SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
=========
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 33-87272
Golden American Life Insurance Company
(Exact name of registrant as specified in its charter)
Delaware 41-0991508
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
1001 Jefferson Street, Suite 400, Wilmington, Delaware 19801
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (302) 576-3400
__________________________________________________________________________
Former name, former address and formal fiscal year, if changed since last
report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes /X/ No / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court. Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 250,000 shares of
Common Stock as of May 6, 1997.
NOTE: WHEREAS GOLDEN AMERICAN LIFE INSURANCE COMPANY MEETS THE CONDITIONS SET
FORTH IN GENERAL INSTRUCTION H (1)(a) AND (b) OF FORM 10Q, THIS FORM IS BEING
FILED WITH THE REDUCED DISCLOSURE FORMAT.
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Person for whom the Financial Information is given: Golden American Life
Insurance Company
Condensed Consolidated Statements of Income (Unaudited):
<TABLE>
<CAPTION>
POST-AQUISITION | PRE-ACQUISITION
________________| ________________
For the Three | For the Three
Months ended | Months ended
March 31, 1997 | March 31, 1996
________________| ________________
(Current Year) | (Preceding Year)
(Dollars in thousands)
<S> <C> | <C>
REVENUES: |
Annuity and interest sensitive life |
product charges $7,312 | $4,449
Management fee revenue 618 | 540
Net investment income 5,376 | 1,370
Realized losses on investments -- | (327)
Other income 160 | 25
________________| ________________
13,466 | 6,057
INSURANCE BENEFITS AND EXPENSES: |
Annuity and interest sensitive life |
benefits: |
Interest credited to account balances 5,267 | 981
Benefit claims incurred in excess of |
account balances 50 | 394
Underwriting, acquisition, and |
insurance expenses: |
Commissions 5,717 | 7,225
General expenses 4,287 | 3,599
Insurance taxes 651 | 224
Policy acquisition costs deferred (6,591)| (8,351)
Amortization: |
Deferred policy acquisition costs 349 | 291
Present value of in force acquired 2,101 | 207
Goodwill 392 | --
________________| ________________
12,223 | 4,570
Interest expense 560 | --
________________| ________________
12,783 | 4,570
________________| ________________
683 | 1,487
Income tax expense (benefit): |
Current 894 | --
Deferred (624)| --
________________| ________________
270 | --
________________| ________________
NET INCOME $413 | $1,487
================| ================
</TABLE>
See accompanying notes.
Condensed Consolidated Balance Sheets (Unaudited):
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
______________ _________________
(Dollars in thousands)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available for sale,
at fair value (cost: 1997 - $274,219;
1996 - $275,153) $271,123 $275,563
Equity securities, at fair value
(cost: $36) 32 33
Mortgage loans 48,283 31,459
Policy loans 7,116 4,634
Short-term investments 6,541 12,631
______________ _________________
TOTAL INVESTMENTS 333,095 324,320
Cash and cash equivalents 414 5,839
Due from affiliates 402 --
Accrued investment income 5,096 4,139
Deferred policy acquisition costs 18,026 11,468
Present value of in force acquired 81,431 83,051
Deferred income tax benefit 1,209 --
Property and equipment, less allowances for
depreciation of $105 in 1997 and $63 in 1996 714 699
Goodwill, less accumulated amortization of
$981 in 1997 and $589 in 1996 38,273 38,665
Other assets 6,245 2,471
Separate account assets 1,235,591 1,207,247
______________ _________________
TOTAL ASSETS $1,720,496 $1,677,899
============== =================
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Annuity and interest sensitive life products $298,324 $285,287
Unearned revenue reserve 2,984 2,063
Other policy claims and benefits 1 --
______________ _________________
301,309 287,350
Current income taxes 871 --
Deferred income taxes -- 365
Line of credit with affiliate 1,121 --
Surplus note 25,000 25,000
Due to affiliates 5,033 1,504
Accrued expenses and other liabilities 12,434 15,949
Separate account liabilities 1,235,591 1,207,247
______________ _________________
TOTAL LIABILITIES 1,581,359 1,537,415
Commitments and contingent liabilities
</TABLE>
See accompanying notes.
Condensed Consolidated Balance Sheets (Unaudited): (CONTINUATION)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 199
______________ ________________
(Dollars in thousands)
<S> <C> <C>
Stockholder's equity:
Redeemable preferred stock, par value $5,000
per share, 50,000 shares authorized $ -- $ --
Common stock, par value $10 per share,
authorized, issued and outstanding
250,000 shares 2,500 2,500
Additional paid-in capital 137,372 137,372
Unrealized appreciation (depreciation)
of securities at fair value (1,498) 262
Retained earnings 763 350
______________ ________________
TOTAL STOCKHOLDER'S EQUITY 139,137 140,484
______________ ________________
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $1,720,496 $1,677,899
============== ================
</TABLE>
See accompanying notes.
