* 20%
Grades 7/8 15%
NAM* 15%
Grades 4/5/6 7%
TM, AM, AE** 7%
Grades 1/2/3 5%
Grades 20 - 26 5%
</TABLE>
* National Account Manager
** Territory Manager, Account Manager, Account Executive
Note: Sales titles and grades are reflective of the pre-CSSC
organization.
- Target Amounts are calculated in local currency.
- Incentive Participation Rates will be reviewed by Human Resources on a
periodic basis and may be adjusted to keep pay opportunities
competitive.
- The Target Amount is comprised of two parts: a team component and an
individual component.
-- The team component is 80% of the Participant's annual incentive
Target Amount.
-- The individual component is 20% of the Participant's annual
incentive Target Amount.
Sales Employees
- ---------------
- The method for calculating incentive Target Amounts for Territory
Managers, Account Managers, and Account Executives is different than the
method used for other employees. The calculation for sales employees
is the Participation Rate times the sales income plan, or the
Participation Rate times the maximum of certain salary grade levels,
whichever is less. Target incentives are limited to the maximum of
salary grade 5 for Territory Managers, the maximum of salary grade 6 for
Account Managers, and the maximum of a salary grade 7 for Account
Executives.
For purposes of determining the Funded Amount, actual income from the
sales compensation plan (base and sales incentive) or the maximum of the
appropriate grade level, whichever is less, is used.
Incentive Pool Funding Sources
- ------------------------------
- The source of funds for Business Unit Incentive Pools is based on the
actual financial performance of one or more of the following levels:
-- Corporate
-- Group (LSNA or LSI)
-- Division
-- Affiliate
- Senior management reviews the funding sources and their relative weights
before the start of each fiscal year. Any changes (for example, those
resulting from internal reorganizations) are approved by the Committee.
- Following are three Business Unit examples with possible weights for
each funding source:
<TABLE>
<CAPTION>
Examples of Incentive Pool Funding Weights
--------------------------------------------------------------
Pool Funding Source Corporate Staff Division Affiliate
------------------- --------------- -------- ---------
<S> <C> <C> <C>
Corporate 100% 25% 10%
Group 25%
Division 50% 30%
Affiliate 60%
Total 100% 100% 100%
</TABLE>
Financial Performance Measurement
- ---------------------------------
- The Committee establishes the financial measures that are used to plan
the objectives and assess the performance of each funding source.
- Performance is measured based on Management Earnings (ME) and Return on
Investment (ROI).
- The ME and ROI financial performance objectives are set by the Committee
before the fiscal year begins.
- For purposes of determining the final incentive pool, the actual
performance of each funding source is expressed as a percent of
financial target achieved. This percentage is known as the Performance
Factor.
Incentive Pools
- ---------------
- After the end of the fiscal year a Performance Factor is determined for
each funding source. The Performance Factor is a percentage based on
the financial performance of each funding source against its financial
target. The performance factor is between 0% and 200%.
- Financial performance that exceeds the minimum objectives at each
funding source generates a Performance Factor starting at 1%. The
Performance Factor increases to 100% when 100% of the financial
performance objective is achieved.
- Performance that exceeds 100% of objectives generates a Performance
Factor from 100% up to 200% if the maximum objectives are achieved or
exceeded.
- If performance at all funding sources is below minimum objectives, the
Performance Factor is 0% and therefore a final incentive pool is not
generated.
- For Business Units with more than one funding source, a weighted average
of the Performance Factors at each funding source is calculated. The
weighted average is based on the funding weights established at the
beginning of the year.
- After the end of the fiscal year, a Funded Amount is determined for each
Participant. The Funded Amount is determined by multiplying the
weighted average performance factor by the Participant's Target Amount.
- A final incentive pool for each Business Unit is determined after the
end of the fiscal year. A Business Unit's final incentive pool is the
sum of the Funded Amounts for each Participant within the Business Unit.
Redistribution of Final Incentive Pools
- ---------------------------------------
- After the final incentive pools have been determined, members of the
Global Leadership Team (GLT), North America Management Council (NAMC),
or LSI Management Association (LSI MA) may redistribute funds from one
pool to another. Participants are notified prior to the start of the
performance period that redistribution is possible.
- Any redistribution of funds results in a proportional change to both the
team and individual components of each affected Participant's Funded
Amount.
