10-Q

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 September 30, 2000, 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 Incorporation or Organization)	(IRS Employer Identification No.)
2090 Marina Avenue, Petaluma,
California	94954
(Address of Principal Executive Offices)	(ZIP Code)

707-778-8638

(Registrant’s Telephone Number, Including Area Code)

      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 October 31, 2000:

Common Stock-Series A	25,510,128
Common Stock-Series B	588,623

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

REGAN HOLDING CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets

				September 30, 2000			December 31, 1999
				(Unaudited)
ASSETS
	Cash and cash equivalents			$	3,138,971		$	1,094,759
	Investments				9,970,001			20,861,973
	Accounts receivable				1,622,556			2,625,867
	Prepaid expenses				1,461,516			1,223,177
	Income taxes receivable				2,725,660			2,893,701
	Deferred income taxes —  current				865,189			895,841
			Total current assets		19,783,893			29,595,318
	Net fixed assets				14,063,525			12,168,135
	Deferred income taxes —  non current				3,002,858			2,030,993
	Notes receivable-net				1,881,946			667,682
	Equity in and advances to investee —   net				1,173,124			—
	Other assets				1,476,335			2,130,268
			Total non current assets		21,597,788			16,997,078
			TOTAL ASSETS	$	41,381,681		$	46,592,396
LIABILITIES, REDEEMABLE COMMON STOCK, AND SHAREHOLDERS’ EQUITY
LIABILITIES
	Accounts payable and accrued liabilities			$	5,760,809		$	5,308,020
	Accrued sales convention costs				2,171,968			2,248,913
	Margin loan payable				—			3,088,918
			Total current liabilities		7,932,777			10,645,851
	Loans payable				2,212,391			2,256,418
	Incentive compensation payable				99,223			469,720
	Deferred compensation payable				2,727,993			1,364,713
	Other liabilities				281,872			167,641
			Total non current liabilities		5,321,479			4,258,492
			TOTAL LIABILITIES		13,254,256			14,904,343
COMMITMENTS AND CONTINGENCIES					—			—
REDEEMABLE COMMON STOCK, Series A and B					11,183,966			11,563,285
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: 20,913,427 and 20,863,520 shares at September 30, 2000 and December 31, 1999, respectively			3,641,751			3,659,367
	Common stock committed				100,000			—
	Paid-in capital from retirement of common stock				927,676			927,640
	Paid-in capital from non-employee stock options				4,444,366			2,892,000
	Retained earnings				8,355,666			13,217,865
	Accumulated other comprehensive loss —  net				(526,000	)		(572,104	)
			TOTAL SHAREHOLDERS’ EQUITY		16,943,459			20,124,768
			TOTAL LIABILITIES, REDEEMABLE COMMON
			STOCK AND SHAREHOLDERS’ EQUITY	$	41,381,681		$	46,592,396

      See accompanying notes to condensed consolidated financial statements.

REGAN HOLDING CORP. AND SUBSIDIARIES
Condensed Consolidated Income Statements
(Unaudited)

			For the Three Months Ended					For the Nine Months Ended
			September 30,					September 30,
			2000			1999		2000			1999
REVENUE:
	Marketing allowances		$	3,957,493		$	5,369,512	$	12,493,220		$	21,446,302
	Commission revenue			2,957,754			3,421,286		10,220,005			12,220,510
	Administrative fees			2,245,376			2,041,769		6,711,008			6,674,185
	Other			119,514			174,926		654,404			462,246
		Total revenue		9,280,137			11,007,493		30,078,637			40,803,243
EXPENSES:
	Salaries and related benefits			6,089,159			5,439,391		18,666,952			16,890,272
	Sales promotion and support			2,334,206			1,706,676		5,362,852			5,522,917
	Non-employee stock options			—			845,000		1,552,366			2,867,000
	Professional fees			1,588,474			645,895		3,972,533			1,474,687
	Occupancy			824,305			515,791		2,365,932			1,283,934
	Depreciation and amortization			883,911			326,451		2,202,856			1,135,628
	Stationery and supplies			152,809			338,968		527,527			693,249
	Courier and postage			267,591			245,576		699,577			770,910
	Travel and entertainment			228,093			260,466		621,677			511,297
	Leased equipment			352,378			330,145		1,109,362			769,537
	Insurance			98,287			104,070		354,354			313,554
	Other			150,734			214,635		474,001			339,622
		Total expenses		12,969,947			10,973,064		37,909,989			32,572,607
OPERATING INCOME (LOSS)				(3,689,810	)		34,429		(7,831,352	)		8,230,636
OTHER INCOME (LOSS) —  NET
	Investment income —  net			204,428			316,459		770,586			868,921
	Losses from equity investment			(275,739	)		—		(329,376	)		—
	Gain (losses) on disposals of fixed assets			54,446			—		(304,600	)		—
		Total other income (loss) — net		(16,865	)		316,459		136,610			868,921
INCOME (LOSS) BEFORE
	INCOME TAXES			(3,706,675	)		350,888		(7,694,742	)		9,099,557
PROVISION FOR (BENEFIT
	FROM) INCOME TAXES			(1,364,187	)		88,113		(2,900,075	)		3,721,017
NET INCOME (LOSS)			$	(2,342,488	)	$	262,775	$	(4,794,667	)	$	5,378,540
EARNINGS PER SHARE
	Weighted average shares outstanding —  basic			26,252,879			26,375,095		26,312,012			26,403,061
	Basic earnings (loss) per share		$	(0.09	)	$	0.01	$	(0.18	)	$	0.20
	Weighted average shares outstanding —  diluted			26,252,879			27,724,135		26,312,012			27,759,434
	Diluted earnings (loss) per share		$	(0.09	)	$	0.01	$	(0.18	)	$	0.19

      See accompanying notes to condensed consolidated financial statements.

REGAN HOLDING CORP. AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders’ Equity
(Unaudited)

			Series A						Common		Paid in Capital		Paid in Capital					Accumulated Other
			Common Stock						Stock		from Retirement of		from Non-employee		Retained			Comprehensive
			Shares			Amount			Committed		Common Stock		Options		Earnings			Loss			Total
Balance January 1, 2000				20,863,520		$	3,659,367		$	—	$	927,640	$	2,892,000	$	13,217,865		$	(572,104	)	$	20,124,768
Comprehensive losses:
	Net loss for the nine months ended September 30, 2000															(4,794,667	)					(4,794,667	)
	Net unrealized gains on investments Less: realized gains included in																		81,928			81,928
		net gains																	(5,301	)		(5,301	)
	Deferred tax on net unrealized
		gains																	(30,523	)		(30,523	)
Total comprehensive losses																						(4,748,563	)
Accretion of redeemable common stock to redemption value																(35,561	)					(35,561	)
Voluntary repurchases of common stock				(36,152	)		(38,737	)				36				(31,971	)					(70,672	)
Issuance of common stock				20,700			21,121															21,121
Common stock committed				65,359						100,000												100,000
Non-employee stock option expense														1,552,366								1,552,366
Balance September 30, 2000				20,913,427		$	3,641,751		$	100,000	$	927,676	$	4,444,366	$	8,355,666		$	(526,000	)	$	16,943,459
		(Unaudited)

See accompanying notes to condensed consolidated financial statements.

REGAN HOLDING CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)

				For the Nine Months Ended
				September 30,
				2000			1999
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income (loss)			$	(4,794,667	)	$	5,378,540
	Adjustments to reconcile net income (loss) to cash provided by operating activities:
		Depreciation and amortization of fixed assets			2,159,399			1,081,636
		Losses on disposals of fixed assets			304,600			—
		Amortization of intangible assets			43,457			53,992
		Common stock awarded to producers			100,000			419,905
		Non-employee stock option grants			1,552,366			2,867,000
		Amortization of investments			(107,473	)		(13,561	)
		Realized losses (gains) on sales of investments			(5,301	)		89,628
		Losses from equity investment			329,376			—
		Changes in assets and liabilities:
			Net change in accounts receivable		1,003,311			(480,443	)
			Net change in prepaid expenses		(238,339	)		(245,765	)
			Net change in income taxes receivable		168,041			(792,154	)
			Net change in deferred income taxes		(971,737	)		(1,590,024	)
			Net change in accounts payable and accrued liabilities		452,789			(803,345	)
			Net change in accrued sales convention costs		(76,945	)		931,292
			Net change in other assets and liabilities		1,374,368			35,740
			Net cash provided by operating activities		1,293,245			6,932,441
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of investments				(7,192,340	)		(13,045,133	)
	Proceeds from sales of investments				18,273,719			8,653,621
	Amounts loaned pursuant to notes receivable				(1,432,244	)		(97,545	)
	Proceeds from repayments of notes receivable				217,980			33,581
	Investment in and advances to investee				(1,502,500	)		—
	Purchases of fixed assets				(4,359,387	)		(8,938,109	)
			Net cash provided by (used in) investing activities		4,005,228			(13,393,585	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from margin loan				1,000,000			—
	Payments toward margin loan				(4,124,515	)		—
	Proceeds from loans payable				2,100,000			4,132,500
	Payments toward loans payable				(2,144,027	)		(321,648	)
	Return of building loan reserve				378,717			—
	Payment for building loan reserve				—			(650,000	)
	Payments for repurchases, redemptions and retirement of common stock				(485,557	)		(458,745	)
	Proceeds from stock option exercises				21,121			15,285
			Net cash provided by (used in) financing activities		(3,254,261	)		2,717,392
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS					2,044,212			(3,743,752	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD					1,094,759			5,916,731
CASH AND CASH EQUIVALENTS, END OF PERIOD				$	3,138,971		$	2,172,979

      See accompanying notes to condensed consolidated financial statements.

REGAN HOLDING CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

1.	Financial Information
	The accompanying condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States and include the accounts of Regan Holding Corp. (the “Company”) and its wholly-owned subsidiaries, Legacy Marketing Group (“LMG”), Legacy Financial Services, Inc., Legacy Advisory Services, Inc., Legacy Reinsurance Company, LifeSurance Corporation, and Imagent Online, LLC, (“Imagent”.) All intercompany transactions have been eliminated.
	The interim financial data as of September 30, 2000 and for the nine months ended September 30, 2000 and September 30, 1999 is unaudited; however, in the opinion of the Company, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The condensed consolidated balance sheet data at December 31, 1999 was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. The results for the nine months ended September 30, 2000 are not necessarily indicative of the results to be expected for the entire year. Users of these condensed consolidated financial statements are encouraged to refer to the Annual Report on Form 10-K/A for the year ended December 31, 1999 for additional disclosure.
	In December 1999, the SEC issued Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements”. SAB No. 101 expresses the views of the SEC staff in applying accounting principles generally accepted in the United States to certain revenue recognition issues. In June 2000, the SEC issued SAB No. 101B, “Amendment: Revenue Recognition in Financial Statements.” SAB 101B delays the implementation date of SAB 101 until no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The Company expects to adopt SAB 101, as required, in the fourth quarter of 2000. Though management has not fully determined the impact that adoption of SAB 101 will have on the Company’s financial position, results of operations and cash flows, management anticipates that its implementation will not have a material effect on its consolidated results of operations and financial position.
	Depreciation expense recorded by the Company totaled approximately $869,000 during the three months ended September 30, 2000 and approximately $2.2 million during the nine months then ended. Effective January 1, 2000, the Company changed, from five years to three years, its estimate of the useful lives over which certain computer hardware and software is being depreciated. Had this change in estimate not occurred, the Company would have recorded approximately $634,000 in depreciation expense during the three months ended September 30, 2000 and approximately $1,027,000 during the nine months ended September 30, 2000.
2.	Notes Receivable
	During the third quarter of 2000, the Company advanced approximately $1.2 million to a Tennessee corporation engaged in the business of values-based investment screening. The Company is currently negotiating to purchase the assets of the Tennessee corporation. Management expects the acquisition to be finalized during the fourth quarter of 2000. These advances, combined with various notes receivable from external parties, are classified as Notes Receivable in the accompanying balance sheets.
3.	Equity In and Advances To Investee
	During 1999, the Company formed Imagent, a Delaware limited liability company and a wholly-owned subsidiary of the Company. In May 2000, Imagent entered into an agreement with an internet start-up company pursuant to which Imagent purchased an ownership interest in the internet company for $402,500. Imagent’s investment in the internet company is accounted for under the equity method. The Company’s share of the internet company’s losses was approximately $329,000 during the nine months ended September 30, 2000. In addition, Imagent loaned $1,100,000 to the internet company during the nine months ended September 30, 2000. The loan bears interest equal to the Prime Rate, as published in the Wall Street Journal, and will be repaid over two years in equal monthly installments commencing on June 1, 2001. These amounts invested and advanced have been reflected, net of the Company's share of cummulative losses, as Equity In and Advances To Investee in the accompanying consolidated balance sheets.

