-----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, AwDlyObIBB3PdIYfGhauWJneop0y3k1gCZoe79li664r6oKahTbu/nNn2xGIYAG6 99CMPtp+V/wxM1QQFFhhdw== 0000898080-99-000161.txt : 19990518 0000898080-99-000161.hdr.sgml : 19990518 ACCESSION NUMBER: 0000898080-99-000161 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGAN HOLDING CORP CENTRAL INDEX KEY: 0000870069 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 680211359 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19704 FILM NUMBER: 99628405 BUSINESS ADDRESS: STREET 1: 1179 N MCDOWELL BLVD CITY: PETALUMA STATE: CA ZIP: 94954 BUSINESS PHONE: 7077788638 MAIL ADDRESS: STREET 1: 1179 N MCDOWELL BLVD CITY: PETALUMA STATE: CA ZIP: 94954 10-Q 1 QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1999, or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________ to ____________ Commission file number 0-4366 Regan Holding Corp. (Exact name of registrant as specified in its charter) California 68-0211359 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1179 N. McDowell Blvd., Petaluma, California 94954 (Address of Principal Executive Offices) (Zip Code) (707) 778-8638 (Registrant's Telephone Number, Including Area Code) PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------- ---------- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of the registrant's common stock, as of April 30, 1999: Common Stock-Series A 25,798,543 Common Stock-Series B 598,633 Page 1 PART I FINANCIAL INFORMATION Item 1. Financial Statements REGAN HOLDING CORP. AND SUBSIDIARIES Consolidated Balance Sheets
March 31, 1999 December 31, 1998 -------------- ----------------- (unaudited) ASSETS Cash and cash equivalents $ 5,882,978 $ 5,916,731 Investments 20,095,210 16,987,628 Accounts receivable 2,096,214 1,704,265 Prepaid expenses 1,246,177 768,913 Income taxes receivable -- 884,089 Deferred income taxes-current 427,415 359,421 Marketing supplies inventory 527,920 385,616 ----------------- ----------------- Total Current Assets 30,275,914 27,006,663 ----------------- ----------------- Net fixed assets 2,888,381 2,982,267 Deferred income taxes-non current 1,017,061 904,974 Other assets 359,889 392,109 ----------------- ----------------- Total Non-Current Assets 4,265,331 4,279,350 ----------------- ----------------- TOTAL ASSETS $ 34,541,245 $ 31,286,013 ================= ================= LIABILITIES, REDEEMABLE COMMON STOCK, AND SHAREHOLDERS' EQUITY LIABILITIES Accounts payable $ 364,244 $ 418,821 Accrued sales convention costs 1,048,974 894,713 Accrued liabilities 3,423,796 4,388,401 Income taxes payable 1,161,150 -- ----------------- ----------------- Total Current Liabilities 5,998,164 5,701,935 ----------------- ----------------- Loan payable 132,285 132,285 Incentive compensation payable 412,194 530,523 ----------------- ----------------- Total Non-Current Liabilities 544,479 662,808 ----------------- ----------------- TOTAL LIABILITIES 6,542,643 6,364,743 ----------------- ----------------- COMMITMENTS AND CONTINGENCIES -- -- REDEEMABLE COMMON STOCK, Series A and B 11,219,276 11,225,431 ----------------- ----------------- SHAREHOLDERS' EQUITY Preferred stock, no par value: Authorized: 100,000,000 shares No shares issued or outstanding Series A common stock, no par value: Authorized: 45,000,000 shares; Issued and outstanding: 20,821,488 and 20,530,224 shares at March 31, 1999 and December 31, 1998, respectively 3,618,779 3,248,874 Paid-in capital from retirement of common stock 890,561 888,109 Paid-in capital from producer stock options 106,000 25,000 Retained earnings 12,381,523 9,587,775 Accumulated other comprehensive income-net (217,537) (53,919) ----------------- ----------------- TOTAL SHAREHOLDERS' EQUITY 16,779,326 13,695,839 ----------------- ----------------- TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS' EQUITY $ 34,541,245 $ 31,286,013 ================= =================
See accompanying notes to consolidated financial statements Page 2 REGAN HOLDING CORP. AND SUBSIDIARIES Consolidated Income Statements (Unaudited)
For the Three Months Ended March 31, 1999 1998 INCOME: Marketing allowances $ 7,876,090 $ 4,380,278 Commission income 4,040,988 2,140,484 Administrative fees 2,288,243 1,349,216 Investment income 198,658 215,043 Seminar income 130,789 40,883 Other income 53,313 18,355 -------------- -------------- TOTAL INCOME 14,588,081 8,144,259 -------------- -------------- EXPENSES: Salaries and related benefits 5,557,313 3,486,726 Sales promotion and support 2,097,833 1,021,107 Professional fees 385,973 280,909 Occupancy 381,958 238,620 Depreciation and amortization 562,268 204,867 Courier and postage 244,828 162,756 Equipment 179,034 108,673 Stationery and supplies 178,021 124,790 Travel and entertainment 93,448 84,802 Insurance 88,117 39,557 Other miscellaneous expenses 53,014 37,707 -------------- -------------- TOTAL EXPENSES 9,821,807 5,790,514 -------------- -------------- INCOME FROM OPERATIONS 4,766,274 2,353,745 PROVISION FOR INCOME TAXES 1,972,526 947,829 -------------- -------------- NET INCOME $ 2,793,748 $ 1,405,916 ============== ============== EARNINGS PER SHARE: Weighted average shares outstanding--basic 26,395,692 26,694,872 Basic earnings per share $ .11 $ .05 ============== ============== Weighted average shares outstanding--diluted 27,413,090 26,694,872 Diluted earnings per share $ .10 $ .05 ============== ==============
See accompanying notes to consolidated financial statements. Page 3 REGAN HOLDING CORP. AND SUBSIDIARIES Consolidated Statement of Shareholders' Equity (Unaudited)
Paid-in Paid-in Capital Capital Accumulated Other from Retirement from Comprehensive Series A Common Stock of Producer Retained Shares Amount Common Stock Options Earnings Income Total ------ ------ ------------ ------- -------- ------ ----- Balance January 1, 1999 20,530,224 $3,248,874 $ 888,109 $ 25,000 $9,587,775 $ (53,919) $13,695,839 Comprehensive Income: Net income for the three months ended March 31, 1999 2,793,748 2,793,748 Net unrealized losses on investments (270,985) (270,985) Deferred tax on net unrealized losses 107,367 107,367 ------------ Total Comprehensive Income 2,630,130 ------------ Redemption and retirement of common stock 2,452 2,452 Stock awarded to producers 291,264 369,905 369,905 Producer stock option expense 81,000 81,000 ---------- ---------- ---------- -------- ----------- ---------- ----------- Balance March 31, 1999 20,821,488 $3,618,779 $ 890,561 $106,000 $12,381,523 $(217,537) $16,779,326 ========== ========== ========== ======== =========== ========== ===========
See accompanying notes to consolidated financial statements. Page 4 REGAN HOLDING CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, -------------------------- 1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,793,748 $ 1,405,916 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization of fixed assets 544,512 187,579 Amortization of intangible assets 17,757 -- Common stock awarded to producers 369,905 -- Producer stock option expense 81,000 6,300 Amortization/accretion of investments (21,576) (17,217) Realized losses on sales of investments 87,652 -- Change in accounts receivable (391,949) (171,783) Change in prepaid expenses (477,264) 52,162 Change in income taxes receivable and payable 2,045,239 199,503 Change in deferred tax assets (72,714) 87,986 Change in marketing supplies inventory (142,304) 31,943 Change in accounts payable (54,577) (50,865) Change in accrued sales convention costs 154,261 -- Change in accrued liabilities (964,605) 309,049 Change in other assets and liabilities (103,866) (74,117) -------------- ------------- Net cash provided by operating activities 3,865,219 1,966,456 -------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investments (12,032,709) (5,687,309) Proceeds from sales and maturities of investments 8,588,066 1,572,275 Purchases of fixed assets (450,626) (221,841) -------------- ------------- Net cash used in investing activities (3,895,269) (4,336,875) -------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Redemption and retirement of common stock (3,703) (36,638) -------------- ------------- Net cash provided by (used in) financing activities (3,703) (36,638) -------------- ------------ DECREASE IN CASH AND CASH EQUIVALENTS (33,753) (2,407,057) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,916,731 5,194,332 -------------- ------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,882,978 $ 2,787,275 ============== =============
See accompanying notes to consolidated financial statements. Page 5 REGAN HOLDING CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. Organization and Summary of Significant Accounting Policies The accompanying consolidated financial statements are prepared in conformity with generally accepted accounting principles and include the accounts of Regan Holding Corp. and its wholly-owned subsidiaries, Legacy Marketing Group ("LMG"), Legacy Financial Services, Inc., Legacy Advisory Services, Inc., Legacy Reinsurance Company, and LifeSurance Corporation. All intercompany transactions have been eliminated. The statements are unaudited but reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the Company's financial position and results of operations. The consolidated balance sheet data at December 31, 1998 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The results for the three months ended March 31, 1999 are not necessarily indicative of the results to be expected for the entire year. Users of these financial statements are encouraged to refer to the Annual Report on Form 10-K for the year ended December 31, 1998 for additional disclosure. 2. Building Purchase and Loan Agreement On May 7, 1999, the Company purchased the building which houses its headquarters and an adjacent parcel of land in Petaluma, California for $4.3 million. The Company paid $2.2 million of the purchase price in cash and entered into a loan payable for the remaining $2.1 million. The loan has a ten year term and is payable in monthly installments plus one balloon payment of approximately $1.8 million, due on May 10, 2009. The loan bears interest at 0.5% per annum above the Prime Rate, as published in the West Coast Edition of the Wall Street Journal. The loan is fully guaranteed by each of the Company's subsidiaries. In addition, the loan agreement contains certain covenants with which the Company must comply, including restrictions on indebtedness or investments outside the ordinary course of business and restrictions on dividends or other changes in the Company's capital structure. Pursuant to the loan agreement, the Company was required to place approximately $650,000 in reserve to cover loan payments in the event of default and to provide for certain repair costs. 3. Redeemable Common Stock The Company is obligated to repurchase certain of its shares of common stock pursuant to various agreements under which the stock was issued. During the three months ended March 31, 1999, redeemable common stock was redeemed and retired as follows:
Series A Redeemable Series B Redeemable Total Redeemable Common Stock Common Stock Common Stock ------------ ------------ ------------ Carrying Carrying Carrying (Issuance) (Issuance) (Issuance) Shares Amount Shares Amount Shares Amount ------ ------ ------ ------ ------ ----- Balance December 31, 1998 5,171,447 $ 9,428,047 599,128 $1,797,384 5,770,575 $11,225,431 Redemption and retirement of common stock (2,248) (4,670) (495) (1,485) (2,743) (6,155) ---------- ----------- -------- ---------- --------- ----------- Balance March 31, 1999 5,169,199 $ 9,423,377 598,633 $1,795,899 5,767,832 $11,219,276 ========== =========== ======== ========== ========= ===========
Page 6 REGAN HOLDING CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) 4. Amendments to Marketing and Processing Agreements In May, 1999, LMG and American National amended the terms of the Marketing Agreement and Insurance Processing Agreement to extend the term to July 1, 1999. LMG and American National are in the process of negotiating a five-year extension. 5. Segment Information The table below presents information about the Company's operating segments:
Legacy Legacy Marketing Financial Reconciling Group Services, Inc. Other Items Total ----- -------------- ----- ----- ----- Net Income (Loss) for the three months ended: March 31, 1999 $ 3,538,202 $ (85,964) $ 2,650,115 $(3,308,605) $ 2,793,748 March 31, 1998 $ 1,543,784 $ (88,070) $ 1,404,804 $(1,455,155) $ 1,405,363 Total Assets at: March 31, 1999 $38,354,442 $ 707,360 $25,516,890 $(30,037,447) $ 34,541,245 December 31, 1998 $30,087,878 $ 816,741 $27,110,236 $(26,728,842) $ 31,286,013