Incentive Pool Approval
- -----------------------
- The CEO and COO recommend for Committee approval the final incentive
pool after the end of the fiscal year.
Participant Incentive Allocations
- ---------------------------------
- Incentive allocations to Participants in the Plan are determined by the
head of the Participant's work group, based on team performance and
individual contributions.
- If a Participant meets performance expectations (as determined in the
Performance Management Process), he or she will receive the team
component and be eligible to receive an individual incentive allocation.
- If a Participant does not meet performance expectations (as determined
in the Performance Management Process), no incentive is paid. Any money
budgeted for those incentives is added back to the individual component
of the Business Unit's Final Incentive Pool making it available for
other Participants in the Business Unit.
TEAM COMPONENT ALLOCATION
-- The team component allocation is up to 80% of the Participant's
incentive target amount, depending on the Business Unit's Final
Incentive Pool.
-- If the Business Unit's Final Incentive Pool is less than 100% of
the target Incentive Pool, the Participant's team component is
adjusted proportionately lower than 80% of the Participant's Target
Amount.
-- If the Business Unit's Final Incentive Pool is more than 100% of
the Incentive Pool, the individual's team component is no more than
80% of the Participant's incentive Target Amount.
INDIVIDUAL INCENTIVE ALLOCATION
-- Incentive funds generated by the individual component are allocated
to a Participant, by the Participant's manager, based on individual
performance and performance compared to other Participants in the
Business Unit using the following criteria:
- Annual objectives (job responsibilities/business objectives,
strategic objectives, Aspirations, and continuous
improvement)
- Contributions to special projects
- Personal leadership and initiative
-- Individual incentive allocations are reviewed and approved by at
least two management levels, the Participant's manager and one
level above.
-- The limit to individual incentives is the limit of the Business
Unit's Final Incentive Pool.
- The total funds allocated to a Participant is the Final Incentive
Amount.
Incentives Payments
- -------------------
- Incentives payments are made as soon as practical after the February
Board meeting following the close of the fiscal year. The Committee
approves the fiscal year-end results which fund the Plan and the final
incentive pool.
Termination of Employment
- -------------------------
- In the case of termination due to death, retirement, reduction in force,
or long-term disability the incentive target amount is prorated for the
length of time worked during the fiscal year. Any earned incentive is
paid in cash as soon as practical after the February Board meeting
following the close of the fiscal year.
- In the case of termination due to voluntary resignation or involuntary
discharge all rights to incentive payments from the Annual Incentive
Plan are forfeited.
Beneficiary Designation
- -----------------------
- As part of the incentive agreement, each Participant shall name a person
or persons as the Beneficiary who is to receive any distribution payable
under the Plan in the event of the Participant's death. In the event
that no Beneficiary has been properly designated, or if no properly
designated Beneficiary survives the Participant, the Participant's
estate, or other person entitled under applicable law, shall be the
Participant's Beneficiary.
Pension Credit
- --------------
- Plan payments are considered for pension plan credit for Participants
who participate in a Company pension plan. Eligibility and Plan rules
are defined in the applicable pension plan document.
Employment Rights
- -----------------
- Neither this document nor the existence of the Plan is intended to or
does imply any promise of continued employment by LS&CO. or any
subsidiary of LS&CO. Employment may be terminated with or without
cause, and with or without notice, at any time, at the option of the
employer or the employee. No one other than the Chief Executive
Officer, President or a Senior Vice President of LS&CO. may approve an
agreement with an employee that guarantees his or her employment. Such
an agreement must be in writing and be signed by such an officer.
- A Participant who has committed an act of gross misconduct while an
employee may lose all of his or her interest, including any right, under
the Plan and may not be entitled to receive any payment under the Plan.
Unfunded Status
- ---------------
- The Plan is unfunded. A Participant's right to receive payments under
the Plan is an unsecured claim against the general assets of the
Company. Although the Company may establish a bookkeeping reserve to
meet its obligations, any rights acquired by any Participant are no
greater than the right of any unsecured general creditor of the Company.
References to "Funded Amounts", "Incentive Pools", and the like do not
refer to or represent actual, segregated assets of the Company.
Amendment, Modification, or Termination of Plan
- -----------------------------------------------
- The Committee or its designee(s) may modify, amend, or terminate the
Plan and establish rules and procedures for its administration, at its
discretion and without notice.
