UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-1177
BENEFICIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0003820
(State of incorporation) (I.R.S. Employer Identification No.)
301 North Walnut Street
Wilmington, Delaware 19801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (302) 425-2500
-------------------
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 twelve 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
At October 31, 1997, the number of shares outstanding of the registrant's common
stock was 53,070,790.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BENEFICIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
September 30, December 31,
<TABLE>
<S> <C> <C>
1997 1996
ASSETS
Cash and Equivalents . . . . . . . . . . . .$ 288.0 $ 279.6
Finance Receivables (Note 2). . . . . . . . . . 14,226.9 14,672.0
Allowance for Credit Losses (Note 3) . . . . . . (525.2) (498.2)
--------- ---------
Net Finance Receivables. . . . . . . . . . 13,701.7 14,173.8
Investment Securities (Note 4) . . . . . . . . . 582.6 550.3
Property and Equipment. . . . . . . . . . . . 212.6 204.9
Other Assets (Note 5) . . . . . . . . . . . . 1,680.3 1,722.6
--------- ----------
TOTAL ASSETS . . . . . . . . . . . . .$16,465.2 $16,931.2
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-Term Debt (Note 6) . . . . . . . . . . .$ 3,517.2 $ 4,169.3
Deposits Payable. . . . . . . . . . . . . . 585.5 635.0
Long-Term Debt (Note 7) . . . . . . . . . . . 8,712.8 8,631.1
--------- ---------
Total Interest-Bearing Debt . . . . . . . . . 12,815.5 13,435.4
Accounts Payable and Accrued Liabilities. . . . . . 729.0 534.0
Insurance Policy and Claim Reserves . . . . . . . 1,117.0 1,267.0
--------- ---------
Total Liabilities. . . . . . . . . . . . . 14,661.5 15,236.4
--------- ---------
Shareholders' Equity:
Preferred Stock . . . . . . . . . . . . . 114.8 114.8
Common Stock . . . . . . . . . . . . . . 53.1 54.0
Additional Capital . . . . . . . . . . . . 238.3 305.3
Net Unrealized Gain on Investment Securities. . . . 2.8 2.6
Accumulated Foreign Currency Translation Adjustments . (45.4) (45.4)
Retained Earnings. . . . . . . . . . . . . 1,440.1 1,263.5
--------- ---------
Total Shareholders' Equity . . . . . . . . . 1,803.7 1,694.8
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . .$16,465.2 $16,931.2
========= =========
</TABLE>
See Notes to Financial Statements.
<PAGE>
BENEFICIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30
<TABLE>
<S> <C> <C> <C> <C>
1997 1996 1997 1996
REVENUE
Finance Charges and Fees . . . . . $587.6 $536.7 $1,733.2 $1,601.2
Interest Expense. . . . . . . . 216.2 202.1 643.4 609.3
------ ------ -------- --------
Lending Spread. . . . . . . . 371.4 334.6 1,089.8 991.9
Insurance Premiums . . . . . . . 40.3 41.3 129.0 122.8
Other . . . . . . . . . . . 116.4 100.8 388.7 388.3
------ ------- -------- --------
Total . . . . . . . . . . 528.1 476.7 1,607.5 1,503.0
------ ------ -------- --------
OPERATING EXPENSES
Salaries and Employee Benefits . . . 108.9 104.2 322.4 305.5
Insurance Benefits . . . . . . . 14.3 19.6 53.9 62.1
Provision for Credit Losses . . . . 127.1 93.7 327.6 255.7
Other . . . . . . . . . . . 157.2 149.7 487.2 445.9
------ ------ -------- --------
Total . . . . . . . . . . 407.5 367.2 1,191.1 1,069.2
------ ------ -------- ---------
Income Before Income Taxes . . . . . 120.6 109.5 416.4 433.8
Provision for Income Taxes . . . . . 43.1 41.6 149.9 176.1
------ ------ -------- ---------
NET INCOME . . . . . . . . . . $ 77.5 $ 67.9 $ 266.5 $ 257.7
====== ====== ======== ========
EARNINGS PER COMMON SHARE (Note 9) . . $ 1.40 $ 1.22 $ 4.81 $ 4.68
====== ====== ======== ========
DIVIDENDS PER COMMON SHARE . . . . . $ .57 $ .52 $ 1.61 $ 1.46
====== ====== ======== ========
</TABLE>
See Notes to Financial Statements.
<PAGE>
BENEFICIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Nine Months Ended
September 30,
<TABLE>
<S> <C> <C>
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income . . . . . . . . . . . . . . . . $ 266.5 $ 257.7
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Provision for Credit Losses . . . . . . . . . . . 327.6 255.7
Provision for Deferred Income Taxes . . . . . . . . (19.7) (13.4)
Depreciation and Amortization . . . . . . . . . . 34.9 36.0
Insurance Policy & Claim Reserves . . . . . . . . . (150.0) 13.9
Accounts Payable & Accrued Liabilities . . . . . . . 195.0 57.8
--------- --------
Net Cash Provided by Operating Activities. . . . . . 654.3 607.7
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Receivables Originated or Acquired . . . . . . . . (10,225.1)(8,433.8)
Receivables Collected. . . . . . . . . . . . . . 8,641.5 6,523.2
Receivables Sold Through Securitization. . . . . . . . 1,607.8 1,919.3
Investment Securities Purchased . . . . . . . . . . (394.9) (421.5)
Investment Securities Sold . . . . . . . . . . . . 296.7 969.9
Investment Securities Matured . . . . . . . . . . . 65.4 357.1
Deposit from Reinsurer . . . . . . . . . . . . . 120.7 (933.1)
Other . . . . . . . . . . . . . . . . . . . (82.8) 69.1
--------- --------
Net Cash Provided by Investing Activities . . . 29.3 50.2
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-Term Debt, Net Change. . . . . . . . . . . . (610.8) (383.2)
Deposits Payable, Net Change . . . . . . . . . . . (3.5) (10.0)
Long-Term Debt Issued. . . . . . . . . . . . . . 2,013.1 1,263.1
Long-Term Debt Repaid. . . . . . . . . . . . . .(1,904.5)(1,242.3)
Dividends Paid . . . . . . . . . . . . . . . . (89.9) (81.9)
Common Stock Repurchased. . . . . . . . . . . . . (79.6) -
--------- --------
Net Cash Used in Financing Activities . . . . . . . (675.2) (454.3)
--------- --------
NET INCREASE IN CASH AND EQUIVALENTS . . . . . . . . . 8.4 203.6
Cash and Equivalents at Beginning of Period. . . . . . . 279.6 273.1
--------- --------
CASH AND EQUIVALENTS AT END OF PERIOD. . . . . . . . $ 288.0 $ 476.7
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest Paid . . . . . . . . . . . . . . . $ 563.9 $ 497.4
Income Taxes Paid . . . . . . . . . . . . . . . 140.1 175.7
</TABLE>
See Notes to Financial Statements.
<PAGE>
BENEFICIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(in millions, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting policies used in the preparation of the unaudited quarterly
financial statements are consistent with accounting policies described in the
notes to financial statements contained in Beneficial Corporation (the Company)
Annual Report on Form 10-K for the fiscal year-ended December 31, 1996. In the
opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation have been reflected. Certain
prior period amounts have been reclassified to conform with the 1997
presentation. Interim results are not necessarily indicative of results for a
full year.
2. FINANCE RECEIVABLES
Finance receivables consisted of the following:
September 30, December 31,
<TABLE>
<S> <C> <C>
1997 1996
Receivables Owned:
Real Estate Secured. . . . . . . . $ 5,567.8 $ 6,067.5
Personal Unsecured . . . . . . . . 3,164.3 2,982.9
Credit Cards . . . . . . . . . . 4,334.3 4,595.8
Sales Finance Contracts . . . . . . 960.4 926.3
Commercial. . . . . . . . . . . 200.1 99.5
--------- ---------
Total Owned 14,226.9 14,672.0
Receivables Sold with Servicing Retained
(all real estate secured) . . . . . 2,972.6 2,189.0
--------- ---------
Total Owned and Serviced . . . . . . . $17,199.5 $16,861.0
========= =========
</TABLE>
3. ALLOWANCE FOR CREDIT LOSSES
An analysis of the allowance for credit losses follows:
1997
<TABLE>
<S> <C>
Balance at January 1 . . . . . . . . . . . . . $498.2
Accounts Charged Off . . . . . . . . . . . . . (335.6)
Recoveries on Accounts Previously Charged Off . . . . . 40.9
Provision for Credit Losses . . . . . . . . . . . 327.6
Other . . . . . . . . . . . . . . . . . . (5.9)
------
Balance at September 30 . . . . . . . . . . . . $525.2
======
</TABLE>
<PAGE>
4. INVESTMENT SECURITIES
Investment securities were as follows:
September 30, 1997 December 31, 1996
------------------ -----------------
Carrying Market Carrying Market
Value Value Value Value
AVAILABLE-FOR-SALE
Debt Securities:
<TABLE>
<S> <C> <C> <C> <C>
Corporate $289.6 $289.6 $275.5 $275.5
Mortgage-backed 24.7 24.7 36.1 36.1
Municipal 5.3 5.3 7.3 7.3
U.S. Government 122.0 122.0 94.3 94.3
Foreign Government 55.8 55.8 42.9 42.9
------ ------ ------ ------
497.4 497.4 456.1 456.1
Equity Securities .6 .6 .6 .6
------ ------ ------ ------
Total $498.0 $498.0 $456.7 $456.7
------ ------ ------ ------
HELD-TO-MATURITY
Debt Securities:
Corporate $ 49.8 $ 49.8 $ 48.9 $ 48.3
Mortgage-backed 2.2 2.3 2.6 2.5
Municipal 10.5 10.8 8.5 8.7
U.S. Government 10.4 10.3 14.4 14.2
Foreign Government 1.1 1.1 1.1 1.1
Other 10.6 10.5 18.1 18.1
------ ------ ------ ------
Total $ 84.6 $ 84.8 $ 93.6 $ 92.9
------ ------ ------ ------
TOTAL INVESTMENT SECURITIES $582.6 $582.8 $550.3 $549.6
====== ====== ====== ======
</TABLE>
There were no investments transferred from Held-To-Maturity to
Available-For-Sale, nor were there any sales of Held-To-Maturity
investments during the nine-month period ended September 30, 1997.
