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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 [fee required]
For the fiscal year ended December 31, 2001
-----------------
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 [no fee required]
For the transition period from to
------------------ --------------------
Commission file number 2-79192
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HAMPSHIRE FUNDING, INC.
-----------------------
(Exact name of registrant as specified in its charter)
NEW HAMPSHIRE 02-0277842
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE GRANITE PLACE, CONCORD, NEW HAMPSHIRE 03301
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (603) 226-5000
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Programs for coordinating the acquisition of mutual fund shares and insurance
- -----------------------------------------------------------------------------
Indicate by check mark whether the registrant 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 has been subject to such filing requirements
for the past 90 days.
YES X NO
----- -----
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. NONE
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock as of March 30, 2002: 50,000 shares, all of which are owned by
Jefferson-Pilot Corporation.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
The total number of pages, including exhibits, is 32, and the exhibit index
appears on pages 23 through 25.
PART I
ITEM 1 - BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Hampshire Funding, Inc. ("the Company") was incorporated in the State of
New Hampshire on December 8, 1969. It is a wholly owned subsidiary of
Jefferson-Pilot Corporation.
On December 30, 1997, the Company sold its investment in its subsidiary,
Hampshire Syndications, Inc., (wholly owned since October 9, 1986), to
Jefferson-Pilot Investments, Inc. Hampshire Syndication's net worth at
December 30, 1997 was $239,811. The transaction was accounted for as a
reorganization of entities under common control.
The Company, in affiliation with Jefferson Pilot Financial Insurance
Company, Jefferson Pilot Life America Insurance Company (collectively
"Insurance Companies") and Jefferson Pilot Securities Corporation (the
"Broker-Dealer"), a member of the National Association of Securities
Dealers, Inc. ("NASD"), has primarily been engaged in the offering and
administration of programs which coordinate the acquisition of mutual fund
shares and life or health insurance (the "Programs"). The Programs were
intended, in part, to augment the sales activities of the Broker-Dealer and
the Insurance Companies.
Effective March 31, 1998, the Company discontinued offering its Programs
for sale. The Company continues, however, to extend premium loans to
current program participants (Participants) until their stated maturity or
termination date.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Revenues, operating profit and loss, and identifiable assets for the five
years ended December 31, 2001, are included in Item 6 - Selected Financial
Data and Item 8 - Financial Statements and Supplementary Data.
(c) NARRATIVE DESCRIPTION OF BUSINESS
The Company administers Programs which involve initial and periodic cash
purchases of mutual fund shares. Under the Programs, Participants make
initial and periodic purchases of mutual fund shares for cash with
automatic reinvestment of all distributions. Participants obtain insurance
coverage through a series of insurance premium loans offered by the
Company. Loans to Participants are secured by Participants' initial and
periodic purchases of mutual fund shares. The mutual fund shares are
registered in the Company's name as Custodian for Participants and are
pledged under a Receivables Purchase Agreement.
The objective of a Program is the utilization of the appreciation, if any,
in the value of the mutual fund shares and the reinvestment of dividends or
capital gains distributions thereon to aid in offsetting the principal and
accumulated interest on the loans.
As noted, the Company discontinued offering Programs for sale but will
continue to administer all programs until their stated maturity or
termination dates.
Historically, the Programs were offered for sale by those agents of the
Insurance Companies who qualify as registered representatives, through the
Broker-Dealer, under the regulations of the NASD.
Revenues derived from Participant Programs include gain on sales of loans
and servicing, interest income on securities and Program participant fees.
For the years ended December 31, 2001, 2000 and 1999 such revenues were as
follows:
2
2001 2000 1999
---- ---- ----
Loan sales and servicing $ 898,147 $ 688,573 $ 692,208
Interest 298,746 387,455 331,077
Program participant fees 184,315 255,398 327,372
REGULATION
The Company filed its final Registration Statement under the Securities Act of
1933, as amended, with the Securities and Exchange Commission on April 16, 1997.
The Company is also subject to supervision by the Commissioners of Securities of
the jurisdictions in which the Company has sold the Programs.
Although the Company no longer offers its Programs for sale, its existing
Programs are authorized to use insurance policies offered by the Insurance
Companies. Insurance available for purchase in connection with a Program may
vary from state to state, depending on whether Jefferson Pilot Financial
Insurance Company (Jefferson Pilot Financial) or Jefferson Pilot LifeAmerica
Insurance Company (Jefferson Pilot LifeAmerica) is licensed to sell insurance in
a particular jurisdiction, and whether a jurisdiction in which one of the
Insurance Companies is licensed has approved the sale of a particular insurance
product.
Historically, each Insurance Company offered several types of policies within
the Program. The Insurance Companies are subject to the regulations of the
insurance department of each state in which they are licensed to do business. In
addition, Jefferson Pilot Financial, through JPF Separate Accounts A and C, and
Jefferson Pilot LifeAmerica Insurance Company, through JPF Separate Account B,
offer for sale variable universal life insurance policies, which are subject to
regulation by the Securities and Exchange Commission. Policies, including the
variable universal life insurance product, issued under the Program may not be
identical in each state or jurisdiction. Regulations that determine the types of
policies and their provisions may differ in each state. As a result, the
Insurance Companies have internal procedures designed to ensure that only
approved policies are issued in each state.
The insurance agents who sold the Company's Programs are subject to the
oversight and regulation of the insurance department of each jurisdiction where
they are licensed. In addition, only those agents who are registered
representatives of the Broker-Dealer sold Programs; thus the insurance agents
are also subject to supervision and regulation of the NASD and securities
department of each jurisdiction where they are licensed.
DEPENDENCE UPON A SINGLE OR A FEW CUSTOMERS
Given the Company's decision to discontinue the sale of its programs, the
dependence upon a single or few customers is not applicable. Historically, the
Company was not dependent upon a single or few customers.
COMPETITION
Competition is no longer a factor since the Company no longer offers Programs
for sale. Historically the Company faced limited competition in the sale of
Programs, as the number of companies offering plans similar to the Programs was
quite small. Historically, a large number of companies offered programs
combining the purchase of insurance and mutual fund shares; however, in recent
years the number of companies has reduced dramatically.
EMPLOYEES
The Company has no paid employees. Jefferson Pilot Life Insurance Company ("JP
Life"), a wholly-owned subsidiary of Jefferson-Pilot Corporation, provides
employee and office services, as well as certain operating assets, to the
Company and its affiliates. JP Life employs all of the personnel who perform
business functions for the Company. JP Life believes that its relationship with
employees is good.
3
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
All sales and operations of the Company are conducted within the United
States.
ITEM 2 - PROPERTIES
The Company does not own or lease any real property. The Company occupies a
portion of the home office of Jefferson Pilot Financial located at One Granite
Place, Concord, New Hampshire. The use by the Company of such facilities and the
equipment and furnishings owned by JP Life, Jefferson Pilot Financial, or any of
the other Insurance Companies is subject to a pro-rata allocation of expenses.
ITEM 3 - LEGAL PROCEEDINGS
The Company may become involved from time to time with legal proceedings arising
out of the ordinary course of its business. For the year ended December 31,
2001, the Company was not involved in any material legal proceedings.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 2001 to a vote of
security holders.
4
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) HOLDERS
Not publicly traded.
(b) MARKET INFORMATION
1 (See Item 12, Security Ownership of Certain Beneficial Owners and
Management.)
(c) DIVIDENDS
The Company has not authorized or paid any dividends since inception. There
are no restrictions presently known on the Company's ability to pay
dividends except for general New Hampshire corporate laws relating to
earnings.
