SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 33-87272, 333-51353, 333-28765, 333-28681, 333-28743,
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333-51949, 333-65009, 333-66745, 333-76941, 333-76945,
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333-35592, 333-95511, 333-30186, 333-40596, 333-33924,
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333-95457, 333-59386, 333-59398, 333-59408, 333-52320
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333-57212, 333-63694
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 41-0991508
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(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
1475 Dunwoody Drive, West Chester, Pennsylvania 19380-1478
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (610) 425-3400
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Former name, former address and formal fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 250,000 shares of Common Stock
as of August 10, 2001.
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).
Exhibit index - Page 25 Page 1 of 35
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Person for whom the Financial Information is given: Golden American Life Insurance Company
Condensed Consolidated Statements of Operations (Unaudited):
For the Three For the Three
Months Ended Months Ended
June 30, 2001 June 30, 2000
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(Dollars in thousands)
Revenues:
Annuity and interest sensitive life product charges $35,725 $34,064
Management fee revenue 6,307 5,153
Net investment income 23,359 15,783
Realized gains (losses) on investments 44 (1,328)
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65,435 53,672
Insurance benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances 43,054 46,156
Benefit claims incurred in excess of account balances 239 1,159
Underwriting, acquisition, and insurance expenses:
Commissions 52,202 54,682
General expenses 31,952 19,897
Insurance taxes, state licenses, and fees 1,344 1,080
Policy acquisition costs deferred (38,344) 8,233
Amortization:
Deferred policy acquisition costs 13,104 18,027
Value of purchased insurance in force 1,683 1,034
Goodwill 944 944
Expense and charges reimbursed under modified
coinsurance agreements (51,083) (112,746)
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55,095 38,466
Interest expense 4,765 5,038
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59,860 43,504
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Income before income taxes 5,575 10,168
Income taxes 2,373 3,981
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Net income $3,202 $6,187
=======================================================
See accompanying notes.
2
Condensed Consolidated Statements of Operations (Unaudited):
For the Six For the Six
Months Ended Months Ended
June 30, 2001 June 30, 2000
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(Dollars in thousands)
Revenues:
Annuity and interest sensitive life product charges $84,284 $69,734
Management fee revenue 12,438 9,856
Net investment income 42,771 31,775
Realized losses on investments (1,919) (2,637)
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137,574 108,728
Insurance benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances 90,153 100,068
Benefit claims incurred in excess of account balances 2,851 3,211
Underwriting, acquisition, and insurance expenses:
Commissions 108,600 112,158
General expenses 56,989 40,179
Insurance taxes, state licenses, and fees 3,528 2,910
Policy acquisition costs deferred (24,925) (97,724)
Amortization:
Deferred policy acquisition costs 29,632 35,757
Value of purchased insurance in force 2,175 2,278
Goodwill 1,889 1,889
Expense and charges reimbursed under modified
coinsurance agreements (162,668) (115,792)
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108,224 84,934
Interest expense 9,508 10,115
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117,732 95,049
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Income before income taxes 19,842 13,679
Income taxes 7,707 5,602
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Net income $12,135 $8,077
=======================================================
See accompanying notes.
3
Condensed Consolidated Balance Sheets:
June 30, 2001 December 31, 2000
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(Unaudited)
ASSETS (Dollars in thousands, except per share data)
Investments:
Fixed maturities, available for sale, at fair value
(cost: 2001 - $1,226,036; 2000 - $798,751) $1,231,210 $792,578
Equity securities, at fair value (cost: 2001 - $66; 2000 - $8,611) 58 6,791
Mortgage loans on real estate 150,620 99,916
Policy loans 13,910 13,323
Short-term investments 30,297 17,102
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Total investments 1,426,095 929,710
Cash and cash equivalents 140,894 152,880
Reinsurance recoverable 21,975 19,331
Reinsurance recoverable from affiliates 21,400 14,642
Due from affiliates 68 38,786
Accrued investment income 16,364 9,606
Deferred policy acquisition costs 624,624 635,147
Value of purchased insurance in force 22,286 25,942
Current income taxes recoverable 221 511
Deferred income tax asset 994 9,047
Property and equipment, less allowances for depreciation of
$8,298 in 2001 and $5,638 in 2000 11,384 14,404
Goodwill, less accumulated amortization of $13,853 in 2001
and $11,964 in 2000 137,274 139,163
Other assets 54,367 32,019
Separate account assets 10,370,337 9,831,489
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Total assets $12,848,283 $11,852,677
================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Policy liabilities and accruals:
Future policy benefits:
Annuity and interest sensitive life products $1,456,796 $1,062,891
Unearned revenue reserve 6,550 6,817
Other policy claims and benefits 177 82
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1,463,523 1,069,790
Surplus notes 245,000 245,000
Revolving note payable 1,400 --
Due to affiliates 15,121 19,887
Other liabilities 111,405 69,374
Separate account liabilities 10,370,337 9,831,489
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12,206,786 11,235,540
Commitments and contingencies
Stockholder's equity:
Common stock, par value $10 per share, authorized, issued,
and outstanding 250,000 shares 2,500 2,500
Additional paid-in capital 590,640 583,640
Accumulated other comprehensive income (loss) 1,179 (4,046)
Retained earnings 47,178 35,043
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Total stockholder's equity 641,497 617,137
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Total liabilities and stockholder's equity $12,848,283 $11,852,677
================================================
See accompanying notes.
4
Condensed Consolidated Statements of Cash Flows (Unaudited):
For the Six For the Six
Months Ended Months Ended
June 30, 2001 June 30, 2000
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(Dollars in thousands)
NET CASH PROVIDED BY OPERATING ACTIVITIES $165,012 $33,298
INVESTING ACTIVITIES
Sale, maturity, or repayment of investments:
Fixed maturities - available for sale 229,916 123,182
Equity securities 6,894 5,195
Mortgage loans on real estate 60,621 3,281
Policy loans - net -- 1,732
Short-term investments - net -- 17,880
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297,431 151,270
Acquisition of investments:
Fixed maturities - available for sale (658,495) (100,936)
Mortgage loans on real estate (111,532) (8,887)
Policy loans - net (587) --
Short-term investments - net (13,195) --
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(783,809) (109,823)
Net sale (purchase) of property and equipment 18 (1,974)
Issuance of reciprocal loan agreement receivables -- (16,900)
Receipt of repayment of reciprocal loan agreement receivables -- 16,900
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Net cash (used in) provided by investing activities (486,360) 39,473
FINANCING ACTIVITIES
Proceeds from reciprocal loan agreement borrowings 29,300 177,900
Repayment of reciprocal loan agreement borrowings (29,300) (137,900)
Proceeds from revolving note payable 1,400 54,800
Repayment of revolving note payable -- (56,200)
Receipts from annuity and interest sensitive life
policies credited to account balances 734,162 355,662
Return of account balances on annuity
and interest sensitive life policies (70,613) (87,841)
Net reallocations to Separate Accounts (362,587) (412,150)
Contribution from parent 7,000 80,000
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Net cash provided by (used in) financing activities 309,362 (25,729)
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(Decrease) increase in cash and cash equivalents (11,986) 47,042
Cash and cash equivalents at beginning of period 152,880 76,690
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Cash and cash equivalents at end of period $140,894 $123,732
=================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $9,475 $12,649
See accompanying notes.
5
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, 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, 2001 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2001. These
financial statements should be read in conjunction with the financial statements
and related footnotes included in the Golden American Life Insurance Company's
annual report on Form 10-K for the year ended December 31, 2000.
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 with
Golden American, collectively, the "Companies"). All significant intercompany
accounts and transactions have been eliminated.
ORGANIZATION
Golden American is a wholly owned subsidiary of Equitable of Iowa Companies,
Inc. ("EIC" or the "Parent"). EIC is an indirect wholly owned subsidiary of ING
Groep N.V., a global financial services holding company based in The
Netherlands.
SIGNIFICANT ACCOUNTING POLICIES
NEW ACCOUNTING STANDARDS: As of January 1, 2001, the Companies adopted FAS No.
133, Accounting for Derivative Instruments and Hedging Activities, as amended
and interpreted by FAS No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133,
FAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an Amendment of FASB Statement No. 133, and certain FAS No. 133
implementation issues. This standard, as amended, requires companies to record
all derivatives on the balance sheet as either assets or liabilities and measure
those instruments at fair value. The manner in which companies are to record
gains or losses resulting from changes in the fair values of those derivatives
depends on the use of the derivative and whether it qualifies for hedge
accounting.
Adoption of FAS No. 133 did not have a material effect on the Companies'
financial position or results of operations given the Companies' limited
derivative and embedded derivative holdings.
The Companies chose to elect a transition date of January 1, 1999 for embedded
derivatives. Therefore, only those derivatives embedded in hybrid instruments
issued, acquired or substantively modified by the entity on or after January 1,
1999 are recognized as separate assets or liabilities. The cumulative effect of
the accounting change upon adoption was not material.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: The Companies may
from time to time utilize various derivative instruments to manage interest rate
and price risk (collectively, market risk). The Companies have appropriate
controls in place, and financial exposures are monitored and managed by the
Companies as an integral part of their overall risk management program.
Derivatives are recognized on the balance sheet at their fair value.
The Companies occasionally purchase a financial instrument that contains a
derivative instrument that is "embedded" in the instrument. The Companies'
insurance products are also reviewed to determine whether they contain an
embedded derivative. The Companies assess whether the economic characteristics
of the embedded derivative are clearly and closely related to the economic
characteristics of the remaining component of the financial instrument or
insurance product (i.e., the host contract) and whether a separate instrument
with the same terms as the embedded instrument would meet the definition of a
derivative instrument. When it is determined that the embedded derivative
6
possesses economic characteristics that are not clearly and closely related to
the economic characteristics of the host contract and that a separate instrument
with the same terms would qualify as a derivative instrument, the embedded
derivative is separated from the host contract and carried at fair value. In
cases where the host contract is measured at fair value, with changes in fair
value reported in current period earnings, or the Companies are unable to
reliably identify and measure the embedded derivative for separation from its
host contract, the entire contract is carried on the balance sheet at fair value
and is not designated as a hedging instrument.
PENDING ACCOUNTING STANDARDS: In June 2001, the Financial Accounting Standards
Board issued Statements of Financial Accounting Standards No. 141, "Business
Combinations", and No. 142, "Goodwill and Other Intangible Assets", effective
for fiscal years beginning after December 15, 2001. Under the new rules,
goodwill and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will continue to be amortized over their
useful lives. The Companies are required to adopt the new rules effective
January 1, 2002. The Companies are evaluating the impact of the adoption of
these standards and have not yet determined the effect of adoption on their
financial position and results of operations.
STATUTORY
Net loss for Golden American as determined in accordance with statutory
accounting practices was $54,982,000 and $12,235,000 for the six months ended
June 30, 2001 and 2000, respectively. Total statutory capital and surplus was
$360,926,000 at June 30, 2001 and $406,923,000 at December 31, 2000
The National Association of Insurance Commissioners has revised the Accounting
Practices and Procedures Manual, the guidance that defines statutory accounting
principles. The revised manual was effective January 1, 2001, and has been
adopted, at least in part, by the States of Delaware and New York, which are the
states of domicile for Golden American and First Golden, respectively. The
revised manual has resulted in changes to the accounting practices that the
Companies use to prepare their statutory-basis financial statements. The impact
of these changes to the Companies' statutory-basis capital and surplus as of
January 1, 2001 was not significant.
RECLASSIFICATIONS
Certain amounts in the prior period financial statements have been reclassified
to conform to the June 30, 2001 financial statement presentation.
