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, 1997
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:
Name of each exchange
Title of each class on which registered
Common Stock--$1 Par Value New York Stock Exchange
Pacific Stock Exchange
9-1/8% Cumulative Monthly Income New York Stock Exchange
Preferred Securities, Series A*
*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 tosuch
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 on February 13,
1998: $6,851,611,704.
Number of shares of Common Stock, $1 par value, outstanding as of the
close of business on February 13, 1998: 63,098,593.
Documents incorporated by reference:
Portions of the Transamerica Corporation 1997 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 1997 Annual Report is not deemed filed as part of this
Report.
Portions of the Proxy Statement of Transamerica Corporation dated March
6, 1998 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>
<TABLE>
TABLE OF CONTENTS
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<S> <C> <C> <C> <C> <C> <C>
Part I:
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 4. Submission of Matters to a Vote of Securities Holders . . . . . . . . . . . . . . . . . 17
Item 4A. Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Part II:
Item 5. Market for Registrant's Common Equity and Related Stock-
holder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 7. Management's Discussion and Analysis of Financial Condi-
tion and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 7a. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . 18
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . 19
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Part III:
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . 19
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . 22
Part IV:
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
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<PAGE>
PART I
ITEM I. BUSINESS
Transamerica Corporation is a financial services organization which
engages primarily through its subsidiaries in life insurance, commercial
lending, leasing and real estate services. Transamerica was incorporated in
Delaware in 1928.
Effective January 1, 1998, principally through its indirect subsidiary
Transamerica Distribution Finance Corporation, Transamerica completed the
acquisition of substantially all of the inventory and retail finance business of
Whirlpool Financial Corporation for a total purchase price of $1.3 billion in
cash, subject to post-closing adjustments, which was determined through
negotiations with Whirlpool. A definitive agreement for the acquisition was
originally announced on September 18, 1997. The assets acquired consisted of
approximately $1.1 billion of net receivables and other assets of Whirlpool's
inventory financing, retail financing and international factoring businesses, as
well as Whirlpool Financial National Bank, a credit card bank. The assets were
acquired in a series of transactions. The acquisition of the inventory finance
business in the United States, Canada and Mexico, as well as the international
factoring business in Argentina, closed on October 16, 1997. The acquisition of
the retail finance business closed on January 1, 1998. The acquisition of most
of the remaining international assets also has now been completed. Funds for the
purchase of the assets were provided by short term borrowings and cash from
operations.
On June 23, 1997, Transamerica sold its branch-based consumer lending
operation. Gross proceeds from the sale were $3.9 billion, or $1.1 billion after
repayment of associated debt. Net Proceeds were used to purchase Transamerica
Corporation common stock, reduce debt and for other general corporate purposes.
In the fourth quarter of 1997, the consumer lending business was reclassified as
discontinued operations following management's assessment that the results of
the new approach to consumer lending did not meet Transamerica's criteria for
further investment. Results for the consumer segment for prior periods have been
reclassified as results from discontinued operations.
On October 14, 1996, Transamerica acquired all of the outstanding
shares of Trans Ocean Ltd., a closely held container leasing company, in
exchange for 1.6 million shares ($112.7 million) of Transamerica common stock.
On May 2, 1995, Transamerica sold substantially all of the assets of
Criterion Investment Management Company for gross proceeds of $60 million which
were used to reduce debt. The transaction resulted in an after tax gain of $4.8
million.
Information concerning Transamerica's investment portfolio is
incorporated herein by reference to "Investment Portfolio" on pages 49 and 50,
and "Note B. Financial Instruments" on pages 59 through 65 of the Transamerica
Corporation 1997 Annual Report.
BUSINESS SEGMENT INFORMATION
"Note D. Business Segment Information" on page 67 of the Transamerica
Corporation 1997 Annual Report is incorporated herein by reference.
The business activities of Transamerica's principal subsidiaries are
more fully described below. Unless otherwise indicated, all dollar and other
amounts represent information as of December 31, 1997.
LIFE INSURANCE
Transamerica's life insurance business is generated through lines of
business which include individual life insurance, asset management, structured
settlements, annuities, 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, Transamerica Life Insurance Company of New York, 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 designing, 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 primarily 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 Company believes that Transamerica Life
Companies' key competitive strengths are their financial position, broad product
range, market position and diversified distribution system.
<PAGE>
<TABLE>
The following table sets forth certain statistical information relating
to the Transamerica Life Companies' operations.
<CAPTION>
Years Ended December 31,
---------------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Life Insurance in force: ($ in millions) (1)
Individual - Universal $ 60,010.9 $ 59,446.5 $ 57,068.0
Individual - Traditional (2) 148,117.4 132,944.1 130,156.1
Worksite marketing - Universal 7,018.2 6,955.8 6,356.5
Group Term Life/Other 26,233.4 20,816.5 13,142.0
---------- ---------- ----------
241,379.9 220,162.9 206,722.6
Reinsurance assumed 225,685.7 201,560.4 174,193.6
---------- ---------- ----------
$467,065.6 $421,723.3 $380,916.2
========== ========== ==========
New life insurance issued and paid:
($ in millions) (volume) (1)
Individual - Universal $3,990.4 $4,928.2 $6,399.7
Individual - Traditional (2) 33,206.4 19,527.4 18,465.3
Worksite marketing - Universal 1,560.1 1,657.2 1,353.9
Premiums and other considerations:
($ in millions) (3)
Traditional Life Premiums: (2)
First year premiums $ 58.7 $ 38.6 $ 49.4
Renewal premiums 319.5 282.5 319.7
Other 92.6 59.8 35.1
-------- -------- --------
470.8 380.9 404.2
Less: reinsurance premiums ceded (119.8) (101.7) (96.5)
-------- -------- --------
Total traditional life premiums 351.0 279.2 307.7
Single premium immediate annuities 61.1 66.9 72.6
Group annuities (4) 15.0 47.6 155.3
Charges on interest-sensitive policies (5) 629.4 555.2 501.6
Insurance ceded on interest-sensitive
policies (91.6) (87.1) (98.7)
Fee income 58.2 45.8 28.8
Reinsurance (net of retroceded) 619.5 596.8 542.5
Canada 116.8 117.4 119.9
Other income 24.5 18.6 44.0
Corporate and other 34.1 51.6 40.8
--------- -------- --------
Total premiums and other considerations $ 1,818.0 $1,692.0 $1,714.5
========= ======== ========
<PAGE>
Average face amount per life insurance
policy in force: (1)
Individual - Universal $170,602 $165,656 $164,479
Individual - Traditional $175,101 $169,382 $167,043
Worksite Marketing-Universal $ 36,261 $ 37,550 $ 38,376
Number of life insurance policies in
force: (1)
Individual - Universal 351,760 358,855 351,252
Individual - Traditional (2) 845,895 784,877 788,811
Worksite Marketing-Universal 193,547 185,239 167,685
Ratio of underwriting expenses to
premiums and other considerations (6) 10.2% 8.6% 7.8%
Lapse ratio-adjusted for decreases and
expiries of term insurance and
reinsurance assumed: (7)
Transamerica Life Companies 7.9% 8.7% 7.8%
All U.S. stock life insurance
companies (8) (9) 8.3% 8.6%
- ------
(1) Effective December 31, 1997, except as indicated otherwise, amounts
reported exclude group term insurance and are based on issued and paid
policies only. Prior periods have been restated.
(2) The 1997 increase was generated primarily by lower premiums on these
policies consistent with industry trends.
(3) Effective January 1, 1997, the results of Transamerica Life Insurance
Company of New York and the Life Companies' Asian operations are being
reported within the life insurance line. In prior years the results of
these operations were reported within the corporate line. Prior periods
have not been restated.
(4) The decreases in group annuity premiums resulted primarily from a decline
in single premium pension contracts.
(5) Certain modified coinsurance premiums are shown on a net basis and prior
periods have been restated.
(6) The ratio is the percentage of salaries and other operating expenses to
premiums and other considerations. The 1997 increase was due to charges for
a legal settlement and higher general operating expenses.
(7) The lapse ratio is calculated in accordance with the A.M. Best Company,
Inc. formula. It is the ratio of amounts of universal and traditional life
insurance terminated during the year to the aggregate of (1) universal
and traditional life insurance in force at the beginning of the year plus
(2) new business issued during the prior year.
(8) Industry median, as provided by A.M. Best Company, Inc.
(9) Information not yet available for 1997.
</TABLE>
<PAGE>
------------
Transamerica Life Companies' individual life insurance business is
generated through a system of 688 field sales offices primarily in the United
States and Canada, 11 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 25 employees of the Transamerica Life
Companies and approximately 200 independent agents operating under contract on
an exclusive or near exclusive basis, which together generated approximately 15%
of new premiums written in 1997. The remaining 85% of the Transamerica Life
Companies' individual life insurance business was generated by more than 17,300
producing independent insurance brokers operating under nonexclusive contracts.
In addition to its sales force, the Transamerica Life Companies have
approximately 3,000 employees in Los Angeles, California, Kansas City, Missouri,
Charlotte, North Carolina, Purchase, New York and Canada who service outstanding
policies and new business submitted by agency offices, and approximately 200
field sales office employees serving its sales force.
Of life insurance in force at December 31, 1997, 21.8% was on residents
of California, followed by Texas (9.0%), Illinois (5.1%), Florida (3.8%) and
Pennsylvania (3.1%). No other state accounted for more than 3% of life insurance
in force. Canada accounted for 13.4% and all other foreign operations accounted
for 2.2% of life insurance in force.
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 million 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, 1997, the Transamerica Life
Companies were accepting business from 338 companies under automatic reinsurance
agreements and from approximately 150 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.
For a fee, Transamerica's life insurance operation issues guaranteed
investment contracts which guarantee the payment by pension plans of certain
qualified benefits if the plans' other sources of liquidity are exhausted.
Unlike traditional guaranteed investment contracts, these are synthetic
contracts in which the plan sponsor retains the assets and credit risk while the
life insurance operation assumes some limited degree of interest rate risk. To
minimize the risk of loss, the life insurance operation underwrites these
contracts based on the plan sponsor, at the beginning of the contract, agreeing
to the investment guidelines to be followed. These guidelines include the
overall portfolio credit and maturity requirements. The life insurance operation
regularly monitors adherence to these requirements. At December 31, 1997 the
life insurance operation had outstanding commitments to maintain liquidity for
benefit payments on notional amounts of $3.3 billion compared to $1.9 billion at
December 31, 1996. At December 31, 1997 and December 31, 1996 there were no
advances outstanding to provide sponsor liquidity under these contracts.
Investments. The Transamerica Life Companies' investments at December
31, 1997 totaled $31.7 billion which was invested as follows: 92% in fixed
maturities; 2.4% in mortgage loans and real estate; 2.6% in common stocks; 1.4%
in policy loans; 1% in short-term investments; 0.4% in redeemable preferred
stocks; and 0.2% in other long-term investments. Fixed maturities are invested
as follows: 68.7% in industrial and other non-government bonds; 14.9% in public
utility bonds; 14.1% in mortgage backed securities (primarily government
agencies); 1.2% in United States government bonds; 0.3% in foreign government
bonds; and 0.8% in municipal bonds.
<PAGE>
<TABLE>
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.
<CAPTION>
Years Ended December 31,
------------------------------
1997 1996 1995
<S> <C> <C> <C>
Fixed maturities, at amortized cost--gross(1) 7.92% 8.08% 8.30%
Equity securities, at market value--gross(2) 1.07 1.59 1.66
Mortgages--gross(3) . . . . . . . . . . . . . . 8.83 9.08 8.74
Total invested assets:
Gross . . . . . . . . . . . . . . . . . . . . 7.65 7.86 8.13
Net . . . . . . . . . . . . . . . . . . . . . 7.44% 7.64% 7.93%
- -------
(1) The decreases reflect the lower yields on new investments.
(2) The decreases in the yield resulted primarily from an increase in
the market value of the portfolio.
(3) The decrease in the 1997 yield is primarily due to the funding of
new loans at current market rates which were below the average of the existing
loans.
</TABLE>
Commercial Lending
Commercial lending services are provided by two core business units:
distribution finance and business credit. The commercial lending business
operates from 27 branch lending offices located in the United States (20),
Canada (2) and Europe (5). The lending activities of these core businesses are
discussed below.
Distribution finance provides financial services to manufacturers,
distributors, resellers, retailers, and commercial and consumer end users. It
serves companies that sell consumer electronics and appliances, marine products
such as boats and personal watercraft, information technology, lawn and garden
products, recreational vehicles, furnaces and air conditioners, motorcycles and
manufactured housing. The primary strategy in this business is to provide one
source for the financing of goods as they move through the distribution channels
from manufacturer to end user. Distribution finance provides its customers with
a variety of financing programs designed to solve their distribution and capital
management problems. Product offerings include inventory financing, trade
receivable servicing and funding, accounts receivable financing, vendor leasing,
retail consumer financing, and commercial debt recovery services. These products
and services are currently provided in North America and parts of Latin America
and Europe. After initial review of the borrower's credit worthiness, the
ongoing management of credit risk include various monitoring techniques, such as
periodic physical inventory checks, monitoring of the borrower's sales and
quality of collateral, and reviewing customer compliance with financial
covenants. In inventory financing, repurchase agreements are maintained with
manufacturers which provide a degree of security in the event of a repossession.
Business credit provides asset-based loans and equipment financing to
middle-market customers, as well as revolving and term loans to early stage
technology companies. The asset-based lending activities consist of secured,
primarily revolving, loans to manufacturers, retailers, and selected service
businesses, as well as to small finance companies. These loans are
collateralized and consist of retained credit lines typically from $5 million to
$40 million with terms ranging from three to five years. Advances under
asset-based loans are limited to specific percentages of the borrowers' eligible
collateral. Credit risk is managed by monitoring the quality of the collateral,
the borrowers' financial performance, and compliance with financial covenants.
The equipment financing activities of business credit include collateralized
loans and leases, primarily to middle-market manufacturing, transportation and
other service companies, secured by equipment essential to the borrowers'
business. Credit risk in the equipment finance business is managed through
rigorous underwriting and transaction structuring. Loans are structured to
amortize at a rate that is faster than the underlying equipment is expected to
depreciate. Also, leases are structured with guaranteed residuals or are
recorded using conservative estimates of the projected fair market value of the
collateral at lease expiration. Technology financing consists of term and
revolving loans to growing companies in the life sciences and specialized
electronics industries to finance research and development, manufacturing, and
other business activities. All loans are secured and are underwritten based on
the strength and viability of the customers' technology, which is evaluated with
the help of scientists and other advisors retained by business credit.
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.
<PAGE>
In January 1998, the distribution finance operation completed the
acquisition of approximately $1.1 billion of net receivables and other assets of
the inventory financing, retail financing and international factoring business
of Whirlpool Financial Corporation for a total purchase price of $1.3 billion in
cash, subject to post closing adjustments. The acquisition of the inventory
financing business and most of the international assets closed in 1997. The
distribution finance operation also entered into a long-term strategic alliance
with Whirlpool under which it will provide financing service to Whirlpool's
dealers and retail customers (through its credit card bank) and factoring
services to Whirlpool's international operations. In 1997, the commercial
lending operation announced that it intended to sell its insurance premium
finance operation and reclassified the insurance premium finance receivables to
assets held for sale. In early 1998 management decided not to proceed with such
sale. In addition, in 1997 the distribution finance operation securitized $1.5
billion of floor plan finance receivables.
On December 31, 1997, the ongoing mortgage lending division that
remained from the former consumer lending segment, which was sold on June 23,
1997, was contributed to commercial lending. Receivables at December 31, 1997,
net of unearned finance charges and allowance for loss, totaled $101.2 million
and operating results were breakeven for 1997.
In 1995, the commercial lending operation sold for cash a portfolio of
consumer rediscount loans totaling $118 million of net outstanding receivables
which resulted in an after tax gain of $4.8 million. During 1995, it also
entered into a three-year arrangement in which it securitized a $475 million
participation interest in a pool of its insurance premium finance receivables.
This amount was reduced by $100 million to $375 million during 1997.
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.
<PAGE>
The following table sets forth certain statistical information relating
to the commercial lending operation's finance receivables for the years
indicated. The table reflects the decision in 1997 to sell the insurance premium
finance operation and the reclassification of its receivables to assets held for
sale. The table excludes the December 31, 1997 transfer of the residual ongoing
assets from the discontinued consumer lending segment.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1997 1996 1995
(Dollar amounts in millions)
<S> <C> <C> <C>
Volume of finance receivables acquired:
Distribution finance(1) . . . . . . $12,415.8 $ 8,315.6 $ 7,479.4
Business credit(2) . . . . . . . . 10,157.7 8,528.8 8,929.8
--------- --------- ---------
Core businesses . . . . . . . . . 22,573.5 16,844.4 16,409.2
Insurance premium finance(3) . . . 1,823.4 2,014.9 1,804.5
Other . . . . . . . . . . . . . . . 0.1 18.8
--------- --------- ---------
Total . . . . . . . . . . . . . . $24,396.9 $18,859.4 $18,232.5
========= ========= =========
Finance receivables outstanding at end of year:
Distribution finance(4) . . . . . . $ 2,081.1 $ 2,530.9 $ 2,242.2
Business credit(5) . . . . . . . . 1,541.4 953.4 680.8
--------- --------- ---------
Core businesses . . . . . . . . . 3,622.5 3,484.3 2,923.0
Insurance premium finance(3) . . . 309.6 207.1
Other . . . . . . . . . . . . . . 3.2 6.9
--------- --------- ---------
3,622.5 3,797.1 3,137.0
Less unearned finance charges(5) . . . 197.7 142.0 74.3
--------- --------- ---------
Net finance receivables - owned . . 3,424.8 3,655.1 3,062.7
Net finance receivables securi-
tized, sold and serviced(6) . . . 1,539.6 474.3 474.2
--------- --------- ---------
Net finance receivables owned
and serviced . . . . . . . . . . $ 4,964.4 $ 4,129.4 $ 3,536.9
========== ========= =========
Allowance for losses at end of
year(7)(8) . . . . . . . . . . . . $ 92.2 $ 82.5 $ 77.9
Ratio to outstandings less
unearned finance charges:(9)
Owned . . . . . . . . . . . . . . 2.24% 2.22% 2.51%
Owned and serviced . . . . . . . . 1.86% 2.00% 2.20%
Provision for credit losses
charged to income . . . . . . . . . $ 16.2 $ 10.2 $ 16.1
Credit losses (net of
recoveries) . . . . . . . . . . . . $ 10.1 $ 5.2 $ 10.0
Ratio to average net finance
receivables outstanding:
Owned . . . . . . . . . . . . . . 0.25% 0.16% 0.34%
Owned and serviced . . . . . . . 0.22% 0.14% 0.29%
<PAGE>
- -------
(1) The 1997 increase was primarily due to aggressive sales and
marketing in most of the product lines and the addition of $888 million
in gross receivables from the acquisition of the inventory finance and
international factoring businesses from Whirlpool Finance Corporation.
(2) The increase in 1997 was primarily due to higher direct
originations. The decrease in 1996 was primarily due to lower direct
originations offset in part by an increase in purchased participations relative
to 1995.
(3) In 1997, insurance premium finance receivables were transferred to
assets held for sale in line with a plan to sell the operation in 1998. In early
1998 management decided not to proceed with such sale.
(4) The 1997 decrease was primarily due to the securitization of $1.5
billion of inventory floor plan finance receivables, which more than offset the
$888 million increase due to the acquisition of gross finance receivables from
Whirlpool Finance Corporation. The 1996 increase was due mainly to aggressive
sales and marketing in most of the product lines financed.
(5) The increases were primarily due to growth of net receivables in
the equipment finance and lease and technology finance divisions.
(6) The amounts are the balances of securitized receivables outstanding
at year end. Amounts serviced by the insurance premium finance business are
excluded for 1997 following the decision to reclassify the insurance premium
finance receivables to assets held for sale. In 1997, distribution finance
floorplan receivables were securitized. In 1995 and 1996, insurance premium
finance receivables were securitized.
(7) Includes allowance for losses on the securitized, sold and serviced
portfolio of $15.5 million in 1997 and $1.2 million in 1996 and 1995 which is
reported in other liabilities in the consolidated balance sheet.
(8) The increases were attributable to receivables growth in the core
businesses.
(9) The 1996 decline was due to the decreased allowance related to
portfolios sold and liquidated which had a larger percentage reserve requirement
and continued improvement in the credit quality of accounts in the core
businesses.
</TABLE>
---------------------
Delinquent Receivables. Delinquent receivables are defined as the
instalment balance for inventory finance and business credit asset based lending
receivables more than 60 days past due and the receivable balance for all other
receivables over 60 days past due.
<PAGE>
<TABLE>
The following table shows the ratio of delinquent commercial finance
receivables to finance receivables outstanding for each category and in total as
of the dates indicated.
<CAPTION>
As of December 31,
-----------------------------------
1997 1996 1995
<S> <C> <C> <C>
Distribution finance . . . . . . . 0.49% 0.30% 0.20%
Business credit 0.16
----- ------ -----
Core businesses . . . . . . . . 0.35 0.22 0.15
Insurance premium finance(1) . . . 2.34 1.40
Other(2) . . . . . . . . . . . . . 79.23 53.47
----- ------ ------
Total owned . . . . . . . . . 0.35% 0.46% 0.35%
===== ===== =====
Total owned and serviced . . . . 0.25% 0.41% 0.31%
===== ===== =====
- -------
(1) In 1997 the insurance premium finance receivables were reclassified
to assets held for sale. The increase in the 1996 ratio was primarily
concentrated in the European receivables portfolio.
(2) Represents finance receivables retained from businesses sold or
exited which are being liquidated. The increase in the 1996 ratio resulted from
the reduction in receivables outstanding primarily due to the sale of the Puerto
Rico portfolio in 1995 which had a lower delinquency ratio in relation to
the other receivables included in this caption. The remaining finance
receivables were liquidated in 1997.
</TABLE>
---------------------
Nonearning Receivables. Nonearning receivables are defined as balances
from borrowers that are more than 90 days delinquent or sooner if it appears
doubtful they will be fully collectible. Accrual of finance charges is suspended
on nonearning receivables until past due amounts are collected. Nonearning
receivables were $21.8 million (0.60% of receivables outstanding), $21.4 million
(0.56% of receivables outstanding) and $18 million (0.57% of receivables
outstanding) at December 31, 1997, 1996 and 1995.
Assets Held for Sale. Assets held for sale at December 31, 1997 totaled
$281 million and consisted of insurance premium finance receivables. Of the
finance receivables held for sale at December 31, 1997, $14.2 million were more
than 60 days past due and $7.5 million were classified as nonearning. At
December 31, 1996, assets held for sale totaled $3.4 million, net of a $1.8
million valuation allowance. At December 31, 1995, assets held for sale totaled
$4.4 million, net of a $6.1 million valuation allowance.
Leasing
Transamerica Leasing leases, services and manages containers, chassis
and trailers throughout the world. The leasing operation is based in Purchase,
New York and maintains approximately 450 offices, depots and other facilities in
50 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, distribution companies and motor carriers.
In October 1996, the leasing operation acquired all of the outstanding
shares of Trans Ocean Ltd., a container leasing company, in exchange for 1.6
million shares ($112.7 million) of Transamerica common stock. The Trans Ocean
fleet comprised approximately 185,600 owned, leased and managed units consisting
of a variety of intermodal equipment types.
The leasing operation is the 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 an extensive worldwide network of offices and third party depots and by
offering a wide variety 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. In addition, our leasing operation provides structured financing
that enables customers to purchase equipment over time, and an equipment
matching service in which we manage containers for customers and broker
equipment interchanges among them. The leasing operation's main competitors are
other transportation equipment leasing companies. Due to a world-wide oversupply
of containers the demand for equipment declined in 1997. As a result, a program
of accelerated equipment disposal was initiated at the end of 1997 and will be
implemented in 1998 and subsequent years. Accordingly, at December 31, 1997, the
leasing operation reclassified $96.1 million of revenue earning equipment to
assets held for sale. The oversupply of containers also resulted in a decrease
in rental rates in 1997 as compared to 1996.
<PAGE>
At December 31, 1997, the leasing operation's fleet consisted of
standard twenty and forty foot dry containers and specialized containers such as
refrigerated containers, tank containers, high cube, open top and flatrack
equipment types, chassis and U.S. domestic containers totaling 882,100 units
which are leased to customers from approximately 380 depots worldwide; 29,900
rail trailers leased to all major United States railroads and to roll on/roll
off steamship operators, shippers, shippers' agents and regional truckers; and
15,100 over-the-road trailers in Europe.
<TABLE>
<CAPTION>
The following table sets forth the leasing operation's fleet size, in
units, including owned, managed, leased from others and units held for sale:
<CAPTION>
As of December 31,
---------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Containers and chassis(1) . 882,100 896,300 708,400
Rail trailers(2) . . . . . 29,900 34,500 36,900
European trailers(3) . . . 15,100 10,300 7,700
- -------
(1) The 1997 decrease was primarily due to lower equipment acquisitions
relative to disposals, which reflect the world-wide oversupply of
units. The increase in 1996 was primarily due to the acquisition of
Trans Ocean.
(2) The decreases resulted from the sale of older units.
(3) The increases reflect expansion in the European trailer market.
</TABLE>
-------------------
The percent of the leasing operation's fleet on term lease or service
contract minimum lease was 55% in 1997, 53% in 1996 and 51% in 1995. The
increases reflect the continuing trend toward increasing term and service
contract minimum leases which was partially reduced by a lower percentage of
term and service contract minimum leases from the acquired Trans Ocean fleet. At
December 31, 1997, lease terms were one to 15 years.
<TABLE>
<CAPTION>
The following table sets forth the leasing operation's fleet
utilization for the years indicated:
Years Ended December 31,
------------------------
1997 1996 1995
<S> <C> <C> <C>
Containers and chassis(1) . . . . 79% 81% 85%
Rail trailers(2) . . . . . . . . 85% 82% 77%
European trailers(3) . . . . . . 92% 92% 95%
- -------
(1) The declines were due primarily to a world-wide oversupply of
equipment.
(2) The increases resulted from a continuing strong U.S. economy and a
decline in the supply of equipment.
(3) The 1996 level of utilization declined due to a greater number of
rental units in the fleet and flat demand in most of continental Europe.
</TABLE>
---------------------
<PAGE>
Real Estate Services
Real estate services comprise Transamerica's real estate information
businesses as well as certain real estate and other investments.
The Transamerica Real Estate Information Companies, the principal
operating business of this segment, 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, 1997, tax
reports were generated for more than 3,000 institutional mortgage servicers and
their borrowers.
The Transamerica Real Estate Information Companies include 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, the
Transamerica Real Estate Information Companies have initiated a number of
strategies to maintain their industry leadership including development of new
technology and centralization of operations.
<PAGE>
<TABLE>
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:
<CAPTION>
As of December 31
1997 1996 1995
(Amounts in thousands)
<S> <C> <C> <C>
Tax service contracts
under management . . . . . . 17,735 17,529 17,664
New tax service contracts . . 3,871 4,168 3,911
</TABLE>
<TABLE>
The real estate services segment includes investments in fixed income
and equity securities, and collateralized bond obligations. Certain of these
investments collateralize obligations of Transamerica Corporation. At December
31, 1997 and 1996 these investments comprised:
<CAPTION>
As of December 31
1997 1996 1995
<S> <C> <C> <C>
Equity securities at fair value $ 780.0 $ 541.3 $ 361.2
Fixed maturities at fair value 502.7 471.3 136.1
Other 5.8 23.6 14.9
-------- -------- ---------
$1,288.5 $1,036.2 $ 512.2
======== ======== =========
</TABLE>
REGULATION
Finance Activities
Transamerica's commercial lending operation is 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, is 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.
EMPLOYEES
The Corporation and its subsidiaries employed approximately 8,700
persons at December 31, 1997.
<PAGE>
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
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, 1997.
<CAPTION>
Years Ended December 31,
------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
2.32 2.52 2.36 2.55 2.47
</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, minority interest charges related to certain securities of
affiliates and one-third of rent expense, which approximates the interest
factor.
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 15% of the 460,000 square feet of rentable space is occupied by
Transamerica and some of 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 certain divisions of Transamerica Life Companies
and certain other subsidiaries of Transamerica. Approximately 58% of the
1,210,000 square feet of rentable space is occupied by Transamerica
subsidiaries.
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.
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.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following information in the Transamerica Corporation 1997 Annual
Report is incorporated herein by reference:
Markets on which the Corporation's common stock is
traded--"Common Stock Listed and Traded," page 84.
High and low sale prices for the Corporation's common stock
for each quarter in 1997 and 1996 --"Supplementary Financial
Information," page 75.
Frequency and amount of cash dividends declared during 1997
and 1996 --"Selected Eleven-Year Financial Data--Note C," page 77.
Number of common stockholders of record as of the close of
business on February 13, 1998--"Supplementary Financial
Information--Note A," page 75.
ITEM 6. SELECTED FINANCIAL DATA
The following items for each of the years in the five year period ended
December 31, 1997, included in "Selected Eleven-Year Financial Data" on pages 76
and 77 of the Transamerica Corporation 1997 Annual Report, are incorporated
herein by reference:
Revenues
Income from continuing operations
Basic earnings per share -- Income from
continuing operations
Diluted Earnings per share - 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 (other than graphic images and related commentary) set
forth under the caption "Financial Review" on pages 32 through 51 of the
Transamerica Corporation 1997 Annual Report is incorporated herein by
reference.1
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information set forth under the caption "Market Risk" on pages 50
and 51 of the Transamerica Corporation 1997 Annual Report is incorporated herein
by reference.
<PAGE>
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 1997 Annual Report are incorporated herein by
reference:
Consolidated Balance Sheet--December 31, 1997 and 1996--pages
52 and 53.
Consolidated Statement of Income--Years ended December 31,
1997, 1996 and 1995--page 54.
Consolidated Statement of Cash Flows--Years ended December 31,
1997, 1996 and 1995 --page 55.
Consolidated Statement of Stockholders' Equity--Years ended
December 31, 1997, 1996 and 1995 --page 56.
Notes to Financial Statements--December 31, 1997 --pages 57
through 72.
Supplementary Financial Information--Years ended December 31,
1997 and 1996 -- page 75.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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 6, 1998 is
incorporated herein by reference.
The officers of the Corporation are listed below. Executive officers
are designated by an asterisk.
<PAGE>
<TABLE>
<CAPTION>
Name ............................ Position ............... Age Name Position Age
- ---------------------------------------------------------------------- ------------------------ -- ----- -------- ----
<S> <C> .................... <C> <S> <C> <C>
Frank C. Herringer* ................Chairman of the Board, 55 Maureen Breakiron-Evans ......Vice President--Control 43
President and Chief and Services
Executive Officer Burton E. Broome* ............Vice President and 62
Thomas J. Cusack* ..................Executive Vice President 42 Controller
Richard H. Finn* ...................Executive Vice President 63 James B. Dox .................Vice President--Taxes 58
Edgar H. Grubb* ....................Executive Vice President 58 James B. Lockhart ............Vice President-- 61
and Chief Financial Public Affairs
Officer James F. McArdle .............Vice President-- 34
Robert A. Watson* ..................Executive Vice President 52 Investor Relations
Shirley H. Buccieri* ...............Senior Vice President, 46 William H. McClave ...........Vice President-- 54
General Counsel and Corporate Communications
Secretary John Morrissey ...............Vice President and 40
Richard N. Latzer* .................Senior Vice President 61 General Auditor
and Chief Investment Rona Pehrson .................Vice President-- 50
Officer Human Resources
Richard H. Fearon* .................Senior Vice President-- 42 George B. Sundby .............Vice President-- 46
Corporate Development Financial Planning
Nancy C. Bonner ....................Vice President-- 45 and Analysis and
Executive Development Assistant Controller
Judith M. Tornese ............Vice President--Risk 55
Management
</TABLE>
<PAGE>
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 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.
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.
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.
Mr. Latzer was elected Senior Vice President and Chief Investment Officer
of the Corporation in 1988.
Mr. Fearon was elected Senior Vice President--Corporate Development of
the Corporation in 1997. He was Vice President--Corporate Development in 1995
and 1996. He was General Manager of Corporate Development and Vice Chairman of
NatSteel Chemicals from 1990 to 1995.
Ms. Bonner was elected Vice President -- Executive Development of the
Corporation in 1996. She was Vice President of Executive Development of Banc One
from 1991 to 1996.
Ms. Breakiron-Evans was elected Vice President--Control and Services in
1997. From 1994 to 1997 she served as Vice President and General Auditor of the
Corporation. She was with Arthur Andersen LLP from 1980 to 1994.
Mr. Broome was elected Vice President and Controller of the Corporation
in 1979.
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.
Mr. Lockhart was elected Vice President -- Public Affairs of the
Corporation in 1979.
Mr. McArdle was elected Vice President--Investor Relations of the
Corporation in 1997. He held a number of positions within the commercial lending
operation between 1991 and 1997, most recently serving as group vice president
of the distribution finance unit.
Mr. McClave was elected Vice President--Corporate Communications of the
Corporation in 1981.
Mr. Morrissey was elected Vice President and General Auditor of the
Corporation in 1997. He was with Coopers & Lybrand LLP from 1979 to 1997.
Ms. Pehrson was elected Vice President -- Human Resources of the
Corporation in 1989.
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 "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Proxy Statement of Transamerica
Corporation dated March 6, 1998 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 6, 1998 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 6, 1998 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 6, 1998 is incorporated herein by reference.
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
(incorporated by reference to Exhibit 3.(ii) of
the Registrant's Annual Report on Form 10-K (File
No. 1-2964) for the year ended December 31, 1995).
<PAGE>
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).
---------
*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.
10.4 1996 Bonus Plan (incorporated by reference to
Exhibit 10.7 of the Registrant's Annual Report on
Form 10-K (File No. 1-2964) for the year ended
December 31, 1995).
10.5 1997 Bonus Plan (incorporated by reference to
Exhibit 10.5 of the Registrant's Annual Report on
Form 10-K (File No. 1-2964) for the year ended
December 31, 1996).
10.6 1985 Stock Option and Award Plan, as amended
(including Amendments No. 1 through 8).
10.7 Form of Non-Qualified Stock Option Agreement under
the Registrant's 1985 Stock Option and Award Plan.
10.8 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).
10.9 Form of Restricted Stock Award Agreement under the
Registrant's 1985 Stock Option and Award Plan.
<PAGE>
10.10 Form of Non-Qualified Stock Option Agreement for
Nonemployee Directors under the Registrant's 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).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
10.17 Transamerica Corporation Deferred Compensation
Plan, as amended (including Amendment No. 1)
(incorporated by reference to Exhibit 10.19 of the
Registrant's Annual Report on Form 10-K (File No.
1-2964) for the year ended December 31, 1996, and
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).
10.18 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).
10.19 1979 Stock Option Plan of Transamerica Corpora-
tion, as amended (including Amendment Nos. 1, 2
and 3).
10.20 Form of Termination Agreement between Transamerica
Corporation and certain of its officers and of its
subsidiaries, as amended.
<PAGE>
10.21 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).
10.22 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).
10.23 Transamerica Corporation 1995 Performance Stock
Option Plan, as amended (including Amendment No.
1) (incorporated by reference to Exhibit B of the
Registrant's Proxy Statement for the Annual
Meeting of Stockholders to be held on April 23,
1998.)
10.24 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. 1-2964) for the quarter ended March 31,
1994).
10.25 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).
10.26 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).
10.27 Form of Tandem Limited Stock Appreciation Right
under the Registrant's 1995 Performance Stock
Option Plan.
10.29 Transamerica Corporation 1998 Cash Long-Term
Incentive Plan (incorporated by reference to
Exhibit A of the Registrant's Proxy Statement
for the Annual Meeting of Stockholders to be held
on April 23, 1998).
10.30 Employment Agreement between Transamerica
Corporation and Frank C. Herringer (incorporated
by reference to Exhibit 10.1 of the Registrant's
Quarterly Report on Form 10Q (File No. 1-2964) for
the quarter ended September 30, 1997).
10.31 Transamerica Corporation 1996 Stock Option and
Award Plan, as amended ( incorporated by
reference to Exhibit 4.3 of the Registrant's
Registration Statement on Form S-8 (File No. 333-
23945) as filed with the Commission on March 25,
1997.)
10.32 Form of Nonqualified Stock Option Agreement
(100% of Fair Market Value) under the
Registrant's 1996 Stock Option and Award Plan
(incorporated by reference to Exhibit 4.4 of the
Registrant's Registration Statement on Form S-8
(File No. 333- 23945 as filed with the
Commission on March 25, 1997).
10.33 Transamerica Corporation 1998 Corporate Bonus Plan.
10.34 Employment Agreement by and between Transamerica
Corporation and Frank C. Herringer dated as of
November 4, 1997 (incorporated by reference to
Exhibit 10.1 to Registrant's Quarterly Report on
Form 10-Q (File No. 1-2964) for the quarter ended
September 30, 1997).
10.35 Amendment No. 2 to the Transamerica Corporation
1996 Stock Option and Award Plan.
12 Ratio of Earnings to Fixed Charges Calculation.
13 Portions of the Transamerica Corporation 1997
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 January 23,
1998 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.
27.1 Financial data schedule for the year ended
December 31, 1997.
27.2 Financial data schedule for the nine months ended
September 30, 1997.
27.3 Financial data schedule for the six months ended
June 30, 1997.
27.4 Financial data schedule for the three months ended
March 31, 1997.
27.5 Financial data schedule for the year ended
December 31, 1996.
27.6 Financial data schedule for the nine months ended
September 30, 1996.
27.7 Financial data schedule for the six months ended
June 30, 1996.
27.8 Financial data schedule for the three months ended
March 31, 1996.
27.9 Financial data schedule for the year ended
December 31, 1995.
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 1997: 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.
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TRANSAMERICA CORPORATION
Registrant
Burton E. Broome
Vice President and Controller
Date: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 26, 1998 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 Executive Vice President and Chief
Financial Officer
Principal Accounting Officer:
Burton E. Broome Vice President and Controller
Directors:
SAMUEL L. GINN* Director
FRANK C. HERRINGER* Chairman of the Board and Director
ROBERT W. MATSCHULLAT* Director
GORDON E. MOORE* Director
TONI REMBE* Director
CONDOLEEZZA RICE Director
CHARLES R. SCHWAB* Director
FORREST N. SHUMWAY* Director
PETER V. UEBERROTH* Director
*Burton E. Broome
Attorney-in-Fact
A majority of the members of the Board of
Directors.
