SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: August 28, 1996
EQUITABLE OF IOWA COMPANIES
(Exact Name of Registrant as Specified in Its Chapter)
Iowa
(State or Other Jurisdiction of Incorporation)
0-8590 42-1083593
(Commission File Number) (I.R.S. Employer Identification No.)
604 Locust Street, P.O. Box 1635, Des Moines, IA 50306
(Address of Principal Executive Offices) (Zip Code)
(515) 245-6911
(Registrant's Telephone Number, Including Area Code)
ITEM 2. Acquisition or Disposition of Assets
On August 13, 1996, Equitable of Iowa Companies ("Equitable") acquired
all of the outstanding capital stock of BT Variable, Inc. ("BT Variable"), a
New York corporation, from Whitewood Properties Corp. ("Whitewood"), a New
York corporation and wholly-owned subsidiary of Bankers Trust Company
("Bankers Trust"), pursuant to the terms of a Stock Purchase Agreement dated
as of May 3, 1996 between Equitable and Whitewood (the "Purchase Agreement").
BT Variable, in turn, owns all the outstanding capital stock of Golden
American Life Insurance Company, a Delaware stock life insurance company, and
all of the outstanding capital stock of Directed Services, Inc., a New York
corporation. In exchange for the outstanding capital stock of BT Variable,
Equitable paid the sum of $93,000,000 in cash to Whitewood in accordance with
the terms of the Purchase Agreement. Equitable also paid the sum of
$51,000,000 in cash to Bankers Trust to retire certain debt owed by BT
Variable to Bankers Trust pursuant to a revolving credit arrangement. The
funds used in completing the acquisition were obtained primarily through a
recent offering of securities undertaken by Equitable of Iowa Companies
Capital Trust ("Equitable Trust"), an affiliate of Equitable, the proceeds of
which were loaned to Equitable in exchange for subordinated debentures issued
by Equitable to Equitable Trust. Additional funds were provided by reducing
short-term investments of Equitable and its insurance subsidiaries. Funds
provided by Equitable's insurance subsidiaries were transferred to Equitable
in the form of dividends paid.
ITEM 7. Financial Statements and Exhibits
2. Plan of Acquisition
(a) Stock Purchase Agreement dated as of May 3, 1996 between
Equitable of Iowa Companies and Whitewood Properties Corp.
(excluding Exhibit 1 thereto (form of Bankers Trust guarantee) and
Exhibit 2 thereto (drafts of financial statements of BT Variable,
Inc.). Equitable hereby undertakes to furnish supplementally a
copy of the omitted Exhibits to the Commission upon request.
23. Consent of Experts and Counsel
(a) Consent of Independent Auditors
27. Financial Data Schedules
99.1. Audited Consolidated Financial Statements, BT Variable, Inc.
and Subsidiaries
The audited consolidated financial statements of BT Variable, Inc.
and Subsidiaries filed as part of this Form 8-K are as follows:
Report of Independent Auditors.
Consolidated Balance Sheets as of December 31, 1995 and 1994.
Consolidated Statements of Operations, Years Ended December 31,
1995 and 1994.
Consolidated Statements of Changes in Stockholder's Equity, Years
Ended December 31, 1995 and 1994.
Consolidated Statements of Cash Flows, Years Ended December 31,
1995 and 1994.
Notes to Consolidated Financial Statements, December 31, 1995.
99.2. Unaudited Condensed Consolidated Financial Statements, BT
Variable, Inc. and Subsidiaries
The unaudited condensed consolidated financial statements of BT
Variable, Inc. and Subsidiaries filed as part of this Form 8-K are
as follows:
Condensed Consolidated Balance Sheets (Unaudited) as of June 30,
1996 and December 31, 1995.
Condensed Consolidated Statements of Operations (Unaudited), Six
Months Ended June 30, 1996 and 1995.
Condensed Consolidated Statements of Cash Flows (Unaudited), Six
Months Ended June 30, 1996 and 1995.
Notes to Condensed Consolidated Financial Statements (Unaudited),
June 30, 1996.
99.3. Unaudited Pro Forma Condensed Consolidated Financial
Statements, Equitable of Iowa Companies and BT Variable, Inc.
The unaudited pro forma condensed consolidated financial statements
of Equitable of Iowa Companies and BT Variable, Inc. filed as part
of this Form 8-K are as follows:
Condensed Consolidated Balance Sheets (Unaudited) as of June 30,
1996.
Condensed Consolidated Income Statements (Unaudited), Six Months
Ended June 30, 1996 and the Year Ended December 31, 1995.
Notes to Pro Forma Condensed Consolidated Financial Statements
(Unaudited).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EQUITABLE OF IOWA COMPANIES
Date: August 28, 1996 By: /s/ John A. Merriman
----------------------
John A. Merriman,
General Counsel and Secretary
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2 Plan of Acquisition
(a) Stock Purchase Agreement dated as of May 3, 1996 between
Equitable of Iowa Companies and Whitewood Properties
Corp. (excluding Exhibit 1 thereto (form of Bankers Trust
guarantee) and Exhibit 2 thereto (drafts of financial
statements of BT Variable, Inc.)
23 Consent of Experts and Counsel
(a) Consent of Independent Auditors
27 Financial Data Schedules
99.1 Audited Consolidated Financial Statements, BT Variable, Inc.
and Subsidiaries
The audited consolidated financial statements of BT Variable,
Inc. and Subsidiaries filed as part of this Form 8-K are as
follows:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Operations, Years Ended
December 31, 1995 and 1994
Consolidated Statements of Changes in Stockholder's Equity,
Years Ended December 31, 1995 and 1994
Consolidated Statements of Cash Flows, Years Ended
December 31, 1995 and 1994
Notes to Consolidated Financial Statements, December 31, 1995
99.2 Unaudited Condensed Consolidated Financial Statements,
BT Variable, Inc. and Subsidiaries
The unaudited condensed consolidated financial statements of
BT Variable, Inc. and Subsidiaries filed as part of this
Form 8-K are as follows:
Condensed Consolidated Balance Sheets (Unaudited) as of
June 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Operations (Unaudited),
Six Months Ended June 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows (Unaudited),
Six Months Ended June 30, 1996 and 1995
Notes to Condensed Consolidated Financial Statements
(Unaudited), June 30, 1996
99.3 Unaudited Pro Forma Condensed Consolidated Financial
Statements, Equitable of Iowa Companies and BT Variable, Inc.
The unaudited pro forma condensed consolidated financial
statements of Equitable of Iowa Companies and BT Variable, Inc.
filed as part of this Form 8-K are as follows:
Condensed Consolidated Balance Sheets (Unaudited) as of June
30, 1996
Condensed Consolidated Income Statements (Unaudited),
Six Months Ended June 30, 1996 and the Year Ended December
31, 1995
Notes to Pro Forma Condensed Consolidated Financial Statements
(Unaudited)
=============================================================================
WHITEWOOD PROPERTIES CORP.
and
EQUITABLE OF IOWA COMPANIES
_____________________________
STOCK PURCHASE AGREEMENT
_____________________________
Dated as of May 3, 1996
=============================================================================
TABLE OF CONTENTS
1. Sale and Purchase
1.1 Sale and Purchase of the Shares
1.2 Closing
2. Representations and Warranties of the Seller
2.1 Corporate Status
2.2 Capitalization; Options, etc.
2.3 Ownership of Shares, Authorization, etc.
2.4 Subsidiaries
2.5 No Conflicts; Consents and Approvals, etc.
2.6 Financial Statements
2.7 Litigation
2.8 Brokers, etc.
2.9 Absence of Certain Changes
2.10 Taxes
2.11 Material Contracts
2.12 Compliance with Laws; Securities Laws
2.13 Properties and Assets
2.14 Intellectual Property
2.15 Employee Benefit Plans
2.16 Full Disclosure
2.17 Exchange Agreement Obligations
3. Representations and Warranties of the Purchaser
3.1 Organization, Standing, etc., of the Purchaser;
Authority for Agreements
3.2 No Conflicts; Consents and Approvals
3.3 Purchase for Investment
3.4 Financial Ability to Perform
3.5 Litigation
3.6 Brokers
4. Conditions to Closing
4.1 Conditions to the Obligations of All Parties
4.2 Conditions to Obligation of the Purchaser
4.2.1 Accuracy of Representations and Warranties
4.2.2 Performance
4.2.3 Certificates of Fulfillment of Conditions
4.2.4 Opinions of Counsel
4.2.5 Resignations
4.2.6 Guarantee
4.2.7 Material Adverse Change
4.2.8 Transfer of Assets
4.3 Conditions to Obligation of the Seller
4.3.1 Accuracy of Representations and Warranties
4.3.2 Performance by the Purchaser
4.3.3 Certificate of Fulfillment of Conditions
4.3.4 Opinion of Counsel for the Purchaser
4.3.5 Connecticut Arrangements
5. Additional Covenants
5.1 Obligations of the Parties
5.2 Regulatory Filings and Compliance
5.3 Publicity
5.4 Access and Information
5.5 Conduct of Business Prior to the Closing
5.6 Non-Solicitation by the Purchaser
5.7 Updating of Schedules
5.8 Mutual Benefit Transactions
5.9 Compliance with Investment Company Act Section 15
5.10 Confidentiality
5.11 Sublease
5.12 No Solicitation
5.13 Affiliate Contracts
5.14 Non-Competition
5.15 New York Subsidiary
5.16 Capital Maintenance and Additional Borrowings
5.17 Investment Company Matters
5.18 Exchange Agreement Matters
5.19 Systems Transition
5.20 Licensing Matters
5.21 Change of Name; Right to Use Certain Marks
6. Taxes
6.1 Tax Sharing
6.2 Payments
6.3 Returns
6.4 Refunds
6.5 Audits and Other Proceedings
6.6 Conduct of Business on the Closing Date
6.7 Section 338(h)(10) Election
6.8 Transfer Taxes
7. Employee Matters
7.1 Termination of Plan Participation
7.2 Participation in Plans of the Purchaser
7.3 Qualified Defined Benefit Plans
7.4 Qualified Defined Contribution Plans
7.5 No Employment Rights
7.6 Liabilities Under Parent Plans
7.7 Severance Costs
8. Indemnification
8.1 Survival of Representations and Warranties
8.2 Indemnification
8.2.1 By the Seller
8.2.2 By the Purchaser
8.2.3 Indemnification Procedures
8.2.4 Exchange Agreement
9. General Provisions
9.1 Modification; Waiver
9.2 Entire Agreement
9.3 Exclusivity of Representations and Warranties and
Indemnification Provision; Relationship Between the
Parties
9.4 Termination
9.5 Expenses
9.6 Further Actions
9.7 Post-Closing Access
9.8 Notices
9.9 Assignment
9.10 No Third Party Beneficiaries
9.11 Counterparts
9.12 Interpretation
9.13 Governing Law
9.14 Consent to Jurisdiction, etc.
9.15 Waiver of Punitive and Other Damages and Jury Trial
EXHIBIT 1 Form of Bankers Trust Guarantee
EXHIBIT 2 Drafts of Financial Statements
Table of Definitions
The definitions of the following defined terms appear in the sections
indicated below:
Term Section
Accountants 6.3(c)
Additional Borrowings 5.16(b)
Affiliate 2.11
Affiliate Services 5.13
Affiliated Group 2.10(a)
Annual SAP Statements 2.6(d)
Annual Statutory Statements 2.6(c)
Bankers Trust Recital
BT Delaware 1.2(e)
Capital Contributions 5.16(b)
Closing 1.2
Closing Date 1.2
Code 2.10(a)
Company Recital
Company Return 2.10(a)
Connecticut Commissioner 4.3.5
Damages 8.2.1
DSI Recital
Election Forms 6.7(b)
Employees 5.10(a)
ERISA 2.15(a)
ERISA Affiliate 2.15(a)
Escrow Agreement 2.17(a)
Exchange Act 2.1(c)
Exchange Agreement 2.17(a)
Final Return 6.7(d)
Fund 2.10(e)
GAAP 2.6(i)
GAAP Statements 2.6(a)
Golden American Recital
Golden American Annual Statement 2.6(c)
Golden American GAAP Statements 2.6(b)
HSR Act 2.5(b)
Income Tax 2.10(a)
Indemnitee 8.2.3
Indemnitor 8.2.3
Intellectual Property 2.14(a)
Intellectual Property Licenses 2.14(b)
Investment Advisers Act 2.1(c)
Investment Company Act 2.1(e)
IRS 2.10(a)
Liens 2.2(a)
MADSP 6.7(a)
Managed Fund 5.9(i)
Monthly Statements 5.4(b)
Mutual Benefit 2.17(a)
New Name 5.21(a)
New York Golden 5.15(a)
Non-Company Affiliate 2.10(a)
Order 2.17(b)
Owned Intellectual Property 2.14(a)
Parent Plans 7.1
Plans 2.15(a)
Purchase Price 1.2(b)
Purchaser Introduction
Purchaser Plans 7.2
Quarterly Statement 5.4(b)
Representatives 5.10(a)
Revolving Credit Agreement 1.2(c)
RIC 2.10(e)
SAP 2.6(iii)
Section 338(h)(10) Elections 6.7
Securities Act 2.12(b)
Security Agreement 2.17(a)
Seller Introduction
Seller's Group 6.2(a)
Seller's Marks 5.21(a)
Separate Account 2.10(e)
Separate Account Annual Statement 2.6(c)
Separate Account D 2.5(b)
Separate Account SAP Statements 2.6(e)
Series A Preferred Stock 2.2(b)
Shares Recital
Subsidiaries Recital
Tax 2.10(a)
Tax Return 2.10(a)
Taxes 2.10(a)
Third Party 5.12
Trust 2.1(e)
7.50% Note 2.17(a)
PURCHASE AGREEMENT, dated as of May 3, 1996, between WHITEWOOD
PROPERTIES CORP., a New York corporation (the "Seller"), and EQUITABLE OF
IOWA COMPANIES, an Iowa corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Seller is a wholly-owned subsidiary of Bankers Trust
Company, a New York banking corporation ("Bankers Trust");
WHEREAS, the Seller owns all of the issued and outstanding capital
stock (the "Shares") of BT Variable, Inc., a New York corporation (the
"Company");
WHEREAS, the Company owns all of the issued and outstanding capital
stock of each of Golden American Life Insurance Company, a Delaware stock
life insurance company ("Golden American"), and of Directed Services, Inc., a
New York corporation ("DSI" and, together with Golden American, the
"Subsidiaries"); and
WHEREAS, the Seller desires to sell the Shares to the Purchaser and
the Purchaser desires to purchase the Shares.
NOW, THEREFORE, the parties hereto agree as follows:
1. Sale and Purchase.
1.1 Sale and Purchase of the Shares. Subject to the terms and
conditions of this Agreement, at the Closing (as defined in Section 1.2), the
Seller will sell, and the Purchaser will purchase, the Shares.
1.2 Closing. The closing of the purchase of the Shares (the
"Closing") will take place at the offices of Debevoise & Plimpton, 875 Third
Avenue, New York, New York 10022 at 10:00 A.M., New York time, on August 31,
1996, subject to extension as provided in Section 9.4 or at such other date
and time as the parties shall have agreed to in writing (the "Closing Date").
At the Closing:
(a) the Seller will deliver, or cause to be delivered, to the
Purchaser stock certificates representing the Shares, endorsed or
accompanied by stock powers in favor of the Purchaser, and accompanied
by all requisite stock transfer stamps;
(b) the Purchaser will deliver, or cause to be delivered, to the
Seller by wire transfers of immediately available funds to previously
designated accounts of the Seller or any subsidiary or affiliate of the
Seller an aggregate of $93,000,000(the "Purchase Price");
(c) the Purchaser will deliver, or cause to be delivered, to
Bankers Trust by wire transfers of immediately available funds to
previously designated accounts of Bankers Trust an aggregate of
$51,000,000, representing the retirement of all amounts borrowed as of
the date hereof under the Revolving Credit Agreement, dated as of
October 20, 1995, between the Company and Bankers Trust Company (the
"Revolving Credit Agreement"), and Bankers Trust will deliver to the
Purchaser an acknowledgment of the release of the Company from such debt
and the Revolving Credit Agreement will be terminated;
(d) the Purchaser will deliver, or cause to be delivered, to
Bankers Trust by wire transfers of immediately available funds to
previously designated accounts of Bankers Trust or any affiliate of
Bankers Trust an amount equal to the sum of all Capital Contributions
(as defined in Section 5.16) and Additional Borrowings (as defined in
Section 5.16) made after the date hereof pursuant to Section 5.16 hereto;
and
(e) the Purchaser shall enter into a sublease with Bankers Trust
Delaware, Inc. ("BT Delaware"), relating to the Company's Wilmington,
Delaware offices pursuant to Section 5.11 hereto.
2. Representations and Warranties of the Seller. The Seller
represents and warrants to the Purchaser as follows:
2.1 Corporate Status. (a) Each of the Seller and the Company (i)
is a corporation duly organized, validly existing and in good standing under
the laws of the State of New York, (ii) has all requisite corporate power and
authority to carry on its business as currently conducted and to own or lease
and to operate its properties and (iii) is duly qualified to transact
business as a foreign corporation in each jurisdiction in which the conduct
of its business or the ownership or leasing of its properties requires such
qualifications, except for such qualifications the absence of which would
not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the business, financial condition or results of
operations of the Company and the Subsidiaries, taken as a whole.
(b) Golden American is a stock life insurance company duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority to carry on
its business as currently conducted and to own or lease and to operate its
properties and is duly qualified to transact business as a foreign corporation
in each jurisdiction in which the conduct of its business or the ownership or
leasing of its properties requires such qualification, except for such
qualifications the absence of which would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
business, financial condition or results of operations of the Company and the
Subsidiaries, taken as a whole. Golden American is duly licensed in Delaware
and in each of the jurisdictions listed on Schedule 2.1.(b) to engage in the
business of writing insurance policies and annuity contracts of the type
specified on Schedule 2.1.(b). Except as set forth on Schedule 2.1.(b), all
such licenses are in full force and effect and, to the Seller's knowledge,
none of the Seller, the Company, or Golden American has received any notice
of, nor to the knowledge of the Seller is there any reasonable basis for, any
event, inquiry, investigation or proceeding that would reasonably be expected
to result in the suspension, revocation or limitation of any such license.
Golden American has received oral notification from the California Department
of Insurance that it does not have the status of an insurance company being
commercially domiciled in California and it is not commercially domiciled in
any other jurisdiction.
(c) DSI is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York and has all requisite
corporate power and authority to carry on its business as currently conducted
and to own or lease and to operate its properties and is duly qualified to
transact business as a foreign corporation in each jurisdiction in which the
conduct of its business or the ownership or leasing of its properties
requires such qualifications, except for such qualifications the absence of
which would not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on the business, financial condition or
results of operations of the Company and the Subsidiaries, taken as a whole.
DSI is a registered broker/dealer under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and a registered investment adviser under
the Investment Advisers Act of 1940, as amended (the "Investment Advisers
Act"). DSI is a member in good standing of the National Association of
Securities Dealers, Inc. and is a registered broker/dealer in good standing
and a registered or licensed investment adviser in good standing in each
state in which the conduct of its business requires such registration or
licensing including the jurisdictions listed on Schedule 2.1(c). Except as
set forth in Schedule 2.1(c), all such memberships, registrations and
licenses of DSI are in full force and effect and to the Seller's knowledge,
none of the Seller, the Company or DSI has received notice of, nor to the
knowledge of the Seller is there any reasonable basis for, any event,
inquiry, investigation or proceeding that would reasonably be expected to
result in the suspension, revocation, or limitation of any such memberships,
registrations or licenses.
(d) Prior to the date of this Agreement, the Seller has delivered
to the Purchaser true and correct copies of the Articles of Incorporation and
Bylaws of the Company and each of the Subsidiaries.
(e) GCG Trust (the "Trust") is a Massachusetts business trust
duly organized, validly existing and in good standing under the laws of the
State of Massachusetts and has all requisite power and authority to carry on
its business as currently conducted and to own or lease or operate its
properties, and is duly qualified to transact business in each jurisdiction
in which the conduct of its business or the ownership or leasing of its
properties requires such qualification, except for such qualifications the
absence of which would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the business, financial
condition or results of operations of the Company and the Subsidiaries, taken
as a whole. The Trust is an open-end, management investment company
registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"). The Trust is a registered investment company and
in good standing in each state in which the conduct of its business requires
such registration including the jurisdictions listed on Schedule 2.1(e).
Except as set forth on Schedule 2.1(e), all registrations and licenses are in
full force and effect and, to the Seller's knowledge, none of the Seller, the
Company, Golden American or DSI has received any notice of any event, nor to
the knowledge of Seller is there any reasonable basis for, an event, inquiry,
investigation or proceeding that would reasonably be expected to result in
the suspension, revocation or limitation of any such registration or license
of the Trust.
2.2 Capitalization; Options, etc. (a) The authorized capital
stock of the Company consists of 125 shares of Common Stock, without par
value, of which 100 shares are issued and outstanding and owned of record and
beneficially by the Seller. All such outstanding shares have been duly
authorized and validly issued and are fully paid and non-assessable and are
free and clear of any lien, pledge, charge, security interest, encumbrance,
title retention agreement, restriction, adverse claim or option (collectively,
"Liens").
(b) The authorized capital stock of Golden American consists of
(i) 250,000 shares of common stock, par value $10 per share, all of which are
issued and outstanding and owned of record and beneficially by the Company
and (ii) 50,000 shares of preferred stock, par value $5,000 per share, of
which 10,000 shares are issued and outstanding as the Series A Redeemable
Preferred Stock (the "Series A Preferred Stock") and are owned of record and
beneficially by the Company. All such outstanding shares have been duly
authorized and validly issued, are fully paid and non-assessable and are free
and clear of all Liens.
(c) The authorized capital stock of DSI consists of 200 shares of
common stock, of which 100 shares are issued and outstanding and owned of
record and beneficially by the Company. All such outstanding shares have
been duly authorized and validly issued, are fully paid and non-assessable
and are free and clear of all Liens.
(d) (i) Neither the Seller, the Company nor Golden American has
granted to any person any options with respect to the Shares owned by it, and
(ii) no subscriptions, options, warrants, calls or other rights of any kind,
to purchase or otherwise acquire, and no securities convertible into, capital
stock of the Company, Golden American or DSI, are currently outstanding or
claimed by any person.
2.3 Ownership of Shares, Authorization, etc. The Seller is the
lawful record and beneficial owner of the Shares. The Seller has full legal
right, power and authority to enter into this Agreement, and subject to
satisfaction of the conditions set forth in Section 4.1, the Seller has full
legal right, power and authority to perform its obligations hereunder and to
consummate the transactions provided for therein. The execution, delivery
and performance of this Agreement has been duly authorized by the Seller's
Board of Directors and its sole shareholder, which constitutes all necessary
corporate action for such authorization. This Agreement has been duly
executed and delivered by the Seller and constitutes the valid and binding
obligation of the Seller and is enforceable against the Seller in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws from time to time in
effect which affect creditors' rights generally and by legal and equitable
limitations upon the availability of specific performance as a remedy.
