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 September 30, 1998
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 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 November 6, 1998.
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 PURSUANT TO GENERAL INSTRUCTION H(2).
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-MERGER POST-ACQUISITION
_____________________________________
For the Three | For the Three
Months ended | Months ended
September 30, 1998|September 30, 1997
__________________|__________________
(Dollars in thousands)
<S> <C> | <C>
Revenues: |
Annuity and interest sensitive life |
product charges $10,114 | $6,156
Management fee revenue 1,234 | 736
Net investment income 10,675 | 7,463
Realized gains on investments 303 | 6
Other income 1,899 | 155
__________________|__________________
24,225 | 14,516
|
Insurance benefits and expenses: |
Annuity and interest sensitive life |
benefits: |
Interest credited to account balances 26,141 | 7,000
Benefit claims incurred in excess of |
account balances 451 | 118
Underwriting, acquisition and |
insurance expenses: |
Commissions 32,781 | 8,849
General expenses 9,949 | 3,278
Insurance taxes 891 | 483
Policy acquisition costs deferred (52,760)| (9,439)
Amortization: |
Deferred policy acquisition costs 1,938 | 597
Present value of in force acquired 289 | 2,285
Goodwill 945 | 411
__________________|__________________
20,625 | 13,582
Interest expense 1,026 | 675
__________________|__________________
21,651 | 14,257
__________________|__________________
2,574 | 259
|
Income taxes 1,271 | (65)
__________________|__________________
Net income $1,303 | $324
=====================================
</TABLE>
See accompanying notes.
Condensed Consolidated Statements of Income (Unaudited):
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
_____________________________________
For the Nine | For the Nine
Months ended | Months ended
September 30, 1998|September 30, 1997
__________________|__________________
(Dollars in thousands)
<S> <C> | <C>
Revenues: |
Annuity and interest sensitive life |
product charges $26,984 | $15,937
Management fee revenue 3,257 | 2,014
Net investment income 29,296 | 18,955
Realized gains on investments 436 | 58
Other income 4,805 | 427
__________________|__________________
64,778 | 37,391
|
Insurance benefits and expenses: |
Annuity and interest sensitive life |
benefits: |
Interest credited to account balances 64,110 | 16,840
Benefit claims incurred in excess of |
account balances 862 | 118
Underwriting, acquisition and |
insurance expenses: |
Commissions 84,958 | 23,113
General expenses 23,480 | 11,762
Insurance taxes 2,680 | 1,693
Policy acquisition costs deferred (133,616)| (25,464)
Amortization: |
Deferred policy acquisition costs 4,014 | 1,433
Present value of in force acquired 3,252 | 4,465
Goodwill 2,834 | 1,261
__________________|__________________
52,574 | 35,221
Interest expense 3,033 | 1,827
__________________|__________________
55,607 | 37,048
__________________|__________________
9,171 | 343
|
Income taxes 4,294 | 1
__________________|__________________
Net income $4,877 | $342
=====================================
</TABLE>
See accompanying notes.
Condensed Consolidated Balance Sheets (Unaudited):
<TABLE>
<CAPTION>
POST-MERGER
_____________________________________
September 30, 1998|December 31, 1997
__________________|__________________
(Dollars in thousands,
except per share data)
<S> <C> | <C>
ASSETS |
Investments: |
Fixed maturities, available for sale, |
at fair value (cost: 1998 - $610,316; |
1997 - $413,288) $618,650 | $414,401
Equity securities, at fair value |
(cost: 1998 - $14,437; 1997 - $4,437) 10,092 | 3,904
Mortgage loans 98,045 | 85,093
Policy loans 10,217 | 8,832
Short-term investments 11,886 | 14,460
__________________|__________________
Total investments 748,890 | 526,690
|
Cash and cash equivalents 18,951 | 21,039
Due from affiliates 1,114 | 827
Accrued investment income 9,395 | 6,423
Deferred policy acquisition costs 140,845 | 12,752
Present value of in force acquired 36,502 | 43,174
Current income taxes recoverable 502 | 272
Deferred income tax asset 31,633 | 36,230
Property and equipment, less allowances for |
depreciation of $583 in 1998 and $97 |
in 1997 4,550 | 1,567
Goodwill, less accumulated amortization of |
$3,463 in 1998 and $630 in 1997 147,664 | 150,497
Other assets 7,153 | 755
Separate account assets 2,629,343 | 1,646,169
__________________|__________________
Total assets $3,776,542 | $2,446,395
==================|==================
</TABLE>
See accompanying notes.
Condensed Consolidated Balance Sheets (Unaudited) (Continued):
<TABLE>
<CAPTION>
POST-MERGER
_____________________________________
September 30, 1998|December 31, 1997
__________________|__________________
(Dollars in thousands,
except per share data)
<S> <C> | <C>
LIABILITIES AND STOCKHOLDER'S EQUITY |
Policy liabilities and accruals: |
Future policy benefits: |
Annuity and interest sensitive life |
products $705,673 | $505,304
Unearned revenue reserve 2,968 | 1,189
Other policy claims and benefits 89 | 10
__________________|__________________
708,730 | 506,503
Reciprocal loan with affiliate 40,000 | --
Line of credit with affiliate -- | 24,059
Surplus note 25,000 | 25,000
Revolving note payable 20,082 | --
Due to affiliates 1,552 | 80
Other liabilities 46,400 | 17,271
Separate account liabilities 2,629,343 | 1,646,169
__________________|__________________
3,471,107 | 2,219,082
|
Commitments and contingencies |
|
Stockholder's equity: |
Common stock, par value $10 per share, |
authorized, issued and outstanding |
250,000 shares 2,500 | 2,500
Additional paid-in capital 297,640 | 224,997
Accumulated comprehensive income 842 | 241
Retained earnings (deficit) 4,453 | (425)
__________________|__________________
Total stockholder's equity 305,435 | 227,313
__________________|__________________
Total liabilities and stockholder's |
equity $3,776,542 | $2,446,395
=====================================
</TABLE>
See accompanying notes.
Condensed Consolidated Statements of Cash Flows (Unaudited):
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
_____________________________________
For the Nine | For the Nine
Months ended | Months ended
September 30, 1998|September 30, 1997
__________________|__________________
(Dollars in thousands)
<S> <C> | <C>
NET CASH USED IN OPERATING ACTIVITIES ($22,666)| ($1,659)
|
INVESTING ACTIVITIES |
Sale, maturity or repayment of |
investments: |
Fixed maturities - available for sale 92,707 | 35,590
Mortgage loans on real estate 3,145 | 5,017
Short-term investments - net 2,575 | 11,153
__________________|__________________
98,427 | 51,760
|
Acquisition of investments: |
Fixed maturities - available for sale (291,687)| (146,376)
Equity securities (10,000)| (4,864)
Mortgage loans on real estate (16,390)| (38,058)
Policy loans - net (1,385)| (3,682)
__________________|__________________
(319,462)| (192,980)
Purchase of property and equipment (3,470)| (659)
__________________|__________________
Net cash used in investing activities (224,505)| (141,879)
|
FINANCING ACTIVITIES |
Proceeds from reciprocal loan agreement |
borrowings 242,847 | --
Repayment of reciprocal loan agreement |
borrowings (202,847)| --
Proceeds from revolving note payable 20,082 | --
Proceeds from line of credit borrowings -- | 86,522
Repayment of line of credit borrowings (24,059)| (69,562)
Receipts from annuity and interest |
sensitive life policies credited to |
policyholder account balances 350,385 | 232,635
Return of policyholder account balances |
on annuity and interest sensitive life |
policies (50,370)| (12,674)
Net reallocations to Separate Accounts (163,455)| (81,561)
Contribution from parent 72,500 | 1,011
__________________|__________________
Net cash provided by financing activities 245,083 | 156,371
__________________|__________________
</TABLE>
See accompanying notes.
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued):
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
_____________________________________
For the Nine | For the Nine
Months ended | Months ended
September 30, 1998|September 30, 1997
__________________|__________________
(Dollars in thousands)
<S> <C> | <C>
Increase (decrease) in cash and cash |
equivalents ($2,088)| $12,833
|
Cash and cash equivalents at beginning |
of period 21,039 | 5,839
__________________|__________________
Cash and cash equivalents at end of period $18,951 | $18,672
==================|==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW |
INFORMATION |
|
Cash paid during the period for: |
Interest $3,493 | --
Income taxes 80 | $283
|
Non-cash financing activities: |
Non-cash adjustment to paid in capital |
for adjusted merger costs 143 | --
Contribution of property, plant and |
equipment from EIC Variable, Inc. net |
of $353 of accumulated depreciation -- | 110
|
</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. This form is being filed with the reduced disclosure
format specified in General Instruction H (1)(a) and (b) of Form 10-Q.