<PAGE>
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, 1997
TRANSAMERICA CORPORATION AND SUBSIDIARIES
SAN FRANCISCO, CALIFORNIA
<PAGE>
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 1997
Annual Report, are incorporated by reference in Item 8:
Consolidated Balance Sheet -- December 31, 1997 and 1996
Consolidated Statement of Income --Years ended December 31, 1997,
1996 and 1995
Consolidated Statement of Cash Flows --Years ended December 31,
1997, 1996 and 1995
Consolidated Statement of Stockholders' Equity -- Years ended
December 31, 1997, 1996 and 1995
Notes to Financial Statements -- December 31, 1997
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, 1997
II -- Condensed Financial Information of Registrant --
December 31, 1997 and 1996, and years ended December 31,
1997, 1996 and 1995
III -- Supplementary Insurance Information -- Years ended
December 31, 1997, 1996 and 1995
IV - Reinsurance -- Years ended December 31, 1997, 1996 and 1995
V -- Valuation and Qualifying Accounts -- Years ended
December 31, 1997, 1996 and 1995
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.
<PAGE>
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,
1997. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, 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.
Ernst & Young LLP
San Francisco, California
January 23, 1998
<PAGE>
<TABLE>
SCHEDULE I
TRANSAMERICA CORPORATION AND SUBSIDIARIES
---------------------
SCHEDULE I--SUMMARY OF INVESTMENTS OTHER
THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1997
<CAPTION>
Column A Column B Column C Column D
- --------------------------------------------------------------------------------------------------------------
Amount at
which shown in
Type of Investment Cost Value the balance sheet
- --------------------------------------------------------------------------------------------------------------
(Amounts in millions)
<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 . . . $ 274.5 $ 352.9 $ 352.9
Obligations of states and political
subdivisions . . . . . . . . . . . . . . . 243.6 262.6 262.6
Foreign governments . . . . . . . . . . . . 139.7 147.0 147.0
Corporate securities . . . . . . . . . . . . 18,420.5 19,837.3 19,837.3
Mortgage-backed securities . . . . . . . . . 3,798.1 4,138.9 4,138.9
Public utilities . . . . . . . . . . . . . . 4,018.8 4,358.6 4,358.6
Redeemable preferred stocks . . . . . . . . . 95.2 113.5 113.5
----------- ------------ ------------
Total fixed maturities . . . . . . . . 26,990.4 $29,210.8 29,210.8
=========
Equity securities:
Common stocks:
Banks, trust and insurance companies . . . .
Industrial, miscellaneous and all other . . 637.6 $ 1,602.4 1,602.4
Nonredeemable preferred stocks . . . . . . . . 5.1 5.1 5.1
----------- ---------- -----------
Total equity securities . . . . . . . 642.7 $ 1,607.5 1,607.5
==========
Mortgage loans on real estate . . . . . . . . . 708.8 684.3
Real estate . . . . . . . . . . . . . . . . . . 77.7 65.9
Loans to life insurance policyholders . . . . . 451.0 451.0
Short-term investments . . . . . . . . . . . . . 336.0 336.0
----------- ----------
Total investments . . . . . . . . . . . $29,206.6 $32,355.5
========= =========
- -------
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.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE II
TRANSAMERICA CORPORATION AND SUBSIDIARIES
---------------------
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TRANSAMERICA CORPORATION (PARENT COMPANY)
(Amounts in millions except share data)
BALANCE SHEET
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Assets:
Investments in subsidiaries $5,762.1 $5,289.2
Equity securities at fair value (cost: $308.8 in 1997
and $236.9 in 1996) 796.1 550.9
Short-term investments 4.8 3.2
Notes and accounts receivable from subsidiaries 359.1 301.0
Cash and cash equivalents 18.5 4.1
Deferred income tax benefit, net of current tax
liability of $7.6 in 1996 106.3
Other assets 213.5 207.3
-------- --------
$7,154.1 $6,462.0
======== ========
Liabilities and Stockholders' Equity:
Notes and loans payable $ 404.8 $ 607.9
Income taxes payable, including deferred taxes
payable of $45.7 in 1997 78.7
Income taxes due to subsidiaries 356.8 413.5
Notes and accounts payable to subsidiaries 936.5 789.2
Accounts payable and other liabilities 496.0 510.8
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 in 1996 225.0
Outstanding--Series D, 180,091 shares
at liquidation preference of $500 per share in 1996 90.0
Common Stock ($1 par value):
Authorized--150,000,000 shares
Outstanding--62,904,108 shares in 1997 and 65,968,708
shares in 1996, after deducting 16,834,354 and
13,769,754 shares in treasury in 1997 and 1996 62.9 66.0
Additional paid-in capital 83.0
Retained earnings, including equity in undistributed net
income of subsidiaries of $1,700.5 in 1997 and
$1,826.6 in 1996 3,330.8 2,920.2
Net unrealized gain from investments marked to
fair value 1,533.6 784.4
Foreign currency translation adjustments (46.0) (28.0)
-------- --------
4,881.3 4,140.6
-------- --------
$7,154.1 $6,462.0
======== ========
</TABLE>
<PAGE>
<TABLE>
SCHEDULE II
(Continued)
TRANSAMERICA CORPORATION AND SUBSIDIARIES
---------------------
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TRANSAMERICA CORPORATION (PARENT COMPANY)
STATEMENT OF INCOME
<CAPTION>
Years Ended December 31,
1997 1996 1995
(Amounts in millions)
<S> <C> <C> <C>
Revenues:
Dividends from subsidiaries. . . . . . . . . . . . . . $ 615.2 $313.6 $329.8
Tax service fees . . . . . . . . . . . . . . . . . . . 214.7 206.5 152.6
Interest, principally from subsidiaries. . . . . . . . 16.2 3.8 4.8
Investment income . . . . . . . . . . . . . . . . . . . 7.5 10.4 15.1
Gain on investment transactions . . . . . . . . . . . . 18.7 18.1 23.3
-------- ------ ------
872.3 552.4 525.6
Expenses:
Interest . . . . . . . . . . . . . . . . . . . . . . . 131.7 109.7 100.2
General and administrative . . . . . . . . . . . . . . 199.6 213.4 232.5
-------- ------ ------
331.3 323.1 332.7
-------- ------ ------
541.0 229.3 192.9
Income tax benefit . . . . . . . . . . . . . . . . . . . . 117.1 88.4 78.3
-------- ------- ------
Income before equity in undistributed income
of subsidiaries and income (loss)
of discontinued operations. . . . . . . . 658.1 317.7 271.2
Equity in undistributed income (dividends in
excess of income) of
subsidiaries. . . . . . . (126.1) 183.8 118.9
-------- ------- -------
Income from continuing operations . . . . . . 532.0 501.5 390.1
Income (loss) from discontinued operations. . . . 261.8 (45.2) 80.4
-------- ------- --------
Net income . . . . $ 793.8 $456.3 $470.5
======== ====== ======
</TABLE>
<PAGE>
<TABLE>
SCHEDULE II
(Continued)
TRANSAMERICA CORPORATION AND SUBSIDIARIES
---------------------
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TRANSAMERICA CORPORATION (PARENT COMPANY)
STATEMENT OF CASH FLOWS
<CAPTION>
Years Ended December 31,
1997 1996 1995
(Amounts in millions)
<S> <C> <C> <C> <C>
Operating activities:
Income from continuing operations . . . . . . . . . . . . . . . $ 532.0 $ 501.5 $ 390.1
Adjustments to reconcile income from continuing
operations to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 11.1 5.1 4.5
Accounts payable and other liabilities . . . . . . . . . . (17.1) (71.4) 47.6
Income taxes payable, including related accounts
with subsidiaries. . . . . . . . . . . . . . . . . . . . 67.6 (0.6) (33.8)
Equity in undistributed income (dividends in excess
of income) of subsidiaries. . . . . . . . . . . . . . . 126.1 (183.8) (118.9)
Net (gains) on investment transactions . . . . . . . . . . (18.7) (18.1) (23.3)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (91.6) (2.9) 4.8
--------- --------- ----------
Net cash provided by operating activities . . . . . . . . 609.4 229.8 271.0
Investing activities:
Capital transactions with subsidiaries. . . . . . . . . . 302.3 (36.3) (146.0)
Sales of investments . . . . . . . . . . . . . . . . . . . . 97.0 219.4 99.4
Purchases of investments . . . . . . . . . . . . . . . . . . (136.6) (158.4) (138.2)
Decrease (increase) in short-term investments . . . . . . . . (1.5) 0.4 8.1
Decrease (increase) in accounts with subsidiaries. . . . . . . (44.7) 170.8 108.7
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12.4) (20.0) (14.0)
--------- -------- ---------
Net cash provided (used) by investing
activities . . . . . . . . . . . . . . . . . . . . . . . 204.1 175.9 (82.0)
Financing activities:
Proceeds from debt financing . . . . . . . . . . . . . . . . . 188.6 198.4
Increase (decrease) in commercial paper obligations . . . . . (198.3) (157.8) 195.4
Payments of long-term notes . . . . . . . . . . . . . . . . . (5.0) (10.0) (125.0)
Redemption of preferred stock . . . . . . . . . . . . . . . . (318.9) (0.8)
Treasury stock purchases . . . . . . . . . . . . . . . . . . . (443.6) (330.2) (155.4)
Other common stock transactions . . . . . . . . . . . . . . . 108.4 45.6 51.0
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . (130.3) (149.2) (155.4)
-------- ------- -------
Net cash used by financing activities . . . . . . . . . . . (799.1) (403.2) (190.2)
-------- ------- -------
Increase (decrease) in cash and cash equivalents . . . . . . . . 14.4 2.5 (1.2)
Cash and cash equivalents at beginning of year . . . . . . . . 4.1 1.6 2.8
---------- --------- ---------
Cash and cash equivalents at end of year . . . . . . . . . . . $ 18.5 $ 4.1 $ 1.6
======== ======== ========
</TABLE>
<PAGE>
<TABLE>
SCHEDULE II
(Continued)
TRANSAMERICA CORPORATION AND SUBSIDIARIES
---------------------
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TRANSAMERICA CORPORATION (PARENT COMPANY)
NOTES TO BALANCE SHEET
Note A - Financial Instruments
(Dollar amounts in
millions)
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Notes and loans payable comprise the following amounts:
Short-term bank loans, commercial paper and current
portion of long-term debt . . . . . . . . . . . . . . . . . . . . $100.0 $ 5.0
Long-term debt due subsequent to one year:
Notes; interest at 6.75% to 9.875%; maturing through 2008 . . . . 304.8 198.3
Commercial paper and other notes at various interest
rates and terms supported by a credit agreement
expiring in 2002. . . . . . . . . . . . . . . . . . . . 404.6
------ ------
$404.8 $607.9
====== ======
<FN>
The aggregate annual maturities for the five years subsequent to December
31, 1997 are: 1998--$100; 1999--None; 2000--None; 2001--$5 and 2002--None.
</FN>
</TABLE>
<TABLE>
Transamerica manages a portion of its interest rate risk by entering into
interest rate swap agreements. At December 31, 1997 and 1996 interest rate swap
agreements comprise:
<CAPTION>
Weighted Weighted
Notional Average Fixed Average Floating
Amount Interest Rate Interest Rate
<S> <C> <C> <C>
1997:
Interest rate swap agreements - Transamerica pays:
Floating rate interest expense,
receives fixed rate interest income $275.0 6.97% 5.77%
1996:
Interest rate swap agreements - Transamerica pays:
Fixed rate interest expense, receives
floating rate interest income $ 50.0 5.14% 5.54%
Floating rate interest expense,
receives fixed rate interest income $275.0 7.18% 5.63%
Note B - Minority Interest
In 1997, an affiliate of Transamerica issued $190 million of 7.625%
cumulative Capital Trust Pass-through Securities payable November 15, 2037.
Dividends on the outstanding Capital Trust Pass-through Securities are
cumulative and payable semi-annually in arrears. Proceeds from the issuance
of these securities were invested by the affiliate in subordinated debentures
issued by Transamerica, bearing interest at 7.625% and maturing on November 15,
2037. 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 affiliates.
In 1996, two affiliates of Transamerica issued $100 million of 7.80% and
$225 million of 7.65% cumulative Capital Trust Pass-through Securities payable
December 1, 2026. Dividends on the outstanding Capital Trust Pass-through
Securities are cumulative and payable semi-annually in arrears. Proceeds from
the issuance of these securities were invested by the affiliates in subordinated
debentures issued by Transamerica, bearing interest at 7.65% and 7.80% and
maturing on December 1, 2026. 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
affiliates.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE III
TRANSAMERICA CORPORATION AND SUBSIDIARIES
---------------------
SCHEDULE III--SUPPLEMENTARY INSURANCE INFORMATION
<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 millions)
<S> <C> <C> <C> <C> <C>
Life insurance:
Year ended December 31:
1997 . . . . . . . . . . $2,102.6 (A) $5,957.7 (B) $17.7 $24,184.2 $1,105.9
1996 . . . . . . . . . . $2,138.2 (A) $5,644.5 (B) $17.9 $22,898.4 $1,072.4
1995 . . . . . . . . . . $1,974.2 (A) $5,631.4 (B) $14.4 $22,262.0 $1,140.0
<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 millions)
<S> <C> <C> <C> <C><C>
Life insurance:
Year ended December 31:
1997 . . . . . . . . . . $2,169.4 $2,810.9 $256.3 (C) $469.6 $238.0 (D)
1996 . . . . . . . . . . $2,079.7 $2,649.7 $268.8 (C) $403.6 $286.1 (D)
1995 . . . . . . . . . . $1,974.7 $2,710.4 $191.3 (C) $367.3 $286.1 (D)
<FN>
- -------
(A)Includes reduction from fair value adjustments of $546.1 million in 1997,
$306.6 million in 1996 and $355.6 million in 1995 required under Financial
Accounting Standards Statement No. 115, Accounting for Certain Investments in
Debt and Equity Securities.
(B)Includes increase from fair value adjustments of $281 million in 1997,
$195 million in 1996 and $339 million in 1995 required under Financial
Accounting Standards Statement No. 115.
(C)Includes accelerated amortization of deferred policy acquisition costs of $9
million in 1997, $33.6 million in 1996 and $9.2 million in 1995 associated
with interest-sensitive products due to realized investment gains.
(D)Health insurance premiums written.
</FN>
</TABLE>
<PAGE>
<TABLE>
SCHEDULE IV
TRANSAMERICA CORPORATION AND SUBSIDIARIES
---------------------
SCHEDULE IV--REINSURANCE
<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 millions)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Life insurance in force . . . $241,379.9 $207,533.1 $225,685.7 $259,532.5 87.0%
========== ========== ========== ==========
Premium revenue:
Life insurance . . . . . . $ 894.5 $ 637.4 $ 610.2 $ 867.3 70.4%
Accident and health
insurance . . . . . . . . 90.3 350.6 498.9 238.6 209.1%
------------- ------------ ------------ ------------
$ 984.8 $ 988.0 $ 1,109.1 $ 1,105.9 100.3%
============= ============ ============ ============
Year ended December 31, 1996:
Life insurance in force . . . $220,162.9 $195,158.2 $201,560.3 $226,565.0 89.0%
========== ========== ========== ==========
Premium revenue:
Life insurance . . . . . . $ 816.6 $ 551.9 $ 521.3 $ 786.0 66.3%
Accident and health
insurance . . . . . . . . 59.2 355.4 582.6 286.4 203.5%
---------- ---------- ---------- ----------
$ 875.8 $ 907.3 $ 1,103.9 $ 1,072.4 102.9%
========== ========== ========== ==========
Year ended December 31, 1995:
Life insurance in force . . . $206,722.6 $116,762.9 $174,193.6 $264,153.3 65.9%
========== ========== ========== ==========
Premium revenue:
Life insurance . . . . . . $ 935.0 $ 619.0 $ 537.8 $ 853.8 63.0%
Accident and health
insurance . . . . . . . . 165.6 439.6 560.2 286.2 195.8%
---------- ---------- ---------- ----------
$ 1,100.6 $ 1,058.6 $ 1,098.0 $ 1,140.0 96.3%
========= ========== ========= =========
</TABLE>
<PAGE>
<TABLE>
SCHEDULE V
TRANSAMERICA CORPORATION AND SUBSIDIARIES
---------------------
SCHEDULE V--VALUATION AND QUALIFYING ACCOUNTS
<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 millions)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Deducted from asset accounts:
Allowance for losses -
Mortgage loans on real estate $ 22.6 $ 2.0 (B) $ 0.1 (D) $ 24.5
Real estate . . . . . . . . . 20.2 8.4 (E) 11.8
Finance receivables . . . . . 87.0 $ 18.1 14.8 (C) 15.1 (F) 104.8 (H)
Other assets . . . . . . . . 1.8 1.8 (G)
------- ------- ------- ------- -------
$ 131.6 $ 18.1 $ 16.8 $ 25.4 $ 141.1
======= ======= ======= ======= =======
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for losses -
Mortgage loans on real estate $ 21.5 $ 2.1 (B) $ 1.0 (D) $ 22.6
Real estate . . . . . . . . . 27.2 2.5 (B) 9.5 (E) 20.2
Finance receivables . . . . . 82.1 $ 10.2 7.0 (C) 12.3 (F) 87.0 (H)
Other assets . . . . . . . . 6.1 (3.6)(A) 0.7 (G) 1.8
------- ------ ------- ------- ------
$136.9 $ 6.6 $ 11.6 $ 23.5 $131.6
======= ====== ======= ======= ======
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for losses -
Mortgage loans on real estate $ 23.5 $ 2.0 (D) $ 21.5
Real estate . . . . . . . . . 26.3 $ 2.1 (B) 1.2 (E) 27.2
Finance receivables . . . . . 94.5 $ 16.1 (9.9)(C) 18.6 (F) 82.1 (H)
Other assets . . . . . . . . 67.4 (20.1)(A) 21.4 (I) 62.6 (G) 6.1
------- ------ ------- ------- ------
$ 211.7 $ (4.0) $ 13.6 $ 84.4 $136.9
======= ====== ======= ======= ======
<FN>
- -------
(A) Reversal of excess valuation allowance no longer required due to the
favorable terms on disposition of assets held for sale. 1995 reversal is
due principally to operations in Puerto Rico.
(B) Included in gains on investment transactions.
(C) Changes in connection with receivables and other adjustments.
(D) Reduction in reserves associated with the settlement of mortgage loan
transactions. (E) Reduction in reserves associated with the settlement of
real estate transactions.
(F) Charges for net credit losses.
(G) Charges for losses on disposal of assets held for sale, which in
1995 includes $41.2 million related to the disposal of rent-to-own
receivables and $17.8 million related to the disposal of Puerto Rico
receivables.
(H) Includes $15.5 million in 1997 and $1.2 million in 1996 and 1995 related
to securitized, sold and serviced receivables which is reported in
other liabilities in the consolidated balance sheet.
(I) The increase in 1995 was primarily associated with the transfer of
Puerto Rico receivables from finance receivables.
</FN>
</TABLE>
<PAGE>
Exhibit 10.6
THE 1985 STOCK OPTION AND AWARD PLAN
OF
TRANSAMERICA CORPORATION
(Working Copy Incorporating
Amendment Nos. 1-8)
<PAGE>
THE 1985 STOCK OPTION AND AWARD PLAN
OF
TRANSAMERICA CORPORATION
TRANSAMERICA CORPORATION, a corporation organized under the
laws of the State of Delaware, hereby adopts this The 1985 Stock Option and
Award Plan of Transamerica Corporation. The Plan permits the grant of stock
options, restricted stock and stock unit awards. The committee of the Board of
Directors which administers the Plan may select and grant to key employees of
the Company and its Affiliates, the type of option or award which the Company
determines to be most effective in advancing the interests of the Company
through the motivation and retention of those key employees upon whose judgment,
initiative and continued efforts the Company is largely dependent for the
successful conduct of its business. The Plan will be submitted for the approval
of the Company's stockholders within 12 months after the date of the Plan's
initial adoption by the Board, and the Plan will become effective upon such
approval.
1 -- DEFINITIONS
(a) GENERAL
Whenever the following terms are used in this Plan, they shall
have the meaning specified below unless the context clearly indicates to the
contrary.
(b) COMPANY
"Company" shall mean Transamerica Corporation, a Delaware
corporation.
(c) AFFILIATE
"Affiliate" shall mean (a) any corporation in which the
Corporation owns, directly or indirectly, twenty-five percent or more of the
voting stock, or any partnership, limited liability company or other entity in
which the Corporation's ownership interest represents, directly or indirectly,
twenty-five percent or more of the total ownership interests in such
partnership, limited liability company, or entity; or (b) any corporation or any
other entity (including, but not limited to, partnerships, joint ventures and
limited liability companies) that the Committee, in its sole discretion,
determines to be controlling, controlled by, or under common control with the
Corporation.
(d) BOARD
"Board" shall mean the Board of Directors of the Company.
(e) COMMITTEE
"Committee" shall mean the committee appointed by the Board
(pursuant to Section 2(a) of the Plan) to administer the Plan.
(f) DIRECTOR
"Director" shall mean a member of the Board.
(g) EMPLOYEE
"Employee" shall mean any employee of the Company, or of any
corporation which is then an Affiliate, whether such employee is so employed at
the time this Plan is adopted or becomes so employed subsequent to the adoption
of the Plan.
(h) OPTION
"Option" shall mean an option to purchase Common Stock of the
Company granted under the provisions of Section 4 of the Plan, and where
applicable, shall include an Incentive Stock Option.
(i) OPTIONEE
"Optionee" shall mean an Employee or Nonemployee Director to
whom an Option is granted.
(j) AWARD
"Award" shall mean an award of restricted stock or restricted
units granted under the provisions of Section 5 of the Plan.
(k) RESTRICTED STOCK AWARD
"Restricted Stock Award" shall mean an Award of restricted
Common Stock of the Company.
(l) RESTRICTED UNIT AWARD
"Restricted Unit Award" shall mean an Award of restricted
units.
(m) GRANTEE
"Grantee" shall mean an Employee to whom an Award is granted.
(n) FAIR MARKET VALUE
"Fair Market Value" shall mean the last quoted per share
selling price of the Company's Common Stock on the relevant date, as quoted in
the New York Stock Exchange Composite Transactions Index published in The Wall
Street Journal, or if there were no sales on such date, the last quoted selling
price on the nearest day after the relevant date, as determined by the
Committee.
(o) CHANGE OF CONTROL
"Change of Control" shall mean the occurrence of any of the
following:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended) of
20% or more of either (1) the then-outstanding shares of common stock
of the Company (the "Outstanding Company Common Stock") or (2) the
combined voting power of the then-outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this paragraph (a) the following acquisitions shall not
constitute, or be deemed to cause, a Change of Control: (i) any
increase in such percentage ownership of a Person to 20% or more
resulting solely from any acquisition of shares directly from the
Company or any acquisition of shares by the Company, provided, however,
that any subsequent acquisitions of shares by such Person that would
add, in the aggregate, 2% or more (measured as of the date of each such
subsequent acquisition) to such Person's beneficial ownership of
Outstanding Company Common Stock or Outstanding Company Voting
Securities shall be deemed to constitute a Change of Control, (ii) any
acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the
Company or (iii) any acquisition by any corporation pursuant to a
transaction which complies with clauses (1), (2) and (3) of paragraph
(c) below; or
(b) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by
a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents, by or on behalf of a Person other
than the Board; or
(c) consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets
of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (1) all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the then Outstanding Company Common Stock and
Outstanding Company Voting Securities, immediately prior to such
Business Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the then-outstanding shares of common stock
and the combined voting power of the then-outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately
prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be,
(2) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the
Company or of such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then-outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (3) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change of Control shall not be deemed to have
occurred with respect to any Option or Award held by any Optionee or Grantee who
incurs a Termination of Employment prior to the event or events which otherwise
would have created the occurrence of a Change of Control.
(p) RETIREMENT
"Retirement" shall mean a Termination of Employment by reason
of the Employee's retirement at or after his or her earliest permissible
retirement date pursuant to and in accordance with his or her employer's regular
retirement plan or practice. With respect to a Nonemployee Director, the term
"Retirement" shall mean a termination of service on the Board by reason of the
Nonemployee Director's retirement at or after his or her earliest permissible
retirement date under the Company's Retirement Plan for Outside Directors.
(q) TERMINATION OF EMPLOYMENT
"Termination of Employment" shall mean a cessation of the
employee-employer relationship between an employee and the Company or an
Affiliate for any reason, including, but not by way of limitation, a termination
by resignation, discharge, death, Total Disability or Retirement or the
disaffiliation of an Affiliate, but excluding any such termination where there
is a simultaneous reemployment by the Company or an Affiliate.
(r) CODE
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
(s) TOTAL DISABILITY
"Total Disability" shall mean permanent and total disability
as determined in accordance with Section 22(e)(3), or successor provisions, of
the Code.
(t) SECRETARY
"Secretary" shall mean the Corporate Secretary or an Assistant
Secretary of the Company.
(u) PLAN
"Plan" shall mean The 1985 Stock Option and Award Plan of
Transamerica Corporation.
(v) INCENTIVE STOCK OPTION
"Incentive Stock Option" shall mean an Option designated as
such by the Committee which meets the requirements of Section 422 of the Code.
(w) SUBSIDIARY
"Subsidiary" shall mean any corporation in an unbroken chain
of corporations beginning with the Company if each of the corporations other
than the last corporation in the unbroken chain then owns stock possessing fifty
percent or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain.
(x) NONEMPLOYEE DIRECTOR
"Nonemployee Director" shall mean a Director who is not an
officer or employee of the Company
or any Affiliate.
(y) RULE 16b-3
"Rule 16b-3" means Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended, and any future regulation amending,
supplementing or superseding such regulation.
2 -- ADMINISTRATION
(a) APPOINTMENT OF COMMITTEE
The Committee shall consist of at least three Directors,
appointed by and holding office at the pleasure of the Board. No Options or
Awards may be granted to any member of the Committee during the term of his or
her membership on the Committee. A Director shall be eligible to serve on the
Committee only if he or she is a "disinterested person" under Rule 16b-3. The
duties and responsibilities of the Committee may be assigned by the Board to
another standing committee of the Board; provided, however, that all of the
members of such standing committee must satisfy all of the eligibility
requirements set forth above for membership on the Committee.
(b) DUTY AND POWER OF COMMITTEE
It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its provisions. The Committee
shall have the power to determine which Employees are key Employees and to
interpret the Plan, the Options and the Awards, and to adopt rules for the
administration, interpretation and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules.
(c) MATTERS RELATING TO TERMINATION OF EMPLOYMENT
The Committee, in its absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a Termination
of Employment resulted from Retirement or Total Disability, and all questions of
whether particular leaves of absence constitute Terminations of Employment.
(d) TRANSFER RESTRICTIONS
The Committee, in its absolute discretion, may impose such
restrictions on the transferability of the stock issued upon the exercise of an
Option or issued as an Award as it deems appropriate and any such restriction
shall be set forth in the respective Option or Award agreement and may be
referred to on the Certificates evidencing such shares.
(e) COMMITTEE ACTIONS
The Committee may act either by vote of a majority of its
members at a meeting or by a memorandum or other written instrument signed by
all members of the Committee.
(f) COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS
Members of the Committee may receive reasonable compensation
for their services as members, and all expenses and liabilities they incur in
connection with the administration of the Plan shall be borne by the Company.
The Committee may, with the approval of the Board, employ attorneys,
consultants, accountants, or other persons. The Committee, the Company, and its
officers and directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon all Optionees, Grantees, the Company and all other interested persons. No
member of the Committee shall be personally liable for any action,
determination, or interpretation made in good faith with respect to the Plan,
the Options, or the Awards, and all members of the Committee shall be fully
protected by the Company in respect to any such action, determination or
interpretation.
3 -- SHARES SUBJECT TO PLAN
(a) LIMITATIONS
The shares of stock issuable pursuant to Options, Restricted
Stock Awards, or restricted Unit Awards shall be shares of the Company's Common
Stock, $1.00 par value. The total number of such shares which may be subjected
to Options and Awards granted under the Plan shall not exceed 14,000,000 in the
aggregate.
(b) EFFECT OF UNEXERCISED OR CANCELLED OPTIONS, UNVESTED RESTRICTED STOCK
OR UNIT AWARDS
If an Option or Award expires or is cancelled for any reason
without having been fully exercised or vested, the number of shares or units
subject to such Option or Award which were not purchased or did not vest prior
to such expiration or cancellation may again be made subject to either an Option
or an Award granted hereunder (to the same Optionee or Grantee or to a different
Optionee or Grantee).
(c) CHANGES IN COMPANY'S SHARES
In the event that the outstanding shares of Common Stock of
the Company are hereafter increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities of the Company, or
of another corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend, spin-off or
combination of shares, appropriate adjustments shall be made by the Committee in
the numerical limitation of Section 4(a)(2)(i) and in the aggregate number and
kinds of shares and units which may be issued on exercise of Options or be
issued or granted as Awards.
4 -- STOCK OPTIONS
(a) GRANTING OF OPTIONS
(1) ELIGIBILITY
(A) Any key Employee of the Company or of any
corporation which is then an Affiliate shall be eligible to be granted
Options.
(2) GRANTING OF OPTIONS
(A) The Committee shall from time to time, in its absolute
discretion:
(i) Select from among the eligible key Employees
the Employees to whom Options should be granted and determine
the number of shares of Common Stock to be subject to such
Options, provided that during any fiscal year of the Company,
no key Employee shall be granted Options which cover more than
500,000 shares.
(ii) Determine the terms and conditions of such
Options, consistent with the Plan.
(iii) Determine whether such Options are to be
Incentive Stock Options or not, provided any Incentive Stock
Option must meet the applicable requirements of Section 422 of
the Code.
(B) Upon the selection of a key Employee to be granted an
Option, the Committee shall authorize the Company to grant such Option
and may impose such conditions on the grant of such option, as it deems
appropriate.
(b) TERMS OF OPTIONS
(1) OPTION AGREEMENT
Each Option shall be evidenced by a written stock option
agreement which shall be executed by the Optionee and the Company and which
shall contain the terms and conditions determined by the Committee.
Notwithstanding anything to the contrary in this Plan, stock
option agreements evidencing Incentive Stock Options shall contain such terms
and conditions, among others, as may be necessary in the opinion of the
Committee to qualify them as Incentive Stock Options under Section 422 of the
Code.
(2) OPTION PRICE
The price of the shares subject to each Option shall be set by
the Committee; provided, however, that the price shall not be less than 100% of
the Fair Market Value for such shares on the date the option is granted as
determined by the Committee.
(3) DATE OF GRANT
The date on which an Option shall be granted shall be the date
of the Committee's authorization of such grant or such later date as may be
determined by the Committee at the time such grant is authorized.
(4) COMMENCEMENT OF EXERCISABILITY
(A) No Option may be exercised in whole or in part during the
first year after such Option is granted.
(B) Subject to the provisions of Section 4(b)(4)(A) and (C),
Options shall become exercisable at such times and in such installments
(which may be cumulative) as the Committee shall provide in the terms
of each individual Option; provided, however, that after an Option is
granted, the Committee may, on such terms and conditions as it may
determine to be appropriate and notwithstanding the provisions of
Section 4(b)(4)(A) and (C), accelerate the time at which such Option or
any portion thereof may be exercised.
(C) No portion of an Option which is unexercisable (except an
Incentive Stock Option which is unexercisable solely by virtue of the
sequential exercise restriction contained in Section 4(b)(10)(C)) at
the time of the Optionee's Termination of Employment shall thereafter
become exercisable; provided, however, that this does not limit the
discretion of the Committee to provide in the terms of an Option that
there will be an acceleration of exercisability upon the occurrence of
certain types of Terminations of Employment.
(5) REPLACEMENT OPTIONS
The Committee, in its absolute discretion, may grant to
holders of outstanding Options, in exchange for the surrender and cancellation
of such Options, new Options having option prices lower (or higher) than the
option price provided in the Options so surrendered and cancelled and containing
such other terms and conditions as the Committee may deem appropriate.
(6) EXPIRATION OF OPTIONS
(A) Each Option shall terminate upon the first to occur of the events
listed in subparagraph (B) of this section 4(b)(6). Notwithstanding any
contrary provision of the Plan, no Incentive Stock Option may be
exercised after the expiration of 10 years from the date such Incentive
Stock Option was granted.
(B) (i) The date for termination of the Option set forth in the
written stock option agreement, subject to the provisions of
clause (vi), below; or
(ii) The expiration of ten years from the date the Option
was granted, subject to the provisions of clause (vi), below;
or
(iii) Except as provided in clause (vii) below, the
expiration of three months from the date of the Optionee's
Termination of Employment unless such Termination of
Employment results from the Optionee's death, Total Disability
or Retirement, subject to the provisions of clause (vi) below;
or
(iv) The expiration of three years from the date of
the Optionee's Termination of Employment by reason of Total
Disability; provided that no Incentive Stock Option may be
exercised after the expiration of one year from the Optionee's
Termination of Employment by reason of Total Disability,
subject in each case to the provisions of clause (vi) below;
or
(v) The expiration of three years from the date of
the Optionee's Retirement; provided that no Incentive Stock
Option may be exercised after the expiration of three months
from the date of the Optionee's Retirement, subject in each
case to the provisions of clause (vi) below; or
(vi) The expiration of one year from the date of the
Optionee's death, if such death occurs while the Optionee is
in the employ of the Company or an Affiliate or within the
three-month, one-year or three-year period referred to in
(iii), (iv) or (v) above, or within the one-year period
referred to in (vii) below, whichever is applicable; or
(vii) The expiration of one year from the date of the
Optionee's Termination of Employment if the Optionee's
Termination of Employment occurs within one year after a
Change of Control unless such Termination of Employment
results from the Optionee's death, Total Disability or
Retirement.
(C) Subject to the provisions of subparagraphs (A) and (B) of this Section
4(b)(6), the Committee shall provide, in the terms of each individual
Option, when such Option expires and becomes unexercisable.
(7) CONSIDERATION
In consideration of the granting of the Option, the Optionee
shall agree, in the written stock option agreement, to remain in the employ of
the Company or an Affiliate for a period of at least one year after the Option
is granted.
(8) ADJUSTMENTS IN OUTSTANDING OPTIONS
In the event that the outstanding shares of the stock subject
to Options are increased or decreased or changed into or exchanged for a
different number or kind of shares of the Company, or other securities of the
Company, or of another corporation, by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up, stock
dividend, spin-off or combination of shares, the Committee shall make an
appropriate and equitable adjustment in the number and kind of shares as to
which all outstanding Options, or portions thereof then unexercised, shall be
exercisable, to the end that after such event the Optionee's proportionate
interest shall be maintained as before the occurrence of such event. Such
adjustment in an outstanding Option shall be made without change in the total
price applicable to the Option or the unexercised portion of the Option (except
for any change in the aggregate price resulting from rounding-off of share
quantities or prices) and with any necessary corresponding adjustment in Option
price per share and provided that any such adjustment in respect to an Incentive
Stock Option shall be made in such manner as not to constitute a "modification"
as defined in Section 424 of the Code. Any such adjustment made by the Committee
shall be final and binding upon all Optionees, the Company and all other
interested persons.
(9) EFFECT OF A CHANGE OF CONTROL
Notwithstanding the provisions of Section 4(b)(4), but subject
to the provisions of Section 1(o) (regarding Optionees who have incurred a
Termination of Employment), immediately upon the occurrence of a Change of
Control, the right to exercise each Option then outstanding shall accrue as to
100% of the shares then subject to such Option.
(10) CERTAIN ADDITIONAL PROVISIONS FOR INCENTIVE STOCK OPTIONS
Notwithstanding anything to the contrary in this Plan, each
Incentive Stock Option must meet the following requirements:
(A) The Optionee at the time the Option is granted is an
Employee of the Company or a Subsidiary of the Company.
(B) The Optionee (together with persons whose stock ownership
is attributed to the Optionee pursuant to Section 424(d) of the Code)
at the time the Option is granted does not own stock possessing more
than 10% of the total combined voting power of all classes of stock of
the Company or of any of its Subsidiaries.
(C) The aggregate fair market value (determined at the time
the option is granted) of the stock with respect to which incentive
stock options are exerciseable for the first time by any Employee
during any calendar year (under all plans of the Company and its
Subsidiaries) shall not exceed $100,000.
(D) The Option may not be exercised after the expiration of
three months after the Optionee ceases to be employed by the Company or
a Subsidiary.
(c) EXERCISE OF OPTIONS
(1) PERSONS ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only he or she may
exercise an Option granted to him or her or any portion thereof. After the death
of the Optionee, any exercisable portion of an Option may be exercised by the
Optionee's designated beneficiary (if beneficiary designations are permitted by
the Committee), the person empowered to do so under the Optionee's will, or the
appropriate person under applicable law. The Company may require appropriate
proof from any such other person of his or her right or power to exercise the
Option or any portion thereof.
(2) FRACTIONAL SHARES; PARTIAL EXERCISE
The Company shall not be required to issue fractional shares
on exercise of an Option and the Committee may, by the terms of the Option,
require any partial exercise thereof to be with respect to a specified minimum
number of shares.
(3) MANNER OF EXERCISE
An exercisable Option, or any exercisable portion thereof, may
be exercised solely by delivery to the Secretary or his or her office of all of
the following:
(A) Notice in writing signed by the Optionee or other person
then entitled to exercise such Option or portion thereof, stating that
such Option or portion is exercised, such notice complying with all
applicable rules established by the Committee;
(B) Full cash payment for the shares with respect to which
such Option or portion is thereby exercised and which are to be
delivered to him or her pursuant to such exercise; provided, at the
discretion of the Committee, payment may be made in whole or in part in
shares of stock of the Company which stock will be valued at its then
Fair Market Value as determined by the Committee or in whole or in part
pursuant to such other arrangement, including any deferred payment
arrangement, as the Committee, in its absolute discretion, determines.
(C) Such representations and documents as the Committee, in
its absolute discretion, deems necessary or advisable to effect
compliance with all applicable provisions of the Securities Act of
1933, as amended, and any other federal or state securities laws or
regulations. The Committee may, in its absolute discretion, also take
whatever additional actions it deems appropriate to effect such
compliance including, without limitation, placing legends on share
certificates and issuing stop-transfer orders to transfer agents and
registrars.