4.	Margin Loan Payable
	During the first quarter of 2000, the Company borrowed an additional $1,000,000 under an existing margin loan agreement with the Company’s investment broker. During the first quarter of 2000, the margin loan was repaid in full.
5.	Loan Payable
	In 1999, the Company entered into a loan payable for the purchase of a building (the “1999 Loan”). The 1999 Loan contained certain covenants with which the Company was required to comply, including restrictions on repurchasing non-redeemable common stock. The lender under the 1999 Loan waived this covenant through June 30, 2000. Pursuant to the 1999 Loan agreement, the Company was also required to place approximately $563,000 in reserve to cover loan payments in the event of default and to provide for certain repair costs. During the first quarter of 2000, the lender under the 1999 Loan released approximately $379,000 of such reserves for general use by the Company. The remaining reserves were released in the second quarter of 2000.
	In June 2000, the Company refinanced the 1999 Loan. Pursuant to the new loan agreement (the “2000 Loan”), the Company borrowed $2,100,000 at an annual interest rate of 9.01% per annum, payable monthly through August 2010, at which time a balloon payment of approximately $1.8 million becomes due. The 2000 Loan is collateralized by the purchased building, contains no restrictive covenants, and requires no cash reserves.
6.	Deferred Compensation Payable
	During the nine months ended September 30, 2000, approximately $1.3 million in commissions were deferred by producers under the Regan Holding Corp. Producer Commission Deferral Plan and approximately $100,000 in compensation was deferred by key employees under the Regan Holding Corp. Key Employee Deferred Compensation Plan. Such amounts have been recorded as Deferred Compensation Payable in the accompanying consolidated balance sheets, plus Company matching contributions of approximately $53,000 and gains of approximately $35,000, less distributions and forfeitures of approximately $102,000.
7.	Commitments and Contingencies
	In May 1998, the Company entered into a Shareholder’s Agreement with Lynda Regan, Chief Executive Officer of the Company and Chairman of the Company’s Board of Directors, and certain other individuals. Under the terms of this agreement, in the event of the death of Ms. Regan, the Company is obligated to repurchase from Ms. Regan’s estate all of the shares of the Company’s common stock that were owned by Ms. Regan at the time of her death or that were transferred by her to one or more trusts prior to her death. The purchase price to be paid by the Company shall be equal to 125% of the fair market value of the shares, which totaled approximately $25.5 million at September 30, 2000. The Company has purchased two life insurance policies with a combined face amount of $29.0 million for the purpose of funding this obligation in the event of Ms. Regan’s death.

8.	Redeemable Common Stock
	The Company is obligated to repurchase certain of its shares of common stock pursuant to various agreements under which the common stock was issued. During the nine months ended September 30, 2000, 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
	Shares			Amount			Shares			Amount			Shares			Amount
Balance January 1, 2000		4,921,615		$	9,794,014			589,757		$	1,769,271			5,511,372		$	11,563,285
Accretion to redemption value		—			29,675			—			5,886			—			35,561
Redemption and retirement of common stock		(212,047	)		(412,627	)		(1,134	)		(2,253	)		(213,181	)		(414,880	)
Balance September 30, 2000		4,709,568		$	9,411,062			588,623		$	1,772,904			5,298,191		$	11,183,966

9.	Common Stock Committed
	During the second quarter of 2000, the Company became obligated to award to two LMG producers 65,359 shares of Series A common stock in exchange for achievement of certain milestones in conjunction with a sales incentive program. As of September 30, 2000, these shares had not been issued. To reflect this obligation, the Company recorded common stock committed in the amount of $100,000 during the second quarter of 2000.
10.	Amendments to Marketing and Insurance Processing Agreements
	In October 2000, LMG and American National Insurance Company (“American National”) amended the terms of the Marketing Agreement and the Insurance Processing Agreement, pursuant to which LMG markets and administers fixed annuity and life insurance products, to extend the terms to November 30, 2000. LMG and American National are in the process of negotiating new agreements.
11.	Stock Option Expense
	During the nine months ended September 30, 2000, the Company recorded approximately $1,552,000 of expense related to non-employee stock options. This charge reflects measurement of the options based on management’s best estimate of the fair value of the options at the date of grant. The fair value of the options was estimated using the Black-Scholes option pricing model with the following assumptions: risk free interest rates ranging between 6.14% and 6.59%, expected lives ranging from six to ten years, and expected volatility ranging from 28.30% to 34.17% . A dividend yield assumption was not applicable, as the Company’s stock is not publicly traded nor does the Company pay dividends.
12.	Liquidity and Capital Resources
	During the nine months ended September 30, 2000, the Company experienced net losses of approximately $4.8 million, which, when combined with investing and financing activities, resulted in a significant decrease in working capital during the period. In addition, the Company is obligated to repurchase certain shares of its common stock pursuant to various contractual agreements under which the shares were issued. If the Company’s net losses continue or if requests for repurchase of redeemable common stock increase

	significantly, a cash shortfall could occur. However, management anticipates that future cash flows from operations, combined with existing cash and investment balances, will provide sufficient funding for the foreseeable future. Further, in the event that a shortfall were to occur, management believes that adequate financing could be obtained to meet the Company’s cash flow needs.
13.	Segment Information
	The table below presents information about the Company’s operating segments (in thousands):

					Legacy						Regan
		Legacy Marketing			Financial			LifeSurance			Holding
		Group			Services, Inc.			Corp.			(stand-alone)			Other			Total
Three Months Ended September 30, 2000:
	Total revenue	$	8,669		$	304		$	136		$	147		$	24		$	9,280
	Total expenses		11,228			596			257			794			95			12,970
	Operating loss		(2,559	)		(292	)		(121	)		(647	)		(71	)		(3,690	)
	Other income (loss)		195			7			1			55			(275	)		(17	)
	Loss before tax		(2,364	)		(285	)		(120	)		(592	)		(346	)		(3,707	)
	Tax provision (benefit)		(1,147	)		(157	)		(39	)		177			(199	)		(1,365	)
	Net loss	$	(1,217	)	$	(128	)	$	(81	)	$	(769	)	$	(147	)	$	(2,342	)
Three Months Ended September 30, 1999:
	Total revenue	$	10,504		$	417		$	80		$	—		$	6		$	11,007
	Total expenses		8,549			420			366			1,625			13			10,973
	Operating income (loss)		1,955			(3	)		(286	)		(1,625	)		(7	)		34
	Other income		315			—			—			—			2			317
	Income (loss) before tax		2,270			(3	)		(286	)		(1,625	)		(5	)		351
	Tax provision (benefit)		655			(33	)		(105	)		(428	)		(1	)		88
	Net income (loss)	$	1,615		$	30		$	(181	)	$	(1,197	)	$	(4	)	$	263
Nine Months Ended September 30, 2000
	Total revenue	$	27,604		$	1,687		$	344		$	401		$	43		$	30,079
	Total expenses		30,596			1,531			1,300			4,110			373			37,910
	Operating income (loss)		(2,992	)		156			(956	)		(3,709	)		(330	)		(7,831	)
	Other income (loss)		738			21			3			(300	)		(326	)		136
	Income (loss) before tax		(2,254	)		177			(953	)		(4,009	)		(656	)		(7,695	)
	Tax benefit		(1,364	)		(73	)		(352	)		(862	)		(249	)		(2,900	)
	Net income (loss)	$	(890	)	$	250		$	(601	)	$	(3,147	)	$	(407	)	$	(4,795	)
Nine Months Ended September 30, 1999:
	Total revenue	$	39,414		$	1,170		$	213		$	—		$	6		$	40,803
	Total expenses		25,133			1,072			951			5,388			28			32,572
	Operating income (loss)		14,281			98			(738	)		(5,388	)		(22	)		8,231
	Other income		861			1			—			2			5			869
	Income (loss) before tax		15,142			99			(738	)		(5,386	)		(17	)		9,100
	Tax provision (benefit)		5,635			(59	)		(279	)		(1,572	)		(4	)		3,721
	Net income (loss)	$	9,507		$	158		$	(459	)	$	(3,814	)	$	(13	)	$	5,379
Total assets
	September 30, 2000	$	21,526		$	1,462		$	1,424		$	15,301		$	1,669		$	41,382
	December 31, 1999	$	27,531		$	1,300		$	1,136		$	16,395		$	230		$	46,592

Through LMG, the Company markets and administers fixed annuity and life insurance products on behalf of unaffiliated insurance carriers. Through its wholly-owned broker-dealer subsidiary, Legacy Financial Services, Inc., (“LFS”), the Company engages in the sale of variable annuity and life insurance products, mutual funds and debt and equity securities. Through LifeSurance Corporation, the Company conducts estate planning seminars, which provide continuing education credits for producers and promote sales of life insurance and annuity products. Regan Holding Corp. is the

	Company’s parent holding company where certain of the Company’s fixed assets and related rental revenue and depreciation are recorded, as well as non-employee stock option and shareholder expenses. “Other” segments above include Legacy Advisory Services, Inc., Legacy Reinsurance Company, and Imagent Online, LLC. Such entities’ financial results are not material in the aggregate and therefore were not separated for purposes of this disclosure.
14.	Carrier and Product Concentration
	Through LMG, the Company markets and administers fixed annuity and life insurance products on behalf of three insurance carriers, collectively referred to herein as the “Carriers”. A significant percentage of the Company’s consolidated revenue during the periods presented was generated from LMG sales on behalf of each of the Carriers, as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2000			1999			2000			1999
Carrier A		69.6	%		10.9	%		80.9	%		9.3	%
Carrier B		23.3	%		71.2	%		14.1	%		76.4	%
Carrier C		7.1	%		11.3	%		5.0	%		10.1	%

Although LMG markets and administers several products on behalf of the Carriers, the Company’s consolidated revenue during the periods presented was derived primarily from sales and administration of two fixed annuity products, as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2000			1999			2000			1999
Product A (sold on behalf of Carrier A)		50.4	%		8.5	%		43.5	%		11.1	%
Product B (sold on behalf of Carrier B)		7.9	%		15.3	%		12.3	%		29.4	%

15.	Reclassifications
	Certain amounts in the 1999 consolidated financial statements have been reclassified to conform with the 2000 presentation. Such reclassifications had no impact on net income (loss) or shareholders’ equity.

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

      Except for 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.