ITEM 6 - SELECTED FINANCIAL DATA
Selected Results of Operations
Data: Year Ended December 31, 2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Total Revenue $ 1,381,208 $ 1,331,426 $ 1,350,657 $ 1,335,073 $ 5,279,533
============= ============ =========== =========== ===========
Net Income $ 754,870 $ 714,883 $ 723,044 $ 780,583 $ 597,624
============= ============ =========== =========== ===========
Dividends Per Common share $ -- $ -- $ -- $ -- $ --
============= ============ =========== =========== ===========
Selected Balance Sheet Data:
December 31, 2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Total Assets $ 10,369,594 $ 8,385,285 $ 7,520,878 $ 5,861,387 $ 4,978,870
============= ============ =========== =========== ===========
5
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPANY PROFILE
The Company administers investment programs (the "Programs") which coordinate
the acquisition of mutual fund shares and insurance over a period of ten years.
Under the Programs, Participants purchase life and health insurance from
affiliated Insurance Companies. and finance the premiums through a series of
loans secured by mutual fund shares. Upon issuance of a policy by an Insurance
Company, the Company makes a loan to the Participant in an amount equal to the
selected premium mode. As each premium becomes due, if not paid in cash, a new
loan equal to the next premium and administrative fee is made and added to the
Participant's account indebtedness ("Account Indebtedness"). Thus, interest, as
well as principal, is borrowed and mutual fund shares are pledged as collateral.
Each loan made by the Company must initially be secured by mutual fund shares
which have a value of at least 250% of the loan, except for the initial premium
loan of Programs using certain no-load funds, where the collateral requirement
is 180%. In addition, the aggregate value of all mutual fund shares pledged as
collateral must be at least 150% of the Participant's total Account
Indebtedness. If the value of the shares pledged to the Company declines below
130% of the Account Indebtedness, the Company will terminate the Programs and
liquidate shares sufficient to repay the indebtedness.
Effective March 31, 1998, the Company discontinued the sale of Programs. The
Company, however, will continue to make premium loans to current Participants
and administer all Programs until their stated maturity or termination dates.
CRITICAL ACCOUNTING POLICIES
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States. The Company's significant accounting
policies are more fully described in Note 1 to the financial statements. The
majority of assets and liabilities are financial in nature and the valuations of
these assets and liabilities are critical to the financial position and results
of operations. However, certain accounting policies are particularly important
to the portrayal of the Company's financial position and results of operations,
and require the Company's management to apply significant judgment; as a result
are subject to an inherent degree of uncertainty. In applying those accounting
policies, management uses judgment to determine the appropriate assumptions to
be used in the determination of certain estimates. On an on-going basis,
management evaluates estimates and judgments based upon historical experience,
which forms the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.
LIQUIDITY AND CAPITAL RESOURCES
On December 31, 1997, the Company entered into a Receivables Purchase Agreement
(the Agreement) with Preferred Receivables Funding Corporation (PREFCO), a
wholly-owned subsidiary of Bank One, formerly First National Bank of Chicago,
(the Bank).
The Agreement provides for the initial and periodic purchase of the Company's
collateral loans receivable by PREFCO or other investors (for which the Bank
serves as agent). On July 25, 2001 the Agreement was amended to extend the
termination date to July 24, 2002 and decrease PREFCO's commitment from
$50,000,000 to $39,715,230. On October 21, 2001 the Agreement was amended,
increasing the Purchase Fee Percentage paid by the Company from 0.225% to 0.26%.
Additionally, the Events of Default were amended, increasing the number of
consecutive business days that Under Collateralized Receivables may exceed 1%
and eliminating the restriction on the percentage of Collateral Deficient
Receivables. The Company anticipates the termination date will be extended under
the provisions of the Agreement, PREFCO finances purchases of the Company's
collateral loans receivables through the issuance of commercial paper.
As of December 31, 2001, the Company had sold aggregate loans of $40,756,773 and
has retained a subordinated interest and servicing rights in the assets
transferred aggregating $8,327,384. The cash flows related to the repayment of
loans is first used to satisfy all principal and variable interest rate
obligations due to PREFCO,
6
investors or the Bank. The retained interest represents the fair value of the
Company's future cash flows and obligations that it will receive after all
investor obligations are met. The fair value of the Company's retained interest
and servicing rights was $6,500,825, $5,509,426, $4,301,000 and $2,789,198 at
December 31, 2000, 1999, 1998, and 1997 respectively.
The Company is responsible for servicing, managing and collecting all
receivables and loan repayments, monitoring the underlying collateral and
reporting all activity to the Bank for which it receives an annual service fee
(collected monthly in arrears) calculated as 2% of outstanding receivables. The
Company received $797,975, $954,745, and $1,004,364 in service fees during 2001,
2000, and 1999.
As servicing agent for the loans sold, the Company collected loan prepayments of
$10,639,016 during 2001 and $9,716,659 during 2000, which were paid to PREFCO
(one month in arrears) to satisfy principal and variable interest obligation
due. The Company originated new loans of $4,728,712 during 2001 and $6,802,549
during 2000, which were sold to PREFCO.
The Agreement includes a Performance Guarantee by Jefferson-Pilot Corporation
that the Company will service the receivables sold and administer all aspects of
the Programs in accordance with the terms and conditions of the Agreement. The
Performance Guarantee contains restrictions on the debt of the Guarantor and the
collateral value monitored by the Company.
Proceeds from the original sale of the receivables were used by the Company to
extinguish its outstanding debt under its Revolving Credit Agreement with
SunTrust Bank of Atlanta, Georgia. Following the repayment of all principal and
interest, on December 31, 1997 the Company's Revolving Credit Agreement with
SunTrust was terminated.
During 1998, the Company entered into an intercompany loan agreement with
Jefferson-Pilot Corporation whereby it may borrow funds for working capital
needs at short-term interest rates. At December 31, 2001 the company had
borrowed $845,571 compared to $438,261 at December 31, 2000.
The continuance of the Program is dependent upon the Company's ability to
arrange for the sale of collateral notes receivable or provide for the financing
of insurance premiums for Participants. Prior to the Company's Agreement with
PREFCO, such financing was provided by its Revolving Credit Agreement with
SunTrust and affiliated loan agreements. The Company expects that it will be
able to continue to sell its collateral notes receivables or arrange for other
financing for the foreseeable future.
If the Company is unable to sell its collateral notes receivable or borrow funds
in the future for the purpose of financing loans to Participants for the payment
of insurance premiums, the Programs may be subject to termination.
If the Company subsequently defaults on its Agreement with PREFCO for which the
Participant's mutual fund shares have been pledged as security, the mutual fund
shares may be redeemed by PREFCO (or its agent) and the Programs will be
terminated on their renewal dates.
The Company's liabilities include amounts due to affiliates for premium loans,
due to parent, due to JP Life for expense reimbursements and pay downs due to
PREFCO.
JP Life, a wholly-owned subsidiary of Jefferson-Pilot Corporation, provides
employee services and office facilities to the Company and its affiliates under
a Service Agreement. The Company pays JP Life a monthly fee in accordance with
mutually agreed upon cost allocation methods which the Companies believe reflect
a proportional allocation of common expenses and are commensurate for the
performance of the applicable duties.
Working capital in 2001, 2000, and 1999 was provided by servicing fees from
collateral loans sold, loans from Jefferson-Pilot Corporation and interest
earned on investments.
The Company changed certain of its assumptions supporting the valuation of its
interests retained from loan sales. Effective January 1, 2002, the Company has
increased its estimate of early terminations from 26% to 30% to better reflect
the Company's actual experience. In 1999, the Company reduced the discount rate
used to value its retained interests from 17% to 15%, which Management believes
better reflects the risks associated with the securitized assets.