(4) RIGHT TO ELECT TO PAY PROFIT OR TO CREDIT PROFIT IN LIEU OF
DELIVERING OPTION SHARES
The Committee, in its absolute discretion, may elect (in lieu
of delivering all or a portion of the shares of Common Stock as to which an
Option has been exercised) if the fair market value of the Common Stock exceeds
the exercise price of the option (i) to pay the Optionee in cash or in shares of
the Company's Common Stock, or a combination of cash and Common Stock, an amount
equal to the excess of the Fair Market Value of the Company's Common Stock on
the exercise date over the Option Price or, in the case of an option which is
not an Incentive Stock Option, (ii) to defer payment and to credit the amount of
such excess on the Company's books for the account of the Optionee and either
(a) to treat the amount in such account as if it had been invested in the manner
from time to time determined by the Committee, with dividends or other income
thereon being deemed to have been so reinvested or (b) for the Company's
convenience, to contribute the amount in such account to a trust, which may be
revocable by the Company, for investment in the manner from time to time
determined by the Committee and set forth in the instrument creating such trust.
The Committee's election pursuant to this Section 4(c)(4) shall be made by
giving written notice to the Optionee (or other person exercising the Option).
Shares of the Company's Common Stock paid pursuant to this subparagraph will be
valued at the Fair Market Value on the exercise date. For purposes of the
limitations in Section 3(a), the number of shares which are paid or credited
pursuant to this Section 4(c)(4) shall not be counted, but the full number of
shares as to which the Option was exercised shall be counted even though the
Committee has made an election under this Section 4(c)(4) in respect to some or
all of the shares.
(5) CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of stock deliverable upon exercise of an Option, or
any part thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. The Company shall
not be required to issue or deliver any certificate or certificates for shares
of stock purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(A) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(B) The completion of any registration or other qualification
of such shares under any state or federal law or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body, which the Company shall, in its absolute
discretion, deem necessary or advisable;
(C) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Company shall, in its
absolute discretion, determine to be necessary or advisable;
(D) The provision for any income tax withholding which the
Company shall, in its absolute discretion, determine to be necessary or
advisable; and
(E) The lapse of such reasonable period of time following the
exercise of the Option as the Company may determine, in its absolute
discretion, from time to time to be necessary or advisable for reasons
of administrative convenience.
(6) RIGHTS OF STOCKHOLDERS
An Optionee shall not be, nor have any of the rights or
provisions of, a stockholder of the Company in respect to any shares which may
be purchased upon the exercise of any Option or portion thereof unless and until
certificates representing such shares have been issued by the Company to such
Optionee.
5 -- AWARDS
(a) ELIGIBILITY
Any key Employee of the Company or of any corporation which is
then an Affiliate shall be eligible to be granted Awards.
(b) AWARD PROCEDURE
The Committee shall from time to time in its absolute
discretion:
(1) Select from among the eligible key Employees the Employees to whom
Awards shall be granted, determine whether such Awards are to be Restricted
Stock Awards or Restricted Unit Awards (or both) and determine the number of
shares or units to be covered by such Awards; and
(2) Determine the terms and conditions of such Awards, consistent with
the Plan.
(c) AWARD AGREEMENTS
Each Award shall be evidenced by a written agreement, executed
by the Grantee and the Company, which shall contain such restrictions, terms and
conditions as the Committee may require and (without limiting the generality of
the foregoing) such agreements reflecting Restricted Stock Awards may impose an
escrow condition and/or require that an appropriate legend be placed on share
certificates.
(d) RESTRICTED STOCK AWARDS
(1) SHARES SUBJECT TO AWARD
The shares of stock awards as a Restricted Stock Award may be
either previously authorized but unissued shares or issued shares which have
then been reacquired by the Company. Such awarded shares shall be issued in the
name of the Grantee and delivered to him or her (or the escrow holder, if any)
as soon as reasonably practicable after the Award is made (and after the Grantee
has executed the Award agreement and any other documents which the Committee, in
its absolute discretion, may require) without the payment of any cash
consideration by such Grantee. Unless and until the shares so awarded to the
Grantee shall have vested in the manner set forth in Section 5(f) below, such
shares shall not be sold, transferred or otherwise disposed of and shall not be
pledged or otherwise hypothecated. Except as determined by the Committee
pursuant to Section 5(f) hereof, upon the Termination of Employment of the
Grantee, all of such shares which are not then vested shall thereupon be
forfeited and automatically transferred to and reacquired by the Company at no
cost to the Company. The Committee may also impose such other restrictions and
conditions on the shares as it deems appropriate.
(2) RIGHTS AS STOCKHOLDER
(A) Except as provided in subparagraphs (B) and (C) of this
section 5(d)(2), upon delivery of the shares of stock awarded
to the Grantee (or the escrow holder, if any) as a Restricted
Stock Award, the Grantee shall have all the rights of a
stockholder with respect to such shares, including the right
to vote the shares and receive all dividends, or other
distributions paid or made with respect to the shares.
(B) In the event that as a result of a stock dividend, stock
split, reclassification, recapitalization, combination of
shares or the adjustment in capital stock of the Company or
otherwise, or as a result of a merger, consolidation, spin-off
or other reorganization, the Company's Common Stock shall be
increased, reduced or otherwise changed, and by virtue of any
such change a Grantee shall in his or her capacity as owner of
unvested shares of Restricted Stock which have been awarded to
him or her (the "Prior Shares") be entitled to new or
additional or different shares of stock or securities (other
than rights or warrants to purchase securities); such new or
additional or different shares or securities shall thereupon
be considered to be unvested Restricted Stock and shall be
subject to all of the conditions and restrictions which were
applicable to the Prior Shares pursuant to the Plan..
(C) If a Grantee receives rights or warrants with respect to
any Prior Shares, such rights or warrants may be held or
exercised by the Grantee, provided that until such exercise
any such rights or warrants and after such exercise any shares
or other securities acquired by the exercise of such rights or
warrants shall be considered to be unvested Restricted Stock
and shall be subject to all of the conditions and restrictions
which were applicable to the Prior Shares pursuant to the
Plan..
(D) The Committee in its absolute discretion at any time may
accelerate the vesting of all or any portion of the new or
additional shares of stock or securities, rights or warrants
to purchase securities or shares or other securities acquired
by the exercise of such rights or warrants received or
entitled to be received by a Grantee in respect of Prior
Shares.
(e) RESTRICTED UNIT AWARDS
(1) RESTRICTED UNIT ACCOUNT
In the case of Restricted Unit Awards, no shares of Company
stock shall be issued to the Grantee at the time the Award is made, and no fund
shall be set aside by the Company for the payment of any such Award; but rather
the Company shall establish and maintain a separate written account for each
Grantee and shall record in such account the number of Restricted Units awarded
to such Grantee. Whenever the Company pays a cash dividend upon its Common
Stock, there shall be credited to each such Grantee's account an amount equal to
the cash dividend paid upon one share of Common Stock for each Restricted Unit
then in his or her account (hereinafter referred to as "Dividend Equivalents").
(2) PAYMENT OF RESTRICTED UNITS
Each Restricted Unit Award agreement shall specify a date or
dates on which payment of the value of vested Restricted Units (and Dividend
Equivalents with respect to such vested Restricted Units) in the Grantee's
account is to be made. As soon as reasonably practicable after the payment date,
the Company shall deliver to the Grantee one share of the Company's Common Stock
for each vested Restricted Unit credited to his or her account and cash equal to
the vested Dividend Equivalents credited to his or her account; provided,
however, that the Committee may, in its absolute discretion, elect to pay the
Grantee cash or part cash and part Common Stock in lieu of delivering only
Common Stock for the vested Restricted Units. If a cash payment is made in lieu
of delivering Common Stock, the amount of such cash payment shall (in respect to
each vested Restricted Unit for which a cash payment is to be made) be equal to
the Fair Market Value of the Company's Common Stock on the payment date. The
shares of Common Stock delivered in payment, in whole or in part, of a
Restricted Unit may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Payments to be
made hereunder shall, if the Grantee is then deceased, be made to the Grantee's
estate or others as may be designated in writing by the Grantee, with the
approval of the Committee.
(3) DEFERRAL OF PAYMENT
The Restricted Unit Award agreement may permit a Grantee to
request the payment of vested Restricted Units (and Dividend Equivalents with
respect to such Restricted Units) be deferred beyond the payment date specified
in the agreement. It shall be at the Committee's sole discretion whether or not
to permit such deferment and to specify the terms and conditions, which are not
inconsistent with the Plan, to be contained in the agreement. In the event of
such deferment, the Committee may determine that interest shall be credited
annually on the Dividend Equivalents at a rate to be determined by the
Committee. The Committee may also determine to compound such interest.
(4) ADJUSTMENTS IN CAPITALIZATION
The Committee shall make an appropriate adjustment in the
number or kind of Restricted Units then credited to the account or accounts of
any Grantee due to changes in the Company's outstanding Common Stock by reason
of a merger, consolidation, spin-off or other reorganization, recapitalization,
reclassification, stock split, stock dividend, or combination of shares and any
such adjustment made by the Committee shall be final and binding upon all
Grantees, the Company and all other interested persons.
(5) NO TRUST FUND
Grantees of Restricted Unit Awards shall not have any interest
in any fund or specific asset of the Company by reason of such Award. No trust
fund shall be created in connection with the Plan or any Restricted Unit Award
thereunder, and there shall be no required funding of amounts which may become
payable under any such Award.
(f) VESTING OF AWARDS
Shares awarded as Restricted Stock Awards and units awards as
Restricted Unit Awards (including Dividend Equivalents with respect to such
Restricted Unit Awards) shall vest at such time or time and on such terms,
conditions and performance criteria, as the Committee may determine; provided,
however, that (i) no such shares or units shall vest until 12 months from the
date of Award and (ii) the vesting of such shares or units shall occur only if
the Grantee on the date of the vesting is then and has continuously been an
Employee from the date of the Award. In the event of Termination of Employment
as a result of the death or Total Disability of a Grantee, the Committee, in its
absolute discretion, may determine that the unvested portion of some or all
shares awarded to him or her as Restricted Stock Awards and some or all units
awarded to him or her as Restricted Unit Awards (including unvested Dividend
Equivalents) shall thereupon immediately vest. The Committee may also decide at
any time in its absolute discretion and on such terms and conditions as it deems
appropriate, to accelerate the vesting of shares awarded as Restricted Stock
Awards and units awarded as Restricted Unit Awards (including unvested Dividend
Equivalents).
6 -- MISCELLANEOUS PROVISIONS
(a) OPTIONS AND AWARDS NOT TRANSFERABLE
All rights with respect to an Option or Award shall be
available during the lifetime of the Optionee or Grantee only to him or her. No
Option or Award may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will, by the laws of descent and
distribution, or if permitted by the Committee, to the limited extent provided
in the rest of this Section 6(a). Pursuant to such procedures as the Committee
may designate from time to time, an Optionee or Grantee may name a beneficiary
or beneficiaries to whom any vested but unpaid Option or Award shall be
transferred in the event of the death of the Optionee or Grantee. Each
beneficiary designation shall revoke all prior designations and shall be
effective only if given in a form and manner acceptable to the Committee. A
beneficiary designation shall not be effective unless it is a bona fide bequest
which is not made for consideration.
(b) EMPLOYMENT
Nothing in the Plan or in any Option or Award shall confer
upon any Employee the right to continue in the employ of the Company or any
Affiliate or shall interfere with or restrict in any way the rights of the
Company and Affiliates to discharge any Employee at any time for any reason
whatsoever, with or without good cause.
(c) SATISFACTION OF TAX WITHHOLDING REQUIREMENTS
Whenever an Optionee or Grantee is required to pay to the
Company an amount required to be withheld under applicable federal and state
income tax laws in connection with receipt of shares of the Company's Common
Stock upon exercises of Options or Awards, the Committee may, in its absolute
discretion, permit the Optionee or Grantee to satisfy such obligation, in whole
or in part, by electing to have the Company withhold shares of the Company's
Common Stock having a value equal to the amount required to be withheld or by
delivering to the Company already-owned shares to satisfy the withholding
requirement. The amount of the withholding requirement shall be deemed to
include any amount which the Committee agrees may be withheld at the time the
election is made, not to exceed the amount determined by using the maximum
federal, state and local marginal income tax rates applicable to the Optionee or
Grantee with respect to the exercise of the Option or Award on the date that the
amount of tax to be withheld is to be determined (the "Tax Date"). The value of
the shares to be withheld or delivered will be based on their Fair Market Value
on the Tax Date. Such elections will be subject to the following restrictions:
(1) the election must be made on or before the Tax Date; (2) the election will
be irrevocable; and (3) the election will be subject to the disapproval of the
Committee. Each election by an Optionee or Grantee whose transactions in shares
of Common Stock are subject to Section 16(b) of the Securities Exchange Act of
1934 will be subject to the following additional restrictions: (1) the election
may not be made within six months of the grant of the Option or Award (except
that this limitation will not apply in the event the death or disability of the
Optionee or Grantee occurs prior to the expiration of the six-month period), and
(2) the election must be made either at least six months before the Tax Date or
within a ten-day "window period" beginning on the third day following the
release of the Company's quarterly or annual summary statement of sales and
earnings.
(d) EFFECT OF A CHANGE OF CONTROL
Notwithstanding the provisions of Sections 5(d)(1) and 5(f),
but subject to the provisions of Section 1(o) (regarding Grantees who have
incurred a Termination of Employment), immediately upon the occurrence of a
Change of Control, each Award (or portion thereof) which is then outstanding but
unvested, shall vest.
(e) AMENDMENT, SUSPENSION, OR TERMINATION OF THE PLAN
The Board or the Committee, each in its sole discretion, may
alter, amend or terminate the Plan, or any part thereof, at any time and for any
reason. However, only if and to the extent required to maintain the Plan's
qualification under Rule 16b-3, any such amendment shall be subject to
stockholder approval. In addition, as required by Rule 16b-3, the provisions of
Section 7 regarding the formula for determining the amount, exercise price, and
timing of Nonemployee Director Options shall in no event be amended more than
once every six months, other than to comport with changes in the Code and/or
ERISA. (ERISA is not applicable to the Plan.) Neither the amendment, suspension,
nor termination of the Plan shall, without the consent of the Optionee or the
Grantee, alter or impair any rights or obligations under any Option or Award
theretofore granted. No Option or Award may be granted during any period of
suspension nor after termination of the Plan, and in no event may any Option
intended to be an Incentive Stock Option be granted under this Plan after
January 26, 2004.
(f) EFFECT UPON OTHER COMPENSATION PLANS
The adoption of this Plan shall not affect any other stock
option, compensation or incentive plans in effect for the Company or any
Affiliate and this Plan shall not preclude the Board from establishing any other
forms of incentive or compensation for Employees of the Company or any
Affiliates.
(g) TITLES
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of the Plan.
7 -- NONEMPLOYEE DIRECTORS
(a) GRANTING OF OPTIONS
(i) For purposes of this Section 7(a), the term "Daily Mean"
shall mean the mean between the highest and lowest sale prices of the
Company's Common Stock quoted in the New York Stock Exchange Composite
Transactions Index for the date in question, as published in The Wall
Street Journal.
(ii) For purposes of this Section 7(a), the term "Window
Period" shall mean the period of ten business days which begins on the
third business day following the release of the Company's summary
statement of sales and earnings for the immediately preceding fiscal
year, and which ends on the twelfth business day following such
release.
(iii) For purposes of this Section 7(a), the term "Grant Date"
shall mean the latest business day during a Window Period on which the
Daily Mean for that date equals or most closely approximates the
arithmetic mean of all of the Daily Means for all of the business days
during the Window Period.
(iv) Each Nonemployee Director who is a Nonemployee Director
on January 27, 1994 and is such as of the next occurring Grant Date,
automatically will receive, as of such Grant Date only, an Option to
purchase 1,500 shares of Common Stock..
(v) Each Nonemployee Director who becomes a Nonemployee
Director after January 27, 1994 and who is such as of the next
occurring Grant Date, automatically will receive, as of such Grant Date
only, an Option to purchase 1,500 shares of Common Stock.
(vi) Each continuing Nonemployee Director (i.e., a Nonemployee
Director who, pursuant to Section 7(a)(iv) or (v), has received an
initial grant of an Option to purchase 1,500 shares of Common Stock)
automatically will receive, on each subsequent Grant Date on which the
Nonemployee Director is such, an Option to purchase 1,500 shares of
Common Stock.
(b) TERMS OF OPTIONS
(1) OPTION AGREEMENT
Each Option shall be evidenced by a written stock option
agreement which shall be executed by the Optionee and the Company.
(2) OPTION PRICE
The price of the shares subject to each Option shall be the
Fair Market Value for such shares on the date that the Option is
granted.
(3) EXERCISABILITY
Each Option shall be exercisable in full commencing six months
after the date that the Option is granted, provided that each Option
granted during 1994 shall be exercisable in full commencing six
months after the 1994 Annual Meeting of Stockholders.
(4) EXPIRATION OF OPTIONS
(A) Each Option shall terminate upon the first to occur of the
events listed in subparagraph (B) of this Section 7(b)(4).
(B) (i) The expiration of ten years and one month
from the date the Option was granted, subject to the
provisions of clause (v), below; or
(ii) The expiration of three months from the date of
the Optionee's termination of service as a Director, unless
such termination of service results from the Optionee's death,
Total Disability or Retirement, subject to the provisions of
clause (v) below;
(iii) The expiration of three years from the date of
the Optionee's termination of service as a Director by reason
of Total Disability, subject to the provisions of clause (v)
below;
(iv) The expiration of three years from the date of
the Optionee's Retirement, subject to the provisions of clause
(v) below; or
(v) The expiration of one year from the date of the
Optionee's death, if such death occurs while the Optionee is a
Director or within the three-month or three-year period
referred to in (ii), (iii) or (iv), above.
(5) ADJUSTMENTS IN OUTSTANDING OPTIONS
The number of shares and price per share of each Option, and
the number of shares subject to each grant provided by this Section 7
shall be proportionately adjusted for any increase or decrease in the
number of issued and outstanding shares of Common Stock resulting from
a subdivision or consolidation of shares or the payment of a stock
dividend or any other increase or decrease in the number of issued and
outstanding shares of Common Stock effected without receipt of
consideration by the Company.
If the Company shall be the surviving corporation in any
merger or consolidation, each Option shall pertain to and apply to the
securities to which a holder of the same number of shares of Common
Stock that are subject to that Option would have been entitled. A
dissolution or liquidation of the company, or a merger or consolidation
in which the Company is not the surviving corporation, shall cause each
Option to terminate, unless the agreement of merger or consolidation
shall otherwise provide.
(6) INCENTIVE STOCK OPTIONS
Options shall not be designated as Incentive Stock Options.
(7) OTHER TERMS
All provisions of the Plan not inconsistent with this Section
7 shall apply to Options granted to Nonemployee Directors; provided,
however, that Section 4(c)(4) (relating to the settlement of Options in
cash), and Section 5 (relating to Awards) shall be inapplicable with
respect to Nonemployee Directors.
(c) ADMINISTRATION
Notwithstanding the provisions of Section 2, the Committee
shall exercise no discretion with respect to interpretation or administration of
this Section 7 or of Options granted under this Section 7.
Section 7 shall be administered by the Board. The Board shall
have the power to construe Section 7, to determine all questions arising
thereunder, and to adopt and amend such rules and regulations for the
administration of Section 7 as it may deem desirable.
The interpretation and construction by the Board of any
provision of Section 7 or of any Option granted thereunder shall be final. No
member of the Board shall be liable for any action or determination made in good
faith with respect to this Section 7 or any Option granted thereunder.
The interpretation and construction by the Board of any
provision of Section 7 or of any option granted thereunder shall be final. No
member of the Board shall be liable for any action or determination made in good
faith with respect to this Section 7 or any Option granted thereunder.
(d) APPLICATION OF SECTION
The provisions of this Section 7 shall be applicable only to
Options granted pursuant to this
Section 7.
<PAGE>
Exhibit 10.7
[FORM OF STANDARD (100% OF FAIR MARKET VALUE) OPTION AGREEMENT]
THE 1985 STOCK OPTION AND AWARD PLAN
OF TRANSAMERICA CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
Transamerica Corporation (the "Company") hereby grants you,
[NAME OF EMPLOYEE] (the "Employee"), a nonqualified stock option under the
Company's 1985 Stock Option and Award Plan (the "Plan"), to purchase shares of
common stock of the Company ("Shares"). The date of this Agreement is [DATE]
(the "Grant Date"). In general, the latest date this option will expire is [DATE
10 YEARS AFTER GRANT DATE] (the "Expiration Date"). However, as provided in
Appendix A (attached hereto), this option may expire earlier than the Expiration
Date. Subject to the provisions of Appendix A and of the Plan, the principal
features of this option are as follows:
Maximum Number of Shares
Purchasable with this Option: [NUMBER A] Purchase Price per Share:$[NUMBER B]
Scheduled Vesting Dates: Number of Shares:
[DATE 1 YEAR FROM GRANT DATE] [25% OF NUMBER A]
[DATE 2 YEARS FROM GRANT DATE] [25% OF NUMBER A]
[DATE 3 YEARS FROM GRANT DATE] [25% OF NUMBER A]
[DATE 4 YEARS FROM GRANT DATE] [25% OF NUMBER A]
Event Triggering Maximum Time to Exercise
Termination of Option: After Triggering Event*:
Termination of Employment within 1 year of Grant Date None
Termination of Employment due to Disability 3 years
Termination of Employment due to Retirement 3 years
Termination of Employment due to death 1 year
Termination of Employment within 1 year after a Change of Control
for a reason other than Disability, Retirement or death 1 year
All other Terminations of Employment 3 months
* However, in no event may this option be exercised after the
Expiration Date (except in certain cases of the death of the
Employee).
Your signature below indicates your agreement and understanding that
this option is subject to all of the terms and conditions contained in Appendix
A and the Plan. For example, important additional information on vesting and
termination of this option is contained in Paragraphs 5 through 8 of Appendix A.
ACCORDINGLY, PLEASE BE SURE TO READ ALL OF APPENDIX A, WHICH CONTAINS THE
SPECIFIC TERMS AND CONDITIONS OF THIS OPTION.
TRANSAMERICA CORPORATION EMPLOYEE
By
------------------------ ------------------------
Title: [NAME]
<PAGE>
APPENDIX A
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTION
1. Grant of Option. The Company hereby grants to the Employee
under the Plan, as a separate incentive in connection with his or her employment
and not in lieu of any salary or other compensation for his or her services, a
nonqualified stock option to purchase, on the terms and conditions set forth in
this Agreement and the Plan, all or any part of an aggregate of [NUMBER A]
Shares.
2. Exercise Price. The purchase price per Share for this
option (the "Exercise Price") shall be $[NUMBER B], which is the Fair Market
Value of a Share on the Grant Date.
3. Number of Shares. The number and class of Shares specified
in Paragraph 1 above, and/or the Exercise Price, are subject to adjustment by
the Committee in the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, split-up, Share
combination, distribution or other change in the corporate structure of the
Company affecting the Shares (an "Event"). Any such adjustment shall be made by
the Committee as constituted immediately prior to the applicable Event (the
"Applicable Committee") and shall be designed so that if the Employee (or any
beneficiary) exercises this option after an Event, he or she shall receive (upon
payment of the Exercise Price for each Share exercised) the securities and any
other property (other than regular cash dividends) which the Employee (or
beneficiary) would have been entitled to had he or she instead acquired the
Shares on the Grant Date and held them through the date of exercise.
Notwithstanding the preceding, (a) the number of Shares subject to this option
always shall be a whole number, and (b) if the Applicable Committee determines
that the delivery of securities or other property (other than Shares) from any
such adjustment would create an undue burden or expense, the Employee (or
beneficiary) instead shall receive a lump sum cash payment equal to the fair
market value (as determined by the Applicable Committee) of such securities or
other property.
4. Consideration. Subject to the provisions of Paragraph 14
below, the Employee agrees to remain in the employ of the Company and/or an
Affiliate for at least one (1) year after the Grant Date. This option may not be
exercised as to any Shares subject thereto unless and until the expiration of
such one (1) year period. In the event of the Employee's Termination of
Employment for any reason during such one (1) year period, this option shall
terminate and all rights hereunder shall cease.
5. Vesting Schedule. Except as otherwise provided in this
Agreement, the right to exercise this option will vest as to twenty-five percent
(25)% of the Shares specified in Paragraph 1 above on the first anniversary date
of the Grant Date, and as to an additional twenty-five percent (25%) on each
succeeding anniversary date, until the right to exercise this option shall have
vested with respect to one hundred percent (100%) of such Shares. Shares
scheduled to vest on any such anniversary date actually will vest only if
the Employee has not incurred a Termination of Employment prior to such date.
6. Effect of Change of Control. Notwithstanding any contrary
provision of this Agreement, immediately upon the occurrence of a Change of
Control prior to the Employee's Termination of Employment, the right to
exercise this option shall vest as to one hundred percent (100%) of the Shares
subject thereto.
7. Termination of Option. Except as provided in the last
sentence of this Paragraph 7, in the event of the Employee's Termination of
Employment for any reason other than Retirement, Disability or death, the
Employee may, within three (3) months after the date of such Termination, or
prior to the Expiration Date, whichever shall first occur, exercise any vested
but unexercised portion of this option. In the event of the Employee's
Termination of Employment due to Disability, the Employee may, within three (3)
years after the date of such Termination, or prior to the Expiration Date,
whichever shall first occur, exercise any vested but unexercised portion of this
option. In the event of the Employee's Termination of Employment due to
Retirement, the Employee may, within three (3) years from the date of such
Termination, or prior to the Expiration Date, whichever shall first occur,
exercise any vested but unexercised portion of this option. In the event of the
Employee's Termination of Employment within one year after a Change of Control
for any reason other than Retirement, Disability or death, the Employee may,
within one (1) year after the date of such Termination, or prior to the
Expiration Date, whichever shall first occur, exercise any vested but
unexercised portion of this option.
8. Death of Employee. In the event that the Employee dies
while in the employ of the Company and/or an Affiliate or during the three (3)
month, three (3) year or one (1) year periods referred to in Paragraph 7 above,
the Employee's designated beneficiary, or if no beneficiary survives the
Employee, the administrator or executor of the Employee's estate, may, within
one (1) year after the date of death, exercise any vested but unexercised
portion of the option. Any such transferee must furnish the Company (a) written
notice of his or her status as a transferee, (b) evidence satisfactory to the
Company to establish the validity of the transfer of this option and compliance
with any laws or regulations pertaining to such transfer, and (c) written
acceptance of the terms and conditions of this option as set forth in this
Agreement.
9. Persons Eligible to Exercise Option. This option shall be
exercisable during the Employee's lifetime only by the Employee. The option
shall not be transferable by the Employee, except by (a) a valid beneficiary
designation made in a form and manner acceptable to the Committee, or (b) will
or the applicable laws of descent and distribution.
10. Exercise of Option. This option may be exercised by the
person then entitled to do so as to any Shares which may then be purchased (a)
by giving written notice of exercise to the Secretary of the Company (or his or
her designee), specifying the number of full Shares to be purchased and
accompanied by full payment of the Exercise Price (and the amount of any income
tax the Company determines is required to be withheld by reason of such
exercise), and (b) by giving satisfactory assurances in writing if requested by
the Company, signed by the person exercising the option, that the Shares to be
purchased upon such exercise are being purchased for investment and not with a
view to the distribution thereof. In the absolute discretion of the Committee,
the person entitled to exercise the option may elect to satisfy the income tax
withholding requirement described in subparagraph (a) above by having the
Company withhold Shares or by delivering to the Company already-owned Shares. No
partial exercise of this option may be for less than ten (10) Share lots or
multiples thereof.
11. Discretion to Pay Appreciation Value. The Committee, in
its absolute discretion, may elect (in lieu of accepting the exercise price
tendered and delivering the Shares as to which the option has been exercised) to
pay the Employee in cash or in Shares, or a combination of cash and Shares, an
amount equal to the amount by which the Fair Market Value of the Shares exceeds
the exercise price of the option (the "Appreciation Value"). The Committee's
election to pay the Appreciation Value pursuant to this paragraph 11 shall be
made by giving written notice to the Employee (or other person exercising the
option).
12. Suspension of Exercisability. If at any time the Company
shall determine, in its discretion, that the listing, registration or
qualification of the Shares upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory
authority, is necessary or desirable as a condition of the purchase of Shares
hereunder, this option may not be exercised, in whole or in part, unless and
until such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the Company.
The Company shall make reasonable efforts to meet the requirements of any such
state or federal law or securities exchange and to obtain any such consent or
approval of any such governmental authority.
13. No Rights of Stockholder. Neither the Employee (nor any
beneficiary) shall be or have any of the rights or privileges of a stockholder
of the Company in respect of any of the Shares issuable pursuant to the exercise
of this option, unless and until certificates representing such Shares shall
have been issued, recorded on the records of the Company or its transfer agents
or registrars, and delivered to the Employee (or beneficiary).
14. No Effect on Employment. The Employee's employment with
the Company and its Affiliates is on an at-will basis only. Accordingly, subject
to any written, express employment contract with the Employee, nothing in this
Agreement or the Plan shall confer upon the Employee any right to continue to be
employed by the Company or any Affiliate or shall interfere with or restrict in
any way the rights of the Company or the Affiliate, which are hereby expressly
reserved, to terminate the employment of the Employee at any time for any reason
whatsoever, with or without good cause. Such reservation of rights can be
modified only in an express written contract executed by a duly authorized
officer of the Company or the Affiliate employing the Employee. For purposes of
this Agreement, the transfer of employment of the Employee between the Company
and any one of its Affiliates (or between Affiliates) shall not be deemed a
Termination of Employment.
15. Address for Notices. Any notice to be given to the Company
under the terms of this Agreement shall be addressed to the Company, in care of
its Secretary, at 600 Montgomery Street, San Francisco, California 94111, or at
such other address as the Company may hereafter designate in writing.
16. Option is Not Transferable. Except as otherwise expressly
provided herein, this option and the rights and privileges conferred hereby may
not be transferred, pledged, assigned or otherwise hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to sale
under execution, attachment or similar process. Upon any attempt to transfer,
pledge, assign, hypothecate or otherwise dispose of this option, or of any right
or privilege conferred hereby, or upon any attempted sale under any execution,
attachment or similar process, this option and the rights and privileges
conferred hereby immediately shall become null and void.
17. Other Benefits. Except as provided below, nothing
contained in this Agreement shall affect the Employee's right to participate in
and receive benefits under and in accordance with the then current provisions of
any pension, insurance or other employee welfare plan or program of the Company
or any Affiliate. Notwithstanding any contrary provision of this Agreement, in
the event that the Employee receives a hardship withdrawal from his or her
pre-tax account under the Company's Employees Stock Savings Plan (the "SSP"),
this option may not be exercised during the twelve (12) month period following
the receipt of such withdrawal, unless the Committee determines that such
exercise (or a particular manner of exercise) would not adversely affect the
continued tax qualification of the SSP.
18. Maximum Term of Option. Notwithstanding any other
provision of this Agreement except Paragraph 8 above relating to the death of
the Employee (in which case this option is exercisable to the extent set forth
therein), this option is not exercisable after the Expiration Date.
19. Binding Agreement. Subject to the limitation on the
transferability of this option contained herein, this Agreement shall be binding
upon and inure to the benefit of the heirs, legatees, legal representatives,
successors and assigns of the parties hereto.
20. Conditions to Exercise. The Exercise Price for this option
must be paid in the legal tender of the United States or, in the Committee's
sole discretion, in Shares of equivalent value. Exercise of this option will not
be permitted until satisfactory arrangements have been made for the payment of
the appropriate amount of withholding taxes (as determined by the Company).
21. Plan Governs. This Agreement is subject to all of the
terms and provisions of the Plan. In the event of a conflict between one or more
provisions of this Agreement and one or more provisions of the Plan, the
provisions of the Plan shall govern. Capitalized terms and phrases used and not
defined in this Agreement shall have the meaning set forth in the Plan.
22. Committee Authority. The Committee shall have all
discretion, power, and authority to interpret the Plan and this Agreement and to
adopt such rules for the administration, interpretation and application of the
Plan as are consistent therewith. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon the Employee, the Company and all other interested persons, and shall be
given the maximum deference permitted by law. No member of the Committee shall
be personally liable for any action, determination or interpretation made in
good faith with respect to the Plan or this Agreement.
23. Captions. The captions provided herein are for convenience
only and are not to serve as a basis for the interpretation or construction of
this Agreement.
24. Agreement Severable. In the event that any provision in
this Agreement shall be held invalid or unenforceable, such provision shall be
severable from, and such invalidity or unenforceability shall not be construed
to have any effect on, the remaining provisions of this Agreement.
25. Modifications to the Agreement. This Agreement constitutes
the entire understanding of the parties on the subjects covered. The Employee
expressly warrants that he or she is not executing this Agreement in reliance on
any promises, representations, or inducements other than those contained herein.
Modifications to this Agreement or the Plan can be made only in an express
written contract executed by a duly authorized officer of the Company.
<PAGE>
Exhibit 10.9
TRANSAMERICA CORPORATION
Restricted Stock Agreement
Transamerica Corporation (the "Company") hereby grants you,
[NAME OF EMPLOYEE] (the "Employee"), a grant of Restricted Stock under the
Company's 1985 Stock Option and Award Plan (the "Plan"). The date of this
Agreement is [DATE] (the "Grant Date"). Subject to the provisions of Appendix A
(attached) and of the Plan, the principal features of this grant are as follows:
Total Number of Shares of Restricted Stock: [NUMBER A]
Scheduled Vesting Dates: Number of Shares
[DATE 1 YEAR FROM GRANT DATE] [____% of NUMBER A]
[DATE 2 YEARS FROM GRANT DATE] [____% of NUMBER A]
[DATE 3 YEARS FROM GRANT DATE] [____% of NUMBER A]
Your signature below indicates your agreement and understanding that this grant
is subject to all of the terms and conditions contained in Appendix A and the
Plan. For example, important additional information on vesting and forfeiture of
the shares covered by this grant is contained in Paragraphs 3 through 6 of
Appendix A. PLEASE BE SURE TO READ ALL OF APPENDIX A, WHICH CONTAINS THE
SPECIFIC TERMS AND CONDITIONS OF THIS AGREEMENT.
TRANSAMERICA CORPORATION EMPLOYEE
By:___________________________ ______________________________
Title: [NAME]
Date: ________________________ Date: ________________________
<PAGE>
APPENDIX A
TERMS AND CONDITIONS OF RESTRICTED STOCK
1. Grant. The Company hereby grants to the Employee under the
Plan for past services and as a separate incentive in connection with his or her
employment and not in lieu of any salary or other compensation for his or her
services, an award of [NUMBER A] shares of Restricted Stock on the date hereof,
subject to all of the terms and conditions in this Agreement and the Plan.
2. Shares Held in Escrow. Unless and until the shares of
Restricted Stock shall have vested in the manner set forth in paragraphs 3, 4 or
5, such shares shall be issued in the name of the Employee and held by the
Secretary of the Company as escrow agent (the "Escrow Agent"), and shall not be
sold, transferred or otherwise disposed of, and shall not be pledged or
otherwise hypothecated. The Company may instruct the transfer agent for its
Common Stock to place a legend on the certificates representing the Restricted
Stock or otherwise note its records as to the restrictions on transfer set forth
in this Agreement and the Plan. The certificate or certificates representing
such shares shall not be delivered by the Escrow Agent to the Employee unless
and until the shares have vested and all other terms and conditions in this
Agreement have been satisfied.
3. Vesting Schedule. Except as provided in paragraphs 4 and
5, and subject to paragraph 6, the shares of Restricted Stock awarded by this
Agreement shall vest in the Employee, as to ____% of such shares on the first
anniversary of the date of this Award, and as to an additional ____% on each
succeeding anniversary date, until 100% of such shares shall have been vested.
Immediately upon the determination of the Committee that a Change in Control of
the Company has occurred, or in the event of the liquidation or dissolution of
the Company, the Restricted Stock awarded by this Agreement shall be 100%
vested, notwithstanding the provisions of the foregoing paragraph or paragraph 6
of this Agreement. Shares of Restricted Stock shall not vest in the Employee in
accordance with any of the provisions of this Agreement unless the Employee
shall have been continuously employed by the Company or by one of its Affiliates
from the Grant Date until the date such vesting is deemed to have occurred.
4. Acceleration of Vesting upon Death or Disability. In the
event of the Employee's Termination of Employment due to his or her death or
Total Disability, the balance of unvested shares awarded by this Agreement shall
thereupon immediately vest. Such shares shall be deemed to have vested as of the
date of the Termination of Employment.
5. Committee Discretion. The Committee, in its absolute
discretion, may accelerate the vesting of the balance, or some lesser portion of
the balance, of the unvested shares of Restricted Stock at any time. If so
accelerated, such shares shall be considered as having vested as of the date
specified by the Committee.
6. Forfeiture. Except as provided in paragraphs 4 and 5, and
notwithstanding any contrary provision of this Agreement, the balance of the
shares of Restricted Stock which have not vested at the time of the Employee's
Termination of Employment shall thereupon be forfeited and automatically
transferred to and reacquired by the Company at no cost to the Company. The
Employee hereby appoints the Escrow Agent with full power of substitution, as
the Employee's true and lawful attorney-in-fact with irrevocable power and
authority in the name and on behalf of the Employee to take any action and
execute all documents and instruments, including, without limitation, stock
powers which may be necessary to transfer the certificate or certificates
evidencing such unvested shares to the Company upon such Termination of
Employment.
7. Death of Employee. Any distribution or delivery to be made
to the Employee under this Agreement shall, if the Employee is then deceased, be
made to the Employee's designated beneficiary, or if no beneficiary survives the
Employee, to the administrator or executor of the Employee's estate. Any
designation of a beneficiary by the Employee shall be effective only if such
designation is made in a form and manner acceptable to the Committee. Any
transferee must furnish the Company with (a) written notice of his or her status
as transferee, and (b) evidence satisfactory to the Company to establish the
validity of the transfer and compliance with any laws or regulations pertaining
to said transfer.