      The table below presents information about the Company’s operating segments (in thousands):

					Legacy						Regan
		Legacy Marketing			Financial			LifeSurance			Holding
		Group			Services, Inc.			Corp.			(stand-alone)			Other			Total
Three Months Ended September 30, 2000:
	Total revenue	$	8,669		$	304		$	136		$	147		$	24		$	9,280
	Total expenses		11,228			596			257			794			95			12,970
	Operating loss		(2,559	)		(292	)		(121	)		(647	)		(71	)		(3,690	)
	Other income (loss)		195			7			1			55			(275	)		(17	)
	Loss before tax		(2,364	)		(285	)		(120	)		(592	)		(346	)		(3,707	)
	Tax provision (benefit)		(1,147	)		(157	)		(39	)		177			(199	)		(1,365	)
	Net loss	$	(1,217	)	$	(128	)	$	(81	)	$	(769	)	$	(147	)	$	(2,342	)
Three Months Ended September 30, 1999:
	Total revenue	$	10,504		$	417		$	80		$	—		$	6		$	11,007
	Total expenses		8,549			420			366			1,625			13			10,973
	Operating income (loss)		1,955			(3	)		(286	)		(1,625	)		(7	)		34
	Other income		315			—			—			—			2			317
	Income (loss) before tax		2,270			(3	)		(286	)		(1,625	)		(5	)		351
	Tax provision (benefit)		655			(33	)		(105	)		(428	)		(1	)		88
	Net income (loss)	$	1,615		$	30		$	(181	)	$	(1,197	)	$	(4	)	$	263
Nine Months Ended September 30, 2000
	Total revenue	$	27,604		$	1,687		$	344		$	401		$	43		$	30,079
	Total expenses		30,596			1,531			1,300			4,110			373			37,910
	Operating income (loss)		(2,992	)		156			(956	)		(3,709	)		(330	)		(7,831	)
	Other income (loss)		738			21			3			(300	)		(326	)		136
	Income (loss) before tax		(2,254	)		177			(953	)		(4,009	)		(656	)		(7,695	)
	Tax benefit		(1,364	)		(73	)		(352	)		(862	)		(249	)		(2,900	)
	Net income (loss)	$	(890	)	$	250		$	(601	)	$	(3,147	)	$	(407	)	$	(4,795	)
Nine Months Ended September 30, 1999:
	Total revenue	$	39,414		$	1,170		$	213		$	—		$	6		$	40,803
	Total expenses		25,133			1,072			951			5,388			28			32,572
	Operating income (loss)		14,281			98			(738	)		(5,388	)		(22	)		8,231
	Other income		861			1			—			2			5			869
	Income (loss) before tax		15,142			99			(738	)		(5,386	)		(17	)		9,100
	Tax provision (benefit)		5,635			(59	)		(279	)		(1,572	)		(4	)		3,721
	Net income (loss)	$	9,507		$	158		$	(459	)	$	(3,814	)	$	(13	)	$	5,379
Total assets
	September 30, 2000	$	21,526		$	1,462		$	1,424		$	15,301		$	1,669		$	41,382
	December 31, 1999	$	27,531		$	1,300		$	1,136		$	16,395		$	230		$	46,592

      Through Legacy Marketing Group (“LMG”), the Company markets and administers fixed annuity and life insurance products on behalf of unaffiliated insurance carriers. Through its wholly-owned broker-dealer subsidiary, Legacy Financial Services, Inc., (“LFS”), the Company engages in the sale of variable annuity and life insurance products, mutual funds and debt and equity securities. Through LifeSurance Corporation, the Company

conducts estate planning seminars, which provide continuing education credits for producers and promote sales of life insurance and annuity products. Regan Holding Corp. is the Company’s parent holding company where certain of the Company’s fixed assets and related rental revenue and depreciation are recorded, as well as non-employee stock option and shareholder expenses. “Other” segments above include Legacy Advisory Services, Inc., Legacy Reinsurance Company, and Imagent Online, LLC. Such entities’ financial results are not material in the aggregate and therefore were not separated for purposes of this disclosure.

Analysis of Regan Holding Corp. Consolidated

      Results of Operations—The Company experienced consolidated net losses of approximately $2.3 million during the third quarter of 2000, compared to consolidated net income of approximately $263,000 during the third quarter of 1999. For the nine months ended September 30, 2000, the Company experienced net losses of approximately $4.8 million, compared with net income of approximately $5.4 million for the same period in 1999. These losses are due primarily to a decrease in Legacy Marketing Group (“LMG”) revenue and increases in LMG expenses, both of which are discussed below.

      Liquidity and Capital Resources— The Company’s principal needs for cash are: (i) funding operating expenses; (ii) purchases of computer hardware and software, leasehold improvements, and acquisitions of furniture and fixtures to accommodate new employees and support anticipated growth in operations; (iii) funding continued product development and potential strategic acquisitions; and, (iv) as a reserve to cover possible redemptions of certain of the Company’s common stock that is redeemable at the option of shareholders under various agreements with the Company.

      Cash and short-term investment grade securities represented 31.7% of the Company’s total consolidated assets at September 30, 2000, compared with 47.1% at December 31, 1999. This decrease in cash and short-term investments is attributable primarily to purchases of fixed assets, advances to existing and anticipated investees, and repayment of a margin loan, as discussed below.

      The Company paid approximately $4.4 million during the nine months ended September 30, 2000 to purchase computer hardware and software, leasehold improvements, and acquisitions of furniture and fixtures. Such purchases were necessary to accommodate new employees and support anticipated growth in sales volume.

      During May 2000, the Company entered into an agreement to fund a financial services internet start-up company. Pursuant to this agreement, the Company purchased an ownership interest in the internet company for $402,500 during May 2000. The Company also loaned $600,000 during June 2000 and $500,000 during August 2000 to the internet company. Repayments under the note will commence in June 2001. The Company may advance additional funds during the fourth quarter of 2000 and the first of quarter 2001.

      The Company advanced approximately $1.2 million during the third quarter of 2000 to a Tennessee corporation engaged in the business of values-based investment screening. The Company is currently negotiating to purchase the assets of the Tennessee corporation. Management expects the acquisition to be finalized during the fourth quarter of 2000.

      During the last two quarters of 1999 and the first quarter of 2000, the Company obtained approximately $4.1 million in margin loan advances from its investment broker. The margin loan was repaid in full during the first quarter of 2000.

      The Company is obligated to repurchase certain shares of its common stock pursuant to contractual agreements under which the shares were issued. At September 30, 2000 and December 31, 1999, the total redemption value of all redeemable common stock outstanding was approximately $11.2 million and $11.6 million, respectively. Cash paid pursuant to redemption requests from shareholders totaled approximately $486,000 during the nine months ended September 30, 2000 and approximately $459,000 during the same period in 1999.

      At December 31, 1999, the Company’s investment portfolio included a $12.0 million equity investment in an affiliate of an insurance carrier with which LMG contracts. In the first quarter of 2000, the corner affiliate repurchased the equity securities from the Company for approximately $12.5 million, pursuant to the terms of the investment agreement under which the securities were purchased.

      In May 1998, the Company entered into a Shareholder’s Agreement with Lynda Regan, Chief Executive Officer of the Company and Chairman of the Company’s Board of Directors, and certain other individuals. Under the terms of this agreement, in the event of the death of Ms. Regan, the Company is obligated to repurchase from Ms. Regan’s estate all of the shares of the Company’s common stock that were owned by Ms. Regan at the time of her death or that were transferred by her to one or more trusts prior to her death. The purchase price to be paid by the Company shall be equal to 125% of the fair market value of the shares, which totaled approximately $25.5 million at September 30, 2000. The Company has purchased two life insurance policies with a combined face amount of $29.0 million for the purpose of funding this obligation in the event of Ms. Regan’s death.

      Management intends to continue to retain any earnings for use in its business and does not anticipate paying any cash dividends in the foreseeable future.

      Generally, the Company’s cash needs are met through cash provided from operating activities, which totaled approximately $6.9 million during the nine months ended September 30, 1999 and approximately $1.3 million during the nine months ended September 30, 2000. The decrease in cash flows from operating activities is attributable primarily to a decrease in LMG sales. Until such sales increase, as discussed below, operating activities may generate negative cash flows. Management believes that existing cash and investment balances, together with cash flows from operations, will provide sufficient funding for the foreseeable future. However, in the event that a shortfall were to occur, management believes that adequate financing could be obtained to meet the Company’s cash flow needs.

Analysis of Legacy Marketing Group

      Results of Operations—During the third quarter of 2000, LMG’s net loss totaled approximately $1.2 million, compared to net income of approximately $1.6 million for the same period in 1999. For the nine months ended September 30, 2000, LMG recorded a net loss of approximately $890,000, compared to net income of approximately $9.5 million during the same period in 1999. These fluctuations are attributable primarily to decreases in revenue and increases in expenses, as discussed below.

      Revenue—LMG’s major sources of revenue are marketing allowances, commission revenue, and administrative fees from sales and administration of fixed annuity and life insurance products on behalf of the insurance carriers with which the Company contracts (the “Carriers”). Levels of marketing allowances and commission revenue are directly related to the sales volume of such products. Administrative fees are a function not only of product sales, but also of administration of policies in force and processing of producer appointments and terminations. Total LMG revenue decreased approximately $1.8 million, or 17.5%, in the third quarter of 2000, compared to the third quarter of 1999, and decreased approximately $11.8 million, or 30.0%, during the nine months ended September 30, 2000, compared to the nine months ended September 30, 1999. These decreases are attributable primarily to decreases in premium placed in force for the Carriers, as discussed below.

      LMG marketing allowances and commission revenue, combined, decreased approximately $2.0 million, or 23.6%, during the third quarter of 2000, compared to the third quarter of 1999, due primarily to a 30.1% decrease in fixed annuity premium placed in force for the Carriers. For the nine months ended September 30, 2000, such revenue decreased by approximately $11.7 million, or 35.9%, compared to the same period in 1999 due to a decrease in premium of 43.6%. These decreases are attributable primarily to market conditions that resulted in the

poor performance of bond investments underlying the annuities’ crediting rates and to lower than anticipated market acceptance of one fixed annuity product, which was introduced in 1999. The decrease in premium placed in force was partially offset by a shift to sales of fixed annuity and life insurance products that yield higher commissions. To avoid further declines in sales, several new products and product enhancements were released at the sales incentive convention in July 2000 that are expected to result in increased sales in the fourth quarter. However, there can be no assurances that the release of these products will result in increased sales.

      Through LMG, the Company markets and administers fixed annuity and life insurance products on behalf of three insurance carriers collectively referred to herein as the “Carriers”. A significant percentage of the Company’s consolidated revenue during the periods presented was generated from LMG sales on behalf of each of the Carriers, as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2000			1999			2000			1999
Carrier A		69.6	%		10.9	%		80.9	%		9.3	%
Carrier B		23.3	%		71.2	%		14.1	%		76.4	%
Carrier C		7.1	%		11.3	%		5.0	%		10.1	%

      Although LMG markets and administers several products on behalf of the Carriers, the Company’s consolidated revenue during the periods presented was derived primarily from sales and administration of two fixed annuity products, as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2000			1999			2000			1999
Product A (sold on behalf of Carrier A)		50.4	%		8.5	%		43.5	%		11.1	%
Product B (sold on behalf of Carrier B)		7.9	%		15.3	%		12.3	%		29.4	%

      This shift between Carriers' products is attributable primarily to more favorable acceptance of Carrier A's products in the marketplace, which is largely related to the products experiencing higher crediting rates, and is expected to continue for the foreseeable future.

      The Company is currently implementing several initiatives to increase the volume of LMG sales, including several marketing programs that are designed to strengthen relationships with existing producers and attract new producers. In addition, LMG released several new products and product enhancements at a sales convention in July 2000 that are expected to diversify LMG’s product portfolio, enhance market share, and increase sales. The Company is also in negotiations with certain additional insurance carriers to provide marketing and administrative services, similar to those performed for the Carriers. However, there can be no assurances that such events will occur or, if they occur, will result in increases in LMG sales.

      Expenses—Total LMG expenses increased approximately $2.7 million, or 31.3%, during the three months ended September 30, 2000, compared to the three months ended September 30, 1999, and increased approximately $5.5 million, or 21.7%, for the nine months ended September 30, 2000, compared to the nine months ended September 30, 1999. These increases are attributable primarily to increases in salaries and related benefits, sales promotion and support, occupancy, professional fees, and depreciation, as discussed below.

      As a service organization, LMG’s primary expenses are salaries and related employee benefits. These expenses increased approximately $556,000, or 11.1%, in the third quarter of 2000, compared to the third quarter of 1999. For the nine months ended September 30, 2000, salaries and related benefits increased approximately $1.3 million, or 8.2%, compared to the same period in 1999. Such increases resulted primarily from regular annual pay

increases and from increases in the number of employees, which are largely attributable to preparation for increases in sales. During the third quarter of 2000, however, the Company hired several employees at higher salary levels, including two executive officers. Such increases in senior personnel are considered necessary in order to support anticipated increases in LMG sales, as discussed above. Accordingly, salary and benefits expense is expected to increase in future periods.

      Sales promotion and support expense is comprised primarily of costs related to LMG’s annual national sales conventions, product marketing materials designed and printed for distribution to Producers, and incentives paid to Producers to stimulate sales. These expenses increased approximately $560,000, or 36.1%, during the third quarter of 2000, compared to the third quarter of 1999, due primarily to actual and planned increases in attendance at sales conventions and increases in incentives paid to Producers.

      Occupancy expenses consist primarily of leased office space and related costs. These expenses increased approximately $336,000, or 77.0%, in the third quarter of 2000, compared to the third quarter of 1999. During the nine months ended September 30, 2000, occupancy expense increased $1.1 million, or 119.7%, compared to the same period in 1999. These increases are due primarily to the leasing of new office space during the third quarter of 1999 and to overall increases in telephone, utilities, and other related expenses that correspond with increases in employment, as discussed above.

