-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PTtSENmIkeqf8s3Cg0JrxN5p8yLaeHMrXMEGB4eWfSvIlNRzo1ddK14tRQ7eLbR9 SgmLcZw+tdmRpxjKXDk5Jw== 0001047469-04-009548.txt : 20040326 0001047469-04-009548.hdr.sgml : 20040326 20040326153610 ACCESSION NUMBER: 0001047469-04-009548 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAMPSHIRE FUNDING INC CENTRAL INDEX KEY: 0000205422 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 020277842 STATE OF INCORPORATION: NH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 002-36140 FILM NUMBER: 04692902 BUSINESS ADDRESS: STREET 1: ONE GRANITE PL CITY: CONCORD STATE: NH ZIP: 03301 BUSINESS PHONE: 8002583648 MAIL ADDRESS: STREET 1: ONE GRANITE PLACE CITY: CONCORD STATE: NH ZIP: 03301 10-K 1 a2132204z10-k.txt 10-K 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, 2003 ----------------- / / 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. ------- 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 19, 2004: 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 31, and the exhibit index appears on pages 22 through 24. 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. 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 The Company has one reportable segment as described in (c). Revenues, operating profit and loss, and identifiable assets for the five years ended December 31, 2003, 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 periodic cash purchases of mutual fund shares. Under the Programs, Participants make 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' 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 broker-dealers, 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, 2003, 2002 and 2001 such revenues were as follows:
2003 2002 2001 ------------ ------------ ------------ Loan sales and servicing $ 1,229,181 $ 1,001,538 $ 898,147 Interest 93,318 158,381 298,746 Program participant fees 73,238 116,446 184,315
2 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 broker-dealers 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. (d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES All sales and operations of the Company are conducted within the United States. 3 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, 2003, 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 2003 to a vote of security holders. PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) MARKET INFORMATION Not publicly traded. (b) HOLDERS (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. (d) Securities authorized for issuance under equity compensation plans: NONE ITEM 6 - SELECTED FINANCIAL DATA
SELECTED RESULTS OF OPERATIONS DATA: YEAR ENDED DECEMBER 31, 2003 2002 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ Total Revenue $ 1,395,737 $ 1,276,365 $ 1,381,208 $ 1,331,426 $ 1,350,657 ============ ============ ============ ============ ============ Net Income $ 909,183 $ 749,206 $ 754,870 $ 714,883 $ 723,044 ============ ============ ============ ============ ============ Dividends Per Common share $ -- $ -- $ -- $ -- $ -- ============ ============ ============ ============ ============ SELECTED BALANCE SHEET DATA: DECEMBER 31, 2003 2002 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ Total Assets $ 13,161,898 $ 12,380,560 $ 10,369,594 $ 8,385,285 $ 7,520,878 ============ ============ ============ ============ ============ Stockholder's Equity $ 8,945,295 $ 7,907,220 $ 6,510,371 $ 5,176,959 $ 4,271,325 ============ ============ ============ ============ ============
4 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. The fair value of retained interest on loan sales includes assumptions related to termination and discount rates. These assumptions involve a high degree of judgment by management and are subject to fluctuations based upon current market and economic conditions. 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 23, 2003 the Agreement was amended to extend the termination date to July 21, 2004. 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 (variable interest obligations). As of December 31, 2003, the Company had sold aggregate loans of $19,127,070 and has retained a subordinated interest and servicing rights in the assets transferred aggregating $12,129,635. The cash flows related to the repayment of loans is first used to satisfy all principal and variable interest rate obligations due to PREFCO, 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 $10,465,032 at December 31, 2002. 