8. Withholding of Taxes. Notwithstanding any contrary
provision of this Agreement, no certificate representing Restricted Stock may be
released from the escrow established pursuant to paragraph 2 unless and until
the Employee shall have delivered to the Company or its designated Affiliate the
full amount of any federal, state or local income or other taxes which the
Company or such Affiliate may be required by law to withhold with respect to
such shares. The Employee may elect to satisfy any such income tax withholding
requirement by having the Company withhold shares of Common Stock otherwise
deliverable to the Employee or by delivering to the Company already-owned shares
of Common Stock, subject to the absolute discretion of the Committee to disallow
satisfaction of such withholding by the delivery or withholding of stock.
9. Rights as Stockholder. Neither the Employee nor any person
claiming under or through the Employee shall have any of the rights or
privileges of a stockholder of the Company in respect of any shares deliverable
hereunder unless and until certificates representing such shares shall have been
issued, recorded on the records of the Company or its transfer agents or
registrars, and delivered to the Employee or the Escrow Agent. Except as
provided in paragraph 11, after such issuance, recordation and delivery, the
Employee shall have all the rights of a stockholder of the Company with respect
to voting such shares and receipt of dividends and distributions on such shares.
10. No Effect on Employment. The Employee agrees to remain in
the employ of the Company and/or an Affiliate for at least one (1) year after
the date of this Agreement. Subject to any employment contract with the
Employee, the terms of such employment shall be determined from time to time by
the Company, or the Affiliate employing the Employee, as the case may be, and
the Company, or the Affiliate employing the Employee, as the case may be, shall
have the right, which is hereby expressly reserved, to terminate or change the
terms of the employment of the Employee at any time for any reason whatsoever,
with or without good cause. A leave of absence or an interruption in service
(including an interruption during military service) authorized or acknowledged
by the Company, or the Affiliate employing the Employee, as the case may be,
shall not be deemed a termination of employment for the purposes of this
Agreement. Nothing herein contained shall affect the Employee's right to
participate in and receive benefits under and in accordance with the then
current provisions of any pension, insurance or other employee welfare plan or
program of the Company or any Affiliate.
11. Changes in Stock. In the event that as a result of a
stock dividend, stock split, reclassification, recapitalization, combination of
shares or the adjustment in capital stock of the Company or otherwise, or as a
result of a merger, consolidation, spin-off or other reorganization, the
Company's Common Stock shall be increased, reduced or otherwise changed, and by
virtue of any such change the Employee shall in his or her capacity as owner of
unvested shares of Restricted Stock which have been awarded to him or her (the
"Prior Shares") be entitled to new or additional or different shares of stock or
securities (other than rights or warrants to purchase securities); such new or
additional or different shares or securities shall thereupon be considered to be
unvested Restricted Stock and shall be subject to all of the conditions and
restrictions which were applicable to the Prior Shares pursuant to this
Agreement and the Plan. If the Employee receives rights or warrants with respect
to any Prior Shares, such rights or warrants may be held or exercised by the
Employee, provided that until such exercise any such rights or warrants and
after such exercise any shares or other securities acquired by the exercise of
such rights or warrants shall be considered to be unvested Restricted Stock and
shall be subject to all of the conditions and restrictions which were applicable
to the Prior Shares pursuant to the Plan and this Agreement. The Committee in
its absolute discretion at any time may accelerate the vesting of all or any
portion of such new or additional shares of stock or securities, rights or
warrants to purchase securities or shares or other securities acquired by the
exercise of such rights or warrants.
12. Address for Notices. Any notice to be given to the
Company under the terms of this Agreement shall be addressed to the Company, in
care of its Secretary, at 600 Montgomery Street, San Francisco, California
94111, or at such other address as the Company may hereafter designate in
writing.
13. Grant is Not Transferable. Except as provided in
Paragraph 7 above, this grant and the rights and privileges conferred hereby
shall not be transferred, assigned, pledged or hypothecated in any way (whether
by operation of law or otherwise) and shall not be subject to sale under
execution, attachment or similar process. Upon any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of this grant, or of any right or
privilege conferred hereby, or upon any attempted sale under any execution,
attachment or similar process, this grant and the rights and privileges
conferred hereby immediately shall become null and void.
14. Binding Agreement. Subject to the limitation on the
transferability of this grant contained herein, this Agreement shall be binding
upon and inure to the benefit of the heirs, legatees, legal representatives,
successors and assigns of the parties hereto.
15. Conditions for Issuance of Certificates for Stock. The
shares of stock deliverable to the Employee may be either previously authorized
but unissued shares or issued shares which have been reacquired by the Company.
The Company shall not be required to issue any certificate or certificates for
shares of stock hereunder prior to fulfillment of all the following conditions:
(a) the admission of such shares to listing on all stock exchanges on which such
class of stock is then listed; and (b) the completion of any registration or
other qualification of such shares under any State or Federal law or under the
rulings or regulations of the Securities and Exchange Commission or any other
governmental regulatory body, which the Committee shall, in its absolute
discretion, deem necessary or advisable; and (c) the obtaining of any approval
or other clearance from any State or Federal governmental agency, which the
Committee shall, in its absolute discretion, determine to be necessary or
advisable; and (d) the lapse of such reasonable period of time following the
date of grant of the Restricted Stock as the Committee may establish from time
to time for reasons of administrative convenience.
16. Plan Governs. This Agreement is subject to all terms and
provisions of the Plan. In the event of a conflict between one or more
provisions of this Agreement and one or more provisions of the Plan, the
provisions of the Plan shall govern. Capitalized terms used and not defined in
this Agreement shall have the meaning set forth in the Plan.
17. Committee Authority. The Committee shall have the power
to interpret the Plan and this Agreement and to adopt such rules for the
administration, interpretation and application of the Plan as are consistent
therewith and to interpret or revoke any such rules. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon the Employee, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
this Agreement. In its absolute discretion, the Board may at any time and from
time to time exercise any and all rights and duties of the Committee under the
Plan and this Agreement.
18. Captions. Captions provided herein are for convenience
only and are not to serve as a basis for interpretation or construction of this
Agreement.
19. Agreement Severable. In the event that any provision in
this Agreement shall be held invalid or unenforceable, such provision shall be
severable from, and such invalidity or unenforceability shall not be construed
to have any effect on, the remaining provisions of this Agreement.
<PAGE>
Exhibit 10.19
TRANSAMERICA CORPORATION
1979 STOCK OPTION PLAN
(Working Copy Incorporating
Amendment Nos. 1-3)
<PAGE>
TRANSAMERICA CORPORATION
1979 STOCK OPTION PLAN
1. PURPOSE.
This 1979 Stock Option Plan (the "Plan") is intended to
increase incentive and to encourage stock ownership on the part of selected key
employees of Transamerica Corporation (the "Corporation") or of other
corporations which are or become subsidiaries of the Corporation. It is also the
purpose of the Plan to provide such employees with a proprietary interest, or to
increase their proprietary interest, in the Corporation and its subsidiaries,
and to encourage them to remain in the employ of the Corporation or of the
subsidiaries. Awards under the Plan may be of (i) stock options alone or (ii)
stock appreciation rights in conjunction with stock options. It is intended that
certain options granted pursuant to the Plan shall constitute incentive stock
options ("incentive stock options") within the meaning of section 422A, or
successor provisions, of the Internal Revenue Code of 1986, as amended (the
"Code"), and that certain options granted pursuant to the Plan shall not
constitute incentive stock options ("non-qualified stock options"). The word
"subsidiaries" as used in the Plan shall mean corporations in which the
Corporation owns, directly or indirectly, 50 percent or more of the voting
stock.
2. STOCK.
The stock subject to the Plan shall be the shares of the
Corporation's authorized but unissued or reacquired common stock of the par
value of $1 per share. The aggregate number of shares which may be issued under
the Plan shall not exceed 3,000,000 shares, subject to such adjustments as may
be required under the provisions of Section 7 hereof. In the event that any
outstanding option under the Plan expires or is terminated for any reason, the
shares of common stock allocated to the unexercised portion of such option may
again become subject to an option under the Plan. A surrender of all or part of
an option in connection with the exercise of a stock appreciation right shall
not be considered a termination and the shares covered by such option or the
surrendered portion may not be reallocated by the Committee.
3. ADMINISTRATION.
The Plan shall be administered by a committee appointed by the
Board of Directors (the "Committee"). The Committee shall consist of not less
than three (3) members of the Board of Directors of the Corporation, each of
whom shall be a person who is not eligible to receive or hold options or stock
appreciation rights under the Plan, or any other plan of the Corporation or any
of its affiliates entitling participants therein to acquire stock, stock options
or stock appreciation rights of the Corporation or any of its affiliates, and
who has not been so eligible at any time within one (1) year prior to his or her
appointment to the Committee. The Committee is authorized, subject to the
provisions of the Plan, to establish such rules and regulations as it may deem
appropriate for the proper administration of the Plan, and to make such
determinations under, and such interpretations of, and to take such steps in
connection with, the Plan or the options or stock appreciation rights granted
thereunder as it may deem necessary or advisable. The interpretation and
construction by the Committee of any provisions of the Plan or any option or
stock appreciation right granted pursuant thereto shall be final, binding and
conclusive.
4. ELIGIBILITY AND AWARD OF OPTIONS AND STOCK APPRECIATION RIGHTS.
The Committee shall have full and final authority in its
discretion, at any time and from time to time, to grant or authorize the
granting of options to such officers and other key employees of the Corporation
or of its subsidiaries, whether or not members of the Board of Directors, as it
may select, and for such numbers of shares as it shall designate. The Committee
shall have full and final authority in its discretion to determine whether such
options shall be incentive stock options and/or non-qualified stock options and
to determine whether incentive stock options and non-qualified stock options
shall be awarded pursuant to separate grants or in conjunction with each other
subject to Section 17 of the Plan. The aggregate fair market value (determined
at the time the option is granted) of the stock with respect to which incentive
stock options are exercisable for the first time by any officer or other key
employee during any calendar year (under all incentive stock option plans of his
or her employer corporation and its parent and subsidiary corporations) shall
not exceed $100,000.
The Committee shall also have full and final authority in its
discretion to grant or authorize the granting of stock appreciation rights in
connection with any stock option granted under the Plan either at the time of
original grant of the option or by subsequent amendment to the related stock
option agreement, and to determine whether the payment upon the exercise of a
stock appreciation right shall be in cash or shares of common stock or partly in
cash and partly in shares. The Committee may authorize, in its discretion, any
officer or officers of the Corporation to grant stock appreciation rights to
such employees of the Corporation or its subsidiaries (other than employees who
also serve as members of the Board of Directors of the Corporation) as the
Committee shall recommend and for up to such maximum numbers of shares as the
Committee shall recommend.
The date on which an option or stock appreciation right shall
be granted shall be the date of the Committee's authorization of such grant or
such later date as may be determined by the Committee at the time such grant is
authorized. Any individual may hold more than one option or stock appreciation
right.
5. TERMS AND CONDITIONS OF OPTIONS.
Stock options granted pursuant to the Plan shall be evidenced
by agreements in such form as the Committee shall from time to time determine,
which agreements shall comply with the following terms and conditions:
(A) Optionee's Agreement
Each optionee shall agree to remain in the employ of
the Corporation or of any subsidiary and to render to such employer his or
her services for a period of one (1) year from the date of grant of the option,
but such agreement shall not impose upon the Corporation or subsidiary any
obligation to retain the optionee in its employ for any period.
(B) Number of Shares
Each option agreement shall state the number of
shares to which the option pertains. The number of shares subject to an option
shall be reduced on a proportionate basis to the extent that shares under such
option are used to calculate the shares or cash to be received upon exercise
of a related stock appreciation right.
(C) Option Price
Each option agreement shall state the option price per share, which shall
be not less than 100% of the fair market value of a share of common stock on the
date the option is granted. Fair market value shall mean the last quoted per
share selling price for shares of the common stock on the relevant date, as
quoted in the New York Stock Exchange Composite Transactions Index published in
The Wall Street Journal, or if there were no sales on such date, the last quoted
selling price on the nearest day after the relevant date, as determined by the
Committee.
(D) Medium and Time of Payment
The option price shall be payable in the legal tender of the United States
or, in the discretion of the Committee, in shares of common stock of the
Corporation or in a combination of the legal tender of the United States and
shares of common stock of the Corporation, upon the exercise of the option. For
purposes of calculating payment of the option price, each share of common stock
surrendered in payment of such price shall be valued at its fair market value on
the date the option is exercised, which fair market value shall be determined in
accordance with the provisions of subsection (C) of this Section 5. Upon receipt
of payment, the Corporation shall deliver to the optionee (or the person
entitled to exercise the option) a certificate or certificates for the shares of
common stock to which the option pertains.
(E) Term and Exercise of Option
Each option shall state the time or times when it becomes exercisable,
which shall be determined by the Committee, provided, however, that no option
shall become exercisable until one (1) year has elapsed from the date of grant.
To the extent that an option has become exercisable, it may be exercised in
whole or in such lesser amount as authorized by the option agreement. If
exercised in part, the unexercised portion of an option shall continue to be
held by the optionee and may thereafter be exercised as herein provided.
Notwithstanding any other provision of the Plan except, in the case of
non-qualified stock options granted hereunder, clause (v) of subsection (F) of
this Section 5 relating to the death of an optionee, no option granted under the
Plan shall be exercisable after the expiration of ten (10) years from the date
of its grant.
(F) Termination of Employment
(i)If prior to a date one (1) year from the date the option
is granted, an optionee ceases to be employed by the
Corporation or its subsidiaries for any reason, his or her
option shall immediately terminate.
(ii) If on or after one (1) year from the date an option is
granted, an optionee ceases to be employed by the
Corporation or any of its subsidiaries for any reason
other than death or permanent and total disability as
determined in accordance with section 22(e)(3), or
successor provisions, of the Code, or retirement, such
option may be exercised within three (3) months after the
date that the optionee ceases to be employed by the
Corporation or any of its subsidiaries, but only to the
extent such option was exercisable on the date of such
cessation of employment.
(iii) If on or after one (1) year from the date an option is
granted, an optionee ceases to be employed by the
Corporation or any of its subsidiaries by reason of
permanent and total disability as determined in accordance
with section 22(e)(3), or successor provisions, of the
Code, such option may be exercised within one (1) year, in
the case of an incentive stock option, and three (3)
years, in the case of a non-qualified stock option, after
the date that the optionee ceases to be employed by the
Corporation or any of its subsidiaries, but only to the
extent such option was exercisable on the date of such
cessation of employment.
(iv) If on or after one (1) year from the date an option is
granted, an optionee retires from employment with the
Corporation or any of its subsidiaries in accordance with
the retirement policy of the Corporation or such
subsidiary, such option may be exercised within three (3)
months, in the case of an incentive stock option, and
three (3) years, in the case of a non-qualified stock
option, after the date the optionee retires, but only to
the extent such option was exercisable on the date of such
retirement.
(v)If an optionee should die on or after one (1) year from
the date an option is granted while in the employ of the
Corporation or any subsidiary or within the three (3)
month period, one (1) year period or three (3) year period
referred to above, whichever is applicable, such option
may be exercised to the extent it was exercisable
immediately prior to the optionee's death, at any time
within one (1) year after the optionee's death, by any
person or persons to whom the option is transferred by
will or the laws of descent and distribution. No transfer
of an option by the optionee by will or by the laws of
descent and distribution shall be effective unless the
Corporation has been furnished with written notice
thereof, and such other evidence as the Committee may deem
necessary to establish the validity of the transfer and
the acceptance of the transferee or transferees of the
terms and conditions of the option, and to establish
compliance with any laws or regulations pertaining
thereto.
(vi) Notwithstanding clause (i) of subsection (F) of this
Section 5, if an optionee ceases to be employed by the
Corporation or its subsidiaries within one (1) year after
a change of control, as defined in Section 19, for any
reason other than death or permanent and total disability
as determined in accordance with section 22(e)(3), or
successor provisions, of the Code, or retirement, such
option may be exercised within one (1) year after the date
that the optionee ceases to be employed by the Corporation
or any of its subsidiaries, but only to the extent such
option was exercisable on the date of such cessation of
employment.
(G) Other Provisions
The option agreements authorized under the Plan shall contain such other
provisions, including, without limitation, restrictions upon the exercise of the
option or any stock appreciation right granted in conjunction therewith or
restrictions required by any applicable securities laws, as the Committee shall
deem advisable.
6. STOCK APPRECIATION RIGHTS.
(A) Grant of Stock Appreciation Rights
Stock appreciation rights may be granted by the Committee under the Plan in
connection with an option, either at the time of grant or by amendment to the
related stock option agreement. Each right shall be subject to the same terms
and conditions as the related option and to such additional conditions as the
Committee shall determine, shall be exercisable only to the extent the option is
exercisable and shall become non-exercisable and be forfeited if and to the
extent the related option is exercised.
(B) Exercise of Stock Appreciation Rights
A stock appreciation right shall entitle the optionee
to surrender to the Committee unexercised the related option, or any portion
thereof, and to receive from the Corporation in exchange therefor a cash
payment and/or shares of common stock having an aggregate fair market value
equal to the excess of the fair market value of one share of common stock over
the option price per share provided for in the related stock option, multiplied
by the number of shares called for by the option, or portion thereof, which is
surrendered. The Committee shall have the sole discretion to determine the
form in which payment is to be made upon the exercise of a stock appreciation
right (i.e., whether in cash, in shares of common stock or partly in cash
and partly in shares). In no event will fractional shares be issued but
cash will be paid in lieu thereof. Except as otherwise provided in paragraph
(C) below, the fair market value of a share of common stock for this purpose
shall be the last quoted per share selling price for shares of the common stock
on the relevant date, as quoted in the New York Stock Exchange Composite
Transactions Index published in The Wall Street Journal, or if there were
no sales on such date, the last quote selling price on the nearest day after
the relevant date, as determined by the Committee.
(C) Window Period Exercises For Cash
Notwithstanding the provisions of paragraph (B) above, the Committee shall
have the ability, in its discretion, to fix the fair market value of a share of
common stock for purposes of determining the amount of cash and the number of
shares, if any, to be received upon the exercise of a stock appreciation right
during any "window period" (which consists of a period beginning on the third
business day following the date of release of quarterly or annual sales and
earnings information by the Corporation and ending on the twelfth business day
following such release date) for payment wholly or partly in cash at an amount
not greater than the highest fair market value, nor less than the lowest fair
market value, of a share of common stock during such window period, which fair
market value shall be determined for each day during such window period in
accordance with paragraph (B) above of this Section 6.
(D) Relation to Stock Options
Stock appreciation rights shall be exercisable at such time as may be
determined by the Committee, provided that a stock appreciation right shall not
be exercisable prior to the time the related stock option could be exercised
and, except in the event of death or permanent and total disability as
determined in accordance with section 105(d)(4), or successor provisions, of the
Code, shall not be exercisable for a period of six (6) months from the date of
grant of such right. A stock appreciation right may be exercised in whole or in
part only upon surrender of a proportionate part of the related stock option by
the optionee.
(E) Expiration or Termination of Stock Appreciation
Rights
Each stock appreciation right and all rights and obligations thereunder
shall terminate and may no longer be exercised upon the termination or exercise
of the related stock option.
(F) Shares May be Used Only Once
Shares subject to a stock option to which a stock appreciation right is
related shall be used not more than once to calculate the cash or shares to be
received by the grantee pursuant to an exercise of such stock appreciation
right.
(G) Effect of Death or Other Termination of Employment
In the event that the recipient of a stock appreciation right ceases to be
an employee of the Corporation or its subsidiaries for any reason, his or her
stock appreciation right shall be exercisable only to the extent and upon the
conditions that the related stock option is exercisable under applicable
provisions of Section 5(F) hereof.
7. SATISFACTION OF TAX WITHHOLDING REQUIREMENTS.
Whenever an optionee or recipient of a stock appreciation
right is required to pay to the Corporation an amount required to be withheld
under applicable federal and state income tax laws in connection with exercises
of non-qualified options or stock appreciation rights, the Committee may, in its
discretion, permit the optionee to satisfy such obligation, in whole or in part,
by electing to have the Corporation withhold shares of common stock having a
value equal to the amount required to be withheld or by delivering to the
Corporation already-owned shares to satisfy the withholding requirement. The
amount of the withholding requirement shall be deemed to include any amount
which the Committee agrees may be withheld at the time the election is made, not
to exceed the amount determined by using the maximum federal, state and local
marginal income tax rates applicable to the optionee or recipient with respect
to the exercise of the option or stock appreciation right on the date that the
amount of tax to be withheld is to be determined (the "Tax Date"). The value of
the shares to be withheld or delivered will be based on their fair market value
as defined in Section 5(C) hereof on the Tax Date. Such elections will be
subject to the following restrictions: (1) the election must be made on or
before the Tax Date; (2) the election will be irrevocable; and (3) the election
will be subject to the disapproval of the Committee. Each election by an
optionee or recipient whose transactions in shares of common stock are subject
to Section 16(b) of the Securities Exchange Act of 1934 will be subject to the
following additional restrictions: (1) the election may not be made within six
months of the grant of the option or stock appreciation right (except that this
limitation will not apply in the event the death or disability of the optionee
or recipient occurs prior to the expiration of the six-month period), and (2)
the election must be made either at least six months before the Tax Date or
within a ten day "window period" beginning on the third day following the
release of the Corporation's quarterly or annual summary statement of sales and
earnings.
8. RECAPITALIZATIONS AND REORGANIZATIONS.
Subject to any required action by the stockholders of the
Corporation, the number of shares of common stock covered by the Plan, and each
outstanding option and any related stock appreciation right and the price per
share thereof, shall be proportionately adjusted for any increase or decrease in
the number of issued and outstanding shares of common stock resulting from a
subdivision or consolidation of shares or the payment of a stock dividend.
Subject to any required action by the stockholders of the
Corporation, if the Corporation shall be the surviving corporation in any merger
or consolidation, each outstanding option and stock appreciation right shall
pertain to and apply to the securities to which a holder of the same number of
shares of common stock that are subject to that option and stock appreciation
right would have been entitled. A dissolution or liquidation of the Corporation,
or a merger or consolidation in which the Corporation is not the surviving
corporation, shall cause each outstanding option and stock appreciation right to
terminate, unless the agreement of merger or consolidation shall otherwise
provide, provided that each optionee shall in such event have the right
immediately prior to such dissolution or liquidation, or merger or
consolidation, to exercise his or her option or stock appreciation right in
whole or in part, without regard to any installment provisions set forth in the
option agreement, if, in the case of an option, the optionee's agreed employment
period set forth in Section 5(A) of the Plan shall have then expired and, in the
case of a stock appreciation right, the minimum period set forth in Section 6(D)
of the Plan shall have then expired.
To the extent that the foregoing adjustments relate to stock
or securities of the Corporation, such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive.
The grant of an option or stock appreciation right pursuant to
the Plan shall not affect in any way the right or power of the Corporation to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure or to merge or to consolidate or to dissolve, liquidate or
sell, or transfer all or any part of its business or assets.
9. NONASSIGNABILITY.
No option or stock appreciation right shall be assignable or
transferable by an optionee except by will or by the laws of descent and
distribution. During the lifetime of an optionee, the option or stock
appreciation right shall be exercisable only by the optionee.
10. RIGHTS AS A STOCKHOLDER.
An optionee or a transferee of an option shall have no rights
as a stockholder with respect to any shares covered by his or her option or
stock appreciation right until the date of the issuance of a stock certificate
to the optionee for such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 8.
11. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS AND STOCK
APPRECIATION RIGHTS.
Subject to the terms and conditions and within the limitations
of the Plan, the Committee may modify, extend or renew outstanding options and
stock appreciation rights granted under the Plan. Furthermore, the Committee
may, subject to any applicable provisions of the Plan, upon the cancellation of
previously granted higher priced options and stock appreciation rights, regrant
options and stock appreciation rights at a lower price. Notwithstanding the
foregoing, however, no modification of an option or stock appreciation right or
cancellation and regrant of an option or stock appreciation right shall, without
the consent of the optionee, alter or impair any rights or obligations under any
option or stock appreciation right theretofore granted under the Plan.
12. TERM OF PLAN.
The Plan is effective January 18, 1979 (subject to Section 15)
and, unless terminated sooner pursuant to Section 13, shall remain in effect
until all the shares subject to or which may become subject to the Plan have
been issued upon the exercise of options or used to calculate the cash or shares
to be received by an optionee pursuant to the exercise of a stock appreciation
right. However, no incentive stock option may be granted under the Plan more
than ten (10) years after the effective date of the Plan.
13. TERMINATION OR AMENDMENT OF THE PLAN.
The Board of Directors of the Corporation or the Committee may
from time to time suspend, discontinue or terminate the Plan or revise or amend
it in any respect whatsoever; provided, however, that no such action of the
Board of Directors or the Committee may, without the approval of the holders of
a majority of the outstanding shares of common stock of this Corporation present
in person or by proxy and entitled to vote at a meeting duly held:
(a) Materially increase the total amount of common stock
which may be issued upon the exercise of options or
stock appreciation rights granted under the Plan,
except as may be effected pursuant to the provisions
of Section 8;
(b) Materially increase the benefits accruing to optionees
under the Plan; or (c) Materially modify the requirements
as to eligibility for participation in the
Plan.
14. NO OBLIGATION TO EXERCISE OPTION OR STOCK APPRECIATION RIGHT.
The granting of an option or stock appreciation right shall
impose no obligation upon the optionee or a transferee of the option or stock
appreciation right to exercise such option or stock appreciation right.
15. USE OF PROCEEDS.
The proceeds received from the sale of shares pursuant to the
exercise of options granted under the Plan will be used for general corporate
purposes.
16. APPROVAL OF STOCKHOLDERS.
Amendments conforming the Plan to section 422A, or successor
provisions, of the Code, relating to incentive stock options, shall be subject
to approval of such amendments by affirmative vote at the next meeting of
stockholders of the Corporation, or any adjournment thereof, of the holders of a
majority of the outstanding shares of common stock present in person or by
proxy, unless the Committee shall determine, prior to the solicitation of
proxies for such meeting, that such approval is not required, necessary or
appropriate in order to qualify certain options granted under the Plan as
incentive stock options.
17. TANDEM OPTIONS.
The Committee is authorized to grant non-qualified stock
options and incentive stock options to an optionee in conjunction pursuant to a
single grant; provided, however, that no such grant which would result in a
tandem option, wherein the exercise of either the non-qualified stock option or
the incentive stock option affects the right to exercise the other, shall be
made, pursuant to a single grant or by subsequent amendment to an outstanding
option, unless and until the Committee shall obtain an opinion of counsel, or
shall determine, that neither such grant nor the exercise of any part of such
tandem option shall adversely affect the status and federal income tax treatment
as an incentive stock option of that portion of such tandem option which is
intended to constitute an incentive stock option.
18. SUBSIDIARIES.
As used throughout this Plan, the term "subsidiary" means (a)
any corporation in which the Corporation owns, directly or indirectly,
twenty-five percent or more of the voting stock, or any partnership, limited
liability company or other entity in which the Corporation's ownership interest
represents, directly or indirectly, twenty-five percent or more of the total
ownership interests in such partnership, limited liability company, or entity;
or (b) any corporation or any other entity (including, but not limited to,
partnerships, joint ventures and limited liability companies) that the
Committee, in its sole discretion, determines to be controlling, controlled by,
or under common control with the Corporation.
19. CHANGE OF CONTROL.
(A) Definition of Change of Control
For purposes of the Plan, "change of control" means the
occurrence of any of the following:
(i)The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (I) the then outstanding shares
of common stock of the Corporation (the "Outstanding
Corporation Common Stock") or (II) the combined voting
power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of
directors (the "Outstanding Corporation Voting
Securities"); provided, however, that for purposes of this
clause (i), the following acquisitions shall not
constitute, or be deemed to cause, a change in control of
the Corporation: (I) any increase in such percentage
ownership of a Person to 20% or more resulting solely from
any acquisition of shares directly from the Corporation or
any acquisition of shares by the Corporation, provided,
however, that any subsequent acquisitions of shares by
such Person that would add, in the aggregate, 2% or more
(measured as of the date of each such subsequent
acquisition) to such Person's beneficial ownership or
Outstanding Corporation Common Stock or Outstanding
Corporation Voting Securities shall be deemed to
constitute a change in control of the Corporation, (II)
any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any
corporation controlled by the Corporation or (III) any
acquisition by any corporation pursuant to a transaction
which complies with subclauses (I), (II) and (III) of
clause (iii) below; or
(ii) Individuals who, as of the date hereof, constitute the
Board of Directors (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of
Directors; provided, however, that any individual becoming
a director subsequent to the date hereof whose election,
or nomination for election by the Corporation's
stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened
election contest with respect to the election or removal
of directors, or other actual or threatened solicitation
of proxies or consents, by or on behalf of a Person other
than the Board of Directors; or
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of the Corporation (a
"Business Combination"), in each case, unless, following
such Business Combination, (I) all or substantially all of
the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Corporation
Common Stock and Outstanding Corporation Voting Securities
immediately prior to such Business combination
beneficially own, directly or indirectly, more than 50%
of, respectively, the then outstanding shares of common
stock and the combined voting power of the then
outstanding voting securities entitled to vote generally
in the election of directors, as the case may be, of the
corporation resulting from such Business Combination
(including, without limitation, a corporation which as a
result of such transaction owns the Corporation or all or
substantially all of the Corporation's assets either
directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination of the
Outstanding Corporation Common Stock and Outstanding
Corporation Voting Securities, as the case may be, (II) no
Person (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or
related trust) of the Corporation or such corporation
resulting from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock
of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation except
to the extent that such ownership existed prior to the
Business Combination and (III) at least a majority of the
members of the board of directors of the corporation
resulting from such Business Combination were members of
the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the stockholders of the Corporation of a
complete liquidation or dissolution of the Corporation.
Notwithstanding the foregoing, a Change of Control shall not be deemed to have
occurred with respect to any option held by any optionee who incurs a
termination of employment prior to the event or events which otherwise would
have created the occurrence of a Change of Control.
(B) Effect of a Change of Control
Notwithstanding the provisions of subsection (E) of Section 5,
if a change of control, as defined in subsection (A) of Section 19, occurs prior
to an optionee's termination of employment, the right to exercise 100% of the
shares subject to each option granted to him or her shall accrue on the date on
which the change of control occurs.
20. BENEFICIARY DESIGNATIONS.
If permitted by the Committee, an optionee under the Plan may
name a beneficiary or beneficiaries to whom any vested but unpaid option or
stock appreciation right shall be paid in the event of the optionee's death.
Each such designation shall revoke all prior designations by the optionee and
shall be effective only if given in a form and manner acceptable to the
Committee. In the absence of any such designation, any vested benefits remaining
unpaid at the optionee's death shall be paid to the optionee's estate and,
subject to the terms of the Plan and of the applicable option agreement, any
unexercised vested option or stock appreciation right may be exercised by the
person empowered to do so under the optionee's will, or the appropriate person
under applicable law. The Committee may require appropriate proof from any such
other person of his or her right or power to exercise the option or stock
appreciation right or any portion thereof.
<PAGE>
Exhibit 10.20
[Date]
[Name]
[Title]
Transamerica [__________________]
[Street Address]
[City, State, Zip]
Dear [Name]:
The Board of Directors (the "Board") of Transamerica
Corporation (the "Company") considers it to be in the best interests of its
stockholders to foster the continuous employment of key management personnel of
the Company and its Subsidiaries (as defined in Subsection 1(ii) below) in the
event of a possible change in control of the Company.
In order to induce you, in the event of a possible change in
control of the Company, to remain in the employ of the Company or its
Subsidiaries and to give your continued attention and dedication to your
assigned duties without distraction, and in consideration of your agreement to
remain in the employ of the Company or its Subsidiaries under circumstances as
set forth in Subsection 2(iii) hereof, the Company agrees that (i) in the event
your employment is terminated in accordance with Section 3 hereof subsequent to
a "change in control of the Company" (as defined in Subsection 2(i) hereof) or a
"deemed change in control of the Company" (as defined in Section 1(iii) hereof),
you shall receive the severance benefits described in Section 4 hereof, and (ii)
regardless of whether or not your employment with the Company or its
Subsidiaries is terminated, if you receive a payment or benefit that is subject
to the Excise Tax (as defined in Section 5 hereof), you shall receive the
gross-up payments described in Section 5 hereof.
1. Term of Agreement.
(i) Basic Term and Extensions. This letter agreement
(the "Agreement") shall commence on the date hereof and shall continue in
effect through December 31, 1997; provided, however, that commencing on
January 1, 1998 and on each January 1 thereafter, the term of this Agreement
shall automatically be extended for one additional year unless not later than
September 30 of the preceding year, the Company shall have given notice that it
does not wish to extend this Agreement, in which case this Agreement shall
expire as of December 31st of that year; and provided, further, that
notwithstanding any such notice by the Company, if a change in control of the
Company shall occur during the term of this Agreement, this Agreement shall
automatically be extended until the earlier to occur of (A) the expiration of
three years beyond the then existing term, or (B) your Normal Retirement Date
(as defined in Subsection 3(i) hereof).
(ii) Early Termination. This Agreement shall terminate
immediately if prior to a change in control of the Company (as defined in
Subsection 2(i) hereof) (A) your primary position with the Company or its
Subsidiaries changes to one that is not covered by a severance agreement
in a form substantially similar to this Agreement, or (B) you are
employed by a Subsidiary of the Company and such entity ceases to be a
Subsidiary or such Subsidiary (or a principal operating unit of such
Subsidiary for which you work) disposes of a majority of its assets or (C) your
employment with the Company or its Subsidiaries is terminated. As used
throughout this Agreement, the terms "Subsidiary" or "Subsidiaries" shall
mean (i) any corporation in which the Company owns, directly or indirectly,
twenty-five percent or more of the voting stock, or any partnership, limited
liability company or other entity in which the Company's ownership interest
represents, directly or indirectly, twenty-five percent or more of the total
ownership interests in such partnership, limited liability company, or entity;
or (ii) any corporation or any other entity (including, but not limited to,
partnerships, joint ventures and limited liability companies) that the Board, in
its sole discretion, determines to be in control of, controlled by, or under
common control with, the Company.
(iii) Special Extension. Notwithstanding the foregoing,
if, within 12 months prior to the date on which a change in control of the
Company occurs, (A) any of the events described in clauses (A), (B) or (C) of
Subsection 1(ii) above occurred or (B) the Company gave notice that it did
not intend to extend the term of this Agreement as provided in Subsection 1(i)
above, then, if you can reasonably demonstrate tha each of the events
described in clauses (A) and (B) of this Subsection (iii) that did occur arose
in connection with or in anticipation of a change in control of the Company,
(Y) a "deemed change in control of the Company" shall be deemed to have
occurred on the date immediately prior to the first to occur of such events
and (Z) this Agreement shall automatically be extended until the earlier to
occur of (i) the expiration of three years beyond the then existing term or (ii)
your Normal Retirement Date.
2. Change in Control Matters.
(i) Change in Control. For purposes of this Agreement,
a "change in control of the Company" shall occur if any of the following occur:
(A) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (i) the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this Subsection (A), the following
acquisitions shall not constitute, or be deemed to cause, a change in control of
the Company: (i) any increase in such percentage ownership of a Person to 20% or
more resulting solely from any acquisition of shares directly from the Company
or any acquisition of shares by the Company, provided, however, that any
subsequent acquisitions of shares by such Person that would add, in the
aggregate, 2% or more (measured as of the date of each such subsequent
acquisition) to such Person's beneficial ownership of Outstanding Company Common
Stock or Outstanding Company Voting Securities shall be deemed to constitute a
change in control of the Company, (ii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (iii) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of Subsection (C) below; or
(B) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors, or other actual or threatened
solicitation of proxies or consents, by or on behalf of a Person other than the
Board; or
(C) consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(D) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(ii) Deemed Change in Control. A "deemed change in
control of the Company" is defined in Subsection 1(iii) hereof.
(iii) Potential Change in Control. For purposes of this
Agreement, a "potential change in control of the Company" shall occur if (A) the
Company enters into an agreement, the consummation of which would result in the
occurrence of a change in control of the Company, (B) any person (including
the Company) publicly announces an intention to take or to consider taking
actions which if consummated would constitute a change in control of the
Company, or (C) the Board adopts a resolution to the effect that a potential
change in control of the Company for purposes of this Agreement has occurred.
You agree that, subject to the terms and conditions of this Agreement, in the
event of a potential change in control of the Company, you will remain in the
employ of the Company or its Subsidiaries during the pendency of any such
potential change in control and for a period of one year after the occurrence
of a change in control of the Company, unless you terminate for Good Reason
pursuant to Section 3 hereof. However, you acknowledge that you are an "at will"
employee and nothing in this Agreement shall confer upon you any right to
continue in the employ of the Company or its Subsidiaries prior to a change in
control of the Company or shall interfere with or restrict in any way the
rights of the Company or its Subsidiaries, which are hereby expressly
reserved, to discharge you at any time prior to a change in control of the
Company for any reason whatsoever, with or without cause.
3. Termination Following Change in Control. If a change in
control of the Company shall have occurred, you shall be entitled to the
benefits provided in Subsection 4(iii) hereof upon the subsequent termination of
your employment with the Company or its Subsidiaries within three years
thereafter (or, if applicable, in the case of a deemed change in control of the
Company, within three years after the date of such deemed change in control),
unless such termination is (A) because of your death or Retirement, (B) by the
Company for Cause or Disability, or (C) by you other than for Good Reason.
(i) Disability; Retirement. If you become permanently
and totally disabled (as defined under the long-term disability plan
sponsored by the Company or its Subsidiaries) and are unable to return to
the full-time performance of your duties, the Company may terminate your
employment for "Disability". Termination by the Company or you of your
employment with the Company or its Subsidiaries based on "Retirement" shall
mean termination by reason of your retirement at or after your "Normal
Retirement Date" under the Retirement Plan for Salaried U.S. Employees of
Transamerica Corporation and Affiliates (or any successor thereto).
(ii) Cause. Termination by the Company of your employment
with the Company or its Subsidiaries for "Cause" shall mean termination upon the
willful engaging by you in misconduct which is demonstrably and materially
injurious to the Company and its Subsidiaries taken as a whole. No act, or
failure to act, on your part shall be considered "willful" unless done, or
omitted to be done, by you not in good faith and without reasonable belief that
your action or omission was in the best interest of the Company or its
Subsidiaries. Notwithstanding the foregoing, you shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered
to you a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the entire membership of the Board at a meeting of
the Board called and held for the purpose (after reasonable notice to you
and an opportunity for you, together with your counsel, to be heard before the
Board), finding that in the good faith opinion of the Board you were guilty
of misconduct a set forth above in this Subsection and specifying the
particulars thereof in detail.
