<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 1996
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
SCHEDULE 13E-3
RULE 13-E TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934)
-------------------------
LEVI STRAUSS ASSOCIATES INC.
(NAME OF ISSUER)
LEVI STRAUSS ASSOCIATES INC.
LSAI HOLDING CORP.
LSAI ACQUISITION CORP.
(NAME OF PERSONS FILING STATEMENT)
COMMON STOCK, $0.10 PAR VALUE (CUSIP NUMBER OF CLASS OF SECURITIES)
(TITLE OF CLASS OF SECURITIES)
-------------------------
<TABLE>
<S> <C> <C>
JAY A. MITCHELL, ESQ. ROBERT D. HAAS ROBERT D. HAAS
LEVI STRAUSS ASSOCIATES INC. LSAI HOLDING CORP. LSAI ACQUISITION CORP.
LEVI'S PLAZA C/O HELLMAN & FRIEDMAN C/O HELLMAN & FRIEDMAN
1155 BATTERY STREET ONE MARITIME PLAZA, SUITE 1200 ONE MARITIME PLAZA, SUITE 1200
SAN FRANCISCO, CA 94111 SAN FRANCISCO, CA 94111 SAN FRANCISCO, CA 94111
</TABLE>
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSONS FILING STATEMENT)
-------------------------
COPIES TO:
PATRICIA A. VLAHAKIS, ESQ. ROBERT E. SPATT, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ SIMPSON THACHER & BARTLETT
51 WEST 52ND STREET 425 LEXINGTON AVENUE
NEW YORK, NY 10019 NEW YORK, NY 10017
February 14, 1996
(Date Information Statement First Published, Sent or Given to Security Holders)
This statement is filed in connection with (check the appropriate box):
a. / / The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. / / The filing of a registration statement under the Securities Act of
1933.
c. / / A tender offer.
d. /X/ None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies. / /
CALCULATION OF FILING FEE
================================================================================
TRANSACTION VALUATION AMOUNT OF FILING FEE
- --------------------------------------------------------------------------------
$2,252,790,175/*/ $450,559
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form or
schedule and the date of its filing.
- --------------------------------------------------------------------------------
* For purposes of calculation of the filing fee only. This transaction relates
to the merger (the "Merger") of a wholly owned subsidiary of LSAI Holding
Corp. ("Holdings") with and into Levi Strauss Associates Inc. (the "Company").
The "Transaction Valuation" amount referenced above is based upon the product
of (i) 8,501,095, the number of outstanding shares of Class E Common Stock,
par value $0.10 per share ("Class E Shares") and Class L Common Stock, par
value $0.10 per share ("Class L Shares" and together with the Class E Shares,
the "Shares") of the Company (not including Shares held in the treasury of the
Company or which, prior to consummation of the Merger, will be owned by
Holdings) and (ii) $265, the cash price per Share to be paid in the Merger. In
accordance with Rule 0-11 under the Securities Exchange Act of 1934, the
filing fee is determined by multiplying the amount calculated pursuant to the
preceding sentence by 1/50th of one percent.
<PAGE>
This Rule 13E-3 Transaction Statement (the "Statement") of Levi Strauss
Associates Inc., a Delaware corporation ("LSAI" or the "Company"), LSAI Holding
Corp., a Delaware corporation ("Holdings"), and LSAI Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of Holdings ("Merger Sub"),
relates to an Agreement and Plan of Merger, dated as of February 8, 1996, among
LSAI, Holdings, and Merger Sub (the "Merger Agreement"), pursuant to which
Merger Sub will merge with and into LSAI (the "Merger" or the "Transaction"),
with the result being that LSAI shall be a wholly owned subsidiary of Holdings.
The Merger Agreement and the Merger have already been approved by the board of
directors and stockholders of all the parties to the Merger Agreement and the
Merger. The Statement is intended to satisfy the reporting requirements of
Section 13(e) of the Securities Exchange Act of 1934, as amended (the "Act"). A
copy of the Merger Agreement is filed by LSAI as Appendix A to the Company's
Information Statement (the "Information Statement") filed as Exhibit D to the
Statement.
The cross-reference sheet below is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Information
Statement of the information required to be included in response to the items of
this Statement. The information in the Information Statement, including all
appendices thereto, is hereby expressly incorporated herein by reference and the
responses to each item in this Statement are qualified in their entirety by the
information contained in the Information Statement.
<PAGE>
CROSS-REFERENCE SHEET
ITEM IN
SCHEDULE 13E-3 WHERE LOCATED IN INFORMATION STATEMENT
- -------------- --------------------------------------
Item 1(a) "AVAILABLE INFORMATION" and "CERTAIN INFORMATION REGARDING
LSAI, HOLDINGS AND MERGER SUB -- LSAI"
Item 1(b) Cover Page; "CERTAIN INFORMATION REGARDING LSAI, HOLDINGS
AND MERGER SUB -- Securities of LSAI"
Item 1(c) "CERTAIN INFORMATION REGARDING LSAI, HOLDINGS AND MERGER
SUB -- Market for Shares" and " -- Valuation of Shares"
Item 1(d) "CERTAIN INFORMATION REGARDING LSAI, HOLDINGS AND MERGER
SUB -- Dividends Paid on the Shares"
Item 1(e) **
Item 1(f) "CERTAIN INFORMATION REGARDING LSAI, HOLDINGS AND MERGER
SUB -- Purchases of Shares by LSAI"
Item 2(a) - (d), Appendix D
(g)
Item 2(e) - (f) **
Item 3(a)(1) **
Item 3(a)(2) "SPECIAL FACTORS -- Background of the Merger" and
" -- Purpose, Structure and Reasons for the Merger"
Item 3(b) "SPECIAL FACTORS -- Background of the Merger" and
" -- Purpose, Structure and Reasons for the Merger"
Item 4(a) "THE MERGER"
Item 4(b) "SPECIAL FACTORS -- Background of the Merger", " --Purpose,
Structure and Reasons for the Merger" and " -- Certain
Effects of the Merger; Operations of the Company After the
Merger"
-2-
<PAGE>
Item 5(a)-(b) **
Item 5(c) "SPECIAL FACTORS -- Purpose, Structure and Reasons for the
Merger" and "THE MERGER -- Terms of the Merger"
Item 5(d) "CERTAIN INFORMATION -- Dividends Paid on the Shares";
"FINANCING OF THE MERGER"
Item 5(e) "SPECIAL FACTORS -- Purpose, Structure and Reasons for the
Merger" and " -- Certain Effects of the Merger; Operations of
the Company After the Merger"
Item 5(f) **
Item 5(g) "SPECIAL FACTORS -- Certain Effects of the Merger;
Operations of the Company After the Merger" and "Current
Information; No Periodic Reporting"
Item 6(a)-(b) "FINANCING OF THE MERGER"
Item 6(c) "FINANCING OF THE MERGER"
Item 6(d) **
Item 7(a)-(c) "SPECIAL FACTORS -- Background of the Merger" and
" -- Purpose, Structure and Reasons for the Merger"
Item 7(d) "SPECIAL FACTORS -- Certain Effects of the Merger;
Operations of the Company After the Merger" and
" -- Certain Federal Income Tax Consequences"
Item 8(a) "SPECIAL FACTORS -- Fairness of the Transaction;
Recommendations"
Item 8(b) "SPECIAL FACTORS -- Fairness of the Transaction;
Recommendations" and " -- Opinion of Financial Advisor"
Item 8(c) "SPECIAL FACTORS -- Background of the Merger"
Item 8(d) "SPECIAL FACTORS -- Background of the Merger",
" -- Fairness of the Transaction; Recommendations" and
" -- Opinion of Financial Advisor"
-3-
<PAGE>
Item 8(e) "SPECIAL FACTORS -- Fairness of the Transaction;
Recommendations"
Item 8(f) **
Item 9(a) "SPECIAL FACTORS -- Fairness of the Transaction;
Recommendations" and " -- Opinion of Financial Advisor"
Item 9(b) "SPECIAL FACTORS -- Background of the Merger" and
" -- Opinion of Financial Advisor"
Item 9(c) "SPECIAL FACTORS -- Opinion of Financial Advisor"
Item 10(a) "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF LSAI -- Principal Stockholders"
Item 10(b) "CERTAIN INFORMATION REGARDING LSAI, HOLDINGS AND MERGER SUB
-- Purchases of Shares by LSAI" and Appendix E
Item 11 "SPECIAL FACTORS -- Purpose, Structure and Reasons for the
Merger", "THE MERGER" and "CONTRACTS, ARRANGEMENTS OR
UNDERSTANDINGS WITH RESPECT TO SECURITIES OF LSAI"
Item 12(a)-(b) "SPECIAL FACTORS -- Background of the Merger",
" -- Fairness of the Transaction; Recommendations"
Item 13(a) "RIGHTS OF DISSENTING STOCKHOLDERS" and Appendix C
Item 13(b) - (c) **
Item 14(a) *
Item 14(b) "CERTAIN PRO FORMA FINANCIAL INFORMATION" and "SELECTED PRO
FORMA PROJECTED FINANCIAL INFORMATION"
Item 15 **
Item 16 **
-4-
<PAGE>
Item 17(a) **
Item 17(b) Appendix B
Item 17(c) Appendix A
Item 17(d) **
Item 17(e) Appendix C
Item 17(f) **
- ----------
* The information requested by this Item is not found in the Information
Statement.
** The Item is inapplicable or the answer thereto is in the negative.
-5-
<PAGE>
SECTION 13E-3 TRANSACTION STATEMENT
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The information set forth in the Information Statement under the
caption "AVAILABLE INFORMATION" and "CERTAIN INFORMATION REGARDING
LSAI, HOLDINGS AND MERGER SUB -- LSAI" is incorporated herein by
reference.
(b) The information set forth in the Information Statement under the
caption "CERTAIN INFORMATION REGARDING LSAI, HOLDINGS AND MERGER
SUB -- Securities of LSAI" is incorporated herein by reference.
(c) The information set forth in the Information Statement under the
captions "CERTAIN INFORMATION REGARDING LSAI, HOLDINGS AND MERGER
SUB -- Market for Shares" and " -- Valuation of Shares" is
incorporated herein by reference.
(d) The information set forth in the Information Statement under the
caption "CERTAIN INFORMATION REGARDING LSAI, HOLDINGS AND MERGER
SUB -- Dividends Paid on the Shares" is incorporated herein by
reference.
(e) Not applicable.
(f) The information set forth in the Information Statement under the
caption "CERTAIN INFORMATION REGARDING LSAI, HOLDINGS AND MERGER
SUB -- Purchases of Shares by LSAI" is incorporated herein by
reference.
ITEM 2. IDENTITY AND BACKGROUND.
This Statement is filed jointly by LSAI, the issuer of the
securities which are the subject of the 13e-3 transaction, Holdings
and Merger Sub. Holdings and Merger Sub are each corporations
organized under the laws of the state of Delaware. Holdings and
Merger Sub are each affiliates of LSAI and each has been organized
for the purpose of consummating the Transaction and has no other
business activities. The address of Holdings is LSAI Holding Corp.,
c/o Hellman & Friedman, One Maritime Plaza, Suite 1200, San
Francisco, California 94111. The address of Merger Sub is LSAI
Acquisition Corp., c/o Hellman & Friedman, One Maritime Plaza,
Suite 1200, San Francisco, California 94111.
-6-
<PAGE>
(a)-(d), The information set forth in Appendix D to the
(g) Information Statement is incorporated herein by reference.
(e)-(f) Negative.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1) Not applicable.
(a)(2) The information set forth in the Information Statement under the
captions "SPECIAL FACTORS -- Background of the Merger" and
" -- Purpose, Structure and Reasons for the Merger" is incorporated
herein by reference.
(b) The information set forth in the Information Statement under the
captions "SPECIAL FACTORS -- Background of the Merger" and
" -- Purpose, Structure and Reasons for the Merger" is incorporated
herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in the Information Statement under the
caption "THE MERGER" is incorporated herein by reference.
(b) The information set forth in the Information Statement under the
captions "SPECIAL FACTORS -- Background of the Merger",
" -- Purpose, Structure and Reasons for the Merger" and
" -- Certain Effects of the Merger; Operations of the Company
After the Merger" is incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(b) Not applicable.
(c) The information set forth in the Information Statement under the
captions "SPECIAL FACTORS -- Purpose, Structure and Reasons for the
Merger" and "THE MERGER -- Terms of the Merger" is incorporated
herein by reference.
(d) The information set forth in the Information Statement under the
caption "CERTAIN INFORMATION -- Dividends Paid on the Shares" is
incorporated herein by reference.
-7-
<PAGE>
(e) The information set forth in the Information Statement under the
captions "SPECIAL FACTORS -- Purpose, Structure and Reasons for the
Merger" and " -- Certain Effects of the Merger; Operations of the
Company After the Merger" is incorporated herein by reference.
(f) Not applicable.
(g) The information set forth in the Information Statement under the
caption "SPECIAL FACTORS -- Certain Effects of the Merger;
Operations of the Company After the Merger" and "--Current
Information; No Periodic Reporting" is incorporated herein by
reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth in the Information Statement under the
caption "FINANCING OF THE MERGER" is incorporated herein by
reference.
(c) The information set forth in the Information Statement under the
caption "FINANCING OF THE MERGER" is incorporated herein by
reference.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)-(c) The information set forth in the Information Statement under the
captions "SPECIAL FACTORS -- Background of the Merger" and
" -- Purpose, Structure and Reasons for the Merger" is incorporated
herein by reference.
(d) The information set forth in the Information Statement under the
captions "SPECIAL FACTORS -- Certain Effects of the Merger;
Operations of the Company After the Merger" and " -- Certain
Federal Income Tax Consequences" is incorporated herein by
reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a) The information set forth in the Information Statement under the
caption "SPECIAL FACTORS -- Fairness of the Transaction;
Recommendations" is incorporated herein by reference.
(b) The information set forth in the Information Statement under the
captions "SPECIAL FACTORS -- Fairness of the Transaction;
Recommendations" and " -- Opinion of the Financial Advisor" is
incorporated herein by reference.
-8-
<PAGE>
(c) The information set forth in the Information Statement under the
caption "SPECIAL FACTORS -- Background of the Merger" is
incorporated herein by reference.
(d) The information set forth in the Information Statement under the
captions "SPECIAL FACTORS -- Background of the Merger",
" -- Fairness of the Transaction; Recommendations" and
" -- Opinion of the Financial Advisor" is incorporated herein by
reference.
(e) The information set forth in the Information Statement under the
caption "SPECIAL FACTORS -- Fairness of the Transaction;
Recommendations" is incorporated herein by reference.
(f) Not applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) The information set forth in the Information Statement under the
captions "SPECIAL FACTORS -- Fairness of the Transaction;
Recommendations" and " -- Opinion of Financial Advisor" is
incorporated herein by reference.
(b) The information set forth in the Information Statement under the
captions "SPECIAL FACTORS -- Background of the Merger" and
" -- Opinion of Financial Advisor" is incorporated herein by
reference.
(c) The information set forth in the Information Statement under the
caption "SPECIAL FACTORS -- Opinion of Financial Advisor" is
incorporated herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information set forth in the Information Statement under the
caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF LSAI -- Principal Stockholders" is incorporated
herein by reference.
(b) The information set forth in the Information Statement under the
captions "CERTAIN INFORMATION REGARDING LSAI, HOLDINGS AND MERGER
SUB -- Purchases of Shares by LSAI" and Appendix E is incorporated
herein by reference.
-9-
<PAGE>
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES.
The information set forth in the Information Statement under the
captions "SPECIAL FACTORS -- Purpose, Structure and Reasons for the
Merger", "THE MERGER" and "CONTRACTS, ARRANGEMENTS OR
UNDERSTANDINGS WITH RESPECT TO SECURITIES OF LSAI" is incorporated
herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATIONS OF CERTAIN PERSONS WITH
REGARD TO THE TRANSACTION.
(a)-(b) The information set forth in the Information Statement under the
captions "SPECIAL FACTORS -- Background of the Merger", and
" -- Fairness of the Transaction; Recommendations" is incorporated
herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTIONS.
(a) The information set forth in the Information Statement under the
caption "RIGHTS OF DISSENTING STOCKHOLDERS" and in Appendix C to
the Information Statement is incorporated herein by reference.
(b)-(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in LSAI's Annual Report on Form 10-K for
the year ended November 27, 1994; LSAI's Annual Report on Form 10-K
for the year ended November 28, 1993; and LSAI's Quarterly Reports
on Form 10-Q for the quarters ended February 26, 1995, May 28, 1995
and August 27, 1995 are incorporated herein by reference.
(b) The information set forth in the Information Statement under the
captions "CERTAIN PRO FORMA FINANCIAL INFORMATION" and "SELECTED
PRO FORMA PROJECTED FINANCIAL INFORMATION" is incorporated herein
by reference.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a),(b) Not applicable.
ITEM 16. ADDITIONAL INFORMATION.
Not applicable.
-10-
<PAGE>
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) Not applicable.
(b)(1) Fairness Opinion of Dillon Read (incorporated herein
by reference to Appendix B to the Information Statement).
(b)(2) Dillon Read Presentation to the Special Committee of the LSAI Board
of Directors, dated February 7, 1996.
(c)(1) Agreement and Plan of Merger, dated as of February 8, 1996, by and
among LSAI, Holdings and Merger Sub (incorporated by reference to
Appendix A of the Information Statement).
(c)(2) Form of Stock Subscription Agreement.
(c)(3) Form of Participation Agreement.
(d) Information Statement.
(e) Summary of Appraisal Rights (incorporated by reference to Appendix
C to the Information Statement).
(f) Not applicable.
-11-
<PAGE>
SIGNATURE
---------
AFTER DUE INQUIRY AND TO THE BEST OF ITS KNOWLEDGE AND BELIEF, EACH OF
THE UNDERSIGNED CERTIFIES THAT THE INFORMATION SET FORTH IN THIS STATEMENT IS
TRUE, COMPLETE AND CORRECT.
LEVI STRAUSS ASSOCIATES INC.
By: /s/ Joseph M. Maurer
------------------------
Name: Joseph M. Maurer
Title: Vice President and Treasurer
LSAI HOLDING CORP.
By: /s/ Robert D. Haas
------------------------
Name: Robert D. Haas
Title: President
LSAI ACQUISITION CORP.
By: /s/ Robert D. Haas
------------------------
Name: Robert D. Haas
Title: President
Date: February 14, 1996
-12-
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT
- -------------- -------
(a) Not applicable.
(b)(1) Fairness Opinion of Dillon Read (incorporated
herein by reference to Appendix B to the Information Statement) of
Levi Strauss Associates Inc. (the "Information Statement").
(b)(2) Dillon Read Presentation to the Special Committee of the LSAI Board
of Directors, dated February 7, 1996.
(c)(1) Agreement and Plan of Merger, dated as of February 8, 1996, by and
among LSAI, Holdings and Merger Sub (incorporated herein by
reference to Appendix A to the Information Statement).
(c)(2) Form of Stock Subscription Agreement.
(c)(3) Form of Participation Agreement.
(d) Information Statement and Exhibits thereto.
(e) Summary of Appraisal Rights (incorporated herein by reference to
Appendix C to the Information Statement).
(f) Not applicable.
<PAGE>
EXHIBIT (b)(2)
CONFIDENTIAL
- --------------------------------------------------------------------------------
PROJECT 501
PRESENTATION TO THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS
FEBRUARY 7, 1996
- --------------------------------------------------------------------------------
DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
TAB
---
TRANSACTION OVERVIEW............................. A
OVERVIEW OF LEVI STRAUSS CORPORATION............. B
LEVI STRAUSS VALUATION INDICATORS................ C
LEVERAGED RECAPITALIZATION ANALYSIS.............. D
- --------------------------------------------------------------------------------
PROJECT 501 DILLON, READ & CO. INC.
<PAGE>
TRANSACTION OVERVIEW
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
BACKGROUND
- --------------------------------------------------------------------------------
. THE TRANSACTION SPONSORS FORMED LSAI HOLDING CORP., "HOLDINGS", FOR THE
ULTIMATE PURPOSE OF PURSUING A TRANSACTION DESIGNED TO CREATE A NEW,
REFOCUSED LEVI STRAUSS ASSOCIATES INC., "LSAI", DEDICATED TO REMAINING
PRIVATELY-HELD AND MANAGED WITH AN EXPLICIT COMMITMENT TO ACHIEVING
SUPERIOR FINANCIAL RETURNS WHILE OPERATING IN A VALUES ORIENTED MANNER.
. THE TRANSACTION SPONSORS HAVE INVITED HOLDERS OF CLASS L COMMON STOCK OF
LSAI MEETING CERTAIN CRITERIA SET FORTH IN HOLDING'S OFFERING MEMORANDUM
TO CONTRIBUTE THEIR CLASS L SHARES TO HOLDINGS ON THE TERMS SPECIFIED
THEREIN, SUBJECT TO A LATER RIGHT, SUBSEQUENTLY GRANTED TO SUCH HOLDERS,
TO FULLY OR PARTIALLY "OPT-OUT" OF SUCH PARTICIPATION.
. HOLDINGS HAS DETERMINED TO PROPOSE A MERGER TRANSACTION IN WHICH LSAI
WILL BE ACQUIRED AS A WHOLLY OWNED SUBSIDIARY OF HOLDINGS, WITH THE
HOLDERS OF ALL SHARES OF CLASS E COMMON STOCK OF LSAI AND THOSE SHARES OF
CLASS L COMMON STOCK OF LSAI NOT HELD BY OR BEING REINVESTED IN HOLDINGS
RECEIVING CASH FOR THEIR SHARES.
- --------------------------------------------------------------------------------
PROJECT 501 A - 1 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
SUMMARY OF THE MERGER PROPOSAL
- --------------------------------------------------------------------------------
. CLASS L STOCKHOLDERS RECEIVE $265 PER SHARE IN CASH IN EXCHANGE FOR EACH
SHARE OF CLASS L STOCK NOT CONTRIBUTED TO HOLDINGS
. CLASS E STOCKHOLDERS RECEIVE $265 PER SHARE IN CASH IN EXCHANGE FOR
THEIR STOCK
- Class E stockholders are not being asked to reinvest in Holdings
and will not have a continuing equity interest in LSAI or Holdings
through employee plans or otherwise. Current employee plans will be
either modified or terminated
- In lieu of an equity interest, it is expected that all employees
will participate in new employee arrangements designed to align
employee and stockholders' interests by providing cash payments to
employees based upon future value created
- Management liquidity program will not be assumed by Holdings and
will be discontinued following the transaction
. $265 PER SHARE OFFER PRICE REPRESENTS A 40% PREMIUM TO THE NOVEMBER 30,
1995 PUBLIC MARKET EQUIVALENT VALUATION OF $189 PER SHARE COMPLETED BY
MORGAN STANLEY
- --------------------------------------------------------------------------------
PROJECT 501 A - 2 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
SUMMARY OF THE MERGER PROPOSAL
- --------------------------------------------------------------------------------
. DISSENTING CLASS L AND CLASS E STOCKHOLDERS WHO HAVE PROPERLY DEMANDED
APPRAISAL RIGHTS WILL BE ENTITLED TO A JUDICIAL APPRAISAL DETERMINATION
OF THE FAIR VALUE OF THEIR SHARES, WHICH COULD BE MORE OR LESS THAN THE
$265 PER SHARE PRICE OFFERED
. KEY CONDITIONS TO THE OFFER INCLUDE REVIEW AND APPROVAL OF THE MERGER
AND MERGER CONSIDERATION BY THE SPECIAL COMMITTEE AND RECEIPT OF
FINANCING COMMITMENTS; HOWEVER, THE TRANSACTION SPONSORS RESERVE THE
RIGHT TO WAIVE ANY SUCH CONDITIONS AND PROCEED WITH A TRANSACTION, WITH
OR WITHOUT MODIFICATION
. NO REDEMPTIONS, DIVIDEND PAYMENTS OR OTHER LIQUIDITY OPPORTUNITIES,
OTHER THAN UNDER THE ESTATE TAX REPURCHASE POLICY, ARE CONTEMPLATED IN
THE NEAR FUTURE FOR PARTICIPATING L STOCKHOLDERS
- --------------------------------------------------------------------------------
PROJECT 501 A - 3 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
PROPOSAL MULTIPLES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SENSITIVITY ANALYSIS
LEVI STRAUSS ------------------------------------------
MERGER PRICE: DATA $189 $225 $265 $275
--------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total Equity Value ($MM) $10,064.6 $11,981.7 $14,111.8 $14,644.3
P/E:
- ------------------------------
1995 Earnings /(a)/ $ 599.8 16.8x 20.0x 23.5x 24.4x
1996E Earnings /(b)/ 559.1 18.0 21.4 25.2 26.2
1996E Earnings /(c)/ 644.6 15.6 18.6 21.9 22.7
1996E Earnings /(c)/ 690.7 14.6 17.3 20.4 21.2
PRICE AS A MULTIPLE OF:
- ------------------------------
Book Value (11/26/95) $2,361.9 4.3x 5.1x 6.0x 6.2x
UNLEVERED PRICE AS A MULTIPLE:
- ------------------------------
1995 Revenues $6,707.6 1.3x 1.6x 2.0x 2.0x
1995 EBITDA/(a)/ 1,055.8 8.6 10.4 12.4 12.9
1995 EBIT/(a)/ 940.7 9.6 11.7 13.9 14.5
</TABLE>
- ---------------
/(a)/ FYE 11/26/95 adjusted for non-recurring items - see page B-20
/(b)/ Management projections
/(c)/ Modified management projections - see page B-20
- --------------------------------------------------------------------------------
PROJECT 501 A - 4 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
DILLON READ ASSIGNMENT
- --------------------------------------------------------------------------------
. AS OF DECEMBER 15, 1995, DILLON READ WAS ENGAGED BY LEVI STRAUSS ASSOCIATES
INC. TO SERVE AS EXCLUSIVE FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
- If requested, Dillon Read will render a written opinion to the
Special Committee relating to the fairness opinion from a financial
point of view of the consideration to be received by the holders of
Class E common stock and Class L Common stock not held by Holdings
pursuant to the Merger
. DILLON READ HAS NOT CONDUCTED AN INDEPENDENT APPRAISAL OF THE ASSETS OF
THE COMPANY, HAS PERFORMED ITS ANALYSIS BASED ON ECONOMIC MARKET AND OTHER
CONDITIONS AS OF THE DATE HEREOF, AND HAS RELIED UPON THE ACCURACY AND
COMPLETENESS OF ALL MATERIALS SUPPLIED TO DILLON READ BY THE COMPANY AND
ITS AGENTS
. DILLON READ HAS NOT BEEN ENGAGED TO CONDUCT DUE DILIGENCE REGARDING, OR
PASS ON THE FAIRNESS OF, THE OFFERING
. DILLON READ WAS NOT AUTHORIZED TO CONDUCT, AND DID NOT CONDUCT, AN
"AUCTION PROCESS" WITH RESPECT TO THE SOLICITATION OF THIRD PARTY
INTEREST IN THE COMPANY
- --------------------------------------------------------------------------------
PROJECT 501 A - 5 DILLON, READ & CO. INC.
<PAGE>
OVERVIEW OF LEVI STRAUSS
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
APPAREL/RETAIL INDUSTRY
- --------------------------------------------------------------------------------
. THE U.S. RETAIL INDUSTRY IN RECENT YEARS HAS EXPERIENCED SUBSTANTIAL
TRANSFORMATION THROUGH CONSOLIDATION OR CLOSURE OF A NUMBER OF MAJOR
RETAILERS
- Major retailers are larger, exhibit more centralized buying
practices, have greater leverage with apparel manufacturers and
expose apparel manufacturers to greater credit risk
. CONSUMERS WORLDWIDE ARE BECOMING MORE PRICE AND VALUE CONSCIOUS
- Success of mass market retailers supports this trend
- Increasing pressure from consumers and competitors has limited the
retailers' ability to raise prices and has resulted in apparel price
deflation and erosion of profit margins
- The retailers' need to stabilize their own profitability has
created demand for more and different services from apparel
suppliers to streamline their utilization of capital
. IN AN EFFORT TO REDUCE ITS INVESTMENT IN INVENTORIES, MINIMIZE
"OUT-OF-STOCKS", MAJOR RETAILERS ARE PLACING INCREASING PRESSURE ON
APPAREL MANUFACTURERS
- Effective business partnerships focused on customer service are
becoming a key component of success for apparel suppliers as more
retailers demand more floor-ready and receipt-ready programs,
automated product replenishment arrangements and enhanced store
merchandise support
- As retailers continue to place orders closer in time to requested
delivery dates, apparel manufacturers delivery performance will take
on increasing importance
- --------------------------------------------------------------------------------
PROJECT 501 B - 1 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
APPAREL/RETAIL INDUSTRY (CONT'D)
- --------------------------------------------------------------------------------
. MAJOR U.S. DEPARTMENT STORES ARE REDUCING THEIR NUMBER OF APPAREL SUPPLIERS
AND INCREASINGLY ARE CARRYING ONLY THE TOP PERFORMING NATIONAL BRANDS
. MAJOR U.S. RETAILERS ARE EXPANDING SHELF SPACE DEVOTED TO LOWER-
PRICED "HOUSE BRANDS"
- J.C. Penney's Arizona Jean Company brand and Sears' Canyon River
Blues brand have demonstrated early success
- As shelf space for private label products continues to expand,
secondary and tertiary brands will be negatively impacted
. APPAREL MANUFACTURERS BUSINESSES ARE BECOMING LESS CONTROLLABLE WITH THE
CONTINUING TREND TOWARDS ELECTRONIC SHOPPING AND GLOBAL RETAILING
- --------------------------------------------------------------------------------
PROJECT 501 B - 2 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
LEVI SEGMENT ANALYSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995
-------------------------------------------------------------------
MANAGEMENT
MANAGEMENT EARNINGS AS
SALES % OF TOTAL EARNINGS % OF TOTAL % OF SALES
-------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
LSNA $4,319.1 64.4% $ 639.0 62.0% 14.8%
LSI $2,403.2 35.8% $ 547.8 53.2% 22.8%
Allocated Corporate Expense 0.0 0.0 (156.6) (15.2) NM
Other (14.7) (0.2) 0.2 0.0 NM
-------- ----- -------- ----- ----
TOTAL COMPANY $6,707.6 100.0% $1,030.3 100.0% 15.4%
======== ===== ======== ===== ====
Unallocated Corporate 16.8
Minority Interest 2.4
Acquisition Expense 17.3
Net Interest Expense (Income) (41.0)
--------
PRETAX INCOME $1,034.8
Taxes 300.1
--------
NET INCOME $ 734.7
========
</TABLE>
- --------------------------------------------------------------------------------
PROJECT 501 B - 3 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
LEVI STRAUSS NORTH AMERICA
- --------------------------------------------------------------------------------
. LSNA (LEVI STRAUSS NORTH AMERICA) TERRITORY INCLUDES THE UNITED STATES,
CANADA AND MEXICO
. RECENTLY REORGANIZED INTO OPERATING UNITS DEFINED BY:
Product Line: Levi's and Dockers
Region: Canada and Mexico
Service: Levi's Only stores
. EACH U.S. DIVISION MAINTAINS ITS OWN
MERCHANDISING, SALES AND ADVERTISING STAFF
. U.S. SALES TO TOP 25 ACCOUNTS REPRESENTED 66% OF TOTAL 1994 U.S. DOLLARS
SALES
. DOLLAR SALES OF LEVI'S MEN'S JEANS AND RELATED PRODUCTS SOLD IN THE U.S.
ACCOUNTED FOR 31% OF WORLDWIDE SALES IN 1995
. U.S. SALES OF NON-JEAN-RELATED CASUAL APPAREL PRODUCTS REPRESENTED 13% OF
WORLDWIDE SALES FOR 1995
- --------------------------------------------------------------------------------
PROJECT 501 B - 4 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
LEVI STRAUSS INTERNATIONAL
- --------------------------------------------------------------------------------
. LSI (LEVI STRAUSS INTERNATIONAL) DIVISION MANUFACTURES AND MARKETS JEANS
AND RELATED PRODUCTS WORLDWIDE, THROUGH EITHER JOINT VENTURES OR LICENSE
ARRANGEMENTS IN:
- Europe
- Latin America (except Mexico)
- Asia/Pacific
. SALES ARE PRIMARILY DERIVED FROM BASIC LINES OF JEANS, TOPS AND OTHER
DENIM APPAREL
. LSI MARKETS PRODUCTS IN OVER 40 COUNTRIES
. GENERALLY, JEANS ARE CONSIDERED FASHION ITEMS RATHER THAN BASIC
FUNCTIONAL PRODUCTS AND MARGINS ARE SIGNIFICANTLY HIGHER THAN LSNA
. LSI IS PROJECTED TO CONTRIBUTE 36% OF TOTAL COMPANY SALES AND 46% OF
TOTAL NORTH AMERICAN AND INTERNATIONAL MANAGEMENT EARNINGS COMBINED IN
1995
- --------------------------------------------------------------------------------
PROJECT 501 B - 5 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
CSSC
- --------------------------------------------------------------------------------
. SURVEYS OF MAJOR U.S. RETAILERS REVEALED THAT ALTHOUGH STRONG IN PRODUCT
QUALITY AND MARKETING, THE COMPANY PERFORMED POORLY ON MANY MEASUREMENTS
OF CUSTOMER SERVICE
- The Company's competitors, principally VF Corp., demonstrated
higher levels of customer service and better delivery performance
. THE COMPANY FACED INCREASING PRESSURE FROM RETAILERS IN MANY OF ITS
MARKETS TO IMPROVE ITS PRODUCT SUPPORT AND DELIVERY PERFORMANCE
- Retailers demanded more floor-ready and receipt-ready programs,
automated product replenishment arrangements, enhanced store
merchandise support and the placing of orders closer in time to
requested delivery dates
. IN RESPONSE TO CUSTOMER'S DEMANDS, THE COMPANY EMBARKED UPON THE CSSC
INITIATIVE IN 1992 TO IMPROVE THE QUALITY OF SERVICE IT PROVIDES ITS
CUSTOMERS
- The CSSC initiative requires significant capital expenditures and
transitional expenses to develop and implement new business
processes intended to enable the Company to meet a number of defined
customer service targets
- The Company will complete and phase-in three new customer service
centers
- --------------------------------------------------------------------------------
PROJECT 501 B - 6 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
CSSC (CONT'D)
- --------------------------------------------------------------------------------
. IN NOVEMBER, 1995, THE COMPANY REEXAMINED CSSC IN ITS ENTIRETY AND
REVISED THE CUSTOMER SERVICE GOALS AND EXTENDED THE TIMETABLE WHICH IS
INTENDED TO REDUCE THE COSTS AND BUSINESS DISRUPTION RISKS OF THE
INITIATIVE
. AFTER INTERVIEWING MANAGEMENT AND REVIEWING INTERNAL MANAGEMENT
DOCUMENTS, WE HAVE CONCLUDED THAT TWO-THIRDS OF CSSC TRANSITION EXPENSES
ARE NON-RECURRING FOR PURPOSES OF NORMALIZING EARNINGS FOR VALUATIONS
BASED UPON 1995-1996
- --------------------------------------------------------------------------------
PROJECT 501 B - 7 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
CSI
- --------------------------------------------------------------------------------
. IN RESPONSE TO RETAILERS DEMANDS THAT CONFRONTED THE U.S. BUSINESS, THE
COMPANY PROACTIVELY ADOPTED THE CSI INITIATIVE TO IMPROVE THE QUALITY OF
SERVICE IT PROVIDES ITS INTERNATIONAL CUSTOMERS AND PREEMPT WHAT HAD
HAPPENED IN ITS U.S. BUSINESS FROM HAPPENING IN ITS INTERNATIONAL MARKETS
. THE COMPANY'S EUROPEAN AND ASIA PACIFIC CUSTOMER SERVICE INITIATIVES ARE
BOTH APPROACHING COMPLETION OF THE PLANNING STAGE
. IMPLEMENTATION IS EXPECTED TO BEGIN IN 1996 AND IS BASED ON AN
INTEGRATED AND PHASED APPROACH OVER AN EXTENDED TIMEFRAME (5 - 10 YEARS)
. BASED IN PART ON THE U.S. EXPERIENCE, THE COMPANY IS FOCUSING ON THE
COST EFFECTIVENESS, THE ANTICIPATED BENEFITS OF THE INITIATIVE, AND THE
IMPACT ON BUSINESS DISRUPTION, IN REVIEWING PROPOSED BUSINESS PROCESS
DESIGNS
. IN OUR VIEW, NONE OF THE CSI TRANSITION EXPENSES ARE NON-RECURRING FOR
PURPOSES OF NORMALIZING EARNINGS BECAUSE OF THE EXTENDED TIME FRAME (5-10
YEARS) FOR IMPLEMENTATION OF THE INITIATIVE
- --------------------------------------------------------------------------------
PROJECT 501 B - 8 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
SOURCING
- --------------------------------------------------------------------------------
. INDEPENDENT CONTRACTORS PRODUCE APPROXIMATELY ONE-HALF OF THE COMPANY'S
PRODUCTS MANUFACTURED FOR SALE IN U.S. AND 45% OF GOODS FOR SALE OUTSIDE
THE U.S.
. THE COMPANY'S GLOBAL SOURCING AND OPERATING GUIDELINES DEFINE THE TERMS
OF ENGAGEMENT AND GUIDELINES CONTROLLABLE BY INDIVIDUAL BUSINESS PARTNERS
AND THOSE ISSUES AND GUIDELINES SPECIFIC TO OPERATING IN A COUNTRY
- These guidelines possibly limit some of the Company's sourcing
options and its access to certain lower cost production
. PRESENTLY, THERE IS A SUBSTANTIAL DISPARITY BETWEEN U.S. AND OFFSHORE
COST OF PRODUCTION
- The Company continually reviews its long-term sourcing plan and is
engaged in various efforts, in the context of a values-based
approach, to reduce the costs of its U.S. manufacturing and
rationalize its supplier base
. THE COMPANY CONTINUES TO HAVE A STRONG OPERATING RELATIONSHIP WITH CONE
MILLS CORP., ITS SOLE WORLDWIDE SUPPLIER OF DENIM USED IN 501 JEANS
. DENIM PRICES, ALTHOUGH HAVING INCREASED IN THE LAST 18 MONTHS, HAVE
GENERALLY BEEN STABLE HISTORICALLY WITH MINIMAL REAL INCREASES RELATIVE
TO INFLATION
- Cotton prices have risen dramatically and are expected to increase
further in 1996 possibly contributing to continued increases in
denim prices
- --------------------------------------------------------------------------------
PROJECT 501 B - 9 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
OVERALL COMPETITIVE POSITION
- --------------------------------------------------------------------------------
. THE COMPANY HAS ESTABLISHED A STRONG COMPETITIVE POSITION RELATIVE TO
ITS TRADITIONAL COMPETITORS THROUGH PRODUCT QUALITY AND EFFECTIVE
CONSUMER MARKETING
- The Company has a significant market presence in those channels in
which it has chosen to sell its products
- The Company presently has chosen not to distribute its products in
the growing mass market channels (i.e. Wal-Mart, Target) in an
effort to preserve and control product consistency and image of the
Levi's brand
. SEVERAL MAJOR TRENDS IN THE RETAIL INDUSTRY HAVE IMPROVED THE COMPANY'S
POSITION RELATIVE TO ITS TRADITIONAL COMPETITORS:
- Major retailers' trimming of branded resources in favor of top
performing national brands has improved the Company's position and
has negatively impacted other secondary and tertiary brands
including VF's products, Haggar and Savane (Farah). Increasingly,
retailers choose only Dockers as the branded resource in men's
casuals
- The emergence of comparable quality, lower-priced house brands and
continued expansion of retail shelf space for these brands has yet
to impact the Company's brands; however, its traditional competitors
are losing retail space and experiencing volume losses in major
department stores
- --------------------------------------------------------------------------------
PROJECT 501 B - 10 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
OVERALL COMPETITIVE POSITION
- --------------------------------------------------------------------------------
. THE COMPANY'S SCALE AND INVESTMENT IN CUSTOMER SERVICE INITIATIVES HAVE
POSITIONED IT FAVORABLY RELATIVE TO ITS COMPETITORS
- Based upon continuing trends towards consolidation in the retail
industry and the major retailers' increasing demands of apparel
manufacturers, only larger manufacturers will be able to commit
large orders from such retailers and execute quick response delivery
schedules. Apparel manufacturers will require the financial and
organizational the resources to invest heavily in information
systems to meet these demands
- CSSC and CSI will enable the Company to surpass many of its
competitors in achieving measurable customer service targets
. IN THE U.S. JEANS MARKET:
- Calvin Klein has had a major impact and is well received among the
Company's department store accounts
- Higher price point brands, such as Guess, continue to lose ground
as consumers become increasingly value conscious
- Other brands such as VF's Lee brand, Bugle Boy and Union Bay are
maintaining a retail presence, but appear to fall short in achieving
growing consumer acceptance
- J.C. Penney's Arizona Jean Company brand and Sears Canyon River
Blues brand are success stories that are fueling interest on the
part of other retailers to pursue private label strategies as a
means of attracting price and value conscious consumers
- --------------------------------------------------------------------------------
PROJECT 501 B - 11 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
OVERALL COMPETITIVE POSITION
- --------------------------------------------------------------------------------
. IN THE U.S. CASUALS MARKET:
- Traditional competitors (particularly Haggar) are losing retail
space
- Specialty store/brand combinations (such as the GAP, Eddie Bauer)
as well as high end catalogs offer stiff competition in their often
times more effective display and service offerings
. IN EUROPE:
- Diesel has significantly increased their visibility and its
marketing support has outpaced the Company's growth
- VF's Lee brand is maintaining position while its Wrangler brand is
faltering. VF has intensified its marketing efforts in Germany
- House labels continue to register the greatest volume growth
. IN JAPAN:
- Competitors, including market share leader Edwin, continue to
compete on price to grow market share in response to the growing
number of value-oriented consumers
- --------------------------------------------------------------------------------
PROJECT 501 B - 12 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
LEVI STRAUSS OVERALL CONSIDERATIONS
- --------------------------------------------------------------------------------
POSITIVE CONSIDERATIONS
-----------------------
. SIZE AND SHARE: THE COMPANY IS THE WORLD'S LARGEST BRAND-NAME APPAREL
MANUFACTURER AND IS THE LARGEST SUPPLIER (OF ALL SUPPLIERS) TO MOST OF
ITS MAJOR RETAIL ACCOUNTS
. LARGE BASIC, FUNCTIONAL AND NON-FASHION DRIVEN MEN'S AND YOUTH MARKET
EXISTS IN THE COMPANY'S LARGEST CUSTOMER BASE
. DIVERSITY AND QUALITY OF EARNINGS WITH A LARGE AND SUCCESSFUL
INTERNATIONAL BUSINESS
. TREND IN MAJOR RETAIL ACCOUNTS TO CARRY ONLY TOP PERFORMING NATIONAL
BRANDS
. CONTINUING INVESTMENT IN RETAIL AND POINT OF SALE MARKETING PROGRAMS AND
SHOP CONCEPTS AND IN CONSUMER ADVERTISING AND MARKETING
. SUCCESSFUL DEVELOPMENT, IMPLEMENTATION AND EXECUTION OF THE CUSTOMER
SERVICE INITIATIVES CREATING EFFECTIVE BUSINESS PARTNERSHIPS AND BARRIERS
TO ENTRY
. INCREASING ACCEPTANCE OF CASUAL DRESS IN THE WORKPLACE
- --------------------------------------------------------------------------------
PROJECT 501 B - 13 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
LEVI STRAUSS OVERALL CONSIDERATIONS
- --------------------------------------------------------------------------------
NEGATIVE CONSIDERATIONS
-----------------------
. INCREASED PREVALENCE OF PRICE AND VALUE CONSCIOUS CONSUMERS
. APPAREL PRICE DEFLATION TRENDS AND INCREASING PRICE COMPETITION
. CONSOLIDATION OF MAJOR RETAILERS
. INCREASED PENETRATION, ACCEPTANCE AND SUCCESS OF LOWER-PRICED HOUSE
BRANDS
. FASHION ELEMENT OF INTERNATIONAL AND WOMEN'S BUSINESS
. IN INTERNATIONAL MARKETS, THE COMPANY HAS ALREADY CAPTURED SIGNIFICANT
VOLUME AND EARNINGS GROWTH IN THOSE COUNTRIES WHOSE SOCIAL AND ECONOMIC
DEMOGRAPHICS ARE FAVORABLE TO THE COMPANY'S BUSINESS. DEVELOPMENT OF NEW
MARKETS, MANY OF WHICH ARE THIRD WORLD COUNTRIES WITH LIMITED DISPOSABLE
INCOME, WILL REQUIRE SIGNIFICANT INVESTMENT AND GENERALLY OFFER FEWER
OPPORTUNITIES TO RECEIVE PREMIUM PRICES
. VOLATILITY OF WOMEN'S MARKET
. THE INCREASING IMPORTANCE OF MASS MARKET RETAILERS (I.E. WAL-MART,
TARGET)
. RISKS (I.E. EXCHANGE, SOCIOECONOMIC AND POLITICAL INSTABILITY)
ASSOCIATED WITH INTERNATIONAL OPERATIONS
. CONTINUED DIVERSION AND COUNTERFEITING OF PRODUCTS
. LOSS OF CONTROL OF BRAND AND BUSINESS AS A RESULT OF A BORDERLESS WORLD
(I.E. ELECTRONIC SHOPPING, GLOBAL RETAILING, CROSS BORDER SHOPPING)
. UPWARD TREND IN OPERATING EXPENSES
. VALUES BASED APPROACH POTENTIALLY RESULTING IN SUBOPTIMIZATION OF
PROFITS
- --------------------------------------------------------------------------------
PROJECT 501 B - 14 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
RECENT DEVELOPMENTS
- --------------------------------------------------------------------------------
DATE EVENT
-------- --------------------------------------------------------
11/17/95 Named Walter J. Haas to Board of Directors
10/11/95 3rd Quarter net income jumps 34% on record sales
10/05/95 Acquires Custom Clothing Technology
7/12/95 Rising denim prices may cut profits
5/31/95 Levi jeans to be sold in India
4/13/95 1st Quarter net income rises 25% on 12% sales growth
3/22/95 Levi to spend $850MM to reorganize U.S. operations
2/23/95 4th Quarter net rises 38% on sales growth of 11%
1/27/95 Levi and Designs, Inc. agree to operate
between 35 and 50 Levi's stores together
- --------------------------------------------------------------------------------
PROJECT 501 B - 15 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
BUDGETING PROCESS
- --------------------------------------------------------------------------------
. THE COMPANY HAS ADOPTED A "BOTTOMS-UP" APPROACH TO PREPARING THE ANNUAL
BUSINESS PLAN ("ABP")
- Individual business units prepare business plans that are
consolidated in consultation with senior management of the North
American and International businesses and corporate
. MANAGEMENT PRESENTS THE UPCOMING FISCAL YEARS ABP TO THE BOARD GENERALLY
IN NOVEMBER OF THE CURRENT FISCAL YEAR
. MANAGEMENT, UNLIKE YEARS PAST, PRODUCED A PRELIMINARY AND FINAL ABP FOR
THE BOARD IN 1996
- Senior management requested further review of key operating expense
aspects of the ABP. Volume, pricing and gross margin assumptions
did not change materially from the preliminary ABP to the final ABP
. ALTHOUGH MANAGEMENT HAS PERFORMED WITHIN 5% OF ITS UNIT VOLUME PLAN, IT
HAS CONSISTENTLY PERFORMED WELL ABOVE ITS MANAGEMENT EARNINGS PLAN
- Numerous serendipitous events (i.e. workers compensation credits,
favorable exchange movements) have contributed to much of the
variance
- Incentive compensation has now been decoupled from the management
earnings plan
- --------------------------------------------------------------------------------
PROJECT 501 B - 16 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
NET INCOME/(a)/ BUDGET VARIANCE ANALYSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGEMENT MORGAN STANLEY /(b)/
----------------------------- ----------------------------------
ACTUAL BUDGET VARIANCE VARIANCE % BUDGET VARIANCE VARIANCE %
------ ------ -------- ---------- ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1990 $251 $140 $112 80.1% NA NA NA
1991 357 209 148 70.8% NA NA NA
1992 /(c)/ 361 309 52 16.7% $312/(d)/ $ 49 15.7%
1993 493 399 94 23.6% 399 94 23.6%
1994 /(e)(f)/ 558 327 231 70.6% 439 119 27.1%
1995 /(e)(f)/ 735 412 323 78.4% 562 173 30.8%
---- ---- ---- ---- ----
Average $160 68.0% $109 24.3%
==== ====
</TABLE>
- ---------------
/(a)/ Before changes in accounting principles and preferred dividends
/(b)/ November common stock valuations
/(c)/ Including stock option charges; excluding these charges budget
variance would have been $168 million or 55%
/(d)/ For valuation purposes Morgan Stanley used $330 million; 75% of $23.6
million of acquisition expense was added back
/(e)/ Morgan Stanley qualified CSSC expenses as non-recurring and excluded CSSC
budgeted expenses for valuation purposes, including these expenses for
the purposes of budgeting net income would have resulted in a $290MM
(65%) and a $207MM (59%) variance for 1995 and 1994, respectively
/(f)/ Morgan Stanley added $33.0 million and $24.0 million in potential after-
tax upside to the management plan for 1995 and 1994, respectively. No
upside was added for 1992 and 1993
- --------------------------------------------------------------------------------
PROJECT 501 B - 17 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
NET INCOME BUDGET VARIANCE ANALYSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1993 1994 1995
----- ------ -----
<S> <C> <C> <C>
Plan Net Income $ 399 $ 327 $ 412
Variances:
- Exchange (1) 42 22
- Volume 106 10 88
- Price/Cost Mix 33 80 74
- Variances from Standard Cost 35 52 28
- Inventory Adjustments/Markdowns (13) (1) 0
- Operating Expense (38) (2) (91)
- Workers Compensation - 86 103
- CSSC/CSI - 126 119
- Other Income/Expense (2) 17 14
----- ------ -----
Subtotal Operating Companies (LSNA/LSI) Variance $ 120 $ 410 $ 357
- Corporate Expense (4) (47) (26)
- Net Interest Expense 26 8 19
- Management Compensation Change - (16) -
- Other Operations 2 3 (2)
- Taxes (50) (127) (125)
- Tax Settlements/(a)/ - - 100
----- ------ -----
Subtotal Corporate ($26) ($179) ($34)
----- ------ -----
Total Variance $ 94 $ 231 $ 323
===== ====== =====
Actual Net Income /(b)/ $ 493 $ 558 $ 735
Actual Variance (3 year average = 57.4%) 23.6% 70.6% 78.4%
</TABLE>
- ---------------
/(a)/ 1994 settlement regarding US/Belgium royalty rates
/(b)/ Before changes in accounting principles and preferred dividends
- --------------------------------------------------------------------------------
PROJECT 501 B - 18 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
NET INCOME/(a)/ BUDGET VARIANCE ANALYSIS (CONT'D)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Total Net Income Variance $ 94 $ 231 $ 323
Non-Recurring Items, Discretionary
Programs and Uncontrollable Events:
(After-tax)/(a)/
- Workers Compensation - (54) (65)
- Management Compensation Change - 10 -
- Tax Settlements - - (100)
- CSSC/CSI - (79) (75)
- Exchange 1 (26) (14)
----- ----- -----
Sub-total 1 (150) (254)
Adjusted Variance $ 95 $ 81 $ 69
===== ===== =====
Adjusted Variance % (3 year average = 21.8%) 23.7% 24.8% 16.8%
</TABLE>
- ---------------
/(a)/ LSNA tax rate assumed to equal 37.0%; LSI 41.0%
- --------------------------------------------------------------------------------
PROJECT 501 B - 1 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
1996E EARNINGS ESTIMATE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996E
-------------------------------------
1995 HIGH MORGAN STANLEY LOW
-------- -------- -------------- ---------
<S> <C> <C> <C> <C>
EBITDA $1,111.3 $ 969.2 $ 969.2 $ 969.2
CSSC/(a)/ 47.5 88.0 65.0 88.0
Workers' Comp. (103.0)
-------- -------- -------- --------
$1,055.8 $1,057.2 $1,034.2 $1,057.2
Upside 125.0 125.0 50.0
-------- -------- -------- --------
$1,055.8 $1,182.2 $1,159.2 $1,107.2
======== ======== ======== ========
NET INCOME $ 734.7 $ 559.1 $ 559.1 $ 559.1
CSSC/(b)/ 29.9 55.4 39.2 55.4
Workers' Comp./(b)/ (64.9) -- -- --
Tax Settlement (100.0) -- -- --
-------- -------- -------- --------
$ 599.8 $ 614.5 $ 598.3 $ 614.5
Upside 76.2 75.3 30.1
-------- -------- -------- --------
$ 599.8 $ 690.7 $ 673.5 $ 644.6
======== ======== ======== ========
</TABLE>
- ---------------
/(a)/ Two-thirds of CSSC transition expenses (1995 = $71.6, 1996E = $132.0)
are classified as non-recurring for valuation purposes.
/(b)/ LSNA tax rate assumed to be 37%; LSI tax rate assumed to be 41%
- --------------------------------------------------------------------------------
PROJECT 501 B - 20 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
1996E POTENTIAL UPSIDE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXPLANATION HIGH MORGAN STANLEY LOW
----------------------------- ---- -------------- ---
<S> <C> <C> <C>
POTENTIAL PRETAX UPSIDE
-----------------------
LSNA:
- Higher volume $ 10 $ 25 $ 5
- Lower operating expenses 10 20 5
---- ---- ---
$ 20 $ 45 $10
LSI:
- Higher volume $ 15 $ 30 $10
- Lower operating expenses 50 50 25
---- ---- ---
$ 65 $ 80 $35
CSI $ 10 -- --
Other Programs 10 -- --
Workers Compensation 20 -- --
---- ---- ---
$ 40 $ 0 $ 5
---- ---- ---
Total $125 $125 $50
==== ==== ===
</TABLE>
- --------------------------------------------------------------------------------
PROJECT 501 B - 21 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
1996E POTENTIAL UPSIDE
- --------------------------------------------------------------------------------
. We believe that the range of pre-tax potential upside ($50 million case
and $125 million case) incorporated in our 1996 earnings estimate is an
reflection of our near term view of the Company's prospects
. Management emphasized that the Annual Business Plan submitted to the
Board of Directors is achievable but not conservative
- Certain members of management expressed a view that the plan was
aggressive and would be a difficult challenge to achieve and
indicated that there is some downside risk to the plan (i.e. growth
in the U.S. Levi's Brand)
- Incentive compensation has been decoupled from the business plan
. Excluding uncontrollable and non-recurring events and programs (workers
compensation, tax credits, etc.) the adjusted historical budget variance
is significantly lower than actual variance and has improved over the
last three years
. Although results are preliminary, management has indicated that the U.S.