Subject to satisfaction of the conditions set forth in Section 4.1, the
delivery to the Purchaser of the Shares pursuant to the provisions of this
Agreement will transfer to the Purchaser good and valid title thereto free
and clear of any Lien.
2.4 Subsidiaries. The only subsidiaries of the Company are
Golden American and DSI.
2.5 No Conflicts; Consents and Approvals, etc. (a) Subject to the
conditions set forth in Section 4.1 and except as set forth on Schedule
2.5(a), the execution, delivery and performance by the Seller of this
Agreement does not conflict with, violate, result in a breach of, constitute
a default under (without regard to requirements of notice, lapse of time or
elections of other persons or combination thereof), or accelerate or permit
the acceleration of the performance of or create an opportunity to terminate
(i) any charter or by-law provision of the Seller or the Company or any of
the Subsidiaries, (ii) any contract, indenture or other agreement to which
the Seller or the Company or any of the Subsidiaries is a party or by which
any of them or any of their owned or leased properties are bound or (iii) any
applicable law, regulation or order of any governmental authority or agency
having jurisdiction over the Seller, the Company or any of the Subsidiaries,
except for such conflicts, violations, breaches, defaults, accelerations or
terminations which would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the business, financial
condition or results of operations of the Company and the Subsidiaries taken
as a whole.
(b) Except as set forth on Schedule 2.5(b) no consent, license,
approval, order or authorization of, or registration, filing or declaration
with, any governmental authority, is required to be obtained or made, and no
consent of any third party is required to be obtained, by the Seller, the
Company or any of the Subsidiaries in connection with the execution, delivery
or performance of this Agreement or the sale of the Shares except for (i)
registrations or declarations required to be made subsequent to the Closing
giving notice of the transactions contemplated by this Agreement, but not
entailing any requirement of consent, license, approval or authorization on
the part of such governmental authority or third party, (ii) filings required
with respect to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), to the extent required, (iii) the filing by Golden
American of (A) a change of control report with the Florida Insurance
Department pursuant to Section 624.4245 of the Florida Insurance Law, (B) an
application for requalification in Michigan pursuant to Section 500.405(1) of
the Michigan Insurance Code and (C) an application for relicensing in New
Hampshire pursuant to Section 405.14-a of the New Hampshire Insurance Code,
(iv) (A) the affirmative vote of the variable annuity contract holders and
variable life policyholders whose contracts and policies are funded by
investments in the Trust approving a new Management Agreement between the
Trust and DSI and new Portfolio Management Agreements between the Trust, DSI
and, except as provided in Section 5.17, the Portfolio Managers (as those are
defined in the currently effective Prospectus of the Trust), containing the
same terms and conditions as the current Management Agreement and Portfolio
Management Agreements, except for dates of execution, effectiveness and
termination, and (B) the affirmative vote of the variable annuity contract
holders of Golden American whose contracts are funded by investments in
Golden American's Separate Account D ("Separate Account D") approving a new
Management Agreement between Separate Account D and DSI and a new Portfolio
Management Agreement between Separate Account D, DSI and Warburg, Pincus
Counsellors, Inc., containing the same terms and conditions as the current
Management Agreement and Portfolio Management Agreement, except for dates of
execution, effectiveness and termination, all as required by the Investment
Company Act, (v) the approval of a majority of (A) the Board of Trustees of
the Trust and (B) the Board of Governors of Separate Account D, in each case,
who are not "interested persons" under the Investment Company Act of new
Management Agreements and Portfolio Management Agreements, as described above,
and (vi) consents, licenses, approvals or filings which, if not made or
obtained, would not, individually or in the aggregate, reasonably be expected
to have a material adverse effect on the business, financial condition or
results of operations of the Company and its Subsidiaries taken as a whole or
the ability of the Seller to consummate the transactions contemplated by this
Agreement.
2.6 Financial Statements. The Seller has delivered, or shall
promptly after the execution hereof deliver, to the Purchaser:
(a) the audited consolidated balance sheets of the Company and
the Subsidiaries as at December 31, 1994 and December 31, 1995, and the
related consolidated statements of operations, changes in stockholder's
equity, and cash flows for the years ended December 31, 1994 and December
31, 1995, together with the notes thereto and the unqualified report of
Ernst & Young thereon (the "GAAP Statements");
(b) the audited balance sheets of Golden American as at December
31, 1994 and December 31, 1995, and the related statements of operations,
changes in stockholders' equity, and cash flows for the years ended
December 31, 1994 and December 31, 1995, together with the notes thereto
and the unqualified report of Ernst & Young thereon (the "Golden American
GAAP Statements");
(c) the annual statement of Golden American, including all
exhibits and schedules thereto (the "Golden American Annual Statement")
and the annual statement of the separate accounts of Golden American,
including all exhibits and schedules thereto (the "Separate Account
Annual Statement" and, together with the Golden American Annual Statement,
the "Annual Statutory Statements") as filed with the Insurance Department
of the State of Delaware for the years ended December 31, 1994 and
December 31, 1995;
(d) the audited statutory-basis balance sheets of Golden American
as at December 31, 1994 and December 31, 1995, and the related statutory-
basis statements of operations, capital and surplus, and cash flow for
each of the years ended December 31, 1994 and December 31, 1995, together
with the notes thereto and the unqualified report of Ernst & Young
thereon (the "Annual SAP Statements"); and
(e) the audited statements of assets and liabilities of the
separate accounts of Golden American as at December 31, 1994 and December
31, 1995 and the related combined statements of operations and combined
statements of changes in net assets for the years ended December 31, 1994
and December 31, 1995, together with the notes thereto and the unqualified
report of Ernst & Young thereon (the "Separate Account SAP Statements").
(i) The GAAP Statements present fairly, in all material respects,
the consolidated financial position of the Company and the Subsidiaries as at
the respective dates thereof and the results of their consolidated operations,
changes in stockholders' equity and cash flows for the respective periods
then ended, in each case, in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
indicated, except for the deviations from GAAP disclosed thereon or in the
notes thereto.
(ii) The Golden American GAAP Statements present fairly, in all
material respects, the financial position of Golden American as at the
respective dates thereof and the results of its operations, changes in
stockholders' equity and cash flows for the respective periods then ended, in
each case, in accordance with GAAP applied on a consistent basis throughout
the periods indicated, except for the deviations from GAAP disclosed thereon
or in the notes thereto.
(iii) The Annual Statutory Statements, the Annual SAP Statements
and the Separate Accounts SAP Statements have been prepared in accordance
with accounting practices prescribed or permitted by the Department of
Insurance of the State of Delaware ("SAP"), and such accounting practices
have been applied on a consistent basis throughout the periods indicated,
except as expressly set forth or disclosed in the respective notes thereto.
The Annual SAP Statements present fairly, in all material respects, the
admitted assets, reserves, liabilities, capital and surplus of Golden American
as at the respective dates thereof and the results of its operations and its
cash flow for the respective periods then ended, and the Separate Accounts
SAP Statements present fairly, in all material respects, the admitted assets,
liabilities and surplus of the separate accounts of Golden American as at the
respective dates thereof and the results of operations of such separate
accounts for the respective periods then ended, in each case, in accordance
with SAP. The Annual Statutory Statements complied in all material respects
with all applicable laws when filed, and no material deficiency has been
asserted with respect to such statements by the Department of Insurance of
the State of Delaware.
(iv) Except as set forth in Schedule 2.6(iv), neither the Company
nor any Subsidiary has any material obligation or liability (including,
without limitation, obligations or liabilities arising from policyholder
claims or guaranty fund assessments), whether absolute, contingent, accrued
or otherwise, which is not fully reflected or reserved against in the GAAP
Statements, the Golden American GAAP Statements, the Annual Statutory
Statements, the Annual SAP Statements or the Separate Account SAP Statements
or in the notes, exhibits, schedules, and interrogatories thereto, other than
obligations and liabilities which have been reasonably incurred in the
ordinary course of business after December 31, 1995 and which would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the business, financial condition or results of operations
of the Company and the Subsidiaries taken as a whole.
(v) Notwithstanding anything to the contrary contained in this
Section 2.6, if the parties have elected to execute this Agreement prior to
the delivery of any of the audited financial statements described above in
this Section 2.6, the representations and warranties set forth above shall be
deemed not to have been made with respect to such undelivered financial
statements until such delivery.
2.7 Litigation. Except as set forth on Schedule 2.7, there is no
action, proceeding, investigation or claim pending or, to the knowledge of the
Seller, threatened against the Company or any of the Subsidiaries or their
respective assets that would reasonably be expected to have a material
adverse effect on the business, financial condition or results of operations
or prospects of the Company and its Subsidiaries taken as a whole or the
ability of the Seller, the Company or any of the Subsidiaries to consummate
the transactions contemplated by this Agreement.
2.8 Brokers, etc. None of the Seller, the Company or the
Subsidiaries has employed any finder, broker, agent or other intermediary in
connection with the negotiation of this Agreement or the consummation of any
of the transactions contemplated hereby except for BT Securities Corp., whose
fees in respect thereof shall be paid by the Seller.
2.9 Absence of Certain Changes. Except as set forth on Schedule
2.9, since December 31, 1995, there has been no material adverse change in the
business, financial condition, results of operations or prospects of the
Company and its Subsidiaries taken as a whole. Except as set forth on
Schedule 2.9 and except for the transactions permitted or contemplated by
this Agreement, since December 31, 1995, neither the Company nor any of the
Subsidiaries has (A) issued, purchased or redeemed any shares of its capital
stock or any options, warrants or other rights to acquire any such capital
stock, or securities convertible into or exchangeable for such capital stock;
(B) incurred any material obligations or liabilities, whether absolute,
accrued, contingent or otherwise, other than obligations and liabilities
incurred in the ordinary course of business or obligations and liabilities
under the contracts and commitments referred to on Schedule 2.11; (C)
mortgaged, pledged or subjected to any Lien any of its assets or properties,
except for any Liens incurred in the ordinary course of business; (D) acquired
or disposed of any material assets or properties, or entered into any
agreement or other arrangement for any such acquisition or disposition, except
in the ordinary course of business; (E) declared, made, paid or set apart any
sum for any dividend or other distribution to its shareholders, other than
dividends paid by Golden American to the Company on the Series A Preferred
Stock in accordance with the Certificate of Designations for such Series A
Preferred Stock; (F) entered into any material employment, severance or
change of control agreement with any officer or other employee (other than
any such agreement under which all payments are borne by Bankers Trust),
granted any material increase in the compensation or benefits of any such
officer or other employee or granted any bonus or other form of incentive
compensation, in each such case, other than in the ordinary course of business
consistent with past practice; (G) forgiven or cancelled any material debts or
claims or waived any rights of material value, except in the ordinary course
of business; or (H) conducted its business or entered into any transaction
other than in the ordinary course of business; (I) incurred any material
damage, destruction or loss (whether or not covered by insurance) which would
adversely affect the business, financial condition or results of operations of
the Company or any of the Subsidiaries; (J) amended, modified or terminated
any material contract, agreement, lease, license, permit or other business
arrangement, except in the ordinary course of business.
2.10 Taxes. (a) The following capitalized terms used in this
Section 2.10 and Article 6 shall have the meanings specified below:
Affiliated Group. "Affiliated Group" means any combined,
consolidated, affiliated or unitary tax group of which the Company or any of
the Subsidiaries is or has been a member.
Code. "Code" means the Internal Revenue Code of 1986, as amended.
Company Return. "Company Return" means any Tax Return required to
include any information regarding the Company, the Subsidiaries, or the
business or assets thereof (including without limitation information returns
and reports required to be filed with respect to payments to employees,
policyholders or other persons, or with respect to any pension, cafeteria, or
welfare benefit plan maintained for the employees of the Company and
Subsidiaries), required to be filed with respect to any period ending after
September 30, 1992.
Income Tax. "Income Tax" means any Tax computed in whole or in
part by reference to net income (including all interest and penalties thereon
and additions thereto).
IRS. "IRS" means the United States Internal Revenue Service.
Non-Company Affiliate. "Non-Company Affiliate" means any affiliate
of the Seller other than the Company and the Subsidiaries.
Tax. "Tax" or "Taxes" means any federal, state, local or foreign
income, profits, capital, premium, franchise, occupational, production,
severance, gross receipts, value added, sales, use, excise, real and personal
property, ad valorem, occupancy, stamp, transfer, employment, unemployment
insurance, social security, disability, workers' compensation, withholding or
other tax, duty or other similar governmental charge (including all interest
and penalties thereon and additions thereto).
Tax Return. "Tax Return" means any federal, state, local or
foreign return, report, declaration or form (including, without limitation,
information returns) relating to Taxes.
(b) All Company Returns with respect to Income Taxes and all
other material Company Returns required to be filed on or before the Closing
Date have been filed or will be timely filed. Except for Taxes which are
being contested in good faith and by appropriate proceedings and for which
adequate reserves are reflected on the most recent financial statement
referred to in Section 2.6 (determined in accordance with the standards
applicable to such financial statements as set forth in Section 2.6), (i) the
following Taxes have (or by the Closing Date will have) been paid: (A) all
Taxes shown as due on the Company Returns, (B) all material deficiencies and
assessments of Taxes for any period ending after September 30, 1992 of which
notice has (or by the Closing Date will have) been received by Bankers Trust,
Seller, the Company, the Subsidiaries, or any Affiliated Group that are
attributable to the conduct of the business or the ownership of the assets of
the Company or the Subsidiaries or chargeable as a lien upon the assets
thereof, and (C) all other material Taxes due and payable on or before the
Closing Date for any period ending after September 30, 1992 for which neither
filing of returns nor notice of deficiency or assessment is required, of which
the Seller has knowledge or reasonably should have knowledge, that are
attributable to the conduct of the business or the ownership of the assets of
the Company or the Subsidiaries, or chargeable as a lien upon the assets
thereof, and (ii) all Taxes required to be withheld by or on behalf of the
Company or the Subsidiaries, or with respect to the business or assets thereof
since September 30, 1992, have been withheld except for amounts which in the
aggregate would not be material, and such withheld taxes have either been
duly and timely paid to the proper governmental agencies or authorities or
(if not yet due for payment) set aside in accounts for such purpose or
accrued, reserved against and entered upon the books of the Company or the
Subsidiaries, as the case may be.
(c) All Company Returns have been examined by the appropriate
taxing authority, or the statute of limitations with respect to the relevant
income or franchise tax liability has expired, for all tax periods through
and including the tax period listed with respect to each such jurisdiction on
Schedule 2.10(c). Except as set forth in Schedule 2.10(c), (i) neither the
IRS nor any other taxing authority is now asserting, or has threatened to
assert, in a writing (or, to the Seller's knowledge, in other communication,
including without limitation oral communication) received by the Seller, the
Company or any of the Subsidiaries (or, to the Seller's knowledge, by Bankers
Trust) against the Company, the Subsidiaries or any Affiliated Group, any
deficiency or claim for additional Taxes attributable to the conduct of the
business or the ownership of the assets of the Company or the Subsidiaries
with respect to any period ending after September 30, 1992; (ii) none of the
Company, any of the Subsidiaries, or any Affiliated Group, has granted any
waiver of any statute of limitations with respect to, or any extension of a
period for the assessment of, any Taxes attributable to periods ending after
September 30, 1992 for which the Company, the Subsidiaries or any Affiliated
Group may be held liable, and no power of attorney with respect to any such
Taxes has been executed or filed with any taxing authority, and (iii) all Tax
Returns of Golden American filed with respect to any tax period ending after
September 30, 1992 were prepared in a reasonably diligent manner and at the
time such returns were filed all material positions taken on such returns
were supported by "substantial authority" within the meaning of Code Section
6662(d)(2)(B)(i). Golden American has not filed and will not file any
election pursuant to Code Section 810(b)(3) or Code Section 172(b)(3) since
September 30, 1992.
(d) To the knowledge of the Seller, (i) there is no material
unpaid Tax that is or could become payable by the Company or the Subsidiaries,
or that is or could become a lien on any of the assets or properties thereof,
with respect to any period ending on or before September 30, 1992; (ii) all
material Tax Returns required to be filed by the Company, any Subsidiary
(with respect to the assets or business of the Company or any Subsidiary) or
any Affiliated Group with respect to any tax period ending on or before
September 30, 1992 were accurately prepared in all material respects and have
been filed; (iii) neither the IRS nor any other taxing authority is now
asserting or has threatened to assert any claim for additional Taxes
attributable to the conduct of the business or the ownership of the assets of
the Company or any of the Subsidiaries with respect to any period ending on
or before September 30, 1992; and (iv) prior to September 30, 1992, neither
the Company nor any Subsidiary was included in an Affiliated Group with any
entity other than the Golden Financial Group Inc., Time Insurance Company,
the Mutual Benefit Life Insurance Company, Bankers Trust or any entities
which were then Affiliates of such companies.
(e) Except as listed on Schedule 2.10(e), (i) with respect to all
life insurance contracts and annuity policies sold by the Company or any of
the Subsidiaries (A) at the time of issuance, policies sold after September
30, 1992 and represented to policyholders as life insurance contracts were in
compliance, determined in accordance with then current statutory, regulatory
and judicial authority, if any, with the definition of life insurance contracts
set out in Section 7702 of the Code, (B) as of the date hereof and at all
times since September 30, 1992, Golden American maintained reasonable
administrative procedures which are intended to ensure that all policies
issued by it continue to be in compliance with the tests defining the term
"life insurance contract" under Code Section 7702 and to identify when a life
insurance contract issued by it becomes subject to Section 7702A of the Code,
(C) the contracts sold after September 30, 1992 and represented to
policyholders as annuities qualify for tax treatment as annuities under
Section 72 of the Code, and (D) the contracts sold after September 30, 1992
as Individual Retirement Annuities or as part of a program under either
Section 403(b) or 457 of the Code comply with applicable provisions of the
Code; (ii) each segregated asset account maintained by Golden American for
its variable annuity contracts and variable life insurance policies
("Separate Account") is maintained in compliance with the requirements of
Section 817 of the Code; and (iii) each Fund (as defined below) operating in
the United States has elected to be treated as a "regulated investment company"
(a "RIC") under the Code and has, for each of its taxable years since the end
of the most recent year of such Fund that has been closed and for which the
statute of limitations for assessments has expired, qualified as a RIC.
"Fund" shall mean any trust, separate account or other entity registered
under the Investment Company Act which invests funds held in the general
account or the Separate Accounts of Golden American or to which DSI provides
investment advisory services, and for which a prospectus or other offering
material has stated an intention to qualify as a RIC.
(f) Except as listed on Schedule 2.10(f), since September 30,
1992 neither the Company nor any of the Subsidiaries have been parties to any
Tax sharing agreement or arrangement.
(g) Since September 30, 1992 neither the Company nor any
Subsidiary has been included in any Affiliated Group with any entity other
than Bankers Trust or its Affiliates.
2.11 Material Contracts. Schedule 2.11 contains a complete and
correct list of all agreements, contracts, commitments and arrangements
(whether oral or written) of the following types to which the Company or any
of the Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties are bound as of the date
hereof, each of which is in full force and effect, and, to the Seller's
knowledge, has not been terminated and is not in default (or would not, with
notice or lapse of time or action by a third party, be in default) and is a
valid and enforceable obligation of the Company and the Subsidiaries, as
applicable, in accordance with its terms and is free from set-off,
counterclaim or defense: (i) mortgages, indentures, security agreements and
other agreements and instruments relating to the borrowing of money other
than insurance contracts and policies, (ii) agreements between the Company or
either of the Subsidiaries and insurance agents, agencies, brokers and third-
party administrators, provided that as to any such agreements that conform
substantially to a standard form with no material differences among them,
Schedule 2.11 lists each such form and the signatories who have entered into
separate agreements corresponding to each such form, (iii) contracts for the
provision of data-processing services or the development of computer software
or systems or the licensing of computer software or systems, (iv) contracts
limiting the freedom of the Company or either of the Subsidiaries to engage
in any line of business or with any person or entity, (v) licenses of
trademark, trade name and other similar property rights, (vi) brokerage
agreements, distribution agreements, advisory agreements or finder's
agreements, (vii) contracts to purchase or sell or lease real property,
(viii) contracts, arrangements or treaties with any party regarding
reinsurance, excess insurance, ceding of insurance, assumption of insurance
or indemnification with respect to insurance currently being provided directly
or indirectly by Golden American or regarding the management of any portion of
Golden American's business or regarding the sale by or to Golden American of
its products through any other company or the sale by any other company of
its products through the Company or the Subsidiaries, (ix) material contracts
with any Affiliate of the Company or the Subsidiaries (other than contracts
of insurance entered into in the ordinary course of business by Golden
American on terms no less favorable to Golden American than would prevail in
comparable arm's length transactions), (x) partnership or joint venture
agreements of any kind, (xi) employment or consulting contracts and agreements
with any officer or other key employee of or consultant to the Company or any
Subsidiary, (xii) agreements pursuant to which the Company or any of its
Subsidiaries is a guarantor or has otherwise agreed to be liable for any
liability or obligation (including indebtedness) of any other person, and
(xiii) other agreements, contracts and commitments (other than annuity
contracts and insurance policies issued in the ordinary course of business)
that are not cancellable by the Company or the Subsidiaries on notice of 45
days or less and which involve payments to be made by the Company or the
Subsidiaries after the date hereof of more than $50,000. "Affiliate" shall
mean any corporation, company, entity or individual controlled by, controlling
or under common control with such corporation or company.
2.12 Compliance with Laws; Securities Laws. (a) Since September
30, 1992, none of the Company, any of the Subsidiaries or the Trust have
violated, and each has complied with, any statute, law, ordinance, rule,
governmental regulation, permit, concession, grant, franchise, license or
other governmental authorization or approval applicable to it or any of its
properties, except for such violations or noncompliance that would not
reasonably be expected to have a material adverse effect on the business,
financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole. Except as listed on Schedule 2.12(a), all
permits, concessions, grants, franchises, licenses and other governmental
authorizations and approvals for the conduct of the businesses of the Company
and the Subsidiaries as they are presently conducted have been duly obtained
and are in full force and effect, except for such permits, concessions,
grants, franchises, licenses and other governmental authorizations and
approvals that the failure to obtain or be in full force would not reasonably
be expected to have a material adverse effect on the business, financial
condition or results of operations of the Company and its Subsidiaries, taken
as a whole.
(b) Other than as set forth on Schedule 2.12(b), the Company,
each of the Subsidiaries and the Trust is in compliance in all material
respects with, and has not received any notice of deficiency or non-compliance
with, the Securities Act of 1933, as amended (the "Securities Act"), the
Exchange Act, the Investment Company Act, the Investment Advisers Act, state
securities laws to the extent that such acts and state securities laws apply
and the rules and regulations thereunder and the rules and regulations of the
National Association of Securities Dealers, Inc. Since September 30, 1992
neither the Company nor any of the Subsidiaries has been enjoined, indicted,
convicted or made the subject of disciplinary proceedings, consent decrees or
administrative orders on account of any violation of the Securities Act, the
Exchange Act, the Investment Company Act or the Investment Advisors Act or
state securities laws.
(c) Schedule 2.12(c) contains a complete listing of each of the
investment advisory firms that manage portfolios of the Trust.