<PAGE>
5. SERVICING ASSETS AND INTEREST-ONLY STRIPS
On January 1, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 125, " Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. " For each
servicing contract in existence before January 1, 1997, previously recognized
excess servicing assets that do not exceed contractually specified servicing
fees were combined and recognized as a servicing asset.
The activity in the servicing asset is summarized as follows:
<TABLE>
<S> <C>
1997
Balance at January 1 . . . . . . . . . . . . $ 8.0
Recognized during the period . . . . . . . . . 6.9
Amortization . . . . . . . . . . . . . . . (2.4)
----
Balance at September 30, 1997 . . . . . . . . . $12.5
=====
</TABLE>
Previously recognized servicing assets that exceed contractually
specified servicing fees were reclassified as interest-only strips and are
carried at fair value which amounted to $74.8 at September 30, 1997. Both the
servicing assets and the interest-only strips are included in other assets on
the balance sheet. The servicing assets and interest-only strips are amortized
in proportion to and over the period of estimated net future servicing fee
income. The servicing assets and interest-only strips are periodically reviewed
for valuation impairment. This review is performed on a disaggregated basis for
the predominate risk characteristics of the underlying loans which are loan
type, term, interest rate, prepayment rate and loss rate. The fair value of the
servicing assets and interest-only strips are determined by present valuing the
estimated net future cash flows. The weighted-average assumptions used in the
fair value calculations include: discount rate - 15%, prepayment rate - 34%,
loss rate - 1.4%,and servicing fees - 1.0%. As of September 30, 1997, fair value
approximates carrying value and therefore no valuation allowance is required.
<PAGE>
6. SHORT-TERM DEBT
Short-term debt outstanding consisted of the following:
September 30, December 31,
<TABLE>
<S> <C> <C>
1997 1996
Commercial Paper. . . . . . . . . . $3,032.4 $3,695.4
Bank Borrowings . . . . . . . . . . 484.8 473.9
-------- --------
Total . . . . . . . . . . . $3,517.2 $4,169.3
======== ========
</TABLE>
The weighted average interest rates (including the costs of maintaining
lines of credit) on short-term borrowings during the nine months ended September
30 were as follows:
<TABLE>
<S> <C> <C>
1997 1996
-------- ------
U.S. Dollar Borrowings. . . . . . . . 5.59% 5.50%
Other Currency Borrowings. . . . . . . 5.81 6.32
Overall. . . . . . . . . . . . . 5.62% 5.66%
</TABLE>
The impact of interest rate hedging activities on the Company's
weighted average short-term borrowing rates and on the reported short-term
interest expense for the nine months ended September 30 was an increase of .11%
(annualized) and $3.3 in 1997 and .12% (annualized) and $3.5 in 1996.
<PAGE>
7. LONG-TERM DEBT
Long-term debt is shown below in the earliest year it could become
payable:
Weighted Average
Interest Rates at September 30, December 31,
Maturity September 30, 1997 1997 1996
-------- ------------------ ------------ -----------
<TABLE>
<S> <C> <C> <C> <C>
1997 6.76% $ 724.0 $2,610.1
1998 7.04 2,166.9 1,982.0
1999 6.77 1,763.5 1,669.7
2000 6.82 1,011.3 554.9
2001 7.07 769.3 632.4
2002-2006 6.73 2,041.6 984.7
2007-2023 7.54 236.2 197.3
-------- --------
Total 6.88% $8,712.8 $8,631.1
======== ========
</TABLE>
The weighted average interest rates (including issuance costs) on the
Company's long-term debt during the nine months ended September 30 were as
follows:
<TABLE>
<S> <C> <C>
1997 1996
------ ------
U.S. Dollar Borrowings. . . . . . . . 6.91% 7.11%
Other Currency Borrowings. . . . . . . 6.86 6.98
Overall. . . . . . . . . . . . . 6.90% 7.10%
</TABLE>
Long-term debt outstanding at September 30, 1997, and December 31,
1996, includes $3,776.3 and $3,815.7, respectively, of variable-rate debt that
reprices based on various indices. Such variable-rate debt generally has an
original maturity of one-to-three years.
The impact of interest rate hedging activities on the Company's
weighted average long-term borrowing rates and on the reported long-term
interest expense for the nine months ended September 30 was an increase of .01%
(annualized) and $1.0 in 1997 and .07% (annualized) and $4.0 in 1996.
<PAGE>
8. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into foreign exchange forward agreements, options
and currency swaps to hedge its net investment in foreign subsidiaries. At
September 30, 1997, the Company had purchased options to deliver British pounds
in exchange for US$242.2, as compared to December 31, 1996, when the Company
owned the right to deliver British pounds for US$166.0. Concurrently, the
Company had sold options to buy British pounds for US$244.3 at September 30,
1997, as compared with sales of call options on British pounds for US$166.3 at
year-end 1996.
The Company's outstanding forward agreements as of September 30, 1997,
consisted of forward sales of (pound)129.0 in exchange for US$209.6 and a
forward purchase of DM9.0 in exchange for US$5.1. This compared to forward sales
of (pound)46.0 and DM38.0 in exchange for forward purchases of US$71.6 and
US$24.7, respectively, at December 31, 1996.
Currency swaps outstanding at quarter-end obligate the Company to pay
DM47.0 in exchange for US$31.1 in September 1998, to pay C$165.0 in exchange for
US$120.4 in July 1999, and to pay C$100.0 in exchange for US$74.5 in November
2000. There has been no change in currency swaps outstanding since December 31,
1996. Semi-annual interest payments on the notional amounts will be made on the
swaps.
The Company accrued pretax gains of $13.1 at September 30, 1997, and
pretax losses of $18.5 at December 31, 1996 on open hedges. These gains and
losses represent a mark to spot on all open hedges and are recognized in a
separate component of equity. There were no gains or losses recognized in net
income attributable to the above hedging programs.
The Company and its subsidiaries utilize interest-rate swaps to allow
it to match fund its variable- and fixed-rate receivables and to manage basis
risk. The amounts to be paid or received under the agreements are accrued in
interest expense consistent with the terms of the agreements. At September 30,
1997, accrued interest payable related to these interest-rate swaps totaled
$14.8, which is largely offset by $12.5 of accrued interest receivable.
Additionally, foreign subsidiaries of the Company entered into forward rate
agreements (FRA's) as hedges against variable interest rate exposures. As of
September 30, 1997, the subsidiaries had $80.7 of such FRA's whereby they locked
in a weighted average fixed payable rate of 6.67%. These agreements will all
expire in December 1997. There were no FRA's outstanding as of December 31,
1996. The impact of interest rate hedging activities on the Company's weighted
average borrowing rates and on the reported interest expense for the nine months
ended September 30, was an increase of .04% (annualized) and $4.2 in 1997 and
.08% (annualized) and $7.5 in 1996.
<PAGE>
The following table summarizes the interest-rate swaps outstanding at
September 30, 1997:
Weighted Average Weighted
Notional Interest Rates Average
Amount Pay Receive Maturity*
<TABLE>
<S> <C> <C> <C> <C>
Pay fixed-rate - receive floating-rate $ 661.2 7.44% 7.00% 2.6
Pay floating-rate - receive fixed-rate
Denominated in
US$ 153.0 5.84 6.51 8.7
British pounds 132.3 7.71 7.95 1.8
Pay floating-rate - receive floating-rate 733.4 5.81 5.62 0.9
--------
Total $1,679.9 6.60% 6.43% 2.4
========
</TABLE>
*Remaining term in years.
9. EARNINGS PER COMMON SHARE
Computations of primary and fully diluted earnings per common share are as
follows:
Three Months Ended Nine Months Ended
September 30, September 30,
<TABLE>
<S> <C> <C> <C> <C>
1997 1996 1997 1996
PRIMARY
Net Income. . . . . . . . . . . $77.5 $67.9 $266.5 $257.7
Dividends on Preferred Stock. . . . . (1.3) (1.3) (3.9) (3.9)
----- ----- ------ ------
Net Income Applicable to Common Stock. . $76.2 $66.6 $262.6 $253.8
===== ===== ====== ======
Weighted Average Shares Outstanding:
Common . . . . . . . . . . . 52.7 53.2 53.1 53.0
Common Stock Equivalents . . . . . 1.6 1.3 1.5 1.2
----- ----- ------ ------
Total . . . . . . . . . . . 54.3 54.5 54.6 54.2
===== ===== ====== ======
Primary Earnings per Common Share. . . . $1.40 $1.22 $ 4.81 $ 4.68
===== ===== ====== ======
FULLY DILUTED
Net Income. . . . . . . . . . . $77.5 $67.9 $266.5 $257.7
Dividends on Non-Convertible
Preferred Stock . . . . . . . . (1.3) (1.3) (3.8) (3.8)
----- ----- ------ ------
Net Income Applicable to Common Stock. . $76.2 $66.6 $262.7 $253.9
===== ===== ====== ======
Weighted Average Shares Outstanding:
Common . . . . . . . . . . . 52.7 53.2 53.1 53.0
Common Stock Equivalents . . . . . 1.9 1.6 1.9 1.6
----- ----- ------ ------
Total . . . . . . . . . . . 54.6 54.8 55.0 54.6
===== ===== ====== ======
Fully Diluted Earnings per Common Share. . $1.39 $1.21 $ 4.78 $ 4.65
===== ===== ====== ======
</TABLE>
<PAGE>
10. RATIO OF EARNINGS TO FIXED CHARGES
Nine Months Ended
September 30,
<TABLE>
<S> <C> <C>
1997 1996
Net Income. . . . . . . . . . . . . . . $ 266.5 $ 257.7
Add Provision for Income Taxes . . . . . . . . 149.9 176.1
-------- --------
Earnings Before Income Taxes . . . . . . . 416.4 433.8
-------- --------
Fixed Charges:
Interest and Debt Expense . . . . . . . . . 643.4 609.3
Interest Factor Portion of Rentals . . . . . . 19.3 17.4
-------- --------
Total Fixed Charges . . . . . . . . . . 662.7 626.7
-------- --------
Earnings Before Income Taxes and Fixed Charges . . $1,079.1 $1,060.5
======== ========
Ratio of Earnings to Fixed Charges . . . . . . 1.63 1.69
======== ========
Preferred Dividend Requirements . . . . . . . $ 6.5 $ 6.6
======== ========
Ratio of Earnings to Fixed Charges and Preferred
Dividend Requirements . . . . . . . . . . 1.61 1.67
======== ========
</TABLE>
In computing the ratio of earnings to fixed charges, earnings consist
of net income to which has been added income taxes and fixed charges. Fixed
charges consist principally of interest on all indebtedness and that portion of
rentals considered to represent an appropriate interest factor. Preferred
dividend requirements are grossed up to their pretax equivalent.
