SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential, For Use of the
Commission Only (as permitted
|_| Definitive Proxy Statement by Rule 14a-6(e) (2))
|_| Definitive Additional materials
|_| Soliciting Material Under Rule 14a-12
REGAN HOLDING CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i) (1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
|_| Fee paid previously with preliminary materials:
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a) (2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
REGAN HOLDING CORP.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held June 6, 2003
NOTICE IS HEREBY GIVEN THAT the Annual Meeting of Shareholders of Regan
Holding Corp., a California corporation (the "Company"), will be held at the
Double Tree Hotel, One Double Tree Drive, Rohnert Park, California on Friday,
June 6, 2003 at 8:30 a.m., or at any adjournment thereof (the "Annual Meeting").
At the Annual Meeting, the shareholders will be asked to consider and act upon
the following matters:
1. To elect five (5) directors to hold office until the Annual
Meeting of Shareholders in 2004 and until their successors
shall be elected and shall qualify.
2. To consider and act upon a proposal to ratify the appointment
of PricewaterhouseCoopers LLP as independent auditors to
examine the financial statements and books and records of the
Company for the year 2003.
3. To consider and act upon such other business that properly
comes before the meeting or any adjournment or adjournments of
the meeting.
Only shareholders of record at the close of business on April 30, 2003 are
entitled to notice of and to vote at the Annual Meeting.
It is very important that your shares are represented and voted at the
meeting. Your shares may be voted by returning the enclosed proxy card. If you
attend the meeting, you may vote in person even if you have previously mailed a
proxy card. We would appreciate your informing us on the proxy card if you
expect to attend the meeting so that we can provide adequate seating for
attendees.
The continuing interest of our shareholders in the business of the Company
is appreciated and we hope many of you will be able to attend the Annual
Meeting.
By Order of the Board of Directors
R. Preston Pitts
Secretary
Dated: May 7, 2003
Petaluma, California
- --------------------------------------------------------------------------------
It is important that your shares be represented at the Annual Meeting regardless
of the number of shares you hold. Whether or not you plan to attend the Annual
Meeting, please complete and return your proxy in the enclosed envelope as soon
as possible.
- --------------------------------------------------------------------------------
REGAN HOLDING CORP.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To be held June 6, 2003
The Annual Meeting of Shareholders of Regan Holding Corp., a California
corporation (the "Company") will be held at the Double Tree Hotel, One Double
Tree Drive, Rohnert Park, California on Friday, June 6, 2003 at 8:30 a.m., or at
any adjournment thereof (the "Annual Meeting") for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders. This Proxy Statement is
furnished in connection with the solicitation by the Company of proxies to be
used at the Annual Meeting or at any and all adjournments (that take place
within eleven months from the issuance of such proxy) of such meeting. The
enclosed proxy card is solicited by the Board of Directors of the Company. By
executing and returning the enclosed proxy card or by following the enclosed
voting instructions, you authorize the persons named in the proxy card to
represent you and vote your shares on the matters described in the Notice of
Annual Meeting of Shareholders. The mailing address of the Company's principal
executive offices is 2090 Marina Avenue, Petaluma, California 94954.
Commencing approximately May 7, 2003, the Company is mailing its Annual
Report on Form 10-K for the year ended December 31, 2002 together with this
Proxy Statement and the enclosed proxy card to the Shareholders. If you attend
the Annual Meeting, you may vote in person. If you are not present, your shares
can be voted only if you have completed a properly executed proxy card. If you
have completed a properly executed proxy card, your shares will be voted as you
specify. If no specification is made, the shares will be voted in accordance
with the recommendations of the Board of Directors. You may revoke the
authorization given in your proxy card at any time before the shares are voted
at the Annual Meeting. To do this, send a written notice of revocation or
another signed proxy card dated at a later date to the Secretary of the Company
at the Company's principal executive offices prior to the date of the Annual
Meeting. You may also revoke your proxy by attending the Annual Meeting and
voting in person.
Voting Rights
The record date for determination of the shareholders entitled to vote at
the Annual Meeting is the close of business on April 30, 2003. As of the record
date, the Company had outstanding 24,127,380 shares of Common Stock-Series A, no
par value (the "Series A Stock"), and 560,358 shares of Common Stock-Series B,
no par value (the "Series B Stock"). As of the date of this Proxy Statement, the
Company is not in arrears in dividends. The shares of Series A Stock and Series
B Stock are collectively referred to herein as "Common Stock" and the holders of
shares of Common Stock vote together as a single class.