Accordingly, the financial statements 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 nine months ended September 30, 1998, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1998. 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,
1997.
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 with Golden American, the "Company"). All significant
intercompany accounts and transactions have been eliminated.
ORGANIZATION
On October 24, 1997, PFHI Holdings, Inc. ("PFHI"), a Delaware corporation,
acquired all of the outstanding capital stock of Equitable of Iowa Companies
("Equitable") pursuant to the terms of an Agreement and Plan of Merger dated
as of July 7, 1997, among Equitable, PFHI, and ING Groep N.V. ("ING"). PFHI
is a wholly owned subsidiary of ING, a global financial services holding
company based in The Netherlands. As a result of the merger, Equitable was
merged into PFHI which was simultaneously renamed Equitable of Iowa
Companies, Inc. ("EIC" or the "Parent"), a Delaware corporation.
On August 13, 1996, Equitable acquired all of the outstanding capital stock
of EIC Variable, Inc. (formerly known as BT Variable, Inc.) and its wholly
owned subsidiaries, Golden American and Directed Services, Inc. ("DSI"), from
Whitewood Properties Corporation.
For financial statement purposes, the ING merger was accounted for as a
purchase effective October 25, 1997, and the change in control of Golden
American through the acquisition of BT Variable, Inc. was accounted for as a
purchase effective August 14, 1996. The merger and acquisition resulted in
new bases of accounting reflecting estimated fair values of assets and
liabilities at their respective dates. As a result, the Company's financial
statements for the period subsequent to October 24, 1997, are presented on
the Post-Merger new basis of accounting, for the period August 14, 1996
through October 24, 1997, are presented on the Post-Acquisition basis of
accounting, and for August 13, 1996 and prior periods are presented on the
Pre-Acquisition basis of accounting.
FAIR VALUES
Estimated fair values of investment grade public bonds are estimated using a
third party pricing system. This pricing system uses a matrix calculation
assuming a spread over U.S. Treasury bonds based upon the expected average
lives of the securities.
STATUTORY
Net income (loss) for Golden American as determined in accordance with
statutory accounting practices was $(32,198,000) and $510,000 for the nine
months ended September 30, 1998 and 1997, respectively. Total statutory
capital and surplus was $112,356,000 at September 30, 1998 and $76,914,000 at
December 31, 1997.
RECLASSIFICATION
Certain amounts in the September 30, 1997 and December 31, 1997 financial
statements have been reclassified to conform to the September 30, 1998
financial statement presentation.
NOTE 2 -- COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted the Statement of Financial
Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of this statement had no
impact on the Company's net income or stockholder's equity. SFAS No. 130
requires unrealized gains or losses on the Company's available for sale
securities (net of deferred income taxes, deferred policy acquisition costs
and present value of in force acquired), which prior to adoption were
reported separately in stockholder's equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified
to conform to the requirements of SFAS No. 130.
During the third quarter and first nine months of 1998, total comprehensive
income for the Company amounted to $2,426,000 and $5,478,000, respectively
($2,385,000 and $2,016,000, respectively, for the same periods of 1997).
Included in these amounts are total comprehensive income for First Golden of
$601,000 and $1,174,000 for the third quarter and first nine months of 1998,
respectively ($551,000 and $879,000, respectively, for the same periods of
1997).
NOTE 3 -- 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 the Company. DSI is authorized to enter into
agreements with broker/dealers to distribute the Company's variable insurance
products and appoint the broker/dealers as agents. As of September 30, 1998,
the Company's variable insurance products are sold primarily through four
broker/dealer institutions. The Company paid commissions and expenses to DSI
totaling $32,104,000 in the third quarter and $82,548,000 for the first nine
months of 1998 ($8,849,000 and $23,113,000, respectively, for the same
periods of 1997).
Golden American provides certain managerial and supervisory services to DSI.
The fee paid by DSI for these services was calculated as a percentage of
average assets in the variable separate accounts. For the quarter and nine
months ended September 30, 1998, the fee was $1,234,000 and $3,257,000
($736,000 and $2,014,000, respectively, for the same periods of 1997).
Golden American provides certain advisory, computer and other resources and
services to Equitable Life Insurance Company of Iowa ("Equitable Life").
Revenues for these services, which reduce general expenses incurred by Golden
American, totaled $1,524,000 in the third quarter and $5,091,000 for the
first nine months of 1998 ($954,000 and $2,694,000, respectively, for the
same periods of 1997).
The Company has a service agreement with Equitable Life in which Equitable
Life provides administrative and financial related services. The Company
incurred expenses of $261,000 in the third quarter and $575,000 for the first
nine months of 1998 under this agreement.
First Golden provides resources and services to DSI. Revenues for these
services, which reduce general expenses incurred by the Company, totaled
$19,000 in the third quarter and $57,000 for the first nine months of 1998.
Golden American maintains a reciprocal loan agreement with ING America
Insurance Holdings, Inc. ("ING AIH"), a Delaware corporation and affiliate of
EIC, to facilitate the handling of unusual and/or unanticipated short-term
cash requirements. Under this agreement which became effective January 1,
1998, and expires December 31, 2007, Golden American and ING AIH can borrow
up to $65,000,000 from one another. Prior to lending funds to ING AIH,
Golden American must obtain the approval of the State of Delaware Department
of Insurance. Interest on any Golden American borrowings is charged at the
rate of ING AIH's cost of funds for the interest period plus 0.15%. Interest
on any ING AIH borrowings is charged at a rate based on the prevailing
interest rate of U.S. commercial paper available for purchase with a similar
duration. Under this agreement, Golden American incurred interest expense of
$505,000 in the third quarter and $1,269,000 for the first nine months of
1998. At September 30, 1998, $40,000,000 was payable to ING AIH under this
agreement.
Effective January 1, 1998, the Company has an asset management agreement with
ING Investment Management LLC ("ING-IM"), an affiliated company, in which ING-
IM provides asset management services. Under the agreement, the Company
records a fee based on the value of the assets under management. The fee is
payable quarterly. For the third quarter and first nine months of 1998, the
Company incurred fees of $341,000 and $1,013,000, respectively, under this
agreement.
Golden American maintained a line of credit agreement with Equitable to
facilitate the handling of unusual and/or unanticipated short-term cash
requirements. Under this agreement which became effective December 1, 1996,
and expired December 31, 1997, Golden American could borrow up to
$25,000,000. Interest on any borrowings was charged at the rate of
Equitable's monthly average aggregate cost of short-term funds plus 1.00%.
Under this agreement, Golden American incurred interest expense of $211,000
for the first nine months of 1998 ($165,000 and $279,000 in the third quarter
and first nine months of 1997, respectively). The outstanding balance was
paid by a capital contribution.
For the nine months ended September 30, 1998, the Company had premiums, net
of reinsurance, for variable products from four affiliates, Locust Street
Securities, Inc., Vestax Securities Corporation, DSI and Multi-Financial
Securities Corporation of $92,900,000, $30,100,000, $10,700,000 and
$10,100,000, respectively.
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
REINSURANCE: At September 30, 1998, Golden American had reinsurance treaties
with four unaffiliated reinsurers and one affiliated reinsurer covering a
significant portion of the mortality risks under its variable contracts.
Golden American remains liable to the extent its reinsurers do not meet their
obligations under the reinsurance agreements. At September 30, 1998, the
Company has a net receivable of $6,539,000 for reserve credits, reinsurance
claims or other receivables from these reinsurers comprised of $257,000 for
claims recoverable from reinsurers, $451,000 for a payable for reinsurance
premiums, and $6,733,000 for a receivable from an unaffiliated reinsurer.
Included in the accompanying financial statements are net considerations to
reinsurers of $1,293,000 in the third quarter and $3,259,000 for the first
nine months of 1998 compared to $467,000 and $1,318,000, respectively, for
the same periods in 1997. Also included in the accompanying financial
statements are net policy benefits of $1,272,000 and $2,096,000 in the third
quarter and first nine months of 1998, respectively ($142,000 and $571,000,
respectively, for the same periods of 1997).
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.
INVESTMENT COMMITMENTS: At September 30, 1998, outstanding commitments to
fund mortgage loans on real estate totaled $25,290,000.