Women's jeans and U.S Dockers businesses are not performing as well as
had been anticipated in the business plan
. Operating expense reductions from the plan in both domestic and
international markets will be a challenge to management as the Company
invests in new markets and new businesses, repositions products, and
defends its existing business from competitors
- --------------------------------------------------------------------------------
PROJECT 501 B - 22 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
MARGIN ANALYSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTUAL MODIFIED 1996 MODIFIED PLAN
------------------ ------------- --------------------------------
1992 1993 1994 1995/(a)/ HIGH LOW 1997 1998 1999 2000 2001
---- ---- ---- -------- ---- --- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GROSS PROFIT MARGIN
Levi Strauss 38.4% 38.3% 38.8% 39.9% 39.4% 39.4% 39.5% 39.4% 39.5% 39.6% 39.6%
V.F. Corp. 31.9% 31.1% 31.9% 31.5% -- -- -- -- -- -- --
Nike 39.3% 39.3% 39.8% 39.8% -- -- -- -- -- -- --
Gap 33.9% 35.6% 36.9% 35.2% -- -- -- -- -- -- --
EBITDA MARGIN
Levi Strauss/(b)/ 16.5% 16.8% 16.4% 15.7% 15.8% 15.0% 15.7% 16.1% 17.3% 18.2% 18.6%
V.F. Corp. 14.1% 12.9% 14.0% 13.5% -- -- -- -- -- -- --
Nike 17.3% 14.9% 15.7% 16.7% -- -- -- -- -- -- --
Gap 15.5% 17.2% 18.4% 17.2% -- -- -- -- -- -- --
EBIT MARGIN
Levi Strauss/(b)/ 14.8% 14.9% 14.5% 14.0% 14.8% 14.0% 14.7% 15.0% 16.2% 17.1% 17.5%
V.F. Corp. 11.2% 10.0% 10.8% 10.2% -- -- -- -- -- -- --
Nike 15.4% 13.0% 13.9% 14.9% -- -- -- -- -- -- --
Gap 11.6% 12.9% 13.9% 12.5% -- -- -- -- -- -- --
</TABLE>
- ---------------
/(a)/ LTM for V.F. Corp, Nike and Gap
/(b)/ Adjusted for non-recurring items
- --------------------------------------------------------------------------------
PROJECT 501 B - 23 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
INCOME STATEMENT RECONCILIATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 27,
-----------------------------------
1992 1993 1994 1995
------ ------ -------- --------
<S> <C> <C> <C> <C>
Management Earnings/(a)/ $875.5 $916.7 $1,038.1 $1,030.3
Unallocated Corporate Expense 28.8 39.6 70.9 16.8
Minority Interest 4.4 5.2 3.8 2.4
Acquisition Expense 24.1 23.3 21.2 17.3
Net Interest Expense (Income) 26.2 17.3 (4.9) (41.0)
Stock Option Charge 158.0 0.0 16.2 0
------ ------ -------- --------
Pretax Income $634.1 $831.3 $ 930.8 $1,034.8
Taxes 271.7 338.9 373.4 300.1
------ ------ -------- --------
Net Income before Extraordinary Item $362.4 $492.4 $ 557.5 $ 734.7
====== ====== ======== ========
</TABLE>
- ---------------
/(a)/ After allocated corporate expenses
- --------------------------------------------------------------------------------
PROJECT 501 B - 24 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
INCOME STATEMENT (GAAP)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 27,
(Dollars in millions, -----------------------------------------
except per share data) 1992 1993 1994 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $5,570.3 $5,892.5 $6,074.3 $6,707.6
Cost of Goods 3,431.5 3,638.2 3,632.4 3,930.1
-------- -------- -------- --------
Gross Profit 2,138.8 2,254.3 2,441.9 2,777.5
S,G&A 1,309.4 1,394.2 1,493.2 1,809.6
Other operating expense 152.1 8.4 (20.4) (19.4)
-------- -------- -------- --------
Operating Income 677.4 851.7 969.1 987.2
Interest expense 53.3 37.1 19.8 15.7
Other expense (7.5) (16.7) 18.4 (63.3)
-------- -------- -------- --------
Pretax Income 631.6 831.3 930.9 1,034.8
Income taxes 270.7 338.9 373.4 300.1
-------- -------- -------- --------
Net Income $ 360.8 $ 492.4 $ 557.5 $ 734.7
======== ======== ======== ========
Gross Margin 38.4% 38.3% 40.2% 41.4%
Operating Margin 12.2 14.5 16.0 14.7
Net Income Margin 6.5 8.4 9.2 11.0
Effective Tax Rate 42.9 40.8 40.1 29.0
</TABLE>
- --------------------------------------------------------------------------------
PROJECT 501 B - 25 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
BALANCE SHEET (GAAP)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in millions)
AS OF NOVEMBER 27,
------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 252.7 $ 813.3 $1,088.0
Receivables 858.1 908.7 969.8
Inventory 791.8 782.8 879.1
Other current assets 187.8 161.2 134.2
-------- -------- --------
Total Current Assets 2,090.4 2,665.9 3,071.2
Plant, property and equipment, net 594.6 669.6 906.8
Other assets 423.6 589.8 731.2
-------- -------- --------
Total Assets $3,108.7 $3,925.3 $4,709.2
======== ======== ========
Current Liabilities
Current maturities of long term $ 42.7 $ 26.0 $ 0.4
debt
Short-term borrowings 10.1 23.7 21.3
Other current assets 1,020.5 1,048.7 1,375.8
-------- -------- --------
Total Current Liabilities 1,073.3 1,098.4 1,397.5
Long term debt and capital lease 93.1 16.7 16.4
Other long term liabilities 627.8 1,113.5 899.8
Minority interest 30.0 36.8 33.6
ESOP Common stock 33.5 188.2 246.6
Total stockholders equity 1,251.0 1,471.6 2,115.3
-------- -------- --------
Total Liabilities and Equity $3,108.7 $3,925.3 $4,709.2
======== ======== ========
Working Capital $ 817.3 $ 803.9 $ 607.3
Total Debt/Capitalization 11.4% 4.0% 1.6%
</TABLE>
- --------------------------------------------------------------------------------
PROJECT 501 B - 26 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
DESCRIPTION OF COMMON STOCK
- --------------------------------------------------------------------------------
. The Company's authorized capital stock consists of 270 million authorized
shares of all classes
. As of October 17, 1995 there were 52,847,356 million common shares and
404,750 options issued and outstanding, representing 19.7% of the total
authorized shares
. The common shares are divided into two classes:
- CLASS L COMMON: 170 million shares authorized, par value of $0.10
---------------
per share, with 51,351,150 shares issued and outstanding as of
October 17, 1995
- CLASS E COMMON: 100 million shares authorized, par value of $0.10
---------------
per share, with 1,496,198 shares issued and outstanding as of
October 17, 1995
- --------------------------------------------------------------------------------
PROJECT 501 B - 27 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
PRINCIPAL SHAREHOLDERS/(a)/
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES HELD % OF TOTAL % OF TOTAL CLASS L
HOLDER AS OF 10/17/95 OUTSTANDING SHARES OUTSTANDING
- ------------------------------------- -------------- ----------- ------------------
<S> <C> <C> <C>
TRUSTEES:
Peter E. Haas, Sr. 8,813,226 16.6% 17.2%
Peter E. Haas, Jr. 4,466,391 8.4 8.7
Robert D. Haas 4,185,199 7.9 8.2
Hellman & Friedman 1,081,442 2.0 2.1
----------
TOTAL TRUSTEES 18,546,258 34.8% 36.1%
Miriam Haas 3,000,200 5.6% 5.8%
----------
TOTAL TRANSACTION SPONSORS 21,546,458 40.5% 42.0%
Other Haas Family Members 11,520,695 21.6% 22.4%
Rhoda H. Goldman Family 6,613,964 12.4 12.9
Frances K. Geballe Family 4,390,580 8.2 8.6
Daniel E. Koshland Family 3,006,896 5.6 5.9
Phyllis K. Friedman Family 1,851,263 3.5 3.6
Madeleine Haas Russell Family 1,330,000 2.5 2.6
Management 650,989 1.2 1.3
Others 440,313 0.8 0.9
----------
TOTAL FAMILY STOCK OWNERSHIP 51,351,158 96.4% 100.0%
Class E Shareholders 1,496,198 2.8%
Vested Options 404,750 0.8
----------
TOTAL SHAREHOLDERS 53,252,106 100.0%
</TABLE>
- ---------------
/(a)/ See Exhibit 7: Holders of less than 10,000 shares as of 12/13/95
- --------------------------------------------------------------------------------
PROJECT 501 B - 28 DILLON, READ & CO. INC.
<PAGE>
LEVI STRAUSS VALUATION INDICATORS
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
VALUATION APPROACH
- --------------------------------------------------------------------------------
VALUATION APPROACH PROXY
- ------------------------------- --------------------------------------------
. COMPARABLE TRADING ANALYSIS - Trading multiples of comparable
retail/apparel companies
- Correlation of trading multiples to ROA and
growth for retail/apparel comparables
- All operating statistics adjusted for
non-recurring items
. COMPARABLE MERGER ANALYSIS - Multiples paid for acquisitions in the
apparel industry
- EBITDA multiples paid in transactions over
$2.5 billion
. DISCOUNTED CASH FLOW ANALYSIS - Based on 1996 - 2005 projections of cash
flows, both management and modified
. LEVERAGED BUY OUT ANALYSIS - Based on 1996 - 2005 modified projections
. PREMIUM ANALYSIS - Premiums paid in comparable minority "close
out" transactions
- Premiums paid in transactions over $1
billion
- --------------------------------------------------------------------------------
PROJECT 501 C - 1 DILLON, READ & CO. INC.
<PAGE>
COMPARABLE TRADING ANALYSIS
COMPARABLE MERGER ANALYSIS
DISCOUNTED CASH FLOW ANALYSIS
LEVERAGED BUYOUT ANALYSIS
PREMIUM ANALYSIS
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
COMPARABLE COMPANIES -- OBSERVATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
CAPITALIZATION
BRIEF DESCRIPTION ($ IN BILLIONS)
<S> <C> <C> <C>
MAIN GROUP: V.F. Corp. Global apparel company which produces $3.2
jeans, knitwear, sportswear, intimate
apparel, children's apparel and specialty
apparel under approximately 25 brand names
Nike One of the largest suppliers of athletic 9.7
footwear and athletic apparel
Gap Specialty apparel retailer which operates 6.9
The Gap Stores, Banana Republic and
Old Navy Clothing Co.
Russell Vertically integrated manufacturer and 1.1
marketer of leisure apparel, athletic
uniforms and woven fabrics
Liz Claiborne Designs and markets men's and women's 2.3
apparel that is made by independent
suppliers and sold internationally through
department stores and specialty stores
Fruit of the Loom Leading international basic apparel maker 1.9
emphasizing value-priced branded products
OTHER APPAREL Tommy Hilfiger Designs, sources and markets men's 1.3
COMPANIES: sportswear and boyswear under the Tommy
Hilfiger trademark
Philips Van Heusen Produces a broad range of well known brand 0.3
name apparel and shoes, some of which it
sells through its own 872 outlets
Nautica Enterprises Designs, sources and markets men's apparel 0.8
through two wholly owned subsidiaries,
Nautica, Inc. and State-o-Maine, Inc.
Warnaco Produces women's intimate apparel and 1.2
menswear for sale under various brand
names
OTHER Coke Manufactures, markets and distributes 94.3
BRANDED soft drinks, soft-drink syrups and
COMPANIES: concentrates worldwide
Pepsi Operates on a worldwide basis in the soft 46.9
drink, snack food and restaurant business
segments
McDonalds Develops, operates, franchises and 34.8
services a worldwide system of restaurants
</TABLE>
- --------------------------------------------------------------------------------
PROJECT 501 C - 3 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
COMPARABILITY ISSUES
<TABLE>
<CAPTION>
. Again, in our view, Project 501 is most comparable to the following:
- ------------------------------------------------------------------------------------------------------------------------------
5-YR
BRAND FASHION DISTRIBUTION INTERNATIONAL SIZE FINANCIAL PROJECTED EQUITY
RECOGNITION RISK PRODUCTS CHANNEL BREADTH (REVENUES) CONDITION GROWTH BETA
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
VF CORP. Strong -- Branded Comparable Medium Large Poor 10.0% 1.25
(Lee and jeans ($5,680.9)
Wrangler)
- ------------------------------------------------------------------------------------------------------------------------------
NIKE Excellent High Footwear Different Large Large (check) 14.7% 1.40
($5,205.1)
- ------------------------------------------------------------------------------------------------------------------------------
GAP Strong (check) Similar Retail risk Limited Medium (check) 15.3% 1.50
($4,082.9)
- ------------------------------------------------------------------------------------------------------------------------------
LIZ CLAIBORNE Excellent High Women's Similar Small Medium Poor 11.6% 1.05
($2,099.2)
- ------------------------------------------------------------------------------------------------------------------------------
RUSSELL Medium -- Activewear N.A. Small Small Poor 11.4% 1.35
($1,156.4)
- ------------------------------------------------------------------------------------------------------------------------------
FRUIT OF THE LOOM Strong -- Casual Discount/ Small-growing Medium Poor 12.3% 1.25
sports Mass ($2,478.3)
T-shirts Merchant
- ------------------------------------------------------------------------------------------------------------------------------
LEVI STRAUSS Excellent -- Branded -- Large Large (check) 11.3% NA
jeans/pants ($6,707.6)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------------------------------------------------
PROJECT 501 C - 4 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- -----------------------------------------------------------------------
COMPARABILITY ISSUES (CONT.)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
5-YR
BRAND FASHION DISTRIBUTION INTERNATIONAL SIZE FINANCIAL PROJECTED EQUITY
RECOGNITION RISK PRODUCTS CHANNEL BREADTH (REVENUES) CONDITION GROWTH BETA
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TOMMY HILFIGER Strong High Men's Same Limited Small Good 24.2% 1.30
Sportswear ($399.4)
- ------------------------------------------------------------------------------------------------------------------------------
WARNACO Strong Yes Women's Same Some Small OK 19.2% 1.60
apparel ($878.0)
- ------------------------------------------------------------------------------------------------------------------------------
NAUTICA Good High Men's Same None Small Good 20.0% 1.25
apparel ($285.6)
- ------------------------------------------------------------------------------------------------------------------------------
PHILIPS VAN HEUSEN Good Somewhat Men's Same Limited Medium Weak 9.9% 1.25
apparel & ($1,433.9)
footwear
- ------------------------------------------------------------------------------------------------------------------------------
LEVI STRAUSS Excellent -- Branded -- Large Large (check) 11.3% NA
jeans/pants ($6,707.6)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
PROJECT 501 C - 5 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
OTHER BRANDED COMPANIES
- --------------------------------------------------------------------------------
. In our view, based on the fundamentals, the consumer brand companies listed
below (not in the apparel industry) are not comparable
- Differing market and product dynamics, competitive positions, financial
conditions, size, growth rates and margins
- Consumer durables vs. consumables; differing competitive characteristics;
higher growth dynamics; different cyclicality and volatility
- Wall Street research analysts would characterize as apparel company
<TABLE>
<CAPTION>
5 YEAR VALUATION
REVENUE ESTIMATED ----------------------
SALES GROWTH I/B/E/S EBIT EBITDA 1996
($MM) (5 YEAR) GROWTH RATE MARGIN MULTIPLE P/E
<S> <C> <C> <C> <C> <C> <C>
Coke $17,702.0 13.4% 17.5% 23.1% 21.3x 26.8
Pepsi 30,292.2 13.6% 13.8% 11.3% 10.7 21.1
McDonalds 9,479.1 6.5% 14.0% 25.9% 12.6 22.2
Disney 12,112.1 17.0% 18.0% 18.7% 8.3 22.5
Gillette 6,606.0 9.7% 16.0% 20.1% 16.4 25.6
Proctor & Gamble 34,284.0 6.8% 12.5% 12.7% 11.3 18.2
- -------------------------------------------------------------------------------------------------
LEVI STRAUSS 6,707.6 9.6% 11.3%/(1)/ 14.7% NA NA
- -------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ Management projections 1996 - 2001 pro-forma for CSSC expenses;
modified projections were 12.5% for modified low case and 14.7% for
modified high case (15.2% for 1995 - 2000)
- --------------------------------------------------------------------------------
PROJECT 501 C - 6 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
SIZE
LTM SALES
[THE TABLE BELOW WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Sales
<S> <C>
Levi Strauss $6,707.6
Nike $5,594.4
V.F. Corp $5,080.9
Gap $4,082.9
Fruit of the Loom $2,478.3
Liz Claiborne $2,099.2
Phillips Van Heusen $1,433.9
Russell $1,156.4
Warnaco $ 878.0
Tommy Hilfiger $ 399.4
Nautica Enterprises $ 285.6
</TABLE>
LTM NET ASSETS
[THE TABLE BELOW WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Net Assets
<S> <C>
V.F. Corp $2,790.1
Fruit of the Loom $2,711.4
Nike $2,452.7
Levi Strauss $1,345.5
Gap $1,064.9
Russell $ 970.2
Warnaco $ 799.8
Liz Claiborne $ 678.1
Phillips Van Heusen $ 604.4
Tommy Hilfiger $ 267.0
Nautica Enterprises $ 109.8
</TABLE>
- --------------------------------------------------------------------------------
PROJECT 501 C - 7 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
SALES GROWTH
5 YEAR NET REVENUES C.A.G.R./(a)/
1991-1995
[THE TABLE BELOW WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
5 yr Sales Growth
<S> <C>
Tommy Hilfiger 66.7%
Nautica Enterprises 23.5%
Gap 18.6%
Nike 16.3%
V.F. Corp 14.4%
Fruit of the Loom 11.7%
Phillips Van Heusen 11.4%
Russell 9.8%
Levi Strauss 9.6%
Liz Claiborne 8.9%
Warnaco 8.8%
</TABLE>
3 YEAR NET REVENUE C.A.G.R 1993-95/(a)/
[THE TABLE BELOW WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
3 yr Sales Growth
<S> <C>
Tommy Hilfiger 52.1%
Nautica Enterprises 28.1%
V.F. Corp 14.0%
Warnaco 12.3%
Gap 12.1%
Fruit of the Loom 11.3%
Russell 10.5%
Nike 10.1%
Phillips Van Heusen 6.4%
Levi Strauss 6.4%
Liz Claiborne -0.7%
</TABLE>
- -----------
/(a)/ C.A.G.R. is compounded annual growth rate
- --------------------------------------------------------------------------------
PROJECT 501 C - 8 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
EBIT MARGINS
3 YEAR AVERAGE EBIT MARGINS/(a)/
[THE TABLE BELOW WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
3yr-Avg EBIT margin
<S> <C>
Fruit of the Loom 18.4%
Tommy Hilfiger 18.1%
Levi Strauss 14.5%
Russell 14.5%
Nike 14.1%
Nautica Enterprises 13.5%
Warnaco 13.3%
Gap 12.8%
V.F. Corp 10.7%
Liz Claiborne 10.0%
Phillips Van Heusen 6.2%
</TABLE>
LTM EBIT MARGINS/(a)/
[THE TABLE BELOW WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
LTM EBIT Margin
<S> <C>
Tommy Hilfiger 18.2%
Nautica Enterprises 15.9%
Nike 14.9%
Levi Strauss 14.0%
Warnaco 13.7%
Gap 12.5%
Fruit of the Loom 11.3%
Russell 10.8%
V.F. Corp 10.2%
Liz Claiborne 7.7%
Phillips Van Heusen 3.5%
- -----------
/(a)/ Adjusted for non-recurring items
</TABLE>
- --------------------------------------------------------------------------------
PROJECT 501 C - 9 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
NET INCOME GROWTH
5 YEAR C.A.G.R./(a)/
[THE TABLE BELOW WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
5 Yr. Net Income CAGR
<S> <C>
Nautica Enterprises 28.1%
Gap 26.0%
Levi Strauss 17.8%
Nike 11.1%
V.F. Corp 8.7%
Phillips Van Heusen 5.7%
Russell 4.5%
Fruit of the Loom -6.6%
Liz Claiborne -10.7%
Tommy Hilfiger NM
Warnaco NM
</TABLE>
3 YEAR C.A.G.R./(a)/
[THE TABLE BELOW WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
3 Yr. Net Income CAGR
<S> <C>
Tommy Hilfiger 67.0%
Nautica Enterprises 51.2%
Gap 23.3%
Warnaco 15.3%
Levi Strauss 7.9%
V.F. Corp 7.6%
Nike 5.5%
Russell -1.9%
Phillips Van Heusen -7.6%
Liz Claiborne -31.8%
Fruit of the Loom -32.7%
</TABLE>
- ----------
/(a)/ Adjusted for non-recurring items
- --------------------------------------------------------------------------------
PROJECT 501 C - 10 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
PROSPECTIVE EPS GROWTH
5 YEAR PROJECTED EPS GROWTH RATE/(a)/
[THE TABLE BELOW WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Mean 5 yr. Zacks Investment Research Growth Rate
<S> <C>
Tommy Hilfiger 24.2%
Nautica Enterprises 20.0%
Warnaco 19.2%
Gap 15.3%
Nike 14.7%
Fruit of the Loom 12.3%
Liz Claiborne 11.6%
Russell 11.4%
Levi Strauss 11.3%/(a)/
V.F. Corp 10.0%
Phillips Van Heusen 9.9%
</TABLE>
- ----------
/(a)/ Management projections 1996 - 2001 pro forma for CSSC expenses; 9.9% if
1995 - 2000.
- --------------------------------------------------------------------------------
PROJECT 501 C - 11 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
ROA/(A)/
LTM
[THE TABLE BELOW WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
LTM ROA
<S> <C>
Gap 32.7%
Tommy Hilfiger 30.9%
Nike 28.5%
Nautica Enterprises 26.7%
Levi Strauss 24.5%
V.F. Corp 19.4%
Russell 17.4%
Fruit of the Loom 17.0%
Warnaco 16.1%
Liz Claiborne 15.5%
Phillips Van Heusen 11.2%
</TABLE>
- ----------
/(A)/ EBITDA/Average Total Assets adjusted for non-recurring items
- --------------------------------------------------------------------------------
PROJECT 501 C - 12 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
COMPARISON OF CURRENT FINANCIAL STATISTICS
- --------------------------------------------------------------------------------
($ in millions)
<TABLE>
<CAPTION>
MAIN COMPANIES
-----------------------------------------------------------------------
LIZ FRUIT OF
AVERAGE V. F. CORP. NIKE GAP RUSSELL CLAIBORNE THE LOOM
------- ----------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT PRICE DATA
Closing Price on 2/2/96 $ 50.000 $ 67.875 $ 48.000 $ 27.500 $ 31.125 $ 24.625
52 Week High 57.125 71.375 51.000 31.000 31.500 27.750
52 Week Low 46.750 34.375 29.750 22.000 14.375 16.500
- ----------------------------------------------------------------------------------------------------------------------------
Closing Price as a % of 52 Week High 92.2% 87.5% 95.1% 94.1% 88.7% 98.8% 88.7%
- ----------------------------------------------------------------------------------------------------------------------------
Shares Outstanding (MM) 63.755 143.240 143.859 38.951 74.039 75.890
Market Value of Common Equity $3,187.7 $9,722.4 $6,905.2 $1,071.2 $2,304.5 $1,868.8
============= ========== ========== ========== =========== ==========
Book Value of Total Debt 997.1 459.5 17.8 343.9 1.1 1,514.4
Less Cash and Equivalents 64.1 204.8 440.5 3.7 310.4 14.4
------------- ---------- ---------- ---------- ----------- ----------
Net Debt $ 933.0 $ 254.7 ($422.8) $ 340.2 ($309.3) $1,500.0
Liquidation Value of Preferred 0.0 0.3 0.0 0.0 0.0 0.0
Book Value of Minority Interest 0.0 0.0 0.0 0.0 0.0 0.0
Market Value of Net Assets $4,120.7 $9,977.4 $6,482.5 $1,411.4 $1,995.2 $3,368.8
============= ========== ========== ========== =========== ==========
- ----------------------------------------------------------------------------------------------------------------------------
MARKET VALUE OF EQUITY TO:
Latest Twelve Months EPS 20.1x 11.9x 19.5x 21.7x 16.2x 21.2x 30.0x
- ----------------------------------------------------------------------------------------------------------------------------
CY 1995 Forecast EPS 20.0 12.5 20.7 20.5 21.0 19.6 25.9
CY 1996 Forecast EPS 15.3 11.4 17.1 17.7 14.5 17.3 14.1
- ----------------------------------------------------------------------------------------------------------------------------
Latest Twelve Months CFO 11.0 7.4 17.1 14.0 8.0 13.8 5.6
Book Value 2.7 1.7 4.4 4.6 1.7 2.3 1.5
- ----------------------------------------------------------------------------------------------------------------------------
MARKET VALUE OF NET ASSETS TO:
Latest Twelve Months Sales 1.3x 0.8x 1.8x 1.6x 1.2x 1.0x 1.4x
CY 1996 Sales 1.3 0.8 2.1 1.5 1.2 1.0 1.4
CY 1996 Sales 1.2 0.8 1.7 1.3 1.1 0.9 1.3
- ----------------------------------------------------------------------------------------------------------------------------
LTM EBITDA 8.2 6.0 10.7 9.3 7.3 10.0 6.1
- ----------------------------------------------------------------------------------------------------------------------------
CY 1995 Operating Cash Flow 8.8 6.1 13.2 NA 8.0 9.2 7.3
CY 1995 Operating Cash Flow 7.6 5.7 10.7 NA 6.6 8.1 6.9
LTM EBIT 11.4 7.9 12.0 12.7 11.3 12.3 12.0
CY 1995 Operating Income 11.7 8.0 14.5 NA 13.1 11.2 11.7
CY 1995 Operating Income 9.9 7.5 11.7 NA 9.8 9.8 10.8
LTM Book Net Assets 2.9 1.5 4.1 6.1 1.5 2.9 1.2
</TABLE>
- --------------------------------------------------------------------------------
PROJECT 501 C - 13 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
COMPARISON OF CURRENT FINANCIAL STATISTICS
- --------------------------------------------------------------------------------
($ in millions)
<TABLE>
<CAPTION>
GROWTH COMPANIES
------------------------------------------------
TOMMY PHILLIPS NAUTICA WARNACO
AVERAGE HILFIGER VAN HEUSEN ENTERPRISES GROUP, INC.
------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CURRENT PRICE DATA
Closing Price on 2/2/96 $ 37.500 $10.500 $39.750 $ 23.500
52 Week High 47.375 18.000 45.500 26.875
52 Week Low 18.500 9.125 16.333 14.875
- -----------------------------------------------------------------------------------------------------
Closing Price as a % of 52 Week High 78.1% 79.2% 58.3% 87.4% 87.4%
- -----------------------------------------------------------------------------------------------------
Market Value of Common Equity $1,335.9 $ 281.3 $ 790.4 $1,216.7
-------- ------- ------- --------
Net Debt & Preferred Stock $ 26.2 $ 335.8 ($54.0) $ 293.9
Market Value of Net Assets $1,362.0 $ 617.1 $ 736.5 $1,510.6
MARKET VALUE OF EQUITY TO:
Latest Actual EPS 20.8x 27.2x 11.4x 28.2x 16.4x
FY 1995 Forecast EPS 21.3 24.5 15.2 26.9 18.8
FY 1996 Forecast EPS 17.6 20.2 13.0 22.2 15.2
- -----------------------------------------------------------------------------------------------------
CY 1995 Forecast EPS 18.1 21.1 13.1 22.9 15.4
CY 1996 Forecast EPS 15.2 17.1 11.6 19.0 12.8
- -----------------------------------------------------------------------------------------------------
Book Value 3.5 5.5 1.0 4.8 2.4
- -----------------------------------------------------------------------------------------------------
UNLEVERED VALUE OF NET ASSETS TO:
Latest Twelve Months Sales 2.0 3.4x 0.4x 2.6x 1.7x
- -----------------------------------------------------------------------------------------------------
LTM EBITDA 12.4 16.1 7.7 15.0 10.9
- -----------------------------------------------------------------------------------------------------
LTM EBIT 14.9 18.7 12.2 16.3 12.6
LTM Book Net Assets 3.7 5.1 1.0 6.7 1.9
</TABLE>
- --------------------------------------------------------------------------------
PROJECT 501 C - 14 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
STOCK PRICE PERFORMANCE OF COMPARABLE COMPANIES/(1)/
- --------------------------------------------------------------------------------
[THE TABLE BELOW WAS REPRESENTED AS A LINE GRAPH IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
GAP Nike V.F. Corp Levi Strauss S&P 400
<S> <C> <C> <C> <C> <C>
1/1/91 100.00% 100.00% 100.00% 100.00% 100.00%
3/12/91 124.10% 129.50% 135.40% * 113.50%
5/21/91 102.80% 96.90% 149.70% * 115.50%
7/30/91 94.60% 103.70% 160.50% * 119.00%
10/8/91 70.30% 123.30% 184.40% * 116.10%
12/17/91 61.20% 160.60% 205.40% * 116.70%
2/25/92 71.40% 173.00% 236.10% * 126.00%
5/5/92 73.90% 158.70% 250.30% * 127.50%
7/14/92 62.00% 168.30% 238.10% * 126.50%
9/22/92 58.90% 187.60% 268.70% * 127.20%
12/1/92 63.50% 210.90% 310.90% * 130.50%
2/9/93 53.80% 202.50% 302.70% * 132.70%
4/20/93 65.20% 178.30% 261.20% * 130.60%
6/29/93 73.70% 136.60% 251.70% * 133.00%
9/7/93 64.30% 127.30% 225.90% * 133.60%
11/16/93 64.60% 125.20% 230.60% * 139.50%
1/25/94 56.10% 126.70% 250.30% * 141.70%
4/5/94 56.40% 131.70% 268.70% * 135.50%
6/14/94 54.70% 148.80% 265.30% * 138.50%
8/23/94 46.70% 162.10% 272.10% * 140.40%
11/1/94 59.80% 149.70% 278.90% 319.00% 143.80%
1/10/95 44.80% 178.90% 258.50% * 141.70%
3/21/95 49.90% 183.20% 272.10% * 152.40%
5/30/95 54.40% 193.80% 286.40% * 160.30%
8/8/95 63.20% 233.90% 309.50% * 172.10%
10/17/95 47.90% 272.40% 266.00% * 177.00%
12/22/95 54.10% 328.60% 283.00% 450.0% 185.40%
</TABLE>
- ----------
/(1)/ Public value estimate by Morgan Stanley
* Levi Stauss' stock price determined on date of Morgan Stanley opinion
only. No opinion was given as of this date.
- --------------------------------------------------------------------------------
PROJECT 501 C - 15 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
ONE-YEAR FORWARD P/E RATIOS FOR COMPARABLE COMPANIES/(A)/
- --------------------------------------------------------------------------------
[THE TABLE BELOW WAS REPRESENTED AS A LINE GRAPH IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Nike GAP VF Corp Levi Strauss (b)
<S> <C> <C> <C> <C>
12/31/89 8.99 14.91 11.42 11.4
3/31/90 11.29 13.8 9.88 8.7
6/30/90 12.62 12.98 8.71
9/30/90 8.31 10.69 7.5
12/31/90 10.06 11.03 11.14 13.5
3/31/91 11.77 13.37 11.38
6/30/91 8.76 11.49 11.99 13.9
9/30/91 12.76 13.93 14.65
12/31/91 16.68 12.07 15.24 14.3
3/31/92 15.52 16.19 14.35
6/30/92 12.45 13.39 13.38 16
9/30/92 15.73 16.72 13.8
12/31/92 16.6 16.47 14.39 15.8
3/31/93 16.1 23.93 12.29
6/30/93 11.48 21.9 10.98 15.2
9/30/93 10.4 24.31 11.28
12/31/93 11.01 32.53 12.47 13.8
3/31/94 13.95 38.89 11.9
6/30/94 13.5 24.17 11.35 13.2
9/30/94 13.17 28.19 12.04
12/31/94 16.44 21.08 11.86 12.7
3/31/95 15 18.85 11.55
6/30/95 16.03 21.98 11.81 13.3
9/30/95 15.88 22.4 12.75 15
</TABLE>
- ----------
/(A)/ One year forward P/E ratios taken from IBES database (based on median EPS
estimates)
/(B)/ Based on public value estimate by Morgan Stanley
- --------------------------------------------------------------------------------
PROJECT 501 C - 16 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
CURRENT 1995E P/E MULTIPLES/(A)/
- --------------------------------------------------------------------------------
[THE TABLE BELOW WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
1995 P/E 1995 P/E
Fruit of the Loom 25.9x Nautica Enterprises 22.9x
Russell 21.0x Tommy Hilfiger 21.1x
Nike 20.7x Warnaco 15.4x
Gap 20.5x Phillips Van Heusen 13.1x
Liz Claiborne 19.6x
V.F. Corp 12.5x
Main Average = 20.0x Growth Average = 18.1x
<TABLE>
<CAPTION>
Fruit Phillips
of the Liz V.F. Tommy Nautica Van
Loom Nike Russell Gap Claiborne Corp Hilfiger Enterprises Warnaco Heusen
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995E - 96E 84.2% 21.0% 45.0% 16.2% 13.2% 10.0% 23.6% 20.1% 18.6% 10.4%
EPS Growth/(b)/
</TABLE>
- ----------
/(a)/ E.P.S. estimates based on I/B/E/S, based on 2/2/96 stock prices
/(b)/ Levi Strauss estimated at 15.1% based on adjusted projections
- --------------------------------------------------------------------------------
PROJECT 501 C - 17 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
CURRENT 1996E P/E MULTIPLES/(a)/
- --------------------------------------------------------------------------------
[THE TABLE BELOW WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
1995 P/E 1995 P/E
<S> <C> <C> <C>
Gap 17.7x Nautica 19.0x
Enterprises
Liz Claiborne 17.3x Tommy Hilfiger 17.1x
Nike 17.1x Warnaco 13.0x
Russell 14.5x Phillips Van 11.9x
Heusen
Fruit of the Loom 14.1x
V.F. Corp 11.4x
</TABLE>
Main Average = 15.3x Growth Average = 15.2x
- ----------
/(a)/ E.P.S. estimates based on I/B/E/S, based on 2/2/96 stock prices
- --------------------------------------------------------------------------------
PROJECT 501 C - 18 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
EBITDA TRADING MULTIPLES/(a)/
- --------------------------------------------------------------------------------
[THE TABLE BELOW WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Price-to-Book Price-to-Book
Multiple Multiple
<S> <C> <C> <C>
Nike 10.7x Tommy Hilfiger 16.1x
Liz Claiborne 10.0x Nautica 15.0x
Enterprises
Gap 9.3x Warnaco 10.9x
Russell 7.3x Phillips Van Heusen 7.7x
Fruit of the Loom 6.1x
V.F. Corp 6.0x
</TABLE>
Main Average = 8.2x Growth Average = 12.4x
- ----------
/(a)/ Based on 2/2/96 stock price and latest twelve months EBITDA
- --------------------------------------------------------------------------------
PROJECT 501 C - 19 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
PRICE-TO-EARNINGS MULTIPLES VS. PROJECTED 5-YEAR GROWTH
- --------------------------------------------------------------------------------
CORRELATION OF PROJECTED 5-YEAR GROWTH RATE/(a)/ TO PRICE-TO-EARNINGS MULTIPLE
[THE TABLE BELOW WAS REPRESENTED AS A SCATTERGRAM WITH A REGRESSION ANALYSIS IN
THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
1996E:P/E 5 yr growth
<S> <C> <C>
VFC 11.4 10%
NKE 17.1 14.7%
GPS 17.7 15.3%
RML 14.5 11.4%
LIZ 17.3 11.6%
FTL 14.1 12.3%
TOM 17.1 24.2%
PVH 11.6 9.9%
NAUT 19 20.0%
WAC 12.8 19.2%
Levi Strauss 14.9 11.3%/(b)/
</TABLE>
- ----------
/(a)/ Projections based on mean of forecasts submitted by analysts to Zacks
Investment Research as of 2/5/96
/(b)/ Implied 1996 P/E ratio derived through regression analysis of
comparable companies
- --------------------------------------------------------------------------------
PROJECT 501 C - 20 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
EBITDA MULTIPLE VS. RETURN ON ASSETS
[THE TABLE BELOW WAS REPRESENTED AS A SCATTERGRAM WITH A REGRESSION ANALYSIS IN
THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
EBITDA
Multiple ROA
<S> <C> <C>
VFC 6 19%
NKE 10.7 27%
GPS 9.3 33%
RML 7.3 17%
FTL 6.1 17%
Levi Strauss 8.3 24.5%/(a)/
</TABLE>
- ---------------
/(a)/ Implied EBITDA multiple ratio derived through regression analysis of
comparable companies
- --------------------------------------------------------------------------------
PROJECT 501 C - 21 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
ANALYSIS AT VARIOUS PRICES - TRADING
<TABLE>
<CAPTION>
LEVI STRAUSS TRADING PRICE
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 160 $ 170 $ 180 $ 190 $ 200 $ 210 $ 220
----- ----- ----- ----- ----- ----- ------
1995 NET INCOME:
- ----------------
$599.8 MM/(a)/ 14.2x 15.1x 16.0x 16.9x 17.8x 18.6x 19.5x
1996E NET INCOME:
- -----------------
Management - $559.1 MM/(b)/ 15.2x 16.2x 17.1x 18.1x 19.0x 20.0x 21.0x
Modified Low - 644.6 MM/(c)/ 13.2 14.0 14.9 15.7 16.5 17.3 18.2
Modified High - 690.7 MM/(c)/ 12.3 13.1 13.9 14.6 15.4 16.2 17.0
UNLEVERED MULTIPLES:
- --------------------
1995 EBITDA $1,055.8 MM 7.1 7.6 8.1 8.6 9.1 9.6 10.1
</TABLE>
- ----------
/(A)/ Adjusted for non-recurring CSSC transition expenses, workers'
compensation credits and tax settlement (for NI only)
/(B)/ Based on Management projections
/(C)/ Based on Management projections and Dillon Read assumptions
- --------------------------------------------------------------------------------
PROJECT 501 C - 22 DILLON, READ & CO. INC.
<PAGE>
COMPARABLE TRADING ANALYSIS
COMPARABLE MERGER ANALYSIS
DISCOUNTED CASH FLOW ANALYSIS
LEVERAGED BUYOUT ANALYSIS
PREMIUM ANALYSIS
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
COMPARISON OF ACQUISITIONS
- --------------------------------------------------------------------------------
APPROACH:
--------
. REVIEWED NUMEROUS MERGERS AND ACQUISITIONS OF APPAREL COMPANIES IN THE
UNITED STATES FROM 1985 TO THE PRESENT. SELECTED 11 COMPLETED
TRANSACTIONS THAT WERE REASONABLY COMPARABLE
. SUMMARIZED FINANCIAL RATIOS AND STATISTICS FOR THE TRANSACTIONS AND
REVIEWED MULTIPLES OF NET INCOME, MULTIPLES OF EBITDA AND MULTIPLES OF
EBIT
LIMITATIONS:
-----------
. PREVIOUS ACQUISITIONS GENERALLY OCCURRED IN DIFFERENT STOCK MARKET,
ECONOMIC ENVIRONMENTS AND APPAREL CYCLES
. DIFFICULT TO ACHIEVE "PURE" BUSINESS COMPARABILITY
. RELIANCE ON PUBLICLY AVAILABLE INFORMATION
- --------------------------------------------------------------------------------
PROJECT 501 C - 24 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
SELECTED APPAREL TRANSACTIONS
($ IN MILLIONS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OFFER FOR ASSETS TO: OFFER FOR EQUITY TO:
------------------- -------------------
ANNOUNCEMENT OFFER FOR OFFER FOR LTM LTM
DATE ACQUIREE/ACQUIROR EQUITY ASSETS EBITDA EBIT LTM EPS
- ------------ ----------------- --------- --------- ------ ---- --------
<S> <C> <C> <C> <C> <C> <C>
02/03/95 NCC Industries Inc./Maidenform $ 76.2 $ 96.9 8.5x 9.8x 12.9x
Worldwide Inc./(1)/
12/13/93 Nutmeg Industries/VF Corp. 334.4 363.4 13.0 15.6 23.1
10/11/93 Salem Sportswear/Fruit of the Loom 129.7 151.9 9.0 10.0 19.4
02/13/89 Champion Products/Sara Lee Corp. 292.6 303.3 9.6 10.9 19.7
10/21/88 West Point-Pepperell/Farley Inc./(1)/ 1,728.7 2,708.2 9.9 14.4 23.2
02/02/88 Manhattan Industries, Inc./Salant Corp. 101.3 126.9 8.9 13.5 NM
01/21/88 E-II Holdings Inc./American Brands 1,128.9 1,862.7 10.2 14.1 NM
07/24/86 Blue Bell Holding Co./VF Corp. 359.7 731.4 5.3 7.0 26.2
03/17/86 Warnaco Inc./W Acquisition Corp. 483.2 504.8 9.2 10.6 20.4
03/06/86 Work Wear Corp./PaineWebber Capital Inc. 87.9 135.7 4.5 5.0 8.5
07/11/85 Levi Strauss/Levi Strauss Associates Inc. 1,881.6 1,870.7 7.7 9.6 27.0
AVERAGE 8.27X 10.96X 20.04X
MEDIAN 9.04 10.62 20.37
HIGH 12.96 15.58 26.96
LOW 4.47 5.01 8.47
</TABLE>
- -----------
/(1)/ Acquisition of majority interest
- --------------------------------------------------------------------------------
PROJECT 501 C - 25 DILLON, READ & CO. INC.
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL
- --------------------------------------------------------------------------------------------------
SELECTED COMPLETED TRANSACTIONS/(A)/
- --------------------------------------------------------------------------------------------------
DATE VALUE OF EBITDA
ANNOUNCED TARGET NAME ACQUIROR NAME TRANSACTION MULTIPLE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
03/18/85 ABC Capital Cities Communications $ 3,500.0 8.4x
03/26/85 Hughes Aircraft Co General Motors Corp 5,000.0 10.1
05/15/85 Signal Cos Inc(Allied-Signal) Allied Corp 5,083.0 11.8
05/29/85 Nabisco Brands Inc R J Reynolds Industries Inc 4,900.0 8.5
06/21/85 American Hospital Supply Corp Baxter Travenol Laboratories 3,800.0 10.6
07/18/85 GD Searle & Co Monsanto Co 2,700.0 8.7
09/24/85 General Foods Corp Philip Morris Inc 5,700.0 8.1
10/16/85 Beatrice Companies Inc BCI Holdings Corp 6,095.0 5.9
10/21/85 RH Macy & Co Inc Macy Merger Corp 3,523.3 5.8
10/25/85 Texas Oil & Gas Corp US Steel Corp 3,862.4 4.7
12/11/85 RCA Corp General Electric Co 6,605.0 5.4
12/31/85 MidCon Corp Occidental Petroleum Corp 3,065.5 6.0
05/05/86 Sperry Corp Burroughs Corp 4,754.6 6.6
06/20/86 Associated Dry Goods Corp May Department Stores Co 2,592.5 6.6
07/25/86 Safeway Stores Inc SSI Holdings Corp 5,335.0 7.1
09/04/86 Allied Stores Corp Campeau Corp 3,584.1 7.9
11/03/86 Celanese Corp American Hoechst Corp(Hoechst) 2,778.0 5.3
12/11/86 Owens-Illinois Inc Owens-Illinois Holdings Corp 3,640.0 6.4
03/26/87 Standard Oil Co(British Petro) BP America(British Petroleum) 7,857.7 7.4
04/13/87 Borg-Warner Corp Borg-Warner Holdings Corp 4,202.6 9.2
05/21/87 Burlington Industries Inc Burlington Holdings Inc 2,554.8 9.2
07/03/87 Southland Corp JT Acquisition Corp 4,055.0 9.0
01/24/88 Federated Department Stores Campeau Corp 6,511.9 7.2
01/25/88 Sterling Drug Eastman Kodak Co Inc 5,100.0 13.6
03/17/88 Firestone Tire & Rubber Co Bridgestone Corp 2,533.1 7.2
03/22/88 Lucky Stores Inc American Stores Co 2,582.5 8.0
06/22/88 Fort Howard Corp FH Acquisition Corp 3,579.4 8.1
07/18/88 INTERCO Inc INTERCO Inc 2,733.0 7.8
09/13/88 Kroger Co Kroger Co 4,800.0 7.2
09/15/88 Hospital Corp of America HCA-Hospital Corp of America 4,915.0 6.3
10/04/88 Pillsbury Co Grand Metropolitan PLC 5,757.9 11.5
10/06/88 TW Services Inc SWT Associates LP 2,573.6 6.8
10/17/88 Kraft Inc Philip Morris Inc 13,444.0 12.3
10/24/88 RJR Nabisco Inc Kohlberg Kravis Roberts & Co 30,598.8 9.9
</TABLE>
- ----------
/(A)/ Transactions over $2.5 billion, 1985 to date; principally industrial,
retail and branded products companies in non-distress situations.
- --------------------------------------------------------------------------------
PROJECT 501 C - 26 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
SELECTED COMPLETED TRANSACTIONS/(A)/
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DATE VALUE OF EBITDA
ANNOUNCED TARGET NAME ACQUIROR NAME TRANSACTION MULTIPLE
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
10/26/88 Wickes Cos Inc WCI Holdings Corp $2,698.9 6.8x
02/20/89 Texas Eastern Corp Panhandle Eastern Corp 3,220.0 6.1
03/20/89 Emhart Corp Black & Decker Corp 2,580.0 7.1
03/28/89 NWA Inc Wings Holdings Inc 3,580.0 5.8
07/07/89 American Medical International IMA Holdings Corp 3,307.9 6.9
09/25/89 Columbia Pictures Entmnt Sony USA Inc(Sony Corp) 4,792.0 4.5
10/30/89 Great Northern Nekoosa Corp Georgia-Pacific Corp 3,596.0 4.2
06/07/90 Beatrice Co ConAgra Inc 3,294.0 6.9
07/12/90 Contel Corp GTE Corp 6,243.3 5.5
09/24/90 MCA Inc Matsushita Electric Industrial 7,406.0 4.6
12/02/90 NCR Corp American Telephone & Telegraph 7,893.4 7.7
05/27/92 Centel Corp Sprint Corp 3,967.0 6.8
11/23/92 General Electric-Aerospace Martin Marietta Corp 3,050.0 3.9
02/12/93 UAL Corp United Airlines Union 3,467.5 6.1
05/25/93 AMAX Inc Cyprus Minerals Co 2,657.0 7.1
06/10/93 Galen Health Care Inc Columbia Hospital Corp 4,187.7 4.9
06/15/93 Eastman Chemical Co Shareholders 4,038.0 4.9
06/30/93 Quantum Chemical Corp Hanson Trust PLC 3,219.7 13.5
01/07/94 Blockbuster Entertainment Corp Viacom Inc(Natl Amusements) 7,971.1 8.8
05/02/94 Syntex Corp Roche Holding AG 5,307.2 8.3
05/04/94 Williams Telecomm Group Inc LDDS Communications Inc 2,500.0 12.4
06/29/94 Santa Fe Pacific Corp Burlington Northern Inc 3,747.5 8.5
07/11/94 PCS Health Systems(McKesson) Eli Lilly & Co 4,000.0 8.5
08/30/94 Lockheed Corp Martin Marietta Corp 5,204.1 3.6
09/12/94 Borden Inc Kohlberg Kravis Roberts & Co 4,643.4 9.0
09/19/94 American Medical Holdings Inc National Medical Enterprises 3,299.6 6.8
10/05/94 HealthTrust Inc-The Hospital Columbia/HCA Healthcare Corp 5,219.5 10.6
12/12/94 Transco Energy Co Williams Cos Inc 2,706.0 6.3
01/09/95 Pet Inc Pillsbury Co(Grand Met PLC) 2,610.0 10.0
02/28/95 Marion Merrell Dow Inc Hoechst AG 7,121.0 10.1
</TABLE>
- ----------
/(A)/ Transactions over $2.5 billion, 1985 to date; principally industrial,
retail and branded products companies in non-distress situations.
- --------------------------------------------------------------------------------
PROJECT 501 C - 27 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
SELECTED COMPLETED TRANSACTIONS/(A)/
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DATE VALUE OF EBITDA
ANNOUNCED TARGET NAME ACQUIROR NAME TRANSACTION MULTIPLE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
04/06/95 EI du Pont de Nemours and Co EI du Pont de Nemours and Co $ 8,300.0 4.6x
04/10/95 MCA Inc(Matsushita Electric) Seagram Co Ltd 5,704.0 12.0
05/01/95 Northern States Power Co Wisconsin Energy Corp 3,036.6 4.0
07/17/95 Scott Paper Co Kimberly-Clark Corp 6,791.5 7.6
07/31/95 Capital Cities/ABC Inc Walt Disney Co 18,836.7 12.7
08/01/95 CBS Inc Westinghouse Electric Corp 5,036.2 11.4
09/25/95 Potomac Electric Power Company Baltimore Gas and Electric Co 3,073.9 5.0
11/06/95 Federal Paper Board Co International Paper Co 3,319.0 6.7
01/08/96 Loral Corp Lockheed Martin Corp 8,648.2 9.6
AVERAGE: 7.7
MEDIAN: 7.2
95TH PERCENTILE: 12.0
HIGH: 13.6
LOW: 3.6
----------------------------
</TABLE>
- ----------
/(A)/ Transactions over $2.5 billion, 1985 to date; principally industrial,
retail and branded products companies in non-distress situations.
- --------------------------------------------------------------------------------
PROJECT 501 C - 28 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
ANALYSIS AT VARIOUS PRICES - ACQUISITION
- --------------------------------------------------------------------------------
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
LEVI STRAUSS ACQUISITION PRICE
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 175 $ 200 $ 225 $ 250 $ 275 $ 300 $ 325
----- ----- ----- ----- ----- ----- -----
1995 NET INCOME
$599.8 MM/(a)/ 15.5x 17.8x 20.0x 22.2x 24.4x 26.6x 28.9x
UNLEVERED MULTIPLES
1995 EBITDA $1,055.8 MM 7.9 9.1 10.4 11.6 12.9 14.2 15.4
1995 EBIT 940.7 MM 8.8 10.2 11.7 13.1 14.5 15.9 17.3
</TABLE>
- ----------
/(a)/ Adjusted for non-recurring CSSC transition expenses, workers'
compensation credits and tax settlement (for NI only)
- --------------------------------------------------------------------------------
PROJECT 501 C - 29 DILLON, READ & CO. INC.
<PAGE>
COMPARABLE TRADING ANALYSIS
COMPARABLE MERGER ANALYSIS
DISCOUNTED CASH FLOW ANALYSIS
LEVERAGED BUYOUT ANALYSIS
PREMIUM ANALYSIS
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS
- --------------------------------------------------------------------------------
. We have also reviewed a valuation of Levi Strauss based on a discounted cash
flow analysis
- Discounts cumulative stream of free cash flow to the present
- Assumes a terminal value based on a multiple of earnings in the future
. The discounted cash flow analysis, on balance, is an effective valuation tool
. The key assumptions utilized were as follows:
Terminal Year: 2005
Discount Rates: 13% - 14%
Terminal Multiple of EBITDA: 7.0x - 9.0x
Terminal Value Perpetuity Growth Rate: 4.5% - 6.5%
Tax Rate: 40%
- --------------------------------------------------------------------------------
PROJECT 501 C - 31 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
MANAGEMENT ASSUMPTIONS
- --------------------------------------------------------------------------------
LSNA
- ----
. COMPOUND ANNUAL GROWTH RATE IN UNITS IS 2.9% FROM 1995-2005
. GROSS MARGINS BEGIN AT 34.6% IN 1995 AND GROW TO 35.2% BY 2001
. OPEX IS 21.9% OF SALES IN 1995; INCREASING TO 23.5% BY 1997, THEN DECREASING
TO 20.5% BY 2001
. CUMULATIVE CSSC TRANSITION AND CAPITAL EXPENDITURES OF $294.7 MILLION AND $15
2.2 MILLION ARE INCLUDED, RESPECTIVELY
LSI
- ---
. COMPOUND ANNUAL GROWTH RATE IN UNITS IS 4.2% FROM 1995 - 2005
. GROSS MARGINS BEGIN AT 47.3% IN 1995 AND REMAIN STABLE THROUGH 2005
. OPEX IS 23.8% OF SALES IN 1995; DECREASING TO 22.3% OF SALES BY 2005
. CSI EXPENSES OF $337 MILLION ARE INCLUDED
. CURRENCY REMAINS CONSTANT AT US$/DM OF 1.40 AND US$/YEN OF 85
- --------------------------------------------------------------------------------
PROJECT 501 C - 32 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
MANAGEMENT MODEL
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 7,414.6 $ 7,686.9 $ 8,115.7 $ 8,549.9 $ 9,011.8 $ 9,384.3
Cost of Sales (4,489.8) (4,654.3) (4,920.3) (5,173.4) (5,441.3) (5,666.6)
--------- --------- --------- --------- --------- ---------
Gross Profit 2,924.8 3,032.6 3,195.4 3,376.5 3,570.5 3,717.7
S,G&A (1,782.3) (1,829.6) (1,871.9) (1,852.9) (1,898.5) (1,957.4)
Other Operating Expense -- 20.3 36.2 53.9 66.5 68.5
Depreciation (73.8) (81.9) (86.8) (88.5) (102.1) (107.9)
--------- --------- --------- --------- --------- ---------
Operating Income 1,068.7 1,141.4 1,272.9 1,489.0 1,636.4 1,720.9
Other Income/(Expense) 16.3 20.8 20.5 20.5 20.5 20.5
Allocated Overhead (147.6) (160.3) (198.9) (211.5) (205.9) (199.8)
--------- --------- --------- --------- --------- ---------
Management Earnings 937.4 1,001.9 1,094.5 1,298.0 1,451.0 1,541.6
Unallocated Overhead (43.3) (40.0) (40.8) (41.7) (42.5) (43.5)
EBIT $ 894.1 $ 961.9 $1,053.7 $1,256.3 $1,408.5 $1,498.1
--------- --------- --------- --------- --------- ---------
Less: Taxes on EBIT @ 40.0% (357.6) (384.8) (421.5) (502.5) (563.4) (599.2)
Tax-Effected EBIT 536.4 577.1 632.2 753.8 845.1 898.9
Plus:
-----
Depreciation 75.2 83.3 99.2 100.9 114.5 120.3
Other (208.4) 27.9 70.0 74.0 78.7 81.4
Less:
-----
Change in Working Capital (144.7) (53.0) (35.6) (47.9) (59.8) (79.7)
Capital Expenditures (292.7) (142.3) (165.5) (142.5) (150.0) (157.5)
--------- --------- --------- --------- --------- ---------
Unlevered Free Cash Flow $ (34.1) $ 493.1 $ 600.3 $ 738.3 $ 828.5 $ 863.4
========= ========= ========= ========= ========= =========
EBITDA $ 969.2 $ 1,045.2 $ 1,152.9 $ 1,357.2 $ 1,523.0 $ 1,618.4
</TABLE>
<TABLE>
<CAPTION>
CAGR
--------
2002 2003 2004 2005 '96-2005
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales
Cost of Sales $ 9,798.1 $10,180.9 $10,565.4 $10,958.7 4.4%
(5,921.4) (6,158.1) (6,393.2) (6,639.6) 4.4%
--------- --------- --------- --------- ----
Gross Profit 3,876.7 4,022.8 4,172.2 4,319.1 4.4%
S,G&A (2,020.0) (2,085.5) (2,144.1) (2,207.4) 2.4%
Other Operating Expense 70.5 72.6 74.6 76.6 -
Depreciation (107.1) (110.0) (110.0) (110.0) 4.5%
--------- --------- --------- --------- ----
Operating Income 1,820.1 1,899.9 1,992.7 2,078.3 7.7%
Other/Income Expense 20.5 20.5 20.5 20.5 2.6%
Allocated Overhead (207.4) (215.3) (215.3) (215.3) 4.3%
--------- --------- --------- --------- ----
Management Earnings 1,633.2 1,705.1 1,797.9 1,883.5 8.1%
Unallocated Overhead (44.4) (45.5) (45.5) (45.5) 0.6%
EBIT $1,558.8 $1,659.6 $1,752.4 $1,838.0 8.3%
--------- --------- --------- --------- ----
Less: Taxes on EBIT (635.5) (663.8) (700.9) (735.2) 8.3%
Tax-Effected EBIT 953.3 995.8 1,051.4 1,102.8 8.3%
Plus:
- ----
Depreciation 119.5 122.4 122.4 122.4 4.4%
Other 84.1 87.4 79.3 80.0 --
Less:
- ----
Change in Working Capital (0.4) (41.5) 7.4 (38.5) -13.7%
Capital Expenditures (165.4) (173.6) (182.3) (191.4) -4.6%
--------- --------- --------- --------- ----
Unlevered Free Cash Flow $ 991.1 $ 990.5 $ 1,078.3 $ 1,075.3 --
========= ========= ========= ========= ====
EBITDA $ 1,708.3 $ 1,782.0 $ 1,874.8 $ 1,960.4 8.1%
</TABLE>
- --------------------------------------------------------------------------------
PROJECT 501 C - 33 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW VALUATION - MANAGEMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Discounted Cash Flow Valuation Discounted Cash Flow Valuation
Terminal Value - Multiple of EBITDA Terminal Value - Growing
Perpetuity
======================================== ===============================
MULTIPLE OF WEIGHTED AVERAGE COST OF CAPITAL GROWTH WEIGHTED AVERAGE COST OF CAPITAL
EBITDA 13.0% 13.5% 14.0% RATE 13.0% 13.5% 14.0%
--------- --------- -------- --------- -------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRESENT VALUE - FREE CASH FLOWS $3,558.7 $3,468.0 $3,380.4 $3,558.7 $3,468.0 $3,380.4
TERMINAL VALUE 7.0X $4,042.6 $3,868.0 $3,701.7 4.5% $3,894.3 $3,519.1 $3,190.5
8.0 4,620.1 4,420.6 4,230.5 5.5% 4,455.8 3,996.9 3,600.0
9.0 5,197.7 4,973.2 4,759.3 6.5% 5,190.0 4,611.2 4,118.7
TOTAL UNLEVERED VALUE 7.0X $ 7,601.4 $7,336.0 $7,082.0 4.5% $7,453.1 $6,987.1 $6,570.9
8.0 8,178.9 7,888.6 7,610.9 5.5% 8,014.5 7,464.9 6,980.4
9.0 8,756.4 8,441.2 8,139.7 6.5% 8,748.8 8,079.2 7,499.0
LESS: NET DEBT ($1,050.0) ($1,050.0) ($1,050.0) ($1,050.0) ($1,050.0) ($1,050.0)
TOTAL EQUITY VALUE 7.0X 8,651.3 $8,386.0 $8,132.0 4.5% $8,503.0 $8,037.1 $7,620.9
8.0 9,228.9 8,938.6 8,660.8 5.5% 9,064.5 8,514.9 8,030.3
9.0 9,806.4 9,491.2 9,189.6 6.5% 9,798.7 9,129.1 8,549.0
EQUITY VALUE PER SHARE 7.0X $162.70 $157.71 $152.93 4.5% $159.91 $151.14 $143.32
8.0 173.56 168.10 162.87 5.5% 170.46 160.13 151.02
9.0 184.42 178.49 172.82 6.5% 184.27 171.68 160.77
</TABLE>
- --------------------------------------------------------------------------------
PROJECT 501 C-34 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
MODIFIED ASSUMPTIONS
- --------------------------------------------------------------------------------
REVENUES
========
1996 1997 - 2000 2001 - 2005
--------------- ---------------- -----------------
Unit Growth 8.0% 5.4% 4.6%
Price Growth 2.8 3.0 3.0
--------------- ---------------- -----------------
11.8% 8.6% 7.8%
=============== ================ =================
MARGINS
=======
. ADD 1.5% EBIT MARGIN AS % OF SALES TO MANAGEMENT CASE
- $125MM in 1996
- Assumes CSSC and CSI expenses spent as projected
________________________________________________________________________________
PROJECT 501 C-35 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
ECONOMIC OUTLOOK (MODIFIED)
- --------------------------------------------------------------------------------
U.S./CANADA
- -----------
. U.S. 1996 GDP FORECASTS SHOW A SLOW DOWN IN THE PROJECTED GROWTH OF THE
ECONOMY TO 2.4% WITH THE CONSUMER PRICES FORECASTS REMAINING AT 2.9%
. UNEASINESS ABOUT THE BUDGET NEGOTIATIONS AND FINAL BUDGET RESOLUTION
HAVE SHOWN THAT CONSUMER CONFIDENCE AND MARKET CONFIDENCE ARE NOT AS
STRONG AS THEY SEEM
. CANADIAN GDP IS EXPECTED TO GROW IN 1996 AT 2.6%, FASTER THAN IN THE
UNITED STATES, BUT UNEMPLOYMENT REMAINS HIGH AT 9.4%
EUROPE
- ------
. BRITISH 1996 GDP GROWTH IS EXPECTED TO BE LEVEL WITH THE U.S. AT 2.4%
BUT UNEMPLOYMENT, WHILE DROPPING, IS STILL AT 8.0%
. GERMANY IS EXPECTED TO GROW AT 2.2% AND UNEMPLOYMENT HAS RISEN TO 9.3%
. IN GENERAL, EUROPEAN COUNTRIES ARE EXPECTED TO EXPERIENCE STRONGER
GROWTH THAN THE U.S.