      Professional fees increased approximately $950,000, or 196.3%, in the third quarter of 2000 compared to the third quarter of 1999. For the nine months ended September 30, 2000, professional fees increased approximately $2.2 million, or 208.2%, compared to the nine months ended September 30, 1999. Such increases are due primarily to consulting fees related to various information systems projects.

      For the nine months ended September 30, 2000, depreciation and amortization expense increased $751,000, or 742.6%. This increase is due primarily to acquisitions of fixed assets, which were necessary to improve newly leased office space and to accommodate increases in employment as discussed above, and to a decrease in the estimated useful lives of certain computer hardware and software from five years to three years resulting in increased depreciation expense.

Analysis of Legacy Financial Services, Inc.

      Results of Operations—LFS net losses totaled approximately $128,000 during the third quarter of 2000, compared to approximately $30,000 in net income during the third quarter of 1999. This fluctuation is attributable primarily to decreases in revenue and increases in expenses, as discussed below. During the nine months ended September 30, 2000, LFS net income totaled approximately $250,000, compared to approximately $158,000 during the same period in 1999. This increase in net income is attributable primarily to increases in revenue, which were partially offset by increases in expenses, as discussed below.

      Revenue—LFS’ primary source of revenue is commission overrides, which are generated through sales of variable life insurance, variable annuities, mutual funds, and debt and equity securities. Levels of commission revenue are directly related to the volume of sales of such products. Total LFS revenue decreased approximately $113,000, or 27.0%, during the three months ended September 30, 2000, compared to the same period in 1999, due primarily to decreases in sales volume. For the nine months ending September 30, 2000, total revenue increased by approximately $517,000, or 44.2%, compared to the same period in 1999, due primarily to increases in sales volume. Also contributing to increases in commission revenue were shifts to sales by independent broker networks from which LFS receives an additional supervisory commission override.

      Expenses—Total LFS expenses increased approximately $176,000, or 41.9%, during the third quarter of 2000 compared to the third quarter of 1999. For the nine months ended September 30, 2000, expenses increased approximately $459,000, or 42.8%, compared to the nine months ended September 30, 1999. The increases are attributable primarily to increases in the number of employees, to the addition of personnel at higher pay levels, and to regular annual pay increases and increases in sales promotion and support expenses related to increased attendance at the annual sales convention.

Analysis of LifeSurance Corporation

      Results of Operations—LifeSurance Corporation recorded net losses of approximately $81,000 during the three months ended September 30, 2000, compared to approximately $181,000 during the same period in 1999 and recorded net losses of approximately $601,000 during the nine months ended September 30, 2000, compared to approximately $459,000 during the same period in 1999. These increased losses are attributable primarily to increases in expenses, which were partially offset by increases in revenue, as discussed below.

      Revenue—LifeSurance Corporation’s primary source of revenue is fees paid by for attendance at estate planning seminars. LifeSurance Corporation’s revenue increased approximately $56,000 during the three months ended September 30, 2000, compared to the three months ended September 30, 1999, and increased approximately $131,000 during the nine months ended September 30, 2000, compared to the nine months ended September 30, 1999. These increases are attributable primarily to increased seminar attendance.

      Expenses—LifeSurance Corporation’s expenses consist primarily of salaries and related benefits and sales promotion and support costs. Salaries and related benefits expense increased approximately $20,000, or 14.3%, during the quarter ended September 30, 2000, compared to the quarter ended September 30, 1999, and increased approximately $178,000, or 48.5% for the nine months ended September 30, 2000, compared to the same period in 1999. Such increases are attributable primarily to increases in personnel and to regular annual pay increases. Sales promotion and support expenses decreased approximately $69,000 during the quarter ended September 30, 2000, compared to the same three months in 1999, and decreased approximately $29,000 for the nine months ended September 30, 2000, compared to the same period in 1999. These decreases are attributable primarily to reallocation of certain sales concept costs to a separate subsidiary during 2000.

      Analysis of Regan Holding Corp. (stand-alone)

      Results of Operations—Regan Holding Corp. recorded net losses of approximately $769,000 during the three months ended September 30, 2000, compared to approximately $1.2 million during the same period in 1999, and approximately $3.2 million during the nine months ended September 30, 2000, compared to approximately $3.8 million during the same period in 1999. These decreased losses are attributable primarily to increases in revenue and decreases in expenses, as discussed below.

      Revenue—Regan Holding Corp’s revenue consists solely of rental revenue from an office building that was purchased during mid-1999. The building was leased to unaffiliated tenants during the fourth quarter of 1999, which resulted in revenue of approximately $147,000 during the third quarter of 2000, and approximately $401,000 during the nine months ended September 30, 2000.

      Expenses—Regan Holding Corp.’s expenses decreased approximately $1.3 million, or 23.7%, during the nine months ended September 30, 2000, compared to the nine months ended September 30, 1999. This decrease is due primarily to a decrease in the number of non-employee stock options granted during 2000, compared to 1999.

Analysis of Other Segments

      Results of Operations—Other segments consist of Legacy Advisory Services, Inc., Legacy Reinsurance Company, and Imagent Online, LLC. Combined net losses from these entities increased approximately $143,000 during the third quarter of 2000, compared to the third quarter of 1999, and increased approximately $394,000 during the nine months ended September 30, 2000, compared to the same period in 1999. These increased losses are attributable primarily to equity investment losses recorded by Imagent Online, LLC related to its investment in an internet start-up company, as discussed above. Such losses are expected to continue for the foreseeable future.

PART II – OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

      The following matters were submitted to a vote of shareholders of the Company at the Annual Meeting of Shareholders, that was held August 10, 2000:

		For		Against			Abstain
1.	Approval of an amendment of the bylaws to increase the minimum number of Directors from three (3) to five (5) and the maximum number of directors from seven (7) to nine (9).		16,863,917			4,047		36,513
2.	Election of six (6) Directors to hold office until the Annual Meeting of Shareholders in 2001 and until their successors are duly elected. The nominees are listed as follows: Steven C. Anderson, Ute Scott-Smith, J. Daniel Speight, Dr. Donald Ratajczak, R. Preston Pitts, and Lynda L. Regan.		16,904,477		–			–
3.	Ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent auditors for the year ended December 31, 2000.		16,901,581		–			2,896

Item 6. Exhibits and Reports on Form 8-K

(a)	Index to Exhibits
	Exhibit 3(ii)	Amended and Restated Bylaws of Regan Holding Corp.
	Exhibit 10.1	Amendment Sixteen to the Marketing Agreement by and between Legacy Marketing Group and American National Insurance Company, dated October 2000.
	Exhibit 10.2	Amendment Fifteen to the Insurance Processing Agreement by and between Legacy Marketing Group and American National Insurance Company, October 2000.
	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
	No reports on Form 8-K were filed during the third quarter of 2000.

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: November 14, 2000	Signature:	/s/ R. Preston Pitts R. Preston Pitts,
		President and Chief Operations Officer
Date: November 14, 2000	Signature:	/s/ G. Steven Taylor G. Steven Taylor,
		Chief Financial Officer