<PAGE>
11. CONTINGENT LIABILITIES
In July 1992, the Internal Revenue Service (IRS) completed its
examination of the Company's federal income tax returns for 1984 through 1987
and proposed certain adjustments that relate principally to activities of the
Company's former subsidiary, American Centennial Insurance Company (ACIC), prior
to its sale. The Company sold its entire interest in ACIC in May 1987. The IRS
had proposed, among other items, $142.0 in adjustments relating to 1986 and 1987
ACIC additions to loss reserves. In order to limit the further accrual of
interest on the proposed adjustments, the Company paid $105.5 of tax and
interest during the third quarter of 1992.
Within the administrative appeals process, all but two issues were
resolved. Both of the remaining unresolved issues relate to the 1986 and 1987
ACIC additions to loss reserves. During the third quarter of 1996, the IRS
issued a statutory Notice of Deficiency asserting the unresolved adjustments,
and increased the disallowance to $195.0.
The Company's management and independent tax advisers continue to
believe that the IRS's proposed adjustments are unlikely to be sustained. The
Company fully intends to oppose the adjustments through litigation in the United
States Tax Court. While the conclusion of this matter cannot be predicted with
certainty, management does not anticipate the ultimate resolution to differ
materially from amounts accrued. Resolution is not expected to occur within one
year.
The Company is involved in various other claims and lawsuits incidental
to its business. In the opinion of management, the claims and suits in the
aggregate will not have a material adverse effect on the Company's consolidated
financial statements.
<PAGE>
BENEFICIAL CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition
Reflecting the sale by subsidiaries of the Company of $800 million and
$808 million of variable-rate revolving home equity lines of credit through
securitizations in the capital markets in September and May 1997, respectively,
and the subsequent paydown of short-term debt, the Company's leverage (the
ratio of interest-bearing debt to total equity) was reduced to 7.11 times at
September 30, 1997, from 7.49 times at June 30, 1997 and 7.93 times at year-end
1996.
Impacted largely by the securitizations, total owned finance
receivables declined $445 million, or 3% during the first nine months of 1997,
compared with a decline of $234 million, or 2% during the first nine months of
1996. Reflecting the anticipated paydown of certain maturing same-as-cash
portfolio tranches, Beneficial National Bank USA (BNB USA), the Company's
private-label credit card subsidiary, experienced runoff of $375 million in the
first nine months of 1997, compared with a gain of $611 million during the
comparable 1996 period. Managed receivables, which include loans sold with
servicing retained, increased $339 million this year compared with an increase
of $1,104 million in the prior year. Removing the foreign exchange translation
impact in both years, managed gains were $470 million in this year's first nine
months compared with $1,120 million in the prior year period. Managed receivable
growth in the North American consumer finance subsidiaries was $545 million
during the first nine months of 1997 compared with a gain of $389 million in
1996. Including the remaining balance of receivables serviced from previous
securitizations, total receivables sold with servicing retained were $2,973
million at September 30, 1997, compared to $2,451 million at September 30, 1996.
At September 30, 1997, the allowance for credit losses as a percentage
of owned finance receivables was 3.69% compared with 3.40% at December 31, 1996
and 3.42% at September 30, 1996. During the first nine months, the balance of
the reserve increased $27.0 million to $525.2 million. At the September 30
level, the reserve covered annualized net chargeoffs 1.34 times, compared with
1.57 times at December 31, 1996. As a percentage of average owned receivables,
annualized net chargeoffs were 2.69%, compared with 2.10% in the first nine
months of 1996. Continuing the trend of recent quarters, chargeoffs reflect a
greater proportion of higher-yielding unsecured loans in the overall portfolio
as compared with last year as well as the continuing expected maturing of the
BNB USA private-label credit card portfolio. As a percentage of average managed
receivables, first nine months net chargeoffs were 2.33% compared with 1.88% in
1996.
<PAGE>
As disclosed in the table that follows, all owned receivables
delinquent two months and greater on a contractual basis increased to 4.24% of
total outstandings at September 30, 1997, from 4.03% a year earlier and 3.89% at
June 30 of this year. The increase reflects higher delinquency rates on the
unsecured loan portfolios as well as the sale of real estate receivables in the
above-mentioned securitizations, which only included then-current receivables.
On a managed basis, delinquency increased to 3.94% at September 30, from 3.71% a
year earlier and 3.68% at June 30 of this year. The table that follows details
delinquency by product type on both an owned and managed basis.
Delinquency % on a Delinquency % on an
Managed Basis Product Type Owned Basis
------------------ ------------ ------------------
<TABLE>
<S>
<C> <C> <C> <C> <C> <C>
Sept. 30, June 30, Sept. 30, Sept. 30, June 30, Sept. 30,
1997 1997 1996 1997 1997 1996
- -------- ------- -------- -------- ------- ------
2.82% 2.63% 2.73% Real Estate Secured 3.02% 2.74% 3.08%
6.08 5.87 6.48 Personal Unsecured 6.08 5.87 6.48
4.47 4.03 3.65 Credit Card 4.47 4.03 3.65
4.05 3.81 3.53 Sales Finance 4.05 3.81 3.53
3.94% 3.68% 3.71% Overall 4.24% 3.89% 4.03%
</TABLE>
During the first nine months of 1997, approximately 1.2 million shares
of common stock were repurchased by the Company at an average price of $66.31
and placed in treasury, completing the share repurchase program approved by the
Board of Directors in November 1996. These repurchases were the primary cause of
the reduction in additional capital during the first nine months of 1997.
In conjunction with the announcement of third quarter earnings, the
Company disclosed a number of strategic initiatives to enhance growth and build
shareholder value including the sale of the Canadian and German consumer finance
subsidiaries and the divestiture of certain real estate holdings in Peapack, New
Jersey, and in Tampa, Florida. The proceeds from the sales will be used to
repurchase stock and reinvest in technological improvements in the U.S. consumer
financial services businesses (consumer finance, related credit insurance,
private-label credit card, and tax refund anticipation lending (RAL)).
The Company has retained Goldman, Sachs & Co. to act as financial
advisor in connection with the divestiture of the Canadian and German
subsidiaries. As stated in U.S. dollars, Beneficial Canada had receivables of
$763 million and shareholders' equity of $135 million at September 30, 1997. The
Company's German subsidiary had receivables of $365 million and equity of $25
million at September 30, 1997.
While there can be no assurance that the sales of the Canadian and
German subsidiaries will be consummated or as to the amount of proceeds to be
generated by such sales, the Company believes that the sale of the Canadian
subsidiary will result in a gain which will be recognized upon the closing of
the sale. The sale of the German subsidiary will not result in a significant
gain or loss, after consideration of related tax effects.
In October, 1997, the Board of Directors of the Company also authorized
the repurchase of up to 3.0 million shares of common stock (approximately 5.5%
of outstanding stock) from time to time in the open market or through
privately-negotiated transactions.
<PAGE>
As part of the announced strategic initiatives, the Company plans major
technological improvements, including new technology for the loan office network
in the United States. The Company believes that these enhancements should
significantly improve overall systems performance by providing more responsive
technology for the loan office staff. Included in the new capability would be
improved loan origination, collection, and marketing and solicitation with
significantly enhanced credit decisioning for the individual loan offices.
Although the Company believes that these technological advancements should
improve efficiency and productivity, the Company further believes that the costs
associated with their implementation are likely to negatively impact earnings
until the system is operational in 1999.
Results of Operations
Third-quarter 1997 net income increased to $77.5 million from $67.9
million in the 1996 third quarter. Results were marked by wider lending spreads,
improved operating efficiency and strong insurance earnings. Also, Beneficial
National Bank USA (BNB USA), the Company's private-label credit card bank, made
a particularly strong contribution to earnings relative to last year.
Net income for the first nine months of 1997 increased to $266.5
million from $257.7 million during the first nine months of 1996. 1996's first
nine months included RAL profits of $70.0 million aftertax and a $8.4 million
aftertax gain related to the sale of the Beneficial Insurance Group's annuity
block. The first nine months of 1997 included RAL profits of $45.0 million
aftertax, $4.7 million aftertax gain on the sale of the Central National Life
Insurance Company of Omaha's (CNL) ordinary life portfolio and an $11.5 million
tax benefit from the utilization of a capital loss relating to the German
operation. Removing the impact of the one-time items in both years, as well as
all gains relating to securitizations and RAL earnings, the earnings of the
remainder of the Company's business increased 10% in the first nine months of
1997 as compared with the first nine months of 1996.
Lending spread increased $36.8 million or 11% for the third quarter,
and $97.9 million or 10% for the first nine months from 1996. As a percentage of
average receivables, the lending spread of 10.19% in the third quarter of 1997
increased from 10.02% in the prior year third quarter. For the first nine
months, the lending spread percentage increased to 9.94% in 1997 from 9.90% in
1996 reflecting a greater proportion of higher-yielding unsecured loans in the
portfolio, and improved spreads at BNB USA. The lending spread percentage at BNB
USA increased to 14.01% and 12.75% for the third quarter and nine months,
respectively, as compared with 10.46% and 10.44% in the corresponding periods in
1996.
During the third quarter, other revenue increased $15.6 million to
$116.4 million or 15% from 1996. The increase in the third quarter related to
increased servicing revenue on securitized receivables and a $37.7 million gain
on sale resulting from a securitization versus a $30.7 million securitization
gain in the third quarter of 1996. For the nine months, other revenue was flat
compared with 1996, as increased securitization revenue and gains were offset
by lower RAL revenues.