JAPAN/ASIA
- ----------
. FOURTH QUARTER REVITALIZATION IN MEXICAN PESO HAS INCREASED PROJECTIONS
IN THE DEVELOPING ECONOMIES OF ASIA
. JAPANESE GDP IS EXPECTED TO GROW AT 2.1% IN 1996
- --------------------------------------------------------------------------------
PROJECT 501 C - 36 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
MODIFIED MODEL
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Projected
---------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 7,495.8 $ 8,140.4 $ 8,840.5 $ 9,600.8 $10,426.4 $11,243.9
Cost of Sales (4,538.9) (4,928.9) (5,359.7) (5,809.3) (6,295.5) (6,789.5)
--------- --------- --------- --------- --------- ---------
Gross Profit 2,956.9 3,211.5 3,480.8 3,791.5 4,131.0 4,454.4
S,G&A (1,801.9) (1,937.5) (2,039.0) (2,080.7) (2,196.5) (2,345.2)
Other Operating Expense -- 0.3 36.2 53.9 66.5 68.5
Depreciation (73.8) (81.9) (86.8) (88.5) (102.1) (107.9)
--------- --------- --------- --------- --------- ---------
Operating Income 1,081.2 1,212.4 1,391.1 1,676.3 1,898.9 2,069.7
Other Income/Expense 16.3 20.8 20.5 20.5 20.5 20.5
Allocated Overhead (147.6) (160.3) (198.9) (211.5) (205.9) (199.8)
--------- --------- --------- --------- --------- ---------
Management Earnings 949.9 1,072.9 1,212.7 1,485.3 1,713.5 1,890.4
Unallocated Overhead (43.3) (40.0) (40.8) (41.7) (42.5) (43.5)
Adjusted 112.4 105.8 106.1 115.2 114.7 123.7
--------- --------- --------- --------- --------- ---------
EBIT 1,019.0 1,138.7 1,278.0 1,558.8 1,785.7 1,970.6
Less: Taxes on EBIT (407.6) (455.5) (511.2) (623.5) (714.3) (788.2)
--------- --------- --------- --------- --------- ---------
Tax-Effected EBIT 611.4 685.3 766.8 935.3 1,071.4 1,182.4
Plus:
-----
Depreciation 75.2 83.3 99.2 100.9 114.5 120.3
Less:
-----
(Increase)/Decrease in Working (144.7) (60.4) (43.8) (57.2) (70.6) (95.1)
Capital Expenditures (292.7) (142.3) (165.5) (142.5) (150.0) (157.5)
(Increase)/Decrease in Other As 19.8 16.2 17.6 19.1 20.7 20.5
--------- --------- --------- --------- --------- ---------
Unlevered Free Cash Flow $ 269.1 $ 579.9 $ 674.2 $ 855.6 $ 986.1 $ 1,070.7
========= ========= ========= ========= ========= =========
EBITDA $ 1,094.2 $ 1,222.0 $ 1,377.2 $ 1,659.7 $ 1,900.2 $ 2,090.9
</TABLE>
<TABLE>
<CAPTION>
Projected
--------------------------------------------- CAGR
2002 2003 2004 2005 '96-2005
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales
Cost of Sales $12,125.4 $13,076.0 $14,101.2 $15,206.7 8.2%
(7,327.9) (7,909.3) (8,532.7) (9,213.4) 8.2%
--------- --------- --------- --------- ----
Gross Profit 4,797.5 5,166.8 5,568.5 5,993.3 8.2%
S,G&A (2,499.8) (2,678.5) (2,861.6) (3,063.0) 6.1%
Other Operating Expense 70.5 72.6 74.6 76.6 -
Depreciation (107.1) (110.0) (110.0) (110.0) 4.5%
--------- --------- --------- --------- ----
Operating Income 2,261.1 2,450.8 2,671.4 2,896.9 11.6%
Other/Income Expense 20.5 20.5 20.5 20.5 2.6%
Allocated Overhead (207.4) (215.3) (215.3) (215.3) 4.3%
--------- --------- --------- --------- ----
Management Earnings 2,074.2 2,256.0 2,476.6 2,702.1 12.3%
Unallocated Overhead (44.4) (45.5) (45.5) (45.5) 0.6%
Adjustment 121.3 117.7 126.9 129.3 1.6%
--------- --------- --------- --------- ----
EBIT 2,151.1 2,328.2 2,558.0 2,785.8 11.8%
Less: Taxes on EBIT (860.4) (931.3) (1,023.2) (1,114.3) 11.0%
--------- --------- --------- --------- ----
Tax-Effected EBIT 1,290.6 1,396.9 1,534.8 1,671.5 11.0%
Plus:
- ----
Depreciation 119.5 122.4 122.4 122.4 7.0%
Less:
- ----
(Increase)/Decrease in Working (13.0) (57.3) (5.3) (55.8) --
Capital Expenditures (165.4) (173.6) (182.3) (191.4) -4.6%
(Increase)/Decrease in Other As 22.2 23.9 25.8 27.8 1.6%
--------- --------- --------- --------- ----
Unlevered Free Cash Flow $ 1,253.9 $ 1,312.3 $ 1,495.4 $ 1,574.5 21.7%
========= ========= ========= ========= ====
EBITDA $ 2,270.6 $ 2,450.6 $ 2,680.4 $ 2,908.3 10.7%
</TABLE>
- --------------------------------------------------------------------------------
PROJECT 501 C - 37 DILLON, READ & CO. INC.
<PAGE>
- -------------------------------------------------------------------------------
DISCOUNTED CASH FLOW VALUATION - PROJECTIONS
- -------------------------------------------------------------------------------
(Dollars in millions)
<TABLE>
<CAPTION>
MANAGEMENT PROJECTIONS MODIFIED PROJECTIONS
------------------------------------------------- ----------------------------------------------
CHANGE CHANGE
1996 2000 2005 1996-2005 1996 2000 2005 1996 - 2005
-------- -------- --------- ------------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE $7,414.6 $9,011.8 $10,958.7 $3,544.1 $7,495.8 $10,426.4 $15,206.7 $7,710.9
EBITDA $ 969.2 $1,523.0 $ 1,960.4 $ 991.2 $1,094.2 $ 1,900.2 $ 2,908.3 $1,814.1
- --------------------------------------------------------------------------------------------------------------------------------
REVENUE GROWTH 10.5% 5.4% 3.7% 4.4%/(a)/ 11.8% 8.6% 7.8% 8.2%/(a)/
EBITDA GROWTH (12.8%) 12.2% 4.6% 8.1%/(a)/ 9.8% 14.5% 8.5% 11.5%/(a)/
- --------------------------------------------------------------------------------------------------------------------------------
CAPEX $ 292.7 $ 150.0 $ 191.4 ($101.2) $ 292.7 $ 150.0 $ 191.4 ($101.2)
DEPRECIATION $ 75.2 $ 114.5 $ 122.4 $ 47.3 $ 75.2 $ 114.5 $ 122.4 $ 47.3
- --------------------------------------------------------------------------------------------------------------------------------
EBITDA MARGIN 13.1% 16.9% 17.9% 480/(b)/ 14.6% 18.2% 19.1% 450/(b)/
WORKING CAPITAL AS % OF 13.9% 13.7% 11.8% (2.1%) 10.0% 9.4% 8.0% (2.1%)
SALES
ASSET TURNS 3.9x 4.2x 4.9x 1.0x 4.4x 5.1x 6.3x 1.8x
</TABLE>
/(a)/ Compound Annual Growth Rate
/(b)/ Basis points
- -------------------------------------------------------------------------------
PROJECT 501 C-38 DILLION, READ & CO. INC.
<PAGE>
CONFIDENTIAL
DISCOUNTED CASH FLOW VALUATION - MODIFIED
<TABLE>
<CAPTION>
Discounted Cash Flow Valuation Discounted Cash Flow Valuation
Terminal Value - Multiple of EBITDA Terminal Value - Multiple of
Growing Perpetuity
======================================= =================================
MULTIPLE OF WEIGHTED AVERAGE COST OF CAPITAL GROWTH WEIGHTED AVERAGE COST OF CAPITAL
EBITDA 13.0% 13.5% 14.0% RATE 13.0% 13.5% 14.0%
-------- ------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRESENT VALUE - FREE CASH $ 4,722.1 $ 4,603.8 $ 4,490.8 $ 4,722.1 $ 4,603.8 $ 4,490.8
FLOWS
TERMINAL VALUE 7.0X $ 5,997.2 $ 5,738.2 $ 5,491.4 4.5% $ 5,702.4 $ 5,153.0 $ 4,671.8
8.0 6,853.9 6,557.9 6,275.9 5.5% 6,524.5 5,852.5 5,271.4
9.0 7,710.7 7,377.6 7,060.4 6.5% 7,599.6 6,752.0 6,030.9
TOTAL UNLEVERED VALUE 7.0X $ 10,719.3 $ 10,342.0 $ 9,982.2 4.5% $ 10,424.4 $ 9,756.7 $ 9,162.6
8.0 11,576.0 11,161.7 10,766.7 5.5% 11,246.6 10,456.3 9,762.2
9.0 12,432.7 11,981.4 11,551.2 6.5% 12,321.7 11,355.8 10,521.7
LESS: NET DEBT ($1,050.0) ($1,050.0) ($1,050.0) ($1,050.0) ($1,050.0) ($1,050.0)
TOTAL EQUITY VALUE 7.0X $ 11,769.2 $ 11,391.9 $ 11,032.2 4.5% $ 11,474.4 $ 10,806.7 $ 10,212.6
8.0 12,626.0 12,211.7 11,816.7 5.5% 12,296.6 11,506.3 10,812.2
9.0 13,482.7 13,031.4 12,601.2 6.5% 13,371.7 12,405.8 11,571.7
EQUITY VALUE PER SHARE 7.0X $ 221.33 $ 214.23 $ 207.47 4.5% $ 215.78 $ 203.23 $ 192.06
8.0 237.44 229.65 222.2 5.5% 231.25 216.39 203.33
9.0 253.55 245.07 236.9 6.5% 251.46 233.30 217.61
</TABLE>
<PAGE>
CONFIDENTIAL
________________________________________________________________________________
SENSITIVITY ANALYSIS
________________________________________________________________________________
APPROXIMATE
CHANGE IN PER SHARE PRICE
----------------------------------
TERMINAL VALUE - TERMINAL VALUE -
SENSITIVITY EBITDA MULTIPLE PERPETUAL GROWTH
----------------- ---------------- ----------------
SALES GROWTH +/-1%(a) $17.00 $16.00
EBIT/EBITDA MARGIN +/-1%(b) $13.00 $12.00
- ----------
(a) Per annum, over 10 years projections
(b) EBIT or EBITDA as % of sales, over 10 year projections
- --------------------------------------------------------------------------------
PROJECT 501 C-40 DILLON, READ & CO. INC.
<PAGE>
COMPARABLE TRADING ANALYSIS
COMPARABLE MERGER ANALYSIS
DISCOUNTED CASH FLOW ANALYSIS
LEVERAGED BUYOUT ANALYSIS
PREMIUM ANALYSIS
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
LBO SUMMARY - LOW CASE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PURCHASE PRICE
- ----------------------------------------------
<S> <C>
501 Shares Outstanding 53.175
Shares Issuable - Conv. of Option 0.405
--------
Shares Purchased 53.580
PURCHASE PRICE PER SHARE $ 175.0
Gross Purchase Price of Equity $9,376.5
Less: Option Proceeds (1.4)
--------
Purchase Price of Equity 9,375.1
Plus: Total Debt 38.1
Less: Cash & Cash Equivalents (1,088.0)
--------
Purchase Price of Net Assets $ 8,325.1
========
</TABLE>
<TABLE>
<CAPTION>
OWNERSHIP
- --------------------------------
<S> <C>
Senior Subordinated Notes 3.0%
Common Equity 92.0
Management Carry 5.0
-----
Total 100.0%
=====
</TABLE>
<TABLE>
<CAPTION>
PURCHASE MULTIPLES
- ------------------------------------------
1995
--------
<S> <C>
Revenues 1.24x
EBITDA 7.5
EBIT 8.4
Net Income 13.5
CFO 12.7
Book Value 4.0
</TABLE>
<TABLE>
<CAPTION>
SOURCES & USES OF FUNDS
- ---------------------------------------------------------------------------------------------------------------------------------
USES: AMOUNT % SOURCES: AMOUNT % RATE TERM
- ------------------------- -------- ------ ------------------------- -------- ------ ------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Purchase Equity & Options $9,376.5 98.3% Excess Cash $1,050.0 11.0% 4.000% --
Stock Option Proceeds (1.4) (0.0%) Revolver -- 0.0% 9.000% --
Purchase Fees & Expenses 10.0 0.1% Senior Bank Term Loan 3,984.8 41.8% 9.000% 6.0
Capitalized Fees 150.0 1.6% Senior Subordinated Notes 2,116.5 22.2% 12.000% --
Common Equity 2,383.8 25.0% -- --
-------- ------ -------- ------
Total $9,535.1 100.0% Total $9,535.1 100.0%
======== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA PROJECTED
--------- -----------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000 2001 2002
--------- --------- --------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING SUMMARY
Sales Growth -- 11.7% 8.6% 8.6% 8.6% 8.6% 7.8% 7.8%
EBITDA $1,111.3 $1,094.2 $1,222.0 $1,377.2 $1,659.7 $1,900.2 $2,090.9 $2,270.6
EBITDA Margin 16.6% 14.6% 15.0% 15.6% 17.3% 18.2% 18.6% 18.7%
Net Asset Turns 0.8x 0.9x 1.0x 1.0x 1.2x 1.3x 1.4x 1.5x
Capital Expenditures/Sales 5.1% 3.9% 1.7% 1.9% 1.5% 1.4% 1.4% 1.4%
CREDIT STATISTICS SUMMARY
EBIT/Interest Expense 1.3x 1.4x 1.6x 1.9x 2.6x 3.5x 4.7x 6.6x
EBITDA/Interest Expense 1.8 1.8 2.0 2.4 3.2 4.1 5.5 7.7
(EBITDA/Capex)/Interest Exp 1.3 1.3 1.8 2.1 2.9 3.8 5.0 7.1
Total Debt/EBITDA 5.5 5.6 4.8 4.0 2.9 2.1 1.5 1.0
Net Debt/Net Capitalization 71.6% 70.7% 68.1% 64.2% 57.7% 48.9% 38.0% 24.2%
Senior Debt & Revolver Paydown 0.0% 0.8% 8.2% 18.6% 34.2% 54.0% 77.2% 100.0%
RETURNS
@6.0x EBITDA Common -- -- -- 3.3% 18.9% 23.4% 24.1% 24.0%
@7.0x EBITDA Common -- -- -- 17.8% 27.4% 29.1% 28.3% 27.2%
@8.0x EBITDA Common -- -- -- 29.4% 34.5% 34.0% 31.9% 30.0%
@7.0x EBITDA Sub. Debt -- -- -- 13.7% 14.0% 14.0% 13.9% 13.9%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PROJECT 501 DILLON, READ & CO. INC.
C-42
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
LBO SUMMARY - HIGH CASE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PURCHASE PRICE
<S> <C>
501 Shares Outstanding 53.175
Shares Issuable - Conv. of Option 0.405
---------
Shares Purchased 53.580
PURCHASE PRICE PER SHARE $ 200.0
Gross Purchase Price of Equity $10,716.0
Less: Option Proceeds (1.4)
---------
Purchase Price of Equity 10,714.6
Plus: Total Debt 38.1
Less: Cash & Cash Equivalents (1,088.0)
---------
Purchase Price of Net Assets $ 9,664.6
=========
</TABLE>
<TABLE>
<CAPTION>
OWNERSHIP
- --------------------------------
<S> <C>
Senior Subordinated Notes 3.0%
Common Equity 92.0
Management Carry 5.0
------
Total 100.0%
======
</TABLE>
<TABLE>
<CAPTION>
PURCHASE MULTIPLES
- ---------------------------------------
1995
--------
<S> <C>
Revenues 1.44x
EBITDA 8.7
EBIT 9.7
Net Income 15.4
CFO 14.5
Book Value 4.5
</TABLE>
<TABLE>
<CAPTION>
SOURCES & USES OF FUNDS
- ----------------------------------------------------------------------------------------------------------------------------------
USES: AMOUNT % SOURCES: AMOUNT % RATE TERM
- ------------------------- --------- ------ ------------------------- --------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Purchase Equity & Options $10,716.0 98.5% Excess Cash $ 1,050.0 9.7% 4.000% --
Stock Option Proceeds (1.4) (0.0%) Revolver -- 0.0% 9.000% --
Purchase Fees & Expenses 10.0 0.1% Senior Bank Term Loan 3,984.8 36.6% 9.000% 6.0
Capitalized Fees 150.0 1.4% Senior Subordinated Notes 3,121.1 28.7% 12.000% --
Common Equity 2,718.6 25.0% -- --
--------- ------ --------- ------
Total $10,874.6 100.0% Total $10,874.6 100.0%
========= ====== ========= ======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA PROJECTED
--------- -------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000 2001 2002
--------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING SUMMARY
Sales Growth -- 11.7% 8.6% 8.6% 8.6% 8.6% 7.8% 7.8%
EBITDA $ 1,111.3 $1,094.2 $1,222.0 $1,377.2 $1,659.7 $1,900.2 $2,090.9 $2,270.6
EBITDA Margin 16.6% 14.6% 15.0% 15.6% 17.3% 18.2% 18.6% 18.7%
Net Asset Turns 0.7x 0.8x 0.8x 0.9x 1.0x 1.1x 1.2x 1.3x
Capital Expenditures/Sales 5.1% 3.9% 1.7% 1.9% 1.5% 1.4% 1.4% 1.4%
CREDIT STATISTICS SUMMARY
EBIT/Interest Expense 1.0x 1.1x 1.3x 1.5x 2.0x 2.6x 3.3x 4.3x
EBITDA/Interest Expense 1.5 1.5 1.7 2.0 2.5 3.1 3.9 5.0
(EBITDA/Capex)/Interest Exp 1.0 1.1 1.5 1.7 2.3 2.9 3.6 4.7
Total Debt/EBITDA 6.4 6.6 5.7 4.8 3.7 2.8 2.2 1.5
Net Debt/Net Capitalization 72.1% 72.1% 70.8% 68.3% 63.7% 57.1% 48.8% 37.9%
Senior Debt & Revolver
Paydown 0.0% (0.7%) 5.1% 13.8% 27.6% 45.5% 66.7% 93.5%
RETURNS
@6.0x EBITDA Common -- -- -- (17.5%) 7.2% 15.5% 18.2% 19.4%
@7.0x EBITDA Common -- -- -- 0.9% 17.1% 21.9% 22.8% 22.8%
@8.0x EBITDA Common -- -- -- 14.3% 25.0% 27.3% 26.7% 25.8%
@7.0x EBITDA Sub. Debt -- -- -- 12.9% 13.1% 13.2% 13.2% 13.1%
</TABLE>
- --------------------------------------------------------------------------------
PROJECT 501 DILLON, READ & CO. INC.
C-43
<PAGE>
COMPARABLE TRADING ANALYSIS
COMPARABLE MERGER ANALYSIS
DISCOUNTED CASH FLOW ANALYSIS
LEVERAGED BUYOUT ANALYSIS
PREMIUM ANALYSIS
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
CLOSE OUT PREMIUM ANALYSIS (DEALS OVER $100MM)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE COMMON % % OWNED PREMIUM PREMIUM PREMIUM
PRICE OF SHARES OF AFTER 1 DAY 1 WEEK 4 WEEKS DOW
DATE TARGET ACQUIROR PER DEAL ACQUIRED SHARES TRANS- PRIOR TO PRIOR TO PRIOR TO JONES
ANNOUNCED NAME NAME SHARE ($MIL) (MIL) ACQ. ACTION DEAL DEAL DEAL CLOSE
- --------- ------ ------- ------ ------ -------- ------ ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
08/25/95 GEICO Corp. Berkshire $ 70.00 $2,322.8 33.2% 49.0% 100% 25.6% 23.1% 25.3% 4,602
Hathaway
Inc.
07/14/95 REN Corp. COBE 20.00 177.7 8.9 47.0 100 27.0 20.3 25.9 4,709
-USA Laboratories
05/19/95 BIC Corp. BIC SA 40.50 212.6 5.3 22.0 100 13.3 12.5 28.6 4,341
04/07/95 LIN McCAW 129.90 3,323.4 25.6 48.0 100 18.2 19.7 19.7 4,193
Broadcasting Cellular
Corp. Commun.
04/05/95 Club Med Inc. Club 32.00 153.4 4.8 33.0 100 41.4 39.9 44.6 4,201
Inc. Mediterrane
SA
12/28/95 Fleet Fleet 20.00 188.1 9.4 19.0 100 19.4 18.5 18.5 3,840
Mortgage Mortgage
Group Inc. Group Inc.
11/02/94 Pacific Pacificorp 30.00 159.0 5.3 13.0 100 23.7 23.7 23.7 3,837
Telecom
09/08/95 Contel GTE Corp. 25.50 254.3 10.0 10.0 100 43.7 37.8 36.0 3,909
Cellular Inc.
07/28/94 Chemical Waste WMX 8.85 397.4 44.9 21.4 100 10.6 8.9 1.1 3,731
Management Techno-
Inc. logies
Inc.
06/06/94 Ogden Ogden Corp. 18.38 110.3 6.0 15.8 100 5.8 17.6 20.5 3,769
projects
11/13/92 Brand Cos. Rust 18.75 185.0 9.9 44.0 100 4.9 13.6 4.9 3,233
Inc. Inter-
national
Inc.
08/17/92 PHILCORP Inc. Leucadia 25.78 139.9 5.4 36.9 100 12.1 15.2 28.9 3,325
National
Corp.
05/01/91 United Tele-Communi- 6.19 1,189.0 64.0 46.0 98 19.9 22.2 25.7 2,930
Artists cations Inc.
Entertainment
01/03/91 Ocean Murphy Oil 19.39 391.8 20.1 39.0 100 14.1 24.1 9.2 2,574
Drilling & Corp.
Exploration
11/11/90 US WEST US West Inc. 45.03 437.5 9.7 19.0 100 47.6 58.0 83.8 2,489
NewVector
Group Inc.
07/06/90 Mack Trucks Renault 6.25 103.7 16.6 40.0 100 19.0 19.0 21.8 2,905
Vehicules
Inc. Industriels
03/02/90 Shearson American 12.90 360.0 27.9 39.0 100 -0.8 18.6 7.5 2,660
Lehman Express Co.
Brothers
Hldgs.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CLOSE OUTS OVER $ AVERAGE 20.3% 23.1% 25.0%
MEDIAN 19.0 19.7 23.7
HIGH 47.6 58.0 83.8
LOW -0.8 8.9 1.1
AVERAGE PREMIUM 20.0% 28.4% 29.6%
DOW AVERAGE 2,400-3,000
AVERAGE PREMIUM 8.3% 13.8% 13.9%
DOW AVERAGE 3,000-3,800
AVERAGE PREMIUM 26.5% 24.4% 27.8%
DOW AVERAGE 3,800-4,800
</TABLE>
- --------------------------------------------------------------------------------
PROJECT 501 C - 45 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
CLOSE OUT PREMIUM ANALYSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Premium Premium Premium
Value Common % Owned 1 Day 1 week 4 Weeks
Price of Shares After Prior Prior Prior Dow
Date per Deal Acquired Trans- to to to Jones
Announced Target Name Acquiror Name Share ($mil) ($mil) action Deal Deal Deal Close
- --------- --------------------- ------------------------- ------- -------- -------- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
09/26/95 SCOR US Corp. SCOR SA $ 15.25 $ 55.4 3.5 99% 37.0% 35.6% 38.6% 4,766
08/25/95 GEICO Corp. Berkshire Hathaway Inc. 70.00 2,322.8 33.2 100 25.6 23.1 25.3 4,602
07/14/95 REN Corp.-USA COBE Laboratories 20.00 177.7 8.9 100 27.0 20.3 25.9 4,709
07/06/95 Grand Gaming Corp. Grand Casinos Inc. 5.06 36.5 7.2 100 34.9 34.9 55.7 4,664
07/04/95 Jupiter National Inc. Johnston Industries Inc. 32.88 28.4 0.9 100 21.8 21.8 43.0 4,585
05/19/95 BIC Corp. BIC SA 40.50 212.6 5.3 100 13.3 12.5 28.6 4,341
04/07/95 LIN Broadcasting Corp. McCaw Cellular Commun. 129.90 3,323.4 25.6 100 18.2 19.7 19.7 4,193
04/05/95 Club Med Inc. Club Mediterranee SA 32.00 153.4 4.8 100 41.4 39.9 44.6 4,201
12/28/94 Fleet Mortgage Group
Inc. Fleet Financial Group Inc. 20.00 188.1 9.4 100 19.4 18.5 18.5 3,840
11/02/94 Pacific Telecom Pacificorp 30.00 159.0 5.3 100 23.7 23.7 23.7 3,837
09/08/94 Contel Cellular Inc. GTE Corp. 25.50 254.3 10.0 100 43.7 37.8 36.0 3,909
08/24/94 Castle & Cooke Homes
Inc. Dole Food Co. Inc. 15.75 81.5 5.6 100 35.4 41.5 55.5 3,847
07/28/94 Chemical Waste
Management Inc. WMX Technologies Inc. 8.85 397.4 44.9 100 10.6 8.9 1.1 3,731
06/06/94 Ogden Projects Inc. Ogden Corp. 18.38 110.3 6.0 100 5.8 17.6 20.5 3,769
03/01/94 FoxMeyer Corp. National Intergroup Inc. 14.46 79.7 5.5 100 7.1 9.1 11.2 3,809
06/17/93 Hadson Energy
Resources Corp. Apache Corp. 15.00 39.3 2.6 100 26.3 27.7 25.0 3,522
04/26/93 Southeastern Public
Service Co. DWG Corp. 25.60 86.1 3.4 100 65.2 63.8 86.2 3,398
11/13/92 Brand Cos. Inc. Rust International Inc. 18.75 185.0 9.9 100 4.9 13.6 4.9 3,233
08/17/92 PHILCORP Inc. Leucadia National Corp. 25.78 139.9 5.4 100 12.1 15.2 28.9 3,325
03/02/92 Grace Energy Corp. WR Grace & Co. 19.00 77.3 4.1 100 24.6 21.6 7.8 3,275
02/06/92 Spelling Entertainment
Inc. Charter Co. (American
Financial) 7.25 43.0 5.8 100 52.6 45.0 45.0 3,256
09/18/91 Arkla Exploration Co. Arkla Inc. 15.44 92.6 6.0 100 8.4 28.7 30.0 3,018
08/02/91 Envirosafe Services
Inc. EnviroSource Inc. 11.69 16.8 1.4 100 16.9 11.3 -2.6 3,006
07/25/91 Country Lake Foods
Inc. Land O'Lakes Inc. 15.30 22.6 1.6 100 39.1 45.7 53.0 2,980
06/13/91 Weigh-Tronix Staveley Industries PLC 22.00 25.3 1.2 100 41.9 41.9 44.3 2,965
05/01/91 United Artists
Entertainment Tele-Communications Inc. 16.19 1,189.0 64.0 98 19.9 22.2 25.7 2,930
03/01/91 Metcalf & Eddy Cos.
Inc. Air & Water 19.25 51.0 2.7 100 22.2 16.7 24.2 2,910
Technologies Corp.
02/06/91 Hamilton Oil Corp. BHP Holdings Inc. 40.00 524.3 13.1 100 18.5 21.2 31.1 2,831
01/25/91 Medical Management of
America Investor Group 8.25 12.9 1.6 100 65.0 65.0 65.0 2,502
01/03/91 Ocean Drilling &
Exploration Murphy Oil Corp. 19.39 391.8 20.1 100 14.1 24.1 9.2 2,574
11/11/90 US WEST NewVector
Group Inc. US West Inc. 45.03 437.5 9.7 100 47.6 58.0 83.8 2,489
10/23/90 ERC Environmental and
Energy Ogden Corp. 15.13 33.6 2.2 100 37.5 44.1 44.1 2,494
07/31/90 Freeport-McMoRan Oil
and Gas Freeport McMoRan Inc. 10.88 46.2 4.3 100 36.0 42.6 47.4 2,905
07/19/90 Caesars New Jersey
Inc. Caesars World Inc. 22.58 48.4 2.2 100 40.0 49.2 44.5 2,994
07/12/90 TVX Broadcast Group
Inc. Paramount 9.50 61.4 6.5 100 26.7 90.0 85.2 2,970
Communications
07/06/90 Mack Trucks Inc. Renault Vehicules 6.25 103.7 16.6 100 19.0 19.0 21.8 2,905
Industriels
05/17/90 DST Systems Inc. Kansas City Southern 15.85 39.1 2.2 100 24.3 40.9 51.0 2,832
Inds. Inc.
05/08/90 ISS International
Service Sys. ISS International 12.00 15.4 1.3 100 54.8 60.0 60.0 2,734
Service A/S
03/02/90 Shearson Lehman
Brothers Hldgs. American Express Co. 12.90 360.0 27.9 100 -0.8 18.6 7.5 2,660
01/24/90 Copperweld Corp. Imetal SA 17.00 78.0 4.6 100 47.8 41.1 33.3 2,605
All Close Outs: Average 28.2% 32.3% 35.1%
Median 25.1 25.9 30.6
High 65.2 90.0 86.2
Low -0.8 8.9 -2.6
Average Premium
Dow Average 2,400-3,000 32.6% 41.2% 43.0%
Average Premium
Dow Average 3,000-3,800 21.3% 23.9% 23.5%
Average Premium
Dow Average 3,800-4,800 28.4% 27.4% 34.6%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
PROJECT 501 C - 46 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
M&A PREMIUM ANALYSIS /(A)/
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLOSING CLOSING CLOSING
PRICE PRICE PRICE
1 DAY 1 WEEK 4 WEEKS
PRIOR TO PRIOR TO PRIOR TO
VALUE OF PRICE ANNOUNCE- ANNOUNCE- ANNOUNCE-
DATE TRANSACTION PER MENT MENT MENT
ANNOUNCED TARGET NAME ACQUIROR NAME ($ MIL) SHARE DATE DATE DATE
<S> <C> <C> <C> <C> <C> <C> <C>
1990
01/08/90 First Fidelity
Bancorporation PNC $ 2,088.0 $ 36.00 $ 23.50 $ 23.25 $ 25.50
Financial,Pittsburgh,PA
02/02/90 Genentech Inc Roche Holding AG 2,021.5 36.00 21.75 21.63 21.75
03/06/90 MGM/UA Communications Co Pathe Communications 1,709.0 21.50 16.88 17.13 17.00
Corp
03/16/90 Norton Co BTR PLC 1,666.0 75.00 58.25 54.88 50.50
03/19/90 UAL Corp United Employees 4,543.0 201.00 164.50 181.75 168.50
Acquisition
04/06/90 Novell Inc Lotus Development Corp 1,508.0 43.18 42.88 41.88 40.63
06/25/90 International Lease Finance American International 1,122.0 32.50 27.63 27.88 25.00
Group
07/02/90 General Instrument Corp Forstmann Little & Co 1,863.0 44.50 36.25 36.38 35.50
07/12/90 Contel Corp GTE Corp 6,243.3 39.37 28.00 27.13 28.63
07/12/90 Motel 6 LP Accor SA 1,300.0 22.50 16.63 17.88 14.75
09/12/90 Kansas Gas & Electric Co Kansas Power and Light 1,098.7 32.00 19.75 19.63 20.63
Co
09/24/90 MCA Inc Matsushita Electric 7,406.0 66.00 35.00 37.00 42.75
Industrial
1991
02/19/91 Square D Co Schneider SA 2,165.3 88.00 50.25 51.75 53.63
06/25/91 C&S/Sovran Corp NCNB Corp,Charlotte,NC 4,259.0 31.08 19.25 18.50 18.75
07/15/91 Manufacturers Hanover Corp Chemical Banking Corp 2,044.2 27.08 23.25 21.75 25.13
08/12/91 Security Pacific,Los
Angeles BankAmerica Corp 4,212.7 32.89 23.00 22.63 24.63
09/24/91 Metro Mobile CTS Inc Bell Atlantic Corp 2,464.0 24.73 19.13 18.75 19.13
1992
04/16/92 Star Banc Corp Fifth Third 1,214.0 42.00 29.25 27.25 29.50
Bancorp,Cincinnati
05/27/92 Centel Corp Sprint Corp 3,967.0 33.57 37.00 35.75 32.00
06/08/92 Gulf States Utilities Co Entergy Corp 2,281.0 20.00 12.13 12.13 12.25
06/09/92 Wetterau Inc Super Valu Stores Inc 1,084.3 30.25 24.00 22.75 23.75
07/17/92 MNC Financial Inc NationsBank Corp 1,333.0 15.17 11.25 12.00 10.50
12/11/92 PSI Resources Inc Cincinnati Gas & 1,548.0 28.00 18.50 18.50 18.25
Electric Co
1993
06/10/93 Affiliated Publications Inc New York Times Co 1,092.5 15.00 13.50 13.25 12.13
06/10/93 Galen Health Care Inc Columbia Hospital Corp 4,187.7 19.96 14.00 14.00 13.88
06/16/93 Price Co Costco Wholesale Corp 1,666.2 36.21 32.25 29.25 29.75
06/30/93 Quantum Chemical Corp Hanson Trust PLC 3,219.7 20.00 12.50 12.88 14.38
07/28/93 Medco Containment Services
Inc Merck & Co Inc 6,225.7 39.00 29.75 28.63 32.00
08/19/93 Fisher-Price Inc Mattel Inc 1,145.4 32.67 23.88 24.13 22.75
09/09/93 Paramount Communications Viacom Inc(Natl 9,600.0 107.00 55.00 57.25 53.75
Amusements)
09/22/93 Travelers Corp Primerica Corp 3,955.9 36.99 36.00 36.00 34.50
10/03/93 HCA-Hospital Corp of
America Columbia Healthcare 5,605.0 31.76 22.75 21.63 20.63
Corp
10/06/93 Liberty Media Corp Tele-Communications Inc 3,411.0 26.00 25.50 23.50 23.75
10/13/93 Tele-Communications Inc Bell Atlantic Corp 29,432.0 35.10 28.38 26.63 24.75
12/06/93 Dreyfus Corp Mellon Bank 1,848.3 50.50 40.88 38.75 41.38
Corp,Pittsburgh,PA
<CAPTION>
PREMIUM PREMIUM
1 DAY 1 WEEK
PRIOR TO PRIOR TO PREMIUM
ANNOUNCE- ANNOUNCE- 4 WEEKS DATE
DATE MENT MENT PRIOR TO
ANNOUNCED TARGET NAME ACQUIROR NAME DATE DATE ANN.
<S> <C> <C> <C> <C> <C>
1990
01/08/90 First Fidelity
Bancorporation PNC 53.2% 54.8% 41.2%
Financial,Pittsburgh,PA
02/02/90 Genentech Inc Roche Holding AG 65.5% 66.4% 65.5%
03/06/90 MGM/UA Communications Co Pathe Communications 27.4% 25.5% 26.5%
Corp
03/16/90 Norton Co BTR PLC 28.8% 36.7% 48.5%
03/19/90 UAL Corp United Employees 22.2% 10.6% 19.3%
Acquisition
04/06/90 Novell Inc Lotus Development Corp 0.7% 3.1% 6.3%
06/25/90 International Lease Finance American International 17.6% 16.6% 30.0%
Group
07/02/90 General Instrument Corp Forstmann Little & Co 22.8% 22.3% 25.4%
07/12/90 Contel Corp GTE Corp 40.6% 45.1% 37.5%
07/12/90 Motel 6 LP Accor SA 35.3% 25.8% 52.5%
09/12/90 Kansas Gas & Electric Co Kansas Power and Light 62.0% 63.0% 55.1%
Co
09/24/90 MCA Inc Matsushita Electric 88.6% 78.4% 54.4%
Industrial
1991
02/19/91 Square D Co Schneider SA 75.1% 70.0% 64.1%
06/25/91 C&S/Sovran Corp NCNB Corp,Charlotte,NC 61.5% 68.0% 65.8%
07/15/91 Manufacturers Hanover Corp Chemical Banking Corp 16.5% 24.5% 7.8%
08/12/91 Security Pacific,Los
Angeles BankAmerica Corp 43.0% 45.3% 33.5%
09/24/91 Metro Mobile CTS Inc Bell Atlantic Corp 29.3% 31.9% 29.3%
1992
04/16/92 Star Banc Corp Fifth Third 43.6% 54.1% 42.4%
Bancorp,Cincinnati
05/27/92 Centel Corp Sprint Corp -9.3% -6.1% 4.9%
06/08/92 Gulf States Utilities Co Entergy Corp 64.9% 64.9% 63.3%
06/09/92 Wetterau Inc Super Valu Stores Inc 26.0% 33.0% 27.4%
07/17/92 MNC Financial Inc NationsBank Corp 34.8% 26.4% 44.5%
12/11/92 PSI Resources Inc Cincinnati Gas & 51.4% 51.4% 53.4%
Electric Co
1993
06/10/93 Affiliated Publications Inc New York Times Co 11.1% 13.2% 23.7%
06/10/93 Galen Health Care Inc Columbia Hospital Corp 42.6% 42.6% 43.8%
06/16/93 Price Co Costco Wholesale Corp 12.3% 23.8% 21.7%
06/30/93 Quantum Chemical Corp Hanson Trust PLC 60.0% 55.3% 39.1%
07/28/93 Medco Containment Services
Inc Merck & Co Inc 31.1% 36.2% 21.9%
08/19/93 Fisher-Price Inc Mattel Inc 36.8% 35.4% 43.6%
09/09/93 Paramount Communications Viacom Inc(Natl 94.5% 86.9% 99.1%
Amusements)
09/22/93 Travelers Corp Primerica Corp 2.8% 2.8% 7.2%
10/03/93 HCA-Hospital Corp of
America Columbia Healthcare 39.6% 46.8% 54.0%
Corp
10/06/93 Liberty Media Corp Tele-Communications Inc 2.0% 10.6% 9.5%
10/13/93 Tele-Communications Inc Bell Atlantic Corp 23.7% 31.8% 41.8%
12/06/93 Dreyfus Corp Mellon Bank 23.5% 30.3% 22.0%
Corp,Pittsburgh,PA
</TABLE>
/(A)/ M&A ANNOUNCED AND COMPLETED TRANSACTIONS OVER $1 BILLION.
- --------------------------------------------------------------------------------
PROJECT 501 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
M&A PREMIUM ANALYSIS (a)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Closing Closing
Price Price Premium
1 day 1 week 1 day
prior to prior to Prior to
Value of Price announce- announce- announce-
Date Transaction Per ment ment ment
Announced Target Name Acquiror Name ($mil) Share date date date
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994
01/07/94 Blockbuster Entertainment Corp Viacom Inc(Natl Amusements) $7,971.1 $ 32.21 $26.25 $27.50 $25.50
01/10/94 TakeCare Inc FHP International Corp 1,033.0 80.00 51.75 55.50 52.25
01/28/94 Continental Bank Corp NA BankAmerica Corp 2,162.0 38.30 27.88 26.88 26.38
03/09/94 Dr Pepper/Seven-Up Cos Inc Cadbury Schweppes PLC 2,366.5 33.00 24.75 24.25 25.25
03/10/94 Grumman Corp Northrop Corp 2,104.0 62.00 39.88 37.50 39.00
03/14/94 Kemper Corp General Electric Capital Corp 2,307.0 60.00 40.88 40.50 41.00
05/02/94 Syntex Corp Roche Holding AG 5,307.2 24.00 15.25 14.00 13.38
05/23/94 Gerber Products Co Sandoz AG 3,685.7 53.00 34.63 33.25 31.00
06/29/94 Santa Fe Pacific Corp Burlington Northern Inc 3,747.5 29.57 20.25 21.75 23.50
07/05/94 SynOptics Communications Inc Wellfleet Communications 1,174.3 18.31 15.75 14.25 15.75
07/14/94 Kendall International Inc Tyco International Ltd 1,435.4 61.34 51.00 51.38 50.25
07/21/94 QVC Inc Investor Group 1,316.9 46.00 46.00 43.44 33.75
08/01/94 Southern National,Lumberton,NC BB&T 1,348.2 31.00 21.13 20.75 20.50
08/02/94 American Cyanamid Co American Home Products Corp 9,560.9 101.00 60.63 61.50 55.88
08/02/94 Unitrin Inc American General Corp 2,611.4 50.38 41.25 39.50 39.75
08/30/94 Lockheed Corp Martin Marietta Corp 5,204.1 78.65 66.00 63.25 62.38
09/12/94 Borden Inc Kohlberg Kravis Roberts & Co 4,643.4 13.61 11.63 12.13 12.38
10/05/94 HealthTrust Inc-The Hospital Columbia/HCA Healthcare Corp 5,219.5 37.62 32.00 30.38 29.38
10/13/94 LILCO New York Power Authority 2,533.0 21.50 16.50 16.75 16.75
10/20/94 Health Systems International FHP International Corp 1,646.3 34.00 26.50 26.63 25.25
10/20/94 Reliance Electric Co Rockwell International Corp 1,558.9 31.00 19.88 20.00 20.50
11/02/94 Snapple Beverage Corp Quaker Oats Co 1,702.7 14.00 14.25 14.63 12.00
12/06/94 Continental Corp CNA Financial Corp(Loews Corp) 1,110.0 20.00 14.38 14.38 14.75
12/12/94 Transco Energy Co Williams Cos Inc 2,706.0 17.50 12.63 12.25 13.13
12/16/94 Caesars World Inc ITT Corp 1,695.7 67.50 42.63 42.50 43.00
12/21/94 Teledyne Inc WHX Corp 1,199.0 22.00 17.13 17.00 17.50
12/30/94 Health Systems International Foundation Health Corp 1,501.0 31.00 21.88 23.38 24.50
1995
01/09/95 Pet Inc Pillsbury Co(Grand Met PLC) 2,610.0 26.00 20.13 19.75 17.00
01/26/95 Hillhaven Corp Vencor Inc 1,889.2 32.25 22.88 22.13 20.50
02/03/95 Michigan National Corp National Australia Bank Ltd 1,455.7 110.00 87.50 87.00 76.13
02/20/95 Compass Bancshares First Union Corp 1,135.0 30.71 26.63 27.25 22.75
02/21/95 Shawmut National Corp Fleet Financial Group Inc 3,807.0 29.93 20.63 21.38 18.00
02/28/95 Marion Merrell Dow Inc Hoechst AG 7,121.0 25.75 23.75 22.50 23.13
03/02/95 US Shoe Corp(Luxottica Group) Luxottica Group SpA 1,326.4 28.00 19.25 19.25 19.50
03/08/95 Health Systems International Wellpoint Health Networks Inc 1,658.1 33.79 28.25 28.88 27.38
03/28/95 Clark Equipment Co Ingersoll-Rand Co 1,449.8 86.00 52.63 50.63 53.50
04/03/95 E-Systems Inc Raytheon Co 2,255.4 64.00 45.38 44.75 43.75
04/10/95 ALC Communications Corp Frontier Corp 1,884.1 45.50 33.25 34.00 31.38
04/10/95 Kemper Corp Investor Group 1,872.4 49.80 41.25 40.00 41.00
04/18/95 Lincare Holdings Inc Coram Healthcare Corp 1,031.0 38.50 29.31 29.50 28.00
04/20/95 Bruno's Inc Kohlberg Kravis Roberts & Co 1,150.0 12.00 9.31 9.38 9.00
05/01/95 Northern States Power Co Wisconsin Energy Corp 3,036.6 45.12 44.25 44.25 43.13
<CAPTION>
Premium Premium
1 day 1 day
Prior to Prior to Premium
announce- announce- 4 weeks
Date ment ment prior to
Announced Target Name Acquiror Name date date ann. date
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
01/07/94 Blockbuster Entertainment Corp Viacom Inc(Natl Amusements) 22.7% 17.1% 26.3%
01/10/94 TakeCare Inc FHP International Corp 54.6% 44.1% 53.1%
01/28/94 Continental Bank Corp NA BankAmerica Corp 37.4% 42.5% 45.2%
03/09/94 Dr Pepper/Seven-Up Cos Inc Cadbury Schweppes PLC 33.3% 36.1% 30.7%
03/10/94 Grumman Corp Northrop Corp 55.5% 65.3% 59.0%
03/14/94 Kemper Corp General Electric Capital Corp 46.8% 48.1% 46.3%
05/02/94 Syntex Corp Roche Holding AG 57.4% 71.4% 79.4%
05/23/94 Gerber Products Co Sandoz AG 53.0% 59.4% 71.0%
06/29/94 Santa Fe Pacific Corp Burlington Northern Inc 46.0% 36.0% 25.8%
07/05/94 SynOptics Communications Inc Wellfleet Communications 16.3% 28.5% 16.3%
07/14/94 Kendall International Inc Tyco International Ltd 20.3% 19.4% 22.1%
07/21/94 QVC Inc Investor Group 0.0% 5.9% 36.3%
08/01/94 Southern National,Lumberton,NC BB&T 46.7% 49.4% 51.2%
08/02/94 American Cyanamid Co American Home Products Corp 66.6% 64.2% 80.7%
08/02/94 Unitrin Inc American General Corp 22.1% 27.5% 26.7%
08/30/94 Lockheed Corp Martin Marietta Corp 19.2% 24.3% 26.1%
09/12/94 Borden Inc Kohlberg Kravis Roberts & Co 17.0% 12.2% 9.9%
10/05/94 HealthTrust Inc-The Hospital Columbia/HCA Healthcare Corp 17.6% 23.8% 28.0%
10/13/94 LILCO New York Power Authority 30.3% 28.4% 28.4%
10/20/94 Health Systems International FHP International Corp 28.3% 27.7% 34.7%
10/20/94 Reliance Electric Co Rockwell International Corp 55.9% 55.0% 51.2%
11/02/94 Snapple Beverage Corp Quaker Oats Co -1.8% -4.3% 16.7%
12/06/94 Continental Corp CNA Financial Corp(Loews Corp 39.1% 39.1% 35.6%
12/12/94 Transco Energy Co Williams Cos Inc 38.6% 42.9% 33.3%
12/16/94 Caesars World Inc ITT Corp 58.3% 58.8% 57.0%
12/21/94 Teledyne Inc WHX Corp 28.4% 29.4% 25.7%
12/30/94 Health Systems International Foundation Health Corp 41.7% 32.6% 26.5%
1995
01/09/95 Pet Inc Pillsbury Co(Grand Met PLC) 29.2% 31.6% 52.9%
01/26/95 Hillhaven Corp Vencor Inc 41.0% 45.7% 57.3%
02/03/95 Michigan National Corp National Australia Bank Ltd 25.7% 26.4% 44.5%
02/20/95 Compass Bancshares First Union Corp 15.3% 12.7% 35.0%
02/21/95 Shawmut National Corp Fleet Financial Group Inc 45.1% 40.0% 66.3%
02/28/95 Marion Merrell Dow Inc Hoechst AG 8.4% 14.4% 11.3%
03/02/95 US Shoe Corp(Luxottica Group) Luxottica Group SpA 45.5% 45.5% 43.6%
03/08/95 Health Systems International Wellpoint Health Networks Inc 19.6% 17.0% 23.4%
03/28/95 Clark Equipment Co Ingersoll-Rand Co 63.4% 69.9% 60.7%
04/03/95 E-Systems Inc Raytheon Co 41.0% 43.0% 46.3%
04/10/95 ALC Communications Corp Frontier Corp 36.8% 33.8% 45.0%
04/10/95 Kemper Corp Investor Group 20.7% 24.5% 21.5%
04/18/95 Lincare Holdings Inc Coram Healthcare Corp 31.4% 30.5% 37.5%
04/20/95 Bruno's Inc Kohlberg Kravis Roberts & Co 28.9% 27.9% 33.3%
05/01/95 Northern States Power Co Wisconsin Energy Corp 2.0% 2.0% 4.6%
</TABLE>
- --------------------------------
(a) M&A ANNOUNCED AND COMPLETED TRANSACTIONS OVER $1 BILLION.
_______________________________________________________________________________
PROJECT 501 C-48 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
M&A PREMIUM ANALYSIS/(A)/
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Closing Closing Closing
Price Price Price Premium Premium
1 day 1 week 4 weeks 1 day 1 week
Value prior prior prior prior prior Pre-
of to an- to an- to an- to an- to an- mium
Trans- Price nounce- nounce- nounce- nounce- nounce- 4 weeks
Date action Per ment ment ment ment ment prior to
Announced Target Name Acquiror Name ($ mil) share date date date date date ann. date
- --------- ---------------- ------------------ --------- ------ -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995
(CONT.)
05/08/95 West One Bancorp,
Boise, Idaho US Bancorp,
Portland,Oregon $ 1,447.0 $ 39.32 $ 32.13 $ 27.38 $ 28.25 22.4% 43.6% 39.2%
05/09/95 Riverwood
International
Corp Investor Group 2,437.0 20.25 20.63 20.13 17.25 -1.8% 0.6% 17.4%
05/25/95 Legent Corp Computer Associates 1,718.6 47.95 31.25 29.00 27.25 53.4% 65.3% 76.0%
Intl Inc
06/13/95 First Financial
Management First Data Corp 5,756.1 90.20 76.75 75.25 72.75 17.5% 19.9% 24.0%
06/19/95 First Fidelity
Bancorporation First Union Corp 5,069.8 64.29 48.88 49.00 49.75 31.5% 31.2% 29.2%
06/20/95 LILCO Long Island Power 2,083.5 17.50 15.50 16.00 15.00 12.9% 9.4% 16.7%
Authority
07/10/95 Midlantic Corp PNC Bank Corp 2,860.6 55.09 41.00 40.00 35.56 34.4% 37.7% 54.9%
07/17/95 Scott Paper Co Kimberly-Clark Corp 6,791.5 44.85 44.38 43.88 44.00 1.1% 2.2% 1.9%
07/21/95 Bank of Boston
Corp BANC ONE Corp 5,005.8 45.00 41.88 39.38 37.75 7.4% 14.3% 19.2%
07/28/95 Wallace Computer
Services Inc Moore Corp Ltd 1,352.0 60.00 42.88 40.88 38.38 39.9% 46.8% 56.3%
07/31/95 Capital Cities/
ABC Inc Walt Disney Co 18,836.7 122.38 96.13 97.75 106.25 27.3% 25.2% 15.2%
08/01/95 CBS Inc Westinghouse
Electric Corp 5,036.2 82.07 65.75 67.00 69.00 24.8% 22.5% 18.9%
08/02/95 Southern Pacific
Rail Corp Union Pacific Corp 4,036.5 25.00 19.63 19.88 16.25 27.4% 25.8% 53.8%
08/14/95 CIPSCO Inc Union Electric Co 1,241.5 36.44 29.63 29.63 29.25 23.0% 23.0% 24.6%
08/25/95 Fourth Financial
Corp Boatmen's Bancshares 1,026.2 37.25 33.75 33.50 35.63 10.4% 11.2% 4.5%
Inc
08/28/95 Chase Manhattan
Corp Chemical Banking
Corp 9,865.6 56.55 53.00 52.63 53.63 6.7% 7.4% 5.4%
08/28/95 Integra Financial
Corp National City 2,080.5 63.25 51.88 51.38 53.13 21.9% 23.1% 19.0%
Corp, Cleveland
08/29/95 Turner Broad-
casting System
Inc Time Warner 6,880.7 29.81 23.70 22.13 23.00 25.8% 34.7% 29.6%
09/05/95 Bank South Corp,
Atlanta, GA NationsBank Corp 1,590.4 27.06 23.25 22.06 20.44 16.4% 22.7% 32.4%
09/11/95 Summit Bancorpo-
ration UJB Financial Corp 1,111.0 32.96 25.50 24.88 24.00 29.3% 32.5% 37.3%
09/25/95 Potomac Electric
Power Company Baltimore Gas and 3,073.9 26.05 21.50 21.63 21.38 21.2% 20.4% 21.8%
Electric Co
10/10/95 Meridian Bancorp
Inc CoreStates Financial 2,726.3 47.16 38.81 38.56 39.50 21.5% 22.3% 19.4%
Corp
10/10/95 Surgical Care Af-
filiates Inc HealthSouth Corp 1,428.3 36.64 23.00 22.75 23.00 59.3% 61.1% 59.3%
10/18/95 First Interstate
Bancorp, CA Wells Fargo & Co 10,964.7 144.30 106.00 105.88 100.25 36.1% 36.3% 43.9%
10/19/95 Cordis Corp Johnson & Johnson 1,787.0 109.00 86.00 85.00 84.25 26.7% 28.2% 29.4%
10/27/95 CBI Industries
Inc Praxair Inc 2,181.9 33.00 19.50 22.13 23.75 69.2% 49.1% 38.9%
11/06/95 Federal Paper
Board Co International Paper
Co 3,319.0 55.00 45.50 39.88 37.00 20.9% 37.9% 48.6%
11/06/95 First Interstate
Bancorp, CA First Bank System
Inc 10,051.0 132.28 106.00 105.88 100.25 24.8% 24.9% 32.0%
11/13/95 Vigoro Corp IMC Global Inc 1,186.6 59.70 45.25 44.00 44.50 31.9% 35.7% 34.2%
11/29/95 Revco DS Inc
(NEW) Rite Aid Corp 2,093.6 27.50 25.00 25.25 23.75 10.0% 8.9% 15.8%
12/12/95 BayBanks Inc Bank of Boston Corp 2,013.4 102.58 84.25 84.25 81.25 21.8% 21.8% 26.3%
12/15/95 UtiliCorp United
Inc Kansas City Power & 1,316.4 28.77 25.50 24.63 24.88 12.8% 16.8% 15.6%
Light Co
1996
01/08/96 Loral Corp Lockheed Martin Corp 8,648.2 38.00 36.25 35.38 35.13 4.8% 7.4% 8.2%
AVERAGE 1990 - PRESENT 31.7% 33.1% 35.4%
1993 - PRESENT 29.8% 31.5% 34.5%
1995 - PRESENT 26.6% 28.1% 32.1%
MEDIAN 1990 - PRESENT 28.8% 31.4% 33.3%
1993 - PRESENT 27.4% 30.3% 32.4%
1995 - PRESENT 25.3% 26.1% 32.2%
</TABLE>
- ----------
/(A)/ M&A ANNOUNCED AND COMPLETED TRANSACTIONS OVER $1 BILLION.