7
RESULTS OF OPERATIONS
The Company concluded the year ended December 31, 2001 with net income of
$754,870 as compared to net income of $714,883 in 2000 and $723,044 in 1999.
Total revenues through December 31, 2001 were $1,381,208 versus $1,331,426 in
2000 and $1,350,657 in 1999. The Company's revenues are derived from program
fees; income on its retained interest in the loans sold to investors, and
realized gains. Although the Company's retained interest and income on its
retained interest has grown over the last four years, this increase has been
offset by a decline in realized gains in connection with the sale of loans.
Gains (or losses) for each sale of receivables are determined by allocating the
carrying value of the receivables sold between the portion sold and the interest
retained based on their relative fair value. The Company estimates the fair
value of its retained interest based on the present value of future cash flows
expected from the sold receivables.
Interest expense was $19,361, $72,146, and $58,159 for the years ended December
31, 2001, 2000, and 1999, respectively. The average interest rates of 3.98%,
6.26%, and 5.11% were paid on average outstanding loans due to affiliates of
$477,230, $1,070,817, and $1,200,000 in 2001, 2000, and 1999, respectively.
The Company receives fee income for continuing to service sold receivables. The
Company capitalizes the present value of expected servicing fee income in excess
of the related cost of servicing over the estimated life of the sold
receivables.
Program fees include placement, administrative and termination fees as well as
charges for special services. Program fees continue to decline as programs
terminate and mature. For the years ended December 31, 2001, 2000, and 1999 the
number of Programs administered by the Company were 2,333, 3,199, and 3,952,
respectively.
In the future, the Company may realize a gain or loss on the securitization of
future collateral notes receivable which may impact future earnings.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements included herein are listed in the following index.
INDEX TO FINANCIAL STATEMENTS
PAGE REFERENCES
Statements of Financial Condition - December 31, 2001 and 2000 10
Statements of Income - Years ended December 31, 2001, 2000, and 1999 11
Statements of Stockholder's Equity - Years ended December 31, 2001, 2000, and 1999 12
Statements of Cash Flows - Years ended December 31, 2001, 2000, and 1999 13
Notes to Financial Statements 14
All schedules have been omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the financial statements, and
the notes thereto.
8
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Hampshire Funding, Inc.
We have audited the accompanying statements of financial condition of Hampshire
Funding, Inc. as of December 31, 2001 and 2000, and the related statements of
income, stockholder's equity, and cash flows for each of the three years in the
period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hampshire Funding, Inc. at
December 31, 2001 and 2000, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States.
Ernst & Young LLP
Boston, Massachusetts
March 15, 2002
9
HAMPSHIRE FUNDING, INC.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31
2001 2000
-----------------------------
ASSETS
Cash and cash equivalents $ 1,719,904 $1,737,684
Interests retained from loan sales, at fair value 8,114,505 6,269,671
Servicing asset (fair value of $275,558 and $434,827 at
December 31, 2001 and 2000, respectively) 212,879 231,154
Other 322,306 146,776
-----------------------------
Total assets $10,369,594 $8,385,285
=============================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Due to affiliates 1,642,394 1,809,680
Due to parent 845,571 438,261
Accounts payable 861,212 821,674
Accrued expenses and other liabilities 510,046 138,711
-----------------------------
Total liabilities 3,859,223 3,208,326
-----------------------------
Stockholder's equity:
Common stock, par value $1 per share; authorized
100,000 shares; issued and outstanding 50,000 shares 50,000 50,000
Additional paid-in capital 789,811 789,811
Retained earnings 5,160,127 4,405,257
Accumulated other comprehensive income (loss) 510,433 (68,109)
-----------------------------
Total stockholder's equity 6,510,371 5,176,959
-----------------------------
Total liabilities and stockholder's equity $10,369,594 $8,385,285
=============================
SEE ACCOMPANYING NOTES.
10
HAMPSHIRE FUNDING, INC.
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
2001 2000 1999
--------------------------------------
Revenues:
Loan sales and servicing $ 898,147 $ 688,573 $ 692,208
Interest 298,746 387,455 331,077
Program participant fees 184,315 255,398 327,372
--------------------------------------
1,381,208 1,331,426 1,350,657
Operating expenses:
Interest on affiliate borrowings 19,361 72,146 58,159
--------------------------------------
Income before income taxes 1,361,847 1,259,280 1,292,498
Income tax expense 606,977 544,397 569,454
--------------------------------------
Net income $ 754,870 $ 714,883 $ 723,044
======================================
SEE ACCOMPANYING NOTES.
11
HAMPSHIRE FUNDING, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME (LOSS) TOTAL
---------- ----------- ------------ -------------- -------------
Balance at December 31, 1998 $ 50,000 $ 789,811 $ 2,967,330 $ (426,185) $ 3,380,956
Net income 723,044 723,044
Change in unrealized loss on securities
available for sale, net of tax of
($131,791) 167,325 167,325
------------ -------------- -------------
Total comprehensive income 723,044 167,325 890,369
---------- ----------- ------------ -------------- -------------
Balance at December 31, 1999 50,000 789,811 3,690,374 (258,860) 4,271,325
Net income 714,883 714,883
Change in unrealized loss on securities
available for sale, net of tax of
($102,712) 190,751 190,751
------------ -------------- -------------
Total comprehensive income 714,883 190,751 905,634
---------- ----------- ------------ -------------- -------------
Balance at December 31, 2000 50,000 789,811 4,405,257 (68,109) 5,176,959
Net income 754,870 754,870
Change in unrealized loss on securities
available for sale, net of tax of $311,522
578,542 578,542
------------ -------------- -------------
Total comprehensive income 754,870 578,542 1,333,412
---------- ----------- ------------ -------------- -------------
Balance at December 31, 2001 $ 50,000 $ 789,811 $ 5,160,127 $ 510,433 $ 6,510,371
========== =========== ============ ============== =============
SEE ACCOMPANYING NOTES
12
HAMPSHIRE FUNDING, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
2001 2000 1999
-----------------------------------------------------
OPERATING ACTIVITIES
Net income $ 754,870 $ 714,883 $ 723,044
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred charge 58,404 58,407 58,405
Amortization of servicing asset 18,275 46,862 100,517
Deferred tax (363,108) (44,335)
Gain on sales of loans (54,360) (56,325) (125,485)
Net change in other assets and liabilities (540,429) 98,725 11,822
Change in due to affiliates (62,306) 220,253 173,683
-----------------------------------------------------
Net cash (used in) provided by operating activities (188,654) 1,038,470 941,986
FINANCING ACTIVITIES
Proceeds from sale of collateral notes receivable 4,492,276 6,462,421 8,080,726
Loans originated (4,728,712) (6,802,549) (8,506,006)
Proceeds (repayment of) from affiliated loan agreements
407,310 (761,739)
-----------------------------------------------------
Net cash provided by (used in) financing activities 170,874 (1,101,867) (425,280)
-----------------------------------------------------
(Decrease) increase in cash and cash equivalents (17,780) (63,397) 516,706
Cash and cash equivalents at beginning of year 1,737,684 1,801,081 1,284,375
-----------------------------------------------------
Cash and cash equivalents at end of year $ 1,719,904 $ 1,737,684 $ 1,801,081
=====================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 19,361 $ 72,146 $ 58,159
Income taxes 898,005 516,312 613,598
SEE ACCOMPANYING NOTES.