The shares of Common Stock are the only outstanding voting securities of
the Company. A holder of Common Stock is entitled to cast one vote for each
share held of record by such holder on the record date on all matters to be
considered at the Annual Meeting. As explained under Item 1 of this Proxy
Statement, cumulative voting will be permitted with respect to the election of
Directors.
The person appointed by us to act as election inspector for the meeting
will count votes cast by proxy or in person at the Annual Meeting. The holders
of a majority of the votes entitled to be cast, present either in person or by
proxy, shall constitute a quorum for purposes of the Annual Meeting. Shares for
which a holder has elected to abstain on a matter and broker non-vote shares
will count for purposes of determining the presence of a quorum. For actions
requiring approval based on a percentage of votes cast, abstentions and broker
non-votes will not
2
affect the outcome of the vote. For actions requiring approval based on the
number of shares outstanding, abstentious and broker non-votes will have the
same effect as a negative vote.
The proxy solicitor, the election inspector and the tabulators of all
proxies, ballots and voting tabulations that identify shareholders are
independent and are not employees of the Company.
ITEM 1
ELECTION OF DIRECTORS
The Board of Directors has fixed the number of Directors to be elected at
five (5) and has nominated the persons identified below to serve as Directors
until the next Annual Meeting of Shareholders and their respective successors
shall be elected and shall qualify. Each of the nominees listed below is
currently a Director of the Company.
Name and Age Principal Occupation Director Since
- ------------ -------------------- --------------
Lynda L. Regan Ms. Regan has served as Chairman of 1990
54 years old the Board and Chief Executive
Officer of the Company since 1992.
She was Senior Vice President and
Treasurer from 1990 to 1992.
R. Preston Pitts Mr. Pitts served as Chief Financial 1995
51 years old Officer of the Company from 1994 to
1997, as President and Secretary of
the Company since 1997, and as
President, Secretary and Chief
Operating Officer of the Company
since 1998. Prior to joining the
Company, he owned Pitts Company, a
CPA firm specializing in services
for insurance companies, served as
financial officer for United Family
Life Insurance Company and American
Security Insurance Group, both
Fortis-owned companies, and was
Audit Manager for Ernst & Young.
Ute Scott-Smith Ms. Scott-Smith has run her own 1997
43 years old financial services business since
January 2003. She was semi-retired
from 1997-January 2003. She also
served as Senior Vice-President of
the Company from 1990 to April of
1997.
Dr. Donald Ratajczak Dr. Ratajczak is a consulting 2000
60 years old economist. Prior to April 1, 2003,
he was the Chief Executive Officer
and Chairman of the Board of
Brainworks Ventures, Inc. prior to
its merger with Assurance America
Corp. Since then, he has served as a
director of the combined entity. He
is also a board member of Crown
Craft since July 2001. For
twenty-seven years, Dr. Ratajczak
has been Director of the Economic
Forecasting Center in the J. Mack
Robinson College of Business, having
retired from Georgia State
University at the end of June 2000.
Prior to founding the Center in
1973, Dr. Ratajczak was Director of
Research for the UCLA Business
3
Forecasting Project. Dr. Ratajczak
also serves as a Director of Ruby
Tuesday, Inc., TBC Corporation and
Citizen Trust Bank, and as a Trustee
of CIM High Yield Fund. He is a
member of the American Economic
Association and the Economic History
Association.
J. Daniel Speight, Jr. Mr. Speight is the Vice Chairman, 2000
46 years old Chief Financial Officer and Director
of Flag Financial Corporation, a
bank holding company, and of FLAG
Bank, a wholly owned subsidiary of
FLAG Financial. Mr. Speight served
as Chief Executive Officer and a
Director of Middle Georgia
Bankshares, Inc. from 1989 until its
merger with Flag Financial in March
1998 and has served in various
positions as President, Chief
Executive Officer and a Director of
Citizens Bank and the resultant FLAG
organization since 1984. Mr. Speight
previously served as Chairman of The
Bankers Bank and is currently a
member of the State Bar of Georgia.
He is past Chairman of the Georgia
Bankers Association Community
Banking Committee, past President of
the Community Bankers Association of
Georgia, and past Director of the
Independent Bankers Association of
America.
The Board of Directors recommends that shareholders vote "FOR" all the nominees.
Although it is not contemplated that any of the nominees will decline or
be unable to serve, the proxies will be voted by the proxy holders at their
discretion for another person if such a contingency should arise. Unless
otherwise directed in the accompanying proxy, or as specified above, the proxies
will be voted "FOR" the election of the nominees named above. Each nominee has
indicated approval of his or her nomination and his or her willingness to serve
if elected.