- --------------------------------------------------------------------------------
PROJECT 501 C - 49 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
PREMIUM VALUATION
- --------------------------------------------------------------------------------
IMPLIED
APPLICABLE OFFER
CLOSE OUT PREMIUM VALUATION PREMIUM PRICE(a)
------------------------------ ------------ ------------
1 Day Prior to Transaction 20 - 25% $240 - 250
1 Week Prior to Transaction 23 - 28 246 - 256
4 Weeks Prior to Transaction 20 - 30 240 - 260
Valuation Based on Premium Analysis.. $240 - 260 per share
IMPLIED
APPLICABLE OFFER
M&A PREMIUM VALUATION PREMIUM PRICE(a)
--------------------- ------------ ------------
1 Day Prior to Transaction 25 - 32% $250 - 264
1 Week Prior to Transaction 25 - 33 250 - 266
4 Weeks Prior to Transaction 30 - 35 260 - 270
Valuation Based on Premium Analysis $250 - 270 per share
- ---------------------------------
(a) Assumes $200.00 trading price
- --------------------------------------------------------------------------------
PROJECT 501 C-50 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
PUBLIC AVERAGE VS. PRIVATE AVERAGE P/E RATIOS
- --------------------------------------------------------------------------------
. MERGER PREMIUMS APPEAR TO COMPRESS DURING PERIODS OF HIGH PUBLIC VALUATIONS
[THE TABLE BELOW WAS REPRESENTED AS A LINE GRAPH IN THE PRINTED MATERIAL.]
S&P 500 Average
P/E Merger P/E
1973 12.2 18.9
1974 7.3 13.5
1975 11.7 13.3
1976 11 15.1
1977 8.8 13.8
1978 8.3 14.3
1979 7.4 14.3
1980 9.1 15.2
1981 8.1 15.6
1982 10.2 13.9
1983 12.4 16.7
1984 10.8 17.2
1985 11.5 18
1986 16 22.2
1987 19.3 23.3
1988 12.4 21.6
1989 13.3 20.9
1990 15.2 20.1
1991 18.6 20
1992 24.2 22.7
1993 23.4 24.4
1994 19.9 24.5
- -------------------
Source Mergerstat
- --------------------------------------------------------------------------------
PROJECT 501 C-51 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
MERGER ANALYSIS (a)
- --------------------------------------------------------------------------------
PUBLIC AVERAGE PRIVATE AVERAGE M&A P/E VS.
YEAR (S&P 500) P/E RATIO (M&A) P/E RATIO S&P 500 P/E
-------- ----------------------- -------------------- --------------
1973 12.2x 18.9x 54.9%
1974 7.3 13.5 84.9
1975 11.7 13.3 13.7
1976 11.0 15.1 37.3
1977 8.8 13.8 56.8
1978 8.3 14.3 72.3
1979 7.4 14.3 93.2
1980 9.1 15.2 67.0
1981 8.1 15.6 92.6
1982 10.2 13.9 36.3
1983 12.4 16.7 34.7
1984 10.8 17.2 59.3
1985 11.5 18.0 56.5
1986 16.0 22.2 38.8
1987 19.3 23.3 20.7
1988 12.4 21.6 74.2
1989 13.3 20.9 57.1
1990 15.2 20.1 32.2
1991 18.6 20.0 7.5
1992 24.2 22.7 (6.2)
1993 23.4 24.4 4.3
1994 19.9 24.5 23.1
20-Year Average (1975-1994) 13.6x 18.4x 35.2%
10-Year Average (1981-1990) 12.9 19.0 46.7
10-Year Average (1985-1994) 17.4 21.8 25.3
5-Year Average (1990-1994) 20.3 22.3 10.3
- -----------------------
(a) Source Mergerstat
- --------------------------------------------------------------------------------
PROJECT 501 C-52 DILLON, READ & CO. INC.
<PAGE>
SUMMARY
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
SUMMARY OF VALUATION INDICATORS (a)(b)
- --------------------------------------------------------------------------------
[THE TABLE BELOW WAS REPRESENTED AS A BAR GRAPH IN THE PRINTED MATERIAL.]
Comparable Trading [Shows a bold range from $190 to $210]
Comparable Acquisitions (a) [Shows a bold range from $225 to $250
representing the retail transaction range and
shows a dotted area range from $170 to $260
representing selected transactions over $2.5
billion]
Management Discounted Cash Flows [Shows a bold range from $165 to $200]
Modified Discounted Cash Flows [Shows a bold range from $215 to $255]
Leverage Buyout [Shows a bold range from $175 to $200]
Premium Analysis (b) [Shows a bold range from $240 to $260
representing the closeout premium range and
shows a dotted area range from $250 to $270
representing the merger premium range]
Transaction offer price = $265
- ---------------------
(a) Red range includes only retail transactions, dotted area includes selected
transactions over $2.5 billion.
(b) Red range includes only close out premiums, dotted area includes selected
M&A transactions over $1 billion.
- --------------------------------------------------------------------------------
PROJECT 501 C-54 DILLON, READ & CO. INC.
<PAGE>
LEVERAGED RECAPITALIZATION ANALYSIS
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
RECAPITALIZATION ANALYSIS - MODIFIED ASSUMPTIONS
- --------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
COMMON EQUITY RETURNS(a)
- -------------------------------
$2.5 BILLION RECAPITALIZATION
@13.0x Forward Net Income (29.3%) (8.9%) 1.6% 5.6% 7.1% 8.0%
@15.0x Forward Net Income (18.5%) (2.2%) 6.6% 9.4% 10.2% 10.6%
@17.0x Forward Net Income (7.6%) 4.1% 11.1% 12.9% 13.0% 12.9%
$4.0 BILLION RECAPITALIZATION
@13.0x Forward Net Income (26.8%) (6.7%) 3.9% 7.6% 8.9% 9.6%
@15.0x Forward Net Income (15.5%) 0.3% 9.0% 11.5% 12.1% 12.2%
@17.0x Forward Net Income (4.3%) 6.7% 13.7% 15.1% 14.9% 14.6%
"DO NOTHING"
@13.0x Forward Net Income (32.6%) (11.8%) (1.3%) 2.9% 4.8% 5.9%
@15.0x Forward Net Income (22.3%) (5.3%) 3.5% 6.7% 7.8% 8.4%
@17.0x Forward Net Income (11.9%) 0.8% 7.9% 10.0% 10.6% 10.7%
- -------------------------------
(a) Assumes $265 share price
- --------------------------------------------------------------------------------
PROJECT 501 D-1 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
RECAPITALIZATION ANALYSIS - MODIFIED ASSUMPTIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1997 1998 1999 2000 2001
--------- -------- --------- -------- -------- --------
PRESENT VALUE PER SHARE
- -----------------------
$2.5 BILLION RECAPITALIZATION(a)
@13.0x Forward Net Income $161.82 $164.20 $179.61 $185.57 $180.31 $174.94
@15.0x Forward Net Income 186.72 189.46 207.24 211.81 208.05 201.86
@17.0x Forward Net Income 211.61 214.72 234.87 240.05 235.78 228.77
$4.0 BILLION RECAPITALIZATION(b)
@13.0x Forward Net Income $164.98 $166.97 $182.95 $185.82 $180.66 $173.24
@15.0x Forward Net Income 190.36 192.65 211.10 214.41 208.45 199.90
@17.0x Forward Net Income 215.74 218.34 239.25 242.99 236.25 226.55
"DO NOTHING"(c)
@13.0x Forward Net Income $156.13 $157.50 $170.27 $173.70 $171.12 $166.85
@15.0x Forward Net Income 180.15 181.73 196.46 200.42 197.44 192.52
@17.0x Forward Net Income 204.16 205.96 222.66 227.14 223.77 218.19
</TABLE>
- -------------------------------
(a) Equity discount rate = 15.7%
(b) Equity discount rate = 17.6%
(c) Equity discount rate = 14.3%
- --------------------------------------------------------------------------------
PROJECT 501 D-2 DILLON, READ & CO. INC.
<PAGE>
CONFIDENTIAL
- --------------------------------------------------------------------------------
RECAPITALIZATION ANALYSIS - MANAGEMENT ASSUMPTIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PRICE PER SHARE
$2.5 Billion Recapitalization $205.0 $229.0 $262.0 $300.0 $329.0
$4.0 Billion Recapitalization 210.0 235.0 273.0 317.0 351.0
RATE OF RETURN
$2.5 Billion Recapitalization (22.6%) (7.0%) (0.4%) 3.1% 4.4%
$4.0 Billion Recapitalization (20.8%) (5.8%) 1.0% 4.6% 5.8%
EQUITY COST OF CAPITAL 1996 1997 1998 1999 2000
---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PRESENT VALUE PER SHARE
$2.5 Billion Recapitalization 15.7% $177.2 $171.1 $169.2 $167.4 $158.7
$4.0 Billion Recapitalization 17.6% 178.6 169.9 167.9 165.7 156.1
</TABLE>
- --------------------------------------------------------------------------------
PROJECT 501 DILLON, READ & CO. INC.
D-3
<PAGE>
EXHIBIT (c)(2)
STOCK SUBSCRIPTION AGREEMENT*
* This agreement has been conformed to reflect certain amendments to the Stock
Subscription Agreement which were effected prior to January 25, 1996 but
subsequent to the original printing of the Stock Subscription Agreement
forms circulated to Participating Stockholders.
STOCK SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of January 25,
1996 between LSAI HOLDING CORP., a Delaware corporation ("Holdings"), and the
undersigned stockholder (the "Stockholder") of Levi Strauss Associates Inc., a
Delaware corporation (the "Company") and the parent corporation of Levi
Strauss & Co.
RECITALS
WHEREAS, a group of major stockholders of the Company, including Robert D.
Haas, Evelyn D. Haas, as an executor of the estate of Walter A. Haas, Jr.,
Peter E. Haas, Sr., Miriam L. Haas, Peter E. Haas, Jr., Josephine B. Haas, F.
Warren Hellman and Tully M. Friedman (the "Transaction Sponsors") has agreed
to capitalize Holdings by means of a contribution of shares of Company common
stock;
WHEREAS, Holdings intends to form LSAI Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Holdings ("Acquisition Corp.");
WHEREAS, Holdings intends to submit a proposal to the Board of Directors of
the Company contemplating the merger of Acquisition Corp. with and into the
Company, resulting in the Company being a wholly owned subsidiary of Holdings
(the "Merger," and together with all the transactions related thereto, the
"Transaction");
WHEREAS, Holdings intends to provide all holders of Class L Common Stock of
the Company, par value $.10 per share (the "Class L Shares," and the holders
thereof the "Class L Stockholders"), with an opportunity, subject to certain
conditions described below, to participate in the ownership of Holdings and,
through Holdings, the continued ownership of the Company;
WHEREAS, such ownership will be realized through a purchase (the
"Purchase"), prior to the Merger, of common stock of Holdings, par value $.01
(the "Holdings Shares"), by those Class L Stockholders who wish to participate
in the ownership of Holdings (the "Participating Stockholders"), at a price of
one Class L Share for one Holdings Share;
WHEREAS, as a result of the proposed Merger, it is contemplated that all
outstanding shares of Class E Common Stock of the Company, par value $.10 per
share (the "Class E Shares," and the holders thereof the "Class E
Stockholders"), and all outstanding Class L Shares not held by Holdings
(consisting of Class L Shares not contributed by the Participating
Stockholders and Class L Shares held by Class L Stockholders who are not
Participating Stockholders) will be converted into the right to receive $250
per share (except, in each case, for shares held by stockholders who exercise
their rights to appraisal pursuant to (S) 262 of the Delaware General
Corporation Law (the "DGCL"));
WHEREAS, Holdings intends to finance the cash payments to be made in
conjunction with the Merger through existing cash resources and from
borrowings under a new or amended bank credit agreement or other sources; and
WHEREAS, the Stockholder is executing this Agreement, effective as of
January 25, 1996, in order to purchase Holdings Shares and continue to
participate, through ownership of Holdings, in the ownership of the Company.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements contained herein, the parties hereto agree as
follows:
<PAGE>
ARTICLE I
Stock Subscription
1.1 Contribution of Class L Shares; Purchase of Holdings Shares. (a) Subject
to Section 4.1 hereof, the Stockholder agrees to purchase, at the Closing (as
hereinafter defined), Holdings Shares, (the "Purchase Number") at a
price of one Class L Share for each Holdings Share.
(b) At the Closing,
(i) Holdings will deliver to Thomas J. Bauch or Nenita Sobejana, as
agents for the Stockholder (the "Agents"), certificates issued in the
Stockholder's name representing the Holdings Shares purchased hereunder;
(ii) the Agents will deliver such certificates for the Holdings Shares,
together with the stock power submitted by the Stockholder pursuant to
Section 1.2, to Holdings, with a request on behalf of the Stockholder that
such Holdings Shares be reregistered in the name of the trustees (the
"Trustees") of the Voting Trust (as hereinafter defined);
(iii) Holdings will deliver to the Trustees (or their designated agent)
one or more certificates representing such Holdings Shares issued in the
names of the Trustees; and
(iv) Holdings will deliver to each Stockholder a certificate representing
both the Stockholder's beneficial ownership of Holdings Shares and the
Stockholder's related and required participation in a voting trust (the
"Voting Trust," and such certificate the "Voting Trust Certificate").
1.2 Consideration for Shares. Prior to the Closing, Holdings shall deliver
to the Stockholder a letter of transmittal. The Stockholder shall complete and
return such letter of transmittal to Holdings on or prior to the date
indicated thereon, together with the certificates representing the Class L
Shares to be used as consideration for the Holdings Shares purchased pursuant
to this Agreement (the "Contributed Shares"). In addition, the Stockholder
will receive signature pages for a voting trust agreement (the "Voting Trust
Agreement") and a stockholders' agreement (the "Stockholders' Agreement"),
each of which the Stockholder hereby commits to become a party to by executing
those signature pages. Such signature pages will be signed by the Stockholder
and returned to Holdings with stock powers acceptable to Holdings, in its sole
discretion, permitting Holdings to reregister the Stockholder's Holdings
Shares in the name of the Trustees as contemplated by Section 1.1(b). All
transactions contemplated by this Section 1.2 must be carried out on or prior
to the Closing. If the Stockholder cannot deliver certificates for the
Contributed Shares because such certificates have been lost or destroyed,
Holdings will take reasonable steps upon the receipt of a customary indemnity
to arrange for the issuance of replacement certificates therefor prior to the
Closing.
1.3 Closing. Subject to the terms and conditions of this Agreement, the
delivery of the Contributed Shares by the Stockholder to Holdings, and the
issuance of Holdings Shares in the Stockholder's name, followed by the
delivery to the Stockholder of the Voting Trust Certificate evidencing
ownership of the Holdings Shares (the "Closing"), shall occur two business
days prior to the anticipated consummation of the Merger. Such delivery by the
Stockholder and transfer by Holdings shall be made to the Agents.
ARTICLE II
Representations and Warranties of Holdings
Holdings represents and warrants to the Stockholder that:
2.1 Organization and Authority. Holdings is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to enter into this
Agreement, to issue and sell the Holdings Shares and to consummate the
Transaction.
2
<PAGE>
2.2 Capitalization. Immediately after the Closing, the Participating
Stockholders, together with the stockholders who received Holdings Shares in
the formation of Holdings, shall own 100% of the outstanding Holdings Shares.
All of the Holdings Shares outstanding following the Closing shall be validly
issued, fully paid and nonassessable and, when delivered by Holdings at the
Closing, shall be free and clear of all liens, claims, options, charges or
other security interests or encumbrances, except for arrangements binding the
Stockholder set forth in the Voting Trust Agreement and the Stockholders'
Agreement.
2.3 Valid, Binding Agreement. This Agreement is a valid and binding
agreement of Holdings, enforceable against Holdings in accordance with its
terms.
ARTICLE III
Representations and Warranties of the Stockholder
The Stockholder hereby represents and warrants as follows:
3.1 Total Shares of the Company; Consideration. (a) Schedule 1 sets forth
the number of Class L Shares of which the Stockholder is the holder of record
as of the date hereof. Except as set forth on Schedule 1, and other than the
existing stockholders' agreement to which Class L Shares are currently subject
(the "Class L Stockholders' Agreement"), such Class L Shares are held free and
clear of all claims, liens, charges, encumbrances, security interests, voting
agreements and commitments of any kind.
(b) Except as set forth in Schedule 1, as of the date hereof, the
Stockholder has full power and authorization to vote the Class L Shares listed
on Schedule 1, as well as to sell, transfer, assign and deliver legal and
beneficial ownership of such Class L Shares. The transfer of the Contributed
Shares to Holdings pursuant to this Agreement and as part of the Purchase will
pass good and marketable title to such Class L Shares, free and clear of all
claims, liens, charges, encumbrances, security interests, voting agreements
and commitments of any kind (other than those provided for herein).
(c) Neither the execution of this Agreement nor the consummation by the
Stockholder of the Purchase will constitute a violation of or default under,
or conflict with any contract, commitment, agreement, understanding,
arrangement or restriction of any kind to which such Stockholder is a party or
by which such Stockholder is bound, subject to receipt of the approval by the
Company's Board of Directors of transfers of Class L Shares as required under
the Class L Stockholders' Agreement.
(d) The Purchase Number is the greater of (i) 10,000 Class L Shares and (ii)
a number greater than or equal to two-thirds of the number of Class L Shares
shown on Schedule 1 which are held of record by the Stockholder on the date of
this Agreement.
3.2 Receipt of and Access to Information. Holdings has made available to the
Stockholder, for a reasonable time prior to the date hereof, information
concerning the Purchase and the Transaction including, without limitation, the
Offering Memorandum dated December 20, 1995 and the exhibits thereto. In
addition, Holdings has given the Stockholder an opportunity to ask questions
and receive answers concerning the terms and conditions of such Stockholder's
investment in the Holdings Shares (including the related and required Voting
Trust Agreement and Stockholders' Agreement) and to obtain any additional
information which Holdings possesses or can acquire without unreasonable
effort or expense, and such Stockholder has received all such additional
information requested by such Stockholder.
3.3 Purchase for Investment. (a) The Stockholder represents that the
Holdings Shares (and the related Voting Trust Certificates) purchased pursuant
to this Agreement are so purchased for such Stockholder's own account (or a
trust or custodial account, if the Stockholder is a trustee or custodian), for
investment and not with a view to, or for sale in connection with, the
distribution thereof or with any present intention of distributing or
reselling any thereof.
3
<PAGE>
(b) The Stockholder represents that:
(i) the Stockholder has such knowledge and experience in financial and
business matters that such Stockholder is capable of evaluating the merits
and risks of the investment in Holdings Shares (and the related Voting
Trust Certificates);
(ii) the Stockholder is able to bear the economic risk of such investment
for an indefinite period of time, including the risk of a complete loss of
such Stockholder's investment;
(iii) either (A) the Stockholder has a preexisting personal or business
relationship with Holdings or its officers, directors, affiliates or
controlling persons, or (B) by reason of the Stockholder's business or
financial experience or the business or financial experience of the
Stockholder's professional advisors (who are unaffiliated with and who are
not compensated by Holdings or any affiliate or selling agent of Holdings),
the Stockholder has the capacity to protect his or her own interests in
connection with the Transaction; and
(iv) the Stockholder is not looking to, or relying in any manner upon,
any of Holdings, the Company, or any of their respective affiliates,
officers, employees or representatives, for advice about tax, financial or
legal consequences of the Purchase, the Merger or any of the other matters
contemplated by this Agreement, and that none of Holdings, the Company, or
any of their respective affiliates, officers, employees and representatives
has made or is making any representations to the Stockholder about, or
guarantees of, tax, financial, operational or legal outcomes of any the
transactions and arrangements contemplated by this Agreement, in either
case including, without limitation, whether the Stockholder will receive
capital gains treatment for any Class L Shares converted to cash in the
Merger.
3.4 No Registration; Restriction on Transfer of Holdings Shares. The
Stockholder represents that such Stockholder has been advised that the
Holdings Shares (and the related Voting Trust Certificates) have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
the rules and regulations thereunder and, therefore, cannot be resold unless
they are registered under the 1933 Act or unless an exemption from
registration is available. The Stockholder is aware that certificates
representing Holdings Shares and the Voting Trust Certificates shall bear
endorsements reading substantially as follows:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be transferred,
sold or otherwise disposed of except while such a registration is in effect
or pursuant to an exemption from registration under said Act.
In addition, the Stockholder understands that the Stockholders' Agreement will
contain other restrictions on the transfer of Holdings Shares and Voting Trust
Certificates and that the Voting Trust Agreement and the Stockholders'
Agreement will permit holders of Holdings Shares, after complying with all
applicable transfer restrictions, to transfer only Voting Trust Certificates
representing beneficial ownership of Holdings Shares. Beneficial and record
ownership of the Holdings Shares (other than those Holdings Shares
beneficially owned by the Trustees) will not be joined in a single holder
until the termination of the Voting Trust all as set forth in greater detail
in the forms of the Voting Trust Agreement and the Stockholders' Agreement
heretofore delivered by Holdings to the Stockholder.
3.5 Commitment Date. The Stockholder is aware that Holdings is not bound by
this Agreement unless it is executed by the Stockholder and delivered to
Holdings on or prior to, and as of, 5 p.m. San Francisco time, January 25,
1996.
ARTICLE IV
Covenants and Agreements
4.1 Restrictions on Transfer of Class L Shares. (a) The Stockholder agrees
that, during the term of this Agreement, the Stockholder will not, directly or
indirectly, offer, sell, pledge, transfer or otherwise dispose of any Class L
Shares held of record by the Stockholder (whether owned as of the date hereof
or acquired hereafter), or any interest therein except:
(i) to Holdings, pursuant to Article I of this Agreement; or
4
<PAGE>
(ii) to a Permitted Transferee (as defined in the Class L Stockholders'
Agreement); provided that any transfer or disposition of Class L Shares
under this clause (ii) of this Section 4.1(a) shall be subject to (A) the
continuing obligation of the Stockholder to contribute a number of Class L
Shares equal to the Purchase Number and (B) the condition that each
recipient of Class L Shares pursuant to any such transfer or disposition
shall be provided with a copy of this Agreement and bound by Articles IV
and VII of this Agreement as if a signatory hereto.
(b) Notwithstanding the provisions of Section 4.1(a) hereof, a Stockholder
may transfer Class L Shares to the persons or entities specified on Schedule 2
hereto in the amounts specified on such schedule, provided that the following
conditions are met: (i) all transferees set forth on Schedule 2 are Permitted
Transferees, (ii) all such transferees execute and return to Holdings no later
than February 26, 1996 a letter in the form of Exhibit A hereto (covering the
number of Class L Shares to be so transferred and committing to contribute
such Class L Shares to Holdings at the Closing), (iii) all such transferees
execute and return to Holdings the Voting Trust Agreement and the
Stockholders' Agreement prior to the Closing, (iv) each such transfer to a
given transferee is in an amount of at least 10,000 Class L Shares and is
completed prior to the Closing and (v) after giving effect to all such
transfers, the Purchase Number (including the shares so transferred and
contributed) continues to satisfy the representation set forth in Section
3.1(d). Holdings shall determine, in its sole discretion, whether the
foregoing conditions have been met.
(c) Notwithstanding the provisions of Sections 4.1(a) and 4.1(b), (i) a
Stockholder may, no later than February 26, 1996, by written notice to
Holdings in accordance with Section 7.5 hereof, decrease the Purchase Number
(the Purchase Number minus the number of shares so subtracted being the
"Reduced Purchase Number"), and (ii) the Purchase Number shall thereafter be
deemed to be the Reduced Purchase Number; so long as in all events the Reduced
Purchase Number (if greater than zero) satisfies the representation set forth
in Section 3.1(d) as if such representation is made on February 26, 1996.
(d) Notwithstanding the provisions of Sections 3.1(d), 4.1(a), 4.1(b) and
4.1(c) hereof, a Stockholder may, no later than March 6, 1996, by written
notice to Holdings in accordance with Section 7.5 hereof, reduce the Purchase
Number then in effect as to such Stockholder by a number (the "Capital Gains
Reduction Amount") of Class L Shares less than or equal to 20% of the Purchase
Number then in effect as to such Stockholder, in order to permit conversion to
cash of an additional number of Class L Shares in the Merger equal to the
Capital Gains Reduction Amount, if the conversion of such additional shares
would, in the Stockholder's view, make it possible for the Stockholder to
obtain capital gains treatment which would otherwise not be available. If the
Stockholder makes such an election, the Purchase Number shall thereafter be
deemed to be a number equal to the Purchase Number effective for such
Stockholder immediately prior to such election minus the Capital Gains
Reduction Amount and the representation set forth in Section 3.1(d) shall not
be deemed breached if not satisfied solely as a result of any reduction
pursuant to this Section 4.1(d).
(e) Holdings may request the Company to enter a stop transfer order with the
transfer agent or agents of the Class L Shares against the transfer of the
Stockholder's Class L Shares, except for transfers in compliance with the
requirements of this Agreement.
4.2 Agreement to Vote. The Stockholder covenants and agrees that while this
Agreement is in effect (a) such Stockholder will vote, or cause to be voted
(whether by proxy, consent or in person), all of the Class L Shares and Class
E Shares held of record by the Stockholder, or with respect to which such
Stockholder has the power to direct decisions relating to voting (whether
owned at the date hereof or acquired hereafter) (collectively, the "Voting
Shares") (i) in favor of the Transaction and (ii) in the manner directed by
Holdings on any other matter which may be presented to the Company's
stockholders that Holdings believes would support its ability to consummate
the Transaction and (b) not to exercise appraisal or dissenters' rights with
respect to any of such Voting Shares. Additionally, the Stockholder covenants
and agrees that the Stockholder will not, during the term of this Agreement,
deposit any of such Stockholder's Voting Shares in any voting trust, or enter
into any voting agreement with respect to any of such Stockholder's Voting
Shares or otherwise encumber the voting interests therein, except as expressly
provided herein, other than the Voting Trust as contemplated by Section 1.2
hereof,
5
<PAGE>
without the prior written consent of Holdings. Holdings may request the
Company to refuse to recognize any vote, proxy or consent that is inconsistent
with this Agreement.
4.3 Cooperation with Holdings. The Stockholder will cooperate fully with
Holdings in connection with the Transaction and will file any necessary forms
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act") that may be required. Moreover, the Stockholder agrees that
such Stockholder will not, directly or indirectly, (a) solicit any inquiries
or proposals from, or enter into or continue any discussions, negotiations or
agreements relating to a merger, consolidation or business combination of the
Company with, or acquisition of its voting securities by, or a direct or
indirect acquisition or disposition of a significant amount of assets other
than in the ordinary course of business of the Company from or to, any person
or entity other than Holdings or (b) vote such Stockholder's Voting Shares in
favor of or consent to any such proposal or transaction.
4.4 Voting Trust Agreement; Stockholders' Agreement. The Stockholder
covenants that, on or prior to Closing, such Stockholder will execute the
signature pages of the Voting Trust Agreement and the Stockholders' Agreement,
deliver such signature pages to Holdings and thereby become a party to such
agreements.
4.5 Expenses. Holdings agrees to bear all expenses in connection with the
preparation, issuance and delivery of the Voting Trust Certificates and stock
certificates.
4.6 Dividends. The parties hereto agree that nothing in this Agreement shall
restrict the right of the Stockholder to receive cash or stock dividends, or
to receive Class L Shares in a stock split, provided, however, that any
additional Class L Shares so received shall become subject to Article IV of
this Agreement.
ARTICLE V
Conditions to Obligations of the Stockholder
The Stockholder's obligation to deliver the Contributed Shares on or prior
to the Closing is subject to the fulfillment on or prior to the Closing of the
following conditions:
5.1 Representations and Warranties of Holdings. The representations and
warranties of Holdings contained in this Agreement shall be true and correct
when made and at and as of the time of the Closing.
5.2 Performance. Prior to or at the Closing, Holdings shall have performed
and complied with all agreements and conditions contained in this Agreement
which it is required to perform or with which it is required to comply.
5.3 No Orders. As of the Closing, there shall not be outstanding any order
of any court, administrative agency or governmental body which in any way
restrains or prevents the Purchase.
5.4 Hart-Scott-Rodino. Any waiting periods under the HSR Act applicable to
the Purchase shall have expired or been terminated.
ARTICLE VI
Conditions to Obligations of Holdings
The obligation of Holdings to deliver Holdings Shares to the Stockholder at
the Closing is subject to the fulfillment on or prior to the Closing (except
for Section 6.5, which condition must be satisfied after the Closing) of the
following conditions:
6.1 Representations and Warranties of the Stockholder. The representations
and warranties of the Stockholder contained in this Agreement shall be true
and correct when made and at and as of the time of the Closing.
6
<PAGE>
6.2 Performance. Prior to or at the Closing, the Stockholder shall have
performed and complied with all agreements and conditions contained in this
Agreement which such Stockholder is required to perform or with which such
Stockholder is required to comply.
6.3 No Orders. As of the Closing, there shall not be outstanding any order
of any court, administrative agency or governmental body which in any way
restrains or prevents the Purchase or any pending or threatened litigation the
result of which could be to restrain or prevent the Purchase or any other
aspect of the Transaction.
6.4 Execution of Agreements; Deliveries. The Stockholder shall have
delivered to Holdings completed letters of transmittal, the Contributed
Shares, appropriate stock powers, and executed signature pages of each of the
Voting Trust Agreement and the Stockholders' Agreement.
6.5 The Merger. The Merger shall occur within ten business days of the
Closing.
6.6 Hart-Scott-Rodino. Any waiting periods under the HSR Act applicable to
the Stockholder's Purchase shall have expired or been terminated.
ARTICLE VII
Miscellaneous Provisions
7.1 Return of Shares; Cancellation. If the Closing shall have occurred, and
for any reason the Merger shall not have occurred within ten business days of
the Closing, Holdings may in its sole discretion elect to treat the Closing as
if it had not occurred, in which case the Holdings Shares issued to the
Stockholder pursuant to this Agreement shall be cancelled, and Holdings shall
promptly return the Contributed Shares to the Stockholder in full.
7.2 Survival of Representations and Warranties. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the Closing and, notwithstanding any
investigation heretofore or hereafter made by the Stockholder or Holdings or
on behalf of the Stockholder or Holdings, shall continue in full force and
effect until the first anniversary of the Closing.
7.3 Specific Performance. The Stockholder and Holdings agree that
irreparable damages would occur in the event any of the provisions of this
Agreement were not performed in accordance with their specific terms, or were
otherwise breached. It is, accordingly, agreed that (a) the parties shall be
entitled to injunctive relief to prevent breaches of the provisions of this
Agreement, and to enforce specifically the terms and provisions hereof, in
addition to any other remedy to which they may be entitled at law or in equity
and (b) if the Stockholder fails to deliver the Contributed Shares, and
regardless of whether Holdings has sought specific performance, Holdings may
elect to close the contribution of Class L Shares with all other Participating
Stockholders and to cause all Class L Shares which Stockholder has failed to
deliver to be exchanged for cash in the Merger.
7.4 Assignment. This Agreement shall not be assignable, except by Holdings
to any of its affiliates or associates, but such assignment shall not relieve
Holdings of any of its obligations hereunder. This Agreement shall apply to
and bind, and inure to the benefit of and be enforceable by, each of the
parties hereto and each of their respective heirs, executors, administrators,
representatives, successors and assigns. Without limiting the foregoing, the
parties intend for the obligations under this Agreement to survive the death
of any party or other person, including the Stockholder, and to be
specifically enforceable against any deceased party's heirs, executors,
administrators, representatives, successors or assigns to the fullest extent
permitted by law (including, without limitation, California Probate Code (S)
9680).
7.5 Notices. All notices given pursuant to this Agreement shall be in
writing and shall be deemed to have been duly given if sent by registered or
certified mail, return receipt requested, by messenger, or by a nationally
7
<PAGE>
recognized overnight delivery company, to the party or parties to be given
such notice at the address set forth below. Notice to the Stockholder shall be
addressed as set forth on Schedule 1 hereto or in such other manner as the
Stockholder may have communicated in writing to Holdings. Notices to Holdings
shall be addressed to:
LSAI Holding Corp.
c/o Hellman & Friedman
One Maritime Plaza, Suite 1200
San Francisco, California 94111
or to such other address as Holdings may have communicated in writing to the
Stockholder.
7.6 Counterparts. This Agreement may be executed in any number of
counterparts, all of which shall together constitute one and the same
instrument. Notwithstanding the foregoing, Robert D. Haas or any other duly
authorized officer of the Company may execute this Agreement by providing an
appropriate facsimile signature, and any counterpart or amendment hereto
containing such facsimile signature shall for all purposes be deemed an
original instrument duly executed by the Company. In the event that such a
facsimile signature is used, Robert D. Haas or such other duly authorized
officer shall execute, in original, a certificate attesting to the entry into
this Agreement or any amendment hereto, which certificate shall list the names
of all of the parties to this Agreement or amendment and shall be filed with
the permanent records of the Company.
7.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware. The Stockholder agrees to
submit to personal jurisdiction and to waive any objection as to venue of the
Court of Chancery in the State of Delaware in connection with any action
arising out of or relating to this Agreement. Service of process on the
Stockholder in any action arising out of or relating to this Agreement shall
be effective if served upon such Stockholder by mail in accordance with
Section 7.5.
7.8 Severability. In the event of the invalidity or unenforceability of any
part or provision of this Agreement, such invalidity or unenforceability shall
not affect the validity or enforceability of any other part or provision of
this Agreement.
7.9 Entire Agreement. This Agreement contains the entire understanding of
the parties with respect to the transactions contemplated hereby. This
Agreement may be amended only by an agreement in writing executed by the
parties hereto.
7.10 Termination. This Agreement shall terminate on the earlier of (a)
December 31, 1996, (b) 10 days following written notice to Holdings from the
Stockholder after Holdings makes a formal proposal to the Company which
involves an increase in the price proposed to be paid for Class L Shares or
Class E Shares in the Merger to which the Stockholder has not consented, (c)
the date Holdings gives written notice to the Stockholder that it has
abandoned its intent to seek to acquire all or substantially all of the
outstanding Class L Shares and Class E Shares through the Merger or another
transaction (whether or not at a different price than that designated as the
price for the Merger) and (d) the date (no later than February 26, 1996) on
which, pursuant to Section 4.1(c), the Stockholder elects to reduce the
Purchase Number to zero.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of
January 25, 1996.
LSAI Holding Corp.
By:/s/ Robert D. Haas
Name: Robert D. Haas
Title: President
Stockholder
_____________________________________
(signature)
_____________________________________
(type or print name)
(Must be signed by record holder(s)
exactly as name appears on stock
certificate(s). If signature is by
a trustee, executor, administrator,
guardian, attorney-in-fact,
partner, officer of a corporation
or other person acting in a
fiduciary or representative
capacity, please set forth full
title.)
9
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
NUMBER OF CLASS L
SHARES HELD OF
RECORD AS OF
NAME OF STOCKHOLDER JANUARY 25, 1996
------------------- -----------------
<S> <C>
</TABLE>
CHECK THIS BOX IF SEEKING CAPITAL GAINS TREATMENT: [_]
Address for notice to Stockholder:
- -------------------------
- -------------------------
- -------------------------
10
<PAGE>
SCHEDULE 2
<TABLE>
<CAPTION>
NUMBER OF CLASS L
NAME OF TRANSFEREE SHARES TO BE TRANSFERRED
------------------ ------------------------
<S> <C>
</TABLE>
11
<PAGE>
EXHIBIT A
[FORM OF TRANSFEREE LETTER]
LSAI HOLDING CORP.
c/o Hellman & Friedman
One Maritime Plaza, Suite 1200
San Francisco, California 94111
Attn: Robert D. Haas
President
Dear Mr. Haas:
The undersigned has been informed that he or she is named as a potential
transferee of shares (the "Designated Shares") of Class L Common Stock
("Class L Shares") of Levi Strauss Associates Inc. (the "Company") in a Stock
Subscription Agreement dated January 25, 1996 between LSAI Holding Corp.
("Holdings") and , a stockholder of the Company (the "Stock
Subscription Agreement"). The undersigned has received and had the opportunity
to review the Offering Memorandum dated December 20, 1995 of Holdings.
Capitalized terms used but not separately defined herein will have the
meanings specified in the Stock Subscription Agreement.
The undersigned hereby agrees that if the Designated Shares are so
transferred, such that the undersigned becomes the holder of record of such
Designated Shares prior to the Closing, the Designated Shares shall be
considered Contributed Shares, and the undersigned will contribute such
Designated Shares to Holdings at the Closing, in accordance with the terms of
the Stock Subscription Agreement as if the undersigned were a party thereto.
By: _________________________________
Name:
Date: _______________________________
12
<PAGE>
EXHIBIT (c)(3)
LSAI HOLDING CORP.
c/o HELLMAN & FRIEDMAN
ONE MARITIME PLAZA, SUITE 1200
SAN FRANCISCO, CALIFORNIA 94111
December 15, 1995
To: [Participating Stockholder]
Re: Participating in Transaction
This letter sets forth the agreement between the undersigned stockholder
(the "Stockholder") of Levi Strauss Associates Inc., a Delaware corporation (the
"Company"), and LSAI Holding Corp. ("Holdings"), a newly formed Delaware
corporation, with respect to a transaction (the "Transaction") in which Holdings
would acquire the Company for cash in a merger transaction (the "Merger")
pursuant to a merger agreement (the "Merger Agreement"), to be negotiated and
entered into by Holdings and the Company. The undersigned Stockholder is a
member of a group of holders (collectively, the "Stockholders")of shares of the
Company's Class L Common Stock ("Class L Shares"), each of whom desires to
participate in and support the Transaction and each of whom is entering into an
agreement which is similar to this Agreement. The undersigned holds, or
controls the investment of, Class L Shares, either directly or in other
capacities (for example, as trustee).
The Stockholder is aware that Holdings contemplates presenting a
proposal (the "Proposal") for the Transaction to the Board of Directors of the
Company and that the Proposal will involve a cash price of $250 per Class L
Share and $250 per share of Class E Common Stock ("Class E Share"). The Class L
Shares and Class E Shares are herein referred to collectively as the "Shares".
The Stockholder desires to (1) purchase shares of common stock of Holdings
("Holdings Shares") by contributing all or a portion of the Stockholder's Class
L Shares owned at the time of the Transaction to Holdings in exchange for
Holdings Shares, and (2) receive cash in the Merger for the balance (if any) of
the Stockholder's Class L Shares owned at the time of the Transaction. The
Stockholder understands and acknowledges that but for the Stockholder's
execution of this Agreement, Holdings would not make the Proposal to the Board.
Therefore, to induce Holdings to make the Proposal and to induce Holdings and
the Company to negotiate and enter into the Merger Agreement, the Stockholder
agrees as follows:
<PAGE>
December 15, 1995
Page 2
1. Contribution of Class L Shares to Holdings.
------------------------------------------
Prior to (and conditioned upon) the consummation of the Merger, the Stockholder
will contribute, or cause to be contributed, to Holdings, at least ___________
Class L Shares. In exchange for each Class L Shares so contributed, the
contributing holder will receive one Holdings Share. In connection with the
foregoing, the Stockholder agrees to enter into (or to cause such contributing
holder to enter into) such additional agreements relating to the Transaction as
Holdings may request, including a subscription agreement relating to the
contribution of Class L Shares and purchase of Holdings Shares, a voting trust
agreement which will have a duration of at least 15 years and a stockholders'
agreement which will have a duration of at least 20 years. In addition, the
Stockholder agrees to be identified by Holdings as a "Transaction Sponsor" in
communications or offering documents issued by Holdings.
2. Agreement to Vote. The Stockholder covenants and agrees (a) to
-----------------
vote, or cause to be voted (whether by proxy, consent or in person), all of the
Class L Shares held of record by the Stockholder, or with respect to which the
Stockholder has the power to direct decisions relating to voting (whether owned
at the date hereof or acquired hereafter) (collectively, the "Voting Shares")
(i) in favor of the Transaction and (ii) in the manner directed by Holdings on
any other matter which may be presented to the Company's stockholders during the
term of this Agreement that Holdings believes would support its ability to
consummate the Transaction and (b) not to exercise appraisal or dissenters'
rights with respect to any of such Voting Shares in connection with the Merger.
During the term of this Agreement, the Stockholder will not deposit any
of such Stockholder's Voting Shares in any voting trust, or enter into any
voting agreement with respect to any of such Stockholder's Voting Shares or
otherwise encumber the voting interests therein, except as expressly provided
herein, without the prior written consent of Holdings.
3. Cooperation with Holdings. The Stockholder will cooperate fully
-------------------------
with Holdings in connection with the Transaction and will file any necessary
forms under the Hart-Scott-Rodino Antitrust Improvements Act that may be
required. Moreover, the Stockholder will not, directly or indirectly, (a)
solicit any inquiries or proposals from, or enter into or continue any
discussions, negotiations or agreements relating to a merger, consolidation or
business combination of the Company with, or acquisition of its voting
securities by, or a direct or indirect acquisition or disposition of a
significant amount of assets other than in the ordinary course of business of
the Company from or to, any person or entity other than Holdings or
<PAGE>
December 15, 1995
Page 3
(b) vote in favor of or consent to any such proposal or transaction.
4. Private Offering; No Registration. Holdings has made available to
---------------------------------
the Stockholder information concerning the proposed Transaction, and will make
an Offering Memorandum available as soon as practicable after the date of this
Agreement. The Stockholder represents that Holdings Shares purchased in the
Transaction will be purchased for the Stockholder's (or the contributing
holder's) own account, for investment and not with a view to, or for sale in
connection with, the distribution thereof or with any present intention of
distributing or reselling any of such shares. The Stockholder represents that
such Stockholder has been advised that the Holdings Shares will not have been
registered under the Securities Act of 1933, as amended (the "1933 Act") and the
rules and regulations thereunder and, therefore, cannot be resold unless they
are registered under the 1933 Act or unless an exemption from registration is
available.
5. Termination. This Agreement shall terminate on the earlier of (a)
-----------
December 31, 1996, (b) 10 days following written notice to Holdings from the
Stockholder of the occurrence of an increase in the price proposed to be paid
for Class L Shares or Class E Shares in the Merger to which the Stockholder has
not consented or (c) the date Holdings gives written notice to the Stockholder
that it has abandoned its intent to seek to acquire all or substantially all of
the outstanding Shares pursuant to the Transaction or a comparable transaction
(whether or not at a different price than the Transaction).
6. Specific Performance. The Stockholder and Holdings agree that
--------------------
irreparable damages would occur in the event any of the provisions of this
Agreement were not performed in accordance with their specific terms, or were
otherwise breached. It is, accordingly, agreed that the parties shall be
entitled to injunctive relief to prevent breaches of the provisions of this
Agreement, and to enforce specifically the terms and provisions hereof, in
addition to any other remedy to which they may be entitled at law or in equity.
7. Dividends. Nothing in this Agreement shall restrict the right of
---------
the Stockholder to receive cash or stock dividends, or receive Class L Shares in
a stock split, provided however, that any additional Class L Shares so received
shall become subject to the terms of Section 2 of this Agreement.
8. Assignment. This Agreement shall not be assignable, except by
----------
Holdings to any of its affiliates or associates, but such assignment shall not
relieve Holdings of any its
<PAGE>
December 15, 1995
Page 4
obligations hereunder. This Agreement shall apply to and bind, and inure to the
benefit of and be enforceable by, each of the parties hereto and each of their
respective heirs, executors, administrators, representatives, successors and
assigns. Without limiting the foregoing, the parties intend for the obligations
under this Agreement to survive the death of any party or other person,
including the Stockholder, and to be specifically enforceable against any
deceased party's heirs, executors, administrators, representatives, successors
or assigns to the fullest extent permitted by law (including, without
limitation, California Probate Code (S)9680).
9. Notices. All notices given pursuant to this Agreement shall be in
-------
writing and shall be deemed to have been duly given if sent by registered or
certified mail (return receipt requested), by messenger, by a nationally
recognized overnight delivery company, or by telecopier, to the party or parties
to be given such notice (a) at his or her address set forth on the signature
page hereto, (b) if to Holdings, at the address set forth above, or (c) to such
other address as such party to be given notice may have communicated to the
sending party, provided such change of address has been received.
10. Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which shall together constitute one and the same
instrument.
11. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware.
12. Severability. In the event of the invalidity or unenforceability
------------
of any part or provision of this Agreement, such invalidity or unenforceability
shall not affect the validity or enforceability of any other part or provision
of this Agreement.
13. Entire Agreement. This Agreement contains the entire understanding
----------------
of the parties with respect to the transaction contemplated hereby, and this
Agreement may be amended only by an agreement in writing executed by the parties
hereto.
* * * *
<PAGE>
December 15 1995
Page 5
Please confirm that the foregoing correctly states the agreement between
us by signing and returning to us a counterpart of this letter.
Very truly yours,
LSAI HOLDINGS CORP.
By:______________________
Robert D. Haas
President
Accepted and Agreed
as of the date appearing above:
______________________________
Address for Notices:
<PAGE>
Exhibit D
LEVI STRAUSS ASSOCIATES INC.
Levi's Plaza
1155 Battery Street
P.O. Box 7061
San Francisco, California 94120-7061
415/544-70081
February 14, 1996
Dear Stockholders:
As you are aware, the Company has entered into a merger agreement with LSAI
Holding Corp. ("Holdings"), a new company I formed with a group of family
stockholders in order to acquire the Company in a cash merger transaction. In
the Merger, all holders of the Company's Class E Shares will receive $265 per
share in cash, as will holders of Class L Shares who did not contribute all of
their shares to Holdings. As a result of the Merger, Holdings will become the
new parent company of LS&CO.
Although the Merger will bring important changes to the ownership and
governance structure of the Company, many things will stay the same. We will
still be a private, family-owned Company: most of the family members holding
Class L Shares have elected to remain investors and become stockholders of
Holdings. We will not be "going public" in the forseeable future. Our business
operations will remain virtually unchanged.
What the Merger will do is help ensure that our Company continues to be an
organization we can be proud of. One of the explicit goals of the Merger is to
provide for the long-term, stable and consistent ownership and governance of
the Company, which I and the Company's other major stockholders believe is the
most effective way to maintain our superior financial performance, to continue
to operate the Company in a manner consistent with our values and to sustain
our reputation as a leader in corporate social responsibility.
The terms of the Merger were reviewed and negotiated by a Special Committee
of independent Board members. The Special Committee has worked diligently
since November to fulfill its responsibilities. As discussed in the
accompanying Information Statement, the Special Committee has concluded that
the Merger is fair to the holders of Shares (other than with respect to Class
L Shares contributed to Holdings).
The attached Information Statement is being provided to you in order to
comply with requirements of the Securities and Exchange Commission. I urge you
to read it in its entirety, but you need not take any other action at this
time. No vote will take place (all required stockholder approvals have been
obtained), and you are not being asked for a proxy.
Once the Merger has been completed, stockholders will receive instructions
explaining how and when they will receive the $265 per share cash payment.
Employee stockholders and plan participants will also be receiving a variety
of other communications giving them more details on the Merger and its impact
on the stock plans (EIP, ELTIS and ESAP), and about our plans for sharing
future value with all employees around the world.
IF THE MERGER IS COMPLETED, STOCKHOLDERS WHO COMPLY WITH APPLICABLE DELAWARE
LAW WILL HAVE CERTAIN DISSENTERS' RIGHTS UNDER WHICH THEY MAY DECLINE THE $265
PER SHARE PRICE AND PETITION THE DELAWARE COURT OF CHANCERY FOR THE "FAIR
VALUE" OF THEIR SHARES, AS DESCRIBED IN MORE DETAIL IN THE ACCOMPANYING
INFORMATION STATEMENT.
This transaction marks the beginning of yet another important chapter in the
140-year history of Levi Strauss & Co. I look forward to taking the next steps
of the journey with you.
Sincerely,
/s/ Robert D. Haas
Robert D. Haas
Chairman and Chief Executive Officer
WE ARE NOT ASKING YOU FOR A PROXY. THE TRANSACTION HAS BEEN APPROVED. ONCE THE
TRANSACTION HAS BEEN COMPLETED, YOU WILL RECEIVE INSTRUCTIONS FOR EXCHANGING
YOUR SHARES FOR CASH.
<PAGE>
INFORMATION STATEMENT
LEVI STRAUSS ASSOCIATES INC.
CLASS L COMMON STOCK
(PAR VALUE $0.10 PER SHARE)
CLASS E COMMON STOCK
(PAR VALUE $0.10 PER SHARE)
This Information Statement is being furnished to stockholders of Levi
Strauss Associates Inc. ("LSAI" or the "Company") in connection with the
proposed merger (the "Merger") of a wholly owned subsidiary of LSAI Holding
Corp., a Delaware corporation ("Holdings"), with and into the Company. The
Merger, which will be effected pursuant to an Agreement and Plan of Merger
(the "Merger Agreement"), dated as of February 8, 1996, among LSAI, Holdings,
and LSAI Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Holdings ("Merger Sub"), has been approved by LSAI Board of
Directors (the "Board") and by the holders of a majority of the outstanding
shares of LSAI capital stock. The Merger is expected to occur in the second
quarter of 1996.
In the Merger, each share of LSAI's Class L Common Stock, par value $0.10
per share (the "Class L Shares") (other than Class L Shares held by or being
contributed to Holdings) and each share of LSAI's Class E Common Stock, par
value $0.10 per share (the "Class E Shares" and together with the Class L
Shares, the "Shares") will be converted into the right to receive $265 in cash
(the "Merger Consideration").
This Information Statement is being mailed on or about February 14, 1996 to
all holders of Shares.
----------------
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO
SEND US A PROXY.
----------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Information Statement is February 14, 1996.
<PAGE>
ADDITIONAL INFORMATION
Pursuant to the requirements of Section 13(e) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and Rule 13e-3 promulgated
thereunder, LSAI, as the issuer of the classes of equity securities which are
the subject of the Rule 13e-3 transaction, and Holdings and Merger Sub, have
filed with the Securities and Exchange Commission (the "Commission") a
Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3") relating to the
transactions contemplated by the Merger Agreement. As permitted by the rules
and regulations of the Commission, this Information Statement omits certain
information, exhibits and undertakings contained in the Schedule 13E-3. Such
additional information can be inspected at and obtained from the Commission
and LSAI in the manner set forth below under "AVAILABLE INFORMATION."
Statements contained herein concerning certain documents are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Schedule 13E-3. Each such statement is qualified in
its entirety by such reference.
AVAILABLE INFORMATION
LSAI is subject to certain of the informational requirements of the Exchange
Act and, accordingly, files certain periodic reports and other information
with the Commission. Such reports and other information filed with the
Commission are available for inspection and copying at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such documents may be obtained directly from
LSAI at no charge.
Holdings and Merger Sub are newly formed, private companies which were
incorporated in order to effect the transactions contemplated by the Merger
Agreement. Neither Holdings nor Merger Sub files information with the
Commission.
THIS INFORMATION STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
INCLUDED IN THEIR ENTIRETY. COPIES OF ANY SUCH DOCUMENTS, OTHER THAN EXHIBITS
TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE
THEREIN, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL
OWNER, TO WHOM THIS INFORMATION STATEMENT IS DELIVERED, UPON WRITTEN OR ORAL
REQUEST TO NITA SOBEJANA, ASSISTANT CORPORATE SECRETARY, LEVI STRAUSS
ASSOCIATES INC., LEVI'S PLAZA, 1155 BATTERY STREET, SAN FRANCISCO, CALIFORNIA
94111, TELEPHONE (415) 544-7412.
ii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by LSAI with the Commission
pursuant to the Exchange Act are incorporated herein by this reference:
1. LSAI's Annual Report on Form 10-K for the year ended November 27,
1994;
2. LSAI's Annual Report on Form 10-K for the year ended November 28,
1993;
3. LSAI's Quarterly Reports on Form 10-Q for the quarters ended February
26, 1995, May 28, 1995 and August 27, 1995.
All documents filed by LSAI pursuant to Sections 13(a), 13(c), and 15(d) of
the Exchange Act subsequent to the date hereof and prior to the date that the
Merger becomes effective shall be deemed to be incorporated by reference
herein and to be a part hereof from the date any such document is filed.
Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document which also is incorporated by reference
herein) modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed to constitute a part hereof except as so
modified or superseded. All information appearing in this Information
Statement is qualified in its entirety by the information and financial
statements (including notes thereto) appearing in the documents incorporated
herein by reference, except to the extent set forth in the immediately
preceding statement.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS INFORMATION
STATEMENT OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED
BY REFERENCE HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH RESPECT TO SUCH
MATTERS NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY LSAI. THE DELIVERY OF THIS INFORMATION STATEMENT SHALL NOT,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF LSAI SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS
INFORMATION STATEMENT OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION.............................................................. 1
Approval of the Merger.................................................. 1
Consummation of the Merger and Related Transactions..................... 1
SPECIAL FACTORS........................................................... 1
Background of the Merger................................................ 1
Purpose, Structure and Reasons for the Merger........................... 7
Fairness of the Merger; Recommendations................................. 8
Opinion of Financial Advisor............................................ 10
Certain Projections..................................................... 16
Accounting Treatment.................................................... 16
Interests of Certain Persons in the Merger; Conflicts of Interest....... 16
Certain Effects of the Merger; Operations of the Company After the
Merger................................................................. 19
Certain Federal Income Tax Consequences................................. 20
THE MERGER................................................................ 23
Terms of the Merger..................................................... 23
Effective Time of the Merger............................................ 23
Payment for Shares...................................................... 23
Representations and Warranties.......................................... 24
Business of the Company Pending the Merger.............................. 24
Additional Covenants.................................................... 24
Conditions; Waivers..................................................... 25
Termination; Amendment.................................................. 26
Fees and Expenses....................................................... 26
FINANCING OF THE MERGER................................................... 26
RIGHTS OF DISSENTING STOCKHOLDERS......................................... 27
CERTAIN INFORMATION REGARDING LSAI, HOLDINGS AND MERGER SUB............... 29
LSAI.................................................................... 29
Securities of LSAI...................................................... 29
Market for Shares....................................................... 29
Valuation of Shares..................................................... 29
Dividends Paid on the Shares............................................ 30
Purchases of Shares by LSAI............................................. 30
Holdings................................................................ 31
Merger Sub.............................................................. 31
Directors and Executive Officers of LSAI, Holdings and Merger Sub....... 31
Recent Transactions in Securities of LSAI............................... 31
SELECTED FINANCIAL DATA................................................... 32
CERTAIN PRO FORMA FINANCIAL INFORMATION................................... 33
SELECTED PRO FORMA PROJECTED FINANCIAL INFORMATION........................ 42
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SHARE PRICE MODELING...................................................... 46
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF LSAI.... 47
Principal Stockholders.................................................. 47
CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO SECURITIES OF
LSAI..................................................................... 49
The Stock Subscription Agreement........................................ 49
Participation Agreements................................................ 50
CURRENT INFORMATION; NO PERIODIC REPORTING................................ 50
</TABLE>
APPENDIX A -- Agreement and Plan of Merger
APPENDIX B -- Fairness Opinion of Dillon, Read & Co. Inc.
APPENDIX C -- Summary of Appraisal Rights
APPENDIX D -- Certain Information Regarding Directors and Executive Officers of
LSAI, Holdings and Merger Sub
APPENDIX E -- Recent Transactions in Securities of LSAI
v
<PAGE>
INTRODUCTION
This Information Statement is being furnished to holders of Shares in
connection with the Merger in accordance with rules and regulations
promulgated by the Commission.