- ------------------------------------------- ------------------
Approved By Date <PAGE>
APPENDIX ONE: GLOSSARY OF TERMS
- --------------------------------
- Allocation is the process of distributing funds from the final AIP pool
to Participants.
- Business Unit is an organizational unit (Corporate/Global, LSNA, LSI
etc.) to which Participants belong and is the basis for AIP funding.
- Company is Levi Strauss Associates Inc. (LSAI) and its subsidiaries.
- Final Incentive Amount is the approved payout, including both team and
individual components, to a Participant.
- Financial Performance Measures are the business objectives set for each
Funding Source for the purpose of determining the final Incentive Pool.
The Committee identifies which measures are to be used and establishes
the specific objectives to be used each year.
- Funded Amount is an amount generated to pay incentives based on the
Participant's Target Amount and a forecast of business performance. The
Funded Amount is calculated by multiplying a Participant's Target Amount
by the Performance Factor.
- Funding Source: the organizational unit(s) used to set and measure
financial objectives for purposes of determining the size of the final
AIP allocation pools (e.g. Corporate, LSNA/LSI, Division, Affiliate).
- Incentive Pool: the sum of the Funded Amounts for each Participant
within the Work Group, determined after the close of the fiscal year.
- Involuntary Discharge is an involuntary termination of employment due
to violation of policy, misconduct, unsatisfactory job performance or
any other reason deemed by the Company to warrant a discharge.
- Long-Term Disability is an authorized leave of absence for an extended
period of time following a short-term disability of five consecutive
months due to personal illness, injury or disability.
- Participant is an employee who meets the participation criteria of the
Plan. Participation criteria is determined on a country-by-country
basis.
- Participation Rate is the percentage used to determine a Participant's
incentive Target Amount. A Participation Rate is set for each salary
grade level.
- Performance Factor is the percentage used to describe the degree to
which actual financial performance has met, exceeded, or fallen short
of objectives. The Performance Factor is used to determine the final
AIP pool.
- Performance Management Process is the program in which performance
objectives are set and measured for individual employees.
- Reduction in Force or layoff is an involuntary termination of employment
which in the opinion of the Committee, results from the lack of
appropriate work for the Participant and is not for the reasons of
unacceptable performance or misconduct.
- Retirement is a voluntary termination of employment by an employee who
meets the age and service requirement as defined and determined under
the pension plan applicable to the Participant.
- Target Amount is set near the beginning of the fiscal year. It is
calculated by multiplying the annual base salary by the Participation
Rate.
- Team Component: The portion of the AIP funded amount which is
automatically allocated if the employee receives a YES decision.
- Term Employee is an employee hired on a full-time or part-time basis for
a specific period of time only. Both the starting and ending dates of
employment are defined at the time of hire.<PAGE>
<PAGE>
Exhibit 10nn
------------
PARTNERS IN PERFORMANCE
LONG-TERM INCENTIVE PLAN
Levi Strauss Associates Inc. and Subsidiaries
CONFIDENTIAL
------------<PAGE>
ABOUT THIS MATERIAL
- -------------------
This document describes how the Long-Term Incentive Plan works. It explains:
- Purpose of the Plan;
- Who administers the Plan;
- Who is eligible to receive incentives;
- How incentive target amounts are set;
- What type of incentive is granted under the Plan;
- How individual incentive grants are determined;
- What a Performance Unit is and how it works;
- When incentives are earned and paid; and
- What happens in the event of termination of employment.
For more specific information on how the Plan works, refer to the Partners in
Performance Compensation Guidelines. This material also refers to other
compensation and human resources programs. While it may be used as a stand
alone document, a broader understanding of all Company compensation programs
and the Performance Management Process will provide important perspective.<PAGE>
CONTENTS
- --------
Page
----
Long-Term Incentive Plan 1
Appendix One: Performance Units 10
Appendix Two: Glossary of Terms 13<PAGE>
LONG-TERM INCENTIVE PLAN
- ------------------------
The Long-Term Incentive Plan rewards employees for making contributions, over
time, to the Company's success. Incentive grants are based on achieving
long-term Company financial performance objectives and the performance of
each individual Participant.
Purpose of Plan
- ---------------
- Serve as a single plan covering salaried employees worldwide.
- Align employee and shareholder interests.