5 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 $238,455, $500,969, and $797,975 in service fees during 2003, 2002, and 2001. Employee services and office facilities are provided by JP Life under a Service Agreement with the Company. The Company pays JP Life a monthly fee (in arrears) for services 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 its duties. The Company paid JP Life servicing expenses of $461,870, $515,624, and $678,394 during 2003, 2002, and 2001. The Company capitalizes the present value of expected service fee income in excess of the related costs to service the outstanding receivables. As servicing agent for the loans sold, the Company collected loan prepayments of $4,628,237 during 2003 and $9,886,444 during 2002, which were paid to PREFCO (one month in arrears) to satisfy principal and variable interest obligation due. The Company originated new loans of $1,896,086 during 2003 and $3,149,894 during 2002, 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. 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, 2003 the company had borrowed $2,154,020 compared to $1,699,098 at December 31, 2002. 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. 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. Working capital in 2003, 2002, and 2001 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 December 31, 2003, the Company had decreased its estimate of early terminations from 35% to 30% to better reflect the Company's actual experience. 6 RESULTS OF OPERATIONS The Company concluded the year ended December 31, 2003 with net income of $909,183 as compared to net income of $749,206 in 2002 and $754,870 in 2001. The growth in 2003's net income is due primarily to an increase in total revenues. Total revenues through December 31, 2003 were $1,395,737 versus $1,276,365 in 2002 and $1,381,208 in 2001. The Company's revenues are derived from program fees, income on its retained interest in the loans sold to investors, and realized gains or losses. Although the Company's retained interest and income has grown over the past several years, this increase has been partially offset by realized losses in connection with the sale of loans and a decrease in program fees as the number of programs decline. 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 $21,585, $14,524, and $19,361 for the years ended December 31, 2003, 2002, and 2001, respectively. The average interest rates of 1.14%, 1.70%, and 3.98% were paid on average outstanding loans due to affiliates of $1,887,420, $863,434, and $477,230 in 2003, 2002, and 2001, 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, 2003, 2002, and 2001 the number of Programs administered by the Company was 916, 1,406, and 2,333, 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, 2003 and 2002 9 Statements of Income - Years ended December 31, 2003, 2002, and 2001 10 Statements of Stockholder's Equity - Years ended December 31, 2003, 2002, and 2001 11 Statements of Cash Flows - Years ended December 31, 2003, 2002, and 2001 12 Notes to Financial Statements 13
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. 7 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, 2003 and 2002, and the related statements of income, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2003. 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, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Boston, Massachusetts March 5, 2004 8 HAMPSHIRE FUNDING, INC. STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31 2003 2002 --------------------------- ASSETS Cash and cash equivalents $ 1,010,347 $ 1,803,512 Interests retained from loan sales, at fair value 11,711,462 10,157,502 Servicing asset (fair value approximates carrying value) 418,173 307,530 Other 21,916 112,016 --------------------------- Total assets $ 13,161,898 $ 12,380,560 =========================== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Due to parent $ 2,154,020 $ 1,699,098 Due to affiliates 1,783,837 1,713,323 Accounts payable 224,875 1,000,260 Accrued expenses and other liabilities 53,871 60,659 --------------------------- Total liabilities 4,216,603 4,473,340 --------------------------- 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 6,818,516 5,909,333 Accumulated other comprehensive income 1,286,968 1,158,076 --------------------------- Total stockholder's equity 8,945,295 7,907,220 --------------------------- Total liabilities and stockholder's equity $ 13,161,898 $ 12,380,560 ===========================
SEE ACCOMPANYING NOTES. 9 HAMPSHIRE FUNDING, INC. STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31 2003 2002 2001 ------------------------------------------ Revenues: Loan sales and servicing $ 1,229,181 $ 1,001,538 $ 898,147 Interest 93,318 158,381 298,746 Program participant fees 73,238 116,446 184,315 ------------------------------------------ 1,395,737 1,276,365 1,381,208 Operating expenses: Interest on affiliate borrowings 21,585 14,524 19,361 ------------------------------------------ Income before income taxes 1,374,152 1,261,841 1,361,847 Income tax expense 464,969 512,635 606,977 ------------------------------------------ Net income $ 909,183 $ 749,206 $ 754,870 ==========================================
