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 June 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 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 August 7, 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
June 30, 1998 | June 30, 1997
________________|________________
(Dollars in thousands)
<S> <C> | <C>
Revenues: |
Annuity and interest sensitive life |
product charges $9,930 | $2,469
Management fee revenue 1,114 | 660
Net investment income 9,015 | 6,116
Realized gains on investments 46 | 52
Other income 2,861 | 162
________________|________________
22,966 | 9,459
|
Insurance benefits and expenses: |
Annuity and interest sensitive life |
benefits: |
Interest credited to account balances 21,263 | 4,573
Benefit claims incurred in excess of |
account balances 323 | --
Underwriting, acquisition and |
insurance expenses: |
Commissions 31,140 | 8,547
General expenses 7,348 | 4,197
Insurance taxes 988 | 559
Policy acquisition costs deferred (47,302)| (9,434)
Amortization: |
Deferred policy acquisition costs 1,141 | 487
Present value of in force acquired 1,375 | 79
Goodwill 944 | 458
________________|________________
17,220 | 9,466
Interest expense 330 | 592
________________|________________
17,550 | 10,058
________________|________________
5,416 | (599)
|
Income taxes 2,259 | (204)
________________|________________
Net income (loss) $3,157 | ($395)
=================================
</TABLE>
See accompanying notes.
Condensed Consolidated Statements of Income (Unaudited):
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
_________________________________
For the Six | For the Six
Months ended | Months ended
June 30, 1998 | June 30, 1997
________________|________________
(Dollars in thousands)
<S> <C> | <C>
Revenues: |
Annuity and interest sensitive life |
product charges $16,870 | $9,781
Management fee revenue 2,023 | 1,278
Net investment income 17,857 | 11,492
Realized gains on investments 133 | 52
Other income 2,906 | 272
________________|________________
39,789 | 22,875
|
Insurance benefits and expenses: |
Annuity and interest sensitive life |
benefits: |
Interest credited to account balances 37,969 | 9,840
Benefit claims incurred in excess of |
account balances 411 | --
Underwriting, acquisition and |
insurance expenses: |
Commissions 52,177 | 14,264
General expenses 13,531 | 8,484
Insurance taxes 1,789 | 1,210
Policy acquisition costs deferred (80,856)| (16,025)
Amortization: |
Deferred policy acquisition costs 2,076 | 836
Present value of in force acquired 2,963 | 2,180
Goodwill 1,889 | 850
________________|________________
31,949 | 21,639
Interest expense 1,243 | 1,152
________________|________________
33,192 | 22,791
________________|________________
6,597 | 84
|
Income taxes 3,023 | 66
________________|________________
Net income (loss) $3,574 | $18
=================================
</TABLE>
See accompanying notes.
Condensed Consolidated Balance Sheets (Unaudited):
<TABLE>
<CAPTION>
POST-MERGER
_________________________________
June 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 - $516,449; |
1997 - $413,288) $518,373 | $414,401
Equity securities, at fair value |
(cost: 1998 - $14,437; 1997 - $4,437) 12,607 | 3,904
Mortgage loans 95,583 | 85,093
Policy loans 9,219 | 8,832
Short-term investments 11,063 | 14,460
_______________|_________________
Total investments 646,845 | 526,690
|
Cash and cash equivalents 10,413 | 21,039
Due from affiliates -- | 827
Accrued investment income 7,737 | 6,423
Deferred policy acquisition costs 91,336 | 12,752
Present value of in force acquired 37,646 | 43,174
Current income taxes recoverable 566 | 272
Deferred income tax asset 33,412 | 36,230
Property and equipment, less allowances for |
depreciation of $522 in 1998 and $97 in 1997 3,471 | 1,567
Goodwill, less accumulated amortization of |
$2,519 in 1998 and $630 in 1997 148,608 | 150,497
Other assets 5,588 | 195
Separate account assets 2,475,034 | 1,646,169
_______________|_________________
Total assets $3,460,656 | $2,445,835
===============|=================
|
LIABILITIES AND STOCKHOLDER'S EQUITY |
Policy liabilities and accruals: |
Future policy benefits: |
Annuity and interest sensitive life products $613,778 | $505,304
Unearned revenue reserve 2,236 | 1,189
Other policy claims and benefits -- | 10
_______________|_________________
616,014 | 506,503
Reciprocal loan with affiliate 18,900 | --
Line of credit with affiliate -- | 24,059
Surplus note 25,000 | 25,000
Due to affiliates 2,162 | 80
Other liabilities 20,538 | 16,711
Separate account liabilities 2,475,034 | 1,646,169
_______________|_________________
3,157,648 | 2,218,522
|
Commitments and contingencies |
</TABLE>
See accompanying notes.
Condensed Consolidated Balance Sheets (Unaudited) (Continued):
<TABLE>
<CAPTION>
POST-MERGER
__________________________________
June 30, 1998 |December 31, 1997
________________|_________________
(Dollars in thousands,
except per share data)
<S> <C> | <C>
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 (loss) (281)| 241
Retained earnings (deficit) 3,149 | (425)
________________|_________________
Total stockholder's equity 303,008 | 227,313
________________|_________________
Total liabilities and stockholder's equity $3,460,656 | $2,445,835
==================================
</TABLE>
See accompanying notes.
Condensed Consolidated Statements of Cash Flows (Unaudited):
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
_________________________________
For the Six | For the Six
Months ended | Months ended
June 30, 1998 | June 30, 1997
________________|________________
(Dollars in thousands)
<S> <C> | <C>
NET CASH PROVIDED BY (USED IN) OPERATING |
ACTIVITIES ($23,989)| $2,606
|
INVESTING ACTIVITIES |
Sale, maturity or repayment of investments: |
Fixed maturities - available for sale 64,086 | 19,172
Mortgage loans on real estate 2,586 | 4,746
Short-term investments - net 3,397 | 2,012
________________|________________
70,069 | 25,930
|
Acquisition of investments: |
Fixed maturities - available for sale (168,715)| (84,391)
Equity securities (10,000)| (1)
Mortgage loans on real estate (13,290)| (23,957)
Policy loans - net (387)| (3,021)
________________|________________
(192,392)| (111,370)
Purchase of property and equipment (2,169)| (456)
________________|________________
Net cash used in investing activities (124,492)| (85,896)
|
FINANCING ACTIVITIES |
Proceeds from reciprocal loan agreement |
borrowings 121,400 | --
Repayment of reciprocal loan agreement |
borrowings (102,500)| --
Proceeds from line of credit borrowings -- | 40,252
Repayment of line of credit borrowings (24,059)| (31,602)
Receipts from annuity and interest sensitive |
life policies credited to policyholder |
account balances 202,040 | 143,142
Return of policyholder account balances on |
annuity and interest sensitive life policies (31,104)| (8,328)
Net reallocations to Separate Accounts (100,422)| (50,861)
Contribution from parent 72,500 | --
________________|________________
Net cash provided by financing activities 137,855 | 92,603
________________|________________
</TABLE>
See accompanying notes.
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued):
<TABLE>
<CAPTION>
POST-MERGER POST-ACQUISITION
_________________________________
For the Six | For the Six
Months ended | Months ended
June 30, 1998 | June 30, 1997
________________|________________
(Dollars in thousands)
<S> <C> | <C>
Increase (decrease) in cash and cash |
equivalents ($10,626)| $9,313
|
Cash and cash equivalents at beginning |
of period 21,039 | 5,839
________________|________________
Cash and cash equivalents at end of period $10,413 | $15,152
================|================
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW |
INFORMATION |
|
Cash paid during the period for: |
Interest $2,006 | --
Income taxes -- | $283
|
Non-cash financing activities: |
Non-cash adjustment to paid in capital |
for adjusted merger costs 143 | --
|
</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 six months ended June 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 the Agreement and Plan of Merger 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 ("Whitewood") pursuant to the terms of a
Stock Purchase Agreement between Equitable and Whitewood.