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 as well as its potential for premium tax offset. The Company has
established an undiscounted 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 $208,000 in the third quarter and $598,000
for the first nine months of 1998. At September 30, 1998, the Company has an
undiscounted reserve of $1,910,000 to cover estimated future assessments (net
of related anticipated premium tax credits) and has established an asset
totaling $261,000 for assessments paid which may be recoverable through
future premium tax offsets. The Company believes this reserve is sufficient
to cover expected future guaranty fund assessments based upon previous
premium levels and known insolvencies at this time.
LITIGATION: The Company, like other insurance companies, may be named or
otherwise involved in lawsuits, including class action lawsuits. In some
class action and other lawsuits involving insurers, substantial damages have
been sought and/or material settlement payments have been made. The Company
currently believes no pending or threatened lawsuits exist that are
reasonably likely to have a material adverse impact on the Company.
VULNERABILITY FROM CONCENTRATIONS: 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. Substantial changes in tax laws that would make these products
less attractive to consumers and extreme fluctuations in interest rates or
stock market returns which may result in higher lapse experience than assumed
could have a severe impact on the Company's financial condition. A
significant portion of the Company's sales is generated by four
broker/dealers.
The Company has various concentrations in its investment portfolio. The
composition of the Company's fixed maturity securities has changed
significantly from December 31, 1997. The following percentages relate to
holdings at September 30, 1998, and December 31, 1997. Fixed maturity
investments included investments in basic industrials (25% in 1998, 30% in
1997), conventional mortgage-backed securities (24% in 1998, 13% in 1997),
financial companies (20% in 1998, 24% in 1997), asset-backed securities (11%
in 1998, 0% in 1997), various government bonds or agency mortgage-backed
securities (7% in 1998, 17% in 1997) and public utilities (6% in 1998, 7% in
1997).
REVOLVING NOTE PAYABLE: To enhance short-term liquidity, the Company has
established a revolving note payable effective July 27, 1998, and expiring
July 31, 1999, with SunTrust Bank, Atlanta (the "Bank"). The note was
approved by Golden American's and First Golden's boards of directors on
August 5, 1998 and September 29, 1998, respectively. The total amount the
Company may have outstanding is $85,000,000, of which Golden American and
First Golden have individual credit sublimits of $75,000,000 and $10,000,000,
respectively. The note accrues interest at an annual rate equal to: (1) the
cost of funds for the Bank for the period applicable for the advance plus
0.25% or (2) a rate quoted by the Bank to the Company for the advance. The
terms of the agreement require the Company to maintain the minimum level of
Company Action Level Risk Based Capital as established by applicable state
law or regulation. During the quarter and nine months ended September 30,
1998, the Company paid interest expense of $6,000. At September 30, 1998,
$20,082,000 was payable to the Bank under this note by Golden American.
YEAR 2000 PROJECT: Based on a 1997 study of its computer software and
hardware, the Company has determined its exposure to the Year 2000 change of
the century date issue. Some of the Company's computer programs were
originally written using two digits rather than four to define a particular
year. As a result, these computer programs contain "time sensitive"
software that may recognize "00" as the year 1900 rather than the year 2000,
which could cause system failure or miscalculations resulting in disruptions
to operations. These disruptions could include, but are not limited to, a
temporary inability to record transactions.
The Company has identified one system and some desktop software that will
have date problems. All systems will be upgraded in the fourth quarter of
1998. To a lesser extent, the Company depends on various non-information
technology systems, such as telephone switches, which could also fail or
misfunction as a result of the Year 2000.
The Company has developed a plan to address the Year 2000 issue in a timely
manner. The following schedule details the plan's phases, progress towards
completion and actual or estimated completion dates:
<TABLE>
<CAPTION>
% Complete as of Actual/Estimated
Phases September 30, 1998 Completion Dates
______________________________________________________________________________
<S> <C> <C>
ASSESSMENT AND DEVELOPMENT of the steps
to be taken to address Year 2000
systems issues 100% 12/31/97
IMPLEMENTATION of steps to address Year
2000 systems issues 76-99% 12/31/98
IMPLEMENTATION of steps to address
Year 2000 desktop software issues 76-99% 12/31/98
TESTING of systems 26-50% 12/31/98
POINT-TO-POINT TESTING of external
interfaces with third party computer
systems that communicate with Company
systems 1-25% 12/31/98
IMPLEMENTATION of tested software
addressing Year 2000 systems issues 51-75% 12/31/98
CONTINGENCY PLAN 1-25% 03/31/99
</TABLE>
In addition, the Company's operations could be adversely affected if
significant customers, suppliers and other third parties would be unable to
transact business in the Year 2000 and thereafter. To mitigate the effect of
outside influences and other dependencies relative to the Year 2000, the
Company has identified and contacted these third parties who have assured the
Company that necessary steps are being taken to prepare for the Year 2000.
Management believes the Company's systems are or will be substantially
compliant by Year 2000. Golden American has charged to expense approximately
$140,000 in the first nine months of 1998 related to the Year 2000 project.
The Company anticipates charging to expense an additional $180,000 to
$195,000 in 1998 which includes upgrade and internal resources costs.
Management expects some internal resources will be utilized in early 1999 to
finalize the contingency plan.
Despite the Company's efforts to modify or replace "time sensitive" computer
and information systems, the Company could experience a disruption to its
operations as a result of the Year 2000. The Company is currently developing
a contingency plan to address any systems that may malfunction despite the
testing being performed. The contingency plan, which is expected to be
completed by March 31, 1999, will provide for the availability of staff,
prioritize tasks and outline procedures to fix any malfunctioning systems.
The costs and completion date of the Year 2000 project are based on
management's best estimates. These estimates were derived using numerous
assumptions of future events, including the continued availability of
resources, third party Year 2000 compliance and other factors. There is no
guarantee these estimates will be achieved and actual results could
materially differ from those anticipated. Specific factors that might cause
such material differences include, but are not limited to, the availability
and cost of trained personnel, the ability to locate and correct all relevant
computer codes and other uncertainties.
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
consolidated 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, the related notes and the
Cautionary Statement Regarding Forward-Looking Statements 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
_____________________
MERGER
On October 23, 1997, Equitable of Iowa Companies' ("Equitable") shareholders
approved an Agreement and Plan of Merger ("Merger Agreement") dated as of
July 7, 1997, among Equitable, PFHI Holdings, Inc. ("PFHI"), and ING Groep
N.V. ("ING"). On October 24, 1997, PFHI, a Delaware corporation, acquired
all of the outstanding capital stock of Equitable pursuant to the Merger
Agreement. PFHI is a wholly owned subsidiary of ING, a global financial
services holding company based in The Netherlands. Equitable, an Iowa
corporation, in turn owned all the outstanding capital stock of Equitable
Life Insurance Company of Iowa ("Equitable Life") and Golden American and
their wholly owned subsidiaries. Equitable also owned all the outstanding
capital stock of Locust Street Securities, Inc., Equitable Investment
Services, Inc., Directed Services, Inc. ("DSI"), Equitable of Iowa Companies
Capital Trust, Equitable of Iowa Companies Capital Trust II and Equitable of
Iowa Securities Network, Inc. In exchange for the outstanding capital stock
of Equitable, ING paid total consideration of approximately $2.1 billion in
cash and stock plus the assumption of approximately $400 million in debt
according to the Merger Agreement. As a result of the merger, Equitable of
Iowa Companies was merged into PFHI which was simultaneously renamed
Equitable of Iowa Companies, Inc. ("EIC" or the "Parent"), a Delaware
corporation.
For financial statement purposes, the change in control of the Company
through the ING merger was accounted for as a purchase effective October 25,
1997. This merger 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 the period subsequent to October 24, 1997,
are presented on the Post-Merger new basis of accounting.
The purchase price was allocated to the companies mentioned previously.
Goodwill of $1.4 billion was established for the excess of the merger cost
over the fair value of the assets and liabilities of EIC with $151.1 million
pushed down to the Company. The allocation of the purchase price to the
Company was $227.6 million. The cost of the acquisition is preliminary as it
relates to estimated expenses, and as a result, the allocation of the
purchase price to the Company may change. Goodwill resulting from the merger
is being amortized over 40 years on a straight-line basis. The carrying value
will be reviewed periodically for any indication of impairment in value.
CHANGE IN CONTROL - ACQUISITION
On August 13, 1996, Equitable acquired all of the outstanding capital stock
of BT Variable, Inc. ("BT Variable") and its wholly owned subsidiaries Golden
American and DSI. Subsequent to the acquisition, the BT Variable, Inc. name
was changed to EIC Variable, Inc. On April 30, 1997, EIC Variable, Inc. was
liquidated and its investments in Golden American and DSI were transferred to
Equitable while the remainder of its net assets were contributed to Golden
American. On December 30, 1997, EIC Variable, Inc. was dissolved.