The Company's Bylaws provide that each shareholder is entitled to cumulate
such shareholder's votes and give one nominee a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which
such shareholder's shares are normally entitled, or distribute the shareholder's
votes on the same principle among as many nominees as the shareholder considers
appropriate. This cumulative voting right may not be exercised unless the
nominee'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 such shareholder's vote. The proxy holders may
exercise this cumulative voting right at their discretion. 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.
The nomination of each of the foregoing nominees was based, in part, upon
the fact that such nominees intend to vote their respective shares of the
Company to elect themselves as Directors.
Under an insurance brokerage agreement among the Company, Lynda L. Regan
and Moody Insurance Group ("MIG"), Ms. Regan has agreed that, so long as the
brokerage agreement remains in effect, she will vote her shares in favor of the
election of Robert Moody, Jr., MIG's president and sole shareholder, as a
Director of the Company should he wish to be elected. However, at the present
time, MIG engages in business activities that compete with the
4
Company. Therefore, in order to avoid any issue as to the propriety of Mr.
Moody's serving on the Company's Board, Mr. Moody has agreed to relinquish his
right to serve on the Board for a period of one year in return for nominal
consideration from the Company. The termination of the brokerage agreement with
MIG would not have a material effect on the financial condition of the Company.
Board Committees and Meetings
During the fiscal year that ended on December 31, 2002, the Board of
Directors held five meetings. During this period, all of the incumbent directors
attended or participated in more than 75% of the aggregate of (i) the total
number of meetings of the Board of Directors and (ii) the total number of
meetings held by all Committees of the Board on which each such director served.
The Company has one standing Committee: the Audit Committee. During fiscal
year 2002, the Audit Committee held six meetings.
Executive Officers
In addition to the Directors who serve as executive officers of the
Company and who are identified above, the following individuals also serve as
executive officers of the Company:
John W. Abbott, 45 years old, was appointed Vice President and Chief
Information Officer of the Company in March 2003. From 1999-March 2003, Mr.
Abbott ran his own consulting firm, WOW Solutions. He was also Vice President of
Technology Architecture and Planning at SunAmerica Insurance Company from
1997-1999. Prior to 1997 he served as Vice President at Transamerica Life and
Annuity Company.
G. Steven Taylor, 44 years old, has served as Treasurer and Chief
Financial Officer of the Company since July 2000. From 1998 to 2000, Mr. Taylor
was Vice President of Finance for First Colony Life, a division of GE Financial
Assurance. He served as Chief Financial Officer of Professional Benefits
Insurance Company from 1995 to 1997.
William J. Hrabik, 46 years old, has served as Vice President and Chief
Operations Officer of the Company since June 2000. From 1996 to 2000, Mr. Hrabik
was Senior Vice President of Operations of ARM Financial Group. ARM Financial
Group filed for bankruptcy in June 2000. From 1988 to 1995, Mr. Hrabik served as
Vice President at Fortis.
Family Relationships
Lynda L. Regan, Chairman of the Board and Chief Executive Officer of the
Company, is married to R. Preston Pitts, President, Chief Operating Officer and
Director of the Company.
Security Ownership of Certain Beneficial Owners and Management
The following table shows the amount of Series A Stock of the Company
beneficially owned by the Company's directors, the executive officers of the
Company named in the Summary Compensation Table below and the directors and
officers of the Company as a group. The information set forth below is as of
April 30, 2003. No director or officer owns any Series B Stock.
5
Name Position Total Percent
- ---- -------- ----- -------
Lynda L. Regan Director, Chairman of the 11,730,567 (1) 48.6%
Board & Chief Executive Officer
R. Preston Pitts Director, President & Chief 1,374,723 (2) 5.7%
Operating Officer
Ute Scott-Smith Director 411,739 (3) 1.7%
J. Daniel Speight, Jr. Director 15,000 (4) *
Donald Ratajczak Director 15,000 (4) *
William J. Hrabik Chief Operations Officer 100,000 (5) *
G. Steven Taylor Chief Financial Officer 70,000 (5) *
All executive officers and 13,717,029 56.9%
directors as a group
- ----------
(1) Includes 437,945 shares issuable pursuant to stock options that are
exercisable within 60 days.
(2) Includes 635,000 shares issuable pursuant to stock options that are
exercisable within 60 days.
(3) Includes 35,000 shares issuable pursuant to stock options that are
exercisable within 60 days.
(4) Includes 15,000 shares issuable pursuant to stock options that are
exercisable within 60 days.
(5) Includes 70,000 shares issuable pursuant to stock options that are
exercisable within 60 days.
* Indicates that the percentage of the outstanding shares beneficially owned
is less than one percent (1%).