- Provide a financial incentive for meeting long-term corporate objectives
and increasing shareholder value.
- Encourage and reward team performance.
- Provide managers the ability to recognize and reward key contributors
to long-term results and reinforce the Performance Management Process.
- Foster a long-term employee orientation to business activities that
reflect the Company's Business Vision, Mission and Aspirations.
- Tie incentive opportunity to external competitive pay practices and
internally to the Company's total compensation objectives.
Effective Date
- --------------
- The Plan starts on the first day of the 1995 fiscal year.
Plan Administration
- -------------------
- The Plan is administered under the direction of the Personnel Committee
of the Board of Directors (the Committee). The Committee's
determinations and interpretations shall be binding on all Participants.
Responsibilities include approving:
-- Design and interpretation of the Plan;
-- Incentive participation rates;
-- Financial performance measures and objectives;
-- Final performance unit values;
-- Final incentive payments; and
-- Other terms and conditions that may be recommended by the Chief
Executive Officer and Chief Operating Officer.
- During any period of time in which the Company and its officers and
directors are subject to the requirements imposed by Section 16 of the
Securities Exchange Act of 1934 (the "Act") and the Plan is considered
a plan subject to Rule 16b-3 under the Act, the Committee shall be
composed of "disinterested persons" as defined in Rule 16b-3. The
Committee may delegate administrative responsibilities to Company
employees and may delegate to Company management the authority to
approve amendments to the Plan. It may not do so if it would result in
the Plan not being administered by "disinterested persons" at a time
when it is required to be so administered.
Eligibility
- -----------
- All salaried employees worldwide who meet the participation criteria are
Participants in the Plan. Specific participation criteria is determined
on a country-by-country basis.
Long-Term Incentive Agreement
- -----------------------------
- At each incentive grant, an incentive agreement is created for each
Participant that documents the terms, conditions, and rights as
determined by the Committee. Terms include the size of the grant,
vesting schedules, timing and form of payments, at-will employment, and
rights at termination.
Target Amounts for Participants
- -------------------------------
- Incentive Target Amounts are set near the beginning of each fiscal year
for each Participant using the new base salary and participation rate.
The long-term Target Amount for each Participant is determined by
multiplying the Participant's annual base salary by a Participation
Rate. At year-end targets are adjusted to reflect any salary or
participation rate changes that have occurred during the year. The
Participation Rate is based on the Participant's salary grade and is
expressed as a percent of base salary.
The participation rates are:
<TABLE>
<CAPTION>
Long-Term Incentive Participation Rate
(% of Base Salary)
--------------------------------------
<S> <C>
GLT 75%
Grades 13/14 65%
Grade 12 45%
Grades 11/35 35%
Grades 10/33/34 30%
Grades 9/32 25%
Grade 30 15%
Chain NAM* 15%
Grades 7/8 15%
NAM* 15%
TM, AM, AE** 5%
Grades 1 - 6 5%
Grades 20 - 26 5%
</TABLE>
* National Account Manager
** Territory Manager, Account Manager, Account Executive
Note: The sales titles and grades are reflective of the pre-CSSC
organization.
- LTIP targets are not prorated to reflect the number of months a
Participant was actively employed.
- Participation Rates will be reviewed on a periodic basis by Human
Resources and may be adjusted to keep pay opportunities competitive.
- The long-term Target Amount is comprised of two parts: a team component
and an individual component.
-- The team component is 20% of the Participant's long-term incentive
Target Amount.
-- The individual component is 80% of the Participant's long-term
incentive Target Amount.
- Target Amounts are calculated in local currency.
Sales Employees
- ---------------
- The method for calculating incentive Target Amounts for Territory
Managers, Account Managers, and Account Executives is different than the
method used for other employees. The calculation for sales employees
is the Participation Rate times the sales income plan, or the
Participation Rate times the maximum of certain salary grade levels,
whichever is less. Target incentives are limited to the maximum of
salary grade 5 for Territory Managers, the maximum of salary grade 6 for
Account Managers, and the maximum of a salary grade 7 for Account
Executives.
For purposes of determining the Final Incentive Pool, actual fiscal year
earnings (base and sales incentive) or the maximum of the appropriate
salary grade level, whichever is less, is used.
