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Filed pursuant to Rule 424(b)(1)
Registration No. 333-11115
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TRANS OCEAN LTD
LOGO CONSENT SOLICITATION STATEMENT LOGO
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TRANSAMERICA CORPORATION
PROSPECTUS
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This Consent Solicitation Statement/Prospectus is being furnished to
holders of common stock, $0.001 par value per share ("TOL Common Stock"), of
Trans Ocean Ltd, a Delaware corporation ("TOL"; as used in this Consent
Solicitation Statement/Prospectus, unless the context otherwise requires, "TOL"
shall mean TOL and its subsidiaries), and to holders of preferred stock, Series
B, $.001 par value per share, of TOL ("TOL Preferred Stock," and, with TOL
Common Stock, "TOL Stock") in connection with the solicitation by the Board of
Directors of TOL for the written consent (each a "Consent"; and, collectively,
the "Consents") of TOL stockholders (the "Action by Written Consent"). Holders
of TOL Common Stock ("TOL Common Stockholders") and holders of TOL Preferred
Stock ("TOL Preferred Stockholders" and, together with TOL Common Stockholders,
the "TOL Stockholders") as of the close of business on the Record Date (as
defined herein) are being asked to consider and vote on a proposal to approve
and adopt the Agreement and Plan of Merger, dated as of July 24, 1996, as
amended by the Letter Agreement dated August 21, 1996, and Amendment No. 1 to
the Agreement and Plan of Merger dated October , 1996 (subject with respect to
certain provisions thereof to the unanimous approval by the TOL Common
Stockholders) ("Amendment No. 1"), in each case by and among Transamerica
Corporation, a Delaware corporation ("Transamerica"), Citation Sub Corp., a
Delaware corporation and a wholly owned direct subsidiary of Transamerica
("Subcorp"), TOL, Greer M. Arthur ("Arthur"), Marvin D. Dennis, in his
individual capacity ("Mr. Dennis") and as trustee, and Nancy A. Dennis, as
trustee (with Mr. Dennis, "Dennis") (the "Merger Agreement"), providing for the
merger of Subcorp and TOL (the "Merger"). Upon consummation of the Merger on the
terms set forth in the Merger Agreement, (i) TOL will become a wholly owned
subsidiary of Transamerica, (ii) TOL Common Stockholders will be entitled to
receive a number of shares of Transamerica common stock, $1.00 par value per
share ("Transamerica Common Shares"), for each outstanding share of TOL Common
Stock held by them (with cash in lieu of fractional shares) as determined
pursuant to a share exchange formula set forth in the Merger Agreement and as
more fully described below and (iii) TOL Preferred Stockholders will be entitled
to receive a number of Transamerica Common Shares for each outstanding share of
TOL Preferred Stock held by them (with cash in lieu of fractional shares) as
determined pursuant to a share exchange formula set forth in the Merger
Agreement and more fully described below.
This Consent Solicitation Statement/Prospectus also constitutes the
Prospectus of Transamerica with respect to the 1,676,685 Transamerica Common
Shares to be issued in the Merger in exchange for the outstanding shares of TOL
Stock. Transamerica Common Shares are quoted on the New York Stock Exchange (the
"NYSE") and the Pacific Stock Exchange (the "PSE") under the symbol "TA." On
October 7, 1996, the closing price of Transamerica Common Shares on the NYSE was
$73.00. TOL Stockholders should obtain current quotes for the Transamerica
Common Shares.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS CONSENT SOLICITATION
STATEMENT/PROSPECTUS HAVE 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 ACCURACY OR ADEQUACY OF
THIS CONSENT SOLICITATION STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
All information contained in this Consent Solicitation Statement/Prospectus
with respect to Transamerica has been supplied by Transamerica. All information
contained in this Consent Solicitation Statement/ Prospectus with respect to TOL
has been supplied by TOL.
This Consent Solicitation Statement/Prospectus and the form of Action by
Written Consent are first being mailed to TOL Stockholders on or about October
, 1996. Consents that are properly executed and returned to TOL will be
considered Action by Written Consent of TOL Stockholders. A TOL Stockholder may
revoke his/her Consent by a writing received by TOL prior to the time that
Consents of the number of shares required to authorize the Action by Written
Consent have been filed with TOL, but may not do so thereafter.
------------------------
The date of this Consent Solicitation Statement/Prospectus
is October 8, 1996.
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS CONSENT SOLICITATION
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION
IN WHICH OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS CONSENT
SOLICITATION STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF TRANSAMERICA COMMON
SHARES MADE HEREUNDER WILL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF TRANSAMERICA OR TOL SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME AFTER
THE DATE HEREOF.
AVAILABLE INFORMATION
Transamerica is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Transamerica meets the
requirements of Form S-3 under the Securities Act of 1933, as amended (the
"Securities Act"). Such reports, proxy statements and other information filed by
Transamerica with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at its principal office at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the following
Regional Offices of the Commission: New York Regional Office, 7 World Trade
Center, 13th Floor, New York, New York 10048; Los Angeles Regional Office, 5670
Wilshire Boulevard, Suite 1100, Los Angeles, California 90036; and Chicago
Regional Office, Citicorp Center, 500 West Madison, Suite 1400, Chicago,
Illinois 60661. Copies of such material can also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Transamerica makes its filings with the Commission
electronically. The Commission maintains a site on the Internet that contains
reports, proxy and information statements and other information regarding
registrants that file electronically (http://www.sec.gov). Transamerica Common
Shares are listed on the NYSE and the PSE, and such reports, proxy statements
and other information concerning Transamerica are available for inspection and
copying at the offices of the NYSE, 20 Broad Street, New York, New York 10005;
and at the offices of the PSE, 233 Beaudry Avenue, Los Angeles, California 90014
and 301 Pine Street, San Francisco, California 94104. The TOL Common Stock and
the TOL Preferred Stock are not publicly traded.
Transamerica has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to Transamerica Common Shares to be
issued in the Merger (the "Registration Statement"). This Consent Solicitation
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Reference is hereby made to the
Registration Statement and related exhibits for further information with respect
to Transamerica and the securities offered hereby. Statements contained herein
concerning the provisions of any document are necessarily summaries of such
documents and each such statement is qualified in its entirety by reference to
the copy of the applicable document attached as an annex or exhibit hereto.
TOL is not currently subject to the informational requirements of the
Exchange Act. However, Trans Ocean Container Corporation, a wholly owned
subsidiary of TOL ("TOCC"), has issued public debt and, pursuant to the terms of
its indenture agreement, has agreed to file reports under the Exchange Act.
i
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The following documents of Transamerica are included herein as annexes to
this Consent Solicitation Statement/Prospectus:
Annex C -- Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 ("Transamerica Annual Report"), as filed with the
Commission on March 26, 1996.
Annex D -- Quarterly Reports on Form 10-Q for the quarters ended March
31, 1996 and June 30, 1996, as filed with the Commission on May 10, 1996
and August 9, 1996, respectively.
Annex E -- Transamerica Proxy Statement dated March 18, 1996 for its
Annual Meeting of Stockholders held on April 25, 1996, filed with the
Commission on March 19, 1996.
ii
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TABLE OF CONTENTS
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SUMMARY............................... 1
The Companies....................... 1
TOL.............................. 1
Transamerica..................... 1
Action by Written Consent of TOL
Stockholders..................... 1
Action by Written Consent........ 1
Record Date...................... 2
Vote Required.................... 2
Availability of Dissenters'
Rights......................... 2
The Merger.......................... 2
Exchange Ratios.................. 2
Merger Consideration
Adjustment..................... 4
Escrow Funds..................... 4
TOL Options...................... 6
Effective Time of the Merger;
Closing Date................... 6
Conditions to Consummation of the
Merger......................... 6
Reasons for the Merger;
Recommendation of the TOL Board
of Directors................... 6
Interests of Certain Persons in
the Merger..................... 6
Exchange Procedures.............. 7
Support/Voting Agreements........ 7
Kantz Approval Proposal............. 7
Certain Federal Income Tax
Consequences..................... 7
Comparison of Stockholder Rights.... 7
Summary Historical Financial
Information...................... 8
TOL Summary Historical Financial
Information.................... 8
Transamerica Summary Historical
Financial Information.......... 9
COMPARATIVE PER SHARE DATA............ 10
MARKET PRICE AND DIVIDEND DATA........ 11
ACTION BY WRITTEN CONSENT OF TOL
STOCKHOLDERS........................ 12
General.......................... 12
Matters to be Considered......... 12
Record Date; Vote Required;
Action by Written Consent...... 12
THE MERGER............................ 14
Background of the Merger......... 14
Reasons for the Merger;
Recommendation of the Board of
Directors of TOL............... 14
Interests of Certain Persons in
the Merger..................... 15
Accounting Treatment............. 16
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Regulatory Approvals............. 16
Federal Securities Law
Consequences................... 16
Support/Voting Agreements........ 17
THE MERGER AGREEMENT.................. 18
The Merger....................... 18
Merger Consideration............. 18
Merger Consideration
Adjustment..................... 20
Escrow Funds..................... 20
Amendment No. 1 Escrow
Provisions..................... 22
Exchange Procedures.............. 22
Representations and Warranties... 23
Covenants........................ 24
Conduct of Business of TOL
Pending the Merger............. 25
No Solicitation.................. 26
Conditions....................... 26
Indemnification.................. 27
Termination; Effect of
Termination.................... 29
Amendment and Waiver............. 30
Expenses......................... 30
KANTZ APPROVAL PROPOSAL............... 31
RIGHTS OF DISSENTING TOL
STOCKHOLDERS........................ 33
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES........................ 35
THE COMPANIES......................... 38
Business of TOL.................. 38
Products and Fleet Information... 38
Customers........................ 38
Sales and Marketing.............. 39
Container Financing.............. 39
Operations....................... 40
Suppliers........................ 41
Competition...................... 41
Business of Transamerica......... 41
SELECTED CONSOLIDATED FINANCIAL DATA
OF TOL.............................. 43
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF TOL................ 44
General.......................... 44
Results of Operations............ 45
Income Taxes..................... 47
Liquidity and Capital
Resources...................... 48
COMPARISON OF STOCKHOLDER RIGHTS...... 51
Amendment of Certificates of
Incorporation.................. 51
Amendment and Repeal of
By-Laws........................ 51
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Size and Election of the Board of
Directors...................... 51
Removal of Directors............. 51
Vacancies on the Board........... 52
Right to Call Special Meetings of
Stockholders................... 52
Stockholder Action Without a
Meeting........................ 52
Class Voting..................... 52
Cumulative Voting................ 53
Provisions Affecting Control
Share Acquisitions and Business
Combinations................... 53
Mergers, Acquisitions and Certain
Other Transactions............. 53
Rights of Dissenting
Stockholders................... 53
Dividends........................ 53
Preemptive Rights of
Stockholders................... 54
Director Liability and
Indemnification................ 54
DESCRIPTION OF TRANSAMERICA CAPITAL
STOCK............................... 55
EXPERTS............................... 55
LEGAL MATTERS......................... 55
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS OF TRANS OCEAN LTD AND
SUBSIDIARIES........................ F-1
PAGE
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ANNEXES:
A -- Agreement and Plan of Merger,
dated as of July 24, 1996;
Letter Agreement dated August
21, 1996; and Amendment No. 1 to
the Agreement and Plan of Merger
dated October , 1996, in each
case, among Transamerica
Corporation, Citation Sub Corp.,
Trans Ocean Ltd, Greer M.
Arthur, Marvin D. Dennis (in his
individual capacity and as
trustee) and Nancy A. Dennis (as
trustee)........................ A-1
B -- Section 262 of the Delaware
General Corporation
Law -- Appraisal Rights......... B-1
C -- Transamerica Annual Report on
Form 10-K.......................
D1 -- Transamerica Quarterly Report on
Form 10-Q for First Quarter of
1996............................
D2 -- Transamerica Quarterly Report on
Form 10-Q for Second Quarter of
1996............................
E -- Transamerica Proxy Statement
dated March 18, 1996............
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Consent Solicitation Statement/Prospectus and the Annexes hereto. This
summary is not intended to be complete and is qualified in its entirety by the
more detailed information and financial statements appearing elsewhere in this
Consent Solicitation Statement/Prospectus and the annexes hereto. TOL
Stockholders are urged to read and consider carefully all of the information
contained in this Consent Solicitation Statement/Prospectus, including the
Annexes.
THE COMPANIES
TOL
TOL owns, leases-in and manages a variety of maritime container and
equipment types, including dry cargo, open top and refrigerated containers,
tanks, flat racks and chassis. TOL leases containers primarily to shipping
companies for use in world trade, on a long-term basis, and on a master lease or
short-term rental basis at higher daily rates. The worldwide container industry
standard for expressing quantities of containers is the 20-foot equivalent unit
or "TEU." At December 31, 1995, TOL's fleet totalled approximately 274,000 TEUs,
of which 129,000 were either owned or leased-in and the remaining 145,000 were
managed on behalf of third-party investors. TOL has over 300 customers and
manages its fleet through 12 offices worldwide, utilizing independently owned
and operated depots and agents in more than 200 locations. TOL's principal
offices are located at 851 Traeger Avenue, San Bruno, California 94066 and its
telephone number is (415) 871-6600. See "The Companies -- Business of TOL."
TRANSAMERICA
Transamerica is one of the world's largest financial services companies,
providing specialized financial and life insurance products and services to
individuals and organizations. Transamerica engages through its subsidiaries in
life insurance, consumer lending, commercial lending, container and other
leasing and real estate services. At December 31, 1995, Transamerica had
consolidated assets of approximately $48,000,000,000, and total stockholders'
equity of approximately $4,300,000,000. The principal executive offices of
Transamerica are located at 600 Montgomery Street, San Francisco, California
94111, and its telephone number is (415) 983-4000.
ACTION BY WRITTEN CONSENT OF TOL STOCKHOLDERS
ACTION BY WRITTEN CONSENT
The Consent is being solicited for the following purposes:
(i) To approve and adopt the Merger Agreement (the "TOL Merger
Proposal") pursuant to which, among other things, (a) Subcorp will be
merged with and into TOL, or, under certain circumstances, TOL will be
merged with and into Subcorp, in either event with the result that TOL will
become a wholly owned subsidiary of Transamerica, (b) each outstanding
share (other than shares held in the treasury of TOL, if any, which will be
cancelled) of TOL Common Stock will be converted into a number of
Transamerica Common Shares as determined pursuant to the share exchange
ratio set forth in the Merger Agreement and (c) each outstanding share
(other than shares held in the treasury of TOL, if any, which will be
cancelled) of TOL Preferred Stock will be converted into a number of
Transamerica Common Shares as determined pursuant to the share exchange
ratio set forth in the Merger Agreement. The Merger Agreement is attached
to this Consent Solicitation Statement/Prospectus as Annex A.
(ii) To consider and vote on a proposal (the "Kantz Approval
Proposal") to approve the acceleration of TOL Options held by Philip C.
Kantz ("Kantz"). See "Kantz Approval Proposal" and "Action By Written
Consent of TOL Stockholders -- Matters to be Considered."
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(iii) In addition, TOL Common Stockholders are being asked to approve
separately the provisions (the "Amendment No. 1 Escrow Provisions") of
Amendment No. 1 which set forth the amount to be deposited into the Escrow
Funds (as herein defined) by each stockholder of TOL. See "Action by
Written Consent of TOL Stockholders -- Record Date; Vote Required; Action
Taken by Written Consent," "The Merger -- Escrow Funds" and "The Merger
Agreement -- Amendment No. 1 Escrow Provisions."
RECORD DATE
Only TOL Stockholders of record at the close of business on August 30, 1996
(the "Record Date"), will be entitled to vote on the matters set forth herein.
On the Record Date, there were 74,303 shares of TOL Common Stock outstanding
held by approximately 12 holders of record (which number of shares of the Common
Stock does not include 4,700 shares of TOL Common Stock issuable upon the
exercise of outstanding TOL Options (as defined herein). On the Record Date,
there were 300,107 shares of TOL Preferred Stock outstanding held by five
holders of record.
VOTE REQUIRED
The TOL Merger Proposal requires the affirmative vote of each of (i) the
holders of more than 50% of the shares of TOL Common Stock outstanding and
entitled to vote thereon and (ii) the holders of more than 50% of the shares of
TOL Preferred Stock outstanding and entitled to vote thereon. As of the Record
Date, the directors and executive officers of TOL and certain of their
affiliates may be deemed to be beneficial owners of (i) approximately 73.7% of
the outstanding TOL Common Stock and (ii) approximately 93.4% of the outstanding
TOL Preferred Stock. Three TOL Stockholders (including two executive officers
who are also directors of TOL), who as of the Record Date beneficially owned in
the aggregate approximately 69.5% of the outstanding TOL Common Stock and
approximately 92.8% of the outstanding TOL Preferred Stock, have each agreed to
vote or direct the vote of all TOL Common Stock and TOL Preferred Stock over
which such person has voting control in favor of the TOL Merger Proposal. As a
result of these agreements, there will be sufficient votes cast in favor of the
TOL Merger Proposal to ensure its passage without the vote of any other TOL
Stockholders. See "Action By Written Consent of TOL Stockholders -- Record Date;
Vote Required; Action by Written Consent."
Approval of the Amendment No. 1 Escrow Provisions requires the affirmative
vote of all of the holders of shares of TOL Common Stock outstanding and
entitled to vote thereon. See "The Merger -- Escrow Funds," "The Merger
Agreement -- Amendment No. 1 Escrow Provisions" and "Action By Written Consent
of TOL Stockholders -- Record Date; Vote Required; Action by Written Consent."
AVAILABILITY OF DISSENTERS' RIGHTS
Under the Delaware General Corporation Law ("DGCL"), TOL Stockholders who
object to the Merger and do not vote in favor of the TOL Merger Proposal
("Dissenting TOL Stockholders," and such TOL Stock, "Dissenting TOL Stock") have
certain rights to dissent and demand the "fair value" of their TOL Stock. See
"Rights of Dissenting TOL Stockholders."
THE MERGER
EXCHANGE RATIOS
Pursuant to the Merger Agreement, each share of TOL Common Stock issued and
outstanding immediately prior to the Effective Time (as defined herein) will be
converted into and represent the right to receive a number of Transamerica
Common Shares (rounded to the nearest ten-thousandth of a share) equal to the
Common Exchange Ratio (as defined herein), as the same may be adjusted pursuant
to the Merger Agreement, and each share of TOL Preferred Stock issued and
outstanding immediately prior to the Effective Time will be converted into and
represent that number of Transamerica Common Shares (rounded to the nearest
ten-thousandth of a share) equal to the Preferred Exchange Ratio (as defined
herein). Transamerica
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Common Shares having a value (based on the Deemed Average Share Price, as
defined herein) of $24,200,000, and equal to a significant portion of the merger
consideration, will not be paid to the TOL Common Stockholders at the time of
consummation of the Merger but instead will be placed into escrow. The escrowed
shares will be available to satisfy indemnification obligations which may be
owing to Transamerica and to provide for adjustments in Transamerica's favor in
the merger consideration based on the age of the Containers ("Containers") and
chassis ("Chassis") owned, managed and leased-in by TOL and the size and
composition of its fleet of Containers and Chassis (see "The Merger
Agreement -- Merger Consideration Adjustment") and, to the extent not needed for
such purposes or certain other indemnification obligations, will be distributed
to the TOL Common Stockholders, other than Dissenting TOL Stockholders.
The "Common Exchange Ratio" is equal to the quotient obtained by dividing
the Per Share Amount (as defined herein) by the Deemed Average Share Price. The
Per Share Amount is equal to the quotient obtained by dividing (i) $110,700,000,
increased by the total amount of cash paid to TOL between the execution of the
Merger Agreement and the Closing (as defined herein) in order to exercise
options to purchase TOL Common Stock, and decreased by the total consideration
payable in the Merger in respect of the TOL Preferred Stock, including accrued
and unpaid dividends thereon by (ii) the number of shares of TOL Common Stock
that are issued and outstanding immediately prior to the Closing Date (as
defined herein). The Deemed Average Share Price is the average of the closing
prices of the Transamerica Common Shares as reported on the NYSE Composite Tape
on each of the last 15 trading days ending on and including the second trading
day prior to the Closing Date assuming such average is between $61.40 and
$92.10; if such average is more than $92.10, the Deemed Average Share Price
shall be $92.10, and if such average is less than $61.40, the Deemed Average
Share Price shall be $61.40. The Merger Agreement provides for the Common
Exchange Ratio to be adjusted based on certain changes in the age, size and
composition of the Containers and Chassis owned, managed and leased-in by TOL
(the "Merger Consideration Adjustment"). See "The Merger Agreement -- Merger
Consideration Adjustment." If the Merger is structured as a merger of TOL into
Subcorp with Subcorp as the Surviving Corporation (as defined herein) (see "The
Merger Agreement -- The Merger"), then the dollar amount used in the formula to
calculate the Common Exchange Ratio shall be $107,700,000 rather than
$110,700,000. References to the "Surviving Corporation" in this document refer
to the entity existing after the Merger is consummated, which entity will either
be TOL or Subcorp.
The Merger Agreement provides for the aggregate amount of Transamerica
Common Shares to be received by holders of TOL Common Stock (assuming there are
no Dissenting TOL Stockholders) at the time of consummation of the Merger to
equal the amount determined in accordance with clause (i) of the first sentence
of the preceding paragraph, adjusted by the Merger Consideration Adjustment and
reduced by the $24,200,000 of Transamerica Common Shares (valued based on the
Deemed Average Share Price) to be placed into the Escrow Funds. No Transamerica
Common Shares will be issued upon consummation of the Merger to a TOL
Stockholder who demands appraisal rights in accordance with the requirements of
Section 262(d) of the DGCL, nor will any such TOL Stockholder be entitled to
payment of any amounts deposited in the Escrow Funds. See "Rights of Dissenting
TOL Stockholders."
The "Preferred Exchange Ratio" is equal to the quotient obtained by
dividing (i) $12.50, plus any accrued but unpaid dividends on one share of TOL
Preferred Stock (which dividends will not, with respect to all outstanding
shares of TOL Preferred Stock, in the aggregate, exceed $98,475 as of the
Closing Date) by (ii) the Deemed Average Share Price. See "The Merger
Agreement -- The Merger" and "The Merger Agreement -- Merger Consideration."
Assuming that (i) all TOL Options are exercised prior to the Effective Time
with the result that an aggregate of $3,342,291.97 is paid upon exercise and
4,700 shares of TOL Common Stock are issued upon exercise thereof, making a
total of 79,003 shares of TOL Common Stock outstanding immediately prior to the
Effective Time, (ii) the Deemed Average Share Price is $70.00, (iii) the accrued
and unpaid dividends on the TOL Preferred Stock as of the Closing Date equal
$98,475, (iv) no Merger Consideration Adjustment is to be made and (v) 300,107
shares of TOL Preferred Stock are outstanding immediately prior to the Effective
Time, then (a) the Common Exchange Ratio will be 19.93 Transamerica Common
Shares for each share of TOL Common Stock and (b) the Preferred Exchange Ratio
will be .183 of a Transamerica Common Share for each share of TOL Preferred
Stock. Under the foregoing assumptions and without giving effect to the
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Amendment No. 1 Escrow Provisions, of the 19.93 Transamerica Common Shares which
may ultimately be received, a TOL Common Stockholder would receive, in respect
of each share of TOL Common Stock, 15.57 Transamerica Common Shares upon
consummation of the Merger and 4.36 Transamerica Common Shares would be
deposited in the Escrow Funds. Further, based upon the assumptions made in this
paragraph (excluding clause (iv)), each $1,000,000 Merger Consideration
Adjustment will result in a decrease or increase in the Common Exchange Ratio of
0.9%. If the Amendment No. 1 Escrow Provisions are unanimously approved, TOL
Stockholders who own their shares as a result of the exercise of TOL Options
after July 24, 1996 would receive, in respect of each share of TOL Common Stock,
18.31 Transamerica Common Shares upon consummation of the Merger and 1.62
Transamerica Common Shares would be deposited in the Adjustment Escrow Fund, the
amounts to be received by Arthur and Dennis upon consummation of the Merger and
to be deposited into the Escrow Funds would be correspondingly adjusted to make
up the aggregate reduction in the Transamerica Common Shares resulting from the
effect of the Amendment No. 1 Escrow Provisions on Optionee Stockholders, and
the amounts to be received upon consummation of the Merger and to be deposited
into the Escrow Funds by TOL Stockholders other than Arthur and Dennis and
Optionee Stockholders would not be affected.
MERGER CONSIDERATION ADJUSTMENT
The Merger Agreement provides for the number of Transamerica Common Shares
to be received in the Merger to be adjusted based on certain changes in the age
of the Containers and Chassis owned, managed and leased-in by TOL and the size
and composition of the fleet of Containers and Chassis, so as to reflect the
difference between the Containers and Chassis reported by TOL as owned, managed
and leased-in by it as of December 31, 1995 (the "Preliminary Report"), and the
Containers and Chassis reported as owned, managed and leased-in by TOL as of the
month end immediately preceding the Closing Date (the "Pre-Closing Report"). The
Merger Agreement provides for a further adjustment to be made following the
Closing, based on certain changes in the differences in the age of the
Containers and Chassis owned, managed and leased-in by TOL and the size and
composition of TOL's fleet as reported in the Pre-Closing Report and in a report
which is to reflect such information as of the Closing Date (the "Closing
Report"). In each of the foregoing reports, the age of equipment as of December
31, 1995 is not to be adjusted for the passage of time thereafter, and
adjustments will not be made to give effect to any change in the number of
Containers and Chassis which arises as a result of purchases, disposals or sales
by TOL of equipment made in the ordinary course of business during the period
commencing on January 1, 1996 and ending on the Closing Date.
ESCROW FUNDS
Pursuant to an escrow agreement (the "Escrow Agreement") to be entered into
by and among Transamerica, Subcorp, TOL, Arthur, Dennis and an escrow agent (the
"Escrow Agent"), and promptly following the Effective Time, certificates
representing Transamerica Common Shares with a total aggregate value of
$24,200,000, calculated in accordance with the Deemed Average Share Price, into
which shares of TOL Common Stock are converted will be delivered to the Escrow
Agent. Of such total amount, Transamerica Common Shares will be delivered to the
Escrow Agent in the following amounts (calculated using the Deemed Average Share
Price) and for the following purposes: (i) $11,700,000 into "Escrow Fund A," to
indemnify Transamerica for any and all damages, claims, losses and expenses
("Loss and Expenses") arising from breaches by TOL, Arthur and Dennis of
representations, warranties, covenants or agreements in the Merger Agreement,
the failure of TOL to obtain certain consents and for costs of repairs (net of
recoveries from third parties) exceeding $200,000 to Containers and Chassis
which are off-lease as of the Closing Date, (ii) $2,500,000 into "Escrow Fund
B," to indemnify Transamerica with respect to losses for equipment on hire to,
and accounts receivable owing from, an existing bankrupt customer, (iii)
$1,000,000 into "Escrow Fund C," to indemnify Transamerica for obligations
arising out of the operation of TOL prior to the Closing for sales and use taxes
and (iv) $9,000,000 into the "Adjustment Escrow Fund," to provide a source of
payment for potential Merger Consideration Adjustments (Escrow Fund A, Escrow
Fund B, Escrow Fund C and the Adjustment Escrow Fund are collectively referred
to as the "Escrow Funds").
4
<PAGE> 10
Pursuant to the Merger Agreement as entered into, all of the TOL
Stockholders are required to contribute their pro rata share to the Escrow Funds
and do not have the right to sell, transfer, pledge, encumber or otherwise
dispose of (or to cause any of the foregoing to occur), or to receive any
certificates representing Transamerica Common Shares paid into the Escrow Funds
unless and until such Transamerica Common Shares are released to them pursuant
to the provisions of the Merger Agreement and the Escrow Agreement.
The TOL Stockholders are being asked to approve an amendment to the Merger
Agreement whereby (i) the ten (10) holders (the "Optionee Stockholders") who
will obtain shares of TOL Common Stock as a result of the exercise of TOL
Options would not be obligated to contribute to Escrow Funds A, B and C the
specified pro rata portions of the Transamerica Common Shares they receive in
exchange for their shares of TOL Common Stock acquired upon exercise of their
Options and (ii) instead Arthur and Dennis would increase their contributions of
Transamerica Common Shares to such Escrow Funds in an amount equal to the number
of Transamerica Common Shares which the Optionee Stockholders would no longer be
required to contribute. The Optionee Stockholders will not be relieved of their
obligation to contribute a pro rata portion of their Transamerica Common Shares
to the Adjustment Escrow Fund to provide a source of payment for certain
adjustments in the purchase price payable to Transamerica pursuant to the Merger
Agreement. The amounts to be received by Arthur and Dennis upon consummation of
the Merger and to be deposited into the Escrow Funds would be correspondingly
adjusted to make up the aggregate reduction in the Transamerica Common Shares
resulting from the effect of the Amendment No. 1 Escrow Provisions on Optionee
Stockholders, and the amounts to be received upon consummation of the Merger and
to be deposited into the Escrow Funds by TOL Stockholders other than Arthur and
Dennis and Optionee Stockholders would not be affected.
No TOL Common Stockholder will have a right to sell, transfer, pledge,
encumber or otherwise dispose of, or to receive any certificates representing
Transamerica Common Shares paid into the Escrow Funds unless and until such
Transamerica Common Shares are released to TOL Common Stockholders pursuant to
the provisions of the Merger Agreement and the Escrow Agreement.
The amounts remaining in Escrow Fund A, Escrow Fund B and Escrow Fund C
will be released to TOL Stockholders whose shares of TOL Common Stock have been
converted into Transamerica Common Shares pursuant to the Merger Agreement and
who contributed Transamerica Common Shares to such Escrow Funds on the second
anniversary of the Closing Date; provided that, to the extent a dispute
regarding a claim by Transamerica against a particular Escrow Fund (a "Claim")
remains unresolved, the amount of the Claim is to be retained in the relevant
Escrow Fund until such dispute is resolved; and provided, further, that the
amount of certain claims, if any, with respect to any CAVN Claim (as defined
herein) will be retained in Escrow Fund B. Notwithstanding the foregoing,
amounts remaining in Escrow Fund B may, in certain circumstances set forth in
the Merger Agreement, be released to TOL Stockholders prior to the second
anniversary of the Closing Date. Arthur and Dennis may extend the period of
Escrow Fund A, Escrow Fund B and/or Escrow Fund C beyond the second anniversary
of the Closing Date for purposes of satisfying certain other indemnification
obligations, including certain of such obligations for which Arthur and Dennis
are also responsible, under the circumstances set forth in the Merger Agreement.
See "The Merger Agreement -- Escrow Funds" and "-- Indemnification."
The amounts remaining in the Adjustment Escrow Fund will be released to
Transamerica and/or to TOL Stockholders whose shares of TOL Common Stock have
been converted into Transamerica Common Shares pursuant to the Merger Agreement
following the definitive determination of the Closing Report.
Pursuant to the Merger Agreement, Arthur and Dennis are entitled, at any
time after the first anniversary of the Closing Date, to cause the Escrow Agent
to sell up to 50% of the Transamerica Common Shares then remaining in any or all
of Escrow Fund A, Escrow Fund B or Escrow Fund C, and to cause the Escrow Agent
to invest and reinvest the proceeds as they from time to time deem advisable,
with such investment and reinvestment being subject to obtaining the consent of
Transamerica, which consent is not to be unreasonably withheld.
5
<PAGE> 11
TOL OPTIONS
Prior to the Effective Time, TOL will use reasonable efforts to cause each
unexpired and unexercised option to purchase shares of TOL Stock which has been
granted (each, a "TOL Option") to be exercised by the holder thereof immediately
prior to the Closing. Any TOL Option that remains unexercised as of the Closing
will be terminated as of the Closing and will be of no further force and effect.
See "Kantz Approval Proposal" and "The Merger Agreement -- Merger
Consideration."
EFFECTIVE TIME OF THE MERGER; CLOSING DATE
The Merger will become effective (the "Closing") when a certificate of
merger is filed with the Delaware Secretary of State or at such later time as is
specified in the certificate of merger (such time, the "Effective Time"). This
filing will be made on a date (the "Closing Date") set by Transamerica, which
date will be within 10 business days following the date upon which all
conditions set forth in Article VI of the Merger Agreement have been satisfied
or waived, as the case may be. See "The Merger Agreement -- Conditions."
CONDITIONS TO CONSUMMATION OF THE MERGER
Among the conditions to consummation of the Merger are the following:
approval of the TOL Merger Proposal by TOL Stockholders, approval of the Kantz
Approval Proposal by holders of 75% of the outstanding TOL Stock, the expiration
or termination of all waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), the authorization for
listing on the NYSE of the Transamerica Common Shares issued in the Merger, and
the receipt by TOL of an opinion of its counsel, substantially to the effect
that, for federal income tax purposes, the Merger will constitute a
"reorganization" under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). See "The Merger Agreement -- Conditions."
REASONS FOR THE MERGER; RECOMMENDATION OF THE TOL BOARD OF DIRECTORS
TOL. The Board of Directors of TOL has determined that the terms of the
Merger Agreement and the transactions contemplated thereby are fair to, and in
the best interests of, the TOL Stockholders and has recommended that TOL
Stockholders vote FOR approval and adoption of the Merger Agreement. In the
course of reaching its decision to approve the Merger Agreement and the
transactions contemplated thereby, the Board of Directors of TOL (certain of
whose members actively participated in structuring and negotiating the
transaction) consulted with TOL's legal advisors and outside accountants, and
considered a number of factors. See "The Merger -- Reasons for the Merger;
Recommendation of the Board of Directors of TOL."
Transamerica. Transamerica believes the Merger will result in a stronger,
more diversified participant in the container leasing business, and thereby
enable Transamerica to better serve container leasing customers. The Merger will
result in the addition of TOL's more diverse fleet of containers, with its
emphasis on specialized container types, and will increase Transamerica Leasing
Inc.'s ("Transamerica Leasing") expertise in secondary tanks and refrigerated
containers as well as adding to Transamerica Leasing's fleet of dry cargo and
open top containers and flat racks. See "The Merger -- Reasons for the Merger;
Recommendation of the Board of Directors of TOL."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain officers and directors of TOL (or their affiliates) have interests
in the Merger that are different from and in addition to the interests of TOL
Stockholders generally. These interests include, but are not limited to, the
fact that (i) the executive officers of TOL currently hold in the aggregate
70.2% of the outstanding TOL Common Stock, 93.1% of the outstanding TOL
Preferred Stock and 51.0% of the TOL Options, (ii) pursuant to the Merger
Agreement, Transamerica will enter into a consulting agreement (the "Consulting
Agreement"), which provides for payments to be made over a five-year period and
a non-competition agreement (the "Non-Competition Agreement") with each of
Arthur and Mr. Dennis (each, a "Consultant"), (iii) officers of TOL, including
those who are also directors, are entitled to severance payments for termination
of their respective employment with TOL and (iv) Charles Smith, a member of the
6
<PAGE> 12
Board of Directors of TOL ("Smith"), will receive a fee of $500,000, plus
reimbursement for certain costs, upon the Closing of the Merger. See "The
Merger -- Interests of Certain Persons in the Merger" and "-- Support/Voting
Agreements."
EXCHANGE PROCEDURES
If the TOL Merger Proposal is approved and the Merger is consummated, as
soon as practicable after the Effective Time a letter of transmittal will be
mailed or delivered to each TOL Stockholder to be used in forwarding
Certificates (as defined herein) evidencing such holder's shares of TOL Common
Stock or TOL Preferred Stock for surrender and exchange for certificates
evidencing Transamerica Common Shares to which such holder has become entitled,
and, if applicable, cash in lieu of fractional Transamerica Common Shares. TOL
STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER
OF TRANSMITTAL.
SUPPORT/VOTING AGREEMENTS
Concurrently with the execution of the Merger Agreement, each of Arthur and
Dennis, who as of the Record Date beneficially owned in the aggregate 69.5% of
the outstanding TOL Common Stock and 92.8% of the outstanding TOL Preferred
Stock (each, a "Supporting Stockholder" and together, the "Supporting
Stockholders"), executed a Support/Voting Agreement with Transamerica pursuant
to which such Supporting Stockholder agreed to vote or direct the vote of all
shares of TOL Stock beneficially owned by such Supporting Stockholder, or over
which such Supporting Stockholder has voting power or control, in favor of the
Merger Agreement and the transactions contemplated thereby (each, a
"Support/Voting Agreement"). Each Supporting Stockholder also thereby agreed to
not, and to not permit any company, trust or other entity controlled by the
Supporting Stockholder to, (i) sell or otherwise transfer any shares of TOL
Stock, other than pursuant to the Merger or (ii) grant any proxies or enter into
a voting agreement with respect to the Merger Agreement or the transactions
contemplated thereby. See "The Merger -- Support/Voting Agreements."
KANTZ APPROVAL PROPOSAL
Kantz, an executive officer and director of TOL, holds incentive and
non-statutory TOL Options to purchase an aggregate of 1,858 shares of TOL Common
Stock. Pursuant to the Merger Agreement, approval by TOL Stockholders of the
Kantz Approval Proposal is a condition to the Closing of the Merger. Although
the TOL Options held by Kantz by their terms provide for acceleration in
connection with the Merger, such approval is necessary to permit the
acceleration, in connection with the Merger, of TOL Options held by Kantz so as
not to result in an excess "parachute payment" within the meaning of Section
280G of the Code. In the event that holders of 75% of the shares of TOL Stock
(excluding any shares of TOL Stock held by Kantz) do not approve the Kantz
Approval Proposal, the TOL Options held by Kantz will not be accelerated. If
holders of the requisite number of shares of TOL Stock vote in favor of the
Kantz Approval Proposal, the acceleration of the TOL Options held by Kantz will
not constitute a parachute payment within the meaning of Section 280G of the
Code. See "Action By Written Consent of TOL Stockholders -- Matters to be
Considered."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Certain federal income tax consequences of the Merger are discussed below.
See "Certain Federal Income Tax Consequences."
COMPARISON OF STOCKHOLDER RIGHTS
As a result of the Merger, shares of TOL Common Stock and TOL Preferred
Stock will be converted into the right to receive Transamerica Common Shares.
There are differences between the rights of TOL Stockholders and the rights of
holders of Transamerica Common Shares. These differences result from differences
between the governing instruments of TOL and Transamerica. For a discussion of
such differences, see "Comparison of Stockholder Rights."
7
<PAGE> 13
SUMMARY HISTORICAL
FINANCIAL INFORMATION
TOL SUMMARY HISTORICAL FINANCIAL INFORMATION
The following table sets forth financial information for TOL as of and for
the periods noted. The balance sheet and income statement data as of and for the
years ended December 31, 1991 through 1995 have been derived from the audited
financial statements of TOL. The consolidated financial statements as of
December 31, 1994 and 1995 and for each of the three years in the period ended
December 31, 1995 have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto included
elsewhere in this Consent Solicitation Statement/Prospectus, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said reports. The data for the six months ended June 30, 1995
and 1996 is unaudited but, in the opinion of TOL, reflects all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such data. The data for the six months ended June 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. The table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of TOL" and the Consolidated Financial Statements and related notes
thereto, included elsewhere in this Consent Solicitation Statement/ Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------------------- ----------------------------
1991 1992 1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Lease revenue......... $ 120,812,000 $ 137,813,000 $ 139,610,000 $ 143,024,000 $ 167,862,000 $ 79,921,000 $ 87,417,000
Costs and expenses:
Managed equipment
program
distributions..... 46,590,000 54,158,000 53,910,000 50,387,000 50,334,000 24,970,000 24,982,000
Direct operating.... 27,609,000 32,623,000 32,394,000 32,540,000 37,226,000 17,723,000 22,101,000
Depreciation and
amortization...... 9,835,000 12,459,000 14,473,000 17,156,000 22,416,000 10,279,000 12,466,000
Marketing and
administrative.... 18,685,000 19,666,000 20,931,000 22,438,000 24,618,000 12,288,000 12,211,000
Interest............ 8,290,000 7,450,000 8,187,000 13,214,000 23,860,000 10,687,000 12,815,000
Total costs and
expenses........ 111,009,000 126,356,000 129,895,000 135,735,000 158,454,000 75,947,000 84,575,000
Income from continuing
operations before
provision for income
taxes............... 9,803,000 11,457,000 9,715,000 7,289,000 9,408,000 3,974,000 2,842,000
Provision for income
taxes............... 3,728,000 4,329,000 3,732,000 2,856,000 3,144,000 1,466,000 1,085,000
------------- ------------- ------------- ------------- ------------- ------------- -------------
Income from continuing
operations.......... $ 6,075,000 $ 7,128,000 $ 5,983,000 $ 4,433,000 $ 6,264,000 $ 2,508,000 $ 1,757,000
=========== =========== =========== =========== =========== =========== ===========
Income from continuing
operations per
common share(1)..... $ 70.64 $ 82.82 $ 70.26 $ 53.62 $ 79.00 $ 31.10 $ 21.00
BALANCE SHEET DATA
(END OF PERIOD):
Net property and
equipment........... $ 113,738,000 $ 136,436,000 $ 155,882,000 $ 235,347,000 $ 337,473,000 $ 300,376,000 $ 348,601,000
Total assets.......... 162,531,000 198,218,000 223,873,000 309,685,000 418,114,000 374,767,000 421,747,000
Total debt............ 86,095,000 101,942,000 118,177,000 184,555,000 286,487,000 241,085,000 295,452,000
Redeemable senior
preferred stock..... 7,173,000 7,315,000 7,457,000 3,563,000 3,590,000 3,576,000 3,603,000
Total common
stockholders'
equity.............. 13,745,000 21,061,000 25,393,000 26,954,000 32,797,000 29,252,000 34,344,000
</TABLE>
- ---------------
(1) Earnings from continuing operations per common share has been computed by
dividing income from continuing operations, after reductions for accrued
dividends on preferred stock, by the weighted average number of common
shares outstanding, taking into effect all material common stock
equivalents.
8
<PAGE> 14
TRANSAMERICA SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The summary historical consolidated financial information of Transamerica
set forth below (in millions of dollars) has been derived from and should be
read in conjunction with, and is qualified in its entirety by, the audited
financial statements and other financial information set forth elsewhere in this
Consent Solicitation Statement/Prospectus. See Annex C, Annex D, and Annex E.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 4,175.2 $ 4,550.9 $ 4,813.3 $ 5,354.5 $ 6,101.1 $ 3,001.5 $ 3,008.7
Income from continuing
operations.................... 5.6 334.0 447.5 427.9 470.5 214.1 221.2
Balance Sheet Data (at period
end):
Total assets.................... $31,133.6 $33,290.9 $36,050.5 $40,393.8 $47,944.5 $45,348.4 $47,224.1
Long term debt.................. 6,975.6 6,510.5 5,681.0 7,489.1 9,341.5 9,149.0 8,896.6
</TABLE>
9
<PAGE> 15
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical and historical pro forma
combined per share financial information of Transamerica and TOL for the six
months ended June 30, 1996 and the year ended December 31, 1995. The pro forma
combined amounts included in the table below are based on the purchase method of
accounting and a preliminary allocation of the purchase price. However, changes
to the adjustments included in the pro forma combined financial information set
forth below are expected as evaluations of assets and liabilities are completed
and additional information becomes available. Accordingly, the final pro forma
combined amounts will differ from those set forth below. The following
information should be read in conjunction with and is qualified in its entirety
by the consolidated financial statements and accompanying notes of Transamerica
and TOL included elsewhere in this Consent Solicitation Statement/Prospectus.
See "Index to Consolidated Financial Statements of Trans Ocean Ltd and
Subsidiaries," Annex C, Annex D, and Annex E.
<TABLE>
<CAPTION>
TRANSAMERICA
TRANSAMERICA TOL PRO FORMA
------------ ------- ------------
<S> <C> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1995
Earnings per share of common stock..................... $ 6.58 $ 79.00 $ 6.43
Cash dividends declared per share of common stock...... $ 2.00 $ 0.00 $ 2.00
Book value per share of common stock................... $58.61 $441.40 $58.88
SIX MONTHS ENDED JUNE 30, 1996
Earnings per share of common stock..................... $ 3.15 $ 21.00 $ 3.06
Cash dividends declared per share of common stock...... $ 1.00 $ 0.00 $ 1.00
Book value per share of common stock................... $50.02 $462.00 $50.49
</TABLE>
10
<PAGE> 16
MARKET PRICE AND DIVIDEND DATA
The following table reflects (i) the range of the reported high and low
last sale prices of Transamerica Common Shares on the NYSE Composite Tape and
(ii) the per share dividends paid thereon for the calendar quarters indicated.
TOL Common Stock and TOL Preferred Stock are not publicly traded and no
comparative market price data is available. In the year ended December 31, 1994,
TOL paid a cash dividend of $6.50 on each share of TOL Common Stock. TOL has not
otherwise paid any dividends on TOL Common Stock. In the years ended December
31, 1993, 1994 and 1995, TOL paid cash dividends of $0.875, $0.875 and $1.3125,
respectively, on each share of TOL Preferred Stock.
<TABLE>
<CAPTION>
TRANSAMERICA
COMMON SHARES
-----------------
HIGH LOW DIVIDENDS
------ ------ ---------
<S> <C> <C> <C>
1993:
First quarter................................................. $53.88 $45.63 $ 0.50
Second quarter................................................ 56.13 47.00 0.50
Third quarter................................................. 61.38 52.50 0.50
Fourth quarter................................................ 62.38 53.63 0.50
1994:
First quarter................................................. $57.63 $49.25 $ 0.50
Second quarter................................................ 54.63 48.88 0.50
Third quarter................................................. 53.63 49.50 0.50
Fourth quarter................................................ 51.25 46.38 0.50
1995:
First quarter................................................. $59.00 $49.50 $ 0.50
Second quarter................................................ 61.13 55.75 0.50
Third quarter................................................. 71.50 58.00 0.50
Fourth quarter................................................ 77.50 65.75 0.50
1996:
First quarter................................................. $78.88 $71.00 $ 0.50
Second quarter................................................ 84.50 71.38 0.50
Third quarter................................................. 83.00 67.00 0.50
Fourth quarter (through October 7, 1996)...................... 73.38 69.88
</TABLE>
On July 24, 1996, the last full trading day prior to the execution,
delivery and public announcement of the Merger Agreement, the closing price of
the Transamerica Common Shares was $71.00 per share, as reported on the NYSE
Composite Tape. On October 7, 1996, the most recent practicable date prior to
the mailing of this Consent Solicitation Statement/Prospectus, the last sale
price of Transamerica Common Shares was $73.00 per share, as reported on the
NYSE Composite Tape. TOL Stockholders are encouraged to obtain current market
quotations for Transamerica Common Shares.
Pursuant to the Merger Agreement, TOL has agreed that, during the period
from the date of the Merger Agreement to the Effective Time, TOL will not make,
declare or pay any dividend or distribution on the TOL Stock other than the
regular quarterly dividend on TOL Preferred Stock, which will not, in the
aggregate, exceed $98,475 per quarter.
11
<PAGE> 17
ACTION BY WRITTEN CONSENT OF TOL STOCKHOLDERS
GENERAL
This Consent Solicitation Statement/Prospectus is being furnished to TOL
Stockholders in connection with the solicitation by the Board of Directors of
TOL of the Consents of TOL Stockholders.
This Consent Solicitation Statement/Prospectus and the form of Consent are
first being mailed to TOL Stockholders on or about October 9, 1996.
MATTERS TO BE CONSIDERED
TOL Stockholders are being asked to approve:
(i) The TOL Merger Proposal, which is a proposal to approve and adopt
the Merger Agreement pursuant to which, among other things, (a) Subcorp
will be merged with and into TOL, or, under certain circumstances, TOL will
be merged with and into Subcorp, with the result that, in either event, TOL
will become a wholly owned subsidiary of Transamerica, (b) each outstanding
share (other than shares held in the treasury of TOL, if any, which will be
cancelled) of TOL Common Stock will be converted into a number of
Transamerica Common Shares as determined pursuant to the Common Exchange
Ratio set forth in the Merger Agreement and (c) each outstanding share
(other than shares held in the treasury of TOL, if any, which will be
cancelled) of TOL Preferred Stock will be converted into a number of
Transamerica Common Shares as determined pursuant to the Preferred Exchange
Ratio set forth in the Merger Agreement. A copy of the Merger Agreement is
attached as Annex A to this Consent Solicitation Statement/Prospectus.
(ii) The Kantz Approval Proposal, which is a proposal to approve and
adopt the acceleration of TOL Options held by Kantz.
(iii) The Amendment No. 1 Escrow Provisions, which revise the
proportion of each of Escrow Fund A, Escrow Fund B and Escrow Fund C which
is allocable to the Optionee Stockholders and Arthur and Dennis.
RECORD DATE; VOTE REQUIRED; ACTION BY WRITTEN CONSENT
The Board of Directors of TOL has fixed the close of business on August 30,
1996 as the Record Date for determination of TOL Stockholders entitled to vote
on the matters set forth herein. Accordingly, only holders of TOL Stock of
record at the close of business on August 30, 1996 will be entitled to vote on
the matters set forth herein. Each holder of record of TOL Common Stock on the
Record Date is entitled to cast one vote per share and each holder of record of
TOL Preferred Stock on the Record Date is entitled to cast one vote per share,
exercisable by returning a properly executed Consent. As of the Record Date,
there were 74,303 shares of TOL Common Stock outstanding and entitled to vote,
which were held by 12 holders of record, and 300,107 shares of TOL Preferred
Stock outstanding and entitled to vote which were held by five holders of
record.
The affirmative vote of the holders of more than 50% of the shares of TOL
Common Stock and of the shares of TOL Preferred Stock outstanding and entitled
to vote thereon is required to approve and adopt the TOL Merger Proposal. As of
the Record Date, the directors and executive officers of TOL and certain of
their affiliates may be deemed to be beneficial owners of approximately 73.7% of
the outstanding shares of TOL Common Stock and of approximately 93.4% of the
outstanding shares of TOL Preferred Stock. Three TOL Stockholders (including two
executive officers who are also directors of TOL), who as of the Record Date
beneficially owned in the aggregate approximately 69.5% of the outstanding TOL
Common Stock and 92.8% of the outstanding shares of TOL Preferred Stock, have
each agreed to vote or direct the vote of all TOL Common Stock over which such
person has voting control in favor of the TOL Merger Proposal. As a result of
these Support/Voting Agreements, there will be sufficient votes cast in favor of
the TOL Merger Proposal to ensure its passage without the vote of any other TOL
Stockholders. The Kantz Approval Proposal requires the affirmative vote of
holders of more than 75% of the votes of TOL Common Stock and TOL Preferred
Stock, on an as-converted basis, voting together as a single class, other than
any TOL Stock held by Kantz. The Amendment No. 1 Escrow Provisions require the
affirmative vote of holders of 100% of the votes of TOL Common Stock in order to
become effective.
12
<PAGE> 18
Consents in the accompanying forms that are properly executed and returned
to TOL will be considered Action by Written Consent of the TOL Stockholders in
accordance with the instructions contained therein. A TOL Stockholder may revoke
the Consent by a writing received by TOL prior to the time that Consents of the
number of shares required to authorize the Action by Written Consent have been
filed with TOL, but may not do so thereafter. TWO FORMS OF CONSENT ARE BEING
SENT TO EACH TOL COMMON STOCKHOLDER: ONE WITH RESPECT TO THE TOL MERGER PROPOSAL
AND THE KANTZ APPROVAL PROPOSAL AND ONE WITH RESPECT TO THE AMENDMENT NO. 1
ESCROW PROVISIONS. EACH FORM OF CONSENT MUST BE RETURNED TO TOL IN ORDER FOR THE
TOL COMMON STOCKHOLDER TO VOTE IN CONNECTION WITH THE ACTION COVERED BY EACH
SUCH CONSENT.
13
<PAGE> 19
THE MERGER
BACKGROUND OF THE MERGER
Transamerica and TOL have held discussions from time to time over several
years regarding the desirability of Transamerica acquiring TOL.
Commencing in December 1995, Transamerica and TOL began discussions and
negotiations relating to the Merger. Negotiations continued through the first
half of 1996, became very active commencing in June 1996, and resulted in the
execution of the Merger Agreement on July 24, 1996, following approval thereof
by the Board of Directors of Transamerica and the Board of Directors of TOL.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS OF TOL
TOL. The Board of Directors of TOL has determined that the terms of the
Merger Agreement and the transactions contemplated thereby are fair to, and in
the best interests of, the TOL Stockholders, and has recommended that TOL
Stockholders vote FOR approval and adoption of the Merger Agreement. In the
course of reaching its decision to approve the Merger Agreement and the
transactions contemplated thereby, the Board of Directors of TOL (certain of
whose members actively participated in structuring and negotiating the
transaction) consulted with TOL's legal advisors and outside accountants, and
considered a number of factors, including, among others, the following:
(i) information concerning the financial performance, condition,
business, operations, assets and prospects of each of Transamerica and TOL;
(ii) the complementary nature of the business strategies and business
positions of Transamerica Leasing, an operating subsidiary of Transamerica,
with those of TOL;
(iii) the terms and structure of the Merger and the terms of the
Merger Agreement;
(iv) the opportunity for TOL Stockholders to exchange their shares in
a privately held company for freely tradeable shares in Transamerica, a
large, diversified company, and to do so by means of a transaction designed
to be tax-free to TOL Stockholders;
(v) the recommendation of TOL's senior management; and
(vi) presentations by TOL's financial advisors.
As a result of its own extensive knowledge of TOL's business, the Board of
Directors of TOL believes that the terms of the Merger Agreement, including the
consideration to be received by the TOL Stockholders, are fair to the TOL
Stockholders. In reaching the conclusion that the TOL Stockholders will receive
fair value in the Merger, in Transamerica Common Shares, for their interests in
TOL, the Board of Directors of TOL considered its knowledge of TOL's and
Transamerica's businesses and discussions with the management of TOL and with
TOL's financial advisors concerning their views of the businesses, financial
condition and prospects of Transamerica. The Board of Directors of TOL also
considered recent and current market prices of the Transamerica Common Shares.
Also considered was the Board of Directors of TOL's belief that the
businesses of TOL and Transamerica Leasing are complementary, that the interest
of TOL's customers and managed container owners will be well served by the
combined company after the consummation of the Merger, and that the combination
of Transamerica Leasing and TOL would result in a stronger, more diversified
participant in the container leasing business than either company is on a
standalone basis. In this regard, the Board of Directors of TOL considered that
while Transamerica Leasing has the benefits of size and the accompanying
economies of scale and access to low cost capital, its container leasing
business is strongest in dry cargo containers. By contrast, TOL's container
leasing business is stronger in open top containers and other specialty
containers where Transamerica is not as strong.
The foregoing discussion of the information and factors considered and
given weight by the Board of Directors of TOL is not intended to be exhaustive.
In view of the wide variety of factors considered in
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connection with its evaluation of the Merger, the Board of Directors of TOL did
not find it practicable to, and did not, quantify or otherwise attempt to assign
relative weight to the specific factors considered in reaching its
determinations. In addition, individual members of the Board of Directors of TOL
may have given different weight to different factors. For a discussion of the
interests of certain members of TOL's management and the Board of Directors of
TOL, see "-- Interests of Certain Persons in the Merger."
Transamerica. Transamerica believes the Merger will result in a stronger,
more diversified participant in the container leasing business, and thereby
enable Transamerica to better serve container leasing customers. The Merger will
result in the addition of TOL's more diverse fleet of containers, with its
emphasis on specialized container types, and will increase Transamerica
Leasing's expertise in secondary tanks and refrigerated containers as well as
adding to Transamerica Leasing's fleet of dry cargo and open top containers and
flat racks.
In reaching its conclusions to enter into the Merger Agreement,
Transamerica considered the following factors, among others: (i) Transamerica's
and TOL's businesses, assets, and competitive position and the current
conditions and trends in the market in which they compete; (ii) TOL's financial
condition and results of operations, both on a historical basis and on a
prospective basis; (iii) a review of possible alternative expansion strategies
available to Transamerica, and the costs thereof, if the Merger is not
consummated; (iv) the complementary nature of Transamerica's and TOL's
businesses, and the expectation that, as a result of the Merger, Transamerica
Leasing will be better able to serve its customers needs; and (v) the proposed
terms and structure of the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain officers and directors of TOL (or their affiliates) have interests
in the Merger that are different from and in addition to the interests of TOL
Stockholders generally. The Board of Directors of TOL was aware of these
interests and took these interests into account in approving the Merger
Agreement and the transactions contemplated thereby.
TOL Stock Ownership and TOL Options. Executive officers and directors of
TOL currently hold 73.7% of the TOL Common Stock, 93.4% of the TOL Preferred
Stock and 51.0% of the TOL Options. TOL has agreed in the Merger Agreement to
use reasonable efforts to cause each unexpired and unexercised TOL Option to be
exercised by the holder thereof immediately prior to the Closing. Any TOL Option
that remains unexercised as of the Closing will be terminated as of the Closing,
and will be of no further force and effect. As of the Record Date, 4,700 shares
of TOL Common Stock were issuable upon the exercise of outstanding TOL Options,
of which 2,398 were held by two of the executive officers of TOL, one of whom is
a director of TOL. The average exercise price per share of the TOL Options held
by such executive officers and outstanding as of the Record Date is $772.69 per
share. Pursuant to their terms, all TOL Options will accelerate by virtue of the
Merger. See "Kantz Approval Proposal."
Consulting Agreements. Transamerica has agreed, pursuant to the Merger
Agreement, to enter into a Consulting Agreement with each of Arthur and Mr.
Dennis, each in their capacity as Consultants. Under the terms of each of such
Consulting Agreements, the applicable Consultant will render consulting services
to Transamerica for a period beginning on the date on which the Consultant is no
longer a full-time employee of the Surviving Corporation and ending on the
earlier of the fifth anniversary of such date or on the date on which the
Consultant dies or otherwise becomes unable to provide consulting services. In
consideration of these services, each Consultant will be paid at the rate of
$350,000 per year.
Non-Competition Agreements. Each Consultant has agreed with Transamerica,
pursuant to the Merger Agreement, to enter into a Non-Competition Agreement.
Under the terms of the Non-Competition Agreements, each Consultant agrees that,
for a period of five years from the Closing Date, he will not, without the prior
written consent of Transamerica, directly or indirectly, anywhere in the world,
(i) engage in any existing business line of TOL, including, without limitation,
owning, leasing-in or managing for the purpose of leasing or hiring, any
interest in dry cargo containers, tank containers (but not including flexible
tanks), refrigerated containers, open top containers, chassis or flat racks of
whatever size or certain other equipment, (ii) initiate any contact with or
otherwise solicit or act to interfere with the employment relationship with any
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then-current employee of Transamerica, Transamerica Leasing, TOL or any of its
subsidiaries or any other entity known by the Consultant after due inquiry to be
an affiliate of Transamerica with a view to or for the purpose of offering such
individual employment (or consultancy, management or similar arrangements) with
the Consultant or any of his associates or affiliates or with any other person
or entity, (iii) employ (or enter into consultancy, management or similar
arrangements with) any individual who at such time is an employee of or
consultant to Transamerica, Transamerica Leasing, TOL or any of its subsidiaries
or any other entity known by Consultant after due inquiry to be an affiliate of
Transamerica, or (iv) in relation to a business the same as that of owning,
leasing or managing Containers and the activities related or incident thereto,
interfere with TOL's or its subsidiaries' or Transamerica's or its subsidiaries'
relationship with any person or entity who is or was at the date of the Merger
Agreement or was at any time during the two years preceding that date a supplier
or customer of TOL or any of its affiliates, subject to certain exceptions.
Severance Payments. Officers of TOL, including those who are also
directors, are entitled to severance payments for termination of their
employment with TOL.
Upon the Closing of the Merger, Smith, a member of the Board of Directors
of TOL, will receive a fee of $750,000 in consideration of services provided by
Smith to TOL in connection with the negotiation of the Merger Agreement and
other aspects of the Merger. Smith will also receive payment for his costs and
expenses incurred in connection with the Merger.
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting
whereby the purchase price for TOL will be allocated to the identifiable assets
and liabilities of TOL and its subsidiaries based on their respective fair
values.
REGULATORY APPROVALS
Under the HSR Act and the rules that have been promulgated thereunder by
the Federal Trade Commission (the "FTC"), the Merger may not be consummated
unless certain information has been furnished to the Antitrust Division of the
United States Department of Justice (the "Antitrust Division") and the FTC, and
certain waiting period requirements have been satisfied. On July 30, 1996, and
on July 31, 1996, respectively, TOL and Transamerica furnished to the FTC and
the Antitrust Division certain required information and documentary material
with respect to the Merger. On August 23, 1996, Transamerica and TOL were
granted early termination of the waiting period applicable to the Merger. In
addition, TOL and Transamerica may find it necessary to comply with the merger
reporting requirements set forth in the antitrust laws of one or more foreign
jurisdictions.
The Antitrust Division, the FTC and state attorneys general frequently
scrutinize the legality under the antitrust laws of transactions such as the
Merger. At any time before or after the consummation of the Merger, the
Antitrust Division, the FTC or a state attorney general could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the consummation of the Merger or seeking
the divestiture of substantial assets of TOL or Transamerica. TOL and
Transamerica believe that the consummation of the Merger will not violate the
antitrust laws of the United States or of foreign jurisdictions. There can be no
assurance, however, that a challenge to the Merger on antitrust grounds will not
be made, or, if such a challenge is made, what the result will be.
FEDERAL SECURITIES LAW CONSEQUENCES
All Transamerica Common Shares issued in connection with the Merger will be
freely transferable, except that any Transamerica Common Shares received by
persons who are deemed to be "affiliates" (as such term is defined under the
Securities Act) of Transamerica or TOL prior to the Merger may be sold by them
only in transactions permitted by the resale provisions of Rule 145 under the
Securities Act with respect to affiliates of Transamerica or TOL, or Rule 144
under the Securities Act with respect to persons who are or become affiliates of
Transamerica, or as otherwise permitted under the Securities Act. Persons who
may be deemed to be affiliates of Transamerica or TOL generally include
individuals or entities that control, are
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controlled by or are under common control with such person, and may include
certain officers and directors of such person as well as principal stockholders
of such person.
Affiliates may not sell their Transamerica Common Shares acquired in
connection with the Merger except pursuant to an effective registration under
the Securities Act covering such shares or in compliance with Rule 145 under the
Securities Act (or Rule 144 under the Securities Act, in the case of persons who
become affiliates of Transamerica) or another applicable exemption from the
registration requirements of the Securities Act. In general, Rule 145 under the
Securities Act provides that for two years following the Effective Time an
affiliate (together with certain related persons) would be entitled to sell
Transamerica Common Shares acquired in connection with the Merger only through
unsolicited "broker transactions" or in transactions directly with a "market
maker" (as such terms are defined in Rule 144 under the Securities Act).
Additionally, the number of Transamerica Common Shares to be sold by an
affiliate (together with certain related persons and certain persons acting in
concert) within any three-month period for purposes of Rule 145 under the
Securities Act may not exceed the greater of 1% of the outstanding Transamerica
Common Shares or the average weekly trading volume of Transamerica Common Shares
during the four calendar weeks preceding such sale. Rule 145 under the
Securities Act will remain available to affiliates if Transamerica remains
current with its informational filings with the Commission under the Exchange
Act. Two years after the Effective Time, an affiliate of TOL will be able to
sell Transamerica Common Shares acquired in the Merger without being subject to
such manner of sale or volume limitations, provided that Transamerica is current
with its Exchange Act informational filings and such affiliate is not then an
affiliate of Transamerica. Three years after the Effective Time, an affiliate
will be able to sell such Transamerica Common Shares without any restrictions so
long as such affiliate had not been an affiliate of Transamerica for at least
three months prior to the date.
Pursuant to the Merger Agreement, TOL will obtain written undertakings from
each person who is, in TOL's reasonable determination, an "affiliate" of TOL for
purposes of Rule 145 under the Securities Act at the time the Merger is
submitted to a vote of the TOL Stockholders, to the effect that such person has
agreed not to sell, transfer or otherwise dispose of Transamerica Common Shares
issued to him or her in the Merger unless (i) such sale, transfer or other
disposition is made in conformity with the volume and other limitations of Rule
145 under the Securities Act, (ii) such sale, transfer or other disposition has
been registered under the Securities Act, or (iii) in the opinion of counsel
reasonably acceptable to Transamerica, such sale, transfer or other disposition
is otherwise exempt from registration under the Securities Act.
SUPPORT/VOTING AGREEMENTS
Concurrently with the execution of the Merger Agreement, the Supporting
Stockholders, who as of the Record Date beneficially owned in the aggregate
69.5% of the outstanding TOL Common Stock and 92.8% of the outstanding TOL
Preferred Stock, executed separate Support/Voting Agreements with Transamerica
pursuant to which each such Supporting Stockholder agreed, among other things,
to vote or direct the vote of all shares of TOL Stock beneficially owned by such
Supporting Stockholder, or over which the Supporting Stockholder has voting
power or control, in favor of the Merger Agreement and the transactions
contemplated thereby. Each Supporting Stockholder also thereby agreed to not,
and to not permit any company, trust or other entity controlled by the
Supporting Stockholder to, (i) sell or otherwise transfer any shares of TOL
Stock, other than pursuant to the Merger, or (ii) grant any proxies or enter
into a voting agreement with respect to the Merger Agreement or the transactions
contemplated thereby. The Support/Voting Agreements do not limit or restrict the
Supporting Stockholders' rights, duties or obligations in their capacities as
directors and/or executive officers of TOL. Any obligations of the Supporting
Stockholders under the Support/Voting Agreements terminate if the Merger
Agreement is terminated in accordance with its terms. As a result of the
Support/Voting Agreements, there will be sufficient votes cast for approval and
adoption of the Merger Agreement to ensure its passage without the vote of any
other TOL Stockholders.
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THE MERGER AGREEMENT
The following is a summary of material provisions of the Merger Agreement,
a copy of which is attached as Annex A to this Consent Solicitation
Statement/Prospectus. This summary is qualified in its entirety by reference to
the Merger Agreement which is incorporated herein by this reference.
THE MERGER
The Merger Agreement provides that Subcorp will be merged with and into TOL
with the result that TOL, as the Surviving Corporation, becomes a wholly owned
subsidiary of Transamerica, subject to the requisite approvals of TOL
Stockholders and the satisfaction or waiver of the other conditions to the
Merger. In the event that holders of more than 16% of the shares of TOL Common
Stock demand appraisal rights in accordance with the requirements of Section
262(d) of the DGCL, TOL will be merged with and into Subcorp, the separate
corporate existence of TOL will cease and Subcorp will continue its existence
under the laws of the State of Delaware as the Surviving Corporation, which will
be a wholly owned subsidiary of Transamerica. The Merger will become effective
upon the filing of a duly executed certificate of merger with the Delaware
Secretary of State or at such later time as will be specified in the certificate
of merger. This filing is to be made on the Closing Date set by Transamerica,
which date will be within 10 business days following the date upon which all
conditions set forth in the Merger Agreement have been satisfied or waived, as
the case may be.
MERGER CONSIDERATION
Exchange Ratio. Upon consummation of the Merger pursuant to the Merger
Agreement, each share of TOL Common Stock issued and outstanding immediately
prior to the Effective Time (other than shares held in the treasury of TOL, if
any, which will be cancelled) will be converted into and represent that number
of Transamerica Common Shares (rounded to the nearest ten-thousandth of a share)
equal to the Common Exchange Ratio, as the same may be adjusted pursuant to the
Merger Consideration Adjustment (see "-- Merger Consideration Adjustment"), and
each share of TOL Preferred Stock issued and outstanding immediately prior to
the Effective Time will be converted into and represent that number of
Transamerica Common Shares (rounded to the nearest ten-thousandth of a share)
equal to the Preferred Exchange Ratio. Transamerica Common Shares having a value
(based on the Deemed Average Share Price) of $24,200,000, and equal to a
significant portion of the merger consideration, will not be paid to the TOL
Common Stockholders at the time of consummation of the Merger but instead will
be placed into escrow. The escrowed Transamerica Common Shares will be available
to satisfy indemnification obligations which may be owing to Transamerica and to
provide for adjustments in Transamerica's favor in the merger consideration
based on the age of the Containers and Chassis owned, managed and leased-in by
TOL and the size and composition of its fleet of Containers and Chassis (see
"-- Merger Consideration Adjustment"), and, to the extent not needed for such
purposes or certain other indemnification obligations, will be distributed to
the TOL Common Stockholders pro rata based on the proportion each TOL Common
Stockholder deposited into such Escrow Fund other than Dissenting TOL
Stockholders. See "-- Escrow Funds."
The Common Exchange Ratio is equal to the quotient obtained by dividing (i)
the Per Share Amount by (ii) the Deemed Average Share Price. The Preferred
Exchange Ratio by which shares of TOL Preferred Stock are converted in the
Merger into Transamerica Common Shares is equal to the quotient (rounded to the
nearest ten-thousandth of a share) obtained by dividing (i) $12.50, plus any
accrued but unpaid dividends on one share of TOL Preferred Stock (which
dividends will not, with respect to all outstanding shares of TOL Series B
Preferred Stock, in the aggregate, exceed $98,475 as of the Closing Date) by
(ii) the Deemed Average Share Price.
"Per Share Amount" means the quotient obtained by dividing (i) $110,700,000
(or, if the Merger is structured to provide for Subcorp to be the Surviving
Corporation, $107,700,000), increased by the total amount of cash paid to TOL
between the execution of the Merger Agreement and the Closing in order to
exercise TOL Options, which amount will not exceed $3,342,291.97 and decreased
by the product of the Preferred Exchange Ratio multiplied by the Deemed Average
Share Price, and further multiplied by the
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number of shares of TOL Preferred Stock which are issued and outstanding
immediately prior to the Effective Time, by (ii) the number of shares of TOL
Common Stock which are issued and outstanding immediately prior to the Effective
Time. The number of shares of TOL Common Stock which is outstanding, 74,303 as
of the Record Date, would be increased to 79,003 if all of the TOL Options are
exercised. "Deemed Average Share Price" means the average of the closing prices
of the Transamerica Common Shares as reported on the NYSE Composite Tape on each
of the last 15 trading days ending on and including the second trading day prior
to the Closing Date assuming such average is between $61.40 and $92.10; if such
average is less than $61.40, the Deemed Average Share Price shall be $61.40,
and, if such average is more than $92.10, the Deemed Average Share Price shall
be $92.10.
The Merger Agreement provides for the Common Exchange Ratio to be adjusted
based on certain changes in the age, size and composition of the Containers and
Chassis owned, managed and leased-in by TOL. See "-- Merger Consideration
Adjustment."
The aggregate amount of Transamerica Common Shares to be received by
holders of TOL Common Stock (assuming there are no Dissenting TOL Stockholders)
upon consummation of the Merger will equal the amount determined in accordance
with clause (i) of the definition of "Per Share Amount" set forth above,
adjusted by the Merger Consideration Adjustment and reduced by the $24,200,000
of Transamerica Common Shares (valued based on the Deemed Average Share Price)
to be placed into the Escrow Funds. No Transamerica Common Shares will be issued
upon consummation of the Merger to a TOL Stockholder who demands appraisal
rights in accordance with the requirements of Section 262(d) of the DGCL, nor
will such TOL Stockholder be entitled to payments of any amounts deposited in
the Escrow Funds.
Assuming that (i) all TOL Options are exercised prior to the Effective Time
with the result that an aggregate of $3,342,291.97 is paid upon exercise and
4,700 shares of TOL Common Stock are issued upon exercise thereof, making a
total of 79,003 shares of TOL Common Stock outstanding immediately prior to the
Effective Time, (ii) the Deemed Average Share Price is $70.00, (iii) the accrued
and unpaid dividends on the TOL Preferred Stock as of the Closing Date equal
$98,475, (iv) no Merger Consideration Adjustment is to be made and (v) 300,107
shares of Preferred Stock are outstanding immediately prior to the Effective
Time, then (a) the Common Exchange Ratio will be 19.93 Transamerica Common
Shares for each share of TOL Common Stock and (b) the Preferred Exchange Ratio
will be .183 of a Transamerica Common Share for each share of TOL Preferred
Stock. Under the foregoing assumptions and without giving effect to the
Amendment No. 1 Escrow Provisions, of the 19.93 Transamerica Common Shares which
may ultimately be received, a TOL Common Stockholder would receive, in respect
of each share of TOL Common Stock, 15.57 Transamerica Common Shares upon
consummation of the Merger and 4.36 Transamerica Common Shares would be
deposited in the Escrow Funds. Further, based upon the assumptions made in this
paragraph (excluding clause (iv)), each $1,000,000 Merger Consideration
Adjustment will result in a decrease or increase in the Common Exchange Ratio of
0.9%. If the Amendment No. 1 Escrow Provisions are unanimously approved, TOL
Stockholders who own their shares as a result of the exercise of TOL Options
after July 24, 1996 would receive, in respect of each share of TOL Common Stock,
18.31 Transamerica Common Shares upon consummation of the Merger and 1.62
Transamerica Common Shares would be deposited in the Adjustment Escrow Fund, the
amounts to be received by Arthur and Dennis upon consummation of the Merger and
to be deposited into the Escrow Funds would be correspondingly adjusted to make
up the aggregate reduction in the Transamerica Common Shares resulting from the
effect of the Amendment No. 1 Escrow Provisions on Optionee Stockholders, and
the amounts to be received upon consummation of the Merger and to be deposited
into the Escrow Funds by TOL Stockholders other than Arthur and Dennis and
Optionee Stockholders would not be affected.
Fractional Shares. No certificates for fractional Transamerica Common
Shares will be issued in the Merger, and, to the extent that an outstanding
share of TOL Common Stock or of TOL Preferred Stock would otherwise have become
a fractional Transamerica Common Share, the holder thereof, upon presentation of
such fractional interest represented by an appropriate Certificate for TOL
Common Stock or for TOL Preferred Stock to the Exchange Agent as described under
"-- Exchange Procedures," will be entitled to receive a cash payment therefor in
an amount equal to the value (determined with reference to the closing
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price of Transamerica Common Shares on the NYSE Composite Tape on the last full
trading day immediately prior to the Effective Time) of such fractional
interest.
TOL Options. TOL covenants in the Merger Agreement to use reasonable
efforts to cause unexpired and unexercised TOL Options to be exercised by the
holder thereof immediately prior to the Closing. Any TOL Option that remains
unexercised as of the Closing will be terminated as of the Closing, and will be
of no further force and effect. See "The Merger -- Interests of Certain Persons
in the Merger -- TOL Stock Ownership and TOL Options."
MERGER CONSIDERATION ADJUSTMENT
The number of Transamerica Common Shares to be received in the Merger will
be adjusted upward or downward based on the age of the Containers and Chassis
owned, managed and leased-in by TOL and the size and composition of its fleet of
Containers and Chassis, so as to reflect any difference between the Containers
and Chassis reported in the Preliminary Report delivered by TOL at the time of
signing the Merger Agreement as owned, managed and leased-in by it as of
December 31, 1995 and the Containers and Chassis reported in the Pre-Closing
Report as owned, managed or leased-in by TOL as of the month end immediately
preceding the Closing Date.
Following the Closing, a further adjustment will be made based on any
differences in the age of the Containers and Chassis owned, managed and
leased-in by TOL and the size and composition of TOL's fleet as reported in the
Pre-Closing Report and in the Closing Report, which is to reflect such
information as of the Closing Date.
In each of the foregoing reports, the age of equipment as of December 31,
1995 is not to be adjusted for the passage of time thereafter, and adjustments
will not be made to give effect to any change in the number of Containers and
Chassis which arises as a result of purchases, disposals or sales by TOL of
equipment made in the ordinary course of business during the period commencing
on January 1, 1996 and ending on the Closing Date.
ESCROW FUNDS
Pursuant to the Escrow Agreement, promptly following the Effective Time,
certificates representing Transamerica Common Shares with a total aggregate
value of $24,200,000 (calculated in accordance with the Deemed Average Share
Price) into which shares of TOL Common Stock are converted pursuant to the
Common Exchange Ratio will not be paid to holders of TOL Common Stock but will
instead be delivered to the Escrow Agent. Of such total amount, certificates
representing Transamerica Common Shares will be delivered to the Escrow Agent
for four separate Escrow Funds, initially having respective aggregate values,
calculated using the Deemed Average Share Price, of (i) $11,700,000 (Escrow Fund
A), (ii) $2,500,000 (Escrow Fund B), (iii) $1,000,000 (Escrow Fund C) and (iv)
$9,000,000 (the Adjustment Escrow Fund).
All dividends payable and distributions made in respect of Transamerica
Common Shares constituting the Escrow Funds, any portion of $2,700,000 allocated
to Merger Fees (as defined herein) which has not been paid out or spent in
accordance with the Merger Agreement within six months of the Effective Time,
and all interest on any cash portion of the Escrow Funds will be paid into
Escrow Fund A, in the case of the Merger Fees, and, in the case of any such
dividends, distributions or interest, into the applicable Escrow Fund to which
such dividends, distributions or interest relate and, if not used, to satisfy
expenses and claims of Transamerica thereunder or otherwise distributed
thereunder pursuant to the procedures relating to the Adjustment Escrow Fund,
will be distributed to Transamerica or proportionately to the TOL Stockholders
whose shares of TOL Common Stock are converted into Transamerica Common Shares
pursuant to the Merger. See "Amendment No. 1 Escrow Fund Provisions." To the
extent Merger Fees exceed $2,000,000, Transamerica is entitled to recover the
excess amount out of Escrow Fund A, and such recovery is not subject to any
deductible. TOL has advised Transamerica that the Merger Fees will approximate
$2,700,000.
No TOL Stockholder will have a right to sell, transfer, pledge, encumber or
otherwise dispose of, or to receive any certificates representing, any
Transamerica Common Shares paid into the Escrow Funds unless and until such
Transamerica Common Shares are released to TOL Stockholders pursuant to the
provisions of the Merger Agreement and the Escrow Agreement.
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Transamerica may make Claims against the Escrow Funds as follows: (i)
against Escrow Fund A for any and all Loss and Expenses arising from (a)
breaches by TOL, Arthur or Dennis of representations, warranties, covenants and
agreements in the Merger Agreement, (b) the failure of TOL to obtain, and Loss
and Expenses incurred in obtaining, certain consents in connection with the
Merger, and (c) costs of repairs (net of recoveries from third parties)
exceeding $200,000 to Containers or Chassis which are off-lease as of the
Closing Date ; (ii) against Escrow Fund B for costs associated with pursuing
recovery (the "CAVN Recovery") with respect to losses for equipment on hire to,
and accounts receivable owing from, CAVN, an existing bankrupt customer, and, to
the extent that on the second anniversary of the Closing Date the sum of (a) all
accounts receivable from CAVN on TOL's balance sheet as of December 31, 1995
(the "CAVN Receivables") and (b) the average value as of December 31, 1995 of
the Containers and Chassis on lease to CAVN on such date (the "CAVN Equipment"),
based on type, condition and age, exceeds the sum of (1) the portion of
collections of CAVN Receivables since December 31, 1995 which TOL is entitled to
retain, (2) bad debt reserves in the amount of $748,000 allocated to CAVN
Receivables, (3) insurance proceeds actually recovered by TOL or Transamerica
after December 31, 1995, (4) the average value of CAVN Containers and Chassis
recovered by TOL or Transamerica after December 31, 1995, based on its type,
status and age and derived from the relevant amounts set forth in the
Preliminary Report for Containers and Chassis meeting such description, and (5)
the amount of any of Transamerica's losses with respect to CAVN for which it is
compensated by managed container owners (any such excess of the sum of the
amounts derived from clauses (a) and (b) over the sum of the amounts derived
from clauses (1)-(5) being referred to herein as a "CAVN Claim"); (iii) against
Escrow Fund C for obligations arising out of the operation of TOL prior to the
Closing for sales and use taxes; and (iv) against the Adjustment Escrow Fund to
satisfy any Merger Consideration Adjustment in favor of Transamerica.
On the second anniversary of the Closing Date, the amounts remaining in
Escrow Fund A, Escrow Fund B and Escrow Fund C will be released proportionately
to TOL Common Stockholders whose shares of TOL Common Stock have been converted
into Transamerica Common Shares pursuant to the Merger Agreement and who
contributed Transamerica Common Shares to such Escrow Funds; provided that, to
the extent that on such second anniversary there continues to exist an
unresolved dispute regarding a Claim by Transamerica, the portion of the
applicable Escrow Fund that represents the amount of Transamerica's Claim will
be retained in such Escrow Fund until any dispute with respect to such Claim is
finally resolved; and provided, further, on such second anniversary that the
amount of any CAVN Claim will also be retained in Escrow Fund B for payment to
Transamerica pursuant to procedures for indemnification set forth in the Merger
Agreement. Following the definitive determination of the Closing Report, the
amounts remaining in the Adjustment Escrow Fund will be released to Transamerica
and/or to TOL Stockholders whose shares of TOL Common Stock have been converted
into Transamerica Common Shares pursuant to the Merger Agreement.
Pursuant to the Merger Agreement, Arthur and Dennis are entitled, at any
time after the first anniversary of the Closing Date, to cause the Escrow Agent
to sell up to 50% of the Transamerica Common Shares then remaining in any or all
of Escrow Fund A, Escrow Fund B or Escrow Fund C, and to cause the Escrow Agent
to invest and reinvest the proceeds as they from time to time deem advisable,
with such investment and reinvestment being subject to obtaining the consent of
Transamerica, which consent is not to be unreasonably withheld. Notwithstanding
the foregoing, amounts remaining in Escrow Fund B may, in certain circumstances
set forth in the Merger Agreement, be released proportionately to TOL Common
Stockholders prior to the second anniversary of the Closing Date.
Arthur and Dennis may extend the period of Escrow Fund A, Escrow Fund B
and/or Escrow Fund C beyond the second anniversary of the Closing Date for
purposes of satisfying certain other indemnification obligations, including
certain of such obligations for which Arthur and Dennis are also responsible if
and only to the extent that the value of the assets in the Escrow Fund exceeds
the amount of all Claims made by Transamerica and all other Indemnified Parties
(as defined herein) which may be payable out of the applicable Escrow Fund and
which have not been finally resolved. See "-- Indemnification." If amounts are
remaining in Escrow Fund A, Escrow Fund B and/or Escrow Fund C and, in
accordance with the Merger Agreement, are available at the expiration of the
applicable Escrow Fund to be delivered proportionately to
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TOL Common Stockholders whose shares were converted into Transamerica Common
Shares and who contributed Transamerica Common Shares to such Escrow Funds,
Arthur and Dennis are to be reimbursed from the amounts then remaining in the
Escrow Fund and which are so available for the fees and expenses of the Escrow
Agent which each shall have paid and for the accounting and legal fees and
expenses which each shall have paid on behalf of the TOL Stockholders in
connection with certain Claims for indemnification and any dispute relating to
the Closing Report.
If the assets in the Adjustment Escrow Fund are not sufficient to provide
Transamerica the quantity of Transamerica Common Shares to which it shall be
entitled by virtue of the Merger Consideration Adjustment, Arthur and Dennis are
jointly and severally obligated by the Merger Agreement to return to
Transamerica a number of Transamerica Common Shares having a value equal to the
amount by which the assets in the Adjustment Escrow Fund are insufficient.
In the event that any TOL Stockholder demands appraisal rights in
accordance with Section 262 of the DGCL ("Section 262") and obtains payment,
either as a result of an award by a court of competent jurisdiction or a
settlement of such proceeding, in an amount per share of TOL Common Stock which
is less than the Per Share Amount (as adjusted by the Merger Consideration
Adjustment for number of units, type of equipment and age of equipment),
Transamerica will deliver to the Escrow Agent an amount obtained by subtracting
such payment, as increased by costs incurred by Transamerica and TOL with
respect to the demand for appraisal rights, from the Per Share Amount (as
adjusted) and multiplying such remainder, if positive, by the number of shares
of TOL Common Stock subject to such appraisal rights (the resulting difference
being referred to as the "Shortfall Amount"), but not more than $3,000,000, for
distribution to the TOL Stockholders whose shares of TOL Common Stock were
converted into Transamerica Common Shares pursuant to the Merger.
AMENDMENT NO. 1 ESCROW PROVISIONS
Pursuant to the Merger Agreement as entered into, all of the TOL
Stockholders are required to contribute their pro rata share to the Escrow Funds
and do not have the right to sell, transfer, pledge, encumber or otherwise
dispose of (or to cause any of the foregoing to occur), or to receive any
certificates representing Transamerica Common Shares paid into the Escrow Funds
unless and until such Transamerica Common Shares are released to them pursuant
to the provisions of the Merger Agreement and the Escrow Agreement.
The TOL Stockholders are being asked to approve an amendment to the Merger
Agreement whereby (i) the Optionee Stockholders who will obtain shares of TOL
Common Stock as a result of the exercise of TOL options would not be obligated
to contribute to Escrow Funds A, B and C the specified pro rata portions of the
Transamerica Common Shares they receive in exchange for their shares of TOL
Common Stock acquired upon exercise of their Options and (ii) instead Arthur and
Dennis would increase their contributions of Transamerica Common Shares to such
Escrow Funds in an amount equal to the number of Transamerica Common Shares
which the Optionee Stockholders would no longer be required to contribute. The
Optionee Stockholders will not be relieved of their obligation to contribute a
pro rata portion of their Transamerica Common Shares to the Adjustment Escrow
Fund to provide a source of payment for certain adjustments in the purchase
price payable to Transamerica pursuant to the Merger Agreement. The amounts to
be received by Arthur and Dennis upon consummation of the Merger and to be
deposited into the Escrow Funds would be correspondingly adjusted to make up the
aggregate reduction in the Transamerica Common Shares resulting from the effect
of the Amendment No. 1 Escrow Provisions on Optionee Stockholders, and the
amounts to be received upon consummation of the Merger and to be deposited into
the Escrow Funds by TOL Stockholders other than Arthur and Dennis and Optionee
Stockholders would not be affected.
EXCHANGE PROCEDURES
HOLDERS OF SHARES OF TOL COMMON STOCK AND TOL PREFERRED STOCK SHOULD NOT
SEND IN THEIR TOL STOCK CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
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As soon as practicable after the Effective Time, a letter of transmittal
will be mailed to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of TOL
Common Stock or TOL Preferred Stock whose shares were converted into the right
to receive Transamerica Common Shares (the "Certificates"), to be used in
forwarding Certificates for surrender in exchange for certificates evidencing
Transamerica Common Shares to which such holder has become entitled and, if
applicable, cash in lieu of any fractional Transamerica Common Shares. After
receipt of such letter of transmittal, each holder of Certificates should
surrender such Certificates to the Exchange Agent pursuant to and in accordance
with the instructions accompanying such letter of transmittal, and each such
holder will receive in exchange therefor a certificate evidencing the whole
number of Transamerica Common Shares to which such holder is entitled and a
check representing the amount of cash payable in lieu of any fractional
Transamerica Common Shares, if any, and unpaid dividends and distributions, if
any, which such holder has the right to receive pursuant to the Merger
Agreement, after giving effect to any required withholding tax. No interest will
be paid or accrued on the cash in lieu of fractional shares and unpaid dividends
and distributions, if any, payable to holders of Certificates. Such letters of
transmittal will be accompanied by instructions specifying other details of the
exchange.
After the Effective Time, each Certificate, until so surrendered and
exchanged, will be deemed, for all purposes, to represent only the right to
receive upon surrender a certificate representing Transamerica Common Shares and
cash in lieu of fractional shares, if any, and unpaid dividends and
distributions, if any, as provided above. The holder of such unexchanged
Certificates will not be entitled to receive any dividends or other
distributions declared or made by Transamerica having a record date after the
Effective Time until the Certificate is surrendered. Subject to applicable laws,
upon surrender of such unexchanged Certificates, such dividends and
distributions, if any, will be paid without interest and less the amount of any
withholding taxes which may be required thereon.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Transamerica, Subcorp, TOL, Arthur and Dennis. Survival of representations and
warranties by TOL, Arthur and Dennis is generally two years from the Effective
Time, except that any representation or warranty as to which notice of a breach
giving rise to a right of indemnification has been given prior to the expiration
date of such representation or warranty will survive until any such right of
indemnification has been finally resolved. Representations and warranties of
Transamerica and Subcorp and of TOL, Arthur and Dennis with respect to (i) the
Containers and Chassis owned, managed and leased-in by TOL that are off-lease as
of July 10, 1996, (ii) brokerage and finders' fees and Merger Fees, (iii)
accounts receivable of TOL, (iv) officers and employees of TOL, (v) TOL labor
relations, (vi) TOL customer and supplier relationships, (vii) the Board of
Directors of TOL recommendation and (viii) state takeover laws will survive for
one year after the Effective Time. Representations and warranties made by TOL,
Arthur and Dennis as to taxes will survive for the applicable statute of
limitations. Any matters for which Transamerica may be entitled to
indemnification by Arthur and Dennis will survive indefinitely.
In the Merger Agreement, TOL, Arthur and Dennis represent and warrant
generally with respect to TOL and its subsidiaries concerning the following
matters, among others: (i) due organization and good standing; (ii) TOL's
subsidiaries and the ownership by TOL of any interest in another entity other
than its subsidiaries; (iii) TOL's corporate power and authority and approvals
with respect to the Merger; (iv) TOL's capitalization; (v) to the effect that
the Merger Agreement and the transactions contemplated thereby do not conflict
with, violate or breach TOL's charter documents, or other instruments or
obligations or any order, decree, law or regulation to which TOL, its
subsidiaries, or Arthur or Dennis is a party or is subject, or require any
action or consent of a third party or a Governmental Authority (as defined
herein) (other than actions required by the HSR Act and regulations or other
actions required under federal or state securities laws); (vi) that, since
December 31, 1995, TOL has conducted its business in the ordinary course and the
absence of a material adverse change; (vii) the filings of TOL under the
Exchange Act or the Securities Act; (viii) that TOL has filed all applicable tax
returns, has filed true and correct returns and reports, and has paid or, prior
to the Effective Time, will pay all taxes, interest and penalties required to be
paid in respect of the periods covered by
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such returns or reports to any federal, state, foreign, local or other taxing
authority; (ix) that TOL is, and has at all times since December 31, 1992, been
in compliance with all applicable laws; (x) proprietary rights; (xi) TOL's
Containers and Chassis and terms by which they are leased; (xii) title to and
sufficiency of tangible properties, and the adequacy of reserves relating to
bankrupt customers; (xiii) operating leases; (xiv) operations manuals; (xv)
depot agreements and purchase options relating to Containers and Chassis; (xvi)
the Registration Statement of which this Consent Solicitation
Statement/Prospectus is a part; (xvii) pending and threatened litigation, claims
and investigations; (xviii) brokerage and finders' fees and Merger Fees; (xix)
employee benefit plan matters; (xx) contracts; (xxi) accounts receivable; (xxii)
officers and employees; (xxiii) labor relation matters; (xxiv) undisclosed
liabilities; (xxv) customer and supplier relationships; (xxvi) operation of
TOL's business since December 31, 1995; (xxvii) TOL's possession of and
compliance with all necessary franchises, grants, authorizations, licenses and
other permits; (xxviii) environmental matters; and (xxix) Occupational Safety
and Health Act compliance, insurance, the Board of Directors of TOL
recommendation, state takeover laws, disclosure, powers of attorney, guarantees
and sureties, and accuracy of the Preliminary Report and Pre-Closing Report.
COVENANTS
Pursuant to the Merger Agreement, each of Transamerica and TOL has agreed
that it will use its reasonable efforts to take all action and to do all things
necessary, proper or advisable to consummate the Merger and make effective the
transactions contemplated by the Merger Agreement (including satisfying the
conditions precedent to the Merger), and to take any additional action that may
be necessary, proper or advisable in connection with any other notices to,
filings with, and authorizations, consents and approvals of any state, federal
or foreign governmental authority (each, a "Governmental Authority") that it may
be required to give, make or obtain.
Each of Transamerica and TOL has also agreed to file any Notification and
Report Forms and related materials that may be required to be filed with the FTC
and the Antitrust Division under the HSR Act with respect to the Merger
(collectively, "HSR Filings") (which HSR Filings required to date have been
made), support in good faith any HSR Filing made by the parties in connection
with the Merger, and use reasonable efforts to resolve any objections which may
be asserted with respect to the Merger in connection with the HSR Filings (with
Transamerica and its subsidiaries not being required to agree to divest or hold
separate any portion of the business or assets of Transamerica or TOL).
Additionally, each of Transamerica and TOL has agreed to use its reasonable
efforts to cause the Merger to constitute a tax-free "reorganization" under
Section 368(a)(2)(E) of the Code and to permit TOL's legal counsel to issue its
opinion to that effect.
Transamerica has agreed, among other things, (i) to use all reasonable
efforts to have the Registration Statement declared effective by the Commission
as promptly as practicable and to maintain the effectiveness of the Registration
Statement through the Effective Time, and to take such other action (other than
qualifying to do business in any jurisdiction in which it is not so qualified)
required to be taken under any applicable state securities laws in connection
with the issuance of Transamerica Common Shares in the Merger, and (ii) during
the period from the date of the Merger Agreement to the Effective Time, to use
its reasonable efforts to maintain and preserve its business organization and to
retain the services of its officers and key employees, and to maintain
relationships with customers, suppliers and other third parties to the end that
their goodwill and ongoing business will not be impaired in any material
respect.
TOL, Arthur and Dennis have agreed (i) to deliver to Transamerica a letter
identifying all persons who in TOL's reasonable determination are, at the time
the Merger Agreement is submitted to the TOL Stockholders, "affiliates" of TOL
for purposes of Rule 145 under the Securities Act, and to cause each person
identified as an affiliate to deliver to Transamerica before the Effective Time
a written agreement providing that each such person will agree not to sell,
pledge, transfer or otherwise dispose of the Transamerica Common Shares to be
received by such person in the Merger except in compliance with the applicable
provisions of the Securities Act and the applicable rules and regulations
thereunder, (ii) to deliver at the Closing to Transamerica a schedule of Merger
Fees theretofore paid and of Merger Fees owing and (iii) to give prompt notice
to
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Transamerica of (a) the occurrence or nonoccurrence of any event which would
cause any representation or warranty contained in the Merger Agreement to be
untrue or inaccurate at or prior to the Effective Time and (b) any material
failure of TOL to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it thereunder. TOL, Arthur and Dennis have also
agreed that (i) prior to the Effective Time, each of Arthur and Mr. Dennis will
execute and deliver to Transamerica a Consulting Agreement and a Non-Competition
Agreement, and (ii) prior to or at the Effective Time, any principal and accrued
and unpaid interest on notes outstanding pursuant to which Arthur, Mr. Dennis or
Trans Ocean Distribution Limited are indebted to TOL will be repaid.
CONDUCT OF BUSINESS OF TOL PENDING THE MERGER
TOL has agreed that, from the date of the Merger Agreement to the Effective
Time, it will conduct its operations in the ordinary course of business
consistent with past practice and it will use its reasonable efforts to maintain
and preserve its business organization and its material rights, to retain the
services of its officers and key employees and to maintain relationships with
customers, suppliers, licensees and other third parties to the end that their
goodwill and ongoing business will not be impaired in any material respect.
TOL has also agreed that, during the period between the date of the Merger
Agreement and the Effective Time, it will refrain from engaging in certain
specified actions, including, among others, prohibitions on the following: (i)
adjusting or reclassifying its capital stock, (ii) declaring and paying
dividends other than the regular quarterly dividend on TOL Preferred Stock
(which may not, in the aggregate, exceed $98,475 per quarter), (iii) selling or
mortgaging any of its property or assets other than sales of Containers and
Chassis or licensing of proprietary rights in the ordinary course of business,
(iv) proposing or making any changes in the Certificate of Incorporation of TOL
(the "TOL Certificate") or the By-Laws of TOL (the "TOL By-Laws"), (v) merging
or consolidating with any other person or acquiring a material amount of assets
or capital stock of any other person or entering into any confidentiality
agreement with any person, (vi) creating or assuming any indebtedness for the
obligations of any other individual, corporation or other entity other than in
the ordinary course of business consistent with past practice, (vii) creating
any subsidiaries, (viii) entering into or modifying any employment, severance,
termination or similar agreements, except (a) as otherwise provided in the
Merger Agreement or as required by applicable laws or (b) for arrangements
relating to Merger Fees, (ix) changing its method of doing business or its
method of accounting, (x) settling any suit, claim, action, proceeding or
investigation (an "Action") in an amount in excess of $50,000 or commencing any
such Action, (xi) settling or cancelling any debts owed to TOL, except in the
ordinary course of business, (xii) waiving, surrendering or releasing any rights
of TOL which have any material value, (xiii) modifying, amending, terminating or
assigning any material rights or claims with respect to any material contracts
or confidentiality agreements to which TOL is a party, (xiv) incurring or
committing to any capital expenditures which in the aggregate would exceed
$100,000, (xv) making any material changes to the policies or practices of TOL
relating to (a) extensions of credit, (b) collection of accounts receivable, (c)
maintenance and repair or (d) pricing and investment, (xvi) making any change in
the course of dealing with any of its suppliers, customers, employees or labor
unions or any other changes in its method of doing business which has or could
reasonably be expected to have a material adverse effect on TOL, (xvii) entering
into (a) any new operating leases in respect of its Containers and Chassis
(other than tank containers and refrigerated containers) that carries or is
likely to carry, 1,000 or more financial TEUs (each, a "FTEU"), in the case of
the Containers and Chassis, (b) any new operating lease, in respect of its tank
containers whether owned, leased or managed by TOL, that carries or is likely to
carry, 100 or more units or (c) any new operating lease in respect of its
refrigerated containers whether owned, leased or managed by TOL, that carries or
is likely to carry 100 or more units, (xviii) entering into any contract not in
the ordinary course of business, (xix) other than the payment of Merger Fees,
engaging in any transaction or arrangement with any affiliate of TOL (other than
its wholly owned subsidiaries), (xx) amending, modifying or changing an
agreement relating to the management of Containers and Chassis by third parties
existing as of the date of the Merger Agreement, (xxi) deviating in any material
respect from the direction and business philosophy reflected in TOL's business
plan or from the type of equipment purchases, the targeted proportion of the
Containers and Chassis to be owned by TOL and the targeted composition of TOL's
Containers and Chassis, (xxii) incurring any Merger Fees in excess of
$2,000,000, (xxiii) taking any action to exempt or make inapplicable under any
state takeover law or state law
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that purports to limit or restrict business combinations or the ability to
acquire or vote shares, any person or entity (other than Transamerica and its
subsidiaries) or any action taken thereby, to which person, entity or action
would have otherwise been subject to the restrictive provisions thereof and not
exempt therefrom, (xxiv) other than the transactions contemplated by the Merger
Agreement, enter into or carry out any other transaction other than in the
ordinary and usual course of business, (xxv) permitting or causing any
subsidiary to do any of the foregoing or agreeing or committing to do any of the
foregoing or (xxvi) agreeing in writing or otherwise taking any of the foregoing
actions.