APPROVAL OF THE MERGER
Stockholders holding in the aggregate 60.6% of the outstanding Shares have
acted by written consent in lieu of a meeting of stockholders and voted to
approve the Merger Agreement and the Merger. This is more than is required by
Delaware law. ACCORDINGLY, NO ADDITIONAL STOCKHOLDER VOTE IS NECESSARY TO
APPROVE THE MERGER. NEITHER YOUR VOTE NOR YOUR PROXY WILL BE SOLICITED.
The stockholders who acted by written consent include Robert D. Haas, Evelyn
D. Haas, as an executor of the estate of Walter A. Haas, Jr., Peter E. Haas,
Sr., Miriam L. Haas, Peter E. Haas, Jr., Josephine B. Haas, F. Warren Hellman,
Tully M. Friedman and members of the Friedman, Geballe and Koshland families.
CONSUMMATION OF THE MERGER AND RELATED TRANSACTIONS
LSAI currently anticipates that the Merger will be consummated during the
second quarter of 1996.
IF THE MERGER IS CONSUMMATED, STOCKHOLDERS WHO COMPLY WITH APPLICABLE
DELAWARE LAW WILL HAVE "DISSENTERS' RIGHTS" ENABLING THEM TO DECLINE THE $265
PER SHARE CASH PAYMENT OFFERED IN THE MERGER AND, IN LIEU OF RECEIVING SUCH
CASH, TO PETITION THE DELAWARE COURT OF CHANCERY FOR THE "FAIR VALUE" OF THEIR
SHARES. THERE CAN BE NO ASSURANCES THAT ANY DETERMINATION OF "FAIR VALUE" IN
ANY SUCH PROCEEDING WILL RESULT IN A STOCKHOLDER RECEIVING MORE THAN $265 PER
SHARE, AND SUCH A PROCEEDING COULD RESULT IN A STOCKHOLDER RECEIVING LESS THAN
$265 PER SHARE. STOCKHOLDERS PURSUING DISSENTERS' RIGHTS WILL NOT RECEIVE ANY
PAYMENT FOR THEIR SHARES UNTIL CONCLUSION OR SETTLEMENT OF THE APPLICABLE
COURT PROCEEDINGS BUT WOULD RECEIVE INTEREST THEREON AT THE TIME OF JUDGMENT.
PARTICIPANTS IN THE COMPANY'S EMPLOYEE INVESTMENT PLAN (THE "EIP") AND
EMPLOYEE LONG-TERM INVESTMENT AND SAVINGS PLAN (THE "ELTIS" AND TOGETHER WITH
THE EIP, THE "PLANS") WILL NOT EXERCISE APPRAISAL RIGHTS WITH RESPECT TO ANY
SHARES HELD FOR THEIR STOCK FUND ACCOUNTS IN THE PLANS. UNDER DELAWARE LAW,
THE TRUSTEE OF THE PLANS, WHO IS THE RECORD HOLDER OF THOSE SHARES, HAS THE
EXCLUSIVE RIGHT TO EXERCISE APPRAISAL RIGHTS. PARTICIPANTS IN THE COMPANY'S
EMPLOYEE STOCK PURCHASE AND STOCK AWARD PLAN (THE "ESAP"), HOWEVER, ARE
STOCKHOLDERS OF RECORD AND ARE ENTITLED TO EXERCISE APPRAISAL RIGHTS. SEE
"RIGHTS OF DISSENTING STOCKHOLDERS" BELOW, AND THE SUMMARY OF APPRAISAL
RIGHTS, TOGETHER WITH THE RELEVANT STATUTORY PROVISIONS, ATTACHED AS APPENDIX
C TO THIS INFORMATION STATEMENT.
For additional information concerning the Merger, see "THE MERGER" and in
particular, "THE MERGER -- Terms of the Merger".
SPECIAL FACTORS
BACKGROUND OF THE MERGER
The Company was formed approximately ten years ago by certain descendants
and relatives of the families of Levi Strauss and Daniel E. Koshland, Sr., as
well as other investors, for the purpose of acquiring the then-publicly-traded
Levi Strauss & Co. ("LS&CO.") in a leveraged buy-out (the "1985 LBO"). The
decade since the 1985 LBO has seen a dramatic increase in the value of the
stockholders' equity in LSAI, with a limited degree of liquidity for
stockholders. In addition, during the last ten years, management believes that
LSAI has avoided the tensions among stockholders, the Board and management
typical of many public and private companies and has experienced financial
success while strengthening its reputation as a progressive employer and a
leader in corporate social responsibility.
During 1995, major stockholders of the Company, together with the Company's
Global Leadership Team (the "GLT") and the Board, examined a number of long-
term financial, governance and business issues faced
1
<PAGE>
by the Company and its stockholders. This examination was in part triggered by
a belief that (1) the current capital structure of LSAI is inefficient in
financial terms and is one of the factors which has recently depressed returns
on invested capital and (2) cash which is generated but is not effectively
reinvested not only depresses overall returns but may ultimately present tax
and valuation issues if retained by the Company. The examination was also
triggered by a recognition that senior members of the family groups owning
Class L Shares are generally in their seventies. Substantial numbers of Shares
will be transferred to spouses, children, grandchildren and great-
grandchildren, and to charities. The experience of other family companies
suggests that, as the generations pass, these persons will have interests and
demands which may be different from the present senior stockholders and more
diverse among themselves. In the absence of a new governance model, they
likely will not have deep and active ties to the business. They may also have
different liquidity needs and preferences.
The GLT and the Board considered a variety of alternatives to address the
issues facing the Company, including (1) maintaining the status quo, (2)
adjusting dividend rates and/or purchasing stock from charities to which
stockholders had donated Class L Shares, (3) recapitalizing the Company or
effecting a large-scale redemption of Shares, (4) purchasing options to
acquire Shares from stockholders, (5) a public offering of equity securities,
(6) internal reorganizations or spinoffs involving trademarks and corporate
assets, (7) making strategic acquisitions, and (8) diversifying by entering
new business areas. In evaluating these alternatives, the GLT and the Board
considered the tax, operating and legal implications of the various
structures, as well as the likely financial impact of such alternatives on the
Company and its stockholders. The GLT and the Board also considered the impact
of these alternatives on the Company's employees, the communities in which the
Company operates and the Company's tradition of operating its business in a
socially responsible manner.
A group of major stockholders -- Robert D. Haas, Evelyn D. Haas, as an
executor of the estate of Walter A. Haas, Jr., Peter E. Haas, Sr., Miriam L.
Haas, Peter E. Haas, Jr., Josephine B. Haas, F. Warren Hellman and Tully M.
Friedman (the "Transaction Sponsors") -- concluded, after taking into account
the various factors discussed above, that of the long-term strategic
alternatives examined, a releveraging, and a recasting of the governance
arrangements, of the Company through a new acquisition transaction, would be
in the best interests of the Company and its stockholders. The transaction is
intended to reaffirm the commitment of family stockholders who reinvest in the
new company to achieving superior financial returns while operating the
Company in a values-oriented manner, and to remaining privately held with
stable governance, while at the same time providing an opportunity for
stockholders to realize the increase in value of the Company since the 1985
LBO and diversify their investments.
In November 1995, the Transaction Sponsors advised the Board that they
intended to propose a transaction in which Holdings, a newly formed
corporation to be owned by them and by other family and management holders of
Class L Shares who choose to participate (the "Participating Stockholders"),
would acquire the Company in a cash merger. The Transaction Sponsors advised
the Board that they would not support other alternatives of the type
considered in the review of long-term strategic alternatives, or otherwise. On
November 30, 1995, the Board held a special meeting at which the Board formed
a special committee of independent directors (the "Special Committee") to
evaluate any merger proposal ultimately made by the Transaction Sponsors. The
Board chose three directors, Angela Glover Blackwell, James C. Gaither and
Patricia Salas Pineda, none of whom are LSAI stockholders or affiliates of the
families owning Shares, to be the members of the Special Committee. The
Special Committee was formed well in advance of a merger proposal being made
in order to allow its members ample time to retain advisors and inform
themselves concerning the Company and the proposed transaction.
The Special Committee met shortly after the Board's November 30, 1995
meeting and after interviewing various potential advisors retained Simpson
Thacher & Bartlett ("Simpson Thacher"), as its legal counsel, and Dillon, Read
& Co. Inc. ("Dillon Read"), as its financial advisor, to advise the Special
Committee in connection with the expected merger proposal. For a description
of the terms of the engagement of Dillon Read and certain information
concerning Dillon Read, see "SPECIAL FACTORS -- Opinion of Financial Advisor."
Dillon Read was authorized to begin its background preparatory work on the
Company to be in a position to analyze the expected merger proposal and, after
consultation with the Company's senior management, to begin to determine
2
<PAGE>
whether, and when, it would be in a position to render an opinion as to the
fairness of the consideration to be received by the holders of the Shares
(other than the Shares held by or being contributed to Holdings) in the
merger.
In early December, the Special Committee addressed a two-tier pricing
structure that the Transaction Sponsors had indicated was under consideration,
in which the price proposed for the Class E Shares would exceed that proposed
for the Class L Shares. After discussions with counsel for the Special
Committee, the Transaction Sponsors determined that the price to be proposed
in the merger would be higher and would be the same for both Class E Shares
and Class L Shares.
On December 15, 1995, the Transaction Sponsors informed the Special
Committee that the valuation of the Shares by Morgan Stanley & Co.
Incorporated ("Morgan Stanley") as of November 30, 1995 had assigned a public
market equivalent value of $189 per Share. The Company has historically
retained Morgan Stanley to provide it with periodic public market equivalent
valuations of Class E Shares and Class L Shares. In performing such
valuations, Morgan Stanley is instructed to value the Shares at "fair market
value," defined as the price at which the Shares would have traded, as of the
valuation date, in a public market if such public market had existed, without
giving effect to any acquisition or control value, or to a private market
discount factor, and, with respect to the November 30, 1995 valuation, without
taking into account the possibility of the expected merger proposal. See
"CERTAIN INFORMATION REGARDING LSAI, HOLDINGS AND MERGER SUB--Valuation of
Shares." Morgan Stanley was not retained to, and has not rendered, an opinion
as to the fairness of the Merger to the Company or to the holders of Class E
Shares or Class L Shares.
On December 15, 1995, the Transaction Sponsors also advised the Special
Committee that they intended to make a formal merger proposal in late January
1996 of $250 per Share. The Transaction Sponsors informed representatives of
the Special Committee that the $250 per Share price represented a higher price
than had been contemplated for either class of Shares at the time of the
formation of the Special Committee.
On December 18, 1995, the Special Committee met with representatives of
Dillon Read and Simpson Thacher. During this organizational meeting, Dillon
Read discussed its preliminary timetable for conducting financial due
diligence of the Company. During the discussions, members of the Special
Committee pointed out to Dillon Read that the Company's earnings had
historically exceeded management's projections and that Dillon Read should
consider some modifications before using management's projections in any
valuation methodologies. Representatives of Simpson Thacher explained the
legal responsibilities of the members of the Special Committee and the legal
principles applicable to actions taken by the Special Committee with respect
to a merger proposal by the Transaction Sponsors.
From December 18, 1995 through January 29, 1996, the Special Committee and
Dillon Read reviewed certain public and non-public information with respect to
the Company. During this period, Dillon Read discussed the business and
financial condition and prospects of the Company with members of the senior
management of the Company. As part of the review by Dillon Read, officers of
the Company and representatives of Morgan Stanley and Lehman Brothers Inc.
("Lehman Brothers"), who for five years has served as financial advisor to the
trustee for the Plans, met with, and supplied information to, Dillon Read. See
"SPECIAL FACTORS -- Interests of Certain Persons in the Merger; Conflicts of
Interest."
During December 1995 and January 1996, Holdings circulated an offering
memorandum dated December 20, 1995 (the "Offering Memorandum"), certain
related supplemental information and subscription documents, a voting trust
agreement (the "Voting Trust Agreement") and a new stockholders' agreement
(the "New Stockholders' Agreement") to the holders of Class L Shares, inviting
such holders to subscribe (the "Offering") to shares of common stock of
Holdings ("Holdings Shares") by contributing Class L Shares to Holdings. The
Transaction Sponsors believed then, and continue to believe, that the Merger
can be financed and consummated without any holders of Class L Shares other
than themselves contributing Shares to Holdings. While not required as a
financial or legal matter, in the interests of family unity and a sense of
fairness, the Transaction Sponsors determined to offer other holders of Class
L Shares the opportunity to make an equity investment in Holdings.
3
<PAGE>
On January 4, 1996, the Special Committee met with its legal and financial
advisors. Representatives of Dillon Read described the financial due diligence
performed by Dillon Read to date and certain preliminary valuation analyses
performed by Dillon Read. During such meeting and subsequent meetings with
representatives of Dillon Read, members of the Special Committee discussed
numerous topics with the representatives of Dillon Read, including with
respect to the methodologies that Dillon Read proposed to use to value the
Shares from a financial point of view. The methodologies Dillon Read used and
the various details of their analyses are set forth below under "SPECIAL
FACTORS--Opinion of Financial Advisor." The Special Committee directed Dillon
Read to continue to perform additional financial due diligence.
On January 12, 1996, a meeting of the Special Committee was held at which
representatives of Dillon Read described certain preliminary valuation
methodologies being utilized by Dillon Read, including (1) an analysis of
comparable companies, (2) an analysis of comparable acquisitions, (3) a
discounted cash flow analysis, (4) a leveraged buyout analysis and (5) an
analysis of premiums paid in minority "close-out" transactions. Dillon Read
advised the Special Committee that it was still working to refine certain
portions of the analyses and that the analyses represented only preliminary
estimates that were subject to change.
During the period from late November 1995 through February 1996, Rhoda H.
Goldman, a director of the Company, and members of her family who, together
with Mrs. Goldman, hold approximately 6.6 million Class L Shares, expressed
dissatisfaction with various aspects of the Offering and the Merger. Mrs.
Goldman also objected to the formation of the Special Committee on November
30, 1995 on the grounds that it was premature. Such holders, including Mrs.
Goldman, objected to the terms of the investment in Holdings offered to them,
the timing and procedures for the Offering and the Merger, and the price
proposed to be paid in the Merger.
Representatives of the Transaction Sponsors had several discussions with
such holders' legal advisors in January 1996 in an attempt to resolve certain
of the issues raised. On January 17, 1996, the Special Committee and its
advisors met with Mrs. Goldman's advisors. Mrs. Goldman's advisors raised
concerns about the $250 per Share price to be offered by the Transaction
Sponsors in the merger proposal and reiterated their concerns about the timing
and terms of the Offering and the Merger.
On January 19, 1996, the Special Committee's legal advisors sent a letter,
on behalf of the Special Committee, to Mrs. Goldman's legal advisors
indicating that the Special Committee and its advisors were interested in
meeting with Mrs. Goldman's financial advisors further to discuss their
concerns with the price expected to be offered in the merger proposal. The
letter further indicated that the issues raised at the January 17 meeting
concerning the timing and terms of the Offering were not within the Special
Committee's responsibilities and that based on discussions with its legal
advisors, the Special Committee had concluded that it was neither necessary or
appropriate that such responsibilities be expanded.
In addition to attending a meeting on January 18, 1996 with Robertson
Stephens & Co. ("Robertson Stephens"), the investment banking firm retained by
Mrs. Goldman and her family, and certain of the Transaction Sponsors, to
discuss the proposed merger consideration, on January 22, 1996, at the request
of the Special Committee, representatives of Dillon Read met with
representatives of Robertson Stephens to discuss the valuation methodologies
utilized by Robertson Stephens, which resulted in a significantly higher
valuation of the Company by Robertson Stephens than the expected $250 per
Share merger proposal. Representatives of Dillon Read listened to a
presentation by representatives of Robertson Stephens on how Robertson
Stephens conducted their valuation analyses of the Company.
On January 23, 1996, the Special Committee met with representatives of
Dillon Read and Simpson Thacher. During such meeting, representatives of
Dillon Read reported to the Special Committee on their recent discussions with
Robertson Stephens. Representatives of Dillon Read presented an updated report
to the Special Committee containing Dillon Read's valuation analyses. Dillon
Read indicated to the Special Committee that their preliminary conclusion,
based on their various valuation analyses, indicated that the $250 per Share
price expected to be offered in the merger proposal would probably fall within
a range that would enable them to conclude that the proposed price was fair to
the holders of Shares (other than with respect to Shares held by or being
contributed to Holdings) from a financial point of view. The Special Committee
also asked Dillon Read to
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consider the feasibility of a recapitalization structure of the Company as
part of their review. The members of the Special Committee and their legal
advisors discussed the need to negotiate with the Transaction Sponsors on an
arm's length basis to seek the best price reasonably available in the
circumstances.
By January 25, 1996, the date designated by Holdings as the initial deadline
for determining whether or not to participate in the Offering, holders of
Class L Shares returned written commitments (the "Stock Subscription
Agreement"), to contribute an aggregate of 45,250,765 Class L Shares,
representing 85% of the outstanding Shares, to Holdings. However, holders of
Class L Shares may reduce their participation level until February 26, 1996.
Upon completion of the subscription, the Participating Stockholders, together
with the founding stockholders of Holdings, will be the sole owners of
Holdings. Upon completion of the Merger, Holdings will in turn own 100% of the
Company.
On January 29, 1996, Dillon Read presented updated valuation analyses to the
Special Committee, including a comparable company trading analysis, a
comparable transaction analysis, a discounted cash flow analysis, a leveraged
buyout analysis and a premium analysis, as well as a review of a
recapitalization structure as requested by the Special Committee. A summary of
Dillon Read's analyses and the results thereof is contained in "SPECIAL
FACTORS--Opinion of Financial Advisor." In updating their valuation analyses
for the Special Committee, Dillon Read noted that the $250 per Share price
expected to be offered in the merger proposal would fall somewhere between the
middle and high end of the preliminary fairness range ($240-257 per Share)
indicated by its valuation analyses and closer to the high end of the
valuation range for most of its individual valuation analyses.
After the presentation of Dillon Read, consultation with its legal advisors,
and deliberations among its members, the Special Committee determined to
engage in negotiations with the Transaction Sponsors with respect to the $250
per Share price. The Special Committee members agreed that, after discussions
with its financial advisor, the $250 per Share price expected to be offered
would be fair to the holders of the Shares (other than the Shares held by or
being contributed to Holdings). However, the Special Committee members agreed
that the Special Committee should continue to negotiate at arm's length with
the Transaction Sponsors to seek to increase the per Share price offered in
order to reasonably conclude that the holders of Shares (other than the Shares
held by or being contributed to Holdings) were realizing the best possible
transaction reasonably available under the circumstances.
Later on January 29, 1996, representatives of the Transaction Sponsors met
with the legal and financial advisors to the Special Committee who reported
that the Special Committee believed that the price to be proposed in the
Merger should be increased above $250 per Share. On January 30, 1996, the
Transaction Sponsors advised the Special Committee that, as a result of the
negotiations with the Special Committee's representatives, they would increase
the price to be paid by Holdings to $265 per Share in part as a result of the
strong performance of the stock market since the $250 price was preliminarily
set in December 1995 and also to ensure that the price would be attractive.
On January 31, 1996, Holdings delivered a formal proposal (the "Proposal")
to the Board. The Proposal contemplated a merger of Merger Sub with and into
LSAI in which all Class E Shares, and all Class L Shares other than those
Class L Shares which holders had contributed or committed to contribute to
Holdings in exchange for Holdings Shares, would be converted into the right to
receive $265 per Share in cash. Together with the Proposal, Holdings also
delivered to the Board the form of merger agreement that it and Merger Sub
were prepared to enter into with LSAI. See "THE MERGER."
During the course of the next week, the Special Committee, through its legal
advisors, negotiated a number of modifications to the form of merger agreement
proposed by Holdings, which are reflected in the final Merger Agreement. Such
modifications included, without limitation, (1) the elimination of an expense
reimbursement provision requiring the Company to pay the costs and expenses of
Holdings whether or not the Merger was consummated and the inclusion of a
waiver by Holdings of its right to seek monetary damages from the Company in
the event of a breach by the Company of any of its representations,
warranties, covenants and agreements, (2) the inclusion of a condition to the
obligation of the Company to effect the Merger that the Special Committee
shall not have modified or rescinded its recommendation with respect to the
Merger as a result of the withdrawal or material qualification of Dillon
Read's fairness opinion, (3) the modification of certain conditions
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to Holdings' obligation to effect the Merger, (4) limitations on the ability
of the Merger Agreement to be amended or provisions thereof waived without the
consent of the Special Committee and (5) limitations on the nature and extent
of the representations and covenants made by the Company.
From February 1 through February 5, 1996, the legal advisors of the Special
Committee and Mrs. Goldman's legal advisors exchanged correspondence and
communicated by telephone in order to schedule another meeting between the
members of the Special Committee and its advisors and Mrs. Goldman and her
advisors to discuss, among other things, the valuation issues identified by
Robertson Stephens in its prior meeting with Dillon Read.
On February 7, 1996, the Special Committee and its advisors met with Mrs.
Goldman and her advisors. Robertson Stephens, on behalf of the Goldman family
interests, reviewed with the Special Committee a presentation containing
Robertson Stephens' valuation analyses regarding the Company. Such report
indicated a per Share price range of $315-$387 based on a comparable company
trading analysis and $327-$359 based on a discounted cash flow analysis.
Following such presentation, the Special Committee met alone with its
advisors to discuss the areas of disagreement between the valuation analyses
of Dillon Read and Robertson Stephens. The principal areas of disagreement
between Dillon Read and Robertson Stephens concerned which companies should be
included as comparables in the comparable company analysis and the impact of
that analysis upon the multiples used in calculating the "terminal value" for
use in the discounted cash flow analysis. Specifically, Robertson Stephens
proposed the inclusion as "comparable" companies of a number of "branded"
companies outside of the apparel industry, including The Coca-Cola Company,
Gillette Co., Estee Lauder Cos. and Gucci Group NV. Dillon Read did not
include such companies in its comparable companies analysis. Instead, Dillon
Read viewed the comparable companies to be in the apparel industry (including,
for example, Gap Inc., VF Corp. and Nike, Inc., "branded" apparel companies).
See "SPECIAL FACTORS--Opinion of Financial Advisor." Due to the significantly
higher multiples of certain financial criteria characteristic of some of the
"branded" companies utilized by Robertson Stephens in its analysis, the
members of the Special Committee discussed extensively with representatives of
Dillon Read the validity of excluding such companies from their comparable
companies analysis. Representatives of Dillon Read explained that they had
considered the inclusion of "branded" companies in their comparable companies
analysis but ultimately determined not to include such companies because of a
number of significant distinguishing factors, including the market and product
dynamics, competitive positions, financial conditions, actual and prospective
growth rates, size and cyclicality and volatility of such companies as
compared to the Company. In addition, representatives of Dillon Read indicated
that they believed that Wall Street research analysts would characterize the
Company as an apparel company, as had been the case when the Company was
publicly traded prior to the 1985 LBO, rather than as a non-apparel "branded"
company.
Representatives of Dillon Read then presented its definitive written
valuation analyses to the Special Committee, which indicated that the $265 per
Share price was above the high end of its overall fairness range and above the
range of fairness in each of its individual valuation analyses, except for the
premium analysis, in which it was at the high end of such range. Dillon Read
informed the Special Committee that barring an unforeseen change it expected
to deliver its final fairness opinion the next day. See "SPECIAL FACTORS--
Opinion of Financial Advisor."
The price of $265 per Share proposed to be paid by Holdings for Shares
cashed out in the Merger represents a 5200% increase over, or 53 times, the
1985 LBO price of $5 per share (adjusted for stock splits). It also represents
a premium of 40.2% over the November 30, 1995 public market equivalent
valuation by Morgan Stanley of $189 per Share and a premium of 69% over Morgan
Stanley's May 30, 1995 public market equivalent valuation of $157 per Share.
As described under "--Fairness of the Merger; Recommendations," on February
7, 1996, the Special Committee reached its conclusion that the Merger is fair
to the holders of Shares (other than Class L Shares held by or being
contributed to Holdings). On February 8, 1996, the Special Committee received
Dillon Read's fairness opinion and recommended to the Board that the terms of
the Merger were fair to the holders of the
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Shares (other than Shares held by or being contributed to Holdings) and
recommended that the Board approve the Merger Agreement.
PURPOSE, STRUCTURE AND REASONS FOR THE MERGER
General. The purpose of the Merger is to provide for the long-term, stable
and consistent ownership and governance of the Company while at the same time
enabling stockholders to realize all or a portion of the increase in the value
of the Company since the 1985 LBO. After examining various long-term financial,
governance and business issues currently faced by LSAI, the Transaction
Sponsors concluded that the continued private ownership of the Company with
long-term, stable and consistent ownership and governance is the most effective
way to maintain the Company's superior financial performance as well as its
reputation as a leader in corporate social responsibility. Both continued
private ownership and the proposed governance arrangements are considered by
the Transaction Sponsors to be critical elements of the transaction. The
Transaction Sponsors believe that the long term commitment to a values
orientation and a principled approach to the Company's business will enhance
the Company's financial success.
All Class E Shares will be cashed out in the Merger and the holders of Class
E Shares will have no continuing equity interest in Holdings or the Company
following the Merger. In lieu of an equity interest, it is expected that all
employees, worldwide, will participate in new employee arrangements (the "New
Employee Arrangements") designed to align employee and stockholders' interests
in the post-Merger entity by providing cash payments to employee participants
based upon the future value created after the Merger. The New Employee
Arrangements are not being established to maintain competitive pay practices;
the Company believes its current compensation and benefits programs are above
average. Rather, the New Employee Arrangements are being developed from a
values standpoint, on the basis that it is important to share a portion of the
value expected to be created following the Merger with employees.
Financial Aspects of the Transaction Structure. The Transaction Sponsors
structured the acquisition of the Company as a cash merger in which Holdings
and LSAI would incur indebtedness to cash out all Class E Shares, as described
above, as well as Class L Shares which were not contributed to Holdings. The
structure is intended, among other things, to provide a meaningful liquidity
opportunity for stockholders. The structure is also intended to increase
stockholder returns to holders of Class L Shares who elected to invest in
Holdings by making more efficient use of available cash. As a result of the
Merger, certain reporting and other obligations that result from having a large
group of holders of Class E Shares will no longer apply.
Governance Aspects of the Transaction Structure. The Transaction Sponsors'
willingness to invest in Holdings, which will incur a substantial amount of
debt to acquire the Company, was premised on ensuring that other equity
investors in Holdings would share a common set of values going forward and that
there would be structural assurance that Holdings would have long-term, stable
and consistent ownership and governance. Consequently, as a condition to
permitting holders of Class L Shares to become Participating Stockholders,
Holdings required that such holders agree to become parties to the Voting Trust
Agreement and New Stockholders' Agreement.
Under the Voting Trust Agreement, all Participating Stockholders, together
with any person that subsequently becomes a stockholder of Holdings, will place
all of their Holdings Shares in a voting trust (the "Voting Trust"), and will
receive and hold voting trust certificates (the "Voting Trust Certificates") in
lieu of Holdings Shares. The Voting Trust will be administered by a group of
voting trustees (the "Voting Trustees"). The initial Voting Trustees will be
Robert D. Haas, Peter E. Haas, Sr., Peter E. Haas, Jr. and F. Warren Hellman.
In general, under the Voting Trust Agreement, successor Voting Trustees will be
chosen by the Voting Trustees remaining in office at the time a vacancy is
created. Miriam L. Haas, Peter E. Haas, Sr.'s wife, will become a Voting
Trustee at such time as Peter E. Haas, Sr. ceases to be a Voting Trustee. Under
the Voting Trust Agreement, the Voting Trustees will be the record holders of
all of the Holdings Shares and, in general, will exercise the exclusive power
to vote such shares on all matters upon which stockholders are entitled to
vote, including for the election of directors. As a result, the Voting
Trustees, and not the beneficial holders of the
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Holdings Shares, will, subject to certain exceptions, effectively control the
business, operations and management of Holdings (and, as a result, of the
Company).
Holders of Voting Trust Certificates will be permitted to vote only on
certain extraordinary corporate transactions such as a merger, or a sale of
all or substantially all of Holdings' assets, or upon charter amendments which
would change or alter the powers, preferences or rights of Holdings Shares so
as to adversely affect the holders thereof. Holders of Voting Trust
Certificates will also have the right to vote on certain amendments to the
Voting Trust Agreement and the New Stockholders' Agreement. Such holders will
also have certain rights to terminate the Voting Trust Agreement, including
upon the affirmative vote of the holders of two-thirds of the Holdings Shares.
The Voting Trust Agreement has a fifteen-year term, but may terminate earlier
if, among other things, Robert D. Haas ceases to be a Voting Trustee for any
reason and holders of at least two-thirds of the Holdings Shares vote against
continuation.
Under the New Stockholders' Agreement, stockholders of Holdings will be
subject to transfer restrictions which will apply to both their Holdings
Shares and the related Voting Trust Certificates. In general, the New
Stockholders' Agreement will permit only "Permitted Transfers" (as defined
therein), which include, in general, transfers to (1) other holders of
Holdings Shares, (2) members of the family of the transferring holder of
Holdings Shares, (3) certain charities and foundations, (4) Holdings and (5)
any other party so long as such transfer has received the prior approval of
the Holdings Board. In order for a transfer to be deemed a Permitted Transfer,
the intended transferee must execute a document (a "Confirming Document"), by
which such transferee agrees to be bound by the terms of the New Stockholders'
Agreement and will become a signatory thereto. The New Stockholders' Agreement
will also permit holders of Holdings Shares to effect pledges to a commercial
bank, savings and loan institution, brokerage firm or any other lender as
security for any of such holders' indebtedness, provided that the lender
executes a Confirming Document with respect thereto.
In the event of certain involuntary transfers of Holdings Shares, such as
pursuant to a foreclosure, the New Stockholders' Agreement provides Holdings
with a preemptive right to purchase such shares from the intended transferee.
Additionally, for the five-year period following the termination of the
remainder of the New Stockholders' Agreement, the New Stockholders' Agreement
provides for certain "tag-along" rights pursuant to which, in the event a
holder (the "Selling Holder") of Holdings Shares desires to sell shares
representing more than 10% of the then outstanding Holdings Shares to a third
party (other than to a Permitted Transferee), all other stockholders must be
permitted to sell a proportionate amount to the intended transferee in the
same transaction.
The duration of the New Stockholders' Agreement is twenty years, although it
may be terminated earlier or its provisions amended by the affirmative vote of
the holders of two-thirds of the Holdings Shares.
It is the belief of the Transaction Sponsors that the Voting Trust Agreement
and the New Stockholders' Agreement will help provide for the long-term,
stable and consistent ownership and governance of Holdings and the Company.
The Transaction Sponsors believe that these agreements will permit management
to run the Company in a manner consistent with the Company's Mission and
Aspirations Statement and Business Vision. By making these agreements an
important part of the structure of Holdings, the Transaction Sponsors have
effectively required Participating Stockholders to make an explicit commitment
to the values currently articulated and practiced by the Company. By placing
effective control of Holdings in the hands of the Voting Trustees, these
agreements are intended to permit Holdings and the Company to be governed by
the Voting Trustees and the Holdings Board with a view to achieving superior
financial returns while operating in a values-oriented manner, even if the
views of the owners of the Holdings Shares change over time, as the families
in what will continue to be a family-owned company grow larger and
generational shifts take place.
FAIRNESS OF THE MERGER; RECOMMENDATIONS
On February 7, 1996, the Special Committee and its financial and legal
advisors met to formally evaluate the proposed Merger. The full Board met on
February 8, 1996. At the Board meeting, the Special Committee recommended that
the Board approve the Merger Agreement, and the Board approved and adopted the
Merger
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Agreement and the transactions contemplated thereby. The Board determined that
the Merger is fair to, and in the best interests of, the holders of Shares
(other than with respect to Class L Shares held by or being contributed to
Holdings).
Eleven members of the Board voted in favor of the Merger Agreement. Mrs.
Goldman abstained. She said that while she and her family and their advisors
continued to have serious concerns about the proposed transaction, which were
not necessarily shared by other stockholders, she was abstaining out of
respect for her family's heritage.
The Board of Directors, in determining to approve the Merger Agreement and
the transactions contemplated thereby considered the recommendation of the
Special Committee and all of the factors considered by the Special Committee
as described below.
The members of the Board believe that the factors considered by the Special
Committee operate both individually and in combination to support their
determination that the Merger is fair to the holders of Shares (other than
with respect to Class L Shares held by or being contributed to Holdings) and
that the Merger is the best possible transaction reasonably available under
the circumstances. The Board did not assign relative weights to particular
factors considered by the Special Committee. Nine of the twelve members of the
Board are stockholders and/or employees of LSAI who have signed Stock
Subscription Agreements and, therefore, have a potential conflict with respect
to the Merger and the Merger Agreement. See "SPECIAL FACTORS -- Interests of
Certain Persons in the Merger; Conflicts of Interest."
In determining to recommend to the Board of Directors that it approve the
Merger Agreement, and in determining the fairness of the terms of the Merger,
the Special Committee considered the following factors, each of which, in the
Special Committee's view, supported the Special Committee's determination to
recommend the Merger:
(1) the Special Committee's knowledge of the business, financial results
and prospects of the Company (including the recognition of the Special
Committee that the Company's financial performance has historically
exceeded management's projections and an understanding, based on the advice
of its financial advisor, of the appropriate modifications required to be
made to such projections), which are reflected in the reports and financial
statements incorporated by reference herein (see "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE"), as well as the Special Committee's knowledge of
the apparel industry generally;
(2) the terms and conditions of the Merger Agreement, including the
amount and form of consideration and the nature of the parties'
representations, warranties, covenants and agreements;
(3) the fairness opinion and financial presentation of Dillon Read, as
described under "SPECIAL FACTORS -- Opinion of Financial Advisor";
(4) the condition to the consummation of the Merger that the Special
Committee shall not have modified or rescinded its recommendation with
respect to the Merger as a result of the withdrawal or material
qualification, on or prior to the effective time of the Merger, of the
fairness opinion delivered by Dillon Read to the Special Committee on the
date of the Merger Agreement;
(5) the fact that the Merger Consideration of $265 per Share represented
a premium of 40.2% over the November 30, 1995 public market equivalent
valuation by Morgan Stanley of $189 per Share, and a premium of 69% over
Morgan Stanley's May 30, 1995 public market equivalent of $157 per share;
(6) the unwillingness of Holdings and the Transaction Sponsors to
consider a sale of the Company, recapitalization, initial public offering
or to engage in other alternative transactions with respect to the Company
(as a result of which the Special Committee did not solicit third party
bids for the Company);
(7) the history of the negotiations with respect to the Merger
Consideration that, among other things, led to (a) an increase in Holdings'
offer from $250 per Share to $265 per Share, and the belief of the members
of the Special Committee that $265 per Share was the best price that could
be obtained from Holdings and the Transaction Sponsors and was therefore
the best price reasonably available in light of the
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Transaction Sponsors' unwillingness to consider alternative transactions
and (b) the fact that the formal Proposal did not include disparate pricing
for the Class E Shares and the Class L Shares; and
(8) the Special Committee's recognition of its ability and power to
reject the Proposal and say "no" to the Transaction Sponsors (subject to
the Transaction Sponsors' power to choose to proceed without the Special
Committee's approval) in the event the Special Committee concluded that the
Merger was not fair to the holders of the Shares (other than the Shares
held by or being contributed to in Holdings).
In light of the number and variety of factors the Special Committee
considered in connection with its evaluation of the Merger, the Special
Committee did not find it practicable to assign relative weights to the
foregoing factors, and, accordingly, the Special Committee did not do so.
The Special Committee frequently consulted with Dillon Read during the
course of its work and analysis of the financial evaluation of the Company and
of the Merger. The Special Committee believes that Dillon Read's analysis was
reasonable.
The Special Committee believes that the Merger is procedurally fair because:
(1) the Special Committee consisted of disinterested directors appointed to
represent the interests of, and to negotiate on an arm's length basis with
Holdings and the Transaction Sponsors on behalf of, the holders of Shares
(other than Class L Shares held by or being reinvested in Holdings); (2) the
Special Committee retained and was advised by Simpson Thacher, independent
legal counsel; (3) the Special Committee retained Dillon Read as independent
financial advisor to assist it in evaluating the Merger; and (4) the
consummation of the Merger requires as a condition that the Special Committee
shall not have modified or rescinded its recommendation with respect to the
Merger as a result of the withdrawal or material qualification, on or prior to
the Effective Time, of the fairness opinion of Dillon Read. In addition, the
Special Committee believes that the Merger is procedurally fair because the
$265 per Share price and the other terms and conditions of the Merger
Agreement resulted from active arm's length bargaining between the Special
Committee, on the one hand, and Holdings and the Transaction Sponsors on the
other hand.
OPINION OF FINANCIAL ADVISOR
On February 8, 1996, the Special Committee received Dillon Read's opinion
dated February 8, 1996 which provided that, as of such date, the Merger
Consideration to be received pursuant to the Merger by the holders (the
"Recipient Shareholders") of the Shares (other than the Class L Shares held by
or to be reinvested in Holdings) was fair to such Recipient Shareholders from
a financial point of view. A COPY OF DILLON READ'S WRITTEN OPINION IS ATTACHED
AS APPENDIX B HERETO AND SHOULD BE READ IN ITS ENTIRETY FOR A DESCRIPTION OF
THE PROCEDURES FOLLOWED, MATTERS CONSIDERED, ASSUMPTIONS MADE AND METHODS
EMPLOYED BY DILLON READ.
A copy of the Dillon Read financial analysis discussed below has been filed
as an exhibit to the Schedule 13E-3 filed with the Commission with respect to
the Merger, may be inspected and copied, and obtained by mail, from the
Commission as set forth in "AVAILABLE INFORMATION" and will be made available
for inspection and copying at the principal executive offices of the Company
at 1155 Battery Street, San Francisco, California 94111 during regular
business hours by any interested stockholder of the Company or his or her
representative who has been so designated in writing.
In arriving at its opinion, Dillon Read: (1) reviewed certain publicly
available business and financial information relating to the Company; (2)
reviewed certain internal financial information and other data provided to
Dillon Read by the Company relating to the business and prospects of the
Company, including financial projections prepared by the management of the
Company; (3) reviewed independent valuations prepared by Morgan Stanley and
Lehman Brothers, which independent valuations were discussed with
representatives of such firms; (4) conducted discussions with members of the
senior management of the Company and Board; (5) reviewed a preliminary draft
of the form of the Merger Agreement; (6) reviewed the financial terms, to the
extent publicly available, of certain acquisition transactions which Dillon
Read considered relevant; (7) reviewed publicly available financial and
securities market data pertaining to certain publicly held companies in lines
of
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business Dillon Read considered to be generally comparable to those of the
Company; and (8) conducted such other financial studies, analyses and
investigations, and considered such other information, as Dillon Read deemed
necessary and appropriate.
In connection with Dillon Read's review, with the Special Committee's
consent, Dillon Read has not assumed any responsibility for independent
verification of any of the foregoing information. Except to the extent that
Dillon Read independently prepared certain modified financial projections
based on and in partial reliance upon management projections and other
diligence, including discussions with management, Dillon Read has, with the
Special Committee's consent, relied upon the information described in the
preceding paragraph being complete and accurate in all material respects.
Dillon Read has not been requested to and has not made an independent
evaluation or appraisal of any assets or liabilities (contingent or otherwise)
of the Company or any of its subsidiaries, nor has it been furnished with any
such evaluation or appraisal. Further, Dillon Read has assumed, with the
Special Committee's consent, that all of the information, including the
projections provided to Dillon Read by the Company's management, was prepared
in good faith and on a basis reflecting the best currently available estimates
and judgments of the Company's management as to the future financial
performance of the Company and that the assumptions underlying such
projections were viewed by management as being reasonable at the time made. In
addition, Dillon Read has not been asked to, and does not express any opinion
as to the after-tax consequences of the Merger to any Recipient Shareholder.
In addition, Dillon Read's opinion is based on economic, monetary and market
conditions existing on the date hereof.
The Special Committee has not asked Dillon Read to solicit, and Dillon Read
has not solicited, indications of third party interest regarding the sale of
all or part of the Company or its Shares, assets or businesses. Additionally,
the Transaction Sponsors have advised Dillon Read, through the Special
Committee, that the Transaction Sponsors would not support alternative
transactions to the Merger. Accordingly, Dillon Read has not been asked by the
Special Committee to opine, and does not opine, as to any matter other than
the fairness from a financial point of view, as of the date of its opinion, of
the Merger Consideration to be received by the Recipient Shareholders pursuant
to the Merger.
Modified Projections
Dillon Read independently prepared certain modified financial projections
based on and in partial reliance upon management's projections and due
diligence performed in light of the fact that the Company's earnings had
historically exceeded management's projections. Management's projections
contained a 1996 net income estimate for the Company of $559.1 million and
projected 1996 earnings before interest, taxes, depreciation and amortization
("EBITDA") of $969.2 million for the Company. Dillon Read considered a variety
of factors that related to management's historical projections. Specifically,
for 1996, Dillon Read eliminated certain portions of the Customer Service
Supply Chain (CSSC) transition expenses which were deemed to be non-recurring
events and programs from management's projections. For 1996, Dillon Read
modified certain assumptions of key operating variables relating to the
Company, including higher sales volumes and operating expenses for Levi
Strauss North America and Levi Strauss International, divisions of the
Company, and additional lower operating expense items, which modifications
added $50 million (low case) to $125 million (high case) of pre-tax potential
earnings to management's 1996 earnings estimate. Such modifications resulted
in a modified 1996 net income estimate for the Company of $644.6 million (low
case) to $690.7 million (high case) and a modified projected 1996 EBITDA of
$1,107.2 million (low case) to $1,182.2 million (high case). Dillon Read was
aware that Morgan Stanley's November 30, 1995 public market equivalent
valuation of the Company of $189 per Share had also incorporated an increase
in management's 1996 estimated earnings of $125 million, similar to Dillon
Read's high case scenario. For the 10-year projections, Dillon Read modified
certain assumptions of key operating variables related to the Company,
primarily revenue growth and the earnings before interest and taxes ("EBIT")
margin. Dillon Read then utilized such modified projections in certain of its
valuation analyses described below. The net sales and gross profit line items
from management's projections are included herein under "SELECTED PRO FORMA
PROJECTED FINANCIAL INFORMATION" (without the foregoing adjustments), which
pro forma projections, other than with respect to the net sales and gross
profit line items, otherwise incorporate the effects of the Merger and the
Offering. Reference is made to the Dillon Read financial analysis included as
an exhibit to the Schedule 13E-3 filed with the Commission with respect to the
Merger for a more detailed summary of Dillon Read's modifications of
management's ten-year projections (which do not give effect to the Merger or
the Offering).
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The amount of Merger Consideration to be paid to the Recipient Shareholders
pursuant to the Merger was determined through negotiations between the Special
Committee and the Transaction Sponsors.
In connection with rendering its opinion, Dillon Read considered a variety
of valuation methods which are summarized below. These analyses, taken
together, support Dillon Read's opinion.
Comparable Company Trading Analysis. Using publicly available information,
Dillon Read analyzed, based upon market trading values, multiples of certain
financial criteria (such as net income; projected net income, which had been
modified to compensate for the historical conservatism of management's past
and current projections; latest twelve months' earnings before interest, taxes
depreciation and amortization ("EBITDA"); latest twelve months' earnings
before interest and taxes ("EBIT"); latest twelve months' revenues; and book
value) used to value certain other companies, which, in Dillon Read's
judgment, were comparable to the Company for the purpose of this analysis. The
comparable company analysis was comprised of the following six public apparel
companies which Dillon Read deemed most similar to the Company: VF Corp.;
Nike, Inc.; GAP Inc.; Russell Corporation; Liz Claiborne Inc.; and Fruit of
the Loom Inc.
The range and average for market capitalization as a multiple of each of the
indicated statistics for the comparable companies were as follows: (a) latest
twelve months' net income to common stockholders -- 11.9x to 30.0x, with an
average of 20.1x; (b) estimated calendar 1995 earnings (median estimates
computed by Institutional Brokers Estimate Service ("I/B/E/S")) -- 12.5x to
25.9x, with an average of 20.0x; (c) median I/B/E/S estimated calendar 1996
earnings -- 11.4x to 17.7x, with an average of 15.3x; and (d) book value --
1.5x to 4.6x, with an average of 2.7x.
The range and average for net asset capitalization (equivalent to market
capitalization plus book value of total debt, liquidation value of preferred
stock and book value of minority interests less cash and cash equivalents) as
a multiple of each of the indicated statistics for the comparable companies
were as follows: (a) latest twelve months' revenues -- 0.8x to 1.8x, with an
average of 1.3x; (b) latest twelve months' EBITDA --6.0x-- to 10.7x, with an
average of 8.2x; (c) latest twelve months' EBIT -- 7.9x to 12.3x, with an
average of 11.4x.
Applying such market trading and other financial multiples used to value
such comparable companies to the Company's 1995 net income and estimated 1996
net income (based on management's unmodified projection model and Dillon
Read's modified model), Dillon Read calculated an indicated trading range of
$190 to $210 per Share, which Dillon Read believes supported Dillon Read's
view that the Merger Consideration to be received by the Recipient
Shareholders is fair, from a financial point of view, to such Recipient
Shareholders.
Comparable Mergers and Acquisitions. Using publicly available information,
Dillon Read analyzed certain mergers and acquisitions (1) based on the equity
value of the transaction as multiples of: (a) latest twelve months' net income
to common stockholders and (b) latest book value; and (2) based on the net
asset value of the transaction as multiples of (a) latest twelve months'
revenues; (b) latest twelve months' EBITDA; and (c) latest twelve months'
EBIT.
The merger and acquisition transactions which were analyzed included eleven
transactions completed in the apparel industry in which complete ownership or
majority control was acquired. The acquisitions reviewed by Dillon Read, in
reverse chronological order of announcement date, were: (a) the acquisition of
NCC Industries Inc. by Maidenform Worldwide Inc.; (b) the acquisition of
Nutmeg Industries by VF Corp.; (c) the acquisition of Salem Sportswear Inc. by
Fruit of the Loom Inc.; (d) the acquisition of Champion Products Inc. by Sara
Lee Corp.; (e) the acquisition of West Point-Pepperell by Farley Inc.; (f) the
acquisition of Manhattan Industries, Inc. by Salant Corp.; (g) the acquisition
of E-II Holdings Inc. by American Brands, Inc.; (h) the acquisition of Blue
Bell Holding Co. by VF Corp.; (i) the acquisition of Warnaco Inc. by W
Acquisition Corp.; (j) the acquisition of Work Wear Corp. by Paine Webber
Capital Inc.; and (k) the acquisition of Levi Strauss & Co. by HHF Corp.
(i.e., the 1985 LBO).
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The range and median for the purchase price of equity as a multiple of each
of the indicated statistics were as follows: (a) latest twelve months' net
income to common stockholders -- 8.5x to 27.0x, with a median of 20.4x; and
(b) latest book value -- 1.4x to 10.6x, with a median of 2.6x. The range and
median for the transaction value (defined as purchase price of equity plus the
book value of debt less cash and cash equivalents) as a multiple of each of
the indicated statistics for the group of comparable acquisitions were as
follows: (a) latest twelve months' revenues -- 0.4x to 2.0x, with a median of
0.8x; (b) latest twelve months' EBITDA -- 4.5x to 13.0x, with a median of
9.0x; and (c) latest twelve months' EBIT -- 5.0x to 15.6x, with a median of
10.6x. On this basis, Dillon Read calculated an indicated value range of $225
to $250 per Share, which Dillon Read believes supported Dillon Read's view
that the Merger Consideration to be received by the Recipient Shareholders is
fair, from a financial point of view, to such Recipient Shareholders.
However, these comparable mergers and acquisitions may have less than
complete business comparability with the Company, because the transactions
were significantly smaller than the Merger currently under consideration and
because such acquisitions generally occurred in different stock market,
economic environments and apparel cycles. As a result, Dillon Read further
considered 73 completed and announced public transactions, without reference
to the industry involved, having a value in excess of $2.5 billion from 1985
to date. The range and median for the transaction values as a multiple of
EBITDA in those transactions was 3.6x to 13.6x, with a median of 7.2x. On this
basis, Dillon Read calculated an indicated value range of $170 to $260 per
Share, which Dillon Read believes supported Dillon Read's view that the Merger
Consideration to be received by the Recipient Shareholders is fair, from a
financial point of view, to such Recipient Shareholders.
The Company's equity multiples based upon the Merger Consideration were as
follows: (a) fiscal year 1995 (also latest twelve months) net income to common
stockholders -- 23.5x; (b) estimated 1996 net income to common stockholders
(based on LSAI estimates) -- 24.5x; and (c) book value at November 30, 1995 --
6.0x. The Company's net asset multiples based upon the Merger Consideration
were as follows: (a) latest twelve months' revenues -- 2.0x; (b) latest twelve
months' EBITDA -- 12.4x; and (c) latest twelve months' EBIT -- 13.9x.
Discounted Cash Flow Analysis. Dillon Read performed a discounted cash flow
analysis based upon the projections furnished by the Company's management
under two scenarios: (1) using management's model of the Company's future
earnings and cash flows and (2) using Dillon Read's ten year modified model of
the Company's future earnings and cash flows. The salient differences between
the two scenarios relate to assumptions of key operating variables, primarily
revenue and EBIT growth and EBIT margin, which were made in light of the fact
that the Company's earnings have historically exceeded management's
projections. See the discussion of Dillon Read's modification of management's
projections, above. In the ten year unmodified management model, the ten year
compound annual growth rate of revenues and EBIT, adjusted for non-recurring
items, were 5.0% and 6.9%, respectively. The ten year average EBIT margin,
adjusted for non-recurring items, was 15.2%. In the ten year modified model,
the ten year compound annual growth rate of revenues and EBIT, adjusted for
non-recurring items, were 8.5% and 11.5%, respectively. The ten year average
EBIT margin was 16.7%.
Under each model, Dillon Read determined the present value of the unlevered
after-tax cash flows for fiscal years 1996-2005 by discounting those cash
flows to the present using discount rates of 13%-14%, which were chosen based
on several assumptions regarding factors such as inflation rates, interest
rates, the inherent risk in the Company's business, as well as the apparel
industry as a whole, and the cost of capital of the Company.
In addition to the valuation of the Company's 1996-2005 unlevered after-tax
cash flows, Dillon Read determined, under each model, the valuation of the
Company at the end of the terminal year, 2005, based upon two generally
accepted methodologies. Using one methodology, Dillon Read applied multiples
ranging from 7.0x-9.0x to the Company's 2005 EBITDA to determine the Company's
value at the end of the terminal year. Using the other methodology, Dillon
Read determined the end of terminal year value of a perpetuity of unlevered
after-tax cash flows beginning in year 2006. Discount rates of 13%-14% and
perpetuity growth rates of 4.5%-6.5% were assumed. Under each methodology, the
present value of the end of terminal year Company valuation
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was determined by discounting, to the present, the terminal value by discount
rates of 13% to 14%. Assumptions used to determine the Company's terminal
valuation were chosen based upon several factors such as the long-term
economic prospects of the Company and the apparel industry as a whole,
comparable company analysis, comparable merger analysis, inflation rates,
interest rates, the inherent risk in the Company's business, as well as the
apparel industry as a whole and the cost of capital of the Company.
The analysis yielded a range of values for the Company's common stock of
$165 to $200 per Share using the management model and $215 to $255 per Share
using the modified model. Dillon Read believes that the discounted cash flow
analysis supported Dillon Read's opinion that the Merger Consideration to be
received by the Recipient Shareholders is fair from a financial point of view,
because the Merger Consideration was above the range of present values of the
Company's future cash flows of both the management and modified models.
Leveraged Buyout Analysis. Dillon Read conducted a leveraged buyout analysis
assuming funding from various sources including excess LSAI cash, senior
revolving and term debt facilities, subordinated debt and common equity. Based
upon (1) the current interest rate, economic, and apparel and retail
environments, (2) acquisition lending, private equity and leveraged buyout
markets and (3) certain other financing considerations, constraints and
parameters including prospective returns to equity investors, pro-forma
capitalization, certain interest coverage ratios and projected debt
amortization schedules, Dillon Read developed a low case and a high case
valuation range. Each case assumed the same modified model of the Company's
future earnings and cash flows as applied in the discounted cash flow
analysis. The analysis yielded values for the Company's common stock ranging
from $175 per Share in the low case to $200 per Share in the high case. Dillon
Read believes that the leveraged buyout analysis supported Dillon Read's
opinion that the Merger Consideration to be received by the Recipient
Shareholders is fair, from a financial point of view, because the Merger
Consideration was above the range of values that could be reasonably expected
in the context of a leveraged buyout of the Company's common equity given the
aforementioned financing considerations, constraints, and parameters.
Acquisition Premium Analysis. Using publicly available information, Dillon
Read analyzed the premiums paid in 17 completed and announced transactions
having a value in excess of $100 million in which a majority shareholder
acquired the shares of minority shareholders at a premium over market prices
and the majority shareholder held between 98% and 100% of the stock upon
completion of the transaction. Premiums were calculated as of a date one day,
one week and four weeks, respectively, before announcement of the
transactions. The minority acquisition transactions Dillon Read reviewed were:
(1) acquisition of the remaining minority interest in GEICO Corp. by Berkshire
Hathaway Inc.; (2) acquisition of the remaining minority interest in REN
Corp.-USA by COBE Laboratories; (3) acquisition of the remaining minority
interest in BIC Corp. by BIC SA; (4) acquisition of the remaining minority
interest in LIN Broadcasting Corp. by McCaw Cellular Communications; (5)
acquisition of the remaining minority interest in Club Med Inc. by Club
Mediterranee SA; (6) acquisition of the remaining minority interest in Fleet
Mortgage Group Inc. by Fleet Mortgage Group Inc.; (7) acquisition of the
remaining minority interest in Pacific Telecom by Pacificorp; (8) acquisition
of the remaining minority interest in Contel Cellular Inc. by GTE Corp.; (9)
acquisition of the remaining minority interest in Chemical Waste Management
Inc. by WMX Technologies Inc.; (10) acquisition of the remaining minority
interest in Ogden projects by Ogden Corp.; (11) acquisition of the remaining
minority interest in Brand Cos. Inc. by Rust International Inc.; (12)
acquisition of the remaining minority interest in PHILCORP Inc. by Leucadia
National Corp.; (13) acquisition of the remaining minority interest in United
Artists Entertainment by Tele-Communications Inc.; (14) acquisition of the
remaining minority interest in Ocean Drilling & Exploration by Murphy Oil
Corp.; (15) acquisition of the remaining minority interest in US WEST New
Vector Group Inc. by US West Inc.; (16) acquisition of the remaining minority
interest in Mack Trucks Inc. by Renault Vehicules Industriels; and (17)
acquisition of the remaining minority interest in Shearson Lehman Brothers
Holdings by American Express Co.
The range and median of premiums in those minority acquisition transactions
were: (a) one day prior to announcement -- (0.8)% to 47.6%, with a median of
19.0%; (b) one week prior to announcement -- 8.9% to 58.0%, with a median of
19.7%; and (c) four weeks prior to announcement -- 1.1% to 83.8%, with a
median of 23.7%.
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Assuming a trading price of $200 (the midpoint of Dillon Read's indicated
trading range as described above under "--Comparable Company Trading
Analysis") per Share, this analysis yields a range of $240 to $257 per Share.
Using publicly available information, Dillon Read also analyzed the premiums
paid in 114 completed and announced transactions not involving a "close-out"
of the minority having a value in excess of $1.0 billion in which an acquiror
acquired all or a majority of the acquired company's shares at a premium over
market prices upon completion of the transaction. Premiums were calculated as
of a date one day, one week and four weeks, respectively, before announcement
of the transactions.
The range and median of premiums in those control acquisition transactions
from January 1, 1990 to present were: (a) one day prior to an announcement --
(9.3)% to 94.5%, with a median of 28.8%; (b) one week prior to
announcement -- (6.1)% to 86.9%, with a median of 31.4%; and (c) four weeks
prior to announcement -- 1.9% to 99.1%, with a median of 33.3%.
The range and median of premiums in those control acquisition transactions
from January 1, 1995 to present were: (a) one day prior to an announcement --
(1.8%) to 69.2%, with a median of 25.3%; (b) one week prior to
announcement -- 0.6% to 69.9%, with a median of 26.1% and (c) four weeks prior
to announcement -- 0.9% to 76.0%, with a median of 32.2%. Dillon Read believes
these figures suggest a reduction of control premiums since 1995 as the
overall market has increased.
Assuming a price of $200 (the midpoint of Dillon Read's indicated trading
range as described above under "--Comparable Company Trading Analysis") per
Share, this analysis yields a range of $250 to $270 per Share.