2.13 Properties and Assets. (a) Each of the Company and its
Subsidiaries has good and marketable title to all properties and assets, real,
personal, tangible and intangible, including, but not limited to, the Owned
Intellectual Property as defined below, owned by it, free and clear of all
Liens, except Liens incurred in the ordinary course of business.
(b) Except as set forth on Schedule 2.13(b), each of the Company
and its Subsidiaries has good and marketable title to all properties and
assets, real, personal, tangible and intangible reflected in the December 31,
1995 GAAP Statement or acquired after December 31, 1995, except for property
or assets disposed in the ordinary course of business after December 31, 1995,
and except for such deficiencies as would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
business, financial condition or results of operations of the Company and the
Subsidiaries, taken as a whole.
(c) Except as set forth on Schedule 2.13(c), there are no assets
or property (whether, real, personal, tangible or intangible) used on the date
hereof by the Company or the Subsidiaries or necessary for the conduct of
their respective businesses which are owned, in whole or in part, by the
Seller or any of its Affiliates (including Bankers Trust and Bankers Trust
(Delaware) or any of their respective Subsidiaries or Affiliates), other than
the assets shown on Schedule 4.2.8 which shall be transferred to Golden
American or before the Closing Date.
2.14 Intellectual Property. (a) Schedule 2.14(a) sets forth a
complete and correct list of all patents, trade names, trademarks, service
marks, copyrights (including computer software other than generally available
off-the-shelf computer software) or applications therefor, trade secrets and
confidential business or technical information (the "Intellectual Property")
owned by the Company or one of its Subsidiaries and used in the conduct of
their respective businesses (the "Owned Intellectual Property"), provided,
however, that Owned Intellectual Property shall include, but Schedule 2.14(a)
need not disclose, trade secrets or confidential business or technical
information.
(b) Schedule 2.14(b) sets forth a complete and correct list of all
written or oral licenses and arrangements, (i) pursuant to which the use by any
person of Intellectual Property is permitted by the Company or any of its
Subsidiaries and (ii) pursuant to which the use by the Company or any of its
Subsidiaries of Intellectual Property is permitted by any person (collectively,
the "Intellectual Property Licenses"). The Company has made available to the
Purchaser complete and correct copies of all such Intellectual Property
Licenses. Each of the Intellectual Property Licenses is in full force and
effect, has not been terminated or is in default (or with notice or lapse of
time or action by a third party would be in default) is valid and enforceable
by the Company or any of the Subsidiaries, as applicable, in accordance with
its terms and is free from set-off, counterclaim or defense. The Owned
Intellectual Property and the Intellectual Property Licenses constitute all
the Intellectual Property material to the conduct of the business.
(c) To the knowledge of Seller, the conduct of the business does
not infringe the rights of any third party in respect of any Intellectual
Property, except as set forth on Schedule 2.14(c). To the knowledge of the
Seller, none of the Owned Intellectual Property is being infringed by third
parties.
(d) Except as set forth on Schedule 2.14(d), there is no claim
or demand of any person pertaining to, or any proceeding which is pending or,
to the knowledge of the Seller, threatened, that challenges the rights of the
Company or any of its Subsidiaries in respect of any Owned Intellectual
Property or Intellectual Property License, or that claims that any default
exists under any Intellectual Property License, which, individually or in the
aggregate, could reasonably be expected to have or result in a material
adverse effect.
(e) To the knowledge of Seller, none of the Owned Intellectual
Property or the Intellectual Property Licenses is subject to any outstanding
order, ruling, decree, judgment or stipulation by or with any court, tribunal,
arbitrator, or other Governmental Authority.
(f) None of the Owned Intellectual Property has been registered
with, filed in or issued by, as the case may be, the United States Patent and
Trademark Office and United States Copyright Office or other filing offices,
domestic or foreign.
2.15 Employee Benefit Plans. (a) Schedule 2.15(a) contains a
complete and correct list of each material pension, retirement, profit sharing,
stock bonus, deferred compensation, medical, hospitalization, dental, vision
or other health, life insurance, disability, accident insurance, severance,
termination or other employee benefit plan, program or arrangement currently
maintained by the Company, any of the Subsidiaries or any other trade or
business, whether or not incorporated, that is treated as a single employer
together with the Company (each such trade or business referred to as an
"ERISA Affiliate") for the benefit of the employees of the Company or any of
the Subsidiaries (the "Plans"), including, without limitation, each "employee
benefit plan" within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
(b) Each Plan is in compliance with ERISA and the Code, including
the provisions of Section 4980B of the Code and the reporting and disclosure
requirements of Title I of ERISA, except for such instances of noncompliance
as would not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on the business, financial condition or
results of operations of the Company and its Subsidiaries taken as a whole.
Each Plan intended to be qualified under Section 401(a) of the Code has
received a favorable determination letter covering the Tax Reform Act of 1986
from the Internal Revenue Service as to its qualification under the Code and,
to the Seller's knowledge, no amendment to the Plan has been adopted since
the date of such determination letter that could adversely affect such
qualification. Neither the Company nor any of the Subsidiaries has engaged
in a transaction in connection with which the Company or any of the
Subsidiaries would be subject to either a civil penalty assessed pursuant to
Section 502(i) of ERISA or a tax imposed pursuant to Section 4975 of the
Code. There are no material pending or, to the Seller's knowledge, threatened
claims by any employee of the Company or any of the Subsidiaries involving any
such Plan (other than routine claims for benefits). No Plan is a
multiemployer plan (as defined in Section 4001(a)(3) of ERISA). The sale
of the Company and its Subsidiaries to the Purchaser will not result in any
liability under Section 4062(e) or Section 4063 of ERISA to the Company, its
Subsidiaries or the Purchaser. As of the Closing Date, all material
contributions payable by the Company and the Subsidiaries to the Plans that
are required under applicable law to have been paid to such Plans have been
made or accrued with respect to each Plan. As of the Closing Date, except as
required by Section 4980B of the Code or disclosed on Schedule 2.15(a), there
are no medical or other insurance welfare benefits provided to current or
future retirees or former employees (including their dependents) of the
Company or the Subsidiaries, other than any such benefits that may be
provided pursuant to the Plans.
2.16 Full Disclosure. No representation or warranty by the Seller
in this Agreement and no statement contained in any Schedule or any
certificate required to be delivered by the Seller pursuant hereto contains
or will at the Closing contain any untrue statement of a material fact or omits
or will at the Closing omit to state a material fact required to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading.
2.17 Exchange Agreement Obligations. (a) Except as set forth on
Schedule 2.17(a), neither the Company nor the Subsidiaries has any obligation
or liability to Mutual Benefit Life Insurance Company in Rehabilitation
("Mutual Benefit") or MBL Variable, Inc. which were entered into in connection
with the Exchange Agreement, dated May 19, 1992, among Samuel F. Fortunato, as
Rehabilitator of Mutual Benefit, MBL Variable, Inc., Golden American, DSI and
Bankers Trust (the "Exchange Agreement") and the acquisition by Bankers Trust
of Golden American and DSI thereunder, except for obligations expressly set
forth in the Exchange Agreement and the amendment thereto referred to in
paragraph (b) of this Section 2.17 and obligations in connection with (i) the
7.50% Adjustable Principal Note due 1997 (the "7.50% Note"), (ii) the
Security Agreement, dated September 30, 1992 between Golden American and
Samuel F. Fortunato, as Rehabilitator of Mutual Benefit (the "Security
Agreement") and (iii) the Escrow Agreement, dated September 30, 1992 among
Golden American, Bankers Trust Company, Samuel F. Fortunato, as Rehabilitator
of Mutual Benefit and Chemical Bank (the "Escrow Agreement").
(b) Prior to the date of this Agreement, the Seller has delivered
to the Purchaser a true and correct copy of the Exchange Agreement and the
Order entered by the Superior Court of New Jersey, Chancery Division, Mercer
County, dated August 5, 1992 (the "Order"), approving the Exchange Agreement
and the transactions contemplated thereby. The Exchange Agreement is in
effect and has not been modified, except by Amendment No. 1 to Exchange Agree-
ment, dated August 26, 1992, a true and correct copy of which has been
provided to the Purchaser. To the Seller's knowledge, the Order has not been
revoked, suspended or modified.
(c) To the knowledge of the Seller, there has not been a material
inaccuracy or breach of the representations and warranties made by Mutual
Benefit to Bankers Trust under the Exchange Agreement.
3. Representations and Warranties of the Purchaser. The
Purchaser represents and warrants to the Seller as follows:
3.1 Organization, Standing, etc., of the Purchaser; Authority for
Agreements. The Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of Iowa. Subject to
satisfaction of the conditions set forth in Section 4.1, the Purchaser has
full legal right, power and authority to enter into this Agreement, to
perform its obligations hereunder and to consummate the transactions provided
for herein. The execution, delivery and performance of this Agreement have
been duly authorized by the Purchaser's Board of Directors, which constitutes
all necessary corporate action on the part of the Purchaser for such
authorization. This Agreement has been duly executed and delivered by the
Purchaser and constitutes the valid and binding obligation of the Purchaser
enforceable against the Purchaser in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium or similar laws from time to time in effect which affect
creditors' rights generally and by legal and equitable limitations upon the
availability of specific performance as a remedy.
3.2 No Conflicts; Consents and Approvals. (a) Subject to
satisfaction of the conditions set forth in Section 4.1, the execution,
delivery and performance by the Purchaser of this Agreement will not result
in any violation of (i) any charter or by-law provision of the Purchaser (ii)
any contract, indenture or other agreement to which it is a party or (iii)
any law, regulation or order of any governmental authority or agency having
jurisdiction over the Purchaser.
(b) No consent, license, approval, order or authorization of, or
registration, filing or declaration with, any governmental authority is
required to be obtained or made by the Purchaser, and no consent of any third
party is required to be obtained by the Purchaser, in connection with its
execution, delivery and performance of this Agreement, the purchase of the
Shares and payment of the Purchase Price, except for (i) filings with respect
to the HSR Act, to the extent required, (ii) the approval of the Commissioner
of Insurance of the State of Delaware and, if there exists on the Closing
Date a direct or indirect subsidiary of the Company which is a New York stock
life insurance company, the approval of the Superintendent of Insurance of
the State of New York, in each case, pursuant to the insurance holding
company acts of such jurisdictions, and the approval, if any required, of the
Commissioner of Insurance of the State of California and (iii) consents the
absence of which would not have a material adverse effect on the ability of
the Purchaser to consummate the transactions contemplated by this Agreement.
3.3 Purchase for Investment. The Purchaser is acquiring the
Shares for its own account for investment and not with a view to any
distribution thereof within the meaning of the Securities Act.
3.4 Financial Ability to Perform. The Purchaser has currently
available cash funds or lines of credit sufficient to consummate the
transactions contemplated by this Agreement.
3.5 Litigation. There is no action, proceeding, investigation or
inquiry pending or, to the knowledge of the Purchaser, threatened against the
Purchaser which questions the validity of this Agreement or the ability of
the Purchaser to consummate the transactions contemplated by this Agreement.
3.6 Brokers. The Purchaser has not employed any finder, broker,
agent or other intermediary in connection with the negotiation of this
Agreement or the consummation of the transactions contemplated hereby.
4. Conditions to Closing.
4.1 Conditions to the Obligations of All Parties. The obligations
of the Purchaser and the Seller to consummate the transactions contemplated
hereby at the Closing are subject to the fulfillment (or waiver by the
Purchaser or the Seller as the case may be), at or prior to the Closing, of the
following conditions:
(a) there shall not be in effect any injunction, writ, temporary
restraining order or any order issued by any court or governmental agency
restraining or prohibiting the consummation of the transactions
contemplated by this Agreement;
(b) there shall not be pending or known to be threatened any
action, proceeding or investigation by any governmental agency seeking as
to any party hereto any such injunction, writ, temporary restraining
order or other such order;
(c) the approvals referred to in Sections 2.5(b) and 3.2(b), to
the extent required to be obtained prior to the Closing, shall have been
obtained and such approvals shall not be subject to conditions which are
unreasonably burdensome to the Seller or the Purchaser or their respective
affiliates, as the case may be; and
(d) all applicable waiting periods under the HSR Act shall have
terminated or expired and no objection shall have been made to the
transaction by either the Federal Trade Commission or the Department of
Justice.
4.2 Conditions to Obligation of the Purchaser. The obligation of
the Purchaser to consummate the transactions contemplated hereby at the
Closing is subject to the fulfillment, or waiver by the Purchaser, at or prior
to the Closing, of the following conditions:
4.2.1 Accuracy of Representations and Warranties. The
representations and warranties of the Seller contained in this Agreement shall
be true and correct at and as of the Closing, except as affected by the
transactions contemplated hereby, and each of the persons named in Section
9.12 shall have delivered to Purchaser a certificate, dated the Closing Date,
to the effect that, to his actual knowledge, the representations and
warranties of the Seller contained in this Agreement are true and correct at
and as of the Closing, except as affected by the transactions contemplated
hereby.
4.2.2 Performance. The Seller shall have duly performed and
complied, and shall have caused the Company and the Subsidiaries to duly
perform and comply, in all material respects with all terms, agreements and
conditions required by this Agreement to be performed or complied with by
them prior to or at the Closing.
4.2.3 Certificates of Fulfillment of Conditions. The Seller shall
have delivered to the Purchaser a certificate, dated the Closing Date, signed
in its name by a duly authorized officer, to the effect that it has duly
performed and complied with, and has caused the Company and the Subsidiaries
to perform and comply with, the conditions set forth in Sections 4.2.1 and
4.2.2.
4.2.4 Opinions of Counsel. The Purchaser shall have received
opinions from Debevoise & Plimpton, counsel to the Seller, and from internal
counsel to the Seller, dated the Closing Date, in form and substance
reasonably satisfactory to the Purchaser.
4.2.5 Resignations. The directors of the Company and each of the
Subsidiaries and the trustees of the Trust who are "interested persons", as
defined in the Investment Company Act, of the Trust and governors of Separate
Account D who are "interested persons", as defined in the Investment Company
Act, of Separate Account D specified in a notice delivered by the Purchaser
to the Seller at least five days prior to the Closing shall have submitted
their resignations from the Boards of Directors of the Company and each of
the Subsidiaries and the Trust and the governors of the Separate Account D,
as the case may be, effective as of the Closing Date.
4.2.6 Guarantee. The Purchaser shall have received a guarantee
from Bankers Trust, dated the Closing Date and substantially in the form of
Exhibit 1 hereto, guaranteeing the obligations of the Seller under this
Agreement.
4.2.7 Material Adverse Change. Since the date hereof, there shall
have been no material adverse change in the business, financial condition,
results of operations or prospects of the Company and the Subsidiaries taken
as a whole, and there shall have been delivered to the Purchaser a certificate
to such effect dated the Closing Date and signed by the chief executive
officer and executive vice president of the Company and each of the
Subsidiaries.
4.2.8 Transfer of Assets. The assets shown on Schedule 4.2.8 shall
have been transferred to Golden American, free and clear of all Liens, and
without any additional consideration paid or payable by the Purchaser, the
Company or the Subsidiaries, pursuant to customary transfer documents
reasonably satisfactory to the Purchaser.
4.3 Conditions to Obligation of the Seller. The obligation of
the Seller to consummate the transactions contemplated hereby at the Closing
is subject to the fulfillment or waiver by the Seller, at or prior to the
Closing, of the following conditions:
4.3.1 Accuracy of Representations and Warranties. The
representations and warranties of the Purchaser contained in this Agreement
shall be true and correct at and as of the Closing, except as affected by the
transactions contemplated hereby.
4.3.2 Performance by the Purchaser. The Purchaser shall have duly
performed and complied in all material respects with all terms, agreements and
conditions required by this Agreement to be performed or complied with by it
prior to or at the Closing.
4.3.3 Certificate of Fulfillment of Conditions. The Seller shall
have received a certificate, dated the Closing Date, signed in the Purchaser's
name by a duly authorized officer, to the effect that it has duly performed
and complied with the conditions set forth in Sections 4.3.1 and 4.3.2.
4.3.4 Opinion of Counsel for the Purchaser. The Seller shall have
received opinions from Nyemaster, Goode, McLaughin, Voigts, West, Hansell &
O'Brien, P.C., Des Moines, Iowa, and from Shaw, Pittman, Potts & Trowbridge,
each acting as counsel to the Purchaser, dated the Closing Date, in form and
substance reasonably satisfactory to the Seller.
4.3.5 Connecticut Arrangements. The Purchaser shall have entered
into a capital maintenance agreement with Golden American or provided other
substitute performance in a form satisfactory to the Insurance Commissioner
of the State of Connecticut (the "Connecticut Commissioner"), and Bankers
Trust shall have been released by the Connecticut Commissioner from any
obligation to provide capital support to Golden American.
5. Additional Covenants.
5.1 Obligations of the Parties. The Seller and the Purchaser
shall, and the Seller shall cause the Company and the Subsidiaries to, (i)
use their commercially reasonable efforts to consummate the transactions
contemplated by this Agreement and (ii) apply for and diligently prosecute
all applications for, and use their commercially reasonable efforts to obtain,
such consents, authorizations and approvals to permit the consummation of the
transactions contemplated by this Agreement. In order to effect such
transactions, the Purchaser agrees to file the application required by
Section 3.2(b)(ii) no more than 15 days after the date hereof, and each of the
Seller and the Purchaser agrees to file a Pre-Merger Notification Report form
with respect to the HSR Act no more than 30 days after the date hereof.
5.2 Regulatory Filings and Compliance. (a) Each of the parties
hereto will furnish each other party hereto with such information as such
party may reasonably request in connection with any application, notice or
filing such party may be required to file for approval of the transactions
contemplated hereby; and each of the parties hereto will cooperate with each
other party to the extent such party may reasonably request, to enable such
parties to obtain such approvals as promptly as practicable.
(b) Neither party shall file, and each party hereto shall cause
its Affiliates not to file, any application, notice or filing relating to the
transactions contemplated by this Agreement with any governmental authority
or body without affording the other party hereto a reasonable opportunity to
review and comment on such application, notice or filing.
5.3 Publicity. Each of the parties hereto agrees that it shall
not and shall not permit its respective Affiliates to make any public
statement with respect to this Agreement or the transactions contemplated
herein without the prior written consent (and approval of the contents thereof)
of the other party hereto (which consent shall not be unreasonably withheld),
unless such public statement is required by law, regulation or legal process
or the rules or listing agreement of the New York Stock Exchange, Inc., in
which case the party required to make such public statement shall, to the
extent practicable, allow the other party reasonable time to review such
statement prior to publication.
5.4 Access and Information. (a) Through the Closing Date and upon
reasonable prior notice, the Seller will, and will cause the Company and the
Subsidiaries to, permit the Purchaser and its counsel, accountants and other
representatives reasonable access to the properties, books and records of the
Company and the Subsidiaries and will furnish to the Purchaser and its
counsel within a reasonable time after request therefor such information and
reports concerning such matters as the Purchaser and its counsel may reason
ably request. All such information and documents obtained by the Purchaser
and its representatives shall be subject to Section 5.10 of this Agreement.
Prior to the Closing, with the prior consent of the Seller and accompanied by
Terry L. Kendall, or his designee, such consent not to be unreasonably
withheld, the Purchaser shall be entitled to contact Paine Webber, Smith
Barney, other distributors, reinsurers and other parties having business
relations with the Company, any of the Subsidiaries or the Trust to discuss
matters related to the Company and the Subsidiaries and transactions
contemplated by this Agreement.
(b) As soon as practical following the execution of this
Agreement, Seller shall provide to Purchaser the unaudited internal balance
sheet and income statement of the Company and its Subsidiaries on a
consolidated basis with respect to the three (3) months ended March 31, 1996
(the "Quarterly Statement"). Beginning with the month of April, 1996, the
Seller will provide to the Purchaser, within 30 days after the end of each
month, unaudited internal balance sheets and income statements for the Company
and its Subsidiaries on a consolidated basis prepared with respect to such
month (the "Monthly Statements"). Such Quarterly Statement and Monthly
Statements shall be prepared on a basis consistent with that used in the
preparation of previous internal statements and will not reflect any changes
in accounting methods from the most recent year-end GAAP Statement.
Notwithstanding the foregoing, it is understood that such Quarterly Statement
and Monthly Statements will be prepared by using certain estimates which may
differ from those required by GAAP.
5.5 Conduct of Business Prior to the Closing. Between the date
hereof and the Closing, except as permitted or contemplated by this Agreement
or as otherwise consented to by the Purchaser in writing, such consent not to
be unreasonably withheld, the Seller shall take all actions necessary:
(a) to prevent the Company and the Subsidiaries from amending
their respective Articles of Incorporation or Bylaws, declaring any
dividend or making any other distribution with respect to their capital
stock, except for the payment of dividends by Golden American to the
Company on the Series A Preferred Stock in accordance with the Certificate
of Designations for such Series A Preferred Stock; redeeming or
purchasing their shares of capital stock; making any changes in their
authorized capital stock or issuing any securities or options or entering
into any arrangement or commitment with respect to their shares of
capital stock; incurring additional or new debt for borrowed funds,
except for additional amounts borrowed under the Revolving Credit
Agreement; mortgaging, pledging or subjecting to Liens any of the assets
of the Company or any of the Subsidiaries, except for Liens incurred in
the ordinary course of business; disposing of any assets except in the
ordinary course of business; other than in the ordinary course of
business, consistent with past practice, granting any increase in the
rate of compensation of any officer of the Company, or any of the
Subsidiaries (other than any increase or severance or change of control
payments that is to be borne by Bankers Trust); instituting any New
Plans covering employees of the Company or the Subsidiaries; other than
as required by applicable law, amending the terms of any of the Plans
that apply to the employees of the Company or the Subsidiaries (other
than any amendments to such Plans that are Parent Plans and that apply
to employees of Bankers Trust generally); subject to Section 7.1,
terminating the participation of the Company and the Subsidiaries in any
Plan other than any such Parent Plan that is terminated as to Bankers
Trust; paying any liability other than current liabilities as they become
due; paying any principal indebtedness under the Revolving Credit
Agreement; making any loans or advances to officers, directors,
shareholders or employees other than routine advances for expenses
consistent with prior policy; releasing any material claims or waiving
any material rights; entering into, amending or terminating any material
contract except in the ordinary course of business; amending or changing
the terms of any material contract with any Affiliate of the Company or
the Subsidiaries so as to increase the cost of the service provided
under the contract; doing anything or omitting to do anything which may
cause a material breach of any material contract to which they may be a
party; guaranteeing any material obligation of any third party; entering
into any transaction other than in the ordinary course of business
consistent with past practice; introducing any method of accounting
inconsistent with that used in prior periods, except for inconsistencies
required by changes mandated by GAAP or SAP; doing anything or omitting
to do anything which may cause any of the Seller's representations and
warranties contained in this Agreement to become untrue, incorrect or
incomplete at or prior to Closing, and
(b) to cause the Company and the Subsidiaries to:
(i) carry on their respective businesses in the ordinary
course in substantially the same manner in which they previously
had been conducted and, to the extent consistent with such business,
use reasonable efforts to preserve intact its present business
organization and to preserve its relationship with customers,
agents, brokers, investment advisers, distributors and others having
business dealings with them;
(ii) maintain their respective books of account and records
in their usual, regular and ordinary manner, consistent with past
practice;
(iii) comply in all material respects with all applicable
laws and regulations applicable to the Company and each of the
Subsidiaries or any of their respective properties; and
(iv) with respect to any declarations in interest rates or
changes in commission rates for variable annuity products of Golden
American to be offered prior to the Closing Date, provide notice of
such declarations and changes to the Purchaser on the date such
changes are instituted.