NO SOLICITATION
Pursuant to the Merger Agreement, prior to the Effective Time, TOL has
agreed that it will not, and will not authorize or permit any of its
subsidiaries or any of its or its subsidiaries' directors, officers, employees,
agents or representatives, directly or indirectly, to, solicit, initiate,
encourage or facilitate, or furnish or disclose non-public information in
furtherance of, any inquiries or the making of any proposal with respect to any
recapitalization, merger, consolidation or other business combination involving
TOL, or acquisition of any capital stock or any material portion of the assets
(other than in the ordinary course of business consistent with past practice) of
TOL, or any combination of the foregoing (a "Competing Transaction"), or
negotiate, explore or otherwise engage in discussions with any person (other
than Transamerica, Subcorp or their respective directors, officers, employees,
agents and representatives) with respect to any Competing Transaction or enter
into any agreement, arrangement or understanding requiring it to abandon,
terminate or fail to consummate the Merger or any other transactions
contemplated by the Merger Agreement. TOL is required by the Merger Agreement to
immediately advise Transamerica in writing of the receipt, directly or
indirectly, of any inquiries or proposals relating to a Competing Transaction
and to promptly furnish Transamerica a copy of any such proposal in addition to
any information provided to or by any third party relating thereto.
CONDITIONS
The obligations of each of Transamerica and TOL to consummate the Merger
are subject to fulfillment of the following conditions, among others: (i) the
Merger and the transactions contemplated thereby will have been approved by the
TOL Stockholders, (ii) no temporary restraining order, preliminary or permanent
injunction or other order or decree which prevents the consummation of the
Merger will have been issued and remain in effect, and no statute, rule or
regulation will have been enacted by any Governmental Authority which prevents
the consummation of the Merger, (iii) all waiting periods applicable to the
consummation of the Merger under the HSR Act will have expired or been
terminated and (iv) the Commission will have declared the Registration Statement
effective, and, on the Closing Date and at the Effective Time, no stop order or
similar restraining order prohibiting the Merger will be threatened by the
Commission or entered by the Commission or any state securities administrator.
The obligations of TOL to consummate the Merger and the transactions
contemplated by the Merger Agreement are further subject to the fulfillment of
the following conditions: (i) the representations and warranties of each of
Transamerica and Subcorp will be true and correct in all material respects on
the date of the Merger Agreement and on and as of the Closing Date (except for
those made as of a specified date, which need be true and correct only as of the
specified date) and Transamerica and Subcorp will have furnished a certificate
signed by an officer to the effect that this condition has been satisfied, (ii)
each of Transamerica and Subcorp will have performed in all material respects
each of its obligations and agreements and will have complied in all material
respects with each covenant to be performed and complied with by it under the
Merger Agreement at or prior to the Effective Time, and Transamerica and Subcorp
will have furnished a certificate signed by an officer to the effect that this
condition has been satisfied, (iii) the Transamerica Common Shares to be issued
in the Merger will have been authorized for listing on the NYSE, subject to
official notice of issuance, (iv) TOL will have received a legal opinion from
Transamerica's counsel, (v) TOL will have received fully executed counterparts
of the Escrow Agreement and (vi) TOL will have received an opinion of its
counsel substantially to the effect that the Merger will constitute a
"reorganization" under Section 368(a) of the Code.
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The obligations of Transamerica and Subcorp to consummate the Merger and
the other transaction contemplated by the Merger Agreement are further subject
to fulfillment of the following conditions: (i) the representations and
warranties of TOL, Arthur and Dennis will be true and correct in all material
respects on the date of the Merger Agreement and on and as of the Closing Date
(except for those made as of a specified date, which need be true and correct
only as of the specified date), (ii) TOL, Arthur and Dennis will have performed
in all material respects each of its obligations and agreements and will have
complied in all material respects with each covenant to be performed and
complied with by it under the Merger Agreement at or prior to the Effective
Time, (iii) (a) TOL will have furnished Transamerica with a certificate dated
the Closing Date signed by an officer on its behalf and (b) each of Arthur and
Dennis will have furnished Transamerica with a certificate dated the Closing
Date, in each case, to the effect that the immediately preceding two conditions
have been satisfied, (iv) Transamerica will have received a legal opinion from
TOL's counsel, (v) the Consulting Agreements, the Non-Competition Agreements and
the Escrow Agreement will have been fully executed and delivered to
Transamerica, (vi) there will not have been a breach of any obligation,
agreement or covenant of Arthur or Dennis contained in the Merger Agreement or
in any Support/Voting Agreement, which breach has not been cured or is
immaterial, (vii) Transamerica will have received the Pre-Closing Report,
reporting the number of Containers and Chassis owned, managed and leased-in by
TOL as of the month end before the Closing, and all other information which, in
accordance with the Merger Agreement, is to be delivered to Transamerica after
the date of execution of the Merger Agreement and containing the information to
be set forth therein, (viii) TOL will have obtained certain necessary
third-party consents and approvals and the Transamerica Common Shares to be
issued in the Merger will have been qualified under applicable state securities
or blue sky laws, (ix) all unexpired and unexercised TOL options outstanding
immediately prior to the Closing will have been exercised, or terminated and
cancelled effective upon the Effective Time, and the Kantz Approval will have
been given by the TOL Stockholders, (x) no Action shall be instituted by any
Governmental Authority and continuing which (a) seeks to prevent or challenges
the validity or legality of the transactions contemplated by the Merger
Agreement, including the Merger, (b) seeks material damages in connection with
the transactions contemplated by the Merger Agreement which continues to be
outstanding or (c) seeks to impose any material limitation on the operations,
businesses or assets of TOL, Transamerica or Subcorp, (xi) no event will have
occurred which has resulted in or could result in a material adverse effect on
the assets, liabilities, results of operations, prospects, business or financial
condition of TOL, except (a) changes, events, occurrences or developments
prevailing throughout the container leasing industry and certain other adverse
developments resulting from the announcement or expectation of the Merger, (xii)
the Closing Agreement on Final Determination Covering Specific Matters between
TOL and the Commissioner of Internal Revenue will be in full force and effect,
(xiii) if the form of the Merger is for TOL to be merged into Subcorp,
Transamerica will have received an opinion of its counsel substantially to the
effect that the Merger will constitute a "reorganization" under Section 368(a)
of the Code and (xiv) the spouses of each of Arthur and Mr. Dennis will have
executed a consent to the Merger in a form previously agreed to.
INDEMNIFICATION
The Merger Agreement provides that, subject to certain exceptions specified
in the Merger Agreement, Transamerica, its affiliates, and their respective
officers, directors, agents, employees, subsidiaries (including after the
Effective Time, TOL), partners and controlling persons (the "Indemnified
Parties") may seek indemnification to the fullest extent permitted by law,
solely from the Escrow Funds, for any and all damages (excluding, other than
with respect to third-party claims, special and consequential damages), Losses
and Expenses suffered, directly or indirectly, by any Indemnified Party by
reason of, or arising out of (i) any breach of any representation or warranty,
or covenant or agreement, made by or on behalf of TOL, Arthur or Dennis under
the Merger Agreement or associated documents, (ii) obligations arising out of
the operation of TOL prior to the Closing for sales and use taxes, (iii) the
failure to obtain, and any Loss and Expenses incurred in obtaining, any consents
of third parties, other than as agreed to by the parties and (iv) the cost of
repair of Containers and Chassis owned, managed or leased-in by TOL which are
off-lease as of the Closing Date to the extent such costs (net of recoveries
from third parties) exceed $200,000.
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In addition, pursuant to the Merger Agreement, Arthur and Dennis have
agreed to jointly and severally indemnify and hold harmless each Indemnified
Party (except that each of Arthur and Dennis agrees to severally and not jointly
indemnify and hold harmless each Indemnified Party with respect to any breach by
Arthur or Dennis, as the case may be, of any provision of the Support/Voting
Agreements or the Non-Competition Agreements which such party enters into), from
and against all Loss and Expenses suffered, directly or indirectly, by any
Indemnified Party by reason of or arising out of (i) tax obligations arising out
of the operation of TOL prior to the Closing or the loss of tax benefits arising
from the inaccuracy of a specified tax representation, (ii) any Action by or on
behalf of a TOL Stockholder which seeks to prevent consummation of the Merger or
relates to the Escrow Funds, (iii) the demand by a TOL Stockholder of appraisal
rights under the DGCL, to the extent that the Loss and Expenses therefrom exceed
the amount such TOL Stockholder would have been entitled to receive, valued at
the Per Share Amount (as adjusted), had such TOL Stockholder not exercised
appraisal rights, (iv) any breach of any provision of the Merger Agreement
arising out of fraud on the part of TOL, Arthur or Dennis, (v) any breach by
Arthur or Dennis of any provision of the Support/Voting Agreement, the
Non-Competition Agreement or certain other undertakings in the Merger Agreement
or (vi) intentional breaches of the covenants set forth in the Merger Agreement.
Remedies for such Loss and Expenses will not be limited to the Escrow Funds, but
will instead be unlimited, provided that in no event will either Arthur or
Dennis be liable for an amount which exceeds the consideration actually received
by such person or member(s) of such person's family.
Following the second anniversary of the Closing Date, Arthur and Dennis may
use the proceeds remaining in any of Escrow Fund A, Escrow Fund B or Escrow Fund
C to satisfy some or all of the indemnification obligations they may have for
the matters referred to in clauses (i), (ii), (iii) and (vi) of the immediately
preceding paragraph (if, in the case of clause (vi), the relevant action was not
done or permitted by Arthur or Dennis) or with respect to the CAVN Recovery if
and only to the extent that, at the second anniversary of the Closing Date, the
value of the assets remaining in the applicable Escrow Fund exceeds the amount
of all Claims made by Transamerica and all other Indemnified Parties which may
be payable out of the applicable Escrow Fund and which have not been finally
resolved. If, following the second anniversary of the Closing Date, any such
Claim is finally resolved for an amount which is less than the amount of the
related Claim, the amount of the applicable Escrow Fund which equals the amount
by which the Claim exceeded the final resolution amount will also be available
to satisfy the indemnification obligations of Arthur and Dennis.
If and to the extent such indemnification is unenforceable for any reason,
the Indemnified Parties will be entitled to payment and satisfaction of such
indemnified liability that will be permissible under applicable laws. Each
Indemnified Party will be entitled to reimbursement for all such expenses
(including fees and disbursements of counsel) as they are incurred by such
Indemnified Party, to the extent that such claims are not disputed in good
faith, in which event such expenses will be reimbursed, if at all, when such
claims are resolved.
Notwithstanding any provision to the contrary in the Merger Agreement,
Transamerica will be entitled to indemnification in the case of breach of any
representation or warranty made by or on behalf of TOL, Arthur or Dennis only if
the aggregate Loss and Expenses for which Transamerica would be entitled to
indemnification in such case exceeds $250,000, in which case Transamerica will
be entitled to indemnification for the aggregate of its Loss and Expenses only
to the extent such amounts in the aggregate exceed the $250,000 amount,
provided, however, that the $250,000 deductible will not apply to breaches of
representations and warranties regarding (i) TOL's capitalization and
indebtedness agreements, (ii) TOL's Containers and Chassis and the terms by
which they are leased, (iii) the title to and sufficiency of properties and the
adequacy of reserves relating to bankrupt customers, (iv) title and (v) accuracy
of the Preliminary Report delivered by TOL to Transamerica upon the execution of
the Merger Agreement and of the Pre-Closing Report, in each case, for which
Transamerica will be entitled to be indemnified for the full amount of its Loss
and Expense. For purposes of determining if an Indemnified Party is entitled to
indemnification under the Merger Agreement, all representations and warranties
contained in the Merger Agreement will be considered without reference to
materiality, material adverse effect or knowledge qualifiers.
The Merger Agreement specifies the procedure for claiming indemnification,
including the submission of written notice of such Claim and mechanisms to
resolve disputes relating to any such Claim.
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Transamerica agrees that, following the Effective Time, it will direct and
use reasonable efforts to pursue the CAVN Recovery of all CAVN Receivables and
the CAVN Equipment, to the extent not theretofore recovered. Transamerica will
be indemnified for its reasonable costs and expenses actually incurred in
pursuing and/or effectuating the CAVN Recovery out of the Transamerica Common
Shares and other assets constituting Escrow Fund B. Two years after the Closing
Date, Transamerica will be indemnified out of Escrow Fund B for the amount by
which the sum of (i) the CAVN Receivables as reflected on TOL's balance sheet as
of December 31, 1995 and (ii) the average value as of December 31, 1995 of the
CAVN Equipment, based on its type, status and age and derived from the relevant
amounts set forth in the Preliminary Report for Containers and Chassis meeting
such description, exceeds the sum of (a) the portion of collections of CAVN
Receivables since December 31, 1995 which TOL is entitled to retain, (b) bad
debt reserves in the amount of $748,000 allocated to the CAVN Receivables, (c)
insurance proceeds actually recovered by Transamerica with respect to CAVN, (d)
the average value of CAVN Containers and Chassis recovered by TOL or
Transamerica after December 31, 1995, based on its type, status and age and
derived from the relevant amounts set forth in the Preliminary Report for
Containers and Chassis meeting such description and (e) the amount of any of
Transamerica's losses with respect to CAVN for which it is compensated by
managed container owners.
TERMINATION; EFFECT OF TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval and adoption of the Merger Agreement by
TOL Stockholders, (i) by mutual consent of Transamerica and TOL, (ii) by either
Transamerica or TOL if any permanent injunction or other order of a court or
other competent Governmental Authority preventing the consummation of the Merger
becomes final and non-appealable, (iii) by either Transamerica or TOL if the
Merger is not consummated before December 31, 1996, unless such date is extended
by the Boards of Directors of both Transamerica and TOL (provided that the right
to terminate the Merger Agreement is not available to any party whose failure or
whose affiliate's failure to perform any material covenant or obligation under
the Merger Agreement has been the cause of or resulted in the failure of the
Merger to occur on or before such date), (iv) by either Transamerica or TOL (a)
upon, in the case of Transamerica, TOL's, Arthur's or Dennis', or, in the case
of TOL, Transamerica's or Subcorp's material violation of the Merger Agreement
or the failure of such other party to perform any material obligation or satisfy
any material condition, (b) if any representation or warranty of, in the case of
Transamerica, TOL, Arthur or Dennis, or, in the case of TOL, Transamerica or
Subcorp, is false or inaccurate such that the condition requiring that the
representations and warranties of the parties be true and correct in all
material respects is not reasonably expected to be satisfied or (c) upon a
breach by the other party of obligations under the Merger Agreement to make
appropriate filings and take other actions in connection with the HSR Act, (v)
by Transamerica if the Board of Directors of TOL withdraws, modifies or changes
its recommendation of the Merger Agreement or the Merger in a manner adverse to
Transamerica, or if the Board of Directors of TOL has refused to affirm such
recommendation within two days of any written request from Transamerica, (vi) by
Transamerica if the TOL Special Meeting is concluded and the requisite vote of
the TOL Stockholders to approve the Merger and the transactions contemplated by
the Merger Agreement is not obtained, or (vii) by Transamerica if Arthur or
Dennis breaches the Merger Agreement or the Support/Voting Agreements, and such
breach is not cured or is immaterial.
The Merger Agreement provides that, if the Merger Agreement is terminated
in accordance with the provisions described in the immediately preceding
paragraph, the Merger Agreement will become void and have no effect, without any
liability on the part of any party or its directors, officers or stockholders.
Notwithstanding the foregoing, the termination of the Merger Agreement will not
relieve any party of liability for a material breach of any provision of the
Merger Agreement and no such liability will in any way be limited by the
indemnification provisions of the Merger Agreement.
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AMENDMENT AND WAIVER
The Merger Agreement may be amended in writing by the parties thereto by
action taken or authorized by their respective Boards of Directors at any time
before or after approval and adoption of the Merger Agreement by the TOL
Stockholders, but, after any such approval, no amendment may be made which by
law requires further approval by the TOL Stockholders without such further
approval.
At any time prior to the Effective Time, Transamerica (with respect to TOL,
Arthur and Dennis) or TOL (with respect to Transamerica and Subcorp), by action
taken or authorized by their respective Boards of Directors, may, to the extent
legally allowed, (i) extend the time for performance of any of the obligations
or other acts of such party, (ii) waive any inaccuracies in the representations
and warranties contained in the Merger Agreement or any document delivered
pursuant thereto, and (iii) waive compliance with any of the agreements or
conditions contained therein; provided that such extension or waiver is set
forth in a written document signed on behalf of such party.
EXPENSES
Transamerica and TOL will bear their own expenses in connection with the
negotiation, preparation, execution and consummation of the Merger Agreement and
related documentation and stockholders' meetings and consents whether or not the
Merger is consummated. Accordingly, TOL will pay, among other items, fees and
expenses payable to all attorneys, accountants, investment bankers, financial
advisors and other experts and advisors incident to negotiation, preparation,
execution and consummation of the Merger Agreement and related documents and
stockholders' meetings and consents (the "Merger Fees"). TOL has agreed that the
aggregate Merger Fees owed or which will be owing by TOL to investment bankers,
financial advisors, attorneys or accountants will not exceed $2,700,000. For
information concerning expenses of the Escrow Agent and related matters, see
"-- Escrow Funds."
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KANTZ APPROVAL PROPOSAL
Kantz, an executive officer and director of TOL, holds incentive and
non-statutory TOL Options to purchase an aggregate of 1,858 shares of TOL Common
Stock. Pursuant to the Merger Agreement, approval by TOL Stockholders of the
Kantz Approval Proposal is a condition to the Closing of the Merger. Although
the TOL Options held by Kantz by their terms provide for acceleration in
connection with the Merger, such approval is necessary to permit the
acceleration, in connection with the Merger, of TOL Options held by Kantz not to
result in an excess "parachute payment" within the meaning of Section 280G of
the Code. A payment to an individual generally is classified as a "parachute
payment" if the amount of the payment exceeds 300% of such individual's average
annualized compensation as defined in the Code during the five most recent
taxable years ending before the closing of the Merger (or the portion of such
period during which the employee was employed at TOL) (the "Base Amount"). In
that event, Kantz will be required to pay a 20% excise tax on the portion of the
value of Kantz's TOL Options that exceeds his Base Amount, and any deductions to
which TOL would otherwise be entitled to relating to Kantz's TOL Options would
be disallowed. These adverse tax consequences will not apply, however, if the
Kantz Approval Proposal is approved by a vote of more than 75% of the
outstanding shares of TOL's capital stock as described below. The TOL Options
held by Kantz will not be accelerated without such approval. See "Action By
Written Consent of Stockholders -- Matters to be Considered."
In order to avoid these adverse tax consequences to TOL and to Kantz, TOL
is seeking stockholder approval of the Kantz Approval Proposal.
DISCUSSION
A disqualified individual is defined in the Code as an employee or
independent contractor who performs services for a company and who is either an
officer, significant stockholder or "highly compensated" individual. Kantz falls
within the definition of a disqualified individual due to his status as an
officer and a highly compensated individual.
A disqualified individual who receives payments in the nature of
compensation contingent on a change in the ownership or effective control of TOL
("Contingent Compensation Payments") may be subject to the Code's "golden
parachute" provisions. In general, a payment is treated as contingent on a
change of control if such payment would not in fact have been made had no change
in ownership or control occurred. A payment that would in fact have been made
had no change in control occurred is nevertheless treated as a contingent
payment if such change in control accelerates the time at which the payment is
made. However, if it is substantially certain that the payment would have been
made in the absence of the change in control, but the payment is treated as
contingent upon the change in control solely because the change in control
accelerates the timing of the payment, then only a portion of such payment will
be treated as a contingent payment. In this event, the portion of the payment
that is treated as a contingent payment is equal to the amount by which the
accelerated payment exceeds the present value of the payment absent
acceleration, determined as of the date on which the accelerated payment is
made.
A special calculation applies to contingent payments which have been
accelerated by a change in control and which were substantially certain to have
been made without regard to the change in control only if a disqualified
individual had continued to perform services for TOL for a given amount of time
(e.g., unvested options). This special calculation treats a contingent payment
the lesser of: (i) the amount of the accelerated payment or (ii) the amount by
which the accelerated payment exceeds the present value of the payment that was
expected to have been made absent acceleration, plus an amount that reflects the
lapse of a disqualified individuals's obligation to continue to perform
services.
Accordingly, a significant portion of the TOL Options held by Kantz will be
treated as a Contingent Compensation Payment. That portion will be based on the
value of the acceleration of the payment and the value of the lapse of Kantz's
obligation to perform services during the vesting period.
Contingent Compensation Payments will constitute parachute payments if the
aggregate present value of all Contingent Payments to the recipient equals or
exceeds 300% of such person's Base Amount. Parachute
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payments will generally be deemed to be excess parachute payments under the Code
to the extent the parachute payments exceed 100% of the employee's Base Amount.
Recipients of such excess parachute payments will be required to pay a 20%
excise tax thereon, which tax, in addition to the regular income tax, must be
withheld under the normal withholding rules. In addition, excess parachute
payments may not be deducted for federal income tax purposes by the corporation
which makes them.
A parachute payment does not include any payment made to a disqualified
individual by a corporation if (i) immediately before the change in control, no
stock in the corporation was readily tradeable on an established securities
market or otherwise; (ii) such payment is approved by a vote of persons who
owned, immediately before the change in control, more than 75% of the voting
power of all outstanding stock of the corporation; (iii) there is adequate
disclosure to the stockholders of all material facts concerning payments which
might be deemed to be parachute payments but for said stockholder approval; and
(iv) such payment could not be made without such approval.
TOL is submitting for stockholder approval the Kantz Approval Proposal.
Stockholders should realize that such approval is being sought to obtain a
safe-harbor under Section 280G of the Code and that SUCH APPROVAL IS A CONDITION
TO THE MERGER.
The affirmative vote of holders of more than 75% of the votes of TOL Common
Stock and TOL Preferred Stock, on an as-converted basis, voting together as a
single class is required to avoid potentially adverse tax consequences under
Section 280G of the Code (excluding for the purpose of such votes any shares
held by Kantz).
THE BOARD OF DIRECTORS OF TOL UNANIMOUSLY RECOMMENDS THAT THE TOL STOCKHOLDERS
VOTE TO APPROVE THE KANTZ APPROVAL PROPOSAL.
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RIGHTS OF DISSENTING TOL STOCKHOLDERS
If the Merger is consummated, TOL Stockholders who comply with the
procedures of Section 262 are entitled to have the "fair value" of their shares
determined by the Delaware Court of Chancery (the "Delaware Court") and to
receive payment for the "fair value" of such shares. Section 262 is reprinted in
its entirety as Annex B, to this Consent Solicitation Statement/Prospectus. The
following discussion is not a complete statement of the law relating to
appraisal rights and is qualified in its entirety by reference to Annex B, and
to any amendments thereto, after the date of this Consent Solicitation
Statement/Prospectus. This discussion and Annex B should be reviewed carefully
by any TOL 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.
TOL Stockholders of record who desire to exercise their appraisal rights
must (i) hold shares of TOL Stock on the date of making a demand for appraisal;
(ii) make a written demand for appraisal within 20 days after the date on which
TOL mails the Appraisal Notice (as defined herein) to all TOL Stockholders;
(iii) continuously hold such shares through the Effective Time; (iv) not vote in
favor of the Merger nor consent thereto in writing; (v) file any necessary
petition in the Delaware Court, as more fully described below, within 120 days
after the Effective Time; and (vi) otherwise satisfy all of the conditions
described more fully below.
A record holder of shares of TOL Stock who makes the demand described below
with respect to such shares, who continuously is the record holder of such
shares through the Effective Time, who otherwise complies with the statutory
requirements of Section 262 and who neither votes in favor of the Merger nor
consents thereto in writing will be entitled to an appraisal by the Delaware
Court of the fair value of such holder's shares of TOL Stock. All references in
Section 262 and in this summary of appraisal rights to a "TOL Stockholder" or
"holders" of shares are to the record holder or holders of shares of TOL Stock.
Pursuant to Section 262(d)(2) of the DGCL, prior to the Closing Date, TOL,
or within 10 days thereafter, the Surviving Corporation, must notify each TOL
Stockholder entitled to appraisal rights of the effective date of the Merger and
that appraisal rights are available (the "Appraisal Notice"). Holders of shares
of TOL Stock who desire to exercise their appraisal rights must not vote in
favor of the Merger and must deliver a separate written demand for appraisal to
TOL within 20 days after the date on which TOL or the Surviving Corporation
mails the Appraisal Notice. A demand for appraisal must be executed by or on
behalf of the holder of record, fully and correctly, as such holder's name
appears on the Certificate or Certificates representing shares of TOL Stock. A
person having a beneficial interest in shares of TOL Stock that are held of
record in the name of another person, such as a broker, fiduciary or other
nominee, must act promptly to cause the record holder to follow the steps
summarized herein properly and in a timely manner to perfect whatever appraisal
rights are available. If shares of TOL Stock are owned of record by a person
other than the beneficial owner, including a broker, fiduciary (such as a
trustee, guardian or custodian) or other nominee, such demand must be executed
by or for the record owner. If shares of TOL Stock 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 joint owners. An authorized agent, including an agent for
two or more joint owners, may execute the demand for appraisal for a TOL
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, fiduciary or other nominee, who holds
shares of TOL Stock 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 case, the written demand
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
of TOL Stock outstanding in the name of such record owner.
A TOL Stockholder who elects to exercise appraisal rights should mail or
deliver his or her written demand to: Trans Ocean Ltd, 851 Traeger Avenue, San
Bruno, California 94066, Attention: Secretary. The written demand for appraisal
should specify the TOL Stockholder's name and mailing address, the number of
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shares of TOL Stock owned, and that the holder is thereby demanding appraisal of
such holder's shares. A vote against the Merger will not constitute such a
demand.
Within 120 days after the Effective Time, either TOL, or any holder who has
complied with the required conditions of Section 262, may file a petition in the
Delaware Court, with a copy served on TOL in the case of a petition filed by a
holder, demanding a determination of the fair value of the shares of all
Dissenting TOL Stockholders. TOL does not presently intend to file an appraisal
petition, and holders seeking to exercise appraisal rights should not assume
that TOL will file such a petition or that TOL will initiate any negotiations
with respect to the fair value of such shares. Accordingly, TOL Stockholders who
desire to have their shares appraised should initiate any petitions necessary
for the perfection of their appraisal rights within the time periods and in the
manner prescribed in Section 262. Within 120 days after the Effective Time, any
TOL Stockholder who has theretofore complied with the applicable provisions of
Section 262 will be entitled, upon written request, to receive from TOL a
statement setting forth the aggregate number of shares of TOL Stock with respect
to which demands for appraisal were received by TOL and the number of holders of
such shares. Such statement must be mailed within 10 days after the written
request therefor has been received by TOL or within 10 days after expiration of
the time for delivery of demands for appraisal under Section 262, whichever is
later.
If a petition for an appraisal is timely filed at the hearing on such
petition, the Delaware Court will determine which holders are entitled to
appraisal rights and will appraise shares of TOL Stock owned by such holders,
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 Court is to take into
account all relevant factors. In Weinberger v. UOP Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating 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 light on future
prospects of the merged corporation. In Weinberger, the Delaware Supreme Court
stated 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." Section 262, however, provides that
fair value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
TOL Stockholders considering seeking appraisal should recognize 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 Agreement if they do not seek appraisal of their shares. The cost of the
appraisal proceeding may be determined by the Delaware Court and taxed against
the parties as the Delaware Court deems equitable in the circumstances. Upon
application of a Dissenting TOL Stockholder, the Delaware Court may order that
all or a portion of the expenses incurred by any Dissenting TOL 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 holder of shares of TOL Stock who has duly demanded appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
vote for any purpose any shares subject to such demand or to receive payment of
dividends or other distributions on such shares, except for dividends or
distributions payable to stockholders of record at a date prior to the Effective
Time.
At any time within 60 days after the Effective Time, any TOL Stockholder
will have the right to withdraw such demand for appraisal and to accept the
terms offered in the Merger. After this period, such TOL Stockholder may
withdraw such demand for appraisal only with the consent of TOL. If no petition
for appraisal is filed with the Delaware Court within 120 days after the
Effective Time, holders' rights to appraisal will cease and all holders of
shares of TOL Stock will be entitled to receive the consideration offered
pursuant
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to the Merger Agreement. Inasmuch as the Surviving Corporation has no obligation
to file such a petition, and has no present intention to do so, any holder of
share of TOL Stock who desires such a petition to be filed is advised to file it
on a timely basis.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General. The following is a summary description of the material federal
income tax consequences of the Merger. This summary is not a complete
description of all of the consequences of the Merger, and, in particular, may
not address federal income tax considerations that may affect the treatment of a
stockholder which, at the Effective Time, already owns some Transamerica Common
Shares, is not a U.S. person, is a tax-exempt entity, is a dealer in securities
or is an individual who acquired TOL Common Stock pursuant to an employee stock
option or otherwise in a compensatory transaction. In addition, no information
is provided herein with respect to the tax consequences of the Merger under
applicable foreign, state or local laws. Consequently, each TOL Stockholder is
advised to consult a tax advisor as to the specific tax consequences of the
transaction to that stockholder. The following discussion is based on the Code,
as in effect on the date of this Consent Solicitation Statement/Prospectus,
without consideration of the particular facts or circumstances of any holder of
TOL Common Stock or TOL Preferred Stock.
The Merger. In the event that the Surviving Corporation is TOL, TOL's
obligation to effect the Merger is conditioned on delivery of an opinion to TOL
from Cooley Godward Castro Huddleson & Tatum, its special counsel, dated as of
the Effective Time, based upon certain customary representations and assumptions
set forth therein (including an assumption, based upon representations,
concerning the "continuity of interest" requirement discussed below),
substantially to the effect that for federal income tax purposes the Merger
constitutes a "reorganization" within the meaning of Section 368(a) of the Code.
If the Surviving Corporation of the Merger is Subcorp, TOL's obligation to
effect the Merger is conditioned on delivery of such a tax opinion by its
special counsel and Transamerica's obligation to effect the Merger is
conditioned on delivery of such an opinion to it from Wachtell, Lipton, Rosen &
Katz, its special counsel.
Based on such opinions, the material federal income tax consequences of the
Merger will be:
(a) No gain or loss will be recognized by the TOL Stockholders who
receive solely Transamerica Common Shares in the Merger.
(b) If a TOL Stockholder receives, in addition to Transamerica Common
Shares, cash or other property in the Merger, then subject to paragraph
(c), such stockholder will recognize gain (but not loss) with respect to
the Merger in an amount equal to the lesser of (i) the difference between
the fair market value of the Transamerica Common Shares and any other
property (including cash) received by such stockholder in the Merger
(reduced by any amount treated as a dividend, as discussed in paragraph (c)
below) and such stockholder's basis in the TOL Stock, and (ii) the amount
of cash and the market value of property received in the transaction other
than Transamerica Common Shares. TOL Stockholders who purchased their stock
at different times and prices should consult with their tax advisors, as
there may be several alternative methods available for determining gain
with respect to such stock.
(c) If the receipt of cash or other property described in paragraph
(b) has the effect of a dividend under section 301 of the Code, then
notwithstanding paragraph (b), such stockholder will be treated as
receiving a dividend in an amount equal to the lesser of (i) the difference
between the amount of cash and the fair market value of the Transamerica
Common Shares and any other property received in the Merger and the
stockholder's basis in the TOL Stock, (ii) the amount of cash and the fair
market value of any assets (other than Transamerica Common Shares) received
by such stockholder in the Merger and (iii) such stockholder's ratable
share of the earnings and profits of TOL. The remainder, if any, will be
treated as gain from the exchange of property to the extent provided for in
paragraph (b), above. Dividend treatment should not apply to a TOL
Stockholder who owns no Transamerica Common Shares prior to the Merger.
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(d) If a TOL Stockholder receives solely Transamerica Common Shares in
the Merger, that stockholder's aggregate basis in the Transamerica Common
Shares received (including Escrow Shares) will be the same as the aggregate
basis in TOL Stock surrendered in exchange therefor.
(e) If a TOL Stockholder receives other property in the Merger in
addition to Transamerica Common Shares, such stockholder's aggregate basis
in the Transamerica Common Shares received will be the same as the
aggregate basis in the stock surrendered in exchange therefore, reduced by
the amount of cash and the fair market value of any property (other than
Transamerica Common Shares) received by such stockholder, and increased by
any amounts treated as a dividend and any gain recognized on the Merger.
(f) A TOL Stockholder's holding period for the Transamerica Common
Shares received in the Merger will include the period during which the
shares of TOL Stock surrendered were held, provided that the surrendered
stock is a capital asset at the Effective Time.
(g) A TOL Stockholder who receives cash proceeds in lieu of a
fractional share interest in Transamerica Common Shares or a holder of
Dissenting TOL Stock who receives cash instead of Transamerica Common
Shares will recognize gain or loss equal to the difference between such
proceeds and the tax basis allocated to the fractional share interest or
the holder's tax basis in the Dissenting TOL Stock, as the case may be, and
such gain or loss will constitute capital gain or loss if such
stockholder's TOL Stock with respect to which gain or loss is recognized is
held as a capital asset at the Effective Time.
(h) No gain or loss will be recognized by TOL, Subcorp or Transamerica
as a result of the Merger.
The foregoing discussion is based on the assumption that the "continuity of
interest" requirement will be satisfied in the Merger. In order for this
requirement to be met, stockholders of TOL must not, pursuant to a plan or
intent existing at or prior to the Merger, dispose of so much of (i) their TOL
Stock in anticipation of the Merger, plus (ii) the Transamerica Common Shares
received in the Merger (collectively, the "Planned Dispositions") such that the
TOL Stockholders, as a group, would no longer have a "significant equity
interest" in the TOL business being conducted by Transamerica after the Merger.
A TOL Stockholder will generally be regarded as having a significant equity
interest as long as the Transamerica Common Shares received in the Merger (after
taking into account Planned Dispositions), in the aggregate, represent a
"substantial portion" of the entire consideration received by the TOL
Stockholders in the Merger. This requirement is frequently referred to as the
"continuity of interest" requirement. If the continuity of interest requirement
is not satisfied, the Merger would not be treated as a reorganization. The law
is unclear as to what constitutes a "significant equity interest" or a
"substantial portion." The Internal Revenue Service ("IRS") ruling guidelines
require 50% continuity (although such guidelines do not purport to represent the
applicable substantive law). The case law appears to be more liberal, however,
and in one early case, the Supreme Court ruled that approximately 40% continuity
was sufficient. No assurance can be made that the "continuity of interest"
requirement will be satisfied, and if such requirement is not satisfied, the
Merger would not be treated as a reorganization.
A successful IRS challenge to the "reorganization" status of the Merger
would result in all TOL Stockholders recognizing gain or loss with respect to
each share of TOL Stock surrendered equal to the difference between the fair
market value, as of the time of the Merger, of the Transamerica Common Shares
and the amount of cash and other property received in exchange therefor and the
stockholders' basis in such share of TOL Stock. In such event, the TOL
Stockholder's aggregate basis in the Transamerica Common Shares received in the
exchange would equal the fair market value of such shares, and the Stockholder's
holding period for such shares would not include the period during which the
shares of TOL Stock were held. In the case of TOL Stockholders exchanging TOL
Common Stock acquired on exercise of incentive stock options as to which the
requisite holding periods have not been satisfied at the time of the Merger,
such a successful IRS challenge would also result in a disqualifying disposition
of TOL Common Stock.
Even if the Merger qualifies as a reorganization, a recipient of
Transamerica Common Shares would recognize income to the extent that, for
example, any such shares were determined to have been received in
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<PAGE> 42
exchange for services, to satisfy obligations, or in consideration for anything
other than the TOL Stock surrendered. Generally, such income would be taxable as
ordinary income upon receipt.
Information Reporting and Backup Withholding. Payments in respect of TOL
may be subject to information reporting to the IRS and to a 31% backup
withholding tax. Backup withholding will not apply, however, to a payment to a
TOL Stockholder or other payee if such stockholder or payee completes and signs
the substitute Form W-9 that will be included as part of the transmittal letter
or otherwise proves to Transamerica and The Bank of New York or other such
exchange agent as may be designated by Transamerica (the "Exchange Agent") that
it is exempt from backup withholding.
THE FOREGOING DISCUSSION OF MATERIAL FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. THE OPINIONS OF TOL'S
AND TRANSAMERICA'S SPECIAL COUNSEL ARE NOT BINDING ON THE IRS. BECAUSE OF THE
COMPLEXITY OF THE TAX LAWS, AND BECAUSE THE TAX CONSEQUENCES TO ANY PARTICULAR
STOCKHOLDER MAY BE AFFECTED BY MATTERS NOT DISCUSSED HEREIN, EACH TOL
STOCKHOLDER IS URGED TO CONSULT HIS OWN TAX ADVISER WITH RESPECT TO HIS OWN
PARTICULAR CIRCUMSTANCES AND WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF
THE MERGER TO HIM, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND
FOREIGN TAX LAWS, ESTATE TAX LAWS AND PROPOSED CHANGES IN APPLICABLE TAX LAWS.
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<PAGE> 43
THE COMPANIES
BUSINESS OF TOL
TOL owns, leases-in and manages a variety of maritime container and
equipment types, including dry cargo, open top and refrigerated containers,
tanks, flat racks and chassis. TOL leases containers primarily to shipping
companies for use in world trade, on a long-term basis, and on a master lease or
short-term rental basis at higher daily rates. The worldwide container industry
standard for expressing quantities of containers is the TEU. At December 31,
1995, TOL's fleet totalled approximately 274,000 TEUs of which 129,000 were
either owned or leased-in and the remaining 145,000 were managed on behalf of
third-party investors. TOL has over 300 customers and manages its fleet through
12 worldwide offices, utilizing independently owned and operated depots and
agents in more than 200 locations. TOL's predecessor company was formed in 1973.
TOL was formed as a California corporation in 1987 and was reincorporated in
Delaware in 1991.
PRODUCTS AND FLEET INFORMATION
Dry Cargo Containers. The dry cargo container is an important component of
TOL's fleet (comprising approximately 50% of the total fleet), in that offering
a competitive dry cargo fleet enables TOL to be in a position to offer its
specialized containers to the ocean carriers in the same sales and marketing
situations. The dry cargo container is used to transport most packaged cargo,
such as consumer electronics and apparel goods, and is the most commonly
operated container type in the global shipping industry. Most of TOL's
competitors focus on the dry cargo container, and it is considered to be a
commodity product.
Open Top Containers. Open top containers have metal sides but no roofs,
and are covered by tarpaulins supported by roof bows. These containers are used
to transport bulk products and goods which are loaded by crane rather than by
forklift, such as plate glass, marble and large machinery and equipment.
Originally, open tops were used primarily in Europe; however, because products
are increasingly being shipped in open tops throughout the world, open tops are
now used throughout the worldwide container industry.
Refrigerated Containers. Reefers are containers used for shipping cargo
such as meat, fruit and products which require reliable temperature control
while being transported through a variety of climates. In addition, reefers are
used to ship other temperature-sensitive goods, such as chemicals and
photographic film. While at sea, a reefer is powered by the ship's main
electrical system. On land, a reefer is connected to an on-shore power source or
powered by a portable diesel generator mounted on the container. TOL also leases
individual generators for use with refrigerated containers. Reefers are
initially leased primarily on term leases of three to five years, at higher
rates than dry cargo or open top containers due to their higher purchase cost.
Tank Containers. Tanks are 20-foot units made out of stainless steel and
used to ship a wide variety of liquids and gases, including foods and oils as
well as hazardous chemicals. TOL's tanks comply with the international industry
specifications for equipment designed for the transportation of hazardous
products. Ocean carriers consider tanks to be the safest and most reliable
method to transport hazardous liquids. Certain of TOL's tank containers are
segregated as "food grade" and are used exclusively to carry food products. As
with reefers, tanks are initially leased primarily on term leases of three to
five years, at higher rates than dry cargo or open top containers due to their
higher purchase cost.
Other Products. The balance of TOL's fleet consists of 20- and 40-foot
chassis, flat racks and other specialized equipment. Chassis are used for road,
rail and depot transportation, principally in the United States. Flat racks are
used to carry construction project cargo, machinery and other oversized and
odd-shaped cargo. In addition, flat racks are used to create flat deck space on
container vessels.
CUSTOMERS
TOL has over 300 customers, consisting primarily of ocean carriers, and
also including ship charterers, non-vessel operating common carriers, freight
forwarders and shippers. TOL's revenue base is not highly concentrated. In 1995
and 1993, no customers accounted for more than 10% of lease revenue. In 1994,
one customer, China Ocean Shipping Company, accounted for approximately 11% of
lease revenue. TOL's
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<PAGE> 44
customer base is diversified geographically, with most customers based outside
of the United States. Virtually all of TOL's customers are billed and pay in
U.S. dollars.
Customers usually maintain container-leasing relationships with several
different lessors. The customer's choice of a leasing company for any particular
requirement is based primarily on lease rates and terms, quality of service,
diversity and availability of container types at particular locations and
flexibility regarding redelivery locations.
Most ocean carriers own their own container fleets as well as lease
containers from leasing companies. During economic downturns, ocean carriers
tend to reduce their use of leased containers in favor of their own fleets. The
percentage of container ownership varies widely among shipping companies,
although larger, well-financed carriers tend to lease a smaller percentage of
their needs. The primary benefits to a shipping company of leasing containers
are: (i) access to an alternative source of off-balance-sheet financing in a
capital-intensive business; (ii) the ability to respond rapidly to changes in
shipping demand and imbalances in trade lanes, and to meet seasonal needs by
being able to quickly lease specific container types in particular locations on
an as-needed basis; and (iii) the opportunity to expand trade routes and market
share without making a long-term financial commitment.
TOL generally leases containers under a term lease or a master agreement,
with a focus on master agreements supported by a high level of service and
support. Term leases provide for a minimum lease period, sometimes allowing for
early termination with penalties. A master agreement remains in effect for a set
period of time (typically one year) and allows the customer to lease specified
categories of equipment from TOL under established terms. On average, containers
on lease to customers under master agreements remain on lease more than one year
before redelivery to TOL. The terms of master agreements are individually
negotiated with each customer and financial terms are generally renegotiated
annually. Major terms include daily rental rates, handling charges, pick-up and
drop-off charges and allowable redeliver quantities for particular locations.
TOL limits the total number of containers leased to any customer based on
internally established credit criteria. Customers are responsible for all
damages to leased containers other than normal wear and tear. In addition,
customers are responsible for any third-party liability incurred in operating
the containers leased from TOL. TOL offers damage protection insurance coverage
for certain types of leased containers for an additional charge.
SALES AND MARKETING
TOL's sales and marketing personnel are located at its headquarters in San
Bruno, California and in 11 additional offices worldwide. TOL generally
allocates responsibility for customer relationships on a geographic basis. TOL's
marketing focus is to regularly and proactively assess customer equipment
requirements, creditworthiness, competitive rates and other market forces.
TOL provides high-quality customer service through a fully integrated
management information computer system. The system links all of TOL's marketing
representatives and transactions through an on-line worldwide network, enabling
real-time response to most customer inquiries from any of TOL's locations.
Customer inquiries cover such matters as container availability, location, age
and specifications. The system also provides current information as to
imbalances in supply and demand to marketing personnel, and facilitates
incorporation of individual customer requirements into day-to-day and long-term
planning decisions.
CONTAINER FINANCING
TOL uses a variety of methods to finance the acquisition of container
equipment. Approximately 47% of TOL's fleet is owned directly by TOL or is
leased-in on long-term, fixed rate operating leases. The remainder of the fleet
is managed by TOL under long-term management contracts for the accounts of third
party investors.
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<PAGE> 45
Debt and Long-Term Operating Leases. TOL uses secured debt from financial
institutions to purchase containers for its own account. TOL's revolving credit
agreement is used for this purpose. The revolving credit agreement is secured by
specific container equipment owned by TOL. In addition, TOL arranges for
equipment debt financing secured by specific container equipment, typically at
80% to 100% of the container value.
TOL also employs long-term, fixed rate operating leases to finance
container purchases. Under these programs, equipment is purchased by TOL
directly from manufacturers, and resold to equipment lessors in a sale/leaseback
transaction. TOL pays a fixed rental rate during the lease period, which is
typically 10 years. At the end of this period, TOL has the option to repurchase
the equipment at fair market value or return the equipment to the lessor. The
lessor retains any tax benefits under this financing method.
Managed Container Programs. TOL has been an industry leader in financing
container acquisitions through third-party ownership and management programs.
TOL manages containers for individual, institutional and corporate investors
located throughout the world. TOL's managed container programs provide an
additional source of container financing, as well as financial protection by
sharing the risks and rewards of container-operating performance with third
parties.
Under TOL's managed container programs, investors own specifically
identified containers, which are managed by TOL under separate management
contracts or variable rate leases. These contracts generally have terms that
cover the remaining life of the equipment, and provide that TOL is responsible
for all aspects regarding operation of the containers. In some cases, these
programs have historically been offered with an initial operating lease of up to
one year. After the initial lease period, these leases are converted into
management contracts.
All containers owned, leased-in or managed by TOL are operated, without
regard to ownership, as a part of TOL's total fleet. Over the term of a
management contract, the revenue and expenses associated with the operation of
containers of a similar age and type are essentially the same. Accordingly, to
reduce accounting burdens and to eliminate random differences in financial
results generated by similar containers, most of TOL's management contracts
provide that financial accounting is based on the results of a group of
containers owned, leased-in or managed by TOL which are similar in age and type.
For a given group, TOL calculates net revenue (lease revenue less direct
operating expenses such as repair and maintenance, positioning, storage, depot
charges and insurance), deducts its management fee, generally in the range of
19% to 30% of net revenue, and pays the balance to the container owner on a
periodic basis. Specific events related to a container, such as a casualty loss
or the sharing of disposal proceeds, are usually not grouped and instead are for
the account of the owner. At the commencement of a management contract, TOL also
charges a fee for ordering and inspecting the equipment prior to putting the
equipment on lease with customers. At the end of the management contract term,
TOL generally resells the equipment on behalf of the owner. Most of the
management contracts provide for incentive fees to TOL if disposal prices upon
resale exceed values specified in the contract.
OPERATIONS
Most of TOL's administrative functions are performed at its headquarters in
San Bruno, California. The regional office for the North and South American
marketing effort is located in New Jersey, with an area office in New Orleans.
London is the regional center for Europe, with area offices in Hamburg, Genoa
and Paris. Operations in the Far East are coordinated by a regional office in
Tokyo, supported by area offices in Seoul, Hong Kong and Singapore. An area
office in Sydney reports directly to headquarters. Regional offices are
generally staffed by 10 to 14 employees each, while area offices typically have
from three to eight employees.
TOL maintains agency relationships with a number of independent companies
throughout the world. These companies generally provide field operational
support for TOL as well as office space for TOL's sales and marketing personnel,
but provide only limited marketing or sales services.
TOL relies on a network of over 200 independently owned and operated depots
throughout the world, which function as agents for delivering, accepting,
repairing and storing containers owned and managed by
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<PAGE> 46
TOL. TOL focuses on developing strong partnerships with its depots to obtain
priority service, and regularly provides training and other technical support
for employees of the depots. All equipment transactions with depots are
authorized by TOL area offices, which, in turn, report to headquarters for
tracking and billing purposes. Regionally coordinated technical inspectors are
responsible for approving all significant maintenance costs and supervising the
quality of depot repair work. All customer billing and collections, as well as
depot invoice approval and payment, are managed from TOL's headquarters, using
TOL's fully integrated computer system.
SUPPLIERS
TOL purchases its containers from 15 to 20 selected manufacturers around
the world, and most container types are purchased from multiple manufacturers.
TOL assists several of its manufacturers by providing training and manufacturing
management assistance, and is involved in container design to meet specific
customer requirements. Based on recent industry surveys and TOL's relationships
with container manufacturers, TOL believes there is an adequate worldwide supply
of all container types, without significant capacity constraints. TOL selects
manufacturers based on product quality, financial strength (to ensure that
product warranties can be fulfilled), capacity, willingness to negotiate
attractive purchasing terms and flexibility in meeting TOL's specific needs.
COMPETITION
Competition in the container leasing industry is highly concentrated among
a small number of significant competitors. Some of TOL's competitors have
greater financial resources than TOL, or are subsidiaries or divisions of much
larger companies. The primary competitive factors in the industry are lease
rates and terms, quality of service, diversity, and availability of container
types in particular locations and flexibility regarding redelivery locations.
TOL believes it competes favorably with respect to each of these factors. TOL's
largest competitors are Genstar Container Corp. ("Genstar"), Transamerica, Sea
Containers Ltd, Triton International Container LTD and Xtra Corporation. Several
of these competitors focus on dry cargo containers, while others, particularly
Sea Containers Ltd, are focused on specialized containers. Genstar and
Transamerica are the most significant competitive forces in the industry, each
with more than 1,000,000 TEUs. Historically, Genstar and Transamerica have
focused primarily on dry cargo containers.
The container leasing industry and the shipping industry are both
capital-intensive businesses which benefit significantly from economies of
scale. Both industries have been experiencing a trend toward consolidation.
Further consolidation of shipping companies could reduce the number of major
customers for TOL's containers, resulting in increased bargaining power for
these customers and downward pressure on per diem lease rates. Further
consolidation in the container leasing industry could result in more formidable
competition for TOL from competitors with greater economies of scale and more
favorable access to capital.
BUSINESS OF TRANSAMERICA
Transamerica is one of the world's largest financial services companies,
providing specialized financial and life insurance products and services to
individuals and organizations. Transamerica engages through its subsidiaries in
life insurance, consumer lending, commercial lending, leasing and real estate
services. Transamerica was incorporated in Delaware in 1928.
On May 2, 1995, Transamerica sold substantially all of the assets of
Criterion Investment Management Company for gross proceeds of $60,000,000 which
were used to reduce debt. The transaction resulted in an after tax gain of
$4,800,000.
On March 31, 1995, Transamerica purchased for $1,027,300,000 in cash
substantially all the assets and assumed certain liabilities of the home equity
business of ITT Consumer Financial Corporation ("ITT"). The purchase price was
allocated as follows: consumer finance receivables of $966,400,000, which were
all real estate secured, of which 14% was located in California; allowance for
losses of $52,700,000; assets held for sale of $26,800,000; customer renewal
rights of $97,800,000; and assumed liabilities of $11,000,000. Transamerica did
not assume any borrowings, tax liabilities or contingent liabilities of ITT. The
initial financing of the
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<PAGE> 47
acquisition was provided through short-term bank loans which have been repaid
and refinanced with long-term debt.
On December 21, 1994, Transamerica sold its mutual fund subsidiary,
Transamerica Fund Management Company, for gross proceeds of $100,000,000 which
were used to reduce debt. The transaction resulted in an after tax gain of
$4,857,000.
On April 13, 1994, Transamerica sold its remaining 21% ownership interest
in Sedgwick Group plc. Proceeds from the sale were $326,395,000, resulted in no
gain or loss, and were used by Transamerica to purchase 4,500,000 Transamerica
Common Shares and to reduce debt.
On March 15, 1994, Transamerica acquired substantially all the operating
assets of the container operations of Tiphook plc, a London-based transportation
equipment rental company ("Tiphook"), including certain dry cargo containers,
tank containers, tank chassis, operating leases and other assets (collectively,
the "Container Operations") for $1,061,441,000 in cash. Transamerica assumed
certain specified liabilities of the Container Operations, including trade
accounts payable. Transamerica did not assume any borrowings, tax liabilities or
contingent liabilities of Tiphook. The initial financing of the acquisition was
provided through short-term bank loans which have been repaid and refinanced
with long-term debt.
In 1993, Transamerica sold its former property and casualty insurance
subsidiary, Transamerica Insurance Group, through an initial public offering in
April 1993 and a secondary offering in December 1993. Proceeds from the sales of
stock, after underwriting discounts and issuance costs, totaled $1,031,788,000.
The proceeds were used to reduce indebtedness, including $409,296,000 incurred
to fund cash transactions with the property and casualty insurance operation in
connection with the initial public offering, and to commence a common stock
purchase program.
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SELECTED CONSOLIDATED FINANCIAL DATA OF TOL
The following table sets forth financial information for TOL as of and for
the periods noted. The balance sheet and income statement data as of and for the
years ended December 31, 1991 through 1995 have been derived from the audited
financial statements of TOL. The consolidated financial statements as of
December 31, 1994 and 1995 and for each of the three years in the period ended
December 31, 1995 have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto included
elsewhere in this Consent Solicitation Statement/Prospectus, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said reports. The data for the six months ended June 30, 1995
and 1996 is unaudited but, in the opinion of TOL, reflects all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such data. The data for the six months ended June 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. The table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of TOL" and the Consolidated Financial Statements and related notes
thereto, included elsewhere in this Consent Solicitation Statement/ Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------------------- ----------------------------
1991 1992 1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Lease revenue........... $ 120,812,000 $ 137,813,000 $ 139,610,000 $ 143,024,000 $ 167,862,000 $ 79,921,000 $ 87,417,000
Costs and expenses:
Managed equipment
program
distributions....... 46,590,000 54,158,000 53,910,000 50,387,000 50,334,000 24,970,000 24,982,000
Direct operating...... 27,609,000 32,623,000 32,394,000 32,540,000 37,226,000 17,723,000 22,101,000
Depreciation and
amortization........ 9,835,000 12,459,000 14,473,000 17,156,000 22,416,000 10,279,000 12,466,000
Marketing and
administrative...... 18,685,000 19,666,000 20,931,000 22,438,000 24,618,000 12,288,000 12,211,000
Interest.............. 8,290,000 7,450,000 8,187,000 13,214,000 23,860,000 10,687,000 12,815,000
Total costs and
expenses.......... 111,009,000 126,356,000 129,895,000 135,735,000 158,454,000 75,947,000 84,575,000
Income from continuing
operations before
provision for income
taxes................. 9,803,000 11,457,000 9,715,000 7,289,000 9,408,000 3,974,000 2,842,000
Provision for income
taxes................. 3,728,000 4,329,000 3,732,000 2,856,000 3,144,000 1,466,000 1,085,000
------------- ------------- ------------- ------------- ------------- ------------- -------------
Income from continuing
operations............ $ 6,075,000 $ 7,128,000 $ 5,983,000 $ 4,433,000 $ 6,264,000 $ 2,508,000 $ 1,757,000
=========== =========== =========== =========== =========== =========== ===========
Income from continuing
operations per common
share(1).............. $ 70.64 $ 82.82 $ 70.26 $ 53.62 $ 79.00 $ 31.10 $ 21.00
BALANCE SHEET DATA
(END OF PERIOD):
Net property and
equipment............. $ 113,738,000 $ 136,436,000 $ 155,882,000 $ 235,347,000 $ 337,473,000 $ 300,376,000 $ 348,601,000
Total assets............ 162,531,000 198,218,000 223,873,000 309,685,000 418,114,000 374,767,000 421,747,000
Total debt.............. 86,095,000 101,942,000 118,177,000 184,555,000 286,487,000 241,085,000 295,452,000
Redeemable senior
preferred stock....... 7,173,000 7,315,000 7,457,000 3,563,000 3,590,000 3,576,000 3,603,000
Total common
stockholders'
equity................ 13,745,000 21,061,000 25,393,000 26,954,000 32,797,000 29,252,000 34,344,000
</TABLE>
- ---------------
(1) Earnings from continuing operations per common share has been computed by
dividing income from continuing operations, after reductions for accrued
dividends on preferred stock, by the weighted average number of common
shares outstanding, taking into effect all material common stock
equivalents.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF TOL
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. TOL's actual results could differ materially from those discussed
here. Factors that could cause or contribute to such differences include, but
are not limited to, those discussed in this section, as well as those discussed
in TOL's Consolidated Financial Statements included elsewhere in this Consent
Solicitation Statement/Prospectus.
GENERAL
Demand for containers leased by TOL and container leasing rates depend to a
large degree on levels of world trade. Recessionary business cycles, as well as
political conditions, the status of trade agreements and international conflicts
can have an impact on the operating results of TOL. Individual markets for
specialized containers in which TOL participates may be separately affected by
competitive conditions, economic downturns and other factors. During economic
downturns, as shipping volumes decrease, ocean carriers tend to reduce their use
of leased containers in favor of their own container fleets. In addition, during
such times, operating costs such as storage, repair and maintenance increase as
utilizations decrease.
TOL's results of operations are primarily driven by three major factors:
(i) changes in the size of its container fleet; (ii) fleet utilization rates;
and (iii) average daily lease rates (per diem rates for equipment on lease).
TOL's program of acquiring existing fleets, along with new container equipment
purchases, resulted in a 40% growth in the container fleet (net of container
equipment disposals) from January 1, 1993 through December 31, 1995. The gradual
decline in overall container fleet utilization rates through most of 1993 was
primarily the result of large container purchases by industry participants and
some slowdown in demand from the weakening economies in Europe and Japan,
notwithstanding that the U.S. economy strengthened to some degree during this
period. TOL's overall fleet utilization began to improve in the fourth quarter
of 1993 and has continued to improve throughout 1994 and the first half of 1995,
but has declined in the second half of 1995 and into the first half of 1996
principally due to weakness in the dry cargo sector. Per diem rates, which had
declined following the 1993 downturn, have remained relatively stable since
mid-1995.
In addition to the three major factors described above, TOL's results of
operations are also affected by a number of other factors, including: (i) the
regular use of managed container programs to finance fleet additions; (ii) the
degree of change to the owned and leased fleet as a percentage of the total
fleet in any period; and (iii) changes in average interest rates.
TOL has regularly financed significant portions of its fleet growth by
selling equipment to third party investors under its managed container programs,
and by arranging to have third party investors purchase equipment directly from
manufacturers for management by TOL. Under these programs, the managed container
distributions paid to the container owners are usually equal to the net revenue
from a similar group of equipment (generally defined as lease revenue less
direct operating expenses for the same group) less TOL's percentage management
fee (generally ranging from 19% to 30% of the net revenue). Therefore, changes
in overall fleet utilization and per diem rates, whether upward or downward,
impact TOL only to the extent of its management fee on units owned by third
party investors. As a result, the managed container programs lessen the impact
of cyclical economic downturns. On the other hand, the benefits from high
utilizations and per diems during strong demand periods are also shared with
third party investors on the same basis, thereby limiting TOL's profit potential
during periods of economic improvement.
Changes from period to period in the owned and leased fleet percentage of
the overall fleet typically result in increases or decreases in particular
expense items, but generally do not result in major changes to income before
taxes. Increases in depreciation and interest expense generally offset, in large
part, the decline in managed container program distributions.
Changes in average interest rates result in increases or decreases in
interest expense independent of changes to the owned and leased fleet percentage
of the total fleet. Interest expense increased slightly in 1994 as compared with
1993, as a result of (i) increases in LIBOR and prime rates underlying most of
TOL's debt
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obligations; (ii) interest costs associated with TOL's issuance in June 1994, of
$75.0 million, 12 1/4% senior subordinated notes due 2004; and (iii) growth in
the owned container fleet. Interest expense increased in 1995, as compared with
1994, as a result of (i) interest costs associated with the $75.0 million of
12 1/4% senior subordinated notes due 2004 and (ii) growth in the owned
container fleet. The increase was partially offset by decreases in the variable
interest rates underlying most of TOL's debt obligations. Interest expense
increased in the first six months of 1996 as compared with the first six months
of 1995 as a result of interest costs associated with the incurrence of
additional debt to finance equipment purchases. This increase was partially
offset by a decrease in the interest rate underlying most of TOL's debt
obligations.
TOL intends to continue its use of managed container programs to finance a
portion of its fleet additions, but expects that the owned and leased-in
percentage of its total fleet will continue to increase over the next several
years.
In January 1994, the Board of Directors of TOL approved a plan to
discontinue its liquid cargo transportation business, operated by Trans Ocean
Distribution Corporation ("TOD"), a subsidiary of TOL. The Board of Directors of
TOL determined that the liquid cargo business was not strategically consistent
with the remainder of TOL's business because it has different suppliers,
customers, products and marketing requirements. This transaction, which closed
in May 1994, was structured as a sale of TOD assets to a new company, Trans
Ocean Distribution Ltd ("TODL"), principally owned by certain existing TOL
Stockholders. The purchase price was $4.2 million, which approximated the book
value of the net assets of TOD as of April 30, 1994, and was paid to TOD in a
combination of cash and long-term notes.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes thereto included elsewhere
in this Consent Solicitation Statement/Prospectus. The information presented
herein does not include financial data related to discontinued operations. The
financial information set forth below differs in format from that presented in
the Consolidated Financial Statements and related notes thereto, included
elsewhere in this Consent Solicitation Statement/Prospectus, but is derived from
the information therein, and is used by management to facilitate an analytical
review of its business.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- ----------------------------
1995 1994 1993 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Lease revenue........................ $167,862,000 $143,024,000 $139,610,000 $ 79,921,000 $ 87,417,000
Direct operating expenses(a)......... 24,162,000 23,128,000 21,342,000 11,482,000 14,952,000
----------- ----------- ----------- ----------- -----------
Net operating revenue................ 143,700,000 119,896,000 118,268,000 68,439,000 72,465,000
Managed equipment program
distributions...................... 50,334,000 50,387,000 53,910,000 24,970,000 24,982,000
Operating lease expense(a)........... 13,064,000 9,412,000 11,052,000 6,241,000 7,149,000
Depreciation and amortization
expense............................ 22,416,000 17,156,000 14,473,000 10,279,000 12,466,000
Marketing and administrative
expenses........................... 24,618,000 22,438,000 20,931,000 12,288,000 12,211,000
Interest expense..................... 23,860,000 13,214,000 8,187,000 10,687,000 12,815,000
----------- ----------- ----------- ----------- -----------
Income before income taxes........... 9,408,000 7,289,000 9,715,000 3,974,000 2,842,000
Provision for income taxes........... 3,144,000 2,856,000 3,732,000 1,466,000 1,085,000
----------- ----------- ----------- ----------- -----------
Income from continuing operations.... $ 6,264,000 $ 4,433,000 $ 5,983,000 $ 2,508,000 $ 1,757,000
=========== =========== =========== =========== ===========
</TABLE>
- ---------------
(a) Direct operating expenses and operating lease expense, together, represent
the components of direct operating expenses reported in the Consolidated
Financial Statements included elsewhere in this Consent Solicitation
Statement/Prospectus.
45
<PAGE> 51
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995
Lease revenue. Lease revenue increased $7.5 million or 9.4% in the first
six months of 1996 as compared with the first six months of 1995. This increase
resulted primarily from increased fleet size, which was partially offset by
declines in overall fleet utilization and per diem lease rates.
Direct operating expenses. Direct operating expenses increased $4.4
million or 24.7% in the six month period ended June 30, 1996 as compared with
the six month period ended June 30, 1995. This increase resulted from increases
in lease expense, as a result of additional equipment operating leases, together
with increases in repair and maintenance, storage and positioning expenses,
which were partially offset by decreases in depot expense.
Managed equipment program distributions. Managed equipment program
distributions were essentially unchanged in the first six months of 1996 as
compared with the first six months of 1995. These costs remained constant as an
increase in the number of managed containers was almost entirely offset by a
decrease in net operating revenue.
Depreciation and amortization expense. Depreciation and amortization
expense increased $2.2 million or 21.3% in the first six months of 1996 as
compared with the first six months of 1995. This increase was primarily
attributable to an increase in depreciation expense resulting from a larger
number of owned containers.
Marketing and administrative expenses. Marketing and administrative
expenses decreased $0.08 million or 0.6% in the first six months of 1996 as
compared with the first six months of 1995, primarily due to reductions in costs
associated with personnel and professional services.
Interest expense. Interest expense increased $2.1 million or 19.9% in the
first six months of 1996 as compared with the first six months of 1995. This
increase was the result of interest costs associated with the incurrence of
additional debt to finance equipment purchases, which was partially offset by a
decrease in the interest rates underlying most of TOL's debt obligations.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Lease revenue. Lease revenue increased to $167.9 million in 1995 from
$143.0 million in 1994, an increase of $24.9 million or 17.4%. This increase
resulted primarily from increased fleet size and fleet utilizations. The impact
of this increase was partially offset by a continued decline in per diem rates
through mid 1995.
Direct operating expenses. Direct operating expenses increased to $24.2
million in 1995 from $23.1 million in 1994, an increase of $1.1 million or 4.8%.
This increase was primarily attributable to an increase in container storage,
depot and insurance costs resulting from a larger fleet size, a higher provision
for doubtful accounts and an increase in associated recovery costs. The increase
was partially offset by decreases in repair and maintenance, and positioning
expenses.
Managed equipment program distributions. Managed equipment program
distributions decreased to $50.3 million in 1995 from $50.4 million in 1994, a
decrease of $0.1 million or 0.1%. This decrease was attributable to a decrease
in the average number of managed containers in 1995, largely offset by an
increase in net operating revenue per container.
Operating lease expense. Operating lease expense increased to $13.1
million in 1995 from $9.4 million in 1994, an increase of $3.7 million or 39.4%.
This increase resulted primarily from growth in the number of leased-in
containers in 1995.
Depreciation and amortization expense. Depreciation and amortization
expense increased to $22.4 million in 1995 from $17.2 million in 1994, an
increase of $5.2 million or 30.2%. This increase resulted primarily from growth
in the number of owned containers in 1995.
Marketing and administrative expenses. Marketing and administrative
expenses increased to $24.6 million in 1995 from $22.4 million in 1994, an
increase of $2.2 million or 9.8%. This increase was primarily the
46
<PAGE> 52
result of an increase in professional services and personnel costs. As a
percentage of lease revenue, these costs declined to 14.7% in 1995 from 15.7% in
1994, due primarily to control of overhead expense in 1995.
Interest expense. Interest expense increased to $23.9 million in 1995 from
$13.2 million in 1994, an increase of $10.7 million or 81.1%. The increase was
the result of (i) interest costs associated with TOL's issuance in June 1994, of
$75.0 million, 12 1/4% senior subordinated notes due 2004 and (ii) growth in the
owned container fleet. This increase was partially offset by a decrease in the
variable interest rates underlying most of TOL's debt obligations.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993
Lease revenue. Lease revenue increased to $143.0 million in 1994 from
$139.6 million in 1993, an increase of $3.4 million or 2.4%. This increase
resulted primarily from increased fleet utilizations and fleet size. The impact
of this increase was partially offset by a continued decline in per diem rates.
Direct operating expenses. Direct operating expenses increased to $23.1
million in 1994 from $21.3 million in 1993, an increase of $1.8 million or 8.5%.
This increase was primarily attributable to an increase in container storage,
repair and maintenance and bad debt expense, largely related to the increase in
fleet size.
Managed equipment program distributions. Managed equipment program
distributions decreased to $50.4 million in 1994 from $53.9 million in 1993, a
decrease of $3.5 million or 6.5%. This decrease was primarily the result of a
decrease in managed containers during 1994.
Operating lease expense. Operating lease expense decreased to $9.4 million
in 1994 from $11.1 million in 1993, a decrease of $1.7 million or 15.3%. This
decrease resulted primarily from the termination of certain operating leases in
1994.
Depreciation and amortization expense. Depreciation and amortization
expense increased to $17.2 million in 1994 from $14.5 million in 1993, an
increase of $2.7 million or 18.6%. This increase resulted primarily from growth
in the number of owned containers in 1994.
Marketing and administrative expenses. Marketing and administrative
expenses increased to $22.4 million in 1994 from $20.9 million in 1993, an
increase of $1.5 million or 7.2%. This increase was primarily the result of
costs associated with personnel increases.
Interest expense. Interest expense increased to $13.2 million in 1994 from
$8.2 million in 1993, an increase of $5.0 million or 61.0%. The increase was the
result of (i) increases in LIBOR and prime rates underlying most of TOL's debt
obligations, (ii) interest costs associated with TOL's issuance in June 1994, of
$75.0 million, 12 1/4% senior subordinated notes due 2004 and (iii) growth in
the owned container fleet.
INCOME TAXES
The provision for income taxes includes all income taxes payable to
federal, state and foreign governments, as applicable. Factors affecting the
effective tax rate in 1995, compared to 1994 and 1993, include an adjustment for
reduction of prior year tax estimates.
47
<PAGE> 53
LIQUIDITY AND CAPITAL RESOURCES
Set forth below is a chart summarizing TOL's cash flows for the years ended
December 31, 1993, 1994 and 1995, and for the six months ended June 30, 1995 and
1996:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1993 1994 1995 1995 1996
--------- --------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities.................... $ 21,386 $ 34,710 $ 23,231 $ 15,031 $ 5,075
Cash flows from investing
activities:
Purchase of property and
equipment.................. (70,406) (144,447) (225,948) (116,924) (65,866)
Proceeds from sale of property
and equipment.............. 40,799 52,626 105,783 44,617 44,106
Sale of liquid cargo
transportation business.... 0 800 0 0 0
Purchase of managed equipment
programs................... (680) (45) 0 0 0
--------- --------- -------- --------- ---------
(30,287) (91,066) (120,165) (72,307) (21,760)
--------- --------- -------- --------- ---------
Cash flows from financing
activities:
Debt repayments............... (66,247) (140,115) (180,140) (73,391) (125,467)
Debt borrowings............... 82,482 206,493 282,072 129,921 134,432
Dividends and stock
redemption................. (2,271) (6,976) (394) (197) (197)
--------- --------- -------- --------- ---------
13,964 59,402 101,538 56,333 8,768
--------- --------- -------- --------- ---------
Increase (decrease) in cash..... $ 5,063 $ 3,046 $ 4,604 $ (943) $ (7,917)
========= ========= ======== ========= =========
</TABLE>
Cash flows provided by operating activities were $21.4 million in 1993,
$34.7 million in 1994, $23.2 million in 1995 and $5.1 million in the six months
ended June 30, 1996. In each of these periods, the principal source of cash flow
from operating activities was net income, after adjustment for non-cash
components of revenue and expense, principally depreciation and amortization
expense, deferred income taxes and amortization of deferred revenue. In the
first six months of 1996, decreases in managed container equipment program
liabilities and in accounts payable and accrued liabilities, together with an
increase in receivables, offset cash provided by operating activities in the
period. In 1995, additional sources of cash flow from operating activities
included increases in accounts payable and accrued liabilities, offset by an
increase in receivables and a decrease in managed equipment program liabilities.
In 1994, additional sources of cash flow from operating activities were
increases in accounts payable and accrued liabilities, offset by an increase in
receivables and other assets and a decrease in managed equipment program
liabilities. In 1993, additional sources of cash flow from operating activities
were increases in accounts payable and accrued liabilities and managed equipment
program liabilities, offset by increases in receivables and net assets of
discontinued operations.
Cash flows used in investing activities were $30.3 million in 1993, $91.1
million in 1994, $120.2 million in 1995 and $21.8 million in the six months
ended June 30, 1996. The principal use of cash flows from investing activities
in each of these periods was for the purchase of container equipment. Principal
sources of cash flows from investing activities include proceeds from the sale
of container equipment to managed equipment owners and lessors, which constitute
part of TOL's financing activity, as well as disposals of used containers.
Cash flows provided by financing activities were $14.0 million in 1993,
$59.4 million in 1994, $101.5 million in 1995 and $8.8 million in the six months
ended June 30, 1996. The primary source of cash flows provided by financing
activities in each of these periods was additional borrowings of senior secured
debt and in 1994, the issuance of $75.0 million, 12 1/4% senior subordinated
notes due 2004. Cash flows were used in each of these periods to purchase
container equipment and refinance existing indebtedness and, in 1994, to redeem
preferred stock, and to fund the repurchase of TOL's common stock from certain
minority shareholders.
48
<PAGE> 54
In order to acquire equipment for lease to customers, TOL is required to
make capital expenditures, or arrange for third parties to purchase equipment
under TOL's managed container programs. In addition, substantial numbers of
containers are retired each year, requiring additional investment to maintain
the existing container equipment asset base. Capital expenditures incurred by
TOL in 1993, 1994, 1995 and in the six months ended June 30, 1996, were $70.4
million, $144.4 million, $225.9 million and $65.9 million, respectively. Resales
of container equipment to third party investors under TOL's managed equipment
programs (included in "proceeds from sale of property and equipment" above) were
$21.5 million, $25.9 million, $75.2 million and $37.2 million in 1993, 1994,
1995 and in the six months ended June 30, 1996, respectively.
In addition to the purchase of equipment for its own account and for resale
to third party owners and lessors (as reflected in "purchase of property and
equipment" above), TOL also achieves growth through direct purchases by
investors and affiliates under TOL's managed container programs. Because such
purchases are made directly by third parties and affiliates, these fleet
additions are not reflected in TOL's capital expenditures. Equipment added to
TOL's container fleet through such direct purchases in 1993, 1994, 1995 and in
the six months ended June 30, 1996, totaled $24.8 million, $13.0 million, $9.9
million and $1.8 million, respectively.
As of June 30, 1996, the commitment amount under the Revolving Credit
Agreement was $100.0 million, of which $30.0 million was outstanding and up to
$70.0 million was available to be borrowed. The term of the Revolving Credit
Agreement extends through September 1997, unless extended by mutual agreement of
TOL and the lenders. Upon termination, the outstanding balance converts to a
term loan repayable in quarterly installments over a six-year period. Amounts
borrowed under the Revolving Credit Agreement are secured by container
equipment. In addition, the Revolving Credit Agreement requires that TOL
maintain certain financial ratios and imposes certain other restrictions.
In addition to the Revolving Credit Agreement, at June 30, 1996, TOL had
approximately $190.5 million outstanding under various term debt facilities,
secured by specific containers. Interest rates for most of this debt are at
floating rates over LIBOR. Excluding the impact described below of TOL's use of
financial instruments to manage its interest rate exposures, an increase of one
percent in the applicable interest rates for this indebtedness would result in
an increase in TOL's annual interest payments of approximately $1.91 million. To
the extent that these facilities contain financial covenants, they are generally
less restrictive to TOL's operations than those included in the Revolving Credit
Agreement.
TOL from time to time enters into interest rate cap and swap agreements to
manage interest rate risk and to reduce the impact of changes in interest rates
on its variable rate indebtedness. As of June 30, 1996, TOL had interest rate
cap agreements which protect TOL from increases in LIBOR above 9.00% through
August 1996 with respect to $82,400,000 of variable rate indebtedness. TOL has
also entered into interest rate swap agreements which effectively convert the
interest rate on $85,000,000 of variable rate debt into fixed rate debt. These
agreements provide for TOL to exchange variable rate interest payments based on
LIBOR for a fixed rate of 5.77% on $30,000,000 through July 1996, 5.705% on
$30,000,000 through August 1996 and 4.963% on $25,000,000 through February 1998.
As of June 30, 1996, TOL had commitments of $34.1 million to purchase
additional container equipment. TOL expects to fund such capital commitments
through new managed container programs, additional term borrowings and
borrowings under the Revolving Credit Agreement, as well as cash provided from
operations.
While there can be no assurances as to the specific impact that the Merger
will have upon outstanding indebtedness, new managed container programs and
other financial instruments of TOL, TOL expects that cash flow from operations,
together with the financial resources of Transamerica, will be sufficient to
meet its operating cash requirements, planned capital expenditures and scheduled
debt repayments, and to provide for the growth of its business in the future.
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<PAGE> 55
FOREIGN CURRENCY TRANSACTIONS
TOL considers the U.S. dollar to be its functional currency on a global
basis. Consequently, gains and losses recognized as a result of the
remeasurement of foreign subsidiaries' financial statements are recognized
currently in the determination of net income.
TOL enters into forward exchange contracts to hedge against foreign
currency fluctuations on certain equipment purchases and certain unpaid direct
operating, marketing and administrative expenses which have been incurred or for
which future commitments exist. The costs of the forward exchange contracts are
reflected in the valuation of the hedged equipment purchases and the hedged
expenses. See the Consolidated Financial Statements, Notes 1 and 9.
Foreign currency translation and transaction losses recognized in the
determination of net income for the years 1993, 1994, 1995 and for the six
months ended June 30, 1996, were $40,000, $383,000, $309,000 and $26,000,
respectively.
INFLATION
Management believes that inflation has not had a material impact upon TOL's
results of operations. In the past, the effects of inflation on overhead and
operating expenses have been largely offset by TOL's ability to achieve
increasing operational economies of scale through the growth of TOL's business.
SEASONALITY
Management believes that seasonality has not had a material impact upon
TOL's results of operations. While seasonal demands for equipment exist, the
cost to the customer of the frequent off-hiring and on-hiring of containers,
together with the effect of a significant percentage of TOL's container fleet
being on lease for long periods of time, offsets, to a large extent, the effects
of seasonality.
50
<PAGE> 56
COMPARISON OF STOCKHOLDER RIGHTS
Both Transamerica and TOL are incorporated in Delaware. Holders of
Transamerica Common Shares will continue to have their rights and obligations as
stockholders of Transamerica ("Transamerica Stockholders") after the Merger
governed by the DGCL. Set forth below is a summary comparison of the material
differences in the rights of a TOL Stockholder under the TOL Certificate and the
TOL By-Laws, on the one hand, and the rights of a Transamerica Stockholder under
the Transamerica Certificate of Incorporation (as amended) (the "Transamerica
Certificate"), and the Transamerica By-Laws (the "Transamerica By-Laws), on the
other hand. The information set forth below with respect to Transamerica is
qualified in its entirety by reference to the Transamerica Certificate and the
Transamerica By-Laws, which are attached as exhibits to the Registration
Statement of which this Consent Solicitation Statement/Prospectus is a part. For
a description of Transamerica's capital stock, see "Description of Transamerica
Capital Stock."
AMENDMENT OF CERTIFICATES OF INCORPORATION
The DGCL requires the approval of stockholders holding a majority of the
voting power of a Delaware company in order to amend its certificate of
incorporation. Both the Transamerica Certificate and the TOL Certificate reserve
the right of amendment in the manner prescribed by statute.
AMENDMENT AND REPEAL OF BY-LAWS
Under the DGCL, holders of a majority of the voting power of a corporation,
and, when provided in the certificate of incorporation, the directors of the
corporation, have the power to adopt, amend and repeal the by-laws of a
corporation. The TOL Certificate grants the directors of TOL such power,
including by-law amendments increasing or reducing the authorized number of
directors. The Transamerica Certificate grants the Board of Directors of
Transamerica the power to make and alter the Transamerica By-Laws, without any
action on the part of the Transamerica Stockholders, but provides that the
Transamerica By-Laws made by the directors and the powers so conferred may be
altered or repealed by the Transamerica Stockholders. Either the affirmative
vote of at least 80% of the Transamerica Stockholders, or a majority of the
Board of Directors of Transamerica, is necessary to amend the Transamerica
By-Laws.
SIZE AND ELECTION OF THE BOARD OF DIRECTORS
Transamerica. The Transamerica Certificate provides that the number of
directors which will constitute the Board of Directors of Transamerica will be
fixed, and may be altered from time to time, as provided in the Transamerica
By-Laws. The Transamerica By-Laws provide that the Board of Directors of
Transamerica will consist of not less than seven nor more than 22 directors, as
determined by the Board of Directors of Transamerica. The Board of Directors of
Transamerica currently consists of nine directors. As provided by the
Transamerica By-Laws, the Board of Directors of Transamerica is divided into
three classes of three directors each. The directors of each class serve for a
three-year term. Voting for directors is by ballot and is decided by a plurality
vote.
TOL. The TOL By-Laws provide that the authorized number of directors which
will constitute the Board of Directors of TOL will be fixed from time to time by
the Board of Directors of TOL, either by resolution or the adoption of a by-law.
The Board of Directors of TOL has fixed the number of directors at eight; the
TOL By-Laws provide for a board of two directors, subject to adjustment by the
Board of Directors of TOL. Voting for directors need not be by ballot, according
to the TOL Certificate, and is cumulative. At each annual meeting of TOL
Stockholders, directors are elected to hold office until the next annual
meeting; but, if for any reason, the directors are not elected at an annual
meeting, they may be elected as soon thereafter as convenient at a special
meeting of TOL Stockholders.
REMOVAL OF DIRECTORS
The DGCL provides that directors may be removed from office, with or
without cause, by the holders of a majority of the voting power of all
outstanding voting stock, except if the corporation has a classified board, in
which case directors may only be removed for cause unless the corporation's
certificate of incorporation
51
<PAGE> 57
otherwise provides. The Transamerica Certificate provides that any director may,
by a vote of a majority of the directors, for any cause deemed by them
sufficient, be removed. Any Transamerica director may also be removed by a
majority vote of the Transamerica Stockholders entitled to vote at any annual or
special meeting, for any cause deemed sufficient by the directors present at
such meeting.
The TOL Certificate provides that the entire Board of Directors of TOL may
be removed from office at any time with or without cause by the holders of a
majority of the voting power of all outstanding voting stock, voting together as
a single class. The TOL Certificate further provides that, if less than the
entire TOL Board of Directors is to be removed, no director may be removed
without cause if the votes cast against such removal would be sufficient to
elect such director if such votes were then cumulatively voted at an election of
the entire Board of Directors of TOL.
VACANCIES ON THE BOARD
The DGCL provides that, unless the governing documents of a corporation
provide otherwise, vacancies and newly created directorships resulting from a
resignation or any increase in the authorized number of directors elected by all
of the stockholders having the right to vote as a single class may be filled by
a majority of the directors then in office. The Transamerica Certificate
provides that a majority of the remaining members of the Board of Directors of
Transamerica may elect directors to fill vacancies. In addition, the
Transamerica By-Laws provide that board vacancies that result from an increase
in the number of directors may be filled by a majority of the directors then in
office (provided that a quorum is present), and any other vacancy occurring in
the Board of Directors of Transamerica may be filled by a majority of the
directors then in office (even if no quorum is present) or by a sole remaining
director; vacancies may also be filled by Transamerica Stockholders at annual or
special meetings. The TOL Certificate and the TOL By-Laws track the DGCL, and
provide, in addition, that such vacancies may be filled by a majority of the
stock entitled to vote in the election of directors, voting as a single class.
RIGHT TO CALL SPECIAL MEETINGS OF STOCKHOLDERS
The DGCL permits special meetings of stockholders to be called by the board
of directors and such other persons, including stockholders, as the certificate
of incorporation or by-laws may provide. The DGCL does not require that
stockholders be given the right to call special meetings. The Transamerica
By-Laws only allow special meetings to be called by the Board of Directors of
Transamerica pursuant to a resolution adopted by a majority of the total number
of authorized directors (whether or not any vacancies exist at the time of the
resolution). The TOL By-Laws provide that special meetings may be called by (i)
the Chairman of the Board, (ii) the President, (iii) the Board of Directors of
TOL pursuant to a resolution adopted by a majority of the total number of
directors (whether or not any vacancies exist at the time of the resolution) or
(iv) by the holders of at least 10% of the voting stock.
STOCKHOLDER ACTION WITHOUT A MEETING
The DGCL provides that any action that may be taken at a meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote if the holders of common stock having not less than the minimum number of
votes otherwise required to approve such action at a meeting of stockholders
consent in writing. However, the Transamerica Certificate prohibits stockholder
action by written consent. The TOL Certificate provides that action may be taken
without a meeting only prior to the registration of any class of securities
pursuant to the requirements of the Exchange Act; the TOL By-Laws regulate the
taking of actions by TOL Stockholders without a meeting.
CLASS VOTING
The DGCL requires voting by separate classes only with respect to
amendments to a corporation's certificate of incorporation that adversely affect
the holders of those classes or that increase or decrease the aggregate number
of authorized shares or the par value of the shares of any of those classes.
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<PAGE> 58
CUMULATIVE VOTING
Under the DGCL, stockholders do not have the right to cumulate their votes
in the election of directors unless such right is granted in the certificate of
incorporation. The TOL Certificate grants such rights. Neither the Transamerica
Certificate nor the Transamerica By-Laws provide for cumulative voting.
PROVISIONS AFFECTING CONTROL SHARE ACQUISITIONS AND BUSINESS COMBINATIONS
Section 203 of the DGCL provides generally that any person who acquires 15%
or more of a corporation's voting stock (thereby becoming an "interested
stockholder") may not engage in a wide range of "business combinations" with the
corporation for a period of three years following the date the person became an
interested stockholder, unless (i) the board of directors of the corporation has
approved, prior to that acquisition date, either the business combination or the
transaction that resulted in the person becoming an interested stockholder, (ii)
upon consummation of the transaction that resulted in the person becoming an
interested stockholder, that person owns at least 85% of the corporation's
voting stock outstanding at the time the transaction commenced (excluding shares
owned by persons who are directors and also officers and shares owned by
employee stock plans in which participants do not have the right to determine
confidentially whether shares will be tendered in a tender or exchange offer) or
(iii) the business combination is approved by the board of directors and
authorized by the affirmative vote (at an annual or special meeting and not by
written consent) of at least 66 2/3% of the outstanding voting stock not owned
by the interested stockholder.
These restrictions on interested stockholders do not apply under certain
circumstances, including, but not limited to, the following: (i) if the
corporation's original certificate of incorporation contains a provision
expressly electing not to be governed by Section 203 of the DGCL, or (ii) if the
corporation, by action of its stockholders, adopts an amendment to its by-laws
or certificate of incorporation expressly electing not to be governed by such
section. Neither the Transamerica Certificate, the Transamerica By-Laws, the TOL
Certificate nor the TOL By-Laws contain provisions electing not to be governed
by such section.
MERGERS, ACQUISITIONS AND CERTAIN OTHER TRANSACTIONS
The DGCL requires approval of mergers, consolidations and dispositions of
all or substantially all of a corporation's assets (other than so-called
parent-subsidiary mergers) by a majority of the voting power of the corporation,
unless the certificate of incorporation specifies a different percentage. The
TOL Certificate does not provide for a different percentage. The Transamerica
Certificate requires the vote of a majority of the holders of Transamerica
Common Shares who are not interested parties for certain business combinations
with a 20% stockholder. The DGCL does not require stockholder approval for
majority share acquisitions or for combinations involving the issuance of less
than 20% of the voting power of the corporation, except for "business
combinations" subject to Section 203 of the DGCL.
RIGHTS OF DISSENTING STOCKHOLDERS
Pursuant to Section 262, TOL Stockholders who object to the Merger and do
not vote in favor of the Merger have certain rights to dissent and demand the
"fair value" of their TOL Stock. See "Rights of Dissenting TOL Stockholders."
Section 262 is set forth in Annex B to this Consent Solicitation
Statement/Prospectus.
DIVIDENDS
The DGCL provides that dividends may be paid in cash, property or shares of
a corporation's capital stock. The DGCL also provides that a corporation may pay
dividends out of any surplus, and, if it has no surplus, out of any net profits
for the fiscal year in which the dividend was declared or for the preceding
fiscal year (provided that such payment will not reduce capital below the amount
of capital represented by all classes of shares having a preference upon the
distribution of assets). The TOL By-Laws adopt these provisions of the DGCL in
full. The Transamerica By-Laws also provide that dividends on Transamerica stock
may be paid in cash, property or shares of Transamerica's capital stock. In
addition, the Transamerica By-Laws provide that, before the payment of
dividends, the Board of Directors of Transamerica may set aside sums from those
available for dividends to serve as a reserve fund for contingencies, to
equalize dividends, or
53
<PAGE> 59
to repair and maintain property of Transamerica, or for any other purpose the
Board of Directors of Transamerica deems conducive to the interests of
Transamerica.
PREEMPTIVE RIGHTS OF STOCKHOLDERS
The DGCL provides that no stockholder will have any preemptive rights to
purchase additional securities of the corporation unless the certificate of
incorporation expressly grants such rights. Neither the TOL Certificate nor the
Transamerica Certificate provides for preemptive rights.
DIRECTOR LIABILITY AND INDEMNIFICATION
The DGCL allows a Delaware corporation to include in its certificate of
incorporation, and the TOL Certificate contains, a provision eliminating the
liability of a director for monetary damages for a breach of such director's
fiduciary duties as a director. The Transamerica Certificate contains no such
provision.
The Transamerica By-Laws and the TOL By-Laws provide for indemnification of
TOL Directors and executive officers to the fullest extent permitted by the
DGCL. The DGCL permits a Delaware corporation to indemnify directors, officers,
employees, and agents under certain circumstances, and mandates indemnification
under certain circumstances. The DGCL permits a corporation to indemnify an
officer, director, employee or agent for fines, judgments, or settlements, as
well as for expenses in the context of actions other than derivative actions if
such person acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation. Indemnification against
expenses incurred by a director, officer, employee, or agent in connection with
a proceeding against such person for actions in such capacity is mandatory to
the extent that such person has been successful on the merits. If a director,
officer, employee, or agent is determined to be liable to the corporation,
indemnification for expenses is not allowable, subject to limited exceptions
when a court deems the award of expenses appropriate. The DGCL grants express
power to a Delaware corporation to purchase liability insurance for its
directors, officers, employees, and agents, regardless of whether any such
person is otherwise eligible for indemnification by the corporation. Advancement
of expenses is permitted, but a person receiving such advances must repay those
expenses if it is ultimately determined that he is not entitled to
indemnification.
The Transamerica By-Laws additionally provide that any indemnification as
described above will be made by Transamerica unless a determination is made (i)
by the Board of Directors of Transamerica, by a majority vote of a quorum
consisting of Transamerica directors who were not party to the action, suit or
proceeding in question, (ii) if such quorum is not obtainable, or, even if
obtainable, a quorum of disinterested directors so directs, by independent legal
counsel (who may be the regular counsel of Transamerica) in a written opinion or
(iii) by the Transamerica Stockholders that indemnification of the director or
officer is not proper in the circumstances because he or she has not met the
appropriate standard of conduct set forth above. Any expenses incurred,
including attorneys' fees, by a Transamerica director or officer in defending an
action, suit or proceeding will be paid by Transamerica in advance of its final
disposition, provided that such advance payment will only be made upon the
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it is ultimately determined that he or she is not entitled to
such indemnification. Determinations as to whether a director or officer
deserves the indemnification as provided in the DGCL must be made by the Board
of Directors of Transamerica within 30 days after the request for
indemnification is made. Transamerica may purchase and maintain insurance for
its directors, officers, employees and agents against any liability, expense or
loss asserted against him or her and incurred by him or her in such capacity, or
arising out of his or her status as such, whether or not Transamerica would have
had the power to indemnify him or her against such liability, expense or loss
under the provisions set forth above or under applicable law. The provisions
summarized above continue to apply to such persons who have ceased to be
directors, officers, employees or agents of Transamerica, and will inure to the
benefit of the heirs, executors and administrators of such person.
The TOL By-Laws provide, however, that TOL may limit the extent of such
indemnification by individual contracts with its directors and executive
officers, and that TOL will not be required to indemnify any TOL director or
executive officer in connection with any proceeding (or part thereof) initiated
by such
54
<PAGE> 60
person or any proceeding by such person against the corporation or its
directors, officers, employees or other agents unless (i) such indemnification
is expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of TOL or (iii) such indemnification is provided by the
corporation, in its sole discretion, pursuant to the powers vested in TOL under
the DGCL. The TOL By-Laws also provide that TOL will have the power to indemnify
its other officers, employees and other agents as set forth in the DGCL, and
that TOL, upon approval by the Board of Directors of TOL, may purchase insurance
on behalf of any person required or permitted to be indemnified pursuant to the
TOL By-Laws to the fullest extent permitted by the DGCL.
DESCRIPTION OF TRANSAMERICA CAPITAL STOCK
As of March 31, 1996, the total authorized capital stock of Transamerica
consisted of: (i) 150,000,000 shares of Transamerica Common Shares, of which
67,678,057 were issued and outstanding, 12,060,405 shares were issued and held
in treasury, and 15,040,300 shares were reserved for issuance upon the exercise
or conversion of options, warrants or convertible securities granted or issuable
by Transamerica, (ii) 1,200,000 shares of preferred stock, par value $100 per
share, of which 2,250 shares of Dutch Auction Rate Transferable Securities and
180,091 shares of Series D Preferred Stock were issued and outstanding and of
which none were issued and held in treasury or reserved for issuance upon
exercise or conversion of options, warrants or convertible securities granted or
issuable by Transamerica and (iii) 5,000,000 shares of preference stock, none of
which has been issued or reserved for issuance.
EXPERTS
The financial statements of TOL as of December 31, 1994 and 1995 and for
each of the three years in the period ended December 31, 1995 included in this
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.
The consolidated financial statements of Transamerica at December 31, 1995
and 1994, and for each of the three years in the period ended December 31, 1995,
appearing in this Prospectus and registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Transamerica Common Shares to be issued in the Merger
will be passed upon for Transamerica by Wachtell, Lipton, Rosen & Katz, special
counsel to Transamerica.
55
<PAGE> 61
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF
TRANS OCEAN LTD AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Financial Statements:
Report of Independent Public Accountants............................................ F-2
Consolidated Balance Sheets at December 31, 1995 and 1994........................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1995,
1994 and 1993.................................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993.................................................................... F-5
Consolidated Statements of Changes in Common Stockholders' Equity for the Years
Ended December 31, 1995, 1994 and 1993........................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
Unaudited Interim Financial Statements:
Consolidated Balance Sheets at June 30, 1996 and December 31, 1995.................. F-17
Consolidated Statements of Operations For the Six Month Periods Ended June 30, 1996
and 1995......................................................................... F-18
Consolidated Statements of Cash Flows For the Six Month Periods Ended June 30, 1996
and 1995......................................................................... F-19
Consolidated Statement of Changes in Common Stockholders' Equity For the Six Month
Period Ended June 30, 1996....................................................... F-20
Notes to Unaudited Interim Consolidated Financial Statements........................ F-21
</TABLE>
F-1
<PAGE> 62
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Trans Ocean Ltd:
We have audited the accompanying consolidated balance sheets of Trans Ocean
Ltd (a Delaware corporation) and Subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of operations, cash flows and changes in
common stockholders' equity for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Trans Ocean Ltd and
Subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
February 16, 1996
F-2
<PAGE> 63
TRANS OCEAN LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents....................................... $ 23,056,000 $ 18,452,000
Receivables, net of allowance for doubtful accounts of
$1,405,000 and $1,194,000 as of December 31, 1995 and 1994,
respectively.................................................. 38,946,000 35,557,000
Property and equipment, net of accumulated depreciation and
amortization.................................................. 337,473,000 235,347,000
Intangible assets, net of accumulated amortization of
$11,766,000 and $10,227,000 as of December 31, 1995 and 1994,
respectively.................................................. 7,377,000 8,916,000
Other assets.................................................... 11,262,000 11,413,000
------------ ------------
Total assets.......................................... $418,114,000 $309,685,000
============ ============
LIABILITIES, REDEEMABLE SENIOR PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities........................ $ 48,581,000 $ 46,975,000
Managed equipment program liabilities........................... 20,175,000 23,351,000
Senior debt obligations, including current maturities of
$19,316,000 and $12,372,000 as of December 31, 1995 and 1994,
respectively.................................................. 211,487,000 109,555,000
Senior subordinated notes....................................... 75,000,000 75,000,000
Deferred revenue................................................ 4,810,000 5,361,000
Deferred income taxes........................................... 21,674,000 18,926,000
------------ ------------
Total liabilities..................................... 381,727,000 279,168,000
------------ ------------
Redeemable senior preferred stock............................... 3,590,000 3,563,000
------------ ------------
Common stockholders' equity:
Common stock.................................................. 74,000 74,000
Contributed capital........................................... 676,000 676,000
Retained earnings............................................. 32,047,000 26,204,000
------------ ------------
Total common stockholders' equity..................... 32,797,000 26,954,000
------------ ------------
Total liabilities, redeemable senior preferred stock
and common stockholders' equity..................... $418,114,000 $309,685,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 64
TRANS OCEAN LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Lease revenue.................................... $167,862,000 $143,024,000 $139,610,000
Costs and expenses:
Managed equipment program distributions........ 50,334,000 50,387,000 53,910,000
Direct operating............................... 37,226,000 32,540,000 32,394,000
Depreciation and amortization.................. 22,416,000 17,156,000 14,473,000
Marketing and administrative................... 24,618,000 22,438,000 20,931,000
Interest....................................... 23,860,000 13,214,000 8,187,000
------------ ------------ ------------
Total costs and expenses.................... 158,454,000 135,735,000 129,895,000
------------ ------------ ------------
Income from continuing operations before
provision for income taxes................ 9,408,000 7,289,000 9,715,000
Provision for income taxes....................... 3,144,000 2,856,000 3,732,000
------------ ------------ ------------
Income from continuing operations........... 6,264,000 4,433,000 5,983,000
Income from discontinued operations......... 0 210,000 735,000
------------ ------------ ------------
Net income.................................. $ 6,264,000 $ 4,643,000 $ 6,718,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 65
TRANS OCEAN LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 6,264,000 $ 4,643,000 $ 6,718,000
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization................ 22,416,000 17,156,000 14,473,000
Gain on sale of property and equipment....... (1,429,000) (633,000) (636,000)
Provision for doubtful accounts.............. 485,000 400,000 0
Amortization of deferred revenue............. (1,960,000) (2,100,000) (2,540,000)
Provision for deferred income taxes.......... 2,870,000 2,613,000 3,884,000
Restricted stock compensation................ 0 0 27,000
Income from discontinued operations.......... 0 (210,000) (735,000)
Other changes in assets and liabilities --
Receivables............................... (3,874,000) (2,448,000) (1,030,000)
Accounts payable and accrued
liabilities............................. 1,484,000 26,371,000 526,000
Managed equipment program liabilities..... (3,176,000) (6,915,000) 1,760,000
Net assets of discontinued operations..... 0 (25,000) (1,132,000)
Other, net................................ 151,000 (4,142,000) 71,000
------------- ------------- ------------
Net cash provided by operating
activities......................... 23,231,000 34,710,000 21,386,000
------------- ------------- ------------
Cash flows from investing activities:
Purchase of property and equipment........... (225,948,000) (144,447,000) (70,406,000)
Proceeds from sale of property and
equipment................................. 105,783,000 52,626,000 40,799,000
Sale of liquid cargo transportation
business.................................. 0 800,000 0
Purchase of managed equipment programs....... 0 (45,000) (680,000)
------------- ------------- ------------
Net cash used in investing
activities......................... (120,165,000) (91,066,000) (30,287,000)
------------- ------------- ------------
Cash flows from financing activities:
Revolving credit repayments.................. (160,000,000) (127,500,000) (44,700,000)
Revolving credit borrowings.................. 190,500,000 93,400,000 62,100,000
Other debt repayments........................ (20,140,000) (12,615,000) (21,547,000)
Other debt borrowings........................ 91,572,000 113,093,000 20,382,000
Dividends on preferred stock................. (394,000) (449,000) (560,000)
Dividends on common stock.................... 0 (501,000) 0
Preferred stock redemption................... 0 (4,249,000) 0
Common stock redemption...................... 0 (1,777,000) (1,711,000)
------------- ------------- ------------
Net cash provided by financing
activities......................... 101,538,000 59,402,000 13,964,000
------------- ------------- ------------
Net increase in cash and cash
equivalents........................ 4,604,000 3,046,000 5,063,000
Cash and cash equivalents, beginning of year... 18,452,000 15,406,000 10,343,000
------------- ------------- ------------
Cash and cash equivalents, end of year......... $ 23,056,000 $ 18,452,000 $ 15,406,000
============= ============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 66
TRANS OCEAN LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON CAPITAL RETAINED
STOCK SURPLUS EARNINGS
------- ---------- -----------
<S> <C> <C> <C>
Balance, December 31, 1992.............................. $80,000 $1,407,000 $19,574,000
Net income............................................ 6,718,000
Dividend on preferred stock........................... (560,000)
Preferred stock accretion............................. (142,000)
Restricted stock...................................... 27,000
Stock redemption...................................... (3,000) (758,000) (950,000)
------- -------- -----------
Balance, December 31, 1993.............................. 77,000 676,000 24,640,000
Net income............................................ 4,643,000
Dividend on preferred stock........................... (449,000)
Dividend on common stock.............................. (501,000)
Preferred stock accretion............................. (355,000)
Common stock redemption............................... (3,000) (1,774,000)
------- -------- -----------
Balance, December 31, 1994.............................. 74,000 676,000 26,204,000
Net income............................................ 6,264,000
Dividend on preferred stock........................... (394,000)
Preferred stock accretion............................. (27,000)
------- -------- -----------
Balance, December 31, 1995.............................. $74,000 $ 676,000 $32,047,000
======= ======== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 67
TRANS OCEAN LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS
Trans Ocean Ltd and its subsidiaries (collectively, "TOL") owns, leases-in
and manages a variety of maritime transportation equipment, principally
containers. TOL leases such containers, primarily to shipping companies, for use
in world trade. TOL manages its fleet through 12 worldwide offices, utilizing
independently owned and operated depots and agents in more than 200 locations.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
TOL. All material intercompany balances and transactions have been eliminated in
consolidation. Certain amounts in the 1994 and 1993 financial statements have
been reclassified to conform to the 1995 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
LEASE REVENUE
Lease revenue is recorded as income when due under lease contracts, and
lease acquisition costs are charged to expense as incurred. Lease revenue also
includes amortization of commencement fees and net gains from the disposition of
rental equipment. Commencement fees are generated through the sale of equipment
to investors in the managed equipment programs (see Note 4) and are deferred and
amortized over the length of the management contracts, which range from five to
15 years. The deferred portion of commencement fees is reflected in the
consolidated balance sheets as deferred revenue.