Incentive Pool
- --------------
- An Incentive Pool for each Business Unit is determined near the end of
each fiscal year. A Business Unit Incentive Pool is the sum of the
Target Amounts for each Participant within the Business Unit. If
personnel status changes in the Business Unit occur during the year, the
Target Amounts on the last day of the fiscal year are used to determine
the Incentive Pool.
- The Company long-term Incentive Pool is the total of all the Business
Unit Incentive Pools.
Incentive Pool Approval
- -----------------------
- The CEO and COO recommend for Committee approval the Incentive Pool
after the end of the fiscal year.
Participant Incentive Allocations
- ---------------------------------
- Incentive allocations from the Incentive Pool are made annually after
the end of the fiscal year.
- Incentive allocations to Participants in the Plan are determined by the
head of the individual's work group, based on team performance and
individual contributions.
- If a Participant meets expectations (as determined in the Performance
Management Process), he or she will receive the team component and be
eligible to receive an individual incentive allocation.
- If a Participant's performance does not meet expectations (as determined
in the Performance Management Process), no incentive is granted. Any
money budgeted for those grants is added back to the individual
component of the Business Unit's Incentive Pool making it available for
other Participants in the Business Unit.
TEAM COMPONENT ALLOCATION
-- The team component allocation is 20% of the Participant's long-term
incentive Target Amount.
INDIVIDUAL INCENTIVE ALLOCATION
-- Incentive funds generated by the individual component are allocated
to a Participant by the Participant's manager based on performance
compared to other Participants in the Business Unit using the
following criteria.
- The participant's trend of performance over time
- Current contribution to future success
- Relative contribution within the team to future team success
- Absolute level of contribution (performance against
objectives)
- Initiative
- Continuous learning
- Long-term strategic thinking
-- Individual incentive allocations must be reviewed and approved by
at least two levels of management, the Participant's manager and
one level above.
Types of Grants
- ---------------
- After the individual incentive allocations are made, the Final Incentive
Amounts are converted into United States dollars.
- The dollar value is then used as a basis to grant Performance Units
(Units).
- The dollar value of a Unit for grant purposes is $100.
- A detailed description of Performance Units is in Appendix I.
Unfunded Status
- ---------------
- The Plan is unfunded. A Participant's right to receive payments under
the Plan is an unsecured claim against the general assets of the
Company. Although the Company may establish a bookkeeping reserve to
meet its obligations, any rights acquired by any Participant are no
greater than the right of any unsecured general creditor of the Company.
References to "Incentive Pools" do not refer to or represent actual,
segregated assets of the Company.
Acceleration of Payments
- ------------------------
- The Committee may accelerate the vesting schedule and settle all or any
individual Participant's long-term performance units.
Other Benefits
- --------------
- Performance unit grants and payments in respect to those performance
units will not be considered as covered compensation when determining
any other Company-sponsored benefits (e.g., pension benefits, stock
plans).
Termination of Employment
- -------------------------
In the case of termination of LTIP participation due to death, retirement,
reduction in force, and long-term disability the following apply:
- A Participant becomes 100% vested in any portion of any grant that has
already begun to vest. Performance Units which have not begun to vest
are forfeited.
- Vested Performance Units are paid out as soon as practical after
termination.
- No new grants are made.
In the case of termination of LTIP participation due to voluntary resignation
or involuntary discharge the following apply:
- Performance Units which are not vested are forfeited.
- If an employee resigns or is discharged between the vesting date and
payout date, vested Performance Units are payable at the time of regular
payout.
Beneficiary Designation
- -----------------------
- As part of the incentive agreement, each Participant shall name a person
or persons as the Beneficiary who is to receive any distribution payable
under the Plan in the event of the Participant's death. The most
recently designated beneficiary will apply to all distributions unless
otherwise specified by the Participant. In the event that no
Beneficiary has been properly designated, or if no properly designated
Beneficiary survives the Participant, the Participant's estate, or other
person entitled under applicable law, shall be the Participant's
Beneficiary.
Nonassignability
- ----------------
- No Units or other rights granted under or provided by this Plan are
assignable or otherwise transferable by holders or Participants, except
by will or by the laws of descent and distribution.
Employment Rights
- -----------------
- No provision of the Plan gives anyone the right to remain employed with
the Company or to continue to receive future incentive grants. The
Company reserves the right to terminate any employee's service at any
time, with or without cause.