NOTE 2 -- COMPREHENSIVE INCOME
Comprehensive income includes all changes in stockholder's equity during a
period except those resulting from investments by and distributions to the
stockholder. During the second quarters of 2001 and 2000, total comprehensive
income for the Companies amounted to $2.7 million and $6.4 million,
respectively, and $17.4 million and $7.0 million for the six months ended June
30, 2001 and 2000, respectively. Other comprehensive income excludes net
investment losses included in net income which merely represent transfers from
unrealized to realized gains and losses. These amounts totaled $883,000 and
$120,000 during the second quarters of 2001 and 2000, respectively, and $185,000
and $588,000 for the six months ended June 30, 2001 and 2000, respectively. Such
amounts, which have been measured through the date of sale, are net of income
taxes and adjustments for the value of purchased insurance in force and deferred
policy acquisition costs totaling $1,736,000 and $(1,200,000) for the second
quarters of 2001 and 2000, respectively, and $(104,000) and $(2,041,000) for the
six months ended June 30, 2001 and 2000, respectively.
NOTE 3 -- INVESTMENTS
INVESTMENT VALUATION ANALYSIS: The Companies analyze the investment portfolio at
least quarterly in order to determine if the carrying value of any investment
has been impaired. The carrying value of debt and equity securities is written
down to fair value by a charge to realized losses when impairment in value
appears to be other than temporary. During the first quarter of 2001, Golden
American determined that the carrying value of three bonds exceeded their
estimated net realizable value. As a result, during the six months ended June
30, 2001, Golden American recognized a total pre-tax loss of $679,000 to reduce
7
the carrying value of the bonds to their combined net realizable value of
$365,000.
NOTE 4 -- DERIVATIVE INSTRUMENTS
The Companies may from time to time utilize various derivative instruments to
manage interest rate and price risk (collectively, market risk). The Companies
have appropriate controls in place, and financial exposures are monitored and
managed by the Companies as an integral part of their overall risk management
program. Derivatives are recognized on the balance sheet at their fair value. At
June 30, 2001, the Companies did not utilize any such derivatives.
The estimated fair values and carrying amounts of the Companies' embedded
derivatives at June 30, 2001 were $0, net of reinsurance. The estimated fair
values and carrying amounts of the embedded derivatives on a direct basis,
before reinsurance, were $1.1 million.
The fair value of these instruments was estimated based on quoted market prices,
dealer quotations or internal estimates.
NOTE 5 -- RELATED PARTY TRANSACTIONS
OPERATING AGREEMENTS: Directed Services, Inc. ("DSI"), an affiliate, acts as the
principal underwriter (as defined in the Securities Act of 1933 and the
Investment Company Act of 1940, as amended) and distributor of the variable
insurance products issued by the Companies. DSI is authorized to enter into
agreements with broker/dealers to distribute the Companies' variable insurance
products and appoint representatives of the broker/dealers as agents. The
Companies paid commissions to DSI totaling $52,514,000 and $108,398,000 in the
second quarter and the first six months of 2001, respectively ($53,398,000 and
$109,252,000, respectively, for the same periods of 2000).
Golden American provides certain managerial and supervisory services to DSI. The
fee paid by DSI for these services is calculated as a percentage of average
assets in the variable separate accounts. For the second quarter and six months
ended June 30, 2001, the fee was $5,831,000 and $11,533,000, respectively
($4,740,000 and $9,058,000, respectively, for the same periods of 2000).
The Companies have an asset management agreement with ING Investment Management
LLC ("ING IM"), an affiliate, in which ING IM provides asset management and
accounting services. Under the agreement, the Companies record a fee based on
the value of the assets managed by ING IM. The fee is payable quarterly. For the
second quarter and the first six months of 2001, the Companies incurred fees of
$858,000 and $1,701,000, respectively, under this agreement ($616,000 and
$1,274,000, respectively, for the same periods of 2000).
Golden American has a guaranty agreement with Equitable Life Insurance Company
of Iowa ("Equitable Life"), an affiliate. In consideration of an annual fee,
payable June 30, Equitable Life guarantees to Golden American that it will make
funds available, if needed, to Golden American to pay the contractual claims
made under the provisions of Golden American's life insurance and annuity
contracts. The agreement is not, and nothing contained therein or done pursuant
thereto by Equitable Life shall be deemed to constitute, a direct or indirect
guaranty by Equitable Life of the payment of any debt or other obligation,
indebtedness, or liability, of any kind or character whatsoever, of Golden
American. The agreement does not guarantee the value of the underlying assets
held in separate accounts in which funds of variable life insurance and variable
annuity policies have been invested. The calculation of the annual fee is based
on risk based capital. On June 30, 2001 and 2000, Golden American incurred a fee
of $12,000 and $7,000, respectively, under this agreement.
Golden American provides certain advisory, computer, and other resources and
services to Equitable Life. Revenues for these services, which reduced general
expenses incurred by Golden American, totaled $1,360,000 and $2,719,000 for the
second quarter and six months ended June 30, 2001, respectively ($1,708,000 and
$3,276,000, respectively, for the same periods of 2000).
8
The Companies have a service agreement with Equitable Life in which Equitable
Life provides administrative and financial related services. Under this
agreement, the Companies incurred expenses of $77,000 and $152,000 for the
second quarter and six months ended June 30, 2001, respectively ($355,000 and
$667,000, respectively, for the same periods in 2000).
First Golden provides resources and services to DSI. Revenues for these
services, which reduced general expenses incurred by First Golden, totaled
$8,000 and $134,000 for the second quarter and six months ended June 30, 2001,
respectively ($56,000 and $108,000, respectively, for the same periods in 2000).
Golden American provides resources and services to ING Mutual Funds Management
Co., LLC, an affiliate. Revenues for these services, which reduced general
expenses incurred by Golden American, totaled $430,000 and $478,000 for the
second quarter and six months ended June 30, 2001, respectively ($165,000 and
$270,000, respectively, for the same periods in 2000).
Golden American provides resources and services to United Life & Annuity
Insurance Company, an affiliate. Revenues for these services, which reduced
general expenses incurred by Golden American, totaled $97,000 and $199,000 for
the second quarter and six months ended June 30, 2001, respectively ($149,000
and 318,000, respectively, for the same periods in 2000).
The Companies provide resources and services to Security Life of Denver
Insurance Company, an affiliate. Revenues for these services, which reduced
general expenses incurred by the Companies, totaled $79,000 and $133,000 for the
second quarter and six months ended June 30, 2001, respectively ($56,000 and
$108,000, respectively, for the same periods in 2000).
The Companies provide resources and services to Southland Life Insurance
Company, an affiliate. Revenues for these services, which reduced general
expenses incurred by the Companies, totaled $34,000 and $63,000 for the second
quarter and six months ended June 30, 2001, respectively ($26,000 and $52,000,
respectively, for the same periods in 2000).
For the second quarter of 2001, the Companies received premiums, net of
reinsurance, for variable products sold through eight affiliates, Locust Street
Securities, Inc. ("LSSI"), Vestax Securities Corporation ("Vestax"), DSI,
Multi-Financial Securities Corporation ("Multi-Financial"), IFG Network
Securities, Inc. ("IFG"), Washington Square Securities, Inc. ("Washington
Square"), PrimeVest Financial ("PrimeVest"), and Compulife Investor Services,
Inc. ("Compulife") of $28,500,000, $9,100,000, $200,000, $5,900,000, $3,900,000,
$21,600,000, $7,900,000 and $2,200,000, respectively ($9,500,000, $6,900,000,
$100,000, $2,800,000, $1,500,000, $0, $0, and $0, respectively, for the same
period of 2000). For the first six months of 2001, the Companies received
premiums, net of reinsurance for variable products sold through eight
affiliates, LSSI, Vestax, DSI, Multi-Financial, IFG, Washington Square,
PrimeVest, and Compulife of $37,900,000, $12,900,000, $400,000, $9,000,000,
$5,500,000, $28,900,000, $11,000,000, and $3,700,000, respectively ($67,000,000,
$28,300,000, $800,000, $21,100,000, $8,300,000, $0, $0, and $0, respectively,
for the same period of 2000).
For the second quarter and six months ended June 30, 2001, First Golden received
premiums for fixed annuities products sold through Washington Square. of
approximately $450,000 and $550,000, respectively.
MODIFIED COINSURANCE AGREEMENT: On June 30, 2000, effective January 1, 2000,
Golden American entered into a modified coinsurance agreement with Equitable
Life, an affiliate, covering a considerable portion of Golden American's
variable annuities issued after January 1, 2000, excluding those with an
interest rate guarantee. The financial statements are presented net of the
effects of the agreement.
Under this agreement, Golden American received a net reimbursement of expenses
and charges of $50.2 million and $160.9 million for the second quarter and the
six months ended June 30, 2001, respectively ($111.8 million for the second
quarter and the six months ended June 30, 2000). This was offset by a decrease
in deferred acquisition costs of $52.7 million and $160.8 million, respectively,
for the same periods ($109.3 million during the second quarter and the first six
months in 2000). At June 30, 2001, Golden American had a payable to Equitable
9
Life of $10.0 million due to the timing of the cash settlement for the modified
coinsurance agreement. As at December 31, 2000, Golden American had a payable of
$16.3 million under the agreement.
REINSURANCE AGREEMENT COVERING MINIMUM GUARANTEED BENEFITS: On December 28,
2000, Golden American entered into a reinsurance agreement with Security Life of
Denver International Limited, an affiliate, covering minimum guaranteed death
benefits and minimum guaranteed living benefits of variable annuities issued
after January 1, 2000. An irrevocable letter of credit was obtained through Bank
of New York in the amount of $25.0 million related to this agreement. Under this
agreement, Golden American recorded a reinsurance recoverable of $21.4 million
and $14.6 million at June 30, 2001 and December 31, 2000, respectively.
RECIPROCAL LOAN AGREEMENT: Golden American maintains a reciprocal loan agreement
with ING America Insurance Holdings, Inc. ("ING AIH"), a Delaware corporation
and affiliate, to facilitate the handling of unusual and/or unanticipated
short-term cash requirements. Under this agreement, which became effective
January 1, 1998 and expires December 31, 2007, Golden American and ING AIH can
borrow up to $65,000,000 from one another. Prior to lending funds to ING AIH,
Golden American must obtain the approval of the Department of Insurance of the
State of Delaware. 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 $0 and
$254,000 for the second quarters of 2001 and 2000, respectively, and $25,000 and
$336,000 for the six months ended June 30, 2001 and 2000, respectively. At June
30, 2001, Golden American did not have any borrowings or receivables from ING
AIH under this agreement.
SURPLUS NOTES: On December 30, 1999, Golden American issued an 8.179% surplus
note in the amount of $50,000,000 to Equitable Life. The note matures on
December 29, 2029. Payment of the note and related accrued interest is
subordinate to payments due to policyholders, claimant and beneficiary claims,
as well as debts owed to all other classes of debtors, other than surplus note
holders, of Golden American. Any payment of principal and/or interest made is
subject to the prior approval of the Delaware Insurance Commissioner. Under this
agreement, Golden American incurred interest expense of $1,020,000 and
$1,022,000 for the second quarters of 2001 and 2000, respectively, and
$2,028,000 and $2,056,000 for the six months ended June 30, 2001 and 2000,
respectively.
On December 8, 1999, Golden American issued a 7.979% surplus note in the amount
of $35,000,000 to First Columbine Life Insurance Company ("First Columbine"), an
affiliate. The note matures on December 7, 2029. Payment of the note and related
accrued interest is subordinate to payments due to policyholders, claimant and
beneficiary claims, as well as debts owed to all other classes of debtors, other
than surplus note holders, of Golden American. Any payment of principal and/or
interest made is subject to the prior approval of the Delaware Insurance
Commissioner. Under this agreement, Golden American incurred interest expense of
$696,000 and $698,000 for the seconds quarters of 2001 and 2000, respectively,
and $1,385,000 and $1,575,000 for the first six months of 2001 and 2000,
respectively.