SEE ACCOMPANYING NOTES. 10 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, 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 Net income 749,206 749,206 Change in unrealized gain on securities available for sale, net of tax of $348,732 647,643 647,643 ------------ ------------- ------------ Total comprehensive income 749,206 647,643 1,396,849 ------------ ------------ ------------ ------------- ------------ Balance at December 31, 2002 50,000 789,811 5,909,333 1,158,076 7,907,220 Net income 909,183 909,183 Change in unrealized gain on securities available for sale, net of tax of $69,402 128,892 128,892 ------------ ------------- ------------ Total comprehensive income 909,183 128,892 1,038,075 ------------ ------------ ------------ ------------- ------------ Balance at December 31, 2003 $ 50,000 $ 789,811 $ 6,818,516 $ 1,286,968 $ 8,945,295 ============ ============ ============ ============= ============
SEE ACCOMPANYING NOTES 11 HAMPSHIRE FUNDING, INC. STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 2003 2002 2001 ------------------------------------------ OPERATING ACTIVITIES Net income $ 909,183 $ 749,206 $ 754,870 Adjustments to reconcile net income to net cash used in operating activities: Amortization of deferred charge 29,203 58,407 58,404 Change in fair value of servicing asset (110,643) (94,651) 18,275 Deferred tax expense (benefit) 91,739 (195,114) (363,108) Loss (gain) on sales of loans 69,518 26,257 (54,360) Net change in other assets and liabilities (1,453,693) (1,273,702) (579,967) Change in due to affiliates 86,795 (21,875) (62,306) (Decrease) increase in accounts payable (775,385) 139,048 39,538 ------------------------------------------ Net cash used in operating activities (1,153,283) (612,424) (188,654) FINANCING ACTIVITIES Proceeds from sale of collateral notes receivable 1,801,282 2,992,399 4,492,276 Loans originated (1,896,086) (3,149,894) (4,728,712) Net proceeds from affiliated loan agreements 454,922 853,527 407,310 ------------------------------------------ Net cash provided by financing activities 360,118 696,032 170,874 ------------------------------------------ (Decrease) increase in cash and cash equivalents (793,165) 83,608 (17,780) Cash and cash equivalents at beginning of year 1,803,512 1,719,904 1,737,684 ------------------------------------------ Cash and cash equivalents at end of year $ 1,010,347 $ 1,803,512 $ 1,719,904 ========================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 21,585 $ 14,524 $ 19,361 Income taxes 473,197 752,574 898,005
SEE ACCOMPANYING NOTES. 12 HAMPSHIRE FUNDING, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 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, which 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. 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 retained 13 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 asset is evaluated for impairment based upon the fair value of the rights as compared to amortized cost. The asset will be considered impaired to the extent that estimated fair value is less than amortized cost at the balance sheet date. 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. 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 periodic purchase of the Company's collateral loans receivable by PREFCO or other investors (for which the Bank serves as agent). On July 23, 2003 the Agreement was amended to extend the termination date to July 21, 2004. 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 (variable interest obligations). During 2003, 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% 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. 14 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:
2003 2002 ------------ ------------ Carrying Amount/fair value of retained interests $ 11,711,462 $ 10,157,502 Weighted-average life 0.7 years 1.1 years TERMINATION RATE ASSUMPTION (ANNUAL) 30% 35% Rate increases to 35% $ 101,257 $ - Rate increases to 40% $ 195,383 $ 121,057 Rate increases to 45% $ 285,454 $ 234,470 RESIDUAL CASH FLOWS DISCOUNT RATE (ANNUAL) 15% 15% Rate increases to 17% $ (378,661) $ (430,922) Rate increases to 19% $ (740,473) $ (839,637)