(iii) Good Reason. You shall be entitled to terminate
your employment for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean any material breach of this Agreement by the Company or any of the
following events which occurs without your express written consent:
(A) the assignment to you of any duties inconsistent with, or
a substantial alteration in the nature or status of, your
responsibilities from those in effect immediately prior to a change in
control of the Company or, if applicable, a deemed change in control of
the Company;
(B) a reduction in your annual base salary as in effect on the
date hereof or as the same may be increased from time to time, except
for across-the-board salary reductions similarly affecting all
executives of the Company and its Subsidiaries and all executives of
any person in control of the Company;
(C) the Company or its Subsidiaries requiring (i) you to be
based other than in the Metropolitan Area where your employment was
based prior to a change in control of the Company or, if applicable, a
deemed change in control of the Company, or (ii) business travel to an
extent substantially inconsistent with your travel obligations in
effect prior to a change in control of the Company or, if applicable, a
deemed change in control of the Company;
(D) (i) the failure by the Company or its Subsidiaries to
continue in effect any compensation plan of the Company or its
Subsidiaries in which you were participating at the time of a change in
control of the Company or, if applicable, a deemed change in control of
the Company, including but not limited to both annual and long-term
incentive plans, or replacements therefor, which provide competitive
levels of compensation, unless an equitable arrangement (embodied in
ongoing substitute or alternative plans) has been made with respect to
any such plan in connection with the change in control of the Company,
or (ii) the failure by the Company or its Subsidiaries to continue your
participation therein;
(E) (i) the failure by the Company or its Subsidiaries to
continue to provide you with benefits of a type and at a level
substantially similar to those enjoyed by you under the Company's
Employees Stock Savings Plan, Stock Savings Plan Plus, or any of the
pension, life insurance, disability, accident or health (including
medical, prescription drug and dental) plans of the Company or its
Subsidiaries in which you were participating at the time of a change in
control of the Company or, if applicable, a deemed change in control of
the Company, or (ii) the taking of any action by the Company or its
Subsidiaries which would directly or indirectly materially reduce any
of such benefits or deprive you of any material fringe benefit or
perquisite enjoyed by you at the time of a change in control of the
Company or, if applicable, a deemed change in control of the Company,
or (iii) the failure by the Company or its Subsidiaries to provide you
with the number of paid vacation days to which you are entitled on the
basis of years of service with the Company or its Subsidiaries in
accordance with the normal vacation policy of the Company or its
Subsidiaries as in effect at the time of the change in control of the
Company or, if applicable, the deemed change in control of the Company;
(F) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Subsection 8(i) hereof; or
(G) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the
requirements of Subsection (iv) below (and, if applicable, Subsection
(ii) above); and for purposes of this Agreement, no such purported
termination shall be effective.
Your right to terminate your employment pursuant to this Subsection (iii) shall
not be affected by your incapacity due to physical or mental illness. For
purposes of this Subsection 3 (iii), any good faith determination of "Good
Reason" made by you shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by you for any reason during the 30-day
period immediately following the first anniversary of the date of a change in
control of the Company shall be deemed to be a termination for Good Reason for
all purposes of this Agreement.
(iv) Notice of Termination. Any purported termination of your
employment by the Company or its Subsidiaries or by you pursuant to this Section
3 shall be communicated by written Notice of Termination to the other party in
accordance with Section 9 hereof. A "Notice of Termination" shall mean a notice
which indicates the specific termination provision in this Agreement relied upon
and sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment.
(v) Date of Termination, Etc. "Date of Termination" shall mean
(A) if your employment is terminated for Disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such 30-day period), and
(B) if your employment is terminated for any other reason, the date specified in
the Notice of Termination (which shall be not less than 30 days from the date
such Notice of Termination is given).
4. Compensation Upon Termination or During Disability.
(i) Disability. During any period that you fail to
perform your duties hereunder as a result of incapacity due to physical or
mental illness, you shall continue to receive your full base salary at the
rate then in effect unless and until your employment is terminated pursuant to
Subsection 3(i) hereof. Thereafter, your benefits shall be determined in
accordance with the Company's disability program (without regard to any
amendment to such disability program made subsequent to a change in control of
the Company and on or prior to the Date of Termination, which amendment
adversely affects in any way the computation of benefits
thereunder).
(ii) Termination for Cause. If your employment by the
Company or its Subsidiaries shall be terminated for Cause, the Company shall pay
you your full base salary through the Date of Termination at the rate in effect
at the time Notice of Termination is given and the Company shall have no
further obligations to you under this Agreement.
(iii) Certain Termination Benefits. If prior to the
earlier to occur of (i) the expiration of this Agreement or (ii) the
expiration of three years after a change in control of the Company, your
employment by the Company or its Subsidiaries shall be terminated (a) by the
Company or its Subsidiaries other than for Cause, Retirement or Disability
or (b) by you for Good Reason, then you shall be entitled to the benefits
provided below:
(A) the Company shall pay you your full base salary through
the Date of Termination at the rate in effect at the time Notice of
Termination is given;
(B) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay as
severance pay to you, not later than the fifth day following the Date
of Termination, a lump sum severance payment (together with the
payments provided in Subsections (C), (E) and (F) below, the "Severance
Payments") equal to the product of (x) [three, two, one], and (y) your
highest target annual cash compensation during the last three fiscal
years of the Company immediately preceding the year in which the change
in control of the Company occurs; which shall consist of the sum of (I)
your annual base salary and (II) your target annual bonus for each such
year; provided that, in the event there are fewer than [36, 24, 12]
whole or partial months remaining from the Date of Termination to your
Normal Retirement Date, the amount provided for in this Subsection
(iii)(B) will be reduced by multiplying it by a fraction the numerator
of which is the number of whole or partial months so remaining to your
Normal Retirement Date and the denominator of which is [36, 24, 12];
provided, however, that if (i) the payment to be made to you pursuant
to this Subsection (iii)(B) would result in the application to you of
the Excise Tax (as defined in Section 5 hereof), and (ii) a reduction
of up to $25,000 in the amount of such payment would result in your not
being subject to the application of the Excise Tax, then the Company
may withhold, and you shall have no entitlement to receive, such
portion of such payment (not in excess of $25,000) as is required to
preclude the application of the Excise Tax to you;
(C) notwithstanding any provision of the Company's or any
Subsidiary's bonus plans, the Company shall pay to you, not later than
the fifth day following the Date of Termination, a lump sum amount
equal to the sum of (x) any incentive compensation for the fiscal year
preceding that in which the Date of Termination occurs but has not yet
been paid, which shall be the greater of (I) your target bonus for such
fiscal year, or (II) any amount determined prior to your Date of
Termination to be due you for such fiscal year, and (y) the product of
(I) your target bonus for the fiscal year in which the Date of
Termination occurs, and (II) a fraction, the numerator of which is the
number of days in the fiscal year in which the Date of Termination
occurs through the Date of Termination, and the denominator of which is
365;
(D) the Company shall also pay to you as incurred all legal
fees and expenses incurred by you as a result of such termination
(including all such fees and expenses, if any, incurred in contesting
or disputing any such termination or in seeking to obtain or enforce
any right or benefit provided by this Agreement);
(E) the Company shall arrange to provide you: (i) for a [36,
24, 12]-month period after such termination (or such lesser number of
months to your Normal Retirement Date), with life, disability, accident
and health (including medical, prescription drug and dental) insurance
substantially similar to that which you are receiving at the time of a
change in control of the Company, or, if applicable, a deemed change in
control of the Company; and (ii) for the period commencing on the date
you begin receiving retirement payments under the Company's
tax-qualified pension plan, and ending on the date of your death (or if
later, the death of your spouse, if any), health (including medical,
prescription drug and dental) insurance substantially similar to that
which you are receiving at the time of a change in control of the
Company, or, if applicable, a deemed change in control of the Company.
Benefits otherwise receivable by you pursuant to Clause(E)(i) above
shall be reduced to the extent comparable benefits are actually
received by you from any other source during the [36, 24, 12]-month
period following such termination (or such lesser number of months to
your Normal Retirement Date), and any such benefits actually received
by you shall be reported by you to the Company; and
(F) in addition to the retirement benefits to which you are
entitled under the tax qualified and supplemental pension plans of the
Company or any of its Subsidiaries in which you participate or any
successor plans thereto (the "Pension Plans"), the Company shall pay to
you, not later than the fifth day following the Date of Termination, a
lump sum amount in cash equal to the actuarial equivalent of the excess
of (x) the retirement pension (determined as a single life annuity
commencing at your Normal Retirement Date) which you would have accrued
under the terms of the Pension Plans (without regard to any amendment
to the Pension Plans made subsequent to a change in control of the
Company and on or prior to the Date of Termination, which amendment
adversely affects in any manner the computation of retirement benefits
thereunder), determined as if you were fully vested thereunder and had
accumulated (after the Date of Termination) [36, 24, 12] additional
months of age and benefit service credit (as defined in the Company's
tax qualified pension plan) thereunder at your highest annual rate of
compensation (annual base salary and target annual bonus) during the 12
months immediately preceding the Date of Termination (but in no event
shall you be deemed to have accumulated additional months of age and
benefit service credit after your Normal Retirement Date), over (y) the
vested retirement pension (determined as a single life annuity
commencing at your Normal Retirement Date) which you had then accrued
pursuant to the provisions of the Pension Plans. For purposes of clause
(x), your highest annual rate of compensation during the 12 months
immediately preceding the Date of Termination shall be determined
without regard to the amounts payable pursuant to Subsection 4(iii)(B)
hereof. For purposes of this Subsection, "actuarial equivalent" shall
be determined using the same methods and assumptions utilized under the
Pension Plans immediately prior to the change in control of the
Company.
(iv) No Mitigation. You shall not be required to
mitigate the amount of any payment provided for in this Section 4 by seeking
other employment or otherwise, nor, except as provided in Subsection
4(iii)(E) above, shall the amount of any payment or benefit provided for in
this Section 4 be reduced by any compensation earned by you as the result of
employment by another employer or by retirement benefits after the Date of
Termination or otherwise.
(v) Retirement Benefits. In addition to all other
amounts payable to you under this Section 4, you shal be entitled to receive
all benefits payable to you under the Pension Plans, and any other plan or
agreement relating to retirement benefits.
5. Gross-Up Payments. In the event that you become entitled to
any payment or benefit in connection with a change in the ownership or effective
control of the Company, or a change in the ownership of a substantial portion of
the assets of the Company (including but not limited to payments or benefits
that you become entitled to in connection with a "change in control of the
Company" as defined in Section 2 hereof), whether payable pursuant to the terms
of this Agreement or any other plan (including specifically, but without
limitation, the 1995 Performance Stock Option Plan), arrangement or agreement
with the Company, any successor to the Company, any person whose actions result
in a change in control of the Company, or any corporation ("Affiliate") that is
or becomes affiliated with the Company or such person (collectively with the
Severance Payments, "Payments"), if any of the Payments will be subject to the
tax (the "Excise Tax") imposed by section 4999 of the Code, the Company shall
pay to you, not later than the fifth day following each date ("Payment Date") on
which you become entitled to receive any Payment (whether payable immediately or
at a future date) that will be subject to the Excise Tax (but in no event later
than the fifth day following your Date of Termination), an additional amount
(collectively, the "Gross-Up Payments") such that the net amount retained by
you, after deduction of any Excise Tax on the aggregate Payments received (or
that you have become entitled to receive) as of such Payment Date and any
federal, state or local income tax and Excise Tax upon the payment provided for
by this Section 5, and after taking into account any Gross-Up Payments
previously made pursuant to this Section 5, shall be equal to the aggregate
Payments received (or that you have become entitled to receive) as of such
Payment Date. For purposes of determining whether any Payment will be subject to
the Excise Tax and the amount of such Excise Tax, (i) all amounts received in
connection with your employment by the Company or one of its Subsidiaries or to
be received by you in connection with a change in the ownership or effective
control of the Company, or a change in the ownership of a substantial portion of
the assets of the Company (including but not limited to payments or benefits
that you become entitled to in connection with a "change in control of the
Company" as defined in Section 2 hereof) shall be treated as "parachute
payments" within the meaning of section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, except to the extent that in the
written opinion of independent tax counsel selected by the Company's independent
auditors and approved by you (which approval shall not be unreasonably withheld)
("Tax Counsel") which opinion shall be obtained at the Company's expense, any
such payments or benefits (in whole or in part) do not constitute parachute
payments or excess parachute payments (in whole or in part), or represent
reasonable compensation for personal services to be rendered or actually
rendered before the change in control in excess of the base amount, within the
meaning of section 280G(b)(4)(B) of the Code, and (ii) the value of any non-cash
benefit or any deferred cash payment included in the Payments shall be
determined by the Company's independent auditors in accordance with the
principles of section 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of each Gross-Up Payment, you shall be deemed to pay
federal income taxes at the highest marginal rate of federal income taxation in
effect during the calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rates of taxation in effect
in the state and locality of your residence on the date of payment, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes, but assuming that you have no other deductions or
credits available to reduce such taxes.
6. Indemnity and Contest.
(a) Additional Gross-Up Payments. If you are required to pay
Excise Tax in addition to the amount reimbursed pursuant to Section 5 (any such
event hereafter being referred to as a "Loss"), you shall notify the Company and
the Company shall pay to you an amount (the "Additional Gross-Up Payment")
which, after deduction of all income taxes and additional federal, state and
local taxes (including, without limitation, any additional Excise Tax) required
to be paid by you in respect of receipt of such amount (assuming, for this
purpose, that you are subject to the highest marginal rate of federal income
taxation in effect during the calendar year in which the Additional Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rates of taxation in effect in the state and locality of your residence on the
date of payment, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes, but assuming
that you have no other deductions or credits available to reduce such taxes),
shall be equal to the sum of (i) the Excise Tax resulting in the Loss, and (ii)
the net amount of any interest, penalties or additions to tax payable to any
taxing authority (after allowing for the deduction of such amounts, to the
extent properly deductible, for federal, state or local income tax purposes) as
a result of the Loss. Each Additional Gross-Up Payment by the Company shall be
made within 30 days after receipt of a written demand therefor from you
accompanied by a written statement describing in reasonable detail the Loss in
question, the amount of additional tax, interest, penalties or additions to tax
and the calculation of the payment due in respect thereof; provided that, if a
contest of the Loss is being conducted pursuant to Subsection 6(b) below,
payment shall not be required by the Company until 30 days after the completion
or termination of such contest.
(b) Contest. If you shall receive a written notification from
federal taxing authorities of a proposed Excise Tax for which an amount may be
payable by the Company in accordance with this Section 6, then you shall notify
the Company of such proposed Excise Tax promptly after receipt of (which notice
shall be accompanied by a copy of) such written notification. If (i) within 30
days after receipt by the Company of such notice from you, the Company shall
deliver to you a written request that you contest such proposed Excise Tax,
which written request shall be accompanied by an opinion (obtained at the
Company's expense) of Tax Counsel that there exists substantial authority in
support of a favorable outcome of a contest of such proposed Excise Tax, and
(ii) the Company shall (A) have fully performed its prior obligations under this
Agreement, (B) acknowledge in writing its liability under Subsection 6(a) above
to make an Additional Gross-Up Payment in the event that the taxing authority
prevails in its position regarding the proposed Excise Tax, and (C) deliver to
you in writing an indemnity, satisfactory to you, for any and all expenses that
you may incur as a result of contesting such proposed Excise Tax, including,
without limitation, indemnification and prompt payment of all costs, expenses,
losses, legal and accounting fees and disbursements, bonding fees, penalties and
interest so incurred (the "Indemnified Amount"):
(1) You may, in your sole discretion, choose to
pursue or to forego any and all administrative appeals, proceedings, hearings
and conferences with the relevant taxing authorities with respect to such
matter (unless and to the extent that pursuance of any such appeal,
proceedings, hearing or conference shall be required to secure judicial
remedies, in which case you shall pursue the same), but will (unless there
shall be a settlement or compromise as permitted in Subsection 6(b)(4)
hereof) in good faith contest such proposed Excise Tax in a court of competent
jurisdiction selected by the Company, in its sole discretion.
(2) You shall be required to appeal an adverse
judicial determination only if (A) an appeal is timely requested in writing by
the Company, and (B) you are furnished, at the Company's expense, with an
opinion of Tax Counsel, to the effect that it is more likely than not that an
appellate court would reverse such adverse determination.
(3) If the Company shall elect to contest a proposed
Excise Tax by paying the tax claimed (including interest, penalties or
additions to tax) and seeking a refund, then the Company shall advance to
you on an interest-free basis the aggregate amount of such taxes, interest,
penalties and additions to tax; provided, however, that if you are required
to include in income any amount with respect to such loan or the imputation of
interest thereon in any taxable year prior to final determination of the
contest, then the Company, within 30 days of written notice thereof by you,
shall pay to you an amount which, after deduction of all additional
federal, state and local taxes required to be paid by you in respect of the
receipt of such amount (assuming, for this purpose, that you are subject to
the highest marginal rate of federal income taxation in effect during the
calendar year in which the payment is to be made and state and local income
taxes at the highest marginal rates of taxation in effect in the state and
locality of your residence on the date of payment, net of the maximum reduction
in federal income taxes which could be obtained from deduction of such state and
local taxes, but assuming that you have no other deductions or credits available
to reduce such taxes), shall be equal to the aggregate additional federal and
state income taxes payable by you with respect to such taxable year as a result
of such inclusion. If you subsequently receive a refund of any taxes, interest,
penalties or additions to tax which were previously advanced to you by the
Company pursuant to the preceding sentence, you shall pay to the Company within
60 days of receipt of such refunded taxes, interest, penalties or additions to
tax, the amount thereof plus the amount of any interest received by you and
fairly attributable thereto (which amount shall be deemed to be in repayment of
the loan advanced by the Company to the extent fairly attributable thereto);
provided, however, that you may offset the amount of such refund against any
amount due and owing by the Company to you pursuant to this Agreement. Upon
disallowance of any such refund, the Company shall forgive the amount of the
advance fairly attributable thereto (which forgiveness shall be deemed to be in
satisfaction of a portion of the Additional Gross-Up Payment due under
Subsection 6(a) hereof).
(4) If, in the course of contesting any proposed
Excise Tax referred to in this Section 6, any taxing authority advises you
that it is willing to agree to a settlement with respect to such matter, you
shall notify the Company of such settlement proposal. If the settlement
proposal is acceptable to the Company, the Company shall so notify you and you
shall agree to the settlement proposal; provided, however, that you shall not
be obligated to agree to the settlement proposal if you release the Company
from any further obligations pursuant to this Section 6 with respect to any
further action to be taken by you to contest such proposed Excise Tax and if
you agree that the Additional Gross-Up Payment and Indemnified Amount
determined under this Section 6 in respect of such proposed Excise Tax that
the Company shall be required to pay to you shall not exceed the amount of such
payments that would have been required if you had agreed to the settlement
proposal.
7. Confidentiality. You acknowledge and agree that as a key
manager of the Company or its Subsidiaries, you have and will continue to have
access to the Company's or its Subsidiaries' confidential and proprietary
information, including, but not limited to, any trade secrets the Company or its
Subsidiaries may have. As a condition of your eligibility for the benefits of
this Agreement, you agree you shall not during your employment by the Company or
its Subsidiaries, or at any time after your employment by the Company or its
Subsidiaries ends, directly or indirectly, use or disclose or induce or assist
in the use or disclosure of any of the Company's or its Subsidiaries'
confidential and/or proprietary information except as may be necessary in the
ordinary course of performing your duties as an employee of the Company or its
Subsidiaries.
Notwithstanding any other provision of this Agreement, your
obligations pursuant to this Section 7 shall survive the expiration or
termination of this Agreement, for any reason.
8. Successors; Binding Agreement; Etc. (i) The Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle you to
compensation from the Company in the same amount and on the same terms as you
would be entitled pursuant to Sections 4 and 5 hereof if you terminate your
employment for Good Reason and a change in control of the Company has occurred,
except that for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination. As
used in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
(iii) If pursuant to Section 3 hereof you become entitled to
the benefits provided in Subsection 4(iii) hereof, you agree that all rights you
may then have under the Separation Pay Plan of the Company or any of its
Subsidiaries, or any successor plan, shall lapse and you shall have no rights
thereunder.
(iv) You agree that this Agreement amends and restates that
certain letter agreement between you and the Company dated ___________________,
19__.
9. Notice. Notices and all other communications provided for
in this Agreement shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States registered or certified mail,
return receipt requested, postage prepaid, addressed to the respective addresses
set forth on the first page of this Agreement, provided that all notices to the
Company shall be directed to the attention of the Board with a copy to the
Secretary of the Company, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt. If, as of the date you
give any notice under this Agreement, you are then an employee of a Subsidiary
of the Company, you shall provide such notice to such Subsidiary, directed to
the attention of the Board of Directors of such Subsidiary with a copy to the
Secretary of such Subsidiary, as well as to the Company in the manner set forth
in this Section 9.
10. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless in writing and signed by you and such
officer as may be specifically designated by the Board. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar conditions or
provisions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
11. Validity. The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
If this letter correctly sets forth our agreement on the
subject matter hereof, kindly sign and return to the Company the enclosed copy
of this letter which will then constitute our agreement on this subject.
TRANSAMERICA CORPORATION
[Name]
[Title]
Agreed to as of _____________, 19__
- ------------------------------------
[Name]
<PAGE>
Exhibit 10.27
[TANDEM TO $100 OPTION AGREEMENT]
TRANSAMERICA CORPORATION
TANDEM LIMITED STOCK APPRECIATION RIGHT AGREEMENT
In connection with the grant under the Transamerica
Corporation 1995 Performance Stock Option Plan (the "Plan") of a nonqualified
stock option to purchase shares of common stock of Transamerica Corporation
("Shares") at a purchase price per Share of $100.00 (the "Related Option"),
Transamerica Corporation (the "Company") hereby grants you, [NAME OF EMPLOYEE]
(the "Employee"), a tandem limited stock appreciation right (a "TLSAR") under
the Plan, to surrender all or part of the unexercised portion of the Related
Option in exchange for a payment from the Company pursuant to this TLSAR. The
date of this Agreement is January 26, 1995 (the "Grant Date"). In general, the
latest date this TLSAR will expire is January 25, 2007 (the "Expiration Date").
However, as provided in Appendix A (attached hereto), this TLSAR may expire
earlier than the Expiration Date. Subject to the provisions of Appendix A and of
the Plan, the principal features of this TLSAR are as follows:
Number of Shares to
Which this TLSAR Pertains: [NUMBER] Exercise Price per Share: $_________
Scheduled Vesting Date: The date on which a Change of Control occurs.
Event Triggering Maximum Time to Exercise
Termination of TLSAR After Triggering Event*
Termination of Employment (except as shown below) 3 months
Termination of Employment due to Disability 3 years
Termination of Employment due to Early or
Normal Retirement 5 years
Termination of Employment due to death 3 years
Change of Control 60 days
Failure of the Related Option to Vest None
Exercise of the Related Option None
* However, in no event may this TLSAR be exercised after the Expiration
Date (except in certain cases of the death of the Employee).
Your signature below indicates your agreement and understanding that
this TLSAR is subject to all of the terms and conditions contained in Appendix A
and the Plan. For example, important additional information on vesting and
termination of this TLSAR is contained in Paragraphs 4 through 6 of Appendix A.
ACCORDINGLY, PLEASE BE SURE TO READ ALL OF APPENDIX A, WHICH CONTAINS THE
SPECIFIC TERMS AND CONDITIONS OF THIS TLSAR.
TRANSAMERICA CORPORATION EMPLOYEE
By______________________ ________________________
Title: [NAME]
<PAGE>
APPENDIX A
TERMS AND CONDITIONS OF TANDEM LIMITED STOCK APPRECIATION RIGHTS
1. Grant of TLSAR. The Company hereby grants to the Employee
under the Plan, in connection with the grant of the Related Option, and as a
separate incentive in connection with his or her employment and not in lieu of
any salary or other compensation for his or her services, a TLSAR pertaining to
all or any part of an aggregate of [NUMBER] Shares, which TLSAR entitles the
Employee to surrender, on the terms and conditions set forth in this Agreement
and the Plan, all or part of the Related Option in exchange for a payment from
the Company in the amount determined under Paragraph 9 below.
2. Exercise Price. The exercise price per Share for this TLSAR
(the "Exercise Price") shall be $[NUMBER], which is equal to the Fair Market
Value per Share on the Grant Date.
3. Number of Shares. The number and class of Shares specified
in Paragraph 1 above, and/or the Exercise Price, are subject to adjustment by
the Committee in the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, split-up, Share
combination, distribution or other change in the corporate structure of the
Company affecting the Shares (an "Event"). Any such adjustment shall be made by
the Committee as constituted immediately prior to the applicable Event;
provided, however, that the number of Shares subject to this TLSAR always shall
be a whole number.
4. Vesting Schedule. The right to exercise this TLSAR will
vest as to 100% of the Shares subject to the TLSAR upon the occurrence of a
Change of Control, provided that (a) vesting will occur only if the Employee is
an Executive on the date of the Change of Control, and (b) if the Employee is a
Section 16 Person, the right to exercise this TLSAR may not become vested until
at least six (6) months after the Grant Date. Notwithstanding clause (b) of the
preceding sentence, in the event of the Employee's Termination of Employment due
to Normal Retirement, Disability or death, (i) if the right to exercise this
TLSAR would have vested within six (6) months after such Termination of
Employment (had the Employee not incurred a Termination of Employment), then the
right to exercise this TLSAR will vest on the date that such right otherwise
would have vested, and (ii) if the right to exercise this TLSAR would have
vested more than six (6) months after such Termination of Employment (had the
Employee not incurred a Termination of Employment), then the right to exercise a
portion of the Shares to which this TLSAR pertains will vest on the date that
such right otherwise would have vested, as determined in the discretion of the
Committee based on the time elapsed from the Grant Date to the Termination of
Employment and the vesting date.
5. Termination of TLSAR. In the event of the Employee's
Termination of Employment for any reason other than Early or Normal Retirement,
Disability or death, this TLSAR shall immediately terminate, provided that if
this TLSAR became vested prior to such Termination of Employment, the Employee
may, prior to the Expiration Date and subject to the last two sentences of this
Paragraph 5, exercise the TLSAR. In the event of the Employee's Termination of
Employment due to Disability, the Employee may, within three (3) years after the
date of such Termination, or prior to the Expiration Date, whichever shall first
occur, exercise this TLSAR (if then vested). In the event of the Employee's
Termination of Employment due to Early or Normal Retirement, the Employee may,
within five (5) years from the date of such Termination, or prior to the
Expiration Date, whichever shall first occur, exercise this TLSAR (if then
vested). In addition, this TLSAR shall terminate on the first to occur of the
following: (a) the first date on which the Related Option no longer may become
exercisable, (b) the last day of the period of sixty (60) consecutive days which
begins on the date of a Change of Control, or (c) upon exercise of the Related
Option (but only to the extent provided in the following sentence). For each
Share with respect to which the Related Option is exercised, the right to
exercise [NUMBER] of the Shares subject to this TLSAR shall immediately
terminate, provided that the number of Shares which so terminate shall be
rounded to the nearest whole number (or to such number as is appropriate to
ensure that the total number of shares covered by this TLSAR does not exceed the
number specified in Paragraph 1 above).
6. Death of Employee. In the event that the Employee dies
prior to the expiration of this TLSAR in accordance with the provisions of
Paragraph 5 above, the Employee's designated beneficiary or beneficiaries, or if
no beneficiary survives the Employee, the administrator or executor of the
Employee's estate, nevertheless may, within three (3) years after the date of
death, exercise any vested but unexercised portion of the TLSAR, but only to the
extent that such right was transferred with respect to the Related Option. Any
such transferee must furnish the Company (a) written notice of his or her status
as a transferee of this TLSAR, (b) evidence satisfactory to the Company to
establish the validity of the transfer of this TLSAR and compliance with any
laws or regulations pertaining to such transfer, and (c) written acceptance of
the terms and conditions of this TLSAR as set forth in this Agreement.
7. Persons Eligible to Exercise TLSAR. This TLSAR shall be
exercisable during the Employee's lifetime only by the Employee. This TLSAR is
not transferable, except that the Employee may transfer this TLSAR (a) by a
valid beneficiary designation made in a form and manner acceptable to the
Committee, or (b) by will or the applicable laws of descent and distribution, in
which case this TLSAR shall be transferred to the same extent. Any such transfer
shall be effective only if the Related Option also is transferred to the same
transferee.
8. Notice of Exercise of TLSAR. This TLSAR may be exercised by
the person then entitled to do so as to any portion of the TLSAR which may then
be exercised by giving written notice of exercise to the Secretary of the
Company (or his or her designee) specifying the number of full Shares with
respect to which the TLSAR is to be exercised.
9. Payment of TLSAR Amount. Upon exercise of this TLSAR, the
Employee shall be entitled to receive payment from the Company in an amount (the
"TLSAR Amount") determined by multiplying:
(a) The amount by which the Change of Control Value (as
defined below) of a Share on the date of exercise exceeds the Exercise
Price, times
(b) The number of Shares with respect to which the TLSAR is
exercised.
For this purpose, the "Change of Control Value" of a Share shall mean the
greater of (i) the highest Fair Market Value of a Share during the period of 60
consecutive days which ends on the date of a Change of Control, or (ii) the
highest price per Share paid in the transaction which gives rise to the Change
of Control.
10. Form of Payment of TLSAR Amount. The TLSAR Amount shall
be paid in cash, unless the Committee determines that such payment
(or portion thereof) would cause a transaction which gives rise to the Change
of Control to be ineligible for pooling of interests accounting under
APB No. 16, which transaction (but for such payment) otherwise would have
been eligible for such accounting treatment, in which case the Committee may
determine that the TLSAR Amount shall be paid in Shares of equivalent value.
Prior to any payment of the TLSAR Amount, the Company shall deduct or withhold,
or require the Employee to remit to the Company, an amount sufficient to
satisfy any withholding taxes required to be withheld with respect to the
payment.
11. No Rights of Stockholder. Neither the Employee (nor
any beneficiary) shall be or have any of the rights or privileges of a
stockholder of the Company in respect of any of the Shares issuable pursuant to
the exercise of this TLSAR, unless and until certificates representing such
Shares shall have been issued, recorded on the records of the Company or its
transfer agents or registrars, and delivered to the Employee (or beneficiary).
12. No Effect on Employment. The Employee's employment with
the Company and its Affiliates is on an at-will basis only. Accordingly, the
terms of the Employee's employment with the Company and its Affiliates
shall be determined from time to time by the Company or the Affiliate
employing the Employee (as the case may be), and the Company or the Affiliate
shall have the right, which is hereby expressly reserved, to terminate or
change the terms of the employment of the Employee at any time for any reason
whatsoever, with or without good cause. For purposes of this Agreement, the
transfer of employment of the Employee between the Company and any one of its
Affiliates (or between Affiliates) shall not be deemed a Termination of
Employment.
13. Address for Notices. Any notice to be given to the
Company under the terms of this Agreement shall be addressed to the Company,
in care of its Secretary, at 600 Montgomery Street, San Francisco, California
94111, or at such other address as the Company may hereafter designate in
writing.
14. TLSAR is Not Transferable. Except as otherwise provided
in Paragraphs 6 and 7 above, this TLSAR and the rights and privileges
conferred hereby may not be transferred, pledged, assigned or otherwise
hypothecated in any way (whether by operation of law or otherwise) and shall
not be subject to sale under execution, attachment or similar process.
Upon any attempt to transfer, pledge, assign, hypothecate or otherwise dispose
of this TLSAR, or of any right or privilege conferred hereby, or upon any
attempted sale under any execution, attachment or similar process, this
TLSAR and the rights and privileges conferred hereby immediately shall become
null and void.
15. Maximum Term of TLSAR. Notwithstanding any other
provision of this Agreement except Paragraph 6 above relating to the death of
the Employee (in which case the TLSAR is exercisable to the extent set forth
therein), this TLSAR is not exercisable after the Expiration Date.
16. Binding Agreement. This Agreement shall be binding upon
and inure to the benefit of the heirs, legatees, legal representatives,
successors and assigns of the parties hereto.
17. Conditions to Exercise. Exercise of this TLSAR will not
be permitted until arrangements (satisfactory to the Company) have been made by
the Employee for the payment of the amount of taxes required (as determined by
the Company) to be withheld by reason of such exercise.
<PAGE>
18. Plan Governs. This Agreement is subject to all of the
terms and provisions of the Plan. In the event of a conflict between one
or more provisions of this Agreement and one or more provisions of the
Plan, the provisions of the Plan shall govern. Capitalized terms and phrases
used and not defined in this Agreement shall have the meaning set forth in the
Plan.
19. Committee Authority. The Committee shall have all
discretion, power, and authority to interpret the Plan and this Agreement and to
adopt such rules for the administration, interpretation and application of the
Plan as are consistent therewith. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon the Employee, the Company and all other interested persons, and shall be
given the maximum deference permitted by law. No member of the Committee shall
be personally liable for any action, determination or interpretation made in
good faith with respect to the Plan or this Agreement.
20. Captions. The captions provided herein are for convenience
only and are not to serve as a basis for the interpretation or construction of
this Agreement.
21. Agreement Severable. In the event that any provision in
this Agreement shall be held invalid or unenforceable, such provision shall be
severable from, and such invalidity or unenforceability shall not be construed
to have any effect on, the remaining provisions of this Agreement.
<PAGE>
Exhibit 10.33
TRANSAMERICA CORPORATION
1998 CORPORATE BONUS PLAN
Purpose: To provide a variable pay element that serves as an
incentive to achieve planned performance; and
To recognize individual contributions to annual
operating results and achievement of the
Corporation's strategic goals.
To complement the Value Added Incentive Plan
described in the 1994 proxy statement.
Eligibility and
Participation: Senior corporate and subsidiary executives selected
by the Chief Executive Officer and Corporate Vice
Presidents are eligible to participate in the Plan.
Individuals will be notified of their participation,
target bonuses, the percentage weighting of the
components described below, and applicable payout
tables in a letter as soon as possible after the Plan
has been adopted.
Inclusion of any individual as a participant in the
Plan will not be a guarantee that any bonus will be
paid to that person or that the person's employment
will be continued for any period.
Individual
Bonuses: Individual target bonuses will be a predetermined
percentage of 1998 base salary. A percentage of each
executive's target bonus will be based on performance
achieved in the following areas as appropriate:
o The level of Value Added achieved. Value Added
is summarized on Exhibit I. Bonuses under this
component will be calculated in accordance with
the Value Added Incentive Plan, as adopted by
stockholders in 1994, under the terms
applicable to the 1998 plan year.
o The level of Business Unit Financial
Performance achieved. Business Unit Financial
Performance is described on Exhibit II.
o Management's evaluation of accomplishment of
Strategic Goals or other management
objectives.
Actual awards will be calculated after results are
known and will take into account performance in the
above areas. Bonuses may be further modified to
reflect the individual's personal performance.
Approval of Plan
and Payouts: The Plan is established by, and may be modified or
terminated at any time by, the Management Development
and Compensation Committee of the Corporation's Board
of Directors the "Compensation Committee").
Individual awards under the Plan shall be subject to
review and approval by the Compensation Committee.
The Compensation Committee reserves the right to
modify the formula for individual target bonuses
(both as to the components and the percentage mix)
for particular individuals and exclude non-recurring
items as appropriate.
Bonus Committee: The Plan will be administered by the Bonus
Committee composed of the Corporation's President and
Chief Executive Officer, Executive Vice President
(Finn), Executive Vice President and Chief Financial
Officer and Director of Compensation. The Bonus
Committee is responsible for interpreting the Plan
and recommending methods to deal with unforeseen
circumstances.
Payment of
Bonuses: Bonuses will be paid in cash as soon as possible
after Value Added and Business Unit Financial
Performance for the Corporation and each subsidiary
have been determined and bonus recommendations have
been approved by the Compensation Committee.
Participants must be continuously employed by the
Corporation or one of its subsidiaries from January 1
through December 31, 1998 to receive a payout under
the Plan.
EXHIBIT I
Value Added Component
Value Added is calculated in the same manner as for the 1998 profit plan and is
defined as Adjusted Net Income minus a capital charge, expressed as a percentage
of the Corporation's Average Adjusted Equity. The capital charge is determined
by multiplying the Corporation's Average Adjusted Equity by the Cost of Equity.
Each of these terms is further defined for 1998 as follows:
o "Adjusted Net Income" means the Corporation's net income, in accordance
with generally accepted accounting principles, as reported for the year,
adjusted for (i) cumulative effects of changes in accounting standards,
(ii) the economic amount of interest and depreciation (levelized over the
life of the equipment) and any economic gains and losses on the
disposition of equipment held for lease in lieu of reported interest,
depreciation and gains and losses, (iii) amortized bond, equity and other
portfolio gains and losses in lieu of realized gains and losses as
reported, and (iv) the exclusion of goodwill amortized during the year.
o "Adjusted Equity" means the Corporation's reported shareholders' equity,
adjusted to exclude (i) preferred stock and (ii) net unrealized gains and
losses on marketable equity and debt securities and foreign currency
translation adjustments, and to include accumulated goodwill amortization
related to assets still owned by the Company.
o "Average Adjusted Equity" means the "five-point" quarterly average of the
Adjusted Equity, the first point being the preceding year end.
o "Cost of Equity" means the Corporation's imputed equity cost based on a
formula approved by the Bonus Committee prior to the start of the year.
For 1998, the cost of equity will be determined by adding (a) the
Corporation's risk premium (the long-term market growth in equity
securities over the risk-free rate multiplied by the Corporation's beta)
and (b) the trend risk-free rate.
EXHIBIT II
Business Unit Financial Performance Component
Bonuses under the Business Unit Financial Performance Component generally will
be based on either (i) Value Added or (ii) actual after-tax operating income,
excluding investment gains and losses, compared to the profit plan operating
income for the relevant subsidiary or group of subsidiaries.
The leverage for below-target and above-target performance will take into
account the expected degree of difficulty in achieving target performance level
and is not necessarily the same for each organization. The applicable payout
table will be communicated to participants as soon as possible after the Plan
has been adopted.