<PAGE>
For the third quarter, insurance pretax earnings increased 15% to $24.1
million from $21.0 million in the prior year quarter. For the nine months, total
insurance pretax earnings declined to $79.0 million from $83.0 million in the
1996 period, as 1996 included the annuity-related gain previously mentioned.
Excluding this gain, and this year's second quarter gain on the sale of the
ordinary life portfolio, total insurance pretax income for the nine months
increased 22% to $71.7 million from $58.6 million a year earlier. These results
reflect strong premium revenues and lower loss ratios, corresponding to the
improved internal growth in insurance sold through the consumer finance
subsidiaries. The Company continues to runoff the non-affiliated independent
credit business.
Subsidiaries outside the United States contributed $14.8 million and
$37.6 million pretax earnings in the third quarter and first nine months,
respectively, compared with $10.9 million and $35.4 million in 1996. The
Canadian and German subsidiaries contributed in the aggregate $3.8 million and
$8.0 million in pretax profits for the quarter and the year to date,
respectively, compared with $6.4 million and $18.7 million in 1996.
Reflecting the significant increase in net chargeoffs as a percentage
of average finance receivables, and the increase in the average receivable base,
the provision for credit losses increased 36% to $127.1 million in the third
quarter and 28% to $327.6 million in the first nine months in comparison with
the same periods in 1996. As an annualized percentage of average receivables
owned, first nine months net chargeoffs rose to 2.69% of the portfolio from
2.10% in the 1996. From a product line perspective, the increase in chargeoff
rates were most evident in the credit card portfolio, which rose to 4.60% from
3.55% during the first nine months of 1996 and in personal unsecured loans,
which increased to 5.01% during the first nine months of 1997 from 4.47% a year
earlier.
Both trends reflect a higher level of consumer bankruptcy in North
America. The increase in the credit card chargeoff rate also reflects the
maturing of BNB USA's private-label credit card portfolio, which continues
within expectations. Management expects this credit card trend to continue as
the portfolio matures, while the personal unsecured chargeoff rates will
continue to reflect the economic cycle and the economic health of the consumer.
In addition, the BNB USA chargeoffs also reflect some increased risk in certain
merchant portfolios, for which BNB USA has increased pricing which is reflected
in higher interest margins.
Salaries and other operating expenses were up 5% and 8%, respectively,
in the third quarter and first nine months of this year compared to 1996.
Relating these operating expenses to average owned receivables generates an
operating expense ratio of 7.38% in the first nine months compared to 7.50% in
1996. As a percentage of average managed receivables, the first nine months
operating expense ratio was 6.43% compared to 6.68% a year earlier.
The effective tax rate was 36% for the first nine months of 1997 versus
41% in 1996. In addition to the aforementioned utilization of a capital loss
relating to the German operation, the lower rate also reflects more efficient
overall utilization of foreign tax credits. The full year tax rate is also
expected to be below the 1996 rate of 39%.
<PAGE>
Changes in Cash Flow and Liquidity
The principal sources of cash are collections of finance receivables,
proceeds from the issuance of short- and long-term debt, proceeds from the sale
of receivables through securitizations, and cash provided through operations.
The monthly collections of cash principal as a percentage of average receivables
averaged 6.59% in the first nine months of 1997, compared to 5.43% in the first
nine months of 1996 reflecting the paydown of certain maturing same-as-cash
portfolio tranches at BNB USA.
Substantial additional liquidity is available through committed bank
lines that the Company maintains in support of its commercial paper borrowings
and through long-term borrowings through both private and public debt offerings.
Also, subsidiaries of the Company sell, from time to time, home equity loans
through securitizations in the capital markets.
The principal uses of cash are loans to customers, repayments of
maturing debt, dividends to shareholders, and general operating needs.
The aforementioned sale of the German and Canadian subsidiaries and the
subsequent repurchase of common stock and reinvestment in technological
improvements are likely to result in an increase in the Company's leverage
ratio.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". SFAS No.
128 simplifies the computation of earnings per share (EPS) and requires dual
presentation of basic and diluted EPS by entities with complex capital
structures. The statement is effective for financial statements issued for
periods ending after December 15, 1997. The Company does not expect the
presentation of diluted EPS to differ significantly from the current primary
EPS.
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income".
SFAS No. 130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company will adopt SFAS No. 130 beginning January 1,
1998.
The FASB has issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 establishes standards for
reporting information about operating segments in annual financial statements
and requires reporting of selected information about operating segments in
interim financial reports issued to stockholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The Company will adopt SFAS No. 131 beginning January 1, 1998.
The consolidated financial statements and related notes should be read
in conjunction with the preceding review.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, the Company and its subsidiaries are named as parties to
various legal proceedings resulting from its activities in the ordinary course
of business. These legal proceedings may be purported class actions or
individual actions. While it is impossible to estimate with certainty the
ultimate legal and financial liability with respect to such actions, the Company
believes that the amount of such liabilities will not result in monetary damages
which in the aggregate would have a material adverse effect on the financial
position of the Company.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits -
Exhibit
Number Exhibit
3(i) Copy of the Company's Restated Certificate of Incorporation, as
amended, is incorporated by reference to Exhibit 3.1 of the
Annual Report on Form 10-K for the year ended December 31, 1994.
3(ii) Copy of the Company's By-Laws, as amended, is incorporated by
reference to Exhibit 3.2 of the Annual Report on Form 10-K for
the year ended December 31, 1990.
10.1 Copy of First Amendment to Lease dated as of July 2, 1997
between Hamilton Associates Limited Partnership
and Beneficial Management Corporation.
10.2 Copy of Guaranty dated as of July 2, 1997 of Beneficial
Corporation relating to the Lease, as amended, between Hamilton
Associates Limited Partnership and Beneficial Management
Corporation.
27 Financial Data Schedule (in EDGAR filing only).
b) The Company filed the following reports on Form 8-K during the
period covered by this Form 10-Q:
1) A report on Form 8-K, dated July 24, 1997, relating to the
Company's second-quarter earnings, which were announced on
July 24, 1997.
2) A report on Form 8-K, dated July 25, 1997, relating to the
Company's Medium-Term Note program and contained as
exhibits to such filing the Form of Distribution Agreement
and forms of Fixed Rate and Floating Rate Notes.
3) A report on Form 8-K, dated July 31, 1997, relating to an
increase in the quarterly cash dividend on the Company's
common stock by 9.6% to $.57 per share.
<PAGE>
BENEFICIAL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date November 10, 1997 /s/ Jonathan Macey
------------------- ------------------
Jonathan Macey
Sr. Vice President
and Controller
(Chief Accounting
Officer)
Date November 10, 1997 /s/ Andrew C. Halvorsen
------------------- -----------------------
Andrew C. Halvorsen
Member of the Office
of the President and
Director (Chief
Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
3(i) Copy of the Company's Restated Certificate of Incorporation, as
amended, is incorporated by reference to Exhibit 3.1 of the
Annual Report on Form 10-K for the year ended December 31,
1994.
3(ii) Copy of the Company's By Laws, as amended, is incorporated
by reference to Exhibit 3.2 of the Annual Report on Form 10-K
for the year ended December 31, 1990.
10.1 Copy of First Amendment to Lease dated as of July 2, 1997
between Hamilton Associates Limited Partnership
and Beneficial Management Corporation.
10.2 Copy of Guaranty dated as of July 2, 1997 of Beneficial
Corporation relating to the Lease, as amended, between Hamilton
Associates Limited Partnership and Beneficial Management
Corporation.
27 Financial Data Schedule (in EDGAR filing only).
<PAGE>
Exhibit 10.1
FIRST AMENDMENT TO LEASE
This FIRST AMENDMENT TO LEASE is dated as of July 2, 1997 (this "First
Amendment") between HAMILTON ASSOCIATES LIMITED PARTNERSHIP ("Lessor"), a
Delaware limited partnership, having an address c/o PW Hamilton Corporation, c/o
PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York, 10019
and BENEFICIAL MANAGEMENT CORPORATION ("Lessee"), a Delaware corporation, having
its principal executive offices at 200 Beneficial Center, Peapack, New Jersey
07977.
RECITALS
WHEREAS, Lessor and Lessee executed that certain Lease dated as of June
28, 1982 (the "Lease");
WHEREAS, Section 40 of the Lease provides that the Lease may not be
changed, waived, discharged or terminated except by an instrument in writing and
in recordable form signed by Lessor and Lessee;
WHEREAS, pursuant to that certain letter agreement dated July 29, 1994,
the existing interest bearing indebtedness of the Lessor is being refinanced
contemporaneously herewith by the proceeds of the issuance and sale of Notes (as
hereinafter defined);
WHEREAS, in connection with such refinancing of the existing
indebtedness of the Lessor contemporaneously herewith and pursuant to that
certain letter agreement dated July 29, 1994, Lessee has requested that Lessor
amend and, subject to the terms and conditions set forth herein, Lessor is
willing to amend the Lease as set forth herein, in consideration of which Lessor
has required as a condition precedent thereto that Lessee amend and, subject to
the terms and conditions set forth herein, Lessee is willing to amend ARTICLE XV
of the Lease in certain respects as more fully set forth herein; and
WHEREAS, subject to the terms and conditions set forth herein, the
Lessee and the Lessor have agreed to make certain other modifications to the
Lease as more fully set forth herein;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lessor and Lessee hereby agree as follows:
1. Capitalized terms used herein and not otherwise defined shall have
the respective meanings ascribed to them in the Lease.
2. The cover page of the Lease is hereby amended by deleting the legend
set forth thereon.
3. Article II of the Lease is hereby amended by deleting the
definitions of the terms "Consent", "Guaranty", "Notes" and "Overdue Rate" in
their entireties and inserting the following defined terms in the appropriate
places designated by alphabetical order:
Consent: The Consent and Agreement dated as of July 2, 1997
executed by the Lessee, Ground Landlord and Guarantor, as the same may
from time to time be supplemented or amended.