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, 2003, the outstanding balance of loans sold by the Company under the Agreement was $19,127,070 compared to $25,953,614 in 2002. The Company received gross servicing income of $238,455, $500,969, and $797,975 for the years ended December 31, 2003, 2002, and 2001, 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, 2003 and 2002 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, 2003 ----------------------------------------------------------- UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ----------------------------------------------------------- Residual principal certificates due five years through ten years $ 3,032,510 $ 2,795,896 $ - $ 5,828,406 Interest-only strip receivables due five years through ten years 6,699,002 - (815,946) 5,883,056 ----------------------------------------------------------- $ 9,731,512 $ 2,795,896 $ (815,946) $ 11,711,462 =========================================================== DECEMBER 31, 2002 ----------------------------------------------------------- UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ----------------------------------------------------------- Residual principal certificates due five years through ten years $ 2,633,426 $ 1,972,920 $ - $ 4,606,346 Interest-only strip receivables due five years through ten years 5,742,420 - (191,264) 5,551,156 ----------------------------------------------------------- $ 8,375,846 $ 1,972,920 $ (191,264) $ 10,157,502 ===========================================================
15 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:
2003 2002 2001 ------------ ------------ ------------ Current: Federal $ 253,339 $ 564,388 $ 706,032 State 119,891 143,361 264,053 ------------------------------------------ Total current 373,230 707,749 970,085 Deferred: Federal 75,685 (160,969) (299,564) State 16,054 (34,145) (63,544) ------------------------------------------ Total deferred 91,739 (195,114) (363,108) ------------------------------------------ $ 464,969 $ 512,635 $ 606,977 ==========================================
A reconciliation of the blended federal and state income tax rate of the Company's effective income tax expense for the year ended December 31 is as follows:
2003 2002 2001 ------------ ------------ ------------ Income before income taxes $ 1,374,152 $ 1,261,841 $ 1,361,847 Blended federal and state rate 39.17% 40.62% 44.57% Tax at blended rate 538,297 512,635 606,977 Foreign tax credits (73,328) - - ------------------------------------------ Effective income tax $ 464,969 $ 512,635 $ 606,977 ==========================================
Deferred tax assets (liabilities) are comprised of the following at December 31:
2003 2002 2001 ------------ ------------ ------------ Impact of loan sales $ 608,011 $ 699,750 $ 504,636 Unrealized gain on securities available for sale (692,982) (623,580) (274,848) ------------------------------------------ $ (84,971) $ 76,170 $ 229,788 ==========================================
The net deferred liabilities are netted with other assets in the statement of financial condition, as of December 31, 2003. 16 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, 2003 and 2002, the Company had borrowed $2,154,020 and $1,699,098, 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. 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 did not allocate any expenses related to the servicing asset for 2003. For the years ended December 31, 2002 and 2001, respectively, the Company's portion of allocated expenses related to the servicing asset were $16,254 and $231,755. 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, 2003.
NAME(1) AGE POSITION(2) ---- --- -------- Ronald R. Angarella 45 Chairman, CEO, and Director David K. Booth 40 President and Director John C. Ingram 59 Director John A. Weston 44 Treasurer Russell C. Simpson 48 Vice President and Chief Financial Officer David Armstrong 34 Vice President Charles C. Cornelio 44 Vice President Carol R. Hardiman 49 Vice President, Administration Robert A. Reed 61 Vice President and Assistant Secretary Frederick C. Tedeschi 57 Secretary
Ronald R. Angarella was elected Chief Executive Officer of the Company and Broker-Dealer in February 2003 after serving as President and Chairman since October 1995. Mr. Angarella was elected Senior Vice President of Jefferson Pilot Financial and Vice Chairman of the Broker-Dealer in November 1994. Prior to that time, Mr. Angarella held several management positions with the Company and it affiliates since joining Jefferson Pilot Financial in 1986. David K. Booth was elected President and Director of the Company and Broker-Dealer in March 2003. He joined Jefferson Pilot Securities in 1990 as a Due Diligence Analyst and served as Assistant Vice President, Securities Marketing from 1995 to 1997, Vice President of Marketing from 1997 to 2002, and Chief Marketing Officer since 2002. John C. Ingram was elected Director of the Company in May 1999. Mr. Ingram has served as Chief Investment Officer of Jefferson Pilot Financial and affiliates since 2001. He was named Senior Vice President and Manager of the Securities Department in 1987 after serving as Second Vice President since 1982. 