DEPRECIATION AND AMORTIZATION
TOL depreciates rental equipment on a straight-line basis to estimated
salvage values. Depreciable lives for containers, tanks and chassis are 15
years. Other depreciable assets, primarily office and data processing equipment,
are depreciated on a straight-line basis over their estimated useful lives,
which range from 3 to 5 years.
Intangible assets consist of goodwill, which is amortized on a
straight-line basis over 40 years, and costs of acquiring managed equipment
programs, which are amortized on a straight-line basis over the remaining lives
of the respective programs, which range from four to seven years. The
unamortized balance of goodwill as of December 31, 1995 and 1994 was $4,194,000
and $4,326,000, respectively. The unamortized balance of the costs of managed
equipment programs as of December 31, 1995 and 1994 was $3,183,000 and
$4,590,000, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments with
original maturities of three months or less at the time of purchase with the
carrying amount approximating fair value.
Cash payments for income taxes were $274,000, $243,000 and $234,000 in
1995, 1994 and 1993, respectively, and interest payments were $22,525,000,
$8,401,000 and $7,855,000 in 1995, 1994 and 1993, respectively.
F-7
<PAGE> 68
TRANS OCEAN LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
FOREIGN CURRENCY TRANSACTIONS
TOL considers the U.S. dollar to be its functional currency on a global
basis. Consequently, gains and losses recognized as a result of the
remeasurement of foreign subsidiaries' financial statements are recognized
currently in the determination of net income.
TOL enters into forward exchange contracts to hedge against foreign
currency fluctuations on certain equipment purchases and certain unpaid direct
operating, marketing and administrative expenses which have been incurred or for
which future commitments exist. The costs of the forward exchange contracts are
reflected in the valuation of the hedged equipment purchases and the hedged
expenses (see Note 9).
Foreign currency translation and transaction losses recognized in the
determination of net income for the years 1995, 1994 and 1993 were $309,000,
$383,000 and $40,000, respectively.
FINANCIAL INSTRUMENTS
TOL from time to time enters into interest rate cap and swap agreements to
manage interest rate risks and to reduce the impact of changes in interest rates
on its variable rate indebtedness.
Premiums paid for the interest cap agreements are being amortized to
interest expense over the terms of the agreements. Unamortized premiums of
$19,000 and $59,000 as of December 31, 1995 and 1994, respectively, are included
in other assets in the accompanying consolidated balance sheets.
Net interest settlements realized under the interest rate swap agreements
are recognized as an adjustment to interest expense.
INCOME TAXES
TOL provides for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". SFAS No. 109
requires the asset and liability method of accounting for income taxes. Under
this method, deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying the statutory tax rate to the difference
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities. Under SFAS No. 109, the effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date based on the tax rate applicable to the year of the calculation.
OTHER ASSETS
Other assets include outstanding loans to principal stockholders of TOL
totaling $1,250,000 as of December 31, 1995. These loans accrue interest at the
rate of 7.74%, are secured by the pledge of TOL stock and mature in December
2001.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Unless otherwise disclosed, the carrying amount of all financial
instruments approximates estimated fair value.
2) DISCONTINUED OPERATIONS:
In January 1994, the Board of Directors of TOL approved a plan to
discontinue its liquid cargo transportation business through a sale of the
business to the stockholders of TOL. Effective May 1, 1994, the sale was
completed at a price of $4,200,000, which approximated the book value of the net
assets sold. The sale price included $800,000 in cash and $3,400,000 in the form
of a seven-year promissory note bearing
F-8
<PAGE> 69
TRANS OCEAN LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
interest at 2 percent over prime rate. The note, which is secured by all of the
assets of the purchaser, is repayable in equal quarterly installments of
principal plus interest, beginning September 30, 1994. The note, with an
outstanding balance of $2,429,000 and $3,157,000 as of December 31, 1995 and
1994, respectively, is included in other assets in the accompanying consolidated
balance sheets.
Income from discontinued operations for the years ended December 31, 1994
and 1993, is summarized as follows:
<TABLE>
<CAPTION>
1994 1993
---------- -----------
<S> <C> <C>
Revenue.................................................. $5,805,000 $17,267,000
Expenses................................................. 5,442,000 16,119,000
---------- -----------
Income before provision for income taxes............... 363,000 1,148,000
Provision for income taxes............................. 153,000 413,000
---------- -----------
Income from discontinued operations................. $ 210,000 $ 735,000
========== ===========
</TABLE>
3) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities as of December 31, 1995 and 1994,
consist of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Equipment purchases payable............................. $23,488,000 $27,004,000
Trade payables.......................................... 2,104,000 952,000
Customer damage accrual................................. 3,895,000 4,643,000
Accrued operating expenses.............................. 8,055,000 5,685,000
Accrued interest........................................ 7,634,000 6,299,000
Other................................................... 3,405,000 2,392,000
----------- -----------
Total......................................... $48,581,000 $46,975,000
=========== ===========
</TABLE>
4) MANAGED EQUIPMENT PROGRAMS:
The equipment fleet operated by TOL comprises equipment owned by TOL as
well as equipment owned by third parties. TOL has established numerous equipment
management programs, pursuant to which TOL agrees to manage equipment purchased
by corporate and individual investors and to lease the equipment to end-users on
behalf of the owners for agreed-upon management periods. All equipment owned,
leased-in or managed by TOL is operated, without regard to ownership, as part of
TOL's fleet. Since all equipment is operated as part of the fleet, TOL believes
that the revenues and expenses are essentially equal among owners of equipment
of similar age and type. Accordingly, TOL's management contracts generally
provide that the allocation of operating results is based on the results of a
group of equipment which is similar in age and configuration. Managed equipment
program distributions, as reported in the consolidated statements of operations,
represents the owners' share of lease revenue, net of allocated expenses and
management fees, under these programs. TOL's obligation to the managed equipment
owners with respect to such amounts is reflected in the consolidated balance
sheets as managed equipment program liabilities.
TOL has determined that it has an obligation to withhold U.S. federal
income taxes on a portion of the past and future distributions to certain of the
foreign owners under its managed container programs. TOL has estimated the
extent of this obligation, including an evaluation of the portion of income that
is subject to withholding and the extent to which tax treaties between the
United States and several foreign countries would provide protection to TOL with
respect to such obligation. While it is not possible to predict TOL's ultimate
liability due to the complex factual circumstances and the numerous variables
involved, TOL believes that the
F-9
<PAGE> 70
TRANS OCEAN LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
withholding obligation has been adequately provided for in the accompanying
consolidated financial statements.
5) SENIOR DEBT OBLIGATIONS:
TOL's outstanding senior debt obligations and average effective interest
rates as of December 31, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
AVERAGE
EFFECTIVE
INTEREST RATES
AT
DEBT OUTSTANDING YEAR-END
--------------------------- ---------------
1995 1994 1995 1994
------------ ------------ ----- -----
<S> <C> <C> <C> <C>
Senior debt obligations --
Revolving credit agreement payable to
banks.............................. $ 42,500,000 $ 12,000,000 8.42% 8.75%
Equipment debt, due in quarterly and
semiannual installments through
2005............................... 168,987,000 97,555,000 7.90% 8.94%
------------ ------------
Total senior debt
obligations................. $211,487,000 $109,555,000
============ ============
</TABLE>
TOL has a revolving credit agreement that, as of December 31, 1995,
provides for a maximum borrowing capacity of $100,000,000 and a termination date
(subject to extensions for one-year periods) of September 1997. Upon
termination, amounts outstanding convert to a six-year term loan repayable in 24
equal quarterly installments of principal and interest. Interest on borrowings
under the agreement is variable and, at the election of TOL, is based upon
either the prime or LIBOR rate. Actual interest rates are established
periodically and are a function of both TOL's advance rate under the agreement
and its profitability. Such rates vary from prime plus 0.10 percent to prime
plus 0.65 percent or from LIBOR plus 2.35 percent to LIBOR plus 2.90 percent.
Similarly, any amounts that convert to a term loan under the agreement will bear
interest at rates which may vary from prime plus 0.75 percent to prime plus 1.00
percent or from LIBOR plus 3.00 percent to LIBOR plus 3.25 percent. The
provisions of the revolving credit agreement also require a commitment fee of
0.50 percent per annum on the unused portion.
As of December 31, 1995, TOL has $168,987,000 of equipment debt
outstanding. Included in this amount is $18,724,000 of fixed rate debt with a
weighted average interest rate of 11.27 percent, $576,000 of prime-based
variable rate debt with a weighted average interest rate of prime plus 2.0
percent and $149,687,000 of LIBOR-based variable rate debt with a weighted
average interest rate of LIBOR plus 1.9 percent.
Maturities of senior debt outstanding at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
REVOLVING
CREDIT EQUIPMENT
AGREEMENT DEBT TOTAL
----------- ------------ ------------
<S> <C> <C> <C>
1996.................................. $ 0 $ 19,316,000 $ 19,316,000
1997.................................. 1,392,000 17,687,000 19,079,000
1998.................................. 5,855,000 19,762,000 25,617,000
1999.................................. 6,346,000 18,620,000 24,966,000
2000.................................. 6,877,000 18,319,000 25,196,000
Thereafter............................ 22,030,000 75,283,000 97,313,000
----------- ------------ ------------
Total....................... $42,500,000 $168,987,000 $211,487,000
=========== ============ ============
</TABLE>
F-10
<PAGE> 71
TRANS OCEAN LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
Loans under the various senior debt agreements are secured by specific
assets which, when combined, comprise a significant portion of TOL's rental
equipment. The debt agreements include various restrictive covenants which,
among other things, require TOL to maintain specified debt/equity ratios and
cash flow.
At December 31, 1995 and 1994, the carrying value of TOL's senior debt
obligations approximates the fair value.
6) SENIOR SUBORDINATED NOTES:
The senior subordinated notes were issued in June 1994, bear interest at
12 1/4 percent and are due 2004. Interest on the notes is payable semiannually
on January 1 and July 1 of each year, commencing January 1, 1995. The notes are
redeemable at the option of TOL, in whole or in part, at any time on or after
July 1, 1999, at a declining premium over par until 2002 and at par thereafter.
The indenture provides for the repurchase of up to 25 percent of the notes in
the event of an initial public offering of equity within three years from the
date of issue. Issuance costs of approximately $3,200,000 incurred in connection
with the sale of the notes have been capitalized, are included in other assets
in the accompanying consolidated balance sheets, and are being amortized on a
straight-line basis over 10 years.
The fair market value of the senior subordinated notes at December 31, 1995
and 1994, was $78,833,000 and $73,298,000, respectively, based on quoted market
prices.
7) PROPERTY AND EQUIPMENT:
Property and equipment at December 1995, and 1994, consists of the
following:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Leasehold improvements................................ $ 1,562,000 $ 1,520,000
Rental equipment...................................... 380,000,000 273,141,000
Furniture, fixtures and equipment..................... 10,138,000 7,823,000
------------ ------------
Total............................................ 391,700,000 282,484,000
Less: Accumulated depreciation and amortization....... 54,227,000 47,137,000
------------ ------------
Net property and equipment....................... $337,473,000 $235,347,000
============ ============
</TABLE>
8) COMMITMENTS AND CONTINGENCIES:
EQUIPMENT PURCHASES
As of December 31, 1995 and 1994, TOL had commitments of $35,199,000 and
$66,328,000, respectively, to purchase additional rental equipment, of which
$13,729,000 as of December 31, 1995, was denominated in foreign currency. TOL
has entered into foreign exchange contracts to hedge these commitments (see Note
9).
F-11
<PAGE> 72
TRANS OCEAN LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
OPERATING LEASES
Certain of TOL's rental equipment and its office facilities are secured
under operating leases. Most of the leases involving rental equipment are the
result of sale/leaseback transactions whereby equipment purchased by TOL
directly from manufacturers is resold to equipment lessors and leased back on a
fixed rate basis over a lease term, which is typically ten years. At the end of
the lease term, TOL has the option to repurchase the equipment at fair market
value or return the equipment to the lessor. The following is a schedule, by
year, of TOL's future minimum payments under operating leases as of December 31,
1995:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1996............................................................ $ 15,609,000
1997............................................................ 15,310,000
1998............................................................ 15,054,000
1999............................................................ 14,575,000
2000............................................................ 12,556,000
Thereafter...................................................... 35,634,000
------------
Total................................................. $108,738,000
============
</TABLE>
Total expense for rental equipment operating leases was $13,064,000,
$9,412,000 and $11,052,000 in 1995, 1994 and 1993, respectively.
FINANCIAL INSTRUMENTS
TOL from time to time utilizes various types of interest rate contracts to
manage interest rate risk and to reduce the impact of changes in interest rates
on its variable rate indebtedness. Interest rate cap agreements are used to
protect TOL in the event of significant increases in interest rates. As of
December 31, 1995, TOL has an interest rate cap agreement that protects TOL from
increases in LIBOR above 9.0 percent through August 1996 with respect to
$87,000,000 of variable rate indebtedness.
In 1995, TOL entered into two interest rate swap agreements which
effectively convert the interest rate on $60,000,000 of variable rate debt into
fixed rate debt. These agreements provide for TOL to exchange variable rate
interest payments based on LIBOR for a fixed rate of 5.77 percent on $30,000,000
through July 1996 and 5.705 percent on an additional $30,000,000 through August
1996. The fair value of these instruments was $(37,000) and $(53,000),
respectively, at December 31, 1995. The fair values of the interest rate swaps
are the indicative values based on mid-market levels as of December 31, 1995.
On February 5, 1996, TOL entered into a third interest rate swap agreement.
The agreement provides for TOL to exchange variable rate interest payments based
on LIBOR for a fixed rate of 4.963 percent on $25,000,000 through February 1998.
OTHER MATTERS
TOL is party to various legal proceedings, claims and other liabilities
which arise in the ordinary course of business. In the opinion of management,
the amount of ultimate liability resulting from these actions will not have a
material impact upon TOL's financial condition, results of operations, liquidity
or equity.
9) FOREIGN EXCHANGE CONTRACTS:
TOL operates internationally, with marketing offices in various locations
around the world. Additionally, TOL purchases a portion of its rental equipment
in foreign countries. TOL enters into foreign exchange
F-12
<PAGE> 73
TRANS OCEAN LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
contracts to hedge against foreign currency fluctuations on foreign currency
denominated transactions. TOL does not hold or issue financial instruments for
trading purposes.
As of December 31, 1995 and 1994, TOL held contracts to buy, for future
delivery, foreign currency amounts at a total price in U.S. dollars of
approximately $27,051,000 and $32,235,000, respectively. As of December 31,
1995, the forward exchange contracts held by TOL included approximately
$16,130,000 related to equipment purchase payables and commitments described in
Notes 3 and 8, and $10,921,000 related to certain unpaid direct operating,
marketing and administrative expenses which have been incurred or for which
future commitments exist. A summary of forward exchange contracts, which mature
at various dates through 1996, is as follows as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
FOREIGN CURRENCY AMOUNT PURCHASE PRICE
---------------------------------- ----------------------------
DENOMINATION 1995 1994 1995 1994
------------ --------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Italian Lira............. 26,920,330,000 36,861,000,000 $16,199,000 $22,617,000
Japanese Yen............. 324,000,000 324,000,000 3,386,000 3,341,000
German Marks............. 6,420,000 6,400,000 4,540,000 4,143,000
Other.................... Various Various 2,926,000 2,134,000
----------- -----------
$27,051,000 $32,235,000
=========== ===========
</TABLE>
The fair market value of these contracts as of December 31, 1995 and 1994,
was approximately $26,677,000 and $32,190,000, respectively.
10) REDEEMABLE SENIOR PREFERRED STOCK:
TOL has two series of nonvoting redeemable senior preferred stock, each
with a par value of $0.001 and a stated value of $12.50 per share. Series A
preferred, with 640,000 shares authorized, accrues a cumulative annual dividend
of 7 percent and has a mandatory redemption date in 1997, subject to statutory
limitations. Series B preferred, with 360,000 shares authorized, accrues a
cumulative annual dividend of 10.5 percent and has a mandatory redemption date
in 2001, subject to statutory limitations.
Differences between the par and stated values of outstanding shares are
being accreted over the period preceding the mandatory redemption dates.
Prior to January 1, 1994, there were 640,000 Series A preferred shares and
no Series B preferred shares outstanding. In August 1994, TOL redeemed 339,893
Series A preferred shares at stated value plus accrued dividends of
approximately $38,000. In December 1994, the remaining Series A shares were
exchanged for Series B shares on a one-for-one basis. As a result of these
transactions, there were 300,107 Series B shares and no Series A shares
outstanding as of December 31, 1995 and 1994.
11) COMMON STOCKHOLDERS' EQUITY:
COMMON STOCK
TOL has common stock with a par value of $.001. As of January 1, 1994,
there were 77,024 shares outstanding, with 200,000 shares authorized. During
1994, TOL repurchased 2,721 shares from two of its stockholders for an aggregate
purchase price of approximately $1,777,000. As a result of these transactions,
there were 74,303 shares outstanding, with 200,000 shares authorized as of
December 31, 1995 and 1994.
STOCK OPTION PLAN
In September 1993, TOL's Board of Directors adopted the 1993 Stock Option
Plan (the 1993 Plan) under which the Board is authorized to grant options to
purchase up to an aggregate of 6,000 shares of TOL's
F-13
<PAGE> 74
TRANS OCEAN LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
common stock to selected employees of or consultants to TOL. The 1993 Plan
provides for the grant of both incentive stock options and nonstatutory stock
options. Incentive stock options may be granted only to employees, while
nonstatutory stock options may be granted only to employees or consultants.
Directors of TOL are not eligible to receive options unless they are also
employees or consultants. The 1993 Plan will terminate in August 2003 unless
terminated sooner by the Board.
Options previously granted under the 1993 Plan generally (i) vest in full
upon the earlier of (a) approximately 15 months to 56 months from the date of
grant, (b) the occurrence of a change of control of TOL (as defined in the 1993
Plan), or (c) the termination of optionee's employment with TOL as a result of
death, permanent and total disability, or retirement at age 65 and (ii) expire
eight years from the date of grant.
As of December 31, 1995, options covering an aggregate of 4,700 shares of
TOL's common stock had been granted and were outstanding under the 1993 Plan.
The exercise prices of options outstanding range from $504.00 to $807.50 per
share, and the fair market value of TOL's common stock at the date of grant
ranges from $652.91 to $807.50. The differences between the exercise prices and
fair market value of 123 shares granted at $504.00 per share and 132 shares
granted at $548.00 per share are being amortized over the vesting period. As of
December 31, 1995, no options had been exercised, and 1,300 shares remained
available for grant.
12) INCOME TAXES:
The provision for income taxes for the years ended December 31, 1995, 1994
and 1993, consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Current taxes --
Federal...................................... $ 43,000 $ 0 $ (365,000)
State........................................ 102,000 49,000 (21,000)
Foreign...................................... 129,000 194,000 234,000
---------- ---------- ----------
274,000 243,000 (152,000)
---------- ---------- ----------
Deferred taxes --
Federal...................................... 3,199,000 2,478,000 3,668,000
State........................................ (329,000) 135,000 216,000
---------- ---------- ----------
2,870,000 2,613,000 3,884,000
---------- ---------- ----------
Total provision for income taxes..... $3,144,000 $2,856,000 $3,732,000
========== ========== ==========
</TABLE>
The differences between income taxes computed at the federal statutory rate
and the TOL's overall effective rate for the years ended December 31, 1995, 1994
and 1993, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate.............................. 34.0% 34.0% 34.0%
Increase (Decrease) in taxes resulting from --
State income taxes........................................... 2.7 2.5 1.8
Revision of prior year tax estimates......................... (4.7) -- --
Other........................................................ 1.4 2.7 2.6
---- ---- ----
Effective income tax rate................................. 33.4% 39.2% 38.4%
==== ==== ====
</TABLE>
F-14
<PAGE> 75
TRANS OCEAN LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
Temporary differences giving rise to the net deferred tax liability as of
December 31, 1995, 1994 and 1993, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Assets
Deferred revenue............................... $ 1,933,000 $ 2,646,000 $ 2,023,000
Customer damage accrual........................ 3,096,000 2,827,000 2,663,000
Passive loss carryforward...................... 16,871,000 7,956,000 2,325,000
Allowance for doubtful accounts................ 512,000 286,000 389,000
Other.......................................... -- 75,000 152,000
------------ ------------ ------------
Total deferred tax assets................... 22,412,000 13,790,000 7,552,000
------------ ------------ ------------
Liabilities
Depreciation and amortization.................. (42,804,000) (31,430,000) (22,869,000)
Other.......................................... (1,282,000) (1,286,000) (996,000)
------------ ------------ ------------
Total deferred tax liabilities.............. (44,086,000) (32,716,000) (23,865,000)
------------ ------------ ------------
Net deferred tax liabilities........... $(21,674,000) $(18,926,000) $(16,313,000)
============ ============ ============
</TABLE>
As of December 31, 1995, TOL had federal and state passive loss
carryforwards for income tax reporting purposes of $46,200,000 and $42,300,000,
respectively. The passive losses were generated by TOL's equipment rental
activities and can be carried forward indefinitely to offset future taxable
income.
13) GEOGRAPHICAL AREA AND CUSTOMER INFORMATION:
TOL operates on a worldwide basis through its headquarters in the United
States and sales offices in other locations. TOL's customer base is diversified
geographically, with most customers based outside of the United States.
Virtually all of TOL's customers are billed and pay in United States dollars. In
1995 and 1993, no customer accounted for more than 10 percent of lease revenue.
In 1994, a single customer accounted for approximately 11 percent of lease
revenue.
14) NEW ACCOUNTING PRONOUNCEMENT:
In March 1995, the Financial Accounting Standards board (FASB) issued SFAS
No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This statement requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
is recognized when expected undiscounted future cash flows to be generated by
the asset are less than the carrying value of the asset. Measurement of
impairment is based upon the fair value of the asset. TOL plans to adopt SFAS
No. 121 in 1996 and believes that the adoption will not have a material impact
upon its consolidated financial statements.
F-15
<PAGE> 76
UNAUDITED INTERIM FINANCIAL STATEMENTS
INTRODUCTION TO FINANCIAL STATEMENTS
The following unaudited interim financial statements of TOL have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, said financial statements do not include all
of the information and footnotes required by generally accepted accounting
principles for annual financial statements. In the opinion of management of TOL,
all adjustments necessary for a fair statement of the results for the interim
periods presented have been included. All such adjustments are of a normal
recurring nature. The following financial statements should be read in
conjunction with the accompanying consolidated financial statements and the
notes thereto for the year ended December 31, 1995. Operating results for the
first six months of 1996 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1996.
F-16
<PAGE> 77
TRANS OCEAN LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents....................................... $ 15,139,000 $ 23,056,000
Receivables, net of allowance for doubtful accounts of
$1,474,000 and $1,405,000 as of June 30, 1996 and December 31,
1995 respectively............................................. 41,468,000 38,946,000
Property and equipment, net of accumulated depreciation and
amortization.................................................. 348,601,000 337,473,000
Intangible assets, net of accumulated amortization of
$12,269,000 and $11,766,000 as of June 30, 1996 and December
31, 1995 respectively......................................... 6,874,000 7,377,000
Other assets.................................................... 9,665,000 11,262,000
------------ ------------
Total assets............................................... $421,747,000 $418,114,000
============ ============
LIABILITIES, REDEEMABLE SENIOR PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities........................ $ 45,694,000 $ 48,581,000
Managed equipment program liabilities........................... 15,553,000 20,175,000
Senior debt obligations, including current maturities of
$21,558,000 and $19,316,000 as of June 30, 1996 and December
31, 1995 respectively......................................... 220,452,000 211,487,000
Senior subordinated notes....................................... 75,000,000 75,000,000
Deferred revenue................................................ 4,442,000 4,810,000
Deferred income taxes........................................... 22,659,000 21,674,000
------------ ------------
Total liabilities.......................................... 383,800,000 381,727,000
------------ ------------
Redeemable senior preferred stock............................... 3,603,000 3,590,000
------------ ------------
Common stockholders' equity:
Common stock.................................................. 74,000 74,000
Contributed capital........................................... 676,000 676,000
Retained earnings............................................. 33,594,000 32,047,000
------------ ------------
Total common stockholders' equity.......................... 34,344,000 32,797,000
------------ ------------
Total liabilities, redeemable senior preferred stock and
common stockholders' equity.............................. $421,747,000 $418,114,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-17
<PAGE> 78
TRANS OCEAN LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Lease revenue................................................... $87,417,000 $79,921,000
----------- -----------
Costs and expenses:
Managed equipment program distributions....................... 24,982,000 24,970,000
Direct operating.............................................. 22,101,000 17,723,000
Depreciation and amortization................................. 12,466,000 10,279,000
Marketing and administrative.................................. 12,211,000 12,288,000
Interest...................................................... 12,815,000 10,687,000
----------- -----------
Total costs and expenses................................... 84,575,000 75,947,000
----------- -----------
Income before provision for income taxes................... 2,842,000 3,974,000
Provision for income taxes...................................... 1,085,000 1,466,000
----------- -----------
Net income................................................. $ 1,757,000 $ 2,508,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE> 79
TRANS OCEAN LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------
1996 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................... $ 1,757,000 $ 2,508,000
Adjustments to reconcile net income to net cash provided by
operating activities --
Depreciation and amortization............................. 12,466,000 10,279,000
Gain on sale of property and equipment.................... (1,057,000) (521,000)
Provision for doubtful accounts........................... 265,000 245,000
Amortization of deferred revenue.......................... (642,000) (900,000)
Provision for deferred income taxes....................... 996,000 1,392,000
Changes in Assets and Liabilities:
Receivables............................................. (2,787,000) (2,188,000)
Accounts payable and accrued liabilities................ (2,898,000) 4,916,000
Managed equipment program liabilities................... (4,622,000) (748,000)
Other, net.............................................. 1,597,000 48,000
------------- ------------
Net cash provided by operating activities............ 5,075,000 15,031,000
------------- ------------
Cash flows from investing activities:
Purchase of property and equipment........................... (65,866,000) (116,924,000)
Proceeds from sale of property and equipment................. 44,106,000 44,617,000
------------- ------------
Net cash used in investing activities................ (21,760,000) (72,307,000)
------------- ------------
Cash flows from financing activities:
Revolving credit repayments.................................. (116,500,000) (62,500,000)
Revolving credit borrowings.................................. 104,000,000 91,000,000
Senior debt repayments....................................... (8,967,000) (10,891,000)
Senior debt borrowings....................................... 30,432,000 38,921,000
Dividend on preferred stock.................................. (197,000) (197,000)
------------- ------------
Net cash provided by financing activities............ 8,768,000 56,333,000
------------- ------------
Net decrease in cash and cash equivalents............ (7,917,000) (943,000)
Cash and cash equivalents, beginning of period................. 23,056,000 18,452,000
------------- ------------
Cash and cash equivalents, end of period....................... $ 15,139,000 $ 17,509,000
============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE> 80
TRANS OCEAN LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON CAPITAL RETAINED
STOCK SURPLUS EARNINGS
------- -------- -----------
<S> <C> <C> <C>
Balance, December 31, 1995................................ $74,000 $676,000 $32,047,000
Net income.............................................. 1,757,000
Dividend on preferred stock............................. (197,000)
Preferred stock accretion............................... (13,000)
------- -------- -----------
Balance, June 30, 1996.................................... $74,000 $676,000 $33,594,000
======= ======== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE> 81
TRANS OCEAN LTD AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL:
The foregoing unaudited interim consolidated financial statements of TOL
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Article 10 of
Regulation S-X as promulgated by the Securities and Exchange Commission.
Accordingly, these financial statements do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements and should therefore be read in conjunction with the
financial statements and the notes thereto included in TOL's Consolidated
Financial Statements for the year ended December 31, 1995. In the opinion of
management, all adjustments necessary for a fair statement of the results for
the interim periods presented have been included. Operating results for the
first six months of 1996 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1996.
Beginning 1996, TOL has adopted SFAS No.121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. An impairment loss is recognized when expected undiscounted
future cash flows to be generated by the asset are less than the carrying value
of the asset. Measurement of impairment is based upon the fair value of the
asset. TOL believes that the adoption of this statement will not have a material
impact upon its consolidated financial statements.
Cash payments for interest were $12,918,000 and $9,713,000 for the six
months ended June 30, 1996 and 1995, respectively. Cash payments for income
taxes were $100,000 and $81,000 for the six months ended June 30, 1996 and 1995,
respectively.
NOTE 2. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities as of June 30, 1996, consist of
the following:
<TABLE>
<S> <C>
Equipment purchases payable..................................... $18,504,000
Trade payables.................................................. 2,763,000
Customer damage accrual......................................... 4,370,000
Accrued operating expenses...................................... 9,236,000
Accrued interest................................................ 7,531,000
Other........................................................... 3,290,000
-----------
Total................................................. $45,694,000
===========
</TABLE>
NOTE 3. SENIOR DEBT OBLIGATIONS:
As of June 30, 1996, TOL had $190,452,000 of equipment debt outstanding
with a weighted average interest rate of 7.64%
As of June 30, 1996, the borrowing capacity under TOL's revolving credit
agreement was $100,000,000, with $30,000,000 outstanding.
F-21
<PAGE> 82
TRANS OCEAN LTD AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. PROPERTY AND EQUIPMENT:
Property and equipment at June 30, 1996, consists of the following:
<TABLE>
<S> <C>
Leasehold improvements......................................... $ 1,564,000
Rental equipment............................................... 394,719,000
Furniture, fixtures and equipment.............................. 13,170,000
------------
Total..................................................... 409,453,000
Less: Accumulated depreciation and amortization................ 60,852,000
------------
Net property and equipment................................ $348,601,000
============
</TABLE>
NOTE 5. COMMITMENTS AND CONTINGENCIES:
EQUIPMENT PURCHASES
As of June 30, 1996, TOL had commitments of $34,098,000 to purchase
additional rental equipment, of which approximately $7,162,000 were denominated
in foreign currency. TOL has entered into foreign exchange contracts to hedge
these commitments.
FINANCIAL INSTRUMENTS
TOL from time to time utilizes various types of interest rate contracts to
manage its interest rate risk and to reduce the impact of changes in interest
rates on its variable rate indebtedness. Interest rate cap agreements are used
to protect TOL in the event of significant increases in interest rates. As of
June 30, 1996, TOL had interest rate cap agreements which protect TOL from
increases in LIBOR above 9.00% through August 1996 with respect to $82,400,000
of variable rate indebtedness. TOL has also entered into interest rate swap
agreements which effectively convert the interest rate on $85,000,000 of
variable rate debt into fixed rate debt. These agreements provide for TOL to
exchange variable rate interest payments based on LIBOR for a fixed rate of
5.77% on $30,000,000 through July 1996, 5.705% on $30,000,000 through August
1996 and 4.963% on $25,000,000 through February 1998. Net interest settlements
under the interest rate swap agreements are recorded as an adjustment to
interest expense.
OTHER MATTERS
TOL is party to various legal proceedings, claims and other liabilities
which arise in the ordinary course of business. In the opinion of management,
the amount of ultimate liability resulting from these actions will not have a
material impact upon TOL's financial condition, results of operations, liquidity
or equity.
NOTE 6. GEOGRAPHICAL AREA AND CUSTOMER INFORMATION:
TOL operates on a worldwide basis through its headquarters in the United
States and sales offices in other locations. TOL's customer base is diversified
geographically, with most customers based outside of the United States.
Virtually all of TOL's customers are billed and pay in United States dollars.
For the six months ended June 30, 1996, no customer accounted for more than 10%
of lease revenue.
NOTE 7. SUBSEQUENT EVENT:
On July 24, 1996, TOL entered into an Agreement and Plan of Merger with
Transamerica (the "Merger Agreement"). Pursuant to the Merger Agreement, TOL
would become a wholly owned subsidiary of
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TRANS OCEAN LTD AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
Transamerica (the "Merger"). As a result of the Merger, each share of TOL's
Common Stock and Series B Preferred Stock will be converted into the right to
receive shares of Transamerica Common Stock.
Consummation of the Merger is subject to the satisfaction of several
conditions, including but not limited to (i) the adoption of the Merger
Agreement by the requisite vote of TOL stockholders and (ii) the approval by
regulatory authorities.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
TRANSAMERICA CORPORATION,
CITATION SUB CORP.,
A WHOLLY OWNED DIRECT SUBSIDIARY OF TRANSAMERICA CORPORATION,
TRANS OCEAN LTD.,
GREER M. ARTHUR,
MARVIN D. DENNIS,
IN HIS INDIVIDUAL CAPACITY AND AS TRUSTEE
AND
NANCY A. DENNIS, AS TRUSTEE
July 24, 1996
<PAGE> 85
TABLE OF CONTENTS
<TABLE>
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AGREEMENT AND PLAN OF MERGER 1
PRELIMINARY STATEMENTS 1
AGREEMENT 1
ARTICLE I: THE MERGER.................................................................. 2
1.1 The Merger................................................................... 2
1.2 Effective Time............................................................... 2
1.3 Effects of the Merger........................................................ 2
1.4 Certificate of Incorporation and Bylaws...................................... 3
1.5 Directors and Officers....................................................... 3
1.6 Additional Actions........................................................... 3
ARTICLE II: CONVERSION OF SECURITIES................................................... 3
2.1 Conversion of Capital Stock.................................................. 3
2.2 Exchange of Certificates..................................................... 7
(a) Exchange Agent.......................................................... 7
(b) Exchange Procedures..................................................... 7
(c) Distributions with Respect to Unexchanged Shares........................ 8
(d) No Further Ownership Rights in TOL Common Stock and TOL Series B 9
Preferred Stock..............................................................
(e) Termination of Exchange Fund............................................ 9
(f) No Liability............................................................ 9
(g) Investment of Exchange Fund............................................. 10
2.3 Escrow Funds................................................................. 10
2.4 Treatment of Stock Options and Restricted Stock.............................. 16
2.5 Delivery of Preliminary Report, Pre-Closing Report, 17
Closing Date Report and Closing Report.......................................
2.6 Purchase Price Adjustment and Post-Closing Adjustment for Number of Units and 20
Type of Equipment............................................................
2.7 Purchase Price Adjustment and Post-Closing Adjustment for Age of Equipment... 23
2.8 Disagreements with Respect to Closing Report................................. 26
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF TRANSAMERICA
AND SUBCORP........................................................... 27
3.1 Organization and Standing.................................................... 27
3.2 Corporate Power and Authority................................................ 28
3.3 Capitalization of Transamerica............................................... 28
3.4 Disclosure................................................................... 29
3.5 Conflicts, Consents and Approval............................................. 29
3.6 Registration Statement....................................................... 30
3.7 Brokerage and Finder's Fees.................................................. 30
3.8 Litigation................................................................... 30
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF
TOL, ARTHUR AND DENNIS................................................ 31
4.1 Organization and Standing.................................................... 31
4.2 Subsidiaries................................................................. 31
4.3 Corporate Power and Authority................................................ 32
4.4 Capitalization of TOL........................................................ 32
4.5 Conflicts; Consents and Approvals............................................ 33
</TABLE>
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<TABLE>
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4.6 No Material Adverse Change................................................... 34
4.7 SEC Documents; Financial Statements; Indebtedness............................ 35
4.8 Taxes........................................................................ 37
4.9 Compliance with Law.......................................................... 38
4.10 Proprietary Rights........................................................... 38
4.11 Containers................................................................... 39
4.12 Title to and Condition and Sufficiency of Properties......................... 40
4.13 Title........................................................................ 44
4.14 Operating Leases; Sales of Containers and Chassis in Connection with
Management Arrangements...................................................... 45
4.15 Operations Manuals........................................................... 46
4.16 Depot Agreements; Purchase Options........................................... 46
4.17 Registration Statement....................................................... 47
4.18 Litigation................................................................... 47
4.19 Brokerage and Finder's Fees; Merger Fees..................................... 48
4.20 Employee Benefit Plans....................................................... 48
4.21 Contracts.................................................................... 52
4.22 Accounts Receivable.......................................................... 55
4.23 Officers and Employees....................................................... 55
4.24 Labor Relations.............................................................. 56
4.25 Undisclosed Liabilities...................................................... 56
4.26 Customer and Supplier Relationships.......................................... 57
4.27 Operation of TOL's Business.................................................. 58
4.28 Permits; Compliance.......................................................... 62
4.29 Environmental Matters........................................................ 62
4.30 OSHA Matters................................................................. 64
4.31 Insurance.................................................................... 65
4.32 Board Recommendation......................................................... 65
4.33 State Takeover Laws.......................................................... 65
4.34 Disclosure................................................................... 66
4.35 Powers of Attorney, Guarantees, Sureties..................................... 66
4.36 Accuracy of Preliminary Report and Pre-Closing Report; Certain Payments...... 66
ARTICLE V: COVENANTS OF THE PARTIES.................................................... 66
5.1 Mutual Covenants............................................................. 66
(a) General................................................................. 66
(b) HSR Act................................................................. 67
(c) Other Governmental Matters.............................................. 67
(d) Tax-Free Treatment...................................................... 67
(e) Public Announcements.................................................... 68
5.2 Covenants of Transamerica.................................................... 68
(a) Preparation of Transamerica Registration Statement...................... 68
(b) Conduct of Transamerica's Operations.................................... 68
(c) Notification of Certain Matters......................................... 69
(d) Indemnification......................................................... 69
(e) Appraisal Rights........................................................ 69
</TABLE>
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<TABLE>
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5.3 Covenants of TOL, Arthur and Dennis.......................................... 70
(a) TOL Stockholders Meeting................................................ 70
(b) Information for the Registration Statement and Preparation of 70
TOL Proxy Statement....................................................
(c) Conduct of TOL's Operations............................................. 70
(d) No Solicitation......................................................... 75
(e) Pre-Closing Report...................................................... 75
(f) Inspection and Repair of Containers..................................... 76
(g) Affiliate Agreements.................................................... 76
(h) Merger Fees............................................................. 76
(i) Notification of Certain Matters........................................ 77
(j) Consulting and Non-Competition Agreements.............................. 77
(k) Access.................................................................. 77
(l) Repayment of Notes..................................................... 77
ARTICLE VI: CONDITIONS................................................................. 78
6.1 Mutual Conditions............................................................ 78
6.2 Conditions to Obligations of TOL............................................. 78
6.3 Conditions to Obligations of Transamerica and Subcorp........................ 79
ARTICLE VII: TERMINATION AND AMENDMENT................................................. 83
7.1 Termination.................................................................. 83
7.2 Effect of Termination........................................................ 84
7.3 Amendment.................................................................... 84
7.4 Extension; Waiver............................................................ 84
ARTICLE VIII: MISCELLANEOUS............................................................ 85
8.1 Survival of Representations and Warranties................................... 85
8.2 Notices...................................................................... 85
8.3 Interpretation............................................................... 87
8.4 Counterparts................................................................. 87
8.5 Entire Agreement............................................................. 88
8.6 Third Party Beneficiaries.................................................... 88
8.7 Governing Law; Jurisdiction.................................................. 88
8.8 Specific Performance......................................................... 88
8.9 Assignment................................................................... 88
8.10 Indemnification.............................................................. 89
8.11 CAVN Indemnification......................................................... 96
8.12 Use of Any Remaining Proceeds in Escrow Fund................................. 97
8.13 Expenses..................................................................... 98
Exhibit A -- Form of Escrow Agreement
Exhibit B -- Form of Support/Voting Agreement
Exhibit C -- Form of Opinion of Counsel to Transamerica
Re: Corporate Matters
Exhibit D -- Form of Opinion of Counsel to TOL
Re: Corporate Matters
Exhibit E -- Detail Support for Exhibit F [to be delivered 5to 10 business days after the
date hereof]
Exhibit F -- Preliminary Report
Exhibit G -- Form of Opinion of Counsel to TOL
Re: Tax Matters
</TABLE>
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<TABLE>
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Exhibit H -- Representations to be provided to Counsel for TOL
Exhibit I -- Representations to be provided to Counsel for Transamerica
Exhibit J -- Certificate of Incorporation of the Surviving Corporation
Exhibit K -- TOL Container Condition Standards for Tank Containers
Exhibit L -- Consent of Spouse
Exhibit M -- Form of Purchase Order
Exhibit N -- Form of Opinion of Counsel to Transamerica
Re: Tax Matters
</TABLE>
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INDEX OF DEFINED TERMS
<TABLE>
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DEFINED TERM SECTION REFERENCE
- ------------------------------------------------------------------------------------------------
<S> <C>
Action................................................................................ 4.18
Adjustment Escrow Fund................................................................ 2.3(a)
Agreed Amount......................................................................... 8.10(d)
Agreement............................................................................. Preamble
Applicable Laws....................................................................... 4.9
Arthur................................................................................ Preamble
Average Share Price................................................................... 2.3(e)
Bankrupt.............................................................................. 4.12(g)
Bankruptcy Code....................................................................... 4.12(g)
CAVN Equipment........................................................................ 8.11(a)
CAVN Receivables...................................................................... 8.11(a)
CAVN Recovery......................................................................... 8.11(a)
Certificate of Merger................................................................. 1.2
Certificates.......................................................................... 2.2(b)
Chassis............................................................................... 4.11(a)
Claim................................................................................. 2.3(b)
Claimed Amount........................................................................ 8.10(d)
Claims Notice......................................................................... 2.3(b)
Closing............................................................................... 1.2
Closing Date.......................................................................... 1.2
Closing Date Report................................................................... 2.5(c)
Closing Report........................................................................ 2.5(d)
Code................................................................. Preliminary Statement B
Commission............................................................................ 3.6
Common Exchange Ratio................................................................. 2.1(b)
Competing Transaction................................................................. 5.3(d)
Confidentiality Agreement............................................................. 5.3(k)
Consulting Agreements................................................................. 5.3(j)
Container Operations.................................................................. 4.12(d)
Containers............................................................................ 4.11(a)
Contract.............................................................................. 4.21(a)
Controlled Group Liability............................................................ 4.20(a)
Deemed Average Share Price............................................................ 2.3(e)
Delaware Secretary of State........................................................... 1.2
Dennis................................................................................ Preamble
Depot Agreements...................................................................... 4.21(a)
DGCL.................................................................................. 1.1(a)
Disputed Amount....................................................................... 2.5(e)
Dissenting Shares..................................................................... 2.1(e)
DOJ................................................................................... 5.1(b)
DPP................................................................................... 4.11(a)
Effective Time........................................................................ 1.2
Environmental Laws.................................................................... 4.29(a)
Environmental Permits................................................................. 4.29(e)
ERISA................................................................................. 4.20(a)
ERISA Affiliate....................................................................... 4.20(a)
</TABLE>
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<TABLE>
<CAPTION>
DEFINED TERM SECTION REFERENCE
- ------------------------------------------------------------------------------------------------
<S> <C>
Escrow Agent.......................................................................... 2.3(a)
Escrow Agreement...................................................................... 2.3(a)
Escrow Fund A......................................................................... 2.3(a)
Escrow Fund B......................................................................... 2.3(a)
Escrow Fund C......................................................................... 2.3(a)
Escrow Funds.......................................................................... 2.3(a)
Exchange Act.......................................................................... 4.7
Exchange Agent........................................................................ 2.2(a)
Exchange Fund......................................................................... 2.2(a)
Financed Equipment.................................................................... 4.12(a)
Financial Advisors.................................................................... 4.19
FTC................................................................................... 5.1(b)
FTEUs................................................................................. 4.26(b)
Governmental Authority................................................................ 3.5(d)
Hazardous Materials................................................................... 4.29(a)
HSR Act............................................................................... 3.5(d)
Indebtedness Agreements............................................................... 4.7
Indemnified Parties................................................................... 8.10(a)
Indemnity Claim Notice................................................................ 8.10(d)
Invalid Claim Amount.................................................................. 2.6(g)
IRS................................................................................... 4.8
Kantz Approval........................................................................ 5.3(a)
Leased-In Equipment................................................................... 4.12(a)
Leased-Out Equipment.................................................................. 4.12(a)
Loss and Expenses..................................................................... 8.10(a)
Management Agreements................................................................. 4.12(h)
material adverse effect............................................................... 8.3
Merger............................................................... Preliminary Statement A
Merger Fees........................................................................... 4.19
Mr. Dennis............................................................................ Preamble
Multiemployer Plan.................................................................... 4.20(g)
Multiple Employer Plan................................................................ 4.20(g)
Non-Competition Agreements............................................................ 5.3(j)
NYSE.................................................................................. 2.3(e)
NYSE Composite Tape................................................................... 2.3(e)
Objecting Notice...................................................................... 2.3(d)
Operating Leases...................................................................... 4.12(a)
OSHA.................................................................................. 4.30
Owned Equipment....................................................................... 4.12(a)
Payment Shortfall..................................................................... 26(g)
PCBs.................................................................................. 4.29(c)
Per Share Amount...................................................................... 2.1(b)
Plans................................................................................. 4.20(a)
Pre-Closing Report.................................................................... 2.5(b)
Preferred Exchange Ratio.............................................................. 2.1(c)
Preliminary Objecting Notice.......................................................... 2.3(d)
Preliminary Report.................................................................... 2.5(a)
Preliminary Response Notice........................................................... 8.10(d)
</TABLE>
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<TABLE>
<CAPTION>
DEFINED TERM SECTION REFERENCE
- ------------------------------------------------------------------------------------------------
<S> <C>
Proprietary Rights.................................................................... 4.10
Prospectus............................................................................ 3.6
Proxy Statement....................................................................... 3.6
Purchase Commitments.................................................................. 4.21(a)
Qualified Plan........................................................................ 4.20(d)
Receivables........................................................................... 4.22
Registration Statement................................................................ 3.6
Response Notice....................................................................... 8.10(d)
Restriction Period.................................................................... 8.10(h)
Revolving Credit Agreement............................................................ 4.12(a)
SEC Documents......................................................................... 4.7
Second Request........................................................................ 5.1(b)
Section 8.10(b) Claim................................................................. 8.10(b)
Secured Financing Agreements.......................................................... 4.12(a)
Securities Act........................................................................ 3.3
Security Interest..................................................................... 4.12(a)
Shortfall Amount...................................................................... 5.2(e)
Standard IICL Guide................................................................... 4.11(a)
Status................................................................................ 2.5(a)
Subcorp............................................................................... Preamble
Subcorp Shares........................................................................ 2.1(a)
subsidiary............................................................................ 4.2(c)
Support/Voting Agreement.............................................................. 4.33
Surviving Corporation................................................................. 1.1(b)
tax................................................................................... 4.8
TEUs.................................................................................. 4.26(b)
Third Party Claim..................................................................... 8.10(e)
TOL................................................................................... Preamble
TOL Agents............................................................................ 2.3(d)
TOL Chassis Leases.................................................................... 4.13
TOL Common Stock...................................................................... 4.4(a)
TOL Disclosure Schedule............................................................... 4.1
TOL Operating Subsidiary.............................................................. 4.7
TOL Option............................................................................ 2.4(a)
TOL Permits........................................................................... 4.28
TOL Series B Preferred Stock.......................................................... 4.4(a)
TOL Stock............................................................................. 4.4
TOL Stockholders...................................................................... 2.1(b)
Transamerica.......................................................................... Preamble
Transamerica Common Shares............................................................ 3.3(a)
Valid Claim Amount.................................................................... 2.6(g)
</TABLE>
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and entered
into as of the 24th day of July, 1996, by and among Transamerica Corporation, a
Delaware corporation ("Transamerica"), Citation Sub Corp., a Delaware
corporation and a wholly owned direct subsidiary of Transamerica ("Subcorp"),
Trans Ocean Ltd., a Delaware corporation ("TOL"), Greer M. Arthur ("Arthur"),
Marvin D. Dennis, in his individual capacity ("Mr. Dennis") and as trustee of
The Dennis Family Living Trust, and Nancy A. Dennis, as trustee of The Dennis
Family Living Trust (Mr. Dennis and Ms. Dennis being collectively referred to
herein as "Dennis").
PRELIMINARY STATEMENTS
A. Transamerica desires to acquire the container business and other
businesses operated by TOL through the merger (the "Merger") of Subcorp with and
into TOL, with TOL as the surviving corporation, pursuant to which each share of
TOL Stock (as defined in Section 4.4) outstanding at the Effective Time (as
defined in Section 1.2) will be converted into the right to receive Transamerica
Common Shares (as defined in Section 3.3) as more fully provided herein.
B. The parties intend that the Merger constitute a tax-free
"reorganization" within the meaning of Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "Code"), by reason of Section 368(a)
thereof.
C. The respective Boards of Directors of Transamerica, Subcorp and TOL have
determined the Merger in the manner contemplated herein to be desirable and in
the best interests of their respective stockholders and, by resolutions duly
adopted, have approved and adopted this Agreement.
AGREEMENT
Now, therefore, in consideration of these premises and the mutual and
dependent promises hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. (a) Upon the terms and subject to the conditions hereof,
and in accordance with the provisions of the Delaware General Corporation Law
(the "DGCL"), Subcorp shall be merged with and into TOL as soon as practicable
following the satisfaction or waiver of the conditions set forth in Article VI.
Following the Merger, the separate corporate existence of Subcorp shall cease
and TOL shall continue its existence under the laws of the State of Delaware.
TOL, in its capacity as the corporation surviving the Merger, is hereinafter
sometimes referred to as the "Surviving Corporation."
(b) In the event that the holders of more than 16% of the shares of TOL
Common Stock demand appraisal rights in accordance with the requirements of
Section 262(d) of the DGCL, TOL shall, upon the terms and subject to the
conditions hereof, and in accordance with the provisions of the DGCL, be merged
with and into Subcorp as soon as practicable following the satisfaction or
waiver of the conditions set forth in Article VI. Following this merger, the
separate corporate existence of TOL shall cease and Subcorp shall continue its
existence under the laws of the State of Delaware. In such case, references
herein to the "Surviving Corporation" shall be deemed to be references to
Subcorp, in its capacity as the corporation surviving the merger and references
herein to the "Merger" shall be deemed to be references to the merger of TOL
with and into Subcorp.
1.2. Effective Time. The Merger shall be consummated by filing with the
Secretary of State of the State of Delaware (the "Delaware Secretary of State")
a certificate of merger (the "Certificate of Merger") in such form as is
required by and executed in accordance with Section 252(c) of the DGCL. The
Merger shall become effective at the time (the "Effective Time") when the
Certificate of Merger has been filed with
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the Delaware Secretary of State or at such later time as shall be specified in
the Certificate of Merger. Prior to the filing referred to in this Section 1.2,
a closing (the "Closing") shall be held at the offices of Transamerica, 600
Montgomery Street, San Francisco, California 94111, or such other place as the
parties may agree, on the date (the "Closing Date") set by Transamerica, which
date shall be within ten business days following the date upon which all
conditions set forth in Article VI hereof have been satisfied or waived.
1.3. Effects of the Merger. The Merger shall have the effects set forth in
Section 259 of the DGCL.
1.4. Certificate of Incorporation and Bylaws. At the Effective Time, (i)
the Certificate of Incorporation of the Surviving Corporation shall be amended
to read in its entirety as Exhibit J hereto, and (ii) the Bylaws of Subcorp in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation, in each case until amended in accordance with Applicable
Law (as defined in Section 4.9).
1.5. Directors and Officers. From and after the Effective Time, the
officers of Subcorp shall be the officers of the Surviving Corporation and the
directors of Subcorp shall be the directors of the Surviving Corporation, in
each case until their respective successors are duly elected and qualified.
1.6. Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any further deeds,
assignments or assurances in law or any other acts are necessary or desirable to
(a) vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of TOL, or (b) otherwise carry out the provisions of this
Agreement, TOL and its officers and directors shall be deemed to have granted to
the Surviving Corporation an irrevocable power of attorney to execute and
deliver all such deeds, assignments or assurances in law and to take all acts
necessary, proper or desirable to vest, perfect or confirm title to and
possession of such rights, properties or assets in the Surviving Corporation and
otherwise to carry out the provisions of this Agreement, and the officers and
directors of the Surviving Corporation are authorized in the name of TOL or
otherwise to take any and all such action.
ARTICLE II
CONVERSION OF SECURITIES
2.1. Conversion of Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Transamerica, Subcorp or TOL:
(a) Each share of common stock, $1.00 par value per share, of Subcorp
issued and outstanding immediately prior to the Effective Time (the
"Subcorp Shares") shall be converted into one share of common stock, $1.00
par value per share, of the Surviving Corporation, and such shares shall
thereafter constitute all of the issued and outstanding capital stock of
the Surviving Corporation; provided, however, that if Section 1.1(b) shall
apply to the form of the Merger, each Subcorp Share shall remain
outstanding and shall thereafter be one share of common stock of the
Surviving Corporation of the Merger as effected in accordance with said
Section 1.1(b) and such shares shall thereafter constitute all of the
issued and outstanding capital stock of the Surviving Corporation.
(b) Subject to the provisions of Sections 2.3, 2.6 and 2.7, each share
of TOL Common Stock (as defined in Section 4.4) issued and outstanding
immediately prior to the Effective Time shall be converted into and
represent the right to receive a number of Transamerica Common Shares
(rounded to the nearest ten-thousandth of a share) (the "Common Exchange
Ratio") in an amount equal to the quotient obtained by dividing (x) the Per
Share Amount (as hereinafter defined) by (y) the Deemed Average Share Price
(as defined in Section 2.3(e)(i) below); provided, further, that no
Transamerica Common Shares shall be issued to a TOL Stockholder (as defined
below) who demands appraisal rights in accordance with the requirements of
Section 262(d) of the DGCL and such TOL Stockholder shall not be entitled
to payment of any amounts pursuant to this Section 2.1(b) or Sections 2.3,
2.5, 2.6 or 2.7. The "Per Share Amount" shall equal the quotient obtained
by dividing (x) $110,700,000 (or, if Section 1.1(b) shall apply to the form
of the Merger, $107,700,000), increased by the total amount of cash paid to
TOL between the execution of this Agreement and the Closing in order to
exercise TOL Options (as
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defined in Section 2.4) and decreased by the product of the Preferred
Exchange Ratio (as defined in Section 2.1(c)) multiplied by the Deemed
Average Share Price, and further multiplied by the number of shares of TOL
Series B Preferred Stock (as defined in Section 4.4) which are issued and
outstanding immediately prior to the Effective Time, by (y) the number of
shares of TOL Common Stock which are issued and outstanding immediately
prior to the Effective Time. Promptly following the Effective Time,
certificates representing (i) $11,000,000 of the Transamerica Common Shares
issued pursuant to the first sentence of this Section 2.1(b) shall be paid
into Escrow Fund A, (ii) $2,500,000 of such Transamerica Common Shares
shall be paid into Escrow Fund B, (iii) $1,000,000 of such Transamerica
Common Shares shall be paid into Escrow Fund C, and (iv) $9,000,000 of such
Transamerica Common Shares shall be paid into the Adjustment Escrow Fund
(each as defined in Section 2.3(a)) with each of the foregoing dollar
amounts to be calculated using the Deemed Average Share Price, in
accordance with the provisions of Section 2.3 hereof. Any such Transamerica
Common Shares (together with any dividends or distributions thereon, if
any), to be released from the aforementioned Escrow Funds to holders of TOL
Common Stock (the "TOL Stockholders") in accordance with the terms of the
Escrow Agreement shall be released to each TOL Stockholder whose shares of
TOL Common Stock are converted into Transamerica Common Shares pursuant to
the first sentence of this Section 2.1(b) in amounts which constitute the
same proportion of the Transamerica Common Shares to be released from the
applicable Escrow Fund that the Transamerica Common Shares that each such
TOL Stockholder was entitled to receive pursuant to the first sentence of
this Section 2.1(b) bear to the Transamerica Common Shares which all TOL
Stockholders whose shares of TOL Common Stock are converted into
Transamerica Common Shares pursuant to the first sentence hereof were
entitled to so receive; provided, however, except for the right of Arthur
and Dennis pursuant to Section 2.3(e)(ii) to cause the Escrow Agent to sell
Transamerica Common Shares and invest the proceeds under the circumstances
set forth therein, no TOL Stockholder shall have a right to sell, transfer,
pledge, encumber or otherwise dispose of (or to cause any of the foregoing
to occur), or to receive any certificates representing, any such
Transamerica Common Shares prior to the release of such shares to TOL
Stockholders from the applicable Escrow Fund pursuant to the terms of this
Agreement and the Escrow Agreement (as defined in Section 2.3). No
certificates for fractional Transamerica Common Shares shall be issued as a
result of the conversion provided for in this Section 2.1(b). To the extent
that an outstanding share of TOL Common Stock would otherwise have become a
fractional Transamerica Common Share, the holder thereof, upon presentation
of such fractional interest represented by an appropriate certificate for
TOL Common Stock to the Exchange Agent pursuant to Section 2.2, shall be
entitled to receive a cash payment therefor in an amount equal to the value
(determined with reference to the closing price of Transamerica Common
Shares on the NYSE Composite Tape on the last full trading day immediately
prior to the Effective Time) of such fractional interest. Such payment with
respect to fractional shares is merely intended to provide a mechanical
rounding off of, and is not a separately bargained for, consideration. If
more than one certificate representing shares of TOL Common Stock shall be
surrendered for the account of the same holder, the number of Transamerica
Common Shares for which certificates have been surrendered shall be
computed on the basis of the aggregate number of shares represented by the
certificates so surrendered.
(c) Each share of TOL Series B Preferred Stock (as defined in Section
4.4) issued and outstanding immediately prior to the Effective Time shall
be converted into and represent the right to receive a number of
Transamerica Common Shares (rounded to the nearest ten-thousandth of a
share) (the "Preferred Exchange Ratio") in an amount equal to the quotient
obtained by dividing (x) $12.50, plus any accrued but unpaid dividends on
such share of TOL Series B Preferred Stock (which dividends shall not, with
respect to all outstanding shares of TOL Series B Preferred Stock, in the
aggregate, exceed $98,475 as of the Closing Date), by (y) the Deemed
Average Share Price. To the extent that an outstanding share of TOL Series
B Preferred Stock would otherwise have become a fractional Transamerica
Common Share, the holder thereof, upon presentation of such fractional
interest represented by an appropriate certificate for TOL Series B
Preferred Stock to the Exchange Agent pursuant to Section 2.2, shall be
entitled to receive a cash payment therefor in an amount equal to the value
(determined with reference to the closing price of Transamerica Common
Shares on the NYSE
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Composite Tape on the last full trading day immediately prior to the
Effective Time) of such fractional interest. Such payment with respect to
fractional shares is merely intended to provide a mechanical rounding off
of, and is not a separately bargained for, consideration. If more than one
certificate representing shares of TOL Series B Preferred Stock shall be
surrendered for the account of the same holder, the number of Transamerica
Common Shares for which certificates have been surrendered shall be
computed on the basis of the aggregate number of shares represented by the
certificates so surrendered.
(d) Each share of capital stock of TOL held in the treasury of TOL
shall be cancelled and retired and no payment shall be made in respect
thereof.
(e) Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, each share of TOL Common Stock and each share of TOL Series B
Preferred Stock which is issued and outstanding immediately prior to the
Effective Time and which is held by a TOL Stockholder who has not voted
such shares in favor of adoption of the Agreement and who has demanded
appraisal rights with respect thereto in the manner provided in Section 262
of the DGCL (collectively, the "Dissenting Shares") shall not be converted
into or represent the right to receive the merger consideration provided
for in paragraph (b) or (c) of this Section 2.1, as the case may be, but,
instead, the holders thereof shall be entitled to receive payment of the
appraised value of such shares in accordance with the provisions in Section
262 of the DGCL; provided, however, that if any holder of Dissenting Shares
shall subsequently withdraw such demand for appraisal of such shares, or
lose the right to appraisal as provided in Section 262 of the DGCL, such
holder or holders, as the case may be, shall forfeit the right to appraisal
of such shares and such shares shall thereupon be deemed to have been
automatically converted into the right to receive, as of the Effective
Time, the merger consideration provided for in paragraph (b) or (c) of this
Section 2.1, as the case may be, without any interest thereon.
2.2. Exchange of Certificates.
(a) Exchange Agent. Promptly following the Effective Time,
Transamerica shall deposit with The Bank of New York or such other exchange
agent as may be designated by Transamerica (the "Exchange Agent"), for the
benefit of the TOL Stockholders, for exchange in accordance with this
Section 2.2, certificates representing Transamerica Common Shares issuable
pursuant to the first sentence of Section 2.1(b), excluding the
Transamerica Common Shares to be paid into the Escrow Funds, and pursuant
to Section 2.1(c) in exchange for outstanding shares of TOL Common Stock
and shares of TOL Series B Preferred Stock and shall from time to time
deposit cash in an amount reasonably expected to be paid pursuant to
Sections 2.1(b) and 2.1(c) (such Transamerica Common Shares and cash,
together with any dividends or distributions with respect thereto, the
"Exchange Fund").
(b) Exchange Procedures. As soon as practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to
the Effective Time represented outstanding shares of TOL Common Stock or
TOL Series B Preferred Stock whose shares were converted into the right to
receive Transamerica Common Shares pursuant to the first sentence of
Section 2.1(b) or pursuant to Section 2.1(c), as the case may be, (i) a
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such
form and have such other provisions as Transamerica may reasonably specify)
and (ii) instructions for effecting the surrender of the Certificates in
exchange for certificates representing Transamerica Common Shares. Upon
surrender of a Certificate for cancellation to the Exchange Agent, together
with a duly executed letter of transmittal, the holder of such Certificate
shall be entitled to receive in exchange therefor (x) a certificate
representing that number of Transamerica Common Shares which such holder
has the right to receive pursuant to the first sentence of Section 2.1(b),
excluding the Transamerica Common Shares to be paid into the Escrow Funds,
or pursuant to Section 2.1(c), as the case may be, and (y) a check
representing the amount of cash in lieu of fractional shares, if any, and
unpaid dividends and distributions if any, which such holder has the right
to receive pursuant to the provisions of this Article II, after giving
effect to any required withholding tax, and the Certificate so surrendered
shall forthwith be
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cancelled. No interest will be paid or accrued on the cash in lieu of
fractional shares, unpaid dividends and distributions, if any, payable to
holders of shares of TOL Common Stock or TOL Series B Preferred Stock. In
the event of a transfer of ownership of shares of TOL Common Stock or TOL
Series B Preferred Stock which is not registered on the transfer records of
TOL, a certificate representing the proper number of Transamerica Common
Shares, together with a check for the cash to be paid in lieu of fractional
shares, if any, and unpaid dividends and distributions, if any, may be
issued to such transferee if the Certificate representing such shares of
TOL Common Stock or TOL Series B Preferred Stock, as the case may be, held
by such transferee is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence
that any applicable stock transfer taxes have been paid. Until surrendered
as contemplated by this Section 2.2, each Certificate shall be deemed at
any time after the Effective Time to represent only the right to receive
upon surrender a certificate representing Transamerica Common Shares and
cash in lieu of fractional shares thereof as provided in Section 2.1(b) or
2.1(c), as the case may be.
(c) Distributions with Respect to Unexchanged Shares. Notwithstanding
any other provisions of this Agreement, no dividends or other distributions
declared or made after the Effective Time with respect to Transamerica
Common Shares having a record date after the Effective Time shall be paid
to the holder of any unsurrendered Certificate, and no cash payment in lieu
of fractional shares shall be paid to any such holder, until the holder
shall surrender such Certificate as provided in this Section 2.2. Subject
to the effect of Applicable Laws (as defined in Section 4.9), following
surrender of any such Certificate, there shall be paid to the holder of the
certificates representing whole Transamerica Common Shares issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to such whole Transamerica
Common Shares and not paid, less the amount of any withholding taxes which
may be required thereon, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole Transamerica Common Shares,
less the amount of any withholding taxes which may be required thereon.
(d) No Further Ownership Rights in TOL Common Stock and TOL Series B
Preferred Stock. All Transamerica Common Shares issued upon surrender of
Certificates in accordance with the terms hereof (including any cash paid
pursuant to Section 2.1(b) or 2.1(c)) shall be deemed to have been issued
in full satisfaction of all rights pertaining to such shares of TOL Common
Stock or TOL Series B Preferred Stock represented thereby (other than the
right to receive any portion of the Escrow Funds pursuant to the terms of
this Agreement and the Escrow Agreement), and there shall be no further
registration of transfers on the stock transfer books of TOL of shares of
TOL Common Stock or TOL Series B Preferred Stock outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they shall be
cancelled and exchanged as provided in this Section 2.2.
(e) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to TOL stockholders for twelve months after the
Effective Time shall be delivered to Transamerica, upon demand thereby, and
holders of shares of TOL Common Stock or TOL Series B Preferred Stock who
have not theretofore complied with this Section 2.2 shall thereafter look
only to Transamerica for payment of any claim to Transamerica Common
Shares, cash in lieu of fractional shares thereof, or dividends or
distributions, if any, in respect thereof. If necessary in connection with
the orderly distribution of Transamerica Common Shares to TOL Stockholders
pursuant to Sections 2.6(c) and 2.7(c), the termination of the Exchange
Fund shall be extended until the 180th day following the date that any
additional Transamerica Common Shares are paid into the Exchange Fund.
(f) No Liability. None of Transamerica, the Surviving Corporation or
the Exchange Agent shall be liable to any person in respect of any shares
of TOL Common Stock or TOL Series B Preferred Stock (or dividends or
distributions with respect thereto) or cash from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. If any Certificates shall not have been
surrendered prior to seven years after the Effective Time (or immediately
prior to such earlier
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date on which any cash, any cash in lieu of fractional shares of retained
TOL Common Stock or TOL Series B Preferred Stock or any dividends or
distributions with respect to whole shares of TOL Common Stock or TOL
Series B Preferred Stock in respect of such Certificate would otherwise
escheat to or become the property of any Governmental Authority (as defined
in Section 3.4)), any cash, dividends or distributions in respect of such
Certificate shall, to the extent permitted by Applicable Law, become the
property of Transamerica, free and clear of all claims or interest of any
person previously entitled thereto.
(g) Investment of Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund, as directed by Transamerica, on a daily
basis. Any interest and other income resulting from such investments shall
be paid to Transamerica upon termination of the Exchange Fund pursuant to
Section 2.2(e).
2.3. Escrow Funds. (a) Promptly following the Effective Time, certificates
representing a portion of the Transamerica Common Shares into which shares of
TOL Common Stock are converted pursuant to Section 2.1(b) shall be delivered to
a mutually satisfactory escrow agent (the "Escrow Agent"), as follows:
(i) certificates representing Transamerica Common Shares with an
aggregate value of $11,000,000 shall be delivered to the Escrow Agent (such
Transamerica Common Shares to be so delivered, together with any dividends
or distributions with respect thereto and any proceeds thereof, "Escrow
Fund A"),
(ii) certificates representing Transamerica Common Shares with an
aggregate value of $2,500,000 shall be delivered to the Escrow Agent (such
Transamerica Common Shares to be so delivered, together with any dividends
or distributions with respect thereto and any proceeds thereof, "Escrow
Fund B"),
(iii) certificates representing Transamerica Common Shares with an
aggregate value of $1,000,000 shall be delivered to the Escrow Agent (such
Transamerica Common Shares to be so delivered, together with any dividends,
or distributions with respect thereto and any proceeds thereof, "Escrow
Fund C"), and
(iv) certificates representing Transamerica Common Shares with an
aggregate value of $9,000,000 shall be delivered to the Escrow Agent (such
Transamerica Common Shares to be so delivered, together with any dividends
or distributions with respect thereto, the "Adjustment Escrow Fund")
with each of the foregoing dollar amounts in clauses (i), (ii), (iii) and (iv)
to be calculated using the Deemed Average Share Price.
Escrow Fund A, Escrow Fund B, Escrow Fund C and the Adjustment Escrow Fund
are sometimes referred to collectively as the "Escrow Funds." Each of Escrow
Fund A, Escrow Fund B, Escrow Fund C and the Adjustment Escrow Fund shall be
held pursuant to an escrow agreement (the "Escrow Agreement") among
Transamerica, Subcorp, TOL, Arthur, Dennis and the Escrow Agent, substantially
in the form of Exhibit A attached hereto. Except for the right of Arthur and
Dennis pursuant to Section 2.3(e)(ii) to cause the Escrow Agent to sell
Transamerica Common Shares and invest the proceeds under the circumstances set
forth therein, no TOL Stockholder shall have a right to sell, transfer, pledge,
encumber or otherwise dispose of (or to cause any of the foregoing to occur), or
to receive any certificates representing, any Transamerica Common Shares paid
into the Escrow Funds unless and until such shares shall have been released to
TOL Stockholders pursuant to the provisions of this Agreement and the Escrow
Agreement. The Escrow Agent shall cause to be voted all of the Transamerica
Common Shares in the Escrow Funds as to which it receives instructions from TOL
Stockholders whose shares of TOL Common Stock are converted into Transamerica
Common Shares pursuant to the first sentence of Section 2.1(b), in accordance
with such instructions.
(b) The Escrow Funds may be claimed by Transamerica pursuant to the
following provisions and the provisions of the Escrow Agreement:
(i) Transamerica shall be entitled to make a claim (a "Claim") against
Escrow Fund A
(A) if Transamerica shall make any claim for indemnification
pursuant to Section 8.10 (other than Section 8.10(a)(C)) of this
Agreement; and
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(B) for the cost of repairs to the Containers and Chassis (as
defined in Section 4.11(a)) owned, managed or leased-in by TOL which in
any case are off-lease as of the Closing Date to the extent in excess of
$200,000; provided, however, that any amounts recovered by TOL or
Transamerica from third parties (including, without limitation, payments
by third party insurers, manufacturers, depots and managed container
owners) with respect to such repairs shall be offset against the cost of
repairs in determining whether the cost thereof exceeds $200,000;
(ii) Transamerica shall be entitled to make a Claim against Escrow
Fund B if it shall make any claim for indemnification pursuant to Section
8.11 of this Agreement;
(iii) Transamerica shall be entitled to make a Claim against Escrow
Fund C if it shall make any claim for indemnification pursuant to Section
8.10(a)(C) of this Agreement; and
(iv) Transamerica shall be entitled to assets which are held in the
Adjustment Escrow Fund pursuant to Sections 2.5(e), 2.6(d) and 2.7(d) of
this Agreement.
Unless Transamerica shall have theretofore delivered to the Escrow Agent a
written notice or notices (individually, a "Claims Notice") stating that
Transamerica has a Claim or Claims against the applicable Escrow Fund pursuant
to this Section 2.3, the amounts then remaining in such Escrow Fund together
with interest earned and distributions actually made on such amounts (after
deduction for any applicable taxes) shall, in the case of Escrow Funds A, B and
C, be delivered to the TOL Stockholders whose shares of TOL Common Stock are
converted into Transamerica Common Shares pursuant to the first sentence of
Section 2.1(b) as promptly as practicable after the second anniversary of the
Closing Date; provided, however, that to the extent that on such second
anniversary there continues to exist an unresolved dispute regarding a Claim by
Transamerica under this Section 2.3(b), the portion of the applicable Escrow
Fund that represents the amount of Transamerica's Claim shall be retained in
such Escrow Fund until any dispute with respect to such Claim is finally
resolved. If amounts are remaining in Escrow Funds A, B and/or C and, in
accordance with this Agreement, are available at the expiration of such Escrow
Fund to be delivered to the TOL Stockholders whose shares of TOL Common Stock
are converted into Transamerica Common Shares pursuant to Section 2.1(b), Dennis
and Arthur shall be reimbursed from the amounts then remaining in such Escrow
Funds and which are so available (but only to the extent thereof) for the share
of the fees and expenses of the Escrow Agent which each shall have paid and for
the accounting and legal fees and expenses which each shall have paid on behalf
of the TOL Stockholders in connection with claims for indemnification pursuant
to Section 8.10(a) and any dispute relating to the Closing Report.
Notwithstanding the second preceding sentence, Arthur and Dennis shall be
entitled, in their sole discretion, to extend the period of Escrow Funds A, B
and/or C and/or to cause Transamerica Common Shares to be retained in such
Escrow Funds for purposes of satisfying certain of the indemnification
obligations under Section 8.10(b) or Section 8.11, in each case in the
circumstances specified in Section 8.12. In the case of the Adjustment Escrow
Fund, the amounts then remaining in such Fund, together with interest earned and
distributions actually made on such amounts (after deduction for any applicable
taxes) shall be delivered to Transamerica and/or distributed by the Escrow Agent
to the TOL Stockholders whose shares of TOL Common Stock are converted into
Transamerica Common Shares pursuant to the first sentence of Section 2.1(b), in
accordance with Sections 2.5(e), 2.6(d) and 2.7(d).
(c) All dividends payable and distributions made in respect of Transamerica
Common Shares constituting the Escrow Funds, any portion of the $2,000,000
allocated to Merger Fees under Section 4.19 hereof which has not been paid out
or spent in accordance with the first or second sentence of Section 5.3(h)
within six months of the Effective Time, and all interest on any cash portion of
the Escrow Funds, shall be paid, in the case of the Merger Fees, into Escrow
Fund A and, in the case of any such dividends, distributions or interest, into
the applicable Escrow Fund and, if not used to satisfy expenses and Claims of
Transamerica thereunder or otherwise distributed thereunder pursuant to the
procedures relating to the Adjustment Escrow Fund, shall be distributed to
Transamerica or proportionately to the TOL Stockholders whose shares of TOL
Common Stock are converted into Transamerica Common Shares pursuant to the first
sentence of Section 2.1(b), as the case may be, as and when the portion of the
applicable Escrow Fund to which such dividends, distribution or interest relate
is transferred to any such party; provided, however, that the Escrow Agent shall
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send a report to each TOL Stockholder whose shares of TOL Stock are converted
into Transamerica Common Shares pursuant to the first sentence of Section 2.1(b)
within 45 days of the end of each calendar year during the period prior to the
expiration of the Escrow Funds and promptly following their expiration
estimating the taxable income of the applicable Escrow Funds during such period
and transmitting a pro rata distribution equal to 45% of the taxable income
allocable to each such TOL Stockholder.
(d) Transamerica shall not be entitled to receive any of the assets held in
Escrow Funds A, B or C unless it has delivered a notice (the "Claims Notice") to
(i) the Escrow Agent, (ii) to Arthur and Dennis, on behalf of the holders of TOL
Common Stock, and (iii) to the agents of Arthur and Dennis, whose names and
addresses are set forth in Section 2.3(d) of the TOL Disclosure Schedule (and
who Arthur and Dennis may change by providing notice to Transamerica and the
Escrow Agent in accordance with Section 8.2 hereof) (the "TOL Agents") stating
that Transamerica has a Claim or Claims for all or part of the relevant Escrow
Fund and, to the extent reasonably ascertainable, the estimated amount thereof.
With respect to any Claim against any of Escrow Funds A, B or C delivered
pursuant to this Section 2.3, Arthur, Dennis or any TOL Agent shall have fifteen
business days from receipt of a Claims Notice to serve on the Escrow Agent, with
a copy to Transamerica, a notice (the "Preliminary Objecting Notice") that the
TOL Stockholders object to all or part of such Claims against the applicable
Escrow Fund. The Preliminary Objecting Notice may, but need not, specify the
reasons for objection to the Claims Notice. Beginning five business days after
its receipt of a Preliminary Objecting Notice, Transamerica shall provide
Arthur, Dennis, any TOL Agent and their respective counsel, accountants and
other advisors full access to books, records and personnel of the Surviving
Corporation which are reasonably requested to determine, understand and defend
against the Claim of Transamerica. Arthur and Dennis shall, within 20 business
days following delivery of the Preliminary Objecting Notice, deliver a notice
(the "Objecting Notice") to Transamerica setting forth in reasonable detail the
reasons for the objection at issue. If an Objecting Notice or a Preliminary
Objecting Notice containing the reasons for the objection at issue shall be
delivered, Transamerica, Arthur and Dennis shall, during the 15 business days
following such delivery, use reasonable efforts to reach agreement on the
disputed Claims. If, during such period, Transamerica, Arthur and Dennis are
unable to reach such agreement, then they shall promptly thereafter pursue
non-binding mediation by an independent mediator reasonably satisfactory to
Transamerica, Arthur and Dennis (who shall not have any material relationship
with Transamerica, TOL, Arthur or Dennis). Such mediation shall not be final,
conclusive or binding upon Transamerica or the TOL Stockholders. The cost of
such mediation shall be borne equally by Transamerica, on the one hand, and
Arthur and Dennis, on the other. Transamerica, on the one hand, or Arthur and
Dennis, on the other hand, shall have the right to commence legal proceedings in
the Superior Court of the State of California in and for the City and County of
San Francisco or the federal district court in the Northern District of
California, as applicable, for the purpose of having a dispute regarding a Claim
by Transamerica adjudicated if such party shall conclude that the mediation
provided for in this Section 2.3(d) has not produced a negotiated resolution of
the dispute. To the extent that neither Arthur nor Dennis nor any TOL Agent
shall deliver a Preliminary Objecting Notice within fifteen business days
following receipt of the Claims Notice (or, if the Claims Notice does not
specify the estimated amount thereof, as soon thereafter as the amount of the
Claim is ascertainable), or, if the Preliminary Objecting Notice is delivered
within the appropriate period, to the extent that neither Arthur nor Dennis
shall deliver an Objecting Notice within twenty business days following receipt
by Transamerica of the Preliminary Objecting Notice, the Escrow Agent shall
deliver to Transamerica the portion of the applicable Escrow Fund which it
claimed in the Claims Notice in respect of which no Preliminary Objecting Notice
or Objecting Notice, as the case may be, has been received together with all
interest actually earned and distributions made on it (after deduction or
provision for any applicable taxes).
The assets held in the Adjustment Escrow Fund shall be delivered to
Transamerica and/or distributed by the Escrow Agent to the TOL Stockholders
whose shares of TOL Common Stock are converted into Transamerica Common Shares
pursuant to the first sentence of Section 2.1(b), in accordance with Sections
2.5(e), 2.6(d) and 2.7(d).
(e) (i) For purposes of all Claims against any of the Escrow Funds by
Transamerica, the value of each Transamerica Common Share with respect to which
a Claim has been made by Transamerica, or which
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Transamerica or the TOL Stockholders whose shares were converted into
Transamerica Common Shares pursuant to the first sentence of Section 2.1(b) were
otherwise entitled to receive, shall be deemed to be the Deemed Average Share
Price (as defined below), regardless of whether the actual trading price for the
Transamerica Common Shares is greater than or lower than the Deemed Average
Share Price, which shall be adjusted to account for any split, combination or
recapitalization of Transamerica Common Shares. As used in this Agreement, the
term "Average Share Price" shall mean the average of the closing prices of
Transamerica Common Shares as reported on the New York Stock Exchange ("NYSE")
Composite Tape ("NYSE Composite Tape") on each of the last fifteen trading days
ending on and including the second trading day prior to the Closing Date and the
term "Deemed Average Share Price" shall mean (i) the Average Share Price if the
Average Share Price is more than $61.40 or less than $92.10; (ii) $61.40 if the
Average Share Price is equal to or less than $61.40; or (iii) $92.10 if the
Average Share Price is equal to or more than $92.10.
(ii) At any time after the first anniversary of the Closing Date, Arthur
and Dennis shall be entitled to cause the Escrow Agent to sell up to 50% of the
Transamerica Common Shares then remaining in any or all of Escrow Funds A, B
and/or C and to cause the Escrow Agent to invest and reinvest the proceeds as
they from time to time deem advisable, with such investment and reinvestment
being subject to obtaining the consent of Transamerica, which consent shall not
be unreasonably withheld. Arthur and Dennis shall be entitled to cause the
Escrow Agent to invest and reinvest the proceeds without the consent of
Transamerica in (i) direct obligations of, or obligations guaranteed by, the
United States government or any agency or instrumentality thereof or (ii)
savings certificates or certificates of deposit issued by an incorporated bank
organized and doing business under the laws of the United States or any state
having combined capital and surplus of not less than $100,000,000.
For purposes of all Claims against any of the Escrow Funds, any proceeds of
the sale of Transamerica Common Shares and the investment and reinvestment
thereof shall be valued at the Deemed Average Share Price of the Transamerica
Common Shares which are so sold, and Arthur and Dennis shall cause records to be
maintained, on a Share-by-Share basis for the Transamerica Common Shares which
are so sold, and which track the investment and reinvestment of the proceeds
thereof, which are sufficient to effect the valuation mechanism set forth in
this clause (ii). After any Transamerica Common Shares are sold in accordance
with the provisions of this clause (ii), any Claim for indemnification by
Transamerica or other request for assets which are held in any of the Escrow
Funds shall first be satisfied with the Transamerica Common Shares remaining in
the applicable Escrow Fund and thereafter with the proceeds of the sale of
Transamerica Common Shares (including the investment and reinvestment of the
proceeds thereof).
(f) There shall be no registration of transfers on the stock transfer books
of TOL or Transamerica of the right to receive any portion of the Escrow Funds.
2.4. Treatment of Stock Options and Restricted Stock. (a) Prior to the
Effective Time, TOL shall use reasonable efforts to cause each TOL Option which
has been granted to be exercised by the holder thereof immediately prior to the
Closing. "TOL Option" shall mean each of the unexpired and unexercised options
to purchase shares of capital stock of TOL. Any TOL Option that remains
unexercised as of the Closing shall be terminated as of the Closing and shall be
of no further force and effect.
(b) TOL agrees to issue treasury shares of TOL, to the extent available,
upon the exercise of TOL Options prior to the Effective Time.
2.5. Delivery of Preliminary Report, Pre-Closing Report, Closing Date
Report and Closing Report. (a) The Common Exchange Ratio has been determined by
reference to the report in the form attached hereto as Exhibit F (the
"Preliminary Report") which TOL has caused to be prepared and delivered to
Transamerica upon the execution of this Agreement and which contains information
as of December 31, 1995. The Preliminary Report sets forth, in each case as of
December 31, 1995, (i) the number of the Containers and Chassis owned, managed
and leased-in by TOL at December 31, 1995, categorized by whether they are
owned, managed or leased-in by TOL (each of the foregoing categories being
referred to herein as a "Status"), and further listed by type and age of
equipment; (ii) the average value per Container and Chassis listed by type,
Status and age of equipment with such valuation being as shall have been
mutually agreed among Transamerica, Arthur and Dennis; (iii) the monthly
depreciation/amortization amount per unit for
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such Containers and Chassis, categorized by Status and further listed by type of
equipment; and (iv) the average age of the Containers and Chassis, listed by
type and Status. TOL shall use its best efforts to deliver to Transamerica
within 5 business days of the date hereof, and in any event shall deliver within
10 business days of the date hereof a schedule (which schedule shall become
Exhibit E hereto) accurately setting forth with respect to the Containers and
Chassis owned, managed and leased-in by TOL at December 31, 1995, (i) the
container number and chassis number by prefix sequence of each Container and
Chassis; (ii) the year and month of manufacture of each Container and Chassis;
and (iii) whether each Container and Chassis was, as of December 31, 1995,
off-lease or on-lease, and, if on-lease, the customer to which such Container or
Chassis was leased and, if off-lease, the location of the Container and Chassis.
Exhibit E shall be accompanied by the data on which it was based.
(b) TOL and Transamerica shall jointly prepare and deliver a report (the
"Pre-Closing Report") containing the information set forth in the Preliminary
Report with respect to the Containers and Chassis owned, managed and leased-in
by TOL as of the month end immediately preceding the Closing Date, except that
(i) the information concerning average age of equipment shall not be adjusted
for the passage of time since December 31, 1995 and shall set forth the age of
such equipment as of December 31, 1995, (ii) the average value per Container and
Chassis shall be the amount set forth in the Preliminary Report for each
Container or Chassis within a particular Status, type and age, and (iii) the
monthly depreciation/amortization amount per unit for Containers and Chassis
within a particular Status and type, shall be the amount agreed in the
Preliminary Report. In addition, the Pre-Closing Report shall set forth, with
respect to the Containers and Chassis owned, managed and leased-in by TOL as of
the month end immediately preceding the Closing Date (1) the container number
and chassis number by prefix sequence of each Container and Chassis; (2) the
year and month of manufacture of each Container and Chassis; and (3) whether
each Container and Chassis was, as of the month end immediately preceding the
Closing, off-lease or on-lease and, if on-lease, the customer to which such
Container or Chassis was leased and, if off-lease, the location of the Container
or Chassis. The Pre-Closing Report shall be delivered within five days following
the month end immediately preceding the Closing and shall be accompanied by the
data on which such Pre-Closing Report was based. In the event TOL and
Transamerica shall be unable to agree on any item in the Pre-Closing Report,
TOL's determination shall be dispositive for purposes of such Report. During the
period from the date of this Agreement to Closing, Arthur, Dennis and TOL shall
(i) provide Transamerica and Transamerica's accountants and other
representatives with full access to TOL's books and records and the facilities
and employees of TOL and to TOL's accountants (including their working papers),
and (ii) cooperate fully with Transamerica and Transamerica's accountants,
including, without limitation, the provision on a timely basis of all
information reasonably requested in connection with the Pre-Closing Report.
(c) During the period preceding the Effective Time, TOL, Arthur and Dennis
shall take such actions as shall be reasonably requested by Transamerica to
permit the preparation and delivery by Transamerica, within five days after the
Closing Date, of a report (the "Closing Date Report") containing the information
set forth in the Pre-Closing Report with respect to the Containers and Chassis
owned, managed and leased-in by TOL as of the Closing Date, including the
exceptions set forth in clauses (i), (ii) and (iii) of the first sentence of
Section 2.5(b), and the information, as of the Closing Date, required by the
second sentence of Section 2.5(b), which shall be accompanied by the data on
which such Closing Date Report was based.
(d) As promptly as practicable, but in no event more than 30 business days
after the Closing Date, Transamerica shall cause to be prepared and delivered to
Arthur, Dennis and each TOL Agent a report (the "Closing Report") setting forth
the information that had been contained in the Pre-Closing Report with respect
to the Containers and Chassis owned, managed and leased-in by TOL as of the
Closing Date, except that (i) the information concerning average age of
equipment shall not be adjusted for the passage of time since December 31, 1995
and shall set forth the age of such equipment as of December 31, 1995, (ii) the
average value per Container or Chassis shall be the amount set forth in the
Preliminary Report for each Container or Chassis within a particular Status,
type and age and (iii) the monthly depreciation/amortization amount per unit for
Containers and Chassis within a particular Status and type shall be the amount
set forth in the Preliminary Report. The Closing Report so delivered to Arthur,
Dennis and each TOL Agent shall be accompanied by the data on which such Closing
Report was based.
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(e) During the 20 days following delivery by Transamerica of the Closing
Report, Arthur and Dennis shall be free to dispute any item reflected in the
Closing Report and Arthur and Dennis, on the one hand, and Transamerica, on the
other, shall be free to make adjustments to their views as to the items to be
reflected in the Closing Report. Beginning three business days after its
delivery of the Closing Report, Transamerica shall provide Arthur, Dennis, any
TOL Agent and their respective counsel, accountants and other advisors full
access to books, records and personnel of the Surviving Corporation which relate
to TOL's operations prior to Closing as reasonably requested by Arthur or Dennis
or a TOL Agent in order to understand and verify the accuracy of the Closing
Report. At the end of the 20-day period provided by this Section 2.5(e), the
parties shall jointly prepare a report listing the matters in dispute by item
and valuing each disputed item based on the average value per Container or
Chassis applicable to equipment within a particular Status, type and age and the
monthly depreciation/amortization amounts per unit applicable to equipment
within a particular Status and type, in each case in the relevant amounts agreed
in the Preliminary Report, and setting forth the aggregate amount of all
disputed items, as so valued (such aggregate amount, the "Disputed Amount").
Promptly following the conclusion of such 20-day period and completion of the
report referred to in the preceding sentence, Transamerica Common Shares shall
be distributed to Transamerica and/or TOL Stockholders whose shares are
converted into Transamerica Common Shares pursuant to the first sentence of
Section 2.1(b), as appropriate, from the Adjustment Escrow Fund to the extent
the adjustments to be made pursuant to Sections 2.6(c), 2.6(d), 2.7(c) and
2.7(d) shall have been mutually resolved during such period, so long as
thereafter there shall remain in the Adjustment Escrow Fund Transamerica Common
Shares having a value, calculated by reference to the Deemed Average Share
Price, sufficient to resolve any adjustments which are proposed to be made by
either Transamerica or by Arthur and Dennis pursuant to Sections 2.6(c), 2.6(d),
2.7(c) and 2.7(d) and which have not yet been mutually resolved, and any further
adjustments to be made pursuant to Section 2.6(g).
2.6. Purchase Price Adjustment and Post-Closing Adjustment for Number of
Units and Type of Equipment. (a) If the number of any type of Containers or
Chassis within a particular age and Status shown on the Pre-Closing Report shall
be greater than the number of such Containers or Chassis within that age and
Status shown on the Preliminary Report, in each such instance the Common
Exchange Ratio shall, subject to Section 2.6(f), be increased by a percentage
equal to (i) (x) the number of Containers and Chassis shown on the Pre-Closing
Report within the particular age and Status which were not also reflected in the
Preliminary Report times (y) the relevant average values shown on the
Preliminary Report for each relevant type of Containers and Chassis within that
age and Status divided by (ii) an amount equal to the product of (x) the number
of shares of TOL Common Stock outstanding immediately prior to the Effective
Time times (y) the Common Exchange Ratio times (z) the Deemed Average Share
Price.
(b) If the number of any type of Containers or Chassis within a particular
age and Status shown on the Pre-Closing Report shall be less than the number of
such Containers or Chassis within that age and Status shown on the Preliminary
Report, in each such instance the Common Exchange Ratio shall, subject to
Section 2.6(f), be decreased by a percentage equal to (i) (x) the number of
Containers and Chassis shown on the Preliminary Report within the particular age
and Status which were not also reflected in the Pre-Closing Report times (y) the
relevant average values shown on the Preliminary Report for each relevant type
of Containers and Chassis within that age and Status divided by (ii) an amount
equal to the product of (x) the number of shares of TOL Common Stock outstanding
immediately prior to the Effective Time times (y) the Common Exchange Ratio
times (z) the Deemed Average Share Price.
(c) If the number of any type of Containers or Chassis within a particular
age and Status shown on the Closing Report, as definitively determined pursuant
to Section 2.8, shall be greater than the number of such Containers and Chassis
within that age and Status shown on the Pre-Closing Report, in each such
instance the Common Exchange Ratio shall, subject to Section 2.6(f), be deemed
increased by a percentage equal to (i) (x) the number of Containers and Chassis
shown on the Closing Report within the particular age and Status which were not
also reflected in the Pre-Closing Report times (y) the relevant average values
shown on the Preliminary Report for each relevant type of Containers and Chassis
within that age and Status divided by (ii) an amount equal to the product of (x)
the number of shares of TOL Common Stock outstanding immediately prior to the
Effective Time times (y) the Common Exchange Ratio times (z) the Deemed
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Average Share Price. Subject to Section 2.6(f), in such case, the Escrow Agent
shall pay the amount remaining in the Adjustment Escrow Fund to the TOL
Stockholders whose shares were converted into Transamerica Common Shares
pursuant to the first sentence of Section 2.1(b) and Transamerica shall cause to
be paid into the Exchange Fund the increased consideration that would have been
payable by Transamerica had the number of Containers and Chassis within a
particular age and Status shown on the Pre-Closing Report been equal to the
number of such units shown on the Closing Report. The additional Transamerica
Common Shares, if any, to be paid hereunder shall be valued at the Deemed
Average Share Price.
(d) If the number of any type of Containers or Chassis within a particular
age and Status shown on the Closing Report, as definitively determined pursuant
to Section 2.8, shall be less than the number of such Containers or Chassis
within that age and Status shown on the Pre-Closing Report, in each such
instance the Common Exchange Ratio shall, subject to Section 2.6(f), be deemed
to be decreased by a percentage equal to (i) (x) the number of Containers and
Chassis within the particular age and Status shown on the Pre-Closing Report
which were not also reflected in the Closing Report times (y) the relevant
average values shown on the Preliminary Report for each relevant type of
Containers and Chassis within that age and Status divided by (ii) an amount
equal to the product of (x) the number of shares of TOL Common Stock outstanding
immediately prior to the Effective Time times (y) the Common Exchange Ratio
times (z) the Deemed Average Share Price. Subject to Sections 2.6(f) and 2.6(g),
in such case, Transamerica shall be entitled to retain out of the Transamerica
Common Shares deposited in the Adjustment Escrow Fund, a number of Transamerica
Common Shares with an aggregate value (determined by reference to the Deemed
Average Share Price) equal to the product resulting from the calculation set
forth in clause (i) of this subsection 2.6(d) and, subject to said Sections
2.6(f) and 2.6(g), the Escrow Agent shall pay the balance, if any, of the
Adjustment Escrow Fund to the TOL Stockholders whose shares were converted into
Transamerica Common Shares pursuant to the first sentence of Section 2.1(b);
provided that any mutually agreed adjustment previously made pursuant to Section
2.5(e) shall be taken into account in determining the Transamerica Common Shares
to be retained by Transamerica and to be paid to such TOL Stockholders. If the
assets in the Adjustment Escrow Fund shall not be sufficient to provide
Transamerica the quantity of Transamerica Common Shares to which it shall be
entitled pursuant to this Section 2.6(d) and/or Section 2.6(g), Arthur and
Dennis shall, within two business days of the definitive resolution of the
Closing Report, be jointly and severally obligated to return to Transamerica a
number of Transamerica Common Shares having a value, calculated by reference to
the Deemed Average Share Price, equal to the amount by which the assets in the
Adjustment Escrow Fund shall be insufficient.
(e) Notwithstanding anything to the contrary herein, no adjustments
pursuant to this Section 2.6 shall be made in order to give effect to any change
in the number of Containers or Chassis which arises as result of purchases,
disposals or sales by TOL of equipment made in the ordinary course of business
during the period commencing on January 1, 1996 and ending on the Closing Date.
(f) To the extent that (i) the Common Exchange Ratio shall be increased and
decreased by a percentage pursuant to subsections (a) and (b), respectively, of
this Section 2.6 or (ii) the Common Exchange Ratio shall be deemed increased and
deemed decreased by a percentage pursuant to subsections (c) and (d),
respectively, of this Section 2.6, then the percentage adjustments referred to
in clause (i) of this subsection (f) shall be netted against one another and
then netted against the percentage adjustments derived from clause (i) of
Section 2.7(f), to produce a percentage by which the Common Exchange Ratio shall
be adjusted, and the percentage adjustments referred to in clause (ii) of this
subsection (f) shall be netted against one another, and then netted against the
percentage adjustment derived from clause (ii) of Section 2.7(f), to produce a
percentage by which the Common Exchange Ratio shall be deemed adjusted, and in
each case the payments of Transamerica Common Shares resulting therefrom shall
be made after giving effect to the netting required hereby. All adjustments
pursuant to this Section 2.6 shall be rounded to the nearest one-ten-thousandth
of one percent.