5.6 Non-Solicitation by the Purchaser. Between the date hereof
and the Closing, the Purchaser will not, and will not permit any of its
Affiliates to, without the prior written consent of the Seller, hire, as an
employee or consultant, or solicit the services of, any employee or former
employee of the Seller, the Company or the Subsidiaries, provided that the
Purchaser may, and may permit any of its Affiliates to, so hire or solicit
such services after at least six months have elapsed since the termination of
such former employee's services from the Seller, the Company or the
Subsidiaries. Between the date hereof and the Closing, the Purchaser will
not (i) use, and will not permit any of its Affiliates to use, any of the
lists of policyholders or contract holders of either of the Subsidiaries for
any purpose other than the furtherance of the respective best interests of the
Subsidiaries and (ii) target any solicitation specifically to current or
former policyholders of the Subsidiaries. If the parties terminate this
Agreement prior to the Closing, the Purchaser will continue to be bound by
the obligations set forth in this Section 5.6 for a period of 18 months from
the date of termination of this Agreement.
5.7 Updating of Schedules. From time to time prior to the Closing
Date, the Seller shall amend or supplement the Schedules attached to this
Agreement to reflect any events or developments that occur between the date
hereof and the Closing Date and which would be required to be disclosed on
such Schedules in order to make the representations and warranties of the
Seller true and correct, provided, however, that no such amendment or
supplement made by the Seller shall have any effect for the purpose of
determining the satisfaction of the conditions to the obligation of the
Purchaser hereunder or excuse the breach of a covenant of Seller hereunder,
and if the Closing occurs, all such amendments or supplements made by the
Seller prior to the Closing shall be deemed to have amended or supplemented
the representations and warranties for all purposes hereunder.
5.8 Mutual Benefit Transactions. (a) On or prior to the Closing
Date, the Seller or the Seller's designee shall pay Golden American an amount
equal to the excess of (i) funds held in escrow under the Escrow Agreement
under the 7.50% Adjustable Principal Amount Note due 1997 issued by Golden
American to Mutual Benefit (the "7.50% Note") over (ii) $438,636, the amount
of the liability of Golden American under such Note that is carried on the
1995 Golden American GAAP Statement and shall either prepay all remaining
payments under the 7.50% Note or deliver to Golden American its irrevocable
undertaking in form and substance satisfactory to the Purchaser to make all
such payments as they become due. In consideration of the foregoing, Golden
American shall irrevocably assign, pursuant to documentation in form and
substance satisfactory to Seller, to the Seller or the Seller's designee all
of Golden American's right to receive any payments from the escrow account
created under the Escrow Agreement. At the Closing the Purchaser shall
deliver to the Seller or the Seller's designee a guarantee, in form and
substance satisfactory to the Seller, of Golden American's obligations under
such assignment and Seller shall deliver to Golden American, a full
indemnification, in form and substance satisfactory to Purchaser, with
respect to escrow fees and other obligations under the Escrow Agreement.
5.9 Compliance with Investment Company Act Section 15. (a) The
Purchaser acknowledges that the Seller has entered into this Agreement in
reliance upon the benefits and protections provided by Section 15(f) of the
Investment Company Act. The Purchaser shall not take or fail to take, and
shall cause the Company and the Subsidiaries not to take or fail to take, any
action not contemplated by this Agreement that would have the effect, directly
or indirectly, of causing the requirements of any of the provisions of Section
15(f) of the Investment Company Act not to be met in respect of this Agreement
and the transactions contemplated hereby. The Purchaser shall conduct its
business and shall, subject to applicable fiduciary duties, cause the Company
and the Subsidiaries to conduct their respective businesses to assure that:
(i) for a period of three years after the Closing Date, at least
75% of the members of the board of directors or trustees of each of the
investment companies registered under the Investment Company Act and for
which DSI acts as investment adviser or manager (each, a "Managed Fund")
and for which DSI or an Affiliate of DSI continues as the investment
adviser or manager after the Closing Date, are not (A) "interested
persons" of the investment adviser or manager of such Managed Fund after
the Closing, or (B) "interested persons" of the present investment
adviser or manager of such Managed Fund; and
(ii) there is not imposed on any of the Managed Funds an "unfair
burden" as a result of the transactions contemplated by this Agreement,
any payments in connection therewith or any arrangements or understandings
applicable thereto.
(b) After the Closing Date, the Purchaser shall, and shall cause
the Company, the Subsidiaries and its Affiliates to, subject to applicable
fiduciary duties, use their respective commercially reasonable efforts to
encourage and assist each of the Managed Funds and their respective Boards of
Directors or trustees to conduct the business of such Managed Funds in
accordance with this Section 5.9.
(c) The terms used in quotations in this Section 5.9 shall have
the meanings set forth in Section 15(f) or Section 2(a)(19) of the Investment
Company Act.
(d) For a period of three years from the Closing Date, the
Purchaser will not, and will not permit the Company or the Subsidiaries to,
voluntarily engage in any transaction which would constitute an assignment of
any investment advisory contract with any Managed Fund to which the Purchaser,
the Company or the Subsidiaries is a party without first obtaining a covenant
in all material respects the same as that contained in this Section 5.9.
(e) Notwithstanding the foregoing, the Purchaser shall not be
required to comply with the conditions of Section 15(f) of the Investment
Company Act if the Purchaser and Seller are otherwise granted an exemption
from the provisions of Section 15(f) of the Investment Company Act with
respect to this transaction by the Securities and Exchange Commission, or if
the Staff of the Securities and Exchange Commission agrees not to recommend
enforcement action against the Purchaser or Seller if the Purchaser does not
comply with certain provisions of Section 15(f) of the Investment Company Act
with respect to this transaction, provided that any such request to the
Securities and Exchange Commission staff for no enforcement action relief
shall be subject to the Seller's approval, which approval may not be
unreasonably withheld.
5.10 Confidentiality. (a) Neither the Purchaser nor any of its
Affiliates shall, without the prior written consent of the Seller, disclose
to any person any information (whether or not such information is in written
form) concerning Bankers Trust, the Seller, the Company or the Subsidiaries
which has been or will be furnished to the Purchaser by Bankers Trust, the
Seller, the Company or the Subsidiaries, except as required by applicable law,
regulation or legal process or the rules or listing agreement of the New York
Stock Exchange, Inc. except that the Purchaser may disclose such information
(i) to its and its Affiliates' directors, officers, employees (the
"Employees"), and Affiliates and to the representatives of its or its
Affiliates' financial, legal, actuarial, accounting or other advisors
(collectively, the "Representatives") who have a need to know such information
for purposes contemplated by this Agreement, provided that the Employees and
the Representatives shall use such information solely for such purposes and
the Representatives shall agree to keep such information confidential and to
use such information solely for such purposes, (ii) if compelled by law or
regulation or any court or administrative order, provided that, the Purchaser
shall provide the Seller with prompt prior written notice of such requirement
so that the Seller may seek a protective order or other appropriate remedy,
provided further that, if the Seller is unable to obtain a protective order
or other appropriate remedy, the Purchaser shall furnish only that portion of
the information which the Purchaser has been advised by legal counsel is
legally required to be disclosed and shall use its best efforts to obtain
assurances that such information will be treated confidentially, (iii) if
such information at the time of disclosure or thereafter is generally
available to and known by the public (other than as a result of disclosure
directly or indirectly by the Purchaser, the Employees or the Representatives),
(iv) if such information was available to the Purchaser on a non-confidential
basis from a source other than Bankers Trust, the Seller, the Company or the
Subsidiaries, provided that, the source of the information was not known by
the Purchaser or its employees or Representatives to be bound by a
confidentiality agreement with Bankers Trust, the Seller, the Company or the
Subsidiaries or (v) if such information has been independently acquired or
developed by the Purchaser without violating any of its obligations under
this Agreement.
(b) The parties hereto agree that this Agreement supersedes the
Confidentiality Agreement entered into by the Purchaser on February 22, 1996,
and the parties further agree that the terms and provisions of this Agreement
shall apply retroactively to all information described in Section 5.10(a)
supplied to the Purchaser prior to the date hereof. If this Agreement is
terminated, this Section 5.10 shall be in effect for a period ending on the
second anniversary of such termination date. From and after the Closing
Date, this Section 5.10 shall apply for a period of two years and only to
information furnished to the Purchaser concerning Bankers Trust and the
Seller.
5.11 Sublease. Prior to the Closing, the Seller and the Purchaser
shall agree on the terms of a mutually acceptable sublease in form and
substance reasonably consistent with the terms and conditions of the lease in
effect on the date hereof for the building premises presently occupied by
Golden American as its principal offices in Wilmington, Delaware, a copy of
which has been previously provided to the Purchaser or, if more favorable, on
rental payment terms applicable to Golden American and in effect as of March
31, 1996. The parties shall cooperate to obtain any required consent of the
landlord.
5.12 No Solicitation. From and after the date hereof, neither
Bankers Trust, Seller, the Company, any of the Subsidiaries nor any of their
respective affiliates, officers, directors, employees, representatives or
agents shall, directly or indirectly, encourage, solicit, initiate, engage or
participate in discussions with, or provide any information to, any
corporation, partnership, person or other entity or group other than the
Purchaser or its Affiliates (a "Third Party") concerning any sale of
securities, merger, sale of substantial assets, merger, consolidation,
liquidation, dissolution or similar transaction involving the Company or the
Subsidiaries. Seller shall promptly inform the Purchaser of any inquiry
(including the terms thereof and the identity of the Third Party making such
inquiry) which it may receive in respect to any such acquisition transaction
and furnish the Purchaser a copy of such written inquiry.
5.13 Affiliate Contracts. Promptly following the date hereof, the
representatives of the Seller and the Purchaser shall meet to determine which
contracts or arrangements, whether oral or written, other than the Sublease,
between the Company or any of the Subsidiaries, on the one hand, and Bankers
Trust or any of its affiliates, on the other hand (the "Affiliate Services"),
should be terminated or continued after Closing. Each Affiliate Service
contract or arrangement shall be automatically terminated, without liability
to either party, if the Purchaser has not requested, at least 30 days prior
to the Closing Date, that such contract or arrangement continue to be provided
to the Company or any of the Subsidiaries after the Closing Date. Subject to
the foregoing, the Seller agrees to provide, or to cause its Affiliates to
provide, to the Company and the Subsidiaries, Affiliate Services on the same
terms as such Affiliate Services are provided to the Company and the
Subsidiaries on the date hereof for a period not to exceed six months after
the Closing Date, unless a longer term is agreed to by the Seller and the
Purchaser. Each arrangement to provide Affiliate Services shall be pursuant
to a written agreement executed on or before the Closing Date.
5.14 Non-Competition. For a period of two years following the
Closing Date, neither Bankers Trust nor any of its Affiliates shall engage
directly or indirectly in the offer or sale to the public through Smith Barney
or Paine Webber of variable annuities or variable life insurance contracts or
any similar products that are substantially similar to the products currently
being offered and sold by Golden American on the date hereof, it being
understood, however, that the provision of investment management, advisory,
custodial, data processing, voice response or other similar services by
Bankers Trust or any of its affiliates shall not constitute a direct or
indirect offer or sale of such products by Bankers Trust or its affiliates.
5.15 New York Subsidiary. (a) Prior to the Closing, the Seller
shall, and shall cause Golden American to, use its commercially reasonable
efforts to license a newly-created subsidiary ("New York Golden") as a stock
life insurance company in the State of New York with the authority to sell
life insurance and annuities.
(b) Subject to Section 5.16, the Company and the Subsidiaries may
take all necessary corporate actions, including, but not limited to, the
making of capital contributions or the issuance of preferred stock, to ensure
the appropriate capitalization of New York Golden.
5.16 Capital Maintenance and Additional Borrowings. (a) Subject to
the conditions set forth in this Section 5.16, Bankers Trust, or its
affiliates, may make Capital Contributions (as defined below) to the Company
and the Company may make Additional Borrowings (as defined below) (i) if
required (A) by the Letter Agreement, dated September 30, 1992, between Golden
American and Bankers Trust (B) by the capital maintenance agreement with the
Connecticut Commissioner, (C) as a condition to the licensing of New York
Golden or (ii) as otherwise appropriate to carry on the business of the
Company or the Subsidiaries.
(b) Prior to the Closing, Seller shall use its commercially
reasonable efforts to cause the Company and the Subsidiaries to operate their
businesses in order to minimize the amount of (i) capital contributions from
Bankers Trust or any of its Affiliates to the Company, the Subsidiaries or
New York Golden ("Capital Contributions") and (ii) additional borrowings under
the Revolving Credit Agreement ("Additional Borrowings"). In furtherance of
the foregoing, the Company will satisfy its need for capital and operating
funds, first, by entering into the transactions contemplated by Section 5.8,
and only thereafter, through Capital Contributions or Additional Borrowings.
(c) No Capital Contribution or Additional Borrowings shall be
made without the prior written consent of the Purchaser, which consent shall
not be unreasonably withheld.
5.17 Investment Company Matters. (a) Within 45 days from the date
hereof, the Purchaser shall notify the Seller of (i) the portfolio managers,
if any, who have been designated by the Purchaser to replace Bankers Trust as
the current Portfolio Managers of the Limited Maturity Bond Series and the
Liquid Asset Series portfolios of the Trust and (ii) the person or persons,
if any, who are "interested persons" as defined in the Investment Company Act,
of the Purchaser, the Company or the Subsidiaries and who have been designated
by the Purchaser to be elected to the Board of Trustees of the Trust or the
Board of Governors of Separate Account D.
(b) In connection with seeking the approvals required by Section
2.5(b)(iv), the Seller shall use commercially reasonable efforts to obtain,
conditionally subject to the Closing, the affirmative vote of the variable
annuity contract holders and variable life policyholders whose contracts and
policies are funded by investments in the Trust or Separate Account D, as the
case may be, (i) approving new portfolio management agreements with portfolio
managers, if any, designated by the Purchaser and (ii) electing the person or
persons, if any, designated by the Purchaser to the Board of Trustees of the
Trust or the Board of Governors of Separate Account D.
(c) All actions by the Purchaser pursuant to this Section shall
be in accordance with the provisions of the Investment Company Act.
5.18 Exchange Agreement Matters. At the Closing, Bankers Trust
shall deliver to the Purchaser, (i) a full release of Golden American and DSI
from any obligations to Bankers Trust by reason of representations and
warranties made pursuant to the Exchange Agreement or the sale of Golden
American and DSI to Bankers Trust thereunder, (ii) a full indemnification of
Golden American with respect to the Security Agreement executed pursuant to
the Exchange Agreement and (iii) partial assignment of Bankers Trust's right
to seek indemnity from Mutual Benefit under the Exchange Agreement (but only
to the extent necessary to enable Golden American or DSI to obtain such
indemnity based on a breach of a representation, warranty or covenant by
Mutual Benefit which results in loss, liability or damage to the Purchaser,
Golden American or DSI and without prejudice to Bankers Trust's rights to
indemnification by Mutual Benefit for losses of any nature, whether direct or
indirect, suffered by Bankers Trust) all of the foregoing to be in form and
substance satisfactory to Purchaser.
5.19 Systems Transition. At the expense of Purchaser, Seller and
Purchaser shall cooperate prior to Closing to develop plans for the orderly
integration of the information systems of Golden American and the Purchaser
upon Closing; provided that such cooperation between Seller and Purchaser
shall not unreasonably interfere with the conduct of the business of Seller.
In the event Closing does not occur, Seller and Purchaser shall each return
to the other all confidential information and software acquired in connection
with such cooperation and neither party shall have any further right to use
such information or software of the other.
5.20 Licensing Matters. Between the date hereof and the Closing
Date, Seller shall use commercially reasonable efforts to cure the Florida and
Massachusetts licensing deficiencies identified in Schedule 2.1 (b) and shall
bear the costs of any fines or penalties (whenever incurred) resulting from
such deficiencies.
5.21 Change of Name; Right to Use Certain Marks. (a) On or prior
to the Closing Date, Seller shall cause the Company to file a charter
amendment, effective upon the Closing Date or within one day thereafter,
changing the name of the Company to a name selected by the Purchaser (the
"New Name"). The Purchaser shall notify Seller of the New Name not less than
ten days prior to the Closing Date, and such New Name shall not include or be
similar to any trademarks, logos, service marks, brand names or trade,
corporate or business names employing the name "Bankers Trust" or any part or
variation thereof, including the name "BT" or any trademarks, logos, service
marks, brand names or trade, corporate or business names confusingly or
misleadingly similar thereto (collectively, the "Seller's Marks").
(b) It is expressly agreed that the Purchaser is not purchasing or
acquiring any right (except as specifically contemplated in this Section
5.21), title or interest in the Seller's Marks. To the extent the Seller's
Marks are used by the Company or its Affiliates on any materials constituting
their properties and assets, including any stationery, signage, invoices,
receipts, forms, packaging, advertising and promotional materials, product,
training and service literature and materials, software or like materials or
appear on the Company's inventory (including work-in-process and inventory on
order) at the Closing Date, as promptly as practicable, but in no event later
than 30 days following the Closing Date, the Purchaser shall, and shall cause
the Company and its Affiliates to, remove, strike over or otherwise
obliterate all the Seller's Marks from all such materials; provided that
nothing in this Section shall be construed to require the Purchaser or the
Company or its Affiliates to cause policyholders or contract or certificate
holders of Golden American to take any action with respect to property of the
Company or its Affiliates in the possession of any such policyholders or
contract or certificate holders; and, provided further, that Golden American
shall have the right to continue to use its existing policy forms, contracts
and certificates containing Seller's Marks for the time reasonably required
by Golden American to take any required regulatory action to change or refile
its policy forms, contracts and certificates to delete any reference to
Seller's Marks. The Purchaser agrees than none of it, the Company or any of
its Affiliates shall make any use of the Seller's Marks after the expiration
of 30 days after the Closing Date; except as necessary to permit Golden
American a reasonable time to take any required regulatory action to change
or refile its policy forms, contracts or certificates to delete any reference
to "Seller's Marks."
6. Taxes.
6.1 Tax Sharing. Between the date hereof and the Closing, the
Seller shall, and shall cause its Affiliates to, continue the current tax
sharing agreements and arrangements in effect between the Seller and any
Non-Company Affiliates, on the one hand, and the Company and the Subsidiaries
on the other, including, without limitation, the current practice pursuant to
which payments are made to the Company, on a quarterly basis, with respect to
Income Tax benefits generated by the Company and DSI. Within 45 days after
the Closing Date, the Purchaser shall cause the Company to submit to the
Seller for its review a report setting forth the Company's computation of any
amounts payable and not previously paid pursuant to such arrangements with
respect to the tax period ending on the Closing Date, prepared (i) on a basis
consistent with that previously used in computing such amounts; (ii) without
regard to the consequences of the Section 338(h)(10) Elections; (iii) without
regard to tax deductions, if any, attributable to payments made or borne by
the Seller or any Non-Company Affiliates, including, without limitation, any
tax deductions attributable to payments to employees described in clause (F)
of Section 2.9 or Sections 5.5(a) or 7.2 of this Agreement and (iv) taking
into account any other appropriate adjustments agreed to by the Purchaser and
the Seller. Any disagreement regarding such computation shall be resolved as
described in clause (c) of Section 6.3. Subject to the resolution of any
disputes, Seller shall promptly pay to the Company (or the Company shall
promptly pay to the Seller) any amounts shown as due pursuant to such
computation. Except as otherwise provided in this paragraph, on the Closing
Date, all Tax sharing agreements and arrangements between the Company or any
of the Subsidiaries, on the one hand, and the Seller or any of the Non-
Company Affiliates, on the other hand, shall be terminated and no additional
payments shall be made thereunder.
6.2 Payments. (a) The Seller's Responsibility. The Seller
shall pay or cause to be paid (without duplication of amounts otherwise
payable, and excluding any interest, penalties and additions to tax arising
from any act or omission after the Closing by the Purchaser, the Company or
any of the Subsidiaries if such act or omission was not caused by an act or
omission of the Seller or any Non-Company Affiliate) (i) all federal Income
Taxes payable with respect to the Company or any of the Subsidiaries reportable
on any consolidated federal Income Tax Return of the consolidated group of
which the Seller is a member (the "Seller's Group"), (ii) all state, local
and foreign Income Taxes with respect to which the Company or any of the
Subsidiaries has filed or is required to file pursuant to Section 6.3(a) a
combined, consolidated or unitary state, local or foreign Income Tax Return
with the Seller or any of the Non-Company Affiliates, payable with respect to
the Company and such Subsidiaries for all periods ending on or prior to the
Closing Date, (iii) all other Taxes payable by the Company or DSI with
respect to any tax period or portion thereof beginning after September 30,
1992 and ending on or before December 31, 1995, for which appropriate
reserves and accruals are not reflected on the financial statements for the
year ended December 31, 1995 provided to the Purchaser pursuant to in Section
2.6(a) of this Agreement; (iv) all other Taxes payable by the Company or DSI
with respect to any tax period beginning on or after January 1, 1996 and
ending on the Closing Date (or the period up to and including, without
limitation, the Closing Date for any such tax period beginning before and
ending after the Closing Date), for which appropriate reserves and accruals
are not reflected on the Monthly Statements provided to the Purchaser
pursuant to Section 5.4(b) of this Agreement; (v) all Taxes attributable to
the Section 338(h)(10) Elections (as defined in Section 6.7) for which Seller
is responsible pursuant to the first sentence of Section 6.7(d) of this
Agreement; and (vi) all Taxes for which the Company or any of the Subsidiaries
may be held liable pursuant to Section 1.1502-6(a) of the Income Tax
Regulations or pursuant to any similar provision of any state, local or
foreign law as a member of any Affiliated Group of which the Seller or any
Non-Company Affiliate is or was a member. For purposes of clause (iv) above
and Section 6.7(d) any Taxes for a taxable period beginning before the
Closing Date and ending after the Closing Date shall be apportioned between
the portion of such period ending on the Closing Date and the portion of such
period beginning on the day immediately after the Closing Date based on the
actual activities of the Company and the Subsidiaries as determined from the
books and records of the relevant entity for such partial period, with
appropriate adjustments to ensure that the sum of the Tax amounts determined
for both portions of a period shall be equal to the amount of the Taxes for
the entire period.
(b) The Purchaser's Responsibility. Subject to the obligations of
the Seller with respect to the Section 338(h)(10) elections described in
Section 6.7 below, the Purchaser shall pay or cause to be paid all Taxes
payable with respect to the Company or any of the Subsidiaries that are not
described as being the responsibility of the Seller in Section 6.2(a).