<PAGE>
Exhibit 10.35
AMENDMENT NO. 2 TO THE
TRANSAMERICA CORPORATION
1996 STOCK OPTION AND AWARD PLAN
TRANSAMERICA CORPORATION, having adopted the Transamerica
Corporation 1996 Stock Option and Award Plan (the "Plan") effective as of
December 16, 1996, and having amended the Plan on one prior occasion, hereby
amends the Plan, effective as of January 2, 1998, as follows:
1. The Plan is hereby amended by adding a new Section 2.12 as follows
with all subsequent Sections renumbered accordingly:
2.12 "Early Retirement" means a Termination of
Employment by reason of the Employee's early retirement at or
after his or her "Early Retirement Date" under the Retirement
Plan for Salaried U.S. Employees of Transamerica Corporation
and Affiliates (or any successor thereto).
2. The Plan is hereby amended by adding a new Section 2.18 as follows
with subsequent Sections renumbered accordingly:
2.18 "Normal Retirement" means a Termination of
Employment by reason of the Employee's retirement at or after
his or her "Normal Retirement Date" under the Retirement Plan
for Salaried U.S. Employees of Transamerica Corporation and
Affiliates (or any successor thereto).
3. The Plan is hereby amended by deleting Section 2.24 (defining the
term, "Retirement") with subsequent Sections renumbered
accordingly.
4. Section 2.26 (defining the term, "Stock Appreciation Right" or
"SAR") is hereby amended by adding the phrase, "Early Retirement
or Normal" before the word, "Retirement".
5. Section 3.4 is hereby amended by adding the phrase, "Early
Retirement or Normal" before the word, "Retirement".
6. The first sentence of Section 4.3 is hereby amended by replacing
the phrase, "and the number, class, and price of Shares subject to
outstanding Awards," with the phrase, "and the number, class,
vesting price and Exercise Price of Shares subject to outstanding
Awards,".
7. Section 5.3 is hereby amended in its entirety to read as follows:
5.3 Exercise Price. Except as provided in
subparagraphs (a) and (b) of this Section 5.3, the Exercise
Price of each Option shall be determined by the Committee in
its discretion; provided, however, that such Price shall not
be less than 100% of the Fair Market Value of a Share on the
Grant Date. Notwithstanding the preceding sentence, in the
event that the Corporation or an Affiliate consummates a
transaction described in section 424(a) of the Code (e.g., the
acquisition of property or stock from an unrelated
corporation), persons who become Employees on account of such
transaction may be granted Options in substitution for options
granted by their former employer, in which case the Committee,
in its sole discretion and consistent with section 424(a) of
the Code, shall determine the exercise price of such
substitute Options.
(a) Options with an Exercise Price of $125 per Share,
or, if greater, the Fair Market Value per Share on the Grant
Date, for 100% of the Shares covered by the Option may be
granted to any Employee designated by the Committee.
(b) Options with an Exercise Price of $150 per Share
for 100% of the Shares covered by the Option shall be granted
to any designated Employee.
8. Section 5.4.1 is hereby amended in its entirety as follows:
5.4.1 Each Option shall terminate no later than the
first to occur of the following events:
(a) The date for termination of the Option
set forth in the related Award Agreement; or
(b) The expiration of twelve (12) years from
the Grant Date (10 years in the case of an Option described in
Section 5.3(a) or (b)); or
(c) Except as provided in 5.4.1(f), the
expiration of three (3) months from the Participant's
Termination of Employment for a reason other than his or her
death, Disability, Early or Normal Retirement; or
(d) The expiration of three (3) years from
the date of the Participant's Termination of Employment by
reason of Disability; or
(e) The expiration of five (5) years from
the date of the Participant's Early or Normal Retirement; or
(f) The expiration of one (1) year from the
date of the Participant's Termination of Employment if the
Participant's Termination of Employment occurs within one (1)
year after a Change of Control for a reason other than his or
her death, Disability, Early or Normal Retirement; or
(g) In the case of an Option described in
Section 5.3(b) which has not been exercised, the date on which
the Option no longer may become exercisable (due to the
failure of the conditions of Section 5.5.2(a) and (b) to be
met).
In addition, an Option (or applicable portion
thereof) with respect to which a related tandem SAR has been
granted shall terminate upon exercise of the related SAR.
9. Section 5.4.2 is hereby amended by replacing the phrase, "or
within the three-month, three-year, five-year or one-year period
referred to in Section 5.4.1(c), (d), (e) or (f) (whichever is
applicable)" with the phrase, "prior to the expiration of his or
her Option in accordance with Section 5.4.1".
10. Section 5.5 is hereby amended in its entirety to read as follows:
5.5 Exercisability of Options. Except as provided in
subsections 5.5.1, 5.5.2, 5.5.3 and 5.5.4 of this Section 5.5,
Options shall be exercisable at such times and be subject to
such restrictions and conditions as the Committee shall
determine in its sole discretion. After an Option is granted,
the Committee, in its sole discretion, may accelerate the
exercisability of such Option (or any portion thereof).
5.5.1 Exercisability of $125 Options.
Subject to Section 5.5.3, each Option described in Section
5.3(a) shall become exercisable as to 33-1/3% of the Shares
covered by the Option on the third anniversary of the Grant
Date, as to an additional 33-1/3% of such Shares on the fourth
anniversary of the Grant Date, and as to the remaining Shares
on the fifth anniversary of the Grant Date, provided in each
case that the Participant remains an Employee on the
applicable anniversary (except to the extent provided in
Section 5.5.4).
5.5.2 Exercisability of $150 Options. Each
Option described in Section 5.3(b) shall become exercisable as
to 100% of the Shares covered by the Option on the first date
on which both of the following conditions shall have occurred,
provided that the Participant remains an Employee on such date
(except to the extent provided in Section 5.5.4).
(a) the tenth trading day (occurring within
a period of 30 consecutive trading days) on which the Fair
Market Value of a Share is at least $150, provided that such
tenth trading day occurs within five years of the Grant Date,
and
(b) the Corporation's total stockholder
return (as determined by the Committee in its sole discretion)
is at or above the median level of stockholder return for a
subset of the Standard & Poor's 500 Financial Index during the
period from the Grant Date to the tenth trading day referred
to in Section 5.5.2(a) and any days thereafter until such
median level is attained or, if such period is not at least
one year, during the period from such date prior to the Grant
Date as will result in a period of at least one year ending on
the tenth trading day referred to in Section 5.5.2(a) and any
days thereafter until such median level is attained.
5.5.3 Special Rule for Change of Control.
Notwithstanding the foregoing, if a Change of Control occurs
prior to the Participant's Termination of Employment, the
right to exercise 100% of the Shares subject to an Option
(other than an Option referred to in Section 5.3(b)), shall
accrue on the date that the Change of Control occurs.
5.5.4 Special Rules for Early or Normal
Retirement, Disability or Death. Notwithstanding the
foregoing, with respect to an Option referred to in Section
5.3(a) or (b), if a Participant incurs a Termination of
Employment on account of Early Retirement, Normal Retirement,
Disability or death, then subject to Section 5.4 (regarding
the expiration and maximum term of Options), the right to
exercise a portion of his or her Shares shall accrue on the
date that such right otherwise would have accrued. The
Committee shall determine such portion on a pro-rata basis,
based on the time elapsed from the Grant Date to the date of
Normal Retirement, Disability or death and the vesting date.
11. Section 6.4 is hereby amended in its entirety to read as follows:
6.4 Expiration of SARs. Each SAR shall expire upon
the date determined by the Committee, in its sole discretion,
and set forth in the applicable Award Agreement.
Notwithstanding the foregoing, (a) the rules of Section 5.4
(regarding the expiration and maximum term of Options) also
shall apply to SARs, and (b) each SAR shall terminate no later
than the last day of the period 60 consecutive days which
begins on the date of a Change of Control.
<PAGE>
IN WITNESS WHEREOF, Transamerica Corporation, by its duly
authorized Chairman of its Management Development and Compensation Committee,
and by its duly authorized officer, has executed this Amendment No. 2 on the
date(s) indicated below.
TRANSAMERICA CORPORATION
Date: ______________, 1997 By _________________________________
Peter V. Ueberroth,
Chairman, Management, Development
and Compensation Committee
Date: ______________, 1997 And By _____________________________
Title:
<PAGE>
Exhibit 12
<TABLE>
TRANSAMERICA CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Dollar amounts in millions)
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Fixed charges:
Interest and debt expense .................... $ 420.9 $ 396.5 $ 381.5 $ 319.7 $ 269.3
Minority interest charges .................... 42.8 18.8 17.2 3.3
One-third of rental
expense ..................................... 36.1 19.0 21.3 26.9 23.5
--------- --------- ---------- ---------- ----------
Total ...................................... $ 499.8 $ 434.3 $ 420.0 $ 349.9 $ 292.8
========= ========= ========== ========== ==========
Earnings:
Consolidated operating
income from continuing
operations .................................. $ 532.0 $ 501.5 $ 390.1 $ 336.9 $ 354.5
Provision for income
taxes ....................................... 129.8 160.1 180.9 204.6 75.1
Fixed charges ................................ 499.8 434.3 420.0 349.9 292.8
--------- --------- ---------- ---------- ----------
Total ...................................... $ 1,161.5 $ 1,095.9 $ 991.0 $ 891.4 $ 722.4
========= ========= ========== ========== ==========
Ratio of earnings from con-
tinuing operations to
fixed charges ................................ 2.32 2.52 2.36 2.55 2.47
==== ==== ==== ==== ====
</TABLE>
<PAGE>
CONSOLIDATED RESULTS
TRANSAMERICA'S INCOME from continuing operations for 1997 grew $30.5
million (6%) from 1996. Results in 1997 included $43.3 million of net after tax
gains from investment transactions compared to $25.5 million in 1996. Income
from continuing operations before investment transactions in 1997 increased
$12.7 million (3%) and included a $90 million benefit mainly from the resolution
of prior years' tax matters and a $25.8 million after tax provision for loss on
the accelerated disposal of equipment and restructuring costs at our leasing
business. On June 23, 1997 we sold our branch-based consumer lending operation.
In the fourth quarter of 1997 the consumer lending business was reclassified as
discontinued operations following management's assessment that the results of
the company's new approach to consumer lending did not meet the company's
criteria for further investment. Results from the consumer lending segment for
prior periods have been reclassified as results from discontinued operations.
Income from continuing operations before investment transactions in
1996 included $68.4 million in benefits primarily from the resolution of prior
years' tax matters. It also included a $4.5 million after tax benefit from the
elimination of various contingencies related to the 1995 sale of assets by the
commercial lending operation.
Excluding the items discussed above, income from continuing operations
before investment transactions for 1997 rose to $424.5 million from $403.1
million, an increase of $21.4 million (5%). The increase was due primarily to
higher operating results at the real estate services and commercial lending
businesses and lower unallocated interest and other expenses. Lower results at
the leasing and life insurance businesses partially offset these increases.
Transamerica's income from continuing operations for 1996 increased
$111.4 million (29%) from 1995. Results in 1996 included $25.5 million of net
after tax gains from investment transactions compared to $34.4 million in 1995.
Income from continuing operations before investment transactions in 1996
included the items noted above. Results for 1995 included $30 million of tax
benefits included in life insurance and unallocated expenses from the resolution
of prior years' tax matters, a $12.2 million after tax benefit from the reversal
of a valuation allowance no longer needed, and a $2 million after tax benefit
primarily from the settlement of a class action lawsuit involving Franklin
Savings Association in which Transamerica was the plaintiff. The favorable
effect of these 1995 items was offset in part by a $21.5 million after tax
provision for an expected loss on the sale and leaseback of Transamerica Center
in downtown Los Angeles, and after tax charges totaling $8.8 million for
restructuring the real estate services operations. Excluding the special items
from both years, income from continuing operations before investment
transactions increased to $403.1 million in 1996 up from $341.8 million in 1995.
This $61.3 million (18%) increase was primarily as a result of improved
operating results at the life insurance, real estate services, leasing and
commercial lending businesses. These positive factors were partially offset by
higher unallocated interest and other expenses.
<PAGE>
<TABLE>
ITEMS INCLUDED IN INCOME FROM CONTINUING OPERATIONS:
<CAPTION>
(Amounts in millions except for per share data) 1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income from continuing operations ................................ $ 532.0 $ 501.5 $ 390.1
Gain on investment transactions .................................. (43.3) (25.5) (34.4)
---------- ---------- ---------
Income from continuing operations before
investment transactions ....................................... 488.7 476.0 355.7
Life insurance-Resolution of prior years' tax matters ............ (4.4)
Primarily settlement of a class action lawsuit .... (2.0)
Real estate services-Restructuring charges ....................... 8.8
Commercial lending-Reserves no longer required ................... (4.5) (12.2)
Leasing-Provision for loss on accelerated disposal
of equipment and restructuring costs .......................... 25.8
Unallocated interest & other expenses:
Resolution of prior years' tax and other matters .............. (90.0) (68.4) (25.6)
Expected loss on sale and leaseback of
Transamerica Center (in downtown Los Angeles) ............... 21.5
---------- ---------- ---------
$ 424.5 $ 403.1 $ 341.8
========== ========== =========
Earnings per share (diluted) ..................................... $ 6.26 $ 5.65 $ 4.62
========== ========== =========
</TABLE>
Page 32
<PAGE>
<TABLE>
OPERATING INCOME BY BUSINESS SEGMENT
<CAPTION>
(Amounts in millions except for per share data) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
LIFE INSURANCE ................................................... $ 306.4 $ 325.4 $ 290.8
FINANCE
Commercial lending ............................................... 92.1 73.2 75.2
Leasing .......................................................... 40.6 80.8 75.1
Amortization of goodwill ......................................... (13.2) (12.6) (12.9)
---------- ---------- --------
Total finance .................................................... 119.5 141.4 137.4
REAL ESTATE SERVICES
Real estate services ............................................. 74.0 44.4 18.7
Amortization of goodwill ......................................... (0.1) (0.1) (0.1)
---------- ---------- ---------
Total real estate services ...................................... 73.9 44.3 18.6
Unallocated interest and other expenses .......................... (11.1) (35.1) (91.1)
---------- ---------- ---------
Income from continuing operations before
investment transactions ....................................... 488.7 476.0 355.7
Gain on investment transactions .................................. 43.3 25.5 34.4
---------- ---------- ---------
Income from continuing operations ................................ $ 532.0 $ 501.5 $ 390.1
========== ========== =========
EARNINGS PER SHARE OF COMMON STOCK-DILUTED
Income from continuing operations before
investment transactions ....................................... $ 7.22 $ 6.72 $ 4.82
Gain on investment transactions .................................. 0.65 0.38 0.49
---------- ----------- ----------
Income from continuing operations ................................ $ 7.87 $ 7.10 $ 5.31
========== =========== ==========
Average shares outstanding1 ...................................... 66.8 68.2 70.1
========== =========== ==========
1. Includes the dilutive effect of stock options.
</TABLE>
Page 33
LIFE INSURANCE
THE TRANSAMERICA LIFE INSURANCE COMPANIES design, underwrite,
distribute and reinsure traditional and investment based life insurance and
other financial security products. Our customers include individuals and
families who buy life insurance, annuities, mutual funds and long-term care
insurance; individuals and businesses who purchase pension, annuity, mutual fund
and other investment products; other life insurance companies that buy
reinsurance from us; and the U.S. government, for which we process Medicare
claims.
In 1997 we created an operations division to consolidate our back
office operations and focus on improving productivity and service to our
customers. We also focused our marketing efforts to help us better understand
and meet the needs of our current customers and target new ones more
effectively. Investments in new technology are playing a key role in both of
these efforts. We have different strategies for adding shareholder value in each
of our divisions. In the life insurance products division, to reduce costs and
strengthen our traditional agency sales system, we converted 9 of our 20 branch
offices to independent agencies and plan to convert the remainder. We are
implementing a new compensation program for all agents. We are also expanding
our distribution channels for term insurance products, and our mass marketing of
both term and universal products to small employers.
In the annuities division, we are working to develop stronger marketing
programs and to make annuities available through all our distribution channels.
We are also investing in new technology to improve the administration and
servicing of these products.
In asset management, we continue to look for opportunities in targeted
segments of the investment and retirement savings markets where we can leverage
our investment management expertise without investing significant additional
capital.
Our reinsurance division continues to introduce new risk management
services. These include an initiative to package administrative support with our
product consulting activities. The division also continues to expand its
international operations.
Net income from our life insurance operations decreased by $5.9 million
(2%) in 1997 after increasing $29.5 million (10%) in 1996. Net income included
net after tax gains from investment transactions totaling $27.3 million in 1997,
$14.2 million in 1996, and $19.3 million in 1995. Excluding investment
transactions, income from insurance operations decreased $19 million (6%) in
1997 and increased $34.6 million (12%) in 1996. In 1997, results were affected
by a $20.1 million after tax charge for a legal settlement related to the sale
and performance of certain universal and whole life insurance policies issued by
our life insurance operations and a $5 million after tax provision for costs
associated with proceedings seeking rescission of reinsurance contracts in
connection with business in the personal accident market in London.
Income before investment transactions decreased at the life insurance
products division in 1997, primarily due to the legal settlement provision and
higher claims.
At the annuities division, income before investment transactions grew
in 1997. Interest rate spreads were favorable, fee income was higher because our
variable annuity asset base was larger, and our operating costs were lower.
Operating expenses in 1996 were adversely affected by relocation costs for
moving portions of the operations to Charlotte, North Carolina and Kansas City,
Missouri.
The asset management group had slightly higher income before investment
transactions in 1997. Interest rate spreads were favorable, and fee income was
higher because we were managing more assets. The group's results were reduced by
the decision late in 1996 to reduce the scale of the
Page 34
capital-intensive structured settlements business.
Income before investment transactions was slightly lower at reinsurance
in 1997 due to increased claim costs partially offset by growth in policy
revenue.
Income before investment transactions from our Canadian operations
increased in 1997 because of improved persistency, favorable claims experience
and higher management fees from growth in the segregated funds business.
In the corporate line, income before investment transactions in 1997
decreased primarily due to increased general operating expenses offset in part
by higher investment income.
In 1996, operating income grew at the insurance products division and
asset management group primarily because the asset base of interest-sensitive
products grew, and interest rate spreads were maintained. The reinsurance line
increased its operating income in 1996 primarily by assuming a higher volume of
new in force business. The Canadian line improved its operating income in 1996
through growth in the base of interest-sensitive policies. In annuities,
Transamerica benefited from increased interest rate spreads and fee income but
experienced a decrease in income before investment transactions compared to 1995
primarily because of relocation costs.
Investment transactions for the life insurance operation in 1997
included after tax net gains on the sale of investments of $32.9 million
compared to $41.9 million in 1996 and $40.6 million in 1995. The 1996 amount
included an after tax gain of $9.1 million from a transaction with a special
purpose subsidiary of Transamerica Corporation in which certain below investment
grade bonds were exchanged for collateralized bond obligations with higher
ratings issued by the subsidiary. Transamerica's consolidated financial
statements were not effected. Adjustments to the amortization of deferred policy
acquisition costs increased after tax investment gains by $5.8 million in 1997
and reduced after tax investment gains by $21.8 million in 1996 and $6 million
in 1995. Investment transactions in 1997, 1996 and 1995 included $11.4 million,
$5.9 million and $15.3 million of after tax losses due to downward adjustments
in carrying value of certain below investment grade fixed maturity investments.
Net investment income for the life insurance companies increased $89.7
million (4%) in 1997 and $105.6 million (5%) in 1996 primarily due to a growing
base of invested assets.
Premiums and other income increased $126 million (7%) in 1997 and
decreased $22.5 million (1%) in 1996. The increase in 1997 was primarily due to
growth in traditional life premiums and income on interest sensitive policies.
Life insurance benefit costs and expenses grew $257.3 million (8%) in
1997 and $28.7 million (1%) in 1996. The increases were primarily due to the
higher interest credited on interest-sensitive policies, unfavorable claims
activity, and in 1997 the $20.1 million and $5 million after tax provisions
discussed above.
Cash provided by operations for 1997 was $988.8 million, an increase of
$74.9 million (8%) from 1996. This increase was primarily due to the timing of
the settlement of certain receivables and payables, including some at the
reinsurance division. We continue to maintain a sufficiently liquid investment
portfolio at the life insurance companies to cover operating requirements. The
rest of our funds is invested in long term securities.
Page 35
<TABLE>
<CAPTION>
LIFE INSURANCE
(Amounts in millions) 1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Investments ................................................. $ 31,693.7 $ 28,935.4 $ 27,703.2
Deferred policy acquisition costs ........................... 2,102.6 2,138.2 1,974.2
Other assets ................................................ 7,591.0 5,408.4 5,422.4
----------- ----------- -----------
$ 41,387.3 $ 36,482.0 $ 35,099.8
=========== =========== ===========
LIABILITIES AND EQUITY
Policy reserves and related items ........................... $ 30,141.9 $ 28,542.8 $ 27,893.4
Other liabilities ........................................... 6,937.7 4,566.7 3,746.5
Equity* ..................................................... 4,307.7 3,372.5 3,459.9
----------- ----------- -----------
$ 41,387.3 $ 36,482.0 $ 35,099.8
=========== =========== ===========
REVENUES
Investment income, net of expenses .......................... $ 2,169.4 $ 2,079.7 $ 1,974.1
Premiums and other income ................................... 1,818.0 1,692.0 1,714.5
Gain on investment transactions ............................. 42.0 21.9 29.6
----------- ----------- -----------
4,029.4 3,793.6 3,718.2
EXPENSES
Policyholder benefits ....................................... 2,810.9 2,649.7 2,710.4
Commissions and other expenses .............................. 734.9 638.8 549.4
Income taxes ................................................ 149.9 165.5 148.3
----------- ----------- -----------
3,695.7 3,454.0 3,408.1
----------- ----------- -----------
Net income .................................................. $ 333.7 $ 339.6 $ 310.1
=========== =========== ===========
SOURCE OF CASH
Cash provided by operations ................................. $ 988.8 $ 913.9 $ 543.8
Net receipts from interest-sensitive policies ............... 440.4 991.7 1,527.4
----------- ----------- -----------
$ 1,429.2 $ 1,905.6 $ 2,071.2
=========== =========== ===========
APPLICATION OF CASH
Net purchases of investments ................................ $ 1,315.4 $ 1,862.4 $ 1,986.1
Equity transactions ......................................... 56.2 40.0 40.0
Other ....................................................... 57.6 3.2 45.1
----------- ----------- -----------
$ 1,429.2 $ 1,905.6 $ 2,071.2
=========== =========== ===========
*Equity includes net unrealized gains from marking investments to fair value of
$1,190.6 million in 1997, $549.8 million in 1996 and $946 million in 1995. See
footnote B of the notes to the financial statements for consolidated components
of unrealized gains.
</TABLE>
Page 36
<PAGE>
TRANSAMERICA FINANCE CORPORATION
TRANSAMERICA FINANCE CORPORATION, which is a separate Securities and
Exchange Commission registrant, includes Transamerica's commercial lending and
leasing operations. Transamerica Finance Corporation provides funding for these
businesses. Its principal assets are finance receivables and equipment held for
lease, which totaled a combined $6.9 billion at December 31, 1997 and $7.1
billion at December 31, 1996. These operations have a high level of liquidity
since a significant portion of their assets are finance receivables. Principal
cash collections of finance receivables totaled $24 billion in 1997, $18.1
billion in 1996 and $18 billion in 1995. Transamerica Finance Corporation's
total notes and loans payable were $6 billion at December 31, 1997 and $9.9
billion at December 31, 1996. Its variable-rate debt totaled $3.5 billion at
December 31, 1997 compared to $5.5 billion at December 31, 1996. Transamerica
Finance Corporation's ratio of debt to tangible equity was 6.5:1 at December 31,
1997 compared with 6.8:1 at December 31, 1996.
From time to time, Transamerica Finance Corporation publicly offers
senior or subordinated debt securities. It issued a total of $120 million of
public debt in 1997, $688 million in 1996 and $832 million in 1995. Under a
shelf registration statement filed in April 1995 with the Securities and
Exchange Commission, Transamerica Finance Corporation may offer up to $3 billion
of senior or subordinated debt securities with varying terms, of which $1.8
billion had not been issued at December 31, 1997.
Page 37
<PAGE>
<TABLE>
TRANSAMERICA FINANCE CORPORATION
<CAPTION>
(Amounts in millions) 1997 1996 1995
----------- ------------ -----------
<S> <C> <C> <C>
ASSETS
Finance receivables less unearned fees and allowance
for losses .......................................................... $ 3,903.3 $ 4,018.4 $ 3,322.1
Net assets of discontinued operations .................................. 40.1 4,326.2 5,334.6
Equipment held for lease ............................................... 2,996.5 3,118.5 2,862.0
Goodwill ............................................................... 423.0 368.1 381.1
Assets held for sale ................................................... 377.8 3.4 4.4
Other assets ........................................................... 984.8 885.0 358.3
----------- ----------- -----------
$ 8,725.5 $ 12,719.6 $ 12,262.5
=========== =========== ===========
LIABILITIES AND EQUITY
Notes and loans payable ................................................ $ 6,025.2 $ 9,879.3 $ 9,689.9
Other liabilities ...................................................... 1,397.1 1,087.6 787.3
Equity ................................................................. 1,303.2 1,752.7 1,785.3
----------- ----------- -----------
$ 8,725.5 $ 12,719.6 $ 12,262.5
=========== ========= ===========
REVENUES
Finance and leasing revenues ........................................... $ 1,329.5 $ 1,206.5 $ 1,164.6
EXPENSES
Operating expenses ..................................................... 490.6 406.0 401.7
Interest ............................................................... 354.4 314.2 307.5
Depreciation on equipment held for lease ............................... 275.8 255.1 236.6
Provision for losses on receivables and assets held for sale ........... 16.2 10.2 (4.0)
Income taxes ........................................................... 74.3 81.7 91.0
----------- ----------- -----------
1,211.3 1,067.2 1,032.8
----------- --------- -----------
Income from continuing operations ...................................... $ 118.2 $ 139.3 $ 131.8
=========== =========== ===========
SOURCE OF CASH
Cash provided by operations ............................................ $ 363.4 $ 495.8 $ 612.8
Finance receivables collected and sold ................................. 24,043.1 18,086.8 18,003.1
Proceeds from sale and cash transactions
with discontinued operations ........................................ 4,413.2 1,021.8
Proceeds from debt financing ........................................... 3,401.7 6,784.5 8,281.5
Other .................................................................. 382.5 20.0
----------- ----------- -----------
$ 32,603.9 $ 26,388.9 $ 26,917.4
=========== =========== ===========
APPLICATION OF CASH
Additions to equipment held for lease .................................. $ 378.4 $ 391.5 $ 573.3
Finance receivables originated ......................................... 23,262.4 18,765.1 18,125.5
Purchase of finance receivables from
Whirlpool Finance Corporation ....................................... 881.9
Payments of notes and loans ............................................ 7,263.5 6,932.9 7,333.6
Cash transactions with discontinued operations ......................... 783.6
Equity transactions .................................................... 817.7 237.9 101.4
Other .................................................................. 61.5
----------- ----------- -----------
$ 32,603.9 $ 26,388.9 $ 26,917.4
=========== =========== ===========
</TABLE>
Page 38
<PAGE>
COMMERCIAL LENDING
TRANSAMERICA'S COMMERCIAL LENDING operation makes loans to small,
medium and large businesses. At the end of 1997 we had net finance
receivables owned and serviced of $5 billion in two core businesses:
distribution finance and business credit.
Our distribution finance operations provide financial services to
manufacturers, distributors, resellers, retailers and commercial and consumer
end users. We primarily serve companies who sell consumer electronics and
appliances, marine products such as boats and personal watercraft, information
technology, lawn and garden products, recreational vehicles, furnaces and air
conditioners, motorcycles and manufactured housing. Our primary strategy in this
business is to provide one source for the financing of goods as they move
through the distribution channels from manufacturers to end user. We believe
this strategy will help us respond to pricing pressure as new competitors
continue to enter this market. The growing market for securitization of
receivables (selling receivables to third parties while retaining the servicing
of the customer accounts) has enabled new competitors to enter the market using
less capital than was previously required. In 1997, we securitized $1.5 billion
of floor plan finance receivables which adds additional flexibility to our
funding strategies as our receivables portfolio grows. We are pursuing growth
opportunities for distribution finance in Europe, in retail financing, and
through joint ventures with our customers.
In January 1998, the distribution finance operation completed the
acquisition of approximately $1.1 billion of net receivables and other assets of
the inventory financing, retail financing and international factoring
(receivables financing) businesses of Whirlpool Financial Corporation for a
total purchase price of $1.3 billion in cash. The acquisition of the inventory
finance and most of the international finance assets closed in 1997. The
acquisition has given us a stronger presence domestically and a significantly
expanded international business base. We have also entered into a long-term
strategic alliance with Whirlpool under which we will provide financing service
to Whirlpool's dealers and retail customers (through our credit card bank) and
factoring services to Whirlpool's international operations.
Transamerica business credit provides a variety of financial products
for commercial customers. We extend asset-based credit facilities, which are
underwritten based on collateral coverage or cash flow characteristics, to
middle market companies for business expansion, acquisitions, and financial
restructurings. Through our equipment finance and lease division, which was
started in 1995, we support our customers' growth by financing an array of fixed
assets, including manufacturing, construction and transportation equipment. In
late 1996, we began providing short-term equipment loans, leases and revolving
credit facilities for venture capital-supported development stage companies,
primarily in the life sciences and electronics markets, through our technology
finance division. Additionally, Transamerica business credit provides capital
for other financial services providers, primarily in the form of loans extended
by our financial services funding division, as well as through joint venture
arrangements.
Net income from our commercial lending operations was $80.9 million in
1997, an increase of $18.3 million (29%) from $62.6 million in 1996. Income
before the amortization of goodwill grew $18.9 million (26%) from 1996.
Operating results for 1997 included an after tax gain of $5.4 million on the
sale and securitization of $1.5 billion of floor plan finance receivables and a
$3.2 million tax benefit from tax matters resolved in 1997. In 1996, operating
results included a $4.5 million
Page 39
benefit primarily from the favorable resolution of disputed issues
surrounding the 1995 sale of assets in Puerto Rico. In 1995, operating results
included a $12.2 million after tax benefit from reversing a valuation allowance
no longer required following the Puerto Rican asset sale and a $4.8 million
after tax gain on the sale of a portfolio of consumer rediscount loans.
Excluding the above items, commercial lending income from operations
before the amortization of goodwill increased $14.8 million (22%) in 1997 and
$10.5 million (18%) in 1996. In 1997, higher average net receivables outstanding
contributed to the growth in operating income. In 1997, the commercial lending
operation announced that it intends to sell its insurance premium finance
operation and reclassified those receivables as assets held for sale. In 1996,
growth in each of the core businesses led to higher average receivables
outstanding and increased operating income.
Revenues in 1997 grew $82.7 million (19%) from 1996 as higher average
net receivables outstanding more than offset a decline in yield due to increased
competition. Revenues in 1997 included an $8.7 million gain on the
securitization of floor plan finance receivables. Revenues rose $9.1 million
(2%) in 1996 principally due to growth in average net receivables outstanding.
Interest expense increased $31.5 million (21%) from 1996 principally
due to the higher average debt level needed to support receivables growth. In
1996, interest expense fell $300,000 from 1995 because of the lower average
interest rate paid on borrowings, which was partially offset by a higher average
debt level due to receivables growth.
Operating expenses increased $17 million (11%) in 1997 and $3.6 million
(2%) in 1996 primarily because of higher business volume and average net
receivables outstanding. The provision for losses on receivables increased in
1997 by $6 million (60%) from 1996, partially due to growth in the average net
receivables outstanding. In addition, the provision for losses on receivables
decreased $5.9 million (37%) in 1996 from 1995 due to lower credit losses and
because reserves were higher in the liquidating portfolio than were ultimately
necessary.
Credit losses, net of recoveries, as a percentage of average finance
receivables outstanding, net of unearned finance charges, were 0.25% in 1997,
0.16% in 1996 and 0.34% in 1995.
We have established an allowance for losses equal to 2.24% of net
finance receivables outstanding as of December 31, 1997 compared to 2.22% at
December 31, 1996.
Delinquent receivables are defined as instalments for inventory finance
and asset-based lending receivables more than 60 days past due and the
outstanding loan balance for all other receivables more than 60 days past due.
At December 31, 1997, delinquent receivables were $12.7 million (0.35% of
receivables outstanding) compared to $17.3 million (0.46% of receivables
outstanding) at December 31, 1996. Delinquent receivables declined due to the
reclassification of the insurance premium finance receivables to assets held for
sale.
Nonearning receivables are defined as balances from borrowers that are
more than 90 days delinquent or sooner if it appears doubtful they will be fully
collectible. Accrual of finance charges is suspended on nonearning receivables
until past due
Page 40
amounts are collected. Nonearning receivables were $21.8 million (0.60% of
receivables outstanding) at December 31, 1997 compared to $21.4 million (0.56%
of receivables outstanding) at December 31, 1996. An increase in nonearning
receivables in the core business was partly offset by the reclassification of
the insurance premium finance receivables to assets held for sale.
Assets held for sale as of December 31, 1997 totaled $281 million. Of
the finance receivables held for sale at December 31, 1997, $14.2 million were
more than 60 days past due and $7.5 million were classified as nonearning.
<TABLE>
COMMERCIAL LENDING
<CAPTION>
(Amounts in millions) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Finance charges and related income ................................. $ 515.5 $ 432.8 $ 423.7
EXPENSES
Interest ........................................................... 179.9 148.4 148.7
Operating expenses ................................................. 176.9 159.9 156.3
Provision for losses on receivables ................................ 16.2 10.2 16.1
Provision (benefit) for losses on assets held for sale ............. (20.1)
Incomes taxes ...................................................... 50.4 41.1 47.5
--------- --------- ---------
423.4 359.6 348.5
--------- --------- ---------
Income from operations ............................................. 92.1 73.2 75.2
Amortization of goodwill ........................................... (11.2) (10.6) (10.9)
--------- --------- ---------
Net income ......................................................... $ 80.9 $ 62.6 $ 64.3
========= ========= =========
</TABLE>
Page 41
LEASING
TRANSAMERICA LEASING'S fleet of intermodal transportation equipment is
the largest in the world. Intermodal equipment can be carried on ships or
railcars or hauled by trucks. We lease this equipment to and manage it for
steamship lines, railroads, shippers, distribution companies and motor carriers.
In addition to service and term operating leases, we provide structured
financing that enables customers to purchase equipment over time, and an
equipment matching service in which we manage containers for customers and
broker equipment interchanges among them.
Most of our intermodal containers are used in international trade,
while our chassis, rail trailers and domestic containers are used primarily
within North America. We also have an over the road trailer leasing business in
Europe.
In 1997, utilization rates for our container fleet declined to 79% from
81% in 1996 due primarily to oversupply in the industry.
Net income from leasing operations in 1997 declined 51% to $38.6
million. Leasing income before the amortization of goodwill was $40.6 million
compared to $80.8 million in 1996.
Earnings were reduced by a $25.8 million after tax provision for
expected losses on the accelerated disposition of equipment (primarily standard
containers) and the restructuring of the operation's field offices to reduce
costs. The accelerated disposition is in response to an oversupply of units.
Earnings for standard and refrigerated containers were also reduced by lower
rental rates, a decline in utilization and decreased gains on the sale of used
standard containers. Partially offsetting these declines were improved earnings
from tank and domestic containers, chassis and European trailers. All of these
lines had more on-hire units than in 1996. Additionally, rail trailers reported
higher income due to improved utilization and rental rates and structured
finance earnings improved due to a larger portfolio of finance leases.
Excluding the impact of the accelerated equipment disposal and
restructuring, leasing earnings before the amortization of goodwill were $66.4
million compared to $80.8 million in 1996.
In 1996, income from leasing operations rose $5.7 million (8%) from
1995. The increase was primarily due to a larger portfolio of finance leases and
lower ownership costs for the rail trailer business attributed to a smaller
fleet. Income in 1996 included $4.4 million from the resolution of outstanding
tax issues and the tax benefits from entering into structured lease
transactions. Partially offsetting these increases were reduced earnings in
standard and refrigerated containers and chassis due to lower utilization rates,
and lower standard container and chassis rental rates.
Revenue increased in 1997 by $32.2 million (4%) primarily because the
October 1996 acquisition of Trans Ocean Ltd. increased the size of the fleet of
standard, refrigerated and tank containers and chassis by approximately 25%.
Revenue also increased as a result of a larger portfolio of finance leases and
more on-hire European trailers. Offsetting these increases were the provision
for the expected loss due to the accelerated equipment disposal and lower
revenues from decreased rental rates and decreased utilization for standard and
refrigerated containers resulting primarily from an industry-wide oversupply of
equipment. In addition, rail trailer revenues were lower due to a smaller fleet
size.
Revenues increased in 1996 by $31.7 million (4%) primarily due to a
larger on-hire fleet of refrigerated containers, tank containers and European
trailers and a larger portfolio of finance leases. Partially offsetting these
revenue increases was a decline in standard container revenues due to lower
utilization and rental rates and lower gain on used equipment sales. Rail
trailer revenues also
Page 42
declined because of a smaller fleet and lower gains on used equipment sales.
Expenses excluding income taxes increased $89.3 million (14%) in 1997
due to higher ownership and operating costs associated with our larger fleets of
standard and refrigerated containers, chassis and European trailers and the
provision associated with the restructuring. In 1996, expenses excluding income
taxes increased $31.2 million (5%), in line with larger fleets of refrigerated
containers, chassis and European trailers. Lower operating expenses from a
smaller rail trailer fleet partially offset those higher costs.
The combined utilization rate for standard containers, refrigerated
containers, domestic containers, tank containers and chassis averaged 79% in
1997 compared to 81% in 1996 and 85% in 1995. Rail trailer utilization was 85%
in 1997, 82% in 1996 and 77% in 1995. European trailer utilization was 92% in
both 1997 and 1996 and 95% in 1995.
In addition to leasing services, we are developing and using technology to
provide more and better information to our customers via the internet and
offering equipment management services. We are also concentrating on reducing
our costs of operations in line with lower margins in an increasingly
competitive pricing market for international containers. Our European trailer
operation continues to provide opportunities for growth, as we added 5,100 units
in 1997, making us one of only two leasing companies to provide equipment
throughout Europe.