- A Participant who has committed an act of gross misconduct while an
employee of the Company, shall lose all of his or her interest,
including any right, under the Plan and shall not be entitled to receive
any payment under the Plan.
Amendment, Modification, or Termination of Plan
- -----------------------------------------------
- The Committee or its designee(s) may modify, amend, or terminate any or
all provisions of the Plan, and establish rules and procedures for its
administration, at its discretion and without notice. Any modification
made may not cancel out previously granted units.<PAGE>
APPENDIX ONE: PERFORMANCE UNITS
- --------------------------------
Overview
- --------
A Participant receives a grant of Performance Units (Units) based on his or
her final long-term incentive amount. The Participant has the right to
receive portions of the monetary value of these units beginning in the fourth
year after the grant. The value of each Unit is a fixed United States dollar
amount. The unit value is based on the Company's achievement of preset,
long-term financial performance objectives.
Grant Date
- ----------
- The Grant Date is the date on which the grant cycle begins. The date
Units are actually granted to Participants may be earlier, later, or the
same date as the Grant Date.
Grant Cycle
- -----------
- The grant cycle has two parts. The first three years of the cycle is
the Company performance period. The next two and one-half years is the
vesting and payout period.
- Each grant cycle is known by the year in which the cycle begins. For
example, a grant made in 1995 is known as the 1995 Grant.
Company Performance Period
- --------------------------
- Company performance is measured over a three-year period for each grant.
A new cycle begins each year with each new grant.
- After the Company performance period ends, the Committee declares a
final unit value.
Initial Grant Value
- -------------------
- The initial grant value is determined by converting the final incentive
amount into United States dollars. The dollar amount is divided by the
initial unit value ($100). The result which is rounded to the nearest
whole number is the number of performance units granted.
Performance Unit Dollar Value
- -----------------------------
- Performance Units are valued in United States dollars.
- The initial value of each Unit is $100. This value is used to
determine the number of Units to grant to participants for each grant
cycle.
- During a grant cycle units have a forecasted value which may change over
time. A final unit value is determined at the end of the performance
cycle based on the Company's financial performance against internal
financial measures (ROI) and external measures (relative total
shareholder return).
- Final unit values begin as low as zero for below-minimum financial
performance. Unit values for above-minimum performance start at $1 and
increase with higher levels of financial performance. The maximum unit
value is $400. All unit values are subject to Committee approval.
Financial Performance Measures and Objectives
- ---------------------------------------------
- The Committee establishes the financial measures that are used to set
the Company's financial objectives and assess performance against these
objectives.
- These financial performance objectives are set for each grant cycle
before the grant date.
- The final unit value is based on the Company's financial performance
against objectives measured at the end of the three-year performance
cycle.
- Financial measures and objectives are reviewed on a periodic basis and
may be modified with the Committee's approval. (The measures and
objectives are described in the Financial Performance Measurement
Specifications.)
Final Grant Value
- -----------------
- The final grant value is determined by multiplying the number of Units
granted in the grant cycle by the final unit value.
- This entire grant is converted into the Participant's local currency
just prior to payment of the first third.
Vesting
- -------
- Vesting for the final grant value occurs in three equal installments on
the June 1 following the third, fourth, and fifth anniversary of the
grant date.
Payments
- --------
- Incentive payments are made as soon as practical after the June 1
vesting. For example, the first portion of the payments from the 1995
grant will be made in June 1998, the second portion in June 1999, and
the third portion in June 2000. The second and third portions are
credited with interest. The interest is based on the local prime rate
of the area where the grant was originally made.
- ------------------------------------------- ------------------
Approved By Date <PAGE>
APPENDIX TWO: GLOSSARY OF TERMS
- --------------------------------
- Allocation is the process of distributing Final Incentive Amounts from
the Incentive Pool to Participants.
- Business Unit: an organizational unit (Corporate/Global, LSNA, LSI
etc.) to which Participants belong and is the basis for AIP funding.
- Company is Levi Strauss Associates Inc. (LSAI) and its subsidiaries.
- Final Incentive Amount is the approved total, including both team and
individual components, which is converted into a Performance Unit grant
for a Participant.
- Financial Performance Measures are the business objectives set for the
Company purpose of determining unit values. The Committee identifies
which measures are to be used and establishes the specific objectives
to be used for each performance cycle.