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(g) Notwithstanding the foregoing, if there is a Disputed Amount (as
defined in Section 2.5(e)), then the following shall modify the payments to be
made pursuant to Sections 2.6(d) and 2.7(d):
(i) if the part of the Disputed Amount in respect of which it is
definitively resolved pursuant to Section 2.8 that TOL's position was
correct (by reference to the facts as derived from the Closing Report, as
definitively determined) (the "Valid Claim Amount") is less than the part
of the Disputed Amount in respect of which is definitively resolved (on the
same basis) that TOL's position was not correct (the "Invalid Claim
Amount"), the amount to be paid to Transamerica pursuant to Section 2.6(d)
and/or Section 2.7(d) shall be increased by having the Escrow Agent and, if
necessary, Arthur and/or Dennis, within two business days of the definitive
resolution of the Closing Report, pay to Transamerica a number of
Transamerica Common Shares having a value, calculated by reference to the
Deemed Average Share Price, equal to 35% of the excess of the Invalid Claim
Amount over the Valid Claim Amount, and the amount, if any, which the
Escrow Agent pays to the TOL Stockholders whose shares were converted into
Transamerica Common Shares pursuant to the first sentence of Section 2.1(b)
shall be correspondingly reduced;
(ii) if the Valid Claim Amount is greater than the Invalid Claim
Amount, the amount to be paid to Transamerica pursuant to Section 2.6(d)
and/or Section 2.7(d) shall be decreased by 35% of the excess of the Valid
Claim Amount over the Invalid Claim Amount and the amount which the Escrow
Agent pays to the TOL Stockholders whose shares were converted into
Transamerica Common Shares pursuant to the first sentence of Section 2.1(b)
shall be correspondingly increased; provided, that if this Section
2.6(g)(ii) shall apply and (A) the aggregate amount to be paid to
Transamerica pursuant to Sections 2.6(d) and 2.7(d) from the Adjustment
Escrow Fund (before giving effect to this Section 2.6(g)(ii)) is less than
(B) 35% of the excess of the Valid Claim Amount over the Invalid Claim
Amount (the excess of the amount determined pursuant to sub-clause (B) over
the amount determined pursuant to sub-clause (A) being hereinafter referred
to as the "Payment Shortfall"), Transamerica shall deliver a number of
Transamerica Common Shares having a value, calculated by reference to the
Deemed Average Share Price, equal to the amount of the Payment Shortfall to
the Escrow Agent for payment to the TOL Stockholders whose shares were
converted into Transamerica Common Shares pursuant to the first sentence of
Section 2.1(b).
(h) If any adjustment or deemed adjustment to the Common Exchange Ratio is
required to be made pursuant to subparagraphs (b) or (d) of this Section 2.6,
any (i) third party insurance proceeds received by TOL, (ii) cash payments made
to TOL by customers and depots, and (iii) other cash payments received by TOL
(in each case, which shall directly relate to reimbursement of TOL for any lost,
stolen, destroyed or otherwise missing equipment for which an adjustment or
deemed adjustment is required to be made pursuant to subparagraphs (b) or (d) of
this Section 2.6) shall be given effect as an offsetting amount to the otherwise
applicable adjustment, but only to the extent of such proceeds or cash.
2.7. Purchase Price Adjustment and Post-Closing Adjustment for Age of
Equipment. (a) If the average age of any type of Containers or Chassis within a
particular Status shown on the Pre-Closing Report shall be less than the average
age of such type of Containers or Chassis within that Status shown on the
Preliminary Report, in each such instance the Common Exchange Ratio shall,
subject to Section 2.7(f), be increased by a percentage equal to (i) (x) the
monthly depreciation/amortization for the type of Containers or Chassis within
the particular Status at issue shown on the Preliminary Report times (y) the
number of months by which the average age of the type of Containers or Chassis
within the particular Status shown on the Preliminary Report exceeded the
average age of such type of Containers or Chassis within such Status shown on
the Pre-Closing Report divided by (ii) an amount equal to the product of (x) the
number of shares of TOL Common Stock outstanding immediately prior to the
Effective Time times (y) the Common Exchange Ratio times(z) the Deemed Average
Share Price.
(b) If the average age of any type of Containers or Chassis within a
particular Status shown on the Pre-Closing Report shall be greater than the
average age of such type of Containers or Chassis within that Status shown on
the Preliminary Report, in each such instance the Common Exchange Ratio shall,
subject to Section 2.7(f), be decreased by a percentage equal to (i) (x) the
monthly depreciation/amortization for the
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type of Containers or Chassis within the particular Status at issue shown on the
Preliminary Report times (y) the number of months by which the average age of
the type of Containers or Chassis within the particular Status shown on the
Pre-Closing Report exceeded the average age of such type of Container or Chassis
within such Status shown on the Preliminary Report divided by (ii) an amount
equal to the product of (x) the number of shares of TOL Common Stock immediately
prior to the Effective Time times (y) the Common Exchange Ratio times (z) the
Deemed Average Share Price.
(c) If the average age of any type of Containers or Chassis within a
particular Status shown on the Closing Report, as definitively determined
pursuant to Section 2.8, shall be less than the average age of such type of
Containers or Chassis within that Status shown on the Pre-Closing Report, in
each such instance the Common Exchange Ratio shall, subject to Section 2.7(f),
be deemed to be increased by a percentage equal to (i) (x) the monthly
depreciation/amortization for the type of Containers or Chassis within the
particular Status at issue shown on the Preliminary Report times (y) the number
of months by which the average age of the type of Containers or Chassis within
the particular Status shown on the Pre-Closing Report exceeded the average age
of such type of Containers or Chassis within such Status shown on the Closing
Report divided by (ii) an amount equal to the product of (x) the number of
shares of TOL Common Stock outstanding immediately prior to the Effective Time
times (y) the Common Exchange Ratio times (z) the Deemed Average Share Price.
Subject to Section 2.7(f), in such case, the Escrow Agent shall pay the amount
remaining in the Adjustment Escrow Fund to the TOL Stockholders whose shares
were converted into Transamerica Common Shares pursuant to the first sentence of
Section 2.1(b) and Transamerica shall cause to be paid into the Exchange Fund
the increased consideration that would have been payable by Transamerica had the
average age of the type of Containers or Chassis within the particular Status
shown on the Pre-Closing Report been equal to the average age of such units
shown on the Closing Report. The additional Transamerica Common Shares, if any,
to be paid hereunder shall be valued at the Deemed Average Share Price.
(d) If the average age of any type of Containers or Chassis within a
particular Status shown on the Closing Report, as definitively determined
pursuant to Section 2.8, shall be greater than the average age of such type of
Containers or Chassis within that Status shown on the Pre-Closing Report, in
each such instance the Common Exchange Ratio shall, subject to Section 2.7(f),
be deemed to be decreased by a percentage equal to (i) (x) the monthly
depreciation/amortization for the type of Containers or Chassis within the
particular Status at issue shown on the Preliminary Report times (y) the number
of months by which the average age of the type of Containers or Chassis within
the particular Status shown on the Closing Report exceeded the average age of
such type of Containers or Chassis within such Status shown on the Pre-Closing
Report divided by (ii) an amount equal to the product of (x) the number of
shares of TOL Common Stock outstanding immediately prior to the Effective Time
times (y) the Common Exchange Ratio times (z) the Deemed Average Share Price.
Subject to Section 2.7(f) and 2.6(g), in such case, Transamerica shall be
entitled to retain out of the Transamerica Common Shares deposited in the
Adjustment Escrow Fund, a number of Transamerica Common Shares with an aggregate
value (determined by reference to the Deemed Average Share Price) equal to the
product resulting from the calculation set forth in clause (i) of this
subsection 2.7(d) and, subject to said Sections 2.7(f) and 2.6(g), the Escrow
Agent shall pay the balance, if any, of the Adjustment Escrow Fund to the TOL
Stockholders whose shares were converted into Transamerica Common Shares
pursuant to the first sentence of Section 2.1(b); provided that any mutually
agreed adjustment previously made pursuant to Section 2.5(e) shall be taken into
account in determining the Transamerica Common Shares to be retained by
Transamerica and to be paid to such TOL Stockholders. If the assets in the
Adjustment Escrow Fund shall not be sufficient to provide Transamerica the
quantity of Transamerica Common Shares to which it shall be entitled pursuant to
this Section 2.7(d) and/or Section 2.6(g), Arthur and Dennis shall, within two
business days of the definitive resolution of the Closing Report, be jointly and
severally obligated to return to Transamerica a number of Transamerica Common
Shares having a value, calculated by reference to the Deemed Average Share
Price, equal to the amount by which the assets in the Adjustment Escrow Fund
shall be insufficient.
(e) Notwithstanding anything to the contrary herein, no adjustments
pursuant to this Section 2.7 shall be made in order to give effect to any change
in the average age of Containers or Chassis which arises as a
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result of purchases, disposals or sales by TOL of equipment made in the ordinary
course of business during the period commencing on January 1, 1996 and ending on
the Closing Date.
(f) To the extent that (i) the Common Exchange Ratio shall be increased and
decreased by a percentage pursuant to subsections (a) and (b), respectively, of
this Section 2.7 or (ii) the Common Exchange Ratio shall be deemed increased or
deemed decreased by a percentage pursuant to subsections (c) and (d),
respectively, of this Section 2.7, then the percentage adjustments referred to
in clause (i) of this subsection (f) shall be netted against one another, and
then netted against the percentage adjustment derived from clause (i) of Section
2.6(d), to produce a percentage by which the Common Exchange Ratio shall be
adjusted, and the percentage adjustments referred to in clause (ii) of this
subsection (f) shall be netted against one another, and then netted against the
percentage adjustment derived from clause (ii) of Section 2.6(f), to produce a
percentage by which the Common Exchange Ratio shall be deemed adjusted, and in
each case the payments of Transamerica Common Shares resulting therefrom shall
be made after giving effect to the netting required hereby. All adjustments
pursuant to this Section 2.7 shall be rounded to the nearest one-ten-thousandth
of one percent.
2.8. Disagreements with Respect to Closing Report. (a) If after the 20-day
period provided in Section 2.5(e) there shall be a Disputed Amount, Arthur and
Dennis shall, within 20 business days following delivery of the report
contemplated by Section 2.5(e) with respect to disputed items and the Disputed
Amount, deliver a notice to Transamerica setting forth in reasonable detail
Arthur's and Dennis' calculation of and narrative explanation or rationale
supporting their disagreement with the Closing Report.
(b) If a notice of disagreement shall be delivered pursuant to Section
2.8(a), the parties hereto shall, during the fifteen business days following
delivery of the notice that sets forth Arthur's and Dennis' calculation of and
narrative explanation or rationale supporting such disagreement, use reasonable
efforts to reach agreement on the disputed items or amounts. If, during such
period, the parties are unable to reach such agreement, then they shall promptly
thereafter pursue non-binding mediation by an independent mediator reasonably
satisfactory to Transamerica and to Arthur and Dennis (who shall not have any
material relationship with Transamerica, TOL, Arthur or Dennis). Such mediation
shall not be final, conclusive or binding upon the parties hereto. The cost of
such mediation shall be borne equally by Transamerica, on the one hand, and
Arthur and Dennis, on the other hand. Transamerica, on the one hand, and Arthur
and Dennis on the other hand shall have the right to commence legal proceedings
in the Superior Court of the State of California in and for the City and County
of San Francisco or the federal district court in the Northern District of
California for the purpose of having a dispute regarding the Closing Report
adjudicated if such party concludes that the mediation provided for in this
Section 2.8(b) has not produced a negotiated resolution of the parties'
disagreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TRANSAMERICA AND SUBCORP
In order to induce TOL, Arthur and Dennis to enter into this Agreement,
Transamerica and Subcorp hereby represent and warrant to TOL that the statements
contained in this Article III are true, correct and complete.
3.1. Organization and Standing. Each of Transamerica and Subcorp is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation with full power and authority (corporate and
other) to own, lease, use and operate its properties and to conduct its business
as and where now owned, leased, used, operated and conducted. Each of
Transamerica and Subcorp is duly qualified to do business and in good standing
in each jurisdiction in which the nature of the business conducted by it or the
property it owns, leases or operates, makes such qualification necessary, except
where the failure to be so qualified or in good standing in such jurisdiction
would not have a material adverse effect on Transamerica. Neither Transamerica
nor Subcorp is in default in the performance, observance or fulfillment of any
provision of its respective Certificate of Incorporation, as amended, or Bylaws.
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3.2. Corporate Power and Authority. Each of Transamerica and Subcorp has
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of each of Transamerica and Subcorp. This Agreement has been duly executed and
delivered by each of Transamerica and Subcorp, and constitutes the legal, valid
and binding obligation of each of Subcorp and Transamerica enforceable against
each of them in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights or
general principles of equity.
3.3. Capitalization of Transamerica. As of March 31, 1996, Transamerica's
authorized capital stock consisted solely of (a) 150,000,000 shares of common
stock, $1.00 par value per share ("Transamerica Common Shares"), of which (i)
67,678,057 shares were issued and outstanding, (ii) 12,060,405 shares were
issued and held in treasury (which does not include the shares reserved for
issuance as set forth in clause (a)(iii) below) and (iii) 15,040,300 shares were
reserved for issuance upon the exercise or conversion of options, warrants or
convertible securities granted or issuable by Transamerica, (b) 1,200,000 shares
of preferred stock, $100 par value per share, of which (i) 2,250 shares of Dutch
Auction Rate Transferable Securities were issued and outstanding, (ii) 180,091
shares of Series D Preferred Stock were issued and outstanding, (iii) none was
issued and held in treasury (which does not include the shares reserved for
issuance set forth in clause (b)(iv) below) and (iv) none was reserved for
issuance upon exercise or conversion of options, warrants or convertible
securities granted or issuable by Transamerica and (c) 5,000,000 shares of
preference stock, without par value, none of which was issued and outstanding or
reserved for issuance. Each outstanding share of capital stock of Transamerica
is, and all Transamerica Common Shares to be issued in connection with the
Merger will be, duly authorized and validly issued, fully paid and
nonassessable, will be issued in compliance with applicable federal and state
securities laws and will be free and clear of all liens, encumbrances and
adverse claims and may be resold by affiliates (as defined in Rule 145 under the
Securities Act of 1933, as amended (the "Securities Act")) in accordance with
paragraph (d) of such Rule 145. Each outstanding share of capital stock of
Transamerica has not been, and all Transamerica Common Shares to be issued in
connection with the Merger will not be, issued in violation of any preemptive or
similar rights.
3.4. Disclosure. No representations or warranties made by Transamerica or
Subcorp in this Agreement or exhibits, schedules or annexes hereto contain or
will contain any untrue statement of material fact or omit or will omit to state
any material fact necessary to make the statements herein, in light of the
circumstances under which they were made, not misleading.
3.5. Conflicts, Consents and Approval. Neither the execution and delivery
of this Agreement by Transamerica or Subcorp nor the consummation of the
transactions contemplated hereby will:
(a) conflict with, or result in a breach of any provision of the
respective Certificates of Incorporation or Bylaws of Transamerica and
Subcorp;
(b) violate, or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with the giving of notice,
the passage of time or otherwise, would constitute a default) under, or
entitle any party (with the giving of notice, the passage of time or
otherwise) to terminate, accelerate or call a default under, or result in
the creation of any lien, security interest, charge or encumbrance upon any
of the properties or assets of Transamerica or any of its subsidiaries
under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, contract, undertaking,
agreement, lease or other instrument or obligation to which Transamerica or
any of its subsidiaries is a party;
(c) violate any order, writ, injunction, decree, statute, rule or
regulation, applicable to Transamerica or any of its subsidiaries or their
respective properties or assets; or
(d) require any action or consent or approval of, or review by, or
registration or filing with any third party or any court, arbitral
tribunal, administrative agency or commission or other governmental or
regulatory body, agency, instrumentality or authority, whether federal,
state, local, foreign or multina-
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tional (a "Governmental Authority"), other than (i) actions required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations promulgated thereunder (the "HSR Act"), and (ii)
registrations or other actions required under federal and state securities
laws as are contemplated by this Agreement;
except in the case of (b), (c) and (d) for any of the foregoing that would not
have a material adverse effect on Transamerica.
3.6. Registration Statement. None of the information provided by
Transamerica for inclusion (i) in the registration statement on Form S-4 to be
filed with the Securities and Exchange Commission (the "Commission") by
Transamerica under the Securities Act, including the prospectus (as amended,
supplemented or modified, the "Prospectus") relating to Transamerica Common
Shares to be issued in the Merger or (ii) in the proxy statement and form of
proxy relating to the vote of the TOL stockholders with respect to the Merger or
any other document required to be sent to the TOL stockholders if the Merger is
approved by written consent without a meeting of the TOL stockholders
(collectively and as amended, supplemented or modified, the "Proxy Statement")
which is contained therein (such registration statement as amended, supplemented
or modified, the "Registration Statement"), at the time the Registration
Statement becomes effective or, in the case of the Proxy Statement, at the date
of mailing, in each case will contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Registration Statement will comply as to
form in all material respects with the provisions of the Securities Act.
3.7. Brokerage and Finder's Fees. Neither Transamerica nor Subcorp has
incurred or will incur on behalf of Transamerica or Subcorp, any brokerage,
finder's or similar fee in connection with the transactions contemplated by this
Agreement, and each of Transamerica and Subcorp shall indemnify and hold TOL,
Arthur and Dennis harmless from any such fees, commissions or similar payments.
3.8. Litigation. There is (a) no suit, action or claim, (b) no
investigation or inquiry by any administrative agency or governmental body and
(c) no legal, administrative or arbitration proceeding pending, or to
Transamerica's or Subcorp's knowledge, threatened against Transamerica or
Subcorp, in each case, which could reasonably be expected to have a material
adverse effect on the ability of Transamerica or Subcorp to consummate the
transactions contemplated herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TOL, ARTHUR AND DENNIS
In order to induce Subcorp and Transamerica to enter into this Agreement,
each of TOL, Arthur and Dennis hereby jointly and severally represents and
warrants to Transamerica and Subcorp that the statements contained in this
Article IV are true, correct and complete; provided, however, that the portions
of the representations in Sections 4.5(b) and 4.5(c) which relate to Arthur and
Dennis shall be deemed to be made only by Arthur and Dennis, respectively.
Except for Sections 4.1, 4.2, 4.3 and 4.4, all references to TOL in this Article
IV include each of TOL's direct and indirect subsidiaries (as defined in Section
4.2).
4.1. Organization and Standing. TOL is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
with full power and authority (corporate and other) to own, lease, use and
operate its properties and to conduct its business as and where now owned,
leased, used, operated and conducted. TOL is duly qualified to do business and
in good standing in each jurisdiction listed in Section 4.1 to the disclosure
schedule (the "TOL Disclosure Schedule") delivered by TOL to Transamerica and
dated the date hereof, is not qualified to do business in any other jurisdiction
and neither the nature of the business conducted by it nor the property it owns,
leases or operates requires it to qualify to do business as a foreign
corporation in any other jurisdiction, except where the failure to be so
qualified or in good standing in such jurisdiction would not have a material
adverse effect on TOL. TOL is not in default in the performance, observance or
fulfillment of any provision of its Certificate of Incorporation, as amended, or
Bylaws.
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4.2. Subsidiaries. (a) TOL does not own, directly or indirectly, any
equity or other ownership interest in any corporation, partnership, joint
venture or other entity or enterprise, except as set forth in Section 4.2 of the
TOL Disclosure Schedule.
(b) TOL is not subject to any obligation or requirement to provide funds to
or make any investment (in the form of a loan, capital contribution or
otherwise) in any such entity.
(c) Set forth in Section 4.2 of the TOL Disclosure Schedule is a true,
complete and correct list of all of TOL's, direct and indirect, subsidiaries.
TOL owns directly or indirectly each of the outstanding shares of capital stock
(or other ownership interests having by their terms ordinary voting power to
elect a majority of directors or others performing similar functions with
respect to such subsidiary) of each of TOL's subsidiaries. The term
"subsidiary", as used in this Agreement, shall mean with respect to any person,
any corporation or other legal entity of which such person controls or owns,
directly or indirectly, more than 50% of the stock or other equity interest, or
more than 50% of the voting power entitled to vote on the election of members to
the board of directors or similar governing body. Each of the outstanding shares
of capital stock of each of TOL's subsidiaries is duly authorized, validly
issued, fully paid and nonassessable, and is owned, directly or indirectly, by
TOL free and clear of all liens, pledges, security interests, claims or other
encumbrances. The following information for each subsidiary of TOL is set forth
in Section 4.2 to the TOL Disclosure Schedule, as applicable: (i) its name and
jurisdiction of incorporation or organization; (ii) its authorized capital stock
or share capital; and (iii) the percentage of issued and outstanding shares of
capital stock or share capital owned by each record owner and the name of each
such record owner. There are no outstanding subscriptions, options, warrants,
puts, calls, agreements, understandings, claims or other commitments or rights
of any type relating to the issuance, sale or transfer of any securities of any
subsidiary of TOL, nor are there outstanding any securities which are
convertible into or exchangeable for any shares of capital stock of any
subsidiary of TOL; and no subsidiary of TOL has any obligation of any kind to
issue any additional securities or to pay for securities of any subsidiary of
TOL or any predecessor thereof.
4.3. Corporate Power and Authority. TOL has all requisite corporate power
and authority to enter into this Agreement and, subject to authorization of the
Merger and the transactions contemplated hereby by the TOL stockholders, to
consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of TOL, subject to authorization of the Merger and the transactions contemplated
hereby by the TOL stockholders. This Agreement has been duly executed and
delivered by each of TOL, Arthur and Dennis and constitutes the legal, valid and
binding obligation of each of TOL, Arthur and Dennis enforceable against each in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights or general
principles of equity.
4.4. Capitalization of TOL. As of the date hereof, TOL's authorized
capital stock consisted solely of (a) 200,000 shares of common stock, $.001 par
value per share ("TOL Common Stock"), of which (i) 74,303 shares were issued and
outstanding, (ii) none were issued and held in treasury (which does not include
the shares reserved for issuance set forth in clause (a)(iii) below) and (iii)
4,700 shares were reserved for issuance upon the exercise or conversion of
options, warrants or convertible securities granted or issued by TOL and (b)
1,000,000 shares of preferred stock, $.001 par value per share, of which (i)
640,000 have been designated Series A Preferred Stock, none of which was issued
and outstanding or reserved for issuance, (ii) 300,107 shares have been
designated Series B Preferred Stock (the "TOL Series B Preferred Stock," and
together with the TOL Common Stock, the "TOL Stock"), of which all were issued
and outstanding, (iii) none was issued and held in treasury and (iv) none was
reserved for issuance upon the exercise or conversion of options, warrants or
convertible securities granted or issued by TOL. Each outstanding share of
capital stock of TOL is duly authorized and validly issued, fully paid and
nonassessable, and has not been issued in violation of any preemptive or similar
rights. Other than as set forth in the first sentence hereof or in Section 4.4
to the TOL Disclosure Schedule, there are no outstanding subscriptions, options,
warrants, puts, calls, agreements, understandings, claims or other commitments
or rights of any type relating to the issuance, sale or transfer of any
securities of TOL, nor are there outstanding any securities which are
convertible into or exchangeable for any shares of capital stock of TOL; and TOL
has no obligation of any kind to issue any
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additional securities or to pay for securities of TOL or any predecessor. The
issuance and sale of all of the shares of capital stock described in this
Section 4.4 have been in compliance with federal and state securities laws. As
of the Closing Date, all TOL Options shall have been properly exercised or
cancelled. The TOL Disclosure Schedule accurately sets forth the names of, and
the number of shares of each class held by, all holders of shares of capital
stock of TOL and all holders of options or warrants to purchase TOL capital
stock. TOL has not agreed to register any securities under the Securities Act or
under any state securities law or granted registration rights to any person or
entity.
4.5. Conflicts; Consents and Approvals. Except as set forth in Section 4.5
of the TOL Disclosure Schedule, neither the execution and delivery of this
Agreement by TOL, nor the consummation of the transactions contemplated hereby
will:
(a) conflict with, or result in a breach of any provision of the
Certificate of Incorporation, as amended, or Bylaws of TOL;
(b) violate, or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with the giving of notice,
the passage of time or otherwise, would constitute a default) under, or
entitle any party (with the giving of notice, the passage of time or
otherwise) to terminate, accelerate or call a default under, or result in
the creation of any lien, security interest, charge or encumbrance upon any
of the properties or assets of any of TOL, any of its subsidiaries, Arthur
or Dennis under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, contract, undertaking,
agreement, lease (including, without limitation, any Operating Lease (as
defined in Section 4.12(a))) or other instrument or obligation to which
TOL, any of its subsidiaries, Arthur or Dennis, as applicable, is a party;
(c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to TOL, any of its subsidiaries, Arthur or Dennis or
any of their respective properties or assets; or
(d) require any action or consent or approval of, or review by, or
registration or filing with any third party or any Governmental Authority,
other than (i) authorization of the Merger and the transactions
contemplated hereby by the TOL stockholders, (ii) actions required by the
HSR Act, (iii) registrations or other actions required under federal and
state securities laws as are contemplated by this Agreement and (iv)
consents or approvals of any third party or Governmental Authority set
forth in Section 4.5 to the TOL Disclosure Schedule;
except in the case of (b), (c) and (d) for any of the foregoing that would not
have a material adverse effect on TOL. Other than pursuant to this Agreement,
there are no rights of first refusal with respect to, options or rights to
acquire all or any of the assets of TOL. Except as set forth in Section 4.7 of
the TOL Disclosure Schedule, there are no Secured Financing Agreements to which
TOL is a party that cannot be prepaid without penalty.
4.6. No Material Adverse Change. Since December 31, 1995, TOL has
conducted its business in the ordinary course, consistent with past practice,
and there has been no material adverse change in the assets, liabilities,
results of operations, prospects, business or financial condition of TOL or any
event, occurrence or development which may reasonably be expected to have such a
change or a material adverse effect on the ability of TOL to consummate the
transactions contemplated hereby, except for (i) such changes, events,
occurrences or developments prevailing throughout the container leasing industry
which affect the persons, firms, corporations or other legal entities which
directly compete in such industry, (ii) departures or reactions of officers,
directors, consultants, employees or agents of TOL resulting from the
announcement or expectation of the Merger or (iii) deterioration of
relationships between TOL and its customers, vendors, managed container owners
or lenders resulting from the announcement or expectation of the Merger.
4.7. SEC Documents; Financial Statements; Indebtedness. Trans Ocean
Container Corporation, a Delaware corporation and wholly owned subsidiary of TOL
("TOL Operating Subsidiary") has timely filed with the Commission and has
heretofore made available to Transamerica (or Transamerica has otherwise
obtained) true, correct and complete copies of all forms, reports, schedules,
statements and other documents required to be filed by it under the Securities
Exchange Act of 1934, as amended (together with the rules and
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regulations thereunder, the "Exchange Act") or the Securities Act (such
documents, as amended since the time of filing, collectively, the "SEC
Documents"). The SEC Documents, including, without limitation, any financial
statements or schedules included therein, at the time filed (and, in the case of
registration statements, on the dates of effectiveness) (a) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading, and (b)
complied in all material respects with the applicable requirements of the
Exchange Act and the Securities Act, as the case may be. The financial
statements of TOL Operating Subsidiary included in the SEC Documents at the time
filed (and, in the case of registration statements, on the date of
effectiveness) complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
Commission with respect thereto, were prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q of the Commission), and fairly
present (subject in the case of unaudited statements to normal, recurring audit
adjustments) the financial position of TOL as at the dates thereof and the
results of its operations and cash flows for the periods then ended. The audited
financial statements of TOL for the year ended December 31, 1995 were prepared
in accordance with generally accepted accounting principles applied on a
consistent basis and fairly present the financial position of TOL as of December
31, 1995 and the results of its operations and cash flows for the period ended
December 31, 1995. The unaudited financial statements of TOL for the five months
ended May 31, 1996, were prepared (except for the absence of notes thereto) in
accordance with generally accepted accounting principles applied on a consistent
basis and fairly present, subject to normal recurring audit adjustments, the
financial position of TOL as of May 31, 1996 and the results of its operations
and cash flows for the five months ended May 31, 1996. TOL has in place and
utilizes adequate control procedures and practices in accordance with generally
accepted accounting principles, Regulation S-X promulgated by the Securities and
Exchange Commission, and the Statement on Auditing Standards promulgated by the
American Institute of Certified Public Accountants which produce on a timely
basis accurate accounting, financial and other reports needed in the conduct of
TOL's business.
Section 4.7 of the TOL Disclosure Schedule accurately sets forth a true,
complete and correct list of all agreements and other documents evidencing
indebtedness and obligations related to Leased-In Equipment (as defined in
Section 4.12(a)) and Secured Financing Agreements, of TOL (collectively, the
"Indebtedness Agreements") as of July 2, 1996 and includes the following: (i)
with respect to agreements and other documents evidencing indebtedness, by
agreement, the lender, the original principal amount, interest rate, outstanding
balance as of December 31, 1995, issue date and maturity date and (ii) with
respect to obligations for Leased-In Equipment, by lease, the lessor, the type
of equipment, the total number of units of each type of equipment, and the
quarterly payment obligation from and after December 31, 1995. Except as set
forth in Section 4.7(i) of the TOL Disclosure Schedule, from and after December
31, 1995, all amounts due and payable pursuant to the terms of the Indebtedness
Agreements have been paid in accordance with the terms of the applicable
Indebtedness Agreement (without giving effect to any grace periods therein).
Section 4.7 of the TOL Disclosure Schedule also accurately describes (i) any
prepayment restrictions, the amount of prepayment penalty, the calculation
thereof, the date, if any, after which prepayment is permitted and the notice
provisions with respect thereof, with respect to each Indebtedness Agreement
that cannot be prepaid without penalty and (ii) any restrictions on, and the
consents required in connection with, any assignment of any of the Indebtedness
Agreements. Since May 31, 1996 TOL has not renewed, or entered into, any
Indebtedness Agreement which contains any restrictions on the prepayment of the
obligations thereunder. TOL shall use its best efforts to deliver to
Transamerica within 5 business days of the date hereof, and in any event shall
deliver to Transamerica within 10 business days of the date hereof, a schedule
which accurately sets forth (i) with respect to each Indebtedness Agreement
entered into by TOL on or after June 30, 1996, the information described in the
first sentence of this paragraph and (ii) for each Indebtedness Agreement which
is secured by any Containers or Chassis a true, correct and complete list of
such Containers or Chassis by container number and chassis number.
4.8. Taxes. Except as set forth in Section 4.8 of the TOL Disclosure
Schedule, TOL has duly filed all federal, state, local and foreign income,
franchise, excise, real and personal property and other tax returns and
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reports (including, but not limited to, those filed on a consolidated, combined
or unitary basis) required to have been filed by TOL prior to the date hereof.
All of the foregoing returns and reports are true and correct in all material
respects, and TOL has paid or, prior to the Effective Time, will pay all taxes,
interest and penalties required to be paid in respect of the periods covered by
such returns or reports to any federal, state, foreign, local or other taxing
authority. TOL has paid or made adequate provision in the financial statements
of TOL included in the SEC Documents for all taxes payable in respect of all
periods ending on or prior to December 31, 1995. Except as set forth in Section
4.8 of the TOL Disclosure Schedule, neither TOL nor any of its subsidiaries will
have any material liability for any taxes in excess of the amounts so paid or
reserves so established and neither TOL nor any of its subsidiaries is
delinquent in the payment of any material tax, assessment or governmental charge
and none of them has requested any extension of time within which to file any
returns in respect of any fiscal year which have not since been filed. No
deficiencies for any tax, assessment or governmental charge have been proposed
in writing, asserted or assessed (tentatively or definitely), in each case, by
any taxing authority, against TOL or any of its subsidiaries for which there are
not adequate reserves. There are no pending requests for waivers of the time to
assess any such tax, other than those made in the ordinary course and for which
payment has been made or there are adequate reserves. The federal income tax
returns of TOL and its subsidiaries have not been audited by the Internal
Revenue Service ("IRS"). For the purposes of this Agreement, the term "tax"
shall include all federal, state, local and foreign taxes including interest and
penalties thereon and any obligations under any agreements or arrangements with
respect to any such taxes. TOL has not filed an election under Section 341(f) of
the Code to be treated as a consenting corporation. TOL Operating Subsidiary
and, if applicable, its affiliates have caused to be filed all tax returns
required to be filed by each of the partnerships listed in Section 4.21 of the
TOL Disclosure Schedule. TOL is and has since its incorporation been a closely
held C corporation within the meaning of Section 469(j)(1) of the Code and is
not and has not been at any time a personal service corporation within the
meaning of Section 469(j)(2) of the Code. TOL has suspended passive activity
loss carryforwards within the meaning of Section 469 of the Code of not less
than $46.2 million at December 31, 1995, as computed under existing laws and
regulations on December 31, 1995. Except as set forth in Section 4.8 of the TOL
Disclosure Schedule, TOL has complied with all domestic and foreign requirements
as to withholding of taxes. In conjunction with its stated election under
Revenue Procedure 90-10, TOL for all tax years prior to 1996 has identified
those assets not on hire to persons or entities not subject to United States tax
and has claimed tax depreciation expense on such assets in accordance with the
provisions of Section 168(g) of the Code.
4.9 Compliance with Law. TOL is in compliance with, and at all times since
December 31, 1992 has been in compliance with, all applicable laws, statutes,
orders, rules, regulations, policies or guidelines promulgated, or judgments,
decisions or orders entered by any Governmental Authority (collectively,
"Applicable Laws") relating to TOL or its business or properties, except for
failures to be in compliance therewith which would not have a material adverse
effect on TOL or on TOL's ability to consummate the transactions contemplated
hereby.
4.10 Proprietary Rights. None of the Proprietary Rights (as defined below)
of TOL infringes upon or violates the rights of any person, firm, corporation,
or other legal entity, except for any such immaterial infringement or violation
which, to the extent known, has been remedied. For purposes of this Agreement,
the term "Proprietary Rights" shall mean with respect to any person or entity:
(a) all material names, patents, inventions, trade secrets, proprietary rights,
computer software, trademarks, trade names, service marks, logos, copyrights and
franchises and all applications therefor, registrations thereof and licenses,
sublicenses or agreements in respect thereof which such person or entity owns or
has the right to use or to which such person or entity is a party; and (b) all
filings, registrations or issuances of any of the foregoing with or by any
Governmental Authority. To the knowledge of TOL, no person, firm, corporation or
other legal entity has infringed, misappropriated or otherwise used without
proper authority any Proprietary Rights. Other than the Proprietary Rights set
forth in Section 4.10 of the Disclosure Schedule, no material name, patent,
invention, trade secret, proprietary right, computer software, trademark, trade
name, service mark, logo, copyright, franchise, license, sublicense, or other
such right is necessary for the operation of the business of TOL in
substantially the same manner as such business is presently conducted. TOL owns
all Proprietary Rights necessary for the operation of the business of TOL as
currently conducted. The business of TOL has not been
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since December 31, 1990 and is not conducted in contravention of any Proprietary
Right of any third party except such contravention which could not reasonably be
expected to have a material adverse effect on TOL. No person, firm, corporation,
or other legal entity has a right to receive from TOL a royalty or similar
payment in respect of any Proprietary Right, whether or not pursuant to any
contractual arrangement entered into by TOL. TOL has not licensed any of its
Proprietary Rights.
4.11. Containers. (a) Section 4.11(a) of the TOL Disclosure Schedule sets
forth a true, complete and correct list of all dry cargo containers, tank
containers, refrigerated containers, open top containers and collapsible
containers, flat racks and all other equipment of the types listed in Exhibit F
(other than chassis) (collectively, the "Containers") and all chassis
(collectively, the "Chassis") owned, managed, and leased-in by TOL that in each
case are off-lease as of July 10, 1996. Each of TOL's off-lease Containers and
Chassis (i) is in conformity with IICL-4 repair standards, if a Container other
than a tank Container, (ii) is in conformity with TOL container condition
standards (a true, complete and correct copy of which is attached as Exhibit K),
if a tank Container, (iii) is in conformity with the standard for Chassis set
out in the Institute of International Container Lessors Ltd. "Guide for
Container Chassis Inspection Second Edition" (the "Standard IICL Guide"), if a
Chassis, or (iv) is being or will be repaired to IICL-4 standards, if a
Container other than a tank Container, TOL container condition standards, if a
tank Container or Standard IICL Guide, if a Chassis, with the cost of repair
paid either (x) by the customer who last redelivered the Container or Chassis,
(y) all or in part by TOL as to Containers or Chassis leased with a damage
protection plan ("DPP") to the extent covered by DPP or (z) by TOL in amounts
aggregating not more than $200,000; provided, however, that any third party
insurance and any other third party payments (including without limitation
payments by manufacturers, depots and managed container owners) with respect to
such damage shall be offset against the costs paid by TOL pursuant to this
clause (z) in determining whether such aggregate costs exceed $200,000.
(b) Except as specified in Section 4.11(b) to the TOL Disclosure Schedule,
each Container and each Chassis which is leased by TOL to a customer is being
leased to a person, firm, corporation or other legal entity which is subject to
a valid and binding contractual obligation to redeliver such Container or
Chassis to TOL in IICL-4 condition, if a Container other than a tank Container,
TOL container condition standards, if a tank Container, or Standard IICL Guide,
if a Chassis.
(c) TOL has not agreed to or made any arrangements with any lessee of any
Container or Chassis not covered by DPP permitting such lessee to return such
Container or Chassis to TOL in a condition other than as specified in Section
4.11(b) above or waiving or modifying any of TOL's rights against any such
lessee if such Container or Chassis is returned by such lessee other than in
such condition.
(d) All Containers and Chassis owned, managed or leased-in by TOL are
usable for their respective originally intended purposes, normal wear and tear
excepted.
(e) TOL shall use its best efforts to deliver to Transamerica within 5
business days of the date hereof, and in any event shall deliver to Transamerica
within 10 business days of the date hereof, a schedule which accurately sets
forth, with respect to each Container and Chassis owned, managed, or leased-in
by TOL, as of the date hereof (i) the container number and chassis number of
each Container and Chassis owned, managed or leased-in by TOL, (ii) the type of
such Container or Chassis, (iii) the owner code and name of the owner related
thereto, (iv) the on-lease or off-lease status thereof, (v) if off-lease, the
location and the repair status thereof, (vi) if on-lease, the identity of the
customer, the related contract number, whether an option to purchase such
Container or Chassis has been granted and the timing of and amount for which any
such purchase option may be exercised. Such schedule shall accurately list such
Containers and Chassis in order by container number and chassis number and shall
accurately identify each Container or Chassis covered by DPP, noting the type of
DPP coverage, if any.
4.12. Title to and Condition and Sufficiency of Properties. (a) TOL has,
as of the date hereof, legal and beneficial title to all of the Containers and
Chassis owned by TOL (collectively, the "Owned Equipment") (subject, in the case
of Containers and Chassis leased out by TOL, as finance lessors, to lessees
pursuant to leases or agreements which provide for the acquisition of such
Containers or Chassis subject thereto by the lessees (the "Leased-Out
Equipment"), to the rights of the applicable lessee), has valid and binding
interests
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as bailee in the Containers and Chassis leased by TOL, as lessee, pursuant to
finance leases and hire purchase arrangements and loan agreements under which
certain Containers and Chassis to be owned by TOL are collateral (such
Containers and Chassis, the "Financed Equipment" and such finance leases,
agreements and arrangements, the "Secured Financing Agreements"), pursuant to
valid and binding Secured Financing Agreements, and has valid and binding
leasehold interests in the Chassis and Containers which TOL leases, as lessee
(the "Leased-In Equipment"), pursuant to the applicable leases. TOL is, and has
been, in compliance with any and all provisions relating to collateral in each
of the Secured Financing Agreements and each agreement pursuant to which TOL
leases Leased-In Equipment. Section 4.12 of the TOL Disclosure Schedule includes
a true, complete and correct list of (i) all Secured Financing Agreements and
(ii) by lease, the Leased-In Equipment and the total number of Containers and
Chassis covered by each such lease. TOL shall use its best efforts to deliver to
Transamerica within 5 business days of the date hereof, and in any event shall
deliver to Transamerica within 10 business days of the date hereof a schedule
which accurately sets forth, (A) a true, complete and correct list as of the
date hereof of all leases, agreements and arrangements by Container or Chassis
type by container number and chassis number and (i) by lender with a security
interest in the Owned Equipment and (ii) by lessor with respect to the Financed
Equipment and the Leased-In Equipment and (B) for each such lease, agreement or
arrangement, a reference to the section of the lease, agreement or other
document which establishes ownership of or security interest in the applicable
Container or Chassis. Subject to disposals that occur in the ordinary course of
business and sales carried out in a manner consistent with the plan set forth in
Section 4.14(c) of the TOL Disclosure Schedule, TOL will have, as of the Closing
Date, legal and beneficial title to all the Owned Equipment (subject, in the
case of Leased-Out Equipment, to the rights of the applicable lessee), valid and
binding interests as bailee in all Financed Equipment pursuant to valid and
enforceable Secured Financing Agreements, and valid and binding leasehold
interests in the Leased-In Equipment pursuant to the applicable leases. All
assets of TOL are free and clear of all title defects, liens, claims, charges,
security interests, pledges, or other encumbrances of any nature whatsoever
including, without limitation, options, leases, chattel mortgages, conditional
sales contracts, collateral security arrangements and other title or interest
retention arrangements, except (i) the Revolving Credit Agreement among TOL and
the lenders named therein (the "Revolving Credit Agreement"); (ii)
materialmen's, mechanics', carriers', workmen's, repairmen's or other like liens
arising in the ordinary course of business and not yet subject to foreclosure
which do not impair Transamerica's ability to hold, own, utilize or sell any
Container or any Chassis; (iii) liens for current taxes not yet due; (iv)
interests of lenders and other financiers in assets of TOL (each, a "Security
Interest") under Secured Financing Agreements; and (v) the leases pursuant to
which TOL leases Containers or Chassis to its customers (the "Operating
Leases").
(b) The Preliminary Report attached hereto as Exhibit F accurately sets
forth the information to be provided pursuant to Section 2.5(a) as of the date
specified therein.
(c) The Pre-Closing Report will accurately set forth the information to be
provided therein pursuant to Section 2.5(b) as of the last day of the month
immediately preceding the Closing Date.
(d) All of the tangible real or personal property owned or leased by TOL
which is used in the ownership and leasing of Containers and Chassis by TOL and
the activities related or incident thereto (the "Container Operations") is
presently utilized by TOL in the ordinary course of its business.
(e) No third party environmental or other reports have been prepared by or
for TOL with respect to the real property owned, leased or used by TOL.
(f) All of the assets used by TOL in its business as of December 31, 1995
that are required to be reflected on TOL's financial statements are reflected on
the audited financial statements of TOL dated December 31, 1995.
(g) (i) To the extent that Containers and/or Chassis are or prior to the
Closing Date become on lease to customers who as of May 31, 1996 are Bankrupt
(as defined below) or prior to Closing Date become Bankrupt, reserves on the
unaudited balance sheet of TOL for the five months ended May 31, 1996 for the
Containers and Chassis not recovered from Bankrupt customers and for any monies
due and owing from Bankrupt customers to TOL are adequate to cover the Loss and
Expenses (as defined in Section 8.10(a)) from all Bankrupt customers including
those arising after May 31, 1996, after considering TOL's receipt of
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any amounts due from third party insurers or pursuant to Management Agreements.
Any adjustments made since December 31, 1995 to TOL's reserves for Containers
and Chassis not recovered from Bankrupt customers and for monies due and owing
from Bankrupt customers were made in the ordinary course of business in
accordance with TOL's past practices and in accordance with generally accepted
accounting principles consistently applied.
(ii) The net book value of any accounts receivable due from, and Containers
or Chassis on lease to, a Bankrupt customer (which Containers or Chassis have
not been returned to TOL) that are reflected on the unaudited balance sheet of
TOL dated May 31, 1996, net of reserves, were carried at such date in amounts
that were not in excess of their realizable values.
(iii) A customer shall be deemed "Bankrupt" if it commences a voluntary
case concerning it under Title 11 of the United States Code as now or hereafter
in effect, or any successor thereto (the "Bankruptcy Code") or any similar
foreign law; or an involuntary case is commenced against the customer under the
Bankruptcy Code or any similar foreign law and relief is ordered against such
customer or the petition is controverted but is not dismissed within 90 days
after the commencement of the case; such customer becomes insolvent or is unable
to pay its debts within the meaning of Applicable Law or stops making payments
generally or declares a moratorium or suspension of payments with respect to all
or a substantial part of its debts or ceases to conduct its business or enters
into any composition or other arrangement with its creditors generally (or any
class of them); or a custodian (as defined in the Bankruptcy Code or any similar
foreign law) is appointed for, or takes charge of, all or substantially all of
the property of the customer; or the customer commences any other proceeding
under any reorganization, arrangement, readjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to such customer or there is
commenced against the customer any such proceeding which remains undismissed for
a period of 90 days or the customer is adjudicated insolvent or bankrupt; or the
customer fails to controvert in a timely manner any petition or action filed
against it under the Bankruptcy Code or any similar foreign law or any such
proceeding or any order of relief or other order approving any such case or
proceeding or the appointment of any custodian or the like of or for it or any
substantial part of its property or suffers any such appointment to continue
undischarged or unstayed for a period of 90 days; or the customer makes a
general assignment for the benefit of creditors; or any action is taken by such
customer for the purpose of effecting any of the foregoing.
(h) All agreements of TOL relating to the management of Containers and/or
Chassis owned by third parties (the "Management Agreements") as of December 31,
1995 which provided for compensation of $100,000 or more in 1995 are set forth
in Section 4.21(a) of the TOL Disclosure Schedule and all such Management
Agreements and all Management Agreements set forth on any schedule delivered
after the date hereof in accordance with this Section 4.12(h) (i) are valid and
binding obligations of TOL and the valid and binding obligations of each other
party thereto; (ii) have not been amended, modified or terminated orally or in
writing except as disclosed in writing to Transamerica prior to the execution of
this Agreement; and (iii) permit TOL to use and operate the Containers and/or
Chassis subject thereto. Section 4.12(h) of the TOL Disclosure Schedule
accurately sets forth the original date of each Management Agreement set forth
in Section 4.21(a) of the TOL Disclosure Schedule and FTEUs for each managed
container investor pool. TOL shall use its best efforts to deliver to
Transamerica within 5 business days of the date hereof, and in any event shall
deliver to Transamerica within 10 business days of the date hereof, a schedule
which accurately sets forth (i) all Management Agreements in effect as of the
date hereof, the original date of each such Management Agreement, and the total
number of Containers or Chassis covered thereby at December 31, 1995 and (ii)
with respect to both the Management Agreements set forth on such schedule and
the Management Agreements set forth in Section 4.21 of the TOL Disclosure
Schedule, the total number of Containers and Chassis by Container or Chassis
type and by owner thereof, the container number and chassis number of each
Container or Chassis covered by each such Management Agreement and the
designation of the owner of each such Container or Chassis. The Management
Agreements which have not been furnished to Transamerica prior to the date
hereof do not contain terms or provisions which are more burdensome, uneconomic
or materially different from those that have been received by Transamerica.
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(i) Notwithstanding any other provision of this Agreement, no
representation or warranty is made with respect to the presentation on the
audited balance sheet of TOL for the year ended December 31, 1995 of the items
referred to in Section 4.12(i) of the TOL Disclosure Schedule.
4.13 Title. At the Closing, TOL shall have (i) complete and unrestricted
power and the unqualified right to use in the business, sell, assign, transfer
and deliver the Owned Equipment (subject, in the case of Leased-Out Equipment,
to rights of the applicable lessee) and the other assets (excluding Management
Agreements and Leases relating to Leased Equipment, which by their terms are not
assignable or transferrable without the consent of the other party thereto) of
TOL which are owned by TOL or any of its affiliates, and upon consummation of
the transactions contemplated hereby, TOL will continue to have legal and
marketable title to all of such Owned Equipment (subject, in the case of
Leased-Out Equipment, to rights of the applicable lessee) and such other assets
of TOL which are owned by TOL or any of its affiliates, free and clear of all
title defects, claims, charges, options (except as aforesaid), conditional sales
contracts, collateral security arrangements, mortgages, pledges, liens, security
interests or encumbrances of any kind, as contemplated by Section 4.12 hereof
(other than (a) the Revolving Credit Agreement, (b) materialmen's, mechanics',
carriers', workmen's, repairmen's or other like liens arising in the ordinary
course of business and not yet subject to foreclosure and which do not impair
Transamerica's ability to directly or indirectly hold, own, utilize or sell any
Container or Chassis, (c) liens for current taxes not yet due, (d) the Security
Interests, each of which, shall have been released and discharged or with
respect to which enforceable and irrevocable arrangements shall have been
entered into to effect such release and discharge, in each case, at TOL's
expense and (e) the Operating Leases) and (ii) legal and valid leasehold
interests in the leases pursuant to which TOL or its affiliates lease Chassis
(collectively, the "TOL Chassis Leases") and the other assets of TOL which are
leased by TOL or its affiliates.
4.14. Operating Leases; Sales of Containers and Chassis in Connection with
Management Arrangements.
(a) Set forth in Section 4.14(a) of the TOL Disclosure Schedule is a
true, complete and correct list of all customers who as of the date hereof
have Containers or Chassis which are owned, managed or leased-in by TOL or
who as of the date hereof have accounts receivable owing to TOL, and who in
each case have ceased operations or are in default under their Operating
Lease. Except as set forth in Section 4.14(a) of the TOL Disclosure
Schedule, no Operating Lease has been terminated before its expiration
(other than in accordance with its terms), repudiated or rescinded by TOL,
or terminated before its expiration (other than in accordance with its
terms), or, to the knowledge of TOL, repudiated or rescinded by the
applicable lessee under an Operating Lease and no written notice or, to the
knowledge of TOL, oral notice, has been received by TOL of any intention or
threat by the applicable lessee to do any of the above.
(b) TOL has not consented to any sublease by any lessee to a third
party not controlled by such lessee of Containers or Chassis under any
Operating Lease in effect as of the date of this Agreement, and no written
notice or, to the knowledge of TOL, oral notice, has been received by TOL
of any intention by a relevant lessee to grant any such sublease.
(c) Section 4.14(c) of the TOL Disclosure Schedule sets forth a true
and complete copy of the plan of TOL for calendar year 1996 with respect to
purchases by TOL of Containers and Chassis and disposals by TOL of
Containers and Chassis in connection with any Containers or Chassis that
have been, or may become, subject to management arrangements, as the case
may be, between TOL and a third party. All such purchases and disposals
since January 1, 1996 have been made in the ordinary course of business and
in amounts not in excess of those provided for in the plan. Section 4.14(c)
of the TOL Disclosure Schedule sets forth a summary of such purchases and
disposals from January 1, 1996 through May 31, 1996. Notwithstanding the
foregoing, projections or other predictions contained in the plan are not
and shall not be deemed to be representations or warranties of TOL, Arthur
or Dennis.
4.15. Operations Manuals. The operations manuals, technical manuals and
summaries of repair history records delivered to Transamerica by TOL prior to
the date hereof are true, complete and correct. TOL shall use its best efforts
to deliver to Transamerica within 5 business days of the date hereof, and in any
event shall deliver to Transamerica within 10 business days of the date hereof
true, complete and correct copies of all of
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TOL's operations manuals, technical manuals and repair history records. The
practices adopted and/or applied by TOL in the Container Operations and the
repair history of the Container Operations have not materially departed from the
provisions of the manuals or records delivered to Transamerica prior to the date
hereof.
4.16. Depot Agreements; Purchase Options. (a) Section 4.16 of the TOL
Disclosure Schedule sets forth the form of Depot Agreement (as defined in
Section 4.21(a)) used by TOL in the ordinary course of business and the terms of
such Depot Agreements provide for (i) free assignability and transferability
without the consent of the counterparty thereto and (ii) cancellability without
penalty to TOL upon not more than 60 days' notice in the case of Depot
Agreements with respect to dry cargo Containers and 90 days' notice in the case
of Depot Agreements with respect to tank Containers. No Depot Agreement differs
in any material respect from the form set forth in Section 4.16(a) to the TOL
Disclosure Schedule.
(b) Section 4.16(b) of the TOL Disclosure Schedule accurately sets forth a
true, complete and correct list with respect to the Containers or Chassis on
which as of June 30, 1996 an option to purchase has been granted, the customer
to which such purchase option has been granted, the contract pursuant to which
such purchase option has been granted, the date on which such purchase option
expires, and the dollar amount at which such purchase option may be exercised
and the per diem rate thereon. Except as set forth in Section 4.16(b) of the TOL
Disclosure Schedule, no options to purchase have been granted to third parties
with respect to any Container or Chassis through June 30, 1996 and none will be
granted after the execution hereof without the prior written consent of
Transamerica. TOL shall use its best efforts to deliver to Transamerica within 5
business days of the date hereof, and in any event shall deliver to Transamerica
within 10 business days of the date hereof, a schedule which accurately sets
forth a true, complete and correct list of the Containers or Chassis on which
between June 30, 1996 and the date hereof (including the date hereof) an option
to purchase has been granted, the customer to which such purchase option has
been granted, the contract pursuant to which such purchase option has been
granted, the time period, if any, during which such purchase option may be
exercised, and the dollar amount at which such purchase option may be exercised
and the per diem rate thereon.
4.17. Registration Statement. None of the information provided by TOL for
inclusion in the Registration Statement at the time it becomes effective or, in
the case of the Proxy Statement, at the date of mailing, will contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Proxy
Statement will comply as to form in all material respects with the provisions of
the Securities Act and the Exchange Act.
4.18. Litigation. Except as set forth in Section 4.18 of the TOL
Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation (an "Action") pending or, to the knowledge of TOL, threatened
against TOL which, individually or in the aggregate, could reasonably be
expected to have a material adverse effect on the ability of TOL to consummate
the transactions contemplated hereby or, if adversely determined, could
reasonably be expected to have a material adverse effect on TOL. There is no
Action pending or, to the knowledge of TOL, threatened against TOL by any of
TOL's securityholders, in their capacity as securityholders, including, without
limitation, any holders or former holders of capital stock of TOL or any holders
or former holders of notes or bonds of TOL. TOL is not subject to any
outstanding order, writ, injunction or decree which, individually or in the
aggregate could reasonably be expected to have a material adverse effect on TOL
or a material adverse effect on the ability of TOL to consummate the
transactions contemplated hereby. Except as set forth in Section 4.18 to the TOL
Disclosure Schedule, (i) there has not been any Action asserted or, to the
knowledge of TOL, threatened against TOL relating to TOL's method of doing
business or its relationship with past, existing or future users, purchasers or
licensees of any Proprietary Rights, goods or services of TOL and (ii) TOL has
not been subject to any outstanding order, writ, injunction or decree relating
to TOL's method of doing business or its relationship with past, existing or
future users, purchasers or licensees of any Proprietary Rights, goods or
services of TOL.
4.19. Brokerage and Finder's Fees; Merger Fees. Except for TOL's
obligations to (i) Bear, Stearns & Co. Inc. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated (collectively, the "Financial Advisors") (a
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copy of the written agreement relating to such obligations having previously
been provided to Transamerica) and (ii) one other individual who has been
identified to the Vice President Corporate Development of Transamerica, neither
TOL nor any stockholder, director, officer or employee thereof, has incurred or
will incur on behalf of TOL, any brokerage, finder's or similar fee in
connection with the transactions contemplated by this Agreement. The aggregate
Merger Fees owed or which will be owing by TOL to investment bankers, financial
advisors, attorneys or accountants will not exceed $2,000,000. "Merger Fees"
means, with respect to any party hereto, all fees and expenses paid or payable
by such party to all attorneys, accountants, investment bankers, financial
advisors and other experts and advisors incident to negotiation, preparation,
execution and consummation of this Agreement and related documentation and
stockholders' meeting and consents; provided, however, that TOL's accountants'
Merger Fees shall not include audit fees of $222,000 which fees are pursuant to
the audit engagement letter dated June 19, 1995 for the issuance of TOL's Form
10-K and for the audit of TOL's financial statements in each case for the year
ended December 31, 1995 and Merger Fees shall include all fees paid or payable
for services rendered with respect to the transactions contemplated by this
Agreement (including without limitation, with respect to the negotiation,
preparation, execution and consummation of this Agreement and related
documentation and stockholders' meeting and consents) from January 1, 1996
through the Closing Date to the Financial Advisors and to Cooley Godward Castro
Huddleson & Tatum. TOL is not subject to any other Contract to pay remuneration
to any person, firm, corporation or other legal entity, including any officer,
director or employee of TOL, in connection with the negotiation, preparation,
execution and consummation of this Agreement or otherwise relating to the
Merger.
4.20. Employee Benefit Plans.
(a) For purposes of this Section 4.20, the following terms have the
definitions given below:
"Controlled Group Liability" means any and all liabilities under
(i) Title IV of ERISA, (ii) section 302 of ERISA, (iii) sections 412 and
4971 of the Code, (iv) the continuation coverage requirements of section
601 et seq. of ERISA and section 4980B of the Code, and (v)
corresponding or similar provisions of foreign laws or regulations.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and the regulations thereunder.
"ERISA Affiliate" means, with respect to any entity, trade or
business, any other entity, trade or business that is a member of a
group described in Section 414(b), (c), (m) or (o) of the Code or
Section 4001(b)(1) of ERISA that includes the first entity, trade or
business, or that is a member of the same "controlled group" as the
first entity, trade or business pursuant to Section 4001(a)(14) of
ERISA.
"Plans" means all employee benefit plans, programs, policies,
practices, and other arrangements providing benefits to any employee or
former employee or beneficiary or dependent thereof, whether or not
written, and whether covering one person or more than one person,
sponsored or maintained by TOL or any of its subsidiaries or to which
TOL or any of its subsidiaries contributes or is obligated to
contribute. Without limiting the generality of the foregoing, the term
"Plans" includes all employee welfare benefit plans within the meaning
of Section 3(1) of ERISA and all employee pension benefit plans within
the meaning of Section 3(2) of ERISA.
(b) Section 4.20(b) of the TOL Disclosure Schedule accurately sets
forth a true, correct and complete list as of the date hereof (i) of the 20
most highly compensated employees of TOL by name and their respective rate
of pay and target bonus percentage, if any as of the date hereof and (ii)
by department, with respect to U.S. employees, and by title, with respect
to employees outside the U.S., and by location and by name (or, if the data
requested pursuant to this Section 4.20(b) is not available by name of
particular employees, the number of such employees and the aggregate for
such employees), the estimated number of years of service and the estimated
annual compensation. TOL shall use its best efforts to deliver to
Transamerica within 5 business days of the date hereof, and in any event
shall deliver to Transamerica within 10 business days of the date hereof, a
true, complete and correct schedule
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accurately setting forth as of the date hereof the name of each employee of
TOL and, with respect to each employee, their title, their rate of pay,
their target bonus, if any, all other entitlements under Plans, the terms
of any agreements with respect to termination of employment and separation
or severance benefits, the length of notice required to terminate
employment, the date on which employment commenced (or is deemed to have
commenced for statutory purposes), the date of birth and the location of
such employee and the information set forth in such schedule shall not vary
from the information set forth in Section 4.20(b) of the TOL Disclosure
Schedule except for matters which individually and in the aggregate are
immaterial.
(c) Section 4.20(c) of the TOL Disclosure Schedule lists all Plans
which cover United States based employees of TOL. There are no Plans other
than those required by local laws which cover employees of TOL based
outside the United States. With respect to each Plan, TOL has made
available to Transamerica a true, correct and complete copy of: (i) each
writing constituting a part of such Plan, including without limitation all
plan documents, benefit schedules, trust agreements, and insurance
contracts and other funding vehicles; (ii) the most recent Annual Report
(Form 5500 Series) and accompanying schedule, if any; (iii) the current
summary plan description, if any; (iv) the most recent annual financial
report, if any; and (v) the most recent determination letter from the IRS,
if any.
(d) The Internal Revenue Service has issued a favorable determination
letter with respect to each Plan that is intended to be a "qualified plan"
within the meaning of Section 401(a) of the Code (a "Qualified Plan"), and
there are no existing circumstances nor any events that have occurred that
could adversely affect the qualified status of any Qualified Plan or the
related trust.
(e) All contributions required to be made to any Plan by Applicable
Laws or by any plan document or other contractual undertaking, and all
premiums due or payable with respect to insurance policies funding any
Plan, for any period through the date hereof have been timely made or paid
in full and through the Closing Date will be timely made or paid in full
or, to the extent not required to be made or paid on or before the date
hereof or the Closing Date, as applicable, have been or will be fully
reflected in the SEC Documents filed or to be filed with the Commission.
(f) TOL and its subsidiaries have complied, and are now in compliance,
in all material respects, with all provisions of ERISA, the Code and all
laws and regulations applicable to the Plans and all of the provisions of
the Plans. There is not now, and there are no existing, circumstances that
could give rise to, any requirement for the posting of security with
respect to a Plan, other than the fiduciary bonding requirements of ERISA,
or the imposition of any lien on the assets of TOL or any of its
subsidiaries under ERISA or the Code with respect to actual or potential
liabilities under a Plan.
(g) No Plan is subject to Title IV or Section 302 of ERISA or Section
412 or 4971 of the Code. No Plan is a "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA (a "Multiemployer Plan") or a plan
that has two or more contributing sponsors at least two of whom are not
under common control, within the meaning of Section 4063 of ERISA (a
"Multiple Employer Plan"), nor has TOL or any of its subsidiaries or any of
their respective ERISA Affiliates, at any time within five years before the
date hereof, contributed to or been obligated to contribute to any
Multiemployer Plan or Multiple Employer Plan.
(h) There does not now exist, and there are no existing, circumstances
that could result in, any Controlled Group Liability that would be a
liability of TOL or any of its subsidiaries following the Closing. Without
limiting the generality of the foregoing, neither TOL nor any of its
subsidiaries nor any of their respective ERISA Affiliates has engaged in
any transaction described in Section 4069 or Section 4204 of ERISA.
(i) Except for health continuation coverage as required by Section
4980B of the Code or Part 6 of Title I of ERISA, neither TOL nor any of its
subsidiaries has any liability for life, health, medical or other welfare
benefits to former employees or beneficiaries or dependents thereof, except
for death benefits payable under the normal course of a pension benefit
plan with respect to deceased participants.
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(j) Except as set forth in Section 4.20(j) of the TOL Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in, cause
the accelerated vesting or delivery of, or increase the amount or value of,
any payment or benefit to any employee of TOL or any of its subsidiaries.
Without limiting the generality of the foregoing, no amount paid or payable
by TOL or any of its subsidiaries in connection with the transactions
contemplated hereby either solely as a result thereof or as a result of
such transactions in conjunction with any other events will be an "excess
parachute payment" within the meaning of Section 280G of the Code.
(k) There are no pending or threatened claims (other than claims for
benefits in the ordinary course), lawsuits or arbitrations which have been
asserted or instituted against the Plans, any fiduciaries thereof with
respect to their duties to the Plans or the assets of any of the trusts
under any of the Plans which could reasonably be expected to result in any
material liability of TOL or any of its subsidiaries to the Pension Benefit
Guaranty Corporation, the Department of Treasury, the Department of Labor
or any multiemployer plan.
4.21. Contracts. (a) Section 4.21 of the TOL Disclosure Schedule lists all
written or oral contracts, agreements, guarantees, leases (which, with respect
to Operating Leases, is to the knowledge of TOL) and executory commitments (each
a "Contract") to which TOL is a party and which fall within any of the following
categories: (i) as of December 31, 1995, all Management Agreements which
provided for compensation of $100,000 or more during 1995, and, as of June 30,
1996, all Operating Leases, all TOL Chassis Leases, all Purchase Commitments (as
defined below), all Indebtedness Agreements, including all Secured Financing
Agreements, agreements between TOL and depot owners relating to the use of
depots in connection with Container Operations (the "Depot Agreements") and all
other contracts, commitments, leases, agreements or understandings, whether
written or oral, relating to the Container Operations or the assets of TOL
involving the payment of $100,000 or more, (ii) Contracts not entered into in
the ordinary course of business of TOL, (iii) joint venture, partnership and
like agreements, (iv) Contracts which are service contracts (excluding contracts
for delivery services entered into in the ordinary course of business) or
equipment leases involving payments by TOL of more than $100,000 per year, (v)
Contracts containing covenants purporting to limit the freedom of TOL to compete
in any line of business in any geographic area or to hire or solicit any
individual or group of individuals, (vi) Contracts which after the Effective
Time would have the effect of limiting the freedom of Transamerica or its
subsidiaries (other than TOL and its subsidiaries) to compete in any line of
business in any geographic area or to hire any individual or group of
individuals, (vii) Contracts which contain minimum purchase conditions or
requirements or other terms that restrict or limit the purchasing relationships
of TOL, (viii) Contracts relating to any outstanding commitment for capital
expenditures in excess of $100,000, (ix) Contracts relating to the lease or
sublease of or sale or purchase of real or personal property involving any price
or annual expense in excess of $100,000 and not cancellable by TOL (without
premium or penalty) within one month, (x) Contracts with any labor organization,
(xi) any confidentiality agreements to which TOL is party and pursuant to which
the disclosure of such confidentiality agreement is not precluded, with TOL
hereby representing that the only confidentiality agreement it has entered into
whose disclosure is precluded by the terms thereof do not relate to or otherwise
affect the conduct or operations of TOL's business, (xii) indentures, mortgages,
promissory notes, loan agreements, guarantees of amounts in excess of $100,000,
letters of credit or other agreements or instruments of TOL or commitments for
the borrowing or the lending of amounts in excess of $100,000 by TOL or
providing for the creation of any charge, security interest, encumbrance or lien
upon any of the assets of TOL, (xiii) Contracts involving annual revenues or
expenditures to the business of TOL in excess of .5% of TOL's annual revenues
and (xiv) Contracts with or for the benefit of any affiliate of TOL (other than
subsidiaries of TOL). "Purchase Commitments" means purchase orders of TOL and
its affiliates for Containers and Chassis. All of the Contracts required to be
disclosed by this Section 4.21(a) are valid and binding obligations of TOL and
the valid and binding obligation of each other party thereto, except such
Contracts which if not so valid and binding would not, individually or in the
aggregate, have a material adverse effect on TOL. Neither TOL nor, to the
knowledge of TOL, any other party thereto is in violation of or in default in
respect of, nor has there occurred an event or condition which with the passage
of time or giving of notice (or both) would constitute a default under, any such
Contract except such violations or defaults under such Contracts which,
individually or in the aggregate, would not have a material adverse effect on
TOL. TOL shall use its best efforts to deliver
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to Transamerica within 5 business days of the date hereof, and in any event
shall deliver within 10 business days of the date hereof, a schedule which
accurately sets forth as of the month end immediately preceding the date hereof
a true, complete, and correct list of all Operating Leases, by customer and by
container number and chassis number and by type, the start date, end date and
per diem for each such Operating Lease. The information set forth on such
schedule will be consistent with the information contained in TOL's consolidated
monthly financial reports, including fleet on hire, average per diem, and
average utilization, which information is in turn consistent with the operating
data provided by TOL to Transamerica prior to the date hereof.
(b) Section 4.21(b) of the TOL Disclosure Schedule accurately sets forth a
true, complete and correct list with respect to the Purchase Commitments as of
July 16, 1996, which list sets forth (A) with respect to each such Purchase
Commitment, the related purchase order number(s), the purchase order date(s),
the equipment type, the number of units, the delivery date(s), the number of
units delivered by type of equipment, the price per type of equipment, the
extended total of the purchase orders and manufacturer designation and (B) the
grand total of the number of units ordered, the number of units delivered and
the extended total of the purchase orders. Each Purchase Commitment listed in
Sections 4.21(b) and 4.21(b2) of the TOL Disclosure Schedule has been made in
the ordinary course of TOL's business and, in each case, to the extent carried
out, is in compliance with the terms of the relevant purchase order. The terms
of each purchase order listed in Sections 4.21(b) and 4.21(b2) of the TOL
Disclosure Schedule are consistent with the terms of the form of purchase order
attached hereto as Exhibit M. The Purchase Commitments set forth in Sections
4.21(b) and 4.21(b2) of the TOL Disclosure Schedule constitute all Purchase
Commitments of TOL and its affiliates for Containers and Chassis as of July 16,
1996. Except as set forth in Sections 4.21(b) and 4.21(b2) to the TOL Disclosure
Schedule, neither TOL nor any of its affiliates have entered into additional
purchase commitments for Containers or Chassis between December 31, 1995 and
July 16, 1996. TOL shall use its best efforts to deliver to Transamerica within
5 business days of the date hereof, and in any event shall deliver to
Transamerica within 10 business days of the date hereof, a schedule which
accurately sets forth a true, complete and correct list of all Purchase
Commitments of Containers and Chassis entered into by TOL between July 16, 1996
and the date hereof (including the date hereof), and with respect to each such
Purchase Commitment the information set forth in the first sentence of this
Section 4.21(b). Except as set forth in Section 4.21(b3) of the TOL Disclosure
Schedule, the purchase orders set forth on such schedule will be consistent with
the terms of the form of purchase order attached hereto as Exhibit M. Without
the prior written consent of Transamerica, not to be unreasonably withheld, TOL
will not enter into any Purchase Commitments between the date hereof and the
Closing Date.
(c) Except as set forth in Section 4.21(c) of the TOL Disclosure Schedule,
so far as TOL is aware, none of the Operating Leases are held by persons (or
their agents) who have ceased operations or are Bankrupt.
(d) (i) Section 4.21(d)(i) of the TOL Disclosure Schedule sets out each
claim made or resolved by TOL or its affiliates in respect of any manufacturer's
warranty relating to any Containers owned or leased by TOL or Chassis owned or
leased by TOL in excess of $50,000 since December 31, 1990.
(ii) Except as set forth in Section 4.21(d)(ii) of the TOL Disclosure
Schedule, (A) TOL has not waived any warranty claims since December 31, 1990 and
(B) there are no manufacturing defects in any Container or Chassis.
(iii) TOL shall use its best efforts to deliver to Transamerica within 5
business days of the date hereof, and in any event shall deliver to Transamerica
within 10 business days of the date hereof, a true, complete and correct list,
by container number and chassis number of all Containers and Chassis which are
subject to any claims set forth in Section 4.21(d) of the TOL Disclosure
Schedule.
4.22. Accounts Receivable.
Except as set forth in Section 4.22 of the TOL Disclosure Schedule, all
accounts and notes receivable (including finance notes receivable) and accrued
interest receivable of TOL (together with accounts and notes receivable, the
"Receivables") have arisen in the ordinary course of business and the accounts
receivable reserves reflected on the balance sheet as of May 31, 1996 are as of
such date established in accordance with generally accepted accounting
principles consistently applied and will be collectible in an
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amount not less than the amounts thereof carried on the balance sheet as of such
date, net of any reserves included thereon, as applicable, and any adjustments
made since December 31, 1995 to TOL's accounts receivable reserves were made in
the ordinary course of business in accordance with TOL's past practices and in
accordance with generally accepted accounting principles consistently applied.
The Receivables are valid, binding and enforceable in accordance with their
terms, arise from bona fide transactions, and are not subject to counterclaims,
refusals to pay or other rights of set-off. To the extent that the
representations and warranties in this Section and in Section 4.12(g) shall both
prove to be inaccurate due to the same circumstances relating to a Bankrupt
Customer, the parties agree that nothing herein shall permit Transamerica to
recover more than its Loss and Expenses (as defined in Section 8.10(a))
attributable to such circumstances.
4.23. Officers and Employees. The information delivered to Transamerica by
TOL (receipt of which was specifically acknowledged in writing by Transamerica)
as to the names of all directors and officers of TOL, the total salary, bonus,
fringe benefits and perquisites received by all directors, officers and
employees whose total salary exceeded $75,000 in the fiscal year ended December
31, 1995 is true, accurate and complete as of December 31, 1995, and no material
changes to the foregoing compensation arrangements have occurred subsequent to
December 31, 1995. Except as previously disclosed to Transamerica in writing
(receipt of which was specifically acknowledged in writing by Transamerica),
there are no other material forms of compensation paid to any such director,
officer or employee of TOL. Except as previously disclosed to Transamerica in
writing (receipt of which was specifically acknowledged in writing by
Transamerica), no officer, director or employee of TOL or any other affiliate of
TOL provides or causes to be provided to TOL any material assets, services or
facilities and TOL does not provide or cause to be provided to any such officer,
director, employee or affiliate any material assets, services or facilities.
Except as set forth in Section 4.23 to the TOL Disclosure Schedule, no officer,
director or other person directly or indirectly controlling or controlled by, or
under direct or indirect common control with, TOL has any material interest in
the assets of TOL. Except as set forth in Section 4.23 of the TOL Disclosure
Schedule, there are no compensation plans of TOL that are not in writing, and
copies of all compensation plans, including any severance plans, of TOL have
heretofore been given to Transamerica.
4.24. Labor Relations. There is no unfair labor practice complaint against
TOL pending before the National Labor Relations Board, and there is no labor
strike, dispute, slowdown or stoppage, or any union organizing campaign,
actually pending or, to the knowledge of TOL, threatened against or involving
TOL. TOL has not employed since December 31, 1992 and does not employ any
individual who is a member of a collective bargaining unit with respect to such
individual's employment by TOL. TOL is in compliance with, and at all times
since December 31, 1992 has been in compliance with, all Applicable Laws
relating to employment, except for failures to be in compliance therewith which
would not have a material adverse effect on TOL or on the ability of TOL to
consummate the transactions contemplated hereby.
4.25. Undisclosed Liabilities. Except (i) as and to the extent disclosed
or reserved against on the balance sheet of TOL as of December 31, 1995 included
in the SEC Documents or (ii) as incurred after December 31, 1995 in the ordinary
course of business consistent with prior practice and not prohibited by this
Agreement and disclosed in Section 4.25 to the TOL Disclosure Schedule, (iii)
the Merger Fees or (iv) except as set forth in Section 4.12(i) of the TOL
Disclosure Schedule, TOL does not have any liabilities or obligations of any
nature, whether known or unknown, absolute, accrued, contingent or otherwise and
whether due or to become due, that, individually or in the aggregate, have or
could have a material adverse effect on TOL.
4.26. Customer and Supplier Relationships.
(a) To TOL's knowledge, except as set forth in Section 4.26(a) of the
TOL Disclosure Schedule, its relationships with its customers and suppliers
are satisfactory, except for such relationships which cease to be
satisfactory as a result of the announcement of the Merger.
(b) (i) Section 4.26(b) to the TOL Disclosure Schedule lists, as of
July 7, 1996, the 10 largest customer relationships (in financial
twenty-foot equivalent units based on the definition thereof which TOL has
supplied to Transamerica ("FTEUs")) of TOL with respect to each of dry
cargo containers, tank containers, open top containers, refrigerated
containers, collapsible containers, chassis and each
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other type of equipment listed on Exhibit F attached hereto, and (ii) TOL
shall use its best efforts to deliver to Transamerica within 5 business
days of the date hereof, and in any event shall deliver to Transamerica
within 10 business days of the date hereof, a true, complete and correct
list of the 10 largest customer relationships (in twenty-foot equivalent
units ("TEUs")) of TOL with respect to dry cargo containers, the 10 largest
customer relationships (in units) of TOL with respect to tank containers,
the 10 largest customer relationships (in FTEUs) of TOL with respect to
open top containers, the 10 largest customer relationships (in FTEUs) of
TOL with respect to refrigerated containers, the 10 largest customer
relationships (in FTEUs) of TOL with respect to collapsible containers, the
10 largest customer relationships (in units) of TOL with respect to Chassis
in each case referred to in this clause (ii) determined by reference to
billing to customers during the month of June 1996. As soon as practicable
following the date hereof, TOL shall deliver to Transamerica a true,
complete and correct list of the 10 largest customer relationships (in US$
volume) of TOL with respect to each other type of equipment listed on
Exhibit F attached hereto, in each case determined by reference to billing
to customers during the month of June 1996. Except as set forth in Section
4.26 of the TOL Disclosure Schedule or on the list referred to in the
immediately preceding sentence or as a result of the announcement of the
Merger, no such customer has cancelled, terminated or otherwise modified in
any respect adverse to the business of TOL, or, to the knowledge of TOL,
made any written threat to TOL to cancel, terminate or otherwise modify in
any respect adverse to the business of TOL, its relationship with TOL or
the business of TOL, or has at any time since January 1, 1994 decreased
materially, or made any written threat to decrease materially, its business
with TOL or the business of TOL. TOL has no knowledge that any such
customer intends to cancel, terminate or otherwise modify in any respect
adverse to the business of TOL, its relationship with TOL or the business
of TOL, or to materially decrease its business with TOL or the business of
TOL, provided that the representation and warranty in this sentence shall
not be deemed to be inaccurate at the Closing if it is accurate as of the
date hereof and a customer shall take any of the foregoing actions as the
result of the announcement of the Merger.
4.27. Operation of TOL's Business. (a) Since December 31, 1995, TOL has
(i) operated its business in the ordinary course and (ii) except as set forth in
Section 4.27 of the TOL Disclosure Schedule, TOL has not:
(i) done or effected any of the following actions with respect to its
securities: (A) adjusted, split, combined or reclassified its capital
stock, (B) made, declared or paid any dividend or distribution on, or
directly or indirectly redeemed, purchased or otherwise acquired, any
shares of its capital stock or any securities or obligations convertible
into or exchangeable for any shares of its capital stock, other than the
regular quarterly dividend on the TOL Series B Preferred Stock, which shall
not, in the aggregate, exceed $98,475 per quarter as of the Closing Date,
(C) granted any person any right to acquire any shares of its capital
stock, (D) issued, delivered or sold or agreed to issue, deliver or sell
any additional shares of its capital stock or any securities or obligations
convertible into or exchangeable or exercisable for any shares of its
capital stock or such securities (except pursuant to the exercise of
outstanding options to purchase TOL Common Stock), or (E) entered into any
agreement, understanding or arrangement with respect to the sale or voting
of its capital stock;
(ii) sold, transferred, pledged, mortgaged, encumbered or otherwise
disposed of any of its property or assets other than sales and disposals of
Containers or Chassis or licensing of Proprietary Rights made in the
ordinary course of business consistent with past practice and sales of
Containers and Chassis not in excess of the quantities contemplated by the
plan set forth in Section 4.14 of the TOL Disclosure Schedule;
(iii) made or proposed any changes in its Certificate of
Incorporation, as amended, or Bylaws;
(iv) merged or consolidated with any other person or acquire a
material amount of assets or capital stock of any other person or entered
into any confidentiality agreement with any person;
(v) incurred, created, assumed or otherwise become liable for any
indebtedness for borrowed money or assumed, guaranteed, endorsed or
otherwise as an accommodation become responsible or liable for the
obligations of any other individual, corporation or other entity other than
in the ordinary course of
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business consistent with past practice and not in excess of the net amounts
specified in the plan set forth in Section 4.14 of the TOL Disclosure
Schedule;
(vi) created any subsidiaries;
(vii) entered into or modified any employment, severance, termination
or similar agreements or arrangements with, or grant any bonuses, salary
increases, severance or termination pay to, any officer, director,
consultant or employee other than salary increases granted in the ordinary
course of business consistent with past practice to employees who are not
officers or directors of TOL, or otherwise increased the compensation or
benefits provided to any officer, director, consultant or employee except
(i) in the ordinary course of business, (ii) as may be required by
Applicable Law or (iii) for arrangements relating to Merger Fees;
(viii) changed its method of doing business or changed any method or
principle of accounting, including, without limitation, adequate provisions
or reserves described in Sections 4.8, 4.11(a), 4.12(g), 4.22, 4.25, 5.3(f)
and 8.10, in a manner that is inconsistent with past practice;
(ix) settled any Actions, whether now pending or hereafter made or
brought involving an amount in excess of $50,000;
(x) settled, compromised or cancelled any debts owed to, or claims of,
TOL, except in the ordinary course of business;
(xi) waived, surrendered or released, or caused or permitted a waiver,
surrender or release on its behalf of, any rights of TOL which have any
material value;
(xii) modified, amended or terminated, or waived, released or assigned
any material rights or claims with respect to, any Contract set forth in
Section 4.21 to the TOL Disclosure Schedule, any other material Contract to
which TOL is a party or any confidentiality agreement to which TOL is a
party;
(xiii) incurred or committed to any capital expenditures (other than
purchases of Containers or Chassis), obligations or liabilities in respect
thereof which in the aggregate exceed or would exceed $100,000;
(xiv) made any material changes to the policies or practices of TOL
relating to (A) extensions of credit to any person or to the sale of any
assets held by TOL, (B) collection of accounts receivable or the payment of
accounts payable, (C) maintenance and repair or (D) pricing or investment;
(xv) made any change in the course of dealing with any of its
suppliers, customers, employees or labor unions, or any change in its
method of doing business which has had or could reasonably be expected to
have a material adverse effect on TOL;
(xvi) entered into (A) any new Operating Lease or series of Operating
Leases with the same party, in respect of its Containers (other than tank
containers and refrigerated containers) whether owned, leased or managed by
TOL, that carries, or is likely to carry, 1,000 or more FTEUs; (B) any new
Operating Lease or series of Operating Leases with the same party, in
respect of its tank containers whether owned, leased or managed by TOL,
that carries, or is likely to carry, 100 or more units; or (C) any new
Operating Lease or series of Operating Leases with the same party in
respect of its refrigerated containers whether owned, leased or managed by
TOL, that carries, or is likely to carry, 100 or more units;
(xvii) entered into any Contract not in the ordinary course of
business on commercially reasonable terms or entered into any Operating
Lease except on commercially reasonable terms;
(xviii) amended, modified or changed the material terms of (A) any
Operating Lease or series of Operating Leases with the same party, in
respect of its Containers (other than tank containers and refrigerated
containers) whether owned or leased by TOL, that carried, or would carry
(after such amendment, modification or change), 1,000 or more FTEUs, (B)
any Operating Lease or series of related Operating Leases with the same
party, in respect of its tank containers whether owned or leased
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by TOL, that carried, or would carry (after such amendment, modification or
change), 100 or more units or (C) any Operating Lease or series of related
Operating Leases with the same party, in respect of its refrigerated
containers whether owned or leased by TOL, that carried, or would carry
(after such amendment, modification or change), 100 or more units;
(xix) engaged in any transaction or arrangement with any affiliate of
TOL (other than its wholly owned subsidiaries);
(xx) amended, modified or changed a Management Agreement existing as
of the date hereof;
(xxi) deviated in any material respect from the direction and business
philosophy reflected in the plan, a copy of which is set forth in Section
4.14 to the TOL Disclosure Schedule, or from the type of equipment
purchases, the targeted proportion of TOL's Containers and Chassis to
consist of Owned Equipment, and the targeted composition of TOL's
Containers and Chassis;
(xxii) incurred any Merger Fees in excess of the amounts set forth in
Section 4.19;
(xxiii) taken any action to exempt or made inapplicable under any
state takeover law or state law that purports to limit or restrict business
combinations or the ability to acquire or vote shares, any person or entity
(other than Transamerica or its subsidiaries) or any action taken thereby,
which person, entity or action would have otherwise been subject to the
restrictive provisions thereof and not exempt therefrom;
(xxiv) entered into or carried out any other transaction other than in
the ordinary and usual course of business;
(xxv) permitted or caused any subsidiary to do any of the foregoing or
agree or commit to do any of the foregoing; or
(xxvi) agreed in writing or otherwise to take any of the foregoing
actions.
(b) Section 4.27 of the TOL Disclosure Schedule sets forth a true, complete
and correct list by type of Container or Chassis of the total number of all
acquisitions, sales and dispositions of Containers or Chassis during the period
commencing on January 1, 1996 and ending on May 31, 1996. TOL shall use its best
efforts to deliver to Transamerica within 5 business days of the date hereof,
and in any event shall deliver to Transamerica within 10 business days of the
date hereof, a schedule which accurately sets forth a true, complete and correct
list by container number and chassis number of all acquisitions, sales and
dispositions of Containers and Chassis during the period commencing on January
1, 1996 and ending on the date hereof.
(c) Since December 31, 1994, the assets of TOL have not been materially
affected in any way as a result of flood, fire, explosion or other casualty
(whether or not covered by insurance).
4.28. Permits; Compliance. Section 4.28 to the TOL Disclosure Schedule
sets forth a true and correct list of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "TOL
Permits"), except for such franchises, grants, authorizations, licenses,
permits, easements, variances, exemptions, consents, certificates, approvals and
orders which are immaterial. TOL is in possession of all TOL Permits, except for
such franchises, grants, authorizations, licenses, permits, easements,
variances, exemptions, consents, certificates, approvals and orders the failure
of which to possess could not have a material adverse effect on TOL. There is no
Action pending or, to the knowledge of TOL, threatened regarding suspension or
cancellation of any of the TOL Permits, except for any such Action which, if
determined adversely, could not reasonably be expected, individually or in the
aggregate, to have a material adverse effect on TOL. TOL is not in conflict
with, or in default or violation of, (a) any Applicable Law or (b) any of the
TOL Permits, except in the case of clauses (a) and (b) for any such conflicts,
defaults or violations which, individually or in the aggregate, could not
reasonably be expected to have a material adverse effect on TOL. Since December
31, 1992, TOL has not received any notification with respect to possible
conflicts, defaults or violations of (a) Applicable Laws or (b) any of the TOL
Permits,
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except for notices relating to possible conflicts, defaults or violations, which
conflicts, defaults or violations could not reasonably be expected to have a
material adverse effect on TOL.
4.29. Environmental Matters.
(a) As used herein, the term "Environmental Laws" means all federal,
state, local, foreign or multinational laws relating to pollution or
protection of human health or the environment (including, without
limitation, ambient air, water (including, without limitation, surface,
ground, and coastal waters), land surface, subsurface strata or living
organisms), including, without limitation, laws relating to emissions,
discharges, generations, releases or threatened releases of chemicals,
pollutants, contaminants, petroleum or petroleum products or industrial,
toxic or hazardous substances or wastes (collectively, "Hazardous
Materials") into the environment, or otherwise relating to the ownership,
possession, manufacture, processing, distribution, use, treatment,
refinement, recycling, storage, disposal, transfer, displacement, spillage,
transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(b) There are, with respect to TOL, its subsidiaries or any
predecessor of the foregoing, no past or present violations of
Environmental Laws, releases of any Hazardous Materials into the
environment, actions, activities, circumstances, conditions, events,
incidents, Contracts or contractual obligations which may give or which
have given rise to any common law environmental liability or any liability
or other obligation under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local,
foreign or multinational laws or any other Environmental Law and TOL has
not received any notice with respect to any of the foregoing, nor is any
Action pending or threatened in connection with any of the foregoing, other
than such violations, releases, actions, activities, circumstances,
conditions, events, incidents, commitments, contractual obligations,
notices or Actions which could not have a material adverse effect on TOL.
(c) During TOL's or any of its subsidiaries' or its or their
predecessors' occupation of any real property, no Hazardous Materials,
including, without limitation, asbestos, asbestos-containing materials,
polychlorinated biphenyls (PCBs) or PCB compounds, were or are contained on
or about any such real property currently or previously owned, leased or
operated by TOL or any of its subsidiaries or its or their predecessors,
nor during TOL's or any of its subsidiaries' or its or their predecessors'
occupation of any real property, have such substances been used in the
construction, repair or alteration of any portion of any of such real
property.
(d) TOL does not and has not, and has not arranged for any Hazardous
Materials to be, held, transported, stored, disposed of, treated or
procured any Hazardous Materials except in accordance with applicable
Environmental Laws.
(e) TOL is in possession of TOL Permits required by applicable
Environmental Laws to be obtained by it to own, lease and operate its
properties and to carry on its business as it is now being conducted (the
"Environmental Permits") and has complied with such Environmental Permits
in all material respects. TOL has received no written notice or threat of
variation, revocation, modification, refusal to renew or enforcement action
with respect to such Environmental Permits.
(f) By virtue of the Merger and the transactions contemplated hereby,
TOL is not and (based on Environmental Laws as in effect on the date
hereof) will not become subject to any applicable Environmental Law
requiring the performance of assessments, the removal or remediation of
Hazardous Materials, the giving of notice to any Governmental Authority or
the recording or delivery of an environmental disclosure document or
statement.
(g) During TOL's or any of its subsidiaries' or its or their
predecessors' ownership, leasehold or operation of any real property, there
were and are no underground storage tanks on or under any such real
property currently or previously owned, leased or operated by TOL or any of
its subsidiaries or its or their predecessors, other than underground
storage tanks which could not have a material adverse effect on TOL.
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(h) Under each lease pursuant to which TOL leases one or more
Containers or Chassis to its customers, the lessee has agreed not to use
the Containers or Chassis, as the case may be, for any purpose for which
they are not designed or suitable and will ensure that such Containers or
Chassis will be used in compliance with all Applicable Laws.
(i) For purpose of this Section 4.29, the term "predecessor" shall
mean corporate predecessor or other similar predecessor to the entity in
question, and the term shall not mean or be deemed to include an entity
whose relationship is based solely on prior relationship to such real
property, such as a prior owner, lessor, lessee or operator of such real
property.
4.30. OSHA Matters. TOL is in compliance with the requirements of the
Occupational Safety and Health Act and the regulations promulgated thereunder
and any similar laws or regulations of any state, local, foreign or
multinational jurisdiction ("OSHA") applicable to any facilities of TOL, except
for any non-compliance which could not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on TOL. TOL has not
received any citation from the Occupational Safety and Health Administration or
any other Governmental Authority or any inspector setting forth any respect in
which the facilities or operations of TOL are not in compliance with OSHA, or
the regulations under such act, which noncompliance has not been corrected or
remedied to the satisfaction of such Governmental Authority or inspector, except
in all such cases for any noncompliance that could not reasonably be expected to
have, individually or in the aggregate, a material adverse effect on TOL. TOL
has heretofore provided Transamerica with copies of all citations heretofore
issued to TOL under OSHA and copies of all material correspondence from and to
the Occupational Safety and Health Administration, any other Governmental
Authority and any inspectors during the past three (3) years.
4.31. Insurance. Section 4.31 to the TOL Disclosure Schedule lists all
material insurance policies and binders and programs of self-insurance owned,
held or maintained by TOL on the date hereof and which afford coverage to TOL,
its assets or business and the coverage provided thereunder and the applicable
deductibles and exclusions. As of the date hereof, all such policies, binders
and programs are in full force and effect, and, as of the Effective Time, all
such policies, binders and programs (or renewals or replacements thereof, as
applicable) will be in full force and effect. All premiums with respect thereto
covering all periods up to and including the date hereof have been paid to the
extent due, and, as of the Effective Time, all premiums with respect thereto (or
with respect to renewals or replacements thereof, as applicable) will be paid to
the extent due. As of the date hereof, no notice of cancellation or termination
has been received with respect to any such policy or binder (or the renewals or
replacements thereof, as applicable) and, as of the Effective Time, no notice of
cancellation or termination will have been received with respect to any such
policy or binder (or the renewals or replacements thereof, as applicable).
4.32. Board Recommendation. The Board of Directors of TOL, at a meeting
duly called and held, has by a majority vote of those directors present (who
constituted 100% of the directors then in office) (i) determined that this
Agreement and the transactions contemplated hereby, including the Merger, taken
together, are fair to and in the best interests of the TOL stockholders, and
(ii) resolved to recommend that the holders of the shares of TOL Stock approve
this Agreement and the transactions contemplated herein, including the Merger.
4.33. State Takeover Laws. (i) The execution of this Agreement and each
Support/Voting Agreement, a form of which is attached hereto as Exhibit B, dated
as of the date hereof (the "Support/Voting Agreement") between Transamerica and
Arthur or Dennis, as the case may be, (ii) the Merger and (iii) the transactions
contemplated hereby and by the Support/Voting Agreement are exempt from or
inapplicable under any state takeover law or state law that purports to limit or
restrict business combinations or the ability to acquire or vote shares.
4.34. Disclosure. No representations or warranties made by TOL, Arthur or
Dennis in this Agreement or exhibits, schedules, or annexes hereto contain or
will contain any untrue statement of material fact or omit or will omit to state
any material fact necessary to make the statements herein, in light of the
circumstances under which they were made, not misleading.
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4.35. Powers of Attorney, Guarantees, Sureties. Except as set forth in
Section 4.35 of the TOL Disclosure Schedule, TOL has not granted any currently
effective powers of attorney, is not a guarantor of any third party obligations,
and is not a surety with respect to any third party obligations.
4.36. Accuracy of Preliminary Report and Pre-Closing Report; Certain
Payments. The information contained in each of the Preliminary Report and the
Pre-Closing Report as to the matters included therein is or will be true and
correct in all respects, respectively, as of the date or dates specified
therein. Arthur Andersen LLP shall pay not less than $1,000,000 to TOL pursuant
to the settlement agreement entered into in July 1996, a true, complete and
correct copy of which has been provided to Transamerica by TOL prior to the date
hereof.
ARTICLE V
COVENANTS OF THE PARTIES
The parties hereto agree as follows with respect to the period from and
after the execution of this Agreement.
5.1. Mutual Covenants.
(a) General. Each of the parties shall use its reasonable efforts to
take all action and to do all things necessary, proper or advisable to
consummate the Merger and the transactions contemplated by this Agreement
(including, without limitation, using its reasonable efforts to cause the
conditions set forth in Article VI for which they are responsible to be
satisfied as soon as reasonably practicable and to prepare, execute and
deliver such further instruments and take or cause to be taken such other
and further action as any other party hereto shall reasonably request).
(b) HSR Act. As soon as practicable, and in any event no later than
ten (10) business days after the date hereof, each of the parties hereto,
after consultation with the other parties (i) will file any Notification
and Report Forms and related material required to be filed by it with the
Federal Trade Commission ("FTC") and the Antitrust Division of the United
States Department of Justice ("DOJ") under the HSR Act with respect to the
Merger, (ii) will use its reasonable efforts to obtain an expiration or
termination of the applicable waiting period, and (iii) will support in
good faith any HSR filing made by the parties in connection with the
Merger, including, but not limited to, by promptly seeking to place itself
in substantial compliance with any Request for Additional Information and
Documentary Materials made under the HSR Act ("Second Request") by the FTC
or DOJ, and by promptly providing all other information and documents
reasonably requested by any Governmental Entity in connection with said HSR
filing. In addition to the foregoing covenants set forth in this Section
5.1(b), Transamerica hereby covenants and agrees that it shall use all
reasonable efforts to resolve such objections, if any, as may be asserted
with respect to the Merger in connection with such HSR filings; provided,
however, that neither Transamerica nor any of its subsidiaries shall be
required hereunder to agree to divest or hold separate any portion of the
business or assets of Transamerica or TOL. Each of the parties, after
consultation with the other parties, shall use all reasonable efforts to
vigorously defend against any action instituted by any Governmental Entity
regarding the Merger.
(c) Other Governmental Matters. Each of the parties shall use its
reasonable efforts to take any additional action that may be necessary,
proper or advisable in connection with any other notices to, filings with,
and authorizations, consents and approvals of any Governmental Authority
that it may be required to give, make or obtain (including, without
limitation, registrations or other actions required under federal and
states securities laws in connection with the transactions contemplated by
this Agreement).
(d) Tax-Free Treatment. Each of the parties shall use its reasonable
efforts (including, without limitation, furnishing the representations set
forth in Exhibit H hereto) to cause the Merger to constitute a tax-free
"reorganization" under Section 368(a) of the Code and to permit Cooley
Godward Castro Huddleson & Tatum to issue its opinion provided for in
Section 6.2(g) and, if Section 1.1(b) shall apply
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to the form of the Merger, each of the parties shall use its reasonable
efforts (including, without limitation, furnishing the representations set
forth in Exhibit I hereto) to cause the Merger to constitute a tax-free
"reorganization" under Section 368(a) of the Code and to permit Wachtell,
Lipton, Rosen & Katz to issue its opinion provided for in Section 6.3(o).
(e) Public Announcements. Unless otherwise required by Applicable
Laws or requirements of the National Association of Securities Dealers or
any national securities exchange (and in that event only if time does not
permit), at all times prior to the earlier of the Effective Time or
termination of this Agreement pursuant to Section 7.1, Transamerica and TOL
shall consult with each other before issuing any press release with respect
to the Merger and shall not issue any such press release prior to such
consultation or prior to receiving from the other party approval of the
timing and content of such press release.
5.2. Covenants of Transamerica.
(a) Preparation of Transamerica Registration Statement. Transamerica
shall prepare and file the Registration Statement with the Commission as
soon as is reasonably practicable and shall use all reasonable efforts to
have the Registration Statement declared effective by the Commission as
promptly as practicable and to maintain the effectiveness of the
Registration Statement through the Effective Time. Such Registration
Statement shall include the Transamerica Common Shares to be issued
pursuant to Section 2.1(b) hereof and shall include any additional
Transamerica Common Shares which in the judgment of Transamerica may be
required to be issued pursuant to Section 2.6(a) or 2.6(c) or Section
2.7(a) or 2.7(c) hereof. Transamerica also shall take such other action
(other than qualifying to do business in any jurisdiction in which it is
not so qualified) required to be taken under any applicable state
securities laws in connection with the issuance of Transamerica Common
Shares in the Merger.
(b) Conduct of Transamerica's Operations. During the period from the
date hereof to the Effective Time, Transamerica shall use its reasonable
efforts to maintain and preserve its business organization and to retain
the services of its officers and key employees and maintain relationships
with customers, suppliers and other third parties to the end that their
goodwill and ongoing business shall not be impaired in any material
respect. Following the Effective Time, Transamerica shall use and shall
cause Surviving Corporation to use commercially reasonable efforts to
collect the Receivables (including, without limitation, pursuant to any
insurance maintained by TOL with respect to the Receivables) which remain
unpaid and to obtain recoveries from third parties with respect to
Containers and Chassis where the cost of repairs would be subject to
indemnification pursuant to Section 8.10(a)(E) hereof and with respect to
lost, stolen, destroyed or otherwise missing equipment.
(c) Notification of Certain Matters. Transamerica shall give prompt
notice to TOL of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time and (ii) any material
failure of Transamerica to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 5.2(c)
shall not limit or otherwise affect the remedies available hereunder to
TOL.
(d) Indemnification. Transamerica shall use its reasonable best
efforts to pursue any claims for indemnification pursuant to Section
8.10(b) or 8.11 against both of Arthur and Dennis; provided, however, that
if Transamerica cannot pursue or successfully prosecute such claims against
one of Arthur or Dennis, it may pursue the full claim against the other;
provided, further, that, notwithstanding anything to the contrary contained
herein, in no event shall either of Arthur or Dennis be liable pursuant to
Sections 8.10(b) and 8.11 hereof for any amount that, in the aggregate,
exceeds the consideration actually received by such person, or member(s) of
such person's family (including trusts for the benefit of such person or
any family members or entities which are owned or established by such
person or any family members).
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(e) Appraisal Rights. In the event that any stockholder of TOL who
demands appraisal rights in accordance with the requirements of Section
262(d) of DGCL and obtains payment, either as a result of an award by a
court of competent jurisdiction or a settlement of such proceeding, in an
amount per share of TOL Common Stock which is less than the Per Share
Amount (as adjusted pursuant to Sections 2.6 and 2.7) (the amount obtained
by subtracting (i) such payment, as increased by costs (other than costs
reimbursed by Arthur and Dennis in accordance with Section 8.10(b)(iii))
incurred by Transamerica and TOL with respect to the demand for such
appraisal rights from (ii) the Per Share Amount (as adjusted) and
multiplying such remainder if positive by the number of shares of TOL
Common Stock subject to such appraisal rights (the resulting amount being
referred to as the "Shortfall Amount"), Transamerica shall deliver to the
Escrow Agent the Shortfall Amount, but not more than $3,000,000, for
distribution to the TOL Stockholders whose shares were converted into
Transamerica Common Stock pursuant to the first sentence of Section 2.1(b).