Section 16(a) Beneficial Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors and persons who own more than 10% of the
Company's common stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. The rules of the Securities and
Exchange Commission require reporting persons to supply the Company with copies
of these reports.
Based solely on its review of the copies of such reports received from
reporting persons, the Company believes that with respect to the fiscal year
ended December 31, 2002, all reporting persons timely filed the required
reports.
Certain Shareholders
The Company knows of no person who is the beneficial owner of more than
five percent of any class of the Company's outstanding Common Stock other than
Lynda L. Regan, Chairman of the Board and Chief Executive Officer of the
Company, whose ownership is listed above.
Audit Committee
The Company has a standing Audit Committee and has adopted a written
charter for the Audit Committee. The Audit Committee oversees the financial
reporting process, the system of internal controls, the audit process and the
process for monitoring compliance with laws and regulations. The company's
independent auditors are responsible for performing an audit of the Company's
consolidated financial statements in accordance with auditing standards
generally
6
accepted in the United States. The following functions are the key
responsibilities of the Audit Committee:
o Selecting, evaluating and, where appropriate, replacing the
independent auditors;
o Reviewing the terms of engagement of the independent auditors;
o Reviewing the Company's procedures with respect to appropriateness
of significant financial policies and accounting systems and
effectiveness of the Company's internal controls;
o Reviewing information from the independent auditors pertaining to
the independent auditors' independence;
o Reviewing the audited financial statements in the Annual Report
filed on Form 10-K with management, including a discussion of the
quality, not just the acceptability, of the accounting principles,
the reasonableness of significant adjustments, if any, and the
clarity of disclosures in the financial statements;
o Reviewing with the Company's independent auditors who are
responsible for expressing an opinion on the conformity of those
audited financial statements with generally accepted accounting
principles, their judgment as to the quality, not just the
acceptability, of the Company's accounting principles; and
o Reviewing and assessing the adequacy of the Audit Committee's
Charter annually and recommending revisions to the Board.
Directors' Compensation
The compensation for directors of the Company who are not officers or
employees of the Company currently consists of a $10,000 annual fee plus a
$1,500 attendance fee for each Board or committee meeting attended. Also,
outside directors of the Company are eligible to receive stock options.
Currently, Donald Ratajczak, Ute Scott-Smith and J. Daniel Speight, Jr. are the
only outside directors of the Company. The other directors are otherwise
employed by the Company and are not compensated for serving as directors or
attending Board of Directors' or committee meetings.
Executive Compensation
The following Summary Compensation Table sets forth the compensation of
(i) the Company's Chief Executive Officer, (ii) the three(1) most highly
compensated executive officers other than the Chief Executive Officer and (iii)
the former Chief Information Officer, H. Lynn Stafford, who resigned prior to
the end of the fiscal year 2002, who but for such resignation would have been
one of such four most highly compensated executive officers of the Company
(together, the "named executive officers") for services in all capacities to the
Company and its subsidiaries during 2002, 2001 and 2000:
- ----------
(1) The Company is required to disclose the compensation of the four highest
compensated executive officers other than the Chief Executive Officer. However,
only three such executive officers were employed at the end of the fiscal year
2002.
7
Summary Compensation Table
Annual Compensation Long-Term Compensation
- ------------------------------------------------------------------------------------------------
Name and Year Salary Bonus (1) Other Securities Underlying
Position Annual Options/
Compensation SARS
- ------------------------------------------------------------------------------------------------
Lynda L. Regan, 2002 $613,872 $150,000 $5,500(2) 0
Chief Executive $18,316(4)
Officer $11,427(3)
- ------------------------------------------------------------------------------------------------
2001 $613,872(7) $179,999 $3,150(2)
$18,811(4)
$14,126(3)
- ------------------------------------------------------------------------------------------------
2000 $590,847 $118,169 $4,741(2)
$13,788(4)
$16,825(3)
- ------------------------------------------------------------------------------------------------
R. Preston 2002 $460,414 $112,500 $3,428(2) 75,000
Pitts, $15,110(4)
President and
Chief Operating
Officer
- ------------------------------------------------------------------------------------------------
2001 $460,414(7) $157,503 $3,150(2)
$15,343(4)
- ------------------------------------------------------------------------------------------------
2000 $445,793 $156,028 $4,639(2)
$10,327(4)
- ------------------------------------------------------------------------------------------------
H. Lynn 2002 $177,120 $0.00 $4,356(2) 0
Stafford,
Chief
Information
Officer
- ------------------------------------------------------------------------------------------------
2001 $208,952(7) $66,265 $5,100(2)
$3,053(4)
- ------------------------------------------------------------------------------------------------
2000 $202,575 $62,798 $5,100(2)
$2,935(4)
- ------------------------------------------------------------------------------------------------
G. Steven 2002 $210,000 $31,500 $2,975(2) 50,000
Taylor, Chief $6,581(4)
Financial
Officer
- ------------------------------------------------------------------------------------------------
2001 $197,019(8) $78,808 $5,100(2)
- ------------------------------------------------------------------------------------------------
2000(5) $74,712 $37,356 ---
- ------------------------------------------------------------------------------------------------
William J. 2002 $200,000 $20,000 $5,500(2) 50,000
Hrabik, Chief $3,202(4)
Operations
Officer
- ------------------------------------------------------------------------------------------------
2001 $189,615(8) $90,067 $4,960(2)
$2,173(4)
- ------------------------------------------------------------------------------------------------
2000(6) $100,384 $48,154 $1,454(2)
- ------------------------------------------------------------------------------------------------
(1) Includes bonuses in the year in which they were earned.