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.
RECLASSIFICATION
Certain amounts in the June 30, 1997, financial statements have been
reclassified to conform to the June 30, 1998, financial statement
presentation.
NOTE 2 -- COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted the Statement of Financial
Accounting Standards ("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 second quarter and first six months of 1998, total comprehensive
income (loss) for the Company amounted to $2,606,000 and $3,052,000,
respectively ($978,000 and $(369,000), respectively, for the same periods of
1997). Included in these amounts are total comprehensive income for First
Golden of $379,000 and $573,000 for the second quarter and first six months
of 1998, respectively ($466,000 and $328,000, 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 June 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 $29,407,000 in the second quarter and $50,444,000 for the first six
months of 1998 ($8,547,000 and $14,264,000, 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 $1,234,000 in the second quarter and $3,567,000 for the
first six months of 1998.
The Company has a service agreement with Equitable Life in which Equitable
Life provides administrative and financial related services. The Company
incurred expenses of $165,000 in the second quarter and $314,000 for the
first six 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 second quarter and $38,000 for the first six 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 prior 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 $577,000 in the second quarter and $764,000 for the first six
months of 1998. At June 30, 1998, $18,900,000 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 second quarter and first six months of 1998, the
Company incurred fees of $354,000 and $672,000, 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 six months of 1998 ($71,000 and $114,000 in the second quarter
and first six months of 1997, respectively). The outstanding balance was
paid by a capital contribution.
The Company had premiums, net of reinsurance, for variable products from four
significant broker/dealers for the six months ended June 30, 1998, that
totaled $349,000,000 or 39% of premiums. Included in this amount are
premiums of $58,300,000 for the first six months of 1998 from Locust Street
Securities, Inc., an affiliate. In addition, premiums for the first six
months of 1998 of $15,800,000 and $8,900,000 were received from two
affiliates, Vestax Securities Corporation and DSI, respectively.
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
REINSURANCE: At June 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 June 30, 1998, the Company
has a net receivable of $5,180,000 for reserve credits, reinsurance claims or
other receivables from these reinsurers comprised of $205,000 for claims
recoverable from reinsurers, $368,000 for a payable for reinsurance premiums,
and $5,343,000 for a receivable from an unaffiliated reinsurer. Included in
the accompanying financial statements are net considerations to reinsurers of
$1,028,000 in the second quarter and $1,966,000 for the first six months of
1998 compared to $430,000 and $851,000, respectively, for the same periods in
1997. Also included in the accompanying financial statements are net policy
benefits (recoveries) of $290,000 and $824,000 in the second quarter and
first six months of 1998, respectively ($(48,000) and $429,000, 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 June 30, 1998, outstanding commitments to fund
mortgage loans on real estate totaled $24,965,000.
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 $217,000 in the second quarter and $390,000
for the first six months of 1998. At June 30, 1998, the Company has an
undiscounted reserve of $1,700,000 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 insurance guaranty fund assessments based upon
previous premium levels and known insolvencies at this time.
LITIGATION: In the ordinary course of business, the Company is engaged in
litigation, none of which management believes is material.
VULNERABILITY FROM CONCENTRATIONS: The Company has various concentrations in
its investment portfolio. 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 four
broker/dealers. 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 cause a severe impact to the Company's financial
condition.
YEAR 2000: Based on a study of its computer software and hardware, the
Company has determined its exposure to the Year 2000 change of the century
date issue. Management believes the Company's systems are or will be
substantially compliant by Year 2000 and has engaged external consultants to
validate this assumption. Golden American has spent approximately $61,000 in
the second quarter and $136,000 in the first six months of 1998 related to
the external consultants' analysis. The additional projected cost to the
Company for the external consultants' analysis is approximately $40,000 to
$70,000. The only system known to be affected by this issue is a system
maintained by an affiliate that will incur the related costs to make the
system compliant. To mitigate the effect of outside influences and other
dependencies relative to the Year 2000, the Company will continue to contact
significant customers, suppliers and other third parties. To the extent
these third parties would be unable to transact business in the Year 2000 and
thereafter, the Company's operations could be adversely affected.
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 the 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. Present value of in force acquired ("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 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 values 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-MERGER |POST-ACQUISITION
_____________ |________________
Percentage Dollar |
Six months ended June 30 1998 Change Change | 1997
______________________________________________________________|________________
(Dollars in millions) |
<S> <C> | <C> | <C> | <C>
Variable annuity | | |
premiums: | | |
Separate account $696.0 | 662.4%| $604.7 | $91.3
Fixed account 199.6 | 41.7 | 58.8 | 140.8
_____________|____________|___________|________________
Total variable | | |
annuity premiums 895.6 | 285.8 | 663.5 | 232.1
Variable life | | |
premiums 6.9 | (33.1)| (3.5)| 10.4
_____________|____________|___________|________________
Total premiums $902.5 | 272.1%| $660.0 | $242.5
=======================================================
</TABLE>
Variable annuity separate account premiums increased 662.4% during the first
six months of 1998 and increased 51.1% over first 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 41.7% during the first six months of 1998 and increased
12.6% in the second quarter of 1998 compared to the first quarter of 1998.
Although variable life premiums decreased 33.1% during the first six months
of 1998, variable life premiums increased 39.0% over first quarter 1998
premiums.
Premiums, net of reinsurance, for variable products from four significant
sellers totaled $349.0 million or 39% of total premiums for the first six
months of 1998.
REVENUES
<TABLE>
<CAPTION>
POST-MERGER |POST-ACQUISITION
______________ |________________
Percentage Dollar |
Six months ended June 30 1998 Change Change | 1997
______________________________________________________________|________________
(Dollars in millions) |
<S> <C> | <C> | <C> | <C>
Annuity and interest | | |
sensitive life | | |
product charges $16.9 | 72.5% | $7.1 | $9.8
Management fee revenue 2.0 | 58.3 | 0.7 | 1.3
Net investment income 17.9 | 55.4 | 6.4 | 11.5
Realized gains | | |
on investments 0.1 | 153.1 | 0.1 | --
Other income 2.9 | 968.7 | 2.6 | 0.3
______________|_____________|_________|________________
$39.8 | 73.9% | $16.9 | $22.9
=======================================================
</TABLE>
Total revenues increased 73.9% in the first six months of 1998. Annuity and
interest sensitive life product charges increased 72.5% in the first six
months of 1998 due primarily to increased sales. 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.
This fee, calculated as a percentage of average assets in the variable
separate accounts, was $2.0 million and $1.3 million for the first six months
of 1998 and 1997, respectively.
Net investment income increased 55.4% in the first six months of 1998 due to
the increase in invested assets. The Company had $133,000 of realized gains
on the sale of investments in the first six months of 1998, compared to gains
of $52,000 in the same period of 1997.
Other income increased $2.6 million to $2.9 million in the first six 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 $10.3 million, or 47.6%, to
$31.9 million in the first six months of 1998. Interest credited to account
balances increased $28.1 million, or 285.8%, to $38.0 million in the first six
months of 1998. This increase resulted from an extra credit bonus on the new
Premium Plus product introduced in October of 1997 which resulted in a $20.4
million increase in interest credited during the first six months of 1998 as
well as the higher account balances associated with the Company's fixed
account option within its variable products.