Condensed Consolidated Statements of Cash Flows (Unaudited):
<TABLE>
<CAPTION>
POST-AQUISITION| PRE-ACQUISITION
_______________| _______________
For the Three | For the Three
Months ended | Months ended
March 31, 1997 | March 31, 1996
_______________| _______________
(Current Year) | (Preceding Year)
(Dollars in thousands)
<S> <C> | <C>
NET CASH USED IN OPERATING ACTIVITIES ($1,911)| ($6,723)
|
INVESTING ACTIVITIES |
Sale, maturity or repayment of investments: |
Fixed maturities - available for sale 4,984 | 53,400
Mortgage loans on real estate 196 | --
Short-term investments - net 6,090 | 1,611
_______________| _______________
11,270 | 55,011
|
Acquisition of investments: |
Fixed maturities - available for sale (4,431)| (115,199)
Mortgage loans on real estate (17,020)| --
Policy loans - net (2,482)| (748)
_______________| _______________
(23,933)| (115,947)
Purchase of property and equipment (57)| --
_______________| _______________
NET CASH USED IN INVESTING ACTIVITIES (12,720)| (60,936)
|
FINANCING ACTIVITIES |
Issuance of notes payable 18,700 | --
Repayment of notes payable (17,579)| --
Receipts from annuity and interest sensitive |
life policies credited to policyholder |
account balances 37,936 | 66,996
Return of policyholder account balances |
on annuity and interest sensitive life |
policies (2,987)| (328)
Net reallocations to Separate Accounts (26,864)| (843)
_______________| _______________
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,206 | 65,825
_______________| _______________
|
DECREASE IN CASH AND CASH EQUIVALENTS (5,425)| (1,834)
|
CASH AND CASH EQUIVALENTS AT BEGINNING |
OF PERIOD 5,839 | 5,046
_______________| _______________
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD $414 | $3,212
===============| ===============
</TABLE>
See accompanying notes.
NOTE 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 instructions to Form 10-Q and Article
10 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, all adjustments
considered necessary for a fair presentation have been included. All
adjustments were of a normal recurring nature, unless otherwise noted in
Management's Discussion and Analysis and the Notes to Financial Statements.
Operating results for the three months ended March 31, 1997 are not necessarily
indicative of the results that may be expected for periods reported at December
31, 1997. For further information, refer to the financial statements and
footnotes thereto included in the Golden American Life Insurance Company Annual
Report on Form 10-K for the year ended December 31, 1996.
CONSOLIDATION
The condensed consolidated financial statements include Golden American Life
Insurance Company ("Golden American") and its wholly-owned subsidiary, First
Golden American Life Insurance Company of New York ("First Golden" and
collectively the "Company"). First Golden was capitalized by Golden American
on December 17, 1996. All significant intercompany accounts and transactions
have been eliminated.
ORGANIZATION
Golden American offers variable insurance products and is licensed as a life
insurance company in the District of Columbia and all states except New York.
On January 2, 1997, First Golden became licensed to sell insurance products
in the state of New York. The Company's products are marketed by broker/
dealers, financial institutions and insurance agents. The Company's primary
customers are individuals and families.
On August 13, 1996, Equitable of Iowa Companies ("Equitable") acquired all of
the outstanding capital stock of BT Variable, Inc. ("BT Variable") and its
wholly-owned subsidiaries, Golden American and Directed Services, Inc. ("DSI")
from Whitewood Properties Corporation ("Whitewood") pursuant to the terms of a
Stock Purchase Agreement between Equitable and Whitewood (the "Purchase
Agreement"). Refer to Note 3 for additional information.
For financial statement purposes, the change in control of Golden American
through the acquisition of BT Variable was accounted for as a purchase
acquisition effective August 14, 1996. This acquisition resulted in a new
basis of accounting reflecting estimated fair values of assets and liabilities
at that date. As a result, the Company's financial statements for periods
subsequent to August 13, 1996, are presented on the Post-Acquisition new basis
of accounting, while the financial statements prior to August 13, 1996 are
presented on the Pre-Acquisition historical cost basis of accounting.
For purposes of the condensed consolidated statements of cash flows, the
Company considers all demand deposits and interest bearing accounts not
related to the investment function to be cash equivalents. All interest-
bearing accounts classified as cash equivalents have original maturities of
three months or less.
Certain amounts in the 1996 financial statements have been reclassified to
conform to the 1997 financial statement presentation.
NOTE 2 -- INVESTMENTS
At March 31, 1997 and December 31, 1996, amortized cost, gross unrealized
gains and losses and estimated fair values of fixed maturity securities, all
of which are designated as available for sale, are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
March 31, 1997 Cost Gains Losses Value
______________________________________________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. government and
governmental agencies
and authorities:
Mortgage-backed securities $69,252 $9 ($1,053) $68,208
Other 3,078 -- (20) 3,058
Foreign governments 2,062 4 -- 2,066
Public utilities 32,834 40 (171) 32,703
Investment grade corporate 133,537 52 (1,765) 131,824
Below investment grade
corporate 27,436 99 (281) 27,254
Mortgage-backed securities 6,020 18 (28) 6,010
_______________________________________________
Total $274,219 $222 ($3,318) $271,123
===============================================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1996 Cost Gains Losses Value
______________________________________________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. government and
governmental agencies
and authorities:
Mortgage-backed securities $70,902 $122 ($247) $70,777
Other 3,082 2 (4) 3,080
Public utilities 35,893 193 (38) 36,048
Investment grade corporate 134,487 586 (466) 134,607
Below investment grade
corporate 25,921 249 (56) 26,114
Mortgage-backed securities 4,868 69 -- 4,937
_______________________________________________
Total $275,153 $1,221 ($811) $275,563
===============================================
</TABLE>
No fixed maturity securities were designated as held for investment at March
31, 1997 or December 31, 1996. Short-term investments with maturities of 30
days or less have been excluded from the above schedules. Amortized cost
approximates fair value for these securities.
Amortized cost and estimated fair value of fixed maturity securities designated
as available for sale, by contractual maturity, at March 31, 1997, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
March 31, 1997 Cost Value
_____________________________________________________________________________
(Dollars in thousands)
<S> <C> <C>
Due within one year $24,376 $24,370
Due after one year through five years 115,728 114,995
Due after five years through ten years 58,843 57,540
_____________________________
198,947 196,905
Mortgage-backed securities 75,272 74,218
_____________________________
Total $274,219 $271,123
=============================
</TABLE>
During the first quarter of 1997, no investments were identified as having an
impairment other than temporary.