(2) The Company matches contributions made to its 401(k) Plan at a rate of 50%
of employee contribution, up to 6% of total annual compensation, or a
total deferral of $11,000.
8
(3) The Company pays interest on debt related to a split dollar life insurance
policy under which Ms. Regan is the beneficiary.
(4) The Company matches contributions made by certain employees to the
Company's non-qualified deferred compensation plan at a rate of 50% of
employee contribution, up to 6% of total annual compensation deferred less
amounts matched under the Company's 401(k) Plan.
(5) Mr. Taylor's employment commenced July 31, 2000.
(6) Mr. Hrabik's employment commenced June 5, 2000.
(7) Includes full year impact of a pay raise effective April 1, 2000.
(8) Includes full year impact of a pay raise effective July 31, 2000.
Option/SAR Grants in Last Fiscal Year
- -------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
Name Number of % of Total Exercise or Expiration Date Grant Date
Securities Options/SARs Base Price Present Value(1)
Underlying Granted to ($/Sh) ($)
Options/SARs Employees in
Granted (#) Fiscal Year
- -------------------------------------------------------------------------------------------------------------
Lynda L. Regan 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
R. Preston Pitts 75,000 7.5% $1.68 1/1/12 $20,422
- -------------------------------------------------------------------------------------------------------------
G. Steven Taylor 50,000 5% $1.68 1/1/12 $13,615
- -------------------------------------------------------------------------------------------------------------
William J. Hrabik 50,000 5% $1.68 1/1/12 $13,615
- -------------------------------------------------------------------------------------------------------------
H. Lynn Stafford 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
(1) The present value on the grant date was estimated using the minimum value
method with the following assumptions, a risk free interest rate of 4.52%,
an expected life of 4 years, and no dividend yield.
Aggregated Options/SAR Exercises in Last Fiscal Year
And Fiscal Year-end Options/SAR Values
The following table sets forth certain information concerning the exercise
of options by each of the named executive officers during fiscal 2002 and the
number and value of unexercised options held by each of the named executive
officers as of December 31, 2002.
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options/SARs at Fiscal year in-the-money Options/SARs
Acquired on Value End (#) at Fiscal Year End ($)
Name Exercise (#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
- -------------------------------------------------------------------------------------------------------------
Lynda L. Regan -- -- 402,380/322,620 $143,096/$49,209
- -------------------------------------------------------------------------------------------------------------
R. Preston Pitts -- -- 455,000/445,000 $235,900/$115,350
- -------------------------------------------------------------------------------------------------------------
G. Steven Taylor -- -- 60,000/140,000 $9,600/$14,900
- -------------------------------------------------------------------------------------------------------------
William J. Hrabik -- -- 60,000/140,000 $9,600/$14,900
- -------------------------------------------------------------------------------------------------------------
H. Lynn Stafford -- -- -/- $--/$--
9
Stock Options and Stock Awards
The Company currently sponsors two stock-based compensation plans. Under
both plans, the exercise price of each option equals the estimated fair value of
the underlying common stock on the date of grant, as estimated by management,
except for incentive stock options granted to shareholders who own 10% or more
of the Company's outstanding stock, where the exercise price equals 110% of the
estimated fair value. Both plans are administered by committees, which are
appointed by the Company's Board of Directors.
Producer Option Plan -- Under the Regan Holding Corp. Producer Stock
Option and Award plan (the "Producer Option Plan"), the Company may grant to
Legacy Marketing producers and Legacy Financial registered representatives
shares of the Company's common stock and non-qualified stock options (the
"Producer Options") to purchase the Company's common stock. A total of 12.5
million shares have been reserved for grant under the Producer Option Plan.