- Grant is the conversion of Final Incentive Amounts into Performance
Units.
- Incentive Pool is the sum of the target amounts of the Participants
within a Work Group, determined after the close of the fiscal year.
- Involuntary Discharge is an involuntary termination of employment with
the Company due to violation of policy, misconduct, unsatisfactory job
performance or any other reason deemed by the Company to warrant a
discharge.
- Long-Term Disability is an authorized leave of absence for an extended
period of time following a short-term disability of five consecutive
months due to personal illness, injury or disability.
- Participant is an employee who meets the participation criteria of the
Plan. Participation criteria is determined on a country-by-country
basis.
- Participation Rate is the percentage used to determine a Participant's
target amount. A Participation Rate is set for each salary grade level.
- Performance Management Process is the program in which performance
objectives are set and measured for individual employees.
- Performance Unit (Unit) is a non-monetary grant with an initial value
of $100, whose value may go up or down over time based on the Company's
achievement of preset, long-term financial performance objectives.
- Reduction in Force or layoff is an involuntary termination of employment
which in the opinion of the Committee, results from the lack of
appropriate work for the Participant and is not for the reasons of
unacceptable performance or misconduct.
- Retirement is a voluntary termination of employment by an employee who
meets the age and service requirement as defined and determined under
the pension plan applicable to the Participant.
- Target Amount is set near the beginning of the fiscal year. It is
calculated by multiplying the annual base salary by the Participation
Rate.
- Team Component: The portion of the LTIP target which is automatically
allocated if the employee receives a YES decision.
- Vesting: Owning the right to the value of Long-term Performance Units
that were granted. Vesting occurs in thirds on June 1st following the
3rd, 4th and 5th anniversaries of the grant date. Upon each June 1st
vesting date, the participant owns the right to the value of that one
third portion of the performance units.<PAGE>
<PAGE>
Exhibit 21
-----------
SUBSIDIARIES
As of November 27, 1994
State or Country
Name of Incorporation
- ---- ----------------
Levi Strauss Associates Inc. Delaware
Brittania Sportswear Ltd. California
Brittsport Limited Hong Kong
Caliman Company Limited* Hong Kong
Levi Strauss & Co. Delaware
Battery Street Enterprises, Inc. Delaware
Koracorp Industries (Hong Kong) Ltd.* Hong Kong
Koracorp Management Company, Inc.* California
LS Reconveyance Corporation California
Koratron Company, Inc.* California
MCO, Inc.* Texas
Jeans Tech, Inc.* Ohio
Levi Strauss (Budapest) Jeanswear Co. Ltd.
(joint venture) Hungary
Levi Strauss Employee Purchase Plan, Inc. Arkansas
Levi Strauss Eximco (Asia) Pte. Ltd. Singapore
Levi Strauss Eximco Chile Limitada Chile
Levi Strauss Eximco Columbia Columbia
Levi Strauss Eximco (Ltd.) Hongkong
Levi Strauss Eximco Europe Belgium
Levi Strauss Eximco (Hellas) E.P.E. Greece
Levi Strauss Export Sales Corp. California
Levi Strauss Foreign Sales Corporation Barbados
Levi Strauss (Geneva) S.A. Switzerland
Levi Strauss (Budapest) Jeanswear Co. Ltd. Hungary
Levi Strauss Japan K.K. Japan
Levi's Only Stores, Inc. Delaware
Majestic Insurance International Ltd. Bermuda
Miratrix, S.A. Costa Rica
NF Industries, Inc. Nevada
Vogue Insurance International Ltd. Bermuda
Wharf Clothiers, Inc. California
Levi Strauss Associates Inc.
Levi Strauss & Co.
Levi Strauss International California
Creative Apparel Enterprises, S.A. Belgium
Dockers Germany Vertriebs GmbH Germany
The Exact Clothing Company* United Kingdom
Levi Strauss (Asia) Ltd. Hong Kong
Levi Strauss (Australia) Pty. Ltd. New South Wales
Levi Strauss Belgium, S.A. Belgium
Levi Strauss & Co. (Canada), Inc. Canada
Levi Strauss Chile Limitada Chile
Levi Strauss Continental, S.A. Belgium
Levi Strauss & Co. - Europe, S.A. Belgium
Levi Strauss Financial Services, S.A.