6.3 Returns. (a) The Seller's Responsibility. The Seller and the
Purchaser shall cause the Company and the Subsidiaries, to the extent
permitted by law, to join, for all taxable periods ending on or prior to the
Closing Date, in (i) the consolidated federal Income Tax Returns of the
Seller's Group and (ii) the combined, consolidated or unitary Tax Returns for
state, local and foreign Income Taxes of or including the Seller or any
Non-Company Affiliate with respect to which the Company or any of the
Subsidiaries (x) filed such a return for the most recent taxable period for
which a return has been filed prior to the Closing Date and may file such a
return for subsequent taxable periods or (y) is required to file such a
return. The income, deductions and credits of the Company and such
Subsidiaries for periods ending on or prior to the Closing Date shall be
included in the consolidated federal Income Tax Returns of the Seller's Group
and in such combined, consolidated and unitary Returns where applicable. The
Seller shall file, or cause to be filed, all other returns relating to the
business or assets of the Company and the Subsidiaries required to be filed
on or before the Closing Date.
(b) The Purchaser's Responsibility. Subject to the provisions of
Section 6.7, the Purchaser shall file, or cause to be filed, all Tax Returns
relating to the business or assets of the Company and the Subsidiaries other
than those returns described as the responsibility of the Seller in Section
6.3(a). The income, deductions and credits of the Company and the
Subsidiaries, other than those required to be included in the returns
described in Section 6.3(a), shall be included in the returns described in
the immediately preceding sentence, including, without limitation, (i) items
for periods ending on or prior to the Closing Date with respect to Income
Taxes that are not required to be included in combined, consolidated or
unitary returns or in returns required to be filed on or before the Closing
Date pursuant to Section 6.3(a) and (ii) all items for periods beginning
after the Closing Date.
(c) Cooperation. The Seller and the Purchaser shall and shall
cause their respective Affiliates to, as and to the extent reasonably
requested by the other party, cooperate in connection with the filing of Tax
Returns and the conduct of Tax audits. Such cooperation shall include the
retention for a period of at least 5 years following the Closing Date and
(upon the request and at the expense of another party) the provision of tax
records and information which are reasonably relevant to the filing of Tax
Returns or any audit, litigation or other proceeding relating thereto. After
the Closing Date each Income Tax Return and report (including, without
limitation, any amended return) prepared or caused to be prepared by the
Purchaser, the Company or any of the Subsidiaries with respect to the Company
or any of the Subsidiaries which relates to any period that includes days on
or before the Closing Date shall be subject to pre-filing review by the Seller
and, in the event of any disagreement between the Purchaser, on the one hand,
and the Seller, the Company or any of the Subsidiaries, on the other hand,
such disagreement shall be resolved by the national tax office of Ernst &
Young LLP or another nationally recognized accounting firm mutually acceptable
to the Seller and the Purchaser (the "Accountants"), and any such
determination by the Accountants shall be final. The fees and expenses of the
Accountants shall be borne equally by the Purchaser and the Seller. Unless
otherwise agreed to by the parties, Tax Returns and reports subject to such
pre-filing review shall be submitted by the Purchaser, the Company and the
Subsidiaries to the Seller at least 45 days prior to the due date (including
extensions) of such Tax Return or report and the Seller shall either complete
its review or provide written comments on such Tax Return or report within 15
days of receipt of such Tax Return or report.
6.4 Refunds. Subject to the provisions of this Section 6.4, (a)
the Seller shall be entitled to retain, or receive immediate payment from the
Company or the Purchaser of, any refund or credit with respect to Taxes
(including, without limitation, refunds and credits arising by reason of
amended Returns filed after the Closing Date), plus any interest received
with respect thereto from the applicable taxing authorities, relating to the
Company or any Subsidiary that are described as being the responsibility of
the Seller in Section 6.2(a), and (b) the Purchaser or the Company shall be
entitled to retain, or receive immediate payment from the Seller of, any
refund or credit with respect to Taxes, plus any interest received with
respect thereto from the applicable taxing authorities, relating to the
Company or any Subsidiary that are described as being the responsibility of
the Purchaser in Section 6.2(b), provided that neither the Company nor any
Subsidiary shall elect to carry back any item of loss, deduction or credit
from a return described as being the responsibility of the Purchaser in
Section 6.3(b), to a return described as being the responsibility of the
Seller in Section 6.3(a) (other than the last sentence thereof), and the
Purchaser shall indemnify and hold the Seller and its Affiliates harmless
from and against any loss attributable to any such carry back election,
including, without limitation, any loss of use of foreign tax credits
attributable to any such carry back election. The Purchaser and the Seller
shall cooperate, and the Purchaser shall cause the Company and the
Subsidiaries to cooperate with the Seller, with respect to claiming any
refund or credit with respect to Taxes referred to in this Section 6.4. Such
cooperation shall include providing all relevant information available to the
Seller or the Purchaser (through the Company or otherwise), as the case may
be, with respect to any such claim; filing and diligently pursuing such claim
(including by litigation, if appropriate); paying over to the Seller or the
Purchaser, as the case may be, and in accordance with this provision, any
amount received by the Purchaser (or the Company or any of the Subsidiaries)
or the Seller or its Affiliates, as the case may be, with respect to such
claim; and, in the case of the party filing such a claim, consulting with the
other party prior to agreeing to any disposition of such claim, provided that
the foregoing shall be done in a manner so as not to interfere unreasonably
with the conduct of the business of the parties. The party that is to enjoy
the economic benefit of a refund under this Section 6.4 shall bear the out-of-
pocket expenses of the other party reasonably incurred in seeking such
refund.
6.5 Audits and Other Proceedings. Following the Closing Date,
the Seller shall, and shall be furnished by the Purchaser, the Company or a
Subsidiary, as the case may be, with powers of attorney, or any other document
or authorization necessary or appropriate to enable it to, control the conduct
of all stages of any audit or other administrative or judicial proceeding with
respect to Taxes for which the Seller is liable pursuant to Section 6.2(a) or
Section 6.7 and the Purchaser shall control the conduct of all other audits
or administrative or judicial proceedings with respect to the Tax liability
of the Company and the Subsidiaries for any tax period or portion thereof.
Subject to such control:
(i) With respect to any audit or other proceeding that it
controls, the Seller (x) shall give prompt notice to the Purchaser of
any Tax adjustment proposed in writing pursuant to any audit or other
proceeding controlled by the Seller with respect to the assets or
activities of any of the Company or the Subsidiaries, (y) upon the
Purchaser's reasonable request shall discuss with the Purchaser and the
Purchaser's tax advisors the position that it intends to take regarding
any issue concerning such assets or activities, and (z) shall not, and
shall not permit any of its Affiliates to, enter into any settlement or
agreement in compromise of any proposed adjustment which purports to bind
the Purchaser, the Company or any Subsidiary with respect to any Tax
period ending after the Closing Date without the express written consent
of the Purchaser, which consent shall not be unreasonably withheld, and
(ii) The Purchaser (x) shall give prompt notice to the Seller of
the commencement of any audit or other proceeding which could reduce the
amount of any net operating losses, net capital losses, tax credits or
other federal, state or local tax benefits (or any carryforwards of such
amounts) available to the Company or any Subsidiary as of the Closing
Date or could give rise to a claim for payment against the Seller under
this Agreement; (y) with respect to any audit or proceeding controlled by
the Purchaser, shall afford the Seller and its tax advisors a reasonable
opportunity to participate in the conduct of any administrative or
judicial proceeding regarding a proposed adjustment described in clause
(x) above including, without limitation, the right to participate in
conferences with taxing authorities and submit pertinent material in
support of the Seller's position, and (z) shall not, and shall not
permit any of its Affiliates to, accept any proposed adjustment or enter
into any settlement or agreement in compromise which would result in the
reduction of any tax benefit or carryforward described in Clause (x)
above or in a claim for indemnification against the Seller pursuant to
this agreement without the Seller's express written consent which shall
not be unreasonably withheld.
6.6 Conduct of Business on the Closing Date. Notwithstanding
any other provision of this Agreement, the Purchaser shall be responsible for,
and neither the Seller nor any of the Non-Company Affiliates shall bear, any
Taxes that arise due to the failure, following the Closing, of the Purchaser
to cause the Company and the Subsidiaries to carry on their business on the
Closing Date only in the ordinary course and in substantially the same manner
as heretofore conducted.
6.7 Section 338(h)(10) Election. The Seller and the Purchaser
shall make and shall cause their respective Affiliates to make a joint election
pursuant to Section 338(h)(10) of the Code (and any corresponding provision of
state or local law) with respect to the purchase and sale of the Company and
each of the Subsidiaries hereunder (the "Section 338(h)(10) Elections") in the
manner described in this Section 6.7.
(a) Not less than 30 days prior to the Closing Date, the Purchaser
shall provide to the Seller a proposed allocation of the "modified aggregate
deemed sales price" ("MADSP") for the deemed sale of assets resulting from the
making of the Section 338(h)(10) Elections with respect to the Company and
the Subsidiaries. For purposes of such allocation (and for all other Tax and
accounting purposes of the Purchaser and Seller and their Affiliates), the
Purchase Price (and any liabilities of the Company and the Subsidiaries taken
into account for purposes of determining MADSP) shall be allocated among the
Company and the Subsidiaries in accordance with Schedule 6.7 hereto. If the
Seller does not object within 10 business days after its receipt of the
Purchaser's proposed allocation, such allocation shall be treated as the
agreed final allocation. If the Seller objects in writing to the Purchaser's
proposed allocation within 10 business days after the receipt thereof, the
Purchaser and the Seller shall use their best efforts to agree on an
allocation. If the parties cannot, within 5 business days, agree to an
allocation, such disagreement shall be resolved by the Accountants, provided
that any such dispute shall be resolved in favor of the Purchaser unless the
Accountants determine (i) that the allocation has not been prepared in a
manner consistent with Schedule 6.7 hereto or (ii) that there is no
reasonable basis for the Purchaser's position. Following the resolution of
any such dispute, such allocation shall be the final agreed allocation.
(b) On or before the Closing Date, the Seller and the Purchaser
shall execute and shall cause their respective appropriate Affiliates to
execute with respect to the Company and each of the Subsidiaries four (4)
copies of (i) Internal Revenue Service Form 8023-A, including all attachments,
and any comparable election forms required under relevant state or local law
(the "Election Forms") prepared in a manner consistent with the final agreed
allocation, and, in all other ways satisfactory in form and substance to the
Seller and the Purchaser. Such forms shall be filed with the Internal
Revenue Service and any other appropriate taxing authority not less than 60
days before the last date for the filing thereof or, if earlier, not less
than 30 days prior to the due date for filing the Final Return (including any
available automatic extensions). Prior to the filing of such Election Forms,
the Seller and the Purchaser agree and shall cause their respective
Affiliates to agree to cooperate (i) in the preparation of revised
attachments to such Election Forms and to make any corrections, amendments or
supplements thereto which are mutually acceptable to the parties and may be
required by law or otherwise necessary to complete the making of the Section
338(h)(10) Elections and (ii) to prepare and timely file any additional forms
or attachments as may be required under state or local law to make any
comparable elections thereunder.
(c) Except as otherwise provided in clause (b) above, the
Purchaser, Bankers Trust and the Seller shall not take, and shall not permit
any of their Affiliates to take, any action to modify the Election Forms
following the execution thereof, or to modify or revoke the Section 338(h)(10)
Elections following the filing of the Election Forms, without the written
consent of the other. The Purchaser, Bankers Trust and the Seller shall, and
shall cause their respective Affiliates to, prepare and file all Tax and
financial returns, reports and declarations in a manner consistent with the
information contained in the Election Forms as filed, including the final
agreed allocation, unless otherwise required by a change in Tax law or
financial reporting requirements.
(d) Notwithstanding any other provision of this Agreement, the
Seller shall be responsible for, and shall indemnify and hold harmless
Purchaser and its Affiliates (including the Company and the Subsidiaries)
from and against, all Taxes of the Seller, the Company, the Subsidiaries or
any Affiliated Group, arising in any taxable period that includes the Closing
Date, that result from the deemed sales of assets occurring as a result of the
making of the Section 338(h)(10) Elections. Notwithstanding any other
provision of this Article 6, the Seller shall prepare the final Tax Return
(as defined in Treas. Reg. 1.338-1(c)(6)), or any comparable provision of
state or local law (the "Final Return") of Golden American for the tax period
ending on the Closing Date. Each Final Return shall be prepared in a manner
that is consistent with the requirements of Treas. Regs. 1.338(h)(10) and is
otherwise consistent with the last previous returns filed in respect of
Golden American. Each Final Return shall be subject to pre-filing review by
the Purchaser and any disagreement shall be resolved as described in clause
(c) of Section 6.3, provided that any dispute regarding the reporting of the
consequences of the Section 338 (h)(10) Elections shall be resolved in favor
of the Seller unless the Accountants shall determine that (i) such reporting
is not consistent with the Election Forms or the final agreed allocation, or
(ii) there is no reasonable basis for the Seller's position. Prior to the
due date for the filing of such Final Return, the Seller shall pay to Golden
American an amount equal to all Taxes reported as due on such Final Return
that are attributable to the deemed sale of assets occurring as a result of
the Section 338(h)(10) Elections. Subject to the pre-filing review described
above and the resolution of any disputes, Golden American shall execute and
file such Final Return as prepared by the Seller and, provided that it shall
have received from the Seller the amount described in the preceding sentence,
shall pay all Taxes shown as due thereon. If the Seller determines that any
Taxes shown as due on the Final Return are not attributable to the deemed
sale of assets occurring as a result of the Section 338(h)(10) Election, the
Seller shall, at the time it provides the Final Return to the Purchaser for
its review, submit to the Purchaser a report setting forth its computation of
such amounts. For purposes of this computation and for purposes of
determining the Seller's responsibility for Taxes under the first sentence of
this Section 6.7(d), any carryforwards of net operating losses, net capital
losses or other tax benefits that are available to Golden American for its
taxable year that includes the Closing Date shall be used first to offset any
income or gains for the period beginning on January 1, 1996 and ending at the
close of business on the Closing Date (excluding any income or gains
attributable to the deemed sale of assets occurring as a result of the
Section 338(h)(10) Elections); and then to offset any income or gains
attributable to the deemed sale of assets occurring as a result of the
Section 338(h)(10) Elections. If there are any adjustments to the income,
gains, deductions, losses or other tax items of Golden American for any
period beginning after September 30, 1992 and ending on the Closing Date (or
the period up to and including, without limitation, the Closing Date for any
such tax period, beginning before and ending after the Closing Date), or any
adjustment of Golden American's net operating losses, net capital losses, or
other tax benefit carryforwards as they are then applied, the computation
provided for in this Section 6.7(d) shall be revised and any additional Taxes
attributable to the deemed sale of assets occurring as a result of the
Section 338(h)(10) Elections resulting from such computations shall be paid
promptly by the Seller to the Purchaser. Any dispute regarding the
computation of any amount payable pursuant to this Section 6.7 shall be
resolved in accordance with clause (c) of Section 6.3, as described above.
The Seller and the Purchaser agree that any amount paid by the Seller to the
Purchaser or Golden American pursuant to this paragraph (d) shall be treated
for all Tax and accounting purposes as an adjustment to the Purchase Price.
6.8 Transfer Taxes. The Seller shall be responsible for and
neither the Purchaser nor the Company shall bear any transfer taxes applicable
to the conveyance, transfer and assignment of the Shares or for filing any
forms or making any returns or complying with any procedures in connection
therewith.
7. Employee Matters.
7.1 Termination of Plan Participation. The Seller and the
Purchaser shall cause the active participation of the employees of the
Company or any of the Subsidiaries in each Plan that is sponsored by an ERISA
Affiliate (the "Parent Plans") to cease effective as of the Closing Date, and
the Purchaser shall, and shall cause each of the Company and the Subsidiaries
to, withdraw as a sponsor and/or participating employer in each such Parent
Plan and otherwise take all actions necessary or appropriate to effectuate
such cessation of participation.
7.2 Participation in Plans of the Purchaser. Effective as of the
Closing Date, the Purchaser shall, and shall cause the Company and the
Subsidiaries to, take all actions necessary or appropriate to cause each of
the employees of the Company or any of the Subsidiaries to be eligible to
participate and to become active participants in employee benefit and
compensation plans, programs and arrangements established or maintained by the
Purchaser (the "Purchaser Plans") which provide or make available employee
compensation and benefits to such employees that are comparable in the
aggregate to the employee compensation and benefits provided or made available
to employees of the Purchaser and its affiliates at its home office in Des
Moines, Iowa. In connection therewith, the Purchaser shall cause each such
Purchaser Plan (a) that is a welfare benefit plan to (x) recognize all out-of-
pocket expenses of each employee of the Company or any of the Subsidiaries
recognized from and after January 1, 1996 and prior to the Closing Date under
the Parent Plan that is a welfare benefit plan for purposes of determining
each such employee's deductible and copayment expenses for calendar year 1996
under the comparable Purchaser Plans and (y) waive any provision that would
exclude coverage of a pre-existing condition of any such employee or any of
his dependents or beneficiaries to the extent that, as of the Closing, any
such condition of any such Person would not have been excluded under the pre-
existing condition exclusions of the comparable Parent Plan and (b) to
recognize the service of each employee of the Company or any of the
Subsidiaries with the Company or any of the Subsidiaries completed prior to
the Closing Date for all purposes under each such Purchaser Plan (other than
for purposes of accrual of benefits under any Purchaser Plan that is a
defined benefit plan) to the same extent such service was recognized as of
the Closing Date under the comparable Parent Plan.
The Seller shall pay and be responsible for all "stay on bonuses"
and all severance benefits payable under existing arrangements to executive
officers of the Company following a change of control which are payable to
the employees by reason of any change of control resulting from the sale of
the Shares to the Purchaser.
7.3 Qualified Defined Benefit Plans. Effective as of the Closing,
the Seller shall cause the accrued benefits of the employees of the Company and
the Subsidiaries under the Pension Plan of Bankers Trust New York Corporation
and Affiliates to become fully vested.
7.4 Qualified Defined Contribution Plans. Effective as of the
Closing, the Seller shall cause the account balances of the employees of the
Company and the Subsidiaries under The Partner Share Plan of Bankers Trust New
York Corporation and Affiliates to become fully vested.
7.5 No Employment Rights. Nothing in this Agreement shall confer
upon any employee right to, or guarantee of, continued employment.
7.6 Liabilities Under Parent Plans. Except for contributions and
other amounts payable by the Company or the Subsidiaries with respect to the
participation in a Parent Plan during any period ending prior to the Closing,
subject to the provisions of this Article 7, the Seller shall, from and after
the Closing Date, remain solely responsible for (i) providing the benefits
accrued by the employees and former employees of the Company or the
Subsidiaries under the Parent Plans to such employees and (ii) continuation of
medical coverage as required by Section 4980B of the Code to former employees
of the Company and its Subsidiaries who have experienced a "qualifying event"
(within the meaning of section 4980B of the Code) prior to the Closing Date
in accordance with the terms of the Parent Plans, as the same may be amended
from time to time.
7.7 Severance Costs. From and after the Closing, the Purchaser,
the Company and the Subsidiaries shall, jointly and severally, assume and
become solely responsible for any and all liabilities, obligations and
commitments arising in connection with or as a result of any claims of any
employee or former employee of the Company or any of the Subsidiaries for
severance or termination compensation or benefits which are or are alleged to
be payable due to the actual or constructive termination of any such
employee's or former employee's termination of employment with the Company or
any Subsidiary, including without limitation, all such liabilities,
obligations and commitments relating to claims alleging any constructive
termination arising in connection with or as a result of the consummation of
the transactions contemplated by this Agreement, other than any such
liabilities, obligations and commitments to Mr. Harry Hirsch.
8. Indemnification.
8.1 Survival of Representations and Warranties. Except to the
extent set forth below, all representations and warranties shall survive the
Closing Date, provided that any claim for indemnification under this Section
8 with respect to the representations and warranties contained in Section 2
(except those contained in Section 2.10 which shall survive until the 30th
day following the expiration of the applicable statutes of limitations
(taking into account any waiver or extension thereof) with respect to the
relevant Tax liabilities) and 3 of this Agreement must be brought prior to
the last day of the eighteenth month following the month in which the Closing
Date occurs in accordance with Section 8.2.3.
8.2 Indemnification.
8.2.1 By the Seller. From and after the Closing, the Seller agrees
to indemnify the Purchaser and hold the Purchaser harmless from and against
any loss, liability or damage, including reasonable attorneys' fees and other
costs and expenses (collectively, "Damages"), incurred or sustained by the
Purchaser, the Company or the Subsidiaries as a result of the nonfulfillment
of any agreement or, subject to Section 8.1, the breach of any representation
or warranty on the part of the Seller under this Agreement (it being understood
that solely for purposes of this Section 8, including, without limitation, the
calculation of Damages pursuant to this Section 8.2.1, and notwithstanding
anything to the contrary in this Agreement, such representation and warranty
shall be read as if it were not qualified by any materiality standard,
including, without limitation, qualifications indicating accuracy "in all
material respects" or accuracy "except to the extent the inaccuracy would not
reasonably be expected to have a material adverse effect" or words to similar
effect), provided that there shall not be any duplicative payments or
indemnities by the Seller.
The Purchaser's rights to indemnification under this Section 8
shall be limited as follows:
(a) The amount of any Damages incurred by the Purchaser shall be
reduced by the net amount the Purchaser, the Company or any of the
Subsidiaries recovers (after deducting all attorneys' fees, expenses and
other costs of recovery) from any insurer or other party liable for such
Damages, and the Purchaser shall use reasonable efforts to effect any such
recovery.
(b) The Purchaser shall not be entitled to indemnification unless
the aggregate amount of such Damages (reduced as provided in paragraph
(a) and (b) above) exceeds $1,400,000, and then only to the extent of the
sum of $600,000 and such excess.
(c) The aggregate amount of Damages payable to the Purchaser under
this Section 8.2.1 shall not exceed 50% of the Purchase Price.
8.2.2 By the Purchaser. From and after the Closing, the Purchaser
agrees to, and agrees to cause the Company and the Subsidiaries to, indemnify
the Seller and hold the Seller harmless from and against any Damages incurred
or sustained by the Seller as a result of the nonfulfillment of any agreement
or, subject to Section 8.1, the breach of any representation or warranty on
the part of the Purchaser under this Agreement, provided that there shall not
be any duplicative payments or indemnities by the Purchaser.
The Seller's rights to indemnification under this Section 8 shall
be limited by the amount of any Damages incurred by the Seller shall be
reduced by the net amount the Seller recovers (after deducting all attorneys'
fees, expenses and other costs of recovery) from any insurer or other party
liable for such loss, liability or damage, and the Seller shall use reason
able efforts to effect any such recovery.