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 value of assets and liabilities
at that date. As a result, the Company's financial statements for the period
August 14, 1996 through October 24, 1997, are presented on the
Post-Acquisition basis of accounting and for August 13, 1996 and prior periods
are presented on the Pre-Acquisition basis of accounting.
The purchase price was allocated to the three companies purchased - BT
Variable, DSI, and Golden American. Goodwill of $41.1 million was established
for the excess of the acquisition cost over the fair value of the assets and
liabilities and pushed down to Golden American. At June 30, 1997, goodwill
was increased by $1.8 million to adjust the value of a receivable existing at
that date. The allocation of the purchase price to Golden American was
approximately $139.9 million. Goodwill resulting from the acquisition was
being amortized over 25 years on a straight-line basis.
PREMIUMS
<TABLE>
<CAPTION>
|POST-
POST-MERGER |ACQUISITION
_____________ |_____________
Nine Months ended Percentage Dollar |
September 30 1998 Change Change | 1997
__________________________________________________________________|_____________
(Dollars in millions) |
<S> <C> | <C> | <C> | <C>
Variable annuity | | |
premiums: | | |
Separate account $1,125.3 | 651.6%| $975.5 | $149.8
Fixed account 346.6 | 51.7 | 118.1 | 228.5
_____________|____________|___________|_____________
Total variable | | |
annuity premiums 1,471.9 | 289.1 | 1,093.6 | 378.3
Variable life | | |
premiums 11.4 | (16.2)| (2.2)| 13.6
_____________|____________|___________|_____________
Total premiums $1,483.3 | 278.5%| $1,091.4 | $391.9
====================================================
</TABLE>
Variable annuity separate account premiums increased 651.6% during the first
nine months of 1998 and increased 2.5% in the third quarter compared to
second quarter 1998 premiums. These increases resulted from increased sales
of the new Premium Plus product introduced in October of 1997 and the
increased sales levels of the Company's other products. The fixed account
portion of the Company's variable annuity premiums increased 51.7% during the
first nine months of 1998 and increased 39.1% in the third quarter of 1998
compared to the second quarter of 1998. Although variable life premiums
decreased 16.2% during the first nine months of 1998, third quarter variable
life premiums increased 11.1% over second quarter 1998 premiums.
Premiums, net of reinsurance, for variable products from four significant
broker/dealers totaled $546.9 million, or 37% of total premiums, for the
first nine months of 1998.
REVENUES
<TABLE>
<CAPTION>
POST-
POST-MERGER |ACQUISITION
_____________ |_____________
Nine Months ended Percentage Dollar |
September 30 1998 Change Change | 1997
__________________________________________________________________|_____________
(Dollars in millions) |
<S> <C> | <C> | <C> | <C>
Annuity and interest | | |
sensitive life | | |
product charges $27.0 | 69.3%| $11.1 | $15.9
Management fee revenue 3.3 | 61.7 | 1.3 | 2.0
Net investment income 29.3 | 54.6 | 10.3 | 19.0
Realized gains | | |
on investments 0.4 | 658.7 | 0.3 | 0.1
Other income 4.8 | 1,026.6 | 4.4 | 0.4
_____________|____________|___________|_____________
$64.8 | 73.2%| $27.4 | $37.4
====================================================
</TABLE>
Total revenues increased 73.2% in the first nine months of 1998. Annuity and
interest sensitive life product charges increased 69.3% in the first nine
months of 1998 due to additional fees earned from the increasing block of
business under management in the separate accounts and an increase in
surrender charges. This increase was partially offset by the elimination of
the unearned revenue reserve related to in force acquired at the merger date
which resulted in lower annuity and interest sensitive life product charges
compared to Post-Acquisition levels.
Golden American provides certain managerial and supervisory services to DSI.
The fee for these services, which is calculated as a percentage of average
assets in the variable separate accounts, was $3.3 million and $2.0 million
for the first nine months of 1998 and 1997, respectively.
Net investment income increased 54.6% in the first nine months of 1998 due to
the increase in invested assets. The Company had $436,000 of realized gains
on the sale of investments in the first nine months of 1998, compared to
gains of $58,000 in the same period of 1997.
Other income increased $4.4 million to $4.8 million in the first nine months
of 1998 due primarily to income received from a modified coinsurance
agreement with an unaffiliated reinsurer as a result of increased sales.
EXPENSES
Total insurance benefits and expenses increased $17.4 million, or 49.3%, to
$52.6 million in the first nine months of 1998. Interest credited to account
balances increased $47.3 million, or 280.7%, to $64.1 million in the first
nine months of 1998. The extra credit bonus on the new Premium Plus product
introduced in October of 1997 generated a $35.8 million increase in interest
credited during the first nine months of 1998. The remaining increase in
interest credited relates to higher account balances associated with the
Company's fixed account option within its variable products.
Commissions increased $61.8 million, or 267.6%, to $85.0 million in the first
nine months of 1998. Insurance taxes increased $1.0 million, or 58.3%, to
$2.7 million in the first nine months of 1998. 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 which include an increase in FICA taxes primarily due to bonuses.
Most costs incurred as the result of new sales have been deferred, thus
having very little impact on current earnings.
General expenses increased $11.7 million, or 99.6%, to $23.5 million in the
first nine months of 1998. Management expects general expenses to continue
to increase in 1998 as a result of the emphasis on expanding the salaried
wholesaler distribution network. 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
current earnings. The increase in general expenses was partially offset by
reimbursements received from Equitable Life, an affiliate, for certain
advisory, computer and other resources and services provided by Golden
American.
At the merger date, the Company's deferred policy acquisition costs ("DPAC"),
previous balance of present value of in force acquired ("PVIF") and unearned
revenue reserve were eliminated and an asset of $44.3 million representing
PVIF was established for all policies in force at the merger date. During
the third quarter of 1998, PVIF was unlocked by $0.8 million to reflect
changes in the assumptions related to the timing of future gross profits.
PVIF decreased $2.7 million in the second quarter of 1998 to adjust the value
of other receivables and increased $0.2 million in the first quarter of 1998
as a result of an adjustment to the merger costs. The amortization of PVIF
and DPAC increased $1.4 million, or 23.2%, in the first nine months of 1998.
During the second quarter of 1997, PVIF was unlocked by $2.3 million to
reflect narrower current spreads than the gross profit model assumed. Based
on current conditions and assumptions as to the impact of future events on
acquired policies in force, the expected approximate net amortization is $1.0
million for the remainder of 1998, $4.1 million in 1999, $4.1 million in
2000, $4.0 million in 2001, $3.8 million in 2002 and $3.5 million in 2003.
Certain expense estimates inherent in the cost of the merger may change
resulting in changes of the allocation of the purchase price. If changes
occur, the impact could result in changes to PVIF and the related
amortization and deferred taxes. Actual amortization may vary based upon
changes in assumptions and experience.
Amortization of goodwill during the first nine months of 1998 totaled $2.8
million. Goodwill resulting from the merger is being amortized on a straight-
line basis over 40 years and is expected to approximate $3.8 million
annually.
Interest expense on the $25 million surplus note issued in December 1996 was
$1.5 million in the first nine months of 1998 and the same period of 1997.
In addition, Golden American paid interest of $0.2 million on the line of
credit during the first nine months of 1998. Golden American also paid $1.3
million in the first nine months of 1998 to ING America Insurance Holdings,
Inc. ("ING AIH") for interest on the reciprocal loan agreement.
NET INCOME
Net income for the first nine months of 1998 was $4.9 million, an increase of
$4.6 million over net income of $0.3 million in the same period of 1997.
FINANCIAL CONDITION
___________________
INVESTMENTS
The financial statement carrying value of the Company's total investment
portfolio grew 39.6% in the first nine months of 1998. The amortized cost
basis of the Company's total investment portfolio grew 39.0% 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 fixed account option.
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 and equity
securities and mortgage loans. At September 30, 1998, the Company's
investment portfolio at amortized cost was $722.4 million with a yield of
7.1% and carrying value of $726.4 million.
FIXED MATURITY SECURITIES: At September 30, 1998, the Company had fixed
maturities with an amortized cost of $610.3 million and an estimated fair
value of $618.7 million. The individual securities in the Company's fixed
maturities portfolio (at amortized cost) include investment grade securities
($471.5 million or 77.3%), which include securities issued by the U.S.
government, its agencies and corporations that are rated at least BBB- by
Standard & Poor's Rating Services ("Standard & Poor's"), and below investment
grade securities ($47.2 million or 7.7%), which are securities issued by
corporations that are rated BB+ to B- by Standard & Poor's. Securities not
rated by Standard & Poor's had a National Association of Insurance
Commissioners rating of 1, 2 or 3, ($90.5 million or 14.8%) or a rating of 4
($1.1 million or 0.2%).