17 John A. Weston was elected Treasurer of the Company and the Broker-Dealer in August 1988. His principal occupation since February of 1999 has been as Vice President of Jefferson Pilot Financial. Prior to that time, Mr. Weston served as Assistant Vice President and Mutual Fund Accounting Officer. He was elected Treasurer of Jefferson Pilot Variable Fund, Inc. in April 1992, and Treasurer of Jefferson Pilot Investment Advisory Corporation in May 1992. 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. David Armstrong was elected Vice President of the Company and Broker-Dealer in February 2003. Mr. Armstrong joined Jefferson Pilot in 1992, served as Financial Institutions Expense Manager from 1992 to 1994 and Due Diligence Analyst from 1994 to 1996. From 1996 until 1999, he served as Marketing Officer, Products and Planning, until Mr. Armstrong was named Assistant Vice President, Product Planning of the Broker-Dealer in February 1999. 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. 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. 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. Frederick C. Tedeschi was elected Secretary of the Company in May 2003. He joined Jefferson Pilot Financial in March 2003 as Vice President and Associate General Counsel. He was also appointed as Vice President and Secretary of the Broker-Dealer. From 1987 to 2002 Mr. Tedeschi held various officer positions with MONY Life Insurance Company, including Chief Insurance Operations Counsel and Chief Corporate Compliance Officer. (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. 18 HAMPSHIRE FUNDING, INC. One Granite Place Concord, New Hampshire 03301 BOARD OF DIRECTORS December 31, 2003 Ronald R. Angarella 24 Longview Drive Bow, NH 03304 David K. Booth 303 Main Street Hopkinton, NH 03229 John C. Ingram 3302 Wynnewood Drive Greensboro, NC 27408 19 HAMPSHIRE FUNDING, INC. One Granite Place Concord, New Hampshire 03301 OFFICERS December 31, 2003 Chairman and Chief Executive Officer Ronald R. Angarella 24 Longview Drive Bow, NH 03304 President David K. Booth 303 Main Street Hopkinton, NH 03229 Vice President and Chief Financial Officer Russell C. Simpson 6002 Early Trail Summerfield, NC 27358 Treasurer John A. Weston 122 School Street Concord, NH 03301 Vice President David Armstrong 59 Primrose Lane Penacook, NH 03303 Vice President Charles C. Cornelio 1802 Regents Park Lane Greensboro, NC 27455 Vice President, Administration Carol R. Hardiman 1 Paradise Road Chichester, NH 03234 Vice President, Assistant Secretary Robert A. Reed P. O. Box 21008 Greensboro, NC 27420 Secretary Frederick C. Tedeschi 13 Eagle Trace Wolfboro, NH 03894 Assistant Treasurer Donna M. Wilbur 21 Dwinell Drive Concord, NH 03301 Assistant Vice President, Business Development Michael F. Murray 6 Morgan Drive Bow, NH 03304 Assistant Vice President, Administration Margaret A. Salamy 6 Hope Lane Bow, NH 03304 20 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, 2003.
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 JP Life whereby 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 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, 2003 the Company had $2,154,020 of loans outstanding. (b) CERTAIN BUSINESS RELATIONSHIPS See Item 10, Directors and Executive Officers of the Registrant. ITEM 14 - CONTROLS AND PROCEDURES Within the 90 days prior to the filing date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Securities Exchange Act of 1934 Rule 13a-15. Based upon that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. There have been no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to the date we carried out this evaluation 21 PART IV ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) This portion of item 15 appears on page 8 of this report. (b) No Form 8-K was filed in the fourth quarter of 2003. (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 15 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 (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 (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
22 (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.76-83 (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 pp. 31-33 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 pp. 31-33 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, 2000, Preferred Receivables Funding pp. 28-30 Corporation and Bank One, NA dated June 26, 2000 (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, 2000, Preferred Receivables Funding pp. 31-33 Corporation and Bank One, NA dated July 26, 2000 (j) Amendment No. 5 to the Receivables Form 10-K filed Receivables Purchase Agreement March 30, 2002 for the year among the Company, Investors, ended December 31, 2001, Preferred Receivables Funding pp. 27-29 Corporation and Bank One, NA dated July 25, 2001 (k) Amendment No. 6 to the Receivables Form 10-K filed Receivables Purchase Agreement March 30, 2002 for the year Among the Company, Investors, ended December 31, 2001, Preferred Receivables Funding pp. 30-32 Corporation and Bank One, NA dated October 21, 2001