"Other" items above include Regan Holding Corp. (stand-alone) and its remaining subsidiaries, LifeSurance Corporation, Legacy Advisory Services, Inc., and Legacy Reinsurance Company. Such entities' operations do not currently factor significantly into management decision making and, accordingly, were not separated for purpose of this disclosure. "Reconciling Items" consist solely of eliminations of intercompany amounts such as investment in, and income from, subsidiaries. 6. Recent Accounting Pronouncements--Internal Use Software Cost The Company has adopted the American Institute of Certified Public Accountants Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance on determining whether computer software is internal-use software and on accounting for the proceeds of computer software originally developed or obtained for internal use and then subsequently sold to the public. It also provides guidance on capitalization of the costs incurred for computer software developed or obtained for internal use. The adoption of SOP 98-1 did not have a material impact on the consolidated results of operations or consolidated financial position of the Company during the first quarter of 1999. 7. Reclassifications Certain amounts in the 1998 financial statements have been reclassified to conform with 1999 classifications. Such reclassifications had no impact on net income or retained earnings. Page 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Except for the historical information contained herein, certain of the matters discussed in this Form 10-Q are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These "forward-looking statements" involve certain risks and uncertainties. All forecasts and projections in this report are "forward-looking statements", and are based on management's current expectations of the Company's near-term results, based on current information available. Actual results could differ materially. Results of Operations Summary--The Company's net income for the quarter ended March 31, 1999, increased approximately $1.4 million, or 98.7%, from the corresponding quarter in 1998. Income--The Company's major sources of income are marketing allowances, commission overrides and administrative fees from sales and administration of annuity and life insurance products on behalf of the three insurance companies for which the Company markets and administers policies (the "Carriers"). Levels of marketing allowances and commission overrides are directly related to, and increase with, the volume of sales of such products. Administration fees are a function not only of product sales, but also administration of policies inforce and producer appointments. Total income increased $6.4 million, or 79.1% during the three months ended March 31, 1999, compared to the three months ended March 31, 1998. Marketing allowances and commission income, combined, increased approximately $5.4 million, or 82.8%, in the first quarter of 1999, compared to the first quarter of 1998. This increase is due primarily to increases in volume of sales by the Company's distribution network on behalf of the Carriers. Premium placed inforce for the Carriers totaled approximately $496.6 million during the three months ended March 31, 1999, compared to $278.3 million during the same period in 1998, representing an increase of 78.5%. Also contributing to increases in income during the first three months of 1999 is a shift in sales mix to sales of products which yield higher marketing allowances and higher commission income. Administrative fees increased approximately $939,000, or 69.6%, in the first quarter of 1999, compared to the same period in 1998. This increase is due primarily to an increase in the number of policies sold and administered during the period and to a shift in policies administered to those which generate higher administrative fees. During the three months ended March 31, 1999, 8.9%, 80.4%, and 6.4% of the Company's total revenue resulted from agreements with American National Insurance Company ("American National"), IL Annuity and Insurance Company (IL Annuity"), and Transamerica Life Insurance and Annuity Company ("Transamerica"), respectively. During the three months ended March 31, 1998, 17.9% and 76.2% of the Company's total revenue resulted from agreements with American National and IL Annuity, respectively. Sales and administration of Transamerica products did not begin until the third quarter of 1998. Expenses--Total expenses increased approximately $4.0 million, or 69.6%, during the three months ended March 31, 1999, compared to the three months ended March 31, 1998. This increase is attributable primarily to increases in compensation, sales promotion and support, professional fees, occupancy and depreciation and amortization, as discussed below. As a service organization, the Company's primary expenses are salaries and related employee benefits, which increased approximately $2.1 million, or 59.4%, during the three months ended March 31, 1999, compared to the same period in 1998. This increase resulted primarily from an increase in the average number of full-time equivalent employees, which rose to 375 during the quarter ended March 31, 1999, from 218 during the quarter ended March 31, 1998. This increase in employment was necessary to accommodate increases in sales volume, as discussed above. Salaries and employee benefits expenses did not increase in proportion to the increase in the number of employees due to the lower pay levels of the new employees. Page 8 Sales promotion and support expense consists primarily of costs relating to the Company's annual national sales conventions, incentives paid to the Company's higher level producers for recruitment and development of additional producers, and costs relating to various sales meetings and training activities. Also included in sales promotion and support expense is the cost of designing and printing sales brochures for use by producers in the Company's sales distribution network. It is expected that these expenses will continue to be a major element of the Company's cost structure. This expense increased approximately $1.1 million, or 105.4%, for the quarter ended March 31, 1999, compared with the quarter ended March 31, 1998. This increase is due primarily to common stock and additional commissions awarded to high level producers for recruiting and developing other producers who reached certain high performance sales criteria. Qualification for a national sales convention in Barcelona, Spain will begin on April 1, 1999. As a result, monthly expenses of approximately $70,000 are expected to be recognized through the end of the qualification period which terminates on December 31, 1999. Professional fees increased $105,000, or 37.4%, for the three months ended March 31, 1999, compared with the corresponding periods in 1998. This increase is primarily the result of consulting fees related to various information systems projects. Occupancy expense increased approximately $143,000, or 60.1%, during the first quarter of 1999, compared to the first quarter of 1998. This increase is due primarily to an increase in telephone expense, which is attributed to increases in employment and sales volume, as discussed above, and to costs related to the establishment of a customer service center in Rome, Georgia during mid-1998. Depreciation and amortization expense increased approximately $357,000, or 174.5%, during the three months ended March 31, 1999, compared to the three months ended March 31, 1998, due primarily to continued acquisitions of fixed assets. These acquisitions consisted primarily of amounts paid for the improvement of leased office space and purchases of computer equipment to accommodate increases in employment. Liquidity and Capital Resources Included in investments at March 31, 1999, is $12.0 million representing an equity investment in Indianapolis Life Group of Companies ("Indianapolis Group"), an affiliate of IL Annuity. The purpose of this investment was to assure that IL Annuity, a subsidiariy of the Indianapolis Group, would continue to offer the original VisionMark annuity (which is marketed by LMG) until a modified version of the product is approved in all states. Management expects that this investment will be redeemed by the Indianapolis Group during late 1999 pursuant to the terms of the Investment and Funding Agreement between LMG, Indianapolis Group and other parties. If, however, certain events which trigger the redemption do not occur by December 31, 1999, this investment may remain outstanding for up to eight years at a yield to equal that earned by the Indianapolis Group on this investment portfolio. On May 7, 1999, the Company purchased the building which houses its headquarters in Petaluma, California for $4.3 million. In conjunction with the building acquisition, the Company paid $2.2 million cash and entered into a loan payable for the remaining $2.1 million. The loan has a ten year term and is payable in monthly installments plus one balloon payment of approximately $1.8 million, due on May 10, 1999. Pursuant to the loan agreement, the Company has placed approximately $650,000 in reserve to cover loan payments in the event of payment default and to cover certain repair costs. Management believes that cash and investments on hand, plus cash generated by ongoing operating activities, are adequate to meet the Company's needs for cash, both on a long-term and a short-term basis. Year 2000 As the year 2000 approaches, a critical business issue has emerged regarding whether existing application software and operating systems can accommodate this date value. In brief, many existing application software products in the marketplace were designed to accommodate only a two digit date position (e.g., '95 is stored in the system and epresents the year 1995). As a result, the year 1999 (i.e. '99) could be the maximum date value these systems will be able to accurately process. Management has developed and implemented a Page 9 plan to insure that the Company will be year 2000 compliant(the "Plan"). The Plan consists of the following four stages: (i) conducting an inventory of all hardware, software and support systems; (ii) assessing whether such hardware, software and support systems are year 2000 compliant; (iii) correcting or replacing any non-compliant hardware, software and support systems; and (iv) testing to ensure that all corrections or replacements made pursuant to the third phase of the plan are functioning properly. All four stages of the Plan have been completed for mission-critical systems. Management believes that there are no significant barriers to conducting normal business operations during the transition to year 2000 and beyond. However, management intends to continue to monitor relevant external year 2000 preparations and events and to continue to cnduct year 2000 testing of internal system modifications throughout the remainder of 1999. In addition, management is developing year 2000 contingency plans in preparation for any unanticipated disruptions. Although management does not anticipate any interruptions to normal business operations, there can be no assurance that unforeseen year 2000-related disruptions would not havea material adverse effect on the Company's business, financial condition, results of operations and business prospects. Item 3. Quantitative and Qualitative Disclosure About Market Risk The Company invests its cash in a variety of financial instruments, including government agency notes, corporate equity securities and fixed rate corporate obligations. These investments are denominated in U.S. dollars. Interest income on the Company's investments is reflected in "Investment Income" in the Company's consolidated financial statements. The Company accounts for its investment instruments in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). All of the cash equivalents and short-term investments are treated as available-for-sale under SFAS 115. Investments in fixed rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates. Due in part to these factors, the Company's future investment income may fall short of expectations due to changes in interest rates or the Company may suffer losses in principal if forced to sell securities that have seen a decline in market value due to changes in interest rates. The Company's investment securities are held for purposes other than trading. The weighted-average interest rate on investment securities at March 31, 1999 was 5.4%. The fair value of securities held at March 31, 1999 was $20,095,210. Page 10 PART II OTHER INFORMATION Item 5. Other Events (a) On May 7, 1999, the Company purchased the building which houses its headquarters and an adjacent parcel of land in Petaluma, California for $4.3 million. The Company paid $2.2 million of the purchase price in cash and entered into a loan payable for the remaining $2.1 million. The loan has a ten year term and is payable in monthly installments plus one balloon payment of approximately $1.8 million, due on May 10, 2009. The loan bears interest at 0.5% per annum above the Prime Rate, as published in the West Coast Edition of the Wall Street Journal. The loan is fully guaranteed by each of the Company's subsidiaries. In addition, the loan agreement contains certain covenants with which the Company must comply, including restrictions on indebtedness or investments outside the ordinary course of business and restrictions on dividends or other changes in the Company's capital structure. Pursuant to the loan agreement, the Company was required to place approximately $650,000 in reserve to cover loan payments in the event of default and to provide for certain repair costs. Item 6. Exhibits and Reports on Form 8-K (a) Index to Exhibits Exhibit 10.1 Agreement of Purchase and Sale, dated March 8, 1999, by and among Regan Holding Corp., North McDowell Investments, and Jane Crocker Exhibit 10.2 Business Loan Agreement, dated May 6, 1999, by and between Regan Holding Corp. and National Bank of the Redwoods Exhibit 10.3 Promissory Note, dated May 6, 1999, by and between Regan Holding Corp. and National Bank of the Redwoods Exhibit 10.4 Amendment Seven to the Marketing Agreement by and between Legacy Marketing Group and American National Insurance Company, dated May 12, 1999. Exhibit 10.5 Amendment Six to the Insurance Processing Agreement by and between Legacy Marketing Group and American National Insurance Company, dated May 12, 1999. Exhibit 11.1 Computation of Earnings Per Share--Basic Exhibit 11.2 Computation of Earnings Per Share--Diluted Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K A report on Form 8-K was filed in April 1999 to report that, on March 31, 1999, Legacy Marketing Group, a wholly-owned subsidiary of the registrant, acquired 15.40 shares of common stock of Indianapolis Life Group of Companies, Inc. for a total purchase price of $12.0 million. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. REGAN HOLDING CORP. Date: May 13, 1999 Signature: /s/ R. Preston Pitts ----------------------------------- R. Preston Pitts, President & Chief Operating Officer Date: May 13, 1999 Signature: /s/ David A. Skup ----------------------------------- David A. Skup, Chief Financial Officer Page 11 EX-10.1 2 REAL ESTATE PURCHASE AGREEMENT AGREEMENT OF PURCHASE AND SALE (1179 North McDowell Boulevard) This Agreement of Purchase and Sale ("Agreement"), dated for reference purposes only March 8, 1999, is entered into by and between NORTH MCDOWELL INVESTMENTS NO. 1, a California limited partnership("N.M.I"), and Jane Crocker ("Crocker") (collectively, "Seller"), and REGAN HOLDING CORPORATION, a California corporation ("Buyer"). Recitals A. Seller is the owner of two (2) separate parcels, one referred to as "Real Property," consisting of approximately 3.64 acres, and the other "Vacant Lot," consisting of approximately 23,450 square feet, located in Sonoma County ("County"), California ("State"), more particularly described in Exhibit A-1 and Exhibit A-2 attached hereto. Crocker is the owner of the Vacant Lot and N.M.I. is the owner of the Real Property and the provisions of this Agreement shall be deemed to relate separately to Crocker and N.M.I concerning such parcels. B. The Real Property has constructed thereon a certain building, containing approximately fifty-three thousand seven hundred sixty (53,760) square feet, and related improvements (collectively, "Improvements"). The Real Property, Vacant Lot and Improvements are collectively referred to as the "Project," which is commonly known as "1179 North McDowell Boulevard and Rand Street Industrial Lot, Sonoma, California." C. The Real Property, Vacant Lot, Improvements and Personal Property (as hereinafter defined) are hereinafter collectively referred to as the "Property." D. Buyer desires to purchase from Seller and Seller desires to sell to Buyer the Property pursuant to the provisions of this Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties agree as follows: Agreement 1. Purchase and Sale. Seller agrees to sell and convey to Buyer, and Buyer agrees to purchase from Seller, the Property on the terms and subject to the conditions set forth in this Agreement. For the purposes of this Agreement, the date which the last party executes this Agreement and delivers it to the other party shall hereinafter be referred to as the "Effective Date." The Recitals to this Agreement are incorporated herein by this reference. 2. Purchase Price. The purchase price for the Property is equal to the amount of Four Million Three Hundred Thousand and No/100ths Dollars ($4,300,000.00) ("Purchase Price"). The parties acknowledge and agree that a portion of the Purchase Price, equal to One Hundred Sixty-Four Thousand One Hundred Fifty and No/100ths Dollars ($164,150.00), is allocated to the Vacant Lot, with the remaining portion of the purchase price, equal to Four Million One Hundred Thirty-Five Thousand Eight Hundred Fifty and No/100ths ($4,135,850.00), applicable to the Property and Improvements located at 1179 North McDowell Boulevard. 3. Payment of Purchase Price. The Purchase Price for the Property shall be payable by Buyer as follows: (a) Deposit. On or before the third (3rd) day following the Effective Date, Buyer shall deposit with Chicago Title Company ("Escrow Holder") the amount of Two Hundred Fifty Thousand and No/100ths Dollars ($250,000.00) ("Deposit"). The Deposit shall be invested by Escrow Holder with a financial institution acceptable to Seller in a federally-insured interest-bearing demand account, and the Deposit, and all interest accrued thereon, shall be credited to the Purchase Price upon the Close of Escrow. On or before the expiration of the Contingency Period (as hereinafter defined), unless this Agreement has been previously terminated by Buyer pursuant to its rights set forth in this Agreement, Buyer shall deliver to Escrow Holder unconditional escrow instructions directing the immediate release of the Deposit and all interest accrued thereon to Seller, and the Deposit shall become non-refundable, excepting a default by Seller. (b) Cash at Close of Escrow. On or before three (3)business days prior to the Close of Escrow, Buyer shall deposit with Escrow Holder the remaining portion of the Purchase Price, in immediately available funds, which shall be paid to Seller at Close of Escrow. 4. Escrow (a) Opening of Escrow. Seller has opened an escrow ("Escrow"), Escrow No. 9560204, with Escrow Holder prior to the Effective Date. Buyer and Seller agree to execute and deliver to Escrow Holder, in a timely manner, all escrow instructions necessary to consummate the transaction contemplated by this Agreement. Any such instructions shall not conflict with, amend or supersede any portion of this Agreement. If there is any inconsistency between such instructions and this Agreement, this Agreement shall control. (b) Close of Escrow. For purposes of this Agreement, "Close of Escrow" shall be defined as the date that the Grant Deed (as hereinafter defined) is recorded in the Official Records of the County. The Close of Escrow shall occur on or before sixty (60) days following the Effective Date ("Outside Date"). 5. Conditions of Title. It shall be a condition to the Close of Escrow that title to the Project be conveyed to Buyer by Seller by a Grant Deed, which shall be in the form customarily used by Escrow Holder in the County ("Grant Deed"), subject only to (a) a lien to secure payment of real estate taxes, bonds and assessments not delinquent; (b) the lien of supplemental taxes, not delinquent; (c) exceptions which are approved and/or accepted by Buyer in accordance with this Agreement; (d) all applicable laws, ordinances, rules and governmental regulations (including, but not limited to those relative to building, zoning and land use) affecting the development, use, occupancy or enjoyment of the Property; and (e) all matters apparent from the inspection of the Property and all other title matters affecting the Project created by or with the written consent of Buyer (collectively, "Approved Conditions of Title"). 6. Conditions to Close of Escrow (a) Conditions to Buyer's Obligations. The Close of Escrow and Buyer's obligations to consummate the transactions contemplated by this Agreement are subject to the satisfaction of the following conditions (or Buyer's waiver thereof) which are for Buyer's sole benefit, on or prior to the dates designated below for the satisfaction of such conditions, or the Close of Escrow in absence of a specified date: (i) Title. Buyer shall have the right to approve any and all matters of and exceptions to title of the Project, including the legal description, as disclosed by the following documents and instruments (collectively, "Title Documents"): (A) a Preliminary Report ("Preliminary Report") issued by Escrow Holder with respect to the Project and all matters referenced therein; and (B) legible copies of all documents, whether recorded or unrecorded, referred to in such Preliminary Report. Seller shall cause Escrow Holder to deliver the Title Documents to Buyer within five (5) calendar days following the Effective Date. Buyer shall have ten days following its receipt of the Title Documents to give Seller and Escrow Holder written notice ("Buyer's Title Notice") of Buyer's approval or disapproval, which shall be made in Buyer's sole and absolute discretion, of the legal description and every item or exception disclosed by the Title Documents. The failure of Buyer to give Buyer's Title Notice to Seller within the specified time period shall be deemed Buyer's approval of title to the Project. In the event that Buyer's Title Notice disapproves of any matter of title shown in the Title Documents, Seller shall, within seven (7) calendar days after Buyer's Title Notice is received by Seller, give Buyer written notice ("Seller's Title Notice") of those disapproved title matters, if any, which Seller is unable or unwilling to have eliminated from title to the Project by Close of Escrow. In the event that Seller is unable to remove all of the title matters objected to by Buyer in Buyer's Title Notice, Buyer shall have three (3) calendar days from receipt of Seller's Title Notice to notify Seller in writing that either (1) Buyer is willing to purchase the Project subject to such disapproved exceptions, or (2) Buyer elects to cancel this transaction. Failure of Buyer to take either one of the actions described in Subsection (1) or (2) above shall be deemed to be Buyer's election to take the action described in Subsection (1) above. In the event this Agreement is canceled or deemed canceled pursuant to this Section, except as otherwise provided herein, the parties shall have no further obligations, liabilities or claims under this Agreement, and all monies delivered to Escrow Holder, including any accrued interest thereon, by Buyer shall immediately be returned to Buyer. (ii) Inspections and Studies. From the Effective Date until April 26, 1999, expiring at 5:00 p.m. P.T. on such date ("Contingency Period"), Buyer shall have the right to review and approve the (A) Documents and Materials (as hereinafter defined), and (B) conduct any and all inspections, investigations, tests and studies (including, without limitation, investigations with regard to zoning, building codes and other governmental regulations, architectural inspections, engineering tests, economic feasibility studies, soils, seismic and geologic reports and environmental testing) with respect to the Property as Buyer may elect to make or maintain. Prior to the expiration of the Contingency Period, Buyer shall deliver to Seller and Escrow Holder written notice of its approval or disapproval, which shall be made in Buyer's sole and absolute discretion, of the Property and the Documents and Materials. The failure of Buyer to deliver such notice prior to the expiration of the Contingency Period shall be deemed to constitute Buyer's approval of such matters. The cost of any such inspections, tests and/or studies shall be borne by Buyer. Between the Effective Date and the Close of Escrow, Buyer, its agents, contractors and subcontractors shall have the right to enter upon the Project at reasonable times during ordinary business hours to make any and all inspections and tests as may be necessary or desirable in Buyer's sole judgment and discretion. Buyer shall indemnify, defend (with counsel reasonably satisfactory to Seller) and hold Seller, its agents, employees, trustee, directors and officers, and the Property harmless from any and all damage arising out of or in connection with such entry and/or activities upon the Project by Buyer, its agents, employees or contractors. In the event Buyer disapproves of the condition of the Property and/or the Documents and Materials prior to the expiration of the Contingency Period, except as otherwise provided herein, the parties shall have no further obligations under this Agreement, all monies delivered to Escrow Holder, including any accrued interest thereon, by Buyer shall be immediately returned to Buyer, and Buyer shall deliver to Seller copies of any and all reports, studies, inspections, or other materials Buyer caused to be prepared pursuant to its inspection right set forth in this Section. (iii) Title Insurance. As of the Close of Escrow, Title Company (as hereinafter defined) shall have issued or shall have committed to issue the Title Policy (as hereinafter defined) to Buyer. (iv) Seller's Obligations. As of the Close of Escrow, Seller shall have performed all of the obligations required to be performed by Seller under this Agreement. (v) Seller's Representations. As of the Close of Escrow, all representations and warranties made by Seller to Buyer in this Agreement shall be true and correct. (b) Conditions to Seller's Obligations. The Close of Escrow and Seller's obligations to consummate the transaction contemplated by this Agreement are subject to the satisfaction of the following conditions (or Seller's waiver thereof) which are for Seller's sole benefit, on or prior to the dates designated below for the satisfaction of such conditions, or the Close of Escrow in absence of a specified date: (i) Buyer's Obligations. As of the Close of Escrow, Buyer shall have timely performed all of the obligations required by the terms of this Agreement to be performed by Buyer. (ii) Buyer's Representations. As of the Close of Escrow, all representations and warranties made by Buyer to Seller in this Agreement shall be true and correct as of the Close of Escrow. (iii) Outside Date. The Close of Escrow shall occur on or before the Outside Date. (iv) Office Lease. Buyer, as tenant, shall not be in default under the terms and conditions of that certain Office Lease, dated September 26, 1996, as amended, entered into with N.M.I. (c) Failure of Condition to Close of Escrow. In the event any of the conditions set forth in Section 6(a) or 6(b) are not timely satisfied or waived by the appropriate benefited party, for a reason other than the default of Buyer or Seller, this Agreement shall terminate, and if applicable, the Deposit, and all interest accrued thereon, and all other monies delivered to Escrow Holder by Buyer shall be immediately be returned to Buyer, and, except as otherwise provided herein, the parties shall have no further obligations hereunder. 7. Deposits by Seller. Unless otherwise provided in this Section, at least three (3) business day prior to the Close of Escrow, Seller shall deposit with Escrow Holder the following documents: (a) Grant Deed. The Grant Deed, duly executed and acknowledged in recordable form by Seller, conveying fee title to the Project to Buyer subject only to the Approved Conditions of Title. (b) FIRPTA Certificate. A certification, acceptable to Escrow Holder and duly executed by Seller under penalty of perjury setting forth Seller's address and federal tax identification number in accordance with and/or for the purpose of the provisions of Sections 7701 and 1445, as may be amended, of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. (c) California Franchise Tax Withholding. Evidence satisfactory to Buyer and Escrow Holder that Seller is exempt from the provisions of the withholding requirements of the California Revenue and Taxation Code, as amended, and that neither Buyer nor Escrow Holder is required to withhold any amounts from the Purchase Price pursuant to such provisions. (d) Bill of Sale. A bill of sale ("Bill of Sale") duly executed and acknowledged by Seller in favor of Buyer, assigning and conveying to Buyer all of Seller's right, title and interest in and to the Personal Property. The Bill of Sale shall be in the form of, and upon the terms contained in, Exhibit C attached hereto. 