INVESTMENT DIVERSIFICATIONS: The Company's investment policies related to
its investment portfolio require diversification by asset type, company and
industry and set limits on the amount which can be invested in an individual
issuer. Such policies are at least as restrictive as those set forth by
regulatory authorities. The following percentages relate to holdings at March
31, 1997 and December 31, 1996, respectively. Fixed maturity investments
included investments in various government bonds and government or agency
mortgage-backed securities (27% in 1997 and 1996), public utilities (12% in
1997, 13% in 1996), basic industrials (29% in 1997, 30% in 1996) and financial
companies (19% in 1997, 18% in 1996). Mortgage loans on real estate have been
analyzed by geographical location and mortgage loans in Georgia represent 11%
and 17% of all mortgage loans at March 31, 1997 and December 31, 1996,
respectively. There are no other concentrations of mortgage loans in any
state exceeding ten percent at March 31, 1997 and December 31, 1996. Mortgage
loans on real estate have also been analyzed by collateral type with
significant concentrations identified in office buildings (38% in 1997, 36% in
1996), industrial buildings (30% in 1997, 31% in 1996), multi-family
residential buildings (18% in 1997, 27% in 1996) and retail facilities (14% in
1997, 6% in 1996). Equity securities and investments accounted for by the
equity method are not significant to the Company's overall investment
portfolio.
NOTE 3 -- ACQUISITION
TRANSACTION: On August 13, 1996, Equitable acquired all of the outstanding
capital stock of BT Variable from Whitewood, a wholly-owned subsidiary of
Bankers Trust, pursuant to the terms of the Purchase Agreement dated as of
May 3, 1996 between Equitable and Whitewood. 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. Subsequent to the acquisition, the BT Variable, Inc.
name was changed to EIC Variable, Inc.
ACCOUNTING TREATMENT: The acquisition was accounted for as a purchase
resulting in a new basis of accounting, reflecting estimated fair values for
assets and liabilities at August 13, 1996. The purchase price was allocated
to the three companies purchased - BT Variable, DSI and Golden American.
Goodwill was established for the excess of the acquisition cost over the fair
value of the net assets acquired and pushed down to Golden American. The
acquisition cost is preliminary with respect to the final settlement of taxes
with Bankers Trust and estimated expenses and, as a result, goodwill may
change. The allocation of the purchase price to Golden American was
approximately $139,872,000. The amount of goodwill relating to the
acquisition was $39,254,000 at the acquisition date, and is being amortized
over 25 years on a straight line basis. The carrying value of goodwill will
be reviewed periodically for any indication of impairment in value.
PRESENT VALUE OF IN FORCE ACQUIRED: As part of the acquisition, a portion of
the acquisition cost was allocated to the right to receive future cash flows
from the insurance contracts existing with Golden American at the date of
acquisition. This allocated cost represents the present value of in force
acquired ("PVIF") which reflects the value of those purchased policies
calculated by discounting the actuarially determined expected future cash
flows at the discount rate determined by Equitable.
An analysis of the PVIF asset is as follows:
<TABLE>
<CAPTION>
For the Three
Months ended
March 31, 1997
_______________
(Dollars in thousands)
<S> <C>
Beginning balance $83,051
Imputed interest 1,593
Amortization (3,694)
Adjustment for unrealized losses
on available for sale securities 481
_______________
Ending balance $81,431
===============
</TABLE>
Interest is imputed on the unamortized balance of PVIF at rates of 7.70% to
7.80%. Amortization of PVIF is charged to expense and the asset is adjusted
for the change in unrealized gains (losses) on available for sale securities.
Based on current conditions and assumptions as to the effect of future events
on acquired policies in force, the expected approximate net amortization for
the next five years, relating to the balance of the PVIF as of March 31,
1997, is as follows:
<TABLE>
<CAPTION>
Year Amount
_____________________________________________________________
(Dollars in thousands)
<S> <C>
Remainder of 1997 $8,000
1998 10,100
1999 9,200
2000 7,900
2001 6,800
2002 5,800
</TABLE>
Actual amortization may vary from the schedule above based upon changes in
assumptions and experience.
NOTE 4 -- RELATED PARTY TRANSACTIONS
DSI acts as the principal underwriter (as defined in the Securities Act of
1933 and the Investment Company Act of 1940, as amended) of the variable
insurance products issued by Golden American, which as of March 31, 1997, are
sold primarily through two broker/dealer institutions. For the three months
ended March 31, 1997 and 1996, Golden American paid commissions to DSI
totaling $5,717,000 and $7,408,000, respectively.
Golden American provides certain managerial and supervisory services to DSI.
This fee was calculated as a percentage of average assets in the variable
separate accounts. For the three months ended March 31, 1997 and 1996, the
fee was $618,000 and $540,000, respectively.
On August 14, 1996, the Company began purchasing investment management
services from an affiliate. Payments for these services totaled $197,000 for
the first quarter of 1997. On August 14, 1996, all employees of Golden
American, except wholesalers, became statutory employees of Equitable Life
Insurance Company of Iowa ("Equitable Life"), an affiliate.
Golden American has a guaranty agreement with Equitable Life. In
consideration of an annual fee, payable June 30, Equitable Life guarantees to
Golden American that it will make funds available, if needed, to Golden
American to pay the contractual claims made under the provisions of Golden
American's life insurance and annuity contracts. This agreement is not, and
nothing contained therein or done pursuant thereto by Equitable Life shall be
deemed to constitute, a direct or indirect guaranty by Equitable Life of the
payment of any debt or other obligation, indebtedness or liability, of any
kind or character whatsoever, of Golden American. The agreement does not
guarantee the value of the underlying assets held in separate accounts in
which funds of variable life insurance and variable annuity policies have been
invested.