Commissions increased $37.9 million, or 265.8%, to $52.2 million in the
first six months of 1998. Insurance taxes increased $0.6 million, or 47.9%, to
$1.8 million in the first six 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 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 $5.0 million, or 59.5%, to $13.5 million in the
first six months of 1998. 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. 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. 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's deferred policy acquisition costs ("DPAC"), previous balance of
present value of in force acquired and unearned revenue reserve, as of the
merger date, were eliminated and an asset of $44.3 million representing PVIF
was established for all policies in force at the merger date. 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 $2.0 million, or 67.0%, in the first six 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 $5.3
million for the remainder of 1998, $5.6 million in 1999, $5.3 million in 2000,
$4.8 million in 2001, $4.0 million in 2002 and $3.2 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 six months of 1998 totaled $1.9
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
$1.0 million in the first six months of 1998, unchanged from the same period
of 1997. In addition, Golden American paid interest of $0.2 million on the
line of credit during the first six months of 1998. Golden American also paid
$0.8 million in the first six months of 1998 to ING America Insurance
Holdings, Inc. for interest on the reciprocal loan agreement.
NET INCOME
Net income for the first six months of 1998 was $3.6 million, an increase of
$3.6 million over net income of $18,000 in the same period of 1997.
FINANCIAL CONDITION
___________________
INVESTMENTS
The financial statement carrying value of the Company's total investment
portfolio grew 22.5% in the first six months of 1998. The amortized cost
basis of the Company's total investment portfolio grew 22.6% 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 securities and
mortgage loans. At June 30, 1998, the Company's investment portfolio at
amortized cost was $636.9 million with a yield of 6.7% and carrying value of
$638.7 million.
FIXED MATURITY SECURITIES: At June 30, 1998, the Company had fixed
maturities with an amortized cost of $516.4 million and an estimated fair
value of $518.4 million. The individual securities in the Company's fixed
maturities portfolio (at amortized cost) include investment grade securities
($405.4 million or 78.5%), 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 ($48.2 million or 9.3%), 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, 3 or 4 ($62.8 million or 12.2%).
The Company classifies 100% of its securities as available for sale. Net
unrealized appreciation of fixed maturity securities of $2.0 million was
comprised of gross appreciation of $3.0 million and gross depreciation of
$1.0 million. Net unrealized holding losses on these securities, net of
adjustments to DPAC, PVIF and deferred income taxes, increased stockholder's
equity by $0.9 million at June 30, 1998.
The Company began investing in below investment grade securities during 1996.
At June 30, 1998, the amortized cost value of the Company's total investment
in below investment grade securities was $63.3 million, or 9.9%, 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 June 30, 1998, the yield at amortized cost on
the Company's below investment grade portfolio was 7.9% compared to 6.5% for
the Company's investment grade corporate bond portfolio. The Company
estimates the fair value of its below investment grade portfolio was $63.3
million, or 100.1% of amortized cost value, at June 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 six months of 1998, fixed maturity securities designated as
available for sale with a combined amortized cost of $63.0 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 $0.2 million
in the first six months of 1998.
At June 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 6.8%
at June 30, 1998.
EQUITY SECURITIES: At June 30, 1998, the Company owned equity securities
with a cost of $14.4 million and an estimated fair value of $12.6 million.
Net unrealized depreciation of equity securities of $1.8 million was
comprised of gross appreciation of $0.2 million and gross depreciation of
$2.0 million. 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 15.0% of the Company's investment
portfolio. Mortgages outstanding were $95.6 million at June 30, 1998, with an
estimated fair value of $97.3 million. The Company's mortgage loan portfolio
includes 56 loans with an average size of $1.7 million and average seasoning
of 1.0 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 June 30, 1998, the yield on the
Company's mortgage loan portfolio was 7.3%.
At June 30, 1998, 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 EIC. The insurance subsidiaries have
experienced a historically low default rate in their mortgage loan
portfolios.
At June 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 100.3% of its amortized cost value for
accounting purposes at June 30, 1998.
OTHER ASSETS
Accrued investment income increased $1.3 million during the first six 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
June 30, 1998, the Company had DPAC and PVIF balances of $91.3 million and
$37.6 million, respectively. 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.
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 June 30, 1998, was $1.9
million.
At June 30, 1998, the Company had $2.5 billion of separate account assets
compared to $1.6 billion at December 31, 1997. The increase in separate
account assets resulted from market appreciation and growth in sales of the
Company's variable annuity products.
At June 30, 1998, the Company had total assets of $3.5 billion, a 41.5%
increase from December 31, 1997.
LIABILITIES
In conjunction with the volume of variable insurance sales, the Company's
total liabilities increased $939.1 million, or 42.3%, during the first six
months of 1998 and totaled $3.2 billion at June 30, 1998. Future policy
benefits for annuity and interest sensitive life products increased $108.5
million, or 21.5%, to $613.8 million reflecting premium growth in the
Company's fixed account option of its variable products. Market appreciation
and premium growth, net of redemptions, also accounted for the $828.9
million, or 50.4%, increase in separate account liabilities to $2.5 billion
at June 30, 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 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 June 30, 1998, $18.9 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, the surplus note is now payable to EIC.
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, West Chester, Pennsylvania, Chadds Ford,
Pennsylvania and New York, New York. The Company has signed short-term
leases for additional office space in both West Chester and Chadds Ford,
Pennsylvania 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 all of the Company's operations, except
for New York. The Company intends to spend approximately $4.2 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. During
the first six months of 1998, Golden American received capital contributions
from EIC of $72.5 million.
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 June 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 study of its computer software and hardware,
the Company has determined its exposure to the Year 2000 change of the
century date issue. Management believes the Company's systems are or will be
substantially compliant by Year 2000 and has engaged external consultants to
validate this assumption. Golden American has spent approximately $136,000 in
the first six months of 1998 related to the external consultants' analysis.
The additional projected cost for the external consultants analysis is
approximately $40,000 to $70,000. The only system known to be affected by
this issue is a system maintained by an affiliate that will incur the related
costs to make the system compliant. To mitigate the effect of outside
influences and other dependencies relative to the Year 2000, the Company will
continue to contact significant customers, suppliers and other third parties.
To the extent these third parties would be unable to transact business in the
Year 2000 and thereafter, the Company's operations could be adversely
affected.
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, 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 June 30, 1998, $18.9 million was
payable to ING AIH 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
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: August 14, 1998 GOLDEN AMERICAN LIFE INSURANCE COMPANY
By/s/ Barnett Chernow
____________________________________
Barnett Chernow
President and Director
(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
Six Months ended June 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
Six Months ended June 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
Six Months ended June 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))
(f) Asset Management Agreement, dated January 20, 1998, between
Golden American and ING Investment Management LLC
(g) Reciprocal Loan Agreement, dated January 1, 1998, as amended
March 20, 1998, between Golden American and ING America Insurance
Holdings, Inc.
INDEX
Exhibits to Form 10-Q
Six Months ended June 30, 1998
GOLDEN AMERICAN LIFE INSURANCE COMPANY
(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))
27 FINANCIAL DATA SCHEDULE (ELECTRONIC FILING ONLY)
Exhibit 10 (f)
ASSET MANAGEMENT AGREEMENT
THIS ASSET MANAGEMENT AGREEMENT (the "Agreement"), dated January
20, 1998, and effective as of the date specified in Section 17 hereof, is by
and between GOLDEN AMERICAN LIFE INSURANCE COMPANY, a Delaware corporation
(the "Client"), and ING INVESTMENT MANAGEMENT LLC, a Delaware limited
liability company ("ING-IM").
SECTION 1. APPOINTMENT OF ING-IM - The Client hereby appoints ING-IM to
provide asset management services for the Client's general account (the
"Account") under the terms and conditions set forth in this Agreement. ING-
IM hereby accepts such appointment and agrees to provide such asset
management services as are specified in EXHIBIT "A" attached hereto and
incorporated herein by reference.
SECTION 2. RECOMMENDATIONS - INVESTMENTS - ING-IM shall make
recommendations to the Client relating to the direction and management of the
investment and reinvestment of assets in the Account and any additions
thereto. No cash or securities due to or held for the Account shall be paid
or delivered to ING-IM except in payment of the fee payable to ING-IM under
this Agreement.