<PAGE>
<TABLE>
LEASING
<CAPTION>
(Amounts in millions) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Total leasing revenues ........................................ $ 797.8 $ 765.6 $ 733.9
EXPENSES
Operating expenses ............................................ 174.1 129.2 126.5
Depreciation on equipment held for lease ...................... 275.8 255.1 236.6
Selling and administrative expenses ........................... 116.7 95.5 95.1
Interest ...................................................... 166.1 163.6 154.0
Income taxes .................................................. 24.5 41.4 46.6
--------- --------- ---------
757.2 684.8 658.8
--------- --------- ---------
Income from operations ........................................ 40.6 80.8 75.1
Amortization of goodwill ...................................... (2.0) (2.0) (2.0)
--------- --------- ---------
Net income .................................................... $ 38.6 $ 78.8 $ 73.1
========= ========= =========
</TABLE>
Page 43
<PAGE>
REAL ESTATE SERVICES
THIS SEGMENT INCLUDES Transamerica's Real Estate Information Companies
as well as certain real estate holdings and other investments. The primary
business in Transamerica Real Estate Information Companies is Transamerica Real
Estate Tax Service which obtains property tax information and monitors or
processes property tax payments on mortgaged properties nationwide. We also
operate a flood hazard certification company which determines and guarantees
whether a property is located in a flood hazard zone and must therefore carry
flood insurance under federal law. Tax service and flood hazard customers
include a wide range of lenders from banks and savings and loans to mortgage
companies. Transamerica Real Estate Information Companies' third business is
Transamerica Intellitech which provides comprehensive public record information
packaged with powerful software. Intellitech's products are designed to meet the
information needs of realtors, appraisers, lenders, title companies and other
users of real estate information.
The tax service's primary objective is to enhance and extend its
industry leadership. Key to achieving this goal is the completion of a major
redesign and automation of its business processes, mirroring a similar
successful automation we completed in our flood hazard business. We believe this
project will allow Transamerica Real Estate Tax Service to offer a new
generation of faster, more accurate and less paper-intensive tax services to its
customers. Our outsourcing business, in which we actually administer tax
payments for our customers, has become an important new source of revenue for
the tax service. We are also working to develop new products and services that
leverage our data holdings in all three businesses to increase our sales within
the mortgage industry and to customers outside the industry.
Net income from the real estate services segment increased $25.2
million (39%) in 1997 and $31 million (92%) in 1996. Net income included net
after tax gains from investment transactions of $16 million in 1997, $20.4
million in 1996, and $15.1 million in 1995. Income before investment
transactions increased $29.6 million (67%) in 1997, and included $27.4 million
of after tax gains on the sale of six real estate properties and higher earnings
at the real estate information companies. Income before investment transactions
in 1996 increased due to higher tax service revenues as a result of higher
mortgage refinancings and home sales and also included gains totaling $5.3
million after tax from the sale of seven real estate properties.
Revenues in 1997 increased $59.1 million (17%) because of the gains on
real estate sales noted above and increased business at the tax service.
Revenues in 1996 increased $103.4 million (41%) because of increased business at
the tax service and higher investment income.
The funds these businesses require for capital expenditures and working
capital are generated by operations. Cash, cash equivalents and accounts
receivable are the real estate services' principal sources of liquidity.
Page 44
<PAGE>
<TABLE>
REAL ESTATE SERVICES
<CAPTION>
(Amounts in millions) 1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
ASSETS
Cash, cash equivalents and accounts receivable ................. $ 253.1 $ 276.5 $ 102.5
Investments .................................................... 1,288.5 1,036.2 512.2
Land and buildings ............................................. 123.3 163.9 165.9
Other assets ................................................... 69.4 54.9 71.0
---------- ---------- ---------
$ 1,734.3 $ 1,531.5 $ 851.6
========== ========== =========
LIABILITIES AND EQUITY
Loss and future service reserves ............................... $ 180.0 $ 169.4 $ 156.6
Notes and loans payable ........................................ 800.5 810.6 363.2
Other liabilities .............................................. 162.9 101.7 53.7
Equity* ........................................................ 590.9 449.8 278.1
---------- ---------- ---------
$ 1,734.3 $ 1,531.5 $ 851.6
========== ========== =========
REVENUES
Real estate services revenues .................................. $ 390.9 $ 325.6 $ 230.2
Gain on investment transactions ................................ 25.1 31.3 23.3
---------- ---------- ---------
416.0 356.9 253.5
---------- ---------- ---------
EXPENSES
Salaries and other operating expenses .......................... 272.2 260.2 203.4
Income taxes ................................................... 53.8 31.9 16.3
---------- ---------- ---------
326.0 292.1 219.7
---------- ---------- ---------
Income from operations ......................................... 90.0 64.8 33.8
Amortization of goodwill ....................................... (0.1) (0.1) (0.1)
---------- ---------- ---------
Net income ..................................................... $ 89.9 $ 64.7 $ 33.7
========== ========== =========
SOURCE OF CASH
Cash provided by operations .................................... $ 16.5 $ 35.0 $ 13.4
Proceeds from debt financing ................................... 76.3 55.9 31.3
Equity transactions ............................................ 15.3 14.9
Other .......................................................... 89.8
---------- ---------- ---------
$ 182.6 $ 106.2 $ 59.6
========== ========== =========
APPLICATION OF CASH
Net purchases of investments ................................... $ 119.2 $ 35.4 $ 29.6
Payments of notes and loans .................................... 44.0 30.1 10.0
Equity transactions ............................................ 19.4
Other .......................................................... 40.7 20.0
---------- ---------- ---------
$ 182.6 $ 106.2 $ 59.6
========== ========== =========
*Equity includes net unrealized gains from marking investments to fair value of
$342.4 million in 1997, $213.3 million in 1996 and $127.3 million in 1995. See
footnote B of the notes to the financial statements for consolidated components
of unrealized gains.
</TABLE>
Page 45
UNALLOCATED INTEREST AND EXPENSES
<TABLE>
UNALLOCATED INTEREST and other expenses, after related income taxes, for
the last three years were:
<CAPTION>
(Amounts in millions) 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Interest expense $39.5 $46.5 $42.7
Other expense
(income) (28.4) (11.4) 48.4
----- ----- -----
$11.1 $35.1 $91.1
===== ===== =====
</TABLE>
Unallocated interest and other expenses decreased $24 million (68%)
in 1997 from 1996. Costs associated with our outstanding Monthly Income
Preferred Securities and the Capital Trust Pass-through Securities are included
in other expense. Both years included benefits primarily from the satisfactory
resolution of prior years' tax matters totaling $90 million in 1997 and $68.4
million in 1996. Excluding these items, unallocated interest and expenses
decreased $2.4 million (2%) in 1997. The 1995 results also included a $25.6
million benefit from the satisfactory resolution of prior years' tax matters, a
$21.5 million after tax provision for the expected loss on the sale and
leaseback of Transamerica Center in downtown Los Angeles, and $6.6 million of
after tax income from the May 1995 sale of the investment management subsidiary.
Excluding the items above for 1996 and 1995, in 1996 unallocated interest and
expenses rose $1.7 million (2%) primarily due to the increased interest expense
associated with our higher debt levels.
DISCONTINUED OPERATIONS
On June 23, 1997, we sold our branch-based consumer lending operation.
Gross proceeds from the sale were $3.9 billion, or $1.1 billion after repayment
of associated debt. In the fourth quarter of 1997, the consumer lending business
was reclassified as discontinued operations following management's assessment
that the results of the company's new approach to consumer lending did not meet
the company's criteria for further investment. Results for prior periods have
been restated.
Income from discontinued operations for 1997 was $261.8 million. This
income included a $275 million after tax gain as a result of the sale discussed
above. This gain was offset in part by an operating loss of $13.2 million. In
1996, we incurred a loss from discontinued operations of $45.2 million. This
loss included a $72 million after tax charge for increased loss reserves.
Page 46
CORPORATE LIQUIDITY AND CAPITAL REQUIREMENT
TRANSAMERICA CORPORATION receives funds from its subsidiaries in the
form of dividends, income taxes and interest on loans. We use these funds to pay
dividends to our stockholders, purchase shares of our common stock, reinvest in
the operations of our subsidiaries and pay corporate interest, expenses and
taxes. We reinvest funds in our subsidiaries based on their expected returns,
their expected shareholder value added, and their capital needs. We may reinvest
by allowing a subsidiary to retain all or a portion of its earnings, or by
making capital contributions or loans.
Transamerica also borrows funds to finance acquisitions or lend to
certain of its subsidiaries to finance their working capital needs. Our
subsidiaries are required to maintain prudent financial ratios consistent with
other companies in their industries and to retain the capacity through committed
credit lines or liquid assets to repay working capital loans from the
Corporation.
At December 31, 1997, Transamerica and its subsidiaries had short-term
borrowings, principally commercial paper, totaling $1.8 billion, supported by a
credit agreement with 44 banks. It is our policy to maintain credit line
coverage equal to at least 100% of short-term borrowings. At December 31, 1997,
we had credit available under this line equal to $3.5 billion, or 195% of these
borrowings; credit support equal to 139% of the borrowings was with banks rated
AAA/AA or the equivalent by one or more of the major credit rating agencies.
In 1991, Transamerica filed a registration statement with the
Securities and Exchange Commission under which up to $500 million of debt
securities with varying terms may be sold. These securities may be senior or
subordinated and, if subordinated, may be convertible into common stock. In
November 1996, Transamerica sold $200 million of senior notes bearing interest
at 6.75% due in November 2006. Of the remaining $300 million of debt securities
available to be sold under the registration statement, $200 million has been
designated as Medium Term Notes, Series B, of which none have been sold.
Transamerica's commercial paper and senior debt are rated by
independent rating agencies. We continue to maintain debt to capital ratios
consistent with our current ratings.
Transamerica Finance Corporation, a wholly owned subsidiary of
Transamerica, also issues debt publicly to fund the commercial lending and
leasing operations.
In December 1997, a subsidiary of Transamerica securitized $1.3 billion
of inventory finance loans.
In November 1997, Transamerica Capital III, an affiliate of
Transamerica, issued $190 million of noncallable Capital Trust Pass-through
Securities maturing November 15, 2037 with a coupon of 7.625%. Proceeds from the
issuance of these securities were invested by the affiliate in subordinated
debentures issued by Transamerica, bearing interest at 7.625% and maturing on
November 15, 2037. Proceeds to Transamerica were used to repay debt and for
other corporate purposes. These and the other Capital Trust Pass-through
Securities issued in 1996 are shown as minority interest on Transamerica's
consolidated balance sheet.
In the third quarter of 1997, a subsidiary of Transamerica securitized
$227 million of inventory finance loans.
In December 1996, a subsidiary of Transamerica closed a $307 million
leveraged lease transaction involving the sale and leaseback of 69,000
intermodal shipping containers.
In November 1996, Transamerica Finance Corporation issued $200 million
of senior notes bearing interest at 6.375% due in November 2001.
In November 1996, Transamerica Capital I and II, affiliates of
Transamerica, issued $325 million of Capital Trust Pass-through Securities.
These in-
Page 47
cluded $100 million of 30-year securities maturing December 1, 2026
redeemable beginning in 2006 with a coupon of 7.80% issued by Transamerica
Capital I, and $225 million of 30-year, non-callable securities maturing
December 1, 2026 with a coupon of 7.65% issued by Transamerica Capital II. The
proceeds were invested by the affiliates in subordinated debentures issued by
Transamerica, bearing interest at 7.65% and 7.80% and maturing on December 1,
2026. The proceeds to Transamerica were used for general corporate purposes.
In January 1998, we completed the acquisition of $1.1 billion of net
receivables and other assets of Whirlpool Financial Corporation's inventory
finance, retail finance and international factoring businesses for $1.3 billion
in cash. The acquisition of the inventory finance and most of the international
assets closed in 1997. The acquisition of the retail finance business closed in
January 1998. We funded the purchase primarily with short term debt.
In June 1997, we sold our branch-based consumer lending operation for
$3.9 billion, or $1.1 billion after repayment of associated debt.
In October 1996, we acquired Trans Ocean Ltd., a closely held container
leasing company, in exchange for approximately 1.6 million shares ($112.7
million) of Transamerica common stock.
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 to reduce debt.
STOCKHOLDERS' EQUITY
TRANSAMERICA'S CAPITAL structure includes debt, common stock, preferred
stock, and the Monthly Income Preferred Securities and Capital Trust
Pass-through Securities which are classified as minority interest. We
continuously strive to minimize our cost of capital while maintaining
investment-grade credit ratings. Ratings are very important to our life
insurance customers. Our ratings also enable us to borrow at attractive rates,
which improves the spreads at our finance businesses.
During 1997, we continued to return excess equity capital to stockholders
by purchasing the company's common stock. On May 21, 1997, Transamerica's board
of directors authorized the purchase of up to 6 million shares of our common
stock. On June 27, 1997, we announced the purchase of 3 million shares under
this authorization. The shares were purchased from two investment banks for
$286.1 million at an average price of $95.35 per share. During 1997,
Transamerica purchased a total of 4,082,500 shares (including the 3 million
share purchase noted above) at a cost of $391 million (an average price of
$95.77 per share). Since we began our share purchase program in May 1993, a
total of 21.5 million shares have been acquired through December 31, 1997 at an
aggregate purchase price of $1.4 billion. At December 31, 1997, there were
outstanding authorizations from the board of directors for the purchase of an
additional 1,917,500 shares.
In February 1997, we completed the redemption of our outstanding Series
D Preferred Stock and our outstanding Dutch Auction Rate Transferable
Securities(TM) Preferred Stock.
Page 48
INVESTMENT PORTFOLIO
TRANSAMERICA'S TOTAL invested assets were $32.4 billion at December 31,
1997, most of which was held by our life insurance companies. Transamerica
Investment Services, a wholly owned subsidiary of Transamerica, manages all of
Transamerica's securities portfolios. At the end of 1997, total invested assets
represented 78% of our insurance assets and 63% of Transamerica's total assets.
In 1997 our investment income was $2.2 billion and represented 38% of
Transamerica's total revenues.
The majority of our invested assets are in fixed maturity securities.
We generally make long-term investments primarily in investment-grade corporate
bonds and government securities to fund the payment of our life insurance policy
liabilities. We use fundamental research and active management, and seek to
achieve a balanced bond portfolio that meets our goals for income, security of
principal and diversification. At the end of 1997, 94.8% of our fixed maturity
investments were rated as "investment grade," with an additional 3.3% rated in
the BB category or its equivalent. "Investment grade" is generally defined as
any issue rated above Ba by Moody's Investors Service or above BB by Standard &
Poor's Corporation.
The average yield of the fixed maturity portfolio was 7.8% at December
31, 1997 and 1996 and 8.1% at December 31, 1995. The portfolio yield was
maintained in 1997 through the sale of securities which yielded less than the
portfolio reinvestment rate.
At December 31, 1997, our fixed income portfolio had a total market
value of $29.2 billion and an amortized cost of $27 billion, resulting in a net
unrealized gain of $2.2 billion. An adjustment for impairment in value reduced
the amortized cost of certain fixed maturity investments by $72.9 million at
December 31, 1997 and $62.9 million at December 31, 1996.
We also have a portfolio of equity securities with an aggregate market
value of $1.6 billion at December 31, 1997, $964.8 million in excess of its
cost. Our equity investment philosophy is to do our own research on a very
select group of high quality companies. Our research is focused on anticipating
and understanding long-term change.
In addition to our fixed maturity and equity investments, at December
31, 1997 we had $750.2 million invested in mortgage loans and real estate. This
amount represented 2.3% of our total investments and 1.5% of our total assets.
These additional investments included $682 million in commercial mortgage loans,
$73.8 million in real estate investments, $3.9 million in foreclosed real estate
and $26.7 million in residential mortgage loans. Problem loans, defined as
restructured loans yielding less than 8% and delinquent loans totaled $2.3
million at December 31, 1997 and $8.1 million at December 31, 1996. We have
established allowances to cover possible losses from our mortgage loans and real
estate investments. These allowances totaled $36.2 million at December 31, 1997
and $42.8 million at December 31, 1996. Transamerica also owns land, buildings
and equipment used in its operations, including the Transamerica Pyramid, our
corporate headquarters in San Francisco.
New long term investments acquired in 1997 totaled $9.7 billion. Of
that amount, 98% was in taxable, fixed maturity securities and 2% was invested
principally in common and preferred
Page 49
stocks, mortgage loans and loans to our life insurance policyholders. The
average yield on new fixed maturity securities was 7.1%. During 1997, we
committed to or funded $1.1 billion of new private placement securities.
MARKET RISK
Market risk is the risk of loss that may occur when fluctuations in
interest and currency exchange rates and equity and commodity prices change the
value of a financial instrument. Both derivative and nonderivative financial
instruments have market risk so our risk management extends beyond derivatives
to encompass all financial instruments we hold that are sensitive to market
risk. Transamerica is primarily exposed to interest rate risk and equity price
risk.
INTEREST RATE RISK
Transamerica's operations are subject to risk from interest rate
fluctuations when there is a difference between the amount of our interest
earning assets and the amount of our interest bearing liabilities that are
prepaid, mature or repriced in specified periods. We manage our exposure to
interest rate fluctuations by managing the characteristics of our assets and
liabilities so that changes are offset. Our objectives for asset liability
management are to provide maximum levels of finance and investment income and
minimize funding costs while maintaining acceptable levels of interest rate and
liquidity risk and facilitating the funding needs of the company. To help
achieve these objectives, we use derivative financial instruments including
interest rate swaps, floors and swaptions that correlate to instruments recorded
on our balance sheet.
Page 50
If market interest rates on December 31, 1997 abruptly increased 75
basis points, the fair value of Transamerica's investment portfolio
subject to interest rate risk would decrease about $1.5 billion, the fair
value of our finance receivables portfolio would decrease approximately $23
million, the fair value of our interest sensitive insurance liabilities
would decrease approximately $670 million, the fair value of our debt
would decrease approximately $90 million and the fair value of our interest
rate swaps, floors and swaptions would decrease approximately $120 million.
Conversely, if rates on December 31, 1997 abruptly decreased 75 basis
points the fair value of Transamerica's investment portfolio subject to
interest rate risk would increase about $1.5 billion, the fair value of our
finance receivables portfolio would increase approximately $23 million, the
fair value of our interest sensitive insurance liabilities would increase
approximately $750 million, the fair value of our debt would increase
approximately $90 million and the fair value of our interest rate swaps,
floors and swaptions would increase approximately $190 million.
We determined these amounts by considering only the impact of the
hypothetical interest rate change. Our assets appear to be more interest
sensitive than our liabilities. This is because much of our liability portfolio,
such as reinsurance contracts and whole life policies, are not considered to be
interest sensitive financial instruments for purposes of this disclosure. Also,
these analyses do not consider the possible effect a change in economic activity
could have in such an environment. Also, in the event of a change of such
magnitude, we would likely take action to mitigate our exposure to the negative
consequences. Our customers and competitors would also respond to these
fluctuations, and regulators or legislators might act in ways we cannot foresee.
Because we cannot be certain what specific actions would be taken and their
effects, the sensitivity analysis above assumes no significant changes in
Transamerica's financial structure.
EQUITY PRICE RISK
Transamerica is exposed to equity price risk because of our investments
in equity securities. Changes in the level or volatility of equity prices affect
the value of our equity securities and instruments that derive their value from
a particular stock, a group of stocks or a stock index.
If the market price of Transamerica's equity investment portfolio as of
December 31, 1997, abruptly increased or decreased by 10%, the market value of
our equity portfolio would increase or decrease by $161 million.
YEAR 2000 ISSUE
We have developed a plan to modify our information systems technology
to recognize the year 2000 and have begun converting our critical data
processing systems. We currently expect the project to be substantially complete
by mid-1999 and to cost between $25 million and $35 million which will be
expensed as incurred. This estimate includes internal costs, but excludes the
costs to upgrade and replace systems in the normal course of business. We do not
currently expect this project to have a significant effect on Transamerica's
results of operations. As of December 31, 1997, approximately $3.5 million had
been expensed.
Page 51
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
December 31 ................................................................. 1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Investments, principally of life insurance subsidiaries:
Fixed maturities ......................................................... $ 29,210.8 $ 26,860.6
Equity securities ........................................................ 1,607.5 1,046.0
Mortgage loans and real estate ........................................... 750.2 745.5
Loans to life insurance policyholders .................................... 451.0 442.6
Short-term investments ................................................... 336.0 164.2
--------- ---------
32,355.5 29,258.9
Finance receivables, of which $2,726.9 in 1997 and
$3,202.4 in 1996 matures within one year ................................. 4,333.4 4,391.1
Less unearned fees ($340.8 in 1997 and $286.9 in 1996)
and allowance for losses ................................................. 430.1 372.7
--------- ---------
3,903.3 4,018.4
Cash and cash equivalents ................................................... 132.9 440.9
Trade and other accounts receivable ......................................... 2,165.8 1,929.7
Net assets of discontinued operations ....................................... 40.1 4,326.2
Property and equipment, less accumulated depreciation
of $1,465.9 in 1997 and $1,256.8 in 1996
Land, buildings and equipment ......................................... 395.4 392.6
Equipment held for lease .............................................. 2,996.5 3,118.5
Deferred policy acquisition costs ........................................... 2,102.6 2,138.2
Separate accounts administered by life insurance subsidiaries ............... 5,494.7 3,527.9
Goodwill, less accumulated amortization of $156.2 in 1997
and $141.6 in 1996 ....................................................... 423.0 368.1
Assets held for sale ........................................................ 377.8 3.4
Other assets ................................................................ 785.3 408.4
--------- ---------
$ 51,172.9 $ 49,931.2
=========== ===========
(Amounts in millions except for share data)
See notes to financial statements
</TABLE>
Page 52
<PAGE>
<TABLE>
<CAPTION>
December 31 ....................................................................... 1997 1996
--------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Life insurance policy liabilities ................................................. $ 30,141.9 $ 28,542.8
Notes and loans payable, principally of finance subsidiaries,
of which $998.6 in 1997 and $1,241.3 in 1996
matures within one year ........................................................ 6,235.3 10,328.3
Accounts payable and other liabilities ............................................ 2,096.9 1,843.9
Income taxes, of which $1,582.7 in 1997 and $962.3 in 1996 is deferred ............ 1,607.8 1,022.7
Separate account liabilities ...................................................... 5,494.7 3,527.9
Minority interest in capital securities of affiliates ............................. 715.0 525.0
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 in 1996 .......... 225.0
Outstanding-Series D, 180,091 shares at liquidation
preference of $500 per share in 1996 ..................................... 90.0
Common stock ($1 par value):
Authorized-150,000,000 shares
Outstanding-62,904,108 in 1997 and 65,968,708 shares
in 1996, after deducting 16,834,354 and 13,769,754 shares
in treasury in 1997 and 1996 ............................................. 62.9 66.0
Additional paid-in capital ..................................................... 83.0
Retained earnings .............................................................. 3,330.8 2,920.2
Net unrealized gain from investments marked to fair value ...................... 1,533.6 784.4
Foreign currency translation adjustments ....................................... (46.0) (28.0)
----------- ----------
4,881.3 4,140.6
----------- -----------
$ 51,172.9 $ 49,931.2
=========== ===========
</TABLE>
Page 53
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Year ended December 31 .............................................. 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Investment income ................................................... $ 2,191.4 $ 2,092.3 $ 1,980.0
Life insurance premiums and related income .......................... 1,818.0 1,692.0 1,714.5
Finance charges and other fees ...................................... 522.5 457.9 436.5
Leasing revenues .................................................... 758.7 689.1 669.5
Real estate and tax service revenues ................................ 302.6 255.7 195.0
Gain on investment transactions ..................................... 67.1 39.2 52.9
Other ............................................................... 66.2 85.5 121.9
----------- ----------- -----------
5,726.5 5,311.7 5,170.3
EXPENSES
Life insurance benefits ............................................. 2,810.9 2,649.7 2,710.4
Life insurance underwriting, acquisition and other expenses ......... 734.9 638.8 549.4
Leasing operating and maintenance costs ............................. 449.9 384.3 363.1
Interest and debt expense ........................................... 420.9 396.5 381.5
Provision for losses on receivables ................................. 16.2 10.2 (4.0)
Other, including administrative and general expenses ................ 631.9 570.6 598.9
----------- ----------- -----------
5,064.7 4,650.1 4,599.3
----------- ----------- -----------
661.8 661.6 571.0
Income taxes ........................................................ 129.8 160.1 180.9
----------- ----------- -----------
Income from continuing operations ................................... 532.0 501.5 390.1
Income (loss) from discontinued operations .......................... 261.8 (45.2) 80.4
----------- ----------- -----------
Net income .......................................................... $ 793.8 $ 456.3 $ 470.5
=========== =========== ===========
EARNINGS PER SHARE OF COMMON STOCK
Basic:
Income from continuing operations ................................ $ 8.12 $ 7.27 $ 5.41
Income (loss) from discontinued operations ....................... 4.05 (0.68) 1.17
----------- ------------ -----------
Net income .......................................................... $ 12.17 $ 6.59 $ 6.58
=========== ============ ===========
Diluted:
Income from continuing operations ................................ $ 7.87 $ 7.10 $ 5.31
Income (loss) from discontinued operations ....................... 3.92 (0.66) 1.15
----------- ------------ ------------
Net income .......................................................... $ 11.79 $ 6.44 $ 6.46
=========== ============ ============
(Amounts in millions except for per share data)
See notes to financial statements
</TABLE>
Page 54
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Year ended December 31 ................................................ 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations ..................................... $ 532.0 $ 501.5 $ 390.1
Adjustments to reconcile income from continuing
operations to net cash provided by operating activities:
Increase in insurance related liabilities, excluding
policyholder balances on interest-sensitive policies ......... 1,108.8 1,042.9 1,272.8
Amortization of policy acquisition costs ........................ 256.3 268.8 191.3
Policy acquisition costs deferred ............................... (467.7) (388.0) (381.8)
Depreciation and amortization ................................... 342.0 318.5 302.1
Other ........................................................... (367.9) (329.3) (707.2)
----------- ---------- -----------
Net cash provided by operating activities .......................... 1,403.5 1,414.4 1,067.3
INVESTING ACTIVITIES
Finance receivables originated ........................................ (23,262.4) (18,765.1) (18,125.5)
Finance receivables collected ......................................... 24,043.1 18,086.8 18,003.1
Purchase of investments ............................................... (10,609.4) (7,990.4) (6,230.8)
Sales and maturities of investments ................................... 9,132.8 6,153.8 4,189.7
Purchase of finance receivables from Whirlpool
Financial Corporation .............................................. (881.9)
Proceeds from the sale of and cash transactions with
discontinued operations ............................................ 4,413.2 1,021.8 (783.6)
Other ................................................................. (363.4) (77.1) (529.5)
----------- ---------- -----------
Net cash provided (used) by investing activities ................... 2,472.0 (1,570.2) (3,476.6)
FINANCING ACTIVITIES
Proceeds from debt financing .......................................... 3,370.5 6,852.4 8,476.9
Payments of notes and loans ........................................... (7,398.7) (7,204.6) (7,330.4)
Receipts from interest-sensitive policies credited
to policyholder account balances ................................... 6,851.6 6,202.7 5,151.4
Return of policyholder balances on interest-sensitive policies ........ (6,411.2) (5,211.0) (3,624.0)
Proceeds from sale of capital securities of affiliates ................ 188.6 323.9
Redemption of preferred stock ......................................... (318.8) (0.8)
Treasury stock purchases .............................................. (443.5) (330.2) (155.4)
Proceeds from issuance of common stock ................................ 108.3 45.6 51.0
Dividends ............................................................. (130.3) (149.2) (155.4)
----------- ----------- -----------
Net cash provided (used) by financing activities ................... (4,183.5) 529.6 2,413.3
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents ...................... (308.0) 373.8 4.0
Cash and cash equivalents at beginning of year ........................ 440.9 67.1 63.1
----------- ----------- -----------
Cash and cash equivalents at end of year .............................. $ 132.9 $ 440.9 $ 67.1
=========== =========== ===========
(Amounts in millions)
See notes to financial statements
</TABLE>
Page 55
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<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, 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)
Net income .................................. 456.3
Dividends declared:
On common stock .......................... (132.2)
On preferred stock ....................... (17.0)
Common stock issued ......................... 2.4 155.9
Treasury stock purchased .................... (4.4) (72.9) (252.9)
Other changes ............................... (295.5) 1.0
--------- ------- ------- --------- --------- -------
BALANCE AT DECEMBER 31, 1996 ................ 315.0 66.0 83.0 2,920.2 784.4 (28.0)
Net income .................................. 793.8
Dividends declared:
On common stock .......................... (127.7)
On preferred stock ....................... (2.6)
Common stock issued ......................... 1.4 106.9
Treasury stock purchased .................... (4.5) (186.1) (252.9)
Redemption of preferred stock ............... (315.0) (3.8)
Other changes ............................... 749.2 (18.0)
---------- ------- ------- --------- --------- -------
BALANCE AT DECEMBER 31, 1997 ................ $ $ 62.9 $ $ 3,330.8 $ 1,533.6 $ (46.0)
========== ======= ======= ========= ========= =======
(Amounts in millions)
See notes to financial statements
</TABLE>
Page 56
<PAGE>
NOTES TO FINANCIAL STATEMENTS
A. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Transamerica Corporation is a financial services organization which
engages through its subsidiaries in life insurance, commercial lending, leasing
and real estate services. The United States is the primary market for the
services offered by most of TransamericaOs subsidiaries except for the leasing
business, which operates in the container leasing 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. Such
amounts may ultimately differ from those estimates.
INVESTMENTS
Investments in fixed maturities, comprising bonds, notes and redeemable
preferred stocks, and investments in equity securities, comprising marketable
corporate common and nonredeemable preferred stocks, are carried at fair value.
Fair value for actively traded securities is based on quoted market prices. For
fixed maturity securities that are not actively traded, fair value is estimated
using information obtained from independent pricing services.
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. Cost for equity securities is based on
the original purchase price. For fixed maturities cost is adjusted for
amortization of any discount or premium.
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 90 days.
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.
Page 57
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 and foreign exchange rate risks. 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.
When an asset or liability which is hedged by a derivative contract is
sold or otherwise disposed of, the derivative contract is either reassigned to
hedge another asset or liability or closed out, and any gain or loss recognized.
STOCK BASED COMPENSATION
Transamerica accounts for stock based compensation under the provisions of
Accounting Principles Board Opinion No. 25.
NEW ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128
requirements.
Page 58
B. FINANCIAL INSTRUMENTS
MINORITY INTEREST
In November 1997, an affiliate of Transamerica issued $190 million of
7.625% cumulative Capital Trust Pass-through Securities payable November 15,
2037. In November 1996, two affiliates of Transamerica issued $100 million of
7.80% and $225 million of 7.65% cumulative Capital Trust Pass-through Securities
payable December 1, 2026. The fair value of these obligations at December 31,
1997 was $531.8 million.
The $100 million, 7.80% issue may be redeemed in whole or in part, on
or after December 1, 2006.
In October 1994, an affiliate of Transamerica issued $200 million of
9.125% cumulative Monthly Income Preferred Securities payable October 25, 2024.
The affiliate may redeem the outstanding Monthly Income Preferred Securities, in
whole or in part, on or after October 25, 1999. Dividends on the outstanding
Monthly Income Preferred Securities are cumulative and payable monthly in
arrears. The fair value of these obligations at December 31, 1997 was $211
million.
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 for each of the
Capital Trust Pass-through Securities issues and the Monthly Income Preferred
Securities.
Dividends on the Capital Trust Pass-through Securities and Monthly
Income Preferred Securities are reported in the consolidated statement of income
as a component of other expense.
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, 1997 and 1996 were
as follows:
<PAGE>
<TABLE>
<CAPTION>
(Amounts in millions) Carrying Estimated
Value Fair Value
--------- ----------
<S> <C> <C>
DECEMBER 31, 1997
Single and flexible
premium deferred
annuities ...................................................... $ 6,780.0 $ 6,261.7
Single premium
immediate annuities ............................................ 4,361.3 5,122.5
Guaranteed investment
contracts ...................................................... 3,211.8 3,265.4
Other deposit contracts ........................................... 4,944.9 4,992.9
----------- -----------
$ 19,298.0 $ 19,642.5
=========== ===========
DECEMBER 31, 1996
Single and flexible
premium deferred
annuities ...................................................... $ 6,962.5 $ 6,400.6
Single premium
immediate annuities ............................................ 4,115.0 4,477.0
Guaranteed investment
contracts ...................................................... 3,153.8 3,207.3
Other deposit contracts ........................................... 3,894.8 3,913.1
----------- -----------
$ 18,126.1 $ 17,998.0
=========== ===========
</TABLE>
Page 59
<PAGE>
<TABLE>
INVESTMENTS
The cost and fair value of fixed maturities and equity securities at December
31, 1997 and 1996 were as follows:
<CAPTION>
(Amounts in millions) Gross Gross
Unrealized Unrealized
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
U.S. Treasury securities and obligations of
U.S. government authorities and agencies ........................... $ 274.5 $ 78.4 $ 352.9
Obligations of states and political subdivisions ..................... 243.6 19.0 262.6
Foreign governments .................................................. 139.7 9.1 $ 1.8 147.0
Corporate securities ................................................. 18,420.5 1,475.0 58.2 19,837.3
Mortgage-backed securities ........................................... 3,798.1 342.8 2.0 4,138.9
Public utilities ..................................................... 4,018.8 340.6 0.8 4,358.6
Redeemable preferred stock ........................................... 95.2 28.0 9.7 113.5
----------- ---------- -------- --------
Total fixed maturities ............................................... $ 26,990.4 $ 2,292.9 $ 72.5 $ 29,210.8
=========== ========== ======== ===========
Equity securities .................................................... $ 642.7 $ 980.6 $ 15.8 $ 1,607.5
=========== ========== ======== ===========
December 31, 1996
U.S. Treasury securities and obligations of
U.S. government authorities and agencies ........................... $ 289.2 $ 25.1 $ 1.7 $ 312.6
Obligations of states and political subdivisions ..................... 291.9 11.1 0.6 302.4
Foreign governments .................................................. 149.3 6.0 0.5 154.8
Corporate securities ................................................. 14,928.7 805.9 110.8 15,623.8
Mortgage-backed securities ........................................... 5,548.1 252.1 56.3 5,743.9
Public utilities ..................................................... 4,463.8 203.6 35.8 4,631.6
Redeemable preferred stock ........................................... 84.6 13.2 6.3 91.5
----------- ---------- -------- -----------
Total fixed maturities ............................................... $ 25,755.6 $ 1,317.0 $ 212.0 $ 26,860.6
=========== ========== ======== ===========
Equity securities .................................................... $ 446.8 $ 612.7 $ 13.5 $ 1,046.0
=========== ========== ======== ===========
The cost and fair value of fixed maturities at December 31, 1997 by contractual
maturity, are shown below.
(Amounts in millions) Cost Fair Value
----------- -----------
Due in one year or less .................................................. $ 497.0 $ 512.3
Due after one year through five years .................................... 3,949.7 4,094.7
Due after five years through ten years ................................... 6,241.1 6,598.2
Due after ten years ...................................................... 12,504.5 13,866.7
----------- -----------
23,192.3 25,071.9
Mortgage-backed securities ............................................... 3,798.1 4,138.9
----------- -----------
$ 26,990.4 $ 29,210.8
=========== ===========
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>
Page 60
<PAGE>
<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, 1997
and 1996 were as follows:
<CAPTION>
(Amounts in millions) Carrying Estimated
Value Fair Value
--------- ----------
<S> <C> <C>
DECEMBER 31, 1997
Mortgage loans on real estate ................................................... $ 684.3 $ 774.6
======== ========
Loans to life insurance policyholders ........................................... $ 451.0 $ 427.9
======== ========
DECEMBER 31, 1996
Mortgage loans on real estate ................................................... $ 681.5 $ 770.9
======== ========
Loans to life insurance policyholders ........................................... $ 442.6 $ 416.4
======== ========
</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.
<TABLE>
<CAPTION>
Loans with similar characteristics are aggregated for calculation purposes. Gain
on investment transactions, included in consolidated revenues, comprises:
(Amounts in millions) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net gain on sale of investments ................................... $ 75.7 $ 81.9 $ 85.7
Provision for impairment in value ................................. (17.5) (9.1) (23.6)
Amortization of deferred policy acquisition costs ................. 8.9 (33.6) (9.2)
--------- --------- ---------
$ 67.1 $ 39.2 $ 52.9
========= ========= =========
</TABLE>
Proceeds from sales of fixed maturities and equity securities were $9.1
billion in 1997, $5.9 billion in 1996 and $4 billion in 1995. Gross gains of
$198.2 million in 1997, $119.8 million in 1996 and $95 million in 1995, and
gross losses of $126 million in 1997, $41.3 million in 1996 and $11.7 million in
1995 were realized on those sales.
Transamerica and its subsidiaries use interest rate exchange and other
agreements to hedge the interest rate sensitivity of a portion of its fixed
maturity investments.