SURPLUS NOTE: On December 17, 1996, Golden American issued an 8.25% surplus
note in the amount of $25,000,000 to Equitable. Golden American made interest
payments totaling $517,000 during the first quarter of 1997. On December 17,
1996, Golden American contributed the $25,000,000 to First Golden acquiring
200,000 shares of common stock (100% of outstanding stock) of First Golden.
LINE OF CREDIT: Golden American maintains a line of credit agreement with
Equitable to facilitate the handling of unusual and/or unanticipated short-
term cash requirements. Under the current agreement, which became effective
December 1, 1996 and expires on December 31, 1997, Golden American can borrow
up to $25,000,000. Interest on any borrowings is charged at the rate of
Equitable's monthly average aggregate cost of short-term funds plus 1.00%.
During the first quarter of 1997, the Company incurred $43,000 of interest
expense under this agreement. At March 31, 1997, $1,121,000 was outstanding
under this agreement.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
REINSURANCE: At March 31, 1997, Golden American had reinsurance treaties
with 5 reinsurers covering a significant portion of the mortality risks under
its variable contracts with unaffiliated reinsurers. Golden American remains
liable to the extent its reinsurers do not meet their obligations under the
reinsurance agreements. At March 31, 1997, the Company has no receivable for
reserve credits, reinsurance claims or other receivables from these reinsurers.
At March 31, 1997, the Company has a payable of $210,000 for reinsurance
premiums and $106,000 for claims recoverable from reinsurers. Included in the
accompanying financial statements are net considerations to reinsurers of
$421,000 and $456,000, and net policy benefits recoveries of $477,000 and
$540,000, for the first quarter of 1997 and 1996, respectively.
Effective June 1, 1994, Golden American entered into a modified coinsurance
agreement with an unaffiliated reinsurer. The accompanying financial
statements are presented net of the effects of the treaty.
GUARANTY FUND ASSESSMENTS: Assessments are levied on the Company by life and
health guaranty associations in most states in which the Company is licensed
to cover losses of policyholders of insolvent or rehabilitated insurers. In
some states, these assessments can be partially recovered through a reduction
in future premium taxes. The Company cannot predict whether and to what
extent legislative initiatives may affect the right to offset. The associated
cost for a particular insurance company can vary significantly based upon its
fixed account premium volume by line of business and state premiums levels as
well as its potential for premium tax offset. The Company has established a
reserve to cover such assessments and regularly reviews information regarding
known failures and revises its estimates of future guaranty fund assessments.
Accordingly, the Company accrued and charged to expense an additional $76,000
for the first quarter of 1997. At March 31, 1997, the Company has an
undiscounted reserve of $848,000 to cover estimated future assessments (net of
related anticipated premium tax credits) and has established an asset totaling
$15,000 for assessments paid which may be recoverable through future premium
tax offsets. The Company believes this reserve is sufficient to cover
expected future insurance guaranty fund assessments, based upon previous
premium levels, and known insolvencies at this time.
LITIGATION: The Company is not involved in any legal proceeding as of the
date of this report.
VULNERABILITY FROM CONCENTRATIONS: The Company has various concentrations in
its investment portfolio (see Note 2 for further information). The Company's
asset growth, net investment income and cash flow are primarily generated
from the sale of variable products and associated future policy benefits and
separate account liabilities. A significant portion of the Company's sales
are generated by two broker/dealers. Substantial changes in tax laws that
would make these products less attractive to consumers, extreme fluctuations
in interest rates or stock market returns which may result in higher lapse
experience than assumed, could cause a severe impact to the Company's
financial condition.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
The purpose of this section is to discuss and analyze the Company's condensed
results of operations. In addition, some analysis and information regarding
financial condition and liquidity and capital resources has also been
provided. This analysis should be read in conjunction with the condensed
consolidated financial statements and related notes which appear elsewhere in
this report. The Company reports financial results on a consolidated basis.
The consolidated condensed financial statements include the accounts of
Golden American Life Insurance Company ("Golden American") and its
subsidiary, First Golden American Life Insurance Company of New York ("First
Golden", and collectively with Golden American the "Company").
RESULTS OF OPERATIONS
_____________________
CHANGE IN CONTROL
On August 13, 1996, Equitable of Iowa Companies ("Equitable") acquired all of
the outstanding capital stock of BT Variable, Inc. ("BT Variable") and its
wholly-owned subsidiaries Golden American and Directed Services Inc. ("DSI")
for $144,000,000. The purchase price consisted of $93,000,000 in cash paid
to Whitewood (parent of BT Variable) and $51,000,000 in cash paid to Bankers
Trust (parent of Whitewood) to retire certain debt owed by BT Variable to
Bankers Trust.
For financial statement purposes, the change in control of Golden American
through the acquisition to BT Variable was accounted for as a purchase
acquisition effective August 14, 1996. This acquisition resulted in a new
basis of accounting reflecting estimated fair values of assets and liabilities
at that date. As a result, the Company's financial statements for periods
subsequent to August 13, 1996, are presented on the Post-Acquisition new basis
of accounting, while the financial statements prior to August 13, 1996 are
presented on the Pre-Acquisition historical cost basis of accounting.
The purchase price was allocated to the three companies purchased - BT
Variable, DSI, and Golden American. Goodwill of $39,254,000 was established
for the excess of the acquisition cost over the fair value of the assets and
liabilities and pushed down to Golden American. The acquisition cost is
preliminary with respect to the final settlement of taxes with Bankers Trust
and estimated expenses and, as a result, goodwill may change. The allocation
of the purchase price to Golden American was approximately $139,872,000.