The premiums to the Recipient Shareholders based upon the $265 per Share in
cash being offered in the Merger compared to (a) a $200 per Share stock price
(the midpoint of Dillon Read's indicated trading range as described above
under "--Comparable Company Trading Analysis") and (b) a $189 per Share stock
price (based upon the November 1995 valuation by Morgan Stanley) are 32.5% and
40.2%, respectively. Dillon Read believes that the implied premiums of the
Merger supported Dillon Read's view that the Merger Consideration to be
received by the Recipient Shareholders is fair, from a financial point of
view, to such Recipient Shareholders as of the date of Dillon Read's rendering
of its opinion, because such premiums are above the range found in the
selected public acquisitions in which a majority shareholder acquired the
shares of minority shareholders and within the range found in the selected
public acquisitions in which an acquiror acquired all or a majority of the
acquired company's shares.
The summary set forth above does not purport to be a complete description of
Dillon Read's fairness opinion or the analyses performed and factors
considered by Dillon Read in connection therewith. Dillon Read believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and other factors considered by it, without considering all factors
and analyses, could create a misleading view of the processes underlying its
opinion. Dillon Read did not quantify the effect of each factor upon its
opinion. Dillon Read made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many
of which are beyond the Company's and Dillon Read's control. Any estimates
contained in Dillon Read's analyses are not necessarily indicative of actual
values, which may be significantly more or less favorable than as set forth
therein. Estimates of the financial value of companies do not purport to be
appraisals or necessarily reflect the prices at which companies actually may
be sold. Because such estimates inherently are subject to uncertainty, neither
Dillon Read nor any other person assumes responsibility for their accuracy. In
rendering its opinion, Dillon Read expressed no view, and does not now express
a view, as to how such holders should vote on the Merger.
In addition to the analyses described above, at the request of the Special
Committee, Dillon Read examined the feasibility of a recapitalization of the
Company. Using a $2.5 billion recapitalization scenario and a $4.0 billion
recapitalization scenario and based on Dillon Read's modified model with
respect to management's projections, Dillon Read calculated a present value
per Share of between $161.82 and $211.61 for the $2.5 billion
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recapitalization scenario and between $164.98 and $215.74 for the $4.0 billion
recapitalization scenario. Based on management's assumptions, a $2.50 billion
recapitalization scenario yielded a present value per share of $177.20 and a
$4.0 billion recapitalization scenario yielded a $178.60 price per Share. This
examination did not constitute one of the analyses performed in connection
with, and did not provide a basis for, Dillon Read's opinion.
The Special Committee selected Dillon Read as its financial advisor because
Dillon Read is a nationally recognized investment banking firm with
substantial experience in transactions similar to the Merger. As a part of its
investment banking business, Dillon Read is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions.
Pursuant to the engagement letter between the Special Committee and Dillon
Read, the Company will pay to Dillon Read for its services, including the
rendering of its opinion, total fees of $750,000. Such fees were not dependent
in any respect on the outcome of Dillon Read's analyses. The Company has also
agreed to reimburse Dillon Read for its reasonable expenses, including
attorneys' fees, and to indemnify Dillon Read against certain liabilities in
connection with this engagement.
The Company otherwise has not engaged Dillon Read to provide financial
advisory services within the last two years nor has the Board expressed a
current intention to engage Dillon Read with respect to any other transaction.
CERTAIN PROJECTIONS
In connection with the Offering, Holdings and the Company provided holders
of Class L Shares with certain pro forma projected financial information
relating to Holdings' consolidated operations following the Merger. This
information, which is set forth in this Information Statement under the
caption "SELECTED PRO FORMA PROJECTED FINANCIAL INFORMATION" below, was
included in the Offering Memorandum distributed to holders of Class L Shares
in December 1995, prior to the time Participating Stockholders were required
to indicate to Holdings how many Class L Shares would be contributed to
Holdings. Because Holdings did not then know, and will not know until February
26, 1996, the final number of Class L Shares which will be contributed to
Holdings as opposed to being converted into cash in the Merger, two cases are
presented: one assuming that an aggregate of approximately $2.5 billion in
cash is paid for Class L Shares and Class E Shares in the Merger, and the
other that approximately $4 billion in cash is paid for such Shares. See
"SELECTED PRO FORMA PROJECTED FINANCIAL INFORMATION." See also the discussion
of Dillon Read's modifications to management's projections set forth under
"SPECIAL FACTORS--Opinion of Financial Advisor." Such modifications are not
included in the information set forth in "SELECTED PRO FORMA PROJECTED
FINANCIAL INFORMATION."
ACCOUNTING TREATMENT
The pending contribution of Class L Shares to Holdings and the subsequent
merger of Merger Sub with and into the Company will be accounted for as a
reorganization of entities under common control. Accordingly, the combined
assets and liabilities will be accounted for on a historical cost basis. The
exchange of Shares for cash in the Merger will eliminate all Shares which are
not contributed to Holdings or which are not properly withheld for purposes of
judicial appraisal, including those issued under the ESAP and subject to the
Company's management liquidity program, and will reduce stockholders' equity.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
Formation of Holdings. The original stockholders of Holdings included Robert
D. Haas, Chairman, Chief Executive Officer and a director of the Company, who
acquired 80% of the initial stock issued. HFLS Associates, a California
general partnership, acquired 12% of the initial stock issued. The managing
general partners of HFLS Associates are F. Warren Hellman and Tully M.
Friedman, who are directors of the Company. The managing general partners have
complete management rights with respect to the partnership. The only activity
of the partnership will be to hold the shares of Holdings. Messrs. Haas,
Hellman and Friedman are Transaction
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Sponsors. Thomas J. Bauch, Senior Vice President and General Counsel of LSAI,
acquired 8% of the initial stock issued. The initial capitalization of Holdings
was $250,000 and 1,000 shares of stock were issued. The stock of Holdings was
later split approximately 331 shares to one. As a result of the split, Mr. Haas
owns 264,550 Holdings Shares, HFLS Associates owns 39,682 Holdings Shares and
Mr. Bauch owns 26,455 Holdings Shares.
Each of the Transaction Sponsors is party to an agreement with Holdings
obligating the Transaction Sponsor to contribute to Holdings a specified
minimum number of Class L Shares, and to vote all shares over which the
Transaction Sponsor has voting power, in favor of the Merger. The agreements
also prohibit the Transaction Sponsors from soliciting, negotiating or
supporting any Company merger, stock or asset sale transaction involving any
person other than Holdings. The agreements terminate upon the earlier of: (1)
December 31, 1996, (2) ten days following written notice to Holdings from the
Transaction Sponsor of the occurrence of an increase in the price proposed to
be paid in the Merger to which the Transaction Sponsor has not consented or (3)
the date Holdings gives written notice to the Transaction Sponsor that it has
abandoned its intent to seek to acquire all or substantially all of the
outstanding Shares pursuant to the Merger or a comparable transaction (whether
or not at a different price than the Merger). Each of the Transaction Sponsors
is also party to a Stock Subscription Agreement.
Hellman & Friedman. Messrs. Hellman and Friedman, directors of the Company,
are Transaction Sponsors. Mr. Hellman will be one of the initial Voting
Trustees. See "SPECIAL FACTORS -- Purpose, Structure and Reasons for the
Merger." Messrs. Hellman and Friedman are the managing general partners of HFLS
Associates, a California general partnership that is a founding stockholder of
Holdings. See " -- Formation of Holdings." Messrs. Hellman and Friedman and
their families and one partner of Hellman & Friedman beneficially own an
aggregate of 1,081,442 Class L Shares and are Participating Stockholders.
Hellman & Friedman was founded in 1984 by F. Warren Hellman and Tully M.
Friedman. Hellman & Friedman's principal activity is managing funds with over
$2 billion in committed capital. Hellman & Friedman provides financial advisory
services to the Company and received approximately $300,000 for such services
in 1995. Hellman & Friedman was not retained to render, and has not rendered,
any opinion as to the fairness of the Merger to the Company or to the holders
of Class E Shares or Class L Shares. Under its standing retention agreement
with the firm, the Company has agreed to indemnify Hellman & Friedman against
certain losses, claims, damages and liabilities, including liabilities under
the federal securities laws, to which it may become subject in connection with
the firm's services. No future retention payments to Hellman & Friedman are
contemplated.
Voting Trustees. Robert D. Haas, Peter E. Haas, Sr., Peter E. Haas, Jr. and
F. Warren Hellman will serve as the initial Voting Trustees of the Voting
Trust. Because their beneficial ownership of Holdings Shares following the
Merger is likely to well exceed one-third of the outstanding Holdings Shares,
the Voting Trustees are likely to have the ability to perpetuate themselves as
Voting Trustees and to thereby choose the Holdings Board for the duration of
the Voting Trust. In addition, the Voting Trust Agreement will provide for
indemnification of the Voting Trustees, for expense reimbursement and in some
cases for compensation. See "SPECIAL FACTORS -- Purpose, Structure and Reasons
for the Merger."
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Morgan Stanley. The Company has historically retained Morgan Stanley to
provide it with periodic public market equivalent valuations of Class E Shares
and Class L Shares. See "CERTAIN INFORMATION REGARDING LSAI, HOLDINGS AND
MERGER SUB -- Valuation of Shares." Morgan Stanley has historically received
$50,000 for each such periodic valuation and is entitled to be reimbursed for
certain out-of-pocket expenses. The price proposed by Holdings for Class E
Shares and Class L Shares in the Merger was based in part upon an opinion of
Morgan Stanley as to the public market equivalent value of those Shares as of
November 30, 1995. Morgan Stanley is receiving $750,000 for that opinion and
is entitled to be reimbursed for certain out-of-pocket expenses. Morgan
Stanley was not retained to, and has not rendered, an opinion as to the
fairness of the Merger to the Company or to the holders of Class E Shares and
Class L Shares. The Company also retained Morgan Stanley to perform certain
analytical services in connection with the work of the GLT in examining long-
term financial, governance and business issues. See "SPECIAL FACTORS --
Background of the Merger." Morgan Stanley received $250,000 for that work.
Finally, the Company retains Morgan Stanley to provide services relating to
stockholder uses of prior Morgan Stanley valuations. Morgan Stanley receives
fees for these services tied to the amount of work required. The Company has
agreed to indemnify Morgan Stanley against certain losses, claims, damages and
liabilities, including liabilities under the federal securities laws, to which
it may become subject in connection with these services.
Special Committee. Nine of the twelve members of the Board are stockholders
of the Company. Because the Transaction Sponsors intended to permit all
holders of Class L Shares to invest in Holdings, they believed that all nine
of such directors would have a conflict of interest with respect to the Merger
and the Merger Agreement to which Holdings is a party. Accordingly, on
November 30, 1995, the Board appointed the Special Committee. See "SPECIAL
FACTORS -- Background of the Merger." The members of the Special Committee are
Angela Glover Blackwell, James C. Gaither and Patricia Salas Pineda. The
Company will pay each member of the Special Committee $30,000 for service on
the Special Committee, and has entered into indemnification agreements with
each member under which the Company will indemnify the member for certain
losses, claims, damages and liabilities arising from service on the Special
Committee. In addition, members of the Special Committee will be entitled to
certain indemnity rights under the Merger Agreement and the Company's by-laws.
See "THE MERGER -- Additional Covenants."
The Special Committee retained the law firm of Simpson Thacher & Bartlett as
the Committee's legal counsel. The Company will pay the fees and out-of-pocket
expenses of that firm. The Special Committee also retained the investment
banking firm of Dillon Read as its financial advisor. The Company will pay
Dillon Read $750,000 for its services in that capacity, and will reimburse the
firm for certain out-of-pocket expenses. The Company, in accordance with
customary practice, has agreed to indemnify Dillon Read against certain
losses, claims, damages and liabilities, including liabilities under the
federal securities laws, to which it may become subject in connection with
these services.
Investment Committee. The Company's Investment Committee, which consists of
senior officers and employees of the Company, is responsible for overseeing
the management of the assets held in the Plans. The Investment Committee will,
as contemplated by the Plans, direct the trustee holding the Plans' assets as
to whether the trustee should accept the Merger Consideration, or pursue
dissenters' rights, with respect to the Class E Shares held in the Plans. Four
of the five members of the Investment Committee own Class L Shares and are
expected to be Participating Stockholders.
In connection with the Investment Committee's and the trustee's review of
the Plans' response to the Merger, the Investment Committee, together with the
trustee, retained Lehman Brothers to provide an opinion as to whether the
Merger Consideration is not less than the fair market value of the Class E
Shares held by the Plans. Fair market value for this purpose is defined in
regulations under the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), as the price at which an asset would change hands between a
willing buyer and willing seller when the former is not under compulsion to
buy and the latter is not under any compulsion to sell, and both are able, as
well as willing, to trade and are well informed about the asset and the market
for such asset. Accordingly, in applying this definition of fair market value,
Lehman Brothers did not give consideration to an acquisition or control value,
or to a private market discount factor. On February 12,
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1996, Lehman Brothers advised the Investment Committee that Lehman Brothers
had concluded that the Merger Consideration is not less than the fair market
value of the Class E Shares. Lehman Brothers was not retained to render, and
has not rendered, an opinion as to the fairness, from a financial point of
view, to the holders of the Class E Shares, of the Merger Consideration to be
received by such holders.
The trustee has retained Lehman Brothers for the past five years to provide
the trustee with semiannual public market equivalent valuations of the Class E
Shares. Lehman Brothers received $50,000 for each such semiannual valuation
and was entitled to be reimbursed for certain out-of-pocket expenses. The
Company, in accordance with the customary practice, has agreed to indemnify
Lehman Brothers against certain losses, claims, damages and liabilities,
including liabilities under the federal securities laws, to which it may
become subject in connection with these services, and to pay Lehman Brothers
its customary fee of $50,000.
Hart-Scott-Rodino Filings. Certain Participating Stockholders, including
several who will be Voting Trustees, directors or officers of Holdings, are
required to make filings under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") in connection with their acquisition
of Holdings Shares. Each such filing must be accompanied by a $45,000 filing
fee. Holdings has agreed to pay those fees.
CERTAIN EFFECTS OF THE MERGER; OPERATIONS OF THE COMPANY AFTER THE MERGER
If the proposed Merger is consummated, all Class E Shares will be cashed out
in the Merger and the holders of Class E Shares will have no continuing equity
interest in Holdings or the Company following the Merger. Each holder of a
Class E Share will have the right to receive the Merger Consideration for each
such Class E Share held. In lieu of an equity interest in the Company, it is
expected that all employees, worldwide, will participate in new employee
arrangements (the "New Employee Arrangements") designed to align employee and
stockholders' interests in the post-Merger entity by providing cash payments
to employee participants based upon the future value created after the Merger.
Following the Merger, the Plans will remain in effect, but equity securities
of the Company (or of Holdings) will no longer be an investment option under
the Plans. Instead, employees will be given the opportunity to reallocate the
cash generated from the sale of Class E Shares in the Merger to the other
investment alternatives available under the Plans and will receive, as will
ESAP participants, certain payments intended to provide Plan participants with
cash in lieu of the return that the employees would have received in the
Merger if they had invested in Class E Shares in December 1995 (a scheduled
purchase opportunity under the Plans suspended by reason of the pending
transaction) with accumulated contributions. The ESAP will be terminated upon
the Effective Time.
Holders of Class L Shares who did not become Participating Stockholders by
agreeing to exchange all or a portion of their Class L Shares for Holdings
Shares will no longer have an equity interest in LSAI and will not share in
its future earnings or growth. Such holders will instead have the right to
receive the Merger Consideration for each Class L Share held. To the extent
that holders of Class L Shares became Participating Stockholders by agreeing
to contribute such Shares to Holdings in exchange for Holdings Shares in the
Offering, such stockholders will continue to have an indirect economic
interest in LSAI following the Merger, as LSAI will at such time be a wholly
owned subsidiary of Holdings.
LSAI will, as a result of the Merger, become a wholly owned subsidiary of
Holdings. Following the Merger, it is expected that LSAI will cease to, and
Holdings will not be required to, file any financial or related business
information with the Commission. Accordingly, less information concerning LSAI
will be required to be made publicly available than is presently the case.
Prior to the contribution by Participating Stockholders of Class L Shares to
Holdings pursuant to the Stock Subscription Agreements, neither Holdings nor
Merger Sub will hold any Shares or have any interest in the Company's net book
value or income. Immediately after such contribution, but prior to the Merger,
Holdings expects to hold at least 50% of the outstanding Shares. Based upon
LSAI's net book value as of November 26, 1995 of $2,115,293,000 and its net
income for the fiscal year ended November 26, 1995 of $734,736,000, Holdings
and Merger Sub would at such time have an interest of at least 50% in the net
book value and net
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income of LSAI, or at least $1,057,646,500 and $367,368,000, respectively.
Immediately after the Merger, all of the then outstanding Shares would be
beneficially owned by Holdings, and Holdings' and Merger Sub's interest in the
Company's net book value and earnings, as described above, will rise to 100%.
The directors of Merger Sub immediately prior to the Effective Time (as
hereinafter defined), who will be designees of Holdings and will not include
any members of the Special Committee or other directors who could be
considered "independent" directors, will be the directors of LSAI from and
after the Effective Time (until their successors are duly elected or appointed
and qualified).
Except as otherwise described in this Information Statement, Holdings
currently expects that LSAI will initially be operated after the Merger in a
manner similar to that of its current operations. Holdings currently expects
that upon consummation of the Merger, the persons serving on the Board of
Directors of Holdings and as officers of Holdings will be the same as those
presently serving in such capacities at LSAI. However, the Transaction
Sponsors, including the initial Voting Trustees who will effectively control
appointments to the Board of Directors of Holdings, believe that the directors
of Holdings following the Merger should share the values of the Transaction
Sponsors, as well as the Transaction Sponsors' commitment to the long-term
orientation and governance structure of Holdings. Accordingly, if the Voting
Trustees were to conclude that one or more individuals currently serving on
the LSAI Board were not likely to share such values and commitment, it is
possible such individual or individuals would not be elected as a director of
Holdings following the Merger. In addition, following the Merger, the Voting
Trustees will have the power to remove and replace directors of Holdings at
any time, including directors who, prior to the Merger, were on the LSAI
Board.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of certain of the United
States federal income tax consequences of the Merger to the holders of Class L
Shares and Class E Shares. This summary is based upon laws, regulations,
rulings and decisions now in effect, all of which are subject to change,
possibly retroactively. No ruling as to any matter discussed in this summary
has been requested from the U.S. Internal Revenue Service (the "IRS"), and no
such ruling is expected to be obtained.
EACH STOCKHOLDER IS URGED TO CONSULT AND RELY ON SUCH STOCKHOLDER'S OWN TAX
ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO THE STOCKHOLDER OF THE MERGER.
Treatment of Class E Shares in the Merger. The exchange of Class E Shares
for the Merger Consideration in the Merger will be a taxable transaction to
holders of Class E Shares. A holder of Class E Shares will recognize gain or
loss under federal income tax laws in an amount by which the proceeds received
in exchange for such Shares exceed or are less than the holder's tax basis in
the Shares. If the Class E Shares were a capital asset in the hands of the
holder, such gain or loss will be capital rather than ordinary and, in such
instances, will be long term if the Shares are considered to have been held
more than one year and short term if they are considered to have been held one
year or less on the date of the Merger. Participants in the Plans will incur
no tax as a result of the exchange for cash of Class E Shares by the Plans in
the Merger, except to the extent of any cash payments received from the
Company in respect of the suspended stock purchase opportunity, as described
under "--Certain Effects of the Merger; Operations of the Company After the
Merger."
Treatment of Class L Shares in the Merger. In General. All Class L Shares
not contributed to Holdings will be cancelled in the Merger and converted into
the right to receive cash. A stockholder's receipt of cash in respect of Class
L Shares pursuant to the Merger will be a taxable transaction for federal
income tax purposes, and may also be a taxable transaction under applicable
state, local, foreign or other tax laws. This summary does not discuss any
aspects of state, local, foreign or other tax laws. For purposes of this
discussion, stockholders are assumed to hold their Class L Shares as capital
assets.
Treatment as a Sale or Exchange. For stockholders who contribute no Class L
Shares to Holdings (either directly or indirectly under attribution rules of
the Internal Revenue Code of 1986, as amended (the "Code")), the receipt of
cash in respect of Class L Shares pursuant to the Merger will be treated as
proceeds of sale of the
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Class L Shares and, if the Shares were a capital asset in the hands of the
holder, will result in capital gain or loss in the amount by which those
proceeds differ from the stockholder's basis in the Class L Shares.
For stockholders who contribute Class L Shares to Holdings (or who
indirectly own Holdings Shares after the Merger under attribution rules of the
Code), the receipt of cash in the Merger may be treated for federal income tax
purposes as if it had been received from LSAI in redemption of Class L Shares.
It is possible that such treatment could apply to all holders of Class L
Shares who receive cash in the Merger. In consequence, it is advisable for
each holder of Class L Shares to refer to the "Section 302 Tests," described
below, for determining whether cash received in a redemption of shares by LSAI
would be treated as a dividend (ordinary income) or as proceeds from sale of
the shares (resulting in capital gain or loss). STOCKHOLDERS ARE PARTICULARLY
URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICABILITY AND EFFECT
OF THE TESTS SUMMARIZED BELOW.
Under Section 302 of the Code, receipt of cash pursuant to a redemption
will, as a general rule, be treated as a sale or exchange of the Class L
Shares (rather than as a corporate distribution) if the receipt of cash upon
the sale (1) is "substantially disproportionate" with respect to the
stockholder, (2) results in a "complete termination" of the stockholder's
interest in LSAI or (3) is "not essentially equivalent to a dividend" with
respect to the stockholder. These tests (the "Section 302 Tests") are
explained more fully below.
If any of the Section 302 Tests is satisfied, a stockholder receiving cash
in the Merger will recognize capital gain or loss equal to the difference
between the amount of cash received by the stockholder pursuant to the Merger
and the stockholder's basis in the Class L Shares converted pursuant to the
Merger. If the Class L Shares have been held for more than one year, the gain
or loss will be long-term capital gain or loss. Therefore, a stockholder
receiving cash in the Merger may wish to take the various bases and holding
periods of his or her Class L Shares, if such characteristics are not uniform,
into account in designating which Class L Shares to contribute to Holdings,
subject to the applicable minimum although there can be no assurance that such
designation will be respected for tax purposes.
As a general matter, it is advisable for each holder of Class L Shares to
refer to the Section 302 Tests when determining whether cash received in a
redemption of his or her stock by LSAI would be treated as a dividend
(ordinary income) or as proceeds from sale of their stock (resulting in
capital gain or loss). Stockholders are urged to consult their own tax
advisors regarding the applicability and effect of the Section 302 Tests.
Constructive Ownership of Stock. In determining whether any of the Section
302 Tests are satisfied, a stockholder must take into account not only Shares
actually owned by the stockholder, but also Shares that are deemed to be
constructively owned pursuant to Section 318 of the Code. Under Section 318 of
the Code, a stockholder may constructively own Shares actually owned, and in
some cases constructively owned, by the stockholder's spouse, children,
parents and grandchildren and certain entities in which the stockholder has an
interest (including certain estates and trusts) or, in the case of
stockholders that are entities, by certain individuals or entities that have
an interest in the stockholder, as well as any Shares the stockholder has a
right to acquire by exercise of an option or by the conversion or exchange of
a security convertible into Shares. Notwithstanding the constructive ownership
rules described above, a stockholder who disposes of his or her entire
interest in LSAI may waive the family attribution rules by complying with
Section 302(c)(2) of the Code. THE CONSTRUCTIVE OWNERSHIP RULES APPLY BOTH TO
TRANSACTIONS TREATED AS ACTUAL REDEMPTIONS UNDER SECTION 302 OF THE CODE AND
(WITH SOME MODIFICATIONS) TO TRANSACTIONS TREATED AS REDEMPTIONS UNDER SECTION
304 OF THE CODE.
Section 302 Tests. One or more of the following tests must be satisfied in
order for the receipt of cash pursuant to the Merger to be treated as a sale
rather than as a dividend distribution.
Substantially Disproportionate Test. The receipt of cash by a stockholder
will be substantially disproportionate with respect to the stockholder if the
percentage of the outstanding Holdings Shares actually and constructively
owned by the stockholder immediately after the exchange of Shares for cash
pursuant to the Merger (treating Shares cashed out pursuant to the Merger as
not outstanding) is less than 80% of the percentage of the outstanding Shares
actually and constructively owned by the stockholder immediately before the
exchange (treating shares cashed out pursuant to the Merger as outstanding).
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Complete Termination Test. The receipt of cash by a stockholder will be a
complete termination of the stockholder's interest if either (1) all of the
Shares actually and constructively owned by the stockholder are exchanged for
cash pursuant to the Merger or (2) all of the Shares actually owned by the
stockholder are sold pursuant to the Merger and the stockholder is eligible to
waive, and effectively waives, the family attribution of Shares constructively
owned by the stockholder in accordance with the procedures described in
Section 302(c)(2) of the Code. Stockholders considering making such an
election should do so in consultation with their own tax advisors.
Not Essentially Equivalent to a Dividend Test. The receipt of cash by a
stockholder will not be "essentially equivalent to a dividend" if the
stockholder's exchange of Shares for cash pursuant to the Merger results in a
"meaningful reduction" of the stockholder's proportionate interest in LSAI.
Whether the receipt of cash by a stockholder will result in a meaningful
reduction of the stockholder's proportionate interest will depend on the
stockholder's particular facts and circumstances.
Treatment as a Dividend. If none of the Section 302 Tests are satisfied and
if (although there can be no certainty) LSAI has sufficient earnings and
profits, a stockholder will be treated as having received a dividend taxable
as ordinary income in an amount equal to the amount of the cash received by
the stockholder pursuant to the Merger, as described below. This amount will
not be reduced by the stockholder's basis in the Shares exchanged for cash
pursuant to the Merger, and the stockholder's basis in those Shares will be
added to the stockholder's basis in the Class L Shares contributed to
Holdings. No assurance can be given that any of the Section 302 Tests will be
satisfied as to any particular stockholder, and thus no assurance can be given
that any particular stockholder will not be treated as having received a
dividend taxable as ordinary income. The excess of the amount of cash received
for Class L Shares pursuant to the Merger over LSAI's earnings and profits
will be treated, first, as a nontaxable return of capital to the extent of the
stockholder's basis for such stockholder's Shares, and, thereafter, as a
capital gain to the extent it exceeds such basis. Stockholders should be aware
that "earnings and profits" for this purpose may be higher or lower than
"retained earnings" shown on the Holdings pro forma balance sheet.
Backup Withholding. Under the backup withholding provisions of federal
income tax law, unless the conditions described in the next sentence are
satisfied and except in the case of certain foreign persons, Holdings or an
exchange agent appointed by Holdings (the "Exchange Agent") will be required
to withhold 31% of the cash paid in the Merger to holders of Class E Shares
and Class L Shares. This withholding generally applies only if the holder (1)
fails to furnish his or her social security or other taxpayer identification
number ("TIN"), (2) furnishes an incorrect TIN, (3) is notified by the IRS
that he or she has failed properly to report payments of interest and
dividends and the IRS has notified the Exchange Agent that he or she is
subject to backup withholding, or (4) fails to provide a certified statement,
signed under penalty of perjury, that the TIN provided is the correct number
and that the stockholder is not subject to backup withholding. Any amount
withheld from a payment to a holder under the backup withholding rules is
allowable as a credit against such holder's federal income tax liability,
provided that the required information is furnished to the IRS. Certain
holders are not subject to backup withholding. Holders should consult their
tax advisors as to their qualification for exemption from backup withholding
and the procedure for obtaining such an exception.
To prevent backup withholding, each stockholder who does not otherwise
establish an exemption from such withholding must notify the Exchange Agent of
such stockholder's correct TIN (or certify that such taxpayer is awaiting a
TIN) and provide certain other information by completing a Substitute Form W-9
(which will be included in the letter of transmittal forwarded in connection
with the Merger).
THE SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR
GENERAL INFORMATION ONLY. ALL STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE TRANSACTIONS TO THEM,
INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS
AND POSSIBLE CHANGES IN TAX LAW.
The consummation of the Merger will not result in the recognition by LSAI or
Holdings of taxable gain.
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THE MERGER
THE DESCRIPTION OF THE MERGER AGREEMENT SET FORTH BELOW DOES NOT PURPORT TO
BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX A TO THIS INFORMATION
STATEMENT AND INCORPORATED BY REFERENCE HEREIN.
TERMS OF THE MERGER
The Merger. Subject to the terms and conditions of the Merger Agreement,
Merger Sub will merge with and into the Company at the Effective Time (as
defined below). The separate corporate existence of Merger Sub will then
cease, and the Company will be the surviving corporation in the Merger (the
"Surviving Corporation").
Certificate of Incorporation and By-Laws. The Merger Agreement provides
that, at the Effective Time, the Certificate of Incorporation of the Company
will be amended (except with respect to the name, registered agent and the
name and address of the incorporator) to read in its entirety to be identical
to the Certificate of Incorporation of Merger Sub as in effect immediately
prior to the Effective Time. The By-Laws of Merger Sub in effect at the
Effective Time will become the By-Laws of the Surviving Corporation.
Directors and Officers. The directors of Merger Sub at the Effective Time
will become the directors of the Surviving Corporation until their successors
have been duly elected or appointed and qualified or until their earlier
death, resignation or removal. The officers of the Company at the Effective
Time will be the officers of the Surviving Corporation until their successors
have been duly elected or appointed and qualified or until their earlier
death, resignation or removal. See "SPECIAL FACTORS -- Certain Effects of the
Merger; Operations of the Company After the Merger."
Conversion of Shares in the Merger. At the Effective Time, (1) each issued
and outstanding Share (other than any Shares owned by Holdings or Merger Sub
and any Shares held in the treasury of the Company, which Shares will be
automatically cancelled and retired and will cease to exist with no payment
being made with respect thereto, and other than any Shares as to which a
written demand for appraisal has been delivered in the manner provided in the
Merger Agreement and in Section 262 of the General Corporation Law of the
State of Delaware (the "DGCL") ("Dissenting Shares")) will be converted into
the right to receive $265 in cash, the Merger Consideration, and (2) each
share of capital stock of Merger Sub issued and outstanding immediately prior
to the Effective Time will be converted into and become one fully paid and
nonassessable share of Common Stock, par value $0.01 per share, of LSAI, as
the Surviving Corporation in the Merger. See "RIGHTS OF DISSENTING
STOCKHOLDERS."
EFFECTIVE TIME OF THE MERGER
On the later of March 20, 1996 and the date by which all conditions to the
Merger have been satisfied or, if permissible, waived (the "Closing"), the
Merger will be consummated and become effective at the time at which the
certificate of merger to be filed pursuant to the DGCL is filed with, and is
accepted for filing by, the Secretary of the State of Delaware, or such later
date and time as may be agreed upon by LSAI and Holdings (the "Effective
Time"). See "THE MERGER -- Conditions; Waivers."
PAYMENT FOR SHARES
Payment for Shares. At or prior to the Effective Time, Holdings will
deposit, or cause to be deposited, in immediately available funds with a
disbursing agent selected by Holdings and reasonably satisfactory to the
Company (the "Exchange Agent"), such amounts as may be necessary to permit the
Exchange Agent to make the payments to which holders of a certificate or
certificates which immediately prior to the Effective Time represented issued
and outstanding Shares (the "Certificates") are entitled, which funds may be
invested by the Exchange Agent in certain permitted investments. As soon as
practicable after the Effective Time (but in no event more than five business
days thereafter), the Exchange Agent will mail to each record holder of
Certificates
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(other than Holdings or Merger Sub) a form of letter of transmittal which will
specify that delivery will be effected, and risk of loss and title to the
Certificates will pass, only upon proper delivery of the Certificates to the
Exchange Agent, together with instructions for use in surrendering such
Certificates and receiving the Merger Consideration therefor. Upon the
surrender of each such Certificate, together with such letter of transmittal
duly executed and any other required documents, the Exchange Agent will pay,
by check or by draft, to the holder of such Certificate, in consideration
therefor, the Merger Consideration multiplied by the number of Shares formerly
represented by such Certificate, and such Certificate will thereupon be
cancelled. Until so surrendered, each such Certificate (other than
Certificates representing Dissenting Shares and Certificates representing
Shares owned by Holdings or Merger Sub and Shares held in the treasury of
LSAI) will represent solely the right to receive the aggregate Merger
Consideration relating thereto. No interest will be paid or accrued on the
Merger Consideration.
The Merger Consideration will be net to each holder of Certificates in cash,
subject to reduction only for any applicable federal back-up withholding or
stock transfer taxes payable by such holder. After the Effective Time, there
will be no transfers on the stock transfer books of the Surviving Corporation
of any Shares which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to LSAI or the
Exchange Agent, they will be surrendered and cancelled in return for the
payment of the aggregate Merger Consideration relating thereto, subject to
applicable law and the provisions of the Merger Agreement in the case of
Dissenting Shares. See "RIGHTS OF DISSENTING STOCKHOLDERS."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties thereto. The Merger Agreement includes representations and warranties
by LSAI as to (1) the corporate organization, standing and power of LSAI and
its subsidiaries, (2) approval by the LSAI Board, (3) capitalization, (4)
brokers and finders employed by LSAI, and (5) the fact that the Merger
Agreement and the transactions contemplated thereby do not constitute a
violation, breach or default under any material corporate obligation or
contract of LSAI and that, except as expressly disclosed, no material filings,
consents or approvals are necessary to approve the Merger Agreement or the
transactions contemplated thereby, other than the approval of LSAI's
stockholders.
The Merger Agreement also includes representations and warranties by
Holdings and Merger Sub as to (1) the corporate organization, standing and
power of each of Holdings and Merger Sub, (2) approval by the respective
Boards of Directors of Holdings and Merger Sub and the stockholders of Merger
Sub, (3) the prior activities of Holdings and Merger Sub, and (4) the fact
that the Merger Agreement and the transactions contemplated thereby do not
constitute a violation, breach or default under any material corporate
obligation or contract of Holdings or Merger Sub and that, except as expressly
disclosed, no material filings, consents or approvals are necessary to
authorize the Merger Agreement or the transactions contemplated thereby.
BUSINESS OF THE COMPANY PENDING THE MERGER
Pursuant to the Merger Agreement, the Company has agreed that, except as
expressly contemplated by the Merger Agreement or as consented to by Holdings,
during the period from the date of the Merger Agreement to the Effective Time,
the Company and its subsidiaries will conduct their operations only in the
ordinary and usual course of business and consistent with past practice and
will use their reasonable best efforts in the ordinary course of business and
consistent with past practice to preserve intact the Company's business
organization, assets, prospects and advantageous business relationships, to
keep available the services of its officers and employees and to maintain
satisfactory relationships with customers, suppliers, contractors,
distributors, licensors, licensees and others having business relationships
with it.
ADDITIONAL COVENANTS
The Merger Agreement also provides the following additional covenants: (1)
the Company has agreed that during the time from the signing of the Merger
Agreement to the Effective Time, subject to customary confidentiality
agreements if requested, it will provide Holdings, Merger Sub and those
parties providing or potentially providing Holdings and Merger Sub with the
financing for the Merger (the "Financing") with
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reasonable access to corporate information of LSAI, (2) the Company, Holdings
and Merger Sub have agreed to use their reasonable best efforts to take or
cause to be taken all actions and to do, or cause to be done, all things
reasonably necessary, proper or advisable to consummate and make effective the
transactions contemplated by the Merger Agreement, including certain filings
pursuant to the HSR Act, the filing of the Schedule 13E-3 with the Commission,
and the dissemination of certain information to the Company's stockholders,
(3) Holdings and Merger Sub have agreed to cause their affiliates who are
directors, officers, stockholders and/or employees of the Company to use their
best efforts (to the extent reasonably within their power or ability) to honor
the provisions of the Merger Agreement and any related financing documents,
(4) Holdings and Merger Sub have agreed to use their reasonable best efforts
to obtain the Financing, (5) Holdings and LSAI have agreed to consult with
each other before making any public announcements relating to the Merger and
(6) LSAI, and after the Effective Time, the Surviving Corporation, have agreed
to indemnify and hold harmless its officers and directors, including members
of the Special Committee, against any claim or proceeding arising out of any
actions taken prior to the Effective Time and to make no changes to the
Surviving Corporation's Certificate of Incorporation and By-laws with respect
to such indemnification which would adversely affect the rights of such
indemnified parties. Holdings and Merger Sub have also agreed to waive the
right to seek monetary damages in connection with breaches of representatives,
warranties, agreements or covenants under the Merger Agreement, and to seek
only specific performance of such provisions.
CONDITIONS; WAIVERS
Conditions to Each Party's Obligations to Effect the Merger. The respective
obligations of each party to effect the Merger are subject to the satisfaction
of the following conditions which may not be waived: (1) the Merger Agreement
and the Merger will have been duly approved by the requisite vote of the
holders of Shares in accordance with applicable law and the Certificate of
Incorporation of LSAI, (2) there shall not be outstanding any order, statute,
rule, regulation, executive order, stay, decree, judgment, or injunction which
restrains or prohibits the consummation of the Merger and (c) Holdings and/or
Merger Sub shall have entered into definitive financing agreements providing
Financing (the "Definitive Financing Agreements") and the Financing thereunder
shall be available.
Conditions to the Obligations of Holdings and Merger Sub. The respective
obligations of Holdings and Merger Sub to effect the Merger are subject to the
satisfaction or waiver of the following additional conditions: (1) each of the
representations and warranties of LSAI contained in the Merger Agreement will
have been true in all material respects when made and at and as of the
Closing, (2) at or prior to the Closing, LSAI will have performed or complied
in all material respects with all agreements and conditions required of it
pursuant to the Merger Agreement, (3) as of the Closing there shall have been,
since the signing of the Merger Agreement, no material adverse change in the
assets, liabilities, business, results of operation, or financial condition of
LSAI and its subsidiaries taken as a whole, or any event, occurrence, or
developments which would reasonably be expected to result in such a change or
to have a material adverse effect on the ability of LSAI to consummate the
transactions contemplated by the Merger Agreement, (4) the transactions
contemplated by the Stock Subscription Agreements shall have occurred and (5)
as of the Closing there shall not have occurred, since the signing of the
Merger Agreement, (a) any general suspension of, or limitation on prices for,
trading in securities on any national securities exchange or the over-the-
counter market, (b) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States (whether or not mandatory),
(c) a decline of 20% or more in the Standard & Poor's 500 Index, (d) (i) a
default by the United States government on the payment of interest or
principal on its debt obligations or (ii) the existence of circumstances which
are determined by Holdings in its sole discretion to create a reasonable
probability that such a default is likely to occur, or (e) in the case of any
of the foregoing existing at the time of the execution of the Merger
Agreement, a material acceleration or worsening thereof.
Conditions to the Obligations of LSAI. The obligations of LSAI to effect the
Merger are subject to the satisfaction or waiver of the following additional
conditions: (1) each of the representations and warranties of Holdings and
Merger Sub contained in the Merger Agreement will have been true in all
material respects when made and at and as of the Closing, (2) at or prior to
the Closing, each of Holdings and Merger Sub will have
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performed or complied in all material respects with all agreements and
conditions required to be performed and complied with by them pursuant to the
Merger Agreement and (3) the Special Committee shall not have modified or
rescinded its recommendation with respect to the Merger as a result of the
withdrawal or material qualification, on or prior to the Closing, of the
fairness opinion delivered by Dillon Read to the Special Committee on February
8, 1996.
TERMINATION; AMENDMENT
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, before or after the approval by the
stockholders of LSAI, by the mutual consent of the boards of directors of
Holdings, Merger Sub and LSAI.
The Merger Agreement may also be terminated by either Holdings or LSAI (1)
if the Effective Time shall not have occurred by September 30, 1996, or (2) if
a court of competent jurisdiction or governmental, regulatory or
administrative agency or commission shall have issued an order, decree or
ruling or taken any other action (which order, decree or ruling LSAI and
Holdings shall use their best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated
by the Merger Agreement which order is not subject to appeal.
Finally, the Merger Agreement may be terminated by Holdings or LSAI, if the
Special Committee shall have modified or rescinded its recommendation with
respect to the Merger as a result of the withdrawal or material qualification
of the fairness opinion delivered by Dillon Read to the Special Committee on
February 8, 1996.
In the event of termination of the Merger Agreement pursuant to its terms,
written notice thereof shall be delivered to the non-terminating party and the
agreement shall terminate and the Merger be abandoned without further action
by any of the parties thereto. No party shall then have any further liability
or obligation under the Merger Agreement except that the provisions regarding
amendment and modification, fees and expenses, and indemnification will
survive such termination.
The Merger Agreement may, subject to applicable law, be amended, modified or
supplemented at any time prior to the Effective Time by written consent of all
of the parties thereto, except that the amount and form of the Merger
Consideration may not be decreased, and the form of consideration may not be
altered, without the approval of the holders of a majority of the outstanding
Shares and provided, further, that any amendment, modification or supplement
that is adverse to the holders of Shares (other than Shares held by or
contributed to Holdings), or any waiver of any obligation, covenant, agreement
or condition, or the giving of any consent by LSAI or its Board of Directors,
shall require the consent of the Special Committee, which shall not be
unreasonably withheld.
FEES AND EXPENSES
The Merger Agreement provides that all costs and expenses will be borne by
the party incurring them.
FINANCING OF THE MERGER
As of the date of this Information Statement, holders of Class L Shares have
signed Stock Subscription Agreements committing to contribute 45,250,765 Class
L Shares to Holdings. However, the number of Class L Shares to be contributed
to Holdings is subject to reduction by such holders, as described under
"CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO SECURITIES OF THE
ISSUER--The Stock Subscription Agreement." Because any Shares which are not
contributed to Holdings will be cashed out in the Merger, if fewer than
45,250,765 Class L Shares are contributed to Holdings, the amount of funds
necessary to pay for Shares in the Merger will increase. It is not possible to
determine whether or not holders of
26
<PAGE>
Class L Shares will in fact reduce the number of Shares contributed to
Holdings. Based upon the commitments to contribute 45,250,765 Class L Shares,
however, it is estimated that the total amount of funds necessary for payment
of the Merger Consideration and expenses related to the Merger will be
approximately $2.5 billion. Those funds are expected to be obtained by
Holdings from cash resources of LSAI (including cash on hand and future
earnings) as well as from the proceeds of borrowings from banks or other
lending institutions. It is anticipated that upon consummation of the Merger,
LSAI and LS&CO. would become jointly liable with Holdings for such
indebtedness. Holdings' and LSAI's respective obligations to consummate the
Merger are conditioned upon Holdings' ability to obtain financing.
Accordingly, if all other conditions to the Merger were satisfied but such
funds were not available, the Merger would not be consummated.
In the Merger Agreement, Holdings has represented that, based on discussions
with prospective lenders, Holdings believes that, subject to customary terms
and conditions, Holdings will be able to arrange the necessary debt financing
for the Merger.
Estimated costs and fees in connection with the Merger, assuming completion
of the Merger, are as follows:
<TABLE>
<S> <C>
Legal Fees..................................................... $5,025,000
Investment Banking Fees........................................ 1,750,000
SEC Filing Fees................................................ 450,000
Printing Costs................................................. 150,000
Miscellaneous.................................................. 125,000
----------
Total........................................................ $7,500,000
==========
</TABLE>
RIGHTS OF DISSENTING STOCKHOLDERS
Under Section 262 of the DGCL ("Section 262"), any stockholder who does not
consent to the Merger in writing and who delivers a demand for appraisal to
LSAI within 20 days of the date on which LSAI mails to such stockholder notice
of the approval of the Merger and the effective date thereof, and who has
otherwise complied with the applicable requirements of Section 262, has the
right to an appraisal of, and to receive cash payment for, the "fair value" of
such stockholder's Shares at the Effective Time (excluding any element of
value arising from the accomplishment or expectation of the Merger). THE
COMPANY INTENDS TO MAIL NOTICE OF THE MERGER TO STOCKHOLDERS AS SOON AS
PRACTICABLE FOLLOWING THE EFFECTIVE TIME. IN ORDER TO EXERCISE THE RIGHT TO
SEEK APPRAISAL, A STOCKHOLDER MUST COMPLY WITH EACH OF THE PROCEDURAL
REQUIREMENTS OF SECTION 262, A SUMMARY OF WHICH AND THE TEXT OF WHICH ARE SET
FORTH IN APPENDIX C HERETO. STOCKHOLDERS SHOULD READ SECTION 262 IN ITS
ENTIRETY.
PARTICIPANTS IN THE PLANS WILL NOT EXERCISE APPRAISAL RIGHTS WITH RESPECT TO
ANY SHARES HELD FOR THEIR STOCK FUND ACCOUNTS IN THE PLANS. UNDER DELAWARE
LAW, THE TRUSTEE OF THE PLANS, WHO IS THE RECORD HOLDER OF THOSE SHARES, HAS
THE EXCLUSIVE RIGHT TO EXERCISE APPRAISAL RIGHTS AND, UNDER THE PROVISIONS OF
THE PLANS, THE TRUSTEE WILL BE DIRECTED BY THE INVESTMENT COMMITTEE IN MAKING
THIS DECISION. PARTICIPANTS IN THE ESAP, HOWEVER, ARE STOCKHOLDERS OF RECORD
AND ARE ENTITLED TO EXERCISE APPRAISAL RIGHTS. SEE "SPECIAL FACTORS--INTERESTS
OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST." The "fair value" of
each Share would be determined in judicial proceedings, the results of which
cannot be predicted. The failure to take any of the steps required under
Section 262 in a timely manner will result in a loss of appraisal rights. ALL
HOLDERS OF CLASS L SHARES WHO EXECUTED AND RETURNED STOCK SUBSCRIPTION
AGREEMENTS HAVE AGREED TO FOREGO ANY RIGHTS OF APPRAISAL TO WHICH SUCH HOLDERS
OTHERWISE WOULD HAVE BEEN ENTITLED.
The Merger Agreement provides that, notwithstanding anything in the Merger
Agreement to the contrary, Dissenting Shares will not be converted into the
right to receive the Merger Consideration, as provided in the applicable
provisions of the Merger Agreement, unless and until the holder thereof fails
to perfect or withdraws or otherwise loses his right to appraisal and payment
under the DGCL. If, after the Effective Time, any
27
<PAGE>
stockholder fails to perfect or withdraws or loses his or her right to
appraisal, such Dissenting Shares will thereupon be treated as if they had
been converted as of the Effective Time into the right to receive the Merger
Consideration to which such holder is entitled, without interest thereon. LSAI
has agreed in the Merger Agreement to give Holdings prompt notice of any
demands received by LSAI for appraisal of Shares and Holdings will have the
right to participate in all negotiations and proceedings with respect to such
demands. LSAI will not, except with the prior written consent of Holdings,
make any payment with respect to, or settle or offer to settle, any such
demands.
The Delaware courts have found that in cases involving an alleged breach of
fiduciary duties such as the duties of due care or loyalty in connection with
a merger involving a controlling stockholder, stockholders opposed to the
merger may pursue an action for relief, in addition to or in lieu of that
available pursuant to Section 262, including "rescissory damages" designed to
compensate for the value of the shares cashed-out in the merger calculated as
of the date of judgment, or another date before judgment, rather than as of
the date of the merger.
28
<PAGE>
CERTAIN INFORMATION REGARDING LSAI,
HOLDINGS AND MERGER SUB
LSAI
LSAI is a Delaware corporation. Its principal business address is Levi's
Plaza, 1155 Battery Street, San Francisco, CA 94111.
SECURITIES OF LSAI
The securities which form the subject matter of the Schedule 13E-3 are the
Class L Shares and the Class E Shares. As of February 2, 1996, there were
issued and outstanding 1,489,159 Class E Shares and 51,351,158 Class L Shares,
404,750 Class L Shares held in the treasury of LSAI which were reserved for
issuance upon exercise of stock options, and 5,014 Class E Shares held in the
treasury of LSAI. As of such date, there were 1,237 holders of record of Class
E Shares and 250 holders of record of Class L Shares. Each Share is entitled
to one vote on all matters subject to a vote by the holders of Shares.
MARKET FOR SHARES
Neither the Class L Shares nor the Class E Shares are traded on any exchange
or stock quotation system, nor is there any other trading market for
outstanding Shares. The outstanding Class E Shares are currently held by the
trustee of the Plans and by certain employees under LSAI's ESAP and are
subject to certain restrictions on transfer as provided in such plans. Class L
Shares are held primarily by descendants of the founders of LS&CO. and by
certain members of the Board and management of LSAI. Under a stockholders'
agreement that expires in April 2001 (the "Class L Stockholders' Agreement")
(unless extended by a vote of the Board and two-thirds of the Class L Shares),
transfer of Class L Shares is prohibited except to certain transferees,
specified members of the stockholder's family, trusts, charities or other
Class L stockholders. The Class L Stockholders' Agreement, which may be
amended by a vote of the Board and the holders of two-thirds of the Class L
Shares, will be terminated at the Effective Time if the Merger is consummated.
Certain members of management who are Class L stockholders are also parties to
contracts with LSAI providing for in-service, employment separation-related
and post-separation stock purchases; such contracts will be terminated at the
Effective Time. Additionally, LSAI maintains an estate tax repurchase policy
pursuant to which, upon the death of a holder of Class L Shares, and subject
to satisfaction of certain conditions and LSAI Board approval, LSAI would
purchase from the estate a certain number of Shares, in order to generate
funds to pay estate taxes. As a result of the absence of any market for the
Shares, the only available share prices are those obtained by LSAI on a semi-
annual basis by Morgan Stanley. See "--Valuation of Shares."
VALUATION OF SHARES
Morgan Stanley Valuations. In recent years, LSAI has generally obtained,
twice a year, valuations of the Shares from Morgan Stanley. Morgan Stanley is
instructed to value the Shares at "fair market value," defined as the price at
which the Shares would have traded, as of the valuation date, in a public
market if such public market had existed, without giving effect to any
acquisition or control value, or to a private market discount factor. Morgan
Stanley's methodology has involved reviews of historical performance and
internal financial and operating data (including projections and plans),
discussion with senior operating and financial managers, comparisons with
comparable publicly-traded companies and analysis of the securities markets.
After consulting with their equity research analysts, capital markets experts,
salesmen and traders, Morgan Stanley applies a multiple to projected earnings
to determine a public market equivalent per share value.
LSAI also generally obtains, with each valuation, an opinion from Morgan
Stanley about the appropriate illiquidity discount that might apply in sales
of a substantial block of stock in the absence of a public market. Morgan
Stanley has consistently stated that the discount, in its view, should be 30%.
The figures shown below represent the undiscounted, public market equivalent
valuation.
29
<PAGE>
A summary of Morgan Stanley's valuations of LSAI stock since 1988 is set
forth below:
<TABLE>
<S> <C>
9/27/88 $ 20.75
4/21/89 25.25
11/13/89 34.50
2/14/90 38.00
9/6/90 42.00
11/25/90 37.00
2/20/91 51.00
5/15/91 74.00
11/25/91 84.00
5/13/92 122.00
11/17/92 119.00
5/25/93 138.00
11/17/93 114.00
5/16/94 129.00
11/18/94 134.00
5/30/95 157.00
11/30/95 189.00
</TABLE>
LSAI acquired LS&CO. in 1985. The acquisition price was $50 per share, but
adjusted for subsequent stock splits, the comparable acquisition price -- and
the relevant one to compare to present stock prices -- was $5 per share.
LS&CO.'s stock traded in the range of $3.50 per share ($35, before giving
effect to stock splits) before LSAI announced its 1985 offer. THE PRICE OF
$265 PER SHARE PROPOSED TO BE PAID BY HOLDINGS FOR SHARES CASHED OUT IN THE
MERGER REPRESENTS A 5200% INCREASE OVER, OR 53 TIMES, THE 1985 LBO PRICE OF $5
PER SHARE (ADJUSTED FOR STOCK SPLITS). IT ALSO REPRESENTS A PREMIUM OF 40.2%
OVER MORGAN STANLEY'S NOVEMBER 30, 1995 PUBLIC MARKET EQUIVALENT VALUATION OF
$189 PER SHARE AND A PREMIUM OF 69% OVER MORGAN STANLEY'S MAY 30, 1995 PUBLIC
MARKET EQUIVALENT VALUATION OF $157 PER SHARE.
DIVIDENDS PAID ON THE SHARES
The dividends declared and paid by LSAI in respect of the Class E Shares and
Class L Shares during the past two years were as follows:
. In June 1995, a dividend of $.75 per Share was declared in respect of
all Shares, which dividend was paid on September 15, 1995.
. In February 1995, a dividend of $.75 per Share was declared in respect
of all Shares, which dividend was paid on March 15, 1995.
. In November 1994, a dividend of $.65 per Share was declared in respect
of all Class E Shares, which dividend was paid on December 15, 1994.
. In June 1994, a dividend of $.65 per Share was declared in respect of
all Class E Shares, which dividend was paid on August 31, 1994.
As a result of the Merger, LSAI will be a wholly owned subsidiary of
Holdings, and any dividends paid by it will thus be paid to Holdings. The
ability of Holdings, LSAI and LS&CO. to pay dividends to their respective
stockholders following the Effective Time may be limited by factors including,
but not limited to (1) the indebtedness of Holdings incurred in connection
with the Merger, for which LSAI and LS&CO. are expected to become jointly
liable at the Effective Time, (2) the covenants which such debt will contain
and (3) plans for capital expenditures.
PURCHASES OF SHARES BY LSAI
Class L Shares. During the first quarter of 1994, LSAI purchased 83,949
Class L Shares from certain members of LSAI's management who left LSAI's
employment. The purchase price of $114 per Share (for an aggregate of $9.6
million) was equal to the then appraised value, without taking into account
any illiquidity
30
<PAGE>
discount. During the first quarter of 1995, LSAI purchased 70,842 Class L
Shares pursuant to its management liquidity program. The purchase price of
$134 per Share (for an aggregate of $9.5 million) was equal to the then
appraised value, without taking into account any illiquidity discount.
Class E Shares. All Class E Shares purchased by LSAI since November 28, 1993
have been purchased from participants in the ESAP. During the first quarter of
1994 (all quarterly information refers to LSAI's fiscal quarters, beginning on
November 28, 1993), LSAI purchased 3,920 Class E Shares at prices of $138 and
$114 per Share (for an aggregate of $452,368). The average price paid during
that period was $115.40 per Share. That price, and the average prices set
forth below, are weighted average prices that take into account the number of
Shares purchased at each price. During the second quarter of 1994, LSAI
purchased 1,619 Class E Shares, all for a price of $114 per Share (for an
aggregate of $184,566). During the third quarter of 1994, LSAI purchased 8,135
Class E Shares at prices of $114 and $129 per Share (for an aggregate of
$1,049,334). The average price paid during that period was $128.99 per Share.
During the fourth quarter of 1994, LSAI purchased 2,095 Class E Shares, all
for $129 per Share (for an aggregate of $270,255). During the first quarter of
1995, LSAI purchased 4,074 Class E Shares, at prices of $129 and $134 per
Share (for an aggregate of $545,427). The average price paid during that
period was $133.88 per Share. During the second quarter of 1995, LSAI
purchased 3,071 Class E Shares, all for $134 per Share (for an aggregate of
$411,514). During the fourth quarter of 1995, LSAI purchased 5,014 Class E
Shares, all for $157 per Share (for an aggregate of $787,198). During the
first quarter of 1996, LSAI purchased 796 Class E Shares, all for $157 per
Share (for an aggregate of $124,972). Each price paid during the relevant
periods was equal to the then appraised value (except for those Class E Shares
purchased during the first quarter of 1996, which were purchased at $157 per
Share, the appraised value in effect from May 30, 1995 through November 30,
1995), without taking into account any illiquidity discount. These share
purchases were initiated prior to December 20, 1995, the date the Company
froze activity in the ESAP.
HOLDINGS
Holdings is a Delaware corporation formed for the purpose of making the
Offering and of acquiring LSAI. It has not conducted any other business. Its
principal business address is c/o Hellman & Friedman, One Maritime Plaza,
Suite 1200, San Francisco, California 94111.
MERGER SUB
Merger Sub, a Delaware corporation and a wholly owned subsidiary of
Holdings, was formed for the purpose of effecting the Merger and has not
conducted any other business. Its principal business address is c/o Hellman &
Friedman, One Maritime Plaza, Suite 1200, San Francisco, California 94111.
DIRECTORS AND EXECUTIVE OFFICERS OF LSAI, HOLDINGS AND MERGER SUB
Certain information concerning the directors and executive officers of LSAI,
Holdings and Merger Sub is set forth in Appendix D to this Information
Statement.