On September 30, 1999, Golden American issued a 7.75% surplus note in the amount
of $75,000,000 to ING AIH. The note matures on September 29, 2029. Payment of
the note and related accrued interest is subordinate to payments due to
policyholders, claimant, and beneficiary claims, as well as debts owed to all
other classes of debtors, other than surplus note holders, of Golden American.
Any payment of principal and/or interest made is subject to the prior approval
of the Delaware Insurance Commissioner. Under this agreement, Golden American
incurred interest expense of $1,449,000 and $1,453,000 for the second quarters
of 2001 and 2000, respectively, and $2,882,000 and $2,906,000 for the first six
months of 2001 and 2000, respectively. On December 30, 1999, ING AIH assigned
the note to Equitable Life.
On December 30, 1998, Golden American issued a 7.25% surplus note in the amount
of $60,000,000 to Equitable Life. The note matures on December 29, 2028. Payment
of the note and related accrued interest is subordinate to payments due to
policyholders, claimant, and beneficiary claims, as well as debts owed to all
other classes of debtors, other than surplus note holders, of Golden American.
Any payment of principal and/or interest made is subject to the prior approval
of the Delaware Insurance Commissioner. Under this agreement, Golden American
incurred interest expense of $1,085,000 and $1,087,000 for the second quarters
of 2001 and 2000, respectively, and $2,157,000 and $2,175,000 for the first six
months of 2001 and 2000, respectively.
10
On December 17, 1996, Golden American issued an 8.25% surplus note in the amount
of $25,000,000 to Equitable of Iowa Companies. The note matures on December 17,
2026. Payment of the note and related accrued interest is 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 is subject to the prior approval of the Delaware Insurance
Commissioner. Golden American incurred interest totaling $515,000 for the second
quarters of 2001 and 2000, respectively, and $1,031,000 for the first six months
of 2001 and 2000, respectively.
STOCKHOLDER'S EQUITY: During the second quarter and the first six months of
2001, Golden American received capital contributions from its Parent of
$7,000,000 ($0 and $80,000,000, respectively, for the same periods in 2000).
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
REINSURANCE: At June 30, 2001, the Companies had reinsurance treaties with five
unaffiliated reinsurers and three affiliated reinsurers covering a significant
portion of the minimum guaranteed death and living benefits under its variable
contracts as of June 30, 2001. Golden American remains liable to the extent its
reinsurers do not meet their obligations under the reinsurance agreements.
At June 30, 2001 and December 31, 2000, the Companies had net receivables of
$43,375,000 and $33,973,000, respectively, for reinsurance claims, reserve
credits, or other receivables from these reinsurers. These net receivables were
comprised of $1,350,000 and $1,820,000, respectively, for claims recoverable
from reinsurers, $2,546,000 and $4,007,000, respectively, for a payable for
reinsurance premiums, $21,400,000 and $14,642,000, respectively, for reserve
credits, and $23,171,000 and $21,518,000, respectively, for a receivable from an
unaffiliated reinsurer. Included in the accompanying financial statements are
net considerations to reinsurers of $5,962,000 for the second quarter of 2001
and $12,618,000 for the first six months of 2001 compared to $5,271,000 and
$7,908,000 for the same periods in 2000. Also included in the accompanying
financial statements are net policy benefits of $1,834,000 for the second
quarter of 2001 and $11,777,000 for the first six months of 2001 compared to
$1,278,000 and $1,835,000 for the same period in 2000.
On June 30, 2000, effective January 1, 2000, Golden American entered into a
modified coinsurance agreement with Equitable Life, an affiliate, covering a
considerable portion of Golden American's variable annuities issued after
January 1, 2000, excluding those with an interest rate guarantee. At June 30,
2001, Golden American had received a total settlement of $160.9 million under
this agreement pertaining to 2001. The carrying value of the separate account
liabilities covered under this agreement represent 25.0% of total separate
account liabilities outstanding at June 30, 2001. Golden American remains liable
to the extent Equitable Life does not meet its obligations under the agreement.
The accompanying financial statements are presented net of the effects of the
agreement.
On December 28, 2000, Golden American entered into a reinsurance agreement with
Security Life of Denver International Limited, an affiliate, covering minimum
guaranteed death benefits and minimum guaranteed living benefits of variable
annuities issued January 1, 2000. An irrevocable letter of credit was obtained
through Bank of New York in the amount of $25,000,000 related to this agreement.
On December 29, 2000, First Golden entered into a reinsurance treaty with London
Life Reinsurance Company of Pennsylvania, an unaffiliated reinsurer, covering
the minimum guaranteed death benefits of First Golden's variable annuities
issued after January 1, 2000.
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, 2001, outstanding commitments to fund
mortgage loans totaled $65,620,000. There were no outstanding commitments to
fund mortgage loans at December 31, 2000.
GUARANTY FUND ASSESSMENTS: Assessments are levied on the Companies by life and
health guaranty associations in most states in which the Companies are licensed
to cover losses of policyholders of insolvent or rehabilitated insurers. In some
11
states, these assessments can be partially offset through a reduction in future
premium taxes. The Companies 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 Companies have established an undiscounted
reserve to cover such assessments, review information regarding known failures,
and revise estimates of future guaranty fund assessments. The Companies charged
to expense $1,000 in guaranteed fund assessments in the second quarter of 2001
and $2,000 for the first six months of 2001 compared to $1,000 and $2,000 for
the same periods in 2000. At June 30, 2001 and December 31, 2000, the Companies
have an undiscounted reserve of $2,430,000 to cover future assessments (net of
related anticipated premium tax offsets) and have established an asset totaling
$691,000 and $733,000, respectively, for assessments paid which may be
recoverable through future premium tax offsets. The Companies believe this
reserve is sufficient to cover expected future guaranty fund assessments based
upon previous premiums and known insolvencies at this time.
LITIGATION: The Companies, like other insurance companies, may be named or
otherwise involved in lawsuits, including class action lawsuits and
arbitrations. In some class action and other actions involving insurers,
substantial damages have been sought and/or material settlement or award
payments have been made. The Companies currently believe no pending or
threatened lawsuits or actions exist that are reasonably likely to have a
material adverse impact on the Companies.
VULNERABILITY FROM CONCENTRATIONS: The Companies have various concentrations in
the investment portfolio. As of June 30, 2001, the Companies had one investment
(other than bonds issued by agencies of the United States government) exceeding
ten percent of stockholder's equity. The Companies' asset growth, net investment
income, and cash flow are primarily generated from the sale of variable and
fixed insurance products and associated future policy benefits and separate
account liabilities. Substantial changes in tax laws that would make these
products less attractive to consumers and extreme fluctuations in interest rates
or stock market returns, which may result in higher lapse experience than
assumed, could cause a severe impact on the Companies' financial condition. One
broker/dealer generated 10% of the Companies' net sales during the second
quarter of 2001 (24% by two broker/dealers in the same period of 2000). One
broker/dealer generated 10% of the Companies' net sales during the first six
months of 2001 (12% by one broker/dealer in the same period of 2000). The
Premium Plus product generated 54% and 52% of the Companies' sales during the
second quarter of 2001 and the first six months of 2001 (74% and 75% in the same
periods of 2000). The Guarantee product, introduced in the fourth quarter of
2000, generated 13% and 18% of the Companies' sales during the second quarter
and the first six months of 2001. The ES II product generated 19% and 16% of the
Companies' sales during the second and the first six months of 2001 (12% and 11%
in the same periods of 2000).
REVOLVING NOTE PAYABLE: To enhance short-term liquidity, the Companies
established revolving notes payable with SunTrust Bank, Atlanta (the "Bank").
These revolving notes payable were amended and restated in April 2001 with an
expiration date of May 31, 2002. The note was approved by the Boards of
Directors of Golden American and First Golden on August 5, 1998 and September
29, 1998, respectively. The total amount the Companies may have outstanding is
$85,000,000, of which Golden American and First Golden have individual credit
sublimits of $75,000,000 and $10,000,000, respectively. The notes accrue
interest at an annual rate equal to: (1) the cost of funds for the Bank for the
period applicable for the advance plus 0.225% or (2) a rate quoted by the Bank
to the Companies for the advance. The terms of the agreement require the
Companies to maintain the minimum level of Company Action Level Risk Based
Capital as established by applicable state law or regulation. During the second
quarters ended June 30, 2001 and 2000, the Companies incurred interest expense
of $0 and $8,000, respectively. During the six months ended June 30, 2001 and
2000, the Companies incurred interest expense of $1,000 and $36,000,
respectively. At June 30, 2001 and December 31, 2000, the Companies had
borrowings of $1,400,000 and $0, respectively, under these agreements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS.
The purpose of this section is to discuss and analyze the Golden American Life
Insurance Company's ("Golden American") condensed consolidated results of
operations. In addition, some analysis and information regarding the financial
condition and liquidity and capital resources is provided. This analysis should
be read jointly with the condensed consolidated financial statements, the
related notes, and the Cautionary Statement Regarding Forward-Looking
12
Statements, which appear elsewhere in this report. Golden American reports
financial results on a consolidated basis. The condensed consolidated financial
statements include the accounts of Golden American and its subsidiary, First
Golden American Life Insurance Company of New York ("First Golden," and
collectively with Golden American, the "Companies").
Golden American is a wholly owned subsidiary of Equitable of Iowa Companies,
Inc. ("EIC" or the "Parent"). EIC is an indirect wholly owned subsidiary of ING
Groep N.V. ("ING"), a global financial services holding company based in The
Netherlands.
RESULTS OF OPERATIONS
- ---------------------
PREMIUMS
Percentage Dollar
Six Months ended June 30 2001 Change Change 2000
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in millions)
Variable annuity premiums:
Separate account $39.2 (94.9)% $(726.5) $765.7
Fixed account 720.9 103.9 367.3 353.6
-----------------------------------------------------------------------------------
Total variable annuity premiums 760.1 (32.1) (359.2) 1,119.3
Fixed annuity premiums 1.6 -- 1.6 --
Variable life premiums 1.0 -- -- 1.0
-----------------------------------------------------------------------------------
Total premiums $762.7 (31.9)% $(357.6) $1,120.3
===================================================================================
For the Companies' variable and fixed insurance contracts, premiums collected
are not reported as revenues, but as deposits to insurance liabilities. Revenues
for these products are recognized over time in the form of investment spread and
product charges.
Variable annuity premiums net of reinsurance decreased 32.1% during the first
six months of 2001 compared to the same period of 2000. This decrease is
primarily due to ceded variable annuity separate account premiums of $1.2
billion and $0.9 billion for the first six months of 2001 and 2000,
respectively, under modified coinsurance agreements. Also contributing to the
decrease in variable annuity premiums is a reduction of $462.0 million in
variable annuity separate account premiums from the Premium Plus product in the
first three months of 2001 as compared to the first three months of 2000.
Offsetting these decreases is an increase in fixed account premiums from $353.6
million in 2000 to $720.9 million in 2001. This increase is primarily due to
sales of the Guarantee product, a registered fixed annuity product introduced in
the last quarter of 2000. Sales for this product totaled $358.0 million in the
first six months of 2001.
During the first six months of 2001, First Golden began selling two fixed
annuity products, a Flex Annuity and a Multi-Year Guarantee Annuity ("MYGA").
Premiums, net of reinsurance, for variable products from a significant
broker/dealer having at least ten percent of total sales for the six months
ended June 30, 2001 totaled $72.4 million, or 10% of total premiums ($131.4
million, or 12% from a significant broker/dealer for the six months ended June
30, 2000). Gross premiums for variable products from a significant broker/dealer
having at least ten percent of total sales for the six months ended June 30,
2001, totaled $214.6 million, or 11% of total gross premiums ($450.0 million, or
22%, from two significant broker/dealers for the six months ended June 30,
2000).