13
HAMPSHIRE FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
1. ACCOUNTING POLICIES
ORGANIZATION
Hampshire Funding, Inc. (the Company), a wholly-owned subsidiary of
Jefferson-Pilot Corporation, administers programs that coordinate the
acquisition of mutual fund shares and insurance (Programs). Under the Programs,
insurance premiums are paid by Participants through a series of loans from the
Company and secured by Participant's ownership of mutual fund shares. The
objective of a Program is the utilization of the appreciation, if any, in the
value of the mutual fund shares and the reinvestment of dividends or capital
gain distributions thereon to aid in offsetting the principal and accumulated
interest on the loans. All Programs are ten years in length and no payments are
due until Programs are terminated or mature.
Effective March 31, 1998 the Company discontinued the sale of these Programs.
The Company continues, however, to extend premium loans to current Participants
and administer Programs until their stated maturity or termination date.
Affiliates of the Company include Jefferson Pilot Financial Insurance Company
(Jefferson Pilot Financial) and Jefferson Pilot LifeAmerica Insurance Company.
Other affiliates of the Company include Jefferson Pilot Investment Advisory
Corporation, and Jefferson Pilot Securities Corporation, are also 100% owned by
Jefferson-Pilot Corporation.
The Company administers Programs whereby Participants obtain life insurance
coverage solely from Jefferson Pilot Financial and Jefferson Pilot LifeAmerica.
Under the Programs, insurance premiums are paid by Participants through a series
of loans from the Company. Loans to Participants are secured by Participant's
ownership in mutual fund shares.
The fair value of a Participant's pledged mutual fund shares must exceed 150% of
the total loan balance plus accrued interest (Participant's Total Account
Indebtedness). If the value of the shares pledged declines below 130% of the
Participant's Total Account Indebtedness, the Company will terminate the Program
and liquidate shares sufficient to repay the Indebtedness.
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires the Company's
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit at financial institutions and
short-term corporate notes carried at cost, which approximates market value.
PROGRAM LOAN SALES
When the Company sells program loans, it retains interest-only strips, servicing
rights and 5% of each loan sold, all of which are retained interests in the
securitized receivables. Gain or loss on sale of the receivables depends in part
on the previous carrying amount of the financial assets involved in the
transfer, allocated between the assets sold and the retained interests based on
their relative fair value at the date of transfer. However, quotes are generally
not available for
14
1. ACCOUNTING POLICIES (CONTINUED)
retained interest, so the Company generally estimates fair value based on the
present value of future expected cash flows estimated using management's best
estimates of the key assumptions - termination and discount rates commensurate
with the risks involved.
SERVICING ASSET
The Company receives fee income for continuing to service sold receivables equal
to 2% of outstanding receivables. The Company capitalizes the present value of
expected servicing fee income in excess of the related cost of servicing over
the estimated life of the sold receivables (net servicing income). To the extent
that net servicing income varies from management's estimates, the servicing
asset may amortize faster or slower than anticipated. The Company assesses the
carrying value of its servicing asset annually using anticipated future cash
flows associated with the asset. The asset will be written-down to the extent
that estimated fair value is less than carrying value at the balance sheet date.
No adjustment is recorded for fair values, which exceed carrying values at the
balance sheet date.
Subsequent to initial recognition, capitalized servicing rights are carried at
the lower of amortized initial fair value or current fair value, as the Company
is required to assess the carrying value only for impairment or additional
obligation.
No adjustment for impairment or additional obligation with respect to
capitalized servicing rights has been recorded by the Company.
RECOGNITION OF REVENUES
Interest on assets retained from loan sales and administrative fees charged to
Participants for establishing and maintaining Programs are recognized as revenue
when earned.
RECLASSIFICATIONS
Certain amounts in the financial statements for prior years have been
reclassified to conform with the current year's presentation.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2000, the FASB issued Statement No. 140, ACCOUNTING FOR TRANSFERS
AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES that
replace, in its entirety, FASB Statement No. 125. Although Statement 140 changed
many of the rules regarding securitizations, it continues to require an entity
to recognize the financial and servicing assets it controls and the liabilities
it has incurred and to derecognize financial assets when control has been
surrendered in accordance with the criteria provided in the Statement. As
required the Company applied the new rules prospectively to transactions
beginning in the second quarter of 2001. The adoption of Statement 140 did not
materially impact either the results of operations or financial condition of the
Company.
2. SALE OF COLLATERAL NOTES RECEIVABLE PORTFOLIO
On December 31, 1997, the Company entered into a Receivables Purchase Agreement
(the Agreement) with Preferred Receivables Funding Corporation (PREFCO), wholly
owned subsidiary of First National Bank of Chicago (the Bank).
The Agreement provides for the initial and periodic purchase of the Company's
collateral loans receivable by PREFCO or other investors (for which the Bank
serves as agent). On July 25, 2001 the Agreement was amended to extend the
termination date to July 24, 2002 and decrease PREFCO's commitment from
$50,000,000 to $39,715,230. On October 21, 2001 the Agreement was amended,
increasing the Purchase Fee Percentage paid by the Company from 0.225% to 0.26%.
Additionally, the Events of Default were amended, increasing the number of
consecutive business days that Under Collateralized Receivables may exceed 1%
and eliminating the restriction on the percentage of Collateral Deficient
Receivables. The Company anticipates the termination date will be extended under
the provisions of the Agreement, PREFCO finances purchases of the Company's
collateral loans receivables through the issuance of commercial paper.
15
During 2001, the Company sold program loans in securitization transactions, and
in each case the Company retained servicing responsibilities and subordinated
interests. The Company receives annual servicing fees of 2 percent of the
outstanding balance and rights to future cash flows arising after the purchaser
of the loans has received the return for which they contracted. The investor in
the loans has no recourse to the Company's other assets for failure of debtors
to pay when due. The Company's retained interests are subordinate to the
investor's interests. Their value is subject to credit and prepayment risks on
the transferred financial assets, although the loans are fully secured by shares
in mutual funds.
At December 31, key economic assumptions and the sensitivity of the current fair
value of residual cash flows to immediate adverse changes in those assumptions
are as follows:
2001 2000
------------ -----------
Carrying Amount/fair value of retained interests $ 8,114,505 $ 6,269,671
Weighted-average life 2.1 years 3.5 years
TERMINATION RATE ASSUMPTION (ANNUAL) 30% 26%
Rate increases to 30% $ 79,391
Rate increases to 35% $ 103,979 $ 173,545
Rate increases to 40% $ 201,501
RESIDUAL CASH FLOWS DISCOUNT RATE (ANNUAL) 15% 15%
Rate increases to 17% $ (507,842) $ (512,282)
Rate increases to 19% $ (980,909) $ (979,387)
These sensitivities are hypothetical and should be used with caution. As the
figures indicate, changes in fair value based upon the varying of assumptions
generally cannot be extrapolated because the relationship of the change in
assumption to the change in fair value may not be linear. Also, in this table,
the effect of a variation in a particular assumption on the fair value of the
retained interest is calculated without changing any other assumption, in
reality, changes in one factor may result in changes in another (for example,
increases in market interest rates may result in lower prepayments), which might
magnify or counteract the sensitivities.
At December 31, 2001, the outstanding balance of loans sold by the Company under
the Agreement was $40,756,773 compared to $50,942,576 in 2000. The Company
received gross servicing income of $797,975, $954,745, and $1,004,364 for the
years ended December 31, 2001, 2000, and 1999, respectively.
3. INTEREST RETAINED FROM RECEIVABLE SALES, NET
The amortized cost and gross unrealized gains and losses and estimated fair
value of retained interests in loan sales at December 31, 2001 and 2000 are
shown below. Expected maturities may differ from contractual maturities as the
Programs underlying the securities may be terminated prior to contractual
maturity.