RECENT TRANSACTIONS IN SECURITIES OF LSAI
Certain information concerning the recent transactions in the Shares is set
forth in Appendix E to this Information Statement.
31
<PAGE>
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. The
information set forth below should be read in conjunction with the
consolidated financial statements of the Company and the related notes thereto
contained in the Company's Form 10-K for the appropriate year, as filed with
the Commission. The 1995 financial data have not yet been filed with the
Commission but will be included in the Company's Form 10-K scheduled to be
available after February 22, 1996. See "AVAILABLE INFORMATION."
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net sales.................. $6,707.6 $6,074.3 $5,892.5 $5,570.3 $4,902.9
Gross profit............... 2,777.5 2,441.9 2,254.3 2,138.8 1,878.6
Percentage of net sales... 41.4% 40.2% 38.3% 38.4% 38.3%
Stock option charge........ -- -- -- 158.0 --
Operating income........... 987.2 969.1 851.7 677.4 750.0
Income from continuing
operations................ 734.7 557.5 492.4 360.8 366.5
Cumulative effects of
changes in accounting
principles(1)............. -- (236.5) -- -- --
Net income................. 734.7 321.0 492.4 358.9 345.1
PER COMMON SHARE DATA:
Income from continuing
operations................ $ 13.94 $ 10.59 $ 9.38 $ 6.91 $ 6.44
Cumulative effects of
changes in accounting
principles(1)............. -- (4.49) -- -- --
Net income................. 13.94 6.10 9.38 6.91 6.26
Cash dividends declared(2). 1.50 1.30 1.10 3.40 .20
FINANCIAL POSITION:
Total assets............... $4,709.2 $3,925.3 $3,108.7 $2,880.7 $2,633.4
Long-term debt and capital
lease obligations......... 16.4 16.7 93.1 262.0 432.7
Employee Stock Purchase and
Award Plan common stock... 66.5 49.7 33.5 16.4 --
Management Liquidity
Program common stock...... 180.1 138.6 -- -- --
Stockholders' equity....... 2,115.3 1,471.6 1,251.0 768.2 558.3
Working capital............ $1,673.6 $1,567.5 $1,017.2 $ 609.5 $ 648.0
Current ratio.............. 2.2 2.4 1.9 1.5 1.6
</TABLE>
- --------
* Fiscal years 1995, 1994, 1993 and 1991 each contained 52 weeks and ended on
November 26, 1995, November 27, 1994, November 28, 1993 and November 24,
1991, respectively. Fiscal year 1992 contained 53 weeks and ended on
November 29, 1992.
(1) Effective November 29, 1993, 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."
(2) For fiscal years 1995, 1992 and 1991, dividends were declared on Class E
Shares and Class L Shares. For fiscal years 1994 and 1993, dividends were
declared on Class E Shares only.
32
<PAGE>
CERTAIN PRO FORMA FINANCIAL INFORMATION
Because the amount of cash Holdings will be required to pay for Class L
Shares in the Merger (and hence, the level of indebtedness Holdings and LSAI
will need to incur) depends upon the number of Class L Shares contributed to
Holdings in the Offering, it is not possible to determine as of the date of
this Information Statement what the pro forma capitalization of Holdings will
be. Accordingly, two cases are presented. The "$2.5 Case" assumes that the
number of Class L Shares exchanged for cash in the Merger is such that an
aggregate of approximately $2.5 billion in cash is paid for Class L Shares and
Class E Shares in the Merger. The "$4.0 Case" assumes that the number of Class
L Shares exchanged for cash in the Merger is such that an aggregate of
approximately $4 billion in cash is paid for Class L Shares and Class E Shares
in the Merger. Under the $2.5 Case, approximately 85% of the currently
outstanding Class L Shares would be contributed to Holdings. Under the $4.0
Case, approximately 74% of the Class L Shares would be contributed. It is
assumed that Class L Shares not contributed to Holdings are exchanged for $265
in cash per share in the Merger. In each case, it is assumed that all Class E
Shares will be converted into the right to receive $265 in cash per share in
the Merger.
The following Pro Forma Consolidated Financial Statements reflect LSAI's
audited historical data, unaudited pro forma adjustments to reflect the
proposed Merger, and the resulting Holdings Pro Forma data.
The Pro Forma Condensed Consolidated Balance Sheet as of November 26, 1995
gives effect to the Offering and the Merger assuming such transactions
occurred at such date.
The Pro Forma Consolidated Statement of Income gives effect to the Offering
and the Merger for the year ended November 26, 1995 as if each had occurred at
the beginning of the period presented. The pro forma information gives effect
to the above transactions and to the assumptions and adjustments described in
the accompanying notes to the unaudited Pro Forma Consolidated Financial
Statements, which data appears under the columns headed "Pro Forma
Adjustments."
These Pro Forma Consolidated Financial Statements are presented for
informational purposes only, and are not necessarily indicative of the results
that would actually have occurred had the transactions been consummated at the
dates indicated, nor are they necessarily indicative of future operating
results or financial position of Holdings.
33
<PAGE>
HOLDINGS AND SUBSIDIARIES
$2.5 CASE
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
NOVEMBER 26, 1995
(DOLLARS IN THOUSANDS)
The Pro Forma Condensed Consolidated Balance Sheet as of November 26, 1995
gives effect to the Offering and the Merger assuming such transactions
occurred at such date. The "$2.5 Case" assumes approximately 85% of the
currently outstanding Class L Shares are contributed to Holdings.
<TABLE>
<CAPTION>
LSAI PRO FORMA HOLDINGS
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
(AUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............. $1,088,032 $ (20,069)A $ 40,386
1,515,000 B
(7,575)C
(395,164)D
(2,104,836)E
(7,500)F
250 G
(27,752)I
Other current assets................... 1,983,140 -- 1,983,140
---------- ----------- ----------
Total current assets................... 3,071,172 (1,047,646) 2,023,526
Goodwill and other intangibles, net of
accumulated amortization............... 336,356 7,575 C 343,931
Noncurrent deferred tax assets.......... 337,146 (33,419)A 303,727
Property, plant and equipment, net of
accumulated depreciation and other
noncurrent assets...................... 964,483 -- 964,483
---------- ----------- ----------
$4,709,157 $(1,073,490) $3,635,667
========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current Liabilities:
Taxes payable.......................... $ 374,082 $ (47,111)A $ 316,764
(10,207)I
Other current liabilities.............. 1,023,454 -- 1,023,454
---------- ----------- ----------
Total current liabilities.............. 1,397,536 (57,318) 1,340,218
Long-term debt and capital lease
obligations, less current maturities... 16,366 1,515,000 B 1,531,366
Long-term employee related benefits..... 765,326 (15,241)A 749,919
(165)I
Long-term tax liability and minority
interest............................... 168,027 -- 168,027
Common Stock--Employee Stock Purchase
and Award Plan and Management Liquidity
Program:
Class E common stock--$.10 par value;
issued: Historical--543,140 shares,
Pro Forma--no shares.................. 54 (54)D --
Class L common stock--$.10 par value;
issued: Historical--571,688 shares,
Pro Forma--no shares.................. 57 40 A --
(98)E
Additional paid-in capital............. 246,498 32,137 A --
(65,678)D
(212,170)E
(786)H
---------- ----------- ----------
Total common stock--Employee Stock
Purchase and Award Plan and Management
Liquidity Program..................... 246,609 (246,609) --
Stockholders' Equity:
Class E common stock--$.10 par value;
authorized 100,000,000 shares; issued
and outstanding: Historical--953,058
shares, Pro Forma--no shares.......... 95 (95)D --
Class L common stock--$.10 par value;
authorized 170,000,000 shares; issued:
Historical--51,184,220 shares, Pro
Forma--no shares...................... 5,118 (40)A --
(697)E
(4,381)G
Additional paid-in capital............. 188,933 (929)A --
(71,422)D
(16,122)E
(7,500)F
(92,959)G
Holdings common stock--$.01 par value;
authorized 270,000,000 shares; issued
and outstanding: Historical--no
shares, Pro Forma--44,143,817 shares.. -- 441 G 441
Holdings additional paid-in capital.... -- 97,149 G 97,149
Retained earnings (deficit)............ 1,853,982 (14,018)A (334,393)
(257,914)D
(1,875,750)E
(40,693)J
Translation adjustment................. 82,940 -- 82,940
LSAI Treasury stock, at cost--Class E:
Historical--5,014 shares, Pro Forma--
no shares, Class L: Historical--
404,750 shares, Pro Forma--no shares.. (15,775) 14,988 A --
787 H
---------- ----------- ----------
Total stockholders' equity (deficit)... 2,115,293 (2,269,156) (153,863)
---------- ----------- ----------
$4,709,157 $(1,073,490) $3,635,667
========== =========== ==========
</TABLE>
- -------
Columns may not foot due to rounding.
See accompanying notes and assumptions for explanations of pro forma
adjustments.
34
<PAGE>
HOLDINGS AND SUBSIDIARIES
$2.5 CASE
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
NOVEMBER 26, 1995
A The pro forma adjustment reflects: (1) the assumed exercise and
reclassification of all remaining stock options at a price of $3.50, (2)
cash in the amount of $21,485,951 disbursed to Thomas W. Tusher, a director
and President and Chief Operating Officer of LSAI, for the related exercise
bonus and (3) the reclassification of the associated deferred tax benefit
to current taxes payable.
B The pro forma adjustment reflects borrowings to finance the Merger. It is
assumed that the lending arrangements will require no principal payments in
the year following the Merger.
C The pro forma adjustment reflects the capitalization of fees related to the
issuance of debt described at Note B. These fees will be amortized ratably
over a six year period.
D The pro forma adjustment reflects the conversion to cash and subsequent
cancellation of all Class E Shares outstanding at November 26, 1995 in
accordance with the terms of the Merger.
E The pro forma adjustment reflects the conversion to cash and subsequent
cancellation of all Class L Shares outstanding at November 26, 1995 not
exchanged for Holdings Shares in the Offering in accordance with the terms
of the Merger.
F The pro forma adjustment reflects the estimated professional fees of
$7,500,000 related to the Merger.
G The pro forma adjustment reflects the initial capitalization of Holdings.
Also reflected is the consolidation of Holdings with LSAI (surviving) which
will occur subsequent to the merger of Merger Sub and LSAI.
H The pro forma adjustment reflects the retirement of Class E Shares held in
treasury at November 26, 1995.
I The pro forma adjustment reflects the additional compensation expense, net
of tax, related to the increase in value to $265 per share of the EIP,
ELTIS, ESAP, benefit restoration and stock appreciation rights plans. The
adjustment also reflects the cash paid to employees related to these plans
at the time of the Merger.
J Reflects the total pro forma adjustments to the historical income
statement.
ASSUMPTIONS AND ADDITIONAL ITEMS:
. No adjustments were made to the pro forma financial statements to reflect
any replacement compensation or benefit arrangements including, without
limitation, the New Employee Arrangements. The effects of replacement plans
cannot be determined at this time.
. No adjustment was made to the pro forma financial statements to reflect the
write off of debt issuance costs capitalized in relation to the prior
credit agreement. The balance of these capitalized costs was considered not
material to the pro forma financial statements.
. No adjustments were made to reflect any possible investment related
activities in connection with the financing of the Merger (i.e., debt
swaps).
. The adjustments to the pro forma financial statements are tax effected at a
rate of 37%.
. No adjustments were made to the pro forma financial statements for any
other items which, in the opinion of management, were not a direct result
of the Merger or would not have a material impact on such financial
statements.
35
<PAGE>
HOLDINGS AND SUBSIDIARIES
$2.5 CASE
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED NOVEMBER 26, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Pro Forma Consolidated Statement of Income for the year ended November
26, 1995 gives effect to the Offering and the Merger assuming such transactions
occurred at the beginning of such period. The "$2.5 Case" assumes approximately
85% of the currently outstanding Class L Shares are contributed to Holdings.
<TABLE>
<CAPTION>
LSAI PRO FORMA HOLDINGS
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
(AUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net sales................................. $6,707,631 $ -- $6,707,631
Cost of goods sold........................ 3,930,132 -- 3,930,132
---------- ---------- ----------
Gross profit............................ 2,777,499 -- 2,777,499
Marketing, general and administrative
expenses................................. 1,809,633 37,005 A 1,875,487
27,586 I
1,263 K
Other operating (income), net............. (19,373) -- (19,373)
---------- ---------- ----------
Operating income........................ 987,239 (65,854) 921,385
Interest expense.......................... 15,659 94,688 L 110,347
Other (income), net....................... (63,257) 58,492 M (4,765)
---------- ---------- ----------
Income before taxes..................... 1,034,837 (219,034) 815,803
Provision for taxes....................... 300,101 (13,692)A 219,058
(10,207)I
(467)K
(35,034)L
(21,642)M
---------- ---------- ----------
Net income.............................. $ 734,736 $(137,991) $ 596,745
========== ========== ==========
Income per common share................... $ 13.94 $ 13.52
Average common shares outstanding......... 52,696,492 (8,552,675)N 44,143,817
</TABLE>
- --------
Columns may not foot due to rounding.
See accompanying notes and assumptions for explanations of pro forma
adjustments.
36
<PAGE>
HOLDINGS AND SUBSIDIARIES
$2.5 CASE
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED NOVEMBER 26, 1995
A The pro forma adjustment reflects the increase in compensation expense
related to the outstanding stock options resulting from the difference
between the most recent valuation of Shares and the Merger price for Class
L Shares and the related tax effect.
I The pro forma adjustment reflects the additional compensation expense, net
of tax, related to the increase in value to $265 per share of the EIP,
ELTIS, ESAP, benefit restoration and stock appreciation rights plans.
K The pro forma adjustment reflects one year of amortization, and related tax
benefit, of capitalized debt issuance costs which will be amortized ratably
over a six year period.
L The pro forma adjustment reflects one year of interest expense, and related
tax benefit, assumed to be incurred at a rate of 6.25% on funds borrowed to
finance the Merger. The pro forma financial statements assume no payments
of principal in the year following the Merger and no compounding of
interest.
M The pro forma adjustment reflects the reversal of one year of interest
income, and related tax effect, earned on cash balances assumed to be
utilized to finance the Merger.
N For purposes of calculating net income per common share, the average common
shares outstanding for the respective period is equal to the number of
Holdings Shares assumed outstanding at the beginning of the period.
ASSUMPTIONS AND ADDITIONAL ITEMS:
. No adjustments were made to the pro forma financial statements to reflect
any replacement compensation or benefit arrangements including, without
limitation, the New Employee Arrangements. The effects of replacement plans
cannot be determined at this time.
. No adjustment was made to the pro forma financial statements to reflect the
write off of debt issuance costs capitalized in relation to the prior
credit agreement. The balance of these capitalized costs was considered not
material to the pro forma financial statements.
. No adjustments were made to reflect any possible investment related
activities in connection with the financing of the Merger (i.e., debt
swaps).
. The adjustments to the pro forma financial statements are tax effected at a
rate of 37%.
. No adjustments were made to the pro forma financial statements for any
other items which, in the opinion of management, were not a direct result
of the Merger or would not have a material impact on such financial
statements.
37
<PAGE>
HOLDINGS AND SUBSIDIARIES
$4.0 CASE
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
NOVEMBER 26, 1995
(DOLLARS IN THOUSANDS)
The Pro Forma Condensed Consolidated Balance Sheet as of November 26, 1995
gives effect to the Offering and the Merger assuming such transactions
occurred at such date. The "$4.0 Case" assumes approximately 74% of the
currently outstanding Class L Shares are contributed to Holdings.
<TABLE>
<CAPTION>
LSAI PRO FORMA HOLDINGS
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
(AUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............. $1,088,032 $ (20,069)A $ 40,856
3,023,010 B
(15,115)C
(395,164)D
(3,604,836)E
(7,500)F
250 G
(27,752)I
Other current assets................... 1,983,140 -- 1,983,140
---------- ----------- -----------
Total current assets................... 3,071,172 (1,047,176) 2,023,996
Goodwill and other intangibles, net of
accumulated amortization............... 336,356 15,115 C 351,471
Noncurrent deferred tax assets.......... 337,146 (33,419)A 303,727
Property, plant and equipment, net of
accumulated depreciation and other
noncurrent assets...................... 964,483 -- 964,483
---------- ----------- -----------
$4,709,157 $(1,065,480) $ 3,643,677
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current Liabilities:
Taxes payable.......................... $ 374,082 $ (47,111)A $ 316,764
(10,207)I
Other current liabilities.............. 1,023,454 -- 1,023,454
---------- ----------- -----------
Total current liabilities.............. 1,397,536 (57,318) 1,340,218
Long-term debt and capital lease
obligations, less current maturities... 16,366 3,023,010 B 3,039,376
Long-term employee related benefits..... 765,326 (15,241)A 749,919
(165)I
Long-term tax liability and minority
interest............................... 168,027 -- 168,027
Common Stock--Employee Stock Purchase
and Award Plan and Management Liquidity
Program:
Class E common stock--$.10 par value;
issued: Historical--543,140 shares,
Pro Forma--no shares.................. 54 (54)D --
Class L common stock--$.10 par value;
issued: Historical--571,688 shares,
Pro Forma--no shares.................. 57 40 A --
(98)E
Additional paid-in capital............. 246,498 32,137 A --
(65,678)D
(212,170)E
(786)H
---------- ----------- -----------
Total common stock--Employee Stock
Purchase and Award Plan and Management
Liquidity Program..................... 246,609 (246,609) --
Stockholders' Equity:
Class E common stock--$.10 par value;
authorized 100,000,000 shares; issued
and outstanding: Historical--953,058
shares, Pro Forma--no shares.......... 95 (95)D --
Class L common stock--$.10 par value;
authorized 170,000,000 shares; issued:
Historical--51,184,220 shares, Pro
Forma--no shares...................... 5,118 (40)A --
(1,263)E
(3,815)G
Additional paid-in capital............. 188,933 (929)A --
(71,422)D
(29,229)E
(7,500)F
(79,853)G
Holdings common stock--$.01 par value;
authorized 270,000,000 shares; issued
and outstanding: Historical--no
shares, Pro Forma--38,483,439 shares.. -- 385 G 385
Holdings additional paid-in capital.... -- 83,533 G 83,533
Retained earnings (deficit)............ 1,853,982 (14,018)A (1,820,720)
(257,914)D
(3,362,077)E
(40,693)J
Translation adjustment................. 82,940 -- 82,940
LSAI Treasury stock, at cost--Class E:
Historical--5,014 shares, Pro Forma--
no shares; Class L: Historical--
404,750 shares, Pro Forma--no shares.. (15,775) 14,988 A --
787 H
---------- ----------- -----------
Total stockholders' equity (deficit)... 2,115,293 (3,769,156) (1,653,863)
---------- ----------- -----------
$4,709,157 $(1,065,480) $(3,643,677)
========== =========== ===========
</TABLE>
- --------
Columns may not foot due to rounding.
See accompanying notes and assumptions for explanations of pro forma
adjustments.
38
<PAGE>
HOLDINGS AND SUBSIDIARIES
$4.0 CASE
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
NOVEMBER 26, 1995
A The pro forma adjustment reflects: (1) the assumed exercise and
reclassification of all remaining stock options at a price of $3.50, (2)
cash in the amount of $21,485,951 disbursed to Thomas W. Tusher, a director
and President and Chief Operating Officer of LSAI, for the related exercise
bonus and (3) the reclassification of the associated deferred tax benefit
to current taxes payable.
B The pro forma adjustment reflects borrowings to finance the Merger. It is
assumed that the lending arrangements will require no principal payments in
the year following the Merger.
C The pro forma adjustment reflects the capitalization of fees related to the
issuance of debt described at Note B. These fees will be amortized ratably
over a six year period.
D The pro forma adjustment reflects the conversion to cash and subsequent
cancellation of all Class E Shares outstanding at November 26, 1995 in
accordance with the terms of the Merger.
E The pro forma adjustment reflects the conversion to cash and subsequent
cancellation of all Class L Shares outstanding at November 26, 1995 not
exchanged for Holdings Shares in the Offering in accordance with the terms
of the Merger.
F The pro forma adjustment reflects the estimated professional fees of
$7,500,000 related to the Merger.
G The pro forma adjustment reflects the initial capitalization of Holdings.
Also reflected is the consolidation of Holdings with LSAI (surviving) which
will occur subsequent to the merger of Merger Sub and LSAI.
H The pro forma adjustment reflects the retirement of Class E Shares held in
treasury at November 26, 1995.
I The pro forma adjustment reflects the additional compensation expense, net
of tax, related to the increase in value to $265 per share of the EIP,
ELTIS, ESAP, benefit restoration and stock appreciation rights plans. The
adjustment also reflects the cash paid to employees related to these plans
at the time of the Merger.
J Reflects the total pro forma adjustments to the historical income
statement.
ASSUMPTIONS AND ADDITIONAL ITEMS:
. No adjustments were made to the pro forma financial statements to reflect
any replacement compensation or benefit arrangements including, without
limitation, the New Employee Arrangements. The effects of replacement plans
cannot be determined at this time.
. No adjustment was made to the pro forma financial statements to reflect the
write off of debt issuance costs capitalized in relation to the prior
credit agreement. The balance of these capitalized costs was considered not
material to the pro forma financial statements.
. No adjustments were made to reflect any possible investment related
activities in connection with the financing of the Merger (i.e., debt
swaps).
. The adjustments to the pro forma financial statements are tax effected at a
rate of 37%.
. No adjustments were made to the pro forma financial statements for any
other items which, in the opinion of management, were not a direct result
of the Merger or would not have a material impact on such financial
statements.
39
<PAGE>
HOLDINGS AND SUBSIDIARIES
$4.0 CASE
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED NOVEMBER 26, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Pro Forma Consolidated Statement of Income for the year ended November
26, 1995 gives effect to the Offering and the Merger assuming such transactions
occurred at the beginning of such period. The "$4.0 Case" assumes approximately
74% of the currently outstanding Class L Shares are contributed to Holdings.
<TABLE>
<CAPTION>
LSAI PRO FORMA HOLDINGS
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
(AUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net sales................................ $6,707,631 $ -- $6,707,631
Cost of goods sold....................... 3,930,132 -- 3,930,132
---------- ----------- ----------
Gross profit........................... 2,777,499 -- 2,777,499
Marketing, general and administrative
expenses................................ 1,809,633 37,005 A 1,876,744
27,586 I
2,519 K
Other operating (income), net............ (19,373) -- (19,373)
---------- ----------- ----------
Operating income....................... 987,239 (67,111) 920,128
Interest expense......................... 15,659 196,496 L 212,155
Other (income), net...................... (63,257) 58,492 M (4,765)
---------- ----------- ----------
Income before taxes.................... 1,034,837 (322,099) 712,738
Provision for taxes...................... 300,101 (13,692)A 180,924
(10,207)I
(932)K
(72,703)L
(21,642)M
---------- ----------- ----------
Net income............................. $ 734,736 $ (202,922) $ 531,814
========== =========== ==========
Income per common share.................. $ 13.94 $ 13.82
Average common shares outstanding........ 52,696,492 (14,213,053)N 38,483,439
</TABLE>
- --------
Columns may not foot due to rounding.
See accompanying notes and assumptions for explanations of pro forma
adjustments.
40
<PAGE>
HOLDINGS AND SUBSIDIARIES
$4.0 CASE
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED NOVEMBER 26, 1995
A The pro forma adjustment reflects the increase in compensation expense
related to the outstanding stock options resulting from the difference
between the most recent valuation of Shares and the Merger price for Class
L Shares and the related tax effect.
I The pro forma adjustment reflects the additional compensation expense, net
of tax, related to the increase in value to $265 per share of the EIP,
ELTIS, ESAP, benefit restoration and stock appreciation rights plans.
K The pro forma adjustment reflects one year of amortization, and related tax
benefit, of capitalized debt issuance costs which will be amortized ratably
over a six year period.
L The pro forma adjustment reflects one year of interest expense, and related
tax benefit, assumed to be incurred at a rate of 6.50% on funds borrowed to
finance the Merger. The pro forma financial statements assume no payments
of principal in the year following the Merger and no compounding of
interest.
M The pro forma adjustment reflects the reversal of one year of interest
income, and related tax effect, earned on cash balances assumed to be
utilized to finance the Merger.
N For purposes of calculating net income per common share, the average common
shares outstanding for the respective period is equal to the number of
Holdings Shares assumed outstanding at the beginning of the period.
ASSUMPTIONS AND ADDITIONAL ITEMS:
. No adjustments were made to the pro forma financial statements to reflect
any replacement compensation or benefit arrangements including, without
limitation, the New Employee Arrangements. The effects of replacement plans
cannot be determined at this time.
. No adjustment was made to the pro forma financial statements to reflect the
write off of debt issuance costs capitalized in relation to the prior
credit agreement. The balance of these capitalized costs was considered not
material to the pro forma financial statements.
. No adjustments were made to reflect any possible investment related
activities in connection with the financing of the Merger (i.e., debt
swaps).
. The adjustments to the pro forma financial statements are tax effected at a
rate of 37%.
. No adjustments were made to the pro forma financial statements for any
other items which, in the opinion of management, were not a direct result
of the Merger or would not have a material impact on such financial
statements.
41
<PAGE>
SELECTED PRO FORMA PROJECTED FINANCIAL INFORMATION
Set forth below is selected pro forma projected financial information of
Holdings, giving effect to the Offering and the Merger using a per Share price
of $265. Two sets of projections underlie the $2.5 and $4.0 cases presented: a
"Base Case" projection which reflects management's best estimate of the likely
business performance projection over time and a "Low Performance Case"
projection. The Low Performance Case was created solely for examining
sensitivities relating to debt repayment and results in a cumulative net cash
position which is 24% lower than the base case over a ten year forecasted
period, without giving effect to the Merger.
As described under "CERTAIN PRO FORMA FINANCIAL INFORMATION," it is not
possible to determine the level of participation in the Offering and the
resulting level of indebtedness of Holdings on a consolidated basis following
the Merger. Accordingly, the information below reflects the same two
assumptions as to the different number of Class L Shares exchanged for cash in
the Merger: a "$2.5 Case" and a "$4.0 Case," each of which is applied to the
Base Case projections and the Low Performance Case projections.
As a general matter, LSAI does not make public or otherwise distribute
widely any forecasts or projections as to future performance or earnings.
However, in connection with their evaluation of the transactions, management
of LSAI and Holdings prepared certain projections of results of operations of
Holdings on a consolidated basis. SUCH PROJECTIONS WERE NOT PREPARED FOR, OR
WITH A VIEW TOWARD, DISSEMINATION TO THE PUBLIC, TO LSAI STOCKHOLDERS OR TO
PROSPECTIVE PARTICIPATING STOCKHOLDERS. HOWEVER, THE PROJECTIONS ARE INCLUDED
HEREIN IN ORDER TO PROVIDE ALL HOLDERS OF SHARES INFORMATION WHICH WAS
AVAILABLE TO MEMBERS OF THE LSAI BOARD AND MANAGEMENT, MANY OF WHOM ARE
HOLDERS OF SHARES. IN ADDITION, SUCH PROJECTIONS (USING A $250, RATHER THAN A
$265 FIGURE FOR THE MERGER CONSIDERATION) WERE INCLUDED IN THE OFFERING
MEMORANDUM AND RELATED MATERIALS DELIVERED TO HOLDERS OF CLASS L SHARES. SUCH
PROJECTIONS WERE NOT PREPARED IN ACCORDANCE WITH PUBLISHED GUIDELINES OF THE
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS OR THE COMMISSION REGARDING
PROJECTIONS AND FORECASTS, NOR HAVE SUCH PROJECTIONS BEEN AUDITED, EXAMINED OR
OTHERWISE REVIEWED BY INDEPENDENT AUDITORS OF LSAI, HOLDINGS OR THEIR
AFFILIATES. IN ADDITION, SUCH PROJECTIONS ARE BASED UPON MANY ESTIMATES AND
ARE INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE UNCERTAINTIES
AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF MANAGEMENT.
ACCORDINGLY, ACTUAL RESULTS MAY BE MATERIALLY HIGHER OR LOWER THAN THOSE
PROJECTED. THE INCLUSION OF SUCH PROJECTIONS HEREIN SHOULD NOT BE REGARDED AS
A REPRESENTATION BY LSAI, HOLDINGS OR ANY OTHER PERSON THAT THE PROJECTIONS
WILL PROVE TO BE CORRECT.
42
<PAGE>
HOLDINGS AND SUBSIDIARIES
$2.5 CASE
SELECTED PRO FORMA PROJECTED FINANCIAL INFORMATION
FISCAL YEARS 1996-2005
(DOLLARS IN MILLIONS)
(UNAUDITED)
The unaudited Selected Pro Forma Projected Financial Information below gives
effect to the Offering and the Merger. The "$2.5 Case" assumes a per Share
price of $265 and that approximately 85% of the currently outstanding Class L
Shares are contributed to Holdings.
BASE CASE
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
--------- --------- --------- --------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales....... $7,414.59 $7,686.90 $8,115.70 $8,549.90 $9,011.80 $9,384.30 $9,798.10 $10,180.90 $10,565.35 $10,958.69
Gross Profit.... 2,924.83 3,032.60 3,195.40 3,376.50 3,570.50 3,717.70 3,876.70 4,022.80 4,172.18 4,319.09
Net Income...... 515.43 510.10 589.91 737.61 858.34 943.25 1,032.90 1,114.35 1,212.42 1,308.12
Cash and Cash
Equivalents.... 39.09 39.05 41.91 237.56 1,066.04 1,960.86 3,009.15 4,043.32 5,269.04 6,538.10
Total Assets.... 4,029.61 4,210.00 4,370.53 4,719.83 5,687.71 6,736.11 7,882.04 9,062.79 10,381.64 11,817.50
Total Long-Term
Debt........... 1,562.32 1,137.65 592.05 79.00 79.00 79.00 69.00 9.00 9.00 9.00
Equity.......... 332.99 854.59 1,455.00 2,203.11 3,071.95 4,025.70 5,069.10 6,193.95 7,406.37 8,714.50
LOW PERFORMANCE CASE
<CAPTION>
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
--------- --------- --------- --------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales....... $7,414.59 $7,641.01 $7,956.02 $8,276.47 $8,634.66 $8,931.60 $9,276.29 $ 9,612.76 $ 9,961.65 $10,319.89
Gross Profit.... 2,924.83 2,899.68 2,988.73 3,078.34 3,179.69 3,259.69 3,354.59 3,445.51 3,539.23 3,634.86
Net Income...... 515.43 415.93 434.80 509.11 553.86 576.67 600.65 620.61 651.81 680.71
Cash and Cash
Equivalents.... 39.09 39.05 41.91 43.56 337.86 877.56 1,504.14 2,052.17 2,709.00 3,356.87
Total Assets.... 4,029.61 4,200.98 4,333.48 4,463.61 4,875.58 5,554.69 6,266.29 6,954.76 7,731.62 8,543.66
Total Long-Term
Debt........... 1,562.32 1,224.98 818.79 323.96 79.00 79.00 69.00 9.00 9.00 9.00
Equity.......... 332.99 760.42 1,205.72 1,725.33 2,289.69 2,876.87 3,488.02 4,119.13 4,770.94 5,451.65
</TABLE>
See accompanying notes and assumptions for explanations of pro forma
projections.
43
<PAGE>
HOLDINGS AND SUBSIDIARIES
$4.0 CASE
SELECTED PRO FORMA PROJECTED FINANCIAL INFORMATION
FISCAL YEARS 1996-2005
(DOLLARS IN MILLIONS)
(UNAUDITED)
The unaudited Selected Pro Forma Projected Financial Information below gives
effect to the Offering and the Merger. The "$4.0 Case" assumes a per Share
price of $265 and that approximately 74% of the currently outstanding Class L
Shares are contributed to Holdings.
<TABLE>
BASE CASE
<CAPTION>
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
--------- --------- --------- --------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales....... $7,414.59 $7,686.90 $8,115.70 $8,549.90 $9,011.80 $9,384.30 $9,798.10 $10,180.90 $10,565.35 $10,958.69
Gross Profit.... 2,924.83 3,032.60 3,195.40 3,376.50 3,570.50 3,717.70 3,876.70 4,022.80 4,172.18 4,319.09
Net Income...... 483.26 444.37 521.36 666.71 787.53 874.55 964.10 1,043.02 1,138.48 1,231.47
Cash and Cash
Equivalents.... 39.09 39.05 41.91 43.56 45.66 84.00 1,063.48 2,026.33 3,178.10 4,370.51
Total Assets.... 4,029.61 4,210.00 4,370.53 4,525.82 4,667.33 4,859.25 5,936.37 7,045.80 8,290.70 9,649.91
Total Long-Term
Debt........... 3,094.50 2,735.56 2,258.51 1,622.35 866.79 79.00 69.00 9.00 9.00 9.00
Equity.......... (1,199.18) (743.32) (211.46) 465.75 1,263.78 2,148.83 3,123.43 4,176.96 5,315.43 6,546.91
LOW PERFORMANCE CASE
<CAPTION>
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
--------- --------- --------- --------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales....... $7,414.59 $7,641.01 $7,956.02 $8,276.47 $8,634.66 $8,931.60 $9,276.29 $ 9,612.76 $ 9,961.65 $10,319.89
Gross Profit.... 2,924.83 2,899.68 2,988.73 3,078.34 3,179.69 3,259.69 3,354.59 3,445.51 3,539.23 3,634.86
Net Income...... 483.26 350.20 366.24 437.62 480.20 502.39 526.74 547.12 577.17 603.43
Cash and Cash
Equivalents.... 39.09 39.05 41.91 43.56 45.66 48.13 51.23 51.97 601.05 1,171.64
Total Assets.... 4,029.61 4,200.98 4,333.48 4,463.61 4,583.38 4,725.25 4,813.38 4,954.56 5,623.67 6,358.63
Total Long-Term
Debt........... 3,094.50 2,822.89 2,485.25 2,061.91 1,598.42 1,135.46 575.90 42.11 9.00 9.00
Equity.......... (1,199.18) (837.49) (460.74) (12.62) 478.08 990.97 1,528.20 2,085.82 2,662.99 3,266.43
</TABLE>
See accompanying notes and assumptions for explanations of pro forma
projections.
44
<PAGE>
NOTES TO PRO FORMA PROJECTED FINANCIAL INFORMATION
. The Base Case projections are based on the annual business plan and the
directional numbers which were developed using a "bottoms up approach" for
forecasting the Levi Strauss North America ("LSNA") and Levi Strauss
International ("LSI") businesses over time. They reflect the following
assumptions:
--No dividends are assumed after 1995.
--Compound 1995-2005 annual unit growth is assumed to be 2.9% for LSNA and
4.2% for LSI.
-- LSNA gross margins increase less than one percent from 1995 to 2005 and
LSI gross margins remain constant throughout the 1995-2005 period.
-- LSNA operating expenses decrease from 21.9% of 1995 sales to 20.5% of
sales by 2005 and LSI operating expenses decrease from 23.8% of 1995
sales to 22.3% by 2005.
-- Exchange rates remain constant at US$/DM of 1.40 and US$/Yen of 85.
. All cash shown on the 1995 balance sheet (except cash needed to meet on-
going working capital needs) is assumed to be used for cash payments in the
Merger. The remaining financing needs for the Merger are assumed to be met
with external financing, delineated in the long-term debt account. The
projections for 1996 exclude approximately $15 million, net of tax, related
to the stock based employee plans.
. The debt related to the Merger is assumed to be incurred mid-year 1996 and
have a constant interest rate of 7%.
. The Low Performance Case projection was created solely for examining
sensitivities relating to debt repayment. In the Low Performance Case
projection cumulative net cash (without giving effect to the Merger) over
the ten year period is 24% lower than in the Base Case.
45
<PAGE>
SHARE PRICE MODELING
The following table was developed to illustrate, mechanically, the
theoretical relative impact on share price of the $2.5 Case and $4.0 Case
scenarios. The modeling assumed that future prices would be determined as a
multiple of earnings, using the same price to earnings ratio, 15.0, as used by
Morgan Stanley in developing the November 30, 1995 valuation of $189 per
share. The price shown is for the end of the year indicated. The price is
determined, for example, for year end 1997 by multiplying forecasted 1998
earnings per share by the price to earnings ratio of 15.0.
Holdings expects to obtain share valuations not on a public market
equivalent basis, as reflected in the following table, but on bases more
typical for private companies reflecting the effects on value of limited
liquidity, marketability and transferability, as well as voting rights
limitations and other factors. The table below is based on long-range
operating projections, which, as noted, are inherently uncertain and
unreliable, and on the public market equivalent approach to share valuation.
The unreliability and limitations of this data are apparent. It is presented
here only to show the relative impact on share price, all other things being
equal and using the Morgan Stanley November 1995 multiple, of the different
number of shares outstanding as reflected in the $2.5 Case and the $4.0 Case.
The methodology used in this modeling varies from that used by Morgan Stanley
in that Morgan Stanley reviews and adjusts management's projections and does
not use a constant price to earnings multiple each year, but rather adjusts
the multiple with each valuation to reflect actual and projected performance,
market conditions and other factors. There can be no assurance that valuations
of Holdings Shares after the Merger will be comparable to these mechanical
projections.
SHARE PRICE
1995-2000
<TABLE>
<CAPTION>
COMPOUND
GROWTH
1995 1996 1997 1998 1999 2000 RATE
---- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$2.5 Case................................ $189 $205 $229 $262 $300 $329 10%
$4.0 Case................................ 189 210 235 273 317 351 11%
</TABLE>
46
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF LSAI
PRINCIPAL STOCKHOLDERS
The following table contains information, as of December 31, 1995, with
regard to the beneficial ownership of Class L Shares and Class E Shares by
each person who beneficially owns more than five percent of either of those
classes, each of the directors, each of the five most highly compensated
executive officers, and all directors and executive officers as a group. All
of such persons are citizens of the United States of America. Shares listed as
beneficially owned by the executive officers include Class E Shares acquired
through the ESAP. The business address of all persons listed is 1155 Battery
Street, San Francisco, California 94111. For certain information concerning
recent transactions in the Shares, see Appendix E.
<TABLE>
<CAPTION>
ADDITIONAL NUMBER
OF SHARES IN WHICH
VOTING RIGHTS OR
NAME OF INDIVIDUAL INVESTMENT POWERS
OR NUMBER OF NUMBER OF EXIST OR MAY BE PERCENTAGE
PERSONS IN GROUP SHARES OWNED DEEMED TO EXIST TOTAL OF SHARES(/1/)
------------------ ------------ ------------------ ---------- --------------
<S> <C> <C> <C> <C>
Robert D. Haas.......... 3,788,453(2) 392,070(3) 4,180,523 7.91
Thomas W. Tusher........ 193,644(4) 404,750(5) 598,394 1.13
Peter E. Haas, Sr....... 8,726,426(6) 2,733,167(7) 11,459,593 21.69
Estate of Walter A.
Haas, Jr............... 3,741,116 600,000(8) 4,341,116 8.22
Angela Glover Blackwell. -- -- -- --
Tully M. Friedman....... 352,100(9) 90,000(10) 442,100 --
James C. Gaither........ -- -- -- --
Rhoda H. Goldman........ 2,672,697(11) -- 2,672,697 5.06
Peter E. Haas, Jr....... 4,466,391(12) 361,981(13) 4,828,372 9.14
Walter J. Haas.......... -- -- -- --
F. Warren Hellman....... 574,742(14) 402,000(15) 976,742 1.85
James M. Koshland(16)... 45,000 96,000(17) 141,000 --
Patricia Salas Pineda... -- -- -- --
Frances K. Geballe...... 2,739,760(18) -- 2,739,760 5.18
Josephine B. Haas....... 3,194,449(19) 1,175,294(20) 4,369,743 8.27
Miriam L. Haas.......... 3,000,200(21) -- 3,000,200 5.68
Margaret E. Jones(22)... 2,895,710 -- 2,895,710 5.48
Daniel E. Koshland, Jr.. 2,865,744 152(23) 2,865,896 5.42
Peter A. Jacobi......... 24,796(24) -- 24,796 --
George B. James......... 78,688(25) -- 78,688 --
Robert D. Rockey, Jr.... 18,899 -- 18,899 --
Directors and executive
officers of the Company
as a group (18
persons)(26)(27)....... 21,058,362 4,479,968 25,538,330 48.33
</TABLE>
- --------
Note: Class E Shares represent 3 percent of all outstanding common stock.
Employees of LSAI may invest in Class E Shares under the ESAP and the
Plans. The Boston Safe Deposit and Trust Company, trustee for the Plans,
holds on behalf of the Plans a total of 953,058 Class E Shares,
representing approximately 64 percent of all outstanding Class E Shares.
The business address for the Boston Safe Deposit and Trust Company is 1
Cabot Road, Mail Zone WT04G, Medford, Massachusetts, 02155-5158.
(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.
(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 159,250 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.
47
<PAGE>
(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 2,733,167 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.
(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) Does not include 1,000,000 shares held by Richard Goldman's 1995 trust
for the benefit of Mr. and Mrs. Goldman's issue. 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 2,372,751 shares held by trusts for the benefit of Mr. Haas'
children and 150,000 shares held by Peter F. 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) Includes 61,709 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. Also includes 300,272
shares held by The Josephine E. Haas Family Limited Partnership with Mr.
Haas as General Partner with voting and investing powers.
(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, nieces, and nephew. 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 2,733,167 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 8,726,426 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 404,750 shares subject to presently exercisable options. Does
not include shares held by the Estate of Walter A. Haas, Jr.
(27) As of December 31, 1995, the Company has 211 and 1,252 record owners of
Class L and Class E common stock, respectively.
48
<PAGE>
CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH
RESPECT TO SECURITIES OF LSAI
THE STOCK SUBSCRIPTION AGREEMENT
All holders of Class L Shares were given an opportunity to become
Participating Stockholders by entering into Stock Subscription Agreements with
Holdings, entitling such holders of Class L Shares to purchase Holdings Shares
(the "Purchase") by contributing Class L Shares to Holdings, at a price of one
Class L Share for each Holdings Share. Immediately following the Purchase, the
Participating Stockholders, together with the founding stockholders of
Holdings, will own 100% of Holdings.
In the Stock Subscription Agreements, the Participating Stockholders and
Holdings have agreed that, among other things:
(1) Participating Stockholders will enter into the New Stockholders'
Agreement and the Voting Trust Agreement. See "SPECIAL FACTORS -- Purpose,
Structure and Reasons for the Merger."
(2) Each Participating Stockholder will, subject to the provisions
described below, contribute at least 10,000 Class L Shares to Holdings, and
whatever number of Class L Shares they contribute (the "Purchase Number")
must be at least two-thirds of the number of Class L Shares such
Participating Stockholder held of record as of January 25, 1996.
(3) During the term of the Stock Subscription Agreements, such
Participating Stockholders will not transfer Shares except (a) to Holdings
in connection with the Purchase or (b) to "Permitted Transferees" (as
defined in the Class L Stockholders' Agreement) on the condition that the
Purchase Number with respect to such transferor remains unchanged and that
the recipients of the transferred Class L Shares agree to be bound by the
transfer restrictions contained in the Stock Subscription Agreement and
certain other of its provisions. Notwithstanding the foregoing,
Participating Stockholders who designated transferees may transfer Class L
Shares to such designated transferees, provided that (a) such transferees
are Permitted Transferees, (b) such transferees become parties to the Stock
Subscription Agreement by February 26, 1996 and (c) each such transferee's
Purchase Number (or Reduced Purchase Number (as defined in subparagraph (4)
below)) is equal to (i) at least 10,000 and (ii) at least two-thirds of the
number of Class L Shares held of record on February 26, 1996.
(4) Participating Stockholders will, notwithstanding the provisions
described above, be entitled to reduce the Purchase Number no later than
February 26, 1996 (such reduced number, the "Reduced Purchase Number") so
long as the Reduced Purchase Number is (a) at least 10,000 and (b) at least
two-thirds of the number of Class L Shares held of record by such
transferee on February 26, 1996. In the event that the Purchase Number is
reduced to zero, the Stock Subscription Agreement will terminate as to the
Participating Stockholder so reducing the Purchase Number.
(5) Participating Stockholders may further reduce the Purchase Number (or
the Reduced Purchase Number) no later than March 6, 1996, by a number of
Class L Shares less than or equal to 20% of the Purchase Number (or Reduced
Purchase Number) then in effect as to such Participating Stockholder, in
order to help enable such Participating Stockholder to receive capital
gains treatment with respect to Class L Shares converted into cash in the
Merger.
(6) Participating Stockholders will vote all of their Shares for the
Merger if such vote is requested, or act by written consent in lieu
thereof, will refrain from exercising any rights to appraisal which they
would otherwise have held under Delaware law and will cooperate fully with
Holdings in connection with the Offering and the Merger.
(7) Participating Stockholders who meet certain criteria will make
certain filings under the HSR Act, with the U.S. Federal Trade Commission
and the Department of Justice.
49
<PAGE>
In addition to the terms described above, the obligation of Holdings to
consummate the Purchase is subject, among other things to (1) the performance
by the Participating Stockholders of all agreements in the Stock Subscription
Agreement, (2) the absence of any order or pending or threatened litigation
the result of which could be to restrain or prevent the Offering or the Merger
and (3) the condition subsequent that the Merger occur within ten business
days of the closing of the Purchase.
As of January 25, 1996, holders of Class L Shares executed Stock
Subscription Agreements committing to contribute 45,250,765 Class L Shares,
representing an aggregate of 85% of the outstanding Shares, to Holdings.
However, the number of Class L Shares to be contributed to Holdings is subject
to reduction by the holders of Class L Shares, as described above.
PARTICIPATION AGREEMENTS
Each of the Transaction Sponsors is party to an agreement with Holdings
obligating the Transaction Sponsor to contribute to Holdings a specified
minimum number of Class L Shares, and to vote all shares over which the
Transaction Sponsor has voting power, in favor of the Merger. The agreements
also prohibit the Transaction Sponsors from soliciting, negotiating or
supporting any Company merger, stock or asset sale transaction involving any
person other than Holdings. These agreements terminate upon the earlier of:
(1) December 31, 1996, (2) ten days following written notice to Holdings from
the Transaction Sponsor of the occurrence of an increase in the price proposed
to be paid in the Merger to which the Transaction Sponsor has not consented or
(3) the date Holdings gives written notice to the Transaction Sponsor that it
has abandoned its intent to seek to acquire all or substantially all the
outstanding Shares pursuant to the Merger or a comparable transaction (whether
or not at a different price than that Merger).
CURRENT INFORMATION; NO PERIODIC REPORTING
LSAI is subject to certain of the informational requirements of the Exchange
Act, and in accordance therewith, files reports and other documents and
information with the Commission. Such reports and other documents and
information, as well as the aforementioned Schedule 13E-3, are available for
inspection and copying at the Commission and from the Company as described
under "AVAILABLE INFORMATION."
After the Effective Time, LSAI will cease to file, and Holdings will not be
obligated to file, reports with the Commission.
50
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 8, 1996 (this
"Agreement"), by and among LEVI STRAUSS ASSOCIATES INC., a Delaware
corporation (the "Company"), LSAI HOLDING CORP., a Delaware corporation
("Holdings"), and LSAI ACQUISITION CORP., a Delaware corporation and a direct
wholly owned subsidiary of Holdings ("Acquisition Corp.").
WHEREAS, the Boards of Directors of the Company, Holdings and Acquisition
Corp. deem it advisable and in the best interests of the stockholders of such
corporations to effect the merger of Acquisition Corp. with and into the
Company (the "Merger") pursuant to this Agreement;
WHEREAS, the Board of Directors of Holdings intends to implement a non-
equity employee plan following the Merger to permit employees of the Company
to share in the value created after the Merger; and
WHEREAS, the parties hereto desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated by this Agreement.
NOW THEREFORE, in consideration of the premises and of the representations,
warranties and agreements contained herein, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
Section 1.1. The Merger. At the Effective Time (as defined in Section 1.3
hereof), and subject to the terms and conditions of this Agreement and the
General Corporation Law of the State of Delaware (the "DGCL"), Acquisition
Corp. shall be merged with and into the Company, the separate corporate
existence of Acquisition Corp. shall thereupon cease, and the Company shall be
the surviving corporation in the Merger (sometimes hereinafter referred to
herein as the "Surviving Corporation").
Section 1.2. Surviving Corporation; Effects of the Merger. At the Effective
Time, the Surviving Corporation shall continue its corporate existence under
the laws of the State of Delaware. The Merger shall have the effects specified
in Section 259 of the DGCL. The name of the Surviving Corporation shall
continue to be "Levi Strauss Associates Inc."
Section 1.3. Effective Time; Closing. (a) The closing (the "Closing") of the
transactions contemplated hereby shall take place at the offices of the
Company in San Francisco, at 10:00 a.m., local time, on the later of March 20,
1996 and the date by which all conditions to the Merger have been satisfied or
waived or at such other place or at such other time as Holdings and the
Company may mutually agree upon for the Closing to take place.
(b) At the Closing, the Company and Acquisition Corp. shall effect the
Merger by filing with the Secretary of State of the State of Delaware a
certificate of merger (the "Certificate of Merger") in such form as is
required by and executed in accordance with the applicable provisions of the
DGCL (the time of effectiveness of the Merger specified in the Certificate of
Merger, or, if not so specified, the time of filing of the Certificate of
Merger, being herein referred to as the "Effective Time") and shall take any
and all other lawful actions and do any and all other lawful things necessary
to cause the Merger to become effective.
Section 1.4. Certificate of Incorporation of the Surviving Corporation. At
the Effective Time and without any further action on the part of the Company
or Acquisition Corp., the Certificate of Incorporation of the Company shall be
amended in its entirety as set forth in Exhibit A hereto so as to be identical
(other than with respect to the name of the corporation, its registered agent
and the name and address of the incorporator) to
A-1
<PAGE>
the Certificate of Incorporation of Acquisition Corp., as in effect
immediately prior to the Effective Time, and as so amended, shall be the
Certificate of Incorporation of the Surviving Corporation.
Section 1.5. By-laws of the Surviving Corporation. At the Effective Time and
without any further action on the part of the Company or Acquisition Corp.,
the By-laws of Acquisition Corp., as in effect at the Effective Time, shall be
the By-laws of the Surviving Corporation.
Section 1.6. Board of Directors and Officers of the Surviving
Corporation. At the Effective Time, the directors of Acquisition Corp.
immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, each of such directors to hold office, subject to the
applicable provisions of the Certificate of Incorporation and By-laws of the
Surviving Corporation, until the next annual stockholders' meeting of the
Surviving Corporation and until their successors shall be duly elected or
appointed and shall duly qualify. The officers of the Company immediately
prior to the Effective Time shall be the officers of the Surviving Corporation
until their respective successors are duly elected or appointed and qualified.
Section 1.7. Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of the holders thereof:
(a) Each Share of Class E Common Stock of the Company, par value $0.10 per
share (each, a "Class E Share"), that is issued and outstanding immediately
prior to the Effective Time (other than Class E Shares which are held in the
treasury of the Company, which shares shall be cancelled, and other than Class
E Shares as to which a written demand for appraisal has been delivered in the
manner provided in Section 262 of the DGCL and Section 1.8 hereof), shall be
converted into and represent the right to receive $265 in cash payable to the
holder thereof, without interest thereon, upon surrender of the certificate
representing such Class E Share.
(b) Each share of Class L Common Stock of the Company, par value $0.10 per
share (each, a "Class L Share," and together with the Class E Shares, the
"Shares"), that is issued and outstanding immediately prior to the Effective
Time (other than Class L Shares which are held by Holdings or Acquisition
Corp. or are held in the treasury of the Company, which shares shall be
cancelled, and other than Class L Shares as to which a written demand for
appraisal has been delivered in the manner provided in Section 262 of the DGCL
and Section 1.8 hereof) shall be converted into and represent the right to
receive $265 in cash payable to the holder thereof, without interest thereon,
upon surrender of the certificate representing such Class L Share.
(c) Each share of common stock, par value $.01 per share, of Acquisition
Corp. that is issued and outstanding immediately prior to the Effective Time
shall be converted into and represent the right to receive one fully paid and
non-assessable share of common stock of the Surviving Corporation.
Section 1.8. Dissenting Shares. (a) Notwithstanding the provisions of
Section 1.7 or any other provision of this Agreement to the contrary, Shares
which are issued and outstanding immediately prior to the Effective Time and
which are held by stockholders who have not voted such Shares in favor of the
Merger and who shall have delivered a written demand for appraisal of such
Shares in the manner provided in Section 262 of the DGCL (the "Dissenting
Shares") shall not be converted into the right to receive cash at or after the
Effective Time, unless and until the holder of such Dissenting Shares shall
have failed to perfect or shall have effectively withdrawn or lost such right
to appraisal and payment under the DGCL. If a holder of Dissenting Shares
shall have so failed to perfect or shall have effectively withdrawn or lost
such right to appraisal and payment, then, as of the Effective Time or the
occurrence of such event, whichever last occurs, such holder's Dissenting
Shares shall automatically be converted into and represent the right to
receive cash, without any interest thereon, as provided in Section 1.7(a)
hereof if such Dissenting Shares are Class E Shares, and Section 1.7(b) hereof
if such Dissenting Shares are Class L Shares.
(b) The Company shall give Holdings (i) prompt notice of any written demands
for appraisal, withdrawals of appraisal and any other instruments served
pursuant to Section 262 of the DGCL received by the Company, and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under
A-2
<PAGE>
Section 262 of the DGCL. The Company will not voluntarily make any payment
with respect to any demands for appraisal and will not, except with the prior
written consent of Holdings, settle or offer to settle any such demands.
Section 1.9. Payment for Shares. (a) At or prior to the Effective Time,
Holdings shall deposit, or cause to be deposited, in immediately available
funds with a disbursing agent selected by Holdings and reasonably satisfactory
to the Company (the "Exchange Agent") an amount (the "Fund"), equal to the
product of (i) the number of Shares issued and outstanding at the Effective
Time (other than Shares which are held by Holdings or Acquisition Corp. or in
the treasury of the Company and other than Dissenting Shares in respect to
which appraisal rights are demanded) and (ii) $265. Out of the Fund, the
Exchange Agent shall, pursuant to irrevocable instructions, make the payments
referred to in Section 1.7(a) and (b) hereof. The Fund shall not be used for
any other purpose. The Exchange Agent may invest portions of the Fund as
Holdings directs, provided that all such investments shall be in obligations
of or guaranteed by the United States of America, in commercial paper
obligations receiving the highest rating from either Moody's Investors
Service, Inc. or Standard & Poor's Corporation, or in certificates of deposit,
bank repurchase agreements or bankers' acceptances of commercial banks with
capital exceeding $250,000,000 (collectively, "Permitted Investments") or in
money market funds which are invested in Permitted Investments. Any net profit
resulting from, or interest or income produced by, such investments, shall be
payable to the Surviving Corporation or Holdings. Holdings or the Surviving
Corporation shall replace any monies lost through any investment made pursuant
to this paragraph (a) of this Section 1.9.
(b) As soon as practicable after the Effective Time (but in no event more
than five business days thereafter), the Exchange Agent shall mail to each
holder of record (other than Holdings or Acquisition Corp.) of a certificate
or certificates which immediately prior to the Effective Time represented
issued and outstanding Shares other than Dissenting Shares (the
"Certificates"), a letter of transmittal (the "Letter of Transmittal") for
return to the Exchange Agent, and instructions for use in effecting the
surrender of Certificates and receipt of cash for each of such holder's
Shares. The Letter of Transmittal shall specify that delivery shall be
effected, and risk of loss and title shall pass, only upon proper delivery to
and receipt of such Certificate or Certificates by the Exchange Agent. The
Exchange Agent, as soon as practicable following receipt of any such
Certificate or Certificates, together with the Letter of Transmittal, duly
executed, and any other items specified by the Letter of Transmittal, shall
pay, by check or draft, to the holder of Certificates an amount, subject to
reduction for any applicable back-up withholding or stock transfer taxes
payable to such holder, equal to the product of the number of Shares
represented by the Certificate or Certificates so surrendered and $265. No
interest will be paid or accrued on the cash payable upon the surrender of a
Certificate or Certificates.
(c) Any portion of the Fund which remains unclaimed six months after the
Effective Time shall be paid to Holdings or to the Surviving Corporation upon
demand. Any holders of Certificates who have not theretofore complied with
Section 1.9(b) hereof shall thereafter look only to the Surviving Corporation
for payment of their claim for the consideration set forth in Section 1.7
hereof, without any interest thereon, but shall have no greater rights against
the Surviving Corporation than may be accorded to general creditors of the
Surviving Corporation under Delaware law.