Guaranty: The Guaranty by Guarantor dated as of July 2, 1997,
guaranteeing Lessee's performance of the provisions of this Lease,
substantially in the form attached hereto as Exhibit A, as the same may
from time to time be supplemented or amended.
Note Purchase Agreement: Any note purchase agreement or
similar agreement such as the 1997 Note Purchase Agreement.
Notes: Collectively, the 7.24% Secured Promissory Notes due
2010 issued in accordance with the 1997 Note Purchase Agreement and any
other promissory notes evidencing indebtedness incurred in connection
with a Refinancing pursuant to Section 42 hereof, as applicable.
Overdue Rate - On any date, a rate per annum equal to the
greater of either (i) an annual rate equal to the prime rate published
in The Wall Street Journal for such date (or, if more than one prime
rate is published in The Wall Street Journal for such date, the highest
such rate), plus two percent (2%) per annum, or (ii) 9.24% per annum.
Refinancing: As defined in Section 42(a) hereof.
1997 Note Purchase Agreement: The Note Purchase Agreement
dated as of July 2, 1997 among the Lessor and the financial
institutions listed in Schedule I thereto.
4. Paragraphs (e) and (f) of Section 3.1 of the Lease are hereby
deleted in their entireties and the following new paragraphs (e) and (f) are
hereby substituted in place thereof:
(e) during the next five years of the Fixed Term, the amount
of $21,784,422.00 per annum payable in equal, consecutive monthly
installments of $1,815,368.50 each, commencing on August 2, 1997 and
continuing monthly thereafter on the second day of each month through
and including July 2, 2002;
(f) during the last eight years of the Fixed Term, the amount
of $21,807,942.00 per annum payable in equal, consecutive monthly
installments of $1,817,328.50 each, commencing on August 2, 2002 and
continuing monthly thereafter on the second day of each month through
and including July 1, 2010;
5. Paragraph (a) of Section 15 of the Lease is hereby amended
and restated in its entirety to read as follows:
15. Termination of Lease upon Discontinuance of Operations on
the Leased Property. (a) If, in the good faith judgment of the Board of
Directors of Lessee, the Leased Property becomes uneconomic or
unsuitable for Lessee's then use and occupancy, and Lessee has
discontinued use of the Leased Property in its business operations or
will discontinue such use within a period of seven hundred twenty (720)
days after the date of the Officer's Certificate hereinafter referred
to, and will not use the Leased Property for five (5) years thereafter,
all as set forth in an Officer's Certificate delivered to Lessor, then,
if no Event of Default shall have occurred, Lessee may, at any time
after the expiration of the eighteenth (18th) Year, give Lessor notice
of termination of this Lease accompanied by the Officer's Certificate
described above and an offer to purchase Lessor's Estate on the first
Payment Date (the "Economic Termination Purchase Date") occurring not
less than seven hundred and twenty (720) days after the date of such
offer for a purchase price equal to the amount set forth in Exhibit C
hereto with respect to such Payment Date. As a condition precedent to
the effectiveness of such notice of termination and offer to purchase
Lessor's Estate and Lessee's exercise of its rights pursuant to this
Section 15, such notice of termination and offer to purchase Lessor's
Estate shall be accompanied by a payment by Lessee to Lessor in
immediately available funds of an amount equal to the Rejectable Offer
Payment (as hereinafter defined). The Rejectable Offer Payment shall be
in addition to the payment of the purchase price payable in connection
with such purchase of Lessor's Estate as set forth on Exhibit C hereto
and shall be retained by the Lessor irrespective of whether the offer
to purchase Lessor's Estate is accepted or rejected pursuant to the
provisions of paragraph (b) or paragraph (c) of this Section 15. No
Rejectable Offer Payment shall be made with respect to any notice of
termination given after the expiration of the Fixed Term pursuant to
paragraph (d) of this Section 15. The Rejectable Offer Payment shall
mean an amount equal to one hundred percent (100%) of the cumulative
reduction in Basic Rent realized by Lessee pursuant to the terms of
ARTICLE XLII of this Lease (but taking into account the immediately
succeeding sentence) as a result of all Refinancings (as hereinafter
defined, provided that for purposes of determining the Rejectable Offer
Payment, the term "Refinancing" shall include without limitation, the
refinancing of Lessor's existing indebtedness effected on July 2, 1997)
which shall have occurred prior to the date of such notice of
termination and offer to purchase Lessor's Estate, such cumulative
reduction in Basic Rent to be computed from the date of effectiveness
of each monthly reduction in Basic Rent due hereunder through the date
of payment of the Rejectable Offer Payment pursuant hereto, plus
interest on the amount of such cumulative reduction in Basic Rent
outstanding from time to time at a rate equal to the annual rate of
interest for the then most recent price quote for direct obligations of
the United States having a maturity of one year as published by the
Board of Governors of the Federal Reserve System in the then most
recent issue of "Statistical Release H.15 (519), Selected Interest
Rates," or any successor publication, under the heading "Treasury
Bills-Secondary Market," or if not so published as otherwise then most
recently announced by the United States Department of Treasury, on or
immediately prior to the closing date of each Refinancing, which rate
shall be reset on each anniversary of such closing date to the then
annual rate of interest on such direct obligations as determined above,
in each case, accruing monthly in arrears. Immediately upon notice by
Lessee of its termination of this Lease and offer to purchase Lessor's
Estate pursuant to this paragraph (a), and thereafter during the period
following such notice of termination and offer to purchase until the
Economic Termination Purchase Date, each installment of Basic Rent due
and payable hereunder during such period shall be increased to an
amount equal to the amount of the corresponding installment of Basic
Rent that would have been payable pursuant to Section 3.1 hereof had
this Lease never been amended, which corresponding installments are set
forth below:
(i) during the sixteenth through and including the
twentieth year of the Fixed Term, the amount of $27,380,445.12
per annum payable in equal, consecutive monthly installments
of $2,281,703.76 each, commencing on August 2, 1997 and
continuing monthly thereafter on the second day of each month
through and including July 2, 2002; and
(ii) during the twenty-first through and including
the twenty-eighth year of the Fixed Term, the amount of
$27,403,965.12 per annum payable in equal, consecutive monthly
installments of $2,283,663.76 each, commencing on August 2,
2002 and continuing monthly thereafter on the second day of
each month through and including July 1, 2010;
6. Paragraph (a) of Section 16.1 of the Lease is hereby amended by
deleting the words "ten (10) days" in the last line thereof and substituting in
place thereof the words "five (5) days".
7. Paragraph (b) of Section 16.1 of the Lease is hereby deleted
in its entirety and the following new paragraph (b)is inserted in place thereof:
(b) if Lessee shall fail to observe or perform any other term,
covenant or condition of this Lease and such failure shall continue for
a period of thirty (30) days after the earlier of (x) the Lessee having
actual knowledge thereof and (y) notice thereof by Lessor, unless,
subject to any provision herein permitting contests, such failure
cannot with due diligence be cured within a period of thirty (30) days,
in which case such failure shall not be deemed to constitute an Event
of Default if Lessee proceeds promptly and with all due diligence to
cure such default and diligently completes the curing thereof within
sixty (60) days after expiration of such thirty (30) day period, or
8. Section 16.1 of the Lease is hereby amended by inserting,
immediately after the comma at the end of paragraph (o) thereof, the word "or"
and the following new paragraph (p):
(p) the Guaranty shall cease to be in full force and effect or
the Guarantor or any person acting on behalf of the Guarantor shall
contest in any manner the validity, binding nature or enforceability of
the Guaranty,
9. The Lease is hereby further amended by deleting paragraph (a) of
Section 16.5 thereof in its entirety and substituting in place thereof the
following new paragraph (a):
(a) the sum of (i) any past due Rent together with a late
charge thereon (to the extent permitted by law) computed from the due
date thereof to the date of payment of such liquidated damages at the
Overdue Rate (or at the maximum rate permitted by law, whichever is the
lesser), (ii) the remaining payments of Basic Rent which would
otherwise have become due during the remainder of the then current Term
but for such termination provided that such payments of Basic Rent
shall be deemed for this purpose to be the amounts that would have been
due pursuant to ss.3.1 hereof had this Lease never been amended, (i.e.,
(a) during the sixteenth through and including the twentieth year of
the Fixed Term, the amount of $27,380,445.12 per annum payable in
equal, consecutive monthly installments of $2,281,703.76 each,
commencing on August 2, 1997 and continuing monthly thereafter on the
second day of each month through and including July 2, 2002, (b) during
the twenty-first through and including the twenty-eighth year of the
Fixed Term, the amount of $27,403,965.12 per annum payable in equal,
consecutive monthly installments of $2,283,663.76 each, commencing on
August 2, 2002 and continuing monthly thereafter on the second day of
each month through and including July 1, 2010 and (c) during the
renewal terms, if any the sums provided for in Article XIX hereof) as
of the later of the date to which Basic Rent shall have been paid or
the date to which Lessee shall have paid current damages pursuant to
Section 16.4, discounted to the date of payment at the rate of 16.5%
per annum calculated on a monthly basis, together with a late charge
thereon computed from the later of such dates to the date of payment of
such liquidated damages at (to the extent permitted by law) the Overdue
Rate (or at the maximum rate permitted by law, whichever is the
lesser), and (iii) an amount equal to the Additional Rent and other
charges (as reasonably estimated by Lessor) which would be payable
hereunder from such date for what would have been the then unexpired
current Term had the same not been terminated, discounted to the date
of payment at the rate of 16.5% per annum, calculated on a monthly
basis, less
10. The Lease is hereby further amended by deleting Section 16.6
thereof in its entirety and substituting in place thereof the following new
Section 16.6:
16.6. Immediately upon the occurrence of an Event of Default
during any term hereof, Lessee shall be deemed to have offered to
purchase Lessor's Estate on the first Basic Rent payment date occurring
thirty (30) days after the date specified in a notice of termination of
this Lease given to Lessee and Ground Landlord, for an amount equal to
the amount set forth in Exhibit C with respect to such payment date,
plus all Rent then due and payable (including the installment of Basic
Rent due on the purchase date) as of the date of purchase, plus, if the
applicable purchase date is during the Fixed Term, an amount equal to
the Rejectable Offer Payment determined as set forth in Section 15(a)
hereof with respect to such purchase date; thereafter, Lessor shall
promptly notify Lessee of its acceptance or rejection of such offer and
failing to give such notice shall be deemed to have accepted the same;
and upon such acceptance, Lessor shall convey Lessor's Estate to Lessee
on the date fixed therefor in accordance with the provisions of Article
XVIII, upon receipt of the purchase price therefor, and this Lease
shall thereupon terminate. Any purchase by Lessee of Lessor's Estate
pursuant to this Section shall be in lieu of the liquidated damages
specified in Section 16.5. The Lessee shall pay an amount equal to the
Rejectable Offer Payment to Lessor on the applicable purchase date
irrespective of whether the offer to purchase is accepted or rejected
pursuant to this Section 16.6. Immediately upon the occurrence of an
Event of Default and Lessee's offer to purchase Lessor's Estate
pursuant to this Section 16.6, and thereafter until the applicable
purchase date, each installment of Basic Rent due and payable hereunder
during such period shall be increased to an amount equal to the amount
of the corresponding installment of Basic Rent that would have been
payable pursuant to Section 3.1 hereof had this Lease never been
amended, which corresponding installments are set forth below:
(a) during the sixteenth through and including the
twentieth year of the Fixed Term, the amount of $27,380,445.12
per annum payable in equal, consecutive monthly installments
of $2,281,703.76 each, commencing on August 2, 1997 and
continuing monthly thereafter on the second day of each month
through and including July 2, 2002; and
(b) during the twenty-first through and including the
twenty-eighth year of the Fixed Term, the amount of
$27,403,965.12 per annum payable in equal, consecutive monthly
installments of $2,283,663.76 each, commencing on August 2,
2002 and continuing monthly thereafter on the second day of
each month through and including July 1, 2010;
11. In accordance with Article XXXV of the Lease, Lessor and Lessee
hereby release from the lien of the Lease the parcel of land described and
designated as Lot 9, Block 20 on the current official tax map of the Borough of
Peapack and Gladstone, Somerset County, New Jersey (the "Released Lands"), which
Released Lands are a portion of the land described in Schedule B attached to the
Lease. All references to the Land herein shall be to the parcel of land more
particularly described in Schedule A attached hereto.