EX-3.II 2 w42403ex3-ii.txt AMENDED & RESTATED BY LAWS 1 Exhibit 3(ii) AMENDED AND RESTATED BYLAWS OF REGAN HOLDING CORP. ARTICLE I - OFFICES Section 1. The principal executive office of Regan Holding Corp. (the "Corporation") shall be at 2090 Marina Avenue, in the city of Petaluma, State of California. Section 2. The Corporation may also have offices at such other places as the Board of Directors may from time to time designate, or as the business of the Corporation may require. ARTICLE II - SHAREHOLDERS' MEETINGS Section 1. Annual Meetings. The annual meeting of the shareholders of the corporation for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting shall be held each year at such time and place as may be determined by the Board of Directors. Section 2. Special Meetings. Special meetings of the shareholders, for any purpose whatsoever, unless otherwise prescribed by statute, may be called at any time by the Chairman of the Board, the Chief Executive Officer, the President, or by the Board of Directors, or by one or more shareholders holding not less than ten percent (10%) of the voting power of the Corporation. Section 3. Place. All meetings of the shareholders shall be at any place within or without the State of California designated by the Board of Directors or by written consent of all 1 2 the persons entitled to vote thereat, given either before or after the meeting. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the Corporation. Section 4. Notice. Notice of meetings of the shareholders of the Corporation shall be given in writing to each shareholder entitled to vote, either personally or by first class mail or other means of written communication, charges prepaid, addressed to the shareholder at his/her address appearing on the books of the Corporation or given by the shareholder to the Corporation for the purpose of notice. Notice of any such meeting of shareholders shall be sent to each shareholder entitled thereto not less than ten (10) nor more than sixty (60) days before the meeting. Said notice shall state the place, date and hour of the meeting and, (1) in the case of special meetings, the general nature of the business to be transacted, and no other business may be transacted, or (2) in the case of annual meetings, those matters which the Board of Directors, at the time of the mailing of the notice, intends to present for action by the shareholders, and (3) in the case of any meeting at which directors are to be elected, the names of the nominees intended at the time of the mailing of the notice to be presented by management for election. Section 5. Adjourned Meetings. Any shareholders' meeting may be adjourned from time to time by the vote of the holders of a majority of the voting shares present at the meeting either in person or by proxy. Notice of any adjourned meeting need not be given unless a meeting is adjourned for forty-five (45) days or more from the date set for the original meeting. Section 6. Quorum. The presence in person or by proxy of the persons entitled to vote a majority of the shares entitled to vote at any meeting constitutes a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the 2 3 withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares then remaining. In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares, the holders of which are either present in person or represented by proxy thereat, but no other business may be transacted, except as provided above. Section 7. Consent to Shareholder Action. Any action which may be taken at any meeting of shareholders may be taken without a meeting and without prior notice of the proposed action, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted; provided, however, that (1) unless the consents of all shareholders entitled to vote have been solicited in writing, notice of any shareholder approval without a meeting by less than unanimous written consent shall be given as required by the California Corporations Code, and (2) directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. Any written consent may be revoked by a writing received by the Secretary of the Corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary. Section 8. Waiver of Notice. The transactions of any meeting of shareholders, however called and noticed, and whenever held, shall be as valid as though transacted at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs an written waiver of notice, or a consent to the holding of the 3 4 meeting, or an approval of the minutes thereof. All such waivers, consents, or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 9. Voting. The voting at all meetings of shareholders need not be by ballot, but any qualified shareholder before the voting begins may demand a stock vote whereupon such stock vote shall be taken by ballot, each of which shall state the name of the shareholder voting and the number of shares voted by such shareholder, and if such ballot be cast by a proxy, it shall also state the name of such proxy. At any meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote in person, or by proxy appointed in a writing subscribed by such shareholder and bearing a date not more than eleven (11) months prior to said meeting, unless the writing states that it is irrevocable and is held by a person specified in Section 705(e) of the California Corporations Code, in which event is irrevocable for the period specified in said writing. Section 10. Record Dates. In the event the Board of Directors fixes a day for the determination of shareholders of record entitled to vote as provided in Section 1 of Article V of these Bylaws, then, subject to the provisions of the General Corporation Law of the State of California, only persons in whose name shares entitled to vote stand on the stock records of the Corporation at the close of business on such day shall be entitled to vote. If no record date is fixed: The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; 4 5 The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is given; and The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixed a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five (45) days. Section 11. Cumulative Voting for Election of Directors. Provided the candidate's name has been placed in nomination prior to the voting and one or more shareholders has given notice at the meeting prior to the voting of the shareholder's intent to cumulate the shareholder's votes, every shareholder entitled to vote at any election for directors shall have the right to cumulate such shareholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the shareholder's shares are normally entitled, or distribute the shareholder's votes on the same principle among as many candidates as the shareholder shall think fit. The candidates receiving the highest number of votes of the shares entitled to be voted for them up to the number of directors to be elected by such shares are elected. 5 6 ARTICLE III - BOARD OF DIRECTORS Section 1. Powers. Subject to any limitations in the Articles of Incorporation or these Bylaws and to any provision of the California Corporations Code requiring shareholder authorization or approval for a particular action, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by, or under the direction of, the Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the Corporation to a management company or other person provided that the business and affairs of the Corporation shall be managed, and all corporate powers shall be exercised, under the ultimate direction of the Board of Directors. Section 2. Number, Tenure and Qualifications. The authorized number of directors constituting the Board of Directors shall at all times be no less than five (5) nor more than nine (9), until changed by amendment of the Articles of Incorporation or amendment of the Bylaws approved by the shareholders. The Board of Directors shall set the authorized number of directors within such range at any time. Directors shall hold office until the next annual meeting of shareholders and until their respective successors are elected. If any such annual meeting is not held, or the directors are not elected thereat, the directors may be elected at any special meeting of shareholders held for that purpose. Directors need not be shareholders of the Corporation. Section 3. Regular Meetings. A regular annual meeting of the Board of Directors shall be held without other notice than this Bylaw immediately after, and at the same place as, the annual meeting of shareholders. The Board of Directors may provide for other regular meetings from time to time by resolution. 6 7 Section 4. Special Meetings. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, the Chief Executive Officer, the President, the Secretary or more than two-thirds (2/3) of the directors. Written notice of the time and place of all special meetings of the Board of Directors shall be prepared by the Secretary of the Corporation and shall be delivered personally or by telephone including facsimile, or telegraph to each director at least forty-eight (48) hours before the meeting, or sent to each director by first-class mail, postage prepaid, at least four (4) days before the meeting. Such notice need not specify the purpose of the meeting. Notice of any meeting of the Board of Directors need not be given to any director who signs a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting prior thereto or at its commencement, the lack of notice to such director. Section 5. Place of Meetings. Meetings of the Board of Directors may be held at any place within or without the State of California, which has been designated by the Chairman in the notice, or if not stated in the notice or there is no notice, the principal executive office of the Corporation or as designated by the resolution duly adopted by the Board of Directors. Section 6. Participation by Telephone. Members of the Board of Directors may participate in a meeting through use of a conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Section 7. Quorum. A quorum at all meetings of the Board of Directors shall be either one-third (1/3) of the authorized number of directors, or two (2) directors, whichever is greater. In the absence of a quorum, a majority of the directors present may adjourn any meeting to another time and place. If a meeting is adjourned for more than twenty-four (24) hours, notice of any 7 8 adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of adjournment. Section 8. Action at Meeting. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present is the act of the Board of Directors. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the directors remaining. Section 9. Waiver of Notice. The transactions of any meeting of the Board of Directors, however called and noticed or wherever held, are as valid as though transacted at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting, or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 10. Action Without Meeting. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the Board, individually or collectively, consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. Section 11. Removal. The Board of Directors may declare vacant the office of a director who has been declared of unsound mind by an order of court or who has been convicted of a felony. The entire Board of Directors or any individual director may be removed from office without cause by a vote of shareholders holding a majority of the outstanding shares entitled to 8 9 vote at an election of directors; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against removal, or not consenting in writing to such removal, should be sufficient to elect such director if voted cumulatively at an election at which the same total number of votes cast were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of the director's most recent election were then being elected. In the event an office of a director is so declared vacant or in case the Board or any one or more directors be so removed, new directors may be elected at the same meeting. Section 12. Resignation. Any director may resign effective upon giving written notice to the Chairman of the Board, the Chief Executive Officer, the President, the Secretary or the Board of Directors of the Corporation. Such resignation will be effective immediately unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. Section 13. Vacancies. Except for a vacancy created by the removal of a director, all vacancies on the Board of Directors, whether caused by resignation, death or otherwise, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until his successor is elected at an annual, regular or special meeting of the shareholders. Vacancies created by the removal of a director may be filled only by approval of the shareholders. The shareholders may elect a director at any time to fill any vacancy not filled by the directors. Any such election by written consent requires the consent of a majority of the outstanding shares entitled to vote. Section 14. Compensation. No stated salary shall be paid directors, as such, for their services, but, by resolution of the Board of Directors, any fixed sum or other arrangement and 9 10 expenses of attendance, may be allowed for attendance at each regular or special meeting of such Board; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of any committees of the Board of Directors may be allowed like compensation for attending committee meetings. Section 15. Committees. The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two (2) or more directors, to serve at the pleasure of the Board of Directors. The Board of Directors may designate one of more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have all the authority of the Board of Directors in the management of the business and affairs of the Corporation, except with respect to (a) the approval of any action requiring shareholders' approval or approval of the outstanding shares, (b) the filling of vacancies on the Board or any committee, (c) the fixing of compensation of directors for serving on the Board or a committee, (d) the adoption, amendment or repeal of Bylaws, (e) the amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable, (f) a distribution to shareholders, except at a rate or in a periodic account or within a price range determined by the Board and (g) the appointment of other committees of the Board or the members thereof. ARTICLE IV - OFFICERS Section 1. Number and Term. The officers of the Corporation shall be a Chairman of the Board, a Chief Executive Officer ("CEO"), a President, one or more Vice Presidents, a Secretary 10 11 and a Treasurer. The Chairman, CEO, and President shall be chosen by the Board of Directors. Other officers of the Corporation may be appointed by the President and CEO or the Board of Directors. In addition, the President or the Board of Directors may appoint such other officers as may be deemed expedient for the proper conduct of the business of the Corporation, each of whom shall have such authority and perform such duties as the President or the Board of Directors may from time to time determine. The officers to be appointed by the Board of Directors shall be chosen annually at the regular meeting of the Board of Directors held after the annual meeting of shareholders and shall serve at the pleasure of the Board of Directors. If officers are not chosen at such meeting of the Board of Directors, they shall be chosen as soon thereafter as shall be convenient. Each officer shall hold office until his successor shall have been duly chosen or until his/her removal or resignation. Section 2. Inability to Act. In the case of absence or inability to act of any officer of the Corporation and of any person herein authorized to act in his place, the Board of Directors may from time to time delegate the powers or duties of such officer to any other officer, or any director or other person whom it may select. Section 3. Removal and Resignation. Any officer chosen by the Board of Directors may be removed at any time, with or without cause, by the affirmative vote of a majority of all the members of the Board of Directors. Any officer chosen by the President and CEO may be removed at any time with or without cause by the President and CEO. Any officer chosen by the Board of Directors or any officer chosen by the President and CEO may resign at any time by giving written notice of said resignation to the Corporation. Unless a different time is specified therein, such resignation shall be effective upon its receipt by 11 12 the Chairman of the Board, the Chief Executive Officer, the President, the Secretary or the Board of Directors. Section 4. Vacancies. A vacancy in the office of the President and CEO because of any cause may be filled by the Board of Directors for the unexpired portion of the term. A vacancy in any other office may be filled by the President and CEO. Section 5. Chairman of the Board and Chief Executive Officer. The Chairman of the Board shall preside at all meetings of the Board. The Chief Executive Officer shall generally oversee, and be generally responsible for, all aspects of the operation of the Corporation. Section 6. President. The President shall be the general manager and chief executive officer of the Corporation, subject to the control of the Board of Directors, and as such shall preside at all meetings of shareholders, shall have general supervision of the affairs of the Corporation, shall sign or countersign or authorize another officer to sign all certificates, contracts, and other instruments of the Corporation as authorized by the Board of Directors, shall make reports to the Board of Directors and shareholders, and shall perform all such other duties as are incident to such office or are properly required by the Board of Directors. Section 7. Vice President. In the absence of the President, or in the event of such officer's death, disability or refusal to act, the Vice President, or, in the event there be more than one Vice President, the Vice Presidents in the order designated at the time of their selection, or in the absence of any such designation, then in the order of their selection, shall perform the duties of President, and when so acting, shall have all the powers and be subject to all restrictions upon the President. Each Vice President shall have such powers and discharge such duties as may be assigned from time to time by the President or by the Board of Directors. 12 13 Section 8. Secretary. The Secretary shall see that notices for all meetings are given in accordance with the provisions of these Bylaws and as required by law, shall keep minutes of all meetings, shall have charge of the seal and the corporate books, and shall make such reports and perform such other duties as are incident to such office, or as are properly required by the Chief Executive Officer, the President or by the Board of Directors. The Assistant Secretary or the Assistant Secretaries, in the order of their seniority, shall, in the absence or disability of the Secretary, or in the event of such officer's refusal to act, perform the duties and exercise the powers and discharge such duties as may be assigned from time to time by the Chief Executive Officer, the President or by the Board of Directors. Section 9. Treasurer. The Treasurer may also be designated by the alternate title of "Chief Financial Officer." The Chief Financial Officer shall have custody of all moneys and securities of the Corporation and shall keep regular books of account. Such officer shall disburse the funds of the Corporation in payment of the just demands against the Corporation, or as may be ordered by the Board of Directors, take proper vouchers for such disbursements, and shall render to the Board of Directors from time to time as may be required of such officer, an account of all transactions as Chief Financial Officer and of the financial condition of the Corporation. Such officer shall perform all duties incident to such office or which are properly required by the President or by the Board of Directors. The Assistant Treasurers or the Assistant Chief Financial Officers, in the order of their seniority, shall, in the absence or disability of the Chief Financial Officer, or in the event of such officer's refusal to act, perform the duties and exercise the powers of the Chief Financial Officer and shall have such powers and discharge such duties as may be assigned from time to time by the President or by the Board of Directors. 13 14 Section 10. Salaries. The salary of the President and CEO shall be fixed from time to time by the Board of Directors. The salary of other officers shall be fixed from time to time by the President and CEO or the Board of Directors. No officer shall be prevented from receiving such salary by reason of the fact that such officer is also a director of the Corporation. Section 11. Officers Holding More Than One Office. Any two or more offices may be held by the same person, but no person shall execute, acknowledge or verify any instrument in more than one capacity. ARTICLE V - MISCELLANEOUS Section 1. Record Date and Closing of Stock Books. The Board of Directors may fix a time in the future as a record date for the determination of the shareholders entitled to notice of and to vote at any meeting of shareholders or entitled to receive payment of any dividend or distribution, or any allotment of rights, or to exercise rights in respect to any other lawful action. The record date so fixed shall not be more than sixty (60) nor less than ten (10) days prior to the date of the meeting or event for the purposes of which it is fixed. When a record date is so fixed, only shareholders of record at the close of business on that date are entitled to notice of and to vote at the meeting or to receive the dividend, distribution, or allotment of rights, or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the record date. The Board of Directors may close the books of the Corporation against transfers of shares during the whole or any part of a period of not more than sixty (60) days prior to the date of a shareholders' meeting, the date then the right to any dividend, distribution, or allotment of rights vests, or the effective date of any change, conversion or exchange of shares. 14 15 Section 2. Certificates. Certificates of stock shall be issued in numerical order and each shareholder shall be entitled to a certificate signed in the name of the Corporation by the Chairman of the Board, the Chief Executive Officer or the President or a Vice President, and the Treasurer, the Secretary or an Assistant Secretary, certifying to the number of shares owned by such shareholder. Any or all of the signatures on the certificate may be facsimile. Prior to the due presentment for registration of transfer in the stock transfer book of the Corporation, the registered owner shall be treated as the person exclusively entitled to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner, except as expressly provided otherwise by the laws of the State of California. Section 3. Representation of Shares in Other Corporations. Shares of other corporations standing in the name of this Corporation, or share rights of other corporations assigned to this Corporation, may be voted or represented and all incidents thereto may be exercised on behalf of the Corporation by the Chairman of the Board, the Chief Executive Officer, the President or any Vice President and the Treasurer or the Secretary or an Assistant Secretary. Section 4. Fiscal Year. The fiscal year of the Corporation shall end on the 31st day of December. Section 5. Amendments. Bylaws may be adopted, amended, or repealed by the vote or the written consent of shareholders entitled to exercise a majority of the voting power of the Corporation. Subject to the right of shareholders to adopt, amend, or repeal Bylaws, Bylaws may be adopted, amended or repealed by the Board of Directors, except that a Bylaw amendment thereof changing the authorized number of directors may be adopted by the Board of Directors only if these Bylaws permit an indefinite number of directors and the bylaw or amendment thereof adopted by the Board of Directors changes the authorized number of directors within the limits specified in these Bylaws. 15 16 Section 6. Indemnification of Corporate Agents. The Corporation shall indemnify each of its agents against expenses, judgments, fines, settlements and other amounts, actually and reasonably incurred by such person by reason of such person's having been made or having been threatened to be made a party to a proceeding by reason of the fact that the person is or was an agent of the Corporation, to the extent permitted by section 317 of the California Corporations Code and the Corporation shall advance the expenses reasonably expected to be incurred by such agent in defending any proceeding upon receipt of the undertaking required by subdivision (f) of Section 317 of the California Corporation Code. The terms "agent", "proceeding", and "expenses" made in this Section 6 shall have the same meaning as such terms are defined in Section 317 of the California Corporations Code. The indemnification provided by this Section shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled to under any other Articles, agreement, vote of shareholders or disinterested directors, or otherwise, to the extent such additional rights are authorized in the Articles of Incorporation and by applicable law. 16 EX-10.1 3 w42403ex10-1.txt AMENDMENT SIXTEEN TO THE MARKETING AGREEMENT 1 EXHIBIT 10.1 AMENDMENT SIXTEEN TO MARKETING AGREEMENT This document is Amendment Sixteen 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; Amendment Five to Marketing Agreement dated December 15, 1998; Amendment Six to Marketing Agreement dated March 25, 1999; Amendment Seven to Marketing Agreement dated May 10, 1999; Amendment Eight to Marketing Agreement dated June 24, 1999; Amendment Nine to Marketing Agreement dated August 5, 1999; Amendment Ten to Marketing Agreement dated October 1, 1999; Amendment Eleven to Marketing Agreement dated January 31, 2000; Amendment Twelve to Marketing Agreement dated February 29, 2000; Amendment Thirteen to Marketing Agreement dated April 19, 2000; Amendment Fourteen to Marketing Agreement dated July 31, 2000; and Amendment Fifteen to Marketing Agreement dated September 25,2000 (the "Agreement"), by and between American National Insurance Company ("American National") a Texas corporation, and Legacy Marketing 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 November 30, 2000, the term of this Agreement. This Agreement may be renewed by mutual agreement for 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/ Preston Pitts By: /s/ Kelly M. Collier ----------------- -------------------- Title: President Title: V. P. Alternative Distribution --------- ------------------------------ Witness: /s/ Anne Sedleniek Witness: /s/Nicole Abraham ------------------ ----------------- Date: October 31, 2000 Date: October 27, 2000 ---------------- ----------------