Goodwill resulting from the acquisition is being amortized over 25 years on a
straight line basis. The carrying value will be reviewed periodically for
any indication of impairment in value.
PREMIUMS
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISTION
________________ _______________
Percentage Dollar |
Quarter ended March 31 1997 Change Change | 1996
______________________________________________________________|_______________
(Dollars in thousands) |
<S> <C> <C> <C> | <C>
Variable annuity |
premiums: |
Separate account $50,926 14.5% $6,464 | $44,462
Fixed account 37,035 (44.5) (29,702)| 66,737
________________________________________|_______________
Total variable |
annuity premiums 87,961 (20.9) (23,238)| 111,199
Variable life |
premiums 7,306 78.5 $3,213 | 4,093
________________________________________|_______________
Total premiums $95,267 (17.4)% ($20,025)| $115,292
========================================|===============
</TABLE>
Variable annuity separate account premiums and variable life premiums
increased 14.5% and 78.5%, respectively, during the first quarter of 1997
compared to the same period in 1996. Variable annuity separate account
premiums and variable life premiums have increased as a result of current
market conditions including a strong stock market, relatively low interest
rates and a flat yield curve. These market conditions have made products
with variable returns relatively more attractive than products with fixed
returns such as the variable annuity fixed account which decreased 44.5% in
the first quarter of 1997 compared to the same period in 1996. Premiums, net
of reinsurance, for variable products from two significant sellers for the
first quarter of 1997 totaled $64,200,000, or 67% of premiums.
REVENUES
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISTION
________________ ______________
Percentage Dollar
Quarter ended March 31 1997 Change Change 1996
______________________________________________________________________________
(Dollars in thousands) |
<S> <C> <C> <C> | <C>
Annuity and interest |
sensitive life |
product charges $7,312 64.3% $2,863 | $4,449
Management fee revenue 618 14.5 78 | 540
Net investment income 5,376 292.8 4,006 | 1,370
Realized losses |
on investments -- 100.0 327 | (327)
Other income 160 541.7 135 | 25
________________________________________|______________
$13,466 122.4% $7,409 | $6,057
========================================|==============
</TABLE>
Total revenues increased 122.4% in the first quarter of 1997. Annuity and
interest sensitive life product charges increased 64.3% in the first quarter
of 1997. The increase is due to additional fees earned from the increasing
block of business under management in the Separate Accounts and an increase
in the collection of surrender charges.
Golden American provides certain managerial and supervisory services to DSI.
This fee, calculated as a percentage of average assets in the variable
separate accounts, was $618,000 for the first quarter of 1997 and $540,000
for the first quarter of 1996.
Net investment income increased 292.8% in the first quarter of 1997 due to
the increase in invested assets. The company did not have any realized gains
or losses on the sale of investments in the first quarter of 1997, compared
to losses of $327,000 in the same period of 1996.
EXPENSES
Total insurance benefits and expenses increased $7,653,000, or 167.5%, to
$12,223,000 in the first three months of 1997 from $4,570,000 for the same
period in 1996. Interest credited to account balances increased $4,286,000,
or 437.1%, to $5,267,000 in the first quarter of 1997 as a result of higher
account balances associated with the Company's fixed account option within
its variable products. Benefit claims incurred in excess of account balances
decreased $344,000, or 87.2%, to $50,000 in the first quarter of 1997.
Commissions decreased $1,508,000, or 20.9%, to $5,717,000, in the first
quarter of 1997. Insurance taxes increased 191.2%, to $651,000, in 1997.
Increases and decreases in commissions and insurance taxes are generally
related to changes in the level of variable product sales. Insurance taxes
are impacted by several other factors as well as the level of variable
product sales. These factors include a guaranty fund assessment accrual in
the first quarter of 1997, an increase in FICA taxes primarily due to bonuses
and an increase in state licenses and fees. Most costs incurred as the
result of new sales have been deferred, thus having very little impact on
earnings.
General expenses increased $688,000, or 19.1%, to $4,287,000 in 1997. The
Company uses a network of wholesalers to distribute its products and the
salaries of these wholesalers are included in general expenses. The portion
of these salaries and related expenses which vary with sales production
levels are deferred, thus having little impact on earnings. Management
expects general expenses to continue to increase in 1997 as a result of the
emphasis on expanding the salaried wholesaler distribution network.
The Company's deferred policy acquisition costs ("DPAC"), previous balance of
present value of in force acquired ("PVIF") and unearned revenue reserve, as
of the purchase date, were eliminated and an asset of $85,796,000
representing the PVIF was established for all policies in force at the
acquisition date. The amortization of PVIF and DPAC increased $1,952,000, or
391.9%, in the first quarter of 1997. Based on current conditions and
assumptions as to the impact of future events on acquired policies in force,
amortization of PVIF is expected to be approximately $8,000,000 for the
remainder of 1997, $10,100,000 in 1998, $9,200,000 in 1999, $7,900,000 in
2000, $6,800,000 in 2001 and $5,800,000 in 2002. Actual amortization may vary
based upon changes in assumptions and experience. The elimination of the
unearned revenue reserve, related to in force acquired at the acquisition
date, will result in lower annuity and interest sensitive life product
charges compared to pre-acquisition levels on the in force acquired.
Amortization of goodwill during the first quarter of 1997 totaled $392,000.
Goodwill resulting from the acquisition is being amortized on a straight-line
basis over 25 years and is expected to approximate $1,570,000 annually.