13
REVENUES
Percentage Dollar
Six Months ended June 30 2001 Change Change 2000
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in millions)
Annuity and interest sensitive
life product charges $84.3 20.9% $14.6 $69.7
Management fee revenue 12.4 26.2 2.6 9.8
Net investment income 42.8 34.6 11.0 31.8
Realized losses on investments (1.9) (27.2) 0.7 (2.6)
----------------------------------------------------------------------------------
$137.6 26.5% $28.9 $108.7
==================================================================================
Total revenues increased 26.5% in the first six months of 2001 from the same
period in 2000. Annuity and interest sensitive life product charges increased
20.9% in the first six months of 2001 due to additional fees earned from the
higher average block of business under management in the variable separate
accounts and higher surrender charges.
Golden American provides certain managerial and supervisory services to Directed
Services, Inc. ("DSI"). The fee paid to Golden American for these services,
which is calculated as a percentage of average assets in the variable separate
accounts, was $11.5 million and $9.0 million for the first six months of 2001
and 2000, respectively. This increase was due to the increasing average assets
in the variable separate accounts and renegotiation of the fee paid by DSI to
Golden American during the third quarter of 2000.
Net investment income increased 34.6% in the first six months of 2001 due to a
growth in invested assets from June 30, 2000 mainly related to the introduction
of the Guarantee product. The Companies had $1.9 million of realized losses on
the sale of investments in the first six months of 2001, compared to losses of
$2.6 million in the same period of 2000.
EXPENSES
Total insurance benefits and expenses increased $23.3 million, or 27.4%, to
$108.2 million in the first six months of 2001 from the same period in 2000.
Interest credited to account balances decreased $9.9 million, or 9.9%, to $90.2
million in the first six months of 2001. The premium credit on the Premium Plus
product decreased $23.3 million to $50.3 million at June 30, 2001 and the bonus
interest on the fixed account decreased $0.6 million to $4.2 million at June 30,
2001. These decreases were partially offset by an increase in interest credited
due to higher average account balances associated with the Companies' fixed
account options, mainly due to the introduction of the Guarantee product.
Commissions decreased $3.6 million, or 3.2%, to $108.6 million in the first six
months of 2001. Insurance taxes, state licenses, and fees increased $0.6
million, or 21.2%, to $3.5 million in the first six months of 2001. Changes in
commissions and insurance taxes, state licenses, and fees are generally related
to changes in the level and mix or composition of fixed and variable product
sales. Most costs incurred as the result of sales have been deferred, thus
having very little impact on current earnings.
General expenses increased $16.8 million, or 41.8%, to $57.0 million in the
first six months of 2001. The Companies use a network of wholesalers to
distribute products, and the salaries and sales bonuses of these wholesalers are
included in general expenses. The portion of these salaries and related expenses
that varies directly with production levels is deferred thus having little
impact on current earnings. Also contributing to this increase in general
expenses are additional cost allocations during the first six months of 2001.
The increase in general expenses was partially offset by reimbursements received
from DSI, Equitable Life Insurance Company of Iowa ("Equitable Life"), ING
Mutual Funds Management Co., LLC, an affiliate, Security Life of Denver
Insurance Company, an affiliate, Southland Life Insurance Company, an affiliate,
and United Life & Annuity Insurance Company, an affiliate, for certain advisory,
computer, and other resources and services provided by the Companies.
During the first six months of 2001 and 2000, the value of purchased insurance
in force ("VPIF") was adjusted to increase amortization by $245,000 and
$707,000, respectively, to reflect changes in the assumptions related to the
timing of estimated gross profits. Based on current conditions and assumptions
14
as to the impact of future events on acquired policies in force, the expected
approximate net amortization relating to VPIF as of June 30, 2001 is $2.0
million for the remainder of 2001, $3.4 million in 2002, $3.0 million in 2003,
$2.5 million in 2004, $1.8 million in 2005, and $1.4 million in 2006. Actual
amortization may vary based upon changes in assumptions and experience.
Amortization of deferred policy acquisition costs ("DPAC") decreased $6.1
million, or 17.1%, in the first six months of 2001. Deferred policy acquisition
costs decreased $72.8 million, or 74.5%, for the six months ended June 30, 2001.
The decrease in the amortization and the amount of policy acquisition costs
deferred was mainly due to an increase in the amount of deferred costs that have
been offset due to the modified coinsurance agreement entered into during the
second quarter of 2000.
Expenses and charges reimbursed to Golden American under modified coinsurance
agreements increased from $115.8 million for the six months in 2000 to $162.7
million during the first six months in 2001. This was primarily due to a
modified coinsurance agreement which was entered into during the second quarter
of 2000, with Equitable Life, an affiliate, covering a considerable portion of
Golden American's variable annuities issued after January 1, 2000, excluding
those with an interest rate guarantee. Under this reinsurance agreement, $160.9
million in expenses and charges were reimbursed during the first six months of
2001. This reimbursement offset deferred policy acquisition costs and
non-deferrable costs related to policies reinsured under this agreement.
Interest expense decreased 6.0%, or $0.6 million, to $9.5 million in the first
six months of 2001. Interest expense on a $25 million surplus note issued
December 1996 and expiring December 2026 was $1.0 million for the first six
months of 2001, unchanged from the same period of 2000. Interest expense on a
$60 million surplus note issued in December 1998 and expiring December 2028 was
$2.2 million for the first six months of 2001, unchanged from the same period of
2000. Interest expense on a $75 million surplus note, issued September 1999 and
expiring September 2029 was $2.9 million for the first six months of 2001 and
2000. Interest expense on a $50 million surplus note, issued December 1999 and
expiring December 2029 was $2.0 million for the first six months of 2001 and
$2.1 million in 2000. Interest expense on a $35 million surplus note issued
December 1999 and expiring December 2029 was $1.4 million for the first six
months of 2001 and $1.6 million in 2000. Golden American also paid $25,000 in
2001 and $284,000 in 2000 to ING America Insurance Holdings, Inc. ("ING AIH")
for interest on a reciprocal loan agreement. Interest expense on a revolving
note payable with SunTrust Bank, Atlanta was $1,000 and $36,000 for the first
six months of 2001 and 2000, respectively.
INCOME
Net income was $12.1 million for the first six months of 2001, an increase of
$4.0 million, or 50.2% from the same period of 2000.
Comprehensive income for the first six months of 2001 was $17.4 million, an
increase of $10.4 million from comprehensive income of $7.0 million in the same
period of 2000.
FINANCIAL CONDITION
- -------------------
INVESTMENTS
The financial statement carrying value and amortized cost basis of the
Companies' total investments increased 50.1% and 48.4%, respectively, during the
first six months of 2001. All of the Companies' investments, other than mortgage
loans on real estate, are carried at fair value in the Companies' financial
statements. The increase in the carrying value of the Companies' investment
portfolio was mainly due to net purchases, as well as changes in unrealized
appreciation and depreciation of fixed maturities. Growth in the cost basis of
the Companies' investment portfolio resulted from the investment of premiums
from the sale of the Companies' fixed account options mainly due to the
introduction of the Guarantee product. The Companies manage the growth of
insurance operations in order to maintain adequate capital ratios. To support
the fixed account options of the Companies' insurance products, cash flow was
invested primarily in fixed maturities and mortgage loans on real estate.
15
At June 30, 2001, the Companies had no investments in default. At June 30, 2001,
the Companies' investments had a yield of 6.7%. The Companies estimate the total
investment portfolio, excluding policy loans, had a fair value approximately
equal to 100.4% of amortized cost value at June 30, 2001.
FIXED MATURITIES: At June 30, 2001, the Companies had fixed maturities with an
amortized cost of $1.2 billion and an estimated fair value of $1.2 billion. The
Companies classify 100% of securities as available for sale. Net unrealized
appreciation of fixed maturities of $5.2 million was comprised of gross
appreciation of $13.9 million and gross depreciation of $8.7 million. Net
unrealized holding gains on these securities, net of adjustments for VPIF, DPAC,
and deferred income taxes of $1.2 million, were included in stockholder's equity
at June 30, 2001.
The individual securities in the Companies' fixed maturities portfolio (at
amortized cost) include investment grade securities, which include securities
issued by the U.S. government, its agencies, and corporations that are rated at
least A- by Standard & Poor's Rating Services ("Standard & Poor's") ($589.9
million or 48.1%), that are rated BBB+ to BBB- by Standard & Poor's ($239.7
million or 19.6%), and below investment grade securities, which are securities
issued by corporations that are rated BB+ and lower by Standard & Poor's ($118.5
million or 9.6%). Securities not rated by Standard & Poor's had a National
Association of Insurance Commissioners ("NAIC") rating of 1, 2, 3, 4, 5, or 6
($278.0 million or 22.7%). The Companies' fixed maturity investment portfolio
had a combined yield at amortized cost of 6.9% at June 30, 2001.
Fixed maturities rated BBB+ to BBB- may have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity of the issuer to make principal and interest payments than
is the case with higher rated fixed maturities.
At June 30, 2001, the amortized cost value of the Companies' total investments
in below investment grade securities, excluding mortgage-backed securities, was
$133.3 million, or 8.9%, of the Companies' investment portfolio. The Companies
do not expect the percentage of the portfolio invested in below investment grade
securities, excluding mortgage-backed securities, to exceed 10% of the
investment portfolio. At June 30, 2001, the yield at amortized cost on the
Companies' below investment grade portfolio was 8.4% compared to 6.9% for the
Companies' investment grade corporate bond portfolio. The Companies estimate the
fair value of the below investment grade portfolio was $131.2 million, or 98.4%
of amortized cost value, at June 30, 2001.
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 Companies
attempt to reduce the overall risk in the below investment grade portfolio, as
in all investments, through careful credit analysis, strict investment policy
guidelines, and diversification by company and by industry.
The Companies analyze the investment portfolio, including below investment grade
securities, at least quarterly in order to determine if the Companies' ability
to realize the 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 the Companies 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 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
Companies' portfolio. Significant write-downs in the carrying value of
investments could materially adversely affect the Companies' net income in
future periods.
During the first six months of 2001, fixed maturities designated as available
for sale with a combined amortized cost of $233.3 million were sold, called, or
repaid by their issuers. In total, net pre-tax gains from sales, calls, and
repayments of fixed maturity investments amounted to $0.5 million in the first
six months of 2001.
16
During the first six months of 2001, Golden American determined that the
carrying value of three impaired bonds exceeded their estimated net realizable
value. As a result, at June 30, 2001, Golden American recognized a total pre-tax
loss of approximately $679,000 to reduce the carrying value of the bonds to
their net realizable value of $365,000.
MORTGAGE LOANS ON REAL ESTATE: Mortgage loans on real estate represent 10.0% of
the Companies' investment portfolio. Mortgages outstanding were $150.6 million
at June 30, 2001 with an estimated fair value of $151.1 million. The Companies'
mortgage loan portfolio includes 60 loans with an average size of $2.5 million.
The Companies' mortgage loans on real estate are typically secured by occupied
buildings in major metropolitan locations and not speculative developments, and
they are diversified by type of property and geographic location. Mortgage loans
on real estate have been analyzed by geographical location with concentrations
by state identified as Ohio (17% in 2001 and 4% in 2000) and California (16% in
2001 and 15% in 2000). Mortgage loans on real estate have also been analyzed by
collateral type with significant concentrations identified in office buildings
(24% in 2001 and 29% in 2000), industrial buildings (27% in 2001 and 35% in
2000), retail facilities (24% in 2001 and 18% in 2000), and multi-family
apartments (21% in 2001 and 10% in 2000). At June 30, 2001, the yield on the
Companies' mortgage loan portfolio was 7.1%.