DECEMBER 31, 2001
--------------------------------------------------------------------
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------------------------
Residual principal certificates due five years
through ten years $ 2,449,646 $ 698,655 $ $ 3,148,301
Interest-only strip receivables due five years
through ten years 4,879,578 86,626 4,966,204
--------------------------------------------------------------------
$ 7,329,224 $ 785,281 $ $ 8,114,505
====================================================================
16
DECEMBER 31, 2000
--------------------------------------------------------------------
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------------------------
Residual principal certificates due five years
through ten years $ 1,681,294 $ 758 $ $ 1,682,052
Interest-only strip receivables due five years
through ten years 4,693,160 (105,541) 4,587,619
--------------------------------------------------------------------
$ 6,374,454 $ 758 $ (105,541) $ 6,269,671
====================================================================
Residual principal represents a 5% undivided interest in the receivables and
capitalized interest sold by the Company at the time of each sale. As the sold
principal is fully amortized prior to amortization of the retained principal,
the Company's undivided interest may not represent 5% of the total outstanding
receivables subsequent to the date of each sale.
Interest-only strip receivables represent the Company's right to interest in
excess of the sum paid to the purchaser of the loans.
All of the interests retained are subordinated to the payment of principal and
permitted interest to the bank-sponsored commercial paper conduit, and are
initially recorded at their respective fair values. As permitted by the
provisions of Statement of Financial Accounting Standards No. 115, ACCOUNTING
FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, the Company classifies
interests retained as available-for-sale securities. As a result, unrealized
gain and unrealized losses not deemed to be other-than-temporary are included in
comprehensive income as a separate component of stockholder's equity.
4. INCOME TAXES
The operations of the Company are included in the consolidated federal income
tax return of Jefferson-Pilot Corporation. Federal income tax is allocated by
Jefferson-Pilot Corporation as if the Company filed a separate income tax
return. Deferred tax assets and liabilities are recognized for the expected
future tax effects attributable to temporary differences between the financial
reporting and tax bases of assets and liabilities, based on enacted tax rates
and other provisions of tax law.
Significant components of income tax expense for the years ended December 31,
were as follows:
2001 2000 1999
---- ---- ----
Current:
Federal $ 706,032 $ 443,444 $ 389,331
State 264,053 145,288 180,123
----------------------------------------------------
Total current 970,085 588,732 569,454
Deferred:
Federal (299,564) (36,577) 0
State (63,544) (7,758) 0
----------------------------------------------------
Total deferred (363,108) (44,335) 0
$ 606,977 $ 544,397 $ 569,454
====================================================
Deferred tax assets are comprised of the following at December 31:
2001 2000
---- ----
Impact of loan sales $ 504,636 $ 141,528
Unrealized gain (loss) on securities available for sale (274,848) 36,674
-------------------------------
$ 229,788 $ 178,202
===============================
17
Federal income taxes have been provided at the statutory rate of 35%, less the
benefit for the deduction of state income taxes.
The deferred assets are included in due to affiliates in the statement of
financial condition.
5. TRANSACTIONS WITH AFFILIATES
In 1998, the Company entered into an intercompany loan agreement with
Jefferson-Pilot Corporation whereby the Company may borrow funds for working
capital needs at short-term interest rates. At December 31, 2001 and 2000, the
Company had borrowed $845,571 and $438,261, respectively.
The Programs, and most mutual fund shares offered in conjunction with the
Programs, are sold through Jefferson Pilot Securities Corporation, a registered
broker-dealer.
5. TRANSACTIONS WITH AFFILIATES (CONTINUED)
Substantially all general and administrative expenses are allocated to the
Company by JP Life in accordance with mutually agreed upon cost allocation
methods that the Company and JP Life believe reflect a proportional allocation
of common expenses and which are commensurate for the performance of the
applicable duties. The Company paid allocated expenses of $231,755, $396,113,
and $621,403 for the years ended December 31, 2001, 2000, and 1999,
respectively. These expenses are included in the calculation of the expected
cash flows for purposes of determining income related to programs sales,
therefore are not shown as expenses in the statements of income.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth information relating to Directors and Executive
Officers of the Company as of December 31, 2001.
NAME(1) AGE POSITION(2)
---- --- --------
Ronald R. Angarella 43 President, Chairman and Director
Dennis R. Glass 52 Director
John C. Ingram 57 Director
John A. Weston 42 Treasurer
Russell C. Simpson 46 Vice President and Chief Financial Officer
Charles C. Cornelio 42 Vice President
Carol R. Hardiman 47 Vice President, Administration
Shari J. Lease 47 Secretary
Robert A. Reed 59 Vice President and Assistant Secretary
Ronald R. Angarella was elected President and Chairman of the Company and Broker
Dealer in October 1995. Mr. Angarella was elected Senior Vice President of
Jefferson Pilot Financial and Vice Chairman of the Broker-Dealer in November
1994. Mr. Angarella served as Vice President, Staff Management of Jefferson
Pilot Financial from September 1992 to November 1994, and Assistant Vice
President, Staff Management of Jefferson Pilot Financial from February 1992 to
September 1992. From March 1990 to February 1992 he served as Assistant Vice
President, Marketing of the Broker-Dealer.
18
Dennis R. Glass was elected Director of the Company in May 1997. Since October
1993 Mr. Glass has served as Executive Vice President, Chief Financial Officer
and Treasurer of Jefferson-Pilot Corporation. From 1991 to October 1993, he was
associated with Protective Life Corporation, having last served as Executive
Vice President and CFO of the Company. From 1983 to 1991 he was associated with
the Portman Companies, having served as Executive Vice President and CFO.
John C. Ingram was elected Director of the Company in May 1999. In 1972, John
joined Jefferson Standard Life's Mortgage loan field as a district supervisor
and assistant regional supervisor based in Washington, DC. In 1974, he returned
to the home office Mortgage Loan Department as assistant vice president and
regional supervisor. In 1982 John transferred to the Securities Department as
second vice president, was named vice president in 1987, and then senior vice
president and manager of the Securities Department in 1988.
John A. Weston was elected Treasurer of the Company and the Broker-Dealer in
August 1988. His principal occupation since April of 1995 has been as Assistant
Vice President of Jefferson Pilot Financial until his election as Vice President
of Jefferson Pilot Financial in February 1999. He was elected Treasurer of
Jefferson Pilot Variable Fund, Inc. in April 1992, and Treasurer of Jefferson
Pilot Investment Advisory Corporation in May 1992. From July 1989 to April 1995
Mr. Weston was Mutual Fund Accounting Officer for Jefferson Pilot Financial.
Russell C. Simpson was elected Chief Financial Officer of the Company in
December 1997. Mr. Simpson serves as Vice President and Treasurer of Jefferson
Pilot Financial. He has served as Vice President since September 1990 and was
elected Treasurer in December 1994. From April 1988 to September 1990 Mr.
Simpson served as Assistant Vice President of Tax and Financial Reporting for
Jefferson Pilot Financial.
Charles C. Cornelio was elected Vice President of the Company in May 1997. From
May 1993 to May 1997 he was Vice President, General Counsel and Secretary. Mr.
Cornelio's principal occupation since May 1997 has been Executive Vice President
of Jefferson Pilot Financial and Senior Vice President of Jefferson-Pilot
Corporation. From September 1996 to May 1997 he was Executive Vice President and
Chief Administrative Officer. From December 1994 to September 1996 he served as
Senior Vice President and Chief Administrator for Jefferson Pilot Financial.
From March 1992 to December 1994 he served as Vice President, Counsel and
Assistant Secretary for Jefferson Pilot Financial. He also serves as Executive
Vice President - Operations of Jefferson Pilot LifeAmerica and as Vice
President, General Counsel to Jefferson Pilot Variable Fund, Inc.