Total stock options granted to Producers for 2002, 2001, and 2000 were 10,000,
265,000, and 1.7 million. Total expenses recorded for Producer stock option
grants were $4,000, $96,000, and $1.1 million during 2002, 2001 and 2000. The
Producer stock options granted for each of the three years ended December 31,
2002 vested immediately upon the grant date. The fair value of the Producer
options were estimated using the Black-Scholes option-pricing model with the
following assumptions:
2002 2001 2000
--------- ----------- -----------
Risk-free interest rates 4.78% 5.13%-6.80% 5.04%-6.52%
Volatility 27% 27%-31% 28%-34%
Dividend yield None None None
Expected life 6 years 6-10 years 6-10 years
The following table summarizes information with respect to shares of Series A
common stock awarded to non-employees:
2001 2000
----------- --------
Share grants 48,000 66,000
Fair value per share $1.53-$1.65 $1.53
Expense recorded $75,000 $100,000
There were no shares of Series A Stock awarded to non-employees during
2002. The share grant for 2001 listed above includes 15,000 shares of Series A
Stock that the Company was obligated to award to a service provider, but had not
been issued as of December 31, 2002.
Employee Option Plan -- Under the Regan Holding Corp. 1998 Stock Option
Plan (the "Employee Option Plan"), the Company may grant to employees and
directors incentive stock options and non-qualified options to purchase the
Company's common stock (collectively referred to herein as "Employee Options").
A total of 8.5 million shares have been reserved for grant under the Employee
Option Plan. The Employee Options generally vest over four or five years and
expire in ten years, except for incentive stock options granted to shareholders
who own 10% or more of the outstanding shares of the Company's stock, which
expire in five years. The Company uses the intrinsic value method of accounting
for stock-based awards granted to employees and, accordingly, does not recognize
compensation expense for its stock-based awards to employees.
10
Stock option activity under both the Producer plan and the Employee plan
was as follows:
Total
Weighted average
Shares Exercise Price
----------- -----------------
Outstanding at December 31, 1999 8,810,000 $1.13
Granted 5,118,000 $1.52
Exercised (27,000) $0.95
Forfeited (525,000) $1.08
Outstanding at December 31, 2000 13,376,000 $1.28
Granted 2,976,000 $1.62
Exercised -- $ --
Forfeited (788,000) $1.25
Outstanding at December 31, 2001 15,564,000 $1.35
Granted 1,153,000 $1.68
Exercised -- $ --
Forfeited (768,000) $1.22
Outstanding at December 31, 2002 15,949,000 $1.38
Exercisable at December 31, 2000 8,984,000 $1.25
Exercisable at December 31, 2001 11,512,000 $1.31
Exercisable at December 31, 2002 12,407,000 $1.32
The following table summarizes information about stock options outstanding at
December 31, 2002 under both plans:
Options Outstanding Options Exercisable
----------------------------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Range of Remaining Exercise Exercise
Exercise prices Shares Contractual Life Price Shares Price
- --------------- ------ ---------------- -------- ------ -----------
$ 0.73-$0.84 1,654,000 2.6 $ 0.73 1,614,000 $ 0.73
$ 1.03 120,000 1.3 $ 1.03 120,000 $ 1.03
$ 1.27-$1.40 5,832,000 2.5 $ 1.27 5,568,000 $ 1.27
$ 1.53 4,317,000 4.9 $ 1.53 3,132,000 $ 1.53
$ 1.61 2,081,000 4.8 $ 1.61 1,718,000 $ 1.61
$ 1.65 737,000 8.4 $ 1.65 203,000 $ 1.65
$ 1.68 1,208,000 8.5 $ 1.68 52,000 $ 1.68
Certain Relationships and Related Transactions
Pursuant to a Shareholder's Agreement with Lynda L. Regan, Chief Executive
Officer of the Company and Chairman of the Company's Board of Directors, in the
event of the death of Ms. Regan, the Company shall repurchase from Ms. Regan's
estate all of the shares of the Company's common stock that were owned, directly
or indirectly, by Ms. Regan at the time of her death, including shares that were
transferred to trusts in which Ms. Regan maintains an ownership interest. The
purchase price to be paid by the Company shall be equal to 125% of the fair
market value of the shares. The Company has purchased two life insurance
policies with a combined face amount of $29 million for the purpose of funding
this obligation in the event of Ms. Regan's death.