Interest expense on the surplus note issued in December 1996, was $517,000 in
the first quarter of 1997. The Company also paid $43,000 to Equitable for
interest on the line of credit.
INCOME
Net income for the first quarter of 1997 was $413,000, a decrease of
$1,074,000, or 72.2%, from the first quarter of 1996.
FINANCIAL CONDITION
___________________
INVESTMENTS
The financial statement carrying value of the Company's total investment
portfolio grew 3.1% in the first quarter of 1997. The amortized cost basis
of the Company's total investment portfolio grew 4.2% during the same period.
All of the Company's investments, other than mortgage loans, are carried at
fair value in the Company's financial statements. As such, growth in the
carrying value of the Company's investment portfolio included changes in
unrealized appreciation and depreciation of fixed maturity and equity
securities as well as growth in the cost basis of these securities. Growth
in the cost basis of the Company's investment portfolio resulted from the
investment of premiums from the sale of the Company's variable insurance
products. The Company manages the growth of its insurance operations in order
to maintain adequate capital ratios.
To support the fixed account option of the Company's variable insurance
products, cash flow was invested primarily in fixed maturity securities. At
March 31, 1997, the Company's investment portfolio at amortized cost was
$327,980,000 with a yield of 7.0% and carrying value of $324,881,000.
FIXED MATURITY SECURITIES: At March 31, 1997, the company had fixed
maturities with an amortized cost of $274,219,000 and an estimated fair value
of $271,123,000. The ratings assigned by Standard & Poor's Corporation
("Standard & Poor's") to the individual securities in the companies fixed
maturities portfolio (at amortized cost) include investment grade securities
comprising U.S. governments, agencies and AAA to BBB- corporates ($240,816,000
or 87.8%), and below investment grade securities BB+ to BB- ($29,910,000 or
10.9%). Securities not rated by Standard & Poor's had an NAIC rating of 1 or
2 ($3,493,000 or 1.3%).
The Company classifies 100% of its securities as available for sale. On
March 31, 1997, fixed income securities with an amortized cost of $274,219,000
and an estimated fair value of $271,123,000 were designated as available for
sale. Net unrealized depreciation of fixed maturity securities of $3,096,000
was comprised of gross appreciation of $222,000 and gross depreciation of
$3,318,000. Unrealized holding losses on these securities, net of adjustments
to deferred policy acquisition costs, present value of in force acquired and
deferred income taxes, decreased stockholder's equity by $1,494,000 at March
31, 1997.
The Company began investing in below investment grade securities during 1996.
At March 31, 1997, the amortized cost value of the Company's total investment
in below investment grade securities was $27,436,000, or 8.4%, of the
Company's investment portfolio. The Company intends to purchase additional
below investment grade securities, but it does not expect the percentage of
its portfolio invested in below investment grade securities to exceed 10% of
its investment portfolio. At March 31, 1997, the yield at amortized cost on
the Company's below investment grade portfolio was 8.5% compared to 6.7% for
the Company's investment grade corporate bond portfolio. The Company estimates
the fair value of its below investment grade portfolio was $27,254,000, or
99.3% of amortized cost value, at March 31, 1997.
Below investment grade securities have different characteristics than
investment grade corporate debt securities. Risk of loss upon default by the
borrower is significantly greater with respect to below investment grade
securities than with other corporate debt securities. Below investment grade
securities are generally unsecured and are often subordinated to other
creditors of the issuer. Also, issuers of below investment grade securities
usually have higher levels of debt and are more sensitive to adverse economic
conditions, such as recession or increasing interest rates, than are
investment grade issuers. The Company attempts to reduce the overall risk in
its below investment grade portfolio, as in all of its investments, through
careful credit analysis, strict investment policy guidelines, and
diversification by company and by industry.
The Company analyzes its investment portfolio, including below investment
grade securities, at least quarterly in order to determine if its ability to
realize its carrying value on any investment has been impaired. For debt and
equity securities, if impairment in value is determined to be other than
temporary (i.e. if it is probable that the Company will be unable to collect
all amounts due according to the contractual terms of the security), the cost
basis of the impaired security is written down to fair value, which becomes
the security's new cost basis. The amount of the writedown is included in
earnings as a realized loss. Future events may occur, or additional or updated
information may be received, which may necessitate future write-downs of
securities in the Company's portfolio. Significant write-downs in the
carrying value of investments could materially adversely affect the Company's
net income in future periods.
At March 31, 1997, no fixed maturity securities were deemed to have
impairments in value that are other than temporary. The Company's fixed
maturity investment portfolio had a combined yield at amortized cost of 7.0%
at March 31, 1997.
MORTGAGE LOANS: Mortgage loans represent 14.7% of the Company's investment
portfolio. Mortgages outstanding were $48,283,000 at March 31, 1997 with an
estimated fair value of $46,616,000. The Company's mortgage loan portfolio
includes 28 loans with an average size of $1,724,000 and average seasoning of
1.5 years if weighted by the number of loans, and 1.2 years if weighted by
mortgage loan carrying values. The Company's mortgage loans are typically
secured by occupied buildings in major metropolitan locations and not
speculative developments, and are diversified by type of property and
geographic location. At March 31, 1997, the yield on the Company's mortgage
loan portfolio was 7.7%.
At March 31, 1997, no mortgage loans were delinquent by 90 days or more. The
Company does not expect to incur material losses from its mortgage loan
portfolio. The Company's loan investment strategy is consistent with that of
other life insurance subsidiaries of its ultimate parent, Equitable.
Equitable has experienced a historically low default rate in its mortgage
loan portfolio and has been able to recover 102.5% of the principal amount of
problem mortgages resolved in the last three years.