The Company classifies 100% of its securities as available for sale. Net
unrealized appreciation of fixed maturity securities of $8.4 million was
comprised of gross appreciation of $11.3 million and gross depreciation of
$2.9 million. Net unrealized holding gains on these securities, net of
adjustments to DPAC, PVIF and deferred income taxes, increased stockholder's
equity by $3.7 million at September 30, 1998.
The Company began investing in below investment grade securities during 1996.
At September 30, 1998, the amortized cost value of the Company's total
investment in below investment grade securities was $55.1 million, or 7.6%,
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 September 30, 1998, the yield at
amortized cost on the Company's below investment grade portfolio was 8.0%
compared to 6.4% for the Company's investment grade corporate bond portfolio.
The Company estimates the fair value of its below investment grade portfolio
was $53.8 million, or 97.5% of amortized cost value, at September 30, 1998.
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 write-down 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.
During the first nine months of 1998, fixed maturity securities designated as
available for sale with a combined amortized cost of $91.2 million were
called or repaid by their issuers. In total, net pre-tax gains from sales,
calls and repayments of fixed maturity investments amounted to $0.5 million
in the first nine months of 1998.
At September 30, 1998, 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 6.7%
at September 30, 1998.
EQUITY SECURITIES: At September 30, 1998, the Company owned equity
securities with a cost of $14.4 million and an estimated fair value of $10.1
million. Net unrealized depreciation of equity securities of $4.3 million
was comprised entirely of gross depreciation. Equity securities are
primarily comprised of the Company's investment in shares of the mutual funds
underlying the Company's registered separate accounts.
MORTGAGE LOANS: Mortgage loans represent 13.5% of the Company's investment
portfolio. Mortgages outstanding were $98.0 million at September 30, 1998,
with an estimated fair value of $101.9 million. The Company's mortgage loan
portfolio includes 57 loans with an average size of $1.7 million and average
seasoning of 0.9 years if weighted by the number of loans. 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 September 30, 1998, the
yield on the Company's mortgage loan portfolio was 7.3%.
At September 30, 1998, no mortgage loans were delinquent by 90 days or more.
The Company's loan investment strategy is consistent with that of other life
insurance subsidiaries of EIC. The insurance subsidiaries have experienced a
historically low default rate in their mortgage loan portfolios.
At September 30, 1998, the Company had no investments in default. The
Company estimated its total investment portfolio, excluding policy loans, had
a fair value approximately equal to 101.1% of its amortized cost value for
accounting purposes at September 30, 1998.
OTHER ASSETS
Accrued investment income increased $3.0 million during the first nine months
of 1998 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.
DPAC represents certain deferred costs of acquiring new insurance business,
principally commissions and other expenses related to the production of new
business subsequent to the merger. The Company's DPAC and previous balance
of PVIF were eliminated as of the merger date, and an asset representing the
PVIF was established for all policies in force at the merger 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
September 30, 1998, the Company had DPAC and PVIF balances of $140.8 million
and $36.5 million, respectively. During the third quarter of 1998, PVIF was
unlocked by $0.8 million to reflect changes in the assumptions related to the
timing of future gross profits. PVIF decreased $2.7 million in the second
quarter of 1998 for an adjustment to the value of other receivables and
increased $0.2 million in the first quarter of 1998 for an adjustment made to
the merger costs. During the second quarter of 1997, PVIF was unlocked by $2.3
million to reflect narrower current spreads than the gross profit model assumed.
Goodwill totaling $151.1 million, representing the excess of the acquisition
cost over the fair value of net assets acquired, was established at the
merger date. Amortization of goodwill through September 30, 1998, was $2.8
million.
At September 30, 1998, the Company had $2.6 billion of separate account
assets compared to $1.6 billion at December 31, 1997. The increase in
separate account assets resulted from growth in sales of the Company's
variable annuity products, net of redemptions and market depreciation.
At September 30, 1998, the Company had total assets of $3.8 billion, a 54.4%
increase from December 31, 1997.
LIABILITIES
In conjunction with the volume of variable insurance sales, the Company's
total liabilities increased $1.3 billion, or 56.4%, during the first nine
months of 1998 and totaled $3.5 billion at September 30, 1998. Future policy
benefits for annuity and interest sensitive life products increased $200.4
million, or 39.7%, to $705.7 million reflecting premium growth in the
Company's fixed account option of its variable products. Premium growth, net
of redemptions and market depreciation, accounted for the $983.2 million, or
59.7%, increase in separate account liabilities to $2.6 billion at September
30, 1998.
Golden American maintains a reciprocal loan agreement with ING AIH, a
Delaware corporation and affiliate of EIC, to facilitate the handling of
unusual and/or unanticipated short-term cash requirements. Under this
agreement, which became effective January 1, 1998, and expires on December
31, 2007, Golden American and ING AIH can borrow up to $65 million from one
another. Prior to lending funds to ING AIH, Golden American must obtain
approval from the State of Delaware Department of Insurance. At September
30, 1998, $40.0 million was payable to ING AIH under this agreement.
On December 17, 1996, Golden American issued a $25 million, 8.25% surplus
note to Equitable which matures on December 17, 2026. As a result of the
Merger Agreement, the surplus note is now payable to EIC.
To enhance short-term liquidity, the Company has established a revolving note
payable effective July 27, 1998, and expiring July 31, 1999, with SunTrust
Bank, Atlanta (the "Bank"). The note was approved by Golden American's and
First Golden's boards of directors on August 5, 1998 and September 29, 1998,
respectively. The total amount the Company may have outstanding is $85
million, of which Golden American and First Golden have individual credit
sublimits of $75 million and $10 million, respectively. The terms of the
agreement require the Company to maintain the minimum level of Company Action
Level Risk Based Capital as established by applicable state law or
regulation. At September 30, 1998, $20.1 million was payable to the Bank
under this note by Golden American.
Other liabilities increased $29.1 million from $17.3 million at December 31,
1997, due primarily to a payable on investments at September 30, 1998.
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, mortgage loans and short-term investments. 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 leased locations
in Wilmington, Delaware, various locations in Pennsylvania and New York, New
York. The office space in Pennsylvania is being leased on a short-term basis
for use in the transition to a new office building. The Company has entered
into agreements with a developer to develop and lease a 65,000 square foot
office building to house the Company's operations, except for New York. The
Company intends to spend approximately $2.9 million on capital needs during
the remainder of 1998.
The Company intends to continue expanding its operations. Future growth in
the Company's operations will require additional capital. The Company
believes it will be able to fund the capital required for projected new
business primarily with future capital contributions from its Parent. It is
ING's policy to ensure adequate capital and surplus is provided for the
Company and, if necessary, additional funds will be contributed in 1998.
During the first nine months of 1998, Golden American received capital
contributions from EIC of $72.5 million. On November 12, 1998, Golden
American received an additional $50.0 million capital contribution from EIC.
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 1998, Golden American cannot pay dividends to its
parent without prior approval of statutory authorities. The Company has
maintained adequate statutory capital and surplus and has not used surplus
relief or financial reinsurance.
Under the provisions of the insurance laws of the State of New York, First
Golden cannot distribute any dividends to its stockholder unless a notice of
its intention to declare a dividend and amount of the dividend has been filed
not less than thirty days in advance of the proposed declaration. The
superintendent may disapprove the distribution by giving written notice to
First Golden within thirty days after the filing should the superintendent
find that the financial condition of First Golden does not warrant the
distribution.
REINSURANCE: At September 30, 1998, Golden American had reinsurance treaties
with four unaffiliated reinsurers and one affiliated reinsurer covering a
significant portion of the mortality risks under its variable contracts.
Golden American remains liable to the extent its reinsurers do not meet their
obligations under the reinsurance agreements.
YEAR 2000 PROJECT: Based on a 1997 study of its computer software and
hardware, the Company has determined its exposure to the Year 2000 change of
the century date issue. Some of the Company's computer programs were
originally written using two digits rather than four to define a particular
year. As a result, these computer programs contain "time sensitive" software
that may recognize "00" as the year 1900 rather than the year 2000, which
could cause system failure or miscalculations resulting in disruptions to
operations. These disruptions could include, but are not limited to, a
temporary inability to record transactions.
The Company has identified one system and some desktop software that will
have date problems. All systems will be upgraded in the fourth quarter of
1998. To a lesser extent, the Company depends on various non-information
technology systems, such as telephone switches, which could also fail or
misfunction as a result of the Year 2000.