5.3. Covenants of TOL, Arthur and Dennis. For purposes of this Agreement,
the covenants of TOL contained herein shall also be deemed covenants of each
direct and indirect subsidiary of TOL and of each of Arthur and Dennis.
(a) TOL Stockholders Meeting. TOL shall take all action in accordance
with the federal securities laws, the DGCL and its Certificate of
Incorporation, as amended, and Bylaws necessary to obtain the consent and
approval of the TOL stockholders with respect to the Merger, this Agreement
and the transactions contemplated hereby at the earliest practicable date
and also to obtain, in a manner reasonably satisfactory to Transamerica,
the approval of TOL stockholders necessary to permit the acceleration in
connection with the Merger of TOL Options held by Philip C. Kantz not to
result in an excess parachute payment within the meaning of Section 280G of
the Code (the "Kantz Approval").
(b) Information for the Registration Statement and Preparation of TOL
Proxy Statement. TOL shall furnish Transamerica with all information
concerning it as may be required for inclusion in the Registration
Statement. TOL shall cooperate with Transamerica in the preparation of the
Registration Statement in a timely fashion and shall use all reasonable
efforts to have the Registration Statement declared effective by the
Commission as promptly as practicable. If at any time prior to the
Effective Time, any information pertaining to TOL contained in or omitted
from the Registration Statement makes such statements contained in the
Registration Statement false or misleading, TOL shall promptly so inform
Transamerica and provide Transamerica with the information necessary to
make statements contained therein not false and misleading. TOL shall use
all reasonable efforts to mail at the earliest practicable date to the TOL
stockholders the Proxy Statement, which shall include all information
required under Applicable Law to be furnished to TOL stockholders in
connection with the Merger and the transactions contemplated hereby,
including the Kantz Approval, and shall include the recommendation of TOL's
Board of Directors in favor of the Merger and the Kantz Approval.
(c) Conduct of TOL's Operations. During the period from the date
hereof to the Effective Time, TOL shall conduct its operations in the
ordinary course of business consistent with past practice except as
expressly contemplated by this Agreement and shall use its reasonable
efforts to maintain and preserve its business organization and its material
rights and to retain the services of its officers and key employees and
maintain relationships with customers, suppliers, licensees and other third
parties to the end that their goodwill and ongoing business shall not be
impaired in any material respect. Without limiting the generality of the
foregoing, during the period from the date hereof to the Effective Time,
TOL shall not, except as otherwise expressly contemplated by this Agreement
or as set forth in Section 5.3(c) to the TOL Disclosure Schedule, without
the prior written consent of Transamerica (which shall have available to
TOL during the period preceding the Effective Time executives who can, or
who can expeditiously obtain authorization sufficient to, respond
expeditiously to requests by TOL for waivers of the provisions set forth in
this Section 5.3(c)):
(i) do or effect any of the following actions with respect to its
securities: (A) adjust, split, combine or reclassify its capital stock,
(B) make, declare or pay any dividend or distribution on, or directly or
indirectly redeem, purchase or otherwise acquire, any shares of its
capital stock or any
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securities or obligations convertible into or exchangeable for any
shares of its capital stock, other than the regular quarterly dividend
on the TOL Series B Preferred Stock, which shall not, in the aggregate,
exceed $98,475 as of the Closing Date, (C) grant any person any right to
acquire any shares of its capital stock, (D) issue, deliver or sell or
agree to issue, deliver or sell any additional shares of its capital
stock or any securities or obligations convertible into or exchangeable
or exercisable for any shares of its capital stock or such securities
(except pursuant to the exercise of outstanding options to purchase TOL
Common Stock), or (E) enter into any agreement, understanding or
arrangement with respect to the sale or voting of its capital stock;
(ii) sell, transfer, pledge, mortgage, encumber or otherwise
dispose of any of its property or assets other than sales and disposals
of Containers or Chassis or licensing of Proprietary Rights made in the
ordinary course of business consistent with past practice and sales of
Containers and Chassis not in excess of the quantities contemplated by
the plan set forth in Section 4.14 of the TOL Disclosure Schedule;
(iii) make or propose any changes in its Certificate of
Incorporation, as amended, or Bylaws;
(iv) merge or consolidate with any other person or acquire a
material amount of assets or capital stock of any other person or enter
into any confidentiality agreement with any person;
(v) incur, create, assume or otherwise become liable for any
indebtedness for borrowed money or assume, guarantee, endorse or
otherwise as an accommodation become responsible or liable for the
obligations of any other individual, corporation or other entity other
than in the ordinary course of business consistent with past practice;
(vi) create any subsidiaries;
(vii) except with respect to the verbal agreements set forth in
Section 4.20(j) of the TOL Disclosure Schedule, enter into or modify any
employment, severance, termination or similar agreements or arrangements
with, or grant any bonuses, salary increases, severance or termination
pay to, any officer, director, consultant or employee other than salary
increases granted in the ordinary course of business consistent with
past practice to employees who are not officers or directors of TOL, or
otherwise increase the compensation or benefits provided to any officer,
director, consultant or employee except (i) as may be required by
Applicable Law or a binding written contract in effect on the date of
this Agreement or (ii) for arrangements relating to Merger Fees;
(viii) change its method of doing business or change any method or
principle of accounting, including, without limitation, adequate
provisions or reserves described in Sections 4.8, 4.11(a), 4.12(g),
4.22, 4.25, 5.3(e) and 8.10, in a manner that is inconsistent with past
practice;
(ix) settle any Actions, whether now pending or hereafter made or
brought involving an amount in excess of $50,000 or commence any such
Action;
(x) settle, compromise or cancel any debts owed to, or claims of,
TOL, except in the ordinary course of business;
(xi) waive, surrender or release, or cause or permit a waiver,
surrender or release on its behalf of, any rights of TOL which have any
material value;
(xii) modify, amend or terminate, or waive, release or assign any
material rights or claims with respect to, any Contract set forth in
Section 4.21 to the TOL Disclosure Schedule, any other material Contract
to which TOL is a party or any confidentiality agreement to which TOL is
a party;
(xiii) incur or commit to any capital expenditures, obligations or
liabilities in respect thereof which in the aggregate exceed or would
exceed $100,000, or otherwise commit or agree to purchase any Containers
or Chassis except in any such case for capital expenditures or
commitments to purchase Containers or Chassis authorized by TOL prior to
the date hereof and disclosed to Transamerica in writing;
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(xiv) make any material changes to the policies or practices of TOL
relating to (A) extensions of credit to any person or to the sale of any
assets held by TOL, (B) collection of accounts receivable or the payment
of accounts payable, (C) maintenance and repair or (D) pricing or
investment;
(xv) make any change in the course of dealing with any of its
suppliers, customers, employees or labor unions, or any change in its
method of doing business which has had or could reasonably be expected
to have a material adverse effect on TOL;
(xvi) enter into (A) any new Operating Lease or series of Operating
Leases with the same party, in respect of its Containers (other than
tank containers and refrigerated containers) whether owned, leased or
managed by TOL, that carries or is likely to carry, 1,000 or more FTEUs,
(B) any new Operating Lease or series of Operating Leases with the same
party, in respect of its tank containers whether owned, leased or
managed by TOL, that carries, or is likely to carry, 100 or more units
or (C) any new Operating Lease or series of Operating Leases with the
same party, in respect of its refrigerated containers whether owned,
leased or managed by TOL, that carries or is likely to carry, 100 or
more units;
(xvii) enter into any Contract not in the ordinary course of
business on commercially reasonable terms or enter into any Operating
Lease except on commercially reasonable terms;
(xviii) amend, modify or change the material terms of (A) any
Operating Lease or series of Operating Leases with the same party, in
respect of its Containers (other than tank containers and refrigerated
containers) whether owned, leased or managed by TOL, that carries, or
would carry (after such amendment, modification or change), 1,000 or
more FTEUs, (B) any Operating Lease or series of related Operating
Leases with the same party, in respect of its tank containers whether
owned, leased or managed by TOL, that carries, or would carry (after
such amendment, modification or change), 100 or more units or (C) any
Operating Lease or series of related Operating Leases with the same
party, in respect of its refrigerated containers whether owned, leased
or managed by TOL, that carries, or would carry (after such amendment,
modification or change), 100 or more units;
(xix) other than the payment of Merger Fees, engage in any
transaction or arrangement with any affiliate of TOL (other than its
wholly owned subsidiaries);
(xx) amend, modify or change a Management Agreement existing as of
the date hereof;
(xxi) deviate in any material respect from the direction and
business philosophy reflected in the plan, a copy of which is set forth
in Section 4.14 to the TOL Disclosure Schedule, or from the type of
equipment purchases, the targeted proportion of TOL's Containers and
Chassis to consist of Owned Equipment and the targeted composition of
TOL's Containers and Chassis; provided, however, that projections or
other predictions contained in the plan are not and shall not be deemed
to be representations or warranties of TOL, Arthur or Dennis;
(xxii) incur any Merger Fees in excess of the amount set forth in
the second sentence of Section 4.19;
(xxiii) take any action to exempt or make inapplicable under any
state takeover law or state law that purports to limit or restrict
business combinations or the ability to acquire or vote shares, any
person or entity (other than Transamerica or its subsidiaries) or any
action taken thereby, which person, entity or action would have
otherwise been subject to the restrictive provisions thereof and not
exempt therefrom;
(xxiv) other than the transactions contemplated hereby, enter into
or carry out any other transaction other than in the ordinary and usual
course of business;
(xxv) permit or cause any subsidiary to do any of the foregoing or
agree or commit to do any of the foregoing; or
(xxvi) agree in writing or otherwise to take any of the foregoing
actions.
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(d) No Solicitation. TOL agrees that, prior to the Effective Time, it
shall not, and shall not authorize or permit any of its subsidiaries or any
of its or its subsidiaries' directors, officers, employees, agents or
representatives, directly or indirectly, to solicit, initiate, encourage or
facilitate, or furnish or disclose non-public information in furtherance
of, any inquiries or the making of any proposal with respect to any
recapitalization, merger, consolidation or other business combination
involving TOL, or acquisition of any capital stock or any material portion
of the assets (except for acquisition of assets in the ordinary course of
business consistent with past practice) of TOL, or any combination of the
foregoing (a "Competing Transaction"), or negotiate, explore or otherwise
engage in discussions with any person (other than Transamerica, Subcorp or
their respective directors, officers, employees, agents and
representatives) with respect to any Competing Transaction or enter into
any agreement, arrangement or understanding requiring it to abandon,
terminate or fail to consummate the Merger or any other transactions
contemplated by this Agreement. From and after the execution of this
Agreement, TOL shall immediately advise Transamerica in writing of the
receipt, directly or indirectly, of any inquiries or proposals relating to
a Competing Transaction and promptly furnish to Transamerica a copy of any
such proposal in addition to any information provided to or by any third
party relating thereto.
(e) Pre-Closing Report. The Pre-Closing Report will accurately set
forth the information to be provided pursuant to Section 2.5(b) as of the
date specified therein.
(f) Inspection and Repair of Containers.
(i) From and after the date hereof, Transamerica may survey TOL's
off-lease Containers and Chassis to (A) confirm that there will be no
costs to Transamerica in excess of $200,000, to repair to IICL-4
standards, if a Container other than a tank Container, TOL container
condition standards, if a tank Container or Standard IICL Guide, if a
Chassis, and TOL hereby represents, warrants and agrees that its
off-lease Containers and Chassis either (1) meet IICL-4 repair
standards, if a Container other than a tank Container, TOL container
condition standards, if a tank Container or Standard IICL Guide, if a
Chassis or (2) are being or will be repaired by TOL or at TOL's
direction to IICL-4 standards, if a Container other than a tank
Container, TOL container condition standards, if a tank Container or
Standard IICL Guide, if a Chassis, with the cost of repair paid by the
customer who last redelivered the Container or Chassis or all or in part
by TOL as to Containers or Chassis leased with DPP, and (B) determine
the cost (to the extent such costs exceed $200,000; provided, however,
that any amounts recovered by Transamerica from third parties,
including, without limitation, payments by third party insurers and
other third party payments (including without limitation by
manufacturers, depots and managed container owners) with respect to such
repairs shall be offset against the cost of repairs in determining
whether such cost of repairs exceeds $200,000) to repair to IICL-4
repair standards, if a Container other than a tank Container, TOL
container condition standards, if a tank Container, or Standard IICL
Guide, if a Chassis, for all off-lease Containers and Chassis; and
(ii) The cost of repairs to the Containers and Chassis owned,
managed or leased-in by TOL which in any case are off-lease, to the
extent in excess of $200,000 shall be paid out of Escrow Fund A in
accordance with the terms of Section 8.10 hereof; provided, however,
that any amounts recovered by Transamerica from third parties,
including, without limitation, payments by third party insurers and
other third party payments (including without limitation by
manufacturers, depots and managed container owners) shall be offset
against the cost of repairs in determining whether such cost of repairs
exceeds $200,000).
(g) Affiliate Agreements. TOL shall deliver to Transamerica a letter
identifying all persons who in TOL's reasonable determination are, at the
time the Merger is submitted to a vote of the TOL stockholders,
"affiliates" of TOL for purposes of Rule 145 under the Securities Act. TOL
shall cause each person who is identified as an "affiliate" in the letter
referred to above to deliver to Transamerica prior to the Effective Time a
written agreement in the form agreed to by the parties hereto prior to the
execution of this Agreement providing that each such person will agree not
to sell, pledge, transfer or otherwise dispose of the Transamerica Common
Shares to be received by such person in the Merger
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except in compliance with the applicable provisions of the Securities Act
and the applicable rules and regulations thereunder.
(h) Merger Fees. At the Closing, TOL shall deliver to the Vice
President, Corporate Development of Transamerica a schedule setting forth,
by payee, all Merger Fees theretofore paid and all Merger Fees owing.
Following the Closing, Transamerica shall, until the remaining amount
allocated to Merger Fees under Section 4.19 shall be paid into Escrow Fund
A in accordance with Section 2.3(c), pay any remaining Merger Fees owing
which shall have not been paid theretofore, and then reimburse the TOL
Stockholders, to the extent of the amount by which $2,000,000 exceeds the
amount of Merger Fees, if any, for (i) out-of-pocket, documented costs
incurred by TOL Stockholders relating to price adjustments pursuant to
Sections 2.6 and 2.7 and (ii) documented costs incurred by TOL Stockholders
of administering the Escrow Fund, it being understood that such
administrative costs shall not include the cost of defending, disputing or
settling claims or disputing the Closing Report.
(i) Notification of Certain Matters. TOL shall give prompt notice to
Transamerica of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time and (ii) any material
failure of TOL to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 5.3(i)
shall not limit or otherwise affect the remedies available hereunder to
Transamerica, including without limitation the right to indemnification
after the Effective Time with respect to items as to which TOL provides
notice hereunder.
(j) Consulting and Non-Competition Agreements. Prior to the Effective
Time, each of Arthur and Mr. Dennis shall execute and deliver to
Transamerica a consulting agreement (collectively, the "Consulting
Agreements") and a non-competition agreement (collectively, the
"Non-Competition Agreements") each with Transamerica, each of which
agreements shall be in the form mutually agreed to by the parties hereto on
the date hereof, and each of which shall cover the period from the Closing
Date to the fifth anniversary thereof.
(k) Access. From and after the date hereof until the Effective Time
(or the termination of this Agreement), TOL shall permit representatives of
Transamerica to have full access at all reasonable times to TOL's premises,
properties, books, records, contracts, tax records, documents, customers
and suppliers. Information obtained by Transamerica pursuant to this
Section 5.3(k) shall be subject to the provisions of the confidentiality
agreement between Transamerica and TOL, dated January 5, 1996, (the
"Confidentiality Agreement"), which agreement remains in full force and
effect.
(l) Repayment of Notes. Prior to or at the Effective Time, (i) Arthur
and Mr. Dennis shall repay the principal and any accrued and unpaid
interest thereon of any notes outstanding pursuant to which Arthur or Mr.
Dennis are indebted to TOL and (ii) Arthur, Mr. Dennis and TOL shall cause
TOL Distribution Limited to repay the principal and any accrued and unpaid
interest thereon of any notes outstanding pursuant to which TOL
Distribution Limited is indebted to TOL.
ARTICLE VI
CONDITIONS
6.1. Mutual Conditions. The obligations of the parties hereto to
consummate the Merger shall be subject to fulfillment of the following
conditions:
(a) No temporary restraining order, preliminary or permanent
injunction or other order or decree which prevents the consummation of the
Merger shall have been issued and remain in effect, and no statute, rule or
regulation shall have been enacted by any Governmental Authority which
prevents the consummation of the Merger.
(b) All waiting periods applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
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(c) The Merger and the transactions contemplated hereby shall have
been approved by the TOL stockholders in the manner required by any
Applicable Law.
(d) The Commission shall have declared the Transamerica Registration
Statement effective. On the Closing Date and at the Effective Time, no stop
order or similar restraining order shall be threatened by the Commission or
entered by the Commission or any state securities administrator with
respect to the transactions contemplated by this Agreement.
6.2. Conditions to Obligations of TOL. The obligations of TOL to
consummate the Merger and the transactions contemplated hereby shall be subject
to the fulfillment of the following conditions unless waived by TOL:
(a) The representations and warranties of each of Transamerica and
Subcorp set forth in Article III shall be true and correct in all material
respects on the date hereof and on and as of the Closing Date as though
made on and as of the Closing Date (except for representations and
warranties made as of a specified date, which need be true and correct only
as of the specified date).
(b) Each of Transamerica and Subcorp shall have performed in all
material respects each obligation and agreement and shall have complied in
all material respects with each covenant to be performed and complied with
by it hereunder at or prior to the Effective Time.
(c) Each of Transamerica and Subcorp shall have furnished TOL with a
certificate dated the Closing Date signed on behalf of it by the Chairman,
President or any Vice President to the effect that the conditions set forth
in Sections 6.2(a) and (b) have been satisfied.
(d) The Transamerica Common Shares to be issued in the Merger shall
have been authorized for inclusion on the NYSE, subject to official notice
of issuance.
(e) TOL shall have received the legal opinion, dated the Closing Date,
of Wachtell, Lipton, Rosen & Katz, special counsel to Transamerica, in
substantially the form attached hereto as Exhibit C.
(f) TOL shall have received fully executed counterparts of the Escrow
Agreement.
(g) (i) TOL shall have received an opinion of Cooley Godward Castro
Huddleson & Tatum, substantially in the form attached hereto as Exhibit G
and substantially to the effect that, under applicable law, for Federal
income tax purposes, the Merger will constitute a reorganization under
Section 368(a) of the Code and (ii) each party hereto shall have provided
to such counsel the representations and certifications set forth in Exhibit
H hereto, and each party hereto will use its reasonable efforts to provide
such representations and certifications to such counsel in a timely manner.
6.3. Conditions to Obligations of Transamerica and Subcorp. The
obligations of Transamerica to consummate the Merger and the other transactions
contemplated hereby shall be subject to the fulfillment of the following
conditions unless waived by each of Transamerica and Subcorp:
(a) The representations and warranties of TOL, Arthur and Dennis set
forth in this Agreement shall be true and correct in all material respects
on the date hereof and on and as of the Closing Date as though made on and
as of the Closing Date (except for representations and warranties made as
of a specified date, which need be true and correct only as of the
specified date).
(b) TOL, Arthur and Dennis shall have performed in all material
respects each obligation and agreement and shall have complied in all
material respects with each covenant to be performed and complied with by
it hereunder at or prior to the Effective Time.
(c) (i) TOL shall have furnished Transamerica with a certificate dated
the Closing Date signed on its behalf by its Chairman, President or any
Vice President and (ii) each of Arthur and Dennis shall have furnished
Transamerica with a certificate dated the Closing Date, in the case of both
clauses (i) and (ii) of this subparagraph (c) to the effect that the
conditions set forth in Sections 6.3(a) and (b) have been satisfied.
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(d) Transamerica shall have received the legal opinion, dated the
Closing Date, of Cooley Godward Castro Huddleson & Tatum, substantially in
the form attached hereto as Exhibit D.
(e) Transamerica shall have received fully executed counterparts of
the Consulting Agreements and of the Non-Competition Agreements.
(f) Transamerica shall have received fully executed counterparts of
the Escrow Agreement.
(g) Transamerica shall have received the Pre-Closing Report and all
other information which in accordance with this Agreement is to be
delivered to Transamerica after the date hereof, and containing the
information to be set forth therein; provided that in no event shall
Transamerica be required to consummate the Merger and the other
transactions contemplated by this Agreement within less than 60 days
following the receipt of any such information (other than the Pre-Closing
Report) which is not delivered at the time set forth herein.
(h) No Action shall be instituted by any Governmental Authority and
continuing which (i) seeks to prevent consummation of the transactions
contemplated hereby including the Merger, (ii) challenges the validity or
legality of the transactions contemplated hereby, including the Merger,
(iii) seeks material damages in connection with the transactions
contemplated hereby which continues to be outstanding or (iv) seeks to
impose any material limitations on the operations, businesses or assets of
TOL, Transamerica or Subcorp.
(i) No event shall have occurred which has resulted in or could result
in a material adverse effect on the assets, liabilities, results of
operations, prospects, business or financial condition of TOL, except for
(x) changes, events, occurrences or developments prevailing throughout the
container leasing industry which affect the persons, firms, corporations or
other legal entities which directly compete in such industry, (y)
departures or reactions of employees of TOL resulting from the announcement
or expectation of the Merger and (z) deterioration of relationships between
TOL and its customers, vendors, managed container owners or lenders
resulting from the announcement or expectation of the Merger, provided,
however, that the exceptions set forth in this subparagraph (i) shall not
be of any force and effect to the extent any of the circumstances
contemplated in such exceptions resulted from a violation by any of TOL,
Arthur or Dennis of the covenant set forth in Section 5.3(c)(xv) hereof.
(j) (i) TOL shall have obtained the consents or approvals of the third
parties which are set forth in Section 4.5(d) to the TOL Disclosure
Schedule; provided, however, that the receipt of the consents or approvals
of third parties to Contracts which by their terms permit prepayment of the
obligations of TOL or a subsidiary thereof, as the case may be, created
thereunder (other than the Contract specified in Section 4.5(d)(iv)(a)(3)
to the TOL Disclosure Schedule, which TOL has been authorized by
Transamerica to repay at or prior to the Closing with funds drawn under the
revolving credit agreement entered into with National Westminster Bank, so
long as TOL is in compliance with such agreement at the time of and after
giving effect to such transactions) shall not be a condition to the
obligations of Transamerica and Subcorp to consummate the Merger and the
other transactions contemplated hereby, and (ii) the Transamerica Common
Shares to be issued in the Merger shall have been qualified for offering
and sale under the applicable securities laws of each such state and other
jurisdiction as may be required by applicable securities laws and other
"blue sky" laws.
(k) There shall not have been a breach of any obligation, agreement or
covenant of Dennis or Arthur contained in this Agreement or the
Support/Voting Agreement, which breach has not been cured or which is
immaterial.
(l) Each and every unexpired and unexercised TOL Option outstanding
immediately prior to the Closing shall have been exercised by the holder
thereof or shall have been terminated and cancelled effective upon the
Effective Time and the Kantz Approval shall have been given by the TOL
stockholders.
(m) The Closing Agreement on Final Determination Covering Specific
Matters between TOL and the Commissioner of Internal Revenue relating to
withholding taxes with respect to foreign rentals paid
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by TOL during the period 1977-1995, the failure to file U.S. Forms 1099
during the period 1976-1994 in respect of U.S. rentals paid and in respect
to foreign interest paid during the period 1978-1995 in the form provided
to Transamerica prior to the date hereof shall be in full force and effect,
and the Commissioner of Internal Revenue shall not be challenging, and
shall not be threatening to challenge, such Closing Agreement.
(n) In the event that TOL is merged with and into Subcorp pursuant to
Section 1.1(b) hereof, (i) Transamerica shall have received an opinion of
Wachtell, Lipton, Rosen & Katz, substantially in the form attached hereto
as Exhibit N and substantially to the effect that, under applicable law,
for Federal income tax purposes, the Merger will constitute a
reorganization under Section 368(a) of the Code and (ii) each party hereto
shall have provided to such counsel the representations and certifications
set forth in Exhibit I hereto, and each party hereto will use its
reasonable efforts to provide such representations and certifications to
such counsel in a timely manner.
(o) Each of Mrs. Greer M. Arthur and Mrs. Marvin D. Dennis shall have
executed a consent in the form of Exhibit L attached hereto.
Notwithstanding any waiver by Transamerica of any of the conditions set
forth in subparagraphs (a), (b), (c), (d), (e), (f), (k), (l), or (m) of this
Section 6.3, Transamerica shall nonetheless have the right following the Closing
Date to seek indemnification for any Loss and Expenses (as defined in Section
8.10(a)) resulting from the failure of any such condition to be satisfied.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1. Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval and adoption of this
Agreement by the TOL stockholders:
(a) by mutual consent of Transamerica and TOL;
(b) by either Transamerica or TOL if any permanent injunction or other
order of a court or other competent Governmental Authority preventing the
consummation of the Merger shall have become final and nonappealable;
(c) by either Transamerica or TOL if the Merger shall not have been
consummated before December 31, 1996, unless extended by the Boards of
Directors of both Transamerica and TOL (provided that the right to
terminate this Agreement under this Section 7.1(c) shall not be available
to any party whose failure or whose affiliate's failure to perform any
material covenant or obligation under this Agreement has been the cause of
or resulted in the failure of the Merger to occur on or before such date);
(d) by either Transamerica or TOL (i) upon, in the case of
Transamerica, TOL's, Arthur's, or Dennis', or, in the case of TOL,
Transamerica's or Subcorp's material violation of this Agreement or the
failure of such other party to perform any material obligation or satisfy
any material condition, (ii) if any representation or warranty of, in the
case of Transamerica, TOL, Arthur or Dennis or, in the case of TOL,
Transamerica or Subcorp is false or inaccurate such that the condition set
forth in Section 6.3(a) or Section 6.2(a), as the case may be, is not
reasonably expected to be satisfied or (iii) upon a breach by the other
party of Section 5.1(b);
(e) by Transamerica if the Board of Directors of TOL shall withdraw,
modify or change its recommendation of this Agreement or the Merger in a
manner adverse to Transamerica, or if the Board of Directors of TOL shall
have refused to affirm its recommendation within two days of any written
request from Transamerica;
(f) by Transamerica if the meeting of the TOL stockholders (including
any adjournment or postponement thereof) shall have been concluded and the
requisite vote of the TOL stockholders to approve the Merger and the
transactions contemplated hereby shall not have been obtained; or
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(g) by Transamerica if Arthur or Dennis shall have breached this
Agreement or the Support/Voting Agreement and such breach shall not have
been cured or shall be immaterial.
7.2. Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1, this Agreement, except for the provisions of
the second sentence of Section 5.3(k), shall become void and have no effect,
without any liability on the part of any party or its directors, officers or
stockholders. Notwithstanding the foregoing, nothing in this Section 7.2 shall
relieve any party to this Agreement of liability for a material breach of any
provision of this Agreement and no such liability shall in any way be limited by
the provisions of Section 8.10.
7.3. Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after adoption of this Agreement by the TOL stockholders, but after
any such approval, no amendment shall be made which by law requires further
approval by the TOL stockholders without such further approval. Notwithstanding
the foregoing, this Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
7.4. Extension; Waiver. At any time prior to the Effective Time,
Transamerica (with respect to TOL, Arthur and Dennis) and TOL (with respect to
Transamerica and Subcorp) by action taken or authorized by their respective
Boards of Directors, may, to the extent legally allowed, (a) extend the time for
the performance of any of the obligations or other acts of such party, (b) waive
any inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
ARTICLE VIII
MISCELLANEOUS
8.1. Survival of Representations and Warranties. Subject to the second,
third, and fourth sentences of this Section 8.1, the representations and
warranties made in this Agreement shall survive until the date which is 24
months following the Effective Time except that any representation or warranty
made in any such Sections as to which notice of a breach giving rise to a right
of indemnification has been given prior to the date which is 24 months following
the Effective Time shall survive until any such right of indemnification has
been finally resolved. The representations and warranties made in Article III
and in Sections 4.11(a), 4.19, 4.22, 4.23, 4.24, 4.26, 4.32, and 4.33 shall
survive until the date which is 12 months following the Effective Time except
that any representation or warranty made in any such Article or Sections and as
to which notice of a breach giving rise to a right of indemnification has been
given prior to the date which is 12 months following the Effective Time shall
survive until any such right of indemnification has been finally resolved. The
representations and warranties made in Section 4.8 shall survive for the
applicable statute of limitations. Any matters for which Transamerica may be
entitled to indemnification pursuant to Section 8.10(b) shall survive forever.
The representations and warranties and the survival periods set forth above
shall apply regardless of any investigation made by or on behalf of any person,
corporation, firm or other legal entity and the right of indemnification shall
be available even if a breach of the representations and warranties is
discovered prior to the Effective Time. This Section 8.1 shall not limit any
covenant or agreement of the parties hereto, which by its terms contemplates
performance after the Effective Time or the termination of this Agreement.
8.2. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed) or dispatched by a nationally recognized
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overnight courier service 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 Transamerica or Subcorp:
Transamerica Corporation
600 Montgomery Street
San Francisco, California 94111
Attention: Richard H. Fearon
Telecopy No.: (415) 983-4165
with copies to
Transamerica Leasing Inc.
100 Manhattanville Road
Purchase, New York 10577
Attention: Dennis J. Kenny, Esq.
Telecopy No.: (914) 697-2526
Daniel A. Neff
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Telecopy No.: (212) 403-2000
(b) if to TOL:
Trans Ocean Ltd.
851 Traeger Avenue
San Bruno, California 94066
Attention: Marvin D. Dennis
Telecopy No.: (415) 873-6764
with a copy to
James C. Gaither
Cooley Godward Castro Huddleson & Tatum
One Maritime Plaza
20th Floor
San Francisco, California 94111
Telecopy No.: (415) 951-3699
(c) if to Arthur:
Greer M. Arthur
352 Atherton Avenue
Atherton, California 94025
with a copy to:
James C. Gaither
Cooley Godward Castro Huddleson & Tatum
One Maritime Plaza
20th Floor
San Francisco, California 94111
Telecopy No.: (415) 951-3699
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(d) if to Dennis:
c/o Marvin D. Dennis
372 Poett Road
Hillsborough, California 94010
with a copy to:
James C. Gaither
Cooley Godward Castro Huddleson & Tatum
One Maritime Plaza
20th Floor
San Francisco, California 94111
Telecopy No.: (415) 951-3699
(e) if to the Escrow Agent:
As will be provided in the Escrow Agreement.
8.3. Interpretation. When a reference is made in this Agreement to an
Article or Section, such reference shall be to an Article or Section of this
Agreement unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When a reference is made in this Agreement to
TOL, such reference shall be deemed to include any and all subsidiaries of TOL,
individually and in the aggregate, except for Sections 4.1, 4.2, 4.3 and 4.4.
For the purposes of any provision of this Agreement, a "material adverse effect"
with respect to any party shall be deemed to occur if the aggregate consequences
of all breaches and inaccuracies of covenants and representations of such party
under this Agreement, when read without any exception or qualification for a
material adverse effect, are reasonably likely to have a material adverse effect
on the assets, liabilities, results of operations, prospects, business or
financial condition of such party and its subsidiaries taken as a whole. As used
in this Agreement "including" shall mean "including without limitation."
8.4. Counterparts. This Agreement may be executed in counterparts, which
together shall constitute one and the same Agreement. The parties may execute
more than one copy of the Agreement, each of which shall constitute an original.
8.5. Entire Agreement. This Agreement (including the documents and the
instruments referred to herein), the Support/Voting Agreements, the Consulting
Agreements, the Non-Competition Agreements and the Confidentiality Agreement
constitute the entire agreement among the parties and supersede all prior
agreements and understandings, agreements or representations by or among the
parties, written and oral, with respect to the subject matter hereof and
thereof.
8.6. Third Party Beneficiaries. Nothing in this Agreement, express or
implied, is intended or shall be construed to create any third party
beneficiaries except for the Indemnified Parties (as defined in Section
8.10(a)).
8.7. Governing Law; Jurisdiction. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware without regard to
principles of conflicts of law. Each of the parties hereto hereby irrevocably
and unconditionally consents to submit to the exclusive jurisdiction of the
Superior Court of the State of California in and for the City and County of San
Francisco or the federal district court in Northern District of California for
any Actions, suits or proceedings arising out of or relating to this Agreement
and the transactions contemplated hereby (and each party agrees not to commence
any such Action, suit or proceeding except in such courts), and further agrees
that service of any process or summons by U.S. registered mail to its address
set forth above shall be effective service of process for any Action, suit or
proceeding brought against such party in any such court. Each of the parties
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any Action, suit or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby in the Superior Court of the
State of California in and for the City and County of San Francisco or the
federal district court in Northern District of California, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
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such court that any such Action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
8.8. Specific Performance. The transactions contemplated by this Agreement
are unique. Accordingly, each of the parties acknowledges and agrees that, in
addition to all other remedies to which it may be entitled, each of the parties
hereto is entitled to a decree of specific performance, provided such party is
not in material default hereunder.
8.9. Assignment. Neither this Agreement nor any of the rights, interests
or obligations (except as set forth in Section 8.10(h)) hereunder shall be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
8.10. Indemnification.
(a) Subject to the provisions of Sections 2.3, 2.6(d), 2.6(g), 2.7(d),
8.10(b) and 8.11, Transamerica, its affiliates, and their respective
officers, directors, agents, employees, subsidiaries (including after the
Effective Time, TOL), partners and controlling persons (the "Indemnified
Parties") may seek indemnification to the fullest extent permitted by law,
solely from the Escrow Funds for any and all damages (excluding, other than
with respect to Third Party Claims (as defined in Section 8.10(e), special
and consequential damages), claims, losses, expenses, costs, obligations
and liabilities, including attorneys' fees and expenses (collectively,
"Loss and Expenses") suffered, directly or indirectly, by any Indemnified
Party by reason of, or arising out of,
(A) any breach of any representation or warranty made by or on
behalf of TOL, Arthur or Dennis under this Agreement or in any Schedule
hereto or any certificate, document or other instrument delivered in
connection herewith, by virtue of its failure to be true and correct (x)
on and as of the Closing Date with the same effect as though made as of
such Date (other than any such representation or warranty that speaks as
of a specific date or time other than the Closing Date) or (y) on and as
of the date or time when made, in the case of any representation or
warranty that speaks as of a specific date or time other than the
Closing Date,
(B) any breach of any covenant or agreement made by or on behalf of
TOL, Arthur or Dennis under this Agreement or in any Schedule hereto or
any certificate, document or other instrument delivered in connection
herewith,
(C) obligations arising out of the operation of TOL prior to the
Closing for sales and use taxes,
(D) the failure to obtain, and any Loss and Expenses incurred in
obtaining, any consents of third parties, other than those set forth in
Section 8.10(a)(D) of the TOL Disclosure Schedule, or
(E) the cost of repair of Containers and Chassis owned, managed or
leased-in by TOL which are off-lease as of the Closing Date to the
extent such costs exceed $200,000; provided, however, that any amounts
recovered by TOL or Transamerica from third parties (including, without
limitation, payments by third party insurers, manufacturers, depots and
managed container owners) with respect to such repairs shall be offset
against the cost of repairs in determining whether the cost of such
repairs exceeds $200,000,
provided, that if and to the extent that such indemnification is
unenforceable for any reason, the Indemnified Party shall be entitled to
the payment and satisfaction of such indemnified liability that shall be
permissible under Applicable Law. Each Indemnified Party shall be entitled
to reimbursement for all such expenses (including fees and disbursements of
counsel) as they are incurred by such Indemnified Party, to the extent that
such claims are not disputed in good faith, in which event such expenses
shall be reimbursed, if at all, when the claims are resolved.
(b) In addition to and notwithstanding the provisions of Section
8.10(a), Arthur and Dennis agree to jointly and severally indemnify and
hold harmless each Indemnified Party (except that each of Arthur
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and Dennis agree to severally and not jointly indemnify and hold harmless
each Indemnified Party with respect to any breach by Arthur or Dennis, as
the case may be, of any provision of the Support/Voting Agreement or the
Non-competition Agreement described in subclause (v) of this Section
8.10(b) which such party enters into), from and against any and all Loss
and Expenses suffered, directly or indirectly, by any Indemnified Party by
reason of or arising out of, (i) tax obligations arising out of the
operation of TOL prior to the Closing, or the loss of tax benefits arising
from any inaccuracy in the representation and warranty in Section 4.8
regarding passive activity loss carryforwards, (ii) any Action by or on
behalf of a TOL Stockholder which seeks to prevent consummation of the
Merger or relates to the Escrow Funds, (iii) the demand by a TOL
Stockholder of appraisal rights under the DGCL (provided, however, that
Arthur and Dennis shall have the right to conduct the defense in any Action
in which a TOL Stockholder seeks appraisal rights under the DGCL), to the
extent that the Loss and Expenses therefrom, including without limitation
the amount of any award by a court of competent jurisdiction or any
settlement entered into in connection with any such demand, exceed the
amount such TOL Stockholder would have been entitled to receive, valued at
the Per Share Amount (as adjusted pursuant to Section 2.6 and 2.7), had
such TOL Stockholder not exercised appraisal rights, (iv) any breach of any
provision of this Agreement arising out of fraud on the part of TOL, Arthur
or Dennis, (v) any breach by Arthur or Dennis of any provision of the
Support/Voting Agreement, the Non-competition Agreement or the undertakings
referred to in Sections 2.3(e)(ii), 2.6(d), 2.6(g) and 2.7(d) hereof or
(vi) intentional breaches of the covenants set forth in this Agreement. If
any Claim for indemnification pursuant to clause (i), (ii), (iii) or (vi)
(if, in the case of clause (vi), the relevant action was not done or
permitted by Arthur or Dennis) of the previous sentence of this Section
8.10(b) (a "Section 8.10(b) Claim") is satisfied in whole or in part out of
Escrow Fund A and there are no more assets contained in Escrow Fund A,
Arthur and Dennis shall jointly and severally indemnify the Indemnified
Parties against any Claims which would be indemnifiable from Escrow Fund A
were there assets remaining therein, up to the amount of the Section
8.10(b) Claims which shall have been satisfied in whole or in part out of
Escrow Fund A.
If and to the extent that such indemnification is unenforceable for
any reason, the Indemnified Parties shall be entitled to payment and
satisfaction of such indemnified liability that shall be permissible under
Applicable Laws. Each Indemnified Party shall be entitled to reimbursement
for all such expenses (including fees and disbursements of counsel) as they
are incurred by such Indemnified Party, to the extent that such claims are
not disputed in good faith, in which event such expenses shall be
reimbursed, if at all, when the claims are resolved. With respect to any
Losses and Expenses for which indemnification may be sought by an
Indemnified Party pursuant to this Section 8.10(b), such Indemnified
Party's remedies shall not be limited to the Escrow Funds (or otherwise
limited in any manner) and shall instead be unlimited except as provided in
Section 5.2(d).
(c) Notwithstanding any provision to the contrary contained in this
Agreement, Transamerica shall be entitled to indemnification pursuant to
Section 8.10(a)(A) only if the aggregate Loss and Expenses for which
Transamerica would be entitled to indemnification pursuant to such Section
8.10(a)(A) exceeds $250,000, in which case Transamerica shall be entitled
to indemnification for the aggregate of its Loss and Expenses only to the
extent such amounts in the aggregate exceed the $250,000 amount, provided,
however, that the $250,000 deductible shall not apply to breaches of the
representations and warranties set forth in Sections 4.4, the last
paragraph of Section 4.7, 4.11, 4.12, 4.13 and 4.36, for which Transamerica
shall be entitled to be indemnified from the first dollar thereof for the
amount of Loss and Expense suffered by the Indemnified Party. For purposes
of Section 4.12(g), Transamerica shall, notwithstanding the termination of
the survival period for such representation, be entitled to be indemnified
in accordance with the terms of this Agreement from and after the second
anniversary of the Closing Date for the amount, calculated as of such
second anniversary, by which the sum of (a) the book value of any accounts
receivable due from a Bankrupt customer and (b) the average value of the
Containers and Chassis on lease to such customer based on their type,
Status and age and derived from the relevant amounts set forth in the
Preliminary Report for Containers and Chassis meeting such description
shall exceed the sum of (i) the portion of such receivables collected since
May 31, 1996 which TOL is entitled to retain, (ii) bad debt reserves
allocated to such customer's receivables as of May 31, 1996, (iii)
insurance proceeds actually recovered after May 31, 1996 with respect to
such
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customer, (iv) the average value of the Containers and Chassis on lease to
such customer (determined as provided in clause (b) hereof) which are
recovered after May 31, 1996 and (v) the amount of any of Transamerica's
losses with respect to such customer for which it is compensated by managed
container owners, if applicable. For the avoidance of doubt, no amounts due
to Transamerica pursuant to the post-closing adjustment described in
Sections 2.6 and 2.7 shall be subject to the $250,000 deductible set forth
in this Section 8.10(c).
(d) Indemnification Procedure.
(i) If an Indemnified Party has incurred or suffered Loss and
Expenses for which it is or may be entitled to indemnification pursuant
to Section 8.10, such Indemnified Party shall, within the survival
period pursuant to Section 8.1, if applicable, give written notice of
such claim for indemnification (the "Indemnity Claim Notice") to Arthur,
Dennis and each TOL Agent. Such Indemnity Claim Notice shall state the
amount of claimed damages (the "Claimed Amount") and the basis for such
claim. Within fifteen business days after delivery of an Indemnity Claim
Notice, Arthur, Dennis or any TOL Agent shall provide to such
Indemnified Party a written response (the "Preliminary Response Notice")
in which Arthur, Dennis or such TOL Agent shall (A) agree that part but
not all of the Claimed Amount (the "Agreed Amount") is due to the
Indemnified Party or (B) dispute that any of the Claimed Amount is due
to the Indemnified Party. The Preliminary Response Notice may, but need
not, specify the reasons for objecting to all or part, as the case may
be, of the Claimed Amount. Beginning five business days after its
receipt of the Preliminary Response Notice, Transamerica shall provide
Arthur and Dennis and their respective counsel, accountants and other
advisors full access to books, records and personnel of the Surviving
Corporation which are reasonably requested to determine and understand
the Claimed Amount. Arthur and Dennis shall, within 20 business days
following delivery of the Preliminary Response Notice, deliver a notice
(the "Response Notice") to the Indemnified Party setting forth the
reasons for objecting to all or part, as the case may be, of the Claimed
Amount. If a Response Notice or a Preliminary Response Notice containing
the reasons for objection shall be delivered, the Indemnified Party, on
the one hand, and Arthur and Dennis, on the other hand, shall, during
the 15 days following such delivery, use reasonable efforts to reach
agreement as to the disputed part of the Claimed Amount. If during such
period, Transamerica, Arthur, Dennis and the Indemnified Party are
unable to reach such agreement, then they shall promptly thereafter
pursue non-binding mediation by an independent mediator reasonably
satisfactory to Arthur, Dennis and the Indemnified Party (who shall not
have any material relationship with Transamerica, TOL, Arthur or
Dennis). Such mediation shall not be final, conclusive or binding upon
Arthur, Dennis or the Indemnified Party. The cost of such mediation
shall be borne equally by Transamerica, on the one hand, and Arthur and
Dennis, on the other. The Indemnified Party, on the one hand, or Arthur
and Dennis, on the other hand, shall have the right to commence legal
proceedings in the Superior Court of the State of California in and for
the City and County of San Francisco or the federal district court in
the Northern District of California, as applicable, for the purpose of
having a dispute regarding a claim by the Indemnified Party adjudicated
if such person concludes that the mediation provided for in this Section
8.10(d) has not produced a negotiated resolution of the dispute at
issue. To the extent that Arthur, Dennis or any TOL Agent shall fail to
deliver a Preliminary Response Notice within fifteen business days
following receipt of the Indemnity Claims Notice, or, if the Preliminary
Response Notice is delivered within the appropriate period, to the
extent that Arthur and Dennis shall fail to deliver a Response Notice
within twenty business days following delivery of the Preliminary
Response Notice, Arthur and Dennis shall promptly pay, or cause to be
paid, to the Indemnified Party the Claimed Amount, provided that the
Indemnified Party shall be free to commence litigation immediately if
prompt payment shall not be made. Any Claimed Amount that is an Agreed
Amount shall be paid to the Indemnified Party promptly following
delivery of the Indemnity Claims Notice to Arthur and Dennis.
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(e) Indemnification of Third-Party Claims. The obligations and
liabilities of Arthur and Dennis to indemnify any Indemnified Party under
this Section 8.10 with respect to Loss and Expenses relating to third
parties shall be subject to the following terms and conditions:
(i) Transamerica, either on behalf of itself or of any other
Indemnified Party, shall give Arthur, Dennis and each TOL Agent written
notice of any claim for a Loss and Expense relating to a third party (a
"Third Party Claim") within 15 days of Transamerica's receipt of written
notice thereof; provided, however, that if Arthur, Dennis and each TOL
Agent are not given timely notice of such Third Party Claim by
Transamerica or an Indemnified Party, or Transamerica otherwise defaults
in its obligations under this Agreement, the Indemnified Party shall
retain its rights to indemnification under this Agreement and the sole
remedy of Arthur and Dennis for such default by Transamerica shall be to
offset against the indemnification liability otherwise payable by Arthur
and Dennis to the Indemnified Party the amount of damages actually
suffered by Arthur and Dennis as a result of such late notice or other
default by Transamerica hereunder.
(ii) Except as provided in clause (iii) of the first sentence of
Section 8.10(b) and except for the rights of participation described in
the penultimate sentence of this subsection (e)(ii), Arthur and Dennis
shall have no right to defend or control the settlement of any Third
Party Claim unless each of the following conditions are satisfied:
(A) the Third Party Claim seeks only monetary damages and does
not seek any injunction or other equitable relief against the
Indemnified Party; (B) Arthur and Dennis unconditionally acknowledge
in writing, in a notice of election to contest or defend the Third
Party Claim given to Transamerica within 15 days after Transamerica
gives Arthur, Dennis and each TOL Agent notice of the Third Party
Claim, that Arthur and Dennis are jointly and severally obligated to
indemnify the Indemnified Party (in accordance with Section 5.2(d))
with respect to the Third Party Claim, irrespective of any limitation
of liability which may be contained elsewhere in this Agreement; (C)
Arthur and Dennis are not then in material default in any of their
other obligations under this Agreement; (D) the counsel chosen by
Arthur and Dennis to defend the Third Party Claim is reasonably
satisfactory to the Indemnified Party; and (E), in the case of any
such settlement, the terms of such settlement require no more than
the payment of money, such amount will be paid by Arthur and Dennis
(in accordance with Section 5.2(d)) and the Indemnified Party
receives as part of such settlement a legally binding and enforceable
unconditional satisfaction and/or release, in form and substance
reasonably satisfactory to the Indemnified Party.
In the event Arthur and Dennis elect to defend a Third Party Claim,
Transamerica shall, at its own expense, be entitled to participate in (but
not control) the defense thereof and receive copies of all pleadings and
other papers in connection therewith.
Unless Arthur and Dennis deny their indemnification obligation, they
shall be entitled at their own expense to participate in (but not control)
the defense thereof through counsel whom they choose and to receive copies
of all pleadings and other papers in connection therewith; provided that
the reservation of rights by Arthur or Dennis to later assert that they
have no indemnification obligations with respect to such Third Party Claim
shall not for purposes of this Section 8.10(e) constitute a denial of such
indemnification obligations.
The Indemnified Party cannot settle a Third Party Claim as to which
Arthur and Dennis unconditionally acknowledge their indemnification
obligation but are not entitled to elect to defend, without the consent of
Arthur and Dennis, such consent not to be unreasonably withheld.
(f) For purposes of determining if an Indemnified Party is entitled to
indemnification hereunder, all representations and warranties contained
herein shall be considered without reference to materiality, material
adverse effect or knowledge qualifiers and, in addition, with respect to
the representations and warranties contained in Section 4.8, without
reference to the information set forth in the section of the TOL Disclosure
Schedule related thereto. Information provided by TOL pursuant to
provisions of this
A-53
<PAGE> 145
Agreement requiring its delivery after the date hereof shall not be deemed
to modify the information provided prior to the execution of this Agreement
for purposes of determining if an Indemnified Party is entitled to
indemnification hereunder or if a representation or warranty herein is true
and correct.
(g) No Indemnified Party shall be entitled to indemnification pursuant
to this Section 8.10 (i) to the extent compensated by adjustments to the
purchase price as set forth in Sections 2.6 and 2.7 made or (ii) to the
extent the Losses and Expenses suffered by such Indemnified Party have been
indemnified out of the Escrow Funds in accordance with the provisions of
this Agreement and the Escrow Agreement.
(h) During the Restriction Period (as defined in the second following
sentence) neither Arthur nor Dennis may transfer in excess of fifty percent
of the Transamerica Common Shares received in connection with the
consummation of the Merger (excluding any Transamerica Common Shares
delivered to any of the Escrow Funds) (or the proceeds of sale of such
amount of Transamerica Common Shares) without fair consideration to a
person, trust or other entity for the benefit of a spouse or immediate
family member which would restrict the access of an Indemnified Party to
such assets unless such person, trust or other entity agrees in writing to
assume its pro rata share of the indemnification obligations under this
Agreement. A pro rata share shall be determined based on the value of a
transfer covered by this Section 8.10(h) divided by the total value of the
Transamerica Common Shares received by the transferor at the Closing
calculated on the basis of the Deemed Average Share Price. The "Restriction
Period" shall mean the period ending on the second anniversary of the
Closing Date, provided, however, that if on such second anniversary there
continues to exist one or more unresolved claims by Transamerica or another
Indemnified Party as to which Arthur and/or Dennis may be obligated to
provide indemnification pursuant to this Section 8.10 or pursuant to
Sections 2.3, 2.6(d), 2.6(g) or 2.7(d) and the Escrow Funds shall be
unavailable or insufficient to satisfy the full amount so claimed, then the
Restriction Period shall continue until all such unresolved claims are
finally resolved and any indemnification payments to be made as a result
shall have been made. Nothing contained in this Section 8.10(h) shall
restrict Arthur's or Dennis' right to sell in an arm's length transaction
any of the Transamerica Common Shares received pursuant to this Agreement.
(i) Any payment made to an Indemnified Party pursuant to this Section
8.10 shall be treated by the parties hereto as an adjustment to the
purchase price for tax purposes.
8.11. CAVN Indemnification. (a) Transamerica agrees that, following the
Effective Time, it shall direct and shall use reasonable efforts to pursue
recovery (the "CAVN Recovery") of (i) all accounts receivable from CAVN on TOL's
balance sheet as of December 31, 1995 (the "CAVN Receivables") and (ii) the
Containers and Chassis on lease to CAVN on such date (the "CAVN Equipment") to
the extent not theretofore recovered. Transamerica shall be indemnified for its
reasonable costs and expenses actually incurred in pursuing and/or effectuating
the CAVN Recovery out of the Transamerica Common Shares and other assets
constituting Escrow Fund B.
(b) Upon the second anniversary of the Closing Date, Transamerica shall be
indemnified out of Escrow Fund B for the amount by which the sum of (x) the CAVN
Receivables as reflected on TOL's balance sheet as of December 31, 1995 and (y)
the average value as of December 31, 1995 of the CAVN Equipment, based on its
type, Status and age and derived from the relevant amounts set forth in the
Preliminary Report for Containers and Chassis meeting such description, exceeds
the sum of (i) the portion of collections of CAVN Receivables since December 31,
1995 which TOL is entitled to retain, (ii) bad debt reserves in the amount of
$748,000 allocated to the CAVN Receivables, (iii) insurance proceeds actually
recovered by Transamerica with respect to CAVN, (iv) the average value of CAVN
Containers and Chassis recovered by TOL or Transamerica after December 31, 1995,
based on its type, Status and age and derived from the relevant amounts set
forth in the Preliminary Report for Containers and Chassis meeting such
description, and (v) the amount of any of Transamerica's losses with respect to
CAVN for which it is compensated by managed container owners. In order to attain
the indemnification described in this Section 8.11(b), Transamerica shall submit
a Claim for such indemnification to Arthur, Dennis and each TOL Agent, and the
procedures set forth in Section 8.10(d) shall govern. Notwithstanding the
foregoing, Transamerica shall not be entitled to further indemnification
pursuant to this Section 8.11(b), and the amounts remaining in Escrow Fund B
shall be
A-54
<PAGE> 146
distributed to the TOL Stockholders whose shares of TOL Common Stock are
converted into Transamerica Common Shares pursuant to Section 2.1(b) prior to
the second anniversary of the Closing Date, if the sum of the amounts from
clauses (i)-(v) of the first sentence equals or exceeds the sum of the amounts
derived from clauses (x) and (y) thereof and Transamerica's costs and expenses
incurred in pursuing and/or effectuating the CAVN Recovery.
8.12. Use of Remaining Proceeds in Escrow Funds. From and after the second
anniversary of the Closing Date, Arthur and Dennis shall be entitled to use the
proceeds remaining in any of Escrow Funds A, B or C to satisfy some or all of
any of the indemnification obligations they may have pursuant to Section
8.10(b)(i), (ii), (iii) or (vi) (if, in the case of clause (vi), the relevant
action was not done or permitted by Arthur or Dennis) or Section 8.11 if and
only to the extent that, at the second anniversary of the Closing Date, the
value of the assets remaining in the applicable Escrow Fund, calculated in
accordance with Section 2.3(e), exceeds the amount of all Claims made by
Transamerica and all other Indemnified Parties which may be payable out of the
applicable Escrow Fund and which have not been finally resolved; provided,
however that in the event that at any time following the second anniversary of
the Closing Date any such Claim is finally resolved for an amount which is less
than the amount of the related Claim, an amount of the applicable Escrow Fund
which is equal to the amount by which such Claim exceeded the related final
resolution amount shall also be available to satisfy the indemnification
obligations of Arthur and Dennis described in the first part of this sentence.
Arthur and Dennis shall be entitled, in their sole discretion, to extend the
period of such Escrow Fund for purposes of satisfying their aforesaid
indemnification obligations only under the circumstances described in the
immediately preceding sentence.
8.13. Expenses. Each of the parties hereto shall bear its own expenses in
connection with the negotiation, preparation, execution and consummation of this
Agreement and related documentation and stockholders' meeting and consents
whether or not the Merger is consummated, it being understood that the Merger
Fees will be paid by TOL on or within 30 days of the Closing Date.
A-55
<PAGE> 147
IN WITNESS WHEREOF, Transamerica, Subcorp, TOL, Arthur and Dennis have
signed this Agreement as of the date first written above.
TRANSAMERICA CORPORATION
By: /s/ Richard H. Fearon
--------------------------------------
CITATION SUB CORP.
By: /s/ Edward T. Mann
--------------------------------------
TRANS OCEAN LTD.
By: /s/ Greer M. Arthur
--------------------------------------
/s/ Greer M. Arthur
--------------------------------------
Greer M. Arthur
/s/ Marvin D. Dennis
--------------------------------------
Marvin D. Dennis, in his
individual capacity
/s/ Marvin D. Dennis
--------------------------------------
Marvin D. Dennis, as trustee of
The Dennis Family Living Trust
/s/ Nancy A. Dennis
--------------------------------------
Nancy A. Dennis, as trustee of
The Dennis Family Living Trust
A-56
<PAGE> 148
[LETTERHEAD]
August 21, 1996
Transamerica Corporation
600 Montgomery Street
San Francisco, CA 94111
Attention: Richard H. Fearon
Ladies and Gentlemen:
Reference is made to the Agreement and Plan of Merger dated as of July 24, 1996
(the "Agreement") by and among Transamerica Corporation, a Delaware corporation
("Transamerica"), Citation Sub Corp., a Delaware corporation and wholly owned
subsidiary of Transamerica ("Subcorp"), Trans Ocean Ltd, a Delaware corporation
("TOL"), Greer M. Arthur, Marvin D. Dennis, in his individual capacity and as
trustee of the Dennis Family Living Trust, and Nancy A. Dennis, as trustee of
the Dennis Family Living Trust. All capitalized terms contained and not
otherwise defined herein shall have the meanings set forth in the Agreement.
Except as specifically amended hereby, the Agreement remains in full force and
effect.
The parties hereto agree as follows:
1. The attached page entitled "Average Age of Equipment at 12/31/95"
shall be included in Exhibit F to the Agreement and shall replace the
version of such page that was erroneously included with Exhibit F at
the time the Agreement was executed and is to be given effect as if
included at execution of the Agreement.
2. Notwithstanding, Section 5.3(c)(vii) of the Agreement, TOL has:
a. adopted and implemented a supplemental severance plan (the
"Supplemental Plan") outlined as follows:
<PAGE> 149
Transamerica Corporation
August 21, 1996
Page 2
(i) Eligibility: An employee shall be eligible for
supplemental severance if, at any time from the present until
the end of the six-month period commencing with the Closing
(1) the employee is laid off as a result of his or her
services no longer being required (including by reason of job
elimination) and, subject to Section 2.b hereof, the employee
is not offered a different job with TOL or its successor at a
comparable salary, and/or (2) under the circumstances set
forth in Section 2.b hereof. Employees who terminate
voluntarily, who do not accept the job offered pursuant to
clause (1) of the preceding sentence, or who are involuntarily
terminated for reasons of substandard performance or
misconduct are not eligible for this supplemental severance.
(ii) Benefit Schedule:
<TABLE>
<CAPTION>
MONTHS OF SEVERANCE BASED ON
CLASSIFICATION ANNUAL TOTAL COMPENSATION
-------------- ----------------------------
<S> <C>
Employees who are not
managers 2 months
Managers 3 months
Director-level 4 months
Officers 6 months
</TABLE>
(iii) "ANNUAL TOTAL COMPENSATION" shall mean the wages,
salary and incentive bonus (assuming 100% achievement of
target performance) that the employee would have otherwise
received for the calendar year in which employment terminates
had employment not terminated.
b. If an employee (i) is required by TOL or its successor to move
his or her place of employment to a different metropolitan
area (e.g., to move from the San Francisco Bay Area to
Purchase, New York), (ii) declines to do so and (iii) as a
result is terminated or terminates his or her employment, the
employee will be paid severance in accordance with the greater
of (A) TOL's current practices, and (B) if such termination is
within the period specified in paragraph 2(a)(i) above, the
Supplemental Plan as provided in the schedule in paragraph
2(a)(ii) above.
<PAGE> 150
Transamerica Corporation
August 21, 1996
Page 3
c. TOL has committed to the following employees to pay to each
employee the amount set forth next to such employee's name
(the "Bonus Amounts") upon the Closing:
<TABLE>
<S> <C>
Jonathan Fornaci $57,000
Brendan McKenna $57,000
Kiyonori Ogura $37,000
Don Robertson $37,000
</TABLE>
Such Bonus Amounts are not to be paid in lieu of any other
amounts that may be owed to such employees but are to be paid
in addition to any other amounts that may be so owed.
The items described in 2(a) through 2(c) hereof shall not constitute a
violation of Section 6.3(b) of the Agreement, but shall be covered by
Section 8.10(a) of the Agreement in accordance with the following two
sentences. The parties agree that 50% of the costs of the
Supplemental Plan up to a maximum of $300,000 shall be paid out of
Escrow Fund A and 100% of the costs of the Supplemental Plan in excess
of $600,000 shall be paid out of Escrow Fund A. The parties further
agree that all Bonus Amounts to be paid as set forth in paragraph 2(c)
above shall be paid out of Escrow Fund A pursuant to the provisions of
Section 8.10 of the Agreement.
3. The parties are in mutual agreement that the reports to be delivered
by TOL to Transamerica pursuant to Sections 4.7 (final sentence),
4.11(e), 4.21(a) (penultimate sentence) and 4.27(b) of the Agreement
shall be as of July 31, 1996 rather than July 24, 1996. Accordingly,
Transamerica hereby consents to the delivery of such reports by TOL no
later than August 12, 1996 and Transamerica further agrees that the
delivery of such reports by TOL on or before August 12, 1996 shall not
constitute a late delivery of such reports by TOL pursuant to Section
6.3(g) of the Agreement.
4. The parties agree that, prior to the Closing Date, neither
Transamerica nor any of its subsidiaries or affiliates shall be
prohibited from (a) soliciting current employees of TOL for future
employment with Transamerica or any of it's subsidiaries or affiliates
or (b) extending an offer
<PAGE> 151
Transamerica Corporation
August 21, 1996
Page 4
of future employment to any TOL employee; provided, however, that
Transamerica agrees that such employment offer will be conditioned on
Closing of the Merger, and Transamerica shall communicate or shall
cause to be communicated this condition in writing to each employee of
TOL in connection with any such offer of future employment.
Transamerica agrees that in the event the Merger does not occur,
neither Transamerica nor any of it's subsidiaries or affiliates will
solicit any TOL employee for employment with Transamerica or any of
it's subsidiaries or affiliates for a period of one year from the date
on which TOL and Transamerica determine that the Merger will not
occur.
5. Section 8.5 of the Agreement is hereby amended to include this
amendment letter in the items which constitute the parties' agreement.
<PAGE> 152
Transamerica Corporation
August 21, 1996
Page 5
Please indicate your consent to and agreement with each of the above matters by
signing where indicated below.
TRANS OCEAN LTD
/s/ G.M. Arthur
----------------------------
Name: Greer M. Arthur
Title: Chairman & CEO
Agreed and Accepted By:
TRANSAMERICA CORPORATION
By: /s/ Richard H. Fearon
-------------------------
Name: Richard H. Fearon
Title: Vice President
CITATION SUB CORP.
By: /s/ Edward T. Mann
-------------------------
Name: Edward T. Mann
Title: Sr. Vice President, CFO
/s/ G.M. Arthur /s/ Marvin D. Dennis
- ---------------------------- ---------------------------
Greer M. Arthur Marvin D. Dennis, in his
individual capacity
/s/ Marvin D. Dennis /s/ Nancy A. Dennis
- ---------------------------- ---------------------------
Marvin D. Dennis, as trustee Nancy A. Dennis, as trustee
of The Dennis Family Living of The Dennis Family Living
Trust Trust
<PAGE> 153
EXHIBIT F(a)(iv)-1
AVERAGE AGE OF EQUIPMENT AT 12/31/95
(YEARS)
<TABLE>
<CAPTION>
EQUIPMENT TYPE OWNED MANAGED LEASED-IN
- -------------- ----- ------- ---------
<S> <C> <C> <C>
20" Dry Vans 2.3 5.5 1.5
40" Dry Vans 2.5 6.9 1.4
40" High Cube 1.2 4.6 1.4
20" Opca Tops 5.8 4.4 3.3
40" Opca Tops 3.7 3.7 3.3
20" Reefers 3.7 10.3 6.5
40" Reefers 4.0 8.9 3.6
Gensets & Clip-ons 3.4 no units 7.5
Tanks 4.5 5.2 2.8
Tank Chassis 1.5 8.5 no units
20" Chassis 16.5 17.1 no units
40" Chassis 14.1 15.4 11.5
20" Collapsibles 3.0 11.6 5.9
40" Collapsibles 2.4 4.4 2.2
Platforms 14.7 14.8 no units
Other 14.7 12.0 no units
------ ------ ----------
Average 3.1 6.2 3.0
</TABLE>
<PAGE> 154
FORM OF
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (the "Amendment")
is made and entered into as of October __, 1996, by and among TRANSAMERICA
CORPORATION, a Delaware corporation ("Transamerica"); CITATION SUB CORP., a
Delaware corporation and a wholly owned direct subsidiary of Transamerica
("Subcorp"), TRANS OCEAN LTD, a Delaware corporation ("TOL"), GREER M. ARTHUR,
MARVIN D. DENNIS, in his individual capacity and as trustee of the Dennis
Family Living Trust, and NANCY A. DENNIS, as trustee of the Dennis Family
Living Trust.
RECITALS
A. The parties hereto have previously entered into an Agreement and
Plan of Merger dated as of July 24, 1996 (the "Agreement"), pursuant to which
Subcorp will be merged with and into TOL in accordance with the Agreement and
the Delaware General Corporation Law (the "Merger"), with TOL as the surviving
corporation in the Merger, subject to the terms and conditions set forth in the
Agreement.
B. The July Agreement was subsequently amended by a letter agreement
dated August 21, 1996 by and among the parties to the July Agreement (the
letter agreement and the July Agreement being referred to herein as the
"Agreement").
C. The parties hereto wish to amend Sections 2.1(b), 2.2(b), 2.3(a),
2.3(b) through 2.3(e), 4.19, 5.3(c)(xxii) and 5.3(h) of the Agreement.
AGREEMENT
The parties to this Amendment agree as follows:
SECTION 1. DEFINED TERMS. All capitalized terms not otherwise
defined in this Amendment shall have the meanings set forth in the Agreement.
SECTION 2. CONTINUING EFFECT OF AGREEMENT. All terms and provisions
of the Agreement which are not specifically deleted, amended or otherwise
modified by, or inconsistent with, this Amendment shall remain in full force
and effect.
SECTION 3. AMENDMENTS TO THE AGREEMENT. The Agreement is hereby
modified and amended as follows:
3.1. AMENDMENT OF SECTION 2.1(b). Section 2.1(b) of the Agreement is
hereby amended to read in its entirety as follows:
(b) Subject to the provisions of Sections 2.3, 2.6 and
2.7, each share of TOL Common Stock (as defined in
<PAGE> 155
Section 4.4) issued and outstanding immediately prior to the
Effective Time shall be converted into and represent the right to
receive a number of Transamerica Common Shares (rounded to the nearest
ten-thousandth of a share) (the "Common Exchange Ratio") in an amount
equal to the quotient obtained by dividing (x) the Per Share Amount
(as hereinafter defined) by (y) the Deemed Average Share Price (as
defined in Section 2.3(e)(i) below); provided, further, that no
Transamerica Common Shares shall be issued to a TOL Stockholder (as
defined below) who demands appraisal rights in accordance with the
requirements of Section 262(d) of the DGCL and such TOL Stockholder
shall not be entitled to payment of any amounts pursuant to this
Section 2.1(b) or Sections 2.3, 2.5, 2.6 or 2.7. The "Per Share
Amount" shall equal the quotient obtained by dividing (x) $100,700,000
(or, if Section 1.1(b) shall apply to the form of the Merger,
$107,700,000), increased by the total amount of cash paid to TOL
between the execution of this Agreement and the Closing in order to
exercise TOL Options (as defined in Section 2.4) and decreased by the
product of the Preferred Exchange Ratio (as defined in Section 2.1(c))
multiplied by the Deemed Average Share Price, and further multiplied
by the number of shares of TOL Series B Preferred Stock (as defined in
Section 4.4) which are issued and outstanding immediately prior to the
Effective Time, by (y) the number of shares of TOL Common Stock which
are issued and outstanding immediately prior to the Effective Time.
Promptly following the Effective Time, certificates representing (i)
$11,700,000 of the Transamerica Common Shares issued pursuant to the
first sentence of this Section 2.1(b) shall be paid into Escrow Fund
A, (ii) $2,500,000 of such Transamerica Common Shares shall be paid
into Escrow Fund B, (iii) $1,000,000 of such Transamerica Common
Shares shall be paid into Escrow Fund C, and (iv) $9,000,000 of such
Transamerica Common Shares shall be paid into the Adjustment Escrow
Fund (each as defined in Section 2.3(a)) with each of the foregoing
dollar amounts to be calculated using the Deemed Average Share Price,
in accordance with the provisions of Section 2.3 hereof. Any such
Transamerica Common Shares (together with any dividends or
distributions thereon, if any), to be released from the aforementioned
Escrow Funds to holders of TOL Common Stock (the "TOL Stockholders")
in accordance with the terms of the Escrow Agreement shall be released
to each TOL Stockholder whose shares of TOL Common Stock are converted
into Transamerica Common Shares pursuant to the first sentence of this
Section 2.1(b) in amounts which constitute the same proportion of the
Transamerica Common Shares to be released from the applicable Escrow
Fund that the Transamerica Common Shares that each
-2-
<PAGE> 156
such TOL Stockholder contributed to such Escrow Fund bear to the total
number of Transamerica Common Shares contributed to such Escrow Fund
by all TOL Stockholders (the "Stockholder's Proportionate Interest");
provided, however, except for the right of Arthur and Dennis pursuant
to Section 2.3(e)(ii) to cause the Escrow Agent to sell Transamerica
Common Shares and invest the proceeds under the circumstances set
forth therein, no TOL Stockholder shall have a right to sell,
transfer, pledge, encumber or otherwise dispose of (or to cause any of
the foregoing to occur), or to receive any certificates representing,
any such Transamerica Common Shares prior to the release of such
shares to TOL Stockholders from the applicable Escrow Fund pursuant to
the terms of this Agreement and the Escrow Agreement (as defined in
Section 2.3). No certificates for fractional Transamerica Common
Shares shall be issued as a result of the conversion provided for in
this Section 2.1(b). To the extent that an outstanding share of TOL
Common Stock would otherwise have become a fractional Transamerica
Common Share, the holder thereof, upon presentation of such fractional
interest represented by an appropriate certificate for TOL Common
Stock to the Exchange Agent pursuant to Section 2.2, shall be entitled
to receive a cash payment therefor in an amount equal to the value
(determined with reference to the closing price of Transamerica Common
Shares on the NYSE Composite Tape on the last full trading day
immediately prior to the Effective Time) of such fractional interest.
Such payment with respect to fractional shares is merely intended to
provide a mechanical rounding off of, and is not a separately
bargained for, consideration. If more than one certificate
representing shares of TOL Common Stock shall be surrendered for the
account of the same holder, the number of Transamerica Common Shares
for which certificates have been surrendered shall be computed on the
basis of the aggregate number of shares represented by the
certificates so surrendered.
3.2. AMENDMENT OF SECTION 2.2(b). Section 2.2(b) of the Agreement is
hereby amended to read in its entirety as follows:
(b) EXCHANGE PROCEDURES. As soon as practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record
of a certificate or certificates (the "Certificates") which
immediately prior to the Effective Time represented outstanding shares
of TOL Common Stock or TOL Series B Preferred Stock whose shares were
converted into the right to receive Transamerica Common Shares
pursuant to the first sentence of Section 2.1(b) or pursuant to
Section 2.1(c), as the case may be, (i) a letter of transmittal (which
shall specify that
-3-
<PAGE> 157
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other
provisions as Transamerica may reasonably specify) and (ii)
instructions for effecting the surrender of the Certificates in
exchange for certificates representing Transamerica Common Shares.
Upon surrender of a Certificate for cancellation to the Exchange
Agent, together with a duly executed letter of transmittal, the holder
of such Certificate shall be entitled to receive in exchange therefor
(x) a certificate representing that number of Transamerica Common
Shares which such holder has the right to receive pursuant to the
first sentence of Section 2.1(b), excluding the number of Transamerica
Common Shares that represent the dollar amount set forth opposite such
holder's name under the heading "Total Escrow Contributions" as set
forth on Schedule 2.2(b) hereto, which shall be paid into the Escrow
Funds as indicated under the applicable heading on Schedule 2.2(b)
hereto, or pursuant to Section 2.1(c), as the case may be, and (y) a
check representing the amount of cash in lieu of fractional shares, if
any, and unpaid dividends and distributions if any, which such holder
has the right to receive pursuant to the provisions of this Article
II, after giving effect to any required withholding tax, and the
Certificate so surrendered shall forthwith be cancelled. No interest
will be paid or accrued on the cash in lieu of fractional shares,
unpaid dividends and distributions, if any, payable to holders of
shares of TOL Common Stock or TOL Series B Preferred Stock. In the
event of a transfer of ownership of shares of TOL Common Stock or TOL
Series B Preferred Stock which is not registered on the transfer
records of TOL, a certificate representing the proper number of
Transamerica Common Shares, together with a check for the cash to be
paid in lieu of fractional shares, if any, and unpaid dividends and
distributions, if any, may be issued to such transferee if the
Certificate representing such shares of TOL Common Stock or TOL Series
B Preferred Stock, as the case may be, held by such transferee is
presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be deemed at
any time after the Effective Time to represent only the right to
receive upon surrender a certificate representing Transamerica Common
Shares and cash in lieu of fractional shares thereof as provided in
Section 2.1(b) or 2.1(c), as the case may be.
-4-
<PAGE> 158
3.3. AMENDMENT OF SECTION 2.3(a). Subclause (i) of Section 2.3(a) is
hereby amended in its entirety as follows:
(1) certificates representing Transamerica Common Shares with an
aggregate value of $11,700,000 shall be delivered to the Escrow Agent
(such Transamerica Common Shares to be so delivered, together with any
dividends or distributions with respect thereto and any proceeds
thereof, "Escrow Fund A"),
3.4. AMENDMENT OF SECTION 2.3(b). The first two sentences of the
second paragraph of Section 2.3(b) are hereby amended to read in their entirety
as follows:
Unless Transamerica shall have theretofore delivered to the Escrow
Agent a written notice or notices (individually, a "Claims Notice")
stating that Transamerica has a Claim or Claims against the applicable
Escrow Fund pursuant to this Section 2.3, the amounts then remaining
in such Escrow Fund together with interest earned and distributions
actually made on such amounts (after deduction for any applicable
taxes) shall, in the case of Escrow Funds A, B and C, be delivered to
the TOL Stockholders whose shares of TOL Common Stock are converted
into Transamerica Common Shares pursuant to the first sentence of
Section 2.1(b) in accordance with their respective Stockholder's
Proportionate Interests as promptly as practicable after the second
anniversary of the Closing Date; provided, however, that to the extent
that on such second anniversary there continues to exist an unresolved
dispute regarding a Claim by Transamerica under this Section 2.3(b),
the portion of the applicable Escrow Fund that represents the amount
of Transamerica's Claim shall be retained in such Escrow Fund until
any dispute with respect to such Claim is finally resolved. If
amounts are remaining in Escrow Funds A, B and/or C and, in accordance
with this Agreement, are available at the expiration of such Escrow
Fund to be delivered to the TOL Stockholders whose shares of TOL
Common Stock are converted into Transamerica Common Shares pursuant to
the first sentence of Section 2.1(b) in accordance with their
respective Stockholder's Proportionate Interests, Dennis and Arthur
shall be reimbursed from the amounts then remaining in such Escrow
Funds and which are so available (but only to the extent thereof) for
the shares of the fees and expenses of the Escrow Agent which each
shall have paid and for the accounting and legal fees and expenses
which each shall have paid on behalf of the TOL Stockholders in
connection with claims for indemnification pursuant to Section 8.10(a)
and any dispute relating to the Closing Report.
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3.5. AMENDMENT OF SECTION 2.3(c). Section 2.3(c) of the Agreement
is hereby amended to read in its entirety as follows:
All dividends payable and distributions made in respect of
Transamerica Common Shares constituting the Escrow Funds, any portion
of the $2,700,000 allocated to Merger Fees under Section 4.19 hereof
which has not been paid out or spent in accordance with the first or
second sentence of Section 5.3(h) within six months of the Effective
Time, and all interest on any cash portion of the Escrow Funds shall
be paid into the applicable Escrow Fund and, if not used to satisfy
expenses and Claims of Transamerica thereunder or otherwise
distributed thereunder pursuant to the procedures relating to the
Adjustment Escrow Fund, shall be distributed to Transamerica or, in
accordance with their respective Stockholders' Proportionate
Interests, to the TOL Stockholders whose shares of TOL Common Stock
are converted into Transamerica Common Shares pursuant to the first
sentence of Section 2.1(b), as the case may be, as and when the
portion of the applicable Escrow Fund to which such dividends,
distribution or interest relate is transferred to any such party;
provided, however, that the Escrow Agent shall send a report to each
TOL Stockholder who had Transamerica Common Shares on deposit in an
Escrow Fund during any portion of a calendar year, within 45 days of
the end of such calendar year during the period prior to the
expiration of the Escrow Funds and promptly following their
expiration, estimating the taxable income of the applicable Escrow
Funds during such period and transmitting a pro rata distribution
equal to 45% of the taxable income allocable to each such TOL
Stockholder.
3.6. AMENDMENT OF SECTION 2.3(d). Section 2.3(d) of the Agreement is
hereby amended to read in its entirety as follows:
Transamerica shall not be entitled to receive any of the assets held
in Escrow Funds A, B or C unless it has delivered a notice (the
"Claims Notice") to (i) the Escrow Agent, (ii) to Arthur and Dennis,
on behalf of the holders of TOL Common Stock who deposited
Transamerica Common Shares into the applicable Escrow Fund, and (iii)
to the agents of Arthur and Dennis, whose names and addresses are set
forth in Section 2.3(d) of the TOL Disclosure Schedule (and who Arthur
and Dennis may change by providing notice to Transamerica and the
Escrow Agent in accordance with Section 8.2 hereof) (the "TOL Agents")
stating that Transamerica has a Claim or Claims for all or part of the
relevant Escrow Fund and, to the extent reasonably ascertainable, the
estimated amount hereof.
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<PAGE> 160
With respect to any Claim against any of Escrow Funds A, B or C
delivered pursuant to this Section 2.3, Arthur, Dennis or any TOL
Agent shall have fifteen business days from receipt of a Claims Notice
to serve on the Escrow Agent, with a copy to Transamerica, a notice
(the "Preliminary Objecting Notice") that the TOL Stockholders who
deposited Transamerica Common Shares into the applicable Escrow Fund
object to all or part of such Claims against the applicable Escrow
Fund. The Preliminary Objecting Notice may, but need not, specify the
reasons for objection to the Claims Notice. Beginning five business
days after its receipt of a Preliminary Objecting Notice, Transamerica
shall provide Arthur, Dennis, any TOL Agent and their respective
counsel, accountants and other advisors full access to books, records
and personnel of the Surviving Corporation which are reasonably
requested to determine, understand and defend against the Claim of
Transamerica. Arthur and Dennis shall, within 20 business days
following delivery of the reasonable detail the reasons for the
objection at issue. If an Objecting Notice or a Preliminary Objecting
Notice containing the reasons for the objection at issue shall be
delivered, Transamerica, Arthur and Dennis shall, during the 15
business days following such delivery, use reasonable efforts to reach
agreement on the disputed Claims. If, during such period,
Transamerica, Arthur and Dennis are unable to reach such agreement,
then they shall promptly thereafter pursue non-binding mediation by an
independent mediator reasonably satisfactory to Transamerica, Arthur
and Dennis (who shall not have any material relationship with
Transamerica, TOL, Arthur or Dennis). Such mediation shall not be
final, conclusive or binding upon Transamerica or the TOL Stockholders
who deposited Transamerica Common Shares into such Escrow Fund. The
cost of such mediation shall be borne equally by Transamerica, on the
one hand, and Arthur and Dennis, on the other. Transamerica, on the
one hand, or Arthur and Dennis, on the other hand, shall have the
right to commence legal proceedings in the Superior Court of the State
of California in and for the City and County of San Francisco or the
federal district court in the Northern District of California, as
applicable, for the purpose of having a dispute regarding a Claim by
Transamerica adjudicated if such party shall conclude that the
mediation provided for in this Section 2.3(d) has not produced a
negotiated resolution of the dispute. To the extent that neither
Arthur nor Dennis nor any TOL Agent shall deliver a Preliminary
Objecting Notice within fifteen business days following receipt of the
Claims Notice (or, if the Claims Notice does not specify the estimated
amount thereof, as soon thereafter as the amount of the Claim is
ascertainable),
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<PAGE> 161
or, if the Preliminary Objecting Notice is delivered within the
appropriate period, to the extent that neither Arthur nor Dennis shall
deliver an Objecting Notice within twenty business days following
receipt by Transamerica of the Preliminary Objecting Notice, the
Escrow Agent shall deliver to Transamerica the portion of the
applicable Escrow Fund which it claimed in the Claims Notice in
respect of which no Preliminary Objecting Notice or Objecting Notice,
as the case may be, has been received together with all interest
actually earned and distributions made on it (after deduction or
provision for any applicable taxes).
The assets held in the Adjustment Escrow Fund shall be delivered to
Transamerica and/or distributed by the Escrow Agent to the TOL
Stockholders whose shares or TOL Common Stock are converted into
Transamerica Common Shares pursuant to the first sentence of Section
2.1(b) based on their respective Stockholder's Proportionate
Interests, in accordance with Sections 2.5(e), 2.6(d) and 2.7(d).
3.7. AMENDMENT OF SECTION 2.3(e)(i). The first sentence of Section
2.3(e)(i) is hereby amended to read in its entirety as follows:
For purposes of all Claims against any of the Escrow Funds by
Transamerica, the value of each Transamerica Common Share with respect
to which a Claim has been made by Transamerica, or which Transamerica
or the TOL Stockholders who deposited Transamerica Common Shares into
the applicable Escrow Fund were otherwise entitled to receive, shall
be deemed to be the Average Share Price (as defined below), regardless
of whether the actual trading price for the Transamerica Common Shares
is greater than or lower than the Deemed Average Share Price, which
shall be adjusted to account for any split, combination or
recapitalization of Transamerica Common Shares.
3.8. AMENDMENT OF SECTION 2.5(e). The third sentence of Section
2.5(e) is hereby amended to read in its entirety as follows:
Promptly following the conclusion of such 20-day period and completion
of the report referred to in the preceding sentence, Transamerica
Common Shares shall be distributed to Transamerica and/or TOL
Stockholders whose shares are converted into Transamerica Common
Shares pursuant to the first sentence of Section 2.1(b) in accordance
with their respective Stockholder's Proportionate Interests, as
appropriate, from the Adjustment Escrow Fund to the extent the
adjustments to be made pursuant to Sections 2.6(c),
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<PAGE> 162
2.6(d), 2.7(c) and 2.7(d) shall have been mutually resolved during
such period, so long as thereafter there shall remain in the
Adjustment Escrow Fund Transamerica Common Shares having a value,
calculated by reference to the Deemed Average Share Price, sufficient
to resolve any adjustments which are proposed to be made by either
Transamerica or by Arthur and Dennis pursuant to Sections 2.6(c),
2.6(d), 2.7(c) and 2.7(d) and which have not yet been mutually
resolved, and any further adjustments to be made pursuant to Section
2.6(g).
3.9. AMENDMENT OF SECTION 2.6(c). The penultimate sentence of
Section 2.6(c) is hereby amended to read in its entirety as follows:
Subject to Section 2.6(f), in such case, the Escrow Agent shall pay
the amount remaining in the Adjustment Escrow Fund to the TOL
Stockholders whose shares were converted into Transamerica Common
Shares pursuant to the first sentence of Section 2.1(b) in accordance
with their respective Stockholder's Proportionate Interests and
Transamerica shall cause to be paid into the Exchange Fund the
increased consideration that would have been payable by Transamerica
had the number of Containers and Chassis within a particular age and
Status shown on the Pre-Closing Report been equal to the number of
such units shown on the Closing Report.
3.10. AMENDMENT TO SECTION 2.6(d). The second sentence of Section
2.6(d) is hereby amended to read in its entirety as follows:
Subject to Sections 2.6(f) and 2.6(g), in such case, Transamerica
shall be entitled to retain out of the Transamerica Common Shares
deposited in the Adjustment Escrow Fund, a number of Transamerica
Common Shares with an aggregate value (determined by reference to the
Deemed Average Share Price) equal to the product resulting from the
calculation set forth in clause (i) of this subsection 2.6(d) and,
subject to said Sections 2.6(f) and 2.6(g), the Escrow Agent shall pay
the balance, if any, of the Adjustment Escrow Fund to the TOL
Stockholders whose shares were converted into Transamerica Common
Shares pursuant to the first sentence of Section 2.1(b) in accordance
with their respective Stockholder's Proportionate Interests; provided
that any mutually agreed adjustment previously made pursuant to
Section 2.5(e) shall be taken into account in determining the
Transamerica Common Shares to be retained by Transamerica and to be
paid to such TOL Stockholders.
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<PAGE> 163
3.11. AMENDMENT TO SECTION 2.7(c). The second sentence of Section
2.7(c) is hereby amended to read in its entirety as follows:
Subject to Section 2.7(f), in such case, the Escrow Agent shall pay
the amount remaining in the Adjustment Escrow Fund to the TOL
Stockholders whose shares were converted into Transamerica Common
Shares pursuant to the first sentence of Section of Section 2.1(b) in
accordance with their respective Stockholder's Proportionate Interest
and Transamerica shall cause to be paid into the Exchange Fund the
increased consideration that would have been payable by Transamerica
had the average age of the type of Containers or Chassis within the
particular Status shown on the Pre-Closing Report been equal to the
average age of such units shown on the Closing Report.
3.12. AMENDMENT TO SECTION 2.7(d). The penultimate sentence of
Section 2.7(d) is hereby amended to read in its entirety as follows:
Subject to Section 2.7(f) and 2.6(g), in such case, Transamerica shall
be entitled to retain out of the Transamerica Common Shares deposited
in the Adjustment Escrow Fund, a number of Transamerica Common Shares
with an aggregate value (determined by reference to the Deemed Average
Share Price) equal to product resulting from the calculation set
forth in clause (i) of this subsection 2.7(d) and, subject to said
Sections 2.7(f) and 2.6(g), the Escrow Agent shall pay the balance, if
any, of the Adjustment Escrow Fund to the TOL Stockholders whose
shares were converted into Transamerica Common Shares pursuant to the
first sentence of Section 2.1(b) in accordance with their respective
Stockholder's Proportionate Interests; provided that any mutually
agreed adjustment previously made pursuant to Section 2.5(e) shall be
taken into account in determining the Transamerica Common Shares to be
retained by Transamerica and to be paid to such TOL Stockholders.
3.13. AMENDMENT OF SECTION 4.19. Section 4.19 of the Agreement is
hereby amended as follows:
(a) The second sentence of Section 4.19 is hereby amended to read
in its entirety as follows:
The aggregate Merger Fees owed or which will be
owing by TOL to investment bankers, financial
advisors, attorneys or accountants will not exceed
$2,700,000.
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<PAGE> 164
(b) The following sentence is hereby added as the last sentence
of Section 4.19:
To the extent Merger Fees exceed $2,000,000,
Transamerica shall be entitled to recover the excess
amount out of Escrow Fund A, and is not subject to
any deductible.
3.14. AMENDMENT OF SECTION 5.3(h). Section 5.3(h) of the Agreement
is hereby amended to read in its entirety as follows:
(h) Merger Fees. At the Closing, TOL shall deliver to the Vice
President, Corporate Development of Transamerica a schedule setting
forth, by payee, all Merger Fees theretofore paid and all Merger Fees
owing. Following the Closing, Transamerica shall, until the remaining
amount allocated to Merger Fees under Section 4.19 shall be paid into
Escrow Fund A in accordance with Section 2.3(c), pay any remaining
Merger Fees owing which shall not have been paid theretofore, and then
reimburse the TOL Stockholders, to the extent of the amount by which
$2,700,000 exceeds the Merger Fees, if any, for (i) out-of-pocket,
documented costs incurred by TOL Stockholders relating to price
adjustments pursuant to Sections 2.6 and 2.7 and (ii) documented costs
incurred by TOL Stockholders of administering the Escrow Fund, it
being understood that such administrative costs shall not include the
cost of defending, disputing or settling claims or disputing the
Closing Report.
SECTION 4. EFFECTIVENESS OF CERTAIN AMENDMENTS. The amendments
provided for in this Amendment with respect to the amounts to be contributed to
the Escrow Funds by each of the TOL Common Stockholders and their proportionate
interests therein shall be effective if and only if TOL obtains the unanimous
written consent of TOL Common Stockholders to such amendments and the execution
of modification by all TOL Common Stockholders in the form previously agreed by
Transamerica and TOL, and in such event these amendments shall be effective upon
execution of by all TOL Common Stockholders. The amount to be contributed to
Escrow Fund A by TOL Common Stockholders who are to deposit Transamerica Common
Shares into Escrow Fund A shall equal $11,700,000 and the references to the
amount of the Merger Fees shall be amended to be $2,700,000 (instead of
$2,000,000), whether or not TOL Common Stockholders approve the amendments with
respect to the amounts to be contributed to the Escrow Funds by each Stockholder
of TOL. The Merger shall not be subject to any condition relating to the
unanimous approval of the amendments referred to in the first sentence of this
Section 4.
SECTION 5. HEADINGS. The bold-faced section headings contained in
this Amendment are for convenience of reference only, shall not be deemed to be
a part of this Amendment and
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<PAGE> 165
shall not be referred to in connection with the construction or interpretation
of this Amendment.
SECTION 6. COUNTERPARTS. This Amendment may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
SECTION 7. GOVERNING LAW. This Amendment shall be governed and
construed in accordance with the laws of the State of Delaware without regard
to principles of conflict of laws.
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<PAGE> 166
The parties hereto have caused this Amendment to be executed and
delivered as of October __, 1996
TRANSAMERICA CORPORATION,
a Delaware corporation
By:
------------------------------
CITATION SUB CORP.,
a Delaware corporation
By:
------------------------------
TRANS OCEAN LTD,
a Delaware corporation
By:
------------------------------
---------------------------------
GREER M. ARTHUR
---------------------------------
MARVIN D. DENNIS, in his
individual capacity
---------------------------------
MARVIN D. DENNIS, as trustee
of the Dennis Family Living
Trust
---------------------------------
NANCY A. DENNIS, as trustee
of the Dennis Family Living Trust
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<PAGE> 167
SCHEDULE 2.2(b)
TOL STOCKHOLDER CONTRIBUTIONS
TO ESCROW FUNDS*
<TABLE>
<CAPTION>
Adjustment Total Escrow
Name of Stockholder Escrow A Escrow B Escrow C Escrow Contributions
- ------------------- -------- -------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Greer M. Arthur $4,614,808.30 $986,070.15 $394,428.06 $3,255,370.05 $9,250,676.56
Dennis Family Living Trust 3,734,231.62 797,912.74 319,165.09 2,631,545.64 7,482,855.09
The Cronos Group 2,494,226.80 532,954.44 213,181.78 1,918,636.00 5,158,999.02
Cronos Investments B.V. 112,256.50 23,986.43 9,594.57 86,351.15 232,188.65
Bertrand Gailiard 244,357.81 52,213.20 20,885.28 187,967.55 505,423.84
Anthony M. Frank 118,476.51 25,315.49 10,126.20 91,135.78 245,053.98
Robert Muh 118,476.51 25,315.49 10,126.20 91,135.78 245,053.98
Chris Buchschacher 97,743.12 20,885.28 8,354.11 122,577.62 249,560.13
Richard King 74,047.82 15,822.18 6,328.87 118,476.51 214,675.38
GC&H Investments 59,238.26 12,657.74 5,063.10 45,567.89 122,526.99
Thomas V. Heimsoth 17,327.19 3,702.39 1,480.96 37,479.59 59,990.13
Charles F. Smith 14,809.56 3,164.47 1,265.78 11,391.97 30,631.78
Chan-Hing Kwok -- -- -- 76,440.14 76,440.14
Mark Campion -- -- -- 24,150.98 24,150.98
Steven P. Williams -- -- -- 35,201.19 35,201.19
Luis P. Buhler -- -- -- 37,821.35 87,821.35
Don J. Robertson -- -- -- 8,543.98 8,543.98
Kiyonori Ogura -- -- -- 8,543.98 8,543.98
Philip C. Kantz -- -- -- 211,662.85 211,662.85
---------- ----------
TOTALS $11,700,000 $2,500,000 $1,000,000 $9,000,000 $24,200,000.00
- ------ =========== ========== ========== ========== ==============
</TABLE>
- ----------------
* This schedule assumes there are no dissenting shareholders. If there
are dissenting shareholders such schedule will be revised so that the amounts
to be contributed to each Escrow Fund by the non-dissenting stockholders shall
be correspondingly increased such that the total amount for each Escrow Fund so
remains unchanged.
<PAGE> 168
ANNEX B
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS
(a) Any Stockholder of a corporation of this State who holds shares of
stock on the date of 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 sec. 228 of
this title will 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 will 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 sec. 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
will 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 will 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 sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section will 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
sec.sec. 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 sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights will
be available for the shares of the subsidiary Delaware corporation.
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<PAGE> 169
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section will 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, will apply as nearly as is practicable.
(d) Appraisal rights will 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, will 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 subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and will include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
will 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 will 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 will 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 sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation, who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of
the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within twenty days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's 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 such
holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective
date of the merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be
sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than
10 days prior to the date the notice is given; provided that, if the notice
is given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be
the close of business on the day next preceding the day on which the notice
is given.
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<PAGE> 170
(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 will 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, will 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 will 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 will be made upon the surviving or resulting corporation, which
will 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 shares have not been
reached by the surviving or resulting corporation. If the petition will be filed
by the surviving or resulting corporation, the petition will be accompanied by
such a duly verified list. The Register in Chancery, if so ordered by the Court,
will 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
will 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 will be approved by the Court, and the
costs thereof will be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court will 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 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
will 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 will 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 will 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 will 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
B-3
<PAGE> 171
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 attorneys' 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 will 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 consolidations); provided,
however, that if no petition for an appraisal will be filed within the time
provided in subsection (e) of this section, or if such stockholder will 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 written approval of the
corporation, then the right of such stockholder to an appraisal will cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
will 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 will have the status of authorized and
unissued shares of the surviving or resulting corporation.
B-4
<PAGE> 172
ANNEX C
TRANSAMERICA ANNUAL REPORT ON FORM 10-K
<PAGE> 173
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission file number 1-2964
TRANSAMERICA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 94-0932740
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
600 Montgomery Street
San Francisco, California 94111
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (415) 983-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -----------------------
<S> <C>
Common Stock--$1 Par Value New York Stock Exchange
Pacific Stock Exchange
Preference Stock Purchase Rights New York Stock Exchange
Pacific Stock Exchange
Depositary shares representing an New York Stock Exchange
interest in Preferred Stock - Series D
9-1/8% Cumulative Monthly Income New York Stock Exchange
Preferred Securities, Series A*
</TABLE>
*Issued by Transamerica Delaware, LP, and guaranteed by Transamerica
Corporation.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( X )
Aggregate market value of Common Stock, $1 par value, held by
nonaffiliates of the registrant as of the close of business at February 29,
1996: $5,116,599,569.
Number of shares of Common Stock, $1 par value, outstanding as of the
close of business on February 29, 1996: 67,926,257.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Transamerica Corporation 1995 Annual Report to
Stockholders are incorporated by reference into Parts I and II. With the
exception of those portions which are incorporated by reference, the
Transamerica Corporation 1995 Annual Report is not deemed filed as part of this
Report.
Portions of the Proxy Statement of Transamerica Corporation dated March
18, 1996 are incorporated by reference into Part III. (A definitive proxy
statement has been filed with the Commission since the close of the fiscal
year.)
<PAGE> 174
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I:
Item 1. Business ................................................. 1
Item 2. Properties ............................................... 14
Item 3. Legal Proceedings ........................................ 14
Item 4. Submission of Matters to a Vote of Securities Holders .... 14
Item 4A. Executive Officers of the Registrant ..................... 14
Part II:
Item 5. Market for Registrant's Common Equity and Related Stock-
holder Matters ........................................... 15
Item 6. Selected Financial Data .................................. 15
Item 7. Management's Discussion and Analysis of Financial Condi-
tion and Results of Operations ........................... 15
Item 8. Financial Statements and Supplementary Data .............. 15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ...................... 15
Part III:
Item 10. Directors and Executive Officers of the Registrant ....... 16
Item 11. Executive Compensation ................................... 17
Item 12. Security Ownership of Certain Beneficial Owners and
Management ............................................... 17
Item 13. Certain Relationships and Related Transactions ........... 17
Part IV:
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K ................................................. 18
</TABLE>
<PAGE> 175
PART I
ITEM I. BUSINESS
Transamerica Corporation is a financial services organization which
engages through its subsidiaries in life insurance, consumer lending, commercial
lending, leasing and real estate services. Transamerica was incorporated in
Delaware in 1928.
On May 2, 1995, Transamerica sold substantially all of the assets of
Criterion Investment Management Company for gross proceeds of $60,000,000 which
were used to reduce debt. The transaction resulted in an after tax gain of
$4,800,000.
On March 31, 1995, Transamerica purchased for $1,027,300,000 in cash
substantially all the assets and assumed certain liabilities of the home equity
business of ITT Consumer Financial Corporation (ITT). The purchase price was
allocated as follows: consumer finance receivables of $966,400,000, which were
all real estate secured, of which 14% was located in California; allowance for
losses of $52,700,000; assets held for sale of $26,800,000; customer renewal
rights of $97,800,000; and assumed liabilities of $11,000,000. Transamerica did
not assume any borrowings, tax liabilities or contingent liabilities of ITT. The
initial financing of the acquisition was provided through short-term bank loans
which have been repaid and refinanced with long-term debt.
On December 21, 1994, Transamerica sold its mutual fund subsidiary,
Transamerica Fund Management Company, for gross proceeds of $100,000,000 which
were used to reduce debt. The transaction resulted in an after tax gain of
$4,857,000.
On April 13, 1994, Transamerica sold its remaining 21% ownership
interest in Sedgwick Group plc. Proceeds from the sale were $326,395,000,
resulted in no gain or loss and were used by Transamerica to purchase 4,500,000
shares of its common stock and reduce debt.
On March 15, 1994, Transamerica acquired substantially all the
operating assets of the Container Operations of Tiphook plc ("Tiphook"), a
London-based transportation equipment rental company, including certain dry
cargo containers, tank containers, tank chassis, operating leases and other
assets (collectively the "Container Operations") for $1,061,441,000 in cash.
Transamerica assumed certain specified liabilities of the Container Operations
including trade accounts payable. Transamerica did not assume any borrowings,
tax liabilities or contingent liabilities of Tiphook. The initial financing of
the acquisition was provided through short-term bank loans which have been
repaid and refinanced with long-term debt.
In 1993 Transamerica sold its former property and casualty insurance
subsidiary, Transamerica Insurance Group, through an initial public offering in
April 1993 and a secondary offering in December 1993. Proceeds from the sales of
stock, after underwriting discounts and issuance costs, totaled $1,031,788,000.
The proceeds were used to reduce indebtedness, including $409,296,000 incurred
to fund cash transactions with the property and casualty insurance operation in
connection with the initial public offering, and to commence a common stock
purchase program.
Information concerning Transamerica's investment portfolio is
incorporated herein by reference to "Investment Portfolio" on page 61 and
"Note E. Financial Instruments" on pages 70 through 75 of the Transamerica
Corporation 1995 Annual Report.
BUSINESS SEGMENT INFORMATION
"Note G. Business Segment Information" on page 77 of the Transamerica
Corporation 1995 Annual Report is incorporated herein by reference.
The business activities of Transamerica's principal subsidiaries are
more fully described below.