8. Deposits by Buyer. At least one (1) business day prior to the Close of Escrow, Buyer shall deposit or cause to be deposited with Escrow Holder (a) the required funds which are to be applied towards the payment of the Purchase Price; (b) a counterpart of the Bill of Sale executed and acknowledged by Buyer; and (c) a counterpart of the Tenant Lease Assignment executed and acknowledged by Buyer. 9. Issuance of Title Insurance. At the Close of Escrow, Escrow Holder's title insurer ("Title Company"), shall issue to Buyer its standard form California Land Title Association ("CLTA") Owner's Policy of Title Insurance showing fee title to the Project vested in Buyer subject only to the Approved Conditions of Title ("Title Policy"). The Title Policy shall be issued with liability in an amount equal to the Purchase Price. Seller shall pay for the expense of the Title Policy. If Buyer elects to have Title Company issue its American Land Title Association ("ALTA") Owner's Policy of Title Insurance, Buyer shall pay for the expense of such ALTA premium increment, any endorsement thereto and any survey costs. 10. Costs and Expenses. Except as otherwise specified in this Agreement, Seller and Buyer shall equally divide (a) all escrow fees and costs, and (b) any document recording charges. Seller shall pay all documentary taxes charged by the County and City as a result of the transaction described herein. All other costs and expense of escrow and title shall be shared pursuant to the custom in the County. Buyer and Seller shall each pay all legal and professional fees and fees of other consultants incurred by Buyer and Seller, respectively. 11. Prorations (a) Revenues. Rentals, revenues, and other income, if any, from the Project shall be prorated as of 11:59 p.m. on the day following the Close of Escrow. "Rentals" as used herein include fixed monthly rentals and any other sums and charges payable by Tenant under the Lease. (b) Taxes/Assessments. All non-delinquent real estate taxes on the Project shall be prorated as of 11:59 p.m. on the day following the Close of Escrow based on the actual current tax bill, but if such tax bill has not yet been received by Seller by the Close of Escrow, then the current year's taxes shall be deemed to be one hundred two percent (102%) of the amount of the previous year's tax bill for the Project. All delinquent taxes and all assessments, if any, on the Project shall be paid at the Close of Escrow from funds accruing to Seller. (c) Other Expenses. All other expenses for the Property shall be prorated as of 11:59 p.m. on the day following to the Close of Escrow between the parties based upon the latest available information. (d) Corrections. If any errors or omissions are made regarding adjustments and prorations as set forth herein, the parties shall make the appropriate corrections promptly upon discovery thereof. If any estimates are made at the Close of Escrow regarding adjustments or prorations, the party shall make the appropriate correction promptly when accurate information becomes available. Any corrected adjustment or proration shall be paid in cash to the party entitled thereto. 12. Review of Documents and Materials. Within ten (10) calendar days following the Effective Date, Seller shall make available to Buyer at Seller's property management office, the following documents and materials relating to the Property, which includes the Vacant Lot (collectively, "Documents and Materials") to the extent in Seller's possession, without representation or warranty: (a) Licenses. Any and all licenses, permits and agreements affecting or relating to the ownership and operation of the Property. (b) Surveys. Copies of the most recent survey(s), if any, pertaining to the Project or any portion thereof. (c) Plans and Permits. Any and all building plans, site plans, building permits, certificates of occupancy, specifications or any other governmental approvals or processed documents relating to the Property and the construction of the Improvements (collectively, "Plans and Permits"). (d) Tax Statements. Any and all property tax statements pertaining to the Project for the past three (3) years. (e) Personal Property. A list of personal property ("Personal Property"), if any, located at the Project. 13. Condition and Inspection of Property. Notwithstanding any other provision of this Agreement to the contrary, Seller makes no representation or warranty regarding the condition of the Property, its past use, or its suitability for Buyer's intended use. (a) Without limiting the generality of the foregoing, Buyer hereby acknowledges and agrees that it is purchasing the Property in its present "as-is, where is, with all faults," condition and with all defects and, unless otherwise expressly provided in this Agreement, neither Seller nor any employee or agent of Seller has made or will make, either expressly or impliedly, any representations, guaranties, promises, statements, assurances or warranties of any kind concerning any of the following matters (collectively referred to herein as the "Property Conditions"): (i) the suitability or condition of the Property for any purpose or its fitness for any particular use, (ii) the profitability and/or feasibility of owning, developing, operating and/or improving the Property, (iii) the physical condition of the Property, including, without limitation, the current or former presence or absence of environmental hazards or hazardous materials, asbestos, radon gas, underground storage tanks, electromagnetic fields, or other substances or conditions which may affect the Property or its current or future uses, habitability, value or desirability, (iv) the rentals, income, costs or expenses thereof, (v) the net or gross acreage, usable or unusable, contained therein, (vi) the zoning of the Property, (vii) the condition of title, (viii) the compliance by the Property with applicable zoning or building laws, codes or ordinances, or other laws, rules and regulations, including, without limitation, environmental and similar laws governing or relating to environmental hazards or hazardous materials, asbestos, radon gas, underground storage tanks, electromagnetic fields, or other substances or conditions which may affect the Property or its current or future uses, habitability, value or desirability, (ix) water or utility availability or use restrictions, (x) geologic/seismic conditions, soil and terrain stability, or drainage, (xi) sewer, septic, and well systems and components, (xii) other neighborhood or Property conditions, including, schools, proximity and adequacy of law enforcement and fire protection, crime statistics, noise or odor from any sources, landfills, proposed future developments, or other conditions or influences which may be significant to certain cultures or religions, or (xiii) any other past, present or future matter relating to the Property which may affect the Property or its current or future use, habitability, value or desirability; (b) Buyer is strongly encouraged to conduct its own inspection and investigation of the Property Conditions referred to above and is further encouraged to obtain, at its expense, expert advice as to such matters from professional inspectors and others. Buyer acknowledges that as of the Close of Escrow, it has been given the full opportunity to inspect and investigate such Property Conditions to its own satisfaction or cause such an inspection and investigation by experts engaged by Buyer. Buyer represents to Seller that it is relying solely upon such inspection and investigation in connection with its purchase of the Property and not upon any express or implied representations, guaranties, promises, statements, assurances or warranties of Seller or any of Seller's employees or agents as to such Property Conditions, unless otherwise expressly provided under this Agreement. Buyer also understands and agrees that it is purchasing the Property without any obligation on the part of Seller to make any repairs, changes or alterations with respect to the Property or any of the Property Conditions; and (c) Property Condition Waiver. Following the Close of Escrow, excepting a breach of any express representation or warranty provided in this Agreement, fraud, willful misconduct, or any latent defect in Seller's construction of the Improvements, Buyer waives its right to recover from Seller, and the directors, officers, employees and agents of Seller, any and all damages, losses, liabilities, costs or expenses whatsoever (including attorneys' fees and costs) and claims therefor, whether direct or indirect, known or unknown, foreseen or unforeseen, which may arise on account of or in any way growing out of or connected with the physical condition of the land of the Property or any law or regulation applicable thereto, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601 et seq.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.), the Clean Water Act (33 U.S.C. Sections 466 et seq.), the Safe Drinking Water Act (14 U.S.C. Sections 1401-1450), the Hazardous Materials Transportation Act (49 U.S.C. Sections 2601-2629), the California Hazardous Waste Control Law (California Health and Safety Code Sections 25100-25600), and the Porter-Cologne Water Quality Control Act (California Health and Safety Code Sections 13000 et seq.), excepting in all cases those losses, liabilities, damages, costs or expenses, and claims therefor, arising from or attributable to a material finding known to Seller and not disclosed to Buyer. Seller's obligation to disclose matters "known to Seller" or words of like import shall be deemed breached only if Seller, as of the Effective Date had actual current knowledge (as opposed to imputed or constructive knowledge) of such material finding not disclosed to Buyer. Buyer expressly waives the benefits of Section 1542 of the California Civil Code, which provides as follows: "A general release does not extend to claims which the creditor does not know or expect to exist in his favor at the time of executing the release, which if known to him must have materially affected the settlement with the debtor." /s/ JC /s/ DAS ------------- ---------------- Seller Buyer 14. Seller's Representations and Warranties. In consideration of Buyer entering into this Agreement, Seller makes representations and warranties set forth in this Section, which is material and is being relied upon by Buyer (the continued truth and accuracy of which shall constitute a condition precedent to Buyer's obligations hereunder). For the purpose of this Agreement, usage of "to the best of Seller's knowledge," or words to such effect, shall mean the actual current knowledge of Seller, excluding constructive knowledge or duty of inquiry, existing as of the Effective Date, which representations and warranties shall also be true and correct as the Close of Escrow. To the extent that Seller becomes aware of any conflict with the representations and warranties set forth herein after the Effective Date and prior to the Close of Escrow, Seller shall provide Buyer with written notice thereof, in which case Buyer, within five (5) calendar days following receipt of such notice, shall have the right to either (i) terminate this Agreement, in which case the provisions of Sections 6(c) shall apply, or (ii) proceed with the transaction described herein, waiving such inconsistent representation(s) and warranty(ies). If Buyer becomes aware of any inconsistency regarding such representations and warranties and thereafter elects to complete the transaction described herein, Buyer shall be deemed to have waived any and all damages, claims, liabilities and expenses relating to and as a result of such inconsistency(ies). (a) Seller's Authority. Seller has the legal power, right and authority to enter into this Agreement and the instruments referenced herein, and to consummate the transaction contemplated hereby. (b) Proceedings. To the best of Seller's knowledge, except as disclosed in writing by Seller prior to the expiration of the Contingency Period, there are no actions, suits, proceedings or governmental investigations pending or threatened against or affecting the Property, in law or equity. (c) Compliance with Laws. To the best of Seller's knowledge, Seller has not received any violation of any applicable law, ordinance, rule, regulation or requirement of any governmental agency, body or subdivision affecting or relating to the Property. (d) Condemnation. To the best of Seller's knowledge, there is no pending or threatened proceedings in eminent domain or otherwise which would affect the Property. (e) Hazardous Materials. To the best of Seller's knowledge, except as otherwise provided in the Documents and Materials, there is no contamination, hazardous waste, toxic substance or petroleum based products in existence on or before the surface of the Property, including, without limitation, contamination of the soil, subsoil or ground water, which constitutes a violation of any law, rule or regulation of any governmental entity having jurisdiction thereof. 15. Buyer's Representations and Warranties. In consideration of the Seller entering into this Agreement, Buyer makes the representations and warranties set forth in this Section. (a) Buyer's Authority. Buyer has the legal power, right and authority to enter into this Agreement and the instruments referenced herein, and to consummate the transaction contemplated hereby. (b) Actions. All requisite action (corporate, trust, partnership or otherwise) has been taken by Buyer in connection with the entering into this Agreement, the instruments referenced herein, and the consummation of the transaction contemplated hereby. No consent of any partner, shareholder, trustee, trustor, beneficiary, creditor, investor, judicial or administrative body, governmental authority or other party is required. (c) Signatory. The individuals executing this Agreement and the instruments referenced herein on behalf of Buyer and the partners of Buyer, if any, have the legal power, right, and actual authority to bind Buyer to the terms and conditions hereof and thereof. (d) Enforceability. This Agreement and all documents required hereby to be executed by Buyer are and shall be valid, legally binding obligations of and enforceable against Buyer in accordance with their terms. (e) Conflicting Documents. Neither the execution and delivery of this Agreement and the documents and instruments referenced herein, nor the occurrence of the obligations set forth herein, nor the consummation of the transaction contemplated herein, nor compliance with the terms of this Agreement and the documents and instruments referenced herein conflict with or result in the materials breach of any terms, conditions or provisions of, or constitute a default under, any bond, note, or other evidence of indebtedness or any contract, indenture, mortgage, deed of trust, loan, partnership agreement, lease or other agreement or instrument to which Buyer is a party or affecting the Property. 