11
Report on Executive Compensation
The Board of Directors develops and administers the Company's executive
compensation policies and programs. These policies and programs are generally
intended to: (i) relate the compensation of the Company's executives to the
success of the Company and to the creation of shareholder value; and (ii)
attract, motivate and retain highly qualified executives. In establishing a
level of compensation, the Board considers a number of factors, including; (i)
the financial condition and performance of the Company; (ii) the compensation
levels of executives in comparable positions of companies in industries in which
the Company competes for executives, primarily the financial services and
insurance industries; and (iii) the abilities of the executives and their
contributions to the Company's strategic goals and performance.
Each year, the Board of Directors reviews the Company's executive
compensation policies and programs to ensure that executive compensation is
linked to the creation of shareholder value and to assess the competitiveness of
the compensation programs. Compensation for executives during 2002 consisted of
base pay and incentive bonuses. Base pay for executives is determined based on
the factors set forth above.
In 2002, the Board of Directors approved the following two bonus policies
(i) the Executive Officer Personal Performance Bonus policy (the "Performance
Bonus"), and (ii) the Executive Officer Net Income Bonus policy (the "Net Income
Bonus"). These bonus policies provide compensation for the following executive
officer positions: Chief Executive Officer, President/Chief Operating Officer,
Chief Financial Officer, Chief Information Officer and Chief Operations Officer
(collectively, the "Executive Officers").
The Performance Bonus will be calculated as follows: Each Executive
Officer is entitled to an annual Personal Performance bonus that is to be based
on a percentage of annual salary (the "Bonus Percentage"). The maximum Bonus
Percentage will be established by the Chief Executive Officer, President and the
Board of Directors no later than the first quarter of the year in which the
bonus can be earned (the "Bonus Year"). Payment of the maximum Bonus Percentage
will be contingent upon achievement of personal performance goals during the
Bonus Year. Each respective Executive Officer and his or her superior officer
will agree upon personal performance goals no later than the first quarter of
each Bonus Year. Calculation of the personal performance bonus to be paid will
be based on the percentage of personal performance goals achieved. Payment of
the Personal Performance Bonus will be made during the first quarter of the year
following the Bonus Year.
In addition to the Performance Bonus, Executive Officers can earn the Net
Income Bonus. Each Executive Officer's Net Income Bonus will be calculated as
follows: A percentage of Regan Holding Corp. consolidated net income (defined
below) during the Bonus Year will be allocated to each Executive Officer. The
percentage to be allocated to each Executive Officer will be established by the
Chief Executive Officer, the President and the Board of Directors. For purposes
of this calculation, Net Income is defined as consolidated net income from
operations, prepared in accordance with accounting principles generally accepted
in the United States, excluding all Executive Officer bonuses and net of
applicable income taxes.
Respectfully submitted,
Lynda L. Regan
R. Preston Pitts
Donald Ratajczak
Ute Scott-Smith
J. Daniel Speight, Jr.
12
Performance Data
The Company's Common Stock became subject to the Securities Exchange Act
of 1934 in November 1991 as a result of the issuance of shares of Common Stock
in connection with the acquisition of LifeSurance Corporation. There has never
been an active public trading market for the Common Stock. Prior to December 31,
1992, the Company issued 5,935,094 shares of Series A Redeemable Common Stock at
prices ranging from $1.00 to $2.25 per share. This stock was issued in
accordance with the terms of the 701 Asset Accumulator Program (the "701 Plan")
between the Company, its independent insurance producers and employees, and the
Confidential Private Placement Memorandum and Subscription Agreement (the
"Subscription Agreement") between the Company and certain accredited investors.
Under the terms of the 701 Plan and the Subscription Agreement, the Series A
Redeemable Common Stock may be redeemed at the option of the holder after being
held for two consecutive years, at a redemption price based upon current market
value, subject to the Company's ability to make such purchases under applicable
corporate law. In connection with the merger in 1991 between the Company and
LifeSurance Corporation, 615,242 shares of Series B Redeemable Common Stock were
authorized and issued in exchange for all of the outstanding stock of
LifeSurance Corporation. Under the merger agreement, the Series B Redeemable
Common Stock may be redeemed by the holder in quantities of up to 10% per year,
at a redemption price based upon current market value, provided that the
redemption is in accordance with applicable corporate law.
In 1996, the Company began repurchasing shares of its Series A and Series
B Redeemable Common Stock (collectively referred to as "Redeemable Common
Stock") and began voluntarily repurchasing shares of its Common Stock that are
not redeemable at the option of the holder ("Non-Redeemable Common Stock"). The
repurchase prices of the Redeemable and Non-Redeemable shares of Common Stock
are based on an independent appraisal of the fair market value of the shares.