At June 30, 2001, no mortgage loan on real estate was delinquent by 90 days or
more. The Companies' loan investment strategy is consistent with other life
insurance subsidiaries of ING in the United States. The insurance subsidiaries
of EIC have experienced a historically low default rate in their mortgage loan
portfolios.
OTHER ASSETS
Reinsurance recoverables increased $9.4 million during the first six months of
2001, due largely to an increase of $6.8 million in reinsurance reserves from
the intercompany reinsurance agreement between Golden American and Security Life
of Denver International Limited. On December 28, 2000, effective January 1,
2000, Golden American entered into a reinsurance agreement with Security Life of
Denver International Limited, an affiliate, covering variable annuity minimum
guaranteed death benefits and minimum guaranteed living benefits.
Amounts due from affiliates were $68,000 and $38.8 million at June 30, 2001 and
December 31, 2000, respectively. At December 31, 2000, the Companies had a
receivable of $35.0 million related to a capital contribution from its Parent,
EIC.
DPAC represents certain deferred costs of acquiring insurance business,
principally first year commissions and interest bonuses, premium credits, and
other expenses related to the production of business after the merger of EIC and
its subsidiaries with ING on October 24, 1997, (the "ING merger date"). The
Companies' previous balances of DPAC and VPIF were eliminated as of the ING
merger date, and an asset representing VPIF was established for all policies in
force at the ING merger date. VPIF is amortized into income in proportion to the
expected gross profits of in force acquired business in a manner similar to DPAC
amortization. Any expenses which vary directly with the sales of the Companies'
products are deferred and amortized. At June 30, 2001, the Companies had DPAC
and VPIF balances of $624.6 million and $22.3 million, respectively. During the
first six months of 2001 and 2000, VPIF was adjusted to increase amortization by
$245,000 and by $707,000, respectively, to reflect changes in the assumptions
related to the timing of estimated gross profits.
Goodwill totaling $151.1 million, representing the excess of the acquisition
cost over the fair value of net assets acquired, was established as a result of
the merger with ING. Accumulated amortization of goodwill through June 30, 2001
was $13.9 million.
Other assets increased $22.3 million from December 31, 2000, due to an increase
of $22.9 million in receivables for securities sold.
17
At June 30, 2001, the Companies had $10.4 billion of separate account assets
compared to $9.8 billion at December 31, 2000. The increase in separate account
assets resulted from the sale of the Companies' variable products, net of
redemptions, and by net policyholder transfers to the separate account options
from the fixed account options within the variable products. This effect is
partially offset by negative equity market returns.
At June 30, 2001, the Companies had total assets of $12.8 billion, an 8.4%
increase from December 31, 2000.
LIABILITIES
Future policy benefits for annuity and interest sensitive life products
increased $393.9 million, or 37.1%, to $1.5 billion reflecting net sales of the
Companies' fixed account options, net of transfers to the separate account
options at June 30, 2001.
Separate account liabilities increased $538.8 million, or 5.5% to $10.4 billion
at June 30, 2001. This increase resulted from sales of the Companies' variable
products, net of redemptions, and by net policyholder transfers to the separate
account options from the fixed account options within the variable products.
This effect is partially offset by negative equity market returns.
On December 30, 1999, Golden American issued a $50 million, 8.179% surplus note
to Equitable Life, which matures on December 29, 2029. On December 8, 1999,
Golden American issued a $35 million, 7.979% surplus note to First Columbine
Life Insurance Company, an affiliate, which matures on December 7, 2029. On
September 30, 1999, Golden American issued a $75 million, 7.75% surplus note to
ING AIH, which matures on September 29, 2029. On December 30, 1999, ING AIH
assigned the surplus note to Equitable Life. On December 30, 1998, Golden
American issued a $60 million, 7.25% surplus note to Equitable Life, which
matures on December 29, 2028. On December 17, 1996, Golden American issued a $25
million, 8.25% surplus note to Equitable of Iowa Companies, which matures on
December 17, 2026. As a result of the merger of Equitable into EIC, the surplus
note is now payable to EIC.
Amounts due to affiliates decreased $4.8 million or 24.0% to $15.1 million
during the first six months of 2001. This is mainly due to the partial cash
settlement of a liability for the modified coinsurance agreement with Equitable
Life.
Other liabilities increased $42.0 million or 60.6% to $111.4 million during the
first six months of 2001 due to the increase in the payable for securities
purchased.
The Companies' total liabilities increased $971.2 million, or 8.6%, during the
first six months 2001 and totaled $12.2 billion at June 30, 2001.
The effects of inflation and changing prices on the Companies' financial
position 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 stockholder's equity when monetary assets
exceed monetary liabilities.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Liquidity is the ability of the Companies to generate sufficient cash flows to
meet the cash requirements of operating, investing, and financing activities.
The Companies' principal sources of cash are variable annuity premiums, product
charges, investment income, sales and maturities of investments, proceeds from
debt issuance, and capital contributions made by the Parent. Primary uses of
these funds are payments of commissions and operating expenses, interest and
premium credits, investment purchases, repayment of debt, as well as withdrawals
and surrenders.
Net cash provided by operating activities was $165.0 million in the first six
months of 2001 compared to net cash provided by operating activities of $33.3
million in the same period of 2000. The Companies have predominantly had
negative cash flows from operating activities since Golden American started
issuing variable insurance products in 1989. These negative operating cash flows
result primarily from commissions and other deferrable expenses related to the
continued growth in the variable annuity products. For the six months ended June
30, 2001 and 2000, negative operating cash flows have been offset by the effects
18
of a modified coinsurance agreement entered into during the second quarter of
2000 with Equitable Life. This resulted in a net cash settlement of $160.9
million in the first six months of 2001. For the six months ended June 30, 2000,
this modified coinsurance resulted in a net cash settlement of $111.8 million.
Also contributing to this increase in net cash provided by operating activities
is an increase in the payable for securities purchased at June 30, 2001.
Net cash used in investing activities was $486.4 million during the first six
months of 2001 compared to net cash provided by investing activities of $39.5
million in the same period of 2000. This increase in the net cash used in
investing activities is primarily due to net purchases of fixed maturities and
mortgage loans on real estate during the first six months of 2001 versus net
sales in 2000. Net purchases of fixed maturities reached $428.6 million during
the first six months of 2001 versus net sales of $22.2 million in the same
period of 2000. Net purchases of mortgage loans on real estate reached $50.9
million in the first six months of 2000 versus net purchases of $5.6 million
during the same period in 2000. These investment purchases were mainly due to an
increase in sales of the Companies fixed account options, primarily from the
introduction of the Guarantee product in the fourth quarter of 2000.
Net cash provided by financing activities was $309.4 million during the first
six months of 2001 compared to net cash used in financing activities of $25.7
million during the same period in 2000. In the first six months of 2001, net
cash provided by financing activities was positively impacted by net fixed
account deposits of $663.5 million compared to $267.8 million in the same period
of 2000 primarily due to the introduction of the Guarantee product in the fourth
quarter of 2000. In addition, there was a decrease of $49.6 million in net
reallocations to Separate Accounts. In the first six months of 2001, net cash
provided by financing activities was negatively impacted by a decrease in
capital contributions from the Parent as well as a decrease in the amount of
proceeds received from reciprocal loan agreement borrowings. The Companies
received $7.0 million and $80.0 million of capital contributions from the Parent
in the first six months of 2001 and 2000, respectively. During the first six
months of 2000, the Companies received a net amount of $40.0 million from
reciprocal loan agreement borrowings.
The Companies' liquidity position is managed by maintaining adequate levels of
liquid assets, such as cash or cash equivalents and short-term investments.
Additional sources of liquidity include borrowing facilities to meet short-term
cash requirements. Golden American maintains a $65.0 million reciprocal loan
agreement with ING AIH and the Companies have established an $85.0 million
revolving note facility with SunTrust Bank. This revolving note payable was
amended and restated in April 2001 with an expiration date of May 31, 2002.
Management believes that these sources of liquidity are adequate to meet the
Companies' short-term cash obligations.
Based on current trends, the Companies expect to continue to use net cash in
operating activities before reinsurance. It is anticipated that a continuation
of capital contributions from the Parent, the issuance of additional surplus
notes, and/or the use of modified coinsurance agreements will cover these net
cash outflows. ING AIH is committed to the sustained growth of Golden American.
During 2001, ING AIH will maintain Golden American's statutory capital and
surplus at the end of each quarter at a level such that: 1) the ratio of Total
Adjusted Capital divided by Company Action Level Risk Based Capital exceeds
300%; and 2) the ratio of Total Adjusted Capital (excluding surplus notes)
divided by Company Action Level Risk Based Capital exceeds 200%; and 3) Golden
American's statutory capital and surplus exceeds the "Amounts Accrued for
Expense Allowances Recognized in Reserves" as disclosed on page 3, Line 13A of
Golden American's Statutory Statement.
During the first quarter of 1999, Golden American's operations were moved to a
new site in West Chester, Pennsylvania. Currently, Golden American occupies
125,000 square feet of leased space. Golden American's New York subsidiary is
housed in leased space in New York, New York.
The ability of Golden American to pay dividends to its Parent is restricted.
Prior approval of insurance regulatory authorities is required for payment of
dividends to the stockholder which exceed an annual limit. During 2001, Golden
American cannot pay dividends to its Parent without prior approval of statutory
authorities.
Under the provisions of the insurance laws of the State of New York, First
Golden cannot distribute any dividends to its stockholder, Golden American,
unless a notice of its intent to declare a dividend and the amount of the
dividend has been filed with the New York Insurance Department at least thirty
days in advance of the proposed declaration. If the Superintendent of the New
York Insurance Department finds the financial condition of First Golden does not
19
warrant the distribution, the Superintendent may disapprove the distribution by
giving written notice to First Golden within thirty days after the filing. The
management of First Golden does not anticipate paying any dividends to Golden
American during 2001.
The NAIC's risk-based capital requirements require insurance companies to
calculate and report information under a risk-based capital formula. These
requirements are intended to allow insurance regulators to monitor the
capitalization of insurance companies based upon the type and mixture of risks
inherent in a company's operations. The formula includes components for asset
risk, liability risk, interest rate exposure, and other factors. The Companies
have complied with the NAIC's risk-based capital reporting requirements. Amounts
reported indicate the Companies have total adjusted capital well above all
required capital levels.
REINSURANCE: At June 30, 2001, Golden American had reinsurance treaties with
five unaffiliated reinsurers and three affiliated reinsurers covering a
significant portion of the mortality risks and guaranteed death and living
benefits under its variable contracts. Golden American remains liable to the
extent its reinsurers do not meet their obligations under the reinsurance
agreements.
On June 30, 2000, effective January 1, 2000, Golden American entered into a
modified coinsurance agreement with Equitable Life, an affiliate, covering a
considerable portion of Golden American's variable annuities issued after
January 1, 2000, excluding those with an interest rate guarantee.
On December 28, 2000, Golden American entered into a reinsurance agreement with
Security Life of Denver International Limited, an affiliate, covering variable
annuity minimum guaranteed death benefits and minimum guaranteed living benefits
of variable annuities issued after January 1, 2000. An irrevocable letter of
credit was obtained through Bank of New York in the amount of $25 million
related to this agreement.
On December 29, 2000, First Golden entered into a reinsurance treaty with London
Life Reinsurance Company of Pennsylvania, an unaffiliated reinsurer, covering
the minimum guaranteed death benefits of First Golden's variable annuities
issued after January 1, 2000.