23 (l) Waiver to the Receivables Form 10-K filed Receivables Purchase Agreement March 28, 2003 for the year Among the Company, Investors, ended December 31, 2002, Preferred Receivables Funding pp. 26-28 Corporation and Bank One, NA dated August 9, 2002 (m) Amendment No. 7 to the Receivables Form 10-K filed Receivables Purchase Agreement March 28, 2003 for the year Among the Company, Investors, ended December 31, 2002, Preferred Receivables Funding pp. 29-31 Corporation and Bank One, NA dated July 24, 2002 (22) Subsidiaries of the Registrant Form 10-K, filed March 15, 1990, for the year ended December 31, 1989, pp. 66 (ii) Filed by enclosure. Reg S-K Item 601 (10) (a) Amendment No. 8 to the Receivables pp. 26-28 Receivables Purchase Agreement Among the Company, Investors, Preferred Receivables Funding Corporation and Bank One, NA dated July 23, 2003
(31) Chief Executive Officer Certifications Under Section 302 of Sarbanes-Oxley Act of 2002 (32) Chief Financial Officer Certifications Under Section 302 of Sarbanes-Oxley Act of 2002 (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. 24 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 19, 2004 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 Chairman, CEO, and Director March 19, 2004 - ---------------------------- Ronald R. Angarella /s/ DAVID K. BOOTH President and Director March 19, 2004 - ---------------------------- David K. Booth /s/ JOHN C. INGRAM Director March 19, 2004 - ---------------------------- John C. Ingram /s/ JOHN A. WESTON Treasurer March 19, 2004 - ---------------------------- John A. Weston /s/ RUSSELL C. SIMPSON Vice President and March 19, 2004 - ---------------------------- Chief Financial Officer Russell C. Simpson
25 AMENDMENT NO. 8 TO RECEIVABLES PURCHASE AGREEMENT This Amendment No. 8 (the "Amendment") is dated as of July 23, 2003 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. 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 23, 2003" where it appears therein and inserting the date "July 21, 2004" in lieu thereof. 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 "0.26%" where it appears therein and inserting the percentage "0.40%" in lieu thereof. 4. 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 . 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 there exists no Event of Default or Potential Event of Default on the date hereof. 5.2. 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. 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 there under. 26 6. 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. 7. RATIFICATION. The Agreement, as amended hereby, 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. 27 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, individually as an Investor and as Agent By: ------------------------------- Title: Director, Capital Markets Acknowledged and confirmed by: JEFFERSON-PILOT CORPORATION, as Performance Guarantor By: ---------------------------- Title: -------------------------- 28 EX-31.302 3 a2132204zex-31_302.txt EX-31.302 EXHIBIT 31 CHIEF EXECUTIVE OFFICER CERTIFICATIONS UNDER SECTION 302 OF SARBANES-OXLEY ACT OF 2002 I, Ronald R. Angarella, certify that: 1. I have reviewed this annual report on Form 10-K of Hampshire Funding, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-(15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 19, 2004 /s/ Ronald R. Angarella Ronald R. Angarella Chairman and CEO 29 CHIEF FINANCIAL OFFICER CERTIFICATIONS UNDER SECTION 302 OF SARBANES-OXLEY ACT OF 2002 I, Russell C. Simpson, certify that: 1. I have reviewed this annual report on Form 10-K of Hampshire Funding, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-(15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 19, 2004 /s/ Russell C. Simpson Russell C. Simpson Chief Financial Officer 30 EX-32.906 4 a2132204zex-32_906.txt EX-32.906 EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Hampshire Funding, Inc. (the "Company") on Form 10-K for the period ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Ronald R. Angarella, Chairman and Chief Executive Officer of the Company, and Russell C. Simpson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company /s/ Ronald R. Angarella Ronald R. Angarella Chairman and CEO March 19, 2004 /s/ Russell C. Simpson Russell C. Simpson Chief Financial Officer March 19, 2004 31 -----END PRIVACY-ENHANCED MESSAGE-----