At March 31, 1997, the Company had no investments in default. The Company
estimates its total investment portfolio, excluding policy loans, had a fair
value approximately equal to 96.5% of its amortized cost value for accounting
purposes at March 31, 1997.
OTHER ASSETS
Accrued investment income increased $957,000 during the first quarter of 1997
due to an increase in the overall size of the portfolio resulting from the
investment of premiums allocated to the fixed account option of the Company's
variable products.
The Company's DPAC and previous balance of PVIF, as of the purchase date,
were eliminated and an asset representing the PVIF was established for all
policies in force at the acquisition date. PVIF is amortized into income in
proportion to the expected gross profits of the in force acquired in a manner
similar to DPAC amortization. Any expenses which vary with the sales of the
Company's products are deferred and amortized. At March 31, 1997, the
Company had DPAC and PVIF balances of $18,026,000 and $81,431,000,
respectively.
Goodwill totaling $39,254,000, representing the excess of the acquisition
cost over the fair value of net assets acquired, was established at the
acquisition date. Amortization of goodwill through March 31, 1997 was
$392,000.
At March 31, 1997, the Company had $1,235,591,000 of separate account assets
compared to $1,207,247,000 at December 31, 1996. The increase in separate
account assets is due to growth in sales of the Company's variable annuity
separate account and variable life products.
At March 31, 1997, the Company had total assets of $1,720,496,000, a 2.5%
increase from December 31, 1996.
LIABILITIES
In conjunction with the volume of variable insurance sales, the Company's
total liabilities increased $43,944,000, or 2.9%, during the first quarter of
1997 and totaled $1,581,359,000 at March 31, 1997. Future policy benefits for
annuity and interest sensitive life products increased $13,037,000, or 4.6%,
to $298,324,000 reflecting premium growth in the Company's fixed account
option of its variable products. Premium growth, net of redemptions and
market appreciation also accounted for the $28,344,000, or 2.3%, increase in
separate account liabilities to $1,235,591,000 at March 31, 1997.
On December 17, 1996, Golden American issued a $25,000,000, 8.25% surplus
note to Equitable. The note matures on December 17, 2026. During the first
three months of 1997, Golden American made interest payments totaling
$517,000 on this note. On December 17, 1996, Golden American contributed the
$25,000,000 to First Golden, acquiring 200,000 shares of common stock (100%
of shares outstanding) of First Golden.
Golden American maintains a line of credit agreement with Equitable to
facilitate the handling of unusual and/or unanticipated short-term cash
requirements. Under the current agreement, which became effective December
1, 1996 and expires on December 31, 1997, Golden American can borrow up to
$25,000,000. Interest on any borrowings is charged at the rate of Equitable's
monthly average aggregate cost of short-term funds plus 1.00%. During the
first quarter of 1997, the Company incurred $43,000 of interest expense under
this agreement. At March 31, 1997, $1,121,000 was outstanding under this
agreement.
The effects of inflation and changing prices on the Company are not material
since insurance assets and liabilities are both primarily monetary and remain
in balance. An effect of inflation, which has been low in recent years, is a
decline in purchasing power when monetary assets exceed monetary liabilities.
LIQUIDITY AND CAPITAL RESOURCES
_______________________________
The liquidity requirements of the Company are met by cash flow from variable
insurance premiums, investment income and maturities of fixed maturity
investments and mortgage loans. The Company primarily uses funds for the
payment of insurance benefits, commissions, operating expenses and the
purchase of new investments.
The Company's home office operations are currently housed in a leased
location in Wilmington, Delaware and a leased location in New York, New York.
The Company intends to spend approximately $1,000,000 on capital needs for
the remainder of 1997.
The ability of Golden American to pay dividends to its parent is restricted
because prior approval of insurance regulatory authorities is required for
payment of dividends to the stockholder which exceed an annual limitation.
During the remainder of 1997, Golden American could pay dividends to its
parent of approximately $2,186,000 without prior approval of statutory
authorities. The Company has maintained adequate statutory capital and
surplus and have not used surplus relief or financial reinsurance, which have
come under scrutiny by many state insurance departments.
The NAIC's risk-based capital requirements require insurance companies to
calculate and report information under a risk-based capital formula. These
requirements are intended to allow insurance regulators to identify
inadequately capitalized insurance companies based upon the type and mixture
of risks inherent in the company's operations. The formula includes
components for asset risk, liability risk, interest rate exposure and other
factors. Golden American has complied with the NAIC's risk-based capital
reporting requirements. Amounts reported indicate that Golden American has
total adjusted capital well above all required capital levels. First Golden
intends to comply with these requirements in 1997, as its insurance license
was approved on January 2, 1997, and expects to exceed levels that require
regulatory action.
SURPLUS NOTE: On December 17, 1996, Golden American issued a surplus note in
the amount of $25,000,000 to Equitable. The note matures on December 17,
2026 accrues interest of 8.25% per annum until paid. The note and accrued
interest thereon shall be subordinate to payments due to policyholders,
claimant and beneficiary claims, as well as debts owed to all other classes
of debtors of Golden American. Any payment of principal made shall be
subject to the prior approval of the Delaware Insurance Commissioner. On
December 17, 1996, Golden American contributed the $25,000,000 to First
Golden acquiring 200,000 shares of common stock (100% of shares outstanding)
of First Golden.