(Belgian Finserv or Finserv S.A.) Belgium
Levi Strauss de Espana, S.A. Spain
Confecciones Olvega, S.A. Spain
Levi Strauss (Far East) Ltd. Hong Kong
Levi Strauss do Brasil Industria e
Comercio Ltda. Brazil
Levi Strauss France, S.A. France
Levi Strauss Germany GmbH Germany
Levi Strauss (Hungary) Ltd. Hungary
Levi Strauss International Finance Company.,
N.V. Netherlands Antilles
Levi Strauss Istanbul Konfeksiyon Sanayi ve
Ticaret A.S. Turkey
Levi Strauss Italia Srl Italy
Levi Strauss Korea Korea
Levi Strauss Latin America, Inc. Delaware
Levi Strauss Latin America, Inc. & C.I.A.
(Partnership) Brazil
Levi Strauss (Malaysia) Sdn. Bhd. Malaysia
Levi Strauss Mauritius Mauritius
Levi Strauss de Mexico, S.A. de C.V. Mexico
Levi Strauss Nederland B. V. Netherlands
Dockers Denmark ApS Denmark
Dockers Europe B.V. The Netherlands
Dockers Italy S.R.L. Italy
Dockers Spain Spain
Dockers Sweden AB Sweden
Dockers France S.A.R.L. France
Dockers Nederland B.V. The Netherlands
Dockers Norway AS Norway
Dockers U.K. Limited United Kingdom
Levi Strauss Hellas, S.A. Greece
Levi Strauss Poland Z.o.o. (=Ltd.) Poland
Levi Strauss Prague Czech Republic
Levi Strauss South Africa (Proprietary)
Limited South Africa
Levi Strauss (New Zealand) Ltd. New Zealand
Levi Strauss Norway A/S Norway
Buksehjornet A/S (joint stock company) Norway
Buva A/S Norway
Buva Ans A/S (Joint Partnership) Norway
Levi Strauss Overseas Finance, N.V. Netherland Antilles
Levi Strauss del Peru S.A. Peru
Levi Strauss (Philippines) Inc. Philippines
Levi Strauss (Philippines) Inc. II Philippines
Levi Strauss (Russia) Ltd. Russia
Levi Strauss (Singapore) Pte. Ltd. Singapore
Levi Strauss South Africa South Africa
Levi Strauss (Suisse) S.A. Switzerland
Levi Strauss Trading Limited Liability
Company Hungary
Levi Strauss (U.K.) Ltd. United Kingdom
Levi Strauss de Venezuela, C.A.* Venezuela
Saddleman South America, Inc. Delaware
Silvergrove Limited* Hong Kong
Soumen Levi Strauss OY Finland
*In process of liquidation
All subsidiaries of the Company are 100% owned (except as noted) and are
included in the consolidated financial statements. Indirect subsidiaries are
noted by indention.<PAGE>
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Levi Strauss Associates Inc.:
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K into the Company's previously filed
Registration Statements on Form S-8, File Nos. 33-40947 and 33-41332.
ARTHUR ANDERSEN LLP
San Francisco, California,
February 22, 1995<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF LEVI STRAUSS ASSOCIATES INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-27-1994
<PERIOD-START> NOV-29-1993
<PERIOD-END> NOV-27-1994
<CASH> 813,320
<SECURITIES> 0
<RECEIVABLES> 936,756
<ALLOWANCES> 28,066
<INVENTORY> 782,763
<CURRENT-ASSETS> 2,665,938
<PP&E> 1,123,982
<DEPRECIATION> 454,376
<TOTAL-ASSETS> 3,925,309
<CURRENT-LIABILITIES> 1,098,397
<BONDS> 16,720
<COMMON> 192,591
188,242
0
<OTHER-SE> 1,278,994
<TOTAL-LIABILITY-AND-EQUITY> 3,925,309
<SALES> 6,074,321
<TOTAL-REVENUES> 6,094,769
<CGS> 3,632,406
<TOTAL-COSTS> 5,125,640
<OTHER-EXPENSES> 18,410
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,824
<INCOME-PRETAX> 930,895
<INCOME-TAX> 373,402
<INCOME-CONTINUING> 557,493
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (236,517)
<NET-INCOME> 320,976
<EPS-PRIMARY> 6.10
<EPS-DILUTED> 0
</TABLE>