Carol R. Hardiman was elected Vice President, Administration of the Company and
the Broker-Dealer in June 1989. From October 1987 to May 1989, she was Assistant
Vice President of the Company and the Broker-Dealer.
Shari J. Lease was elected Secretary of the Company and Assistant Secretary of
the Broker-Dealer in December 1994. Her principal occupation since February 1998
has been as Vice President and Associate General Counsel of Jefferson Pilot
Financial. Ms. Lease served as Assistant Vice President and Counsel of Jefferson
Pilot Financial from April 1995 to February 1998. Ms. Lease was elected
Secretary of Jefferson Pilot Variable Fund, Inc. in April 1992. She served as
Associate Counsel of Jefferson Pilot Financial from April 1994 to April 1995,
Assistant Counsel of Jefferson Pilot Financial from October 1990 to April 1994
and Assistant Secretary of Jefferson Pilot Variable Fund, Inc. from July 1991 to
April 1992.
Robert A Reed was elected Vice President and Assistant Secretary of the Company
in December 1997. Mr. Reed serves as Vice President, Secretary and Assistant
General Counsel of Jefferson-Pilot Corporation and has held similar positions
with its principal life insurance subsidiaries since June 1994. Mr. Reed was
secretary and Assistant General Counsel of Aluminum Company of America for many
years prior thereto.
(1) There are no family relationships existing between or among any of the
above-listed Directors or Executive Officers.
(2) The term of office of each of the foregoing Directors and Executive
Officers extends until the annual meetings of the shareholders and Board of
Directors or until removed by the Board of Directors.
19
HAMPSHIRE FUNDING, INC.
One Granite Place
Concord, New Hampshire 03301
BOARD OF DIRECTORS
December 31, 2001
- -------------------------------------------------------------------------------
Ronald R. Angarella
24 Longview Drive
Bow, NH 03304
Dennis R. Glass
Three Lochridge Court
Greensboro, NC 27408
John C. Ingram
3302 Wynnewood Drive
Greensboro, NC 27408
20
HAMPSHIRE FUNDING, INC.
One Granite Place
Concord, New Hampshire 03301
OFFICERS
December 31, 2001
- -------------------------------------------------------------------------------
President Ronald R. Angarella
24 Longview Drive
Bow, NH 03304
Vice President, Assistant Secretary Robert A. Reed
P. O. Box 21008
Greensboro, NC 27420
Vice President, Administration Carol R. Hardiman
1 Paradise Road
Chichester, NH 03234
Vice President Charles C. Cornelio
1802 Regents Park Lane
Greensboro, NC 27455
Vice President and Chief Financial Officer Russell C. Simpson
6002 Early Trail
Summerfield, NC 27358
Secretary Shari J. Lease
37 N. Curtisville Road
Concord, NH 03301
Treasurer John A. Weston
15 Merrimack Street
Concord, NH 03301
Vice President, Marketing David K. Booth
303 Main Street
Hopkinton, NH 03229
Assistant Treasurer Donna M. Wilbur
21 Dwinell Drive
Concord, NH 03301
Investment Operations Officer Michael F. Murray
6 Morgan Drive
Bow, NH 03304
21
ITEM 11 - EXECUTIVE COMPENSATION
(a) GENERAL
The Company pays no remuneration to its Directors and Officers, nor does it
have any agreement, commitment, or plan to pay salaries or compensation to
any Director or Officer on other than a nominal basis. The Service Company
employs all of the personnel who perform business functions for the
Company, which personnel also perform functions for affiliates of the
Company.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below sets forth ownership of the Company's issued and
outstanding common stock as of March 31, 2002.
TITLE OF NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
------- ------------------- --------------------- -----------
Common Jefferson-Pilot Corporation 50,000 shares of record 100
100 N. Greene Street
Greensboro, NC 27401
(b) SECURITY OWNERSHIP OF MANAGEMENT
None.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Company, has an agreement with the JP Life whereby the JP Life provides
service and joint operations. In addition, the Company utilizes furniture,
equipment and fixtures owned by one or more of the Insurance Companies. The
Company pays the JP Life a fee, determined in accordance with mutually
agreed upon cost allocation methods, which the Companies believe reflect a
proportional allocation of common costs and are commensurate for the
performance of the applicable duties.
The Company has an intercompany loan agreement with Jefferson-Pilot
Corporation, whereby it may borrow money at short-term interest rates. At
December 31, 2001 the Company has $845,571 of loans outstanding.
On December 30, 1997, the Company sold its investment in its wholly-owned
subsidiary, Hampshire Syndications, Inc. to Jefferson-Pilot Investments,
Inc.
(b) CERTAIN BUSINESS RELATIONSHIPS
See Item 10, Directors and Executive Officers of the Registrant.
22
Part IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) This portion of item 14 appears on page 8 of this report.
(b) No Form 8-K was filed in the fourth quarter of 2001.
(c) Exhibits
(i) Pursuant to Rule 12b-23 and General Instruction G, the following
exhibits required to be filed with this Report pursuant to the
Instructions for Item 14 above are incorporated by reference from
the reference source cited in the table below.
Reg S-K
Item 601
EXHIBIT
TABLE NO. DOCUMENT REFERENCE SOURCE
--------- -------- -----------------
(1) Distribution Agreement Form 10-K, filed
between the Company and March 15, 1990, for the
Chubb Securities Corporation year ended December 31,
dated March 1, 1990 1989, pp. 23-24
(3) (i) Articles of Incorporation Form 10-K, filed
of Company March 15, 1990, for the
year ended December 31,
1989, pp. 25-27
(ii) By-Laws of Company Form 10-K, filed
March 15, 1990, for the year ended
December 31, 1989, pp. 28-46
EXHIBIT
TABLE NO. DOCUMENT REFERENCE SOURCE
--------- -------- -----------------
(22) Subsidiaries of the Registrant Form 10-K, filed
March 15, 1990, for the year ended
December 31, 1989, pp. 66
(4) (i) Agency Agreement and Form 10-K, filed
Limited Power of Attorney March 19, 1997, for the year ended
December 31, 1996, pp. 24-26
(ii) Change in Participant in Form 10-K, filed
Program March 19, 1997, for the year ended
December 31, 1996, pp. 27-28
(iii) Disclosure Statement Form 10-K, filed
March 19, 1997, for the year ended
December 31, 1996, p. 29
23
(10) (a) Revolving Credit Agreement Form 10-K, filed
between the Company and March 19, 1997, for the year
SunTrust Bank, dated ended December 31, 1996, pp.
October 23, 1996 30-44
(b) Revolving Credit Note Form 10-K, filed
between the Company and March 19, 1997, for the year
SunTrust Bank dated ended December 31, 1996, pp.
October 23, 1996 45-46
(c) Guaranty between Chubb Life Form 10-K, filed
and SunTrust Bank dated March 19, 1997, for the year
October 23, 1996 ended December 31, 1996, pp.