MARKET RISK AND RISK MANAGEMENT
- -------------------------------
Asset/liability management is integrated into many aspects of the Companies'
operations, including investment decisions, product development, and crediting
rates determination. As part of the risk management process, different economic
scenarios are modeled, including cash flow testing required for insurance
regulatory purposes, to determine that existing assets are adequate to meet
projected liability cash flows. Key variables include contractholder behavior
and the variable separate accounts' performance.
Contractholders bear the majority of the investment risks related to the
variable insurance products. Therefore, the risks associated with the
investments supporting the variable separate accounts are assumed by
contractholders, not by the Companies (subject to, among other things, certain
minimum guarantees). The Companies' products also provide certain minimum death
and guaranteed living benefits that depend on the performance of the variable
separate accounts. Currently, the majority of death and living benefit risks are
reinsured, which protects the Companies from adverse mortality experience and
prolonged capital market decline.
A surrender, partial withdrawal, transfer, or annuitization made prior to the
end of a guarantee period from the fixed account may be subject to a market
value adjustment. As the majority of the liabilities in the fixed account are
subject to market value adjustment, the Companies do not face a material amount
of market risk volatility. The fixed account liabilities are supported by a
portfolio principally composed of fixed rate investments that can generate
predictable, steady rates of return. The portfolio management strategy for the
fixed account considers the assets available for sale. This enables the
Companies to respond to changes in market interest rates, changes in prepayment
risk, changes in relative values of asset sectors and individual securities and
loans, changes in credit quality outlook, and other relevant factors. The
objective of portfolio management is to maximize returns, taking into account
interest rate and credit risks, as well as other risks. The Companies'
asset/liability management discipline includes strategies to minimize exposure
to loss as interest rates and economic and market conditions change.
20
On the basis of these analyses, management believes there is no material
solvency risk to the Companies. With respect to a 10% drop in equity values from
June 30, 2001 levels, variable separate account funds, which represent 88% of
the in force, pass the risk in underlying fund performance to the contractholder
(except for certain minimum guarantees). With respect to interest rate movements
up or down 100 basis points from June 30, 2001 levels, the remaining 12% of the
in force are fixed account funds and almost all of these have market value
adjustments which provide significant protection against changes in interest
rates.
21
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
- ---------------------------------------------------------
Any forward-looking statement contained herein or in any other oral or written
statement by the Companies or any of their officers, directors, or employees is
qualified by the fact that actual results of the Companies may differ materially
from such statement, among other risks and uncertainties inherent in the
Companies' business, due to the following important factors:
1. Prevailing interest rate levels and stock market performance, which may
affect the ability of the Companies to sell their products, the market
value and liquidity of the Companies' investments, fee revenue, and the
lapse rate of the Companies' policies, notwithstanding product design
features intended to enhance persistency of the Companies' products.
2. Changes in the federal income tax laws and regulations, which may affect
the tax status of the Companies' 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 Companies' products.
4. Increasing competition in the sale of the Companies' products.
5. Other factors that could affect the performance of the Companies,
including, but not limited to, market conduct claims, litigation, insurance
industry insolvencies, availability of competitive reinsurance on new
business, investment performance of the underlying portfolios of the
variable products, variable product design, and sales volume by significant
sellers of the Companies' variable products.
22
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
PRODUCTS
The Companies offer a portfolio of variable and fixed insurance products
designed to meet customer needs for tax-advantaged saving for retirement and
protection from death. The Companies believe longer life expectancies, an aging
population, and growing concern over the stability and availability of the
Social Security system have made retirement planning a priority for many
Americans. The target market for all products is consumers and corporations
throughout the United States.
Variable and fixed insurance products currently offered by the Companies include
seven variable annuity products and two fixed annuity products. During the year
2001, First Golden began selling two fixed insurance products, FGA New York Flex
and FGA New York MYGA. On May 1, 2001, Golden American began selling a new
variable insurance product called Landmark.
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
23
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 10, 2001 GOLDEN AMERICAN LIFE INSURANCE COMPANY
By/s/ Wayne R. Huneke
-----------------------------------------------------
Wayne R. Huneke
Chief Financial Officer and Director
(Principal Financial Officer)
By/s/ Cheryl Price
-----------------------------------------------------
Cheryl Price
Chief Accounting Officer
(Principal Accounting Officer)
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2001
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
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 Registrant's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission (the "SEC") on
June 30, 2000 (File No. 333-40596)).................................................................. __
(b)(i) By-laws of Golden American (incorporated by reference from Exhibit 3(b)(i) to Registrant's
Registration Statement on Form S-1 filed with the SEC on June 30, 2000
(File No. 333-40596))................................................................................ __
(ii) By-laws of Golden American, as amended (incorporated by reference from Exhibit 3(b)(ii) to the
Registrant's Registration Statement on Form S-1 filed with the SEC on June 30, 2000
(File No. 333-40596))................................................................................ __
(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 Registrant's Registration Statement on
Form S-1 filed with the SEC on June 30, 2000 (File No. 333-40596))................................... __
(iv) By-laws of Golden American, as amended (12/21/93) (incorporated by reference from Exhibit 3(b)(iv)
to Registrant's Registration Statement on Form S-1 filed with the SEC on June 30, 2000
(File No. 333-40596))................................................................................ __
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(a) to Amendment No. 5 of Registrant's Registration Statement on Form S-1 filed
with the SEC on or about April 23, 1999 (File No. 333-51353))........................................ __
(b) Discretionary Group Deferred Combination Variable Annuity Contract (incorporated by reference from
Exhibit 4(b) to Amendment No. 5 of Registrant's Registration Statement on Form S-1 filed with the
SEC on or about April 23, 1999 (File No. 333-51353))................................................. __
25
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2001
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(c) Individual Deferred Variable Annuity Contract (incorporated by reference from
Exhibit 4(c) to Amendment No. 5 of Registrant's Registration Statement on
Form S-1 filed with the SEC on or about December 3, 1999 (File No. 333-51353))....................... __
(d) Individual Deferred Combination Variable and Fixed Annuity Application
(incorporated by reference from Exhibit 4(g) to Amendment No. 6 of Registrant's
Registration Statement on Form S-1 filed with the SEC on or about December 3, 1999
(File No. 333-51353))................................................................................ __
(e) Group Deferred Combination Variable and Fixed Annuity Enrollment Form
(incorporated by reference from Exhibit 4(h) to Amendment No. 6 of Registrant's
Registration Statement on Form S-1 filed with the SEC on or about December 3, 1999
(File No. 333-51353))................................................................................ __
(f) Individual Deferred Variable Annuity Application (incorporated by reference from Exhibit 4(i)
to Amendment No. 6 of Registrant's Registration Statement on Form S-1 filed with the SEC on
or about December 3, 1999 (File No. 333-51353))...................................................... __
(g) Individual Retirement Annuity Rider Page (incorporated by reference from Exhibit 4(d) to
Registrant's Registration Statement on Form S-1 filed with the SEC on June 30, 2000
(File No. 333-40596))................................................................................ __
(h) ROTH Individual Retirement Annuity Rider (incorporated by reference from Exhibit 4(g) to
Registrant's Registration Statement on Form S-1 filed with the SEC on June 30, 2000
(File No. 333-40596))................................................................................ __
(i) Minimum Guaranteed Accumulation Benefit Rider (REV) (incorporated by reference from
Exhibit 4(k) to Amendment No. 3 to a Registration Statement on Form S-1 filed with the
SEC on April 23, 2001 (File No. 333-35592)).......................................................... __
(j) Minimum Guaranteed Income Benefit Rider (REV) (incorporated by reference from Exhibit
4(l) to Amendment No. 3 to a Registration Statement on Form S-1 filed with the SEC on
April 23, 2001 (File No. 333-35592))................................................................. __
(k) Minimum Guaranteed Withdrawal Benefit Rider (REV) (incorporated by reference from
Exhibit 4(m) to Amendment No. 3 to a Registration Statement on Form S-1 filed with the
SEC on April 23, 2001 (File No. 333-35592)).......................................................... __
(l) Living Benefit Rider Endorsement (incorporated by reference from Exhibit 4(n) to
Amendment No. 3 to a Registration Statement on Form S-1 filed with the SEC on
April 23, 2001 (File No. 333-35592))................................................................. __
26
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2001
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(m) Death Benefit Endorsement Number 1 describing the 7% Solution Enhanced Death Benefit (REV)
(incorporated by reference from Exhibit 4(o) to Amendment No. 3 to a Registration Statement
on Form S-1 filed with the SEC on April 23, 2001 (File No. 333-35592))............................... __
(n) Death Benefit Endorsement Number 2 describing the Annual Ratchet Enhanced Death Benefit (REV)
(incorporated by reference from Exhibit 4(p) to Amendment No. 3 to a Registration Statement
on Form S-1 filed with the SEC on April 23, 2001 (File No. 333-35592))............................... __
(o) Death Benefit Endorsement Number 3 describing the Standard Death Benefit (REV) (incorporated
by reference from Exhibit 4(q) to Amendment No. 3 to a Registration Statement on Form S-1 filed
with the SEC on April 23, 2001 (File No. 333-35592))................................................. __
(p) Death Benefit Endorsement Number 4 describing the Max 7 Enhanced Death Benefit (REV)
(incorporated by reference from Exhibit 4(r) to Amendment No. 3 to a Registration Statement
on Form S-1 filed with the SEC on April 23, 2001 (File No. 333-35592))............................... __
(q) Death Benefit Endorsement Number 5 (Base Death Benefit) (incorporated by reference from Exhibit 4(s)
to Amendment No. 3 to a Registration Statement on Form S-1 filed with the SEC on April 23, 2001
(File No. 333-35592)) ............................................................................... __
(r) Death Benefit Endorsement Number 6 (Inforce Contracts) (incorporated by reference from Exhibit 4(t)
to Amendment No. 3 to a Registration Statement on Form S-1 filed with the SEC on April 23, 2001
(File No. 333-35592)) ............................................................................... __
(s) Individual Deferred Variable and Fixed Annuity Contract (incorporated by reference from Exhibit 4(a)
to Amendment No. 6 to Registrant's Registration Statement filed with the SEC on or about
December 3, 1999 (File No. 333-28765))............................................................... __
(t) Group Deferred Variable and Fixed Annuity Contract Individual Deferred Variable and Fixed Annuity
Contract (incorporated by reference from Exhibit 4(b) to Amendment No. 6 to Registrant's
Registration Statement filed with the SEC on or about December 3, 1999 (File No. 333-28765))......... __
(u) Individual Deferred Variable Annuity Contract (incorporated by reference from Exhibit 4(c) to
Amendment No. 6 to Registrant's Registration Statement filed with the SEC on or about
December 3, 1999 (File No. 333-28765))............................................................... __
(v) Individual Deferred Variable and Fixed Annuity Contract (incorporated by reference from
Exhibit 4(a) to a Registration Statement for Golden American filed with the SEC on or about
April 23, 1999 (File No. 333-76941))................................................................. __
(w) Group Deferred Variable and Fixed Annuity Contract Individual Deferred Variable and Fixed Annuity
Contract (incorporated by reference from Exhibit 4(b) to a Registration Statement for Golden
American filed with the SEC on or about April 23, 1999 (File No. 333-76941))......................... __
27
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2001
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(x) Individual Deferred Variable Annuity Contract (incorporated by reference from
Exhibit 4(c) to a Registration Statement for Golden American filed with the SEC