Section 1.10. No Further Rights or Transfers. At and after the Effective
Time of the Merger, each holder of a Certificate or Certificates that
represented issued and outstanding Shares immediately prior to the Effective
Time shall cease to have any rights as a stockholder of the Company, except
for the right to surrender his or her Certificate or Certificates in exchange
for the payment provided pursuant to Sections 1.7 and 1.9 hereof or to perfect
his or her right to receive payment for his or her Shares pursuant to Section
262 of the DGCL and Section 1.8 hereof if such holder has validly exercised
and perfected and not withdrawn his or her right to receive payment for his or
her Shares, and no transfer of Shares outstanding prior to the Effective Time
shall be made on the stock transfer books of the Surviving Corporation. If,
after the Effective Time, Certificates formerly representing Shares other than
Dissenting Shares are presented to the Surviving Corporation, they shall be
cancelled and exchanged for the consideration set forth in Section 1.7 hereof.
A-3
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Holdings and Acquisition Corp.
that:
Section 2.1. Corporate Organization. Each of the Company and each material
subsidiary of the Company (a "Subsidiary") is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation, with all requisite power and authority to own, operate and
lease its properties and to carry on its business as it is now being
conducted.
Section 2.2. Authorization. (a) The Company has the necessary corporate
power and authority to enter into this Agreement. The execution and delivery
of this Agreement by the Company, the performance by the Company of its
obligations hereunder and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by the Company's
Board of Directors (including any authorization that may be required pursuant
to the stockholders' agreement currently in effect between the Company and
holders of Class L Shares), and no other corporate proceeding on the part of
the Company is necessary to authorize this Agreement or to consummate the
transactions contemplated hereby (other than the approval of this Agreement by
the stockholders of the Company). This Agreement has been duly and validly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery hereof by Holdings and Acquisition Corp., is a legal,
valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms.
Section 2.3. Capitalization of the Company. As of the date hereof, the
authorized capital stock of the Company consists of 10,000,000 shares of
Preferred Stock, par value $1.00 per share, 100,000,000 Class E Shares, par
value $0.10 per share, and 170,000,000 Class L Shares, par value $0.10 per
share. As of the date hereof, there were issued and outstanding 1,489,159
Class E Shares, 51,351,158 Class L Shares and no shares of Preferred Stock;
and as of the date hereof, 5,014 Class E Shares, 404,750 Class L Shares and no
shares of Preferred Stock were held in the Company's treasury. All of the
outstanding Shares have been validly issued, and are fully paid, nonassessable
and free of preemptive rights with no personal liability attaching to the
ownership thereof. As of the date hereof, 404,750 Class L Shares were issuable
upon exercise of options (the "Class L Options") to purchase Class L Shares
under the Company's 1985 Stock Option Plan (the "Option Plan"). Except as set
forth above, as of the date hereof, there are no outstanding options,
warrants, subscriptions, conversion or other rights, agreements or commitments
obligating the Company or any Subsidiary to issue any additional shares of the
capital stock or any other securities convertible into, exchangeable for or
evidencing the right to subscribe for any shares of the capital stock of the
Company or any Subsidiary.
Section 2.4. Certain Fees. With the exception of (a) a fee payable to Dillon
Read & Co. Inc. ("Dillon Read"), which has acted as financial advisor to the
Special Committee of the Board of Directors in connection with the Merger,
pursuant to a letter agreement which has been delivered to Holdings, (b) a fee
payable to Lehman Brothers, Inc. for advice rendered in connection with the
Company's Employee Investment Plan and Employee Long-term Investment and
Savings Plan and (c) the fees referred to in Section 7.5 hereof, neither the
Company nor any Subsidiary has employed any broker or finder or incurred any
liability for any financial advisory, brokerage or finders' fees or
commissions in connection with the transactions contemplated hereby.
Section 2.5. Consents and Approvals; No Violations. (a) Except for (i)
applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder (the "Exchange Act") and state
securities and "blue sky" laws and (ii) the filing and recordation of the
Certificate of Merger as required by the DGCL, no filing or registration with,
no notice to and no permit from, and no authorization, consent or approval of
any public or governmental body or authority is necessary on behalf of, the
Company for the consummation by the Company of the transactions contemplated
by this Agreement, except where the failure to make such filing, registration
or notice or to obtain such permit, authorization, consent or approval would
not
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reasonably be expected, in the aggregate, to have a material adverse effect on
the business, operations or financial condition of the Company and its
subsidiaries taken as a whole.
(b) Except for the possible requirement of approval by the financial
institutions pursuant to the Company's Second Amended and Restated Credit
Agreement with Bank of America, neither the execution and delivery of this
Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby nor compliance by the Company with any of the
provisions hereof will (i) conflict with or result in any breach of any
provision of the Certificate of Incorporation or By-laws of the Company, (ii)
result in a violation or breach of, or constitute (with or without due notice
or lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which the Company or any of its Subsidiaries is a
party or by which any of them or any of their properties or assets may be
bound or (iii) to the best knowledge of the executive officers of the Company,
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, any of its Subsidiaries or any of their properties
or assets, excluding from the foregoing clauses (ii) and (iii) violations,
breaches, defaults or such rights which in the aggregate would not reasonably
be expected to have a material adverse effect on the business, operations or
financial condition of the Company and its subsidiaries taken as a whole.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
HOLDINGS AND ACQUISITION CORP.
Holdings and Acquisition Corp. hereby represent and warrant to the Company
that:
Section 3.1. Corporate Organization. Each of Holdings and Acquisition Corp.
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware and each has all requisite corporate power
and authority to own, operate and lease its properties and to carry on its
business as it is now being conducted. Neither Holdings nor Acquisition Corp.
is, or is required by the ownership or leasing of real property or otherwise
to be, qualified or licensed to do business in any jurisdiction other than
Delaware, except to the extent that the failure to be so qualified or licensed
would not have a material adverse effect upon the business, operations or
financial condition of Holdings and Acquisition Corp. taken as a whole, and
except that Holdings and Acquisition Corp. are qualified to do business in the
State of California.
Section 3.2. Authorization. (a) Each of Holdings and Acquisition Corp. has
the necessary corporate power and authority to enter into this Agreement and
to carry out their respective obligations hereunder. The execution and
delivery of this Agreement by each of Holdings and Acquisition Corp., the
performance by each of Holdings and Acquisition Corp. of their respective
obligations hereunder and the consummation by each of Holdings and Acquisition
Corp. of the transactions contemplated hereby have been duly and validly
authorized by the respective Boards of Directors of Holdings and Acquisition
Corp., and by Holdings as the sole stockholder of Acquisition Corp., and no
other corporate proceeding on the part of Holdings or Acquisition Corp. is
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby, except for any corporate proceedings that may be
necessary to obtain the debt portion of the financing required for the
transactions contemplated by this Agreement (together with the equity portion
of the financing, the "Financing") and to authorize and perform the definitive
agreements to provide the debt portion of the Financing (the "Definitive
Financing Agreements") and the transactions contemplated thereby, which
actions will be taken prior to the execution and delivery of the Definitive
Financing Agreements. This Agreement has been duly and validly executed and
delivered by each of Holdings and Acquisition Corp. and, assuming the due
authorization, execution and delivery hereof by the Company, is a legal, valid
and binding obligation of each of Holdings and Acquisition Corp., enforceable
against each of Holdings and Acquisition Corp. in accordance with its terms.
Each of the Definitive Financing Agreements relating to Holdings' and
Acquisition Corp.'s participation in the Financing, when duly authorized,
executed and delivered by Holdings and/or Acquisition Corp., will be a legal,
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valid and binding obligation of Holdings and/or Acquisition Corp., as the case
may be, enforceable against Holdings and/or Acquisition Corp., as the case may
be, in accordance with its terms.
(b) Holdings has entered into Participation Agreements and Stock
Subscription Agreements with certain holders of Class L Shares under which
such holders have agreed to provide the equity portion of the Financing. Based
upon discussions with prospective lenders, Holdings believes that, subject to
customary terms and conditions, Holdings will be able to arrange the debt
portion of the Financing.
Section 3.3. No Prior Activities. Neither Holdings nor Acquisition Corp. has
incurred, directly or indirectly, any liabilities or obligations, except those
incurred in connection with their respective incorporation and capitalization
or with the negotiation of this Agreement and the Definitive Financing
Agreements and the consummation of the transactions contemplated hereby and
thereby. Neither Holdings nor Acquisition Corp. has engaged, directly or
indirectly, in any business or activity of any type or kind, or entered into
any agreement or arrangement with any person or entity, or is subject to or
bound by any material liability, obligation or undertaking, that is not
contemplated by or in connection with their incorporation and capitalization
or this Agreement and the transactions contemplated hereby.
Section 3.4. Consents and Approvals; No Violations. (a) Except for (i)
applicable requirements of the Exchange Act, state securities or "blue sky"
laws and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act") with respect to the capitalization of Holdings, and (ii) the
filing and recordation of the Certificate of Merger as required by the DGCL,
no filing or registration with, no notice to or permit from, and no
authorization, consent or approval of any public or governmental body or
authority is necessary on behalf of, Holdings or Acquisition Corp. for the
consummation by Holdings or Acquisition Corp. of the transactions contemplated
by this Agreement, except where the failure to make such filing, registration
or notice or to obtain such permit, authorization, consent or approval would
not reasonably be expected, in the aggregate, to have a material adverse
effect on the business, operations, or financial condition of Holdings and its
subsidiaries taken as a whole.
(b) Neither the execution and delivery of this Agreement by Holdings and
Acquisition Corp. nor the consummation by Holdings and Acquisition Corp. of
the transactions contemplated hereby nor compliance by Holdings and
Acquisition Corp. with any of the provisions hereof will (i) conflict with or
result in any breach of any provision of the Certificate of Incorporation or
By-laws of either of Holdings or Acquisition Corp., (ii) result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, agreement or other instrument or
obligation to which either of Holdings or Acquisition Corp. is a party or by
which either of them or any of their properties or assets may be bound or
(iii) to the best knowledge of the executive officers of Holdings and
Acquisition Corp., violate any order, writ, injunction, decree, statute, rule
or regulation applicable to Holdings or Acquisition Corp., any of their
subsidiaries or any of their properties or assets, excluding from the
foregoing clauses (ii) and (iii) violations, breaches, defaults or such rights
which in the aggregate would not reasonably be expected to have a material
adverse effect on the business, operations or financial condition of Holdings
and its subsidiaries taken as a whole.
ARTICLE IV
COVENANTS
Section 4.1. Conduct of Business of the Company. Except as expressly
contemplated by this Agreement or as consented to by Holdings, during the
period from the date of this Agreement to the Effective Time, the Company and
its Subsidiaries will each conduct their respective operations only in, and
the Company and its Subsidiaries shall not take any action except in, the
ordinary and usual course of business and consistent with past practice, and
each of the Company and the Subsidiaries will use its reasonable best efforts
in the ordinary course of business consistent with past practice to preserve
intact its business organization, assets, prospects and
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advantageous business relationships, to keep available the services of its
officers and employees and to maintain satisfactory relationships with
customers, suppliers, contractors, distributors, licensors, licensees and
others having business relationships with it.
Section 4.2. Access to Information. Between the date of this Agreement and
the Effective Time, subject to customary confidentiality agreements if
requested, the Company will give Holdings, Acquisition Corp. and the Financing
sources, and their respective authorized representatives, reasonable access to
all personnel, plants, offices, warehouses and other facilities and to all
books and records of the Company and the Subsidiaries and will permit
Holdings, Acquisition Corp. and the Financing sources to make such inspections
as they may reasonably request and will cause its officers and those of the
Subsidiaries to furnish Holdings and the Financing sources with such financial
and operating data and other information with respect to the business and
properties of the Company and the Subsidiaries as Holdings, Acquisition Corp.
and the Financing sources may from time to time reasonably request.
Section 4.3. Reasonable Best Efforts. (a) Upon the terms and subject to the
conditions hereof, each of the parties hereto agrees to use its reasonable
best efforts to take, or cause to be taken, all action and to do, or cause to
be done, all things reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement and shall
use its reasonable best efforts to obtain all waivers, permits, consents and
approvals and to effect all registrations, filings and notices with or to
third parties or governmental or public bodies or authorities which are
necessary or reasonably appropriate in connection with the transactions
contemplated by this Agreement, including, without limitation, filings to the
extent required under the Exchange Act and the HSR Act. In addition, Holdings,
Acquisition Corp. and the Company shall timely file with the Securities and
Exchange Commission (the "Commission") a Schedule 13E-3 (the "Schedule 13E-3")
with respect to the Merger and disseminate to stockholders such information as
is required by Rule 13e-3 under the Exchange Act and as would be required
under Regulation 14C under the Exchange Act if the Company were required to
file thereunder. None of the information supplied by Holdings and Acquisition
Corp., on the one hand, or the Company on the other hand, for inclusion in the
Schedule 13E-3, in any information disseminated to stockholders or in any
amendments or supplements thereto, will, at the respective times such
Schedules 13E-3 or amendments are filed with the Commission or such
information is mailed to stockholders, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein, in light of the circumstances under which they were made, not
misleading. The Schedule 13E-3 will comply as to form in all material respects
with all applicable provisions of the Exchange Act. Holdings, Acquisition
Corp. and the Company shall promptly correct any information in the Schedule
13E-3 that shall have become false or misleading and take all steps necessary
to cause the Schedule 13E-3 as so corrected to be filed with the Commission,
as and to the extent required by applicable law. If at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers or directors of each of the
parties hereto shall take such action.
(b) Subject to the terms and conditions herein provided, each of Holdings
and Acquisition Corp. agrees to use its reasonable best efforts to obtain
promptly the Financing pursuant to the Definitive Financing Agreements from
banks, financial institutions and other sources and will use reasonable
efforts to satisfy the covenants and other conditions included in the
Definitive Financing Agreements; provided, however, that this Section 4.3
shall not impose any obligations on or confer any rights upon any person or
entity other than the parties hereto. Each of the parties hereto shall use its
reasonable best efforts to satisfy on or before the Effective Time all
requirements of the Definitive Financing Agreements which are conditions to
closing transactions constituting the Financing.
(c) Holdings and Acquisition Corp. hereby agree to cause their respective
affiliates (or other persons who have been identified to the Company as
transaction sponsors) who are directors, officers, shareholders and/or
employees of the Company to use their best efforts (to the extent reasonably
within their power or ability) to cause the Company to honor the
representations, warranties, covenants and agreements made by the Company in
this Agreement or in any Definitive Financing Agreements and to take such
actions necessary in furtherance, and not in contravention, of such
representations, warranties, covenants and agreements.
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Section 4.4. Public Announcements. Holdings and the Company will consult
with each other before issuing any press release or otherwise making any
public statements with respect to the Merger and shall not issue any such
press release or make any such public statement prior to such consultation,
except as may be required by law.
Section 4.5. Action by Written Consent. (a) Holdings has advised the Company
that certain stockholders of the Company have heretofore executed
Participation Agreements, as well as Stock Subscription Agreements with
Holdings dated January 25, 1996 (the "Stock Subscription Agreements"), which,
among other things, commit such holders to vote, or to cause to be voted,
Shares representing a majority of the outstanding Shares in favor of the
Merger; and that it is the desire of Holdings that such action be taken by
written consent in lieu of a meeting of stockholders.
(b) The Company has advised Holdings that (A) a Special Committee of
independent directors of the Board of Directors (the "Special Committee") has
concluded that the terms of the Merger are fair to the holders of the Shares
(other than Shares which are held by or being reinvested in Holdings or
Acquisition Corp.) and has recommended that the Board approve this Agreement
and (B) in light of such recommendation, the Board of Directors has concluded
that the Merger is fair to, and in the best interest of, the Company and the
holders of the Shares (other than Shares which are held by or being reinvested
in Holdings or Acquisition Corp.) and has approved and adopted this Agreement.
Section 4.6. Agreement to Defend and Indemnify. (a) In the event any action,
suit, proceeding or investigation relating to the Merger, this Agreement or
the transactions contemplated hereby is commenced, whether before or after the
Effective Time, the parties hereto agree to cooperate and use their best
efforts to defend against and respond thereto. It is understood and agreed
that the Company shall indemnify and hold harmless, and, after the Effective
Time, the Surviving Corporation shall indemnify and hold harmless, each
present and former director (including, without limitation, each member of the
Special Committee established by the Board of Directors of the Company on
November 30, 1995, both as set forth in the agreements dated November 30, 1995
between each such member and the Company (the "Indemnification Agreements")
and as set forth herein), and each officer, employee and agent of the Company
or such Committee (the "Indemnified Parties") against any losses, claims,
damages, liabilities, costs, expenses (including attorneys' fees), judgments
and amounts paid in settlement in connection with any threatened, pending or
completed action, suit, claim, proceeding or investigation arising out of or
pertaining to any action or omission occurring at or prior to the Effective
Time (including, without limitation, any which arise out of or relate to the
transactions contemplated by this Agreement) to the full extent permitted or
required under Delaware law and the Company's By-laws (and the Company or the
Surviving Corporation, as the case may be, will advance expenses to each such
person to the full extent so permitted). Neither the Company, the Surviving
Corporation, Holdings nor Acquisition Corp. shall be liable for any settlement
effected by such Indemnified Party hereunder (or group of Indemnified Parties)
unless the Company, the Surviving Corporation or Holdings respectively, have
approved such settlement in writing. Any Indemnified Party wishing to claim
indemnification under this Section 4.6, upon learning of any such claim,
action, suit, proceeding or investigation, shall notify the Company or the
Surviving Corporation and Holdings thereof; provided, however, that any
failure to so notify the Company or the Surviving Corporation and Holdings
shall not relieve the Company or the Surviving Corporation and Holdings of any
obligation to indemnify such Indemnified Party hereunder or of any other
obligation imposed by this Section 4.6 unless and to the extent such failure
to so notify shall materially prejudice the position of the Company or the
Surviving Corporation; provided, further, that any indemnification under this
Section 4.6 shall be in addition to, and not in limitation of, any rights of
indemnification of an Indemnified Party as provided in the Indemnification
Agreements.
(b) The covenants contained in this Section 4.6 shall survive the Closing,
shall continue without time limit and are intended to benefit the Company and
each of the Indemnified Parties. Subject to the requirements of the DGCL, the
Certificate of Incorporation and By-laws of the Company and the Surviving
Corporation shall not be amended in a manner which adversely affects the
rights of the Indemnified Parties under this Section 4.6.
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Section 4.7. Effect of Breaches. Holdings, Acquisition Corp. and the Company
hereby agree that the only remedy available to Holdings and Acquisition Corp.
hereunder for a breach of a representation, warranty, agreement or covenant
under this Agreement by the Company shall be the right to (i) seek specific
performance of such representation, warranty, agreement or covenant, (ii)
invoke a Closing condition or (iii) exercise a termination right, and Holdings
and Acquisition Corp. expressly waive the right to seek monetary damages in
connection with any such breach.
ARTICLE V
CONDITIONS TO THE MERGER
Section 5.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to this Agreement to consummate the
Merger shall be subject to the following conditions, which may not be waived:
(a) This Agreement and the Merger shall have been approved and adopted by
the requisite vote (which may be effected by written consent in lieu of a
meeting) of the stockholders of the Company required by the Company's
Restated Certificate of Incorporation and the DGCL.
(b) There shall not be outstanding any order, statute, rule, regulation,
executive order, stay, decree, judgment, or injunction which shall have
been enacted, entered, issued, promulgated or enforced by any court or
governmental authority which restrains or prohibits the consummation of the
Merger.
(c) Holdings and/or Acquisition Corp. shall have entered into the
Definitive Financing Agreements, all conditions to the drawdown of funds
pursuant thereto shall have been satisfied or waived and the Financing
shall be available.
Section 5.2. Conditions to the Obligation of Holdings and Acquisition Corp.
to Effect the Merger. The obligations of Holdings and Acquisition Corp. to
effect the Merger shall be further subject to the fulfillment at or prior to
the Effective Time of the following conditions, any one or more of which may
be waived by Holdings and Acquisition Corp.:
(a) The Company shall have performed and complied in all material
respects with the agreements and obligations contained in this Agreement
required to be performed and complied with by it at or prior to the
Closing.
(b) The representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects when made and
at and as of the Closing.
(c) As of the Closing there shall have been, since the date of this
Agreement, no material adverse change in the assets, liabilities, business,
results of operations, or financial condition of the Company and its
Subsidiaries, taken as a whole, or any event, occurrence or development
which would reasonably be expected to result in such a change or to have a
material adverse effect on the ability of the Company to consummate the
transactions contemplated hereby.
(d) The Purchase (as defined in the Stock Subscription Agreements) shall
have occurred.
(e) from the date hereof, there shall not have occurred (i) any general
suspension of, or limitation on prices for, trading in securities on any
national securities exchange or the over-the-counter market, (ii) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States (whether or not mandatory), (iii) a
decline of 20% or more in the Standard & Poor's 500 Index, (iv) (A) a
default by the United States government on the payment of interest or
principal on its debt obligations or (B) the existence of circumstances
which are determined by Holdings in its sole discretion to create a
reasonable probability that such a default is likely to occur, or (v) in
the case of any of the foregoing existing at the time of the execution of
this Agreement, a material acceleration or worsening thereof.
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Section 5.3. Conditions to the Obligations of the Company to Effect the
Merger. The obligations of the Company to effect the Merger shall be further
subject to the fulfillment at or prior to the Closing of the following
conditions, any one or more of which may be waived by the Company:
(a) Holdings and Acquisition Corp. each shall have performed and complied
in all material respects with the agreements and obligations contained in
this Agreement required to be performed and complied with by them at or
prior to the Closing.
(b) The representations and warranties of Holdings and Acquisition Corp.
contained in this Agreement shall be true and correct in all material
respects when made and at and as of the Closing.
(c) The Special Committee of the Board of Directors of the Company shall
not have modified or rescinded its recommendation with respect to the
Merger as a result of the withdrawal or material qualification, on or prior
to the Closing, of the fairness opinion delivered by Dillon Read to the
Special Committee on the date hereof.
ARTICLE VI
TERMINATION AND ABANDONMENT
Section 6.1. Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
whether before or after approval of the Merger by the stockholders of the
Company:
(a) By mutual consent of the Boards of Directors of Holdings, Acquisition
Corp. and the Company.
(b) By either Holdings or the Company:
(i) if the Effective Time shall not have occurred by September 30,
1996; or
(ii) if a court of competent jurisdiction or governmental, regulatory
or administrative agency or commission shall have issued an order,
decree or ruling or taken any other action (which order, decree or
ruling the parties hereto shall use their best efforts to lift), in
each case permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement which order is not
subject to appeal.
(c) By either Holdings or the Company if the Special Committee shall have
modified or rescinded its recommendation with respect to the Merger as
contemplated by Section 5.3(c) hereof.
Section 6.2. Procedure and Effect of Termination. In the event of
termination and abandonment of the Merger by the Company or Holdings or both
pursuant to Section 7.1 hereof, written notice thereof shall forthwith be
given to the other and this Agreement shall terminate and the Merger shall be
abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided herein no party hereto shall have any
liability or further obligation to any other party to this Agreement except
that the provisions of this Section 6.2 and Sections 4.6 and 7.5 hereof shall
remain in full force and effect.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1. Survival of Representations, Warranties, Covenants and
Agreements. The respective representations, warranties, covenants and
agreements of the parties hereto, other than those contained in Sections 1.8,
1.9, 4.6 and 7.5 hereof, shall not survive the Effective Time.
Section 7.2. Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written agreement
of Holdings, Acquisition Corp. and the Company at any time prior to the
Effective Time with respect to any of the terms contained herein, except that
the price per Share
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to be paid pursuant to this Agreement to the holders of Shares shall in no
event be decreased and the form of consideration to be received by the holders
of such Shares in the Merger shall in no event be altered without, in either
case, the approval of the holders of a majority of the outstanding Shares.
Notwithstanding the foregoing, any amendment or modification of, or supplement
to, this Agreement that is adverse to the holders of the Shares (other than
Shares which are held by or reinvested in Holdings or Acquisition Corp.) shall
require the consent of the Special Committee, which shall not be unreasonably
withheld.
Section 7.3. Waiver of Compliance; Consents. Any failure of Holdings or
Acquisition Corp., on the one hand, or the Company, on the other hand, to
comply with any obligation, covenant, agreement or condition herein may be
waived in writing by the Company or Holdings, respectively, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure; provided, however, that the
waiver of any obligation, covenant, agreement or condition herein, or the
giving of any consent or the exercise of any material right hereunder, by the
Company or its Board of Directors shall require the consent of the Special
Committee, which shall not be unreasonably withheld. Whenever this Agreement
requires or permits consent by or on behalf of any party hereto, such consent
shall be given in writing in a manner consistent with the requirements for a
waiver of compliance as set forth in this Section 7.3.
Section 7.4. Validity of Provisions; Severability. Wherever possible, each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
Section 7.5. Fees and Expenses. All costs and expenses incurred in
connection with the transactions contemplated by this Agreement shall be paid
by the party incurring such expenses.
Section 7.6. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, except as provided in
Section 4.6, nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement.
Section 7.7. Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use reasonable best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement. In case at any time after the Effective Time any further
reasonable action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each corporation which is a
party to this Agreement shall take all such reasonable necessary action.
Section 7.8. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, by messenger,
by a nationally recognized overnight delivery company or by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Holdings or Acquisition Corp.:
LSAI Holding Corp.
c/o Hellman & Friedman
One Maritime Plaza, Suite 1200
San Francisco, California 94111
Attention: Robert D. Haas
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with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Patricia A. Vlahakis, Esq.
(b) if to the Company:
Levi Strauss Associates Inc.
1155 Battery Street
San Francisco, California 94111
Attention: Jay A. Mitchell,
Associate General Counsel
with a copy on behalf of the Special Committee to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Robert E. Spatt, Esq.
Section 7.9. Governing Law; Jurisdiction. Regardless of the place of
execution of this Agreement, the domicile or residence of any party hereto,
the location of the principal executive office of any party hereto, or any
other fact or circumstance, this Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware (without regard to
conflicts of laws principles). EACH PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE COURTS OF THE STATE OF
DELAWARE AND THE FEDERAL COURTS LOCATED IN THE STATE OF DELAWARE IN ANY
ACTION, SUIT OR PROCEEDING ARISING IN CONNECTION WITH THIS AGREEMENT, AND
AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE BROUGHT ONLY IN SUCH
COURTS (AND WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS OR ANY OTHER
OBJECTION TO VENUE THEREIN); PROVIDED, HOWEVER, THAT SUCH CONSENT TO
JURISDICTION IS SOLELY FOR THE PURPOSE REFERRED TO IN THIS PARAGRAPH AND SHALL
NOT BE DEEMED TO BE A GENERAL SUBMISSION TO THE JURISDICTION OF SUCH COURTS OR
IN THE STATE OF DELAWARE OTHER THAN FOR SUCH PURPOSE. THE PARTIES HERETO
HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN CONNECTION WITH ANY SUCH ACTION,
SUIT OR PROCEEDING.
Section 7.10. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
Section 7.11. Headings. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 7.12. Entire Agreement. This Agreement, including any exhibits
hereto and the documents and instruments referred to herein, and except as
contemplated hereby, embodies the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements and understandings between the parties with
respect to such subject matter. There are no agreements, restrictions,
promises, representations, warranties, covenants, or undertakings, other than
those expressly set forth or referred to herein.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed on its behalf by its duly authorized officers, all as of the day
and year first above written.
Levi Strauss Associates Inc.
/s/ Joseph M. Maurer
By: _________________________________
Name: Joseph M. Maurer
Title: Vice President and
Treasurer
LSAI Holding Corp.
/s/ Robert D. Haas
By: _________________________________
Name: Robert D. Haas
Title: Chairman and Chief
Executive Officer
LSAI Acquisition Corp.
/s/ Robert D. Haas
By: _________________________________
Name: Robert D. Haas
Title: President
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EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
LEVI STRAUSS ASSOCIATES INC.
(ORIGINALLY INCORPORATED ON JULY 3, 1985 AS HHF CORP.)
First. The name of the corporation is Levi Strauss Associates Inc.
Second. The address of the Corporation's registered office in the State of
Delaware is 32 Loockerman Square, Suite L-100 in the City of Dover, County of
Kent, 19903. The name of its registered agent at that address is The Prentice-
Hall Corporation System, Inc.
Third. The nature of the business or purposes to be conducted or promoted by
the corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State
of Delaware (the "GCL").
Fourth. The total number of shares of all classes of capital stock which the
corporation is authorized to issue is 1,000 shares of common stock with a par
value of one $0.01 per share.
Fifth. The corporation shall have a perpetual existence.
Sixth. No director of the corporation shall be personally liable to the
corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability: (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the GCL or (iv) for any
transaction from which the director derived any improper personal benefit. If
the GCL is amended to authorize or require corporate action that further
eliminates or limits the personal liability of directors, then the liability
of the directors of the corporation shall be eliminated or limited to the
fullest extent permitted by the GCL, as so amended. Any repeal or modification
of this Article SIXTH shall not adversely affect any right or protection of a
director of the corporation existing at the time of the repeal or
modification.
Seventh.
A. Right to Indemnification
Each person who was or is made a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (in any such case a "proceeding"), by reason
of the fact that he or she is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, a partnership, a
joint venture, a trust or another enterprise, including service with respect
to any employee benefit plan, whether the basis of the proceeding is alleged
action in an official capacity as a director, officer, employee or agent or
otherwise as a consequence of serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the corporation to the
fullest extent authorized by the GCL, as it may later be amended (but, in the
case of any such amendment, only to the extent such amendment permits the
corporation to provide broader indemnification or protection than was
permitted before the amendment) against all liabilities, losses, judgments,
settlements, fines, taxes, penalties, costs and expenses (including, without
limitation, attorneys' fees) reasonably incurred or suffered by such person in
connection with the proceeding (collectively "Damages"). Such indemnification
may continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of his or her heirs, executors and
administrators. Notwithstanding the foregoing, the corporation shall indemnify
any such person seeking indemnity in connection with an action, suit or
proceeding (or part thereof) initiated by such person only if such action,
suit or proceeding (or part thereof) was authorized by the board of directors
of the corporation. The right of indemnification set forth in this Paragraph A
shall be a
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contract right. It shall include the right to be paid expenses incurred in
defending any such proceeding in advance of its final disposition, provided
that the payment of such expenses incurred by a director or officer of the
corporation in his or her capacity as a director or officer (and not otherwise
as a consequence of service as a director or officer including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of such proceeding shall be made only upon delivery to the
corporation of an undertaking, by or on behalf of the director or officer, to
repay all amounts so advanced if it should ultimately be determined that the
director or officer is not entitled to be indemnified under this Paragraph A
or otherwise.
B. Right of Claimant to Bring Suit
If a claim under Paragraph A of this Article SEVENTH is not paid in full by
the corporation within 90 days after the claim has been received by the
corporation in writing, the claimant at any time thereafter may bring suit
against the corporation to recover the unpaid amount of the claim. If
successful, in whole or in part, the claimant shall also be entitled to be
paid the expenses incurred in prosecuting the claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any, has been tendered to the corporation) that
the claimant has not met the standards of conduct which make it permissible
under the GCL and Paragraph A of this Article SEVENTH for the corporation to
indemnify the claimant for the amount claimed. The burden of proving such
defense shall be on the corporation. Neither the failure of the corporation
(including its board of directors, independent legal counsel or its
stockholders) to have made a determination before the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standards of conduct set forth in the
GCL and Paragraph A of this Article SEVENTH, nor an actual determination by
the corporation (including its board of directors, independent legal counsel
or its stockholders) that the claimant has not met such standards of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the standards of conduct.
C. Non-Exclusivity of Rights
The rights conferred on any person by Paragraphs A and B of this Article
SEVENTH shall not be exclusive of any other right that such person may have or
acquire under any statute, provision of the Certificate of Incorporation, by-
law, agreement, vote of stockholders or disinterested directors, or otherwise.
D. Insurance
The corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the corporation against any
Damages. It may do so whether or not the corporation has the power to
indemnify such Person against such Damages.
Eighth. The corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner now or hereafter
prescribed by statute.
All rights conferred upon the corporation's stockholders are granted subject
to this reservation.
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APPENDIX B
Dillon, Read & Co. Inc.
555 California Street, Suite 4950
San Francisco, Ca 94104
415-296-7900
Fax 415-296-8956
February 8, 1996
Special Committee of the Board of Directors
Levi Strauss Associates Inc.
1155 Battery Street
7th Floor
San Francisco, CA 94111
Ladies and Gentleman:
You have advised us that, pursuant to an Agreement and Plan of Merger (the
"Agreement") to be dated as of February 8, 1996 by and among Levi Strauss
Associates Inc. (the "Company"), LSAI Holdings Corp. ("Holdings") and LSAI
Acquisition Corp., a wholly-owned subsidiary of Holdings ("Acquisition Corp."),
Acquisition Corp. will be merged with and into the Company (the "Merger"), and
the Company will become a wholly-owned subsidiary of Holdings. You have further
advised us that, pursuant to the Merger, each outstanding share of Class E
Common Stock, par value $0.10 per share, of the Company ("Class E Shares") and
each outstanding share of Class L Common Stock, par value $0.10 per share, of
the Company (other than shares held by or being reinvested in Holdings) ("Class
L Shares," together with the Class E Shares, the "Shares") will be converted
into the right to receive $265 in cash (the "Merger Consideration"). You have
requested our opinion as to whether the Merger Consideration to be paid
pursuant to the Merger is fair to the holders of the Shares (the "Recipient
Shareholders"), from a financial point of view, as of the date hereof.
In arriving at our opinion, we have, among other things: (i) reviewed certain
publicly available business and financial information relating to the Company,
(ii) reviewed certain internal financial information and other data provided to
us by the Company relating to the business and prospects of the Company,
including financial projections prepared by the management of the Company;
(iii) reviewed independent valuations prepared by Morgan Stanley & Co.
Incorporated and Lehman Brothers Inc., whose independent valuations (the "Third
Party Valuations") were discussed with representatives of such firms; (iv)
conducted discussions with members of the senior management of the Company and
Board of Directors; (v) reviewed a preliminary draft of the Agreement provided
to us; (vi) reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions which we considered relevant; (vii) reviewed
publicly available financial and securities market data pertaining to certain
publicly-held companies in lines of business we considered to be generally
comparable to those of the Company; and (viii) conducted such other financial
studies, analyses and investigations, and considered such other information as
we deemed necessary and appropriate.
In connection with our review, with your consent, we have not assumed any
responsibility for independent verification of any of the foregoing
information. Except to the extent that we independently prepared and utilized
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Dillon, Read & Co. Inc.
for the analysis underlying this opinion certain modified financial
projections based on and in partial reliance upon management projections and
other diligence, including discussions with management, we have, with your
consent, relied upon the information described in the preceding paragraph
being complete and accurate in all material respects. We have not been
requested to and have not made an independent evaluation or appraisal of any
assets or liabilities (contingent or otherwise) of the Company or any of its
subsidiaries, nor have we been furnished with any such evaluation or
appraisal. Further, we have assumed, with your consent, that all of the
information, including the projections provided to us by the Company's
management and the Third Party Valuations, was prepared in good faith and on a
basis reflecting the best currently available estimates and judgments of the
Company's management as to the future financial performance of the Company,
and the assumptions underlying such projections were viewed by management as
being reasonable at the time made. In addition we have not been asked to, and
do not, express any opinion as to the after-tax consequences of the
Merger to any Receiving Shareholder. In addition, our opinion is based on
economic, monetary and market conditions existing on the date hereof.
We have not been authorized by the Special Committee of the Board of
Directors to solicit, nor have we solicited, third party indications of
interest for the acquisition of all or any part of the Company. Additionally,
we have not been asked to pass upon, and express no opinion with respect to,
any matter other than the fairness from a financial point of view of the
Merger Consideration to be received by the Receiving Shareholders pursuant to
the Merger.
In rendering this opinion, we are not rendering any opinion as to the value
of the Company as a whole or making any recommendation to the Receiving
Shareholders with respect to the advisability of voting in favor of the
Merger.
Dillon, Read & Co. Inc. ("Dillon Read"), as part of its investment banking
business, is engaged in the business of providing financial advisory services
with regard to mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed securities and private placements.
Dillon Read has received a fee for rendering this opinion.
This opinion is being rendered to the Special Committee of the Board of
Directors of the Company for its use in evaluating the Merger.
Based upon and subject to the foregoing, we are of the opinion that the
Merger Consideration to be received in the Merger by the Receiving
Shareholders is fair to the Receiving Shareholders, from a financial point of
view, as of the date hereof.
Very truly yours,
DILLON, READ & CO. INC.
/s/ Anthony B. Helfet
-------------------------------------
By: Anthony B. Helfet
Managing Director
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APPENDIX C
SUMMARY OF APPRAISAL RIGHTS
Terms used herein without definition shall have the meanings assigned
thereto in the Information Statement.
Stockholders are entitled to appraisal rights under Section 262 of the DGCL
("Section 262"). Section 262 is reprinted in its entirety following this
summary in Appendix C. A person having a beneficial interest in Shares that
are held of record in the name of another person, such as a broker or nominee,
must act promptly to cause the record holder to follow the steps summarized
below properly and in a timely manner to perfect whatever appraisal rights the
beneficial owner may have.
The following discussion is not a complete statement of the law relating to
appraisal rights and is qualified in its entirety by reference to Section 262.
This discussion and Section 262 should be reviewed carefully by any
stockholder who wishes to exercise statutory appraisal rights or who wishes to
preserve the right to do so, since failure to comply with the procedures set
forth herein or therein will result in the loss of appraisal rights.
Stockholders of record who desire to exercise their appraisal rights must
satisfy all of the following conditions. Stockholders cannot have consented in
writing to the Merger. Participants in the Plans will not exercise appraisal
rights with respect to any Shares held for their stock fund accounts in the
Plans. Under Delaware law, the trustee of the Plans, who is the record holder
of those Shares, has the exclusive right to exercise appraisal rights and,
under the provisions of the Plans, the trustee will be directed by the
Investment Committee in making this decision. Participants in the ESAP,
however, are stockholders of record and are entitled to exercise appraisal
rights.
A written demand for appraisal of such stockholder's Shares must be
delivered to LSAI at the address set forth below within 20 days of the date on
which LSAI mails notice to such stockholder of the approval of the Merger and
the effective date of the Merger. The Company intends to mail notice of the
Merger to stockholders as soon as practicable following the Effective Time.
The demand for appraisal must be executed by or for the stockholder of record,
fully and correctly, as such stockholder's name appears on the Certificate or
Certificates representing such stockholder's Shares. If the Shares are owned
of record in a fiduciary capacity, such as by a trustee, guardian, or
custodian, such demand must be executed by the fiduciary. If the Shares are
owned of record by more than one person, as in a joint tenancy or tenancy in
common, such demand must be executed by or for all record owners. An
authorized agent, including an agent for two or more record owners, may
execute the demand for appraisal for a stockholder of record; however, the
agent must identify the record owner and expressly disclose the fact that, in
exercising the demand, such person is acting as agent for the record owner.
A record owner, such as a broker, who holds Shares as a nominee for others,
may exercise appraisal rights with respect to the Shares held for all or less
than all beneficial owners of Shares as to which such person is the record
owner. In such cases the written demand for appraisal must set forth the
number of Shares covered by such demand. Where the number of Shares is not
expressly stated, the demand will be presumed to cover all Shares outstanding
in the name of such record owner. Beneficial owners who are not record owners
and who intend to exercise appraisal rights should instruct their record
owners to comply strictly with the statutory requirements with respect to the
exercise of appraisal rights.
A Stockholder who elects to exercise appraisal rights must mail or deliver
his or her written demand to:
Levi Strauss Associates Inc.
Levi's Plaza
1155 Battery Street
San Francisco, CA 94111
Attention: Nita Sobejana
The written demand for appraisal must specify the stockholder's name and
mailing address, the number of Shares owned, and that the stockholder is
thereby demanding appraisal of his or her Shares.
Within 120 days after the date on which the Merger becomes effective (the
"Merger Date") any stockholder who has complied with the required conditions
of Section 262 may file a petition in the Delaware Court of
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Chancery (the "Delaware Chancery Court") demanding a determination of the fair
value of the Shares of all stockholders who have so complied with such
conditions. If a petition for an appraisal is timely filed, after a hearing on
such petition, the Delaware Chancery Court will determine which stockholders
are entitled to appraisal rights and will appraise the Shares owned by such
stockholders, determining the fair value of such Shares, exclusive of any
element of value arising from the accomplishment or expectation of the Merger,
together with a fair rate of interest, if any, to be paid upon the amount
determined to be the fair value. In determining fair value, the Delaware
Chancery Court is to take into account all relevant factors. In Weinberger v.
UOP, Inc., et al., decided February 1, 1983, the Delaware Supreme Court, in
discussing the considerations that could be taken into account in determining
fair value in an appraisal proceeding, stated that "proof of value by any
techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered
and that "fair price obviously requires consideration of all relevant factors
involving the value of a company." The Delaware Supreme Court stated that in
making this determination of fair value the court must consider market value,
asset value, dividends, earnings prospects, the nature of the enterprise and
any other facts which could be ascertained as of the date of the merger which
throw any light on future prospects of the merged corporation. Section 262
provides that fair value is to be "exclusive of any element of value arising
from the accomplishment or expectation of the merger." In Weinberger, the
Delaware Supreme Court construed Section 262 to mean that "elements of future
value, including the nature of the enterprise, which are known or susceptible
of proof as of the date of the merger and not the product of speculation may
be considered."
Within 120 days after the Merger Date, any stockholder who has complied with
the requirements for exercise of appraisal rights as discussed above and
stated in Section 262 is entitled, upon written request, to receive from LSAI
a statement setting forth the aggregate number of Shares not voted in favor of
the Merger and with respect to which demands for appraisal have been received
and the aggregate number of holders of such Shares. Such statement must be
mailed within 10 days after the written request therefor has been received by
LSAI or, if later, within 10 days after the expiration of the period for
delivery to LSAI of appraisal demands.
STOCKHOLDERS CONSIDERING SEEKING APPRAISAL SHOULD HAVE IN MIND THAT THE FAIR
VALUE OF THEIR SHARES DETERMINED UNDER SECTION 262 COULD BE MORE THAN, THE
SAME AS OR LESS THAN THE CONSIDERATION THEY ARE TO RECEIVE PURSUANT TO THE
MERGER IF THEY DO NOT SEEK APPRAISAL OF THEIR SHARES. STOCKHOLDERS PURSUING
DISSENTERS' RIGHTS WILL NOT RECEIVE ANY PAYMENT FOR THEIR SHARES UNTIL
CONCLUSION OR SETTLEMENT OF THE APPLICABLE COURT PROCEEDINGS BUT WOULD RECEIVE
INTEREST THEREON AT THE TIME OF JUDGMENT. The cost of the appraisal proceeding
may be determined by the Delaware Chancery Court and assessed against such
parties as the Delaware Chancery Court deems equitable in the circumstances.
Upon application of a dissenting stockholder, the Delaware Chancery Court may
order that all or a portion of the expenses incurred by any dissenting
stockholder in connection with the appraisal proceeding, including without
limitation reasonable attorneys' fees and the fees and expenses of experts, be
charged pro rata against the value of all Shares entitled to appraisal.
Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, after the Merger Date, be entitled to vote for any purpose the
Shares subject to such demand or to receive any dividends or other
distributions on such Shares, except for any dividends or distributions
payable to stockholders of record at a date prior to the Merger Date.
At any time within 60 days after the Merger Date, any stockholder will have
the right to withdraw his or her demand for appraisal and to accept the terms
offered pursuant to the Merger; after this period, the stockholder may
withdraw such stockholder's demand for appraisal only with the consent of LSAI
as the Surviving Corporation. If no petition for appraisal is filed with the
Delaware Chancery Court within 120 days after the Merger Date by any
stockholder who has demanded appraisal, such stockholder's rights to appraisal
will cease, and such stockholder will be entitled to receive the Merger
Consideration. Inasmuch as LSAI has no obligation to file such a petition, and
has no present intention to do so, any stockholder who desires such a petition
to be filed is advised to file it on a timely basis. No petition timely filed
in the Delaware Chancery Court demanding appraisal shall be dismissed as to
any stockholder without the approval of the Delaware Chancery Court, and such
approval may be conditioned upon such terms as the Delaware Chancery Court
deems just.
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SECTION 262 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE
(S) 262. Appraisal Rights.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (S) 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a nonstock corporation; the words
"stock" and "share" mean and include what is ordinarily meant by those words
and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S) 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) or (g) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their
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shares have not been reached by the surviving or resulting corporation. If the
petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and place
fixed for the hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on the list
at the addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the
C-5
<PAGE>
written approval of the corporation, then the right of such stockholder to an
appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
C-6
<PAGE>
APPENDIX D
CERTAIN INFORMATION REGARDING DIRECTORS
AND EXECUTIVE OFFICERS OF
LSAI, HOLDINGS AND MERGER SUB
Terms used herein without definition shall have the meanings assigned thereto
in the Information Statement.
DIRECTORS AND EXECUTIVE OFFICERS OF
LEVI STRAUSS ASSOCIATES INC.
The table below identifies the current directors and executive officers of
LSAI, along with their offices, positions and ages. All such persons are
citizens of the United States of America.
<TABLE>
<CAPTION>
NAME* AGE OFFICE AND POSITION
----- --- -------------------
<C> <C> <S>
Peter E. Haas, Sr.(1)(2)............ 77 Director, Chairman of the Executive
Committee of the Board of Directors
Robert D. Haas(1)(2)................ 53 Director, Chairman of the Board of
Directors and Chief Executive
Officer
Thomas W. Tusher(2)................. 54 Director, President and Chief
Operating Officer
Angela Glover Blackwell(2)(3)....... 50 Director
Tully M. Friedman(2)(3)............. 54 Director
James C. Gaither(2)(4).............. 58 Director
Rhoda H. Goldman(1)(2)(4)........... 71 Director
Peter E. Haas, Jr.(1)(2)(3)......... 48 Director
Walter J. Haas(1)(2)(3)............. 45 Director (Elected 11/16/95)
F. Warren Hellman(3)(4)............. 61 Director
James M. Koshland(2)(4)............. 44 Director
Patricia Salas Pineda(3)(4)......... 44 Director
Thomas J. Bauch..................... 52 Senior Vice President, General
Counsel and Secretary
R. William Eaton, Jr. .............. 52 Senior Vice President, Chief
Information Officer
Donna J. Goya....................... 48 Senior Vice President, Human
Resources
Peter A. Jacobi..................... 52 Senior Vice President, President of
Levi Strauss International
George B. James..................... 58 Senior Vice President, Chief
Financial Officer
Robert D. Rockey, Jr. .............. 54 Senior Vice President, President of
Levi Strauss North America
</TABLE>
- --------
* Walter A. Haas, Jr.(1) served as Honorary Chairman of the LSAI Board until
his death on September 20, 1995.
(1) Robert D. Haas and Walter J. Haas are the sons of Walter A. Haas, Jr.
Walter A. Haas, Jr. was the brother of Peter E. Haas, Sr. and Rhoda H.
Goldman; Peter E. Haas Sr., is the father of Peter E. Haas, Jr.
(2) Member, Corporate Ethics and Social Responsibility Committee
(3) Member, Audit Committee
(4) Member, Personnel Committee
Directors are divided into three classes of equal number. All directors are
elected by holders of a majority of the outstanding shares of LSAI 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. J. Haas, Mr. Hellman and Ms. Pineda and the term of
office expires at the 1997 annual meeting. Mr. W. J. Haas replaced Walter A.
Haas, Jr. as a director in November, 1995 upon the death of Walter A. Haas,
Jr. The third class consists of Mr. Tusher, Mr. P. E. Haas, Sr., Mr. Gaither
and Mr. Koshland and the term of office expires at the 1998 annual meeting of
stockholders.
D-1
<PAGE>
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 LSAI. Executive officers serve at the discretion of the Board of
Directors.
All members of the Haas family and Mrs. Goldman are descendants of the
founder of LS&CO., Levi Strauss.
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 LSAI 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 LSAI since
its inception in 1985.
Mr. P.E. Haas, Sr. is a former Associate of the Smithsonian National Board
and a former 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 LSAI and LS&CO. in March 1989. Since 1984, he has served as Chief
Executive Officer of LSAI and LS&CO., and was President of LSAI from its
inception in 1985 to March 1989. Since he joined LS&CO. in 1973, Mr. Haas has
served in a number of positions, including Marketing Director and Group Vice
President of Levi Strauss International ("LSI"), Director of Corporate
Marketing Development, Senior Vice President of Corporate Planning and Policy
and President of the New 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 LSAI 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, a trustee of the Evelyn
and Walter A. Haas, Jr. Fund, 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 LSAI 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. She is currently on the Board of the Foundation for
Child Development. Previously, she served as staff attorney and managing
attorney for Public Advocates, Inc. and served on the boards of Common Cause,
the James Irvine Foundation, Children Now, the Center on Budget and Policy
Priorities, and the Urban Institute. She was formerly co-chair of the
Commission for Positive Change in the Oakland Public Schools.
D-2
<PAGE>
TULLY M. FRIEDMAN, a director since 1985, has been a general 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 on the Advisory Board of Tevecap,
S.A., the Board of Directors of American President Companies, Ltd., Levi
Strauss & Co., Mattel, Inc., McKesson Corporation, and MobileMedia
Corporation, and a member of the Board of Representatives of Falcon Holding
Group, L.P. Mr. Friedman is a member of the Executive Committee and a Trustee
of the American Enterprise Institute, a director of the Stanford Management
Company, and a Director of Nueva School. He is also 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.
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., Amylin Pharmaceuticals Inc. and
several non-profit corporations 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 President of the Board of
Directors of Red Tab Foundation and former President and current member of the
Board of Trustees of Marin Academy. Additionally, he is director of the
following boards: Levi Strauss Foundation and The Stern Grove Festival
Foundation; honorary director of the Novato Youth Center (former President);
and trustee of the Walter and Elise Haas Fund. He was formerly on the boards
of Vassar College and North Bay Bancorp.
WALTER J. HAAS was elected to the Board in November, 1995. He served as
Chairman and Chief Executive Officer of the Oakland A's Baseball Company since
January 1, 1993 after holding the title of President and Chief Executive
Officer for two years. Mr. Haas, 45, has also served as the club's Executive
Vice President for seven years (1980-87) and then as the Chief Operating
Officer for two seasons (1988-89). Mr. Haas currently serves as the Vice
Chairman of the Board of Trustees of the Marin County Day School and is a
trustee for the Evelyn and Walter A. Haas, Jr. Fund and Elise and Walter Haas
Fund. He is a former Director of the Major League Promotions Corporation,
United States International Sports Committee, and was honorary Chairman of the
San Francisco Chapter of the Legal Assistance to the Elderly, Inc. Prior to
joining the Athletics, Mr. Haas served as Grants Manager for Levi Strauss &
Co. He also served as business manager for Sons of Champlin, Inc. and as
President of Goldmine Records.
D-3
<PAGE>
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 a 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, Eller Media Company and University
of California San Francisco (UCSF) Foundation. He is a trustee of the
Brookings Institution and The San Francisco Foundation
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 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.
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 the
James Irvine Foundation, the Oakland Museum 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, the San
Francisco Ballet Association and the Mills College Board of Trustees.
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 LSAI 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
LSAI 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
D-4
<PAGE>
Corporation. Mr. James is a director of Basic Vegetable Products, Inc.,
Fiberboard Corp., Crown Vantage, Inc., the World Affairs Council, California
Pacific Medical Center Foundation and the 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 the 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.
D-5
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF LSAI HOLDING CORP.
The current directors of LSAI Holding Corp. are Robert D. Haas and F. Warren
Hellman. Mr. Haas is the President and Secretary of LSAI Holding Corp.
Biographical information regarding Messrs. Haas and Hellman is included under
the subcaption "Directors and Executive Officers of Levi Strauss Associates
Inc." in this Appendix D.
D-6
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF LSAI ACQUISITION CORP.
The current directors of LSAI Acquisition Corp. are Robert D. Haas and F.
Warren Hellman. Mr. Haas is the President and Secretary of LSAI Acquisition
Corp. Biographical information regarding Messrs. Haas and Hellman is included
under the subcaption "Directors and Executive Officers of Levi Strauss
Associates Inc." in this Appendix D.
D-7
<PAGE>
APPENDIX E
RECENT TRANSACTIONS IN SECURITIES OF LSAI
Terms used herein without definition shall have the meanings assigned thereto
in the Information Statement.
The following table sets forth all transfers of Shares during the sixty days
prior to this filing which were effected by (i) directors of LSAI, (ii)
executive officers of LSAI and (iii) persons who beneficially own more than
five percent of the Shares. None of the transfers involved consideration, all
were effected pursuant to privately negotiated transactions and all were made
to permitted transferees under the Class L Stockholders' Agreement.
STOCK TRANSFER ACTIVITY(1)
<TABLE>
<CAPTION>
DATE OF # OF SHARES
TRANSFEROR TRANSFER TRANSFERRED TRANSFEREE
- ---------- -------- ----------- ------------------------------------
<S> <C> <C> <C>
Thomas W. Tusher................. 12/8/95 127 Tusher Family 1988 Irrevocable Trust
UAD 3/4/88, D.G. Menchetti, Trustee
FBO Gregory Malcolm Tusher
12/8/95 127 Tusher Family 1988 Irrevocable Trust
UAD 3/4/88, D.G. Menchetti, Trustee
FBO Michael Scott Tusher
2/6/96 40,000 The San Francisco Foundation
Rhoda H. Goldman................. 12/22/95 20,000(2) The Jewish Community Federation
Robert D. Haas................... 12/22/95 15,000 The San Francisco Foundation
Peter E. Haas, Sr. .............. 12/27/95 14,000 The San Francisco Foundation
12/27/95 14,000 The Jewish Community Federation
Peter E. Haas, Jr. .............. 1/22/96 2,000(3) The Marin Community Foundation
1/22/96 1,200(3) The Marin Community Foundation
1/24/96 4,000 The Marin Community Foundation
Peter A. Jacobi.................. 1/19/96 2,000 The San Francisco Foundation
Josephine B. Haas................ 1/22/96 40,000 The Marin Community Foundation
1/22/96 8,000 The San Francisco Foundation
Frances K. Geballe............... 1/22/96 10,000(4) Board of Trustees of the Leland
Stanford Junior University
1/22/96 10,000(4) University of California Berkeley
Foundation
1/22/96 10,000 The San Francisco Foundation
1/22/96 10,000 The Jewish Community Federation
1/22/96 10,000 Board of Trustees of the Leland
Stanford Junior University
1/22/96 10,000 University of California Berkeley
Foundation
Margaret E. Jones................ 1/22/96 8,000 The San Francisco Foundation
Daniel E. Koshland, Jr. ......... 1/23/96 100,000 The San Francisco Foundation
James M. Koshland................ 1/23/96 4,500 The San Francisco Foundation
Thomas J. Bauch.................. 1/23/96 2,000 The San Francisco Foundation
F. Warren Hellman................ 1/24/96 18,814(5) The San Francisco Foundation
1/24/96 28,586(5) The Jewish Community Federation
Tully M. Friedman................ 1/25/96 25,000(6) Ann Fay Barry
1/25/96 5,200(7) John S. Osterweis, Trustee of the
Friedman Irrevocable Trust UAD
2/14/90
Rhoda H. Goldman 1991............ 2/5/96 108,171 Rhoda H. Goldman
Trust Donald H. Seiler &
Theodore A. Hellman,
Trustees
The Richard N. Goldman........... 2/5/96 129,831 Richard N. Goldman(8)
1995 Trust Donald H.
Seiler & Theodore A.
Hellman, Trustees UAD
5/2/95
</TABLE>
- -------
(1) This Table does not reflect transfers which did not affect the beneficial
ownership of the transferred shares. In addition, this Table does not
reflect the purchase by LSAI during December 1995 and January 1996 of 796
Class E Shares from former employees upon the termination of their
employment with LSAI. LSAI paid $157 for each share so purchased. The share
purchases were initiated prior to December 20, 1995, the date the Company
froze activity in the ESAP.
(2) These shares were jointly owned by Mrs. Goldman and her husband.
(3) These shares were held by Mr. Haas' children.
(4) These shares were held by Mrs. Geballe's husband.
(5) These shares were held in certain trusts.
(6) These shares were held by Cherry Street Partners.
(7) These shares were held by the Friedman Family Partnership.
(8) Rhoda H. Goldman is deemed to have beneficial ownership of these shares.