LIFE INSURANCE
Transamerica's life insurance business is generated through lines of
business which include life insurance, structured settlements, group pension,
living benefits, reinsurance and Canada. These lines of business conduct their
operations through one or more of the following entities: Transamerica
Occidental Life Insurance Company, Transamerica Life Insurance and Annuity
Company, First Transamerica Life
1
<PAGE> 176
Insurance Company, Transamerica Life Insurance Company of Canada and
Transamerica Assurance Company (hereinafter collectively referred to as
"Transamerica Life Companies"). The Transamerica Life Companies are engaged
primarily in the business of underwriting, distribution and reinsurance of
investment based and traditional life insurance products in all states of the
United States, the District of Columbia, Puerto Rico, the Virgin Islands, Guam,
Canada, Taiwan and Hong Kong.
The life insurance business is highly competitive. Competition arises
from numerous stock and mutual life insurance companies in the United States,
many of which offer products similar to those offered by the Transamerica Life
Companies. In the pension and annuity markets, competition also arises from
banks, mutual funds and other investment managers. Both product and price
competition are intense. The Transamerica Life Companies' key competitive
strengths are their financial position, broad product range, market position and
diversified distribution system.
The following table sets forth certain statistical information relating
to the Transamerica Life Companies' operations.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
1995 1994 1993
------------ ------------ ------------
(Dollar amounts in thousands)
<S> <C> <C> <C>
Insurance in force at
end of period:(1)(2)
Whole life and endowment .... $167,105,237 $153,162,434 $150,151,065
Individual term life ........ 197,703,190 187,841,222 172,441,372
Group life(3) ............... 16,048,712 9,630,184 7,838,176
Credit life(4) .............. 59,026 132,619 200,787
------------ ------------ ------------
Total ..................... $380,916,165 $350,766,459 $330,631,400
============ ============ ============
New insurance written:(2)
Whole life and endowment(5) . $ 23,891,802 $ 23,056,708 $ 29,303,712
Individual term life(6) ..... 50,502,861 37,823,218 46,724,456
Group life(3) ............... 7,856,432 2,369,123 2,057,706
Credit life(4) .............. 449
------------ ------------ ------------
Total ..................... $ 82,251,095 $ 63,249,049 $ 78,086,323
============ ============ ============
Premium income:(7)
Individual life and annui-
ties(8) ................... $ 663,387 $ 599,948 $ 543,580
Group life and annuities(9) . 190,392 137,913 95,004
Accident and health (individ-
ual, group and credit)(10) 286,255 280,587 227,640
------------ ------------ ------------
Total ..................... $ 1,140,034 $ 1,018,448 $ 866,224
============ ============ ============
Average individual life policy
in force at end of year
(actual dollar amounts) ..... $ 155,274 $ 149,064 $ 144,050
Average individual life policy
issued during year (actual
dollar amounts)(11) ......... $ 236,401 $ 243,634 $ 247,944
Number of individual life
policies in force at end of
year ........................ 1,227,603 1,221,765 1,200,076
Ratio of underwriting expenses
to premiums and other consid-
erations(12) ................ 7.5% 8.7% 8.9%
Lapse ratio--adjusted for de-
creases and expiries of
term insurance and rein-
surance assumed:(13)
Transamerica Life Companies . 7.8% 8.0% 8.9%
All U.S. stock life insur-
ance companies(14) ........ (15) 8.3% 9.8%
</TABLE>
(Footnotes are on following page)
2
<PAGE> 177
(Footnotes to table on preceding page)
(1) The annual change in insurance in force results from additions for new
insurance written less reductions from terminations. Approximately 70% to 80% of
terminations in all years were voluntary (from lapse or surrender) with the
remaining amount caused by deaths and other decreases by contract.
(2) Reinsurance assumed has been included, except for intercompany amounts.
Reinsurance ceded has not been deducted.
(3) The increases were due to growth in sales of insurance through salary
deduction plans offered by employers.
(4) The company discontinued this line of business in 1988 and there have been
significant decreases in insurance in force and new insurance written since that
time. In 1990, the company transferred the remaining operations of the credit
insurance line to a trust administered by an independent third party. Insurance
in force represents business which is only cancelable at the policyholder's
request. New insurance written in 1993 represents added business on existing
policies.
(5) The 1995 increase was primarily attributable to increased marketing efforts.
The 1994 decrease was due to reduced sales of Trendsetter policies.
(6) The changes were due primarily to the varying level of reinsurance assumed.
(7) Premiums on reinsurance assumed have been included; cancellations and return
premiums and premiums on reinsurance ceded have been deducted. Considerations
for supplementary contracts and deposit administration funds received have not
been included.
(8) The increases were due primarily to increased sales of individual annuity
policies.
(9) The increases were due primarily to changing levels of sales of group
annuity policies, principally single premium pension contracts.
(10) The increases were primarily due to an increased level of reinsurance
assumed.
(11) The declines were primarily due to lower face amounts of universal life
products.
(12) The ratio is the percentage of salaries and other operating expenses to
premiums and other considerations.
(13) The lapse ratio is calculated in accordance with the A.M. Best Company,
Inc. formula. It is the ratio of amounts of ordinary life insurance terminated
during the year to the aggregate of (1) ordinary life insurance in force at the
beginning of the year plus (2) new business issued during the prior year.
(14) Industry median, as provided by A.M. Best Company, Inc.
(15) Information not yet available for 1995.
Transamerica Life Companies' individual life insurance business is
generated through a system of 669 field sales offices primarily in the United
States and Canada, 48 of which are branch offices operated by employees and the
remainder are independent offices operated by independent general agents. These
offices house a sales force consisting of 68 employees of the Transamerica Life
Companies and approximately 2,100 independent agents operating under contract on
an exclusive or near exclusive basis, which together generated approximately 35%
of new premiums written in 1995. The remaining 65% of the Transamerica Life
Companies' individual life insurance business was generated by more than 16,800
producing independent insurance brokers operating under nonexclusive contracts.
In addition to its sales force, the Transamerica Life Companies have
approximately 1,925 employees in Los Angeles, California, Kansas City, Missouri
and Charlotte, North Carolina who service outstanding policies and new business
submitted by agency offices, and more than 246 field sales office employees
serving its sales force.
Of life insurance in force at December 31, 1995, 21% was on residents
of California, followed by Texas (8.2%), Illinois (5.4%), Florida (3.7%), New
York (3.2%) and Pennsylvania (3.1%). No other state accounted for more than 3%
of life insurance in force. Canada accounted for 14.1% and all other foreign
operations accounted for 2.2% of life insurance in force.
3
<PAGE> 178
Reinsurance. Portions of the Transamerica Life Companies' life
insurance risks are reinsured with other companies. The maximum amount of
individual insurance retained on any one life is $2,000,000 at ages 16 to 65
inclusive. This maximum is reduced for health impairments, for other ages and
for certain other special classes of risks. The Transamerica Life Companies also
reinsure a minor part of their liability under accident and health policies.
For many years the Transamerica Life Companies have solicited life
reinsurance from other companies. As of December 31, 1995, the Transamerica Life
Companies were accepting business from 339 companies under automatic reinsurance
agreements and from approximately 175 other companies on a case by case basis.
Reserves. In accordance with the life insurance laws and regulations
under which they operate, the Transamerica Life Companies are required to carry
on their books as liabilities actuarial reserves to meet the obligations on
their various life insurance policies. Such life insurance reserves are
calculated pursuant to mortality and annuity tables in general use in the United
States and Canada and are the computed amounts which, with additions from
premiums to be received, and with interest on such reserves compounded annually
at certain assumed rates, will be sufficient to meet the Transamerica Life
Companies' policy obligations at their maturities if deaths occur in accordance
with mortality tables employed.
Investments. The Transamerica Life Companies' investments at December
31, 1995 totaled $27,703,169,000 which was invested as follows: 93.8% in fixed
maturities; 2.4% in mortgage loans and real estate; 1.5% in policy loans; 1.0%
in common stocks; 0.8% in short-term investments; 0.2% in nonredeemable
preferred stocks; 0.2% in other long-term investments; and 0.1% in redeemable
preferred stocks. Fixed maturities are invested as follows: 50.2% in industrial
and other non-government bonds; 30.2% in United States government bonds; 18.2%
in public utility bonds; 0.5% in foreign government bonds; and 0.9% in municipal
bonds.
The following table sets forth pretax mean investment yields, including
interest earned and dividends received, before (gross) and after (net) deducting
investment expenses for the Transamerica Life Companies' various investments.
The yields are computed based on the mean of beginning and end of year assets,
producing results which vary somewhat from the daily average yield.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Fixed maturities, at amortized cost--gross(1) 8.30% 8.26% 9.16%
Equity securities, at market value--gross(2) 1.66 2.87 2.96
Mortgages--gross(3) ......................... 8.74 10.70 10.53
Total invested assets:
Gross ..................................... 8.13 8.08 8.81
Net ....................................... 7.93% 7.90% 8.67%
</TABLE>
(1) The decrease in 1994 reflects the lower yields on new investments.
(2) The decrease in the 1995 yield resulted primarily from an increase in the
market value of the portfolio.
(3) The decrease in the 1995 yield is primarily due to the funding of new loans
during 1995 at current market rates which were below the average of the existing
loans.
FINANCE
The consumer lending operation and commercial lending operation have,
from time to time, entered into securitization arrangements whereby they have
securitized portfolios of receivables. The term "owned and serviced" is used
herein to describe their receivables portfolio and the securitized receivables.
Consumer Lending
Consumer lending services are provided by Transamerica Financial
Services, based in Los Angeles, California, which has 555 branch lending
offices. Branch offices are located in the United States (528 in 42 states),
Canada (15) and the United Kingdom (12). Products offered by the consumer
lending operation include first and second mortgage loans, revolving real estate
secured lines of credit, secured and
4
<PAGE> 179
unsecured personal loans, sales finance contracts, credit insurance and retail
used automobile financing. Since 1991, the consumer lending operation has
continued to broaden its receivable portfolio by expanding its revolving real
estate secured lines of credit, its personal loan business (which includes loans
secured by automobiles or other property as well as unsecured loans), its
purchase from dealers of retail finance contracts covering principally
appliances, furniture and services, and retail used automobile financing. The
products offered by the consumer lending operation have traditionally been fixed
rate; in 1995 the company commenced offering variable rate products.
The company's primary business is making fixed rate home equity loans
that generally range up to $200,000. Of the company's net finance receivables
outstanding at December 31, 1995, 82% are secured by real estate, principally
one to four family residential properties. Of the company's net finance
receivables secured by real estate, 63% are secured by first mortgages. Company
policy generally limits the amount of cash advanced on any one loan, plus any
existing mortgage, to between 70% and 80% (depending on location) of the
appraised value of the mortgaged property, as determined by qualified
independent appraisers at the time of loan origination.
The consumer lending operation's principal market involves the
origination and servicing of home equity loans for debt consolidation and other
purposes. Traditionally, the company has relied on an extensive loan-by-mail
program, currently involving approximately 50 million solicitation pieces
annually, to attract potential customers. However, competition has been
increasing in the U.S. home equity market, and competitors include numerous
other finance companies, banks, savings associations and mortgage bankers as
well as loan brokerage operations. In response, the company's competitive
strategies have included product diversification and emphasis on superior
service to better meet customer needs as well as exploration of additional
products and certain foreign markets.
5
<PAGE> 180
The following table sets forth certain statistical information relating
to the consumer lending operation's finance receivables for the years indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------
1995 1994 1993
---------- ---------- ----------
(Dollar amounts in thousands)
<S> <C> <C> <C>
Volume of finance receivables acquired:
Instalment loans:
Secured by residential
real estate(1) .............. $2,067,889 $1,708,806 $1,039,394
Other(2) ...................... 655,312 623,619 524,241
---------- ---------- ----------
2,723,201 2,332,425 1,563,635
Other finance receivables(3) .... 104,080 72,708 29,181
---------- ---------- ----------
Total ....................... $2,827,281 $2,405,133 $1,592,816
========== ========== ==========
Finance receivables outstanding at end of year:
Instalment loans:
Secured by residential
real estate(1) .............. $4,212,704 $3,522,966 $3,295,346
Other(2) ...................... 853,647 758,798 595,284
---------- ---------- ----------
5,066,351 4,281,764 3,890,630
Other finance receivables(3) .... 84,447 58,197 22,276
---------- ---------- ----------
5,150,798 4,339,961 3,912,906
Less unearned finance charges
and insurance premiums ........ 214,506 197,975 185,150
---------- ---------- ----------
Net finance receivables--owned .... 4,936,292 4,141,986 3,727,756
Net finance receivables securi-
tized, sold and serviced(4) ... 59,437
---------- ---------- ----------
Net finance receivables owned
and serviced .................. $4,936,292 $4,141,986 $3,787,193
========== ========== ==========
Allowance for losses at end of
year(5) ......................... $ 164,066 $ 117,218 $ 107,175
Ratio to outstandings less
unearned finance charges and
insurance premiums(6) ......... 3.32% 2.83% 2.83%
Provision for credit losses
charged to income(7) ............ $ 97,835 $ 82,230 $ 63,946
Credit losses (net of recoveries):
Real estate secured instalment
loans(8) ...................... $ 64,817 $ 46,910 $ 45,229
Non-real estate secured
receivables(9) ................ 38,989 28,350 19,201
Ratio to average net finance
receivables outstanding(10):
Owned ........................... 2.15% 1.93% 1.68%
Owned and serviced .............. 2.15% 1.93% 1.69%
</TABLE>
(1) Volume for 1995 includes $1,004,869,000 acquired from ITT on March 31, 1995,
of which $676,078,000 (excluding renewals) remained outstanding at December 31,
1995. Excluding the effects of that acquisition, 1995 loan originations were
less than in 1994 principally due to a decline in renewal volume (which was
caused in part by a return to higher rates in early 1995) and increased
competition. In 1994, in response to increased competition, principally in
California, the company introduced lower interest rates which were not continued
into 1995, which led to a high level of refinancing activity in 1994. The 1994
and 1993 volume also included $117,000,000 and $22,691,000 of purchased
receivables.
(2) The increases reflect general expansion in consumer lending's personal loan
business.
(3) The increases resulted from expansion in the retail finance contract
business. The 1994 volume included $7,855,000 of bulk purchases of contracts.
(4) In 1990, $430,000,000 of real estate secured receivables were securitized
and accounted for as a sale. The runoff of this securitization was completed in
1994.
(Footnotes continued on following page)
6
<PAGE> 181
(Footnotes continued from preceding page)
(5) The increase in 1995 is due to the acquisition of the ITT portfolio on March
31, 1995. The increase in 1994 was caused by growth in outstanding finance
receivables. The 1993 amount includes an allowance for losses of $1,680,000 on
the securitized, sold and serviced portfolio. This amount was reported in other
liabilities in the consolidated balance sheet.
(6) The increase in 1995 is due to the acquisition of the ITT portfolio which
had a higher ratio of allowance for losses to net consumer finance receivables
outstanding.
(7) The provision for credit losses increased due to increases in credit losses
(see notes 8 and 9 below) and, in 1994, increased growth in net finance
receivables.
(8) The increases were due to continued sluggishness in the California economy
and a continued weak California real estate market. Also, in 1995, the company
consolidated and accelerated California branch foreclosure activity in the
fourth quarter and also recognized credit losses that had been anticipated in
connection with the ITT acquisition, both of which contributed to the increase
over 1994. Credit losses exclude losses on the disposal of repossessed assets,
which amounted to $15,441,000 in 1995, $7,314,000 in 1994 and $5,952,000 in
1993, and which are classified as operating expenses. The 1995 increase in
losses on the disposal of repossessed assets was mainly due to the consolidation
and acceleration of foreclosure activity in California.
(9) The increases were caused by growth in the related outstanding receivables
which tend to have a higher loss ratio than the real estate secured portfolio.
Because new receivables generally do not go into default for some period of time
after origination, the increases also reflect the "seasoning" of this portfolio.
(10) The increased ratios were due to corresponding fluctuations in credit
losses (see notes 8 and 9 above).
Following is certain information regarding delinquent receivables,
nonearning receivables, accounts in foreclosure and repossessed assets. Because
future improvements may be impacted by factors such as economic conditions and
the state of the real estate market, particularly in California, the extent and
timing of any change in the trend of delinquent receivables, nonearning
receivables and foreclosures and repossessed assets remains uncertain.
Delinquent Receivables. The following table shows the ratio of consumer
finance receivables which are contractually past due 60 days or more to finance
receivables outstanding for each category and in total for the years indicated:
<TABLE>
<CAPTION>
As of December 31,
--------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Instalment loans:
Secured by residential real
estate(1) .................. 2.35% 1.78% 1.87%
Other(2) ..................... 4.85 3.35 2.71
----- ----- -----
Total instalment loans ....... 2.77 2.06 2.00
Other finance receivables(2) ... 4.10 3.65 3.96
----- ----- -----
Total--owned ................ 2.79 2.08 2.01
Securitized, sold and serviced . 2.47
----- ----- -----
Total owned and serviced ..... 2.79% 2.08% 2.02%
===== ===== =====
</TABLE>
(1) The increase in 1995 was due to worsening in the condition of the non ITT
portfolio and the ITT portfolio acquisition which included the purchase of
delinquent accounts at a discount.
(2) Typically loans do not go into default until some period of time after they
were originated. Therefore, in periods of rapidly increasing volume the
delinquency ratio tends to lag behind the growth in the portfolio. The increase
in 1995 reflects the "seasoning" of non real estate products that were
introduced in 1993. The increase in 1994 for other instalment loans reflected
the changing mix of products in the non real estate portfolio and the
introduction of new products with higher delinquency experience.
7
<PAGE> 182
Nonearning Receivables. Nonearning consumer finance receivables, which
are defined generally as those past due more than 29 days, amounted to
$308,050,000 and $194,272,000 at December 31, 1995 and 1994. Payments received
on nonearning receivables are applied to principal and interest according to the
terms of the loan; however, accrued interest receivable and amortization of
other finance charges are recognized in income only on accounts past due less
than 30 days. Nonearning receivables exclude accounts in foreclosure.
Accounts in Foreclosure and Repossessed Assets. When foreclosure
proceedings begin on an account secured by real estate, the account is moved
from finance receivables to other assets and is written down to the fair value
of the collateral, less estimated selling costs, if less than the account
balance. After foreclosure, repossessed assets are carried at the lower of cost
or fair value less estimated selling costs. Accounts in foreclosure and
repossessed assets held for sale totaled $207,323,000 at December 31, 1995
compared to $226,119,000 at December 31, 1994. The decrease in 1995 reflects the
consolidation and acceleration of California foreclosure activity in the fourth
quarter, which more than offset the increase caused by the acquisition of the
ITT portfolio.
Commercial Lending
Commercial lending services are provided by three core business units:
inventory finance, business credit and insurance premium finance. The commercial
lending business operates from 30 branch lending offices located in the United
States (21), Puerto Rico (1), Canada (4) and Europe (4). The lending activities
of these core businesses are discussed below.
Inventory finance (also known as wholesale financing or floor plan
financing) consists principally of financing dealers' purchases from
distributors or manufacturers of goods for inventory. The products financed
include boats, recreational products, electronics and appliances, manufactured
housing, lawn and garden equipment and personal computers. Loan terms typically
provide for repayment within 30 days following sale of the inventory by the
borrower. After initial review of a borrower's credit worthiness, the ongoing
management of credit risk in this area may include various monitoring
techniques, such as periodic physical inventory checks and review of the
borrower's sales, as well as maintenance of repurchase agreements with
manufacturers which provides a degree of security in the event of a
repossession.
Business credit consists of secured loans, primarily revolving, to
manufacturers, distributors and selected service businesses and collateralized
equipment lending. The asset based lending loans are collateralized and consist
of credit lines typically from $5 million to $25 million with terms ranging from
three to five years. Actual borrowings are limited to specified percentages of
the borrower's inventory, receivables and other eligible collateral which are
regularly monitored to ascertain that receivables outstanding are within
approved limits. Credit risk is managed by monitoring the quality and
performance of the borrower's collateral and compliance with financial
covenants. The equipment finance and lease division of business credit began
operations in 1995 and provides collateralized equipment lending to companies
that acquire capital equipment for their own use. The financings are structured
as both leases and loans. Credit risk is managed by structuring loans such that
loan balances amortize at a faster rate than the equipment depreciates, thus
maintaining collateral value, and by structuring most leases with guaranteed
residuals. In addition, financed equipment must be essential to the operations
of the borrower.
Insurance premium finance involves the financing of insurance premiums
for businesses, generally at fixed rates for terms of less than one year. The
receivables are secured by the commercial lending operation's right to cause the
policies to be canceled and receive the unearned premiums. Credit risk is
managed generally by requiring down payments from borrowers to mitigate the
effects of possible delays in receiving unearned premiums in the event of policy
cancellation and by monitoring the concentrations of potential return premiums
among the insurance carriers and their financial condition.
The relatively short-term nature of the company's financings enables
the commercial lending operation to adjust its finance charges in response to
competitive factors and changes in its costs. The interest rates at which the
commercial lending operation borrows funds generally move more quickly than the
rates at which it lends to customers. As a result, in rising interest rate
environments, margins are normally compressed until changes in the prime lending
rates are effected. Conversely, in declining interest rate environments, margins
are generally enhanced.
8
<PAGE> 183
In 1995, the commercial lending operation sold for cash a portfolio of
consumer rediscount loans totaling $118,000,000 of net outstanding receivables
which resulted in an after tax gain of $4,800,000. It also liquidated and sold
$56,858,000 in net receivables and other assets resulting from the decision to
exit its operations in Puerto Rico and sold substantially all of its rent-to-own
finance receivables. During 1995, it also entered into a three-year arrangement
in which it securitized a $475,000,000 participation interest in a pool of its
insurance premium finance receivables. This agreement replaced a 1990
securitization of $375,000,000 which expired in 1995.
In 1994, the commercial lending operation sold its U.S. and Canadian
repossessed rent-to-own stores with a net carrying value of $17,666,000.
The commercial lending industry is highly competitive and has seen
increasing numbers of new market entrants. In addition to competition from other
finance companies, there is competition from captive finance subsidiaries of
manufacturing companies and commercial banks. The commercial lending operation
competes by offering a variety of financing products, superior customer service
including prompt credit review, and competitive pricing.
The following table sets forth certain statistical information relating
to the commercial lending operation's finance receivables for the years
indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1995 1994 1993
----------- ----------- -----------
(Dollar amounts in thousands)
<S> <C> <C> <C>
Volume of finance receivables acquired:
Inventory finance(1) ............ $ 7,479,383 $ 7,347,448 $ 6,773,720
Business credit(2) .............. 8,929,780 6,602,199 3,696,180
Insurance premium finance(3) .... 1,804,514 1,813,157 1,967,242
----------- ----------- -----------
Core businesses ............... 18,213,677 15,762,804 12,437,142
Other(4) ........................ 18,815 74,860 170,705
----------- ----------- -----------
Total ......................... $18,232,492 $15,837,664 $12,607,847
=========== =========== ===========
Finance receivables outstanding at end of year:
Inventory finance(5) ............ $ 2,242,238 $ 2,078,519 $ 1,959,757
Business credit(6) .............. 680,771 654,966 553,859
Insurance premium finance(7) .... 207,133 277,358 354,322
----------- ----------- -----------
Core businesses ............... 3,130,142 3,010,843 2,867,938
Other(8) ........................ 6,893 75,262 127,687
----------- ----------- -----------
3,137,035 3,086,105 2,995,625
Less unearned finance charges ... 74,379 50,264 55,644
----------- ----------- -----------
Net finance receivables--owned .. 3,062,656 3,035,841 2,939,981
Net finance receivables securi-
tized, sold and serviced(9) ... 474,222 374,461 374,512
----------- ----------- -----------
Net finance receivables owned
and serviced .................. $ 3,536,878 $ 3,410,302 $ 3,314,493
=========== =========== ===========
Allowance for losses at end of
year(10)(11) .................. $ 77,944 $ 90,669 $ 80,668
Ratio to outstandings less
unearned finance charges:(12)
Owned ........................... 2.51% 2.96% 2.71%
Owned and serviced .............. 2.20% 2.66% 2.43%
Provision for credit losses
charged to income ............... $ 16,110 $ 18,320 $ 33,098
Credit losses (net of
recoveries)(13) ................. $ 9,998 $ 8,805 $ 43,515
Ratio to average net finance
receivables outstanding:(12)
Owned ........................... 0.34% 0.29% 1.49%
Owned and serviced .............. 0.29% 0.26% 1.32%
</TABLE>
(Footnotes are on following page)
9
<PAGE> 184
(Footnotes to table on preceding page)
(1) The increase in 1994 reflects the overall improvement in the economy and
increased sales and marketing programs.
(2) The increases primarily reflect a shift in focus from purchasing
participations from other financial institutions to originating and selling
participations in loans. As a result, volume and collections have increased.
(3) The decreases primarily reflect increased market competition and the weak
property and casualty insurance market.
(4) The decreases reflect reduced receivable activity in portfolios of
businesses which the company has sold or exited and are being liquidated.
(5) The 1995 increase was due mainly to increased volume and a slower turnover
in customer inventories. The 1994 increase was due to increased volume in both
consumer electronics and appliances, and home and recreational products.
(6) The 1995 increase is primarily due to the addition of $123,852,000 of net
receivables in the new equipment finance and lease division offset by the sale
of $118,000,000 of rediscount loans. The 1994 increase resulted from a higher
level of new business volume during the year.
(7) The 1995 decrease was due to the securitization of an additional net
$100,000,000 of receivables (see note 9 below). The 1994 decrease was due to
reduced volume particularly late in the year.
(8) The decreases reflect the liquidation of receivables from businesses being
exited.
(9) In 1995, $475,000,000 of insurance premium finance receivables were
securitized replacing a 1990 securitization agreement of $375,000,000 which
expired in 1995. The amounts of securitized receivables outstanding at year end
are shown in the table under the caption "Net finance receivables securitized,
sold and serviced."
(10) Includes $1,188,000 of allowance for losses on the securitized, sold and
serviced portfolio in 1995 and $938,000 in 1994 and 1993 which is reported in
other liabilities in the consolidated balance sheet.
(11) The 1995 decrease in the allowance for losses was attributable to the sale
of the Puerto Rico receivables portfolio which had a larger reserve requirement
and more than offset the increase due to growth in the core businesses. The 1994
increase in the allowance for losses was primarily attributable to receivables
growth in the core businesses.
(12) The changes in ratios were due to corresponding fluctuations in the
allowance for losses and credit losses (see notes 11 and 13).
(13) The 1994 decrease was caused mainly by decreases in delinquent and
nonearning receivables resulting from improved economic conditions and the
effects in 1993 of stronger portfolio management procedures that were
implemented in late 1992.
Delinquent Receivables. Delinquent receivables are defined as the
instalment balance for inventory finance and asset based lending receivables and
the outstanding loan balance for all other receivables over 60 days past due.
The following table shows the ratio of delinquent commercial finance
receivables to finance receivables outstanding for each category and in total as
of the end of each of the years indicated.
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Inventory finance .............. 0.20% 0.11% 0.13%
Insurance premium finance(1) ... 1.40 0.51 0.54
----- ----- -----
Core businesses .............. 0.24 0.12 0.15
Other(2) ....................... 53.47 20.63 19.14
----- ----- -----
Total--owned ................ 0.35% 0.62% 0.96%
===== ===== =====
Total owned and serviced ..... 0.31% 0.55% 0.86%
===== ===== =====
</TABLE>
(Footnotes are on following page)
10
<PAGE> 185
(Footnotes to table on preceding page)
(1) The increase in the 1995 ratio is primarily due to lower receivables
outstanding at December 31, 1995 as a result of a $100,000,000 increase in
securitization during 1995 and a higher delinquency level associated with one
account.
(2) Represents finance receivables retained from businesses sold or exited which
are being liquidated. The increase in the 1995 ratio resulted from the reduction
in receivables outstanding due to the sale of the Puerto Rico portfolio which
had a lower delinquency ratio in relation to the other receivables included in
this caption. The remaining balance as of December 31, 1995 totals $6,893,000.
Nonearning Receivables. Nonearning receivables are defined as balances
from borrowers that are over 90 days delinquent or at such earlier time as full
collectibility becomes doubtful. Accrual of finance charges is suspended on
nonearning receivables until such time as past due amounts are collected.
Nonearning receivables were $18,016,000 (0.57% of receivables outstanding) and
$23,276,000 (0.75% of receivables outstanding) at December 31, 1995 and 1994.
The decline in nonearning receivables was primarily due to the sale of the
Puerto Rico receivables.
Assets Held for Sale. Assets held for sale at December 31, 1995 totaled
$4,445,000, net of a $6,037,000 valuation allowance, and consisted of rent-to-
own finance receivables of $5,595,000 and other assets of $4,887,000. Assets
held for sale at December 31, 1994 totaled $10,908,000, net of a $65,086,000
valuation allowance, and comprised rent-to-own finance receivables of
$72,381,000 and other assets of $3,613,000. Of the finance receivables held
for sale at December 31, 1995, none was classified as delinquent or nonearning
compared to $24,495,000 classified as both delinquent and nonearning at
December 31, 1994.
Leasing
Transamerica Leasing Inc. leases, services and manages containers,
chassis and trailers throughout the world. The leasing operation is based in
Purchase, New York and maintains approximately 400 offices, depots and other
facilities in 47 countries. The company specializes in intermodal transportation
equipment, which allows goods to travel by road, rail or ship. The company's
customers include railroads, steamship lines and motor carriers.
On March 15, 1994, the leasing operation purchased substantially all of
the assets of the container rental businesses of Tiphook plc for $1,061,441,000.
The acquired fleet of standard containers and tank containers totaled 363,000
units.
The leasing operation is the second largest lessor of intermodal
transportation equipment in the industry based on units of equipment available
for hire. The leasing operation competes by providing a high level of service
through its worldwide network of offices and third party depots and a wide
offering of equipment and lease types. The leasing operation's management
information system provides employees and other users, including customers,
around the world, with on-line access to key billing and operational
information. The leasing operation's main competitors are other transportation
leasing companies.
At December 31, 1995, the leasing operation's fleet consisted of
standard containers, refrigerated containers, domestic containers, tank
containers and chassis totaling 708,400 units which are owned or managed, and
leased from approximately 360 depots worldwide; 36,900 rail trailers leased to
all major United States railroads and to roll on/roll off steamship operators,
shippers, shippers' agents and regional truckers; and 7,700 over-the-road
trailers in Europe.
The percent of the leasing operation's fleet on term lease or service
contract minimum lease was 51% in 1995, 47% in 1994 and 56% in 1993. The
decrease in 1994 reflects the impact of the acquisition of the Tiphook plc
container fleet. The increase in 1995 reflects the full integration of the
Tiphook container fleet into the leasing operation's fleet. At December 31, 1995
lease terms were one to 13 years.
11
<PAGE> 186
The following table sets forth the leasing operation's fleet size, in
units, at the end of each of the years indicated:
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Containers and chassis(1) 708,400 685,400 316,000
Rail trailers(2) ......... 36,900 39,300 36,500
European trailers(3) ..... 7,700 5,700 3,800
</TABLE>
(1) The 1994 increase was largely due to the acquisition of substantially all of
the operating assets of the container operations of Tiphook plc.
(2) The 1995 decrease resulted from the sale of older units as intermodal
loadings declined year to year.
(3) The increases reflect entry and expansion into the European trailer market.
The following table sets forth the leasing operation's fleet
utilization for the years indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C> <C>
Containers and chassis(1) ..... 85% 81% 83%
Rail trailers(2) .............. 77% 92% 91%
European trailers(3) .......... 95% 96% 89%
</TABLE>
(1) The 1995 increase was due to higher demand resulting from higher export
levels from China and the Far East. The 1994 decline was due to slow economic
growth in key European economies and Japan and the impact of the Tiphook fleet
acquisition.
(2) The 1995 decline was due to decreased U.S. intermodal loadings. The 1994
increase was primarily due to higher domestic economic activity and because many
shippers moved from trucks to rail transport for long-haul shipments.
(3) The level of utilization for 1995 and 1994 exceeded 1993 due to a greater
number of units on long term lease in the United Kingdom and Europe, and
continued growth in the United Kingdom economy.
REAL ESTATE SERVICES
Real estate services comprise Transamerica's real estate tax, real
estate investments, property management and other services. This segment also
includes Transamerica's asset management operation which comprised Transamerica
Fund Management Company which was sold in December 1994 for gross proceeds of
$100,000,000 which resulted in a $4,857,000 after tax gain, and the operations
of Criterion Investment Management Company, sold in 1995 for gross proceeds of
$60,000,000 which resulted in a $4,800,000 after tax gain.
Transamerica Real Estate Tax Service, a division of Transamerica
Corporation, prepares tax payments and reports and conducts tax searches with
respect to real property taxes and assessments and issues flood hazard
determinations in all 50 states, and provides real property information services
in several states. It also provides customers with information through an
on-line computer system. As of December 31, 1995, tax reports were generated for
more than 3,000 institutional mortgage servicers and their borrowers. The
company operates from 35 offices throughout the United States.
Transamerica Real Estate Tax Service is the leading tax service
operation in the U.S. based on the number of customers and loans serviced.
Competition is increasing in the tax service market, driving down fees at the
same time that customers are demanding more services. In response, Transamerica
Real Estate Tax Service has initiated a number of strategies to maintain its
industry leadership including development of new technology and centralization
of operations.
12
<PAGE> 187
The following table sets forth the number of tax service contracts
under management at the end of the years indicated and new tax service contracts
written during those years:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Tax service contracts
under management ........ 17,664 16,694 15,496
New tax service contracts . 3,911 4,581 5,103
</TABLE>
Transamerica Realty Services, Inc. owns and manages real estate in
various communities. Transamerica Realty Services, Inc. also provides real
estate services to other subsidiaries of the Corporation, including asset and
property management of real estate held for investment principally by the
Corporation's life insurance subsidiaries.
REGULATION
Finance Activities
Transamerica's consumer lending and commercial lending operations are
subject to various state and federal laws. Depending upon the type of lending,
these laws may require licensing and certain disclosures and may limit the
amounts, terms and interest rates that may be offered.
Insurance Activities
The Corporation's life insurance business, in common with those of
other companies in this industry, are subject to regulation and supervision in
the states, territories and countries in which they operate. Although the extent
of such regulation varies, in general state laws establish supervisory agencies
with broad powers relating to licensing of insurance companies and their agents
to transact business therein, supervising premium rates and forms of policies
used, and regulating the form and content of required financial statements and
the types of investments that may be made. Insurance companies are also required
to file annual reports with the supervisory agencies in states in which they do
business and are subject to periodic examination by such agencies.
Other Regulations
A number of jurisdictions in which the Corporation and its subsidiaries
operate, including California, have adopted laws and regulations imposing
environmental controls on the development of real estate and related business
activities.
EMPLOYEES
The Corporation and its subsidiaries employed approximately 10,400
persons at December 31, 1995.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios of earnings from
continuing operations to fixed charges of Transamerica Corporation and its
subsidiaries for each of the five years ended December 31, 1995.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1.95 2.14 2.09 1.90 1.06
</TABLE>
The ratios of earnings from continuing operations to fixed charges were
computed by dividing earnings from continuing operations before fixed charges
and income taxes by the fixed charges. Fixed charges consist of interest and
debt expense and one-third of rent expense, which approximates the interest
factor.
13
<PAGE> 188
ITEM 2. PROPERTIES
The executive offices of Transamerica Corporation are located in the
Transamerica Pyramid in San Francisco, California, a 48-story office building.
Approximately 18% of the 460,000 square feet of rentable space is occupied by
Transamerica and its subsidiaries.
The Transamerica Center in Los Angeles, California, consists of a
32-story building, an 11-story building and a 10-story building. Transamerica
Center is the home office of Transamerica Financial Services, certain divisions
of Transamerica Life Companies and certain other subsidiaries of Transamerica.
Approximately 65% of the 1,210,000 square feet of rentable space is occupied by
Transamerica subsidiaries. During 1995, Transamerica provided for an expected
$21,500,000 after tax loss on the Transamerica Center in anticipation of a
planned sale and leaseback transaction that is subject to regulatory approval.
ITEM 3. LEGAL PROCEEDINGS
Various pending or threatened legal proceedings by or against the
Corporation or one or more of its subsidiaries involve tax matters, alleged
breaches of contract, torts, employment discrimination, violations of antitrust
laws and miscellaneous other causes of action arising in the course of their
businesses. Some of these proceedings involve claims for punitive or treble
damages in addition to other specific relief.
Based upon information presently available, and in light of legal and
other defenses and insurance coverage available to the Corporation and its
subsidiaries, contingent liabilities arising from threatened and pending
litigation, income taxes and other matters are not expected to have a material
effect on the consolidated financial position or results of operations of the
Corporation and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
See Item 10 in Part III of this Report.
14
<PAGE> 189
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following information in the Transamerica Corporation 1995 Annual
Report is incorporated herein by reference:
Markets on which the Corporation's common stock is traded--"Common
Stock Listed and Traded," page 88.
High and low sale prices for the Corporation's common stock for each
quarter in 1995 and 1994--"Supplementary Financial Information," page
81.
Frequency and amount of cash dividends declared during 1995 and
1994--"Selected Eleven-Year Financial Data--Note E," page 83.
Number of common stockholders of record as of the close of business on
February 29, 1996--"Supplementary Financial Information--Note A," page
81.
ITEM 6. SELECTED FINANCIAL DATA
The following items for each of the five years in the period ended
December 31, 1995, included in "Selected Eleven-Year Financial Data" on pages 82
and 83 of the Transamerica Corporation 1995 Annual Report, are
incorporated herein by reference:
Revenues
Income from continuing operations
Earnings per share of common stock--Income from
continuing operations
Total assets
Notes and loans payable: Long-term debt
Dividends declared per share of common stock
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth under the caption "Financial Review" on pages
44 through 61, of the Transamerica Corporation 1995 Annual Report, is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements and supplementary
financial information of the Corporation and its subsidiaries in the
Transamerica Corporation 1995 Annual Report are incorporated herein by
reference:
Consolidated Balance Sheet--December 31, 1995 and 1994--pages 62 and
63.
Consolidated Statement of Income--Years ended December 31, 1995, 1994
and 1993--page 64.
Consolidated Statement of Cash Flows--Years ended December 31, 1995,
1994 and 1993--page 65.
Consolidated Statement of Stockholders' Equity--Years ended December
31, 1995, 1994 and 1993--page 66.
Notes to Financial Statements--December 31, 1995--pages 67 through 79.
Supplementary Financial Information--Years ended December 31, 1995 and
1994--page 81.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
15
<PAGE> 190
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "(1) Election of Directors"
in the Proxy Statement of Transamerica Corporation dated March 18, 1996 is
incorporated herein by reference.
The officers of the Corporation are listed below. Executive officers
are designated by an asterisk.
<TABLE>
<CAPTION>
Name Position Age Name Position Age
---- -------- --- ---- -------- ---
<S> <C> <C> <C> <C> <C>
Frank C. Herringer* ..... Chairman of the Board, 53 Maureen Breakiron-Evans . Vice President and 41
President and Chief General Auditor
Executive Officer Burton E.Broome* ....... Vice President and 60
Thomas J. Cusack* ....... Executive Vice President, 40 Controller
Transamerica Corporation Kent L.Colwell* ........ Vice President--Real 65
and President and Chief Estate Services
Executive Officer, James B.Dox ............ Vice President--Taxes 56
Transamerica Life Richard H. Fearon ....... Vice President-- 40
Companies Corporate Development
Richard H. Finn* ........ Executive Vice President, 61 David H. Hawkins ........ Vice President, Trans- 55
Transamerica Corpor- america Corporation
ation and President and Senior Vice Presi-
and Chief Executive dent and Treasurer,
Officer, Transamerica Transamerica Finance
Finance Corporation Corporation
Edgar H. Grubb* ......... Executive Vice President 56 Robert R. Lindberg* ..... Vice President and 55
and Chief Financial Treasurer
Officer James B. Lockhart ....... Vice President-- 59
Robert A. Watson* ....... Executive Vice President 49 Public Affairs
Shirley H. Buccieri* .... Senior Vice President, 43 William H. McClave ...... Vice President-- 52
General Counsel and Corporate
Secretary Communications
Richard N. Latzer* ...... Senior Vice President 59 Richard J. Olsen ........ Vice President-- 57
and Chief Investment Corporate Relations
Officer, Transamerica Rona Pehrson ............ Vice President-- 48
Corporation, President Human Resources
and Chief Executive Ronald C.Petrunoff ..... Vice President-- 32
Officer, Transamerica Investor Relations
Investment Services, George B.Sundby ........ Vice President--Financial 44
Inc. and President, Planning and Analysis,
Transamerica Realty and Assistant Controller
Services, Inc. Judith M.Tornese ....... Vice President--Risk 53
Management
</TABLE>
Mr. Herringer was elected Chairman of the Board of the Corporation
effective January 1, 1996. He has been Chief Executive Officer of the
Corporation since 1991 and President since 1986.
Mr. Cusack was elected Executive Vice President of the Corporation in
1995. He was named President and Chief Executive Officer of the Transamerica
Life Companies in 1995. He was Senior Vice President of the Corporation from
1993 to 1995 and Vice President--Corporate Development from 1989 to 1993.
Mr. Finn was elected Executive Vice President of the Corporation in
1993. He was Group Vice President of the Corporation from 1990 to 1993. He has
been Chief Executive Officer of Transamerica Finance Corporation since 1990 and
President since 1988.
Mr. Grubb was elected Executive Vice President and Chief Financial
Officer of the Corporation in 1993. He was Senior Vice President of the
Corporation from 1989 to 1993.
Mr. Watson was elected Executive Vice President of the Corporation in
1995. He was with Westinghouse Electric Corporation from 1992 to 1995 where he
served as an Executive Vice President and as Chairman and Chief Executive
Officer of Westinghouse's financial services division. He was President and
Chief Executive officer of Transamerica Commercial Finance Corporation from 1990
to 1992.
Ms. Buccieri was elected Senior Vice President, General Counsel and
Secretary of the Corporation in 1995. She was with Gibson, Dunn & Crutcher from
1983 to 1995 and served as a Partner from 1990 to 1995.
16
<PAGE> 191
Mr. Latzer was elected Senior Vice President and Chief Investment
Officer of the Corporation in 1988. Since 1988, he has been President and Chief
Executive Officer of Transamerica Investment Services, Inc. In 1995, he was
named President of Transamerica Realty Services, Inc.
Ms. Breakiron-Evans was elected Vice President and General Auditor of
the Corporation effective in 1994. She was with Arthur Andersen & Co. from 1980
to 1994 where she served as an Audit Partner in the San Francisco office from
1990 to 1994.
Mr. Broome was elected Vice President and Controller of the Corporation
in 1979.
Mr. Colwell was elected Vice President--Real Estate Services of the
Corporation in 1977. From 1972 to 1995, he was President of Transamerica Realty
Services, Inc.
Mr. Dox was elected Vice President--Taxes of the Corporation in 1993.
He was a Tax Partner with Ernst & Young LLP from 1977 to 1993, serving in the
Los Angeles office from 1983 to 1993.
Mr. Fearon was elected Vice President--Corporate Development of the
Corporation in 1995. He was General Manager of Corporate Development and Vice
Chairman of NatSteel Chemicals from 1990 to 1995.
Mr. Hawkins was elected Vice President of the Corporation in 1993. He
has been Senior Vice President and Treasurer of Transamerica Finance Corporation
since 1989.
Mr. Lindberg was elected Vice President and Treasurer of the
Corporation in 1987.
Mr. Lockhart was elected Vice President--Public Affairs of the
Corporation in 1979.
Mr. McClave was elected Vice President--Corporate Communications of the
Corporation in 1981.
Mr. Olsen was elected Vice President--Corporate Relations of the
Corporation in 1981.
Ms. Pehrson was elected Vice President--Human Resources of the
Corporation in 1989.
Mr. Petrunoff was elected Vice President--Investor Relations of the
Corporation in 1994. He held a number of positions within the commercial lending
operation between 1990 and 1994, most recently serving as managing director of
the European operations of commercial lending's inventory finance unit.
Mr. Sundby was elected Vice President--Financial Planning and Analysis
in 1995. He was Assistant Controller and Director of Accounting of the
Corporation from 1989 to 1995. He continues to serve as Assistant Controller.
Ms. Tornese was elected Vice President--Risk Management of the
Corporation in 1987.
There is no family relationship among any of the foregoing officers or
between any of the foregoing officers and any director of the Corporation.
The information set forth under the caption "Securities Exchange Act of
1934" in the Proxy Statement of Transamerica Corporation dated March 18, 1996 is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Director Compensation and
Benefits" and "Executive Compensation and Other Information" in the Proxy
Statement of Transamerica Corporation dated March 18, 1996 is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the captions "Principal Stockholders"
and "Stockholdings of Directors and Executive Officers" in the Proxy Statement
of Transamerica Corporation dated March 18, 1996 is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the captions "Director Compensation and
Benefits," "Compensation Committee Interlocks and Insider Participation" and
"Certain Transactions" in the Proxy Statement of Transamerica Corporation dated
March 18, 1996 is incorporated herein by reference.
17
<PAGE> 192
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) and (2) The response to this portion of Item 14 is submitted as a
separate section of this report.
(3) List of Exhibits:
3.(i) Transamerica Corporation Certificate of Incorporation, as
amended (incorporated by reference to Exhibit 4.5 of the
Registrant's Registration Statement on Form S-3 (File No.
33-43921) as filed with the Commission on November 13, 1991 and
to Exhibits 3 and 4 contained in Form 8-A filed January 21, 1992,
as amended by Form 8 filed January 27, 1992).
3.(ii) Transamerica Corporation By-Laws, as amended.
4.1 Stock Purchase Rights Agreement dated as of July 17, 1986
together with Amendment dated January 24, 1991 (incorporated by
reference to Exhibit 4.1 of the Registrant's Annual Report on
Form 10-K (File No. 1-2964) for the year ended December 31,
1991).
4.2*
10.1 Form of Non-Qualified Stock Option Agreement under the
Registrant's 1971 and 1979 Non-Qualified Stock Option Plan
(incorporated by reference to Exhibit 10.4 of the Registrant's
Annual Report on Form 10-K (File No. 1-2964) for the year ended
December 31, 1988).
10.2 Executive Benefit Plan for Transamerica Corporation and
Affiliates, as amended (incorporated by reference to Exhibit
EX-10.2 of the Registrant's Annual Report on Form 10-K (File No.
1-2964) for the year ended December 31, 1992).
10.3 Form of Amended and Restated Consulting Agreement dated January
31, 1994 between Transamerica Corporation and James R. Harvey
(incorporated by reference to Exhibit EX-10.5 of the Registrant's
Annual Report on Form 10-K (File No. 1-2964) for the year ended
December 31, 1993).
10.4 Form of Amended and Restated Consulting Agreement dated January
31, 1995 (including Amendment No. 1) between Transamerica
Corporation and James R. Harvey.
10.5 1994 Bonus Plan (incorporated by reference to Exhibit EX-10.1
of the Registrant's Quarterly Report on Form 10-Q (File No.
1-2964) for the quarter ended March 31, 1994).
10.6 1995 Bonus Plan (incorporated by reference to Exhibit EX-10.8
of the Registrant's Annual Report on Form 10-K (File No. 1-2964)
for the year ended December 31, 1994).
10.7 1996 Bonus Plan.
10.8 1985 Stock Option and Award Plan, as amended, (including
Amendments No. 1 through 7) (incorporated by reference to Exhibit
EX-10.5 of the Registrant's Quarterly Report on Form 10-Q (File
No. 1-2964) for the quarter ended March 31, 1994, to Exhibit 4.1
to Post-Effective Amendment No. 3 of the Registrant's
Registration Statement on Form S-8 (File No. 33-26317) as filed
with the Commission on March 30, 1990, to Exhibit 10.11 of the
Registrant's Annual Report on Form 10-K (File No. 1-2964) for the
year ended December 31, 1990, and to Exhibit EX-10.1 of the
Registrant's Quarterly Report on Form 10-Q (File No. 1-2964) for
the quarter ended June 30, 1995).
10.9 Form of Non-Qualified Stock Option Agreement under the
Registrant's 1985 Stock Option and Award Plan (incorporated by
reference to Exhibit EX-10.3 of the Registrant's Quarterly Report
on Form 10-Q (File No. 1-2964) for the quarter ended March 31,
1994).
10.10 Form of Incentive Stock Option Agreement under the
Registrant's 1985 Stock Option and Award Plan (incorporated by
reference to Exhibit 10.9 of the Registrant's Annual Report on
Form 10-K (File No. 1-2964) for the year ended December 31,
1990).
*Neither the Corporation nor its subsidiaries are parties to any
instrument with respect to long-term debt for which securities
authorized thereunder exceed 10% of the total assets of the
Corporation and its subsidiaries on a consolidated basis. Copies of
instruments with respect to long-term debt of lesser amounts will be
provided to the Commission upon request.
18
<PAGE> 193
10.11 Form of Restricted Stock Award Agreement under the 1985 Stock
Option and Award Plan (incorporated by reference to Exhibit
EX-10.11 of the Registrant's Annual Report on Form 10-K (File No.
1-2964) for the year ended December 31, 1993).
10.12 Form of Non-Qualified Stock Option Agreement for Nonemployee
Directors under the 1985 Stock Option and Award Plan
(incorporated by reference to Exhibit EX-10.4 of the Registrant's
Quarterly Report on Form 10-Q (File No. 1-2964) for the quarter
ended March 31, 1994).
10.13 Deferred Compensation Policy for Transamerica Corporation and
Affiliates effective January 1, 1987 (incorporated by reference
to Exhibit 10.12 of the Registrant's Annual Report on Form 10-K
(File No. 1-2964) for the year ended December 31, 1991).
10.14 Deferred Compensation Policy for Transamerica Corporation and
Affiliates effective January 1, 1988 (incorporated by reference
to Exhibit EX-10.14 of the Registrant's Annual Report on Form
10-K (File No. 1-2964) for the year ended December 31, 1992).
10.15 Deferred Compensation Policy for Transamerica Corporation and
Affiliates effective January 1, 1989 (incorporated by reference
to Exhibit 10.17 of the Registrant's Annual Report on Form 10-K
(File No. 1-2964) for the year ended December 31, 1989).
10.16 Deferred Compensation Policy for Transamerica Corporation and
Affiliates effective January 1, 1990 (incorporated by reference
to Exhibit 10.18 of the Registrant's Annual Report on Form 10-K
(File No. 1-2964) for the year ended December 31, 1989).
10.17 Deferred Compensation Policy for Transamerica Corporation and
Affiliates effective July 1, 1992 (incorporated by reference to
Exhibit EX-10.17 of the Registrant's Annual Report on Form 10-K
(File No. 1-2964) for the year ended December 31, 1992).
10.18 Deferred Compensation Policy for Transamerica Corporation and
Affiliates effective January 1, 1994 (incorporated by reference
to Exhibit EX-10.18 of the Registrant's Annual Report on Form
10-K (File No. 1-2964) for the year ended December 31, 1993).
10.19 Transamerica Corporation Deferred Compensation Plan, as
amended (including Amendment No. 1) (and incorporated by
reference to Exhibit EX-10.20 of the Registrant's Annual Report
on Form 10-K (File No. 1-2964) for the year ended December 31,
1994).
10.20 1971 Non-Qualified Stock Option Plan of Transamerica
Corporation, as amended (including Amendment Nos. 1 and 2)
(incorporated by reference to Exhibit EX-10.20 of the
Registrant's Annual Report on Form 10-K (File No. 1-2964) for the
year ended December 31, 1992).
10.21 1979 Stock Option Plan of Transamerica Corporation, as amended
(including Amendment Nos. 1 and 2) (incorporated by reference to
Exhibit EX-10.21 of the Registrant's Annual Report on Form 10-K
(File No. 1-2964) for the year ended December 31, 1992).
10.22 Form of Termination Agreement between Transamerica Corporation
and certain of its officers and of its subsidiaries (incorporated
by reference to Exhibit EX-10.25 of the Registrant's Annual
Report on Form 10-K (File No. 1-2964) for the year ended December
31, 1994).
10.23 Reinsurance Agreement dated December 31, 1992 by and between
ARC Reinsurance Corporation and Transamerica Insurance Company,
as amended (incorporated by reference to Exhibit EX-10.26 of the
Registrant's Annual Report on Form 10-K (File No. 1-2964) for the
year ended December 31, 1992).
10.24 Letter dated December 31, 1992 from the Registrant to
Transamerica Insurance Company regarding ARC Reinsurance
Corporation (incorporated by reference to Exhibit EX-10.27 of the
Registrant's Annual Report on Form 10-K (File No. 1-2964) for the
year ended December 31, 1992).
10.25 Transamerica Corporation 1995 Performance Stock Option Plan
(incorporated by reference to Exhibit 4.1 of the Registrant's
Registration Statement on Form S-8 (File No. 33-64221) as filed
with the Commission on November 14, 1995).
10.26 Transamerica Corporation Value Added Incentive Plan
(incorporated by reference to Exhibit EX-10.2 of the Registrant's
Quarterly Report on Form 10-Q (File No. 1-1964) for the quarter
ended March 31, 1994).
19
<PAGE> 194
10.27 Form of Nonqualified Stock Option Agreement under the
Registrant's 1995 Performance Stock Option Plan (incorporated by
reference to Exhibit EX-10.2 of the Registrant's Quarterly Report
on Form 10-Q (File No. 1-2964) for the quarter ended June 30,
1995).
10.28 Form of Nonqualified Stock Option Agreement granted with
Tandem Limited Stock Appreciation Right under the Registrant's
1995 Performance Stock Option Plan (incorporated by reference to
Exhibit EX-10.3 of the Registrant's Quarterly Report on Form 10-Q
(File No. 1-2964) for the quarter ended June 30, 1995).
10.29 Form of Tandem Limited Stock Appreciation Right under the
Registrant's 1995 Performance Stock Option Plan (incorporated by
reference to Exhibit EX-10.4 of the Registrant's Quarterly Report
on Form 10-Q (File No. 1-1964) for the quarter ended June 30,
1995).
11 Statement Re: Computation of Per Share Earnings.
12 Ratio of Earnings to Fixed Charges Calculation.
13 Portions of the Transamerica Corporation 1995 Annual Report (to
the extent such portions are expressly incorporated herein).
21 List of Subsidiaries of Transamerica Corporation.
23 Consent of Ernst & Young LLP to the incorporation by reference of
their report dated February 14, 1996 in the Registrant's
Registration Statements on Form S-8 (File Nos. 2-80934, 2-83724,
33-3722, 33-12324, 33-13389, 33-18911, 33-26317, 33-38267,
33-43927, 33-55587 and 33-64221) and on Form S-3 (File Nos.
33-32419, 33-37889, 33-41008, 33-55047 and 33-63049).
24 Power of Attorney executed by the directors of the Registrant.
27 Financial Data Schedule.
Exhibits will be furnished to stockholders of the Corporation
upon written request and, with the exception of Exhibit 13, upon
payment of a fee of 30 cents per page, which fee covers the
Corporation's reasonable expenses in furnishing such exhibits.
(b) Reports on Form 8-K filed in the fourth quarter of 1995: None
(c) Exhibits: Certain of the exhibits listed in Item (a)(3) above have
been submitted under separate filings, as indicated.
(d) Financial Statement Schedules: The response to this portion of Item
14 is submitted as a separate section of this report.
20
<PAGE> 195
Signatures
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
TRANSAMERICA CORPORATION
Registrant
By: BURTON E. BROOME
-------------------------
Burton E. Broome
Vice President and Controller
Date: March 26, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW ON MARCH 26, 1996 BY THE FOLLOWING PERSONS ON
BEHALF OF THE REGISTRANT AND IN THE
CAPACITIES INDICATED.
SIGNATURE TITLE
PRINCIPAL EXECUTIVE OFFICER:
FRANK C. HERRINGER* Chairman of the Board,
President and Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER:
EDGAR H. GRUBB
- -----------------------------
Edgar H. Grubb Executive Vice President and
Chief Financial Officer
PRINCIPAL ACCOUNTING OFFICER:
BURTON E. BROOME
- ------------------------------
Burton E. Broome Vice President and Controller
DIRECTORS:
MYRON DU BAIN* Director
SAMUEL L. GINN* Director
JAMES R. HARVEY* Director
FRANK C. HERRINGER* Chairman of the Board and Director
GORDON E. MOORE* Director
TONI REMBE* Director
CONDOLEEZZA RICE* Director
CHARLES R. SCHWAB* Director
FORREST N. SHUMWAY* Director
PETER V. UEBERROTH* Director
*By SHIRLEY H. BUCCIERI
- -------------------------------
*Shirley H. Buccieri
Attorney-in-Fact
21
<PAGE> 196
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) and (2) and ITEM 14(d)
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
AND
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1995
TRANSAMERICA CORPORATION AND SUBSIDIARIES
SAN FRANCISCO, CALIFORNIA
i
<PAGE> 197
(THIS PAGE INTENTIONALLY LEFT BLANK)
ii
<PAGE> 198
FORM 10-K--ITEM 14(a)(1) AND (2)
TRANSAMERICA CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements:
The following consolidated financial statements of Transamerica
Corporation and subsidiaries, included in the Transamerica Corporation 1995
Annual Report, are incorporated by reference in Item 8:
Consolidated Balance Sheet--December 31, 1995 and 1994
Consolidated Statement of Income--Years ended December 31, 1995, 1994
and 1993
Consolidated Statement of Cash Flows--Years ended December 31, 1995,
1994 and 1993
Consolidated Statement of Stockholders' Equity--Years ended December
31, 1995, 1994 and 1993
Notes to Financial Statements--December 31, 1995
Financial Statement Schedules:
The following consolidated financial statement schedules of Transamerica
Corporation and subsidiaries are included in Item 14(d).
I--Summary of Investments Other Than Investments in Related
Parties--December 31, 1995
II--Condensed Financial Information of Registrant--December 31, 1995
and 1994, and years ended December 31, 1995, 1994 and 1993
III--Supplementary Insurance Information--Years ended December 31,
1995, 1994 and 1993
IV--Reinsurance--Years ended December 31, 1995, 1994 and 1993
V--Valuation and Qualifying Accounts--Years ended December 31, 1995,
1994 and 1993
All other schedules provided for in the applicable accounting
regulation of the Securities and Exchange Commission pertain to items which do
not appear in the financial statements of Transamerica Corporation and
subsidiaries or to items which are not significant or to items as to which the
required disclosures have been made elsewhere in the financial statements and
supplementary notes, and such schedules have therefore been omitted.
iii
<PAGE> 199
[THIS PAGE INTENTIONALLY LEFT BLANK]
iv
<PAGE> 200
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Transamerica Corporation
We have audited the consolidated financial statements of Transamerica
Corporation and subsidiaries listed in Item 14(a)(1) and (2) of the Annual
Report on Form 10-K of Transamerica Corporation for the year ended December 31,
1995. Our audits also included the financial statement schedules listed in the
index at Item 14(a)(1) and (2). These financial statements and schedules are the
responsibility of Transamerica Corporation's management. Our responsibility is
to express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and related
schedules are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and related schedules. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Transamerica Corporation and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects the
information set forth therein.
As discussed in Note A to the consolidated financial statements,
Transamerica Corporation changed its method of accounting for certain debt
securities effective January 1, 1994.
ERNST & YOUNG LLP
San Francisco, California
February 14, 1996
v
<PAGE> 201
SCHEDULE I
TRANSAMERICA CORPORATION AND SUBSIDIARIES
SCHEDULE I--SUMMARY OF INVESTMENTS OTHER
THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
- --------------------------------------------------------------------------------------------------------------
AMOUNT AT
WHICH SHOWN IN
TYPE OF INVESTMENT COST VALUE THE BALANCE SHEET
------------------ ---- ----- -----------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities available for sale:
Bonds and notes:
U.S. Treasury securities and obligations of
U.S. government authorities and agencies . $ 98,906 $ 106,393 $ 106,393
Obligations of states and political
subdivisions ............................. 355,023 372,448 372,448
Foreign governments ........................ 110,254 119,409 119,409
Corporate securities ....................... 11,803,366 12,927,948 12,927,948
Mortgage-backed securities ................. 7,300,471 7,750,642 7,750,642
Public utilities ........................... 4,381,701 4,772,172 4,772,172
Redeemable preferred stocks 23,684 27,046 27,046
----------- ----------- -----------
Total fixed maturities ............... 24,073,405 $26,076,058 26,076,058
===========
Equity securities:
Common stocks:
Banks, trust and insurance companies....... 25,186 $ 32,000 32,000
Industrial, miscellaneous and all other .... 290,386 612,953 612,953
Nonredeemable preferred stocks............... 34,376 58,280 58,280
----------- ----------- -----------
Total equity securities .............. 349,948 $ 703,233 703,233
===========
Mortgage loans on real estate.................. 550,076 523,653
Real estate.................................... 97,614 70,870
Loans to life insurance policyholders.......... 426,377 426,377
Short-term investments......................... 226,531 226,531
----------- -----------
Total investments .................... $25,723,951 $28,026,722
=========== ===========
</TABLE>
The differences between Column B and Column D as to mortgage loans on real
estate and real estate represent write downs and allowances for possible
permanent impairment in value.
vi
<PAGE> 202
SCHEDULE II
TRANSAMERICA CORPORATION AND SUBSIDIARIES
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TRANSAMERICA CORPORATION (PARENT COMPANY)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
---- ----
<S> <C> <C>
Assets:
Investments in subsidiaries............................... $5,368,769 $3,727,923
Equity securities at fair value (cost: $174,404 in 1995
and $108,746 in 1994).................................. 359,977 201,870
Short-term investments.................................... 3,599 11,166
Notes and accounts receivable from subsidiaries........... 73,743 213,657
Cash and cash equivalents................................. 1,590 2,828
Deferred income tax benefit, net of current tax liability
of $41,031............................................. 57,619
Other assets.............................................. 298,515 264,729
---------- ----------
$6,163,812 $4,422,173
========== ==========
Liabilities and Stockholders' Equity:
Notes and loans payable................................... $ 577,346 $ 506,951
Income taxes payable, net of deferred tax benefits of
$123,098............................................... 90,119
Income taxes due to subsidiaries.......................... 328,171 189,886
Notes and accounts payable to subsidiaries................ 447,476 490,812
Accounts payable and other liabilities.................... 510,958 408,586
Stockholders' equity:
Preferred Stock ($100 par value):
Authorized--1,200,000 shares; issuable inseries
Outstanding--Dutch Auction Rate Transferable
Securities, 2,250 shares, at liquidation preference
of $100,000 per share............................. 225,000 225,000
Outstanding--Series D, 180,091 shares in 1995 and
181,642 shares in 1994 at liquidation preference of
$500 per share................................... 90,046 90,821
Common Stock ($1 par value):
Authorized--150,000,000 shares
Outstanding--67,989,508 shares in 1995 and 69,395,099
shares in 1994, after deducting 11,748,954 and
10,343,363 shares in treasury in 1995 and 1994 ... 67,990 69,395
Additional paid-in capital.............................. 96,449
Retained earnings, including equity in undistributed net
income of subsidiaries of $1,688,016 in 1995 and
$1,488,709 in 1994................................... 2,866,037 2,557,444
Net unrealized gain (loss) from investments marked to
fair value........................................... 1,079,888 (265,125)
Foreign currency translation adjustments................ (29,100) (38,165)
---------- ----------
4,299,861 2,735,819
---------- ----------
$6,163,812 $4,422,173
========== ==========
</TABLE>
See note to balance sheet on page x
vii
<PAGE> 203
SCHEDULE II
(CONTINUED)
TRANSAMERICA CORPORATION AND SUBSIDIARIES
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TRANSAMERICA CORPORATION (PARENT COMPANY)
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Dividends from continuing operations ............. $329,775 $361,847 $115,350
Tax service fees ................................. 152,617 190,328 236,433
Interest, principally from continuing operations . 4,812 14,151 13,777
Investment income ................................ 15,112 8,988
Gain (loss) on investment transactions ........... 23,261 2,012 (5,909)
-------- -------- --------
525,577 577,326 359,651
Expenses:
Interest ......................................... 99,311 101,992 87,382
General and administrative ....................... 233,363 177,779 170,155
-------- -------- --------
332,674 279,771 257,537
-------- -------- --------
192,903 297,555 102,114
Income tax benefit ................................. 78,322 26,333 88,747
-------- -------- --------
Income before equity in undistributed income of
continuing operations, loss from discontinued
operations and extraordinary loss ................ 271,225 323,888 190,861
Equity in undistributed income of continuing
operations excluding discontinued operations and
extraordinary loss ............................... 199,307 104,038 256,658
-------- -------- --------
Income from continuing operations .................. 470,532 427,926 447,519
Loss from discontinued operations .................. (699) (47,022)
Extraordinary loss on early extinguishment of
subsidiary debt .................................. (23,084)
-------- -------- --------
Net income ..................................... $470,532 $427,227 $377,413
======== ======== ========
</TABLE>
See note to statement of income on page xi
viii
<PAGE> 204
SCHEDULE II
(CONTINUED)
TRANSAMERICA CORPORATION AND SUBSIDIARIES
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TRANSAMERICA CORPORATION (PARENT COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Income from continuing operations before extra-
ordinary item ................................... $ 470,532 $427,926 $447,519
Adjustments to reconcile income from continuing
operations to net cash
provided by operating activities:
Depreciation and amortization ................... 4,517 4,044 4,018
Accounts payable and other liabilities .......... 47,645 48,286 34,720
Income taxes payable, including related accounts
with continuing operations .................... (33,870) 207,110 (120,424)
Equity in undistributed income of continuing
operations .................................... (199,307) (104,038) (256,658)
Net (gains) losses on investment transactions ... (23,261) (2,012) 5,909
Other ........................................... 4,753 26,047 (25,211)
--------- -------- ---------
Net cash provided by continuing operations .... 271,009 607,363 89,873
Investing activities:
Capital contributions to continuing operations .... (146,000) (90,000) (54,200)
Sales of investments.............................. 99,377 46,477 9,643
Purchases of investments.......................... (138,237) (115,353) (212,426)
Decrease (increase) in short-term investments ..... 8,077 (11,166)
Proceeds from public offering of discontinued
operations ...................................... 1,031,788
Cash transactions with discontinued operations .... (409,296)
Decrease (increase) in accounts with continuing
operations ...................................... 108,694 426,205 62,133
Other............................................. (13,985) (7,018) (4,093)
--------- -------- ---------
Net cash provided (used) by investing
activities .................................. (82,074) 249,145 423,549
Financing activities:
Increase (decrease) in commercial paper obligations 195,395 (61,179) (138,067)
Payments of long-term notes....................... (125,000) (132,000) (23,000)
Redemption of preferred stock..................... (802) (115,921)
Treasury stock purchases.......................... (155,430) (386,983) (207,647)
Other common stock transactions................... 51,036 7,973 33,618
Dividends......................................... (155,372) (167,666) (179,766)
--------- -------- ---------
Net cash used by financing activities ......... (190,173) (855,776) (514,862)
--------- -------- ---------
Increase (decrease) in cash and cash equivalents .... (1,238) 732 (1,440)
Cash and cash equivalents at beginning of year .... 2,828 2,096 3,536
--------- -------- ---------
Cash and cash equivalents at end of year.......... $ 1,590 $ 2,828 $ 2,096
========= ======== =========
</TABLE>
ix
<PAGE> 205
SCHEDULE II
(CONTINUED)
TRANSAMERICA CORPORATION AND SUBSIDIARIES
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TRANSAMERICA CORPORATION (PARENT COMPANY)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTE TO BALANCE SHEET DECEMBER 31,
---------------------------
1995 1994
---- ----
<S> <C> <C>
Notes and loans payable comprise the following
amounts:
Short-term bank loans, commercial paper and
current portion of long-term debt................ $155,490 $286,351
Long-term debt due subsequent to one year:
Notes; interest at 9.375% to 9.875%; maturing
through 2008................................... 210,600 220,600
Commercial paper and other notes at various
interest rates and terms supported by credit
agreements expiring through 1998............... 211,256
-------- --------
$577,346 $506,951
======== ========
</TABLE>
The aggregate annual maturities for the five years subsequent to
December 31, 1995 are: 1996--$155,490; 1997--$5,000; 1998--$311,256; 1999 and
2000--none.
Transamerica manages a portion of its interest rate risk by entering
into interest rate swap agreements. At December 31, 1995 and 1994 interest rate
swap agreements comprise:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
NOTIONAL AVERAGE FIXED AVERAGE FLOATING
AMOUNT INTEREST RATE INTEREST RATE
-------- ------------- ----------------
<S> <C> <C> <C>
1995:
Interest rate swap agreements--
Transamerica pays:
Fixed rate interest expense, receives
floating rate interest income.................. $175,000 8.33% 5.87%
Floating rate interest expense,
receives fixed rate interest income............ $ 50,000 9.13% 6.47%
1994:
Interest rate swap agreements--
Transamerica pays:
Fixed rate interest expense, receives
floating rate interest income.................. $125,000 9.61% 5.87%
Floating rate interest expense,
receives fixed rate interest income............ $ 65,000 9.26% 6.89%
</TABLE>
In 1994, an affiliate of Transamerica issued $200,000 of 9.125%
cumulative Monthly Income Preferred Securities (MIPS). Interest on the
outstanding MIPS is cumulative and payable monthly in arrears. Transamerica has
agreed to guarantee to pay in full any accrued and unpaid dividends declared, or
the redemption price including accrued and unpaid dividends, if the securities
are called by the affiliate.
x
<PAGE> 206
SCHEDULE II
(CONTINUED)
TRANSAMERICA CORPORATION AND SUBSIDIARIES
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TRANSAMERICA CORPORATION (PARENT COMPANY)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE TO STATEMENT OF INCOME
Transamerica has financed a portion of its investment in certain major
operating subsidiaries through borrowings by several other subsidiaries. In
recognition of the cost of these borrowings, unallocated interest, after taxes,
discussed on page 58 of the Transamerica Corporation 1995 Annual Report,
comprises:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest expense of Registrant.................. $(99,311) $(101,992) $(87,382)
Interest income of Registrant................... 4,812 14,151 13,777
-------- --------- --------
(94,499) (87,841) (73,605)
Income tax benefit.............................. 33,075 30,744 25,762
-------- --------- --------
Net interest expense of Registrant, after taxes . (61,424) (57,097) (47,843)
Net interest expense, after taxes, of certain
subsidiaries.................................. (1,250) (6,257)
Intercompany eliminations....................... 8,624 8,147
-------- --------- --------
Unallocated interest, after taxes........... $(52,800) $ (50,200) $(54,100)
======== ========= ========
</TABLE>
xi
<PAGE> 207
SCHEDULE III
TRANSAMERICA CORPORATION AND SUBSIDIARIES
SCHEDULE III--SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------- -------- -------- -------- --------
FUTURE POLICY
DEFERRED BENEFITS, OTHER POLICY
POLICY LOSSES, CLAIMS AND
ACQUISITION CLAIMS AND UNEARNED BENEFITS PREMIUM
SEGMENT COSTS LOSS EXPENSES PREMIUMS PAYABLE REVENUE
------- ---------- ---------- ------- ----------- ----------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Life insurance:
Year ended December 31:
1995 ..................... $1,974,211(A) $5,631,439(B) $14,430 $22,262,009 $1,140,034
1994 ..................... $2,480,474(A) $5,153,073 $ 7,300 $19,571,363 $1,018,448
1993 ..................... $1,929,332 $4,925,855 $ 6,758 $17,019,213 $ 866,224
</TABLE>
<TABLE>
<CAPTION>
COLUMN G COLUMN H COLUMN I COLUMN J COLUMN K
-------- -------- -------- -------- ---------
BENEFITS, AMORTIZATION
CLAIMS, OF DEFERRED
NET LOSSES AND POLICY OTHER
INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
INCOME EXPENSES COSTS EXPENSES WRITTEN
---------- ---------- -------------- --------- ----------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Life insurance:
Year ended December 31:
1995 ..................... $1,974,067 $2,858,717 $191,313(C) $367,293 $286,115(D)
1994 ..................... $1,773,254 $2,356,398 $182,312(C) $353,916 $280,049(D)
1993 ..................... $1,725,760 $2,145,865 $232,659(C) $330,007 $227,833(D)
</TABLE>
(A) Includes a fair value adjustment of ($355,571,000) in 1995 and
$351,344,000 in 1994 required under Financial Accounting Standards
Statement No. 115, Accounting for Certain Investments in Debt and
Equity Securities, which was adopted on January 1, 1994.
(B) Includes a fair value adjustment of $339,000,000 in 1995 required under
Financial Accounting Standards Statement No. 115, Accounting for
Certain Investments in Debt and Equity Securities, which was adopted on
January 1, 1994.
(C) Includes required accelerated amortization of deferred policy
acquisition costs associated with interest-sensitive products due to
realized investment gains of $9,190,000 in 1995, $6,279,000 in 1994 and
$62,852,000 in 1993.
(D) Health insurance premiums written.
xii
<PAGE> 208
SCHEDULE IV
TRANSAMERICA CORPORATION AND SUBSIDIARIES
SCHEDULE IV--REINSURANCE
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------- -------- -------- -------- --------
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
SEGMENT AMOUNT COMPANIES COMPANIES AMOUNT TO NET
------- ------------ ------------ ------------ ------------ ----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Life insurance in force ............................... $206,722,573 $116,762,869 $174,193,592 $264,153,296 65.9%
============ ============ ============ ============
Premium revenue:
Life insurance .................................... $ 935,006 $ 619,016 $ 537,991 $ 853,981 63.0%
Accident and health
insurance ....................................... 165,556 439,550 560,047 286,053 195.8%
------------ ------------ ------------ ------------
$ 1,100,562 $ 1,058,566 $ 1,098,038 $ 1,140,034 96.3%
============ ============ ============ ============
Year ended December 31, 1994:
Life insurance in force ............................... $191,884,093 $115,037,553 $158,882,366 $235,728,906 67.4%
============ ============ ============ ============
Premium revenue:
Life insurance .................................... $ 620,522 $ 394,303 $ 511,642 $ 737,861 69.3%
Accident and health
insurance ....................................... 8,573 295,311 567,325 280,587 202.2%
$ 629,095 $ 689,614 $ 1,078,967 $ 1,018,448 105.9%
============ ============ ============ ============
Year ended December 31, 1993:
Life insurance in force ............................... $180,902,966 $ 95,719,350 $149,728,434 $234,912,050 63.7%
============ ============ ============ ============
Premium revenue:
Life insurance .................................... $ 808,589 $ 663,959 $ 493,954 $ 638,584 77.4%
Accident and health
insurance ....................................... 80,469 251,685 398,856 227,640 175.2%
------------ ------------ ------------ ------------
$ 889,058 $ 915,644 $ 892,810 $ 866,224 103.1%
============ ============ ============ ============
</TABLE>
xiii
<PAGE> 209
SCHEDULE V
TRANSAMERICA CORPORATION AND SUBSIDIARIES
SCHEDULE V--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
----------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS-- DEDUCTIONS-- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ----------- -------- -------------- ------------ --------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for losses--
Mortgage loans on real estate .. $ 23,479 $ 1,963(F) $ 21,516
Real estate .................... 26,281 $ 2,097 (B) 1,146(G) 27,232
Consumer:
Finance receivables .......... 117,218 $ 97,835 52,819 (C) 103,806(H) 164,066
Other assets ................. 2,282 2,282(I)
Commercial:
Finance receivables .......... 90,669 16,110 (18,837)(D) 9,998(H) 77,944(K)
Other assets ................. 65,086 (20,100)(A) 21,372 (E) 60,321(J) 6,037
-------- -------- ------- -------- --------
$325,015 $ 93,845 $ 57,451 $179,516 $296,795
======== ======== ======= ======== ========
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for losses--
Mortgage loans on real estate .. $30,251 $ 197 (B) $ 6,969(F) $ 23,479
Real estate .................... 40,426 2,124 (B) 16,269(G) 26,281
Consumer:
Finance receivables .......... 107,175 $ 82,230 3,073 (C) 75,260(H) 117,218
Other assets ................. 2,547 7,314 (L) 7,579(I) 2,282
Commercial:
Finance receivables .......... 80,668 18,320 486 (D) 8,805(H) 90,669(K)
Other assets ................. 156,985 (5,211)(A) (1,308)(E) 85,380(J) 65,086
-------- -------- -------- -------- --------
$418,052 $102,653 $ 4,572 $200,262 $325,015
======== ======== ======== ======== ========
Year ended December 31, 1993:
Deducted from asset accounts:
Allowance for losses--
Mortgage loans on real estate .. $ 25,940 $ 10,396 (B) $ 6,085(F) $ 30,251
Real estate .................... 44,134 9,455 (B) 13,163(G) 40,426
Consumer:
Finance receivables .......... 107,183 $ 63,946 476 (C) 64,430(H) 107,175(M)
Other assets ................. 2,206 5,952 (L) 5,611(I) 2,547
Commercial:
Finance receivables .......... 91,263 33,098 (178)(D) 43,515(H) 80,668(K)
Other assets ................. 121,549 50,000 (A) 365 (E) 14,929(J) 156,985
-------- -------- ------- -------- --------
$392,275 $152,996 $ 20,514 $147,733 $418,052
======== ======== ======== ======== ========
</TABLE>
(Footnotes are on following page)
xiv
<PAGE> 210
SCHEDULE V
(CONTINUED)
TRANSAMERICA CORPORATION AND SUBSIDIARIES
SCHEDULE V--VALUATION AND QUALIFYING ACCOUNTS
Footnotes to table on preceding page
(A) Reversal of excess valuation allowance no longer required due to the
favorable terms on disposition of assets held for sale (principally
operations in Puerto Rico) in 1995. 1994 includes $5,273,000 reversal of
valuation allowance from sale of the rent-to-own stores. 1993 includes a
$50,000,000 provision to reduce the net carrying value of repossessed
rent-to-own stores.
(B) Included in gains on investment transactions.
(C) Increase in connection with purchase of receivables and other adjustments.
(D) The decrease in 1995 was associated with the transfer of Puerto Rico
receivables to assets held for sale (see note E). The 1994 increase and
1993 decrease were due to foreign exchange and other adjustments.
(E) The increase in 1995 was primarily associated with the transfer of Puerto
Rico receivables from finance receivables (see note D). The decrease in
1994 was associated with the settlement of litigation on previously charged
off accounts. The increase in 1993 was due to recoveries on assets held for
sale.
(F) Reduction in reserves associated with the settlement of mortgage loan
transactions.
(G) Reduction in reserves associated with the settlement of real estate
transactions.
(H) Charges for net credit losses.
(I) Charges for losses on disposal of assets held for sale.
(J) Charges for losses on disposal of assets held for sale, which in 1995
includes $41,166,000 related to the disposal of rent-to-own receivables and
$17,752,000 related to the disposal of Puerto Rico receivables and in 1994
includes $78,735,000 related to the disposal of the rent-to-own stores.
(K) Includes $1,188,000 in 1995 and $938,000 in 1994 and 1993 related to
securitized, sold and serviced receivables reported in other liabilities in
the consolidated balance sheet.
(L) Provision charged to operating expenses for losses on disposal of
repossessed assets.
(M) Includes $1,680,000 in 1993 related to securitized, sold and serviced
receivables included in other liabilities in the consolidated balance
sheet.
xv
<PAGE> 211
TRANSAMERICA CORPORATION AND SUBSIDIARIES
EXHIBIT 13
TO ANNUAL REPORT ON FORM 10-K
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AND
FINANCIAL STATEMENTS
<PAGE> 212
EXHIBIT 13
FINANCIAL REVIEW
Transamerica Corporation is a financial services organization which engages
through its subsidiaries in life insurance, consumer lending, commercial
lending, leasing and real estate services.
- --------------------------------------------------------------------------------
CONSOLIDATED RESULTS
Transamerica's income from continuing operations for 1995 increased $42.6
million (10%), compared to 1994. Income from continuing operations for 1995
included net after tax gains from investment transactions aggregating $34.4
million compared to $15 million in 1994. Operating income from continuing
operations, which excludes investment transactions, for 1995 includes a $30
million tax benefit from the satisfactory resolution of prior years' tax
matters, a $12.2 million after tax benefit from the reversal of a valuation
allowance no longer needed due to the favorable terms on disposition of assets
held for sale and a $2.9 million after tax benefit from the settlement of a
class action lawsuit involving an investment in fixed maturity securities issued
by Franklin Savings Association. These items were offset in part by a $21.5
million after tax provision for an expected loss on the Transamerica Center in
downtown Los Angeles in anticipation of a planned sale and leaseback transaction
that is subject to regulatory approval, a charge of $12 million after tax due to
actions taken to consolidate and accelerate foreclosure activity and dispose of
certain repossessed real estate properties in California and charges totaling
$9.7 million after tax primarily for the restructuring of the real estate
services operations. Excluding these items from the 1995 results, operating
income from continuing operations for 1995 increased $21.3 million (5%) due
primarily to increases in the operating results of life insurance, leasing,
commercial lending and consumer lending (principally due to the ITT portfolio
acquisition described later). Partially offsetting these improvements were
declines in real estate services operating results and higher unallocated
expenses.
Transamerica's income from continuing operations for 1994 decreased $19.6
million (4%) compared to 1993. Income from continuing operations for 1994
included net after tax gains from investment transactions aggregating $15
million compared to $25.3 million in 1993. In 1994 operating income from
continuing operations decreased $9.3 million (2%) from 1993 due primarily to
decreases in real estate services and consumer lending operating results and
higher unallocated expenses. Partially offsetting these declines were
improvements in commercial lending, life insurance and leasing operating
results. Operating income from continuing operations for 1993 included a $36
million after tax writedown of repossessed rent-to-own rental stores in
commercial lending, charges totaling $24.7 million after tax primarily for the
restructuring of the commercial lending and real estate services operations and
for the realignment of certain corporate-wide administrative functions and an
$8.4 million additional tax provision from the revaluation of the January 1,
1993 deferred tax liability for the effect of the federal income tax rate
increase. These items were more than offset by a $94.2 million tax benefit from
the satisfactory resolution of prior years' tax matters. Excluding these 1993
items, operating income from continuing operations for 1994 increased $15.8
million (4%).
Gains on investment transactions in 1995 included after tax gains of $55.7
million realized on the sale of investments, less $6 million after tax
accelerated amortization of deferred policy acquisition costs associated with
interest-sensitive products and loss provisions of $15.3 million after tax for
the impairment in value of investments. Gains on investment transactions in 1995
included an after tax gain of $15.3 million from the settlement of a class
action lawsuit involving an investment in fixed maturity securities issued by
Franklin Savings Association.
Gains on investment transactions in 1994 included after tax gains of $32.6
million realized on the sale of investments, less $4.1 million after tax
accelerated amortization of deferred policy acquisition costs associated with
interest-sensitive products and loss provisions of $13.5 million after tax for
the impairment in value of investments.
1
<PAGE> 213
OPERATING INCOME BY BUSINESS SEGMENT
The following table summarizes Transamerica's operating results by business
segment. Additional business segment information is provided in footnote G of
the notes to financial statements.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in millions except for per share data) 1995 1994 1993
<S> <C> <C> <C>
LIFE INSURANCE $290.8 $250.2 $215.7
FINANCE
Consumer lending 80.5 90.4 93.1
Commercial lending 75.2 53.7 (4.0)
Leasing 75.1 63.6 53.6
Amortization of goodwill (13.0) (13.0) (13.0)
----- ----- -----
Total finance 217.8 194.7 129.7
REAL ESTATE SERVICES 26.8 64.2 84.6
Amortization of goodwill (0.4) (1.8) (1.7)
----- ----- -----
Total real estate services 26.4 62.4 82.9
Unallocated interest and other expenses (98.9) (94.4) (6.1)
----- ----- -----
Operating income from continuing operations 436.1 412.9 422.2
Gain on investment transactions 34.4 15.0 25.3
----- ----- -----
Income from continuing operations 470.5 427.9 447.5
Loss from discontinued operations (0.7) (47.0)
Extraordinary loss on early extinguishment of debt (23.1)
----- ----- -----
Net income $470.5 $427.2 $377.4
===== ===== =====
EARNINGS PER SHARE OF COMMON STOCK
Income from continuing operations:
Operating income from continuing operations $ 6.08 $ 5.25 $ 5.08
Gain on investment transactions 0.50 0.21 0.32
----- ----- -----
Income from continuing operations 6.58 5.46 5.40
Loss from discontinued operations (0.01) (0.60)
Extraordinary loss on early extinguishment of debt (0.29)
----- ----- -----
Net income $ 6.58 $ 5.45 $ 4.51
===== ===== =====
Average shares outstanding 68.8 72.6 78.5
===== ===== =====
</TABLE>
LIFE INSURANCE
Transamerica's life insurance operation engages in the underwriting,
distribution and reinsurance of traditional and investment based life insurance
products.
Net income increased $46.2 million (17%) in 1995 and $19 million (8%) in 1994.
Net income included net after tax gains from investment transactions totaling
$19.3 million in 1995, $13.7 million in 1994, and $29.2 million in 1993. Income
before investment transactions increased $40.6 million (16%) in 1995 and $34.5
million (16%) in 1994. Income before investment transactions in 1995 included a
$4.4 million tax benefit related to the favorable settlement of a prior year tax
matter and a $2.9 million after tax benefit related to the settlement of a class
action lawsuit concerning an investment in fixed maturity securities, offset in
part by a $900,000 after tax restructuring charge. The individual life
insurance, structured settlements, living benefits, group pension and Canadian
lines all experienced increases in income before investment transactions in 1995
primarily as a result of relatively stable interest spreads on a growing asset
base. The individual life insurance line continued to benefit from higher policy
related income resulting from a larger base of interest-
2
<PAGE> 214
sensitive policies. In 1995, the reinsurance line benefited from higher revenues
which increased at a faster rate relative to total benefits and expenses.
The individual life insurance, structured settlements, living benefits, group
pension, reinsurance and Canadian lines all experienced increases in income in
1994, excluding net after tax gains from investment transactions, resulting
primarily from maintained interest spreads on a larger asset base, increased
charges on a larger base of interest-sensitive policies and controlled operating
expenses. Income before investment transactions for 1993 also included a $3.6
million charge for the effect of the one percent increase in the federal income
tax rate on the deferred tax liability.
Investment transactions for 1995 included after tax gains of $40.6 million
realized on the sale of investments compared to $27.6 million for 1994 and
$106.1 million for 1993. Investment transactions for 1995 included an after tax
gain of $15.3 million from the settlement of a class action lawsuit involving an
investment in fixed maturity securities issued by Franklin Savings Association.
A portion of the investment gains is related to interest-sensitive products.
Adjustment to the amortization of deferred policy acquisition costs related to
interest sensitive products reduced these after tax gains by $6 million in 1995,
$4.1 million in 1994 and $40.8 million in 1993. Investment transactions in 1995
also reflected downward adjustments of $15.3 million after tax compared to $9.8
million in 1994 and $36.1 million in 1993, primarily for impairment in the value
of certain below investment grade fixed maturity investments.
Premiums and other income increased $367.6 million (25%) in 1995 and $239.5
million (19%) in 1994 primarily due to higher sales of annuity products, an
increase in reinsurance assumed and an increase in charges on interest-sensitive
policies.
In November 1994, the life insurance operation sold its interest in Osborn
Laboratories, a business providing medical testing for life insurance companies,
for gross proceeds of $23.3 million. The transaction resulted in an after tax
gain of $8.6 million which is included in income before investment transactions.
Offsetting this gain were after tax charges of $9.9 million ($15.2 million
pretax) primarily attributable to anticipated guaranty fund assessments and a
loss related to the 1991 sale of a business unit.
Net investment income increased $200.8 million (11%) in 1995 and $47.6 million
(3%) in 1994 due primarily to a higher level of invested assets.
Life insurance benefits and expenses increased $521.7 million (18%) in 1995 and
$240.7 million (9%) in 1994 principally due to increases in policy reserves and
benefits paid or provided attributable to the larger base of life insurance and
annuities in force and higher commission expense, and higher amortization of
deferred policy acquisition costs (exclusive of accelerated amortization related
to investment gains). Other expenses included charges of $8.7 million in 1995,
$15.2 million in 1994 and $19.8 million in 1993 related to anticipated guaranty
fund assessments, expenses for the realignment and relocation of certain
operations and in 1994 and 1993 additional losses on the 1991 sale of a business
unit.
Cash provided by operations for 1995 was $543.8 million which was $45.8 million
(9%) above the 1994 amount primarily as a result of growth in the underlying
assets and liabilities of the business. The life insurance operation continues
to maintain a sufficiently liquid portfolio to cover its operating requirements,
with remaining funds being invested in longer term securities.
3
<PAGE> 215
LIFE INSURANCE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
(Amounts in millions) 1995 1994 1993
<S> <C> <C> <C>
ASSETS
Investments........................................... $27,703.2 $22,329.1 $20,890.6
Deferred policy acquisition costs..................... 1,974.2 2,480.5 1,929.3
Other assets.......................................... 5,422.4 4,157.5 3,289.1
--------- --------- ---------
$35,099.8 $28,967.1 $26,109.0
========= ========= =========
LIABILITIES AND EQUITY
Policy reserves and related items..................... $27,893.4 $24,731.7 $21,951.8
Other liabilities..................................... 3,746.5 2,330.7 2,090.8
Equity*............................................... 3,459.9 1,904.7 2,066.4
--------- --------- ---------
$35,099.8 $28,967.1 $26,109.0
========= ========= =========
REVENUES
Premiums and other income............................. $ 1,862.8 $ 1,495.2 $ 1,255.7
Investment income, net of expenses.................... 1,974.1 1,773.3 1,725.7
Gain on investment transactions....................... 29.6 21.1 44.9
--------- --------- ---------
3,866.5 3,289.6 3,026.3
EXPENSES
Policyholder benefits................................. 2,858.7 2,356.4 2,145.9
Commissions and other expenses........................ 549.4 530.0 499.8
Income taxes.......................................... 148.3 139.3 135.7
--------- --------- ---------
3,556.4 3,025.7 2,781.4
--------- --------- ---------
Net income............................................ $ 310.1 $ 263.9 $ 244.9
========= ========= =========
SOURCE OF CASH
Cash provided by operations........................... $ 543.8 $ 498.0 $ 604.3
Net receipts from interest-sensitive policies......... 1,527.4 2,014.8 1,853.1
--------- --------- ---------
$ 2,071.2 $ 2,512.8 $ 2,457.4
========= ========= =========
APPLICATION OF CASH
Net purchases of investments.......................... $ 1,986.1 $ 2,442.3 $ 2,434.3
Equity transactions................................... 40.0 30.0 18.7
Other................................................. 45.1 40.5 4.4
--------- --------- ---------
$ 2,071.2 $ 2,512.8 $ 2,457.4
========= ========= =========
</TABLE>
- ---------------
* On January 1, 1994, Transamerica adopted Statement of Financial Accounting
Standards No. 115. Equity includes net unrealized gains (losses) from marking
investments to fair value of $946 million in 1995, $(321.2) million in 1994
and $67.1 million in 1993. See footnote E of the notes to the financial
statements for consolidated components of unrealized gains (losses).
TRANSAMERICA FINANCE CORPORATION
Transamerica Finance Corporation includes Transamerica's consumer lending,
commercial lending (excluding insurance premium finance) and leasing operations
and provides funding for these operations. The principal assets of Transamerica
Finance Corporation comprise finance receivables and equipment held for lease
totaling $10.4 billion at December 31, 1995 and $9.3 billion at December 31,
1994. Transamerica Finance Corporation's total notes and loans payable were $9.7
billion at December 31, 1995 and $8.7 billion at December 31, 1994. Variable
rate debt was $4.8 billion at December 31, 1995 compared to $4.3 billion at the
4
<PAGE> 216
end of 1994. The ratio of debt to tangible equity was 7:1 at December 31, 1995
and 7.1:1 at December 31, 1994.
Transamerica Finance Corporation offers publicly, from time to time, senior or
subordinated debt securities. Public debt issued totaled $832 million in 1995,
$1,516 million in 1994, and $407 million in 1993. Under a shelf registration
statement filed in April 1995 with the Securities and Exchange Commission, the
company may offer up to $3 billion of senior or subordinated debt securities
(which may include medium-term notes) with varying terms, of which $2.6 billion
had not been issued at December 31, 1995.
Liquidity is a characteristic of these operations since the majority of the
assets consist of finance receivables. Principal cash collections of finance
receivables totaled $17.4 billion during 1995, $14.8 billion during 1994, and
$11.5 billion during 1993.
5
<PAGE> 217
TRANSAMERICA FINANCE CORPORATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in millions) 1995 1994 1993
<S> <C> <C> <C>
ASSETS
Finance receivables less unearned fees and allowance for
losses:
Consumer $ 4,772.2 $ 4,024.8 $ 3,547.2
Commercial 2,798.5 2,686.0 2,524.3
--------- --------- ---------
7,570.7 6,710.8 6,071.5
Equipment held for lease 2,862.0 2,606.6 1,306.5
Goodwill 339.9 351.6 372.4
Assets held for sale 99.1 157.7 226.8
Other assets 1,234.5 1,128.1 1,054.2
--------- --------- ---------
$12,106.2 $10,954.8 $ 9,031.4
========= ========= =========
LIABILITIES AND EQUITY
Notes and loans payable $ 9,689.9 $ 8,724.3 $ 7,031.5
Other liabilities 701.8 648.2 550.3
Equity 1,714.5 1,582.3 1,449.6
--------- --------- ---------
$12,106.2 $10,954.8 $ 9,031.4
========= ========= =========
REVENUES
Finance and leasing revenues $ 1,915.1 $ 1,677.8 $ 1,392.1
EXPENSES
Operating expenses 828.2 767.6 603.4
Interest 625.3 485.6 414.6
Provision for losses on receivables and assets held for
sale 91.8 99.1 144.1
Income taxes 145.5 125.6 95.4
--------- --------- ---------
1,690.8 1,477.9 1,257.5
--------- --------- ---------
Income from operations 224.3 199.9 134.6
Amortization of goodwill (11.7) (11.7) (11.7)
Extraordinary loss on early extinguishment of debt (23.1)
--------- --------- ---------
Net income $ 212.6 $ 188.2 $ 99.8
========= ========= =========
SOURCE OF CASH
Cash provided by operations $ 743.4 $ 639.4 $ 468.7
Finance receivables collected 17,444.6 14,807.5 11,535.7
Proceeds from debt financing 8,281.5 7,189.4 5,500.6
Other 76.8 39.9 (135.0)
--------- --------- ---------
$26,546.3 $22,676.2 $17,370.0
========= ========= =========
APPLICATION OF CASH
Additions to equipment held for lease $ 573.3 $ 440.1 $ 405.4
Finance receivables originated 17,510.7 15,594.8 11,756.5
Payments of notes and loans 7,333.6 5,528.1 5,112.1
Purchase of finance receivables and other assets from ITT
Consumer Financial Corporation 1,027.3
Purchase of Tiphook container assets 1,061.4
Equity transactions 101.4 51.8 96.0
--------- --------- ---------
$26,546.3 $22,676.2 $17,370.0
========= ========= =========
</TABLE>
6
<PAGE> 218
CONSUMER LENDING
On March 31, 1995, the consumer lending operation purchased for $1,027.3 million
in cash substantially all the assets and assumed certain liabilities of the home
equity business of ITT Consumer Financial Corporation (ITT). The purchase price
was allocated as follows: consumer finance receivables of $966.4 million, which
were all real estate secured, of which 14% was located in California; allowance
for losses of $52.7 million; assets held for sale of $26.8 million; customer
renewal rights of $97.8 million; and assumed liabilities of $11 million. The
consumer lending operation did not assume any borrowings, tax liabilities or
contingent liabilities of ITT.
Consumer lending income from operations for 1995 decreased $9.9 million (11%)
from 1994. The decrease resulted from higher operating and interest expenses and
an increased provision for losses on receivables that more than offset increased
revenues. Additionally, the 1995 decrease includes a fourth quarter charge of
$12 million after tax which resulted from consolidating and accelerating
California branch foreclosure activity and disposing of certain repossessed real
estate in California.
Consumer lending income from operations in 1994 decreased $2.7 million (3%) from
1993. Excluding a $5.3 million benefit ($3.1 million after tax) recorded in 1993
from the reversal of reserves related to a 1990 securitization and sale of real
estate secured receivables, income for 1994 increased $400,000 (less than 1%).
The increase resulted from higher revenues, offset in part by increased
operating and interest expenses and an increased provision for losses on
receivables.
Revenues increased $91.9 million (13%) in 1995 and $36.3 million (6%) in 1994.
The 1995 increase was mainly due to higher interest income resulting from the
effects of the ITT acquisition, which more than offset the effects of lower fee
income. The 1994 increase was mainly due to increased finance charges resulting
from higher average finance receivables outstanding and higher fee income. In
1994, in response to increased competition, principally in California, the
company introduced lower interest rates which were not continued into 1995. The
lower rates produced a higher level of customer renewals and related fee income
in 1994 over 1995 and 1993 but a lower level of interest income in 1995.
Interest expense increased $67.1 million (27%) in 1995 and $8.5 million (3%) in
1994 primarily as a result of the higher levels of finance receivables
outstanding, and an increase in short-term interest rates.
The provision for losses on receivables increased $15.6 million (19%) in 1995
and $18.3 million (29%) in 1994 due to increases in credit losses and, in 1994,
increased growth in net finance receivables over 1993. Credit losses, net of
recoveries, as a percentage of average net finance receivables outstanding were
2.15% for 1995 compared to 1.93% for 1994 and 1.68% for 1993. The 1995 and 1994
increases resulted from the effects of higher credit losses. Credit losses (net
of recoveries) increased $28.5 million (38%) in 1995 and $10.8 million (17%) in
1994. Growth in the non real estate portfolio, which tends to have a higher
ratio of net credit losses than the real estate secured portfolio, as well as
continued sluggishness in the California economy and a continued weak California
real estate market contributed to increased credit losses in both 1995 and 1994.
The consolidation and acceleration of California branch foreclosure activity
also contributed to the 1995 increase in net credit losses as did the
recognition of credit losses anticipated in connection with the ITT acquisition.
Because future credit losses may be impacted by factors such as economic
conditions and the state of the real estate market, particularly in California,
the extent and timing of any change in the recent trend remains uncertain.
Operating expenses increased $23.3 million (11%) in 1995 primarily due to
amortization of customer renewal rights associated with the ITT acquisition and
an increase in losses on disposition of repossessed real property in California.
Operating expenses for 1994 increased $20 million (11%). Excluding the $5.3
million reserve reversal recorded in 1993, operating expenses in 1994 increased
$14.7 million (8%). The increase was mainly due to the higher level of finance
receivables outstanding, an increase in the average number of branches during
1994, and costs of developing new loan information systems to handle additional
loan products.