SECTION 3. DISCRETIONARY AUTHORITY - BROKERAGE - ING-IM shall have full
and complete discretion to establish brokerage accounts in the name of the
Client and execute transactions in securities markets in the name of the
Client, pursuant to proper authorization from the Client, through one or more
securities broker/dealer firms as ING-IM may select, including those which
from time to time may furnish to ING-IM statistical and investment research
information and other services. The Client accepts the Statement of Policy
on Brokerage Practices which is attached to this Agreement as EXHIBIT "B" and
incorporated herein by reference. This policy may be modified by ING-IM in
consultation with the Client.
SECTION 4. INVESTMENT OBJECTIVES - The investment objectives and
guidelines for the Account will be communicated in writing by the Client from
time to time. ING-IM will utilize these objectives in managing the Account.
SECTION 5. ADMINISTRATIVE SERVICES - ING-IM will provide the Client with
the following administrative services: preparation of Schedules B and D to
the Client's annual statement; pricing of portfolios on a periodic basis as
mutually agreed; mortgage loan servicing for both direct and mortgage banker-
serviced loans; private placement securities servicing; coordination of
purchases and sales at custodian bank; and coordination of securities lending
by agent banks.
SECTION 6. FEES - The Client will pay to ING-IM as full compensation for
services rendered a quarterly fee based on the quarterly fees set for in
EXHIBIT "C" attached hereto and incorporated herein by reference, as it may
be amended in writing.
If ING-IM shall serve for less than the whole of any quarterly period, its
compensation determined as provided above shall be calculated and shall be
payable on a pro rata basis for the period of the calendar quarter for which
it has served as an adviser hereunder.
SECTION 7. PROCEDURES - All transactions will be consummated by payment
to, or delivery by, the Client, or such other party as the Client may
designate in writing (the "Custodian") of all cash and/or securities due to
or from the Account. ING-IM shall not act as custodian for the Account. The
Client shall establish a procedure for transmitting approvals, directives and
authorizations from the Client to ING-IM. Such procedures, once established,
shall continue until modified, in whole or in part, by the Client. The
Client retains the full right and authority to modify, amend, alter and
repeal all such procedures in its sole discretion. ING-IM shall instruct all
brokers or dealers executing orders on behalf of the Account to forward to
the Client and/or the Custodian copies of all brokerage confirmations
promptly after execution of transactions. The Client will instruct the
Custodian, if any, to provide ING-IM with such periodic reports concerning
the status of the Account as ING-IM may reasonably request. Unless otherwise
notified in writing by Client, ING-IM shall be authorized to rely upon
instruction received from the named Client representatives set forth in
EXHIBIT "D" attached hereto and incorporated herein by reference.
SECTION 8. PROXIES - ING-IM shall vote securities held in the Account in
response to proxies solicited by the issuers of such securities in accordance
with guidelines established by Client. ING-IM will provide such information
with respect to such voting as the Client may reasonably request.
SECTION 9. SERVICE TO OTHER CLIENTS - It is understood that ING-IM
provides asset management services for other clients. It is further
understood that ING-IM may take management action on behalf of such other
clients which differs from management action taken on behalf of the Account.
If the purchase or sale of securities for the Account and for one or more
such other clients is considered at or about the same time, the transactions
in such securities will be allocated among the several clients in a manner
deemed equitable by ING-IM.
SECTION 10. LIABILITY OF ING-IM - In rendering services under this
Agreement, ING-IM will not be subject to any liability to the Client to any
other party for any act or omission of ING-IM except as the result of ING-
IM's gross negligence or willful misconduct. Nothing herein shall in any way
constitute a waiver or limitation of any right of any person under applicable
Federal or State law.
SECTION 11. REPRESENTATIONS BY CLIENT - The Client hereby represents and
warrants in favor of ING-IM as follows:
(a) The Client has the power and authority (i) to enter into and
execute this Agreement and (ii) to do all acts and things as are required or
contemplated hereunder to be done, observed and performed by it;
(b) This Agreement has been duly authorized, validly executed and
delivered by one or more authorized signatories of the Client, and this
Agreement constitutes a legal, valid and binding obligation of the Client,
enforceable against the Client in accordance with its terms; and
(c) The execution and delivery of this Agreement and the Client's
performance hereunder do not and will not be in contravention of or in
conflict with the Client's charter documents or the provisions of any
statute, judgment, order, indenture, instrument, agreement or undertaking to
which the Client is a party or by which the Client's assets or properties are
or may become bound. The Client has obtained all necessary consents and
approvals of all regulatory and governmental authorities and agencies have
jurisdiction over the Client for the Client to execute and deliver this
Agreement and to perform hereunder.
SECTION 12. FORM ADV PART II - The parties hereto acknowledge that,
concurrently with the execution of this Agreement, ING-IM is furnishing to
Client, for Client's review and inspection, a copy of Form ADV Part II most
recently filed by ING-IM with the Securities and Exchange Commission. Upon
Client's written or oral request, ING-IM shall provide to Client a copy of
any future Form ADV Part II.
SECTION 13. TERMINATION - This Agreement may be terminated by either
party on the month-end next following receipt of written notice of
termination.
SECTION 14. NOTICE - Any notice, advice or report to be given pursuant
to this Agreement shall be delivered or mailed:
To ING-IM: ING INVESTMENT MANAGEMENT LLC
5780 Powers Ferry Road, NW
Suite 300
Atlanta, GA 30327-4349
To Client: GOLDEN AMERICAN LIFE INSURANCE COMPANY
1001 Jefferson Street
Suite 400
Wilmington, DE 19801
SECTION 15. CONSTRUCTION OF AGREEMENT - This Agreement shall be
construed and the rights and obligations of the parties hereunder enforced in
accordance with the laws of the State of Georgia.
SECTION 16. ASSIGNMENT - This Agreement shall bind and inure to the
benefit of and be enforceable by the parties hereto and their permitted
successors and assigns hereunder; provided, however, that ING-IM may not
assign its rights and obligations under this Agreement unless and until it
shall have first received the prior written consent of the Client. The above
consent may be withheld for any reason, but if such consent is given, ING-
IM's assignee shall be required to assume and agree to perform all the
obligations of ING-IM hereunder and ING-IM shall remain fully liable for the
full and faithful performance of all obligations arising prior to any such
assignment.
SECTION 17. EFFECTIVE DATE - Notwithstanding the date set forth in the
first paragraph hereof, this Agreement shall be effective as of January 1,
1998.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused it to be executed by their duly authorized officers, all as of the day
and year first above.
CLIENT: GOLDEN AMERICAN LIFE INSURANCE
COMPANY
By/s/ David L. Jacobson
_________________________________
Title: Senior Vice President
________________________________
ING-IM: ING INVESTMENT MANAGEMENT LLC
By/s/ Thomas J. Balachowski
_________________________________
Title: President and CEO
________________________________
EXHIBIT "A"
Asset Management Services
_________________________
To the extent permitted by applicable law, ING-IM shall provide all asset
management services for Client's Account, including the following:
Private placement bonds and preferred stocks in an amount not to exceed
the maximum established from time to time by Client's Investment
Committee and communicated to ING-IM.
Public Market Corporate and Government Bonds.
Public Market Preferred Stocks.
Common Stocks.
Participating and Non-participating Mortgage Loans.
Equity Real Estate.
Mortgage Backed Securities and Collateralized Mortgage Obligations and
derivatives thereof.
Cash Management services, as required, in conjunction with Mortgage
Loans, Equity Real Estate, and/or the servicing of same.
Swap Transactions.
"Cap", "Floors", "Puts", "Calls" and similar derivative transactions.