on or about April 23, 1999 (File No. 333-76941))..................................................... __
(y) Individual Deferred Variable and Fixed Annuity Contract (incorporated by reference
from Exhibit 4(a) to a Registration Statement for Golden American filed with the SEC
on or about April 23, 1999 (File No. 333-76945))..................................................... __
(z) Group Deferred Variable and Fixed Annuity Contract Individual Deferred Variable
and Fixed Annuity Contract (incorporated by reference from Exhibit 4(b) to a
Registration Statement for Golden American filed with the SEC on or about April 23,
1999 (File No. 333-76945))........................................................................... __
(aa) Individual Deferred Variable Annuity Contract (incorporated by reference from
Exhibit 4(c) to a Registration Statement for Golden American filed with the SEC
on or about April 23, 1999 (File No. 333-76945))..................................................... __
(ab) Schedule Page to the Premium Plus Contract featuring the Galaxy VIP Fund
(incorporated by reference from Exhibit 4(i) to a Registration Statement for Golden
American on Form S-1 filed with the SEC on or about September 24, 1999
(File No. 333-76945))................................................................................ __
(ac) Individual Deferred Variable and Fixed Annuity Contract (incorporated by reference
from Exhibit 4(a) to Amendment No. 3 to Registrant's Registration Statement filed
with the SEC on or about April 23, 1999 (File No. 333-66745))........................................ __
(ad) Group Deferred Variable and Fixed Annuity Contract Individual Deferred Variable
and Fixed Annuity Contract (incorporated by reference from Exhibit 4(b) to
Amendment No. 3 to Registrant's Registration Statement filed with the SEC on or
about April 23, 1999 (File No. 333-66745))........................................................... __
(ae) Individual Deferred Variable Annuity Contract (incorporated by reference from
Exhibit 4(c) to Amendment No. 3 to Registrant's Registration Statement filed with
the SEC on or about April 23, 1999 (File No. 333-66745))............................................. __
(af) Single Premium Deferred Modified Guaranteed Annuity Contract (incorporated by reference
to Exhibit 4(a) to Amendment No. 1 to a Registration Statement on Form S-1 filed with the
SEC on September 13, 2000 (File No. 333-40596))...................................................... __
(ag) Single Premium Deferred Modified Guaranteed Annuity Master Contract (incorporated by
reference to Exhibit 4(b) to Amendment No. 1 to a Registration Statement on Form S-1 filed
with the SEC on September 13, 2000 (File No. 333-40596))............................................. __
(ah) Single Premium Deferred Modified Guaranteed Annuity Certificate (incorporated by
reference to Exhibit 4(c) to Amendment No. 1 to a Registration Statement on Form S-1 filed
with the SEC on September 13, 2000 (File No. 333-40596))............................................. __
28
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2001
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(ai) Single Premium Deferred Modified Guaranteed Annuity Application (incorporated by
reference to Exhibit 4(e) to Amendment No. 1 to a Registration Statement on Form S-1 filed
with the SEC on September 13, 2000 (File No. 333-40596))............................................. __
(aj) Single Premium Deferred Modified Guaranteed Annuity Enrollment Form (incorporated by
reference to Exhibit 4(f) to Amendment No. 1 to a Registration Statement on Form S-1 filed
with the SEC on September 13, 2000 (File No. 333-40596))............................................. __
(ak) Earnings Enhancement Death Benefit Rider (incorporated by reference from Exhibit 4(u) to
Amendment No. 3 to a Registration Statement on Form S-1 filed with the SEC on April 23, 2001
(Filed No. 333-35592))............................................................................... __
(al) Deferred Combination Variable and Fixed Annuity Group Master Contract (incorporated by
reference from Exhibit 4(a) to a Registration Statement on Form S-1 filed by Registrant with
the SEC on or about April 24, 2001 (File No. 333-59408))............................................. __
(am) Flexible Premium Individual Deferred Combination Variable and Fixed Annuity Contract
(incorporated by reference from Exhibit 4(b) to a Registration Statement on Form S-1 filed
by Registrant with the SEC on or about April 24, 2001 (File No. 333-59408)).......................... __
(an) Flexible Premium Individual Deferred Combination Variable and Fixed Annuity Certificate
(incorporated by reference from Exhibit 4(c) to a Registration Statement on Form S-1 filed
by Registrant with the SEC on or about April 24, 2001 (File No. 333-59408)).......................... __
(ao) Flexible Premium Individual Deferred Variable Annuity Contract (incorporated by
reference from Exhibit 4(d) to a Registration Statement on Form S-1 filed by Registrant
with the SEC on or about April 24, 2001 (File No. 333-59408))........................................ __
(ap) Individual Deferred Combination Variable and Fixed Annuity Application (incorporated by
reference from Exhibit 4(e) to a Registration Statement on Form S-1 filed by Registrant
with the SEC on or about April 24, 2001 (File No. 333-59408))........................................ __
(aq) Group Deferred Combination Variable and Fixed Annuity Enrollment Form (incorporated
by reference from Exhibit 4(f) to a Registration Statement on Form S-1 filed by Registrant
with the SEC on or about April 24, 2001 (File No. 333-59408))........................................ __
(ar) Individual Deferred Variable Annuity Application (incorporated by reference from
Exhibit 4(g) to a Registration Statement on Form S-1 filed by Registrant with the SEC
on or about April 24, 2001 (File No. 333-59408))..................................................... __
29
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2001
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(as) Form of Variable Annuity Group Master Contract (incorporated by reference from
Exhibit 4(a) to Amendment No. 1 to a Registration Statement on Form S-2 filed by
Registrant with the SEC on or about June 29, 2001 (File No. 333-57212)).............................. __
(at) Form of Variable Annuity Contract (incorporated by reference from Exhibit 4(b) to
Amendment No. 1 to a Registration Statement on Form S-2 filed by Registrant with the
SEC on or about June 29, 2001 (File No. 333-57212)).................................................. __
(au) Form of Variable Annuity Certificate (incorporated by reference from Exhibit 4(a) to
Amendment No. 1 to a Registration Statement on Form S-2 filed by Registrant with the
SEC on or about June 29, 2001 (File No. 333-57212)).................................................. __
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
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) Participation Agreement between Golden American and The Galaxy VIP Fund (incorporated
by reference from Exhibit 10(i) to a Registration Statement for Golden American on
Form S-1 filed with the SEC on or about September 24, 1999 (File No. 333-76945))......................... __
30
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2001
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(g) Asset Management Agreement, dated January 20, 1998, between Golden American
and ING Investment Management LLC (incorporated by reference from Exhibit 10(f)
to Golden American's Form 10-Q filed with the SEC on August 14, 1998
(File No. 33-87272))................................................................................. __
(h) Reciprocal Loan Agreement, dated January 1, 1998, as amended March 20, 1998,
between Golden American and ING America Insurance Holdings, Inc. (incorporated by
reference from Exhibit 10(g) to Golden American's Form 10-Q filed with the SEC on
August 14, 1998 (File No. 33-87272))..................................................................... __
(i) 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))................................................................................. __
(j) Revolving Note Payable, dated July 27, 1998, between Golden American and SunTrust
Bank, Atlanta (incorporated by reference from Exhibit 10(i) to Golden American's
Form 10-Q filed with the SEC on November 13, 1998 (File No. 33-87272))............................... __
(k) Revolving Note Payable, dated July 31, 1999, between Golden American and SunTrust
Bank, Atlanta (incorporated by reference from Exhibit 10(j) to Golden American's
Form 10-Q filed with the SEC on August 13, 1999 (File No. 33-87272))................................. __
(l) Surplus Note, dated December 17, 1996, between Golden American and Equitable of Iowa
Companies (incorporated by reference from Exhibit 10(l) to Golden American's
Form 10-K filed with the SEC on March 29, 2000 (File No. 33-87272)).................................. __
(m) Surplus Note, dated December 30, 1998, between Golden American and Equitable
Life Insurance Company of Iowa (incorporated by reference from Exhibit 10(m) to
Golden American's Form 10-K filed with the SEC on March 29, 2000 (File No. 33-87272))................ __
(n) Surplus Note, dated September 30, 1999, between Golden American and ING America
Insurance Holdings, Inc. (incorporated by reference from Exhibit 10(n) to Golden
American's Form 10-K filed with the SEC on March 29, 2000 (File No. 33-87272)........................ __
(o) Surplus Note, dated December 8, 1999, between Golden American and First
Columbine Life Insurance Company (incorporated by reference from Exhibit 10(g)
to Amendment No. 7 to a Registration Statement for Golden American on Form S-1
filed with the SEC on or about January 27, 2000 (File No. 333-28765))................................ __
(p) Surplus Note, dated December 30, 1999, between Golden American and Equitable
Life Insurance Company of Iowa (incorporated by reference from Exhibit 10(h) to
Amendment No. 7 to a Registration Statement for Golden American on Form S-1 filed
with the SEC on or about January 27, 2000 (File No. 333-28765))...................................... __
31
INDEX
Exhibits to Form 10-Q
Six months ended June 30, 2001
GOLDEN AMERICAN LIFE INSURANCE COMPANY
Page Number
-----------
(q) Reinsurance Agreement, effective January 1, 2000, between Golden American Life Insurance
Company and Security Life of Denver International Limited (incorporated by reference from
Exhibit 10(q) to Golden American's Form 10-K filed with the SEC on March 29, 2001
(Filed No. 33-87272))................................................................................ __
(r) Participation Agreement between Golden American and Prudential Series Fund, Inc.
(incorporated by reference from Exhibit 10(l) to Registration Statement for Golden
American on Form S-1 filed with the SEC on or about April 26, 2000 (File No. 333-35592)) ............ __
(s) Participation Agreement between Golden American and ING Variable Insurance Trust
(incorporated by reference from Exhibit 10(m) to Registration Statement for Golden American
on Form S-1 filed with the SEC on or about April 26, 2000 (File No. 333-35592)) ..................... __
(t) Reinsurance Agreement, dated June 30, 2000, between Golden American Life Insurance Company
and Equitable Life Insurance Company of Iowa (incorporated by reference from Exhibit 10(s) to
Golden American's Form 10-Q filed with the SEC on August 11, 2000 (File No. 33-87272)) .............. __
(u) Renewal of Revolving Note Payable, dated July 31, 2000, between Golden American and SunTrust
Bank, Atlanta (incorporated by reference from Exhibit 10(t) to Golden American's Form 10-Q
filed with the SEC on August 11, 2000 (File No. 33-87272)) .......................................... __
(v) Amendment to the Participation Agreement between Golden American and Prudential Series Fund,
Inc. (incorporated by reference to Exhibit 10(m) to Amendment No. 10 to a Registration
Statement on Form S-1 filed with the SEC on December 15, 2000 (File No. 333-28765)) ................. __
(w) Letter of Credit between Security Life of Denver International Limited and The Bank of
New York for the benefit of Golden American (incorporated by reference to Exhibit 10(r) to
Amendment No. 3 to a Registration Statement on Form S-1 filed with the SEC on April 23, 2001
(File No. 333-35592)) ............................................................................... __
(x) Form of Participation Agreement between Golden American and Pilgrim Variable Products Trust
(incorporated by reference to Exhibit 10(s) to Amendment No. 3 to a Registration Statement on
Form S-1 filed with the SEC on April 23, 2001 (File No. 333-35592)) ................................. __
(y) Form of Participation Agreement between Golden American and ProFunds (incorporated by
reference to Exhibit 10(s) to Amendment No. 3 to a Registration Statement on Form S-1 filed
with the SEC on April 23, 2001 (File No. 333-35592)) ................................................ __
(z) Renewal of Revolving Note Payable, dated April 30, 2001, between Golden American and
SunTrust Bank, Atlanta .............................................................................. 31
32
Exhibit 10(z)
AMENDED AND RESTATED SINGLE PAYMENT NOTE
$75,000,000.00 Original Date: July 31, 2000
Atlanta, Georgia Amended and Restated Date: April 30, 2001
For value received, the Obligor promises to pay to the order of SunTrust
Bank (the "Bank"), on the Termination Date, the principal sum of
SEVENTY FIVE MILLION DOLLARS ($75,000,000.00)
or such lesser amount of loans as may from time to time, at the Bank's sole
discretion and subject to the terms and conditions hereof, be advanced or, upon
repayment, readvanced by the Bank hereunder, together with interest from the
date hereof on the unpaid principal balance at such annual rate or rates of
interest as shall be computed and paid in accordance with the terms and
conditions hereinafter set forth. "Termination Date" shall mean the earlier of:
(a) May 31, 2002 or such later date as the then existing Termination Date may be
extended by the Bank in its sole discretion by notice to the Obligor, provided
that the failure of the Bank to give such notice shall be deemed to mean that
the then existing Termination Date has not been so extended.