12. The Lease is hereby further amended by deleting Section 36 thereof
in its entirety and substituting in place thereof the following new Section 36:
36. Termination upon Change in Method of Taxation. (a) In the
event of the passage, after the date of this Lease, of any law changing
in any way the laws now in force for the taxation of mortgages or debts
secured thereby, for state or local purposes, or the operation of any
such taxes so as to adversely affect the interest of the Lessor's
Assignees, if any, in the Land or in the Lessor's Estate or the
Indenture or the Notes, and if, pursuant to any Indenture, Lessor is
obligated to bear and pay the full (or any partial amount requested by
Lessor's Assignees, if any) amount of such taxes, then Lessee shall
pay, as Additional Rent hereunder without offset or credit against any
other Rent due under this Lease, all or such portion of such taxes as
may be requested by Lessor, provided, however, that if for any reason
payment by the Lessee or Lessor of any such new or additional taxes
would be unlawful or if the payment thereof would constitute usury or
render the indebtedness of Lessor to Lessor's Assignees, if any, wholly
or partially usurious under any of the terms or provisions of any
Indenture or otherwise, the Lessee will offer by notice given not later
than ten (10) days after Lessor's demand therefor (and failing to do
so, Lessee will be deemed to have offered), but only during the Fixed
Term, to purchase Lessor's Estate on the first Payment Date occurring
not less than thirty (30) days after such change in the law for a
purchase price equal to the amount set forth in Exhibit B with respect
to such Payment Date, and in such event, Lessor shall take all actions
required by Article XVIII of this Lease.
13. The Lease is hereby further amended by the addition of a new
ARTICLE XLII, which shall read in its entirety as follows:
42. Refinancing of Lessor's Indebtedness. (a) (i) Subject to the other
terms and provisions of this Section 42, Lessee shall have the right
from time to time to request that Lessor enter into a refinancing of
all, or any portion, of the Notes, and the accrued and unpaid interest
thereon (but at the outstanding balance of the Notes as of the date of
refinancing thereof) and any prepayment premium payable in connection
therewith, or any other indebtedness subsequently incurred by Lessor to
refinance the Notes and the accrued and unpaid interest thereon and any
prepayment premium payable in connection therewith (each, a
"Refinancing"). In the event of any such request by Lessee, Lessor will
cooperate in good faith with Lessee's efforts to arrange for a
Refinancing and the general partners of Lessor will present the terms
and conditions of the same to Lessor's limited partners for their
approval, as required by Lessor's Agreement of Limited Partnership, as
in effect from time to time (the "Partnership Agreement"); provided
that each of the general partners of Lessor determines reasonably, and
in good faith, that the terms and conditions of any such Refinancing
both: (i) are not, taken as a whole, materially more adverse to Lessor
(it being agreed that if any such Refinancing provides for recourse to
the Lessor or its partners, such recourse shall be to the same extent
as, or to a lesser extent than, the recourse provided in the then
existing indebtedness (i.e., such Refinancing shall be nonrecourse with
respect to all amounts due and owing at any time thereunder subject to
the same or less burdensome exceptions) or it shall be deemed to be
materially more adverse), and (ii) are, with respect to the economic
terms and conditions of such Refinancing, more favorable to Lessor, in
each case, as compared to the terms and conditions then in effect with
respect to Lessor's then existing indebtedness. The provisions of this
paragraph (a) are not intended, and shall not be deemed or construed,
to prohibit, restrict or in any way limit Lessor's right to enter into
a Refinancing with respect to its then existing indebtedness,
notwithstanding that Lessee shall not have requested that Lessor do so,
which right Lessor shall have the unfettered discretion to exercise at
any time and from time to time on and after the date hereof. If any
such Refinancing is initiated by Lessor, Lessee will cooperate with
Lessor in good faith, and, if Lessee shall have determined reasonably,
and in good faith, that the terms and conditions of such Refinancing
both (i) are not, taken as a whole, but only to the extent that the
same affect Lessee, e.g., by way of any required modification of this
Lease, in the aggregate materially more adverse to Lessee, and (ii)
are, with respect to the economic terms and conditions of such
Refinancing to the extent that the same affect Lessee, e.g., by way of
any required modification of this Lease, more favorable to Lessee, in
each case, as compared to the terms and conditions then in effect with
respect to Lessor's then existing indebtedness, then Lessor and Lessee
and the terms of any such Refinancing shall comply with the other terms
and conditions of this Section 42.
(ii) In the event that either Lessor or Lessee initiates a
Refinancing, the initiating party shall notify the other of its
intention to do so in writing, which notice shall be given by the
initiating party prior to the taking of any action with respect to such
Refinancing by such party. Upon the giving of such notice by either
party, Lessor and Lessee shall, subject to the provisions of this
Section 42, cooperate in good faith in taking such actions as are
reasonably necessary to consummate such Refinancing. Such actions shall
include, but not be limited to, the placement of debt. Lessee shall be
permitted, if it determines to do so, to manage the process of placing
debt in connection with any proposed Refinancing; provided, however,
that Lessee shall act in good faith and with diligence in managing such
process, and provided further, that Lessor (x) shall be permitted to
participate in all material discussions, and to negotiate the terms and
conditions of any such proposed Refinancing, with potential lenders and
underwriters, and (y) shall have the right to manage such process if
(A) Lessee informs Lessor in writing that it does not wish to do so, or
(B) if Lessee fails to respond to a written request from Lessor as to
Lessee's intention to continue to manage such process within ten (10)
business days after such request is received by Lessee.
(iii) In connection with any Refinancing, irrespective of
which party initiates the same, the amount to be borrowed pursuant to
such Refinancing shall not exceed the amount necessary to prepay the
entire outstanding principal balance of the Notes, or any portion
thereof, or any portion of Lessor's then existing interest-bearing
indebtedness which previously refinanced the Notes, or any portion
thereof, together with all accrued and unpaid interest thereon, and any
premium (including, without limitation, any make-whole, yield
maintenance or variable rate premium) payable thereunder, plus, subject
to, and in accordance with, the terms and provisions of paragraph (d)
of this Section 42, all costs, fees, expenses and commissions incurred
in connection with such Refinancing.
(iv) Lessor and Lessee hereby acknowledge and agree that the
terms and conditions of any such Refinancing, irrespective of which
party initiates the same, shall be subject, inter alia, to the approval
of Lessor's limited partners in accordance with the terms of Lessor's
Partnership Agreement.