EXHIBIT "B"
STATEMENT OF POLICY ON BROKERAGE PRACTICES
As of May 1, 1975, all national securities exchanges were prohibited
from requiring their members to charge fixed rates of commissions on the
execution of transactions. This prohibition resulted from the adoption by
the Securities and Exchange Commission of Rule 19b-3 under the Securities
and Exchange Act of 1934 and the subsequent passage by Congress of the
Securities Acts Amendments to include Section 28(e) relating to the payment
of brokerage commissions on specific securities transactions in excess of
the commission which might be charged by another broker for the same
transaction. The provisions of Section 28(e) are specifically incorporated
herein by reference.
In recognition of the regulatory changes, ING-IM has adopted this
statement of policy with respect to commissions paid on portfolio
transactions executed on behalf of our clients. It is the responsibility
of individuals trading on behalf of our clients to carry out this statement
of policy, including the fiduciary responsibility of negotiating for each
agency transaction the amount of the brokerage commission.
Essentially, this policy reaffirms the principle of seeking "best
available price and most favorable execution" with respect to all portfolio
transactions. This principle recognized that commissions on portfolio
transactions must be negotiated and utilized for the ultimate benefit of
our clients.
Our brokerage commission policy is as follows:
1. We will continue to use our best efforts to obtain the best
available price and most favorable execution with respect to all portfolio
transactions executed on behalf of our clients.
2. "Best available price and most favorable execution" is defined to
mean the execution of a particular investment decision at the price and
commission which provides the most favorable total cost or proceeds reasonably
obtainable under the circumstances.
3. In selecting a broker for each specific transactions, we will use
our best judgment to choose the broker most capable of providing the
brokerage services necessary to obtain best available price and most
favorable execution. The full range and quality of brokerage services
available will be considered in making these determinations. For example,
brokers may be selected on the basis of the quality of such "brokerage
services" related to the requirements of the specific transaction as the
following: capable floor brokers or traders, competent block trading
coverage, good communications, ability to position, retail distribution and
underwriting, use of automation, research contacts, arbitrage skills,
administrative ability, or provision of market information relating to the
security. We will continue to make periodic evaluations of the quality of
these brokerage services against our own standards of execution. Brokerage
services will be obtained only from those firms which meet our standards,
maintain a reasonable capital position, and can be expected to reliably and
continuously supply these services. We will continue our endeavor to develop
and maintain brokerage contacts and relationships in the interest of providing
our clients with maximum liquidity.
4. We are not obliged to choose the broker offering the lowest
available commission rate if, in our best judgment, there is a material
risk that the total cost or proceeds from the transaction might be less
favorable than obtainable elsewhere. We will make every effort to keep
informed of rate structures offered by the brokerage community. In the
selection of brokers, we will not solicit competitive bids or "shop" the
order for a lower rate if this would, in our best judgment, be harmful to
the execution process and not in the best interests of our clients.
5. In those instances where it is reasonably determined that more
than one broker can offer the brokerage services needed to obtain the best
available price and most favorable execution, consideration will be given
to those brokers which supply research and other services in addition to
execution services. Such services may include factual and statistical
information or other items of supplementary research assistance. The
individuals trading on behalf of our clients will be informed as to the
broker/dealers who supply specific or general research assistance. However,
we will not select an executing broker on the basis of research or other
services unless such selection is otherwise consistent with best available
price and most favorable execution.
6. In no event will we enter into agreements, expressed or implied,
with broker/dealer wherein we would select a firm for execution as a means
of remuneration for recommending us as an asset manager for prospective or
present clients. However, portfolio transactions may be executed through
broker/dealers who have made such a recommendation, if otherwise consistent
with best price and most favorable execution.
7. In those instances where a client has expressed a preference for
a particular broker, that broker will be selected only when the broker is
reasonably determined in our best judgment, to be capable of providing the
best available and most favorable execution. With the exception of clients
subject to the provisions of The Employee Retirement Income Security Act of
1974 ("ERISA"), a client may direct us in writing to execute transactions
with one or more specific brokers at such commission rate or rates as may
be agreed to by the client and such brokers. With respect to clients
subject to ERISA, we may accept clients' direction to execute transactions
with one or more specific brokers upon written direction of the clients.
Such written notice shall specify the services provided by the broker(s) to
the clients, the amount of rate of commissions to be paid and the
determination by the clients that such direction is consistent with the
provisions of ERISA.
EXHIBIT "C"
ING INVESTMENT MANAGEMENT
MANAGEMENT FEE SCHEDULE
AS OF JANUARY 1, 1998
ING-IM will receive an annual fee (payable quarterly) from the Client
calculated as follows: 0.25% of the value of the Managed Assets as of the
preceding month end. "Managed Assets" shall mean the investment assets of
the Client's general account, and certain assets in a non-unitized separate
account established and maintained by Client to support certain annuity
contracts, excluding policy loans of Client. Value of the Managed Assets
for purposes of this Agreement shall be determined by the application of
generally accepted accounting principles as applied as of the end of each
quarter.
EXHIBIT "D"
Authorized Representatives of Client
____________________________________
Until otherwise notified in writing by Client, ING-IM shall be authorized
to rely upon instruction received from the following name representatives
of the Client:
[Client to specify]
Exhibit 10 (g)
RECIPROCAL LOAN AGREEMENT
This RECIPROCAL LOAN AGREEMENT (this "Agreement"), dated as of January
1, 1998, between Golden American Life Insurance Company, a Delaware
corporation ("Golden American" or "Company"), located at 1001 Jefferson
Street, Suite 400, Wilmington, Delaware 19801 and ING America Insurance
Holdings, Inc., a Delaware corporation ("INGAIH" or "Company") located at
1105 North Market Street, Wilmington, Delaware 19809 (collectively referred
to as the "Companies").
WITNESSETH:
WHEREAS, each of the Companies may have, from time to time, a need to
borrow funds on a revolving basis; and
WHEREAS, each of the Companies may have, from time to time, excess cash
available to lend to the other on a revolving basis; and
WHEREAS, the Companies are affiliated entities and as such are willing
to extend financing to, and borrow from each other as provided herein; and
WHEREAS, each of the Companies desires to enter into this Agreement
providing for, among other things, the making of such Loans by and among each
other;
NOW, THEREFORE, for and in consideration of the foregoing and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Companies agree as follows:
ARTICLE 1
_________
DEFINITIONS
___________
SECTION 1.1.DEFINED TERMS. For purposes of this Agreement:
"Agreement" shall have the meaning set forth in the preamble hereto.
"Authorized Person" shall mean the CFO, Treasurer, Treasury Officer, or
Treasury Manager of the Borrowing Company, or a person so designated.
"Borrowing Company" shall mean each of the Companies to which a Loan is
outstanding or is to be made pursuant to a Request for Borrowing.
"Business Day" shall mean a day on which U.S. financial markets are open
for the transaction of business required for this Agreement.
"Companies" shall have the meaning set forth in the preamble hereto.
"Company" shall have the meaning set forth in the preamble hereto.
"Default" shall mean any of the events specified in Section 6.1,
regardless of whether there shall have occurred any passage of time or giving
of notice, or both, that would be necessary in order to constitute such an
Event of Default.
"Event of Default" shall mean any of the events specified in Section 6.1.
"Golden American" shall have the meaning set forth in the preamble
hereto.
"INGAIH" shall have the meaning set forth in the preamble hereto.
"Interest Period" shall mean the number of days or months that a
particular interest rate applies to a particular Loan advanced hereunder.
"Lending Company" shall mean each of the Companies that has made, or is
obligated to make, in accordance with a Request for Borrowing one or more
Loans hereunder.
"Loans" shall mean the amounts advanced by a Lending Company to a
Borrowing Company under this Agreement.
"Notice of Borrowing" shall have the meaning set forth in Section 2.2(b)
of this Agreement.
"Obligations" shall mean all payment and performance obligations of
every kind, nature and description of each Borrowing Company to the Lending
Company, or either of them, under this Agreement (including any interest,
fees and other charges on the Loans or otherwise), whether such obligations
are direct or indirect, absolute or contingent, due or not due, contractual
or tortuous, liquidated or unliquidated, arising by operation of law or
otherwise, now existing or hereafter arising.