This note evidences the obligation of the Obligor to repay, with interest,
any and all present and future indebtedness of the Obligor for loans at any time
hereafter made or extended by the Bank hereunder. Outstanding loans hereunder
shall not exceed the lesser of (i) the principal amount of $75,000,000 and (ii)
the unused Aggregate Amount (as hereinafter defined). The payment of any
indebtedness evidenced by this note shall not affect the enforceability of this
note as to any future, different or other indebtedness evidenced hereby.
The Obligor acknowledges and agrees that the Bank has established
uncommitted lines of credit in varying amounts pursuant to similar and separate
notes to the other Affiliated Companies (the "AFFILIATE NOTES"). Obligor agrees
that the aggregate unpaid principal balance from time to time outstanding under
this note plus the aggregate unpaid principal balance from time to time
outstanding on the Affiliate Notes will at no time exceed $150,000,000 (the
"AGGREGATE AMOUNT"). "AFFILIATED COMPANIES" shall mean ING America Insurance
Holdings, Inc., USG Annuity and Life Insurance Company, Southland Life Insurance
Company, Life Insurance Company of Georgia, ING America Life Corporation,
Security Life of Denver Insurance Company, First Columbine Life Insurance
Company, Midwestern United Life Insurance Company, First ING Life Insurance
Company of New York, United Life & Annuity Insurance Company, Ameribest Life
Insurance Company, Equitable Life Insurance Company of Iowa, Golden American
Life Insurance Company, Locust Street Securities, Inc., First Golden American
Life Insurance Company of New York, Equitable of Iowa Companies, Inc., Reliastar
Life Insurance Company, Reliastar Life Insurance Company of New York, Northern
Life Insurance Company, Security-Connecticut Life Insurance Company, Aetna Life
Insurance Company of America, Aetna Insurance Company of America and Aetna Life
Insurance and Annuity Company. ING America Insurance Holdings, Inc. ("AMERICA
HOLDINGS") is a wholly-owned subsidiary of ING Insurance International B.V.
("ING INTERNATIONAL"), and the other Affiliated Companies are direct or indirect
subsidiaries of America Holdings.
This note merely amend and restates the indebtedness and liabilities of the
Obligor under the Single Payment Note dated July 31, 2000 (the "ORIGINAL NOTE")
and does not constitute a novation of the existing indebtedness and liabilities
of the Obligor under the Original Note. Such indebtedness and liabilities
continue to remain outstanding and shall constitute indebtedness and liabilities
under this note.
If the Obligor desires a disbursement of principal hereunder (an "ADVANCE")
the Obligor shall give the Bank written or telephonic notice of the amount of
such Advance and the period of time from one (1) day to thirty (30) days that
such Advance shall be outstanding (the "INTEREST PERIOD"), provided, however,
(a) if any Interest Period would otherwise end on a day which is not a day on
which the Bank and commercial banks in New York, New York, are open for business
(a "BUSINESS DAY"), that Interest Period shall be extended through the next
succeeding day which is a Business Day, and (b) no Interest Period shall extend
beyond the Termination Date. Such written or telephonic notice with respect to
the amount of an Advance and the Interest Period to be applicable thereto shall
be given to the Bank by the Obligor before one o'clock p.m. Atlanta time, on the
first Business Day of the applicable Interest Period. All telephonic notices
shall be promptly confirmed in writing.
33
The Obligor shall pay interest upon each Advance from the date of
disbursement through the last day of the applicable Interest Period (including
the date of disbursement but excluding the date of repayment) at a rate per
annum, calculated on the basis of a 360-day year and upon the actual number of
days elapsed, equal to either of the following rates of interest as selected by
the Obligor: (1) the per annum rate of interest equal to the cost of funds of
Bank for the Interest Period applicable to such Advance for amounts
substantially similar to the amount of such Advance plus 0.225% all as
determined by Bank in accordance with its usual practices in determining its
cost of funds (the "COST OF FUNDS RATE") or (2) a per annum rate of interest
that would be applicable to the requested Advance as quoted by the Bank to the
Obligor (the "QUOTED RATE"). Unpaid interest accruing at either of such rates
will be due and payable on the last Business Day of the applicable Interest
Period. The Bank will advise the Obligor of the Cost of Funds Rate and the
Quoted Rate that will be applicable to a requested Advance before 1:30 p.m.
Atlanta time on the Business Day that the Bank receives a request for an Advance
from the Obligor. The Obligor will advise the Bank as to whether the Obligor has
selected the Cost of Funds Rate or the Quoted Rate before 2:00 p.m. Atlanta time
on the Business Day that the Bank receives a request for an Advance from the
Obligor. Any telephonic selection of interest rates by the Obligor will promptly
be confirmed in writing. The Bank will promptly disburse the amount of an
Advance to the Obligor upon receiving notice of the Obligor's interest rate
selection. Unpaid interest accruing at such interest rate will be due and
payable on the last Business Day of the applicable Interest Period.
The Obligor shall repay the entire outstanding principal balance of each
Advance on the last Business Day of the Interest Period applicable thereto.
The Obligor may on any Business Day renew an outstanding Advance into an
Advance with the same or different Interest Period, provided that the Bank must
be advised of the Obligor's election to renew the Advance and the Interest
Period applicable to such renewal before one o'clock p.m. on the last Business
Day of the then current Interest Period. The interest rate to be applicable to
the renewal of any Advance shall be selected in the same manner that the
interest rate is selected at the time an Advance is made. If no Interest Period
has been elected for any Advance or for any principal balance outstanding
hereunder, or if such election shall not be timely, then the Interest Period
with respect thereto shall be deemed to be one day and the applicable interest
rate shall be the Cost of Funds Rate. NOTWITHSTANDING THE FOREGOING, ANY SUCH
RENEWAL SHALL BE AT THE BANK'S SOLE DISCRETION.
No prepayment of any Advance shall be permissible during the Interest
Period applicable thereto.
Should the Obligor fail for any reason to pay this note in full on the
Termination Date or on the date of acceleration of payment, the Obligor further
promises to pay interest on the unpaid amount from such date until the date of
final payment at a Default Rate equal to the Prime Rate plus 4%. Should legal
action or an attorney at law be utilized to collect any amount due hereunder,
the Obligor further promises to pay all costs of collection, plus reasonable
attorney's fees. All amounts due hereunder may be paid at any office of Bank.
The principal balance of this note shall conclusively be deemed to be the unpaid
principal balance appearing on the Bank's records unless such records are
manifestly in error.
As security for the payment of this and any other liability of the Obligor
to the holder, direct or contingent, irrespective of the nature of such
liability or the time it arises, the Obligor hereby grants a security interest
to the holder in all property of the Obligor in or coming into the possession,
control or custody of the holder, or in which the holder has or hereafter
acquires a lien, security interest, or other right. Upon default, holder may,
without notice, immediately take possession of and then sell or otherwise
dispose of the collateral, signing any necessary documents as Obligor's attorney
in fact, and apply the proceeds against any liability of Obligor to holder. Upon
demand, the Obligor will furnish such additional collateral, and execute any
appropriate documents related thereto, deemed necessary by the holder for its
security. The Obligor further authorizes the holder, without notice, to set-off
any deposit or account and apply any indebtedness due or to become due from the
holder to the Obligor in satisfaction of any liability described in this
paragraph, whether or not matured. The holder may, without notice, transfer or
register any property constituting security for this note into its or its
nominee name with or without any indication of its security interest therein.
34
This note shall immediately mature and become due and payable, without
notice or demand, upon the appointment of a receiver for the Obligor or upon the
filing of any petition or the commencement of any proceeding by the Obligor for
relief under any bankruptcy or insolvency laws, or any law relating to the
relief of debtors, readjustment of indebtedness, debtor reorganization, or
composition or extension of debt. Furthermore, this note shall, at the option of
the holder, immediately mature and become due and payable, without notice or
demand, upon the happening of any one or more of the following events; (1)
nonpayment on the due date of any amount due hereunder; (2) failure of the
Obligor to perform any other material obligation to the holder; (3) if the
Obligor shall fail to make any payment as and when such payment is due upon any
obligation for borrowed money other than the obligation owing pursuant to this
Note, and by reason thereof such obligation becomes due prior to its stated
maturity or prior to its regularly scheduled dates of payment; (4) a reasonable
belief on the part of the holder that the Obligor is unable to pay its
obligations when due or is otherwise insolvent; (5) the filing of any petition
or the commencement of any proceeding against the Obligor for relief under
bankruptcy or insolvency laws, or any law relating to the relief of debtors,
readjustment of indebtedness, debtor reorganization, or composition or extension
of debt, which petition or proceeding is not dismissed within 60 days of the
date of filing thereof; (6) the suspension of the transaction of the usual
business of the Obligor, or the dissolution, liquidation or transfer to another
party of a significant portion of the assets of the Obligor and any such action
shall have a material adverse effect on the ability of the Obligor to repay the
unpaid principal balance hereof; (7) a reasonable belief on the part of the
holder that the Obligor has made a representation or warranty in connection with
any loan by or other transaction with the holder and such representation or
warranty was false in any material respect; (8) the issuance or filing of any
levy, attachment, garnishment, or lien against the property of the Obligor which
shall remain unpaid or undischarged for a period of thirty (30) days and such
failure to pay shall have a material adverse effect on the ability of the
Obligor to repay the unpaid principal balance hereof; (9) the failure of the
Obligor to satisfy any judgment, penalty or fine imposed by a court or
administrative agency of any government and such judgment, penalty, or fine
shall remain unpaid, unstayed on appeal, undischarged or undismissed for a
period of thirty (30) days; (10) failure of the Obligor, after demand, to
furnish financial information or to permit inspection of any books or records
during Obligor's normal business hours; (11) America Holdings shall no longer
own, direct or indirect, 100% of the outstanding voting stock of the Obligor, or
(12) the Obligor shall fail to maintain the minimum level of Company Action
Level Risk Based Capital as established by applicable state law or regulation.
The failure or forbearance of the holder to exercise any right hereunder,
or otherwise granted by law or another agreement, shall not affect or release
the liability of the Obligor, and shall not constitute a waiver of such right
unless so stated by the holder in writing. The Obligor agrees that the holder
shall have no responsibility for the collection or protection of any property
securing this note, and expressly consents that the holder may from time to
time, without notice, extend the time for payment of this note, or any part
thereof, waive its rights with respect to any property or indebtedness without
releasing the Obligor from any liability to the holder. This note is governed by
Georgia law.
The term "OBLIGOR" means GOLDEN AMERICAN LIFE INSURANCE COMPANY. The term
"PRIME RATE", if used herein, shall mean that rate of interest designated by
Bank from time to time as its "Prime Rate" which rate is not necessarily the
Bank's best rate. The term "HOLDER" means Bank and any subsequent transferee or
endorsee hereof.
PRESENTMENT AND NOTICE OF DISHONOR ARE HEREBY WAIVED BY THE OBLIGOR
GOLDEN AMERICAN LIFE INSURANCE COMPANY
By:/s/ David S. Pendergrass
----------------------------------------
Name: David S. Pendergrass
Title: Vice President and Treasurer
35