8.2.3 Indemnification Procedures. A party entitled to
indemnification hereunder shall herein be referred to as an "Indemnitee." A
party obligated to indemnify an Indemnitee hereunder shall herein be referred
to as an "Indemnitor." Promptly after an Indemnitee either (a) receiving
notice of any claim or the commencement of any action by any third party which
such Indemnitee reasonably believes may give rise to a claim for
indemnification from an Indemnitor hereunder or (b) sustaining any Damages not
involving a third-party claim or action which such Indemnitee reasonably
believes may give rise to a claim for indemnification from an Indemnitor
hereunder, such Indemnitee shall, if a claim in respect thereof is to be made
against an Indemnitor under Section 8, notify such Indemnitor in writing in
reasonable detail of such claim, action or Damages, as the case may be. Upon
receipt of such notice, the Indemnitor shall be entitled to participate in
such claim or action, to assume the defense thereof with counsel reasonably
satisfactory to the Indemnitee, and to settle or compromise such claim or
action, provided that if the Indemnitee has elected to be represented by
separate counsel pursuant to the proviso to the following sentence, such
settlement or compromise shall be effected only with the consent of the
Indemnitee, which consent shall not be unreasonably withheld. After notice
to the Indemnitee of the Indemnitor's election to assume the defense of such
claim or action, the Indemnitor shall not be liable to the Indemnitee under
Section 8 for any legal or other expenses subsequently incurred by the
Indemnitee in connection with the defense thereof other than reasonable costs
of investigation, provided that the Indemnitee shall have the right to employ
counsel to represent it if either (x) such claim or action involves remedies
other than monetary damages and such remedies, in the Indemnitee's reasonable
judgment, could have a material adverse effect on such Indemnitee or (y) the
Indemnitee may have available to it one or more defenses or counterclaims
which are inconsistent with one or more of those claims alleged by the
Indemnitor, and in any such event the fees and expenses of such separate
counsel shall be paid by the Indemnitor. If the Indemnitor does not elect to
assume the defense of such claim or action, the Indemnitee shall act
reasonably and in accordance with its good faith business judgment with
respect thereto, and shall not settle or compromise any such claim or action
without the consent of the Indemnitor, which consent shall not be unreasonably
withheld. The parties hereto agree to render to each other such assistance
as may reasonably be requested in order to insure the proper and adequate
defense of any such claim or action.
8.2.4 Exchange Agreement. The Seller shall have no responsibility
for breaches by Mutual Benefit or MBL Variable, Inc. or their respective
successors of their representations, warranties, covenants or agreements to
or with the Company or either Subsidiary contained in the Exchange Agreement.
9. General Provisions.
9.1 Modification; Waiver. This Agreement may be modified only by
a written instrument executed by the parties hereto. Any of the terms and
conditions of this Agreement may be waived in writing at any time on or prior
to the Closing Date by the party entitled to the benefits thereof.
9.2 Entire Agreement. This Agreement, including the Schedules
hereto (which are hereby incorporated by reference and made a part hereof) is
the entire agreement of the parties with respect to the subject matter hereof
and supersedes all other prior agreements, understandings, statements,
representations and warranties, oral or written, express or implied, between
the parties hereto and their respective affiliates, representatives and agents
in respect of the subject matter hereof (including, without limitation, the
Confidential Information Memorandum, dated February 1, 1996, prepared by BT
Securities Corp., with respect to the Company and any supplements thereto).
All references in this Agreement to Schedules are references to the Schedules
attached to the letter delivered by the Seller to the Purchaser on the date
hereof.
9.3 Exclusivity of Representations and Warranties and
Indemnification Provision; Relationship Between the Parties. It is the
explicit intent and understanding of each of the parties hereto that neither
party nor any of its affiliates, representatives or agents is making any
representation or warranty whatsoever, oral or written, express or implied,
other than those set forth in Sections 2 and 3 and neither party is relying
on any statement, representation or warranty, oral or written, express or
implied, made by the other party or such other party's affiliates,
representatives or agents, except for the representations and warranties set
forth in such sections. EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS
AGREEMENT, THE PARTIES EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY OR
REPRESENTATION AS TO CONDITION, MERCHANTABILITY OR SUITABILITY AS TO ANY OF
THE ASSETS OF THE BUSINESS AND, EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN
THIS AGREEMENT, IT IS UNDERSTOOD THAT THE PURCHASER TAKES THE ASSETS OF THE
BUSINESS "AS IS" AND "WHERE IS". The indemnity provided for in Section 8
shall be the sole and exclusive remedy of each party after the Closing for
any inaccuracy of any representation or warranty of the other party or any
failure or breach of any covenant, obligation, condition or agreement to be
performed or fulfilled by the other party. In furtherance of the foregoing,
and except as explicitly provided for in this Agreement, the parties hereto
hereby waive to the fullest extent permitted under applicable law any and all
rights, claims, and causes of action either of them may have against the other
party hereto relating to such breach. The parties agree that this is an arm's
length transaction in which the parties' undertakings and obligations are
limited to the performance of their obligations under this Agreement. The
Purchaser acknowledges that it is a sophisticated investor, that it has
undertaken a full investigation of the Company and the Subsidiaries and that
it has only a contractual relationship with the Seller, based solely on the
terms of this Agreement, and that there is no special relationship of trust
or reliance between the Purchaser and the Seller.
9.4 Termination. This Agreement may be terminated:
(a) at any time prior to the Closing Date (i) by mutual consent
of the Purchaser and the Seller, (ii) by the Seller upon notice to the
Purchaser if any of the conditions set forth in Sections 4.1 and 4.3
shall have become incapable of fulfillment and shall not have been waived
in writing by the Seller or (iii) by the Purchaser upon notice to the
Seller if any of the conditions set forth in Section 4.1 and 4.2 shall
have become incapable of fulfillment and shall not have been waived in
writing by the Purchaser;
(b) by the Purchaser or the Seller, if the Closing shall not have
taken place on or before December 31, 1996 or such later date as the
parties may have agreed to in writing, provided that the failure of the
Closing to occur shall not be due to such party's failure to perform or
comply with any of the covenants or conditions hereof to be performed or
complied with by such party prior to or at the Closing or such later date
as the parties may have agreed to in writing and provided further that
the Purchaser may elect to extend such termination date until June 30,
1997, if at December 31, 1996 the Closing has failed to occur solely by
reason of the failure of the Insurance Commissioner of the State of
Delaware to have acted upon the Purchaser's application to obtain the
approval referred to in Section 3.2(b)(ii), it being understood that if
the Purchaser has failed to pursue such approval diligently and in good
faith, or if such Commissioner has affirmatively acted to deny the
Purchaser's application, the Purchaser shall not be entitled to elect
such an extension hereunder; or
(c) if the parties have elected to execute this Agreement prior
to the delivery of any of the audited financial statements described in
Section 2.6 hereof, by the Purchaser, within a period of five (5)
business days after being provided such audited financial statements, if
such audited statements contain differences from the drafts of such
financial statements provided to the Purchaser as of the date hereof
which are attached hereto as Exhibit 2 which would reasonably be expected
to have a material adverse effect on the business, financial condition,
results of operations or prospects of the Company and the Subsidiaries,
taken as a whole. The Seller represents and warrants that to its
knowledge there is no reason for such audited statements to contain such
differences. If this Agreement is not so terminated, Seller shall be
deemed to have complied with the financial statement delivery requirements
of Section 2.6.
In the event of such termination, no party shall have any further
liability hereunder, except (i) with respect to any willful breach of this
Agreement prior to such termination and (ii) this Section 9.4 and Sections
5.10 and 9.5 shall survive such termination and shall remain in full force
and effect.
9.5 Expenses. Except as expressly provided herein, whether or not
the transactions contemplated herein shall be consummated, each party shall
pay its own expenses incident to the preparation and performance of this
Agreement and the transactions contemplated hereby. It is further agreed that
the Purchase shall bear all expenses related to obtaining the approvals set
forth in Section 2.5(b)(iv), which are reasonably and necessarily incurred
and approved in advance by the Purchaser.
9.6 Further Actions. Each party shall execute and deliver such
certificates and other documents and take such other actions as may
reasonably be requested by the other party in order to consummate or
implement the transactions contemplated hereby.
9.7 Post-Closing Access. In connection with any matter relating
to any period prior to, or any period ending on, the Closing, the Purchaser
shall, upon the request and at the expense of the Seller, permit the Seller
and its representatives full access at all reasonable times to the books and
records of the Company and the Subsidiaries which shall have been transferred
to the Purchaser, and the Purchaser shall execute (and shall cause the Company
and the Subsidiaries to execute) such documents as the Seller may reasonably
request to enable the Seller to file any regulatory reports or financial
statements or prepare Tax Returns relating to the Company or any of the
Subsidiaries. The Purchaser shall not dispose of such books and records
during the seven-year period beginning with the Closing Date without the
Seller's consent, which shall not be unreasonably withheld. Following the
expiration of such seven-year period, the Purchaser may dispose of such books
and records at any time upon giving 60 days' prior written notice to the
Seller, unless the Seller agrees to take possession of such books and records
within 60 days at no expense to the Purchaser.
9.8 Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given or made as follows: (a) if sent by registered or certified mail
in the United States return receipt requested, upon receipt; (b) if sent by
reputable overnight air courier (such as DHL or Federal Express), two business
days after mailing; (c) if sent by facsimile transmission, with a copy mailed
on the same day in the manner provided in (a) or (b) above, when transmitted
and receipt is confirmed by telephone; or (d) if otherwise actually personally
delivered, when delivered and shall be delivered as follows:
if to the Seller:
Whitewood Properties, Inc.
One Bankers Trust Plaza
130 Liberty Street
New York, NY 10006
Fax Number: (212)250-1530
Attention: John R. Zacamy
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Fax Number: (212) 909-6836
Attention: Thomas M. Kelly
if to the Purchaser:
Equitable of Iowa Companies
604 Locust Street
P.O. Box 1635
Des Moines, Iowa 50306-1635
Fax Number: (515) 245-6973
Attention : Fred S. Hubbell
with a copy to:
Nyemaster, Goode, McLaughlin, Voigts, West,
Hansell & O'Brien, P.C.
1900 Hub Tower
Des Moines, Iowa 50309
Fax Number: (515) 283-8022
Attention: G.R. Neumann
or to such other address or to such other person as either party hereto shall
have last designated by notice to the other party.
9.9 Assignment. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns, but shall not be assignable, by operation of law or
otherwise, by either party hereto without the prior written consent of the
other party and any purported assignment or other transfer without such
consent shall be void and unenforceable, provided that the Purchaser may
assign this Agreement to an Affiliate without the consent of the Seller so
long as the Purchaser remains liable and responsible for the performance of
all agreements its is obligated to perform under this Agreement and the
Purchaser enters into a guaranty of such performance in form reasonably
satisfactory to the Seller.
9.10 No Third Party Beneficiaries. Except as otherwise provided
herein, nothing in this Agreement shall confer any rights upon any person or
entity which is not a party or a successor or permitted assignee of a party
to this Agreement.
9.11 Counterparts. This Agreement may be executed in counterparts,
both of which shall constitute one and the same instrument.
9.12 Interpretation. The section headings in this Agreement are
for convenience of reference only and shall not be deemed to alter or affect
the meaning or interpretation of any provision hereof. Any references to
Seller's knowledge or the knowledge of the Seller shall mean the actual
knowledge of Terry L. Kendall, Barnett Chernow, Mitchell Katcher, Myles
Tashman, and Richard Marin. The Seller hereby acknowledges that such named
persons have made inquiry, regarding the representations set forth in Section
2.10, of current employees of the Company and the Subsidiaries responsible for
Tax matters and, regarding the representations set forth in Section 2.14, of
current employees of the Company and the Subsidiaries responsible for
intellectual property matters. The Purchaser hereby acknowledges its
understanding that none of the named persons, and no other employee or agent
of the Seller, the Company, the Subsidiaries or their Affiliates, has made
any inquiry of Mutual Benefit or any other prior owner of the Company or the
Subsidiaries, or undertaken any other special factual investigation beyond
the records of the Company or the Subsidiaries, with respect to Tax or other
matters.
9.13 Governing Law. This Agreement shall be construed, performed
and enforced in accordance with the laws of the State of New York.
9.14 Consent to Jurisdiction, etc. (a) Each of the parties hereto
hereby irrevocably and unconditionally submits, for itself and its property,
to the exclusive jurisdiction of any New York State court or Federal court of
the United States of America sitting in New York City, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby or for recognition or
enforcement of any judgment relating thereto, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of
any such action or proceeding may be heard and determined in such New York
State court or, to the extent permitted by law, in such Federal court. Each
of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
(b) Each of the parties hereto hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively
do so, any objection which it may now or hereafter have to the laying of
venue of any suit, action or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby in any New York State or
Federal court. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service
of process in the manner provided for notices in Section 9.8. Nothing in
this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
9.15 Waiver of Punitive and Other Damages and Jury Trial. (a) THE
PARTIES TO THIS AGREEMENT EXPRESSLY WAIVE AND FOREGO ANY RIGHT TO RECOVER
PUNITIVE, EXEMPLARY, OR SIMILAR DAMAGES (EXCEPT THOSE ASSESSED IN UNDERLYING
CLAIMS FOR INDEMNITY UNDER SECTION 8) IN ANY ARBITRATION, LAWSUIT, LITIGATION
OR PROCEEDING ARISING OUT OF OR RESULTING FROM ANY CONTROVERSY OR CLAIM
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH
MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
(c) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE EITHER OF THE FOREGOING WAIVERS, (ii) IT
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (iii) IT
MAKES SUCH WAIVERS VOLUNTARILY, AND (iv) IT HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
IN THIS SECTION 9.15.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first above written.
WHITEWOOD PROPERTIES CORP.
By /s/ Richard A. Marin
-----------------------------
Name: Richard A. Marin
Title: Chairman of the Board
EQUITABLE OF IOWA COMPANIES
By /s/ Fred S. Hubbell
------------------------------
Name: Fred S. Hubbell
Title: President and CEO
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-27838) pertaining to the Equitable of Iowa Companies (1982)
Stock Incentive Plan; in the Registration Statement (Form S-8 No. 33-57492)
pertaining to the Equitable of Iowa Companies Restated and Amended 1992 Stock
Incentive Plan; in the Registration Statement (Form S-8 No. 33-57484)
pertaining to the Equitable of Iowa Companies Deferred Profit Sharing and
Retirement Savings Plan and Trust; in the Registration Statement (Form S-8 No.
33-51091) pertaining to the Equitable of Iowa Companies Employee Stock
Purchase Plan; in the Registration Statement (Form S-8 No. 333-02861)
pertaining to the Equitable of Iowa Companies 1996 Non-Employee Directors'
Stock Option Plan; in the Registration Statement (Form S-3 No. 33-55045)
pertaining to the Equitable of Iowa Companies Dividend Reinvestment and Stock
Purchase Plan; in the Registration Statement (Form S-3 No. 33-57343)
pertaining to the Equitable of Iowa Companies registration of debt securities
and the related Prospectus; and in the Registration Statement (Form S-3 No.
333-1909) pertaining to the Equitable of Iowa Companies and Equitable of Iowa
Companies Capital Trust registration of debt securities, preferred stock,
common stock and warrants and the related Prospectus, of our report dated
February 12, 1996 (except for Note 10, as to which the date is May 3, 1996),
with respect to the consolidated financial statements of BT Variable, Inc.
and Subsidiaries included in this Current Report on Form 8-K dated August 28,
1996 of Equitable of Iowa Companies.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
August 26, 1996
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEETS AND STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 49,629
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 29
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 71,742
<CASH> (189)
<RECOVER-REINSURE> 2,062
<DEFERRED-ACQUISITION> 68,183
<TOTAL-ASSETS> 1,205,957
<POLICY-LOSSES> 33,673
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 51,000
0
0
<COMMON> 0
<OTHER-SE> 52,578
<TOTAL-LIABILITY-AND-EQUITY> 1,205,957
18,405
<INVESTMENT-INCOME> 3,028
<INVESTMENT-GAINS> 297
<OTHER-INCOME> 9,429
<BENEFITS> 3,146
<UNDERWRITING-AMORTIZATION> 2,736
<UNDERWRITING-OTHER> 15,839
<INCOME-PRETAX> 725
<INCOME-TAX> (1,109)
<INCOME-CONTINUING> 1,834
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,834
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 151,152
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 31
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 166,572
<CASH> (608)
<RECOVER-REINSURE> 1,987
<DEFERRED-ACQUISITION> 84,793
<TOTAL-ASSETS> 1,407,952
<POLICY-LOSSES> 152,482
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 51,000
0
0
<COMMON> 0
<OTHER-SE> 52,806
<TOTAL-LIABILITY-AND-EQUITY> 1,407,952
9,570
<INVESTMENT-INCOME> 615
<INVESTMENT-GAINS> (418)
<OTHER-INCOME> 5,261
<BENEFITS> 757
<UNDERWRITING-AMORTIZATION> 1,301
<UNDERWRITING-OTHER> 7,372
<INCOME-PRETAX> 1,222
<INCOME-TAX> (547)
<INCOME-CONTINUING> 1,769
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,769
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
Consolidated Financial Statements
BT Variable, Inc. and Subsidiaries
Years ended December 31, 1995 and 1994
with Report of Independent Auditors
BT Variable, Inc. and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1995 and 1994
Contents
Report of Independent Auditors
Audited Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholder's Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors
The Board of Directors and Stockholder
BT Variable, Inc.
We have audited the accompanying consolidated balance sheets of BT Variable,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, changes in stockholder's equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of BT Variable,
Inc. and subsidiaries at December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 12, 1996,
except for Note 10, as to
which the date is May 3, 1996
BT Variable, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amount)
<TABLE>
<CAPTION>
December 31
1995 1994
_________________________
<S> <C> <C>
Assets
Investments:
Fixed maturities available for sale at market
value (amortized cost $48,671 and $-) $49,629
Fixed maturities held to maturity, at amortized
cost (market- $-and $2,659) -- $2,749
Short-term investments, at cost, which
approximates market 20,063 13,933
Equity securities, at market (cost-$27 and $17) 29 16
Policy loans 2,021 513
_________________________
Total investments 71,742 17,211
Cash (189) 6,875
Accrued investment income 786 92
Due from separate accounts 1,127 536
Deferred policy acquisition costs 68,183 60,958
Unamortized costs assigned to insurance contracts
in force 7,264 9,139
Funds held in escrow pursuant to an Exchange
Agreement 4,150 2,757
Due from reinsurers 2,062 1,713
Federal income taxes recoverable 714 458
Other assets 1,165 818
Separate account assets 1,048,953 950,292
_________________________
Total assets $1,205,957 $1,050,849
=========================
Liabilities and stockholder's equity
Liabilities:
Insurance and annuity reserves (including $1,641
and $17 of unamortized deferred sales load) $33,673 $1,051
Due to parent and separate accounts 573 660
Accrued expenses and other liabilities 3,092 2,747
Payable for investment purchases 7,938 --
Short-term debt 51,000 50,000
Unearned revenue 6,556 1,759
Deferred income taxes payable 1,155 983
Adjustable principal amount promissory note, 7.50%
due 1997 439 439
Separate account liabilities (including $41,566
and $48,924 of unamortized deferred sales load) 1,048,953 950,292
_________________________
Total liabilities 1,153,379 1,007,931
</TABLE>
See accompanying notes to consolidated financial statements.
BT Variable, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
(In thousands, except share amount)
<TABLE>
<CAPTION>
December 31
1995 1994
_________________________
<S> <C> <C>
Commitments and contingencies
Stockholder's equity:
Common stock, no par value, 100 shares authorized,
issued and outstanding
Additional paid-in capital $53,023 $45,834
Net unrealized appreciation (depreciation)
of securities 636 (1)
Retained earnings (deficit) (1,081) (2,915)
_________________________
Total stockholder's equity 52,578 42,918
_________________________
Total liabilities and stockholder's equity $1,205,957 $1,050,849
=========================
</TABLE>
See accompanying notes to consolidated financial statements.
BT Variable, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31
1995 1994
_________________________
<S> <C> <C>
Revenues
Variable life and annuity product fees
and policy charges $18,405 $17,536
Net investment income 3,028 670
Investment management and fund
accounting fees 9,429 8,550
Realized capital gains 297 65
_________________________
Total revenues 31,159 26,821
Expenses
Policy benefits 3,146 35
Commissions and overrides 7,983 16,741
Salaries, benefits and other
employee-related costs 7,662 7,619
Investment advisory fees relating to
the GCG Trust 5,671 4,650
Financing charges and interest 3,042 1,980
Other general, administrative, and
operating expenses 8,755 9,617
Deferral of policy acquisition costs (10,423) (23,421)
Amortization of deferred policy
acquisition costs 2,736 4,614
Amortization of costs assigned to
insurance contracts in force 1,862 2,630
_________________________
Total expenses 30,434 24,465
_________________________
Net income before income tax 725 2,356
Income tax benefit (expense):
Current 1,281 (33)
Deferred (172) (29)
_________________________
1,109 (62)
_________________________
Net income $1,834 $2,294
=========================
</TABLE>
See accompanying notes to consolidated financial statements.
BT Variable, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity
Years ended December 31, 1995 and 1994
(In thousands, except per share amount)
<TABLE>
<CAPTION>
Net
Unreal-
ized
Appre-
ciation
(Depre-
ciation) Total
Common Stock Additional of Retained Stock-
__________________ Paid-in Secur- Earnings holder's
Shares Par Value Capital ities (Deficit) Equity
__________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1,
1994 100 -- $36,834 $40 ($5,209) $31,665
Contributions of
capital 9,000 9,000
Net income 2,294 2,294
Change in unrealized
appreciation of
securities (41) (41)
__________________________________________________________
Balances at December
31, 1994 100 -- 45,834 (1) (2,915) 42,918
Contribution of
capital 7,189 7,189
Net income 1,834 1,834
Change in unrealized
appreciation of
securities 637 637
__________________________________________________________
Balances at December
31, 1995 100 $-- $53,023 $636 ($1,081) $52,578
==========================================================
</TABLE>
See accompanying notes to consolidated financial statements.
BT Variable, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31
1995 1994
_________________________
<S> <C> <C>
Operating activities
Net income $1,834 $2,294
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Amortization of deferred policy
acquisition costs 2,736 4,614
Amortization of costs assigned to
insurance contracts in force 1,862 2,630
Change in unearned revenue 4,949 1,594
Change in accrued investment income (694) (24)
(Increase) decrease in income tax
recoverable (256) 1,011
Increase in deferred income tax payable 172 29
Change in due to/from parent and
separate accounts (678) (3,558)
Changes in other assets, accrued
expenses, and other liabilities (351) (4,130)
Policy acquisition costs deferred (10,423) (23,421)
Change in insurance and annuity reserves 4,664 (1,370)
Amortization of premium (discount) on
fixed maturity investments (142) 13
_________________________
Net cash provided by (used in) operating
activities 3,673 (20,318)
Investing activities
Purchases of fixed maturities (61,723) (857)
Sales of fixed maturities 23,729 319
Purchases of common stock (10) (7)
Sales of common stock -- 250
Increase in policy loans, net (1,508) (369)
Funds placed in escrow pursuant to an
Exchange Agreement (1,242) (1,382)
_________________________
Net cash used in investing activities (40,754) (2,046)
Financing activities
Issuances of short-term debt 1,000 10,000
Investment contract deposits 29,501 --
</TABLE>
See accompanying notes to consolidated financial statements.