47-53
(d) Receivables Purchase Agreement Form 10-K, filed
among the Company, Investors, March 30, 1998, for the year
Preferred Receivables Funding ended December 31, 1997, pp
Corporation and First National 27-75
Bank of Chicago dated
December 31, 1997
(e) Performance Guarantee by Form 10-K, filed
Jefferson-Pilot Corporation March 30, 1998, for the year
ended December 31, 1997, pp
(f) Amendment No. 1 to the Receivables Form 10-K, filed
Receivables Purchase Agreement March 30, 1999, for the year
among the Company, Investors, ended December 31, 1998
Preferred Receivables Funding
Corporation and First National Bank
of Chicago dated June 29, 1998
(g) Amendment No. 2 to the Receivables Form 10-K, filed
Receivables Purchase Agreement March 30, 2000, for the year
among the Company, Investors, ended December 31, 1999
Preferred Receivables Funding
Corporation and First National Bank
of Chicago dated June 29, 1999
(h) Amendment No. 3 to the Receivables Form 10-K, filed
Receivables Purchase Agreement March 30, 2001 for the year
among the Company, Investors, ended December 31, 2001
Preferred Receivables Funding
Corporation and Bank One, NA
dated June 26, 2000
24
(i) Amendment No. 4 to the Receivables Form 10-K, filed
Receivables Purchase Agreement March 30, 2001 for the year
among the Company, Investors, ended December 31, 2001
Preferred Receivables Funding
Corporation and Bank One, NA
dated July 26, 2000
(ii) Filed by enclosure.
Reg S-K
Item 601
(10) (a) Amendment No. 5 to the Receivables pp. .27-29
Receivables Purchase Agreement
Among the Company, Investors, Preferred
Receivables Funding Corporation and
Bank One, NA dated July 25, 2001
(b) Amendment No. 6 to the Receivables pp. 30-32
Receivables Purchase Agreement
Among the Company, Investors,
Preferred Receivables Funding
Corporation and Bank One, NA dated
October 21, 2001
(d) Financial Statement Schedules
All Schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission
of the schedule, or because the information required is included in
the financial statements and the notes thereto.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 27, 2002 HAMPSHIRE FUNDING, INC.
By: /s/ RONALD R. ANGARELLA
------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons on behalf of the registrant and in the capacities and on the
dates indicated have signed this report below.
Name Title Date
---- ----- ----
/S/ RONALD R. ANGARELLA President and Director March 27, 2002
- ----------------------- Ronald R. Angarella
/S/ DENNIS R. GLASS Director March 27, 2002
- ----------------------- Dennis R. Glass
/S/ JOHN C. INGRAM Director March 27, 2002
- ----------------------- John C. Ingram
/S/ JOHN A. WESTON Treasurer March 27, 2002
- ----------------------- John A. Weston
/S/ RUSSELL C. SIMPSON Vice President and March 27, 2002
- ----------------------- Chief Financial Officer
Russell C. Simpson
26
AMENDMENT NO. 5 TO RECEIVABLES PURCHASE AGREEMENT
This Amendment No. 5 (the "Amendment") is dated as of July 25, 2001 among
Hampshire Funding, Inc. (the "Seller" and the "Servicer"), the undersigned
Purchasers and Bank One, NA (formerly known as The First National Bank of
Chicago), as agent for the Purchasers (the "Agent").
W I T N E S S E T H:
WHEREAS, the Seller, the Servicer, the Purchasers and the Agent are parties
to that certain Amended and Restated Receivables Purchase Agreement dated as of
May 5, 1998 (as previously amended, the "Agreement"); and
WHEREAS, the Seller, the Servicer, the undersigned Purchasers and the Agent
desire to amend the Agreement in certain respects more fully described
hereinafter;
NOW, THEREFORE, in consideration of the premises herein contained, and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise defined
shall have their meanings as attributed to such terms in the Agreement.
2. AMENDMENTS TO THE AGREEMENT.
2.1. AMENDMENT TO CERTAIN REFERENCES. All references to the term "Liquidity
Termination Date" appearing in Sections 1.1 and 4.2(b)(iii) of the Agreement
shall be deemed to be references to the term "Termination Date".
2.2. AMENDMENT TO SECTIONS 1.6(a) AND 1.7(a). Sections 1.6(a) and 1.7(a)
are hereby amended by deleting the phrase "Purchaser Fee and Unused Fee" where
it appears therein and inserting the phrase "Purchaser Fee" in lieu thereof.
2.3. AMENDMENT TO SECTION 1.9(b)(i). Section 1.9(b)(i) of the Agreement is
hereby amended by deleting the phrase "the Purchaser Fee, the Unused Fee" where
it appears therein and inserting the phrase "the Purchaser Fee," in lieu
thereof.
2.4. AMENDMENT TO SECTION 1.9(d). Section 1.9(d) is hereby amended by
deleting the phrase "Discount, Purchaser Fee and Unused Fee" where it appears
therein and inserting the phrase "Discount and Purchaser Fee" in lieu thereof.
2.5. AMENDMENT TO COMMITMENT. The Commitment of Bank One, NA is hereby
amended by deleting the amount "$50,000,000" appearing opposite Bank One, NA's
Signature on the Agreement and inserting the amount "$39,715,230" in lieu
thereof, which will reduce in accordance with Section 2.14 of the Amended and
Restated Receivables Purchase Agreement, as amended.
2.6. AMENDMENT TO THE DEFINITION OF LIQUIDITY TERMINATION DATE. The
definition of "Liquidity Termination Date" appearing in Exhibit I to the
Agreement is hereby amended by deleting the date "July 25, 2001" where it
appears therein and inserting the date "July 24, 2002" in lieu thereof.
2.7. AMENDMENT TO THE DEFINITION OF TERMINATION DATE. The definition of
"Termination Date" appearing in Exhibit I to the Agreement is hereby
amended by deleting clause (iv) in its entirety and inserting in lieu
thereof the following: "(iv) July 25, 2001."
27
2.8. DELETION OF CERTAIN DEFINITIONS. The definitions of "Unused Fee" and
"Unused Fee Percentage" appearing in Exhibit I to the Agreement are hereby
deleted in their entirety.
3. REAFFIRMATION OF PERFORMANCE GUARANTY. By acknowledging this Amendment
below, the Performance Guarantor hereby (i) acknowledges that the Seller, the
Servicer, the Purchasers and the Agent have entered into this Amendment, which
Amendment has been made available to and has been reviewed by the Performance
Guarantor and (ii) reaffirms that its obligations under the Performance Guaranty
and each other Transaction Document to which it is a party continues in full
force and effect with respect to the Agreement, as amended by this Amendment .
4. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent and the
undersigned Purchasers to enter into this Amendment each of the Seller and the
Servicer represents and warrants that:
4.1. The representations and warranties set forth in Article III of the
Agreement, as hereby amended, are true, correct and complete on the date hereof
as if made on and as of the date hereof and there exists no Event of Default or
Potential Event of Default on the date hereof.
4.2. The execution and delivery by each of the Seller and the Servicer of
this Amendment has been duly authorized by proper corporate proceedings of the
Seller and the Servicer and this Amendment, and the Agreement, as amended by
this Amendment, constitutes the legal, valid and binding obligation of the
Seller and the Servicer enforceable against the Seller and the Servicer in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or their similar laws relating
to or limiting creditors' rights generally.
4.3. Neither the execution and delivery by the Seller or the Servicer of
this Amendment, nor the consummation of the transactions herein contemplated,
nor compliance with the provisions hereof will violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding on the
Seller or the Servicer or the Seller's or the Servicer's certificate of
incorporation or by-laws or the provisions of any indenture, instrument or
agreement to which the Seller or the Servicer is a party or is subject, or by
which it or its property, is bound, or conflict with or constitute a default
thereunder.
5. EFFECTIVE DATE. This Amendment shall become effective as of the date
above first written upon receipt by the Agent of (i) counterparts of this
Amendment duly executed by the Seller, the Servicer, the Purchasers and the
Performance Guarantor and (ii) such other documents as the Agent or any
Purchaser may request.
6. RATIFICATION. The Agreement, as amended hereby, is hereby ratified,
approved and confirmed in all respects.