The Company has developed a plan to address the Year 2000 issue in a timely
manner. The following schedule details the plan's phases, progress towards
completion and actual or estimated completion dates:
<TABLE>
<CAPTION>
% Complete as of Actual/Estimated
Phases September 30, 1998 Completion Dates
______________________________________________________________________________
<S> <C> <C>
ASSESSMENT AND DEVELOPMENT of the steps
to be taken to address Year 2000
systems issues 100% 12/31/97
IMPLEMENTATION of steps to address Year
2000 systems issues 76-99% 12/31/98
IMPLEMENTATION of steps to address
Year 2000 desktop software issues 76-99% 12/31/98
TESTING of systems 26-50% 12/31/98
POINT-TO-POINT TESTING of external
interfaces with third party computer
systems that communicate with Company
systems 1-25% 12/31/98
IMPLEMENTATION of tested software
addressing Year 2000 systems issues 51-75% 12/31/98
CONTINGENCY PLAN 1-25% 03/31/99
</TABLE>
In addition, the Company's operations could be adversely affected if
significant customers, suppliers and other third parties would be unable to
transact business in the Year 2000 and thereafter. To mitigate the effect of
outside influences and other dependencies relative to the Year 2000, the
Company has identified and contacted these third parties who have assured the
Company that necessary steps are being taken to prepare for the Year 2000.
Management believes the Company's systems are or will be substantially
compliant by Year 2000. Golden American has charged to expense approximately
$140,000 in the first nine months of 1998 related to the Year 2000 project.
The Company anticipates charging to expense an additional $180,000 to
$195,000 in 1998 which includes upgrade and internal resources costs.
Management expects some internal resources will be utilized in early 1999 to
finalize the contingency plan.
Despite the Company's efforts to modify or replace "time sensitive" computer
and information systems, the Company could experience a disruption to its
operations as a result of the Year 2000. The Company is currently developing
a contingency plan to address any systems that may malfunction despite the
testing being performed. The contingency plan, which is expected to be
completed by March 31, 1999, will provide for the availability of staff,
prioritize tasks and outline procedures to fix any malfunctioning systems.
The costs and completion date of the Year 2000 project are based on
management's best estimates. These estimates were derived using numerous
assumptions of future events, including the continued availability of
resources, third party Year 2000 compliance and other factors. There is no
guarantee these estimates will be achieved and actual results could
materially differ from those anticipated. Specific factors that might cause
such material differences include, but are not limited to, the availability
and cost of trained personnel, the ability to locate and correct all relevant
computer codes and other uncertainties.
SURPLUS NOTE: On December 17, 1996, Golden American issued a surplus note in
the amount of $25 million to Equitable. The note matures on December 17,
2026, and 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
million to First Golden, acquiring 200,000 shares of common stock (100% of
shares outstanding) of First Golden. As a result of the Merger Agreement,
the surplus note is now payable to EIC.
RECIPROCAL LOAN AGREEMENT: Golden American maintains a reciprocal loan
agreement with ING AIH to facilitate the handling of unusual and/or
unanticipated short-term cash requirements. Under this agreement, which
became effective January 1, 1998, and expires on December 31, 2007, Golden
American and ING AIH can borrow up to $65 million from one another. Prior to
lending funds to ING AIH, Golden American must obtain approval from the State
of Delaware Department of Insurance. At September 30, 1998, $40.0 million
was payable to ING AIH under this agreement.
REVOLVING NOTE PAYABLE: To enhance short-term liquidity, the Company has
established a revolving note payable effective July 27, 1998, and expiring
July 31, 1999, with SunTrust Bank, Atlanta (the "Bank"). The note was
approved by Golden American's and First Golden's boards of directors on
August 5, 1998 and September 29, 1998, respectively. The total amount the
Company may have outstanding is $85 million, of which Golden American and
First Golden have individual credit sublimits of $75 million and $10 million,
respectively. The note accrues interest at an annual rate equal to: (1) the
cost of funds for the Bank for the period applicable for the advance plus
0.25% or (2) a rate quoted by the Bank to the Company for the advance. The
terms of the agreement require the Company to maintain the minimum level of
Company Action Level Risk Based Capital as established by applicable state
law or regulation. At September 30, 1998, $20.1 million was payable to the
Bank under this note by Golden American.
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, among other risks and uncertainties
inherent in the Company's business, due to the following important factors:
1. Prevailing interest rate levels and stock market performance, which may
affect the ability of the Company to sell its products, the market value
and liquidity 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, 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.
6. To the extent third parties are unable to transact business in the Year
2000 and thereafter, the Company's operations could be adversely
affected.
PART II. OTHER INFORMATION
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: November 13, 1998 GOLDEN AMERICAN LIFE INSURANCE COMPANY
By/s/ E. Robert Koster
_______________________________
E. Robert Koster
Senior Vice President and Chief
Financial Officer
(Officer)
By/s/ Michellen A. Wildin
_______________________________
Michellen A. Wildin
Assistant Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
INDEX
Exhibits to Form 10-Q
Nine Months ended September 30, 1998
GOLDEN AMERICAN LIFE INSURANCE COMPANY
2 PLAN OF ACQUISITION
(a) Stock Purchase Agreement dated as of May 3, 1996, between Equitable
of Iowa Companies ("Equitable") and Whitewood Properties Corp.
(incorporated by reference from Exhibit 2 in Equitable's Form 8-K
filed August 28, 1996)
(b) Agreement and Plan of Merger dated as of July 7, 1997, among ING
Groep N.V., PFHI Holdings, Inc., and Equitable (incorporated by
reference from Exhibit 2 in Equitable's Form 8-K filed
July 11, 1997)
3 ARTICLES OF INCORPORATION AND BY-LAWS
(a) Articles of Incorporation of Golden American Life Insurance Company
("Registrant" or "Golden American") (incorporated by reference from
Exhibit 3(a) to Amendment No. 9 to Registrant's Registration
Statement on Form S-1 filed with the Securities and Exchange
Commission (the "SEC") on February 17, 1998 (File No. 33-87272))
(b)(i) By-laws of Golden American (incorporated by reference from Exhibit
3(b)(i) to Amendment No. 9 to Registrant's Registration Statement
on Form S-1 filed with the SEC on February 17, 1998
(File No. 33-87272))
(ii) By-laws of Golden American, as amended (incorporated by reference
from Exhibit 3(b)(ii) to Amendment No. 9 to Registrant's
Registration Statement on Form S-1 filed with the SEC on February
17, 1998 (File No. 33-87272))
(iii) Certificate of Amendment of the By-laws of MB Variable Life
Insurance Company, as amended (incorporated by reference from
Exhibit 3(b)(iii) to Amendment No. 9 to Registrant's Registration
Statement on Form S-1 filed with the SEC on February 17, 1998
(File No. 33-87272))
(iv) By-laws of Golden American, as amended (12/21/93) (incorporated by
reference from Exhibit 3(b)(iv) to Amendment No. 9 to Registrant's
Registration Statement on Form S-1 filed with the SEC on February
17, 1998 (File No. 33-87272))
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
(a) Individual Deferred Combination Variable and Fixed Annuity Contract
(incorporated by reference from Exhibit 4(e) to Amendment No. 4 of
Registrant's Registration Statement on Form S-1 filed with the SEC
on or about May 1, 1996 (File No. 33-87272))
(b) Discretionary Group Deferred Combination Variable Annuity Contract
(incorporated by reference from Exhibit 4(f) to Amendment No. 4 of
Registrant's Registration Statement on Form S-1 filed with the SEC
on or about May 1, 1996 (File No. 33-87272))
INDEX
Exhibits to Form 10-Q
Nine Months ended September 30, 1998
GOLDEN AMERICAN LIFE INSURANCE COMPANY
(c) Individual Deferred Variable Annuity Contract (incorporated by
reference from Exhibit 4(g) to Amendment No. 4 of Registrant's
Registration Statement on Form S-1 filed with the SEC on or about
May 1, 1996 (File No. 33-87272))
(d) Individual Deferred Combination Variable and Fixed Annuity
Application (incorporated by reference from Exhibit 4(k) to a
Registration Statement for Golden American on Form S-1 filed with
the SEC on April 29, 1998 (File No. 333-51353))