(b) Concurrently with each Refinancing, and irrespective of
whether Lessor or Lessee initiates the same, this Lease shall be
modified so that the amount of each remaining periodic payment of Basic
Rent provided for hereunder as in effect immediately prior to such
Refinancing shall be reduced by an amount equal to eighty percent (80%)
of the excess of (i) the amount of each corresponding periodic debt
service installment provided for pursuant to Lessor's then existing
indebtedness immediately prior to such Refinancing over (ii) the amount
of each corresponding periodic debt service installment provided for
pursuant to the terms of such Refinancing (the amount of such excess
for each periodic debt service installment being hereinafter referred
to as the "Debt Service Reduction") (with respect to the Refinancing
effected on July 2, 1997, such rent reduction is reflected in Section 2
of the First Amendment to Lease). Accordingly, the amount of the excess
of (x) each periodic payment of Basic Rent provided for under this
Lease immediately after the modification of this Lease resulting from
such Refinancing over (y) each corresponding periodic debt service
installment provided for pursuant to such Refinancing will be equal to
the excess of (a) each corresponding periodic payment of Basic Rent
provided for under this Lease immediately prior to such modification
over (b) each corresponding periodic debt service installment provided
for pursuant to Lessor's then existing indebtedness immediately prior
to such Refinancing plus (c) an amount equal to twenty percent (20%) of
the corresponding Debt Service Reduction. In addition to the foregoing,
it is hereby understood and agreed that the amounts of Basic Rent
payments payable hereunder shall in all events be at least sufficient
so that the indebtedness refinancing the then outstanding Notes, (or
indebtedness incurred in any other Refinancing) together with any
portion of such Notes not so refinanced, together with all accrued and
unpaid interest thereon, will be fully amortized thereby, without any
bullet or balloon payment, at the expiration of the Fixed Term. In
addition, the purchase prices payable by the Lessee with respect to
Lessor's Estate pursuant to Exhibit B and Exhibit C of this Lease shall
be adjusted so that in all events such purchase prices will be
sufficient to pay the entire then outstanding principal balances of any
refinanced indebtedness plus all of Lessor's other interest-bearing
indebtedness that is subject to Refinancing hereunder but that has not
been then refinanced, if any, plus all accrued and unpaid interest and
any premium thereon (including such adjustments as are necessary to
provide for any make-whole, yield maintenance or variable rate premium
not susceptible to calculation until the actual prepayment of such
indebtedness), plus an additional amount payable to the Lessor which
shall be equal to the excess of (i)(x) in the case of the purchase
prices set forth on Exhibit B hereto, the amount that would then be
payable by the Lessee pursuant to Exhibit B hereto or (y) in the case
of the purchase prices set forth on Exhibit C hereto, the amount that
would then be payable by the Lessee pursuant to Exhibit C hereto over
(ii) in each case, the amount of what would have been the outstanding
balance, on and as of the relevant date, of all of Lessor's
interest-bearing indebtedness outstanding as of the date and
immediately after the effectiveness of the First Amendment to Lease
(but at its outstanding balance as of the date of the particular
Refinancing), plus all accrued and unpaid interest and any premium
thereon, assuming in the case of both clause (i) and clause (ii) that
no Refinancing had ever occurred (with respect to the Refinancing
effected on July 2, 1997, the modifications to such Exhibits are
reflected in Section 14 of the First Amendment to Lease).
(c) Subject to the provisions of paragraphs (a) and (b) of
this Section 42, each Refinancing, and the related modifications to
this Lease, the Ground Lease and the Indenture, if any, to be entered
into by Lessor and/or Lessee in connection with such Refinancing, shall
reflect such terms and conditions as are reasonably required by the
lenders providing such Refinancing and which are then reasonably
standard for similar real property credit net lease financings. In
addition, the closing of each Refinancing and the related modifications
to this Lease shall be subject to the satisfaction of closing
conditions which are then reasonably standard for similar real property
credit net lease financings, including the delivery of closing
certificates and opinions, and the receipt by Lessor of a reasonably
satisfactory opinion of independent tax counsel to the Lessor
(reasonably acceptable to Lessee, it being agreed that Bingham, Dana &
Gould LLP is deemed to be acceptable to Lessee) to the effect that the
contemplated transactions will have no material adverse Federal income
tax effect on the limited partners of Lessor. In addition, Guarantor
shall confirm the continuing effectiveness of the Guaranty of the Lease
as modified.
(d) Lessee shall pay and/or reimburse, or cause to be paid
and/or reimbursed, in full, at the closing of each Refinancing, or
sooner, if negotiations with respect to any such Refinancing shall be
terminated prior to a closing of the same, all costs and expenses of
Lessee, Lessor and the lenders providing each such Refinancing, and any
other party thereto, including, without limitation, reasonable legal
fees and expenses, recording costs, mortgage taxes, insurance premiums
and other reasonable closing costs in connection with each such
Refinancing, the related modifications to this Lease, and the
transactions contemplated thereby, including, without limitation, the
reasonable costs of soliciting the consent of the Lessor's limited
partners to each such Refinancing and related modifications to this
Lease. All such costs and expenses may be borrowed by Lessor from the
lenders providing each such Refinancing, as provided in paragraph (a)
(iii) of this Section 42; provided, however, that, if Lessee shall have
initiated any such Refinancing pursuant to notice first given by Lessee
pursuant to paragraph (a) (ii) of this Section 42, then each
installment of Basic Rent otherwise payable hereunder as calculated
pursuant to paragraph (b) of this Section 42 shall be increased by an
amount equal to twenty percent (20%) of the portion of each of Lessor's
corresponding periodic debt service installments attributable to the
borrowing of the amount of such costs and expenses by Lessor,
notwithstanding the provisions of paragraph (b) of this Section 42 to
the contrary (with respect to the Refinancing effected on July 2, 1997,
such adjustments are reflected in Section 4 of the First Amendment to
Lease).
14. Schedule A, Exhibit A, Exhibit B and Exhibit C of the Lease are
hereby deleted in their entireties and Schedule A, Exhibit A, Exhibit B and
Exhibit C attached hereto and incorporated herein are substituted in place
thereof.
15. Except as expressly amended hereby, the Lease and each of its terms
and provisions is hereby confirmed and is and shall remain in full force and
effect, unmodified hereby.
16. This First Amendment to Lease may be executed in several
counterparts, (each of which shall be deemed an original) in which event each
complete set of counterparts shall constitute one and the same instrument. This
First Amendment to Lease shall in all respects be governed by, and construed in
accordance with, the laws of the State of New Jersey, including all matters of
construction, validity and performance.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to Lease to be executed as of the date first above written.
HAMILTON ASSOCIATES
LIMITED PARTNERSHIP,
a Delaware limited partnership,
Lessor
By: PW Hamilton Corporation,
general partner
By: /s/ Stephen R. Dyer
Printed Name: Stephen R. Dyer
Title: Vice President
By: Peapack Properties Inc.
general partner
By: /s/ Steven Baumgarten
Printed Name: Steven Baumgarten
Title: Executive Vice President
BENEFICIAL MANAGEMENT
CORPORATION,
a Delaware corporation,
Lessee
By: /s/ Charles D. Brown
Printed Name: Charles D. Brown
Title: Vice President
BENEFICIAL FACILITIES
CORPORATION,
a New Jersey corporation
By: /s/ Charles D. Brown
Printed Name: Charles D. Brown
Title: Vice President
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
Be it Remembered, that on July 1, 1997, before me, the subscriber, a Notary
Public of the State of New York personally appeared Charles D. Brown who, being
by me duly sworn on his oath, deposes and makes proof to my satisfaction, that
he is the Vice President and Assistant General Counsel of BENEFICIAL MANAGEMENT
CORPORATION, a Delaware corporation, the Corporation named in the within
instrument; that the execution, as well as the making of this Instrument, has
been duly authorized by a proper resolution of the Board of Directors of the
said Corporation; and said instrument was signed and delivered by said Vice
President and Assistant General Counsel as and for the voluntary act and deed of
said Corporation.
Sworn to and subscribed before me, at New York, New York on the date aforesaid.
/s/ Casey D. Barnett
Notary Public of the State of
New York
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
Be it Remembered, that on July 1, 1997, before me, the subscriber, a Notary
Public of the State of New York personally appeared Charles D. Brown who, being
by me duly sworn on his oath, deposes and makes proof to my satisfaction, that
he is the Vice President of BENEFICIAL FACILITIES CORPORATION, a New Jersey
corporation, the Corporation named in the within instrument; that the execution,
as well as the making of this Instrument, has been duly authorized by a proper
resolution of the Board of Directors of the said Corporation; and said
instrument was signed and delivered by said Vice President as and for the
voluntary act and deed of said Corporation.
Sworn to and subscribed before me, at New York, New York on the date aforesaid.
/s/ Casey D. Barnett_________
Notary Public of the State of
New York
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
Be it Remembered, that on July 1, 1997, before me, the subscriber, a Notary
Public of the State of New York personally appeared Stephen R. Dyer who, being
by me duly sworn on his oath, deposes and makes proof to my satisfaction, that
he is the Vice President of PW HAMILTON CORPORATION, a Delaware corporation and
a General Partner of HAMILTON ASSOCIATES LIMITED PARTNERSHIP, a Delaware limited
partnership which Corporation is named as a General Partner in the within
instrument; that the execution, as well as the making of this Instrument, has
been duly authorized by a proper resolution of the Board of Directors of the
said Corporation; and said instrument was signed and delivered by said Vice
President as and for the voluntary act and deed of said Corporation.
Sworn to and subscribed before me, at New York, New York on the date aforesaid.
/s/ Casey D. Barnett__________
Notary Public of the State of
New York
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
Be it Remembered, that on July 1, 1997, before me, the subscriber, a Notary
Public of the State of New York personally appeared Steven Baumgarten who, being
by me duly sworn on his oath, deposes and makes proof to my satisfaction, that
he is the Executive Vice President of PEAPACK PROPERTIES INC., a Delaware
corporation and a General Partner of HAMILTON ASSOCIATES LIMITED PARTNERSHIP, a
Delaware limited partnership which Corporation is named as a General Partner in
the within instrument; that the execution, as well as the making of this
Instrument, has been duly authorized by a proper resolution of the Board of
Directors of the said Corporation; and said instrument was signed and delivered
by said Executive Vice President as and for the voluntary act and deed of said
Corporation.
Sworn to and subscribed before me, at New York, New York on the date aforesaid.
/s/ Casey D. Barnett__________
Notary Public of the State of
New York
<PAGE>
Schedule A
[Property Description]
<PAGE>
Schedule A Continued Permitted Encumbrances
[Exceptions]
<PAGE>
Exhibit A
[Guaranty]
<PAGE>
Exhibit B
[Termination Schedule - Casualty and Condemnation]
<PAGE>
Exhibit C
[Payment Dates, Payment Numbers and Purchase Prices]
<PAGE>
Exhibit 10.2
GUARANTY
GUARANTY (this "Guaranty"), dated as of July 2, 1997, of BENEFICIAL
CORPORATION (the "Guarantor"), a Delaware corporation, having its principal
office at One Christina Centre, 301 North Walnut Street, Wilmington, Delaware
19809.