"Regional Treasury Office" ("RTO") shall mean the Treasurer's office of
ING North America Insurance Corporation.
"Request for Borrowing" shall have the meaning set forth in Section
2.2(a) of this Agreement.
"Revolving Loan Commitment" shall mean the maximum outstanding amount to
be funded by the Lending Company to the Borrowing Company. The aggregate sum
which the Lending Company may loan to the Borrowing Company under this
Agreement shall not exceed $40,000,000.
"Termination Date" shall mean December 31, 2007, or such earlier date as
payment of the Obligations shall be due (whether by acceleration or
otherwise).
SECTION 1.2. TERMINOLOGY. Each definition of a document in this
Article 1 shall include such document as amended, modified, or supplemented
from time to time, and, except where the context otherwise requires,
definitions imparting the singular shall include the plural and visa versa.
Except where specifically restricted, reference to a party shall include that
party and its successors and assigns. All personal pronouns used in this
Agreement, whether used in the masculine, feminine, or neuter gender, shall
include all other genders. Titles of articles and sections in this Agreement
are for convenience only, and neither limit nor amplify the provisions of
this Agreement, and all references in this Agreement to articles, sections,
subsections, paragraphs, clauses, subclauses or exhibits shall refer to the
corresponding article, section, subsection, paragraph, clause, subclause of,
or exhibit attached to, this Agreement, unless otherwise provided.
SECTION 1.3. ACCOUNTING TERMS. Except as otherwise expressly
provided herein, all accounting terms used herein shall be interpreted in
accordance with generally accepted accounting principles consistently
applied.
ARTICLE 2
_________
TERMS OF THE LOANS
__________________
SECTION 2.1. REVOLVING CREDIT.
(a) Subject to and upon the terms and conditions set forth in this
Agreement, each Lending Company agrees to advance to the Borrowing Company,
from time to time prior to the Termination Date, Loans advanced under the
Revolving Loan Commitment shall be repaid in accordance with Section 2.4 and
may be reborrowed from time to time on a revolving basis.
(b) Each Borrowing Company's obligation to pay to the Lending Company
the principal of and interest on the Loans shall be evidenced by the records
of the RTO in lieu of a promissory note or notes.
SECTION 2.2. NOTICE AND MANNER OF BORROWING.
(a) Whenever the Borrowing Company desires to borrow money hereunder,
it shall give the RTO prior written or facsimile request (or verbal request
promptly confirmed in writing or by facsimile) of such borrowing or
reborrowing (a "Request for Borrowing"). Such Request for Borrowing shall be
given by an Authorized Person, to the RTO prior to 10:00 a.m. (Wilmington,
Delaware time). Any Request for Borrowing received after 10:00 a.m. shall be
deemed received on the next Business Day.
(b) The RTO, upon its receipt of a Request for Borrowing, shall
determine if the requested funds are available and the interest rates in
accordance with Section 2.3(a) of this Agreement (and related Interest
Periods, if any) at which the Borrowing Company can borrow money in a
principal amount equal to, and on the date of, the proposed borrowing or
reborrowing described in each such Request for Borrowing, and shall notify
the Lending Company of such interest rates and the related Interest Periods,
if any, and the principal amount of the proposed borrowing or reborrowing (a
"Notice of Borrowing") by telephone (confirmed in writing) or by facsimile no
later than 12:00 p.m. (Wilmington, Delaware time) on the Business Day of the
requested borrowing or reborrowing. The RTO shall promptly convey to the
Borrowing Company the information contained in the Notice of Borrowing by
telephone (confirmed in writing) or by facsimile.
(c) On the date of each borrowing, the Lending Company will make
available the amount of such borrowing or reborrowing in immediately
available funds to the Borrowing Company by depositing such amount in the
account of the Borrowing Company by wire transfer via electronic funds
transfer (EFT).
(d) The RTO shall maintain on its books a control account for each
Company in which shall be recorded (i) the amount of each Loan made hereunder
to each such Company, (ii) the interest rate applicable with respect to each
Loan, (iii) the amount of any principal, interest or fees due or to become
due from each Borrowing Company with respect to the Loans, and (iv) the
amount of any sum received by each Lending Company hereunder in respect of
any such principal, interest or fees due on such Loans. The entries made in
the RTO's control accounts shall be prima facie evidence, in the absence of
manifest error, of the existence and amounts of Obligations therein recorded
and any payments thereon.
(e) The RTO shall account to each Company on a quarterly basis with a
statement of borrowings, interest rates, charges and payments made pursuant
to this Agreement with respect to the Loans and Revolving Loan Commitment. An
Authorized Person of the Companies shall review each quarterly accounting for
accuracy within thirty days of receipt thereof from the RTO. Each such
account rendered by the RTO shall be deemed final, binding and conclusive
unless the RTO is notified by the Lending Company or the Borrowing Company
within thirty days after the date the account is so rendered that either the
Lending Company or the Borrowing Company disputes any item thereof.
(f) The RTO shall be justified in assuming, for purposes of carrying
out its duties and obligations under this Agreement, including, without
limitation, its obligation to maintain accounts and provide accountings of
the Loans pursuant to Section 2.2(d) and (e) above, that (1) Loans are
disbursed by the Lending Company to the Borrowing Company in accordance with
the terms of the Notice of Borrowing, (2) payments on the Loans are made to
the Lending Company when due, and (3) no prepayments of any Loans prior to
the date that they are due and payable under Section 2.4(a) have occurred,
unless the RTO is otherwise notified by either Company within seven Business
Days of any such delayed disbursement, overdue payment, or receipt of a
prepayment.
SECTION 2.3. INTEREST.
(a) The Borrowing Company agrees to pay interest in respect of all
unpaid principal amounts of the Loans from the respective dates such
principal amounts were advanced until the respective dates such principal
amounts are repaid at a rate per annum as determined by the RTO and agreed
upon by the Companies pursuant to Section 2.2(b) of this Agreement. Golden
American shall pay interest on each Loan at a per annum rate which is based
on the cost of funds of INGAIH for the interest period for such Loan plus
.15%. INGAIH shall pay interest on each Loan at a per annum rate which is
based on the prevailing interest rate of U.S. commercial paper available for
purchase with a similar duration. The interest rate shall be determined by
the RTO in accordance with its usual practices.
(b) Overdue principal and, to the extent not prohibited by applicable
law, overdue interest in respect of any of the Loans and all other overdue
amounts owing hereunder shall bear interest from each date that such amounts
are overdue at the rate otherwise applicable to such underlying Loans plus an
additional 2% per annum. Interest on each Loan shall accrue from and
including the date of such Loan to, but excluding, the date of any repayment
thereof; PROVIDED, HOWEVER, that if a Loan is repaid on the same day it is
made, one day's interest shall be paid on such Loan. Interest shall be
computed on the basis of a year of 360 days for the actual number of days
elapsed.
(c) The Companies hereby agree that the only charges imposed or to be
imposed by the Lending Company hereunder for the use of money in connection
with the Loans is and will be the interest required to be paid under the
provisions of Sections 2.2(b). In no event shall the amount of interest due
and payable under this Agreement or any other documents executed in
connection herewith exceed the maximum rate of interest allowed by applicable
law and, in the event any such payment is made by the Borrowing Company or
received by the Lending Company, such excess sum shall be credited as a
payment of principal. It is the express intent hereof that the Borrowing
Company not pay and the Lending Company not receive, directly or indirectly
in any manner, interest in excess of that which may be lawfully paid under
applicable law.
SECTION 2.4. REPAYMENT OF PRINCIPAL AND INTEREST.
(a) The entire outstanding principal balance of the Loans shall be due
and payable by no later than 5:00 p.m. (Eastern time) on the Business Day on
which the Loan is due, together with all remaining accrued and unpaid
interest thereon, unless an extension of no more than three additional days
is authorized by the Lending Company.