BT Variable, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31
1995 1994
_________________________
<S> <C> <C>
Financing activities (continued)
Investment contract withdrawals ($1,543)
Contribution of capital by parent 7,189 $9,000
_________________________
Net cash provided by financing
activities 36,147 19,000
_________________________
Net decrease in cash and short-term
investments (934) (3,364)
Cash and short-term investments at
beginning of year 20,808 24,172
_________________________
Cash and short-term investments at
end of year $19,874 $20,808
=========================
</TABLE>
See accompanying notes to consolidated financial statements.
BT Variable, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1995
1. Organization
BT Variable, Inc., which commenced operations on September 30, 1992, is an
indirect wholly-owned subsidiary of Bankers Trust Company ("Bankers Trust"),
which is a wholly-owned subsidiary of Bankers Trust New York Corporation. BT
Variable, Inc. and its wholly-owned subsidiaries (collectively, "BTV"), Golden
American Life Insurance Company ("Golden American") and Directed Services, Inc.
("DSI"), a broker-dealer, develop, issue and market variable insurance
products. Previously, Golden American and DSI were owned by Mutual Benefit
Life Insurance Company in Rehabilitation ("Mutual Benefit").
In a transaction that closed on September 30, 1992, Bankers Trust acquired
from Mutual Benefit, in accordance with the terms of an Exchange Agreement,
all of the issued and outstanding capital stock of Golden American and DSI
and certain related assets for consideration with an aggregate value of $13.2
million and contributed them to BT Variable, Inc. ("BT Variable"). The
portions of the aggregate consideration exchanged by Bankers Trust, allocable
to Golden American and DSI, were valued at approximately $11.6 million and
$1.6 million, respectively, subject to subsequent adjustment pursuant to the
Exchange Agreement. This allocation was based primarily on the estimated value
of the contractual rights of Golden American and DSI to receive future profits
from insurance contracts in force but also included the acquisition of net
tangible assets of $.4 million and $.3 million for Golden American and DSI,
respectively. The transaction involved settlement of pre-existing claims of
Bankers Trust against Mutual Benefit. The ultimate value of these claims has
not yet been determined by the Superior Court of New Jersey and is
contingently supported by a $5 million note payable from Golden American and
a $6 million letter of credit from Bankers Trust. The Golden American note is
secured by a pledge of Golden American's right to receive certain deferred
sales loads. Bankers Trust has estimated that the contingent liability due
from Golden American amounted to $.4 million at December 31, 1995 and 1994.
Golden American deposited with an escrow agent $1.2 million and $1.3 million
in 1995 and 1994, respectively, pursuant to certain provisions of the
Exchange Agreement.
In addition, concurrent with the closing, Bankers Trust entered into an
agreement with Golden American to cause Golden American, commencing with the
closing and for so long as Bankers Trust continues to own, directly or
indirectly, all the issued and outstanding capital stock of Golden American,
to have at all times statutory capital and surplus of no less than the sum of
(i) $5 million and (ii) an amount equal to 1% of the statutory-basis separate
account liabilities of Golden American. During 1995 and 1994, BTV contributed
additional capital and paid-in surplus of $7.9 million and $8.8 million,
respectively, to Golden American.
2. Summary of Significant Accounting Policies
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
BT Variable, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Basis of Presentation
The consolidated financial statements are presented in accordance with
generally accepted accounting principles and include the collective
operations of BTV for the years ended December 31, 1995 and 1994. All
significant intercompany accounts and transactions are eliminated in
consolidation.
The acquisition of Golden American and DSI was accounted for as a purchase by
Bankers Trust and, accordingly, the acquired assets and liabilities were
recorded at their estimated fair values at the acquisition date.
Investments
Fixed maturities are considered available for sale and are carried at market
in 1995. Previously fixed maturities were treated as held until maturity and
carried at cost. Short-term investments are carried at cost, which
approximates market. Equity securities, principally investments in mutual
funds, are carried at market based on quoted market prices. Net unrealized
appreciation of fixed maturities and equity securities are included as
components of stockholder's equity. The cost of investments sold is
determined using the specific identification method.
Variable Life and Annuity Products
Variable life and annuity products include individual and group flexible
premium variable life insurance policies and annuity products. Golden
American provides for variable accumulation and benefits under the policies
and contracts by crediting life and annuity considerations in accordance with
contractholder direction to one or more divisions within various separate
accounts or fixed interest divisions. Golden American's fixed interest
divisions include the Guaranteed Interest Division, the Fixed Interest
Division, and the Market Value Adjusted Fixed Interest separate account.
Separate Accounts
Separate accounts assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered principally for
variable life policies and annuity contracts and for which the policyholders
and contractholders rather than Golden American bear the investment risk. At
the direction of the policyowners and contractholders, the Separate accounts
invest the premium and annuity considerations from the sale of variable life
and annuity products either in shares of specified mutual funds or directly
in other investments. The assets and liabilities of Golden American's
separate accounts are clearly identified and segregated from other assets and
liabilities of Golden American. The portion of the separate account assets
applicable to variable life policies and variable annuity contracts cannot be
charged with liabilities arising out of any other business Golden American
may conduct.
Separate account assets carried at fair value of the underlying investments
generally represent policyowner and contractholder investment values
maintained in the accounts. Separate account liabilities represent account
BT Variable, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
balances for the variable life policies and annuity contracts invested in the
separate accounts. Net investment income and realized and unrealized capital
gains and losses related to separate account assets are not reflected in the
accompanying statements of operations of BTV.
Revenue Recognition
Revenues from variable life and annuity products consist of charges for
mortality and expense risk, cost of insurance, contract administration and
surrender charges, as applicable to each contract. In addition, most life and
annuity contracts provide for a distribution fee collected for a limited
number of years after each premium deposit, as defined in each applicable
contract. For life contracts, the distribution fee is based on the premium
collected, the face amount issued, and the underwriting characteristics of
each insured. For annuity contracts, the distribution fee is based on the
amount of premiums collected and allocated to the variable separate accounts.
Revenue recognition of collected distribution fees is amortized over the life
of the contract in proportion to its expected gross profits. The balance of
unrecognized revenue related to the distribution fees is reported as unearned
revenue.
Costs Assigned to Insurance Contracts in Force
The costs assigned to insurance contracts in force represent the value of the
contractual rights of BTV subsidiaries to receive future profits from the
life insurance and annuity policies existing at the acquisition date. Such
value is the actuarially-determined present value of projected future profits
from the acquired contracts discounted at an interest rate of 15%. Costs
assigned to insurance contracts in force are being amortized over the
estimated life of the applicable insurance contracts in relation to estimated
future gross profits.
The following is a reconciliation of the costs assigned to insurance contracts
in force for the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
Year ended December 31
1995 1994
________________________
( In Millions)
<S> <C> <C>
Beginning balance $9.139 $11.769
Interest accrued 0.657 0.836
Amortization (2.519) (3.466)
Adjustment for Statement of Financial
Accounting Standard No. 115 (0.013) --
__________ ___________
Ending balance $7.264 $9.139
========== ===========
</TABLE>
BT Variable, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
The following table presents the expected amortization of the costs assigned
to insurance contracts in force over the next five years. The amortization
may be adjusted based on periodic evaluation of the expected gross profits.
<TABLE>
<CAPTION>
(In Millions)
<S> <C>
1996 $1.708
1997 1.438
1998 1.101
1999 0.671
2000 0.516
</TABLE>
Deferred Policy Acquisition Costs
Deferred policy acquisition costs consist primarily of commissions, certain
underwriting expenses and the costs of issuing policies that vary with and
are directly related to the production of new and renewal business.
Acquisition costs for variable life and annuity products are being amortized
over the lives of the policies in relation to estimated future gross profits.
The future gross profit estimates are subject to periodic evaluation with
necessary revisions applied against amortization to date.
Insurance and Annuity Reserves
Insurance and annuity reserves represent variable life and annuity account
balances invested in the fixed interest divisions. Interest credited rates
for the fixed interest divisions ranged from 4% to 7% during 1995 and 1994.
Policy Benefits
Policy benefits that are charged to expense include benefits incurred in the
period in excess of the related policy account balances and interest credited
to policy account balances invested in the fixed interest divisions.
Reinsurance
Included in the accompanying financial statements are net considerations to
reinsurers of $2.8 million and $2.4 million and net policy benefit recoveries
of $3.5 million and $1.9 million in 1995 and 1994, respectively. Effective
September 30, 1992, Golden American terminated all reinsurance agreements
with Mutual Benefit. Subsequently, Golden American entered into agreements
covering most of the mortality risks under both life policies and annuity
contracts with unaffiliated reinsurers. Golden American remains liable to the
extent that its reinsurers do not meet their obligations under the
reinsurance agreements. Reinsurance in-force for life mortality risks were
$24.7 million and $23 million at December 31, 1995 and 1994 and for annuity
mortality risks were $83.5 million and $149.6 million at December 31, 1995
and 1994, respectively.
BT Variable, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Effective June 1, 1994, Golden American entered into a reinsurance agreement
on a modified coinsurance basis with an unaffiliated reinsurer. The
accompanying consolidated statements of operations are presented net of the
effects of the treaty which reduced net income by $.1 million in both 1995
and 1994.
Income Taxes
The results of operations of BTV are included in the Bankers Trust consolidated
federal income tax return, except for Golden American, which files its own
federal income tax return. The federal income taxes in BTV's financial
statements are based on the effect of including its separate operations in
the consolidated tax returns after making appropriate adjustments arising out
of income tax regulations. The provisions for federal income taxes of Golden
American are determined on a separate company basis, as a life insurance
company pursuant to applicable provisions of the Internal Revenue Code.
BTV recognizes the current and deferred tax consequences of all transactions
that have been recognized in the financial statements using the provisions of
the enacted tax laws. Deferred tax assets and liabilities are recognized for
the estimated future tax effects of temporary differences. The amount of
deferred tax assets is reduced, if necessary, to the amount that, based on
available evidence, will more likely than not be realized.
The following is an analysis of the difference between the U.S. Federal
statutory income tax rate and the effective tax rate on income (loss) before
income taxes:
<TABLE>
<CAPTION>
1995 1994
_____________________
<S> <C> <C>
Federal statutory rate 35% 35%
========= =========
(In Millions)
Taxes at statutory rate $0.253 $0.825
Dividends received deduction (0.350) (0.368)
Valuation allowance (0.844) (0.200)
State taxes (0.190) 0.015
Other, net 0.022 (0.210)
_________ _________
Taxes based on income (loss) ($1.109) $0.062
========= =========
</TABLE>
BT Variable, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Cash Equivalents
BTV considers all short-term investments (including commercial paper, money
markets, and certificates of deposit) with a maturity of three months or
less, when purchased, to be cash equivalents.
Presentation
Certain prior-year balances have been reclassified to conform to the current-
year financial statement presentation.
3. Fair Value of Financial Instruments
BTV has evaluated its financial instruments, principally short-term
investments, policy loans, the adjustable principal amount promissory note,
and insurance and annuity reserves and determined that carrying amounts
reported in the balance sheets approximate fair value.
4. Investments
The major categories of investment income for 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1995 1994
_________________________
(in millions)
<S> <C> <C>
Fixed maturities $1.610 $0.142
Short-term investments 0.899 0.226
Equity securities -- 0.001
Policy loans 0.056 0.011
Cash and cash equivalents 0.358 0.209
Funds held in escrow 0.166 0.083
_________________________
Gross investment income 3.089 0.672
Investment expenses (0.061) (0.002)
_________________________
Net investment income $3.028 $0.670
=========================
</TABLE>
BT Variable, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Investments (continued)
A summary of investments in debt securities, including fixed maturities and
short-term investments, at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
Gross
Unrealized Estimated
Amortized Gains Market
Cost (Losses) Value
_______________________________________
(in millions)
<S> <C> <C> <C>
At December 31, 1995:
U.S. Treasury securities $17.832 $0.092 $17.924
U.S. Government-backed
securities 2.037 0.086 2.123
Corporate securities 44.416 0.780 45.196
_______________________________________
$64.285 $0.958 $65.243
=======================================
At December 31, 1994:
U.S. Treasury securities $16.682 ($0.090) $16.592
=======================================
</TABLE>
<TABLE>
<CAPTION>
1995 1994
________________________________________________
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
________________________________________________
(in millions)
<S> <C> <C> <C> <C>
Due in one year or less $17.398 $17.408 $14.634 $14.622
Due after one year through
five years 39.023 39.467 0.850 0.827
Due after five years through
ten years 6.818 7.201 1.198 1.143
Due after ten years through
twenty years 1.046 1.167 -- --
________________________________________________
$64.285 $65.243 $16.682 $16.592
================================================
</TABLE>
At December 31, 1995 and 1994, $2.711 million and $2.695 million,
respectively, in principal amount of fixed maturity investments were on
deposit with regulatory authorities pursuant to certain statutory
requirements.
BT Variable, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Stockholder's Equity
The payment of cash dividends by Golden American is subject to statutory
restrictions equal to the higher of 10% of surplus as regards policyholders
or 100% of the prior year's net gain, not to exceed unassigned surplus. The
maximum dividend payout which may be made without prior approval in 1996 is
$6.636 million. Golden American is required to maintain a minimum total
statutory-basis capital and surplus of not less than $5 million under the
provisions of the insurance laws of certain states in which it is presently
licensed to sell variable life and annuity products.
During 1992, the NAIC approved certain Risk-Based Capital ("RBC")
requirements for life/health insurance companies. Those requirements were
effective beginning in 1993 and require that the amount of capital maintained
by an insurance company is to be determined based on the various risk factors
related to it. At December 31, 1995 and 1994, Golden American met the RBC
requirements.
The statutory financial condition of Golden American as of December 31, 1995
and 1994 and net losses for the years ended December 31, 1995 and 1994 as
filed with regulatory authorities are summarized below:
<TABLE>
<CAPTION>
1995 1994
_______________________
(in millions)
<S> <C> <C>
Total capital and surplus $66.357 $66.293
=======================
Net loss $4.117 $11.260
=======================
</TABLE>
The payment of cash dividends by DSI is subject to minimum net capital
restrictions imposed by applicable securities regulations.
6. Related Party Transactions
BTV maintains cash and short-term investments on deposit at Bankers Trust.
DSI is the investment manager of the GCG Trust (the "Trust") mutual fund and
the separate accounts of Golden American which are registered under the
Investment Company Act of 1940 as open-ended management companies. The assets
of the separate accounts of Golden American are invested in a designated
series of the Trust.
DSI receives investment management and administrative fees from the Trust as
well as acting as the transfer agent and fund accountant for the Trust. For
the years ended December 31, 1995 and 1994, DSI earned $9.1 million and $8.2
million, respectively, in such fees from GCG Trust.
Rent is paid to another affiliated company of Bankers Trust.
BT Variable, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Income Taxes
At December 31, 1995, Golden American had net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $22.6 million.
Approximately $2.4 million of these NOL's, relating to operations prior to
ownership by Mutual Benefit, can be used to offset future taxable income of
only Golden American through the year 2005, subject to annual limitations.
Approximately $.8 million, $4.1 million, $10.1 million and $5.2 million are
available through the years 2007, 2008, 2009, and 2010, respectively.
The components of consolidated income tax benefit (expense) follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994
_________________________
(in millions)
<S> <C> <C>
Current:
Federal $0.942 ($0.024)
State and local 0.339 (0.009)
_________________________
Total 1.281 (0.033)
Deferred:
Federal (0.118) (0.024)
State and local (0.054) (0.005)
_________________________
Total (0.172) (0.029)
_________________________
Total $1.109 ($0.062)
=========================
</TABLE>
Deferred income tax (expense) benefit results from differences in timing of
revenue and expense recognition for income tax and financial reporting
purposes.
BT Variable, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Income Taxes (continued)
Significant components of deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
_________________________
(in millions)
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs ("DPAC") $23.560 $21.200
Unamortized cost assigned to insurance
contracts in force ("Unamortized Costs") 2.120 2.700
Deferred tax liabilities related to non-life
insurance operations 1.155 0.983
Other 0.598 --
_________________________
27.433 24.883
Deferred tax assets:
Net operating loss carryforwards 7.891 6.000
Insurance liabilities 15.520 15.200
Deferred policy acquisition costs proxy tax 3.666 3.700
Other 0.057 0.700
_________________________
27.134 25.600
Valuation allowance for deferred tax assets 0.856 1.700
_________________________
Net deferred tax liabilities $1.155 $0.983
=========================
</TABLE>
For the years ended December 31, 1995 and 1994, BTV received from Bankers
Trust $.4 million and $1.0 million in cash for the settlement of their tax
benefit.
8. Short-Term Debt
At December 31, 1994, BTV had a short-term loan outstanding with an
unaffiliated bank of $50 million at an interest rate equal to the daily
average rate of overnight Federal Funds plus .20%. Interest paid during 1994
was $1.98 million.
At December 31, 1995, BTV had two loans outstanding with Bankers Trust. One
loan of $25 million has a rate of 5.875% fixed through October 18, 1996. A
second loan of $26 million is at an interest rate equal to the daily average
rate of overnight Federal Funds. Interest paid during 1995 was $3 million.
9. Pension and Profit Sharing Plan and Other Employee Benefits
BTV's employees are covered under Bankers Trust's benefit plans. The
concontributory pension plan and the profit sharing plan of Bankers Trust are
also available to eligible employees of BTV. Total 1995 and 1994 expenses
relating to these benefit plans were $.2 million and $.2 million,
respectively.
BT Variable, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Subsequent Event
Equitable of Iowa Companies ("Equitable of Iowa") and Whitewood Properties
Corp., a wholly-owned subsidiary of Bankers Trust, have entered into a
definitive agreement on May 3, 1996 providing for the acquisition by
Equitable of Iowa of all interest in BTV and its subsidiaries, Golden
American Life and Directed Services, Inc. The acquisition is subject to the
approval of the appropriate regulators and is expected to be completed in
September 1996. Equitable of Iowa is the holding company for Equitable Life
Insurance Company of Iowa, USG Annuity & Life Company, Locust Street
Securities, Inc., and Equitable Investment Services, Inc.
BT VARIABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except per share amount)
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
___________ ___________
<S> <C> <C>
Assets
Investments:
Fixed maturities available for sale at market
value (amortized cost $153,111 and $48,671) $151,152 $49,629
Short-term investment, at cost, which
approximates market 12,288 20,063
Equity securities, at market (cost-$27 and $27) 31 29
Policy loans 3,101 2,021
___________ ___________
Total investments 166,572 71,742
Accrued investment income 2,620 786
Deferred policy acquisition costs 84,793 68,183
Unamortized costs assigned to insurance contracts
in force 6,492 7,264
Federal income taxes recoverable 735 714
Other assets 9,218 8,315
Separate account assets 1,137,522 1,048,953
___________ ___________
Total assets $1,407,952 $1,205,957
=========== ===========
Liabilities and stockholder's equity
Liabilities:
Insurance and annuity reserves (including $8,911
and $1,641 of unamortized deferred sales load) $152,482 $33,673
Unearned revenue 8,784 6,556
Payable for investment purchases -- 7,938
Short-term debt 51,000 51,000
Deferred income taxes payable 1,185 1,155
Other liabilities 4,173 4,104
Separate account liabilities (including $43,174
and $41,566 of unamortized deferred sales load) 1,137,522 1,048,953
___________ ___________
Total liabilities 1,355,146 1,153,379
</TABLE>
See accompanying notes to condensed consolidated financial statements.
BT VARIABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except per share amount)
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
___________ ___________
<S> <C> <C>
Commitments and contingencies
Stockholder's equity:
Common stock, no par value, 100 shares authorized,
issued and outstanding -- --
Additional paid-in capital $53,023 $53,023
Net unrealized appreciation (depreciation)
of securities (905) 636
Retained earnings (deficit) 688 (1,081)
___________ ___________
Total stockholder's equity 52,806 52,578
___________ ___________
Total liabilities and stockholder's equity $1,407,952 $1,205,957
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
BT VARIABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
For the six months ended June 30
1996 1995
_________________________
<S> <C> <C>
REVENUES
Variable life and annuity product fees
and policy charges $9,570 $9,094
Net investment income 615 809
Investment management and fund
accounting fees 5,261 4,507
Realized capital losses (418) (12)
___________ ___________
Total revenues 15,028 14,398
EXPENSES
Policy benefits 757 1,188
Commissions 13,853 3,376
General expenses and insurance taxes 9,075 8,153
Investment advisory fees relating to
GCG Trust 2,998 2,856
Financing charges and interest 1,378 1,528
Deferral of policy acquisition costs (16,340) (4,802)
Amortization of deferred policy
acquisition costs 1,301 1,365
Amortization of costs assigned to
insurance contracts in force 784 799
___________ ___________
Total expenses 13,806 14,463
___________ ___________
Net income (loss) before income tax 1,222 (65)
Income tax benefit (expense):
Current 577 522
Deferred (30) (26)
___________ ___________
547 496
___________ ___________
Net income $1,769 $431
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
BT VARIABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
For the six months ended June 30
1996 1995
_________________________
<S> <C> <C>
OPERATING ACTIVITIES
Net income $1,769 $431
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Amortization of deferred policy
acquisition costs 1,301 1,365
Amortization of costs assigned to
insurance contracts in force 784 799
Change in unearned revenue 2,017 2,373
Change in accrued investment income (1,834) (461)
Increase in income tax recoverable (21) --
Increase in deferred income tax payable 30 145
Changes in other assets, accrued
expenses, and other liabilities (1,136) (782)
Policy acquisition costs deferred (16,340) (4,802)
Change in insurance and annuity reserve 4,467 1,284
Amortization of premium (discount) on
fixed maturity investments 525 --
___________ ___________
Net cash provided by (used in) operating
activities (8,438) 352
INVESTING ACTIVITIES
Purchases of fixed maturities (168,354) (32,522)
Sales of fixed maturities 55,446 7,406
Increase in policy loans, net (1,080) (695)
Funds placed in escrow pursuant to an
Exchange Agreement (117) (76)
___________ ___________
Net cash used in investing activities (114,105) (25,887)
FINANCING ACTIVITIES
Issuances of short-term debt -- 1,000
Investment contract deposits 121,434 16,852
</TABLE>
See accompanying notes to condensed consolidated financial statements.
BT VARIABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
For the six months ended June 30
1996 1995
____________________________
<S> <C> <C>
FINANCING ACTIVITIES (continued)
Investment contract withdrawals ($1,994) ($538)
Net reallocations into/(from) investment
contracts (5,091) 10,374
Contribution of capital by parent -- 1,500
___________ ______________
Net cash provided by financing
activites 114,349 29,188
___________ ______________
Net (decrease)increase in cash and
short-term investments (8,194) 3,653
Cash and short-term investments at
beginning of period 19,874 20,808
___________ ______________
Cash and short-term investments at
end of period $11,680 $24,461
=========== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
BT Variable, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 1996
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the requirements of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management of BT Variable, Inc., all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 1996
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the financial
statements and footnotes thereto included in the BT Variable, Inc. and
Subsidiaries audited consolidated financial statements for the year ended
December 31, 1995 included in this Form 8-K filing.