Consumer lending receivables grew 19% in 1995 due to the portfolio purchased
from ITT. Excluding the loans acquired from ITT, receivables declined by $16
million (less than 1%) in 1995. During 1994 and 1993
7
<PAGE> 219
the company acquired $124.9 million and $22.7 million of receivables in bulk
purchase transactions. Including these acquisitions, the portfolio increased
$414.2 million (11%) in 1994 and $66.2 million (2%) in 1993.
Net consumer finance receivables at December 31, 1995 and 1994 included $4
billion and $3.3 billion of real estate secured loans, principally first and
second mortgages secured by residential properties, of which approximately 37%
and 45% were located in California. Real estate loans originated in 1995 were
$1.1 billion compared to $1.7 billion in 1994, due to a decline in renewal
volume (which was caused in part by a return to higher rates in early 1995) and
increased competition. The non real estate loan portfolio has grown 13% since
December 31, 1994, reflecting management's strategy to pursue growth in that
area.
Delinquent finance receivables, which are defined as receivables contractually
past due 60 days or more, were $143.6 million (2.79% of finance receivables
outstanding) at December 31, 1995 compared to $90.2 million (2.08% of finance
receivables outstanding) at December 31, 1994. Approximately two-thirds of the
$53.4 million increase in delinquency during 1995 was attributable to real
estate secured receivables, of which approximately one-half was due to the ITT
portfolio acquisition which included the purchase of delinquent receivables at a
discount, with the remainder relating to non real estate products which tend to
have higher delinquency ratios than real estate secured receivables. Management
has established an allowance for losses equal to 3.32% of net consumer finance
receivables outstanding at December 31, 1995 compared to 2.83% at December 31,
1994; the increase in the percentage is due to the acquisition of the ITT
portfolio which had a higher ratio of allowance for losses to net consumer
finance receivables outstanding.
When foreclosure proceedings begin on an account secured with real estate, the
account is moved from finance receivables to other assets and is written down to
the estimated realizable value of the collateral if less than the account
balance. After foreclosure, repossessed assets are carried at the lower of cost
or fair value less estimated selling costs. Accounts in foreclosure and
repossessed assets held for sale totaled $207.3 million at December 31, 1995, of
which 69% pertained to California, compared to $226.1 million at December 31,
1994, of which 79% pertained to California. Because future improvements may be
impacted by factors such as economic conditions and the state of the real estate
market, particularly in California, the extent and timing of any change in the
trend of foreclosures and repossessed assets remains uncertain.
CONSUMER LENDING
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in millions) 1995 1994 1993
<S> <C> <C> <C>
REVENUES
Finance charges and related income $782.5 $690.6 $654.3
EXPENSES
Interest 317.9 250.8 242.3
Operating expenses 232.7 209.4 189.4
Provision for losses on receivables 97.8 82.2 63.9
Income taxes 53.6 57.8 65.6
------ ------ ------
702.0 600.2 561.2
------ ------ ------
Income from operations 80.5 90.4 93.1
Amortization of goodwill (0.1) (0.1) (0.1)
------ ------ ------
Net income $ 80.4 $ 90.3 $ 93.0
====== ====== ======
</TABLE>
COMMERCIAL LENDING
Income from operations increased $21.5 million (40%) in 1995 and $57.7 million
in 1994. Operating results for 1995 included a $12.2 million after tax benefit
from the reversal of a valuation allowance no longer required following the sale
of assets held for sale (principally in Puerto Rico), and a $4.8 million after
tax gain from the sale of a portfolio of consumer rediscount loans. Results for
1994 included a $5.5 million after tax charge for the relocation of the
corporate home office, and a $4 million after tax gain from the sale of the
8
<PAGE> 220
repossessed rent-to-own stores. Results for 1993 included: (i) a $36 million
after tax provision to reduce the net carrying value of repossessed rent-to-own
stores to their estimated realizable value; (ii) an $8.8 million after tax
charge for the restructuring of the commercial lending unit's infrastructure;
(iii) a $4.2 million after tax provision for anticipated legal and other costs
associated with the runoff of the liquidating portfolio; (iv) a $4.2 million tax
benefit from the resolution of prior years' tax matters; and (v) a tax benefit
of $1.4 million from the revaluation of the January 1, 1993 deferred tax
liability for the effect of the one percent federal tax increase.
Excluding the items discussed above, commercial lending income from operations
increased $3 million (6%) in 1995 and $15.8 million (40%) in 1994. The increases
resulted from increased margins, reduced operating expenses and a lower
provision for losses. Margins improved as a result of a greater spread between
the indices at which the commercial lending operation loaned to customers and
the indices at which funds were borrowed.
Revenues in 1995 increased $39.4 million (10%) due to a higher average portfolio
yield attributable to higher interest rates. Revenues in 1994 increased $13.6
million (4%) as a result of increased average net receivables in the core
businesses and a higher average portfolio yield attributable to rising interest
rates.
Interest expense increased $29.7 million (25%) in 1995 and $9.6 million (9%) in
1994 due to a higher average interest rate on borrowings.
Operating expenses declined $7.8 million (5%) in 1995 and $21.3 million (11%) in
1994. Expenses in 1994 included a $9 million ($5.5 million after tax) charge for
the relocation of the corporate home office, partially offset by the $5.3
million ($4 million after tax) gain on the sale of the repossessed rent-to-own
stores. Operating expenses in 1993 include the previously described
restructuring charge and provision for anticipated legal and other costs
associated with the runoff of the liquidating portfolios aggregating $21.5
million ($13 million after tax). Excluding these items in both years, operating
expenses decreased $4.1 million (3%) in 1995 and $3.5 million (2%) in 1994
mainly as a result of reduced expenses incurred in the management of the
liquidating receivables portfolio and receivables included in assets held for
sale which were disposed of in 1995.
The provision for losses on receivables declined $2.2 million (12%) in 1995
principally due to charges in 1994 related to the consumer rediscount loan
portfolio which was sold in 1995 and lower losses during 1995 in the liquidating
portfolio offset in part by an increased provision in the insurance premium
finance business. The provision for losses on receivables in 1994 was $14.8
million (45%) less than in 1993 due to lower credit losses and lower delinquent
and nonearning receivables. Credit losses, net of recoveries, as a percentage of
average commercial finance receivables outstanding, net of unearned finance
charges, were 0.34% in 1995, 0.29% in 1994 and 1.49% in 1993.
Net commercial finance receivables outstanding at December 31, 1995 increased
$26.8 million (1%) from December 31, 1994. The higher net receivables reflect
receivables growth in inventory finance and equipment finance and leasing
operations. The equipment finance and leasing operation began operations during
1995 and provides collateralized equipment lending. These increases were offset
in part by the 1995 sale of the consumer rediscount loan portfolio comprising
$118 million of net outstanding receivables, the securitization of an additional
$100 million of insurance premium finance receivables which increased the
eligible pool from $375 million to $475 million for a three year term, and the
liquidation and sale of $51.3 million in net receivables outstanding resulting
from the decision to exit the operations in Puerto Rico. Management has
established an allowance for losses equal to 2.51% of net commercial finance
receivables outstanding as of December 31, 1995 compared to 2.96% at December
31, 1994. This decrease is primarily the result of selling the Puerto Rico
receivables, which had a larger reserve requirement.
Delinquent receivables, which are defined as the instalment balance for
inventory finance and asset based lending receivables and the receivable balance
for all other receivables over 60 days past due, were $11.1 million (0.35% of
receivables outstanding) at December 31, 1995 compared to $19.1 million (0.62%
of receivables outstanding) at December 31, 1994.
Nonearning receivables, which are defined as balances from borrowers that are
over 90 days delinquent or at such earlier time as full collectibility becomes
doubtful, were $18 million (0.57% of receivables outstanding)
9
<PAGE> 221
at December 31, 1995 compared to $23.3 million (0.75% of receivables
outstanding) at December 31, 1994. The decline in both delinquent and nonearning
receivables was primarily due to the sale of the Puerto Rico receivables.
Assets held for sale as of December 31, 1995 totaled $4.5 million, net of a $6
million valuation allowance, and consisted of rent-to-own receivables of $5.6
million and other assets of $4.9 million. In 1995, the commercial lending
operation sold substantially all of its rent-to-own receivables. Assets held for
sale at December 31, 1994 totaled $10.9 million, net of a $65.1 million
valuation allowance, and consisted of rent-to-own finance receivables of $72.4
million and other assets of $3.6 million. Of the finance receivables held for
sale at December 31, 1995, none was classified as delinquent or nonearning
compared to $24.5 million classified as both delinquent and nonearning at
December 31, 1994.
During 1995, the commercial lending insurance premium finance operation entered
into a three year arrangement in which it securitized a $475 million
participation interest in a pool of its receivables. This agreement replaced a
1990 securitization of $375 million which expired in 1995. Proceeds from this
transaction were used primarily to reduce debt. At December 31, 1995, $475
million of securitized insurance premium finance receivables remained
outstanding. The commercial lending operation continues to service this
portfolio and remains partially at risk through limited recourse provisions.
COMMERCIAL LENDING
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in millions) 1995 1994 1993
<S> <C> <C> <C>
REVENUES
Finance charges and related income............................... $423.7 $384.3 $370.7
EXPENSES
Interest......................................................... 148.7 119.0 109.4
Operating expenses............................................... 156.3 164.1 185.4
Provision for losses on receivables.............................. 16.1 18.3 33.1
Provision (benefit) for losses on assets held for sale........... (20.1) 50.0
Income taxes (benefit)........................................... 47.5 29.2 (3.2)
------ ------ ------
348.5 330.6 374.7
------ ------ ------
Income (loss) from operations.................................... 75.2 53.7 (4.0)
Amortization of goodwill......................................... (10.9) (10.9) (10.9)
Extraordinary loss from early extinguishment of debt............. (23.1)
------ ------ ------
Net income (loss)................................................ $ 64.3 $ 42.8 $(38.0)
====== ====== ======
</TABLE>
LEASING
The leasing operation has grown substantially since 1993 largely due to the
March 1994 acquisition of substantially all the operating assets of the
Container Operations of Tiphook plc ("Tiphook"), a London-based transportation
equipment rental company, including certain dry cargo containers, tank
containers, tank chassis, operating leases and other assets for $1,061.4 million
in cash. The acquired fleet of standard containers and tank containers totaled
363,000 units which by December 31, 1994 were integrated into the leasing
operation. The transaction has been accounted for as a purchase and the revenues
and expenses associated with operating the assets acquired have been included in
the results of the leasing operation from the date of acquisition. This
acquisition is the primary reason revenues and expenses increased by more than
50% in 1994.
Leasing income from operations for 1995 increased $11.5 million (18%) mainly due
to higher utilization and increased fleet size in the standard, refrigerated and
tank container fleet lines, as well as an increase in the European trailer
fleet. A 1995 increase in sales of used equipment resulted in additional gains
of $7.2 million after tax. Earnings in 1995 also benefited from a $2.2 million
after tax favorable depreciation adjustment resulting from the final settlement
of the Tiphook purchase price and a $1.8 million resolution of an
10
<PAGE> 222
outstanding state tax issue. Partially offsetting these increases were lower
earnings in the rail trailer business which experienced a downturn in
utilization resulting from decreased U.S. intermodal loadings.
Leasing income from operations for 1994 increased $10 million (18%). Included in
the 1993 results was a $4.3 million additional tax provision from the
revaluation of the January 1, 1993 deferred tax liability. Excluding the effect
of this adjustment, leasing income increased $5.7 million (10%) in 1994. The
increase was primarily due to a larger fleet size, more on-hire rail trailer and
chassis units and an increased finance lease portfolio, partially offset by
lower utilization and rates in the standard container line.
LEASING
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in millions) 1995 1994 1993
<S> <C> <C> <C>
REVENUES
Total leasing revenues........................................... $733.9 $637.9 $407.8
EXPENSES
Operating expenses............................................... 126.5 126.3 81.9
Depreciation on equipment held for lease......................... 236.6 197.3 102.5
Selling and administrative expenses.............................. 95.1 94.6 65.5
Interest......................................................... 154.0 115.7 64.4
Income taxes..................................................... 46.6 40.4 39.9
------ ------ ------
658.8 574.3 354.2
------ ------ ------
Income from operations........................................... 75.1 63.6 53.6
Amortization of goodwill......................................... (2.0) (2.0) (2.0)
------ ------ ------
Net income....................................................... $ 73.1 $ 61.6 $ 51.6
====== ====== ======
</TABLE>
Revenues for 1995 increased $96 million (15%). The increase was due to
additional on-hire standard, tank and refrigerated containers, chassis and
European trailers. Revenues also increased due to a larger standard and tank
container fleet, resulting from the acquisition of the container division assets
of Tiphook. Partially offsetting these increases were lower revenues in the rail
trailer business resulting from fewer units on-hire.
Revenues for 1994 increased $230.1 million (56%). The increase was due primarily
to the acquisition of the container division assets of Tiphook. Revenue
increases were also generated by a larger fleet of new standard and refrigerated
containers, more on-hire rail trailer and chassis units and a larger finance
lease portfolio.
Expenses increased $78.3 million (15%) in 1995 mainly due to higher depreciation
expense, interest expense and operating costs associated with larger standard,
tank and refrigerated container, chassis and European trailer fleets.
Expenses increased $219.6 million (70%) in 1994 mainly due to higher
depreciation expense, interest expense and operating costs related to the
acquisition of the container division assets of Tiphook.
The combined utilization of standard containers, refrigerated containers,
domestic containers, tank containers and chassis averaged 85% in 1995, 81% in
1994, and 83% in 1993. Rail trailer utilization was 77% in 1995, 92% in 1994,
and 91% in 1993. European trailer utilization was 95% in 1995, 96% in 1994, and
89% in 1993. Utilization of the company's fleet is dependent upon worldwide
economic conditions, market pressures and industry fleet size.
The company's standard container, refrigerated container, domestic container,
tank container and chassis fleet of 708,400 units increased by 23,000 units (3%)
in 1995, and 369,400 units (117%) in 1994. The 1994 increase was largely due to
the acquisition of the container division assets of Tiphook. The rail trailer
fleet of 36,900 units decreased by 2,400 units (6%) in 1995 after a 2,800 unit
(8%) increase in 1994. The European over-the-road trailer fleet of 7,700 units
increased by 2,000 units (35%) in 1995 and 1,900 units (50%) in 1994.
11
<PAGE> 223
REAL ESTATE SERVICES
Real estate services comprise Transamerica's real estate tax, real estate
investments, property management, and other services. This segment also includes
Transamerica's asset management operation which was sold in 1995. For purposes
of this discussion asset management's results have been segregated.
The real estate services' income from operations for 1995 decreased $35.6
million (64%). The 1995 decrease includes an $8.8 million after tax
restructuring charge principally in connection with the relocation and
consolidation of the real estate tax service business. Excluding the effect of
the restructuring charge, real estate services income from operations for 1995
and 1994 decreased $26.8 million (48%) and $28.4 million (34%), primarily due to
a significant decline in real estate tax service revenues caused by lower
mortgage refinancings.
Revenues decreased $37 million (13%) in 1995 and $32.2 million (10%) in 1994 as
a result of decreased business at the real estate tax service operation.
Funds required for capital expenditures and working capital are generated by
operations. Cash, cash equivalents and accounts receivable, which totaled $107.5
million at December 31, 1995 and $74.1 million at December 31, 1994, are the
real estate services' operations principal sources of liquidity.
Asset management in 1995 comprised Criterion Investment Management Company
(CIMC), which on May 2, 1995 sold substantially all of its assets for gross
proceeds of $60 million, and in 1994, Transamerica Fund Management Company which
was sold on December 21, 1994 for gross proceeds of $100 million. The CIMC
transaction resulted in a $4.8 million after tax gain. Asset management's net
income for 1995 was $6.2 million compared to $6.6 million for 1994 and a net
loss of $1.3 million for 1993. Operating results for 1995, 1994 and 1993 were
income of $6.5 million, $8.3 million and $300,000. The 1994 improvement was due
primarily to a $4.9 million gain on sale of Transamerica Fund Management Company
and lower operating expenses within the mutual fund business.
12
<PAGE> 224
REAL ESTATE SERVICES*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in millions) 1995 1994 1993
<S> <C> <C> <C>
ASSETS
Cash, cash equivalents and accounts receivable $107.5 $ 74.1 $115.6
Investments 152.5 127.2 64.3
Land and buildings 168.4 149.2 166.4
Other assets 120.2 119.0 102.8
------ ------ ------
$548.6 $469.5 $449.1
====== ====== ======
LIABILITIES AND EQUITY
Loss and future service reserves $156.6 $137.9 $104.7
Notes and loans payable 149.2 109.2 96.9
Other liabilities 55.7 56.1 63.2
Equity 187.1 166.3 184.3
------ ------ ------
$548.6 $469.5 $449.1
====== ====== ======
REVENUES
Real estate services revenues $254.4 $291.4 $323.6
EXPENSES
Salaries and other operating expenses 223.6 199.6 187.2
Income taxes 10.5 35.9 52.1
------ ------ ------
234.1 235.5 239.3
------ ------ ------
Income from operations 20.3 55.9 84.3
Amortization of goodwill (0.1) (0.1) (0.1)
------ ------ ------
Net income $ 20.2 $ 55.8 $ 84.2
====== ====== ======
SOURCE OF CASH
Cash provided by operations $ 33.5 $133.6 $ 67.9
Proceeds from debt financing 22.6 11.5 12.8
------ ------ ------
$ 56.1 $145.1 $ 80.7
====== ====== ======
APPLICATION OF CASH
Equity transactions.......................................... $ 15.1 $ 76.0 $ 55.2
Net purchases of investments................................. 12.9 61.9 0.4
Payments of notes and loans.................................. 10.0 0.9 2.4
Other........................................................ 18.1 6.3 22.7
------ ------ ------
$ 56.1 $145.1 $ 80.7
====== ====== ======
</TABLE>
* Excludes Asset Management financial data.
UNALLOCATED INTEREST AND OTHER EXPENSES
Unallocated costs, after related income taxes, are summarized as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in millions) 1995 1994 1993
<S> <C> <C> <C>
Interest expense $52.8 $50.2 $ 54.1
Other expenses (income) 46.1 44.2 (48.0)
----- ----- ------
$98.9 $94.4 $ 6.1
===== ===== ======
</TABLE>
13
<PAGE> 225
Interest expense, after related income taxes, increased $2.6 million (5%) in
1995 and decreased $3.9 million (7%) in 1994. The 1995 increase was due to
higher outstanding debt. The 1994 decrease was due to a lower level of
borrowings and lower average interest rates. The lower borrowing level in 1994
was primarily due to the repayment of debt with proceeds from the 1993 sale of
the discontinued property and casualty insurance operation and the sale of
Transamerica's investment in Sedgwick Group plc in April 1994.
Other expenses, after related income taxes, for 1995 included a $25.6 million
benefit from the satisfactory resolution of prior years' tax matters. This
benefit was partially offset by a $21.5 million after tax provision for an
expected loss on the Transamerica Center in downtown Los Angeles in anticipation
of a planned sale and leaseback transaction that is subject to regulatory
approval.
Excluding the items discussed above, other expenses increased $6 million in 1995
primarily due to the continuing centralization of certain administrative
functions which resulted in overall cost savings. These functions were
previously performed at the individual business units.
Other expenses, after related income taxes, in 1993 included a tax benefit of
$90 million for the reversal of certain tax reserves, offset in part by a $4
million after tax provision for restructuring corporate-wide administrative
functions, a $3 million additional after tax provision to increase the
supplemental (nonqualified) pension liability and an additional tax provision of
$3.8 million from the revaluation of the January 1, 1993 deferred tax liability.
Excluding these items, other expenses increased $13 million (41%) in 1994. The
1994 increase was primarily due to higher costs, principally salary and
benefits, as a result of centralizing certain administrative functions.
CORPORATE LIQUIDITY
Transamerica Corporation receives funds from its subsidiaries in the form of
dividends, income taxes and interest on loans. The Corporation uses these funds
to pay dividends to its stockholders or purchase shares, reinvest in the
operations of its subsidiaries and pay corporate interest, expenses and taxes.
Reinvested funds are allocated among subsidiaries on the basis of expected
returns and creation of shareholder value. Reinvestment may be accomplished by
allowing a subsidiary to retain all or a portion of its earnings, or by making
capital contributions or loans.
The Corporation also borrows funds to finance acquisitions or to lend to certain
of its subsidiaries to finance their working capital needs. Subsidiaries are
required to maintain prudent financial ratios consistent with other companies in
their respective industries and retain the capacity through committed credit
lines to repay working capital loans from the Corporation. At December 31, 1995,
Transamerica and its subsidiaries had short-term borrowings, principally
commercial paper, totaling $4.8 billion, supported by credit agreements with 62
banks. It is the policy of the Corporation to maintain credit line coverage at
least equal to 100% of short-term borrowings. Availability under such lines at
December 31, 1995, amounted to $5.2 billion or 110% of these borrowings; credit
support equal to 82% of the borrowings was with banks rated AAA/AA or the
equivalent by one or more of the major credit rating agencies.
The Corporation has established a program to offer publicly, from time to time,
$200 million of its Medium-Term Notes, Series B. The notes will be issued
pursuant to a shelf registration filed with the Securities and Exchange
Commission that enables the Corporation to offer publicly up to $500 million of
debt securities with varying terms. None of these debt securities has been
issued. The securities may be senior or subordinated and, if subordinated, may
be convertible into common stock. The proceeds from the sale of the debt
securities, including the notes, may be used for general corporate purposes.
The Corporation's commercial paper, senior debt and preferred stock are rated by
independent rating agencies. The Corporation continues to maintain debt to
capital ratios consistent with its current ratings.
Additionally, Transamerica Finance Corporation, a wholly owned subsidiary of
Transamerica and also an SEC registrant, issues public debt to fund the consumer
lending, commercial lending and leasing operations.
14
<PAGE> 226
In May 1995, Transamerica sold the assets of its investment management
subsidiary, Criterion Investment Management Company. Proceeds from the sale were
$60 million and were used by Transamerica to reduce debt.
As previously discussed, in March 1995 Transamerica acquired a portfolio of
approximately 40,000 home equity loans from ITT for $1,027.3 million in cash.
The purchase was funded primarily with long-term debt with the remainder funded
by short-term bank financing. For a discussion of this transaction see "Consumer
Lending."
In December 1994, Transamerica sold its former mutual fund subsidiary,
Transamerica Fund Management Company. Proceeds from the sale were $100 million
and were used by Transamerica to reduce debt.
In October 1994, Transamerica Delaware, LP, an affiliate of Transamerica, issued
$200 million of 9.125% cumulative Monthly Income Preferred Securities (MIPS).
Proceeds from the issuance were invested by the affiliate in Series A
Subordinated Debentures issued by Transamerica, bearing interest at 9.125% and
maturing October 25, 2024. Proceeds to Transamerica were used for general
corporate purposes, including the repayment or redemption of other of its
securities. The MIPS obligation outstanding is shown as minority interest in the
consolidated balance sheet of Transamerica and its subsidiaries.
In April 1994, Transamerica sold its remaining 21% ownership interest in
Sedgwick Group plc. Proceeds from the sale were $326.4 million and were used by
Transamerica to purchase 4.5 million shares of its common stock and reduce debt.
In March 1994, Transamerica acquired substantially all the operating assets of
the container operations of Tiphook plc, a London-based transportation equipment
rental company, for $1,061.4 million in cash. The initial financing of the
acquisition was provided through short-term bank loans which have been repaid
and refinanced with long-term debt.
In 1993, the Corporation sold its former property and casualty insurance
subsidiary, Transamerica Insurance Group, through an initial public offering in
April 1993 and a secondary offering in December 1993. Proceeds from the sales of
stock, after underwriting discounts and issuance costs, totaled $1 billion. The
proceeds were used to reduce indebtedness, including $409.3 million incurred to
fund cash transactions with the property and casualty insurance operation in
connection with the initial public offering, and to commence a common stock
purchase program.
In December 1993, the commercial lending operation redeemed $125 million of deep
discount, long-term debt with a book value of $90.7 million, which resulted in a
$23.1 million after tax extra-ordinary loss.
STOCKHOLDERS' EQUITY
In June 1995, Transamerica announced that its board of directors had authorized
additional purchases of up to 2 million shares of the company's common stock of
which 1,445,000 had been purchased as of December 31, 1995. As a result of this,
and other previously announced share purchase programs, during 1995 Transamerica
purchased 2,386,200 shares for $148.1 million (an average price of $62.06 per
share).
In June 1994, Transamerica completed a "Dutch Auction" tender offer to purchase
4.5 million shares of its common stock, at a price of $54.75 per share.
Transamerica used a portion of the net proceeds from the sale of its remaining
21% ownership interest in Sedgwick Group plc to purchase these shares.
As a result of the June 1995 program and Dutch Auction tender discussed above,
and the purchase of 7.2 million shares under three previously announced share
purchase programs beginning in 1993, the number of common shares outstanding at
December 31, 1995 was 68 million compared to 69.4 million at December 31, 1994
and 76.4 million at December 31, 1993.
In November 1994, Transamerica completed a tender offer to redeem for cash 4.4
million depositary shares of its 8.5% Series D Preferred Stock at a price of $26
per depositary share. As a result of the tender offer, $6.7 million of premium
and expenses related to the transaction was charged directly to stockholders'
equity and resulted in a 9 cent reduction in 1994 earnings per share.
15
<PAGE> 227
INVESTMENT PORTFOLIO
Transamerica, principally through its life insurance subsidiaries, maintains an
investment portfolio aggregating $28 billion at December 31, 1995, of which
$26.1 billion was invested in fixed maturities. At December 31, 1995, 96% of the
fixed maturities was rated as "investment grade," with an additional 3% in the
BB category or its equivalent. "Investment grade" is generally defined as any
issue rated above the Ba category by Moody's Investors Service or above the BB
category by Standard & Poor's Corporation. The amortized cost of fixed
maturities was $24.1 billion resulting in a net unrealized gain position, before
the effects of income taxes, of $2 billion at December 31, 1995. Fixed maturity
investments are used primarily to support insurance reserves. The amortized cost
of delinquent below investment grade securities before provision for impairment
in value was $6.9 million at December 31, 1995 compared to $12.4 million at
December 31, 1994. Provision for impairment in value has been made to reduce
certain fixed maturity investments by $71.4 million at December 31, 1995 and
$92.1 million at December 31, 1994.
The net unrealized gain/loss from investments marked to fair value, after
related taxes and deferred policy acquisition cost and policyholder liability
adjustments, which is included in stockholders' equity was a gain of $1.1
billion at December 31, 1995 compared to a loss of $265.1 million at December
31, 1994.
In 1994, Transamerica adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
Accordingly, changes in stockholders' equity caused by changes in the fair value
of the investment portfolio in 1995 and 1994 are not comparable to 1993 because
in 1993 investments in fixed maturities were carried at amortized cost.
In addition to the investments in fixed maturities, $594.5 million (2% of the
investment portfolio) was invested in mortgage loans and real estate including
$544.9 million in commercial mortgage loans, $78.1 million in real estate
investments, $20 million in foreclosed real estate and $300,000 in residential
mortgage loans. Problem loans, defined as restructured loans yielding less than
8% and delinquent loans, totaled $3.9 million at December 31, 1995 and $7.7
million at December 31, 1994. Allowances for possible losses of $48.8 million at
December 31, 1995 and $49.7 million at December 31, 1994 have been established
to cover the possible losses from mortgage loans and real estate investments.
16
<PAGE> 228
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1994
<S> <C> <C>
ASSETS
Investments, principally of life insurance subsidiaries:
Fixed maturities $26,076.1 $21,037.0
Equity securities 703.2 427.2
Mortgage loans and real estate 594.5 455.5
Loans to life insurance policyholders 426.4 412.9
Short-term investments 226.5 163.7
---------- ----------
28,026.7 22,496.3
Finance receivables, of which $3,821.1 in 1995 and $3,460.1 in 1994 matures
within one year 8,287.8 7,426.1
Less unearned fees ($289.7 in 1995 and $248.2 in 1994) and allowance for
losses 529.7 455.2
---------- ----------
7,758.1 6,970.9
Cash and cash equivalents 67.6 64.3
Trade and other accounts receivable 3,130.1 2,610.3
Property and equipment, less accumulated depreciation of $1,140.6 in 1995 and
$974.9 in 1994:
Land, buildings and equipment 411.5 360.7
Equipment held for lease 2,862.0 2,606.6
Deferred policy acquisition costs 1,974.2 2,480.5
Separate accounts administered by life insurance subsidiaries 2,533.4 1,666.5
Goodwill, less accumulated amortization of $130.8 in 1995 and $123.2 in 1994 402.4 443.7
Other assets 778.5 694.0
---------- ----------
$47,944.5 $40,393.8
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Life insurance policy liabilities $27,893.4 $24,731.7
Notes and loans payable, principally of finance subsidiaries, of which $996.3
in 1995 and $1,684 in 1994 matures within one year 10,337.8 9,173.1
Accounts payable and other liabilities 1,672.4 1,627.5
Income taxes, of which $891.5 in 1995 and $6.6 in 1994 is deferred 1,007.6 259.2
Separate account liabilities 2,533.4 1,666.5
Minority interest in preferred securities of affiliate 200.0 200.0
Stockholders' equity:
Preferred stock ($100 par value):
Authorized -- 1,200,000 shares; issuable in series Outstanding -- Dutch
Auction Rate Transferable Securities, 2,250 shares, at liquidation
preference of $100,000 per share 225.0 225.0
Outstanding -- Series D, 180,091 shares in 1995 and 181,642 shares in
1994 at liquidation preference of $500 per share 90.0 90.8
Common stock ($1 par value):
Authorized -- 150,000,000 shares Outstanding -- 67,989,508 shares in
1995 and 69,395,099 shares in 1994, after deducting 11,748,954 and
10,343,363 shares in treasury in 1995 and 1994 68.0 69.4
Additional paid-in capital 96.5
Retained earnings 2,866.0 2,557.4
Net unrealized gain (loss) from investments marked to fair value 1,079.9 (265.1)
Foreign currency translation adjustments (29.0) (38.2)
---------- ----------
4,299.9 2,735.8
---------- ----------
$47,944.5 $40,393.8
========== ==========
(Amounts in millions except for share data)
</TABLE>
See notes to financial statements
17
<PAGE> 229
CONSOLIDATED STATEMENT OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Year ended December 31
REVENUES
Life insurance premiums and related income $1,862.8 $1,495.2 $1,255.7
Investment income 1,990.3 1,782.6 1,749.9
Finance charges and other fees 1,165.4 1,041.6 990.1
Leasing revenues 703.1 620.7 388.3
Real estate and tax service revenues 212.8 256.0 293.3
Gain on investment transactions 52.9 23.1 39.0
Other 113.8 135.3 97.0
-------- -------- --------
6,101.1 5,354.5 4,813.3
EXPENSES
Life insurance benefits 2,858.7 2,356.4 2,145.9
Life insurance underwriting, acquisition and other
expenses 549.4 530.0 499.8
Leasing operating and maintenance costs 363.1 323.6 184.4
Interest and debt expense 716.7 573.7 511.6
Provision for losses on receivables and assets held for
sale 93.8 100.6 147.0
Other, including administrative and general expenses 814.4 779.9 736.5
-------- -------- --------
5,396.1 4,664.2 4,225.2
-------- -------- --------
705.0 690.3 588.1
Income taxes 234.5 262.4 140.6
-------- -------- --------
Income from continuing operations 470.5 427.9 447.5
Loss from discontinued operations (0.7) (47.0)
Extraordinary loss on early extinguishment of debt (23.1)
-------- -------- --------
Net income $ 470.5 $ 427.2 $ 377.4
======== ======== ========
EARNINGS PER SHARE OF COMMON STOCK
Income from continuing operations $ 6.58 $ 5.46 $ 5.40
Loss from discontinued operations (0.01) (0.60)
Extraordinary loss on early extinguishment of debt (0.29)
-------- -------- --------
Net income $ 6.58 $ 5.45 $ 4.51
======== ======== ========
</TABLE>
(Amounts in millions except for share data)
See notes to financial statements
18
<PAGE> 230
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31 1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations $ 470.5 $ 427.9 $ 447.5
Adjustments to reconcile income from continuing
operations to net cash provided by operating
activities:
Increase in life insurance policy liabilities,
excluding policyholder balances on
interest-sensitive policies 1,272.8 813.8 927.3
Amortization of policy acquisition costs 191.3 182.3 232.7
Policy acquisition costs deferred (381.8) (394.9) (350.0)
Depreciation and amortization 306.5 263.2 159.8
Other (626.3) 81.6 (327.8)
---------- ---------- ----------
Net cash provided by continuing operations 1,233.0 1,373.9 1,089.5
INVESTING ACTIVITIES
Finance receivables originated (19,247.3) (17,277.1) (13,664.0)
Finance receivables collected 19,251.2 16,639.5 13,375.2
Purchase of investments (6,256.3) (9,656.4) (12,102.5)
Sales and maturities of investments 4,204.9 7,151.4 9,647.5
Purchase of the container division assets of Tiphook
plc (1,061.4)
Purchase of finance receivables and other assets from
ITT Consumer Financial Corporation (1,027.3)
Proceeds from sale of discontinued operations 326.4 1,031.8
Cash transactions with discontinued operations 5.4 (399.3)
Other (568.2) (506.3) (475.5)
---------- ---------- ----------
Net cash used by investing activities (3,643.0) (4,378.5) (2,586.8)
FINANCING ACTIVITIES
Proceeds from debt financing 8,476.9 7,197.6 5,308.2
Payments of notes and loans (7,330.4) (5,766.2) (5,239.5)
Receipts from interest-sensitive policies credited to
policyholder account balances 5,151.4 4,434.7 4,166.3
Return of policyholder balances on interest-sensitive
policies (3,624.0) (2,419.9) (2,313.2)
Proceeds from sale of preferred securities of affiliate 192.6
Redemption of preferred stock (0.8) (115.9)
Treasury stock purchases (155.4) (387.0) (207.6)
Other common stock transactions 51.0 8.0 33.5
Dividends (155.4) (167.7) (179.7)
---------- ---------- ----------
Net cash provided by financing activities 2,413.3 2,976.2 1,568.0
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents 3.3 (28.4) 70.7
Cash and cash equivalents at beginning of year 64.3 92.7 22.0
---------- ---------- ----------
Cash and cash equivalents at end of year $ 67.6 $ 64.3 $ 92.7
========== ========== ==========
</TABLE>
(Amounts in millions)
See notes to financial statements
19
<PAGE> 231
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN (LOSS) FROM FOREIGN
ADDITIONAL INVESTMENTS CURRENCY
PREFERRED COMMON PAID-IN RETAINED MARKED TO TRANSLATION
STOCK STOCK CAPITAL EARNINGS FAIR VALUE ADJUSTMENTS
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 $ 425.0 $79.2 $ 646.5 $2,100.2 $ 83.5 $ (34.3)
Net income 377.4
Dividends declared:
On common stock (156.1)
On preferred stock (23.6)
Common stock issued 0.9 32.6
Treasury stock purchased (3.7) (203.9)
Other changes 40.6 (0.8)
------ ----- ------ -------- --------- ------
BALANCE AT DECEMBER 31, 1993 425.0 76.4 475.2 2,297.9 124.1 (35.1)
Effect of adopting Statement of Financial
Accounting Standards No. 115 804.5
Net income 427.2
Dividends declared:
On common stock (142.8)
On preferred stock (24.9)
Common stock issued 0.2 7.8
Treasury stock purchased (7.2) (379.8)
Redemption of preferred stock (109.2) (6.7)
Other changes (1,193.7) (3.1)
------ ----- ------ -------- --------- ------
BALANCE AT DECEMBER 31, 1994 315.8 69.4 96.5 2,557.4 (265.1) (38.2)
Net income 470.5
Dividends declared:
On common stock (137.4)
On preferred stock (18.0)
Common stock issued 1.1 49.9
Treasury stock purchased (2.5) (146.4) (6.5)
Redemption of preferred stock (0.8)
Other changes 1,345.0 9.2
------ ----- ------ -------- --------- ------
BALANCE AT DECEMBER 31, 1995 $ 315.0 $68.0 $ $2,866.0 $ 1,079.9 $ (29.0)
====== ===== ====== ======== ========= ======
(Amounts in millions)
</TABLE>
See notes to financial statements
20
<PAGE> 232
NOTES TO FINANCIAL STATEMENTS December 31, 1995
- --------------------------------------------------------------------------------
A SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Transamerica Corporation is a financial services organization which engages
through its subsidiaries in life insurance, consumer lending, commercial
lending, leasing and real estate services. The United States represents the
primary market for the services offered by most of Transamerica's subsidiaries
except for the leasing business which operates in the container shipping
business worldwide.
CONSOLIDATION
The consolidated financial statements include the accounts of Transamerica
Corporation and its subsidiaries. Certain amounts reported in the consolidated
financial statements are based on management estimates. The ultimate resolution
of these items may differ from those estimates.
INVESTMENTS
Investments in fixed maturities, comprising bonds, notes and redeemable
preferred stocks, are carried at fair value. Fair value for actively traded
securities is based on quoted market prices. For fixed maturity securities not
actively traded, including private placements, fair value is estimated using
information obtained from independent pricing services. Investments in equity
securities, comprising corporate common and nonredeemable preferred stocks, are
carried at fair value based on quoted market prices. Changes to the carrying
amount of fixed maturity and equity securities are included in stockholders'
equity. Realized gains and losses on investment transactions are determined
generally on a specific identification basis and reflected in earnings on the
trade date.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include money market funds and marketable securities
with original maturities of three months or less except for such securities held
by the life insurance operation which are included in short-term investments.
DEPRECIATION AND AMORTIZATION
Property and equipment, which are stated on the basis of cost, are depreciated
by use of the straight-line method over their estimated useful lives. Other
intangible assets, principally renewal, referral and other rights incident to
businesses acquired, are amortized over estimated future benefit periods ranging
from five to 25 years in proportion to acquired gross profits. Goodwill is
amortized over periods up to 40 years.
INCOME TAXES
Transamerica provides deferred taxes based on enacted tax rates in effect on the
dates temporary differences between the book and tax bases of assets and
liabilities reverse.
FINANCE
Finance charges are generally recognized as earned on an effective yield method,
except that accrual of finance charges is suspended on accounts that become past
due contractually in excess of 29 days for consumer loans or 90 days for
commercial loans.
Leasing revenues are recognized in the period earned.
REAL ESTATE
Tax service revenues are recognized as income generally when contracts are
executed with a portion of the revenues amortized over the estimated lives of
the contracts.
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<PAGE> 233
LIFE INSURANCE
The accounts of the life insurance operation have been included in the
consolidated financial statements on the basis of generally accepted accounting
principles which differ in some respects from those followed in reports to
regulatory authorities.
Life insurance premiums are generally recognized as earned over the premium
paying periods, with reserves for future benefits established from such premiums
on a net-level premium method based upon estimated investment yields,
withdrawals, mortality and other assumptions which were appropriate at the time
the policies were issued. Premiums and deposits for universal life and other
interest-sensitive life insurance products that do not involve significant
mortality or morbidity risk are recorded as liabilities. Costs of acquiring new
life insurance business, principally commissions and certain variable
underwriting and field office expenses, all of which vary with and are primarily
related to the production of new business, are deferred. Deferred policy
acquisition costs for universal life and other interest-sensitive life insurance
products are amortized in proportion to the present value of gross profit.
Deferred policy acquisition costs for traditional life insurance products are
amortized over the premium-paying period of the related policies in proportion
to premium revenue recognized. Although realization of the benefits associated
with deferred policy acquisition costs is not assured, management believes it is
more likely than not that such amounts will be realized. Adequate provision is
made for reported and unreported claims and related expenses.
DERIVATIVES
Transamerica uses derivative financial instruments to hedge some of its interest
rate risk. The cost of each derivative contract is amortized over the life of
the contract. The amortization is classified with the results of the underlying
hedged item. Certain contracts are designated as hedges of specific assets
within the investment portfolio and to the extent those investments are marked
to market, the hedge contracts are also marked to market and included as an
adjustment to the underlying asset value. Other contracts are designated and
accounted for as hedges of certain of Transamerica's liabilities and outstanding
indebtedness and are not marked to market. Gains or losses on terminated hedges
are deferred and amortized over the remaining life of the hedged item.
STOCK BASED COMPENSATION
Transamerica accounts for stock based compensation under the provisions of
Accounting Principles Board Opinion No. 25 and intends to continue to do so.
NEW ACCOUNTING STANDARDS
In 1995, Transamerica adopted the Financial Accounting Standards Board's new
standard on accounting for impairment of loans. The new standard requires that
impaired loans be measured based on either the fair value of the loan, if
discernible, the present value of expected cash flows discounted at the loan's
effective interest rate, or the fair value of the collateral if the loan is
collateral dependent. The new standard did not have a material effect on the
consolidated financial statements of Transamerica.
In March 1995, the Financial Accounting Standards Board issued a new standard on
accounting for the impairment of long lived assets and for long lived assets to
be disposed of. Transamerica will adopt this new standard in the first quarter
of 1996. The new standard requires that Transamerica assess whether the carrying
amount of an asset is recoverable whenever events or changes in circumstances
indicate that a significant change in the value of the asset may have occurred.
At adoption this new standard will not have a material effect on the
consolidated financial statements of Transamerica.
In May 1995, the Financial Accounting Standards Board issued a new standard on
accounting for mortgage servicing rights. Transamerica will adopt this new
standard in the first quarter of 1996. The new standard requires that mortgage
servicing rights be capitalized when acquired either through the purchase or
origination of mortgage loans that are subsequently sold or securitized with the
servicing rights retained and when the relative fair values of the loans and the
related mortgage servicing rights can be estimated. At adoption this new
standard will not have a material effect on the consolidated financial
statements of Transamerica.
22
<PAGE> 234
In 1994, Transamerica adopted the Financial Accounting Standards Board's new
standard on accounting for certain investments in debt and equity securities.
Beginning in 1994 with the adoption of this standard, all of Transamerica's
investments in debt securities have been classified as available for sale and
reported at fair value. To the extent the securities marked to fair value relate
to interest-sensitive products, an adjustment to deferred policy acquisition
costs is also made. In addition, the reserves for future benefits are evaluated
as if the unrealized gains on debt securities were realized, and adjusted for
any resultant premium deficiencies. The effect of these adjustments, net of
federal income taxes, is recorded in a separate component of stockholders'
equity. There is no effect on the income statement. Prior to 1994 investments in
debt securities were carried at amortized cost.
EARNINGS PER SHARE OF COMMON STOCK
Earnings per share of common stock are based on the weighted average number of
shares outstanding (68,758,000 in 1995, 72,592,000 in 1994, and 78,495,000 in
1993) after deduction of preferred dividends and, in 1994, premium and expenses
of $6.7 million on the redemption of the Series D preferred stock.
B MINORITY INTEREST
In October 1994, Transamerica Delaware, LP, an affiliate of Transamerica, issued
$200 million of 9.125% cumulative Monthly Income Preferred Securities (MIPS)
payable October 25, 2024. The affiliate may redeem the outstanding MIPS, in
whole or in part, on or after October 25, 1999. Transamerica has agreed to
guarantee to pay in full any accrued and unpaid dividends declared, or the
redemption price including accrued and unpaid dividends, if the securities are
redeemed by the affiliate. Interest on the outstanding MIPS is cumulative and
payable monthly in arrears. The fair value of this obligation at December 31,
1995, and 1994 was $220 million and $199 million.
C STOCK OPTION PLANS
At December 31, 1995, under Transamerica's stock option plans, 15,389,110 shares
of common stock (11,457,178 shares at December 31, 1994) were reserved
principally for sale to key employees of the Corporation and subsidiaries at
market value or higher on the option grant date. During 1995, options for
7,070,300 shares were granted, including options granted under the 1995
Performance Stock Option Plan discussed below, and options for 1,064,798 shares
were cancelled due to forfeiture. Options were exercised for 1,068,068 shares in
1995, 194,823 shares in 1994 and 1,019,081 shares in 1993, at aggregate option
prices of $41.1 million, $7 million and $36 million. Of the options for
11,615,958 shares outstanding at December 31, 1995 (6,678,524 shares at December
31, 1994) at an aggregate option price of $739.6 million, options for 3,532,683
shares were exercisable. In February 1996, options for 1,406,900 shares were
granted at an option price equal to market value on the date granted.
In April 1995, the stockholders approved the 1995 Performance Stock Option Plan
and, under the terms of the Plan, Transamerica made three separate one-time
grants of nonqualified stock options totaling 5 million shares. Options for
1,025,000 shares were granted at an exercise price of $60 per share, which vest
ratably on the third, fourth and fifth anniversaries of the date of grant.
Options for 1,325,000 shares were granted with an exercise price of $82 per
share, all of which will be forfeited if the Corporation's common stock does not
reach $82 within five years from the date of grant. Options for 2,650,000 shares
were granted with an exercise price of $100, all of which will be forfeited if
the Corporation's common stock does not reach $100 within seven years from the
date of grant.
D CAPITAL STOCK
Transamerica has outstanding 2,250 shares of Dutch Auction Rate Transferable
Securities Preferred Stock (DARTS) ($100 par value, $100,000 liquidation value)
in Series A-1, B-1 and C-1 of 750 shares each. Dividends, which are cumulative
and are based on par value, are normally determined every 49 days through
auction procedures. The dividend rates for Series A-1, B-1 and C-1 shares were
4.49%, 5.10% and 4.40% at December 31, 1995 and 5.00%, 4.69% and 4.59% at
December 31, 1994.
23
<PAGE> 235
Transamerica also has outstanding 3,601,827 depositary shares at December 31,
1995 (3,632,827 shares at December 31, 1994) each representing a 1/20 interest
in a share of its Series D Preferred Stock ($100 par value, $500 liquidation
preference). Dividends, which are cumulative, are at the rate of 8.5% of the
liquidation preference per annum.
One preference stock purchase right accompanies each share of common stock
outstanding. Each right will entitle the holder to buy from Transamerica a unit
consisting of 1/100 of a share of Series A Participating Preference Stock at an
exercise price of $135 per unit. The rights become exercisable ten days after a
public announcement that a person or group has acquired 20% or more of
Transamerica's common stock or has commenced a tender offer for 30% or more of
the common stock. The rights may be redeemed prior to becoming exercisable by
action of the Board of Directors at a redemption price of $0.05 per right. If
Transamerica is acquired by any person after the rights become exercisable, each
right will entitle its holder to purchase stock of the acquiring company having
a market value of twice the exercise price of each right. The rights expire on
August 8, 1996.
At December 31, 1995, 5,000,000 shares of preference stock (without par value)
were authorized but unissued.
E FINANCIAL INSTRUMENTS
INVESTMENTS
The cost and fair value of fixed maturities and equity securities at December
31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
(Amounts in millions) COST GAINS LOSSES FAIR VALUE
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
U.S. Treasury securities and obligations of
U.S. government authorities and agencies $ 98.9 $ 7.5 $ 106.4
Obligations of states and political
subdivisions 355.0 18.0 $ 0.6 372.4
Foreign governments 110.2 9.2 119.4
Corporate securities 11,803.4 1,133.2 8.6 12,928.0
Mortgage-backed securities 7,300.5 487.2 37.1 7,750.6
Public utilities 4,381.7 393.4 2.9 4,772.2
Redeemable preferred stock 23.7 3.9 0.5 27.1
--------- -------- -------- ---------
Total fixed maturities $24,073.4 $2,052.4 $ 49.7 $ 26,076.1
========= ======== ======== =========
Equity securities $ 349.9 $ 360.3 $ 7.0 $ 703.2
========= ======== ======== =========
DECEMBER 31, 1994
U.S. Treasury securities and obligations of
U.S. government authorities and agencies $ 224.1 $ 0.7 $ 20.2 $ 204.6
Obligations of states and political
subdivisions 341.9 3.6 10.0 335.5
Foreign governments 211.4 1.6 6.4 206.6
Corporate securities 9,384.4 134.1 398.9 9,119.6
Mortgage-backed securities 7,792.5 105.2 530.3 7,367.4
Public utilities 3,990.1 48.6 238.5 3,800.2
Redeemable preferred stock 3.6 0.5 3.1
--------- -------- -------- ---------
Total fixed maturities $21,948.0 $ 293.8 $1,204.8 $ 21,037.0
========= ======== ======== =========
Equity securities $ 275.4 $ 167.2 $ 15.4 $ 427.2
========= ======== ======== =========
</TABLE>
24
<PAGE> 236
The cost and fair value of fixed maturities at December 31, 1995 by contractual
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
FAIR
(Amounts in millions) COST VALUE
<S> <C> <C>
Due in one year or less $ 594.5 $ 608.0
Due after one year through five years 2,988.3 3,115.0
Due after five years through ten years 3,778.1 4,031.6
Due after ten years 9,412.0 10,570.9
--------- ---------
16,772.9 18,325.5
Mortgage-backed securities 7,300.5 7,750.6
--------- ---------
$24,073.4 $26,076.1
========= =========
</TABLE>
The carrying values and estimated fair values of investments in mortgage loans
on real estate and loans to life insurance policyholders at December 31, 1995
and 1994 were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CARRYING ESTIMATED
(Amounts in millions) VALUE FAIR VALUE
<S> <C> <C>
DECEMBER 31, 1995
Mortgage loans on real estate $523.7 $630.4
====== ======
Loans to life insurance policyholders $426.4 $408.1
====== ======
DECEMBER 31, 1994
Mortgage loans on real estate $354.1 $369.0
====== ======
Loans to life insurance policyholders $412.9 $383.5
====== ======
</TABLE>
The fair values for mortgage loans on real estate and policyholder loans are
estimated using discounted cash flow calculations, based on interest rates
currently being offered for similar loans to borrowers with similar credit
ratings. Loans with similar characteristics are aggregated for calculation
purposes.
Gain on investment transactions, included in consolidated revenues, comprises:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in millions) 1995 1994 1993
<S> <C> <C> <C>
Net gain on sale of investments $ 85.7 $ 50.1 $157.3
Provision for impairment in value (23.6) (20.7) (55.5)
Accelerated amortization of deferred policy acquisition costs (9.2) (6.3) (62.8)
------ ------ ------
$ 52.9 $ 23.1 $ 39.0
====== ====== ======
</TABLE>
Proceeds from sales of fixed maturities and equity securities were $4 billion in
1995, $2.7 billion in 1994 and $5.2 billion in 1993. Gross gains of $95 million
in 1995, $107.5 million in 1994 and $325.3 million in 1993, and gross losses of
$11.7 million in 1995, $67.5 million in 1994 and $163.6 million in 1993 were
realized on those sales.
Transamerica and its subsidiaries use interest rate exchange and other
agreements to hedge the interest rate sensitivity of a small portion of its
fixed maturity investments.
25
<PAGE> 237
The net unrealized gain (loss) included in stockholders' equity as a result of
marking the fixed maturities and equity securities to fair value at December 31,
1995 and 1994 were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in millions) 1995 1994
<S> <C> <C>
Net unrealized gain on equity securities $ 353.3 $ 151.8
Net unrealized gain (loss) on investments in fixed maturities 1,990.3 (899.7)
Net unrealized gain (loss) on derivative instruments which hedge a
portion of investments in fixed maturities 12.4 (11.3)
Adjustment to deferred policy acquisition costs (355.6) 351.3
Adjustment to life insurance policy liabilities (339.0)
Deferred income taxes (581.5) 142.8
-------- -------
$1,079.9 $(265.1)
======== =======
</TABLE>
NOTES AND LOANS PAYABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in millions) 1995 1994
<S> <C> <C>
TRANSAMERICA FINANCE CORPORATION:
Short-term bank loans, commercial paper and current portion of
long-term debt $ 743.3 $1,387.1
Long-term debt due subsequent to one year:
Notes and debentures; interest at 5.24% to 9.41%; maturing through
2010 3,603.7 2,477.3
Notes and debentures; interest at 13.8% to 13.88%; maturity value of
$582.8 million; maturing through 2012 162.0 154.2
Commercial paper and other notes at various interest rates and terms
supported by credit agreements expiring through 2000 4,334.6 3,672.5
Subordinated notes and debentures; interest at 5.57% to 9.95%;
maturing through 2003 784.6 841.2
Loans due to parent company and other subsidiaries 61.7 192.0
--------- --------
$ 9,689.9 $8,724.3
PARENT COMPANY AND OTHER SUBSIDIARIES:
Short-term bank loans, commercial paper and current portion of
long-term debt $ 253.0 $ 296.9
Long-term debt due subsequent to one year:
Notes and debentures; interest at 6.5% to 9.88%; maturing through
2016 223.1 252.8
Commercial paper and other notes at various interest rates and terms
supported by credit agreements expiring through 1998 211.3
Notes at variable interest rates; maturing through 1998 22.2 91.1
Less loans to Transamerica Finance Corporation (61.7) (192.0)
--------- --------
647.9 448.8
--------- --------
$10,337.8 $9,173.1
========= ========
</TABLE>
The weighted average interest rate on short-term borrowings at December 31, 1995
and 1994 was 5.80% and 5.81%.
Assets with a net book value of $423.4 million at December 31, 1995, consisting
primarily of land, buildings and equipment, are collateral for certain of the
above debt.
The aggregate annual maturities for the four years subsequent to December 31,
1996 are $2 billion in 1997, $2.5 billion in 1998, $1.6 billion in 1999 and $2.1
billion in 2000.
Under credit agreements with various banks, Transamerica and its subsidiaries
had the ability to borrow up to $5.2 billion with interest at variable rates at
December 31, 1995. There were no borrowings outstanding under these credit lines
at that date. These credit agreements, which expire through 2000, require a fee
on the commitment.
26
<PAGE> 238
Transamerica and its subsidiaries use interest rate exchange agreements to hedge
the interest rate sensitivity of a portion of outstanding indebtedness.
Interest payments, net of amounts received from interest rate exchange
agreements, totaled $696 million in 1995, $661.8 million in 1994 and $623.4
million in 1993.
The estimated fair value of notes and loans payable, using rates currently
available for debt with similar terms and maturities, was $10,800 million at
December 31, 1995 and $9,108 million at December 31, 1994.
CONCENTRATION OF RISK AND FAIR VALUE OF RECEIVABLES
Transamerica's consumer and commercial lending operations engage in the
extension of credit to homeowners, electronics and appliance dealers, retail
recreational products dealers, computer stores and others. The risk associated
with that credit is subject to economic, competitive and other influences. While
a substantial portion of the risk is diversified, certain operations are
concentrated in one industry or geographic area.
Transamerica's finance receivables include $4 billion, net of unearned finance
charges and insurance premiums, of real estate secured loans, principally first
and second mortgages secured by residential properties of which approximately
37% were located in California. The commercial finance receivables portfolio
represents lending arrangements with approximately 100,000 customers. At
December 31, 1995, the portfolio included 15 customers with individual balances
in excess of $15 million. These accounts represented 11% of total commercial net
finance receivables outstanding at December 31, 1995.
The estimated fair values of consumer finance receivables, substantially all of
which are fixed rate instalment loans collateralized by residential real estate,
and the fixed rate commercial finance loans are based on the discounted value of
the future cash flows expected to be received using available secondary market
prices for securities backed by similar loans after adjustment for differences
in loan characteristics. In the absence of readily available market prices, the
expected future cash flows are discounted at effective rates currently offered
by Transamerica for similar loans. For variable rate commercial loans, which
comprise the majority of the commercial loan portfolio, the carrying amount
represents a reasonable estimate of fair value.
The carrying amounts and estimated fair values of the finance receivable
portfolio at December 31, 1995 and 1994 were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CARRYING
(Amounts in millions) VALUE ESTIMATED
FAIR VALUE
<S> <C> <C>
DECEMBER 31, 1995
Fixed rate receivables --
Consumer $4,772.2 $ 5,409.0
Commercial 344.7 355.4
Variable rate receivables --
Commercial 2,641.2 2,641.2
-------- --------
$7,758.1 $ 8,405.6
======== ========
DECEMBER 31, 1994
Fixed rate receivables --
Consumer $4,024.8 $ 4,500.1
Commercial 386.0 395.7
Variable rate receivables --
Commercial 2,560.1 2,560.1
-------- --------
$6,970.9 $ 7,455.9
======== ========
</TABLE>
27
<PAGE> 239
FAIR VALUE OF INVESTMENT CONTRACTS
Investment-type contracts are included in life insurance policy liabilities.
Fair value of investment-type contracts is estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts. The carrying amounts and estimated fair values of the liabilities for
investment-type contracts at December 31, 1995 and 1994 were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CARRYING
(Amounts in millions) VALUE ESTIMATED
FAIR VALUE
<S> <C> <C>
DECEMBER 31, 1995
Single and flexible premium deferred annuities $ 8,080.1 $ 7,518.2
Single premium immediate annuities 4,124.0 4,677.7
Guaranteed investment contracts 2,958.9 2,998.0
Other deposit contracts 2,785.7 2,848.3
--------- ---------
$17,948.7 $ 18,042.2
========= =========
DECEMBER 31, 1994
Single and flexible premium deferred annuities $ 7,425.8 $ 6,898.5
Single premium immediate annuities 3,735.7 3,510.8
Guaranteed investment contracts 2,382.2 2,336.7
Other deposit contracts 2,319.3 2,244.0
--------- ---------
$15,863.0 $ 14,990.0
========= =========
</TABLE>
DERIVATIVES
The operations of Transamerica are subject to risk of interest rate fluctuations
to the extent that there is a difference between the cash flows from
Transamerica's interest-earning assets and the cash flows related to its
liabilities that mature or are repriced in specified periods. In the normal
course of its operations, Transamerica hedges some of its interest rate risk
with derivative financial instruments. These derivatives comprise primarily
interest rate swap agreements, interest rate floor agreements, interest rate cap
agreements and options to enter into interest rate swap agreements (swaptions).
Transamerica does not use derivative financial instruments for trading or
speculative purposes, nor is Transamerica a party to any leveraged derivative
contracts. While Transamerica is exposed to credit risk in the event of
nonperformance by the other party, nonperformance is not anticipated due to the
credit rating of the counterparties. At December 31, 1995 and 1994, all
Transamerica's derivative financial instruments were with financial institutions
rated A or better by one or more of the major credit rating agencies.
ASSET AND LIABILITY HEDGES
Interest rate floor agreements purchased by Transamerica provide for the receipt
of payments in the event interest rates fall below specified levels. Interest
rate floors are intended to mitigate Transamerica's risk of reinvesting the cash
flow it receives from calls and redemptions on its investment portfolio at lower
interest rates. Interest rate swap agreements are intended to help Transamerica
to more closely match the cash flow received from its assets to the payments on
its liabilities. Transamerica's interest rate swap agreements generally provide
that one party pays interest at a floating rate in relation to movements in an
underlying index and the other party pays interest at a fixed rate.
At December 31, 1995 and 1994, the unamortized cost of the instruments that
hedge assets was $15.9 million and $18 million, and the fair value of these
asset hedges comprised gross obligations to counterparties of $9.7 million and
$5.4 million and gross benefits from counterparties of $38 million and $12.1
million. The net unrealized gain (loss) on derivative contracts that hedge
assets is included in stockholders' equity to offset the effect of changes to
the fair value of the underlying hedged asset. At December 31, 1995 and 1994 the
net after tax unrealized gain (loss) included in stockholders' equity from
marking asset hedges to fair value was $8.1 million and $(7.3) million.
28
<PAGE> 240
The unamortized cost of the liability hedges ($18.9 million at December 31, 1995
and $2.9 million at December 31, 1994) is amortized over the remaining lives of
the contracts, which range up to ten years. Transamerica's interest rate cap
agreements limit the amount of interest paid in the event interest rates rise
above specified levels. Transamerica purchases swaptions, which help manage the
risk of interest rate fluctuations by providing an option to enter into an
interest rate swap in the event of unfavorable interest rate movements.
The net present value of the liability hedges offsets changes in the fair value
of the hedged liabilities, which are also carried at amortized cost. The fair
value of the liability hedges at December 31, 1995 and 1994 were gross
obligations of $32.9 million and $31.8 million and gross benefits of $84.5
million and $22.2 million resulting in a net benefit from counterparties of
$51.6 million at December 31, 1995 and a net obligation to counterparties of
$9.6 million at December 31, 1994.
At December 31, 1995 and 1994 asset hedges comprise:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WEIGHTED
NOTIONAL AVERAGE FLOATING
(Dollar amounts in millions) AMOUNT WEIGHTED INTEREST RATE
AVERAGE FIXED
INTEREST RATE
<S> <C> <C> <C>
1995
Interest rate swap agreements -- Transamerica
receives:
Floating rate interest income, pays fixed rate
interest expense $ 235.2 8.0% 6.3%
======== ==== ====
Fixed rate interest income, pays floating rate
interest expense $ 140.0 5.7% 5.9%
======== ==== ====
Floating rate interest income based on one index
(6.3%) and pays floating rate interest expense
based on another index (5.0%) $ 65.0
========
Interest rate floor agreements $ 560.5 6.5%
======== ====
1994
Interest rate swap agreements -- Transamerica
receives:
Floating rate interest income, pays fixed rate
interest expense $ 178.8 7.2% 6.7%
======== ==== ====
Fixed rate interest income, pays floating rate
interest expense $ 96.0 5.0% 6.2%
======== ==== ====
Interest rate floor agreements $ 560.5 6.5%
======== ====
</TABLE>
29
<PAGE> 241
At December 31, 1995 and 1994 liability hedges comprise:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WEIGHTED
NOTIONAL AVERAGE FLOATING
(Dollar amounts in millions) AMOUNT WEIGHTED INTEREST RATE
AVERAGE FIXED
INTEREST RATE
<S> <C> <C> <C>
1995
Interest rate swap agreements -- Transamerica pays:
Floating rate interest expense, receives fixed rate
interest income $1,029.7 6.4% 5.9%
======== ==== ====
Fixed rate interest expense, receives floating rate
interest income $ 793.9 7.1% 5.8%
======== ==== ====
Floating rate interest expense based on one index
(5.9%) and receives floating rate interest income
based on another index (5.9%) $ 253.0
========
Swaptions $1,267.1 5.3%
======== ====
Interest rate cap agreements $ 250.0 6.5%
======== ====
Cross currency swaps and foreign interest rate swaps $ 144.5
========
1994
Interest rate swap agreements -- Transamerica pays:
Floating rate interest expense, receives fixed rate
interest income $ 569.5 6.4% 6.2%
======== ==== ====
Fixed rate interest expense, receives floating rate
interest income $ 810.1 7.1% 5.9%
======== ==== ====
Floating rate interest expense based on one index
(6.1%) and receives floating rate interest income
based on another index (5.0%) $ 221.0
========
Swaptions $ 100.0 7.0%
======== ====
Interest rate cap agreements $ 100.0 5.0%
======== ====
</TABLE>
F INCOME TAXES
The provision for income taxes on income from continuing operations comprises:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in millions) 1995 1994 1993
<S> <C> <C> <C>
Federal current $ 69.9 $215.4 $ 213.0
Federal deferred tax provision (benefit) 128.8 12.1 (110.7)
State 19.1 22.6 27.1
Foreign 16.7 12.3 11.2
------ ------ -------
$234.5 $262.4 $ 140.6
====== ====== =======
</TABLE>
30
<PAGE> 242
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the deferred tax assets and liabilities as of December 31, 1995 and 1994 are as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in millions) 1995 1994
<S> <C> <C>
Deferred tax assets:
Allowance for losses $ 75.7 $ 106.9
Impairment of investments 57.3 49.6
Life insurance policy liabilities 585.3 584.6
Unrealized loss on marking investments to fair value 142.8
Loss and tax credits carryforward 24.4 19.0
Other 212.5 191.5
-------- --------
955.2 1,094.4
Deferred tax liabilities:
Deferred policy acquisition costs 696.8 650.3
Accelerated depreciation 446.4 320.7
Unrealized gain on marking investments to fair value 581.5
Discount amortization on notes and loans payable 68.7 66.2
Other 53.3 63.8
-------- --------
1,846.7 1,101.0
-------- --------
Net deferred tax liability $ 891.5 $ 6.6
======== ========
</TABLE>
The difference between federal income taxes on income from continuing operations
computed at the statutory rate and the provision for income taxes is:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in millions) 1995 1994 1993
<S> <C> <C> <C>
Federal income taxes at statutory rate $246.8 $241.6 $ 205.8
State income taxes 12.4 14.7 17.6
Prior year items (30.0) (94.2)
Effect of tax rate change on deferred tax liability 8.4
Other 5.3 6.1 3.0
------ ------ ------
$234.5 $262.4 $ 140.6
====== ====== ======
</TABLE>
Income tax payments totaled $148.3 million in 1995, $71.9 million in 1994 and
$135.5 million in 1993. The loss from discontinued operations includes an income
tax provision of $200,000 in 1994 and a tax benefit of $13 million in 1993.
31
<PAGE> 243
G BUSINESS SEGMENT INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in millions) 1994 1993 1995
<S> <C> <C> <C>
REVENUES
Life insurance $ 3,866.5 $ 3,289.6 $ 3,026.3
Consumer lending 782.5 690.6 654.3
Commercial lending 423.7 384.3 370.7
Leasing 733.9 637.9 407.8
Real estate services** 285.8 367.5 363.6
Other* 8.7 (15.4) (9.4)
--------- --------- ---------
$ 6,101.1 $ 5,354.5 $ 4,813.3
========= ========= =========
OPERATING PROFIT AS DEFINED BY FINANCIAL ACCOUNTING
STANDARD NO. 14****
Life insurance $ 458.4 $ 403.2 $ 380.6
Consumer lending 134.0 148.1 158.6
Commercial lending 111.8 72.0 (18.1)
Leasing 119.7 101.9 91.5
Real estate services** 78.5 137.5 151.5
--------- --------- ---------
902.4 862.7 764.1
Unallocated interest, expenses and investment
transactions (176.4) (156.5) (160.4)
Interest expense for real estate services (21.0) (15.9) (15.6)
Income tax expense (234.5) (262.4) (140.6)
--------- --------- ---------
Income from continuing operations $ 470.5 $ 427.9 $ 447.5
========= ========= =========
ASSETS
Life insurance $35,099.8 $28,967.1 $26,109.0
Consumer lending 5,308.3 4,475.4 3,946.1
Commercial lending 3,423.4 3,363.9 3,508.5
Leasing 3,477.8 3,184.2 1,697.0
Real estate services** 548.6 524.0 557.2
Other*** 86.6 (120.8) 232.7
--------- --------- ---------
$47,944.5 $40,393.8 $36,050.5
========= ========= =========
ADDITIONS, AT COST, TO PROPERTY AND EQUIPMENT
Leasing $ 573.3 $ 1,525.3 $ 411.0
Other 80.9 70.2 64.4
--------- --------- ---------
$ 654.2 $ 1,595.5 $ 475.4
========= ========= =========
DEPRECIATION
Leasing $ 236.6 $ 201.7 $ 105.9
Other 53.9 46.7 39.2
--------- --------- ---------
$ 290.5 $ 248.4 $ 145.1
========= ========= =========
</TABLE>
* Includes intercompany eliminations.
** In 1995 Transamerica completed the sale of its asset management operations.
At December 31, 1995, 1994 and 1993 and for the years then ended, revenues
of the asset management operations were $31.4 million, $76.1 million and
$40 million, operating profit was $26.8 million, $30.9 million and $0.4
million and assets were $0, $54.5 million and $108.1 million.
*** Includes intercompany eliminations and in 1993 net assets of discontinued
operations.
**** For income by segment as used for management purposes, see table included
on page 45 of the financial review.
32
<PAGE> 244
H PENSION PLANS
Transamerica Corporation and its subsidiaries have a number of noncontributory
defined benefit pension plans covering substantially all employees. Plans
covering salaried employees provide pension benefits that are based on the
employee's compensation during the highest paid 60 consecutive months during the
120 months before retirement. Transamerica's funding policy is to make
contributions as necessary to provide assets sufficient to meet its obligation
to plan members in accordance with the requirements of the Employee Retirement
Income Security Act of 1974.
A summary of the components of net periodic pension cost follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in millions) 1995 1994 1993
<S> <C> <C> <C>
Service cost -- benefits earned during the period $ 12.3 $ 15.4 $ 15.6
Interest cost on projected benefit obligation 50.9 46.4 43.6
Actual return (gain) loss on plan assets (259.2) 19.3 (145.7)
Deferral of current gains (losses) varying from expected return 199.2 (71.7) 97.7
Amortization of prior service costs 3.4 5.7 5.0
------- ------ -------
Total pension cost $ 6.6 $ 15.1 $ 16.2
======= ====== =======
</TABLE>
The following table sets forth the amounts recognized in the consolidated
statement of financial position for the pension plans:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in millions) 1995 1994
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation* $687.1 $586.1
====== ======
Accumulated benefit obligation $695.4 $593.2
====== ======
Projected benefit obligation, including effects of future salary increases $732.2 $650.1
Plan assets at fair value 991.5 746.8
------ ------
Excess of plan assets over projected benefit obligation $259.3 $ 96.7
====== ======
The excess of plan assets over projected benefit obligation comprises:
Net pension liability $ (5.6) $ (3.6)
Unrecognized net gain arising since January 1, 1986 278.1 119.3
Unrecognized prior service cost (16.2) (21.8)
Unrecognized net obligation at January 1, 1986 net of amortization (6.0) (7.1)
Adjustment required to recognize minimum liability 9.0 9.9
------ ------
$259.3 $ 96.7
====== ======
</TABLE>
* A portion of the vested benefit obligation is unconditionally guaranteed by
Transamerica Occidental Life Insurance Company, a wholly owned subsidiary of
Transamerica.
The projected benefit obligation was determined using a weighted average
discount rate of 7% (8% in 1994) and an assumed rate of compensation increase of
5.50%. The expected long-term rate of return on plan assets was 8.25% (8.75% in
1994 and 8% in 1993).
I RETAINED EARNINGS RESTRICTIONS
Under certain circumstances, the provisions of loan agreements and statutory
requirements place limitations on the amount of funds which can be remitted to
Transamerica by its consolidated subsidiaries. Of the net assets of
Transamerica's consolidated subsidiaries, as adjusted for intercompany account
balances, at December 31, 1995 approximately $4.8 billion is so restricted, and
$0.4 billion is free for remittance to Transamerica subject to investment and
operating requirements.
33
<PAGE> 245
J DISCONTINUED OPERATIONS
In April 1994, Transamerica sold its remaining 21% ownership interest in
Sedgwick Group plc. Proceeds from the sale were $326.4 million and resulted in
no gain or loss. Transamerica's investment in Sedgwick and its share of
Sedgwick's operating results and related goodwill amortization have been
separated from those of Transamerica's continuing operations and are classified
as discontinued operations. Amounts included in loss from discontinued
operations related to the Sedgwick investment were a loss of $700,000 in 1994
representing results through the date of sale and income of $3 million in 1993.
In 1993, Transamerica sold its former property and casualty insurance
subsidiary, Transamerica Insurance Group. The net proceeds totaled $1 billion in
cash, resulting in a $125 million after tax loss on the sale of which $75
million was recorded in 1992 on an estimated basis and $50 million in 1993 upon
completion of the final public offering.
K COMMITMENTS AND CONTINGENCIES
In connection with the sale of Transamerica Insurance Group, discussed in Note
J, a subsidiary of Transamerica assumed responsibility by means of a reinsurance
agreement for certain assumed treaty reinsurance business written prior to 1986
for which it received assets which are expected to be sufficient to fund the
liquidation of the business. Transamerica has collateralized the estimated
ultimate obligation of approximately $380 million at December 31, 1995 by
providing letters of credit aggregating $160 million and by placing $224 million
of its assets in a trust. Additionally Transamerica agreed to pay up to $89.3
million in adverse loss development on certain paid environmental losses and has
provided for these losses.
Substantially all leases of Transamerica and its subsidiaries are operating
leases principally for the rental of real estate. Total rental expense amounted
to $82.7 million in 1995, $99.9 million in 1994 and $88.1 million in 1993.
Contingent liabilities arising from litigation, income taxes and other matters
are not expected to have a material effect on the consolidated financial
position or results of operations of Transamerica and its subsidiaries.
34
<PAGE> 246
SUPPLEMENTARY FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
1995 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 1995 TOTAL
<S> <C> <C> <C> <C> <C>
Revenues $1,420.5 $1,581.0 $1,581.2 $ 1,518.4 $ 6,101.1
======== ======== ======== ======== ========
Income from continuing operations:
Operating income before investment
transactions $ 94.3 $ 111.2 $ 122.3 $ 108.3 $ 436.1
Gain on investment transactions 2.0 6.6 24.7 1.1 34.4
-------- -------- -------- -------- --------
Net income $ 96.3 $ 117.8 $ 147.0 $ 109.4 $ 470.5
======== ======== ======== ======== ========
Earnings per share of common stock:
Income from continuing operations:
Operating income before investment
transactions $ 1.30 $ 1.54 $ 1.72 $ 1.52 $ 6.08
Gain on investment transactions 0.03 0.09 0.36 0.02 0.50
-------- -------- -------- -------- --------
Net income $ 1.33 $ 1.63 $ 2.08 $ 1.54 $ 6.58
======== ======== ======== ======== ========
High and low sales prices for common
shares $59-49 1/2 $61 1/8-55 3/4 $71 1/2-58 $77 1/2-65 3/4 $77 1/2-49 1/2
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 1994 TOTAL
<S> <C> <C> <C> <C> <C>
Revenues $1,235.4 $1,363.0 $1,371.3 $ 1,384.8 $ 5,354.5
======== ======== ======== ========= =========
Income from continuing operations:
Operating income before investment
transactions $ 102.0 $ 102.6 $ 98.9 $ 109.4 $ 412.9
Gain on investment transactions 1.7 3.1 6.0 4.2 15.0
-------- -------- -------- --------- ---------
Income from continuing operations 103.7 105.7 104.9 113.6 427.9
Loss from discontinued operations (0.7) (0.7)
-------- -------- -------- --------- ---------
Net income $ 103.0 $ 105.7 $ 104.9 $ 113.6 $ 427.2
======== ======== ======== ========= =========
Earnings per share of common stock:
Income from continuing operations:
Operating income before investment
transactions $ 1.27 $ 1.30 $ 1.31 $ 1.37 $ 5.25
Gain on investment transactions 0.02 0.04 0.09 0.06 0.21
-------- -------- -------- -------- --------
Income from continuing operations 1.29 1.34 1.40 1.43 5.46
Loss from discontinued operations (0.01) (0.01)
-------- -------- -------- -------- --------
Net income $ 1.28 $ 1.34 $ 1.40 $ 1.43 $ 5.45
======== ======== ======== ======== ========
High and low sales prices for common
shares $57 5/8-49 1/4 $54 5/8-48 7/8 $53 5/8-49 1/2 $51 1/4-46 3/8 $57 5/8-46 3/8
</TABLE>
(Dollar amounts in millions except for share data)
Note A. On February 29, 1996 the closing sales price for Transamerica common
shares was $75 3/8 and there were 49,400 common stockholders of record.
35
<PAGE> 247
SELECTED ELEVEN-YEAR FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollar amounts in millions except for
share data) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Revenues $ 6,101.1 $ 5,354.5 $ 4,813.3 $ 4,550.9 $ 4,175.2
Income from continuing operations $ 470.5 $ 427.9 $ 447.5 $ 334.0 $ 5.6
Earnings per share of common stock (Note
A):
Income (loss) from continuing operations $ 6.58 $ 5.46 $ 5.40 $ 4.00 $ (0.08)
FINANCIAL POSITION
Total assets $47,944.5 $40,393.8 $36,050.5 $33,290.9 $31,133.6
Notes and loans payable:
Long-term debt $ 9,341.5 $ 7,489.1 $ 5,681.0 $ 6,510.5 $ 6,975.6
OTHER DATA
Per share of common stock:
Dividends declared (Note E) $ 2.00 $ 2.00 $ 2.00 $ 2.00 $ 1.98
</TABLE>
Note A. Earnings per share of common stock are based on the weighted average
number of shares outstanding in each year after deduction of preferred dividends
and in 1994, premium and expenses on the redemption of the Series D preferred
stock.
Note E. Quarterly dividends per share were 50 cents in 1995 and 1994.
36
<PAGE> 248
ANNEX D1
TRANSAMERICA QUARTERLY REPORT ON FORM 10-Q
FOR FIRST QUARTER OF 1996
<PAGE> 249
Page 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 1996
Commission File Number 1-2964
__________________
TRANSAMERICA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-0932740
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 Montgomery Street
San Francisco, California 94111
(Address of principal executive offices)
(Zip Code)
(4l5) 983-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Number of shares of Common Stock, $1 par value, outstanding as of close
of business on April 30, 1996: 67,227,674 shares.
<PAGE> 250
Page 2
TRANSAMERICA CORPORATION
FORM 10-Q
Part I. Financial Information
Item 1. Financial Statements.
The following unaudited consolidated financial statements of Transamerica
Corporation and Subsidiaries, for the periods ended March 31, 1996 and 1995,
do not include complete financial information and should be read in
conjunction with the Consolidated Financial Statements filed with the
Commission in Transamerica's Annual Report on Form 10-K for the year ended
December 31, 1995. The financial information presented in the financial
statements included in this report reflects all adjustments, consisting only
of normal recurring accruals, which are, in the opinion of management,
necessary for a fair statement of results for the interim periods presented.
Results for the three months are not necessarily indicative of the results for
the entire year for most of the Corporation's businesses.
* * * * *
The consolidated ratios of earnings to fixed charges were computed by
dividing income before fixed charges and income taxes by the fixed charges.
Fixed charges consist of interest and debt expense and one-third of rent
expense, which approximates the interest factor.
<PAGE> 251
Page 3
TRANSAMERICA CORPORATION AND SUBSIDIARIES
_____________
CONSOLIDATED BALANCE SHEET
Assets
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
Investments, principally of life
insurance subsidiaries:
Fixed maturities $25,693.9 $26,076.1
Equity securities 773.6 703.2
Mortgage loans and real estate 656.6 594.5
Loans to life insurance policyholders 415.8 426.4
Short-term investments 193.5 226.5
_________ _________
27,733.4 28,026.7
Finance receivables 8,506.2 8,287.8
Less unearned fees ($287.6 in 1996
and $289.7 in 1995) and allowance for
losses 518.4 529.7
_________ _________
7,987.8 7,758.1
Cash and cash equivalents 108.6 67.6
Trade and other accounts receivable 3,398.5 3,130.1
Property and equipment, less accumulated
depreciation of $1,172.3 in 1996 and
$1,140.6 in 1995:
Land, buildings and equipment 409.1 411.5
Equipment held for lease 2,858.9 2,862.0
Deferred policy acquisition costs 2,161.0 1,974.2
Separate account assets 2,544.9 2,533.4
Goodwill, less accumulated amortization of
$134.1 in 1996 and $130.8 in 1995 399.1 402.4
Other assets 827.9 778.5
_________ _________
$48,429.2 $47,944.5
========= =========
</TABLE>
(Amounts in millions)
<PAGE> 252
Page 4
TRANSAMERICA CORPORATION AND SUBSIDIARIES
_________________
CONSOLIDATED BALANCE SHEET (Continued)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
Life insurance policy liabilities $28,563.5 $27,893.4
Notes and loans payable, principally of
finance subsidiaries, of which $1,382.7
in 1996 and $996.3 in 1995 matures
within one year 10,640.3 10,337.8
Accounts payable and other liabilities 1,870.2 1,672.4
Income taxes 770.9 1,007.6
Separate account liabilities 2,544.9 2,533.4
Minority interest in preferred securities
of affiliate 200.0 200.0
Stockholders' equity:
Preferred Stock ($100 par value):
Authorized--1,200,000 shares; issuable
in series, cumulative
Outstanding--Dutch Auction Rate Trans-
ferable Securities, 2,250 shares, at
liquidation preference of $100,000
per share, weighted average dividend
rate of 3.96% in 1996 and 4.66% in 1995 225.0 225.0
Outstanding--Series D, 180,091 shares in
1996 and 1995, at liquidation preference
of $500 per share, cumulative dividend
rate of 8.5% 90.0 90.0
Preference Stock (without par value)--
5,000,000 shares authorized; none
outstanding
Common Stock ($1 par value):
Authorized--150,000,000 shares
Outstanding--67,678,057 shares in 1996
and 67,989,508 shares in 1995, after
deducting 12,060,405 shares and
11,748,954 shares in treasury 67.7 68.0
Retained earnings 2,911.7 2,866.0
Net unrealized gain on investments marked
to fair value 575.2 1,079.9
Foreign currency translation adjustments (30.2) (29.0)
_________ _________
3,839.4 4,299.9
_________ _________
$48,429.2 $47,944.5
========= =========
</TABLE>
(Amounts in millions except for share data)
<PAGE> 253
Page 5
TRANSAMERICA CORPORATION AND SUBSIDIARIES
_______________
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
<S> <C> <C>
REVENUES
Life insurance premiums and related
income $ 456.9 $ 425.5
Investment income 514.1 479.7
Finance charges and other fees 293.6 270.1
Leasing revenues 173.8 169.0
Real estate and tax service revenues 58.0 38.9
Gain on investment transactions 13.0 3.1
Other 23.8 34.2
________ ________
1,533.2 1,420.5
EXPENSES
Life insurance benefits 705.2 659.1
Life insurance underwriting, acquisition
and other expenses 153.4 145.7
Leasing operating and maintenance costs 92.9 89.0
Interest and debt expense 177.3 168.3
Provision for losses on receivables 33.2 25.9
Other, including administrative and general
expenses 197.9 181.8
________ ________
1,359.9 1,269.8
________ ________
173.3 150.7
Income taxes 58.0 54.4
________ ________
Net income $ 115.3 $ 96.3
======== ========
Earnings per share of common stock:
Income before investment transactions $1.51 $1.30
Gain on investment transactions 0.12 0.03
_____ _____
Net income $1.63 $1.33
===== =====
Dividends per share of common stock $0.50 $0.50
===== =====
Ratio of earnings to fixed charges 1.94 1.86
</TABLE>
(Dollar amounts in millions except for share data)
<PAGE> 254
Page 6
TRANSAMERICA CORPORATION AND SUBSIDIARIES
____________
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
<S> <C> <C>
Balance at beginning of year $2,866.0 $2,557.4
Net income 115.3 96.3
Dividends on common stock (33.7) (34.6)
Dividends on preferred stock (4.4) (4.6)
Treasury stock purchased (31.5)
________ ________
Balance at end of period $2,911.7 $2,614.5
======== ========
</TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 115.3 $ 96.3
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in life insurance policy
liabilities, excluding policyholder
balances on interest-sensitive policies 334.3 107.6
Amortization of policy acquisition costs 61.0 55.9
Policy acquisition costs deferred (90.7) (102.9)
Depreciation and amortization 78.6 71.4
Other (13.9) 85.6
_________ _________
Net cash provided by operating activities 484.6 313.9
INVESTING ACTIVITIES
Finance receivables originated (4,148.2) (4,840.7)
Finance receivables collected 3,846.7 4,716.5
Purchase of investments (1,942.7) (1,407.2)
Sales and maturities of investments 1,188.6 663.7
Purchase of finance receivables and other
assets from ITT Consumer Financial
Corporation (1,027.3)
Other (57.5) (175.7)
_________ _________
Net cash used by investing activities (1,113.1) (2,070.7)
FINANCING ACTIVITIES
Proceeds from debt financing 1,030.0 2,963.2
Payment of notes and loans (740.1) (1,753.5)
Receipts from interest-sensitive policies
credited to policyholder account balances 1,550.8 1,372.9
Return of policyholder balances on
interest-sensitive policies (1,101.3) (755.2)
Treasury stock purchases (51.0) (19.9)
Other common stock transactions 19.2 9.8
Purchase of preferred stock (0.5)
Dividends (38.1) (39.2)
_________ _________
Net cash provided by financing activities 669.5 1,777.6
_________ _________
Increase in cash and cash equivalents 41.0 20.8
Cash and cash equivalents at beginning
of year 67.6 64.3
_________ _________
Cash and cash equivalents at end of period $ 108.6 $ 85.1
========= =========
</TABLE>
(Amounts in millions)
<PAGE> 255
Page 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Consolidated Results
Transamerica's net income for the first quarter of 1996 increased
$19 million (20%) compared to the first quarter of 1995.
Net income for the first quarter of 1996 included net after tax gains
from investment transactions aggregating $8.5 million compared to $2 million
in the first quarter of 1995. Income before investment transactions increased
$12.5 million (13%) due primarily to increases in life insurance, real estate
and leasing operating results. Partially offsetting these increases were
decreased commercial lending operating results and higher unallocated interest
and other expenses.
Gain on investment transactions, pretax, included in consolidated
revenues, comprises (amounts in millions):
Three months ended
March 31,
1996 1995
Net gain on sale of investments $ 9.6 $ 6.2
Adjustment for impairment in value (3.9)
Adjustment to amortization of
deferred policy acquisition
costs for realized investment
transactions 3.4 0.8
_____ _____
$13.0 $ 3.1
===== =====
The amortization of deferred policy acquisition costs is adjusted due to
gains or losses realized on the sale of certain investments. The adjustment
to the amortization of deferred policy acquisition costs is included in
investment transactions as an offset to the related gains or losses.
Investment transactions also reflected downward adjustments primarily for
impairment in the value of certain nonperforming fixed maturity investments,
mortgage loans, real estate investments and real estate acquired through
foreclosure.
On March 27, 1996 the life insurance operation exchanged $429.3 million
of non investment grade bond investments for a like amount of higher rated
notes issued by a special purpose subsidiary of Transamerica Corporation
(parent company). The exchange resulted in a $7.8 million gain on investment
transactions at the life insurance operation. This transaction had no effect
on the consolidated financial statements of Transamerica Corporation.
<PAGE> 256
Page 8
REVENUES AND INCOME BY LINE OF BUSINESS
<TABLE>
<CAPTION>
Three months ended March 31,
Revenues Income
1996 1995 1996 1995
(Amounts in millions)
<S> <C> <C> <C> <C>
Life insurance $ 967.2 $ 902.2 $ 72.8 $63.8
Gain (loss) on investment
transactions 19.6 (1.5) 12.8 (1.0)
________ ________ ______ _____
Total life insurance 986.8 900.7 85.6 62.8
Consumer lending 198.1 171.8 17.8 17.7
Commercial lending 104.6 110.8 14.5 18.0
Leasing 181.9 175.7 18.8 16.3
Amortization of goodwill (3.3) (3.3)
________ ________ ______ _____
Total finance 484.6 458.3 47.8 48.7
Real estate services 66.6 46.4 9.6 2.7
Gain on investment trans-
actions 6.0 6.4 3.5 3.0
________ ________ ______ _____
Total real estate services* 72.6 52.8 13.1 5.7
Unallocated interest and
other expenses* 13.5 (23.4) (20.9)
Consolidation eliminations (10.8) (4.8) (7.8)
________ ________ ______ _____
Total revenues and net income $1,533.2 $1,420.5 $115.3 $96.3
======== ======== ====== =====
</TABLE>
*Certain 1995 amounts have been reclassified between real estate services
and unallocated interest and other expenses to conform to the 1996
presentation.
Life Insurance
Net income from life insurance operations for the first quarter of 1996
increased $22.8 million (36%) over the first quarter of 1995. Net income
included a net after tax gain from investment transactions of $12.8 million in
the first quarter of 1996 compared to a net after tax loss of $1 million in
the first quarter of 1995.
Income before investment transactions increased $9 million (14%) in the
first quarter of 1996 over the first quarter of 1995. The life insurance,
structured settlements, group pension, Canadian and corporate and other lines
all experienced increases in income before investment transactions in the
first quarter of 1996 primarily as a result of increased fee income due to a
larger base of interest-sensitive policies and maintained interest spreads on
a growing asset base. The annuities line benefited from higher interest
spreads but experienced a slight decrease in income before investment
transactions in the first quarter of 1996 compared to the first quarter of
1995 primarily as a result of higher operating expenses due primarily to the
relocation of a portion of the operation to Charlotte, North Carolina. Income
<PAGE> 257
Page 9
before investment transactions for the reinsurance line decreased as a result
of lower premium revenues during the first quarter of 1996 compared to the
first quarter of 1995.
Investment transactions for the first quarter of 1996 included an after
tax gain of $10.5 million realized on the sale of investments compared to $1
million in the first quarter of 1995. The $10.5 million after tax gain for
the first quarter of 1996 included an after tax gain of $7.8 million resulting
from a transaction with a special purpose subsidiary of Transamerica
Corporation where certain below investment grade bonds were exchanged for
collateralized higher rated bond obligations issued by the special purpose
subsidiary. In the first quarters of 1996 and 1995 investment transactions
related to investments backing interest-sensitive products resulted in losses.
The adjustment to the amortization of deferred policy acquisition costs
reduced the losses by $2.2 million and $600,000 after tax. Investment
transactions in the first quarter of 1995 also reflected a downward adjustment
of $2.6 million after tax primarily for impairment in the value of certain
below investment grade fixed maturity investments. There were no such
downward adjustments in the first quarter of 1996.
Premiums and related income increased $31.4 million (7%) for the first
quarter of 1996 over the first quarter of 1995 due primarily to an increase in
fees from interest-sensitive policies and certain other income from
reinsurance transactions.
Net investment income increased $33.6 million (7%) for the first quarter
of 1996 over the first quarter of 1995 due primarily to increased investments.
Life insurance benefit costs and expenses increased $53.8 million (7%)
for the first quarter of 1996 compared to the first quarter of 1995
principally due to increases in benefits paid or provided attributable to the
larger base of life insurance and annuities in force.
Cash provided by operations for the first quarter of 1996 increased
$102.6 million (60%) over the first quarter of 1995 principally due to
increased investment income from asset growth and the timing in the settlement
of certain receivables and payables, including reinsurance receivables and
payables. The life insurance operation continues to maintain a sufficiently
liquid portfolio to cover its operating requirements, with remaining funds
being invested in longer term securities.
Consumer Lending
Consumer lending net income for the first quarter of 1996 was $17.8
million compared to $17.6 million for the first quarter of 1995. Consumer
lending income before the amortization of goodwill for the first quarter of
1996 was $17.8 million compared to $17.7 million for the first quarter of
1995.
Consumer lending income before the amortization of goodwill for the first
quarter of 1996 rose $100,000 (1%) from the first quarter of 1995. The rise
was due to increased revenues on higher average receivables outstanding that
offset higher interest and other operating expenses and a larger provision for
loan losses.
<PAGE> 258
Page 10
Revenues increased $26.3 million (15%) in the first quarter of 1996 over
the comparable year ago period due to the effects of a $554.5 million (13%)
increase in average net receivables outstanding, which resulted primarily from
the March 31, 1995 acquisition of approximately $1 billion in home equity
loans from ITT Consumer Financial Corporation (ITT).
Interest expense increased $7.8 million (11%) for the first quarter of
1996 compared to the year ago period as the impact of the higher average
outstandings offset reduced borrowing rates. Other operating expenses in the
first quarter of 1996 increased $12.3 million (23%) over the first quarter of
1995 due primarily to increased expenses on disposition of repossessed assets,
amortization of intangibles acquired in the ITT acquisition and increased
advertising costs.
The provision for losses on receivables increased $6.1 million (30%) in
the first quarter of 1996 compared to the first three months of 1995 due to an
increase in net credit losses and an increase in the allowance for losses
relating to the non real estate portfolio (discussed below) offset in part by
the effects of a decrease in outstanding receivables, but declined $6.4
million (19%) from the fourth quarter of 1995 which included higher writeoffs
due to the consolidation and acceleration of California foreclosure activity.
Net credit losses in the first quarter of 1996 rose $15.3 million (81%)
over the same quarter a year ago. Net credit losses in the first quarter of
1996 included $8.1 million relating to the ITT portfolio. Excluding the
effects of the ITT portfolio, net credit losses in the first quarter of 1996
were $500,000 (4%) lower in the real estate portfolio but $7.7 million (100%)
higher in the non real estate portfolio. The non real estate receivable
portfolio has been affected by increasing levels of consumer bankruptcies.
Net credit losses as a percentage of average net outstandings were 2.81% in
the first quarter of 1996 versus 1.75% in the first quarter of 1995. The
increase in the percentage was affected by lower outstanding receivables at
March 31, 1996, in addition to the higher amounts of credit losses. There
were no net credit losses on the ITT portfolio in the first quarter of 1995.
Because future credit losses will depend on factors such as economic
conditions and the state of the real estate market, particularly in
California, the extent and timing of any change in the recent trend remains
uncertain.
Net consumer finance receivables at March 31, 1996 and December 31, 1995
were $4.8 billion and $5.2 billion of which $3.9 billion and $4 billion were
real estate secured loans, principally first and second mortgages secured by
residential properties. Approximately 37% of the real estate secured loans
were located in California. The decrease in net receivables was primarily due
to the continuing runoff of the ITT loan portfolio.
Delinquent finance receivables, which are defined as receivables
contractually past due 60 days or more, were $147 million (2.92% of finance
receivables outstanding) at March 31, 1996 compared to $143.6 million (2.79%
of finance receivables outstanding) at December 31, 1995. Approximately one
half of the increase in the delinquency percentages is due to the effects of
lower outstanding receivables at March 31, 1996, with the remainder caused by
an increase in delinquency in the real estate portfolio of $5.2 million (5%)
and a decrease in delinquency in the non real estate portfolio of $1.8
million (4%).
<PAGE> 259
Page 11
Management has established an allowance for losses equal to 3.07% of net
consumer finance receivables outstanding at March 31, 1996 compared to 3.32%
at December 31, 1995; the decrease in the percentage reflects $8.1 million in
chargeoffs that had been anticipated on the ITT portfolio offset in part by an
increase in the allowance percentage on the non ITT portfolio from 2.83% to
2.88% which management considered to be prudent based on continued high
credit losses in the non real estate portfolio. Also contributing to the
decrease in the allowance percentage was an adjustment to the ITT purchase
price allocation in the first quarter of 1996 which had the effect of reducing
the allowance for losses on receivables by $8.1 million.
Accrual of interest and other finance charges is suspended on accounts
that become contractually past due more than 29 days. At March 31, 1996 and
December 31, 1995 such nonearning receivables, which exclude accounts in
foreclosure, amounted to $302.6 million and $308 million. Payments received
on accounts while in nonaccrual status are applied to principal and interest
income according to the terms of the loan.
When foreclosure proceedings begin on an account secured by real estate,
the account is moved from finance receivables to other assets and is written
down to the lower of the account balance or the fair value of the collateral
less estimated selling costs. After foreclosure, repossessed assets are
carried at the lower of cost or fair value less estimated selling costs.
Accounts in foreclosure and repossessed assets held for sale totaled $200.2
million at March 31, 1996, of which 64% pertained to California, compared to
$207.3 million at December 31, 1995, of which 69% pertained to California.
Because future improvements may be impacted by factors such as economic
conditions and the state of the real estate market, particularly in
California, the extent and timing of any change in the trend of foreclosures
and repossessed assets remains uncertain.
Commercial Lending
Commercial lending net income for the first quarter of 1996 was $11.7
million compared to $15.3 million for the first quarter of 1995. Commercial
lending income before the amortization of goodwill was $14.5 million in the
first quarter of 1996 compared to $18 million in the first quarter of 1995.
Income, before the amortization of goodwill, for the first quarter of 1996
decreased $3.5 million (20%) from the first quarter of 1995. The decrease
was primarily due to the inclusion in the 1995 quarter of a $2.8 million after
tax gain on the sale of the consumer rediscount loan portfolio. Higher
operating expenses and provision for losses on receivables during the first
quarter of 1996 also contributed to the decrease. Margins were enhanced
during the first quarter of 1996 due to the higher spread between the indices
at which the commercial lending operation lent to customers versus the indices
at which funds were borrowed.
Revenues in the first quarter of 1996 decreased $6.2 million (6%) from
1995 primarily due to the gain on sale of the rediscount loan portfolio in
1995 and a lower average portfolio yield attributable to lower interest rates
in 1996 offset in part by higher average receivables outstanding.
<PAGE> 260
Page 12
Interest expense decreased $2.6 million (7%) in the first quarter of 1996
due to a lower average interest rate on borrowings. Operating expenses
increased $2.0 million (5%) mainly as a result of a $1.3 million ($800,000
after tax) provision for settlement of a legal matter and expenses incurred in
the equipment finance and lease division which began operations in the second
quarter of 1995. The increases were offset in part by reduced expenses
incurred in the management of the liquidating receivables and assets held for
sale which were disposed of in 1995. The provision for losses on receivables
increased $1.2 million (24%) due to a reserve established on a single account
in the insurance premium finance portfolio. Credit losses, net of recoveries,
on an annualized basis as a percentage of average net receivables outstanding
were 0.09% for the first quarter of 1996 compared to 0.71% for the first
quarter of 1995. The decline was primarily due to the relatively higher level
of credit losses related to the consumer rediscount portfolio which was sold
during the first quarter of 1995.
Net commercial finance receivables outstanding increased $327.1 million
(11%) in 1996 from December 31, 1995. Net receivables increased in each of
the core businesses with the largest increase due to seasonal growth in the
inventory finance group. Management has established an allowance for losses
equal to 2.43% of net commercial finance receivables outstanding as of March
31, 1996 compared to 2.51% at December 31, 1995.
Delinquent receivables are defined as the instalment balance for
inventory finance and asset based lending receivables and the outstanding loan
balance for all other receivables over 60 days past due. Delinquent
receivables were $15.2 million (0.44% of receivables outstanding) at March 31,
1996 compared to $11.1 million (0.35% of receivables outstanding) at December
31, 1995.
Nonearning receivables are defined as balances from borrowers that are
over 90 days delinquent or at such earlier time as full collectibility
becomes doubtful. Accrual of finance charges is suspended on nonearning
receivables until such time as past due accounts are collected. Nonearning
receivables were $23.7 million (0.68% of receivables outstanding) at March 31,
1996 compared to $18 million (0.57% of receivables outstanding) at December
31, 1995. The increase in delinquent and nonearning receivables was
primarily attributable to the single account in the insurance premium finance
portfolio referred to above.
Leasing
Leasing net income for the first quarter of 1996 was $18.3 million
compared to $15.8 million for the first quarter of 1995. Leasing income
before the amortization of goodwill was $18.8 million in the first quarter of
1996 compared to $16.3 million in the first quarter of 1995. Leasing income
before the amortization of goodwill for the first quarter of 1996 increased
$2.5 million (15%) over the first quarter of 1995 mainly due to a favorable
resolution of an outstanding state tax issue amounting to $2.6 million.
Excluding the resolution of the state tax issue, earnings for the first
<PAGE> 261
Page 13
quarter of 1996 were flat. Earnings increased due to more on-hire units in
the refrigerated container, tank container and European trailer lines of
business and a larger portfolio of finance leases. These increases were
offset by lower earnings which resulted from lower standard container and
chassis utilization and per diem rates, plus a decline in rail trailer
earnings due to a smaller fleet size.