(e) Group Deferred Combination Variable and Fixed Annuity Enrollment
Form (incorporated by reference from Exhibit 4(l) to a Registration
Statement for Golden American on Form S-1 filed with the SEC on
April 29, 1998 (File No. 333-51353))
(f) Individual Deferred Variable Annuity Application (incorporated by
reference from Exhibit 4(m) to a Registration Statement for Golden
American on Form S-1 filed with the SEC on April 29, 1998
(File No. 333-51353))
(g) Individual Deferred Variable and Fixed Annuity Contract
(incorporated by reference from Exhibit 4(a) to Amendment No. 2 to
a Registration Statement for Golden American filed with the SEC on
February 12, 1998 (File No. 333-28765))
(h) Group Deferred Variable and Fixed Annuity Contract Individual
Deferred Variable and Fixed Annuity Contract (incorporated by
reference from Exhibit 4(b) to Amendment No. 2 to a Registration
Statement for Golden American filed with the SEC on February 12,
1998 (File No. 333-28765))
(i) Individual Deferred Variable Annuity Contract (incorporated by
reference from Exhibit 4(c) to Amendment No. 2 to a Registration
Statement for Golden American filed with the SEC on February 12,
1998 (File No. 333-28765))
(j) Individual Deferred Variable and Fixed Annuity Contract
(incorporated by reference from Exhibit 4(a) to Amendment No. 2 to
a Registration Statement for Golden American filed with the SEC on
February 12, 1998 (File No. 333-28681))
(k) Group Deferred Variable and Fixed Annuity Contract Individual
Deferred Variable and Fixed Annuity Contract (incorporated by
reference from Exhibit 4(b) to Amendment No. 2 to a Registration
Statement for Golden American filed with the SEC on February 12,
1998 (File No. 333-28681))
(l) Individual Deferred Variable Annuity Contract (incorporated by
reference from Exhibit 4(c) to Amendment No. 2 to a Registration
Statement for Golden American filed with the SEC on February 12,
1998 (File No. 333-28681))
INDEX
Exhibits to Form 10-Q
Nine Months ended September 30, 1998
GOLDEN AMERICAN LIFE INSURANCE COMPANY
(m) Individual Deferred Variable and Fixed Annuity Contract
(incorporated by reference from Exhibit 4(a) to Amendment No. 2 to
a Registration Statement for Golden American filed with the SEC on
February 12, 1998 (File No. 333-28743))
(n) Group Deferred Variable and Fixed Annuity Contract Individual
Deferred Variable and Fixed Annuity Contract (incorporated by
reference from Exhibit 4(b) to Amendment No. 2 to a Registration
Statement for Golden American filed with the SEC on February 12,
1998 (File No. 333-28743))
(o) Individual Deferred Variable Annuity Contract (incorporated by
reference from Exhibit 4(c) to Amendment No. 2 to a Registration
Statement for Golden American filed with the SEC on February 12,
1998 (File No. 333-28743))
10 MATERIAL CONTRACTS
(a) Administrative Services Agreement, dated as of January 1, 1997,
between Golden American and Equitable Life Insurance Company of
Iowa (incorporated by reference from Exhibit 10(a) to a
Registration Statement for Golden American on Form S-1 filed with
the SEC on April 29, 1998 (File No. 333-51353))
(b) Service Agreement, dated as of January 1, 1994, between Golden
American and Directed Services, Inc. (incorporated by reference
from Exhibit 10(b) to a Registration Statement for Golden American
on Form S-1 filed with the SEC on April 29, 1998
(File No. 333-51353))
(c) Service Agreement, dated as of January 1, 1997, between Golden
American and Equitable Investment Services, Inc. (incorporated by
reference from Exhibit 10(c) to a Registration Statement for Golden
American on Form S-1 filed with the SEC on April 29, 1998
(File No. 333-51353))
(d) Participation Agreement between Golden American and Warburg Pincus
Trust (incorporated by reference from Exhibit 8(a) to Amendment
No. 54 to Separate Account B of Golden American's Registration
Statement on Form N-4 filed with the SEC on or about April 30, 1998
(File No. 333-28679 and 811-5626))
(e) Participation Agreement between Golden American and PIMCO Variable
Trust (incorporated by reference from Exhibit 8(b) to Amendment
No. 54 to Separate Account B of Golden American's Registration
Statement on Form N-4 filed with the SEC on or about April 30, 1998
(File No. 333-28679 and 811-5626))
INDEX
Exhibits to Form 10-Q
Nine Months ended September 30, 1998
GOLDEN AMERICAN LIFE INSURANCE COMPANY
(f) Asset Management Agreement, dated January 20, 1998, between Golden
American and ING Investment Management LLC (incorporated by
reference from Exhibit 10(f) to Golden American's Form 10-Q filed
with the SEC on August 14, 1998 (File No. 33-87272))
(g) Reciprocal Loan Agreement, dated January 1, 1998, as amended March
20, 1998, between Golden American and ING America Insurance Holdings,
Inc. (incorporated by reference from Exhibit 10(g) to Golden
American's Form 10-Q filed with the SEC on August 14, 1998
(File No. 33-87272))
(h) Underwriting Agreement between Golden American and Directed
Services, Inc. (incorporated by reference from Exhibit 1 to
Amendment No. 9 to Registrant's Registration Statement on Form S-1
filed with the SEC on or about February 17, 1998
(File No. 33-87272))
(i) Revolving Note Payable, dated July 27, 1998, between Golden American
and SunTrust Bank, Atlanta
27 FINANCIAL DATA SCHEDULE (ELECTRONIC FILING ONLY)
Exhibit 10(i)
SINGLE PAYMENT NOTE
$75,000,000 July 27, 1998
For value received, the Obligor promises to pay to the order of
SunTrust Bank, Atlanta (the "Bank"), on July 31, 1999, or at such earlier
date as hereinafter provided, the principal sum of
SEVENTY FIVE MILLION DOLLARS ($75,000,000)
or such lesser amount of loans as may from time to time, at the Bank's sole
discretion, be advanced or, upon repayment, readvanced by the Bank hereunder
together with interest from the date hereof on the unpaid principal balance
at such annual rate or rates of interest as shall be computed and paid in
accordance with the terms and conditions hereinafter set forth.
This note evidences the obligation of the Obligor to repay, with
interest, any and all present and future indebtedness of the Obligor for
loans at any time hereafter made or extended by the Bank hereunder up to the
aggregate principal amount of $75,000,000 at any time outstanding. The
payment of any indebtedness evidenced by this note shall not affect the
enforceability of this note as to any future, different or other indebtedness
evidenced hereby.
The Obligor acknowledges and agrees that Southland Life Insurance
Company (hereinafter "Southland"), Life Insurance Company of Georgia
(hereinafter "LICG"), ING America Life Corporation (hereinafter "America
Life"), Security Life of Denver Insurance Company (hereinafter "Security
Life"), Columbine Life Insurance Company (hereinafter "Columbine"),
Midwestern United Life Insurance Company (hereinafter "Midwestern"), and
First ING Life Insurance Company of New York (hereinafter "First ING New
York") are all direct or indirect subsidiaries of ING America Insurance
Holdings, Inc. ("America Holdings"). The Obligor further acknowledges and
agrees that Equitable Life Insurance Company of Iowa ("Equitable Life") USG
Annuity and Life Insurance Company ("USG"), Equitable American Insurance
Company ("Equitable American"), Locust Street Securities, Inc. ("Locust
Street"), First Golden American Life Insurance Company of New York ("First
Golden"), and the Obligor are all direct or indirect subsidiaries of
Equitable of Iowa Companies, Inc. ("Equitable of Iowa"). American Holdings
and Equitable of Iowa are both wholly-owned direct subsidiaries of ING
Insurance International B.V. On the date that this note is being executed,
LICG, Security Life, America Life, Southland, Equitable Life, USG, and
America Holdings are executing separate notes to the Bank in the maximum
principal amount of $100,000,000 each; Columbine is executing a separate note
to the Bank in the maximum principal amount of $75,000,000; Equitable of Iowa
is executing a separate note to the Bank in the maximum principal amount of
$50,000,000; First ING New York, Locust Street and First Golden are executing
separate notes to the Bank in the maximum principal amount of $10,000,000
each; Midwestern is executing a separate note to the Bank in the maximum
principal amount of $30,000,000; and Equitable American is executing a
separate note to the Bank in the maximum principal amount of $25,000,000,
each of which notes are substantially similar to this note (the "Affiliate
Notes"). Obligor agrees that the aggregate unpaid principal balance from
time to time outstanding on this note plus the aggregate unpaid principal
balance from time to time outstanding on the Affiliate Notes will at no time
exceed $150,000,000. Obligor will not request any disbursement of principal
under this note if, after such disbursement, the unpaid principal balance of
this note plus the aggregate unpaid principal of the Affiliate Notes will
exceed $150,000,000.