(b) Any of the Loans may be prepaid in whole or in part at any time
without premium or penalty. Any such prepayment made on any Loan shall be
applied, first, to interest accrued thereon through the date thereof and then
to the principal balance thereof.
(c) Each payment and prepayment of principal of any Loan and each
payment of interest on any Loan shall be made to the Lending Company and
applied to outstanding Loan balances in the following order; first, toward
any Loan or Loans then due and payable; and, second, towards the Loan or
Loans which are next due and payable at the time of such prepayment.
ARTICLE 3
_________
REPRESENTATIONS AND WARRANTIES
______________________________
SECTION 3.1. REPRESENTATIONS AND WARRANTIES. In order to induce the
Lending Company to enter into this Agreement, the Borrowing Company hereby
represents and warrants as set forth below:
(a) ORGANIZATION; POWER; QUALIFICATION. The Borrowing Company is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation, has the power and authority to own or
lease and operate its properties and to carry on its business as now being
conducted, and is duly qualified and in good standing as a foreign
corporation, and authorized to do business, in each jurisdiction in which the
character of its properties or the nature of its business require such
qualification or authorization.
(b) AUTHORIZATION; ENFORCEABILITY. The Borrowing Company has the power
and has taken all necessary action to authorize it to execute, deliver and
perform this Agreement in accordance with the terms hereof and to consummate
the transactions contemplated hereby. This Agreement has been duly executed
and delivered by the Borrowing Company and is a legal, valid and binding
obligation of the Borrowing Company, enforceable in accordance with its
respective terms, (i) subject to limitations imposed by general principles of
equity and (ii) subject to applicable bankruptcy, reorganization, insolvency
and other similar laws affecting creditors' rights generally and to
moratorium laws from time to time in effect.
(c) NO CONFLICT. The execution, delivery and performance of this
Agreement in accordance with its terms and the consummation of the
transactions contemplated hereby do not and will not (i) violate any
applicable law or regulation, (ii) conflict with, result in a breach of, or
constitute a default under the articles or certificate of incorporation or
by-laws of the Borrowing Company or under any indenture, agreement or other
instrument to which the Borrowing Company is a party or by which it or any of
its properties may be bound, or (iii) result in or require the creation or
imposition of any lien upon or with respect to any property now owned or
hereafter acquired by the Borrowing Company.
(d) COMPLIANCE WITH LAW; ABSENCE OF DEFAULT. The Borrowing Company is
in compliance with all applicable laws the failure to comply with which has
or could reasonably be expected to have a materially adverse effect on the
business, assets, liabilities, financial condition or results of operations
of the Borrowing Company, and no event has occurred or has failed to occur
which has not been remedied or waived, the occurrence or non-occurrence of
which constitutes a Default.
SECTION 3.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made under this Agreement shall be deemed to
be made, and shall be true and correct, as of the date hereof and as of the
date of each Loan.
ARTICLE 4
_________
AFFIRMATIVE COVENANTS
_____________________
So long as this Agreement is in effect:
SECTION 4.1. PRESERVATION OF EXISTENCE. The Borrowing Company will
(a) preserve and maintain its existence, rights, franchises, licenses and
privileges in its jurisdiction of incorporation and (b) qualify and remain
qualified and authorized to do business in each jurisdiction in which the
character of its properties or the nature of its business requires such
qualification or authorization.
SECTION 4.2. COMPLIANCE WITH APPLICABLE LAWS AND REGULATIONS. The
Borrowing Company will comply with the requirements of all applicable laws
and regulations the failure with which to comply could have a materially
adverse effect on the business, assets, liabilities, financial condition or
results of operations of the Borrowing Company.
SECTION 4.3. VISITS AND INSPECTIONS.
(a) Upon reasonable advance notice from the Lending Company, the
Borrowing Company will permit representatives of the Lending Company to (a)
visit and inspect the properties of the Borrowing Company during normal
business hours, (b) inspect and make extracts from and copies of its books
and records, and (c) discuss with its principal officers its businesses,
assets, liabilities, financial positions and results of operations.
(b) Each Company agrees that upon reasonable advance notice from an
auditor of either Company or any regulatory official employed by the
Department of Insurance of any state in which either Company is engaged in
business, each Company will prepare and deliver to such auditor or regulatory
official, within a reasonable time following such request, a written
verification of all Loans made to and by the relevant Company. Upon
reasonable advance notice to each Company, the books and records of the RTO
and each Company relating to the subject matter of this Agreement shall be
available for inspection by any auditor of either Company or any regulatory
official during normal business hours, and the RTO and each Company will
cooperate with said auditor or regulatory official in making any audit which
requires inspection of said books and records.
ARTICLE 5
_________
NEGATIVE COVENANTS
__________________
So long as this Agreement is in effect:
SECTION 5.1. LIQUIDATION; MERGER; SALE OF ASSETS; CHANGE OF BUSINESS.
The Borrowing Company shall not at any time, without proper notice to the
Lending Company:
(a) Liquidate or dissolve itself (or suffer any liquidation or
dissolution) or otherwise wind up;
(b) Merge or consolidate with any other person or entity;
(c) Sell, lease, abandon or otherwise dispose of or transfer all or
substantially all of its assets other than in the ordinary course of
business; or
(d) Make any substantial change in the type of business conducted by
the Borrowing Company as of the date hereof without the prior written consent
of the Lending Company if such action would have a material adverse effect on
the business, assets, liabilities, financial condition or results of
operations of the Borrowing Company.
Any corporation into which either Company may be merged, converted or
with which either Company may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which either Company shall be
a party, shall succeed to all either Company's rights, obligations and
immunities hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
ARTICLE 6
_________
DEFAULT
_______
SECTION 6.1 EVENTS OF DEFAULT. Each of the following shall constitute an
Event of Default:
(a) Any representation or warranty made by the Borrowing Company under
this Agreement shall prove incorrect or misleading in any material respect
when made;
(b) The Borrowing Company shall default in the payment of (i) any
interest payable under this Agreement within five days of when due, or (ii)
any principal payable under this Agreement within three days of when due;
(c) The Borrowing Company shall default in the performance or
observance of any agreement or covenant contained in this Agreement, and such
Default shall not be cured within a period of thirty days from the occurrence
of such Default;
(d) The Borrowing Company shall default under any other agreement or
instrument evidencing or relating to any indebtedness which Default shall not
have been cured within any applicable grace period set forth therein;
(e) There shall be entered a decree or order by a court having
jurisdiction in the premises constituting an order for relief in respect of
the Borrowing Company under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable federal or state
bankruptcy law or similar law, or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator, or similar official of the
Borrowing Company or of any substantial part of its properties, or ordering
the winding-up or liquidation of the affairs of the Borrowing Company and any
such decree or order shall continue in effect for a period of sixty
consecutive days;
(f) The Borrowing Company shall file a petition, answer or consent
seeking relief under Title 11 of the United States Code, as now constituted
or hereafter amended, or any other applicable federal or state bankruptcy law
or other similar law, or the Borrowing Company shall consent to the
institution of proceedings thereunder or to the filing of any such petition
or to the appointment or taking of possession of a receiver, liquidator,
assignee, trustee, custodian, sequestrator, or other similar official of the
Borrowing Company or of any substantial part of its properties, or the
Borrowing Company shall fail generally to pay its debts as such debts become
due, or the Borrowing Company shall take any corporate action in furtherance
of any such action; or
(g) This Agreement or any provision hereof shall at any time and for
any reason be declared by a court of competent jurisdiction to be null and
void, or a proceeding shall be commenced by the Borrowing Company or any
other person or entity seeking to establish the invalidity or
unenforceability thereof, or the Borrowing Company shall deny that it has any
liability or any obligation for the payment of principal or interest
purported to be created under this Agreement.