W I T N E S S E T H:
HAMILTON ASSOCIATES LIMITED PARTNERSHIP (the "Partnership"), a Delaware
limited partnership, has previously acquired (1) a leasehold estate created
pursuant to the Ground Lease between BENEFICIAL FACILITIES CORPORATION (the
"Ground Landlord"), a New Jersey corporation, as ground landlord and the
Partnership, as lessee, dated as of June 28, 1982, as amended by the First
Amendment to Ground Lease dated as of the date hereof, in a parcel of real
property (the "Land") located in the Borough of Peapack and Gladstone, County of
Somerset and State of New Jersey, more particularly described in Schedule A
attached to the Lease referred to below, and (2) fee simple title to the
buildings, structures, fixtures and improvements thereon (collectively, the
"Improvements", and collectively with the Partnership's leasehold interest in
the Land, the "Property"), and (i) the Partnership, as lessor, previously
entered into a Lease of the Property, dated as of June 28, 1982, as amended by
the First Amendment to Lease dated as of the date hereof (as so amended, and as
the same may from time to time be supplemented or further amended, the "Lease"),
with BENEFICIAL MANAGEMENT CORPORATION (the "Lessee"), a Delaware corporation,
as lessee (Ground Landlord has joined in the execution of the Lease for the
limited purposes described therein), (ii) contemporaneously herewith, the
Partnership is assigning, pursuant to an Assignment of Lease and Guaranty, dated
as of the date hereof (the "Assignment"), its rights as lessor under the Lease
and this Guaranty to The Bank of New York, as collateral agent (together with
its successors and assigns, the "Collateral Agent") under the Collateral Agency
Agreement dated as of the date hereof for the benefit of the holders of the
notes secured by the Assignment (such notes collectively referred to as the
"Notes" and such holders of the Notes collectively referred to as the
"Noteholders"), and (iii) Lessee, Ground Landlord and Guarantor have consented
to the Assignment and entered into related agreements pursuant to a Consent and
Agreement, dated as of the date hereof (the "Consent").
Guarantor owns directly or indirectly all of the outstanding capital
stock of the Lessee and Ground Landlord and is executing this Guaranty as an
inducement to (i) the Noteholders to purchase the Notes and thereby provide the
Partnership with the funds to refinance the indebtedness which it incurred in
connection with the acquisition of its interest in the Property, (ii) the
Partnership to amend the Lease, and (iii) the Collateral Agent to accept an
assignment of the Lease as security for the Notes.
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Guarantor agrees as follows:
SECTION 1. Guarantor hereby absolutely and unconditionally guarantees,
as principal and not as indemnitor, to the Partnership and its assignees the
full and punctual performance and observance by the Lessee of all of the terms,
conditions, covenants and obligations to be performed and observed by the Lessee
under the Lease and the Consent and hereby covenants and agrees that if, for any
reason, the Lessee shall fail fully and punctually to perform or observe any of
such terms, conditions, covenants or obligations, Guarantor will forthwith
punctually perform and observe the same. Guarantor hereby agrees that all terms
of this Guaranty shall be reinstated to the extent any payments made by the
Lessee to the holders of the Notes are required to be returned to the Lessee by
an order of a court of competent jurisdiction. Guarantor hereby subordinates all
of its rights against Lessee in respect of any payment made by Guarantor
hereunder until the Notes have been paid in full.
SECTION 2. Guarantor hereby assents to all of the provisions of the
Lease and the Consent and waives demand, protest, notice of default, notice of
any waivers or extensions granted to the Lessee, any requirement of diligence or
promptness on the part of the Partnership or its assignees in the enforcement of
the rights and remedies of the Partnership or its assignees under the Lease and
the Consent, any enforcement of the Lease and the Consent and any notice
thereof, and any other notice whereby to charge Guarantor.
SECTION 3. Guarantor agrees that its obligations and the rights of the
Partnership and its assignees hereunder shall, to the extent permitted by law,
be absolute and unconditional and shall neither (a) be terminated, impaired or
otherwise affected by, or (b) subject to any offset, deduction, deferment, or
abatement, of any kind or nature arising from any action taken by the
Partnership or its assignees pursuant to the Lease or the Consent in the
exercise of any right, remedy or power thereby conferred upon them or otherwise
available to them in respect thereof, or by any failure or omission on the part
of the Partnership or its assignees to enforce or exercise any such right,
remedy or power, or by any action of the Partnership or its assignees in
granting indulgences or extensions to the Lessee or in waiving or acquiescing in
defaults by the Lessee, or by any assignment of the Lease or this Guaranty, or
any subletting of the Property, or by the recovery of any judgment against the
Lessee or any action to enforce the same, or by the release or discharge of the
Lessee or the Partnership in any receivership, bankruptcy, insolvency,
arrangement, reorganization or other proceeding or the rejection or
disaffirmance of the Lease in any such proceedings, or any other circumstance
which might otherwise constitute a legal or equitable discharge of a guarantor
or a legal or equitable discharge of the Lessee under the Lease or the Consent.
It is understood and agreed that, to the extent permitted by law, in case of the
bankruptcy or insolvency of the Lessee, the claims of the Partnership and its
assignees against Guarantor hereunder shall not be limited by any provision of
the Federal Bankruptcy Code or any similar or corresponding provision of any
State or Federal law which, by reason of such bankruptcy or insolvency of the
Lessee, would limit the claims of the Partnership and its assignees against the
Lessee, and Guarantor agrees that in any such case, upon demand of the
Partnership or its assignees, if in the opinion of the Partnership or any of its
assignees such action is necessary or desirable in the interests of any assignee
of lessor's interest in the Lease, it will enter into a lease of the Property
upon the same terms and conditions as the Lease with any designee of its
assignees on their behalf. It is also understood and agreed that, in the case of
the rejection or disaffirmance of the Lease by or on behalf of the Partnership
or its creditors in any receivership, bankruptcy, insolvency, arrangement,
reorganization or other proceeding or in the case of the termination of the
Lease for any other reason (other than pursuant to the express provisions
thereof not relating to a default thereunder), Guarantor will pay to the
Partnership and its assignees, if and to the extent Lessee shall not pay to the
Partnership or its assignees, as the case may be, amounts equal to all amounts
otherwise payable by the Lessee under the Lease, as and to the extent otherwise
so payable under the Lease. Guarantor agrees that its obligations hereunder will
be automatically reinstated if and to the extent that for any reason any payment
by or on behalf of Lessee is rescinded or must be otherwise restored by the
Partnership or any of its assignees (or any Noteholder), whether as a result of
any receivership, bankruptcy, insolvency, arrangement, reorganization or other
proceeding or otherwise, all as though such amount had not been paid. Without
limiting the generality of the foregoing, Guarantor hereby, to the extent
permitted by law, waives all suretyship defenses it may have. This Guaranty is a
guaranty of payment and not of collection.
SECTION 4. Guarantor agrees that this Guaranty shall remain in full
force and effect without impairment of any of its obligations hereunder,
notwithstanding any modification or termination of, or release with respect to,
the Lease or the Consent or the absence of notice thereof to Guarantor.
SECTION 5. Guarantor will not consolidate with or merge into, or sell
or otherwise dispose of all or substantially all of its properties and assets
to, any other corporation, except as permitted by, and in compliance with, the
provisions of subsection 16.1(f) of the Lease such that no Event of Default
under, and as defined in, the Lease shall occur by reason of any such
consolidation, merger, sale or other disposition.
SECTION 6. This Guaranty shall inure to the benefit of the Partnership,
its successors and assigns and any assignee of the Partnership's interest in the
Lease (including without limitation the Collateral Agent and the Noteholders),
and shall be binding upon the Guarantor and its successors and assigns.
SECTION 7. This Guaranty may not be changed or terminated orally, but
only by a written instrument signed by the party against whom enforcement of any
change or termination is sought.
SECTION 8. This Guaranty shall be governed by and construed in
accordance with the laws of the State of New Jersey.
SECTION 9. This Guaranty may be executed in any number of counterparts,
each of which shall be an original; but such counterparts shall together
constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has duly executed this Guaranty by
its duly authorized officer as of the day and year first above written.
BENEFICIAL CORPORATION
By: /s/ Ronald E. Bombolis
Ronald E. Bombolis
Senior Vice President and
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF INCOME (BOTH DATED 9/30/97) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 288
<SECURITIES> 0 <F1>
<RECEIVABLES> 14,227
<ALLOWANCES> 525
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F2>
<PP&E> 537 <F3>
<DEPRECIATION> 324 <F3>
<TOTAL-ASSETS> 16,465
<CURRENT-LIABILITIES> 0 <F2>
<BONDS> 8,713 <F4>
0
115
<COMMON> 53
<OTHER-SE> 1,636 <F5>
<TOTAL-LIABILITY-AND-EQUITY> 16,465
<SALES> 0
<TOTAL-REVENUES> 2,251 <F6>
<CGS> 0
<TOTAL-COSTS> 643 <F7>
<OTHER-EXPENSES> 863 <F8>
<LOSS-PROVISION> 328
<INTEREST-EXPENSE> 0 <F9>
<INCOME-PRETAX> 417
<INCOME-TAX> 150
<INCOME-CONTINUING> 267
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 267
<EPS-PRIMARY> 4.81
<EPS-DILUTED> 4.78
<FN>
<F1> CURRENT MARKETABLE EQUITY SECURITIES ARE NOT SEPARATELY STATED.
<F2> DO NOT PREPARE CLASSIFIED BALANCE SHEET.
<F3> PP&E PER BALANCE SHEET (212.6) IS SHOWN NET OF DEPRECIATION.
<F4> LONG-TERM DEBT PER BALANCE SHEET.
<F5> INCLUDES ADDITIONAL CAPITAL (238.3), NET UNREALIZED GAIN ON INVESTMENT
(2.8), FOREIGN CURRENCY TRANSLATION ADJ (-45.4), & RETAINED EARNINGS (1440.1)
PER BALANCE SHEET = 1635.8.
<F6> INCLUDES FINANCE CHARGES AND FEES (1733.2), INSURANCE PREMIUMS (129.0), AND
OTHER REVENUE (388.7) PER INCOME STATEMENT = 2250.9.
<F7> INTEREST EXPENSE PER INCOME STATEMENT.
<F8> INCLUDES SALARIES & BENEFITS (322.4), INSURANCE BENEFITS (53.9) AND
OTHER (487.2) PER INCOME STATEMENT = 863.5.
<F9> COMPANY'S PRIMARY COST OF GENERATING REVENUE IS INTEREST EXPENSE WHICH
IS INCLUDED IN TOTAL COSTS (ABOVE).
</FN>
</TABLE>