16. Liquidated Damage. BUYER RECOGNIZES THAT THE PROPERTY WILL BE REMOVED BY THE SELLER FROM THE MARKET DURING THE EXISTENCE OF THIS AGREEMENT, AND THAT IF THIS AGREEMENT IS NOT CONSUMMATED BECAUSE OF BUYER'S DEFAULT, IT WOULD BE EXTREMELY DIFFICULT AND IMPRACTICAL TO ASCERTAIN THE EXTENT OF THE DETRIMENT TO SELLER. THE PARTIES HAVE DETERMINED AND AGREED THAT THE ACTUAL AMOUNT OF DAMAGES THAT WOULD BE SUFFERED BY SELLER AS A RESULT OF ANY SUCH DEFAULT IS DIFFICULT OR IMPRACTICABLE TO DETERMINE AS OF THE DATE OF THIS AGREEMENT AND THAT THE DEPOSIT AND THE EXTENSION FEE, IF APPLICABLE, IS A REASONABLE ESTIMATE OF THE AMOUNT OF SUCH DAMAGES. FOR THESE REASONS, THE PARTIES AGREE THAT IF THIS PURCHASE AND SALE IS NOT CONSUMMATED BECAUSE OF BUYER'S DEFAULT, SELLER SHALL BE ENTITLED TO RETAIN OF THE DEPOSIT AND THE EXTENSION FEE, AS LIQUIDATED DAMAGES. THE PAYMENT OF SUCH AMOUNT AS LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS 3275 OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS 1671, 1676 AND 1677. SELLER HEREBY WAIVES THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 3389. SELLER AGREES THAT THESE LIQUIDATED DAMAGES SHALL BE IN LIEU OF ANY OTHER MONETARY RELIEF OR OTHER REMEDY, INCLUDING, WITHOUT LIMITATION, SPECIFIC PERFORMANCE, TO WHICH SELLER MIGHT OTHERWISE BE ENTITLED UNDER THIS AGREEMENT, AT LAW OR IN EQUITY, AND SHALL BE SELLER'S SOLE AND EXCLUSIVE RIGHT AND REMEDY. NOTHING CONTAINED HEREIN SHALL IN ANY MANNER LIMIT THE AMOUNT OF DAMAGES OBTAINABLE BY SELLER PURSUANT TO AN ACTION UNDER ANY HOLD HARMLESS, DEFENSE OR INDEMNIFICATION PROVISION HEREOF. Seller /s/ JC Buyer /s/ DAS -------- --------- 17. Condemnation and Destruction (a) Eminent Domain or Taking. If, prior to the Close of Escrow, any material portion of the Real Property or Improvements is taken by eminent domain or otherwise, Seller shall immediately notify Buyer of such fact. If such taking is "material," Buyer shall have the option, in its reasonable discretion, to terminate this Agreement upon written notice to Seller given not later than ten (10) days after receipt of Seller's notice. If this Agreement is terminated pursuant to this Section, the provisions of Section 6(c) shall govern. If Buyer does not exercise this option to terminate this Agreement, or if there has not been a material taking by eminent domain or otherwise to give rise to such option, neither party shall have the right to terminate this Agreement, but the Seller shall assign and turn over, and the Buyer shall be entitled to receive and keep, all awards for the taking by eminent domain which accrue to Seller and the parties shall proceed to the Close of Escrow pursuant to the terms hereof, without modification of the terms of this Agreement and without any reduction in the Purchase Price. For the purpose hereof, "material" shall be deemed to be any diminution in the value of the Property as a result of a taking by eminent domain or otherwise which exceeds Five Hundred Thousand and No/100ths Dollars ($500,000.00), as determined by Seller using its good faith judgment. (b) Fire or Casualty. Prior to the Close of Escrow, the entire risk of loss or damage by earthquake, flood, landslide, fire or other casualty shall be borne and assumed by Seller, except as otherwise provided in this Section. If, prior to the Close of Escrow, any part of the Improvements are damaged or destroyed by earthquake, flood, landslide, fire or other casualty, Seller shall immediately notify Buyer of such fact. If such damage or destruction is "material", Buyer shall have the option to terminate this Agreement upon written notice to the Seller given not later than ten (10) days after receipt of Seller's notice. For purposes hereof, "material" shall be deemed to be any uninsured damage or destruction to the Project or any insured damage or destruction where the cost of repair or replacement is estimated to be Five Hundred Thousand and No/100ths Dollars ($500,000.00) or more or shall take more than ninety (90) days to repair, in Seller's good faith judgment; provided, however, in the case of uninsured damage or destruction, Seller may, at Seller's option, elect to repair such damage and destruction and keep this Agreement in full force and effect so long as such repair can be and is completed by Seller prior to the Close of Escrow. If this Agreement is so terminated, the provisions of Section 6(c) shall govern. If Buyer does not exercise this option to terminate this Agreement, or if the casualty is not material, neither party shall have the right to terminate this Agreement but Seller shall assign and turn over, and Buyer shall be entitled to receive and keep, all insurance proceeds payable to it with respect to such destruction, and the parties shall proceed to the Close of Escrow pursuant to the terms hereof without modification of the terms of this Agreement and without any reduction in the Purchase Price. 18. Notices. All notices or other communications required or permitted hereunder shall be in writing, and shall be personally delivered or sent by registered or certified mail, postage prepaid, return receipt requested, or sent by electronic facsimile and shall be deemed received upon the earlier of (i) if personally delivered, the date of delivery to the address of the person to receive such notice, (ii) if mailed, three (3) days following the date of posting by the United States Post Office, (iii) if by nationally recognized overnight courier on the next business day, or (iv) if given by electronic facsimile, when received by the other party. TO BUYER: Regan Holdings Corporation ----------------------- ----------------------- ----------------------- TO SELLER: Jane Crocker and North McDowell Investments, No. 1 c/o Crocker Associates 151 Greenwood Avenue Atherton, California 94027 Telephone: (650) 324-9400 Facsimile: (650) 324-3514 Attention: Jane Crocker WITH COPY TO: Trainor Robertson 701 University Avenue, Suite 200 Sacramento, California 95825 Telephone: (916) 929-7000 Facsimile: (916) 929-7111 Attention: Jay Heckenlively TO ESCROW HOLDER: Chicago Title Company 388 Market Street, Suite 1300 San Francisco, California 94111 Telephone: (415) 291-5148 Facsimile: (415) 956-2175 Attention: Sharon Upham Notice of change of address shall be given by written notice in the manner described in this Section. 19. Indemnification. Buyer hereby agrees to indemnify, defend (with counsel acceptable to Seller) and hold Seller, its successors and assigns, partners, shareholders, officers, directors, trustees and/or employees harmless from and against any and all obligations, liabilities, claims, liens, encumbrances, losses, damages, costs and expenses, including, without limitation, attorneys' fees, whether direct, contingent or consequential, incurred or suffered by, or asserted or awarded against, Seller, its successors and assigns, partners, shareholders, officers, directors, trustees and/or employees relating to or arising from (i) the ownership or operation of the Property by Buyer subsequent to the Close of Escrow, (ii) the use subsequent to the Close of Escrow of the Property by Buyer, its agents, employees, contractors, and subcontractors, or (iii) the violation of any federal, state or local law, ordinance or regulation, occurring or allegedly occurring with respect to the Property subsequent to the Close of Escrow by Buyer, its agents, employees, contractors, and subcontractors. 20. Brokers. The parties represent and warrant that there are no brokers involved in this transaction. If any additional claims for brokers' or finders' fees for the consummation of this Agreement arise, then Buyer hereby agrees to indemnify, hold harmless and defend Seller from and against such claims if they shall be based upon any statement, representation or agreement by Buyer, and Seller hereby agrees to indemnify, hold harmless and defend Buyer if such claims shall be based upon any statement, representation or agreement made by Seller. 21. Exchange. The parties to this Agreement acknowledge that either party may desire to structure the sale and/or the purchase of the Property as an exchange for like-kind property pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended, in order to defer recognition of income from the disposition of the Property and other properties. The parties agree to reasonably cooperate with each other to accomplish such exchange(s) and each party hereby agrees that any and all costs associated with said exchange shall be borne solely by the exchanging party and shall in no way be attributable to the non-exchanging party. In no event shall (i) the non-exchanging party be required to take title to the exchanged property(ies) to effectuate the tax deferred exchange contemplated by this Section, and (ii) shall the Close of Escrow be extended as a result of such exchange. 22. Miscellaneous (a) Partial Invalidity. If any term or provision of this Agreement or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each such term and provision of this Agreement shall be valid, and shall be enforced to the fullest extent permitted by law. (b) Waivers. No waiver of any breach of any covenant or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or of any other covenant or provision herein contained. No extension of time for performance of any obligation or act shall be deemed an extension of time for performance of any other obligation or act except those of the waiving party, which shall be extended by a period of time equal to the period of the delay. (c) Survival of Representations. The indemnification, defense and hold harmless obligations, and the representations and warranties made by each party herein shall survive (1) the Close of Escrow and shall not merge into the Grant Deed and the recordation thereof, and (2) the termination and/or cancellation of this Agreement; provided, that such representations and warranties shall expire six (6) months after the Close of Escrow. (d) Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the permitted successors and assigns of the parties hereto. (e) Professional Fees. If either party commences an action against the other to interpret or enforce any of the terms of this Agreement or because of the breach by the other party of any of the terms hereof, the losing party shall pay to the prevailing party reasonable attorneys' fees, costs and expenses and court costs and other costs of action incurred in connection with the prosecution or defense of such action, whether or not the action is prosecuted to a final judgment. For the purpose of this Agreement, the terms "attorneys' fees" or "attorneys' fees and costs" shall mean the fees and expenses of counsel to the parties hereto, which may include printing, photostating, duplicating and other expenses, air freight charges, and fees billed for law clerks, paralegals, librarians and others not admitted to the bar but performing services under the supervision of an attorney. The terms "attorneys' fees" or "attorneys' fees and costs" shall also include, without limitation, all such fees and expenses incurred with respect to appeals, arbitrations and bankruptcy proceedings, and whether or not any action or proceeding is brought with respect to the matter for which said fees and expenses were incurred. The term "attorney" shall have the same meaning as the term "counsel." (f) Entire Agreement. This Agreement (including all Exhibits attached hereto) is the final expression of, and contains the entire agreement between, the parties with respect to the subject matter hereof and supersedes all prior understandings with respect thereto. This Agreement may not be modified, changed, supplemented, superseded, canceled or terminated, nor may any obligations hereunder be waived, except by written instrument signed by the party to be charged or by its agent duly authorized in writing or as otherwise expressly permitted herein. The parties do not intend to confer any benefit hereunder on any person, firm or corporation other than the parties hereto and lawful assignees. (g) Assignment. Buyer may not assign its right, title or interest in this Agreement to any other party without the prior written consent of Seller, which determination may be withheld in Seller's sole and absolute discretion. Any attempted assignment without the prior written consent of Seller shall be void and be deemed a default of Buyer hereunder. Any permitted assignment shall not relieve the assigning party from any liability under this Agreement. (h) Time of Essence. Seller and Buyer hereby acknowledge and agree that time is strictly of the essence with respect to each and every term, condition, obligation and provision hereof and that failure to timely perform any of the terms, conditions, obligations or provisions hereof by either party shall constitute a material breach of and a non-curable (but waivable) default under this Agreement by the party so failing to perform. (i) Relationship of Parties. Nothing contained in this Agreement shall be deemed or construed by the parties to create the relationship of principal and agent, a partnership, joint venture or any other association between Buyer and Seller. (j) Construction. Headings at the beginning of each paragraph and subparagraph are solely for the