SECTION 6.2. REMEDIES. If an Event of Default shall have occurred and
shall be continuing,
(a) The obligation of the Lending Company to make Loans hereunder shall
immediately cease;
(b) With the exception of an Event of Default specified in Section
6.1(e) or (f), the Lending Company, shall declare the principal of and
interest on the Loans and all other amounts owed under this Agreement to be
forthwith due and payable, whereupon all such amounts shall immediately
become absolute and due and payable, without presentment, demand, protest, or
notice of any kind, all of which are hereby expressly waived, anything in
this Agreement to the contrary notwithstanding, and whereupon all such
amounts shall be immediately due and payable;
(c) Upon the occurrence and continuance of an Event of Default
specified in Section 6.1(e) or (f), such principal, interest and other
amounts shall thereupon and concurrently therewith become absolute and due
and payable, all without any action by the Lending Company, all of which are
hereby expressly waived, anything in this Agreement to the contrary
notwithstanding;
(d) The Lending Company shall have the right and option to exercise all
of the post-default rights granted to them hereunder; and
(e) The Lending Company shall have the right and option to exercise all
rights and remedies available to them at law or in equity.
ARTICLE 7
_________
MISCELLANEOUS
_____________
SECTION 8.1. NOTICES. Except as otherwise provided herein, all
notices and other communications required or permitted under this Agreement
shall be in writing and, if mailed, shall be deemed to have been received on
the earlier of the date shown on the receipt or three Business Days after the
postmarked date thereof and, if sent by facsimile, shall be followed
forthwith by letter and shall be deemed to have been received on the next
Business Day following dispatch and acknowledgment of receipt by the
recipient's facsimile machine. In addition, notices hereunder may be
delivered by hand or overnight courier, in which event the notice shall be
deemed effective when delivered. All notices and other communications under
this Agreement shall be given to the parties at the address or facsimile
number listed below such party's signature line hereto, or such other address
or facsimile number as may be specified by any party in a writing addressed
to the other parties hereto.
SECTION 8.2. WAIVERS. The rights and remedies of the Lending Company
under this Agreement shall be cumulative and not exclusive of any rights or
remedies which they would otherwise have. No failure or delay by the Lending
Company in exercising any right shall operate as a waiver of it. The Lending
Company expressly reserves the right to require strict compliance with the
terms of this Agreement. In the event the Lending Company decides to fund a
request for a Loan at a time when the Borrowing Company is not in strict
compliance with the terms of this Agreement, such decision by the Lending
Company shall not be deemed to constitute an undertaking by the Lending
Company to fund any further requests for Loans or precluding the Lending
Company from exercising any rights available to it under the Agreement or at
law or equity with respect to the Borrowing Company. Any waiver or
indulgence granted by the Lending Company shall not constitute a modification
of this Agreement, except to the extent expressly provided in such waiver or
indulgence, or constitute a course of dealing by the Lending Company at
variance with the terms of this Agreement such as to require further notice
by the Lending Company of its intent to require strict adherence to the terms
of this Agreement in the future. Any such actions shall not in any way
affect the ability of the Lending Company, in their respective sole
discretion, to exercise any of their respective rights under this Agreement
or under any other agreement.
SECTION 8.3. ASSIGNMENT; SUCCESSORS.
(a) The Borrowing Company may not assign or transfer any of its rights
or obligations hereunder without notice to the Lending Company.
(b) The Lending Company may not at any time assign or participate its
interest under this Agreement without notice to the Borrowing Company. Any
holder of a participation in, and any assignee or transferee of, all or any
portion of any amount owed by the Borrowing Company under this Agreement may
exercise any and all rights provided in this Agreement with respect to any
and all amounts owed by the Borrowing Company to such assignee, transferee or
holder as fully as if such assignee, transferee or holder had made the Loans
in the amount of the obligation in which its holds a participation or which
is assigned or transferred to it.
(c) This Agreement shall be binding upon, and inure to the benefit of,
the Borrowing Company, the Lending Company, and the permitted successors and
assigns of each party hereto.
SECTION 8.4. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same
instrument.
SECTION 8.5. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof in that jurisdiction or affecting the validity or enforceability of
such provision in any other jurisdiction.
SECTION 8.6. ENTIRE AGREEMENT; AMENDMENTS. This Agreement represents
the entire agreement among the parties hereto with respect to the subject
matter of this transaction. No amendment or modification of the terms and
provisions of this Agreement shall be effective unless in writing and signed
by both Companies.
SECTION 8.7. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be
made hereunder shall be stated to be due on a non-Business Day, such payment
may be made on the next succeeding Business Day, and such extension of time
shall in such case be included in the computation of payment of interest
hereunder.
SECTION 8.8. TERMINATION. This Agreement may be terminated with
respect to any party hereto by such party upon its giving the other parties
thirty days notice of its intent to terminate. In the event of termination
as provided in this paragraph, the Lending Company's obligation to make Loans
to the Borrowing Company shall cease; provided, however, that the Borrowing
Company shall continue to be obligated to make all repayments of Loans and
all other amounts due and payable by it as provided under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused it to be executed by their duly authorized officers, all as of the day
and year first above written.
GOLDEN AMERICAN LIFE INSURANCE
COMPANY
By: /s/ David L. Jacobson
______________________________________________
Title: Senior Vice President
___________________________________________
Address for notices:
1001 Jefferson Street, Suite 400
Wilmington, DE 19801
Phone: 302/576-3404
Fax: 302/576-3520
ING AMERICA INSURANCE HOLDINGS, INC.
By: /s/ David S. Pendergrass
______________________________________________
Title: Vice President and Treasurer
___________________________________________
Address for notices:
1105 N. Market Street
Wilmington, DE 19809
Phone: 770/980-3300
Fax: 770/980-3301
AMENDMENT NUMBER 1
__________________
RECIPROCAL LOAN AGREEMENT
The Reciprocal Loan Agreement dated January 1, 1998 between Golden American
Life Insurance Company and ING America Insurance Holdings, Inc., is hereby
amended to provide as follows:
Golden American Life Insurance Company shall not lend
money under the terms of this Agreement, that is, it
shall not become a Lending Company, until and unless
the prior approval of the State of Delaware Department
of Insurance is obtained regarding the amount and terms
of such loan or loans.
All other provisions of the Reciprocal Loan Agreement shall remain in effect
and unaffected by this Amendment.
This Amendment is entered into as of this 1st day of January 1998.
GOLDEN AMERICAN LIFE INSURANCE
COMPANY
BY:/s/ David L. Jacobson
______________________________________
TITLE: Senior Vice President
__________________________________
ING AMERICA INSURANCE HOLDINGS, INC.
BY:/s/ David S. Pendergrass
______________________________________
TITLE: Vice President and Treasurer
__________________________________
AMENDMENT NUMBER 2
__________________
RECIPROCAL LOAN AGREEMENT
The Reciprocal Loan Agreement dated January 1, 1998 between Golden American
Life Insurance Company and ING America Insurance Holdings, Inc., is hereby
amended by replacing the defined term "Revolving Loan Commitment" of Section
1.1 with the following:
"Revolving Loan Commitment" shall mean the outstanding
amount to be funded by the Lending Company to the
Borrowing Company. The aggregate sum which the Lending
Company may loan to the Borrowing Company under this
Agreement shall not exceed $65,000,000.00.
All other provisions of the Reciprocal Loan Agreement shall remain in effect
and unaffected by this Amendment.
This Amendment is entered into as of this 20th day of March 1998.
GOLDEN AMERICAN LIFE INSURANCE COMPANY
BY:/s/ David L. Jacobson
_________________________________
TITLE: Senior Vice President
_____________________________
ING AMERICA INSURANCE HOLDINGS, INC.
BY:/s/ David S. Pendergrass
_________________________________
TITLE: Vice President and Treasurer
_____________________________
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