EX-10.2 4 w42403ex10-2.txt AMENDMENT FIFTEEN, INSURANCE PROCESSING AGREEMENT 1 EXHIBIT 10.2 AMENDMENT FIFTEEN TO INSURANCE PROCESSING AGREEMENT This document is Amendment Fifteen to the Insurance Processing Agreement, made and entered into effective June 1, 1993, and amended by Amendment One to Insurance Processing 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; Amendment Five to Insurance Processing Agreement dated March 25, 1999; Amendment Six to Insurance Processing Agreement dated May 10, 1999; Amendment Seven to Insurance Processing Agreement dated June 24, 1999; Amendment Eight to Insurance Processing Agreement dated August 5, 1999; Amendment Nine to Insurance Processing Agreement dated October 1, 1999; Amendment Ten to Insurance Processing Agreement dated January 31, 2000; Amendment Eleven to Insurance Processing Agreement dated March 1, 2000; Amendment Twelve to Insurance Processing Agreement dated April 19, 2000; Amendment Thirteen to Insurance Processing Agreement dated July 31, 2000; and Amendment Fourteen to Insurance Processing Agreement dated September 25, 2000 (the "Agreement"), by and between American National Insurance Company ("American National") a Texas corporation, and Legacy Marketing 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 November 30, 2000, 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/ Preston Pitts By: /s/ Kelly M. Collier ----------------- -------------------- Title: President Title: V. P. Alternative Distribution --------- ------------------------------ Witness: /s/ Anne Sedleniek Witness: /s/Jynx Yucra ------------------ ------------- Date: October 31, 2000 Date: October 27, 2000 ----------------- ----------------

EX-11.1 5 w42403ex11-1.txt COMPUTATION OF EARNINGS PER SHARE-BASIC 1 EXHIBIT 11.1 COMPUTATION OF EARNINGS PER SHARE (UNAUDITED) BASIC EARNINGS PER SHARE

Three Months Ended Nine Months Ended September 30, September 30, -------------------------------------- --------------------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net income (loss)--numerator $ (2,342,488) $ 262,775 $ (4,794,667) $ 5,378,540 Basic weighted average shares outstanding--denominator 26,252,879 26,375,095 26,312,012 26,403,061 -------------- ---------- -------------- ----------------- Basic net income (loss) per share $ (0.09) 0.01 $ (0.18) $ 0.20 ============== ========== ============== =================

EX-11.2 6 w42403ex11-2.txt COMPUTATION OF EARNINGS PER SHARE-DILUTED 1 EXHIBIT 11.2 COMPUTATION OF EARNINGS PER SHARE UNAUDITED DILUTED EARNINGS PER SHARE

Three Months Ended September 30, ----------------------------------------------- 2000 1999 ---- ---- Net income (loss)--numerator $ (2,342,488) $ 262,775 --------------------- ---------------- Basic weighted average shares outstanding 26,252,879 26,375,095 Plus incremental shares from assumed conversions(1) -- 1,349,040 --------------------- ---------------- Number of shares for computation of diluted net income (loss) per share--denominator 26,252,879 27,724,135 --------------------- ---------------- Diluted net income (loss) per share $ (0.09) $ 0.01 ===================== ================

Nine Months Ended September 30, ------------------------------------------------- 2000 1999 ---- ---- Net income (loss)--numerator $ (4,794,667) $ 5,378,540 --------------------- ---------------- Basic weighted average shares outstanding 26,312,012 26,403,061 Plus incremental shares from assumed conversions(1) -- 1,356,373 --------------------- ---------------- Number of shares for computation of diluted net income (loss) per share 26,312,012 27,759,434 --------------------- ---------------- Diluted net income (loss) per share $ (0.18) $ 0.19 ===================== ================

(1) The diluted share base for the three and nine month periods ended September 30, 2000 exclude incremental shares of 2,246,612 and 2,288,778, respectively, related to employee and non-employee stock options. These shares are excluded due to their antidilutive effect as a result of the Company's net losses incurred during 2000. EX-27 7 w42403ex27.txt FINANCIAL DATA SCHEDULE

<ARTICLE> 5

<LEGEND> 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 September 30, 2000, and is qualified in its entirety by reference to such financial statements.

<PERIOD-TYPE> 9-MOS <FISCAL-YEAR-END> DEC-31-2000 <PERIOD-START> JAN-01-2000 <PERIOD-END> SEP-30-2000 <CASH> 3,138,971 <SECURITIES> 9,970,001 <RECEIVABLES> 1,622,556 <ALLOWANCES> 0 <INVENTORY> 0 <CURRENT-ASSETS> 19,783,893 <PP&E> 18,984,867 <DEPRECIATION> 4,921,342 <TOTAL-ASSETS> 41,381,681 <CURRENT-LIABILITIES> 7,932,777 <BONDS> 0 <PREFERRED-MANDATORY> 0 <PREFERRED> 0 <COMMON> 3,641,751 <OTHER-SE> 13,301,708 <TOTAL-LIABILITY-AND-EQUITY> 41,381,681 <SALES> 30,078,637 <TOTAL-REVENUES> 30,078,637 <CGS> 37,909,989 <TOTAL-COSTS> 37,909,989 <OTHER-EXPENSES> 0 <LOSS-PROVISION> 304,600 <INTEREST-EXPENSE> 190,109 <INCOME-PRETAX> (7,649,742) <INCOME-TAX> (2,900,075) <INCOME-CONTINUING> (4,794,667) <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> (4,794,667) <EPS-BASIC> (.18) <EPS-DILUTED> (.18)

-----END PRIVACY-ENHANCED MESSAGE-----

EX-3.II

   1
                                  Exhibit 3(ii)

                           AMENDED AND RESTATED BYLAWS
                             OF REGAN HOLDING CORP.


ARTICLE I - OFFICES

       Section 1.    The principal executive office of Regan Holding Corp. (the
"Corporation") shall be at 2090 Marina Avenue, in the city of Petaluma, State of
California.

       Section 2.    The Corporation may also have offices at such other places
as the Board of Directors may from time to time designate, or as the business of
the Corporation may require.

ARTICLE II - SHAREHOLDERS' MEETINGS

       Section 1.    Annual Meetings. The annual meeting of the shareholders of
the corporation for the election of directors to succeed those whose terms
expire and for the transaction of such other business as may properly come
before the meeting shall be held each year at such time and place as may be
determined by the Board of Directors.

       Section 2.    Special Meetings. Special meetings of the shareholders, for
any purpose whatsoever, unless otherwise prescribed by statute, may be called at
any time by the Chairman of the Board, the Chief Executive Officer, the
President, or by the Board of Directors, or by one or more shareholders holding
not less than ten percent (10%) of the voting power of the Corporation.

       Section 3.    Place. All meetings of the shareholders shall be at any
place within or without the State of California designated by the Board of
Directors or by written consent of all

                                       1
   2

the persons entitled to vote thereat, given either before or after the meeting.
In the absence of any such designation, shareholders' meetings shall be held at
the principal executive office of the Corporation.

       Section 4.    Notice. Notice of meetings of the shareholders of the
Corporation shall be given in writing to each shareholder entitled to vote,
either personally or by first class mail or other means of written
communication, charges prepaid, addressed to the shareholder at his/her address
appearing on the books of the Corporation or given by the shareholder to the
Corporation for the purpose of notice. Notice of any such meeting of
shareholders shall be sent to each shareholder entitled thereto not less than
ten (10) nor more than sixty (60) days before the meeting. Said notice shall
state the place, date and hour of the meeting and, (1) in the case of special
meetings, the general nature of the business to be transacted, and no other
business may be transacted, or (2) in the case of annual meetings, those matters
which the Board of Directors, at the time of the mailing of the notice, intends
to present for action by the shareholders, and (3) in the case of any meeting at
which directors are to be elected, the names of the nominees intended at the
time of the mailing of the notice to be presented by management for election.

       Section 5.    Adjourned Meetings. Any shareholders' meeting may be
adjourned from time to time by the vote of the holders of a majority of the
voting shares present at the meeting either in person or by proxy. Notice of any
adjourned meeting need not be given unless a meeting is adjourned for forty-five
(45) days or more from the date set for the original meeting.

       Section 6.    Quorum. The presence in person or by proxy of the persons
entitled to vote a majority of the shares entitled to vote at any meeting
constitutes a quorum for the transaction of business. The shareholders present
at a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the

                                       2
   3

withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
then remaining. In the absence of a quorum, any meeting of shareholders may be
adjourned from time to time by the vote of a majority of the shares, the holders
of which are either present in person or represented by proxy thereat, but no
other business may be transacted, except as provided above.

       Section 7.    Consent to Shareholder Action. Any action which may be
taken at any meeting of shareholders may be taken without a meeting and without
prior notice of the proposed action, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted; provided, however, that (1) unless the consents of all
shareholders entitled to vote have been solicited in writing, notice of any
shareholder approval without a meeting by less than unanimous written consent
shall be given as required by the California Corporations Code, and (2)
directors may not be elected by written consent except by unanimous written
consent of all shares entitled to vote for the election of directors.

       Any written consent may be revoked by a writing received by the Secretary
of the Corporation prior to the time that written consents of the number of
shares required to authorize the proposed action have been filed with the
Secretary.

         Section 8. Waiver of Notice. The transactions of any meeting of
shareholders, however called and noticed, and whenever held, shall be as valid
as though transacted at a meeting duly held after regular call and notice, if a
quorum be present either in person or by proxy, and if, either before or after
the meeting, each of the persons entitled to vote, not present in person or by
proxy, signs an written waiver of notice, or a consent to the holding of the


                                       3
   4

meeting, or an approval of the minutes thereof. All such waivers, consents, or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.

       Section 9.    Voting. The voting at all meetings of shareholders need not
be by ballot, but any qualified shareholder before the voting begins may demand
a stock vote whereupon such stock vote shall be taken by ballot, each of which
shall state the name of the shareholder voting and the number of shares voted by
such shareholder, and if such ballot be cast by a proxy, it shall also state the
name of such proxy.