If the Obligor desires a disbursement of principal hereunder (an
"Advance") the Obligor shall give the Bank written or telephonic notice of
the amount of such Advance and the period of time from one (1) day to thirty
(30) days that such Advance shall be outstanding (the "Interest Period"),
provided, however, (a) if any Interest Period would otherwise end on a day
which is not a day on which the Bank and commercial banks in New York, New
York, are open for business (a "Business Day"), that Interest Period shall be
extended through the next succeeding day which is a Business Day, and (b) no
Interest Period shall extend beyond the maturity date of this note. Such
written or telephonic notice with respect to the amount of an Advance and the
Interest Period to be applicable thereto shall be given to the Bank by the
Obligor before one o'clock p.m. Atlanta time, on the first Business Day of
the applicable Interest Period. All telephonic notices shall be promptly
confirmed in writing.
The Obligor shall pay interest upon each Advance from the date of
disbursement through the last day of the applicable Interest Period
(including the date of disbursement but excluding the date of repayment) at a
rate per annum, calculated on the basis of a 360 day year and upon the actual
number of days elapsed, equal to either of the following rates of interest as
selected by the Obligor: (1) the per annum rate of interest equal to the
cost of funds of Bank for the Interest Period applicable to such Advance for
amounts substantially similar to the amount of such Advance plus .25% all as
determined by Bank in accordance with its usual practices in determining its
cost of funds (the "Cost of Funds Rate") or (2) a per annum rate of interest
that would be applicable to the requested Advance as quoted by the Bank to
the Obligor (the "Quoted Rate"). Unpaid interest accruing at either of such
rates will be due and payable on the last Business Day of the applicable
Interest Period. The Bank will advise the Obligor of the Cost of Funds Rate
and the Quoted Rate that will be applicable to a requested Advance before
1:30 p.m. Atlanta time on the Business Day that the Bank receives a request
for an Advance from the Obligor. The Obligor will advise the Bank as to
whether the Obligor has selected the Cost of Funds Rate or the Quoted Rate
before 2:00 p.m. Atlanta time on the Business Day that the Bank receives a
request for an Advance from the Obligor. Any telephonic selection of
interest rates by the Obligor will promptly be confirmed in writing. The
Bank will promptly disburse the amount of an Advance to the Obligor upon
receiving notice of the Obligor's interest rate selection. Unpaid interest
accruing at such interest rate will be due and payable on the last Business
Day of the applicable Interest Period.
The Obligor shall repay the entire outstanding principal balance of
each Advance on the last Business Day of the Interest Period applicable
thereto.
The Obligor may on any Business Day renew an outstanding Advance into
an Advance with the same or different Interest Period, provided that the Bank
must be advised of the Obligor's election to renew the Advance and the
Interest Period applicable to such renewal before one o'clock p.m. on the
last Business Day of the then current Interest Period. The interest rate to
be applicable to the renewal of any Advance shall be selected in the same
manner that the interest rate is selected at the time an Advance is made.
Any such renewal shall be at the Bank's sole discretion.
If no Interest Period has been elected for any Advance or for any
principal balance outstanding hereunder, or if such election shall not be
timely, then the Interest Period with respect thereto shall be deemed to be
one day and the applicable interest rate shall be the Cost of Funds Rate.
No prepayment of any Advance shall be permissible during the Interest
Period applicable thereto.
Should the Obligor fail for any reason to pay this note in full on the
maturity date or on the date of acceleration of payment, the Obligor further
promises to pay interest on the unpaid amount from such date until the date
of final payment at a Default Rate equal to the Prime Rate plus 4%. Should
legal action or an attorney at law be utilized to collect any amount due
hereunder, the Obligor further promises to pay all costs of collection, plus
reasonable attorney's fees. All amounts due hereunder may be paid at any
office of Bank. The principal balance of this note shall conclusively be
deemed to be the unpaid principal balance appearing on the Bank's records
unless such records are manifestly in error.
As security for the payment of this and any other liability of the
Obligor to the holder, direct or contingent, irrespective of the nature of
such liability or the time it arises, the Obligor hereby grants a security
interest to the holder in all property of the Obligor in or coming into the
possession, control or custody of the holder, or in which the holder has or
hereafter acquires a lien, security interest, or other right. Upon default,
holder may, without notice, immediately take possession of and then sell or
otherwise dispose of the collateral, signing any necessary documents as
Obligor's attorney in fact, and apply the proceeds against any liability of
Obligor to holder. Upon demand, the Obligor will furnish such additional
collateral, and execute any appropriate documents related thereto, deemed
necessary by the holder for its security. The Obligor further authorizes the
holder, without notice, to set-off any deposit or account and apply any
indebtedness due or to become due from the holder to the Obligor in
satisfaction of any liability described in this paragraph, whether or not
matured. The holder may, without notice, transfer or register any property
constituting security for this note into its or its nominee name with or
without any indication of its security interest therein.
This note shall immediately mature and become due and payable, without
notice or demand, upon the appointment of a receiver for the Obligor or upon
the filing of any petition or the commencement of any proceeding by the
Obligor for relief under any bankruptcy or insolvency laws, or any law
relating to the relief of debtors, readjustment of indebtedness, debtor
reorganization, or composition or extension of debt. Furthermore, this note
shall, at the option of the holder, immediately mature and become due and
payable, without notice or demand, upon the happening of any one or more of
the following events; (1) nonpayment on the due date of any amount due
hereunder; (2) failure of the Obligor to perform any other material
obligation to the holder; (3) if the Obligor shall fail to make any payment
as and when such payment is due upon any obligation for borrowed money other
than the obligation owing pursuant to this Note, and by reason thereof such
obligation becomes due prior to its stated maturity or prior to its regularly
scheduled dates of payment; (4) a reasonable belief on the part of the
holder that the Obligor is unable to pay its obligations when due or is
otherwise insolvent; (5) the filing of any petition or the commencement of
any proceeding against the Obligor for relief under bankruptcy or insolvency
laws, or any law relating to the relief of debtors, readjustment of
indebtedness, debtor reorganization, or composition or extension of debt,
which petition or proceeding is not dismissed within 60 days of the date of
filing thereof; (6) the suspension of the transaction of the usual business
of the Obligor, or the dissolution, liquidation or transfer to another party
of a significant portion of the assets of the Obligor and any such action
shall have a material adverse effect on the ability of the Obligor to repay
the unpaid principal balance hereof; (7) a reasonable belief on the part of
the holder that the Obligor has made a representation or warranty in
connection with any loan by or other transaction with the holder and such
representation or warranty was false in any material respect; (8) the
issuance or filing of any levy, attachment, garnishment, or lien against the
property of the Obligor which shall remain unpaid or undischarged for a
period of thirty (30) days and such failure to pay shall have a material
adverse effect on the ability of the Obligor to repay the unpaid principal
balance hereof; (9) the failure of the Obligor to satisfy any judgment,
penalty or fine imposed by a court or administrative agency of any government
and such judgment, penalty, or fine shall remain unpaid, unstayed on appeal,
undischarged or undismissed for a period of thirty (30) days; (10) failure
of the Obligor, after demand, to furnish financial information or to permit
inspection of any books or records during Obligor's normal business hours;
(11) Equitable of Iowa shall no longer own 100% of the outstanding voting
stock of the Obligor, or (12) the Obligor shall fail to maintain the minimum
level of Company Action Level Risk Based Capital as established by applicable
state law or regulation.
The failure or forbearance of the holder to exercise any right
hereunder, or otherwise granted by law or another agreement, shall not affect
or release the liability of the Obligor, and shall not constitute a waiver of
such right unless so stated by the holder in writing. The Obligor agrees
that the holder shall have no responsibility for the collection or protection
of any property securing this note, and expressly consents that the holder
may from time to time, without notice, extend the time for payment of this
note, or any part thereof, waive its rights with respect to any property or
indebtedness without releasing the Obligor from any liability to the holder.
This note is governed by Georgia law.
The term "Obligor" means Golden American Life Insurance Company. The
term "Prime Rate", if used herein, shall mean that rate of interest
designated by Bank from time to time as its "Prime Rate" which rate is not
necessarily the Bank's best rate. The term "holder" means Bank and any
subsequent transferee or endorsee hereof.
PRESENTMENT AND NOTICE OF DISHONOR ARE HEREBY WAIVED BY THE OBLIGOR
GOLDEN AMERICAN LIFE INSURANCE COMPANY
BY:/s/ Denny Hargens
_____________________________
TITLE: Treasurer
_________________________
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<PERIOD-TYPE> 9-MOS
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<PERIOD-START> JAN-01-1998
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<DEBT-HELD-FOR-SALE> 618,650
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