LINE OF CREDIT: Golden American maintains a line of credit agreement with
Equitable to facilitate the handling of unusual and/or unanticipated short-
term cash requirements. The maximum borrowing allowed under this facility is
$25,000,000 expiring on December 31, 1997. At March 31, 1997, $1,121,000 was
outstanding under this agreement.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Any forward-looking statement contained herein or in any other oral or
written statement by the Company or any of its officers, directors or
employees is qualified by the fact that actual results of the Company may
differ materially from such statement due to the following important factors,
among other risks and uncertainties inherent in the Company's business:
1. Prevailing interest rate levels and stock market performance, which may
affect the ability of the Company to sell its products, the market value of
the Company's investments and the lapse rate of the Company's policies,
notwithstanding product design features intended to enhance persistency of
the Company's products.
2. Changes in the federal income tax laws and regulations which may affect
the relative tax advantages of the Company's products.
3. Changes in the regulation of financial services, including bank sales and
underwriting of insurance products, which may affect the competitive
environment for the Company's products.
4. Increasing competition in the sale of the Company's products.
5. Other factors affecting the performance of the Company, including, but
not limited to, market conduct claims and other litigation, insurance
industry insolvencies, investment performance of the underlying
portfolios of the variable products, variable product design and sales
volume by significant sellers of the Company's variable products.
PART II. OTHER INFORMATION
Item 2-4. CHANGES IN SECURITIES, DEFAULTS UPON SENIOR SECURITIES AND
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information called for by items 2 through 4 of this part is
omitted pursuant to General Instruction H (2)(b) of Form 10Q.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
A list of exhibits included as part of this report is set
forth in the Exhibit Index which immediately precedes such
exhibits and is hereby incorporated by reference herein.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: May 13, 1997 GOLDEN AMERICAN LIFE INSURANCE COMPANY
By /s/ Paul E. Larson
_________________________________________
Executive Vice President, CFO and
Assistant Secretary
(Principal Financial Officer)
By /s/ David A. Terwilliger
_________________________________________
Vice President, Controller, Assistant
Treasurer and Assistant Secretary
(Principal Accounting Officer)
INDEX
Exhibits to Form 10-Q
Three Months ended March 31, 1997
GOLDEN AMERICAN LIFE INSURANCE COMPANY
2 Plan of Acquisition
(a) Stock Purchase Agreement dated as of May 3, 1996, between
Equitable and Whitewood Properties Corp.
3 Articles of Incorporation and By-Laws
(a) Articles of Incorporation of Golden American Life Insurance
Company (incorporated by reference from the registrant's
post-effective amendment No. 17 to the registration statement
of Form N-4 filed with the Securities and Exchange Commission
on May 2, 1994 (File No. 33-23351))
(b)(i) By-laws of Golden American Life Insurance Company (incorporated
by reference from the registrant's initial registration statement
on Form N-4 filed with the Securities and Exchange Commission on
July 27, 1988 (File No. 33-23351))
(ii) By-laws of Golden American Life Insurance Company, as amended
(incorporated by reference from the registrant's post-effective
amendment No. 5 to the registration statement on Form N-4 filed
with the Securities and Exchange Commission on May 2, 1991
(File No. 33-23351))
(iii) Certificate of Amendment of the By-laws of MB Variable Life
Insurance Company, as amended (incorporated by reference from
the registrant's registration statement on Form N-3 filed with
the Securities and Exchange Commission on August 19, 1992
(File No. 33-51028))
(iv) By-laws of Golden American Life Insurance Company, as amended
(12/21/93) (incorporated by reference from the registrant's
post-effective amendment No. 17 to the registration statement
filed with the Securities and Exchange Commission on May 2, 1994
(File No. 33-23351))
4 Instruments Defining the Rights of Security Holders, Including Indentures
(a) Deferred Combination Variable and Fixed Annuity Contract
(incorporated by reference from exhibit 4(a) to registrant's pre-
effective amendment No. 1 to registrant's registration statement
on Form S-1 dated February 13, 1995 (File No. 33-87272))
(b) Deferred Combination Variable and Fixed Annuity Contract
application (incorporated by reference from exhibit 4(b) to
registrant's pre-effective amendment No. 1 to registrant's
registration statement on Form S-1 dated February 13, 1995
(File No. 33-87272))
(c) Individual Deferred Combination Variable and Fixed Annuity
application (incorporated by reference from exhibit 4(c) to
registrant's pre-effective amendment No. 1 to registrant's
registration statement on Form S-1 dated February 13, 1995
(File No. 33-87272))
INDEX
Exhibits to Form 10-Q
Three Months ended March 31, 1997
GOLDEN AMERICAN LIFE INSURANCE COMPANY
(d) Group Deferred Combination Variable and Fixed Enrollment Form
(incorporated by reference from exhibit 4(d) to registrant's
pre-effective amendment No. 1 to registrant's registration
statement on Form S-1 dated February 13, 1995
(File No. 33-87272))
27 Financial Data Schedule (electronic filing only)
=============================================================================
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
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND CONDENSED CONSOLIDATED BALANCE
SHEETS (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 271,123
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 32
<MORTGAGE> 48,283
<REAL-ESTATE> 0
<TOTAL-INVEST> 333,095
<CASH> 414
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 18,026
<TOTAL-ASSETS> 1,720,496
<POLICY-LOSSES> 298,324
<UNEARNED-PREMIUMS> 2,984
<POLICY-OTHER> 1
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 25,000
0
0
<COMMON> 2,500
<OTHER-SE> 136,637
<TOTAL-LIABILITY-AND-EQUITY> 1,720,496
0
<INVESTMENT-INCOME> 5,376
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 8,090
<BENEFITS> 5,317
<UNDERWRITING-AMORTIZATION> 349
<UNDERWRITING-OTHER> 6,557
<INCOME-PRETAX> 683
<INCOME-TAX> 270
<INCOME-CONTINUING> 413
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 413
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
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</TABLE>