       At any meeting of the shareholders, every shareholder having the right to
vote shall be entitled to vote in person, or by proxy appointed in a writing
subscribed by such shareholder and bearing a date not more than eleven (11)
months prior to said meeting, unless the writing states that it is irrevocable
and is held by a person specified in Section 705(e) of the California
Corporations Code, in which event is irrevocable for the period specified in
said writing.

       Section 10.   Record Dates. In the event the Board of Directors fixes a
day for the determination of shareholders of record entitled to vote as provided
in Section 1 of Article V of these Bylaws, then, subject to the provisions of
the General Corporation Law of the State of California, only persons in whose
name shares entitled to vote stand on the stock records of the Corporation at
the close of business on such day shall be entitled to vote.

       If no record date is fixed:

       The record date for determining shareholders entitled to notice of or to
vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day notice is given or, if notice is waived, at
the close of business on the business day next preceding the day on which the
meeting is held;


                                       4
   5

       The record date for determining shareholders entitled to give consent to
corporate action in writing without a meeting, when no prior action by the
Board of Directors is necessary, shall be the day on which the first written
consent is given; and

       The record date for determining shareholders for any other purpose shall
be at the close of business on the day on which the Board of Directors adopts
the resolution relating thereto, or the sixtieth (60th) day prior to the date of
such other action, whichever is later.

       A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixed a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than forty-five (45) days.

       Section 11.   Cumulative Voting for Election of Directors. Provided the
candidate's name has been placed in nomination prior to the voting and one or
more shareholders has given notice at the meeting prior to the voting of the
shareholder's intent to cumulate the shareholder's votes, every shareholder
entitled to vote at any election for directors shall have the right to cumulate
such shareholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which the
shareholder's shares are normally entitled, or distribute the shareholder's
votes on the same principle among as many candidates as the shareholder shall
think fit. The candidates receiving the highest number of votes of the shares
entitled to be voted for them up to the number of directors to be elected by
such shares are elected.


                                       5
   6


ARTICLE III - BOARD OF DIRECTORS

       Section 1.    Powers. Subject to any limitations in the Articles of
Incorporation or these Bylaws and to any provision of the California
Corporations Code requiring shareholder authorization or approval for a
particular action, the business and affairs of the Corporation shall be managed
and all corporate powers shall be exercised by, or under the direction of, the
Board of Directors. The Board of Directors may delegate the management of the
day-to-day operation of the business of the Corporation to a management company
or other person provided that the business and affairs of the Corporation shall
be managed, and all corporate powers shall be exercised, under the ultimate
direction of the Board of Directors.

       Section 2.    Number, Tenure and Qualifications. The authorized number of
directors constituting the Board of Directors shall at all times be no less than
five (5) nor more than nine (9), until changed by amendment of the Articles of
Incorporation or amendment of the Bylaws approved by the shareholders. The Board
of Directors shall set the authorized number of directors within such range at
any time.

       Directors shall hold office until the next annual meeting of shareholders
and until their respective successors are elected. If any such annual meeting is
not held, or the directors are not elected thereat, the directors may be elected
at any special meeting of shareholders held for that purpose. Directors need not
be shareholders of the Corporation.

       Section 3.    Regular Meetings. A regular annual meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The Board of
Directors may provide for other regular meetings from time to time by
resolution.

                                       6
   7

       Section 4.    Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board, the Chief
Executive Officer, the President, the Secretary or more than two-thirds (2/3) of
the directors. Written notice of the time and place of all special meetings of
the Board of Directors shall be prepared by the Secretary of the Corporation and
shall be delivered personally or by telephone including facsimile, or telegraph
to each director at least forty-eight (48) hours before the meeting, or sent to
each director by first-class mail, postage prepaid, at least four (4) days
before the meeting. Such notice need not specify the purpose of the meeting.
Notice of any meeting of the Board of Directors need not be given to any
director who signs a waiver of notice, whether before or after the meeting, or
who attends the meeting without protesting prior thereto or at its commencement,
the lack of notice to such director.

       Section 5.    Place of Meetings. Meetings of the Board of Directors may
be held at any place within or without the State of California, which has been
designated by the Chairman in the notice, or if not stated in the notice or
there is no notice, the principal executive office of the Corporation or as
designated by the resolution duly adopted by the Board of Directors.

       Section 6.    Participation by Telephone. Members of the Board of
Directors may participate in a meeting through use of a conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another.

       Section 7.    Quorum. A quorum at all meetings of the Board of Directors
shall be either one-third (1/3) of the authorized number of directors, or two
(2) directors, whichever is greater. In the absence of a quorum, a majority of
the directors present may adjourn any meeting to another time and place. If a
meeting is adjourned for more than twenty-four (24) hours, notice of any

                                       7
   8

adjournment to another time or place shall be given prior to the time of the
adjourned meeting to the directors who were not present at the time of
adjournment.

       Section 8.    Action at Meeting. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present is the act of the Board of Directors. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the directors remaining.

       Section 9.    Waiver of Notice. The transactions of any meeting of the
Board of Directors, however called and noticed or wherever held, are as valid as
though transacted at a meeting duly held after regular call and notice if a
quorum is present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting, or an approval of the minutes thereof. All such waivers, consents and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.

       Section 10.   Action Without Meeting. Any action required or permitted to
be taken by the Board of Directors may be taken without a meeting, if all
members of the Board, individually or collectively, consent in writing to such
action. Such written consent or consents shall be filed with the minutes of the
proceedings of the Board. Such action by written consent shall have the same
force and effect as a unanimous vote of such directors.

       Section 11.   Removal. The Board of Directors may declare vacant the
office of a director who has been declared of unsound mind by an order of court
or who has been convicted of a felony.

       The entire Board of Directors or any individual director may be removed
from office without cause by a vote of shareholders holding a majority of the
outstanding shares entitled to

                                       8
   9

vote at an election of directors; provided, however, that unless the entire
Board is removed, no individual director may be removed when the votes cast
against removal, or not consenting in writing to such removal, should be
sufficient to elect such director if voted cumulatively at an election at which
the same total number of votes cast were cast (or, if such action is taken by
written consent, all shares entitled to vote were voted) and the entire number
of directors authorized at the time of the director's most recent election were
then being elected.

       In the event an office of a director is so declared vacant or in case the
Board or any one or more directors be so removed, new directors may be elected
at the same meeting.

       Section 12.   Resignation. Any director may resign effective upon giving
written notice to the Chairman of the Board, the Chief Executive Officer, the
President, the Secretary or the Board of Directors of the Corporation. Such
resignation will be effective immediately unless the notice specifies a later
time for the effectiveness of such resignation. If the resignation is effective
at a future time, a successor may be elected to take office when the resignation
becomes effective.

       Section 13.   Vacancies. Except for a vacancy created by the removal of a
director, all vacancies on the Board of Directors, whether caused by
resignation, death or otherwise, may be filled by a majority of the remaining
directors, though less than a quorum, or by a sole remaining director, and each
director so elected shall hold office until his successor is elected at an
annual, regular or special meeting of the shareholders. Vacancies created by the
removal of a director may be filled only by approval of the shareholders. The
shareholders may elect a director at any time to fill any vacancy not filled by
the directors. Any such election by written consent requires the consent of a
majority of the outstanding shares entitled to vote.

       Section 14.   Compensation. No stated salary shall be paid directors, as
such, for their services, but, by resolution of the Board of Directors, any
fixed sum or other arrangement and

                                       9
   10

expenses of attendance, may be allowed for attendance at each regular or special
meeting of such Board; provided that nothing herein contained shall be construed
to preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of any committees of the Board of
Directors may be allowed like compensation for attending committee meetings.

       Section 15.   Committees. The Board of Directors may, by resolution
adopted by a majority of the authorized number of directors, designate one or
more committees, each consisting of two (2) or more directors, to serve at the
pleasure of the Board of Directors. The Board of Directors may designate one of
more directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. Any such committee, to the extent
provided in the resolution of the Board of Directors, shall have all the
authority of the Board of Directors in the management of the business and
affairs of the Corporation, except with respect to (a) the approval of any
action requiring shareholders' approval or approval of the outstanding shares,
(b) the filling of vacancies on the Board or any committee, (c) the fixing of
compensation of directors for serving on the Board or a committee, (d) the
adoption, amendment or repeal of Bylaws, (e) the amendment or repeal of any
resolution of the Board which by its express terms is not so amendable or
repealable, (f) a distribution to shareholders, except at a rate or in a
periodic account or within a price range determined by the Board and (g) the
appointment of other committees of the Board or the members thereof.

ARTICLE IV - OFFICERS

         Section 1. Number and Term. The officers of the Corporation shall be a
Chairman of the Board, a Chief Executive Officer ("CEO"), a President, one or
more Vice Presidents, a Secretary



                                       10
   11



and a Treasurer. The Chairman, CEO, and President shall be chosen by the Board
of Directors. Other officers of the Corporation may be appointed by the
President and CEO or the Board of Directors. In addition, the President or the
Board of Directors may appoint such other officers as may be deemed expedient
for the proper conduct of the business of the Corporation, each of whom shall
have such authority and perform such duties as the President or the Board of
Directors may from time to time determine. The officers to be appointed by the
Board of Directors shall be chosen annually at the regular meeting of the Board
of Directors held after the annual meeting of shareholders and shall serve at
the pleasure of the Board of Directors. If officers are not chosen at such
meeting of the Board of Directors, they shall be chosen as soon thereafter as
shall be convenient. Each officer shall hold office until his successor shall
have been duly chosen or until his/her removal or resignation.

       Section 2.    Inability to Act. In the case of absence or inability to
act of any officer of the Corporation and of any person herein authorized to act
in his place, the Board of Directors may from time to time delegate the powers
or duties of such officer to any other officer, or any director or other person
whom it may select.

       Section 3.    Removal and Resignation. Any officer chosen by the Board of
Directors may be removed at any time, with or without cause, by the affirmative
vote of a majority of all the members of the Board of Directors. Any officer
chosen by the President and CEO may be removed at any time with or without cause
by the President and CEO.

       Any officer chosen by the Board of Directors or any officer chosen by the
President and CEO may resign at any time by giving written notice of said
resignation to the Corporation. Unless a different time is specified therein,
such resignation shall be effective upon its receipt by



                                       11
   12

the Chairman of the Board, the Chief Executive Officer, the President, the
Secretary or the Board of Directors.

       Section 4.    Vacancies. A vacancy in the office of the President and CEO
because of any cause may be filled by the Board of Directors for the unexpired
portion of the term. A vacancy in any other office may be filled by the
President and CEO.

       Section 5.    Chairman of the Board and Chief Executive Officer. The
Chairman of the Board shall preside at all meetings of the Board. The Chief
Executive Officer shall generally oversee, and be generally responsible for, all
aspects of the operation of the Corporation.

       Section 6.    President. The President shall be the general manager and
chief executive officer of the Corporation, subject to the control of the Board
of Directors, and as such shall preside at all meetings of shareholders, shall
have general supervision of the affairs of the Corporation, shall sign or
countersign or authorize another officer to sign all certificates, contracts,
and other instruments of the Corporation as authorized by the Board of
Directors, shall make reports to the Board of Directors and shareholders, and
shall perform all such other duties as are incident to such office or are
properly required by the Board of Directors.

       Section 7.    Vice President. In the absence of the President, or in the
event of such officer's death, disability or refusal to act, the Vice President,
or, in the event there be more than one Vice President, the Vice Presidents in
the order designated at the time of their selection, or in the absence of any
such designation, then in the order of their selection, shall perform the duties
of President, and when so acting, shall have all the powers and be subject to
all restrictions upon the President. Each Vice President shall have such powers
and discharge such duties as may be assigned from time to time by the President
or by the Board of Directors.


                                       12
   13

       Section 8.    Secretary. The Secretary shall see that notices for all
meetings are given in accordance with the provisions of these Bylaws and as
required by law, shall keep minutes of all meetings, shall have charge of the
seal and the corporate books, and shall make such reports and perform such
other duties as are incident to such office, or as are properly required by the
Chief Executive Officer, the President or by the Board of Directors.

       The Assistant Secretary or the Assistant Secretaries, in the order of
their seniority, shall, in the absence or disability of the Secretary, or in the
event of such officer's refusal to act, perform the duties and exercise the
powers and discharge such duties as may be assigned from time to time by the
Chief Executive Officer, the President or by the Board of Directors.