7. REFERENCE TO AGREEMENT. From and after the effective date hereof,
each reference in the Agreement to "this Agreement", "hereof", or "hereunder" or
words of like import, and all references to the Agreement in any and all
agreements, instruments, documents, notes, certificates and other writings of
every kind and nature shall be deemed to mean the Agreement, as amended by this
Amendment.
8. COSTS AND EXPENSES. The Seller agrees to pay all costs, fees, and
out-of-pocket expenses (including attorneys' fees and time charges of attorneys
for the Agent, which attorneys may be employees of the Agent) incurred by the
Agent in connection with the preparation, execution and enforcement of this
Amendment.
9. CHOICE OF LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS.
10. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the Seller, the Servicer, the undersigned Purchasers
and the Agent have executed this Amendment as of the date first above written.
HAMPSHIRE FUNDING, INC., as Seller
and Servicer
By:
-----------------------------
Title:
--------------------------
PREFERRED RECEIVABLES FUNDING CORPORATION
By:
-----------------------------
Title: Authorized Signatory
BANK ONE, NA (formerly known as THE FIRST
NATIONAL BANK OF CHICAGO), individually as
an Investor and as Agent
By:
-----------------------------
Title: Authorized Signatory
Acknowledged and confirmed by:
JEFFERSON-PILOT CORPORATION,
as Performance Guarantor
By:
--------------------------
Title:
-----------------------
29
WAIVER AND AMENDMENT NO. 6 TO RECEIVABLES PURCHASE AGREEMENT
This Waiver and Amendment No. 6 (this "Amendment") is dated as of October
21, 2001 among Hampshire Funding, Inc. (the "Seller" and the "Servicer"), the
undersigned Purchasers and Bank One, NA (formerly known as The First National
Bank of Chicago), as agent for the Purchasers (the "Agent").
W I T N E S S E T H :
WHEREAS, the Seller, the Servicer, the Purchasers and the Agent are parties
to that certain Amended and Restated Receivables Purchase Agreement dated as of
May 5, 1998 (as previously amended, the "Agreement"); and
WHEREAS, the Seller, the Servicer, the undersigned Purchasers and the Agent
desire to (i) waive certain currently existing Events of Default under the
Agreement and (ii) amend the Agreement in certain respects more fully described
hereinafter;
NOW, THEREFORE, in consideration of the premises herein contained, and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise defined
herein shall have the meanings attributed to such terms in the Agreement.
2. AMENDMENTS TO THE AGREEMENT.
2.1. AMENDMENT TO SECTION 7.1(h). Section 7.1(h) of the Agreement is hereby
amended to read in its entirety as follows:
"(h) [INTENTIONALLY DELETED]."
2.2. AMENDMENT TO SECTION 7.1(i). Section 7.1(i) of the Agreement is hereby
amended to read in its entirety as follows:
"(i) For a period of ten consecutive Business Days the Under
Collateralized Receivables Percentage exceeds 1.5%."
2.3. AMENDMENT TO THE DEFINITION OF PURCHASER FEE PERCENTAGE. The
definition of "Purchaser Fee Percentage" set forth in Exhibit I to the Agreement
is hereby amended by deleting the percentage "0.225%" where it appears therein
and inserting the percentage "0.26%" in lieu thereof.
3. WAIVER. Each of the undersigned Purchasers hereby specifically waives
the occurrence of (i) during the period from and including September 10, 2001
through the effective date hereof, the Event of Default under Section 7.1(h) of
the Agreement caused by the Collateral Deficient Receivables Percentage
exceeding 5% for a period of seven consecutive Business Days, and (ii) during
the period from and including September 25, 2001 through the effective date
hereof, the Event of Default under Section 7.1(i) of the Agreement caused by the
Under Collateralized Receivables Percentage exceeding 1% for a period of seven
consecutive Business Days. This specific waiver is limited to the express
circumstances described herein and shall not be construed to constitute (i) a
waiver of any other event, circumstance or condition or of any other right or
remedy available to the Agent or any Purchaser pursuant to the Agreement or (ii)
a consent to any departure by the Seller or any Servicer from any other term or
requirement under the Agreement.
4. REAFFIRMATION OF THE PERFORMANCE GUARANTY. By acknowledging this
Amendment below, the Performance Guarantor hereby (i) acknowledges that the
Seller, the Servicer, the Purchasers and the Agent have entered into this
Amendment, which Amendment has been made available to and has been reviewed by
the Performance Guarantor and (ii) reaffirms that its obligations under the
Performance Guaranty and each other
30
Transaction Document to which it is a party continues in full force and effect
with respect to the Agreement, as amended by this Amendment.
5. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent and the
undersigned Purchasers to enter into this Amendment, each of the Seller and the
Servicer represents and warrants that:
5.1. The representations and warranties set forth in Article III of the
Agreement, as hereby amended, are true, correct and complete on the date hereof
as if made on and as of the date hereof and that, after giving effect to the
waivers and amendments set forth herein, there exists no Event of Default or
Potential Event of Default on the date hereof.
5.2. The execution and delivery by the Seller of this Amendment has been
duly authorized by proper corporate proceedings of the Seller and the Servicer
and this Amendment, and the Agreement, as amended by this Amendment, constitutes
the legal, valid and binding obligation of the Seller and the Servicer
enforceable against the Seller and the Servicer in accordance with its terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting creditors' rights
generally.
5.3. Neither the execution and delivery by the Seller or the Servicer of
this Amendment, nor the consummation of the transactions herein contemplated,
nor compliance with the provisions hereof will violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding on the
Seller or the Servicer or the Seller's or the Servicer's certificate of
incorporation or by-laws or the provisions of any indenture, instrument or
agreement to which the Seller or the Servicer is a party or is subject, or by
which it or its property is bound, or conflict with or constitute a default
thereunder.
6. EFFECTIVE DATE. This Amendment shall become effective as of the date
first above written upon receipt by the Agent of (i) counterparts of this
Amendment duly executed by the Seller, the Servicer, the Purchasers and the
Performance Guarantor and (ii) such other documents as the Agent or any
Purchaser may request.
7. RATIFICATION. The Agreement, as amended hereby, shall remain in full
force and effect and is hereby ratified, approved and confirmed in all respects.
8. REFERENCE TO AGREEMENT. From and after the effective date hereof, each
reference in the Agreement to "this Agreement", "hereof", or "hereunder" or
words of like import, and all references to the Agreement in any and all
agreements, instruments, documents, notes, certificates and other writings of
every kind and nature shall be deemed to mean the Agreement, as amended by this
Amendment.
9. COSTS AND EXPENSES. The Seller agrees to pay all costs, fees, and
out-of-pocket expenses (including attorneys' fees and time charges of attorneys
for the Agent, which attorneys may be employees of the Agent) incurred by the
Agent in connection with the preparation, execution and enforcement of this
Amendment.
10. CHOICE OF LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS.
11. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the
same agreement.
31
IN WITNESS WHEREOF, the Seller, the Servicer, the undersigned Purchasers
and the Agent have executed this Amendment as of the date first above written.
HAMPSHIRE FUNDING, INC., as Seller
and Servicer
By:
-----------------------------
Title:
--------------------------
PREFERRED RECEIVABLES FUNDING CORPORATION
By:
-----------------------------
Authorized Signatory
BANK ONE, NA (formerly known as THE FIRST
NATIONAL BANK OF CHICAGO), individually as
an Investor and as Agent
By:
-----------------------------
Title:
--------------------------
Acknowledged and confirmed by:
JEFFERSON-PILOT CORPORATION,
as Performance Guarantor
By:
--------------------------
Title:
-----------------------
32