<PAGE>
<TABLE>
<CAPTION>
The net unrealized gain included in stockholders' equity as a result of
marking the fixed maturities and equity securities to fair value at December 31,
1997 and 1996 were as follows:
(Amounts in millions) 1997 1996
--------- ---------
<S> <C> <C>
Net unrealized gain on fixed maturities ........................................ $ 2,143.0 $ 1,107.3
Net unrealized gain on equity securities ....................................... 964.8 599.2
Net unrealized gain (loss) on derivative instruments which hedge a
portion of investments in fixed maturities .................................. 77.4 (2.3)
Adjustment to deferred policy acquisition costs ................................ (546.1) (306.6)
Adjustment to life insurance policy liabilities ................................ (281.0) (195.0)
Deferred income taxes .......................................................... (825.8) (422.4)
Other assets ................................................................... 1.3 4.2
---------- ----------
$ 1,533.6 $ 784.4
========== ==========
</TABLE>
Page 61
<TABLE>
NOTES AND LOANS PAYABLE
<CAPTION>
(Amounts in millions) 1997 1996
--------- ---------
<S> <C> <C>
TRANSAMERICA FINANCE CORPORATION:
Short-term bank loans, commercial paper and current portion
of long-term debt ........................................................... $ 890.8 $ 1,229.0
Long-term debt due subsequent to one year:
Notes and debentures; interest at 5.76% to 9.85%;
maturing through 2011 .................................................... 2,510.6 3,474.4
Notes and debentures; interest at 13.8% to 13.88%;
maturity value of $582.8 million; maturing through 2012 .................. 182.4 171.5
Commercial paper and other notes at various interest rates and
terms supported by a credit agreement expiring in 2002 ................... 1,793.7 4,109.4
Subordinated notes and debentures; interest at 5.70%
to 9.95%; maturing through 2003 .......................................... 433.2 702.5
Loans due to parent company .................................................... 214.5 192.5
----------- -----------
6,025.2 9,879.3
PARENT COMPANY AND OTHER SUBSIDIARIES:
Short-term bank loans, commercial paper and current portion
of long-term debt ........................................................... 107.8 12.3
Long-term debt due subsequent to one year:
Notes and debentures, net of discounts; interest at 6.08% to 10%;
maturing through 2020 .................................................... 316.8 424.0
Commercial paper and other notes at various interest rates and
terms supported by a credit agreement expiring in 2002 ................... 198.2
Notes at variable interest rates; maturing through 1998 ..................... 7.0
Less loans to Transamerica Finance Corporation ................................. (214.5) (192.5)
----------- -----------
210.1 449.0
----------- -----------
$ 6,235.3 $ 10,328.3
=========== ===========
</TABLE>
The weighted average interest rate on short-term borrowings at December
31, 1997 and 1996 was 5.81% and 5.46%.
Assets with a net book value of $347.8 million at December 31, 1997,
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, 1998 are $1.2 billion in 1999, $0.5 billion in 2000, $0.6 billion
in 2001 and $2 billion in 2002.
Under a credit agreement with various banks, Transamerica and its
subsidiaries had the ability to borrow up to $3.5 billion with interest at
variable rates at December 31, 1997. There were no borrowings outstanding under
this credit line at that
Page 62
date. This credit agreement, which expires in 2002, requires a fee on the
commitment.
Transamerica and its subsidiaries use interest rate swap agreements to
hedge the interest rate sensitivity of a portion of outstanding indebtedness.
Interest payments, net of amounts received from interest rate swap
agreements, totaled $548.8 million in 1997, $705 million in 1996 and $696
million in 1995.
The estimated fair value of notes and loans payable, using rates
currently available for debt with similar terms and maturities, was $6.6 billion
at December 31, 1997 and $10.7 billion at December 31, 1996.
CONCENTRATION OF RISK AND
FAIR VALUE OF RECEIVABLES
Transamerica's commercial lending operation engages in the extension of
credit to electronics and appliance dealers, retail recreational products
dealers, computer stores and others. The majority of these loans is secured by
the assets being financed. The risk associated with that credit is subject to
economic, competitive and other influences. While a substantial portion of the
risk is diversified, certain borrowers are concentrated in one industry or
geographic area.
The finance receivables portfolio represents lending arrangements with
approximately 67,000 customers. At December 31, 1997, the portfolio included 12
customers with individual balances in excess of $20 million. These accounts in
total represented 13% of total net finance receivables outstanding at December
31, 1997.
The estimated fair values of the fixed rate finance loans and long-term
variable rate 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 short-term variable rate loans, which
comprise the majority of the loan portfolio, the carrying amount represents a
reasonable estimate of fair value.
<TABLE>
<CAPTION>
The carrying amounts and estimated fair values of the finance
receivable portfolio at December 31, 1997 and 1996 were as follows:
(Amounts in millions) Carrying Estimated
Value Fair Value
<S> <C> <C>
DECEMBER 31, 1997
Fixed rate receivables .............................................. $ 1,248.0 $ 1,275.3
Variable rate receivables ........................................... 2,655.3 2,660.5
---------- ----------
$ 3,903.3 $ 3,935.8
========== ==========
DECEMBER 31, 1996
Fixed rate receivables .............................................. $ 1,120.6 $ 1,149.9
Variable rate receivables ........................................... 2,897.8 2,897.8
---------- ----------
$ 4,018.4 $ 4,047.7
========== ==========
</TABLE>
Page 63
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 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, the
likelihood of nonperformance is considered low due to the high credit rating of
the counterparties. At December 31, 1997 and 1996, all of 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. 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. 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, and
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, 1997 and 1996, the unamortized cost of the instruments
that hedge assets was $73 million and $76 million, and the fair value of these
asset hedges comprised gross obligations to counterparties of $19 million and
$17.5 million and gross benefits from counterparties of $169.4 million and $91.2
million. The net unrealized gain (loss) on derivative contracts that hedge
assets is included in stockholders' equity. At December 31, 1997 and 1996 the
net after tax unrealized gain (loss) included in stockholders' equity from
marking asset hedges to fair value was $50.3 million and $(1.5) million.
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, 1997 and 1996 were gross
obligations of $6.3 million and $29.2 million and gross benefits of $68.6
million and $69.2 million resulting in net benefits from counterparties of $62.3
million and $40 million at December 31, 1997 and December 31, 1996.
Page 64
<PAGE>
<TABLE>
At December 31, 1997 and 1996 derivative hedges comprised:
(Dollar amounts in millions)
<CAPTION>
Weighted Weighted
Notional Avg. Fixed Avg. Floating
ASSET HEDGES .................................................................... Amount Interest Rate Interest Rate
<S> <C> <C> <C>
1997
Interest rate swap agreements -Transamerica receives:
Floating rate interest income, pays fixed rate interest expense .............. $ 366.4 6.0% 5.9%
---------- ------- --------
Fixed rate interest income, pays floating rate interest expense .............. $ 275.0 6.5% 5.9%
---------- ------- --------
Floating rate interest income based on one index (5.86%)
and pays floating rate interest expense based on another
index (4.23%) ............................................................ $ 324.2
----------
Interest rate floor agreements .................................................. $ 560.5 6.5%
---------- -------
Swaptions ....................................................................... $ 8,401.0 4.3%
---------- -------
S&P call options ................................................................ $ 28.8
----------
Cross currency swaps and foreign interest rate swaps ............................ $ 62.7
----------
1996
Interest rate swap agreements -Transamerica receives:
Floating rate interest income, pays fixed rate interest expense .............. $ 308.9 6.8% 6.5%
---------- ------- -------
Fixed rate interest income, pays floating rate interest expense .............. $ 240.0 6.7% 6.4%
---------- ------- -------
Floating rate interest income based on one index (at a weighted
average interest rate of 5.9%) and pays floating rate interest
expense based on another index (at a weighted average
interest rate of 6.6%) ................................................... $ 298.6
----------
Swaptions ....................................................................... $ 8,427.6 4.5%
---------- -------
Interest rate floor agreements .................................................. $ 560.5 6.5%
---------- -------
Interest rate cap agreements .................................................... $ 10.0 5.5%
---------- -------
S&P call options ................................................................ $ 8.8
----------
LIABILITY HEDGES
1997
Interest rate swap agreements - Transamerica pays:
Floating rate interest expense, receives fixed rate interest income .......... $ 3,452.2 6.3% 5.8%
---------- ------- -------
Fixed rate interest expense, receives floating rate interest income ........ $ 80.5 6.2% 5.8%
---------- ------- -------
Floating rate interest expense based on one index (5.91%) and
receives floating rate interest income based on another
index (5.80%) ............................................................. $ 289.0
----------
Swaptions ....................................................................... $ 150.0 7.0%
---------- -------
Cross currency swaps and foreign interest rate swaps ............................ $ 76.0
----------
1996
Interest rate swap agreements - Transamerica pays:
Floating rate interest expense, receives fixed rate interest income .......... $ 2,662.6 6.4% 5.7%
---------- ------- -------
Fixed rate interest expense, receives floating rate interest income .......... $ 672.1 6.3% 5.5%
---------- ------- -------
Floating rate interest expense based on one index (at a weighted
average interest rate of 5.8%) and receives floating rate
interest income based on another index (at a weighted
average interest rate of 3.7%) ............................................ $ 6.6
----------
Cross currency swaps and foreign interest rate swaps ............................ $ 116.5
----------
</TABLE>
Page 65
<PAGE>
<TABLE>
C. INCOME TAXES
The provision (benefit) for income taxes on income from continuing operations
comprised:
<CAPTION>
(Amounts in millions) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal current ............................... $ (52.2) $ 24.8 $ 24.3
Federal deferred .............................. 153.9 111.0 131.4
State ......................................... 1.7 9.1 8.5
Foreign ....................................... 26.4 15.2 16.7
--------- --------- ---------
$ 129.8 $ 160.1 $ 180.9
========= ========= =========
</TABLE>
<TABLE>
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, 1997 and 1996 were as
follows:
<CAPTION>
(Amounts in millions) 1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for losses ................................................. $ 36.2 $ 30.4
Impairment of investments ............................................ 33.1 36.4
Life insurance policy liabilities .................................... 614.2 575.3
Loss and tax credit carryforwards .................................... 57.0
Other ................................................................ 188.9 250.3
---------- ---------
872.4 949.4
Deferred tax liabilities:
Deferred policy acquisition costs .................................... 783.7 726.1
Accelerated depreciation ............................................. 674.7 614.8
Unrealized gain on marking investments to fair value ................. 825.8 422.4
Discount amortization on notes and loans payable ..................... 76.9 71.6
Other ................................................................ 94.0 76.8
---------- ---------
2,455.1 1,911.7
---------- ---------
Net deferred tax liability .............................................. $ 1,582.7 $ 962.3
========== =========
</TABLE>
<PAGE>
<TABLE>
The difference between federal income taxes on income from continuing operations
computed at the statutory rate and the provision for income taxes was:
<CAPTION>
(Amounts in millions) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal income taxes at statutory rate ............................ $ 231.6 $ 231.6 $ 199.9
Prior year items .................................................. (80.2) (63.8) (30.0)
Tax credits ....................................................... (22.9) (20.8) (13.0)
Other ............................................................. 1.3 13.1 24.0
--------- --------- ---------
$ 129.8 $ 160.1 $ 180.9
========= ========= =========
</TABLE>
Income tax payments totaled $3.1 million in 1997, $97.5 million in 1996,
and $148.3 million in 1995. Pretax income from foreign operations was $66.4
million in 1997, $36.9 million in 1996 and $44.2 million in 1995.
Page 66
<TABLE>
D. BUSINESS SEGMENT INFORMATION
Business segment data, as required by Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information, for each of the years in the three year period ended December 31,
1997 included in the tables on pages 33 to 46 of the Financial Review of this
annual report are an integral part of these financial statements.
<CAPTION>
(Amounts in millions) 1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Life insurance ............................. $ 4,029.4 $ 3,793.6 $ 3,718.2
Commercial lending ......................... 515.5 432.8 423.7
Leasing .................................... 797.8 765.6 733.9
Real estate services ....................... 416.0 356.9 253.5
Other* ..................................... (32.2) (37.2) 41.0
----------- ----------- -----------
$ 5,726.5 $ 5,311.7 $ 5,170.3
=========== =========== ===========
ASSETS
Life insurance ............................. $ 41,387.3 $ 36,482.0
Commercial lending ......................... 4,613.2 4,023.5
Leasing .................................... 3,929.4 3,928.5
Real estate services ....................... 1,734.3 1,531.5
Other* ..................................... (491.3) 3,965.7
----------- -----------
$ 51,172.9 $ 49,931.2
=========== ===========
*In 1997 Transamerica completed the sale of its branch-based consumer lending
operation. At December 31, 1997 the consumer lending operations were classified
as discontinued operations. At December 31, 1997 and 1996 net assets of
discontinued operations were $40.1 million and $4,326.2 million. In 1995
Transamerica completed the sale of Criterion Investment Management Company which
comprised its asset management operations. For the year ended, December 31, 1995
revenues of the asset management operations were $31.4 million. Other also
includes intercompany eliminations.
</TABLE>
<PAGE>
<TABLE>
E. CALCULATION OF EARNINGS PER SHARE OF COMMON STOCK
<CAPTION>
1997 1996 1995
(Amounts in millions Per-Share Per-Share Per-Share
except for per share data) .... Income Shares Amount Income Shares Amount Income Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income from continuing
operations ................ $532.0 $501.5 $390.1
Preferred dividends ........... (2.6) (17.0) (18.0)
Preferred stock
purchase premium ........... (3.8)
------ ------ ------
BASIC EPS
Income from continuing
operations available to
common stockholders ........ 525.6 64.7 $8.12 484.5 66.6 $7.27 372.1 68.8 $5.41
Dilutive effects of stock
options .................... 2.1 (0.25) 1.6 (0.17) 1.3 (0.10)
------ ----- ---- ----- ---- -----
DILUTED EPS
Income from continuing
operations available to
common stockholders ........ $525.6 66.8 $7.87 $484.5 68.2 $7.10 $372.1 70.1 $5.31
====== ====== ===== ====== ==== ===== ====== ==== =====
</TABLE>
Page 67
<PAGE>
F. 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 for 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.
<TABLE>
A summary of the components of net periodic pension cost (benefit) follows:
<CAPTION>
(Amounts in millions) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service costs-benefits earned during the period $ 16.7 $ 16.7 $ 14.2
Interest cost on projected benefit obligation .................... 52.7 51.6 52.3
Actual return on plan assets ..................................... (307.8) (164.9) (259.2)
Deferral of current gains varying from expected return ........... 230.4 97.4 199.2
Net amortization and deferrals ................................... (10.3) (0.6) 3.8
--------- --------- ---------
Total pension cost (benefit) ..................................... $ (18.3) $ 0.2 $ 10.3
========= ========= =========
</TABLE>
<TABLE>
The following table sets forth the amounts recognized in the consolidated statement of financial position of the pension
plans:
<CAPTION>
(Amounts in millions) 1997 1996
---------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation* ..................................................... $ 752.1 $ 710.5
========== ==========
Accumulated benefit obligation ................................................. $ 760.9 $ 719.6
========== ==========
Projected benefit obligation, including effects
of future salary increases ..................................................... $ 823.1 $ 779.1
Plan assets at fair value ...................................................... 1,393.3 1,119.4
---------- ----------
Excess of plan assets over projected benefit obligation ........................ $ 570.2 $ 340.3
========== ==========
The excess of plan assets over projected benefit obligation comprises:
Net pension liability ..................................................... $ (6.4) $ (29.1)
Unrecognized net gain arising since January 1, 1986 ....................... 586.3 381.7
Unrecognized prior service cost ........................................... (13.2) (16.9)
Unrecognized net obligation at January 1, 1986 net of amortization ........ (3.6) (4.8)
Adjustment required to recognize minimum liability ........................ 7.1 9.4
---------- ----------
$ 570.2 $ 340.3
========== ==========
*A portion of the vested benefit obligation is unconditionally guaranteed by
Transamerica Occidental Life Insurance Company, a wholly owned subsidiary of
Transamerica.
</TABLE>
<PAGE>
The projected benefit obligation was determined using a weighted average
discount rate of 7% and an assumed rate of compensation increase of 5.50%. The
expected long-term rate of return on plan assets was 8.25%.
During 1997, the company recognized a curtailment gain of $18.8 million as a
result of the sale of its branch-based consumer lending operation.
Page 68
G. CAPITAL STOCK
At December 31, 1997, 5,000,000 shares of preference stock (without par
value) were authorized but unissued.
At December 31, 1996 Transamerica had 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. In
December 1996, Transamerica announced the redemption of all of the outstanding
DARTS. The redemption was completed in February 1997.
Transamerica also had outstanding 3,601,827 depositary shares at
December 31, 1996, each of which represented a 1/20 interest in a share of
Series D Preferred Stock ($100 par value, $500 liquidation preference). In
February 1997, Transamerica completed the redemption of all its Series D
Preferred Stock.
In October 1996, Transamerica acquired Trans Ocean Ltd. in exchange for
approximately 1.6 million shares ($112.7 million) of Transamerica common stock.
H. 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, 1997 approximately $4.2 billion is so restricted, and
$0.6 billion is free for remittance to Transamerica subject to investment and
operating requirements.
I. COMMITMENTS AND CONTINGENCIES
In connection with the 1993 sale of Transamerica Insurance Group, 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 $317.3 million at December 31, 1997 by
providing letters of credit aggregating $160 million and by placing certain
assets in a trust. At December 31, 1997, the fair value of the assets in the
trust was $197.7 million. 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.
Proceedings seeking rescission of reinsurance contracts in connection
with business in the personal accident market in London are currently underway.
The ultimate effect on the company is unknown.
Substantially all leases of Transamerica and its subsidiaries are
operating leases principally for the rental of real estate. Total rental expense
amounted to $108.2 million in 1997, $57 million in 1996 and $63.8 million in
1995.
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 subsidiaries.
Page 69
J. STOCK OPTIONS
Transamerica has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for stock-based compensation because, as discussed
below, the alternative fair value accounting provided for under FASB Statement
No. 123, "Accounting for Stock-Based Compensation," requires use of option
valuation models that were not developed for use in valuing employee stock
options.
At December 31, 1997, under Transamerica's stock option plans,
17,166,052 shares of common stock (18,606,962 shares at December 31, 1996) were
reserved principally for sale to key employees of the Corporation and
subsidiaries. Except as noted below for the 1995 Performance Stock Option Plan
and a portion of the January 1998 grant approved by Transamerica's board of
directors, all options granted have 10 year terms and vest and become
exercisable ratably over four years. Options were exercised for 1,432,410 shares
in 1997, 778,798 shares in 1996, and 1,068,068 shares in 1995, at aggregate
option prices of $59.9 million, $31 million and $41.1 million. In January 1998,
Transamerica's board of directors approved 3,668,400 options for grant including
additional grants under the 1996 plan and, subject to stockholder approval, the
1995 Performance Stock Option Plan and the 1985 Stock Option and Award Plan.
Under the terms of these plans 482,500 options were granted at an exercise price
of $125, 2,090,000 were granted at an exercise price of $150 and 1,095,900 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 has made grants of
nonqualified stock options totaling 5 million shares. Transamerica's share price
on the date of the initial grant was $50.75. 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 vested
in 1997, and options for 2,650,000 shares were granted with an exercise price of
$100 per share, of which 2,400,000 vested in 1997 resulting in compensation
expense of $4.9 million after tax. Options for 230,000 shares in 1997, 80,000
shares in 1996 and 140,000 shares in 1995 were cancelled due to forfeiture.
Forfeited options may be reissued.
Pro forma information regarding net income and earnings per share
is required by Statement 123, which also requires the information be determined
as if Transamerica had accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1996 and 1995: risk-free interest rate of 6.31%, 5.14%
and 7.10%; dividend yields of 2.3%, 2.6% and 3.7%; volatility factors of the
expected market price of Transamerica's common stock of 0.185, 0.175 and 0.164;
and a weighted-average expected option life of four years.
In management's opinion, existing stock option valuation models do
not provide an entirely reliable measure of the fair value of nontransferable
employee stock options with vesting provisions.
Page 70
The following table presents pro forma disclosures as if the estimated
fair value of the options is recognized ratably in income from continuing
operations over the options' vesting period.
<TABLE>
(Amounts in millions except for per share data)
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Pro forma income from continuing operations* ............................ $ 527.5 $ 496.5 $ 387.6
Pro forma basic earnings per share from continuing operations* .......... $ 8.05 $ 7.20 $ 5.37
Pro forma diluted earnings per share from continuing operations* ........ $ 7.80 $ 7.03 $ 5.27
* As Statement 123 is applicable to options granted subsequent to December 31,
1994, the full effect of its implementation will not be reflected in pro
forma disclosures until 1998.
</TABLE>
<PAGE>
<TABLE>
Transamerica's stock option activity and related information for the years ended
December 31 follow:
<CAPTION>
1997 1996 1995
-------- -------- --------
Weighted Weighted Weighted
Average Average Average
Options Exercise Options Exercise Options Exercise
(000's) Price (000's) Price (000's) Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year .......................... 12,007 $ 66.65 11,616 $ 63.67 6,679 $ 42.95
Granted ............................................. 1,584 87.49 1,635 77.77 7,070 81.63
Exercised ........................................... (1,432) 41.82 (778) 40.91 (1,068) 38.46
Forfeited ........................................... (589) 83.97 (466) 74.34 (1,065) 78.20
Outstanding-end of year ................................ 11,570 $ 71.70 12,007 $ 66.65 11,616 $ 63.67
Exercisable-end of year ................................ 7,568 $ 71.18 4,001 $ 43.65 3,533 $ 40.87
Weighted average fair value of an option
granted during the year, excluding
the Performance Stock Option Plan ................... $ 17.60 $ 12.73 $ 9.09
Weighted average fair value of an option
granted during the year, under the
Performance Stock Option Plan ....................... $ 14.41 $ 6.91 $ 1.68
======= ======= =======
</TABLE>
<TABLE>
Outstanding and exercisable options at December 31, 1997:
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Number
Range of Outstanding Weighted Avg Weighted Avg Number Weighted Avg
Exercise at 12/31/97 Remaining Exercise Exercisable Exercise
Prices (000's) Contractual Life Price (000's) Price
--------- ----------- ---------------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
$33-$42 1,210 3.4 years $ 39.06 1,210 $ 39.06
$43-$55 3,064 6.1 51.24 2,214 50.52
$56-$76 2,091 7.8 69.87 394 73.14
$77-$112 5,205 7.8 91.80 3,750 93.53
------ -----
11,570 7,568
====== =====
</TABLE>
Page 71
<PAGE>
K. DISCONTINUED OPERATIONS
On June 23, 1997, Transamerica sold its branch-based consumer lending
operation. Gross proceeds from the sale were $3.9 billion, or $1.1 billion after
repayment of associated debt. In December 1997, Transamerica decided to exit the
consumer lending business entirely. The results of the consumer lending business
have been reclassified to discontinued operations and all prior periods have
been restated.
<TABLE>
At December 31, 1997 and 1996, the net assets of the discontinued
consumer lending business, included in Transamerica's consolidated balance sheet
as net assets of discontinued operations, are summarized as follows:
<CAPTION>
(Amounts in millions) 1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Investments ........................................... $ 126.3
Finance receivables ................................... 3,885.4
Assets held for sale .................................. $ 33.8 83.1
Deferred income taxes ................................. 11.7 111.4
Other assets .......................................... 20.4 175.1
---------- ----------
Total assets ....................................... 65.9 4,381.3
LIABILITIES
Total liabilities .................................. 25.8 55.1
---------- ----------
Net assets of discontinued operations .............. $ 40.1 $ 4,326.2
========== ==========
</TABLE>
<PAGE>
<TABLE>
The following results of the discontinued consumer lending business are
included in income from discontinued operations:
<CAPTION>
(Amounts in millions) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues ............................................................ $ 290.4 $ 759.9 $ 782.5
Gain on sale of branch based consumer lending operation ............. 469.0
--------- --------- ---------
Total revenues ................................................... 759.4 759.9 782.5
Expenses ............................................................ 310.3 836.4 648.5
--------- --------- ---------
Income (loss) before taxes .......................................... 449.1 (76.5) 134.0
Income tax provision (benefit) ...................................... 187.3 (31.3) 53.6
--------- --------- ---------
Income (loss) from discontinued operations ....................... $ 261.8 $ (45.2) $ 80.4
========= ========= =========
</TABLE>
Page 72
<PAGE>
<TABLE>
SUPPLEMENTARY FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA
<CAPTION>
1997 March 31 June 30 September 30 December 31 1997 Total
<S> <C> <C> <C> <C> <C>
Revenues .......................... $1,372.0 $ 1,432.1 $ 1,423.4 $ 1,499.0 $ 5,726.5
======== ========= =========== =========== ===========
Income from continuing operations . $ 81.0 $ 112.9 $ 148.9 $ 189.2 $ 532.0
Income (loss) from discontinued
operations ..................... 275.0 1.1 (14.3) 261.8
-------- --------- ----------- ----------- -----------
Net income ........................ $ 81.0 $ 387.9 $ 150.0 $ 174.9 $ 793.8
======== ========= =========== =========== ===========
Earnings per share of common stock:
Basic:
Income from continuing operations . $ 1.13 $ 1.70 $ 2.36 $ 3.01 $ 8.12
Income (loss) from discontinued
operations ..................... 4.15 0.02 (0.23) 4.05
-------- --------- ----------- ----------- -----------
Net income ........................ $ 1.13 $ 5.85 $ 2.38 $ 2.78 $ 12.17
======== ========= =========== =========== ===========
Diluted:
Income from continuing operations . $ 1.10 $ 1.65 $ 2.28 $ 2.90 $ 7.87
Income (loss) from discontinued
operations ..................... 4.02 0.02 (0.22) 3.92
-------- --------- ----------- ----------- -----------
Net income ........................ $ 1.10 $ 5.67 $ 2.30 $ 2.68 $ 11.79
======== ========= =========== =========== ===========
High and low sales prices
for common shares .............. $91 7/8-77 1/8 $96-78 5/8 $101 5/8-91 3/4 $116 1/2-97 1/8 $116 1/2-77 1/8
1996 March 31 June 30 September 30 December 31 1996 Total
Revenues .......................... $1,258.6 $1,269.0 $ 1,438.8 $ 1,345.3 $ 5,311.7
======== ======== =========== =========== ===========
Income from continuing operations . $ 97.5 $ 110.6 $ 179.7 $ 113.7 $ 501.5
Income (loss) from discontinued
operations ..................... 17.8 (4.7) (65.8) 7.5 (45.2)
-------- -------- ----------- ----------- -----------
Net income ........................ $ 115.3 $ 105.9 $ 113.9 $ 121.2 $ 456.3
======== ======== =========== =========== ===========
Earnings per share of common stock:
Basic:
Income from continuing operations . $ 1.37 $ 1.59 $ 2.68 $ 1.67 $ 7.27
Income (loss) from discontinued
operations ..................... 0.26 (0.07) (1.01) 0.10 (0.68)
-------- --------- ----------- ----------- -----------
Net income ........................ $ 1.63 $ 1.52 $ 1.67 $ 1.77 $ 6.59
======== ========= =========== =========== ===========
Income from continuing operations . $ 1.34 $ 1.55 $ 2.62 $ 1.63 $ 7.10
Income (loss) from discontinued
operations ..................... 0.25 (0.07) (0.98) 0.11 (0.66)
-------- --------- ----------- ----------- -----------
Net income ........................ $ 1.59 $ 1.48 $ 1.64 $ 1.74 $ 6.44
======== ========= =========== =========== ===========
High and low sales prices
for common shares .............. $78 7/8-71 $84 1/2-71 3/8 $83-67 $82 3/8-70 $ 84 1/2-67
(Dollar amounts in millions except for share data)
Note A. On February 13, 1998 the closing sales price for Transamerica common
shares was $108 13/16 and there were 42,500 common stockholders of record.
</TABLE>
Page 75
<PAGE>
<TABLE>
SELECTED ELEVEN-YEAR FINANCIAL DATA
<CAPTION>
(Dollar amounts in millions except
for per share data) 1997 1996 1995 1994 1993
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
EARNINGS
Revenues ............................................... $ 5,726.5 $ 5,311.7 $ 5,170.3 $ 4,663.9 $ 4,159.0
Income (loss) from continuing operations ............... $ 532.0 $ 501.5 $ 390.1 $ 336.9 $ 354.5
Basic earnings per share from continuing
operations (Note A) .................................. $ 8.12 $ 7.27 $ 5.41 $ 4.21 $ 4.22
Diluted earnings per share from continuing
operations (Note B)................................... $ 7.87 $ 7.10 $ 5.31 $ 4.13 $ 4.12
Total assets ........................................... $ 51,172.9 $ 49,931.2 $ 47,952.6 $ 40,299.0 $ 35,956.6
Long-term debt ......................................... $ 5,236.7 $ 9,087.0 $ 9,341.5 $ 7,489.1 $ 5,681.0
Dividends declared (Note C) ............................ $ 2.00 $ 2.00 $ 2.00 $ 2.00
Note A. Basic earnings per share are based on the weighted average number of
common shares outstanding in each year after deduction of preferred dividends
and, in 1997 and 1994, premium and expenses on the redemption of preferred
stock.
Note B. Diluted earnings per share are based on the weighted average
number of common shares outstanding plus the dilutive effect of common stock
options using the treasury stock method in each year after deduction of
preferred dividends and, in 1997 and 1994, premiums and expenses on the
redemption of preferred stock.
Note C. Quarterly dividends per share were 50 cents in 1997 and 1996.
</TABLE>
Page 76 and 77
<PAGE>
Exhibit 21
Subsidiaries of Transamerica Corporation
Pursuant to section 21(ii) of Item 601 of Regulation S-K, the names of certain
of the subsidiaries that, considered in the aggregate at December 31, 1997, did
not constitute a "significant subsidiary" as defined in Rule 1-02(w) of
Regulation S-X have been omitted. Indentation indicates a direct subsidiary
relationship to the immediately preceding entity.
Jurisdiction of
Organization
Transamerica Capital I Delaware
Transamerica Capital II Delaware
Transamerica Capital III Delaware
Transamerica CBO I, Inc. Delaware
Transamerica Delaware, L.P. Delaware
Transamerica Finance Corporation Delaware
TA Leasing Holding Co., Inc. Delaware
Trans Ocean Ltd. Delaware
Trans Ocean Container Corp. Delaware
Transamerica Leasing Inc. Delaware
Transamerica Commercial Finance Corporation, I Delaware
BWAC Twelve, Inc. Delaware
Transamerica Insurance Finance Corporation Maryland
Transamerica Business Credit Corporation Delaware
Transamerica Distribution Finance Corporation Delaware
Transamerica Inventory Finance Corporation Delaware
BWAC Seventeen, Inc. Delaware
Transamerica Commercial Finance Canada, Limited Ontario
Transamerica Commercial Finance Corporation, Canada Canada
Transamerica Commercial Finance France S.A. France
Transamerica GmbH Inc. Delaware
Transamerica Retail Financial Services Corporation Delaware
Transamerica Consumer Finance Holding Company Delaware
Metropolitan Mortgage Company Florida
Whirlpool Financial National Bank Delaware
Transamerica Vendor Financial Services Delaware
Transamerica Distribution Finance Corporation de Mexico Mexico
Transamerica HomeFirst, Inc. California
Transamerica Insurance Corporation of California California
Transamerica Occidental Life Insurance Company California
Transamerica Life Insurance and Annuity Company N. Carolina
Transamerica Assurance Company Colorado
Transamerica Life Insurance Company of Canada Canada
Transamerica Life Insurance Company of New York New York
Transamerica Intellitech, Inc. Delaware
Transamerica Investment Services, Inc. Delaware
Transamerica Realty Services, Inc. Delaware
Transamerica Senior Properties, Inc. Delaware
<PAGE>
EXHIBIT-23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 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 Form S-3 Nos. 33-32419,
33-37889, 33-41008, 33-55047 and 33-63049) and related Prospectuses, of
Transamerica Corporation of our report dated January 23, 1998 with respect to
the consolidated financial statements and schedules of Transamerica Corporation
included or incorporated by reference in this Annual Report (Form 10-K) for the
year ended December 31, 1997.
Ernst & Young LLP
San Francisco, California
March 25, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
Each of the undersigned hereby constitutes and appoints Edgar H. Grubb,
Burton E. Broome and Shirley H. Buccieri, and each of them with power to act
alone, his or her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign (either manually or electronically
through the EDGAR System of the United States Securities and Exchange
Commission) the Annual Report on Form 10-K for the year ended December 31, 1997
for Transamerica Corporation and any and all amendments thereto, and to file the
same, together with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each such
attorney-in-fact full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises hereof,
as fully to all intents and purposes as he or she might do or could do in
person, hereby ratifying and confirming all that each such attorney-in-fact or
his or her substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned directors of Transamerica
Corporation have executed this Power of Attorney effective as of the 19th day of
March, 1998.
SAMUEL L. GINN FRANK C. HERRINGER
- -------------------------- --------------------------
Samuel L. Ginn Frank C. Herringer
ROBERT W. MATSCHULLAT GORDON E. MOORE
- -------------------------- --------------------------
Robert W. Matschullat Gordon E. Moore
TONI REMBE
- -------------------------- --------------------------
Toni Rembe Condoleezza Rice
CHARLES R. SCHWAB FORREST N. SHUMWAY
- -------------------------- --------------------------
Charles R. Schwab Forrest N. Shumway
PETER V. UEBERROTH
- --------------------------
Peter V. Ueberroth
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Financial Data Schedule
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 133
<SECURITIES> 1,607
<RECEIVABLES> 2,166
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,392
<DEPRECIATION> 1,466
<TOTAL-ASSETS> 51,173
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 63
<OTHER-SE> 4,818
<TOTAL-LIABILITY-AND-EQUITY> 51,173
<SALES> 0
<TOTAL-REVENUES> 5,726
<CGS> 0
<TOTAL-COSTS> 3,996
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 16
<INTEREST-EXPENSE> 421
<INCOME-PRETAX> 662
<INCOME-TAX> 130
<INCOME-CONTINUING> 532
<DISCONTINUED> 262
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 794
<EPS-PRIMARY> 12.17
<EPS-DILUTED> 11.79
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Financial Data Schedule
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 82
<SECURITIES> 1,666
<RECEIVABLES> 2,201
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,519
<DEPRECIATION> 1,421
<TOTAL-ASSETS> 49,978
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 63
<OTHER-SE> 4,516
<TOTAL-LIABILITY-AND-EQUITY> 49,978
<SALES> 0
<TOTAL-REVENUES> 4,227
<CGS> 0
<TOTAL-COSTS> 3,001
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 310
<INCOME-PRETAX> 437
<INCOME-TAX> 94
<INCOME-CONTINUING> 343
<DISCONTINUED> 276
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 619
<EPS-PRIMARY> 9.43
<EPS-DILUTED> 9.14
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Financial Data Schedule
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 107
<SECURITIES> 1,330
<RECEIVABLES> 2,265
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,516
<DEPRECIATION> 1,374
<TOTAL-ASSETS> 48,795
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 63
<OTHER-SE> 3,993
<TOTAL-LIABILITY-AND-EQUITY> 48,795
<SALES> 0
<TOTAL-REVENUES> 2,804
<CGS> 0
<TOTAL-COSTS> 1,990
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8
<INTEREST-EXPENSE> 212
<INCOME-PRETAX> 281
<INCOME-TAX> 87
<INCOME-CONTINUING> 194
<DISCONTINUED> 275
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 469
<EPS-PRIMARY> 6.98
<EPS-DILUTED> 6.78
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Financial Data Schedule
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 195
<SECURITIES> 1,107
<RECEIVABLES> 2,175
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,439
<DEPRECIATION> 1,314
<TOTAL-ASSETS> 49,957
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 66
<OTHER-SE> 3,504
<TOTAL-LIABILITY-AND-EQUITY> 49,957
<SALES> 0
<TOTAL-REVENUES> 1,372
<CGS> 0
<TOTAL-COSTS> 994
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4
<INTEREST-EXPENSE> 101
<INCOME-PRETAX> 117
<INCOME-TAX> 36
<INCOME-CONTINUING> 81
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.10
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Financial Data Schedule
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 441
<SECURITIES> 1,046
<RECEIVABLES> 1,930
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,511
<DEPRECIATION> 1,257
<TOTAL-ASSETS> 49,931
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
315
<COMMON> 66
<OTHER-SE> 3,760
<TOTAL-LIABILITY-AND-EQUITY> 49,931
<SALES> 0
<TOTAL-REVENUES> 5,312
<CGS> 0
<TOTAL-COSTS> 3,673
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 396
<INCOME-PRETAX> 662
<INCOME-TAX> 160
<INCOME-CONTINUING> 501
<DISCONTINUED> (45)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 456
<EPS-PRIMARY> 6.59
<EPS-DILUTED> 6.44
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Financial Data Schedule
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 83
<SECURITIES> 910
<RECEIVABLES> 1,710
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,279
<DEPRECIATION> 1,199
<TOTAL-ASSETS> 48,496
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
315
<COMMON> 65
<OTHER-SE> 3,289
<TOTAL-LIABILITY-AND-EQUITY> 48,496
<SALES> 0
<TOTAL-REVENUES> 3,966
<CGS> 0
<TOTAL-COSTS> 2,769
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8
<INTEREST-EXPENSE> 289
<INCOME-PRETAX> 490
<INCOME-TAX> 102
<INCOME-CONTINUING> 388
<DISCONTINUED> (53)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 335
<EPS-PRIMARY> 4.82
<EPS-DILUTED> 4.71
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Financial Data Schedule
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 85
<SECURITIES> 830
<RECEIVABLES> 1,611
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,266
<DEPRECIATION> 1,168
<TOTAL-ASSETS> 47,221
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
315
<COMMON> 66
<OTHER-SE> 3,256
<TOTAL-LIABILITY-AND-EQUITY> 47,221
<SALES> 0
<TOTAL-REVENUES> 2,527
<CGS> 0
<TOTAL-COSTS> 1,834
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8
<INTEREST-EXPENSE> 193
<INCOME-PRETAX> 315
<INCOME-TAX> 106
<INCOME-CONTINUING> 208
<DISCONTINUED> 13
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 221
<EPS-PRIMARY> 3.15
<EPS-DILUTED> 3.07
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Financial Data Schedule
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 108
<SECURITIES> 774
<RECEIVABLES> 1,650
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,248
<DEPRECIATION> 1,111
<TOTAL-ASSETS> 47,076
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
315
<COMMON> 68
<OTHER-SE> 3,456
<TOTAL-LIABILITY-AND-EQUITY> 47,076
<SALES> 0
<TOTAL-REVENUES> 1,274
<CGS> 0
<TOTAL-COSTS> 891
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7
<INTEREST-EXPENSE> 97
<INCOME-PRETAX> 144
<INCOME-TAX> 46
<INCOME-CONTINUING> 97
<DISCONTINUED> 18
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 1.59
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Financial Data Schedule
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 67
<SECURITIES> 703
<RECEIVABLES> 2,788
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,255
<DEPRECIATION> 1,082
<TOTAL-ASSETS> 47,953
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
315
<COMMON> 68
<OTHER-SE> 3,917
<TOTAL-LIABILITY-AND-EQUITY> 47,953
<SALES> 0
<TOTAL-REVENUES> 5,170
<CGS> 0
<TOTAL-COSTS> 3,623
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (4)
<INTEREST-EXPENSE> 381
<INCOME-PRETAX> 571
<INCOME-TAX> 181
<INCOME-CONTINUING> 390
<DISCONTINUED> 80
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 470
<EPS-PRIMARY> 6.58
<EPS-DILUTED> 6.46
</TABLE>