       Section 9.    Treasurer. The Treasurer may also be designated by the
alternate title of "Chief Financial Officer." The Chief Financial Officer shall
have custody of all moneys and securities of the Corporation and shall keep
regular books of account. Such officer shall disburse the funds of the
Corporation in payment of the just demands against the Corporation, or as may be
ordered by the Board of Directors, take proper vouchers for such
disbursements, and shall render to the Board of Directors from time to time as
may be required of such officer, an account of all transactions as Chief
Financial Officer and of the financial condition of the Corporation. Such
officer shall perform all duties incident to such office or which are properly
required by the President or by the Board of Directors.

       The Assistant Treasurers or the Assistant Chief Financial Officers, in
the order of their seniority, shall, in the absence or disability of the Chief
Financial Officer, or in the event of such officer's refusal to act, perform the
duties and exercise the powers of the Chief Financial Officer and shall have
such powers and discharge such duties as may be assigned from time to time by
the President or by the Board of Directors.



                                       13
   14

         Section 10. Salaries. The salary of the President and CEO shall be
fixed from time to time by the Board of Directors. The salary of other officers
shall be fixed from time to time by the President and CEO or the Board of
Directors. No officer shall be prevented from receiving such salary by reason of
the fact that such officer is also a director of the Corporation.

       Section 11.   Officers Holding More Than One Office. Any two or more
offices may be held by the same person, but no person shall execute, acknowledge
or verify any instrument in more than one capacity.

ARTICLE V - MISCELLANEOUS

       Section 1.    Record Date and Closing of Stock Books. The Board of
Directors may fix a time in the future as a record date for the determination of
the shareholders entitled to notice of and to vote at any meeting of
shareholders or entitled to receive payment of any dividend or distribution, or
any allotment of rights, or to exercise rights in respect to any other lawful
action. The record date so fixed shall not be more than sixty (60) nor less than
ten (10) days prior to the date of the meeting or event for the purposes of
which it is fixed. When a record date is so fixed, only shareholders of record
at the close of business on that date are entitled to notice of and to vote at
the meeting or to receive the dividend, distribution, or allotment of rights, or
to exercise the rights, as the case may be, notwithstanding any transfer of any
shares on the books of the Corporation after the record date.

       The Board of Directors may close the books of the Corporation against
transfers of shares during the whole or any part of a period of not more than
sixty (60) days prior to the date of a shareholders' meeting, the date then the
right to any dividend, distribution, or allotment of rights vests, or the
effective date of any change, conversion or exchange of shares.



                                       14
   15

       Section 2.    Certificates. Certificates of stock shall be issued in
numerical order and each shareholder shall be entitled to a certificate signed
in the name of the Corporation by the Chairman of the Board, the Chief Executive
Officer or the President or a Vice President, and the Treasurer, the Secretary
or an Assistant Secretary, certifying to the number of shares owned by such
shareholder. Any or all of the signatures on the certificate may be facsimile.
Prior to the due presentment for registration of transfer in the stock transfer
book of the Corporation, the registered owner shall be treated as the person
exclusively entitled to vote, to receive notifications and otherwise to exercise
all the rights and powers of an owner, except as expressly provided otherwise by
the laws of the State of California.

       Section 3.    Representation of Shares in Other Corporations. Shares of
other corporations standing in the name of this Corporation, or share rights of
other corporations assigned to this Corporation, may be voted or represented and
all incidents thereto may be exercised on behalf of the Corporation by the
Chairman of the Board, the Chief Executive Officer, the President or any Vice
President and the Treasurer or the Secretary or an Assistant Secretary.

       Section 4.    Fiscal Year. The fiscal year of the Corporation shall end
on the 31st day of December.

       Section 5.    Amendments. Bylaws may be adopted, amended, or repealed by
the vote or the written consent of shareholders entitled to exercise a majority
of the voting power of the Corporation. Subject to the right of shareholders to
adopt, amend, or repeal Bylaws, Bylaws may be adopted, amended or repealed by
the Board of Directors, except that a Bylaw amendment thereof changing the
authorized number of directors may be adopted by the Board of Directors only if
these Bylaws permit an indefinite number of directors and the bylaw or amendment
thereof adopted by the Board of Directors changes the authorized number of
directors within the limits specified in these Bylaws.



                                       15
   16

       Section 6.    Indemnification of Corporate Agents. The Corporation shall
indemnify each of its agents against expenses, judgments, fines, settlements and
other amounts, actually and reasonably incurred by such person by reason of such
person's having been made or having been threatened to be made a party to a
proceeding by reason of the fact that the person is or was an agent of the
Corporation, to the extent permitted by section 317 of the California
Corporations Code and the Corporation shall advance the expenses reasonably
expected to be incurred by such agent in defending any proceeding upon receipt
of the undertaking required by subdivision (f) of Section 317 of the California
Corporation Code. The terms "agent", "proceeding", and "expenses" made in this
Section 6 shall have the same meaning as such terms are defined in Section 317
of the California Corporations Code. The indemnification provided by this
Section shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled to under any other Articles, agreement, vote of
shareholders or disinterested directors, or otherwise, to the extent such
additional rights are authorized in the Articles of Incorporation and by
applicable law.


                                       16

EX-10.1

   1
                                  EXHIBIT 10.1

                    AMENDMENT SIXTEEN TO MARKETING AGREEMENT


This document is Amendment Sixteen 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; Amendment Five to Marketing
Agreement dated December 15, 1998; Amendment Six to Marketing Agreement dated
March 25, 1999; Amendment Seven to Marketing Agreement dated May 10, 1999;
Amendment Eight to Marketing Agreement dated June 24, 1999; Amendment Nine to
Marketing Agreement dated August 5, 1999; Amendment Ten to Marketing Agreement
dated October 1, 1999; Amendment Eleven to Marketing Agreement dated January 31,
2000; Amendment Twelve to Marketing Agreement dated February 29, 2000; Amendment
Thirteen to Marketing Agreement dated April 19, 2000; Amendment Fourteen to
Marketing Agreement dated July 31, 2000; and Amendment Fifteen to Marketing
Agreement dated September 25,2000 (the "Agreement"), by and between American
National Insurance Company ("American National") a Texas corporation, and Legacy
Marketing 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 November 30,
       2000, the term of this Agreement. This Agreement may be renewed by mutual
       agreement for 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/ Preston Pitts                By:           /s/ Kelly M. Collier
                    -----------------                              --------------------

       Title:       President                        Title:        V. P. Alternative Distribution
                    ---------                                      ------------------------------

       Witness:     /s/ Anne Sedleniek               Witness:      /s/Nicole Abraham
                    ------------------                             -----------------

       Date:        October 31, 2000                 Date:         October 27, 2000
                    ----------------                               ----------------

EX-10.2

   1
                                  EXHIBIT 10.2

               AMENDMENT FIFTEEN TO INSURANCE PROCESSING AGREEMENT


This document is Amendment Fifteen to the Insurance Processing Agreement, made
and entered into effective June 1, 1993, and amended by Amendment One to
Insurance Processing 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; Amendment Five to Insurance Processing
Agreement dated March 25, 1999; Amendment Six to Insurance Processing Agreement
dated May 10, 1999; Amendment Seven to Insurance Processing Agreement dated June
24, 1999; Amendment Eight to Insurance Processing Agreement dated August 5,
1999; Amendment Nine to Insurance Processing Agreement dated October 1, 1999;
Amendment Ten to Insurance Processing Agreement dated January 31, 2000;
Amendment Eleven to Insurance Processing Agreement dated March 1, 2000;
Amendment Twelve to Insurance Processing Agreement dated April 19, 2000;
Amendment Thirteen to Insurance Processing Agreement dated July 31, 2000; and
Amendment Fourteen to Insurance Processing Agreement dated September 25, 2000
(the "Agreement"), by and between American National Insurance Company ("American
National") a Texas corporation, and Legacy Marketing 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 November 30,
       2000, 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/ Preston Pitts                By:           /s/ Kelly M. Collier
                      -----------------                              --------------------

       Title:       President                        Title:        V. P. Alternative Distribution
                    ---------                                      ------------------------------

       Witness:     /s/ Anne Sedleniek               Witness:      /s/Jynx Yucra
                    ------------------                             -------------

       Date:        October 31, 2000                 Date:         October 27, 2000
                    -----------------                              ----------------

EX-11.1

   1
                                                                   EXHIBIT 11.1

                        COMPUTATION OF EARNINGS PER SHARE
                                   (UNAUDITED)

                            BASIC EARNINGS PER SHARE




                                               Three Months Ended                         Nine Months Ended
                                                  September 30,                             September 30,
                                      --------------------------------------    ---------------------------------------
                                             2000            1999                       2000                  1999
                                             ----            ----                       ----                  ----
                                                                                         
Net income (loss)--numerator          $   (2,342,488)      $  262,775           $    (4,794,667)     $       5,378,540
Basic weighted average shares
outstanding--denominator                  26,252,879       26,375,095                26,312,012             26,403,061
                                      --------------       ----------            --------------      -----------------

Basic net income (loss) per share     $        (0.09)            0.01           $         (0.18)     $            0.20
                                      ==============       ==========            ==============      =================

EX-11.2

   1
                                                                 EXHIBIT 11.2

                        COMPUTATION OF EARNINGS PER SHARE
                                    UNAUDITED

                           DILUTED EARNINGS PER SHARE








                                                                       Three Months Ended
                                                                         September 30,
                                                        -----------------------------------------------
                                                                2000                          1999
                                                                ----                          ----
                                                                             
Net income (loss)--numerator                             $          (2,342,488)       $        262,775
                                                         ---------------------        ----------------

Basic weighted average shares outstanding                           26,252,879              26,375,095

Plus incremental shares from assumed conversions(1)                         --               1,349,040
                                                         ---------------------        ----------------

Number of shares for computation of diluted net
income (loss) per share--denominator                                26,252,879              27,724,135
                                                         ---------------------        ----------------

Diluted net income (loss) per share                      $               (0.09)       $           0.01
                                                         =====================        ================



                                                                          Nine Months Ended
                                                                            September 30,
                                                         -------------------------------------------------
                                                                  2000                         1999
                                                                  ----                         ----
                                                                               
Net income (loss)--numerator                             $          (4,794,667)       $      5,378,540
                                                         ---------------------        ----------------

Basic weighted average shares outstanding                           26,312,012              26,403,061

Plus incremental shares from assumed conversions(1)                         --               1,356,373
                                                         ---------------------        ----------------

Number of shares for computation of diluted net
income (loss) per share                                             26,312,012              27,759,434
                                                         ---------------------        ----------------


Diluted net income (loss) per share                      $               (0.18)       $           0.19
                                                         =====================        ================


(1)  The diluted share base for the three and nine month periods ended September
     30, 2000 exclude incremental shares of 2,246,612 and 2,288,778,
     respectively, related to employee and non-employee stock options. These
     shares are excluded due to their antidilutive effect as a result of the
     Company's net losses incurred during 2000.

EX-27

 

<ARTICLE> 5
<LEGEND>
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 September 30, 2000, and is qualified in its
entirety by reference to such financial statements.


                             
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                          DEC-31-2000
<PERIOD-START>                             JAN-01-2000
<PERIOD-END>                               SEP-30-2000
<CASH>                                       3,138,971
<SECURITIES>                                 9,970,001
<RECEIVABLES>                                1,622,556
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                            19,783,893
<PP&E>                                      18,984,867
<DEPRECIATION>                               4,921,342
<TOTAL-ASSETS>                              41,381,681
<CURRENT-LIABILITIES>                        7,932,777
<BONDS>                                              0
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                     3,641,751
<OTHER-SE>                                  13,301,708
<TOTAL-LIABILITY-AND-EQUITY>                41,381,681
<SALES>                                     30,078,637
<TOTAL-REVENUES>                            30,078,637
<CGS>                                       37,909,989
<TOTAL-COSTS>                               37,909,989
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                               304,600
<INTEREST-EXPENSE>                             190,109
<INCOME-PRETAX>                            (7,649,742)
<INCOME-TAX>                               (2,900,075)
<INCOME-CONTINUING>                        (4,794,667)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                               (4,794,667)
<EPS-BASIC>                                      (.18)
<EPS-DILUTED>                                    (.18)