convenience of the parties and are not a part of the Agreement. Whenever required by the context of this Agreement, the singular shall include the plural and the masculine shall include the feminine and vice versa. This Agreement shall not be construed as if it had been prepared by one of the parties, but rather as if both parties had prepared the same. Unless otherwise indicated, all references to paragraphs, sections, subparagraphs and subsections are to this Agreement. All exhibits referred to in this Agreement are attached and incorporated by this reference. (k) Governing Law. The parties hereto acknowledge that this Agreement has been negotiated and entered into in the State of California. The parties hereto expressly agree that this Agreement shall be governed by, interpreted under, and construed and enforced in accordance with the laws of the State of California. (l) Possession of Property. Buyer shall be entitled to the possession of the Property immediately following the Close of Escrow. (m) Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which, together, shall constitute one and the same instrument. (n) Days of Week. If any date for performance herein falls on a Saturday, Sunday or holiday, as defined in Section 6700 of the California Government Code, the time for such performance shall be extended to 5:00 p.m. on the next business day. (o) Representation by Counsel. Notwithstanding any rule or maxim of construction to the contrary, any ambiguity or uncertainty shall not be construed against either Seller or Buyer based upon authorship of any of the provisions hereof. Seller and Buyer each hereby warrant, represent and certify to the other as follows: (a) that the contents of this Agreement have been completely and carefully read by the representing party and counsel for the representing party; (b) that the representing party has been separately represented by counsel and the representing party is satisfied with such representation; (c) that the representing party's counsel has advised the representing party of, and the representing party fully understands, the legal consequences of this Agreement; and (d) that no other person (whether a party to this Agreement or not) has made any threats, promises or representations of any kind whatsoever to induce the execution hereof, other than the performance of the terms and provisions hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the dates set forth below. BUYER: N.M.I.: REGAN HOLDING CORPORATION, NORTH MCDOWELL INVESTMENTS a California corporation NO. 1, a California limited partnership By: /s/ David A. Skup ---------------------------- Its: CFO By: /s/ Jane Crocker --------------------------- ---------------------------- Date: 3/15/99 Its: General Partner -------------------------- --------------------------- Date: 3/15/99 -------------------------- CROCKER: /s/ Jane Crocker -------------------------------- Jane Crocker Date: 3/18/99 -------------------------- EXHIBIT LIST Exhibit A-1 - Description of Real Property Exhibit A-2 - Description of Vacant Lot Exhibit B - Bill of Sale EXHIBIT A-1 DESCRIPTION OF REAL PROPERTY EXHIBIT A-2 DESCRIPTION OF VACANT LOT EXHIBIT B BILL OF SALE THIS BILL OF SALE ("Bill of Sale"), is made this ____ of _____________________, 1999, by and between NORTH MCDOWELL INVESTMENTS NO. 1, a California limited partnership ("Buyer"), and REGAN HOLDING CORPORATION, a California corporation ("Seller"). W I T N E S S E T H : Seller and Buyer entered into that certain Agreement of Purchase and Sale dated as of _____________, 199_ ("Agreement") respecting the sale of certain "Property" (as defined in the Agreement). Under the Agreement, Seller is obligated to transfer to certain personal property ("Personal Property"), which is described in Exhibit A attached hereto and incorporated herein by this reference, which is used in connection with the operation of the improvements, commonly known as _______________________, Petaluma, California, located on the real property described in Exhibit B attached hereto. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller does hereby absolutely and unconditionally give, grant, bargain, transfer, sell, set over, assign, convey, release, confirm and deliver to Buyer all of the Personal Property. Seller makes no representation or warranty regarding the condition, fitness or usefulness of the Personal Property, and Buyer acknowledges and agrees that is acquiring the Personal Property in its AS-IS, WHERE-IS CONDITION, WITHOUT WARRANTY, EITHER EXPRESS OR IMPLIED. This Bill of Sale shall be binding upon and inure to the benefit of the successors, assigns, personal representatives, heirs and legatees of Buyer and Seller. This Bill of Sale shall be governed by, interpreted under, and construed and enforced in accordance with, the laws of the State of California. IN WITNESS WHEREOF, the parties have executed this Bill of Sale as of the dates below. BUYER: SELLER: REGAN HOLDING CORPORATION, NORTH MCDOWELL INVESTMENTS a California corporation NO. 1, a California limited partnership By:___________________________ By:____________________________ Its:__________________________ Its:___________________________ Date:_________________________ Date:__________________________ EX-10.2 3 BUSINESS LOAN AGREEMENT BUSINESS LOAN AGREEMENT
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials $2,132,500.00 05-06-1999 05-10-2009 1501257103 170 MULTI 204677 40
Reference in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Borrower: REGAN HOLDING CORP. Lender: National Bank of the Redwoods 1179 N McDOWELL BLVD. Main Office PETALUMA, CA 94954 111 Santa Rosa Ave Santa Rosa, CA 95404-4905 - -------------------------------------------------------------------------------- THIS BUSINESS LOAN AGREEMENT between REGAN HOLDING CORP. ("Borrower") and National Bank of the Redwoods ("Lender") is made and executed on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans and other financial accommodations, Including those which may be described on any exhibit or schedule attached to this Agreement All such loans and financial accommodations, together with all future loans and financial accommodations from Lender to Borrower, are referred to In this Agreement Individually as the "Loan" and collectively as the "Loans." Borrower understands and agrees that: (a) In granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements, as set forth in this Agreement; (b) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgment and discretion; and (c) all such Loans shall be and shall remain subject to the following terms and conditions of this Agreement. TERM. This Agreement shall be effective as of May 6, 1999, and shall continue thereafter until all Indebtedness of Borrower to Lender has been performed in full and the parties terminate this Agreement in writing. DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America. Agreement. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time. Borrower. The word "Borrower" means REGAN HOLDING CORP. The word "Borrower" also includes, as applicable, all subsidiaries and affiliates of Borrower as provided below in the paragraph titled "Subsidiaries and Affiliates." CERCLA. The word "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. Collateral. The word "Collateral" means and includes without limitation all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. ERISA. The word "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. Event of Default. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "EVENTS OF DEFAULT." Grantor. The word "Grantor" means and includes without limitation each and all of the persons or entities granting a Security Interest in any Collateral for the Indebtedness, including without limitation all Borrowers granting such a Security Interest. Guarantor. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with any Indebtedness. Indebtedness. The word "Indebtedness" means and includes without limitation all Loans, together with all other obligations, debts and liabilities of Borrower to Lander, or any one or more of them, as well as all claims by Lender against Borrower, or any one or more of them; whether now or hereafter existing, voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated; whether Borrower may be liable individually or jointly with others; whether Borrower may be obligated as a guarantor, surety, or otherwise; whether recovery upon such Indebtedness may be or hereafter may become barred by any statute of limitations; and whether such Indebtedness may be or hereafter may become otherwise unenforceable. Lender. The word "Lender" means National Bank of the Redwoods, its successors and assigns. Loan. The word "Loan" or "Loans" means and includes without limitation any and all commercial loans and financial accommodations from Lender to Borrower, whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time. Note. The word "Note" means and includes without limitation Borrower's promissory note or notes, if any, evidencing Borrower's Loan obligations in favor of Lender, as well as any substitute, replacement or refinancing note or notes therefor. Permitted Liens. The words "Permitted Liens" mean: (a) liens and security interests securing Indebtedness owed by Borrower to Lender; (b) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (c) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (d) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens"; (e) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (f) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets. Related Documents. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. Security Agreement. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest. Security Interest. The words "Security Interest" mean and include without limitation any type of collateral security, whether in the form of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act of 1986 as now or hereafter amended. CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Loan Advance and each subsequent Loan Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents. Loan Documents. Borrower shall provide to Lender in form satisfactory to Lender the following documents for the Loan: (a) the Note, (b) Security Agreements granting to Lender security interests in the Collateral, (c) Financing Statements perfecting Lender's Security Interests; (d) evidence of insurance as required below; and (e) any other documents required under this Agreement or by Lender or its counsel, including without limitation any guaranties described below. Borrower's Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents, and such other authorizations and other documents and instruments as Lender or its counsel, in their sole discretion, may require. Payment of Fees and Expenses. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document. Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct. No Event of Default. There shall not exist at the time of any advance a condition which would constitute an Event of Default under this Agreement. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of Loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists: Organization. Borrower is a corporation which is duly organized, validly existing, and in good standing under the laws of the State of California and is validly existing and in good standing in all states in which Borrower is doing business. Borrower has the full power and authority to own its properties and to transact the businesses in which it is presently engaged or presently proposes to engage. Borrower also is duly qualified as a foreign corporation and is in good standing in all states in which the failure to so qualify would have a material adverse effect on its businesses or financial condition. Authorization. The execution, delivery, and performance of this Agreement and all Related Documents by Borrower, to the extent to be executed, delivered or performed by Borrower, have been duly authorized by all necessary action by Borrower; do not require the consent or approval of any other person, regulatory authority or governmental body; and do not conflict with, result in a violation of, or constitute a default under (a) any provision of its articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Borrower or (b) any law, governmental regulation, court decree, or order applicable to Borrower. Financial Information. Each financial statement of Borrower supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements. Legal Effect. This Agreement constitutes, and any instrument or agreement required hereunder to be given by Borrower when delivered will constitute, legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms. Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used, or filed a financing statement under, any other name for at least the last five (5) years. Hazardous Substances. The terms "hazardous waste," "hazardous substance," "disposal," "release," and "threatened release," as used in this Agreement, shall have the same meanings as set forth in the "CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (a) During the period of Borrower's ownership of the properties, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any hazardous waste or substance by any person on, under, about or from any of the properties, (b) Borrower has no knowledge of, or reason to believe that there has been (i) any use, generation, manufacture, storage, treatment, disposal, release, or threatened release of any hazardous waste or substance on, under, about or from the properties by any prior owners or occupants of any of the properties, or (ii) any actual or threatened litigation or claims of any kind by any person relating to such matters, (c) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the properties shall use, generate, manufacture, store, treat, dispose of, or release any hazardous waste or substance on, under, about or from any of the properties; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation those laws, regulations and ordinances described above. Borrower authorizes Lender and its agents to enter upon the properties to make such inspections and tests as Lender may deem appropriate to determine compliance of the properties with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the properties for hazardous waste and hazardous substances. Borrower hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the properties. The provisions of this section of the Agreement, including the obligation to indemnity, shall survive the payment of the Indebtedness and the termination or expiration of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the properties, whether by foreclosure or otherwise. Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing. Taxes. To the best of Borrower's knowledge, all tax returns and reports of Borrower that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided. Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lenders Security Interests and rights in and to such Collateral. Binding Effect. This Agreement, the Note, all Security Agreements directly or indirectly securing repayment of Borrower's Loan and Note and all of the Related Documents are binding upon Borrower as well as upon Borrower's successors, representatives and assigns, and are legally enforceable in accordance with their respective terms. Commercial Purposes. Borrower intends to use the Loan proceeds solely for business or commercial related purposes. Employee Benefit Plans. Each employee benefit plan as to which Borrower may have any liability complies in all material respects with all applicable requirements of law and regulations, and (i) no Reportable Event nor Prohibited Transaction (as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower has not withdrawn from any such plan or initiated steps to do so, (iii) no steps have been taken to terminate any such plan, and (iv) there are no unfunded liabilities other than those previously disclosed to Lender in writing. Location of Borrower's Offices and Records. Borrower's place of business, or Borrower's Chief executive office, ff Borrower has more than one place of business, is located at 1179 N McDOWELL BLVD., PETALUMA, CA 94954. Unless Borrower has designated otherwise in writing this location is also the office or offices where Borrower keeps its records concerning the Collateral. Year 2000. Borrower warrants and represents that all software utilized in the conduct of Borrower's business will have appropriate capabilities and compatibility for operation to handle calendar dates failing on or after January 1, 2000, and all information pertaining to such calendar dates, in the same manner and with the same functionality as the software does respecting calendar dates falling on or before December 31, 1999. Further, Borrower warrants and represents that the data-related user interface functions, data-fields, and data-related program instructions and functions of the software include the indication of the century. Information. All information heretofore or contemporaneously herewith furnished by Borrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all information hereafter furnished by or on behalf of Borrower to Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified: and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading. Survival of Representations and Warranties. Borrower understands and agrees that Lender, without independent investigation, is relying upon the above representations and warranties in making the above referenced Loan to Borrower. Borrower further agrees that the foregoing representations and warranties shall be continuing in nature and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower will: Litigation. Promptly inform Lender in writing of (a) all material adverse changes in Borrower's financial condition, and (b) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor. Financial Records. Maintain its books and records in accordance with generally accepted accounting principles, applied on a consistent basis. and permit Lender to examine and audit Borrower's books and records at all reasonable times. Additional Information. Furnish such additional information and statements, lists of assets and liabilities, agings of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower's financial condition and business operations as Lender may request from time to time. Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies reasonably acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days' prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such loss payable or other endorsements as Lender may require. Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties insured; (e) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (f) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower. Guaranties. Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender, executed by the guarantors named below, on Lender's forms, and in the amounts and under the conditions spelled out in those guaranties. Guarantors Amounts LEGACY MARKETING GROUP $2,132,500.00 LEGACY FINANCIAL SERVICES, INC. $2,132,500.00 LEGACY ADVISORY SERVICES, INC. $2,132,500.00 LEGACY REINSURANCE COMPANY $2,132,500.00 LIFESURANCE CORPORATION $2,132,500.00 Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements. Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing. Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (a) the legality of the same shall be contested in good faith by appropriate proceedings, and (b) Borrower shall have established on its books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with generally accepted accounting practices. Borrower, upon demand of Lender, will furnish to Lender evidence of payment of the assessments, taxes, charges, levies, liens and claims and will authorize the appropriate governmental official to deliver to Lender at any time a written statement of any assessments, taxes, charges, levies, liens and claims against Borrower's properties, income, or profits. Performance. Perform and comply with all terms, conditions, and provisions set forth in this Agreement and in the Related Documents in a timely manner, and promptly notify Lender if Borrower learns of the occurrence of any event which constitutes an Event of Default under this Agreement or under any of the Related Documents. Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner and in compliance with all applicable federal, state and municipal laws, ordinances, rules and regulations respecting its properties, charters, businesses and operations, including without limitation, compliance with the Americans With Disabilities Act and with all minimum funding standards and other requirements of ERISA and other laws applicable to Borrower's employee benefit plans. Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrowees books, accounts, and records. It Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense. Compliance Certificate. Unless waived in writing by Lender, provide Lender at least annually and at the time of each disbursement of Loan proceeds with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement. Environmental Compliance and Reports. Borrower shall comply in all respects with all environmental protection federal, state and local laws, statutes, regulations and ordinances; not cause or permit to exist, as a result of an intentional or unintentional action or omission on its part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lion, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources. Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender: Indebtedness and Liens. (a) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (b) except as allowed as a Permitted Lien, sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets, or (c) sell with recourse any of Borrower's accounts, except to Lender. Continuity of Operations. (a) Engage in any business activities substantially different than those in which Borrower is presently engaged, (b) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change ownership, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, (c) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, it Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of stock of Borrower, or (d) purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure. Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money or assets, (b) purchase, create or acquire any interest in any other enterprise or entity, or (c) incur any obligation as surety or guarantor other than in the ordinary course of business. CESSATION OF ADVANCES. It Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds it: (a) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (c) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender. EXHIBIT A - COVENANTS. An exhibit, titled "EXHIBIT A - COVENANTS," is attached to this Agreement and by this reference is made a part of this Agreement just as it all the provisions, terms and conditions of the Exhibit had been fully set forth in this Agreement. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: Default on Indebtedness. Failure of Borrower to make any payment when due on the Loans. Other Defaults. Failure of Borrower or any Grantor to comply with or to perform when due any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents, or failure of Borrower to comply with or to perform any other term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. Default In Favor of Third Parties. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. False Statements. Any warranty, representation or statement made or furnished to Lender by or on behalf of Borrower or any Grantor under this Agreement or the Related Documents is false or misleading in any material respect at the time made or furnished, or becomes false or misleading at any time thereafter. Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any Security Agreement to create a valid and perfected Security Interest) at any time and for any reason. Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. Creditor or Foreclosure Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower, any creditor of any Grantor against any collateral securing the Indebtedness, or by any governmental agency. This includes a garnishment, attachment, or levy on or of any of Borrowees deposit accounts with Lender. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate and, at Lender's option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Applicable Law. This Agreement has been delivered to Lender and accepted by Lender In the State of California. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Sonoma County, the State of California. This Agreement shall be governed by and construed In accordance with the laws of the State of California. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to inter;)ret or define the provisions of this Agreement. Multiple Parties; Corporate Authority. All obligations of Borrower under this Agreement shall be joint and several, and all references to Borrower shall mean each and every Borrower. This means that each of the persons signing below is responsible for all obligations in this Agreement. Consent to Loan Participation. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loans to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy it may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loans and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loans irrespective of the failure or insolvency of any holder of any interest in the Loans. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender. Costs and Expenses. Borrower agrees to pay upon demand all of Lender's expenses, including without limitation attorneys' fees, incurred in connection with the preparation, execution, enforcement, modification and collection of this Agreement or in connection with the Loans made pursuant to this Agreement. Lender may pay someone else to help collect the Loans and to enforce this Agreement, and Borrower will pay that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorneys' fees for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. Notices. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimile (unless otherwise required by law), and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Borrower, notice to any Borrower will constitute notice to all Borrowers. For notice purposes, Borrower will keep Lender informed at all times of Borrower's current address(es). Severability. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable. Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used herein shall include all subsidiaries and affiliates of Borrower. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any subsidiary or affiliate of Borrower. Successors and Assigns. All covenants and agreements contained by or on behalf of Borrower shall bind its successors and assigns and shall inure to the benefit of Lender, its successors and assigns. Borrower shall not, however, have the right to assign its rights under this Agreement or any interest therein, without the prior written consent of Lender. Survival. All warranties, representations, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement shall be considered to have been relied upon by Lender and will survive the making of the Loan and delivery to Lender of the Related Documents, regardless of any investigation made by Lender or on Lender's behalf. Time is of the Essence. Time is of the essence in the performance of this Agreement Waiver. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lenders rights or of any obligations of Borrower or of any Grantor as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent in subsequent instances where such consent is required, and in all cases such consent may be granted or withheld in the sole discretion of Lender. BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF MAY 6, 1999. BORROWER: REGAN HOLDING CORP. By: /s/ David A. Skup _______________________________________ DAVID A. SKUP, CHIEF FINANCIAL OFFICER LENDER: National Bank of the Redwoods By: /s/ Brian Reed _______________________________________ Authorized Officer EXHIBIT A - COVENANTS - -------------------------------------------------------------------------------- Borrower: REGAN HOLDING CORP. Lender: National Bank of the Redwoods 1179 N McDOWELL BLVD. Main Office PETALUMA, CA 94954 111 Santa Rosa Ave. Santa Rosa, CA 95404-4905 - -------------------------------------------------------------------------------- This EXHIBIT A - COVENANTS is attached to and by this reference is made a part of each Business Loan Agreement or Negative Pledge Agreement, dated May 6, 1999, and executed In connection with a loan or other financial accommodations between National Bank of the Redwoods and REGAN HOLDING CORP.. BORROWER AGREES TO PROVIDE: Copy of quarterly 10-Q of Regan Holding Corp. due within 60 days of quarter end, beginning with quarter ending 6/30/99 Copy of annual 10-K of Regan Holding Corp. due by 4/30 each year, beginning with 1999 10-K due 4/30/00. Annual rent rolls, including lessee's names, terms of lease, current rents, square feet occupied, address occupied and expiration of lease, due by 4/30 each year, beginning with 4/30/00. Annual corporate financial statements for Guarantors due by 4/30 each year, beginning with 1999 financials due 4/30/00. All financial reports required to be provided under this Agreement shall be prepared in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. BORROWER AGREES THAT: National Bank of the Redwoods will be major depository bank during term of loan. Evidence of insurance coverage for real property located at 1179 N. McDowell Blvd.. Petaluma, CA must be maintained during term of loan. National Bank of the Redwoods to be named First Mortgagee. Evidence of insurance coverage for fixtures at 1179 N. McDowell Blvd., Petaluma, CA must be maintained during term of loan. National Bank of the Redwoods to be named Loss Payee. Liability insurance coverage must be maintained during term of loan. Evidence must be furnished to National Bank of the Redwoods. Bank Control account #1790617 is established in the initial amount of $509,352 tor a rent reserve. Monies in this account may be used solely for the purpose of making the monthly payments on this loan in the event of a payment default. Should a payment be made from this account, the account balance must be replenished by Borrower to conform to the following formula: Monthly operating expenses on the building plus monthly debt service minus gross monthly lease payments times twelve. Bank Control account #1790609 is established in the amount of $140,000 and may be used solely to pay for root repairs. If the roof repairs cost less than $140,000, the balance in this account will be released to Borrower. Collateral securing this loan: First deed of trust on real property located at 1179 N. McDowell Blvd., Petaluma, CA; first lien position on all Borrower's fixtures. THIS EXHIBIT A - COVENANTS IS EXECUTED ON MAY 6,1999. BORROWER: REGAN HOLDING CORP. By: /s/ David A. Skup ________________________________________ DAVID A. SKUP, CHIEF FINANCIAL OFFICER LENDER: National Bank of the Redwoods By: /s/ Brian Reed _________________________________________ Authorized Officer EX-10.3 4 PROMISSORY NOTE PROMISSORY NOTE
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials $2,132,500.00 05-06-1999 05-10-2009 1501257103 170 MULTI 104677 40
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Borrower: REGAN HOLDING CORP. Lender: National Bank of the Redwoods 1179 N McDOWELL BLVD Main Office PETALUMA, CA 94954 111 Santa Rosa Ave Santa Rosa, CA 96404-4905 - -------------------------------------------------------------------------------- Principal Amount: $2,132,500.00 Initial Rate: 8.250% Date of Note: May 6, 1999
PROMISE TO PAY. REGAN HOLDING CORP. ("Borrower") promises to pay to National Bank of the Redwoods ("Lender"), or order, in lawful money of the United States of America, the principal amount of Two Million One Hundred Thirty Two Thousand Five Hundred & 00/100 Dollars ($2,132,500.00), together with interest on the unpaid principal balance from May 10, 1999, until paid in full. PAYMENT. Subject to any payment changes resulting from changes in the index, Borrower will pay this loan on demand, or if no demand is made, in 119 regular payments of $16,826.17 each and one irregular last payment estimated at $1,750,389.44. Borrower's first payment is due June 10, 1999, and all subsequent payments are due on the same day of each month after that. Borrower's final payment due May 10, 2009, will be for all principal and all accrued interest not yet paid. Payments include principal and interest. Interest on this Note is computed on a 365/365 simple interest basis; that is, by applying the ratio of the annual interest rate over the number of days in a year, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the West Coast Edition Of The Wall Street Journal Prime Rate (the "Index"). The index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notice to Borrower. Lender will tell Borrower the current Index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each first day of each calendar quarter. The Index currently is 7.750% per annum. The interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 0.500 percentage points over the Index, resulting in an initial rate of 8.250% per annum. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. Whenever increases occur in the interest rate, Lender, at its option, may do one or more of the following: (a) increase Borrower's payments to ensure Borrower's loan will pay off by its original final maturity date, (b) increase Borrower's payments to cover accruing interest, (c) increase the number of Borrower's payments, and (d) continue Borrower's payments at the same amount and increase Borrower's final payment. PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. Rather, they will reduce the principal balance due and may result in Borrower making fewer payments. LATE CHARGE. If a payment is 11 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or $75.00, whichever is less. LENDER'S RIGHTS. Upon Lender's demand, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Lender may hire or pay someone else to help collect this Note it Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower agrees upon Lander's request to submit to the jurisdiction of the courts of Sonoma County, the State of California. This Note shall be governed by and construed in accordance with the laws of the State of California. COLLATERAL Borrower acknowledges this Note is secured by, in addition to any other collateral, a Deed of Trust and an Assignment of All Rents dated May 6, 1999, to a trustee in favor of Lender on real property located in SONOMA County, State of California. That agreement contains the following due on sale provision: Lender may, at its option, declare immediately due and payable all sums secured by this Note upon the sale or transfer, without the Lender's prior written consent, of all or any part of the Real Property, or any interest in the Real Property. A "sale or transfer" means the conveyance of Real Property or any right, title or interest therein; whether legal, beneficial or equitable; whether voluntary or involuntary; whether by outright sale, deed, installment sale contract, land contract, contract for deed, leasehold interest with a term greater than three (3) years, lease-option contract, or by sale, assignment, or transfer of any beneficial interest in or to any land trust holding title to the Real Property, or by any other method of conveyance of Real Property interest. If any Trustor is a corporation, partnership or limited liability company, transfer also includes any change in ownership of more than twenty-five percent (25%) of the voting stock, partnership interests or limited liability company interests, as the case may be, of Trustor. However, this option shall not be exercised by Lender if such exercise is prohibited by applicable law. DEFAULT INTEREST RATE. Notwithstanding any other provisions of this Note, Borrower acknowledges that in the event of default, Lender, at its option, may increase the interest rate on this Note to 18.00% per annum. Borrower will be notified in writing, with a copy to all guarantors, that an event of default has occurred and that failure to cure the default may result in the application of the default interest rate effective seven (7) calendar days from the date of notification to the Borrower. PAYMENT ADJUSTMENT. This loan is amortized over a period of twenty-five (25) years, with maturity in ten (10) years. Whenever the interest rate changes, Lender will reamortize the loan as of the date of the rate change for the remaining term of the loan. GENERAL PROVISIONS. Lander may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive any applicable statute of limitations, presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. BORROWER: REGAN HOLDING CORP. By: /s/ David A. Skup ________________________________________ DAVID A. SKUP, CHIEF FINANCIAL OFFICER LENDER: National Bank of the Redwoods By: /s/ Brian Reed ________________________________________ Authorized Officer EX-10.4 5 AMENDMENT AMENDMENT SIX TO INSURANCE PROCESSING AGREEMENT This document is Amendment Six to the Insurance Processing Agreement made and entered into effective June 1, 1993, and amended by Amendment One to Insurance Processing Agreement dated June 4, 1998; Amendment Two to Insurance Processing Agreement dated September 25, 1998; Amendment Three to Insurance Processing Agreement dated October 19, 1998; Amendment Four to Insurance Processing Agreement dated December 15, 1998, and Amendment Five to Insurance Processing Agreement dated March 25, 1999, (the "Agreement"), by and between American National Insurance Company ("American National") a Texas corporation, and Legacy Insurance Processing Group ("LMG"), a California corporation. In consideration of mutual covenants contained herein, the parties agree as follows: 1. Section 6.1 of the Agreement is hereby deleted in its entirety and the following new Section 6.1 shall be substituted therefore: "6.1 Subject to termination as hereinafter provided, this Agreement shall remain in force and effect until the close of business on July 1, 1999, the term of this Agreement. This Agreement may be renewed by mutual agreement for additional successive terms of one (1) year unless terminated by either party by prior written notice to the other at least one hundred eighty (180) days prior to the end of the initial term or the renewal term." 2. Except as specifically amended hereby, all terms and provisions of the Insurance Processing Agreement shall remain in full force and effect. LEGACY MARKETING GROUP AMERICAN NATIONAL INSURANCE COMPANY By: /s/ David A. Skup By: /s/ David A. Behrens --------------------------- --------------------------- Title: CFO Title: Executive V.P. of ------------------------ Independent Marketing ------------------------ Witness: Stephanie Molteni Witness: Debra Knowles ---------------------- ---------------------- Date: May 10, 1999 Date: May 10, 1999 ------------------------- ------------------------- EX-10.5 6 AMENDMENT AMENDMENT SEVEN TO INSURANCE PROCESSING AGREEMENT This document is Amendment Seven to the Marketing Agreement made and entered into effective June 1, 1993, and amended by Amendment One to Marketing Agreement dated September 16, 1993; Amendment Two to Marketing Agreement dated June 4, 1998; Amendment Three to Marketing Agreement dated September 25, 1998; Amendment Four to Marketing Agreement dated October 19, 1998, and Amendment Five to Marketing Agreement dated December 15, 1998; and Amendment Six to Marketing Agreement dated March 25, 1999, (the "Agreement"), by and between American National Insurance Company ("American National") a Texas corporation, and Legacy Insurance Processing Group ("LMG"), a California corporation. In consideration of mutual covenants contained herein, the parties agree as follows: 1. Section 3.1 of the Agreement is hereby deleted in its entirety and the following new Section 3.1 shall be substituted therefore: "3.1 Subject to termination as hereinafter provided, this Agreement shall remain in force and effect until the close of business on July 1, 1999, the term of this Agreement. This Agreement may be renewed by mutual agreement for additional successive terms of one (1) year unless terminated by either party by prior written notice to the other at least one hundred eighty (180) days prior to the end of the initial term or the renewal term." 2. Except as specifically amended hereby, all terms and provisions of the Marketing Agreement shall remain in full force and effect. LEGACY MARKETING GROUP AMERICAN NATIONAL INSURANCE COMPANY By: /s/ David A. Skup By: /s/ David A. Behrens --------------------------- --------------------------- Title: CFO Title: Executive V.P. of ------------------------ Independent Marketing ------------------------ Witness: Stephanie Molteni Witness: Debra Knowles ---------------------- ---------------------- Date: May 10, 1999 Date: May 10, 1999 ------------------------- ------------------------- EX-11 7 COMPUTATION OF EARNINGS PER SHARE Exhibit 11.1 Computation of Earnings Per Share (Unaudited) Basic Earnings Per Share
Three Months Ended March 31, -------------------- 1999 1998 ---- ---- Total weighted average shares outstanding - basic 26,395,692 26,694,872 Net income $ 2,793,748 $ 1,405,916 ----------- ----------- Basic net income per share $ .11 $ .05 =========== ===========
Exhibit 11.2 Computation of Earnings Per Share (Unaudited) Diluted Earnings Per Share
Three Months Ended March 31, ------------------- 1999 1998 ---- ---- Total weighted average shares outstanding - basic 26,395,692 26,694,872 Plus incremental sahres from assumed convesions of stock options 1,017,398 -- Number of shares for computation of diluted net income per share $27,413,090 $26,694,872 =========== =========== Diluted net income per share $ .10 $ .05 =========== ===========
EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 5,882,978 20,095,210 2,096,214 0 527,920 30,275,914 6,480,921 (3,592,540) 34,541,245 5,998,164 0 11,219,276 0 3,618,779 13,160,547 16,779,326 0 14,588,081 0 9,821,807 0 0 0 4,766,274 1,972,526 0 0 0 0 2,793,748 .11 .10
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