2. Investments
A summary of investments in fixed maturities at June 30, 1996 is as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
June 30, 1996 Cost Gains Losses Value
________________________________________________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. government and
governmental agencies
and authorities:
Mortgage-backed securities $ 2,947 ($14) $ 2,933
Other 2,709 $ 24 (12) 2,721
Public utilities 34,958 7 (560) 34,405
Investment grade corporate 109,479 185 (1,620) 108,044
Asset backed securities 3,018 31 -- 3,049
_________ _________ _________ _________
TOTAL AVAILABLE FOR SALE $153,111 $247 ($2,206) $151,152
========= ========= ========= =========
</TABLE>
BT Variable, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 1996
<TABLE>
<CAPTION>
Estimated
Amortized Market
June 30, 1996 Cost Value
_________________________________________________________
(Dollars in thousands)
<S> <C> <C>
Due within one year $ 10,986 $ 10,944
Due after one year through
five years 111,064 109,546
Due after five years through
ten years 25,316 24,935
Due after ten years 2,798 2,794
_________ _________
150,164 148,219
Mortgage backed securities 2,947 2,933
_________ _________
$153,111 $151,152
========= =========
</TABLE>
3. Commitments and Contingencies
In a transaction that closed on September 30, 1992, Bankers Trust Company
("Bankers Trust") acquired from Mutual Benefit Life Insurance Company in
Rehabilitation ("Mutual Benefit"), in accordance with the terms of an Exchange
Agreement, all of the issued and outstanding capital stock of Golden American
Life Insurance Company ("Golden American") and Directed Services, Inc. ("DSI")
and certain related assets for consideration with an aggregate value of $13.2
million and contributed them to BT Variable, Inc. ("BT Variable"). The portions
of the aggregate consideration exchanged by Bankers Trust, allocable to Golden
American and DSI, were valued at approximately $11.6 million and $1.6 million,
respectively, subject to subsequent adjustment pursuant to the Exchange
Agreement. This allocation was based primarily on the estimated value of the
contractual rights of Golden American and DSI to receive future profits from
insurance contracts in force but also included the acquisition of net tangible
assets of $.4 million and $.3 million for Golden American and DSI,
respectively. The transaction involved settlement of pre-existing claims of
Bankers Trust against Mutual Benefit. The ultimate value of these claims has
not yet been determined by the Superior Court of New Jersey and is contingently
supported by a $5 million note payable from Golden American and a $6 million
letter of credit from Bankers Trust. The Golden American note is secured by a
pledge of Golden American's right to receive certain deferred sales loads.
Bankers Trust has estimated that the contingent liability due from Golden
American amounted to $.4 million at June 30, 1996 and December 31, 1995. Golden
American deposited with an escrow agent $.1 million for the six months ended
June 30, 1996 and 1995 pursuant to certain provisions of the Exchange Agreement.
At June 30, 1996 the balance of the escrow account was $4.267 million ($4.150
million at December 31, 1995).
4. Subsequent Event
On August 13,1996, Equitable of Iowa Companies ("Equitable") acquired all of the
outstanding capital stock of BT Variable from Whitewood Properties Corp.
("Whitewood"), a wholly-owned subsidiary of Bankers Trust, pursuant to the
BT Variable, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 1996
terms of a Stock Purchase Agreement dated as of May 3, 1996 between Equitable
and Whitewood (the "Purchase Agreement"). As noted above, BT Variable, in turn,
owns all the outstanding capital stock of Golden American and all of the
outstanding capital stock of DSI. In exchange for the outstanding capital
stock of BT Variable, Equitable paid the sum of $93 million in cash to Whitewood
in accordance with the terms of the Purchase Agreement. Equitable also paid the
sum of $51 million in cash to Bankers Trust to retire certain debt owed by
BT Variable to Bankers Trust pursuant to a revolving credit arrangement.
On August 13, 1996, Bankers Trust made a cash payment to Golden American in an
amount equal to the balance of the escrow account less the $.4 million
contingent liability discussed above. In exchange, Golden American irrevocably
assigned to Bankers Trust all of Golden American's rights to receive any amounts
to be disbursed from the escrow account in accordance with the terms of the
Exchange Agreement. Bankers Trust also irrevocably agreed to make all payments
becoming due under the Golden American note and to indemnify Golden American for
any liability arising from the note.
Pro Forma Condensed Consolidated Financial Statements (Unaudited)
Equitable of Iowa Companies and BT Variable, Inc.
The following pro forma condensed consolidated balance sheet as of June 30,
1996, and the pro forma condensed consolidated statements of income for the
year ended December 31, 1995 and the six months ended June 30, 1996 give
the estimated effect to: (1) the August 13, 1996 acquisition of the
outstanding shares of BT Variable, Inc. ("BTV") by Equitable of Iowa Companies
("EIC") pursuant to a Stock Purchase Agreement dated May 3, 1996 ("Stock
Purchase Agreement") and (2) the July 1996 issuance of $125,000,000 of
Company-obligated mandatorily-redeemable preferred securities of subsidiary,
Equitable of Iowa Companies Capital Trust ("Trust"), holding solely debt
securities of EIC ("Preferred Securities") to fund, in part, the pending
acquisition (the "Transactions"). The pro forma condensed consolidated
balance sheet assumes the Transactions had occurred as of June 30, 1996 and
the pro forma condensed consolidated statements of income assume the
Transactions had occurred as of January 1, 1995. The pro forma information
is based on the historical financial statements of EIC and BTV giving effect
to the proposed Transactions under the purchase method of accounting and the
assumptions and adjustments in the accompanying notes to the pro forma
condensed consolidated financial statements.
The pro forma statements have been prepared by EIC's management based upon the
financial statements of BTV. The pro forma statements may not be indicative
of the results that actually would have occurred if the Transactions had been
in effect on the dates indicated or which may be obtained in the future. The
pro forma financial statements should be read in conjunction with EIC's
audited financial statements and notes included in its 1995 Form 10-K and the
unaudited financial statements and notes included in its June 30, 1996 Form
10-Q (not included herein).
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET (UNAUDITED)
June 30, 1996
As Reported Pro Forma
----------------------- --------------------------
EIC BTV Adjustments Consolidated
----------------------- ---------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Investments:
Fixed maturities
available for sale,
at market $7,017,874 $151,152 -- $7,169,026
Mortgage loans on
real estate 1,537,827 -- -- 1,537,827
Other 295,103 15,420 (23,876)(C) 286,647
----------------------- ---------- ------------
TOTAL INVESTMENTS 8,850,804 166,572 (23,876) 8,993,500
Deferred policy acquisition
costs 729,008 84,793 (84,793)(B) 729,008
Present value of future
profits -- 6,492 93,652 (B) 100,144
Current income taxes
recoverable 6,768 735 -- 7,503
Goodwill and other
intangibles 4,040 -- 26,642 (C) 30,682
Other assets 261,230 11,838 (439)(B) 272,629
Separate account assets 269,229 1,137,522 -- 1,406,751
----------------------- ---------- ------------
TOTAL ASSETS $10,121,079 $1,407,952 $11,186 $11,540,217
======================= ========== ============
LIABILITIES
Policy liabilities, accruals
and other policyholders'
funds $8,679,116 $161,266 ($8,784)(B) $8,831,598
Deferred income taxes 11,946 1,185 (1,185)(B) 11,946
Debt 216,000 51,439 (51,439)(B) 216,000
Other liabilities 191,419 3,734 400 (B) 195,553
Separate account liabilities 269,229 1,137,522 -- 1,406,751
----------------------- ---------- ------------
TOTAL LIABILITIES 9,367,710 1,355,146 (61,008) 10,661,848
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET (UNAUDITED)
June 30, 1996
As Reported Pro Forma
----------------------- --------------------------
EIC BTV Adjustments Consolidated
----------------------- ---------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Company-obiligated manda-
torily-redeemable preferred
securities of subsidiary,
Equitable of Iowa Companies
Capital Trust, holding solely
debt securities of the
company -- -- 125,000 (C) 125,000
TOTAL STOCKHOLDERS' EQUITY 753,369 52,806 (52,806)(B) 753,369
----------------------- ---------- ------------
TOTAL LIABILITIES &
STOCKHOLDER'S EQUITY $10,121,079 $1,407,952 $11,186 $11,540,217
======================= ========== ============
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED
INCOME STATEMENT (UNAUDITED)
Year ended December 31, 1995
As Reported Pro Forma
---------------------- --------------------------
EIC BTV Adjustments Consolidated
---------------------- ----------- ------------
(Dollars in thousands, except per share)
<S> <C> <C> <C> <C>
REVENUES:
Annuity and universal life
product charges $51,466 $18,388 $2,761 (D) $72,615
Traditional life insurance
premiums 43,425 -- -- 43,425
Net investment income 641,094 2,818 (1,242)(D) 642,670
Realized gains on investments 9,524 297 -- 9,821
Other income 19,353 9,656 -- 29,009
---------------------- ---------- ------------
764,862 31,159 1,519 797,540
INSURANCE BENEFITS AND EXPENSES:
Annuity, universal life and
other policy benefits 487,031 3,146 -- 490,177
Underwriting, acquisition and
insurance expenses:
Commissions, general expenses
and insurance taxes 232,470 21,588 900 (D) 254,958
Policy acquisition costs
deferred (178,133) (10,423) 666 (D) (187,890)
Amortization of deferred
acquisition costs 72,537 2,736 (2,506)(D) 72,767
Amortization of present value
of future profits -- 1,862 7,198 (D) 9,060
---------------------- ---------- ------------
613,905 18,909 6,258 639,072
Interest expense 13,779 3,042 (2,949)(D) 13,872
Other expenses 8,672 8,483 -- 17,155
---------------------- ---------- ------------
636,356 30,434 3,309 670,099
---------------------- ---------- ------------
128,506 725 (1,790) 127,441
Income taxes (benefits) 43,633 (1,109) (4,605)(D) 37,919
---------------------- ---------- ------------
84,873 1,834 2,815 89,522
Equity income, net of related
income taxes 17 -- -- 17
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED
INCOME STATEMENT (UNAUDITED)
Year ended December 31, 1995
As Reported Pro Forma
---------------------- --------------------------
EIC BTV Adjustments Consolidated
---------------------- ----------- ------------
(Dollars in thousands, except per share)
<S> <C> <C> <C> <C>
Dividends on Company-obligated
mandatorily-redeemable pre-
ferred securities of subsidiary,
Equitable of Iowa Companies
Capital Trust, holding solely
debt securities of the
company -- -- 10,875 (D) 10,875
---------------------- ---------- ------------
Net income $84,890 $1,834 ($8,060) $78,664
====================== ========== ============
Net income per common share $2.68 $2.48
============ ============
Weighted average common
shares outstanding 31,709,032 31,709,032
============ ============
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED
INCOME STATEMENT (UNAUDITED)
Six months ended June 30, 1996
As Reported Pro Forma
---------------------- --------------------------
EIC BTV Adjustments Consolidated
---------------------- ----------- ------------
(Dollars in thousands, except per share)
<S> <C> <C> <C> <C>
REVENUES:
Annuity and universal life
product charges $29,947 $9,570 $1,160 (D) $40,677
Traditional life insurance
premiums 19,898 -- -- 19,898
Net investment income 348,266 523 (621)(D) 348,168
Realized gains (losses) on
investments 11,318 (418) -- 10,900
Other income 9,709 5,353 -- 15,062
---------------------- ---------- ------------
419,138 15,028 539 434,705
INSURANCE BENEFITS AND EXPENSES:
Annuity, universal life and
other policy benefits 255,989 757 -- 256,746
Underwriting, acquisition and
insurance expenses:
Commissions, general expenses
and insurance taxes 88,586 21,848 450 (D) 110,884
Policy acquisition costs
deferred (75,317) (16,340) 481 (D) (91,176)
Amortization of deferred
acquisition costs 38,198 1,301 (1,957)(D) 37,542
Amortization of present value
of future profits -- 784 4,521 (D) 5,305
---------------------- ---------- ------------
307,456 8,350 3,495 319,301
Interest expense 7,741 1,378 (1,355)(D) 7,764
Other expenses 8,164 4,078 -- 12,242
---------------------- ---------- ------------
323,361 13,806 2,140 339,307
---------------------- ---------- ------------
95,777 1,222 (1,601) 95,398
Income taxes (benefits) 33,686 (547) (2,494)(D) 30,645
---------------------- ---------- ------------
62,091 1,769 893 64,753
Equity loss, net of related
income taxes (114) -- -- (114)
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED
INCOME STATEMENT (UNAUDITED)
Six months ended June 30, 1996
As Reported Pro Forma
---------------------- --------------------------
EIC BTV Adjustments Consolidated
---------------------- ----------- ------------
(Dollars in thousands, except per share)
<S> <C> <C> <C> <C>
Dividends on Company-obligated
mandatorily-redeemable pre-
ferred securities of subsidiary,
Equitable of Iowa Companies
Capital Trust, holding solely
debt securities of the
company -- -- 5,438 (D) 5,438
---------------------- ---------- ------------
Net income $61,977 $1,769 ($4,545) $59,201
====================== ========== ============
Net income per common share $1.95 $1.86
============ ============
Weighted average common
shares outstanding 31,852,453 31,852,453
============ ============
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
On May 3, 1996 EIC agreed to purchase all of the outstanding shares of BTV,
including its subsidiaries, Golden American Life Insurance Company ("Golden
American") and Directed Services, Inc. ("DSI"), for a cash payment of
$144,000,000, including the repayment of debt of $51,000,000. Closing of the
transaction occurred on August 13, 1996. The company expects to incur
additional costs relating to professional fees and other expenses of $740,000
which are to be included as part of the cost of acquisition. The pro forma
condensed consolidated financial statements were prepared using the purchase
method of accounting.
(A) The cost of the acquisition is comprised of the following:
<TABLE>
<CAPTION>
Cost of acquisition: (Dollars in thousands)
<S> <C>
Cash $ 93,000
Repayment of debt 51,000
--------
Purchase price 144,000
Professional fees and
other expenses 740
--------
Total acquisition cost $144,740
========
</TABLE>
Certain of the above costs are estimated and could vary after the receipt
of final invoices for all services and expenses incurred.
(B) Under purchase accounting, BTV's assets and liabilities are required
to be adjusted to their estimated fair values. The estimated fair
value adjustments have been determined by EIC based upon available
information set forth in BTV's financial statements and an independent
appraisal of BTV obtained from BTV's management. Such estimated fair
values may vary from fair values determined at the acquisition date due
to changes in interest rates and changes in the value of Golden
American's inforce resulting from sales and withdrawals from June 30,
1996 to August 13, 1996.
<TABLE>
<CAPTION>
Reconciliation of BTV equity to cost of acquisition
(Dollars in thousands)
<S> <C> <C>
Equity as reported by BTV $52,806
Fair value adjustments:
Elimination of BTV's deferred
policy acquisition costs (84,793)
Elimination of BTV's present value
of future profits (6,492)
Present value of future profits on
business acquired 100,144 93,652
--------
Cash received from Bankers Trust
for Escrow Balance net of Note 3,828
Elimination of Escrow Balance (4,267) (439)
--------
Elimination of BTV's unearned
revenue reserve 8,784
Elimination of BTV's deferred tax
liability 1,185
Repayment of BTV short term debt 51,000
Elimination of Golden American Note 439 51,439
--------
Establishment of liability for
severance pay to BTV employees
related to the acquisition (400)
Cost in excess of net assets of
company acquired (goodwill) 22,506
---------
Cost of acquisition $144,740
=========
</TABLE>
Certain amounts on BTV's balance sheet as of June 30, 1996 relating
to an Exchange Agreement have been eliminated. The Exchange Agreement
related to the acquisition of Golden American and DSI by Bankers Trust
Company ("Bankers Trust") from Mutual Benefit Life Insurance Company
in Rehabilitation ("Mutual Benefit") on September 30, 1992. Under the
Exchange Agreement (which is described in detail in Note 1 to BT
Variable, Inc. and Subsidiaries financial statements for the year ended
December 31, 1995 included as Exhibit 99.1 in this Form 8-K), Bankers
Trust settled certain pre-existing claims against Mutual Benefit by
exchanging such claims for the outstanding common stock of Golden
American and DSI. Because the ultimate value of Bankers Trust's claims
against Mutual Benefit had not been determined by the Superior Court of
New Jersey (in which the rehabilitation proceeding was pending), Golden
American was required to execute in connection with the Exchange
Agreement an adjustable principal amount promissory note, 7.5% due 1997
("Note"), under which Golden American has been required to make periodic
payments into an escrow account ("Escrow Account") in which such funds
are to be held until the value of Bankers Trust's claims is determined
in accordance with the rehabilitation proceedings. As of June 30, 1996,
the escrow account ("Escrow Balance") established by Golden American was
$4,267,000. Bankers Trust has estimated that the contingent liability
due from Golden American with respect to the Note amounted to $439,000
as of June 30, 1996.
At the closing Bankers Trust made a cash payment to Golden American in
an amount equal to the Escrow Balance less the sum of the $439,000
contingent liability and entered into an irrevocable undertaking to make
all such payments as they become due under the terms of the Note. In
exchange, Golden American irrevocably assigned to Bankers Trust all of
Golden American's rights to receive any amounts to be disbursed from the
Escrow Account in accordance with the terms of the agreement governing
the Escrow Account. As a result, other assets reflect a net reduction of
$439,000 for the elimination of the Escrow Balance of $4,267,000 less
cash received at closing of $3,828,000 and debt has been reduced by
$439,000 for the elimination of the liability relating to the obligation
of Golden American under the terms of the Note.
The carrying values of BTV's fixed maturity investments are at market
value since all such investments are reported as available for sale.
Accordingly, no fair value adjustments for investments are required.
The present value of future profits ("PVFP") of the insurance inforce
at the date of the acquisition is determined by estimating the gross
profits to be realized from the insurance contracts inforce at the
time the acquisition occurs and discounting the profits back to the
acquisition date. The discount rate utilized in calculating the PVFP
was 10%.
The "As Reported" amounts established by BTV for PVFP, unearned
revenue reserves and deferred policy acquisition costs (the cost
associated with generating sales of insurance policies) are eliminated
and replaced by the PVFP determined as of the acquisition date. BTV's
"As Reported" amounts for policy liabilities, accruals and other
policyholder funds are held at account values and, accordingly,
reflect the fair value of such liabilities. As a result, no fair
market value adjustment is required for such liabilities. "As
Reported" amounts for separate account assets and liabilities are
carried at their fair value and, accordingly, no fair value adjustment
is required. EIC has elected to step-up the tax basis of the assets
associated with BTV at the acquisition date, and as a result, BTV's
deferred income tax liability and expense have been eliminated.
(C) The costs associated with the issuance of the $125,000,000 of 8.70%
Preferred Securities are estimated to approximate $4,650,000 which
will be deferred and amortized over 30 years to the date of required
redemption of the Preferred Securities, excluding any optional
election by EIC to extend such redemption for up to an additional 19
years. Accordingly, the net proceeds from the sale of the Preferred
Securities approximate $120,350,000. EIC used the net proceeds from the
sale of Preferred Securities ($120,350,000), which were loaned to EIC in
exchange for EIC debt securities issued to the Trust, to fund most of
the cost of the acquisition of approximately $144,740,000. Through June
30, 1996, EIC has incurred costs of $514,000 related to the Transactions.
EIC and its subsidiaries funded the remainder of the acquisition cost by
reducing short-term investments by $23,876,000. Funds generated by
subsidiaries for this purpose were passed to EIC in the form of dividends.
The total amount of goodwill and other intangibles deferred relating to
the Transactions ($27,156,000), is comprised of estimated goodwill of
$22,506,000 and $4,650,000 of estimated costs of issuance of the
Preferred Securities. The adjustment necessary for goodwill and other
intangibles for the Pro Forma balance sheet of $26,642,000 is net of the
costs capitalized through June 30, 1996 of $514,000 related to the
Transactions.
(D) For purposes of determining the pro forma effect of the Transactions
on EIC's consolidated statement of income, the following pro forma
adjustments have been made:
<TABLE>
<CAPTION>
Year ended Six months
December ended June
31, 1995 30, 1996
------------------------
Increase (Decrease)
Income
(Dollars in thousands)
<S> <C> <C>
Elimination of BTV's amortization of the unearned
revenue reserve relating to policies issued prior
to January 1, 1995 $5,067 $1,819
Deferral and amortization of sales loads on policies
acquired after the acquisition date (2,306) (659)
------------------------
2,761 1,160
Decrease in investment income resulting from reduction
of short-term investments used for the acquisition
of BTV (1,242) (621)
Amortization over a period of 25 years of cost in
excess of net assets of company acquired (goodwill) (900) (450)
Elimination of deferred policy acquisition costs on
business issued prior to January 1, 1995 (666) (481)
Elimination of BTV's amortization of policy acquisition
costs relating to policies issued prior to
January 1, 1995 2,506 1,957
Elimination of BTV's amortization of PVFP 1,862 784
Amortization of PVFP established at acquisition date (9,060) (5,305)
------------------------
(7,198) (4,521)
Elimination of interest expense on $51,000 of short-
term debt of BTV paid off at acquisition date 3,104 1,432
Amortization of expenses deferred with the issuance
of the $125,000 of Preferred Securities (155) (77)
------------------------
2,949 1,355
------------------------
Pro forma income effect before income taxes and
dividends on Preferred Securities (1,790) (1,601)
Decrease in income taxes associated with above
adjustments and dividends on Preferred Securities 4,433 2,464
Elimination of BTV's deferred income taxes 172 30
------------------------
Pro forma tax benefit 4,605 2,494
------------------------
Pro forma income effect before dividends on Preferred
Securities 2,815 893
Dividends on 8.70% Preferred Securities (10,875) (5,438)
------------------------
Pro forma income effect ($8,060) ($4,545)
========================
</TABLE>
The allocation of the purchase price at the date of acquisition, August 13,
1996, may vary from those reflected above, due, in part, to the following
items: 1) The present value of future profits and corresponding amortization
thereof, will be based upon the in force of Golden American as of August 13,
1996, and not the in force at June 30, 1996 as reflected on the pro forma
condensed consolidated balance sheet, or January 1, 1995 utilized to determine
the adjustments on the pro forma condensed consolidated income statements.
2) As Golden American continues to write business in 1996, the amortized cost
of fixed maturities will increase, however, the market values of the fixed
maturities could vary based upon the changes in the level of interest
rates. 3) The level of goodwill established will be adjusted by the items
previously discussed and the ultimate market value of the assets and
liabilities at the acquisition date.
The actual effect on earnings is forecasted to be less than reflected above
based upon higher anticipated production levels by Golden American in 1996
and 1997 compared to the levels achieved in 1995 as well as anticipated
cost savings from consolidation which are not reflected in the pro forma
financial statements. Premium levels in the first six months of 1996 for BTV
were $225,346,000 compared to $125,000,000 for all of 1995. The above
contains a forward looking statement. Actual results for BTV may vary
materially from forecasted results and will depend, among other things, on
interest rates, stock market performance, tax and regulatory changes,
investment performance of the underlying portfolios of the variable annuity
product, variable annuity product design and sales volume by significant
sellers of BTV's variable annuities.