Revenue for the first quarter of 1996 increased $6.2 million (3%) over
the first quarter of 1995. The increase was primarily due to a larger on-hire
fleet of standard, refrigerated and tank containers, chassis and European
trailers. Revenue also increased due to a larger portfolio of finance leases.
Partially offsetting these revenue increases were lower revenues resulting
from lower per diem rates and utilization for standard container and chassis.
Rail trailer also reported lower revenues due to a smaller fleet size and less
on-hire units.
Expenses for the first quarter of 1996 increased $7.0 million (5%) over
the first quarter of 1995 mainly due to higher ownership and operating costs
of the larger refrigerated container, chassis and European trailer fleets.
The combined utilization of standard containers, refrigerated containers,
domestic containers, tank containers and chassis averaged 81% for the first
quarter of 1996 compared to 84% in the first quarter of 1995. Rail trailer
utilization was 79% for the first quarter of 1996 compared to 78% in the first
quarter of 1995. European trailer utilization was 92% for the first quarter
of 1996 compared to 96% in the first quarter of 1995.
Real Estate Services
Real estate services comprise Transamerica's real estate tax, investment
management and other related services.
Net income for the first quarter of 1996 increased $7.4 million (130%)
over the first quarter of 1995 primarily due to an increase in real estate tax
service revenues caused by higher mortgage refinancings resulting from lower
interest rates. Net income included after tax gains from investment
transactions in the first quarter of 1996 and 1995 of $3.5 million and $3
million.
Revenues for the first quarter of 1996 increased $19.8 million (38%)
over the first quarter of 1995 as a result of increased business at the real
estate tax service operation.
Unallocated Interest and Other Expenses
Unallocated interest and expenses, after related income taxes, for the
first three months of 1996 increased $2.5 million. The increase was primarily
due to income from Criterion Investment Management Company (Criterion) which
was included in the first quarter of 1995 results. Criterion was sold on
May 2, 1995.
<PAGE> 262
Page 14
Corporate Liquidity and Capital Requirements
Transamerica Corporation receives funds from its subsidiaries in the form
of dividends, income taxes and interest on loans. The Corporation uses these
funds to pay dividends to its stockholders or purchase treasury shares,
reinvest in the operations of its subsidiaries and pay corporate interest,
expenses and taxes. Reinvested funds are allocated among subsidiaries on the
basis of expected returns, creation of shareholder value and capital needs.
Reinvestment may be accomplished by allowing a subsidiary to retain all or a
portion of its earnings, or by making capital contributions or loans.
The Corporation also borrows funds to finance acquisitions or to lend to
certain of its subsidiaries to finance their working capital needs.
Subsidiaries are required to maintain prudent financial ratios consistent
with other companies in their respective industries and retain the capacity
through committed credit lines to repay working capital loans from the
Corporation.
On March 21, 1996, Transamerica announced that its board of directors had
authorized additional purchases of up to 2 million shares of the company's
common stock of which 48,200 had been purchased by March 31, 1996. As a
result of this, and other previously announced share purchase programs,
during the first quarter of 1996 Transamerica purchased 603,200 shares for $46
million.
Investment Portfolio
Transamerica, principally through its life insurance subsidiaries,
maintains an investment portfolio aggregating $27.7 billion at March 31,
1995, of which $25.7 billion was invested in fixed maturities. At March 31,
1996, 96.3% of the fixed maturities was rated as "investment grade" with an
additional 2.7% in the BB category or its equivalent. The amortized cost of
fixed maturities was $24.8 billion resulting in a net unrealized gain
position, before the effects of income taxes, of $902.9 million at March 31,
1996. Fixed maturity investments are generally held for long-term investment
and used primarily to support life insurance policy liabilities. The
amortized cost of delinquent below investment grade securities, before
provision for impairment in value, was $2.1 million at March 31, 1996 compared
to $6.9 million at December 31, 1995. Adjustment for impairment in value has
been made to reduce the amortized cost of certain fixed maturity investments
by $67.6 million at March 31, 1996 and $71.4 million at December 31, 1995.
In addition to the investments in fixed maturities, $656.6 million (2.4%
of the investment portfolio), net of allowance for losses of $48.6 million,
was invested in mortgage loans and real estate including $607.7 million in
commercial mortgage loans, $81.4 million in real estate investments,
$15.8 million in foreclosed real estate, and $300,000 in residential mortgage
loans. Problem loans, defined as restructured loans yielding less than 8%
and delinquent loans, totaled $10.4 million at March 31, 1996. Problem loans
increased $6.5 million from December 31, 1995 to March 31, 1996 due to the
bankruptcy of one borrower. Allowances for possible losses of $48.6 million
at March 31, 1996 and $48.8 million at December 31, 1995 have been established
to cover possible losses from mortgage loans and real estate investments.
<PAGE> 263
Page 15
The net unrealized gain/loss from investments marked to fair value, after
related taxes and deferred acquisition cost adjustments, which is included in
stockholders' equity deteriorated $504.6 million during the first quarter of
1996 and improved $346.1 million in the comparable 1995 period. These changes
were primarily due to the effects of changing interest rates on the fair value
of the fixed maturity portfolio.
Derivatives
The operations of Transamerica are subject to risk of interest rate
fluctuations to the extent that there is a difference between the cash flows
from Transamerica's interest-earning assets and the cash flows related to its
liabilities that mature or are repriced in specified periods. In the normal
course of its operations, Transamerica hedges some of its interest rate risk
with derivative financial instruments. These derivatives comprise primarily
interest rate swap agreements, interest rate floor agreements, interest rate
cap agreements and options to enter into interest rate swap agreements
(swaptions).
Derivative financial instruments with a notional amount of $4,689.8
million at March 31, 1996 and $1,000.7 million at December 31, 1995 and
designated as hedges of Transamerica's investment portfolio were outstanding.
In addition, derivative financial instruments with a notional amount of
$2,449.2 million at March 31, 1996 and $3,738.2 million at December 31, 1995
and designated as hedges of Transamerica's liabilities were outstanding. The
change in the notional amount outstanding of both asset and liability hedges
reflects additional derivative contracts entered into and redesignation of
certain of Transamerica's outstanding derivative contracts from liability
hedges to asset hedges to better reflect for accounting purposes the match of
the derivative and the underlying hedged risk.
While Transamerica is exposed to credit risk in the event of
nonperformance by the other party, nonperformance is not anticipated due to
the credit rating of the counterparties. At March 31, 1996, the derivative
financial instruments discussed above were issued by financial institutions
rated A or better by one or more of the major credit rating agencies. The
fair value of Transamerica's derivative financial instruments at March 31,
1996 and December 31, 1995 was a net benefit of $71.1 million and $79.9
million comprising agreements with aggregate gross benefits of $108.5 million
and $122,5 million and agreements with aggregate gross obligations of $37.4
million and $42.6 million.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
At the Corporation's Annual Meeting of Stockholders held on April 25,
1996, its stockholders voted on a number of proposals and nominations.
Results of these proposals and nominations were:
<PAGE> 264
Page 16
<TABLE>
<CAPTION>
Votes Votes Votes Broker--
For Against Withheld Abstentions Non--Votes
<S> <C> <C> <C> <C> <C>
Nomination for director:
Samuel L. Ginn 60,346,997 805,405
Frank C. Herringer 59,988,430 1,163,972
Charles R. Schwab 60,048,589 1,103,813
Election of auditors 60,672,644 252,773 226,985
Stockholder Proposal
on Redemption, or
Submission to a
Stockholder Vote, of
the Stock Purchase
Rights Plan Adopted
in 1986* 17,611,912 37,027,828 1,416,258 5,096,404
</TABLE>
*Stockholder did not present the proposal for action at the meeting.
A total of 61,152,402 shares were present in person or by proxy at the
Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11 Statement Re: Computation of Per Share Earnings.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
(b) Reports on Form 8-K. None.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSAMERICA CORPORATION
(Registrant)
Burton E. Broome
Vice President and Controller
(Chief Accounting Officer)
Date: May 10, 1996
<PAGE> 265
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
TRANSAMERICA CORPORATION
<TABLE>
<CAPTION>
Three months ended March 31,
1996 1995
(Dollar amounts in millions,
except for share data)
<S> <C> <C>
Primary
Average shares outstanding 67.9 69.2
Net effect of dilutive stock options--
based on the treasury stock method
using average market price 1.7* 1.3*
____ ____
TOTAL 69.6 70.5
==== ====
Net income $115.3 $ 96.3
Preferred dividends (4.4) (4.6)
______ ______
Net income to common $110.9 $ 91.7
====== ======
Per share amount $1.63 $1.33
===== =====
Fully Diluted
Average shares outstanding 67.9 69.2
Net effect of dilutive stock options--
based on the treasury stock method
using the market price at quarter end
if higher than the average market
price for three months 1.7* 1.7*
____ ____
TOTAL 69.6 70.9
==== ====
Net income $115.3 $ 96.3
Preferred dividends (4.4) (4.6)
______ ______
Net income to common $110.9 $ 91.7
====== ======
Per share amount $1.63 $1.33
===== =====
</TABLE>
*Not included in per share calculation because effect is less
than 3%.
<PAGE> 266
EXHIBIT 12
TRANSAMERICA CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
(Dollar amounts in
millions)
<S> <C> <C>
Fixed charges:
Interest and debt expense $177.3 $168.3
One-third of rental expense 6.3 6.0
______ ______
Total $183.6 $174.3
====== ======
Earnings:
Consolidated income from
continuing operations $115.3 $ 96.3
Provision for income taxes 58.0 54.4
Fixed charges 183.6 174.3
______ ______
Total $356.9 $325.0
====== ======
Ratio of earnings to fixed
charges 1.94 1.86
==== ====
</TABLE>
<PAGE> 267
[ARTICLE] 5
[MULTIPLIER] 1,000,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] MAR-31-1996
[CASH] 109
[SECURITIES] 774
[RECEIVABLES] 3,398
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 0
[PP&E] 3,268
[DEPRECIATION] 1,172
[TOTAL-ASSETS] 48,429
[CURRENT-LIABILITIES] 0
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 315
[COMMON] 68
[OTHER-SE] 3,456
[TOTAL-LIABILITY-AND-EQUITY] 48,429
[SALES] 0
[TOTAL-REVENUES] 1,533
[CGS] 0
[TOTAL-COSTS] 951
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 33
[INTEREST-EXPENSE] 177
[INCOME-PRETAX] 173
[INCOME-TAX] 58
[INCOME-CONTINUING] 115
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 115
[EPS-PRIMARY] 1.63
[EPS-DILUTED] 1.63
</TABLE>
<PAGE> 268
[ARTICLE] 5
(LEGEND)
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF TRANS OCEAN LTD. CORPORATION FOR THE PERIOD
ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
(/LEGEND)
[MULTIPLIER] 1
[CURRENCY]
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-START] JAN-01-1996
[PERIOD-END] JUN-30-1996
[CASH] 15,139,000
[SECURITIES] 0
[RECEIVABLES] 42,942,000
[ALLOWANCES] 1,474,000
[INVENTORY] 0
[CURRENT-ASSETS] 0
[PP&E] 409,453,000
[DEPRECIATION] 60,852,000
[TOTAL-ASSETS] 421,747,000
[CURRENT-LIABILITIES] 0
[BONDS] 75,000,000
[PREFERRED-MANDATORY] 3,603,000
[PREFERRED] 0
[COMMON] 1,000
[OTHER-SE] 34,344,000
[TOTAL-LIABILITY-AND-EQUITY] 421,747,000
[SALES] 0
[TOTAL-REVENUES] 87,417,000
[CGS] 0
[TOTAL-COSTS] 84,575,000
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 265,000
[INTEREST-EXPENSE] 12,815,000
[INCOME-PRETAX] 2,842,000
[INCOME-TAX] 1,085,000
[INCOME-CONTINUING] 1,757,000
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 1,757,000
[EPS-PRIMARY] 0
[EPS-DILUTED] 0
</TABLE>
<PAGE> 269
ANNEX D2
TRANSAMERICA QUARTERLY REPORT ON
FORM 10-Q FOR SECOND QUARTER OF 1996
<PAGE> 270
Page 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 1996
Commission File Number 1-2964
------------------
TRANSAMERICA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-0932740
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 Montgomery Street
San Francisco, California 94111
(Address of principal executive offices)
(Zip Code)
(4l5) 983-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Number of shares of Common Stock, $1 par value, outstanding as of close
of business on July 31, 1996: 66,160,481 shares, after deducting 13,577,981
shares in treasury.
<PAGE> 271
Page 2
TRANSAMERICA CORPORATION
FORM 10-Q
Part I. Financial Information
Item 1. Financial Statements.
The following unaudited consolidated financial statements of
Transamerica Corporation and Subsidiaries, for the periods ended June 30, 1996
and 1995, do not include complete financial information and should be read in
conjunction with the Consolidated Financial Statements filed with the Commission
in Transamerica's Annual Report on Form 10-K for the year ended December 31,
1995. The financial information presented in the financial statements included
in this report reflects all adjustments, consisting only of normal recurring
accruals, which are, in the opinion of management, necessary for a fair
statement of results for the interim periods presented. Results for the interim
periods are not necessarily indicative of the results for the entire year for
most of the Corporation's businesses.
* * * * *
The consolidated ratios of earnings to fixed charges were computed by
dividing income before fixed charges and income taxes by the fixed charges.
Fixed charges consist of interest and debt expense and one-third of rent
expense, which approximates the interest factor.
<PAGE> 272
Page 3
TRANSAMERICA CORPORATION AND SUBSIDIARIES
-------------
CONSOLIDATED BALANCE SHEET
Assets
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
<S> <C> <C>
Investments, principally of life
insurance subsidiaries:
Fixed maturities $25,622.8 $26,076.1
Equity securities 829.6 703.2
Mortgage loans and real estate 771.3 594.5
Loans to life insurance policyholders 420.8 426.4
Short-term investments 169.3 226.5
--------- ---------
27,813.8 28,026.7
Finance receivables 8,241.7 8,287.8
Less unearned fees ($257.7 in 1996
and $289.7 in 1995) and allowance for
losses 517.5 529.7
--------- ---------
7,724.2 7,758.1
Cash and cash equivalents 92.1 67.6
Trade and other accounts receivable 2,016.0 3,130.1
Property and equipment, less accumulated
depreciation of $1,230.9 in 1996 and
$1,140.6 in 1995:
Land, buildings and equipment 443.7 411.5
Equipment held for lease 2,874.4 2,862.0
Deferred policy acquisition costs 2,214.5 1,974.2
Separate account assets 2,836.8 2,533.4
Goodwill, less accumulated amortization of
$137.4 in 1996 and $130.8 in 1995 395.9 402.4
Other assets 812.7 778.5
--------- ---------
$47,224.1 $47,944.5
========= =========
</TABLE>
(Amounts in millions)
<PAGE> 273
Page 4
TRANSAMERICA CORPORATION AND SUBSIDIARIES
-----------------
CONSOLIDATED BALANCE SHEET (Continued)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
<S> <C> <C>
Life insurance policy liabilities $27,823.5 $27,893.4
Notes and loans payable, principally of
finance subsidiaries, of which $1,492.3
in 1996 and $996.3 in 1995 matures
within one year 10,388.9 10,337.8
Accounts payable and other liabilities 1,624.7 1,672.4
Income taxes 713.1 1,007.6
Separate account liabilities 2,836.8 2,533.4
Minority interest in preferred securities
of affiliate 200.0 200.0
Stockholders' equity:
Preferred Stock ($100 par value):
Authorized--1,200,000 shares; issuable
in series, cumulative
Outstanding--Dutch Auction Rate Transferable Securities, 2,250 shares,
at liquidation preference of $100,000 per share, weighted average
dividend
rate of 4.04% in 1996 and 4.66% in 1995 225.0 225.0
Outstanding--Series D, 180,091 shares, at
liquidation preference of $500 per share,
cumulative dividend rate of 8.5% 90.0 90.0
Preference Stock (without par value)--
5,000,000 shares authorized; none
outstanding
Common Stock ($1 par value):
Authorized--150,000,000 shares
Outstanding--66,409,256 shares in 1996
and 67,989,508 shares in 1995, after
deducting 13,329,206 shares and
11,748,954 shares in treasury 66.4 68.0
Retained earnings 2,876.9 2,866.0
Net unrealized gain on investments marked
to fair value 409.8 1,079.9
Foreign currency translation adjustments (31.0) (29.0)
--------- ---------
3,637.1 4,299.9
--------- ---------
$47,224.1 $47,944.5
========= =========
</TABLE>
(Amounts in millions except for share data)
<PAGE> 274
Page 5
<TABLE>
TRANSAMERICA CORPORATION AND SUBSIDIARIES
---------------
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Six months ended Three months ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES
Investment income $ 1,036.6 $ 975.2 $ 522.5 $ 495.5
Life insurance premiums and related
income 842.6 930.6 425.2 505.1
Finance charges and other fees 587.1 571.5 293.5 301.4
Leasing revenues 347.7 343.0 173.9 174.0
Real estate and tax service revenues 119.5 93.6 61.5 50.6
Gain on investment transactions 29.6 13.3 16.6 10.2
Other 45.6 74.3 21.8 44.2
--------- --------- --------- ---------
3,008.7 3,001.5 1,515.0 1,581.0
EXPENSES
Life insurance benefits 1,325.0 1,415.1 659.3 756.0
Life insurance underwriting, acquisition
and other expenses 316.3 279.8 162.9 134.1
Interest and debt expense 352.5 354.1 175.2 185.8
Leasing operating and maintenance costs 183.0 179.3 90.1 90.3
Provision for losses on receivables 101.5 51.4 68.3 25.5
Other, including administrative and general
expenses 394.5 371.8 196.6 190.0
--------- --------- --------- ---------
2,672.8 2,651.5 1,352.4 1,381.7
--------- --------- --------- ---------
335.9 350.0 162.6 199.3
Income taxes 114.7 135.9 56.7 81.5
--------- --------- --------- ---------
Net income $ 221.2 $ 214.1 $ 105.9 $ 117.8
========= ========= ========= =========
Earnings per share of common stock (based on
weighted average number of shares outstanding
for the six months ended June 30, 1996 and 1995
of 67,477,000 and 69,146,000 and for the three
months then ended of 67,073,000 and 69,146,000
after deduction of preferred dividends):
Income before gain on investment
transactions $ 2.87 $ 2.84 $ 1.36 $ 1.54
Gain on investment transactions 0.28 0.12 0.16 0.09
--------- --------- --------- ---------
Net income $ 3.15 $ 2.96 $ 1.52 $ 1.63
========= ========= ========= =========
Dividends per share of common stock $ 1.00 $ 1.00 $ 0.50 $ 0.50
========= ========= ========= =========
Ratio of earnings to fixed charges 1.92 1.95
<FN>
(Dollar amounts in millions except for share data)
</TABLE>
<PAGE> 275
Page 6
TRANSAMERICA CORPORATION AND SUBSIDIARIES
------------
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
<TABLE>
<CAPTION>
Six months ended
June 30,
1996 1995
<S> <C> <C>
Balance at beginning of year $2,866.0 $2,557.4
Net income 221.2 214.1
Dividends on common stock (66.9) (69.0)
Dividends on preferred stock (8.6) (9.1)
Treasury stock purchased (134.8)
-------- --------
Balance at end of period $2,876.9 $2,693.4
======== ========
</TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
June 30,
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 221.2 $ 214.1
Adjustments to reconcile net income
to net cash provided by operating
activities:
Increase in life insurance policy
liabilities, excluding policyholder
balances on interest-sensitive policies 659.4 524.3
Amortization of policy acquisition costs 118.9 109.0
Policy acquisition costs deferred (177.0) (201.0)
Depreciation and amortization 154.7 149.8
Other (107.7) (67.6)
-------- --------
Net cash provided by operations 869.5 728.6
INVESTING ACTIVITIES
Finance receivables originated (8,683.0) (9,169.9)
Finance receivables collected 8,544.1 9,156.6
Purchase of investments (4,222.4) (2,671.0)
Sales and maturities of investments 3,164.6 1,464.5
Purchase of finance receivables and other
assets from ITT Consumer Financial
Corporation (1,027.3)
Other (102.1) (261.8)
-------- --------
Net cash used by investing activities (1,298.8) (2,508.9)
FINANCING ACTIVITIES
Proceeds from debt financing 3,062.6 5,313.4
Payment of notes and loans (3,021.3) (4,250.2)
Receipts from interest-sensitive policies
credited to policyholder account balances 2,810.0 2,376.0
Return of policyholder balances on
interest-sensitive policies (2,185.5) (1,476.6)
Treasury stock purchased (169.1) (71.3)
Other common stock transactions 32.6 22.9
Purchase of preferred stock (0.8)
Dividends (75.5) (78.1)
-------- --------
Net cash provided by financing activities 453.8 1,835.3
-------- --------
Increase in cash and cash equivalents 24.5 55.0
Cash and cash equivalents at beginning
of year 67.6 64.3
-------- --------
Cash and cash equivalents at end of period $ 92.1 $ 119.3
======== ========
</TABLE>
(Amounts in millions)
<PAGE> 276
Page 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Consolidated Results
Transamerica's net income for the first half of 1996 increased $7.1
million (3%), compared to the first half of 1995. Net income for the first half
of 1996 included net after tax gains from investment transactions aggregating
$19.2 million compared to $8.6 million in the first half of 1995. In the first
half of 1996 Transamerica's income before gain on investment transactions
decreased $3.5 million (2%) due primarily to declines in consumer lending
operating results and higher unallocated interest and expenses. Substantially
offsetting these declines were improvements in life insurance, real estate
services and leasing operating results.
Transamerica's net income for the second quarter of 1996 decreased $11.9
million (10%) compared to the second quarter of 1995. Net income for the second
quarter of 1996 included net after tax gains from investment transactions
aggregating $10.7 million compared to $6.6 million in the second quarter of
1995. In the second quarter of 1996 Transamerica's income before investment
transactions decreased $16 million (14%) due primarily to a decline in consumer
lending operating results and higher unallocated interest and expenses.
Partially offsetting these declines were increases in life insurance, real
estate services and commercial lending operating results.
Gain (loss) on investment transactions, pretax, included in consolidated
revenues, comprised (amounts in millions):
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net gain on sale of investments $ 27.6 $ 22.6 $ 18.0 $ 16.3
Adjustment for impairment in value (1.2) (6.7) (1.2) (2.7)
Adjustment to amortization of
deferred policy acquisition
costs for realized investment
transactions 3.2 (2.6) (0.2) (3.4)
------- ------- ------- -------
$ 29.6 $ 13.3 $ 16.6 $ 10.2
======= ======= ======= =======
</TABLE>
The amortization of deferred policy acquisition costs is adjusted due to
losses or gains realized on the sale of certain investments. The adjustment to
the amortization of deferred policy acquisition costs is included in investment
transactions as an offset to the related gains or losses. Investment
transactions also reflected downward adjustments primarily for impairment in the
value of certain nonperforming fixed maturity investments, mortgage loans, real
estate investments and real estate acquired through foreclosure.
<PAGE> 277
Page 8
REVENUES AND INCOME BY LINE OF BUSINESS
<TABLE>
<CAPTION>
Six months ended June 30, Second quarter
Revenues Income Income
1996 1995 1996 1995 1996 1995
(Amounts in millions)
<S> <C> <C> <C> <C> <C> <C>
Life insurance $1,869.2 $1,898.2 $ 152.3 $ 135.1 $ 79.5 $ 71.3
Gain on investment
transactions 25.4 1.5 16.5 1.0 3.7 2.0
-------- -------- -------- -------- -------- --------
Total life insurance 1,894.6 1,899.7 168.8 136.1 83.2 73.3
Consumer lending 392.3 375.7 13.1 40.6 (4.7) 22.9
Commercial lending 211.6 217.7 32.7 33.0 18.2 15.0
Leasing 363.8 357.8 37.7 35.1 18.9 18.8
Amortization of goodwill (6.5) (6.5) (3.2) (3.2)
-------- -------- -------- -------- -------- --------
Total finance 967.7 951.2 77.0 102.2 29.2 53.5
Real estate services 148.9 101.9 21.3 8.7 11.7 6.0
Gain on investment
transactions 18.1 11.8 11.8 7.6 8.3 4.6
Amortization of goodwill (0.1) (0.1) (0.1) (0.1)
-------- -------- -------- -------- -------- --------
Total real estate
services* 167.0 113.7 33.0 16.2 19.9 10.5
Unallocated interest
and other expenses* 13.7 48.0 (48.5) (40.4) (25.1) (19.5)
Consolidation elimina-
tions (34.3) (11.1) (9.1) (1.3)
-------- -------- -------- -------- -------- --------
Total revenues and
net income $3,008.7 $3,001.5 $ 221.2 $ 214.1 $ 105.9 $ 117.8
======== ======== ======== ======== ======== ========
</TABLE>
*Certain 1995 amounts have been reclassified between real estate services and
unallocated interest and other expenses to conform to the 1996 presentation.
Life Insurance
Net income from life insurance operations for the first half and second
quarter of 1996 increased $32.7 million (24%) and $9.9 million (14%) over the
corresponding periods of 1995. Net income included net after tax gains from
investment transactions of $16.5 million and $3.7 million in the first half and
second quarter of 1996 compared to $1 million and $2 million in the first half
and second quarter of 1995.
<PAGE> 278
Page 9
Income before investment transactions increased $17.2 million (13%) and
$8.2 million (11%) in the first half and second quarter of 1996 over the
corresponding periods of 1995. The structured settlements, group pension, and
Canadian lines all experienced increases in income before investment
transactions in the first half and second quarter of 1996 primarily as a result
of increased policy related income due to a larger base of interest-sensitive
policies and maintained interest spreads on a growing asset base. Income before
investment transactions for the individual life insurance line increased
slightly during the first half of 1996 compared to the first half of 1995 due
primarily to increased fee income on a larger base of interest-sensitive
policies. For the second quarter of 1996, income before investment transactions
for the individual life insurance line decreased slightly compared to the second
quarter of 1995 due primarily to increased operating expenses. The annuities
line benefited from higher interest spreads and fee income but experienced a
decrease in income before investment transactions in the first half and second
quarter of 1996 compared to the corresponding periods of 1995 primarily as a
result of the relocation costs associated with moving a portion of the operation
to Charlotte, North Carolina. Income before investment transactions for the
reinsurance line increased during the first half and second quarter of 1996
compared to the corresponding 1995 periods primarily due to improved renewals
and a favorable shift in business mix, which more than offset the lower premium
revenues experienced in the first quarter of 1996 compared to 1995's first
quarter. Income before investment transactions for the corporate and other line
increased during the first half and second quarter of 1996 compared to the
corresponding periods of 1995 primarily due to investment income from the
amortization of discounts on securities called during the second quarter.
Investment transactions for the first half and second quarter of 1996
included after tax gains of $13.2 million and $2.7 million realized on the sale
of investments compared to $7 million and $6 million in the first half and
second quarter of 1995. The $13.2 million after tax gain for the first half of
1996 included an after tax gain of $9.1 million resulting from a transaction
with a special purpose subsidiary of Transamerica Corporation wherein certain
below investment grade bonds were exchanged for collateralized higher rated bond
obligations issued by the special purpose subsidiary. This transaction had no
effect on the consolidated financial statements of Transamerica Corporation.
Investment transactions in the first half and second quarter of 1996 reflected
downward adjustments of $800,000 after tax compared to $4.3 million and $1.7
million after tax in the corresponding periods of 1995 primarily for impairment
in the value of certain below investment grade fixed maturity investments.
Net investment income increased $59.1 million (6%) and $25.5 million
(5%) for the first half and second quarter of 1996 over the first half and
second quarter of 1995 due to increased investments.
Premiums and related income decreased $88 million (10%) and $79.9
million (16%) for the first half and second quarter of 1996 from the
corresponding 1995 periods due primarily to a decrease from reinsurance
transactions and reduced premium income from the group pension line. Life
insurance benefit costs and expenses decreased $53.6 million (3%) and $67.9
million (8%) for the first half and second quarter of 1996 compared to the
corresponding 1995 periods principally due to a decrease in benefit expense
corresponding with the reduced premium income from the group pension line.
<PAGE> 279
Page 10
Cash provided by operations for the first half and second quarter of
1996 increased $230.1 million (79%) and $66.9 million (55%) over the first half
and second quarter of 1995 principally due to increased investment income from
asset growth and the timing in the settlement of certain receivables and
payables, including reinsurance receivables and payables. The life insurance
operation continues to maintain a sufficiently liquid portfolio to cover its
operating requirements, with remaining funds being invested in longer term
securities.
Consumer Lending
Consumer lending net income for the first six months of 1996 and 1995
was $13.1 million and $40.5 million. Results for the second quarter of 1996 were
a net loss of $4.7 million compared to net income of $22.9 million for the
second quarter of 1995. Consumer lending income, before the amortization of
goodwill, for the first six months of 1996 and 1995 was $13.1 million and $40.6
million. Consumer lending results, before the amortization of goodwill, for the
second quarter of 1996 were a loss of $4.7 million compared to income of $22.9
million in the second quarter of 1995. Consumer lending results, before the
amortization of goodwill, for the first six months and second quarter of 1996
decreased $27.5 million (68%) and $27.6 million (121%) from the first six months
and second quarter of 1995 due primarily to higher provisions for losses on
receivables.
Revenues increased $16.6 million (4%) for the first half of 1996 over
the comparable period of 1995 reflecting an increase in average net receivables
outstanding for the first half of 1996 over the first half of 1995. The increase
in average net receivables outstanding for the first six months reflects the
impact of the March 31, 1995 acquisition of approximately $1 billion in home
equity loans from ITT Consumer Financial Corporation (ITT). For the second
quarter of 1996 revenues decreased $9.8 million (5%) over the second quarter of
1995 reflecting a decrease in average net receivables outstanding. The
continuing runoff of the ITT portfolio, which included delinquent accounts
purchased at a discount, contributed to the decrease in average net receivables
along with runoff in other portfolios which exceeded originations.
Interest expense for the first half and second quarter of 1996 decreased
$2.2 million (1%) and $10 million (12%) from the comparable year ago periods
reflecting reduced borrowing rates and in the second quarter of 1996 a reduced
level of borrowings. Other operating expenses for the first half and second
quarter of 1996 increased $13.9 million (12%) and $1.5 million (3%) over the
same periods a year ago reflecting increased expenses on disposition of
repossessed assets and increased advertising costs.
The provision for losses on receivables for the first six months and
second quarter of 1996 increased $51.1 million (120%) and $45 million (206%)
compared to the same periods a year ago primarily in response to recent
increased delinquencies principally in the non real estate loan portfolio and
increased credit losses. Net credit losses for the first six months and second
quarter of 1996 increased $31.6 million (77%) and $16.3 million (74%) over the
comparable periods of 1995. Non real estate losses represented $14.3 million and
$6.6 million of the increase in the first six months and second quarter of 1996
over the comparable periods of 1995 primarily reflecting increasing levels of
consumer bankruptcies. Increased losses from the ITT
<PAGE> 280
Page 11
portfolio represented $11.3 million and $3.2 million of the increases for the
first six months and second quarter of 1996 compared to the same periods of
1995. Excluding ITT, real estate losses represented $6 million and $6.5 million
of the increases in the first half and second quarter of 1996 over the same
periods of 1995 reflecting increased California foreclosure activity. Net credit
losses as a percentage of average net outstandings were 3.00% and 3.20% for the
first six months and second quarter of 1996 compared to 1.76% and 1.71% for the
same periods of 1995. In addition to higher credit losses, the increase in the
percentage for the second quarter of 1996 was affected by lower outstanding
receivables.
Net consumer finance receivables at June 30, 1996 and December 31, 1995
were $4.7 billion and $4.9 billion of which $3.8 billion and $4 billion were
real estate secured loans, principally first and second mortgages secured by
residential properties. Approximately 36% of the real estate secured loans were
located in California. The decrease in net receivables was primarily due to the
continuing liquidation of the ITT portfolio and runoff in other portfolios which
exceeded originations.
Delinquent finance receivables, which are defined as receivables
contractually past due 60 days or more, were $147.3 million (3.02% of finance
receivables outstanding) at June 30, 1996 compared to $143.6 million (2.79% of
finance receivables outstanding) at December 31, 1995. Approximately two thirds
of the increase in the delinquency percentage was due to the effects of lower
outstanding receivables at June 30, 1996 with the remainder caused by an
increase in delinquencies in the non real estate portfolio of $3.1 million (7%)
and in the real estate portfolio of $600,000 (1%). Delinquencies in the non real
estate loan portfolio increased to 5.28% of receivables outstanding at June 30,
1996 compared to 4.78% at December 31, 1995.
Management has established an allowance for losses equal to 3.76% of net
consumer finance receivables outstanding at June 30, 1996 compared to 3.32% at
December 31, 1995. This increase is in response to recent increased
delinquencies, principally in the non real estate loan portfolio which
represents about 19% of the consumer lending portfolio.
Accrual of interest and other finance charges is suspended on accounts
that become contractually past due more than 29 days. At June 30, 1996 and
December 31, 1995 such nonearning receivables, which exclude accounts in
foreclosure, amounted to $341.8 million and $308 million. Payments received on
accounts while in nonaccrual status are applied to principal and interest income
according to the terms of the loan.
When foreclosure proceedings begin on an account secured by real estate,
the account is moved from finance receivables to other assets and is written
down to the lower of the account balance or the fair value of the collateral
less estimated selling costs. Accounts in foreclosure and repossessed assets
held for sale totaled $191.9 million at June 30, 1996 of which 63% pertained to
California compared to $207.3 million at December 31, 1995, of which 69%
pertained to California.
Since any change in the trends in credit losses, delinquencies, accounts
in foreclosure and repossessed assets may be impacted by factors such as
economic conditions, competition, and for accounts secured by real estate,
<PAGE> 281
Page 12
the state of the real estate market, particularly in California, the extent and
timing of any change in these trends is uncertain. Management intends to
accelerate its efforts to reduce exposure to the non real estate loan segment of
the portfolio by further curtailing production in that segment, liquidating
selected portions of that segment and intensifying collection efforts.
Commercial Lending
Commercial lending net income for the first half and second quarter of
1996 was $27.3 million and $15.5 million compared to $27.6 million and $12.3
million for the corresponding periods of 1995. Commercial lending income, before
the amortization of goodwill, was $32.7 million and $18.2 million in the first
half and second quarter of 1996 compared to $33 million and $15 million in the
same periods of 1995.
Commercial lending income, before the amortization of goodwill, for the
first half and second quarter of 1996 decreased $300,000 (1%) and increased $3.2
million (21%) from 1995's first half and second quarter. The results for the
first half of 1995 included a $2.8 million after tax gain on the first quarter
sale of the consumer rediscount loan portfolio. Excluding the gain on sale,
commercial lending income increased $2.5 million (8%) in the first half of 1996
over the first half of 1995. The increased income in the first half and second
quarter resulted from higher margins, higher average receivables outstanding and
a lower provision for loss on receivables. Margins were higher due to the higher
spread between the indices at which the commercial lending operation lent to
customers versus the indices at which funds were borrowed.
Revenues in the first half of 1996 decreased $6.1 million (3%) and
increased $100,000 (-%) for the second quarter of 1996 over the corresponding
1995 periods. The first half decrease was primarily due to the gain on sale of
the rediscount loan portfolio in 1995.
Interest expense decreased $5.5 million (7%) and $3.0 million (8%) in
the first half and second quarter of 1996 over the comparable 1995 periods due
to a lower average interest rate on borrowings. Operating expenses for the first
six months of 1996 increased $1.8 million (2%) and decreased $200,000 (-%) for
the quarter. The first half increase was attributable to expenses incurred in
the equipment finance and leasing division which began operations during the
second quarter of 1995, a $1.3 million ($800,000 after tax) provision for
settlement of a legal matter during the first quarter of 1996, and increased
expenses due to growth in the core businesses. Partly offsetting these increases
were reduced expenses related to the management of the liquidating receivables
and assets held for sale which were disposed of in late 1995. During the second
quarter of 1996 reduced expenses related to the liquidating portfolios more than
offset increased expenses in the core businesses. The provision for losses on
receivables in the first half and second quarter of 1996 decreased $1 million
(12%) and $2.3 million (62%) compared to the same periods of 1995. Credit
losses, net of recoveries, on an annualized basis as a percentage of average
commercial finance receivables outstanding, net of unearned finance charges,
were 0.10% for the first half and second quarter of 1996 compared to 0.34% and
negative 0.03% for the comparable periods of 1995. The decline for the first
half was primarily due
<PAGE> 282
Page 13
to the relatively higher level of credit losses related to the consumer
rediscount portfolio which was sold during the first quarter of 1995. During the
second quarter of 1995, recoveries on previously recorded losses exceeded credit
losses.
Net commercial finance receivables outstanding increased $215.7 million
(7%) from December 31, 1995. Business credit grew $106 million primarily due to
growth in the equipment finance and leasing operation. Inventory finance
experienced an increase of $80 million primarily due to increased penetration of
existing markets through alliances and other activities. The insurance premium
finance unit grew $33 million principally due to expansion in Europe. Management
has established an allowance for losses equal to 2.53% of net commercial finance
receivables outstanding as of June 30, 1996 compared to 2.51% at December 31,
1995.
Delinquent receivables are defined as the instalment balance for
inventory finance and asset based lending receivables and the outstanding loan
balance for all other receivables over 60 days past due. Delinquent receivables
were $16.5 million (0.49% of receivables outstanding) at June 30, 1996 compared
to $11.1 million (0.35% of receivables outstanding) at December 31, 1995.
Nonearning receivables are defined as balances from borrowers that are
over 90 days delinquent or at such earlier time as full collectibility becomes
doubtful. Accrual of finance charges is suspended on nonearning receivables
until such time as past due amounts are collected. Nonearning receivables were
$20.5 million (0.61% of receivables outstanding) at June 30, 1996 compared to
$18 million (0.57% of receivables outstanding) at December 31, 1995. The
increase in delinquent and nonearning receivables was primarily attributable to
a single account in the insurance premium finance portfolio which has been fully
reserved.
Leasing
Leasing net income for the first half and second quarter of 1996 was
$36.7 million and $18.4 million compared to $34.1 million and $18.3 million for
the first half and second quarter of 1995. Leasing income, before the
amortization of goodwill, was $37.7 million and $18.9 million in the first half
and second quarter of 1996 compared to $35.1 million and $18.8 million in the
corresponding periods of 1995.
Leasing income, before the amortization of goodwill, for the first half
and second quarter of 1996, increased $2.6 million (7%) and $100,000 (-%) over
the first half and second quarter of 1995. Results from operations include
benefits from the favorable resolution of outstanding tax issues totaling $2.6
million in the first quarter of 1996 and $1.8 million in the second quarter of
1995. Excluding these tax benefits, leasing income for the first half and second
quarter of 1996 increased $1.8 million (5%) and $1.9 million (11%) over the
first half and second quarter of 1995. For both the first half and second
quarter, earnings increased due to a larger portfolio of finance leases and more
on-hire units in the refrigerated container, tank container and European trailer
lines of business. These increases were partially offset by lower earnings
resulting from lower standard container and chassis utilization and per diem
rates. The second quarter earnings were also favorably impacted by lower
ownership and operating costs in the rail trailer business.
<PAGE> 283
Page 14
Revenue for the first half of 1996 increased $6 million (2%) over the
corresponding 1995 period. The first half of the 1996 revenue increase was
primarily due to a larger portfolio of finance leases and a larger on-hire fleet
of refrigerated and tank containers, and European trailers. Partially offsetting
these increases were lower revenues resulting from lower per diem rates and
utilization for standard containers and chassis. Rail trailers also reported
lower revenues due to a smaller fleet size and less on-hire units.
Revenue for the second quarter of 1996 decreased $100,000 (-%) from the
1995 second quarter primarily due to lower revenues resulting from lower
standard container per diem rates and less standard container units on-hire,
offset in part by increased revenue from a larger on-hire fleet of refrigerated
containers and European trailers and a larger portfolio of finance leases.
Expenses for the first half and second quarter of 1996 increased $7.2
million (2%) and $200,000 (-%) over the corresponding 1995 periods, mainly due
to higher ownership and operating costs associated with larger refrigerated
container, chassis and European trailer fleets, partially offset by lower
ownership and operating costs in the rail trailer business.
The combined utilization of standard containers, refrigerated
containers, domestic containers, tank containers and chassis averaged 82% for
both the first half and second quarter of 1996 compared to 85% and 86% for the
first half and second quarter of 1995. Rail trailer utilization was 80% for both
the first half and second quarter of 1996 compared to 75% and 72% for the first
half and second quarter of 1995. European trailer utilization was 93% for both
the first half and second quarter of 1996 compared to 96% and 95% for the first
half and second quarter of 1995.
Real Estate Services
Real estate services comprise Transamerica's real estate tax, investment
management and other related services.
Net income for the first six months and second quarter of 1996 increased
$16.8 million (104%) and $9.4 million (90%) over the comparable periods of 1995.
Net income included after tax gains from investment transactions in the first
six months and second quarter of 1996 of $11.8 million and $8.3 million compared
to $7.6 million and $4.6 million in the comparable periods of 1995. Net income
before investment transactions for the first half and second quarter of 1996
increased $12.6 million (145%) and $5.7 million (95%) over the comparable
periods of 1995 primarily due to an increase in real estate tax service revenues
caused by higher mortgage refinancings resulting from lower interest rates.
Revenues for the first six months and second quarter of 1996 increased
$53.3 million (47%) and $33.4 million (55%) over the comparable periods of 1995
as a result of increased business at the real estate tax service operation and
higher investment income.
<PAGE> 284
Page 15
Unallocated Interest and Expenses
Unallocated interest and expenses, after related income taxes, for the
first half and second quarter of 1996 increased $8.1 million (20%) and $5.6
million (29%) over the comparable periods of 1995. In 1995, unallocated interest
and expenses included income from Criterion Investment Management Company (CIMC)
of $6.6 million and $5.2 million for the first six months and second quarter of
1995. Included in CIMC income was a gain of $4.8 million from the sale of its
assets on May 2, 1995. Excluding the results of CIMC, unallocated interest and
expenses increased $1.5 million (3%) and $400,000 (2%) in the first six months
and second quarter of 1996 over the comparable 1995 periods primarily due to
increased interest expense as a result of higher outstanding debt.
Corporate Liquidity and Capital Requirements
Transamerica Corporation receives funds from its subsidiaries in the
form of dividends, income taxes and interest on loans. The Corporation uses
these funds to pay dividends to its stockholders, purchase shares of its common
stock, reinvest in the operations of its subsidiaries and pay corporate
interest, expenses and taxes. Reinvested funds are allocated among subsidiaries
on the basis of expected returns, creation of shareholder value and capital
needs. Reinvestment may be accomplished by allowing a subsidiary to retain all
or a portion of its earnings, or by making capital contribu tions or loans.
The Corporation also borrows funds to finance acquisitions or to lend to
certain of its subsidiaries to finance their working capital needs. Subsidiaries
are required to maintain prudent financial ratios consistent with other
companies in their respective industries and retain the capacity through
committed credit lines to repay working capital loans from the Corporation.
On July 25, 1996 Transamerica announced that it had signed a definitive
agreement to acquire Trans Ocean Ltd., a container leasing company, in exchange
for approximately $110 million in shares of Transamerica common stock. The final
purchase price is subject to adjustment and is dependent upon, among other
things, the size of Trans Ocean's fleet as determined at the closing date.
Completion of the transaction is subject to, among other things, the approval of
Trans Ocean's shareholders and receipt of required regulatory approvals. The
acquisition is expected to close early in the fourth quarter of 1996.
On July 25, 1996, Transamerica announced that its board of directors had
authorized additional purchases of up to 2 million shares of the company's
common stock. As a result of previously announced share purchase programs,
during the first half and second quarter of 1996 Transamerica purchased
2,097,400 shares and 1,494,200 shares for $163.1 million and $117.1 million. At
June 30, 1996, there were 457,600 shares of the company's common stock remaining
to be purchased under previously announced share purchase programs.
Investment Portfolio
Transamerica, principally through its life insurance subsidiaries,
maintains an investment portfolio aggregating $27.8 billion at June 30, 1996, of
which $25.6 billion was invested in fixed maturities. At June 30, 1996,
<PAGE> 285
Page 16
96.3% of the fixed maturities was rated as "investment grade" with an additional
2.6% in the BB category or its equivalent. The amortized cost of fixed
maturities was $25.1 billion resulting in a net unrealized gain position, before
the effect of income taxes, of $559 million at June 30, 1996. Fixed maturity
investments are generally held for long-term investment and used primarily to
support life insurance policy liabilities. The amortized cost of delinquent
below investment grade securities, before provision for impairment in value, was
$2.2 million at June 30, 1996 compared to $6.9 million at December 31, 1995.
Adjustment for impairment in value has been made to reduce the amortized cost of
certain fixed maturity investments by $67 million at June 30, 1996 and $71.4
million at December 31, 1995.
In addition to the investments in fixed maturities, $771.3 million (2.8%
of the investment portfolio), net of allowance for losses of $46 million, was
invested in mortgage loans and real estate including $720.7 million in
commercial mortgage loans, $83.8 million in real estate investments and $12.8
million in foreclosed real estate. Problem loans, defined as restructured loans
yielding less than 8% and delinquent loans, totaled $10.4 million at June 30,
1996 and $3.9 million at December 31, 1995. Allowances for possible losses of
$46 million at June 30, 1995 and $48.8 million at December 31, 1995 have been
established to cover possible losses from mortgage loans and real estate
investments.
Derivatives
The operations of Transamerica are subject to risk of interest rate
fluctuations to the extent that there is a difference between the cash flows
from Transamerica's interest-earning assets and the cash flows related to its
liabilities that mature or are repriced in specified periods. In the normal
course of its operations, Transamerica hedges some of its interest rate risk
with derivative financial instruments. These derivatives comprise primarily
interest rate swap agreements, interest rate floor agreements, interest rate cap
agreements, warrants and options to enter into interest rate swap agreements
(swaptions).
Derivative financial instruments with a notional amount of $4,818.9
million at June 30, 1996 and $1,000.7 million at December 31, 1995 and
designated as hedges of Transamerica's investment portfolio were outstanding. In
addition, derivative financial instruments with a notional amount of $3,033.2
million at June 30, 1996 and $3,738.2 million at December 31, 1995 and
designated as hedges of Transamerica's liabilities were outstanding. The change
in the notional amount outstanding of both asset and liability hedges reflects
additional derivative contracts entered into and redesignation of certain of
Transamerica's outstanding derivative contracts from liability hedges to asset
hedges to better reflect for accounting purposes the match of the derivative and
the underlying hedged risk.
While Transamerica is exposed to credit risk in the event of
nonperformance by the other party, nonperformance is not anticipated due to the
credit rating of the counterparties. At June 30, 1996, the derivative financial
instruments discussed above were issued by financial institutions rated A or
better by one or more of the major credit rating agencies. The fair value of
Transamerica's derivative financial instruments at June 30, 1996 and December
31, 1995 was a net benefit of $66.1 million and $79.9 million
<PAGE> 286
Page 17
comprising agreements with aggregate gross benefits of $106.6 million and $122.5
million and agreements with aggregate gross obligations of $40.5 million and
$42.6 million.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11 Statement Re: Computation of Per Share Earnings.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
(b) Reports on Form 8-K. None.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSAMERICA CORPORATION
(Registrant)
Burton E. Broome
Vice President and Controller
(Chief Accounting Officer)
Date: August 9, 1996
<PAGE> 287
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
TRANSAMERICA CORPORATION
<TABLE>
<CAPTION>
Six months ended June 30,
1996 1995
(Dollar amounts in millions,
except for share data)
Primary
<S> <C> <C>
Average shares outstanding 67.5 69.1
Net effect of dilutive stock options--
based on the treasury stock method
using average market price 1.7* 1.4*
------- -------
TOTAL 69.2 70.5
======= =======
Net income $ 221.2 $ 214.1
Preferred dividends (8.6) (9.1)
------- -------
Net income to common $ 212.6 $ 205.0
======= =======
Per share amount $ 3.15 $ 2.96
======= =======
Fully Diluted
Average shares outstanding 67.5 69.1
Net effect of dilutive stock options--
based on the treasury stock method
using the market price at quarter end
if higher than the average market
price for three months 1.8* 1.8*
------- -------
TOTAL 69.3 70.9
======= =======
Net income $ 221.2 $ 214.1
Preferred dividends (8.6) (9.1)
------- -------
Net income to common $ 212.6 $ 205.0
======= =======
Per share amount $ 3.15 $ 2.96
======= =======
</TABLE>
*Not included in per share calculation because effect is less than 3%.
<PAGE> 288
EXHIBIT 12
TRANSAMERICA CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
(Dollar amounts in
millions)
<S> <C> <C>
Fixed charges:
Interest and debt expense $352.5 $354.1
One-third of rental expense 12.1 12.7
------ ------
Total $364.6 $366.8
====== ======
Earnings:
Net income $221.2 $214.1
Provision for income taxes 114.7 135.9
Fixed charges 364.6 366.8
------ ------
Total $700.5 $716.8
====== ======
Ratio of earnings to fixed
charges 1.92 1.95
==== ====
</TABLE>
<PAGE> 289
[ARTICLE] 5
[MULTIPLIER] 1,000,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] JUN-30-1996
[CASH] 92
[SECURITIES] 830
[RECEIVABLES] 2,016
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 0
[PP&E] 3,318
[DEPRECIATION] 1,231
[TOTAL-ASSETS] 47,224
[CURRENT-LIABILITIES] 0
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 315
[COMMON] 66
[OTHER-SE] 3,256
[TOTAL-LIABILITY-AND-EQUITY] 47,224
[SALES] 0
[TOTAL-REVENUES] 3,009
[CGS] 0
[TOTAL-COSTS] 1,825
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 101
[INTEREST-EXPENSE] 352
[INCOME-PRETAX] 336
[INCOME-TAX] 115
[INCOME-CONTINUING] 221
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 221
[EPS-PRIMARY] 3.15
[EPS-DILUTED] 3.15
</TABLE>
<PAGE> 290
ANNEX E
TRANSAMERICA PROXY STATEMENT DATED
MARCH 18, 1996
<PAGE> 291
[LOGO]TRANSAMERICA
Transamerica Corporation
600 Montgomery Street
San Francisco, California 94111
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Thursday, April 25, 1996
11:00 A.M.
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Transamerica Corporation will be held
at the Giannini Auditorium, Concourse Level, Bank of America Center, 555
California Street, San Francisco, California, on Thursday, April 25, 1996, at
11:00 A.M., for the purpose of:
1. Electing three directors of the Corporation to hold office for
three-year terms;
2. Electing independent auditors to audit the financial statements of the
Corporation for 1996; and
3. Acting upon a stockholder resolution if properly presented at the
meeting.
All other matters which may properly come before the meeting and any
adjournment thereof will also be considered.
Stockholders of record at the close of business on March 5, 1996 are
entitled to notice of, and to vote at, the meeting and any adjournment thereof.
A list of such stockholders will be available at the time and place of the
meeting and, for any purpose germane to the meeting, during the ten days prior
to the meeting, at the office of the Secretary of the Corporation, 600
Montgomery Street, San Francisco, California, during ordinary business hours.
By Order of the Board of Directors
Shirley H. Buccieri
Secretary
San Francisco, California
March 18, 1996
<PAGE> 292
PROXY STATEMENT
OF
TRANSAMERICA CORPORATION
600 MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA 94111
INFORMATION CONCERNING THE SOLICITATION
This proxy statement is furnished in connection with the solicitation by
the Board of Directors of Transamerica Corporation of proxies to be voted at the
Annual Meeting of Stockholders to be held on April 25, 1996 and at any
adjournment thereof. Proxies are revocable at any time prior to exercise by
written notice to the Secretary of the Corporation or upon request if the
stockholder is present at the Annual Meeting and chooses to vote in person. If a
proxy is properly signed and not revoked, the shares it represents will be voted
in accordance with the instructions of the stockholder. If no specific
instructions are given, the shares represented by the proxy will be voted for
the election of directors, for Proposal 2 and against Proposal 3.
Stockholders of record at the close of business on March 5, 1996 are
entitled to vote at the Annual Meeting. On that date the Corporation had
outstanding 67,615,621 shares of common stock, $1 par value, each share being
entitled to one vote and each one-half share being entitled to one-half vote. A
proxy given by any stockholder participating in the Corporation's Dividend
Reinvestment Plan or in the Corporation's Employees Stock Savings Plan will
govern the voting of all full shares held for such stockholder's account under
those Plans.
A majority of the shares entitled to vote, represented in person or by
proxy, constitutes a quorum. Abstentions and broker non-votes are counted as
shares present in determining whether the quorum requirement is satisfied. With
regard to the election of directors, if a quorum is present, a plurality vote of
the shares of common stock of the Corporation present in person or by proxy at
the Annual Meeting and entitled to vote will be required for the election of
directors. If a quorum is present, the affirmative vote of the holders of a
majority of the shares of common stock of the Corporation present in person or
by proxy at the Annual Meeting and entitled to vote will be required for the
election of independent auditors and approval of Proposal 3. Votes may be cast
"For" or "Withheld" for each director nominee; votes that are withheld will be
excluded entirely from the vote and will have no effect. Abstentions may be
specified on all proposals, except the election of directors. Abstentions on
Proposals 2 and 3 will have the same legal effect as negative votes. Under the
rules of the New York Stock Exchange, brokers who hold shares in street name
have the authority to vote in their discretion on "routine" items when they have
not received instructions from beneficial owners. With respect to "non-routine"
items, no broker may vote shares held for customers without specific
instructions from such customers. Under Delaware law, a broker non-vote will
have no effect on the outcome of "non-routine" items requiring the affirmative
vote of a majority of the shares represented at the Annual Meeting and entitled
to vote thereon.
The cost of soliciting proxies will be borne by the Corporation. The
Corporation will reimburse brokerage firms, banks and other nominees, custodians
and fiduciaries for their reasonable expenses incurred in sending proxy material
to beneficial owners of shares and obtaining their instructions. Regular
employees of the Corporation may solicit proxies personally, by mail or by
telephone. In addition, the Corporation has retained Georgeson & Co., Inc. to
assist in the distribution of the proxies and proxy statements for a fee
estimated not to exceed $16,000 plus out-of-pocket expenses.
The Corporation has a policy that provides for the confidentiality of
stockholder proxies, ballots and vote tabulations, subject to certain
exceptions. The policy also provides for the tabulation of the vote by an
independent third party.
This proxy statement, the proxy and the Corporation's 1995 Annual Report
were first mailed to stockholders on March 18, 1996.
1
<PAGE> 293
(1) ELECTION OF DIRECTORS
INFORMATION CONCERNING THE NOMINEES AND CURRENT DIRECTORS
The Corporation's Certificate of Incorporation provides that the members of
the Board of Directors shall be divided into three classes with approximately
one-third of the directors to stand for election each year for three-year terms.
The total number of directors is currently set pursuant to the Corporation's
By-Laws at ten. Of this number, three members of the Board of Directors have
terms expiring, and are nominees for election, at the 1996 Annual Meeting of
Stockholders. Mr. Myron Du Bain, whose term as a director expires at the 1996
Annual Meeting of Stockholders, will be retiring from the Board of Directors and
will not stand for re-election. Three members have terms expiring at the 1997
Annual Meeting of Stockholders and three members have terms expiring at the 1998
Annual Meeting of Stockholders. The number of directors will be reduced to nine
upon Mr. Du Bain's retirement.
Unless instructions to the contrary are given, all proxies received by the
Corporation will be voted for the election of the three nominees named below as
directors of the Corporation to hold office until the 1999 Annual Meeting of
Stockholders and until their respective successors are elected and qualified.
All of the nominees have indicated a willingness to serve as directors if
elected. Should any nominee not be a candidate at the 1996 Annual Meeting, all
such proxies so received will be voted in favor of the other nominees and for
such substitute nominee (if any) as shall be designated by the proxies named in
the enclosed form of proxy, or the number of directors may be reduced by the
Board of Directors. All nominees have been recommended by the Board of Directors
for three-year terms expiring at the 1999 Annual Meeting of Stockholders.
Certain information concerning each of the three nominees for directors,
and each current director in the classes continuing in office, is set forth
below.
NOMINEES FOR DIRECTORS FOR THREE YEAR TERMS EXPIRING IN 1999
SAMUEL L. GINN* Director since 1989 Age 58
Chairman of the Board, Chief Executive Officer and a director of AirTouch
Communications, Inc., a worldwide wireless telecommunications company, since
1994. He was Chairman of the Board, President, Chief Executive Officer and a
director of Pacific Telesis Group, a diversified telecommunications company,
from 1988 to 1994. He also serves as a director of Chevron Corporation, Safeway
Inc. and Hewlett-Packard Company.
FRANK C. HERRINGER* Director since 1986 Age 53
Chairman of the Board, Chief Executive Officer and President of the Corporation.
He has been Chairman since January 1, 1996, Chief Executive Officer since 1991
and President since 1986. He also serves as a director of all major subsidiaries
of the Corporation, Pacific Telesis Group and Unocal Corporation.
CHARLES R. SCHWAB* Director since 1989 Age 58
Chairman of the Board, Chief Executive Officer and a director of The Charles
Schwab Corporation, a discount brokerage firm. He also serves as a director of
The Gap, Inc. and AirTouch Communications, Inc.
* Member of the Executive Committee
2
<PAGE> 294
DIRECTORS CONTINUING IN OFFICE UNTIL 1997
TONI REMBE* Director since 1995 Age 59
Partner at Pillsbury Madison & Sutro, a law firm. She also serves as a director
of American President Companies, Ltd., Pacific Telesis Group and Potlatch
Corporation.
FORREST N. SHUMWAY Director since 1973 Age 69
Retired Vice Chairman of the Board of Allied-Signal Inc., a multi-industry
company. He also serves as a director of Aluminum Company of America, American
President Companies, Ltd., The Clorox Company and First Interstate Bancorp.
PETER V. UEBERROTH Director since 1984 Age 58
Managing Director of The Contrarian Group, Inc., a business management company,
since 1989. Since 1995, he has been Co-Chairman of the Board and a director of
Doubletree Corp., a hotel company. He also serves as a director of Ambassadors
International, Inc. and The Coca-Cola Company.
DIRECTORS CONTINUING IN OFFICE UNTIL 1998
JAMES R. HARVEY* Director since 1975 Age 61
Former Chairman of the Board of the Corporation. He was Chairman of the Board
from 1983 through 1995 and Chief Executive Officer from 1981 to 1991. He retired
as an employee of the Corporation in 1992. He also serves as a director of
AirTouch Communications, Inc., The Charles Schwab Corporation and McKesson
Corporation.
GORDON E. MOORE* Director since 1981 Age 67
Chairman of the Board and a director of Intel Corporation, a semiconductor
manufacturing company. He also serves as a director of Varian Associates, Inc.
and Gilead Sciences, Inc.
CONDOLEEZZA RICE* Director since 1991 Age 41
Provost of Stanford University since 1993. She was Associate Professor of
Political Science at Stanford from 1987 to 1989 and from 1991 to 1993. She was
Special Assistant to the President of the United States on the National Security
Council from 1990 to 1991 and Director of Soviet and East European Affairs on
the National Security Council from 1989 to 1990. She also serves as a director
of Chevron Corporation.
DIRECTOR COMPENSATION AND BENEFITS
Directors who are not employees of the Corporation or its subsidiaries
receive an annual retainer of $24,000 and a fee of $1,000 for each Board or
committee meeting attended. Committee chairs also receive an annual retainer of
$2,500, with the exception of the chairs of the Management Development and
Compensation, the Corporate Audit and the Executive Committees, who each receive
annual retainers of $3,500. Directors who are employees of the Corporation do
not receive fees for their services as directors.
* Member of the Executive Committee
3
<PAGE> 295
Directors are eligible annually to defer receipt of $5,000 or more of their
retainers and meeting fees under the Corporation's deferred compensation plan.
Amounts deferred are credited with interest. The interest rate is adjusted
annually and equals an average of the rate paid by ten-year U.S. Treasury Notes,
plus 0% to 3%, depending on the length of the term of deferral. For amounts
deferred prior to 1996, the interest rate for deferral terms of at least five
years is indexed to the Moody's A Rated Corporate Bond Yield, with a premium of
2% to 4%. The time and method of payment of deferred compensation and other
terms and conditions are set forth in deferred compensation elections made prior
to deferral by each participating director.
Each member of the Board of Directors who retires from the Board after
serving for at least five years as a non-employee director is eligible to
receive retirement benefits. The annual benefit amount will equal the
individual's annual retainer fee in effect at the time of his or her retirement
(exclusive of any meeting fees or fees for serving as a committee chair).
Payments will be made to the director or, in the event of the director's death,
his or her spouse, for a period equal to the period of time that the individual
served on the Board as a non-employee director.
Directors who are not employees of the Corporation receive stock options
pursuant to The 1985 Stock Option and Award Plan of Transamerica Corporation
(the "1985 Plan"). Under the 1985 Plan, each non-employee director automatically
is granted a nonqualified stock option for 1,500 shares each year. All options
are granted at fair market value on the effective date of the grant and
generally have a term not exceeding ten years and one month. Options issued to
non-employee directors are exercisable in full beginning six months after grant.
Mr. Harvey, the retired chairman of the board and chief executive officer
of the Corporation, has been retained by the Corporation to provide consulting
and advisory services and to work on special assignments. Mr. Harvey agreed to
make available during 1995 approximately 15% of his business time for these
purposes and the Corporation paid him a total of $81,250 as compensation for
rendering such services. Mr. Harvey's present consulting agreement with the
Corporation expires in April 1997. Pursuant to this agreement, the Corporation
is obligated to pay Mr. Harvey an additional $75,000 for his consulting and
related services during 1996. In addition, he remains entitled to the use of an
automobile and the reimbursement of certain expenses. Mr. Harvey also continues
to serve on the Board of Directors. As a director, Mr. Harvey receives the same
retainers, fees and benefits as other non-employee directors.
See Compensation Committee Interlocks and Insider Participation on page 5
for a description of certain agreements between certain subsidiaries of the
Corporation and a subsidiary of The Charles Schwab Corporation, of which Mr.
Harvey is a director.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS HELD
Mr. Moore (Chairman), Ms. Rembe, Ms. Rice and Messrs. Ginn and Schwab are
members of the Corporate Audit Committee of the Board of Directors. The
committee recommends the engagement of independent auditors, reviews the plan
and results of the audit engagement with the independent auditors, approves
professional services provided by the independent auditors, reviews the
independence of the independent auditors, considers the fees of the independent
auditors, reviews the Corporation's annual financial statements, reviews the
scope and results of the Corporation's internal auditing activities and the
adequacy of internal accounting controls, and directs special investigations.
The Corporate Audit Committee held four meetings in 1995.
Messrs. Ueberroth (Chairman), Du Bain, Ginn, Schwab and Shumway are members
of the Management Development and Compensation Committee of the Board of
Directors. The Committee establishes corporate compensation objectives, reviews
comparative studies of compensation programs to enable the Corporation to offer
the competitive compensation programs necessary to attract and retain superior
management and reviews and approves cash compensation arrangements and incentive
plans for senior management. The
4
<PAGE> 296
Committee also reviews, approves and administers the Corporation's Value Added
Incentive Plan, stock option plans, deferred compensation plan, perquisite
programs for corporate officers and similar programs. The Committee also
authorizes the granting of options, restricted stock and other awards under the
Corporation's stock option plans. The Committee also nominates corporate
officers and reviews succession plans for senior corporate and subsidiary
officer positions. The Management Development and Compensation Committee held
four meetings in 1995.
Mr. Du Bain (Chairman), Ms. Rice and Messrs. Harvey, Herringer, Schwab and
Shumway are members of the Nominating Committee of the Board of Directors. The
Committee recommends to the Board of Directors the Board size and criteria for
qualification as a candidate for Board membership, reviews the qualifications of
candidates for Board membership and directs the search for qualified candidates
to fill Board vacancies that may occur from time to time. The Committee also
recommends to the Board the slate of director candidates to be proposed for
election by the stockholders at the annual meetings and candidates to fill
vacancies which occur between such annual meetings. The Committee also
recommends to the Board the establishment of, and charge of responsibilities to,
various committees of the Board. The Nominating Committee held two meetings in
1995. Subject to the provisions of the Corporation's By-Laws, the Nominating
Committee will consider nominees for directors recommended by stockholders. Any
recommendations should be submitted in writing to the Secretary of the
Corporation, 600 Montgomery Street, San Francisco, California 94111.
During 1995, the Board of Directors held eight meetings. All the directors
attended 75% or more of the meetings of the Board and committees of which they
were members.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are no "interlocks" (as defined by the Securities and Exchange
Commission) with respect to any member of the Management Development and
Compensation Committee of the Board of Directors of the Corporation (the
"Committee"), and the Committee consists of independent, non-employee directors.
Mr. Schwab is a member of the Committee and is the Chairman of the Board,
Chief Executive Officer and a director of The Charles Schwab Corporation, a
discount brokerage firm. Transamerica Occidental Life Insurance Company, a
subsidiary of the Corporation, and certain of its subsidiaries and affiliated
companies (collectively "Occidental") have entered into certain agreements with
Charles Schwab & Co., Inc. ("Schwab & Co."), a subsidiary of The Charles Schwab
Corporation, pursuant to which Occidental issues variable annuity contracts
which are marketed, distributed and administered by Schwab & Co. The
compensation payable by Occidental to Schwab & Co. for such services includes a
percentage of the value of the assets invested in the annuities and certain
contract fees.
5
<PAGE> 297
STOCKHOLDINGS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table indicates, as to each director and each executive
officer named in the Summary Compensation Table on page 13, and as to all
directors and executive officers as a group, the number of shares and percentage
of the Corporation's common stock beneficially owned as of March 5, 1996.
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE OF
COMMON STOCK COMMON STOCK
NAME BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
------------------------------------- ----------------------- -----------------------
<S> <C> <C>
DIRECTORS
Myron Du Bain 11,267 (2)(3) *
Samuel L. Ginn 8,221 (2)(3) *
James R. Harvey 71,432 (2)(3) *
Frank C. Herringer 724,917 (3)(4)(5) 1.1%
Gordon E. Moore 10,041 (2) *
Toni Rembe 3,568 (2) *
Condoleezza Rice 6,000 (2) *
Charles R. Schwab 11,475 (2) *
Forrest N. Shumway 16,242 (2)(3) *
Peter V. Ueberroth 11,041 (2)(3) *
EXECUTIVE OFFICERS
Thomas J. Cusack 134,186 (4) *
Richard H. Finn 345,405 (3)(4) *
Edgar H. Grubb 162,239 (3)(4) *
Richard N. Latzer 177,395 (4) *
All directors and executive officers
as a group (20 persons) 1,899,587 (2)(3)(4)(5) 2.8%
</TABLE>
(1) Represents shares held as of March 5, 1996 directly and with sole voting
and investment power (or with voting and investment power shared with a
spouse) unless otherwise indicated. An asterisk indicates that the number
of shares owned by the director or executive officer represents less than
1% of the outstanding shares of common stock.
(2) Includes, as to each non-employee director (except Mr. Harvey and Ms.
Rembe)--5,000 shares, as to Mr. Harvey--3,000 shares, as to Ms. Rembe--
1,500 shares, and as to all directors and executive officers as a group--
39,500 shares, which may be acquired upon the exercise of director stock
options, all of which are currently exercisable. These shares are
considered outstanding for purposes of calculating each director's
percentage ownership.
(3) Includes shares held by family trusts as to which each of the following
directors and executive officers and their respective spouses have shared
voting and investment power: Mr. Du Bain--1,667 shares; Mr. Ginn--3,221
shares; Mr. Harvey--68,432 shares; Mr. Shumway--11,242 shares; Mr.
Ueberroth--6,041 shares; Mr. Finn--36,033 shares; and Mr. Grubb--6,500
shares; as to which Mr. Herringer has either sole, or he and his spouse
have shared, voting and investment power--33,636 shares; and all directors
and executive officers as a group--192,671 shares.
(4) Includes shares which may be acquired upon the exercise of stock options
exercisable on March 5, 1996, or within 60 days thereafter, as follows: Mr.
Cusack--129,300 shares; Mr. Finn--294,700 shares; Mr. Grubb--153,300
shares; Mr. Herringer--680,950 shares; Mr. Latzer--173,750 shares; and
all directors and executive officers as a group--1,636,550 shares. These
shares are considered outstanding for purposes of calculating each such
current executive officer's percentage ownership. The numbers in the table
also include restricted stock awards, which vest in two remaining equal
annual installments commencing April 27, 1996, and as to which the
executive officer has the right to vote and to receive dividends, as
follows: Mr. Cusack--2,000 shares; Mr. Grubb--2,000 shares; Mr. Herringer
--2,500 shares; Mr. Latzer--500 shares; and all directors and executive
officers as a group--7,000 shares. The numbers in the table also include
shares held under the Corporation's Employees Stock Savings Plan on
December 31, 1995 and as to which the participant has sole voting and
investment power, as follows: Mr. Cusack--386 shares; Mr. Finn--14,672
shares; Mr. Grubb--349 shares; Mr. Heringer--3.587 shares; Mr. Latzer--
645 shares; and all directors and executive officers as a group--34,938
shares.
(5) Excludes 14,796 shares held by Mr. Herringer's spouse, as to which he has
no voting or investment power and as to which he disclaims beneficial
ownership.
6
<PAGE> 298
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors and executive officers, and persons who own more than
10% of the Corporation's common stock, to file reports of ownership and changes
in ownership with the Securities and Exchange Commission.
Based solely on the Corporation's review of the reporting forms received by
it, and written representations from certain persons that no Form 5 reports were
required to be filed by those persons, the Corporation believes that for 1995
all such filing requirements were satisfied.
(2) ELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP to audit the
financial statements of the Corporation for 1996, subject to the election of
such firm by the stockholders at the 1996 Annual Meeting of Stockholders. Ernst
& Young LLP has audited the financial statements of the Corporation annually
since the inception of the Corporation in 1928. If the stockholders do not elect
Ernst & Young LLP, the Board of Directors will consider the selection of other
auditors.
Representatives of Ernst & Young LLP will be present at the Annual Meeting
with the opportunity to make a statement and respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
PROPOSAL 2.
(3) STOCKHOLDER PROPOSAL ON REDEMPTION, OR SUBMISSION TO A STOCKHOLDER VOTE, OF
THE STOCK PURCHASE RIGHTS PLAN ADOPTED IN 1986.
The Corporation has been advised that a stockholder of the Corporation
proposes to introduce the following proposal and statement in support thereof at
the 1996 Annual Meeting of Stockholders. (The name and address of, and the
number of shares held by, the proponent can be obtained upon request from the
office of the Secretary of the Corporation).
"RESOLVED: That the Shareholders of Transamerica Corp. urge that the
board of directors redeem any shareholder rights plan unless the issue is
approved by the affirmative vote of a majority of the outstanding shares at
a meeting of the shareholders held as soon as possible."
STATEMENT OF STOCKHOLDER IN SUPPORT OF THE PROPOSAL
"In 1986, Transamerica Corp. adopted a shareholder rights plan commonly
known as a 'poison pill.' Generally, we think such pills serve to insulate
management from shareholder interests.
"The drag of poison pill rights plans on the trading value of a company's
stock is well documented. The Board should consider redeeming the pill as part
of an effort to improve shareholder value. While the 'pill' is set to expire in
1996, immediate redemption will demonstrate the Board's dedication to
shareholder concerns.
"The 'pill' is an inappropriate, antiquated and unnecessary takeover
device. Apologists for poison pills claim that they prevent a 'midnight raid' on
the company. The statute in Delaware, where our company is incorporated,
provides ample protection for corporations generally.
"Poison pills have become increasingly unpopular in recent years. Some
companies have heeded shareholder concern and either redeemed their current
pills (Philip Morris), promised to replace pills only with a shareholder vote
(Consolidated Freightways), or at least engage in a dialogue with shareholders
7
<PAGE> 299
regarding pills (Bank of America). Since the beginning of 1990, Time Warner,
United Technologies, La Quinta Inns, and Lockheed have voluntarily redeemed
their poison pills. Since 1990, a majority of voting shareholders at more than
24 companies asked management to either repeal, redeem or allow a shareholder
vote on poison pills. In 1994 alone, a majority of voting shareholders at
Advanced Micro Devices, Community Psychiatric Centers, Intel, Ryder and Wellman,
joined this list.
"The 'pill' is only one emblem of management insulation from shareholder
concerns. In the past Transamerica sparked shareholder criticism because of
golden parachutes adopted by management without a shareholder vote. By redeeming
the 'pill,' Transamerica can demonstrate its determination to improve
accountability.
"Therefore we urge a vote FOR this proposal."
STATEMENT BY THE BOARD OF DIRECTORS AGAINST THE PROPOSAL
The Rights Plan expires by its terms this year on August 8th and the Board
currently does not intend to adopt a new rights plan. To redeem the rights or to
subject the plan to a special stockholder meeting given the Rights Plan's
imminent expiration would cause the Corporation to incur unnecessary expense.
The overriding objective of the Board ten years ago when it adopted the
Rights Plan was the preservation and maximization of the Corporation's value for
the stockholders. This continues to be the primary objective of the Board.
During the ten years since the adoption of the Rights Plan, the Corporation has
taken many successful actions to maximize value for its stockholders. For
example, the Corporation has redeployed capital to divest low return businesses,
made strategic acquisitions and returned underutilized equity capital to its
stockholders through dividends and share purchases. Furthermore, last year the
stockholders approved the 1995 Performance Stock Option Plan designed to
strongly motivate management to achieve superior stockholder returns. The Plan
includes both premium-priced options and performance-vested options, which means
that options granted under that plan require that stockholders realize
significant returns on their investment before management can receive any
significant gains on their options. In 1994, the stockholders approved the Value
Added Incentive Plan which linked compensation of management with the long-term
interest of stockholders. As part of that Plan, the CEO's bonus incentive has no
discretionary component and is instead tied 100% to the calculation of
stockholder value-added. The Corporation has demonstrated its commitment to
maximizing stockholder value and aligning management's interest with that of its
stockholders.
The Corporation's share price has significantly increased in recent years.
The Corporation's ability to provide excellent returns to its stockholders is,
of course, one of the most important factors in allowing the Board to
effectively negotiate with any potential acquirer.
As circumstances exist currently, the Board believes the Corporation is
well positioned to continue to achieve the objectives sought to be achieved by
the Rights Plan without having a rights plan in effect. If circumstances should
emerge where the Board believes the Corporation should evaluate additional tools
to enable it to further the interests of its stockholders, the Board will
consider the desirability of a rights plan at such time, along with such other
alternatives as it believes appropriate.
The Board believes the adoption of the proposal would not be in the best
interests of the Corporation's stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
AGAINST PROPOSAL 3.
8
<PAGE> 300
EXECUTIVE COMPENSATION AND OTHER INFORMATION
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Program
The Corporation's compensation program is designed to enhance stockholder
value by linking a large part of the executives' compensation directly to those
aspects of performance that are highly correlated with share price. The
objective is to provide executives an opportunity to achieve total compensation
at the 75th percentile or above for exceptional performance. The primary
components of the compensation program are base salary, an annual cash bonus
driven by the Corporation's Value Added performance (see below) and a long-term
opportunity to participate in increased stockholder value through grants of
stock options.
Responsibilities of the Management Development and Compensation Committee
The Management Development and Compensation Committee of the Board of
Directors of the Corporation (the "Committee") was established in 1961 and since
that time has consisted solely of independent, non-employee directors. The
Committee reviews and approves incentive plans, executive benefit programs and
perquisites. Annually, the Committee reviews and approves base salaries, bonuses
and any other cash payments to executive officers and other key employees. The
Committee also grants stock options and restricted stock, approves the terms of
such awards and interprets incentive plans, as required. As administrator of the
Value Added Incentive Plan, the Committee takes certain actions, including the
establishment of target awards prior to the beginning of each plan year, and
certifies in writing that performance goals are achieved prior to approving
payment of awards under that plan.
As needed, the Committee engages an executive compensation consultant to
review competitive levels of total compensation, including base salary and
annual and long-term incentive programs. Additionally, the consultant provides
information on the value of individual option awards. The consultant conducts
comparative studies, reviews proposed changes related to the Corporation's
compensation program, and provides information on general compensation trends.
Included in the comparator group of companies are a combination of companies in
the S&P Financial Index (excluding banks and savings and loan associations) and
a sampling of companies with stockholders' equity of similar size to that of the
Corporation, for which data is readily available. The Committee meets without
management present to discuss the Chief Executive Officer's performance, base
salary and target incentive compensation.
Elements of the Compensation Program
The primary elements of the Corporation's compensation program for the
Chief Executive Officer ("CEO") and other executive officers of the Corporation
are described below.
Base Salary
Base salaries are reviewed annually by the Committee using competitive data
provided by the compensation consultant and considering industry and national
trends. Individual salaries are adjusted based on this information and the
executive's performance for the preceding year and current responsibilities. On
average, salaries of executive officers, including the salary of the CEO, were
between the median and 75th percentile of salaries of like positions in
comparator companies. The CEO did not receive a base salary increase in 1995.
Annual Incentive Plan
The Value Added Incentive Plan (the "Value Added Plan"), approved by
stockholders in 1994, covers the CEO and other named executive officers. The
Value Added Plan rewards management for both improving operating results and
efficiently employing the Corporation's capital. Awards under the Value
9
<PAGE> 301
Added Plan are based on the Corporation's actual Value Added, which is defined
as the Corporation's Adjusted Net Income minus an equity charge, expressed as a
percentage of the Corporation's Average Adjusted Equity, all as defined in the
Value Added Plan. Such awards were the only annual incentive awards the
Corporation's CEO and Chief Financial Officer ("CFO") received for 1995.
The Corporation's Value Added for 1995 generated approximately 104% of
target bonuses for plan participants, due to a combination of a 10% increase in
net income and more than a 20% increase in net income per share, reflecting good
operating results and careful management of capital utilized in the business.
Amounts awarded to other executive officers, including the other three named
executive officers, in the Summary Compensation Table on page 13, were based
substantially on Value Added as described above for the CEO and CFO.
Additionally, they were awarded amounts based on the performance of business
units reporting to them and/or the accomplishment of certain strategic goals.
Stock Option Awards
The Committee believes that stock options are a superior incentive to
motivate key employees to act in the best interests of stockholders. While many
publicly held companies have multiple long-term incentive plans, frequently
including cash, stock options, and restricted stock, or combinations thereof,
stock options are the only continuing long-term incentive that the Corporation's
CEO and other named executive officers receive.
In 1995, stockholders approved adoption of The 1995 Performance Stock
Option Plan (the "1995 Plan") and awards made pursuant to the 1995 Plan. The
1995 Plan is designed to strongly motivate management to achieve superior
stockholder returns. Under the 1995 Plan, stockholders must realize significant
returns on their investment before management can receive any significant gains
on their options.
Based on information supplied by the compensation consultant, the Committee
made awards in 1995 taking into consideration a number of factors, including the
competitive level of long-term incentive awards, the prospective level of total
compensation, and the individual's responsibilities and ability to influence
stockholder value, but not the amount or terms of outstanding previous awards.
In addition to the above criteria, the number of premium priced options and
performance vesting options that were awarded to the CEO and other executive
officers in 1995 were determined in part based on those individuals not
receiving any additional awards of such options within the three-year period
1995 through 1997 (other than in the event of a promotion).
Based on the above considerations and as approved by the Corporation's
stockholders at the 1995 Annual Meeting of Stockholders, the CEO in 1995
received premium priced options and performance vesting options under the 1995
Plan. The options have exercise prices of $60, $82 and $100 respectively, and
were granted on January 26, 1995, when the closing price of the Corporation's
common stock was $50.75 per share. The $82 and $100 options will vest only if
during a specified period the closing price of the Corporation's common stock
equals or exceeds the exercise price. The $82 and $100 options were granted with
a significantly smaller number of tandem limited stock appreciation rights
("TLSARs"). These rights have a per share exercise price equal to 100% of fair
market value on the date of grant and are exercisable only upon a change of
control. Stock options awarded to other executive officers, including the other
named executive officers, were determined in a similar fashion and were granted
either with similar premium and performance vesting provisions (including
TLSARs) or at not less than 100% of fair market value on the date of grant.
The 1995 Plan, together with the Value Added Incentive Plan, strongly
focuses the Corporation's senior management on delivering significant
stockholder value.
10
<PAGE> 302
Policy Regarding Deductibility of Compensation
Section 162(m) of the Internal Revenue Code limits the federal income tax
deductibility of compensation paid to the Corporation's CEO and to each of the
other four most highly compensated executive officers. The Corporation generally
may deduct compensation paid to such an officer only to the extent the
compensation does not exceed $1 million during any fiscal year or is
"performance-based" as defined in Section 162(m). The Committee considers the
net cost to the Corporation in making compensation decisions. Accordingly, the
Value Added Incentive Plan, the 1985 Plan, and the 1995 Plan each have been
designed or amended so that payments under those plans will qualify as
performance-based compensation under Section 162(m). Thus, the Corporation will
continue to receive a federal income tax deduction for such compensation.
Compensation Committee Members
Peter V. Ueberroth, Chairman
Myron Du Bain
Samuel L. Ginn
Charles R. Schwab
Forrest N. Shumway
11
<PAGE> 303
STOCK PRICE PERFORMANCE
The following graph shows the cumulative total return (with dividends
reinvested) of the Corporation, the S&P 500, and the S&P Financial Index*
(adjusted to eliminate banks and savings and loan institutions) over the years
1991 through 1995, inclusive:
[5-Year Cummulative Total Return Graph]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN AS OF DECEMBER 31ST
OF EACH YEAR
(ASSUMES $100 WAS INVESTED ON DECEMBER 31, 1990)
---------------------------------------------------------------
COMPANY/INDEX 1991 1992 1993 1994 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Transamerica Corporation 129.08 162.63 199.33 181.75 274.76
- ----------------------------------------------------------------------------------------------
S&P 500 Index 130.47 140.41 154.56 156.60 215.45
- ----------------------------------------------------------------------------------------------
S&P Financial Index* 144.48 170.39 192.59 191.03 284.23
- ----------------------------------------------------------------------------------------------
</TABLE>
All data for the performance graph was provided by Standard & Poor's
Compustat Services.
* Adjusted to exclude banks and savings and loan institutions. The adjusted
index consists of the S&P Financial Miscellaneous Index, the S&P Life
Insurance Index, the S&P Multi-Line Insurance Index, the S&P Property &
Casualty Index and the S&P Personal Loan Index, weighted by market
capitalization.
12
<PAGE> 304
The following tables contain specific compensation information for the
Chief Executive Officer and the next four most highly compensated individuals
serving as executive officers of the Corporation at
December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
--------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(1) OPTIONS COMPENSATION(2)
---- ------ ----- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Frank C. Herringer, 1995 $ 975,000 $ 708,776 1,585,000 $ 103,657
Chairman, President and Chief 1994 975,000 561,566 150,000 73,116
Executive Officer 1993 930,000 850,000 $ 243,150 175,000 99,695
Richard H. Finn, 1995 $ 640,000 $ 375,000 700,000 $ 202,314
Executive Vice President, and 1994 602,000 400,167 80,000 52,584
President and Chief Executive 1993 562,339 400,000 100,000 53,842
Officer of Transamerica Finance
Group
Richard N. Latzer, 1995 $ 430,000 $ 300,000 155,000 $ 48,992
Senior Vice President and Chief 1994 410,000 215,825 45,000 $ 31,060
Investment Officer, and President 1993 390,000 260,000 $ 48,630 50,000 $ 39,032
and Chief Executive Officer of
Transamerica Investment
Services
Edgar H. Grubb, 1995 $ 435,000 $ 225,874 385,000 $ 60,642
Executive Vice President and 1994 411,000 182,094 40,000 50,495
Chief Financial Officer 1993 385,404 295,000 $ 194,520 60,000 50,612
Thomas J. Cusack, 1995 $ 389,298 $ 296,250 500,000 $ 47,475
Executive Vice President, and 1994 301,500 167,000 35,000 22,240
President and Chief Executive 1993 259,276 225,000 $ 194,520 50,000 26,330
Officer of Transamerica
Occidental Life Insurance
Company
</TABLE>
(1) Shares represented by restricted stock awards vest in four equal annual
installments commencing one year from the date of grant provided that the
executive continues to be employed by the Corporation. Dividends on
restricted shares are paid currently. Restricted stock awards were made to
Mr. Herringer--5,000 shares; Mr. Latzer--1,000 shares; and Messrs. Grubb
and Cusack--4,000 shares, as part of a special bonus for the successful
completion of the initial public offering of the Corporation's former
property and casualty insurance operations. The number of restricted shares
remaining unvested as of December 31, 1995, which constitutes the entire
restricted stock holdings of the five named executive officers, and the
value of such holdings (valued at the closing price of the Corporation's
common stock for New York Stock Exchange Composite transactions on such
date) was as follows: Mr. Herringer--2,500 shares, $182,200; Mr. Latzer--
500 shares, $36,440; and Messrs. Grubb and Cusack--2,000 shares, $145,760.
(2) For 1995, includes (i) employer contributions under the Stock Savings Plan,
a 401(k) plan: $1,125 for each of the named executive officers; (ii)
employer contributions under the Stock Savings Plan Plus, a plan designed
to supplement the 401(k) plan: Mr. Herringer--$68,950; Mr. Finn--$44,550;
Mr. Latzer--$27,943; Mr. Grubb--$26,936; and Mr. Cusack--$23,967; (iii)
employer contributions for additional group term life, accidental death and
dismemberment, and disability insurance: Mr. Herringer--$22,545; Mr. Finn
--$14,639; Mr. Latzer--$9,683; Mr. Grubb--$9,801; and Mr. Cusack--
$8,769; (iv) above market interest on deferred compensation: Mr. Herringer
--$11,037; Mr. Latzer--$10,241; Mr. Grubb--$22,780; and Mr. Cusack--
$1,575; (v) forgiveness of a portion of the principal amount of a loan in
connection with an employee's relocation and purchase of a new home (see
Certain Transactions on page 16): Mr. Finn--$142,000; and (vi)
reimbursement in connection with an employee's relocation: Mr. Cusack--
$12,040.
13
<PAGE> 305
STOCK OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
PERCENT OF
TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM (4)
OPTIONS IN FISCAL OR BASE ----------------------------
NAME GRANTED (1) YEAR PRICE (2) EXPIRATION DATE (3) 5% 10%
---- ----------- ---------- --------- ------------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Frank C. Herringer 425,000 6.83% $ 60.00 January 26, 2005 $ 9,635,000 $30,443,000
425,000 6.83 82.00 January 26, 2005 0 0
735,000 11.81 100.00 January 26, 2007 0 0
Richard H. Finn 200,000 3.21 60.00 January 26, 2005 $ 4,534,000 $14,326,000
500,000 8.04 82.00 January 26, 2005 0 0
Richard N. Latzer 35,000 0.56 54.50 February 27,2005 $ 1,199,000 $ 3,040,000
120,000 1.93 100.00 January 26, 2007 0 0
Edgar H. Grubb 100,000 1.61 60.00 January 26, 2005 $ 2,267,000 $ 7,163,000
100,000 1.61 82.00 January 26, 2005 0 0
185,000 2.97 100.00 January 26, 2007 0 0
Thomas J. Cusack 100,000 1.61 60.00 January 26, 2005 $ 2,267,000 $ 7,163,000
100,000 1.61 82.00 January 26, 2005 0 0
185,000 2.97 100.00 January 26, 2007 0 0
50,000 0.80 82.00 January 26, 2005 0 3,763,000
65,000 1.04 100.00 January 26, 2007 0 5,868,000
</TABLE>
(1) Options granted with an exercise price of $54.50 become exercisable in four
annual installments commencing one year from the date of grant. Options
granted with an exercise price of $60.00 become exercisable in three annual
installments commencing three years from the date of grant. Options granted
with exercise prices of $82 and $100 will vest only if during a period of
ten trading days out of any thirty consecutive trading days ending on or
before January 26, 2000 (for $82 Options) or January 26, 2002 (for $100
Options) the market value of the Corporation's common stock equals or
exceeds the exercise price. The $82 and $100 Options were granted with
tandem limited stock appreciation rights (TLSARs) which are exercisable
only upon a change of control. Each TLSAR expires on the same general terms
as the related options and exercise of the TLSAR requires proportionate
cancellation of the related option and vice versa. The number of shares
subject to TLSARs and exercise prices are as follows: Mr. Herringer--
235,000 shares, $50.75; Mr. Finn--115,000 shares, $50.75; Mr. Latzer--
22,000 shares, $50.75; Mr. Grubb--57,000 shares, $50.75; and Mr. Cusack--
57,000 shares, $50.75 and 32,000 shares, $60.63.
(2) Subject to the discretion of the Management Development and Compensation
Committee, the exercise price and tax withholding obligations may be paid
in stock.
(3) The $82 Options and $100 Options will expire earlier if they are not vested
in accordance with their respective performance requirements. In certain
circumstances, all options may expire earlier than the indicated dates (for
example, on termination of employment).
(4) Options granted at $82 or $100 to Messrs. Herringer, Finn, Latzer and
Grubb, and 285,000 of those granted to Mr. Cusack, will expire unvested
under both the 5% and 10% appreciation scenarios based on the market price
of $50.75 on the date of grant. Additional options granted to Mr. Cusack
(50,000 at $82 and 65,000 at $100) will vest only at an assumed
appreciation rate of 10%, and the Corporation's stock price would be
$157.26 and $190.28, respectively, at the end of the option term for each
such grant based on the market price of $60.63 on the date of grant.
14
<PAGE> 306
The total number of options outstanding (vested and unvested, including the
$82 and $100 awards under the 1995 Performance Stock Option Plan) as of March 5,
1996 for the five named executive officers as a group and for all employees as a
group represents approximately 7.6% and 19.2%, respectively, of the
Corporation's outstanding common stock as of that date.
AGGREGATED OPTION EXERCISES IN 1995; OPTIONS OUTSTANDING AND VALUES AT DECEMBER
31, 1995
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED IN THE
UNEXERCISED OPTIONS AT MONEY OPTIONS AT
NUMBER DECEMBER 31, 1995 DECEMBER 31, 1995(2)
OF SHARES ------------------------ ---------------------------
ACQUIRED VALUE NOT NOT
NAME ON EXERCISE REALIZED (1) EXERCISABLE EXERCISABLE EXERCISABLE EXERCISABLE
---- ----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Frank C. Herringer 16,243 $ 424,507 621,087 1,810,000 $21,246,000 $10,879,000
Richard H. Finn 13,572 346,222 237,200 822,500 7,671,000 5,515,000
Richard N. Latzer 0 0 132,500 222,500 4,230,000 2,273,000
Edgar H. Grubb 0 0 130,800 457,500 3,936,000 3,076,000
Thomas J. Cusack 0 0 95,550 563,750 2,836,000 2,870,000
</TABLE>
(1) The value realized is the difference between (a) the mean of the high and
low prices of the Corporation's common stock for New York Stock Exchange
Composite Transactions on the date of exercise and (b) the exercise price
of the option, multiplied by the number of shares exercised.
(2) The value of unexercised options is the closing price of the Corporation's
common stock for New York Stock Exchange Composite Transactions on December
31, 1995, $72.88, less the exercise price of the option, multiplied by the
number of options outstanding.
PENSION PLAN AND SUPPLEMENTAL PENSION PLANS
The Corporation has had a retirement plan for eligible employees since
1935. Substantially all of the Corporation's subsidiaries participate in the
plan. Since applicable federal laws and the pension plan limit certain
participants' retirement plan benefits to an amount less than the amount
otherwise provided by the formula and prohibit certain compensation from being
counted for pension purposes, the Corporation, in accordance with the terms of
its Supplemental Pension Plan and SSP+ Supplemental Pension Plan, will make
supplemental payments to make up those differences.
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------
REMUNERATION 10 15 20 25 OR MORE
------------ -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
$ 200,000 $ 39,000 $ 59,000 $ 78,000 $ 98,000
400,000 79,000 119,000 158,000 198,000
600,000 119,000 179,000 238,000 298,000
800,000 159,000 239,000 318,000 398,000
1,000,000 199,000 299,000 398,000 498,000
1,200,000 239,000 359,000 478,000 598,000
1,400,000 279,000 419,000 558,000 698,000
1,800,000 359,000 539,000 718,000 898,000
2,200,000 439,000 659,000 878,000 1,098,000
</TABLE>
As of December 31, 1995, the named executive officers had the following
years of benefit service: Mr. Herringer--17 years; Mr. Finn--17 years; Mr.
Latzer--7 years; Mr. Grubb--6 years; and Mr. Cusack--6 years.
The table above shows the total estimated annual retirement benefits
payable under all pension plans to employees, including executive officers, upon
normal retirement on January 1, 1996 after selected periods of benefit service
assuming such employees and their spouses elect a single life annuity rather
than a form of joint and survivor or other form of annuity. If another form of
annuity was selected, the benefits would generally be lower than those shown in
the table.
15
<PAGE> 307
The pension plans currently provide for a benefit for each participant,
including the named executive officers, (payable as a single life annuity) of 2%
of his or her final average compensation (average compensation during the
highest 60 consecutive months of his or her final 120 months of employment) less
0.4% of his or her age 65 monthly Social Security-covered compensation, with the
result multiplied by years of benefit service (up to a maximum of 25 years).
Under the pension plans, an executive's pensionable remuneration or covered
compensation means his or her salary and target bonus under the bonus plan(s)
applicable to the executive. For each named executive officer, covered
compensation for 1995 was within 10% of the total Annual Compensation shown in
the Summary Compensation Table on page 13 except that Mr. Latzer's covered
compensation of $645,000 was 88% of the total shown in such table. Benefits
earned under the pension plans' prior benefit formulas are protected to the
extent they exceed benefits earned under the current formula. A participant is
fully vested in his or her retirement benefit after five years of service.
SEVERANCE AGREEMENTS
The Company has entered into severance agreements with each of the
executive officers named in the Summary Compensation Table on page 13. The
agreements provide that, if the executive is terminated other than for cause,
retirement or disability within three years after a change of control of the
Corporation or if the executive terminates his employment for good reason within
such three-year period or voluntarily during the 30-day period following the
first anniversary of the change of control, the executive is entitled to receive
a lump sum severance payment equal to three times the sum of his highest target
annual compensation during the three years immediately preceding the change in
control, together with certain other payments and benefits, including
continuation of employee welfare benefits. An additional payment is required to
compensate the executive for excise taxes imposed with respect to payments or
benefits received due to a change of control (and for any income taxes imposed
with respect to such additional payment).
CERTAIN TRANSACTIONS
In July 1993, Mr. Finn entered into an agreement with the Corporation in
connection with his relocation to San Francisco pursuant to which the
Corporation agreed to loan Mr. Finn $425,000 to assist him with the purchase of
a home in the San Francisco Bay Area. The loan, which was made on March 4, 1994,
is secured by a deed of trust on Mr. Finn's residence. The loan is interest-free
and is being forgiven ratably over its three-year term provided that Mr. Finn
remains an employee of the Corporation at each successive anniversary date of
the loan. On each of March 4, 1995 and March 4, 1996, the principal amount of
$142,000 was forgiven and the current balance of the loan is $141,000. Also, the
loan will be forgiven in full if he dies or becomes permanently disabled, if he
terminates his employment for good reason (as defined in the agreement), or if
the Corporation terminates his employment other than for cause (as defined in
the agreement). In addition, if Mr. Finn dies or becomes permanently disabled
during the term of the loan, the Corporation has agreed to reimburse him or his
estate for taxes paid by him or his estate as a result of the forgiveness of the
loan. If, during the term of the loan, Mr. Finn voluntarily terminates his
employment with the Corporation (other than for good reason) or the Corporation
terminates his employment for cause, the principal amount of the loan then
outstanding plus interest at 12% per annum from the date of such termination
will become due.
In August 1995, Mr. Cusack entered into an agreement with the Corporation
in connection with his relocation to Los Angeles pursuant to which the
Corporation agreed to loan Mr. Cusack $425,000 to assist him with the purchase
of a home in the Southern California area. The loan, which was made on August
15, 1995, is secured by a deed of trust on Mr. Cusack's residence. The full
$425,000 in principal remains outstanding. The loan is interest-free and will be
forgiven ratably over its five-year term provided that Mr. Cusack remains an
employee of the Corporation at each successive anniversary date of the loan.
Further, the loan will be forgiven in full if he dies or becomes permanently
disabled, if he terminates his employment
16
<PAGE> 308
for good reason (as defined in the agreement), if the Corporation terminates his
employment other than for cause (as defined in the agreement) or if, at the
Corporation's request, he sells his home in the Southern California area and
relocates in connection with his continued employment by the Corporation. If Mr.
Cusack dies or becomes permanently disabled during the term of the loan, the
Corporation has agreed to reimburse him or his estate for taxes paid by him or
his estate as a result of the forgiveness of the loan. If, during the term of
the loan, Mr. Cusack voluntarily terminates his employment with the Corporation
(other than for good reason) or the Corporation terminates his employment for
cause, the principal amount of the loan then outstanding plus interest at 12%
per annum from the date of such termination will become due.
In 1995, the Corporation and its subsidiaries obtained legal services from
the law firm of Pillsbury Madison & Sutro, of which Ms. Rembe is a member, on
terms which the Corporation believes were as favorable as would have been
obtained from unaffiliated third parties. It is anticipated that such law firm
will perform additional legal services for the Corporation and its subsidiaries
in 1996.
PRINCIPAL STOCKHOLDERS
Oppenheimer Group, Inc., Oppenheimer Tower, World Financial Center, New
York, New York 10281, has filed a statement on Schedule 13G with the Securities
and Exchange Commission in which it reported owning, as of December 31, 1995,
9,835,448 shares, or 14.39%, of the Corporation's outstanding common stock.
Oppenheimer Group, Inc. reported that it had shared voting power and shared
dispositive power with respect to all 9,835,448 shares.
The Corporation does not know of any other person who is the beneficial
owner of more than 5% of the Corporation's outstanding common stock.
OTHER MATTERS
Management does not know of any matters to be brought before the Annual
Meeting except as specified in the Notice of the Annual Meeting. However, as to
any other matters which may properly come before the Annual Meeting, it is
intended that proxies, in the form enclosed, will be voted in accordance with
the judgment of the designated proxy holders.
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Any stockholder proposal intended to be presented at the 1997 Annual
Meeting of Stockholders of the Corporation must be received by the Corporation
no later than November 18, 1996, for inclusion in the Corporation's Proxy
Statement and form of proxy relating to such meeting.
San Francisco, California
March 18, 1996
17