The fair market value of the Non-Redeemable Common Stock is typically lower than
that of the Redeemable Common Stock. This difference in fair market values
reflects the fact that the Company is not obligated to repurchase the
Non-Redeemable Common Stock. The prices paid for the Redeemable and
Non-Redeemable Common Stock since December 31, 1996 are set forth in the
following table:
Appraisal Date Price Per Share
- ---------------------------------------------------------------------------------------------------
Redeemable Common
Stock Redeemable Common Stock Non-Redeemable
Series A Series B Common Stock
- ---------------------------------------------------------------------------------------------------
December 31, 1996 $0.78 $0.78 $0.70
- ---------------------------------------------------------------------------------------------------
June 30, 1997 $0.84 $0.84 $0.84
- ---------------------------------------------------------------------------------------------------
December 31, 1997 $0.96 $0.96 $0.73
- ---------------------------------------------------------------------------------------------------
June 30, 1998 $1.35 $1.35 $1.03
- ---------------------------------------------------------------------------------------------------
December 31, 1998 $1.66 $1.66 $1.27
- ---------------------------------------------------------------------------------------------------
June 30, 1999 $1.81 $1.81 $1.39
- ---------------------------------------------------------------------------------------------------
December 31, 1999 $1.99 $1.99 $1.53
- ---------------------------------------------------------------------------------------------------
June 30, 2000 $2.00 $2.00 $1.53
- ---------------------------------------------------------------------------------------------------
December 31, 2000 $2.10 $2.10 $1.61
- ---------------------------------------------------------------------------------------------------
June 30, 2001 $2.16 $2.16 $1.65
- ---------------------------------------------------------------------------------------------------
December 31, 2001 $2.19 $2.19 $1.68
- ---------------------------------------------------------------------------------------------------
June 30, 2002 $2.19 $2.19 $1.68
- ---------------------------------------------------------------------------------------------------
December 31, 2002 $2.20 $1.82 $1.69
- ---------------------------------------------------------------------------------------------------
13
Compensation Committee Interlocks and Insider Participation
As noted above, the Company does not have a compensation committee. The
compensation of executive officers is determined by the Board of Directors.
Lynda L. Regan, who is Chief Executive Officer of the Company, is also Chairman
of the Board of Directors and R. Preston Pitts, who is President and Chief
Operating Officer, is also a director. None of the executive officers of the
Company serves as a director or member of the compensation committee of an
entity, any of whose executive officers serves as a director of the Company.
Audit Committee Report
During 2002, at each of its meetings, the Audit Committee met with senior
members of management and the Company's independent auditors. Management
reviewed the audited financial statements in the Annual Report on Form 10-K with
the Audit Committee. The Audit Committee discussed with management and the
independent auditors the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments, and the clarity of
disclosures in the financial statements. During 2002, (i) Six Audit Committee
meetings where held, and (ii) the members of the Audit Committee maintained
their independence (as such term is defined in the Sarbanes-Oxley Act of 2002)
from the Company.
The Audit Committee also discussed with its independent auditors the
matters required to be discussed by Statement Of Auditing Standards No. 61
(Communications with Audit Committees, as amended). The Audit Committee also
received from its independent auditors the written disclosures required by
Independence Board Standard No. 1 and discussed with them their independence
from management and the Company, and considered the compatibility of non-audit
services with the auditors' independence.
In performing these functions, the Audit Committee acts in an oversight
capacity, relying on the work and assurances of the Company's management, which
has the primary responsibility for the financial statements, and or the
independent auditors, who in their report, express an opinion on the conformity
of the Company's annual financial statements to generally accepted accounting
principles.
In reliance on these reviews and discussions, the Audit Committee has
recommended to the Board of Directors that the audited consolidated financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002 for filing with the Securities and Exchange Commission.
Respectfully submitted by the Audit Committee,
Ute Scott-Smith, Chairperson
Dr. Donald Ratajczak
J. Daniel Speight, Jr.
14
Audit Fees
The aggregate audit-related fees, including expense reimbursement, billed
or expected to be billed by PricewaterhouseCoopers LLP for professional services
rendered for the audit of the Company's annual consolidated financial
statements, review of the consolidated financial statements included in the
Company's quarterly reports on Form 10-Q, and audit of the financial statements
of Legacy Financial Services, Inc., a wholly-owned subsidiary of the Company,
for the year ended December 31, 2002 were $246,168.
Financial Information Systems Design and Implementation Fees
None.
All Other Fees
PricewaterhouseCoopers LLP also billed the Company $83,938 for non-audit
professional services performed during the fiscal year ended December 31, 2002
related primarily to review of registration statements filed with the Securities
and Exchange Commission. The Audit Committee has considered whether such
non-audit services are compatible with maintaining auditor independence.
ITEM 2
RATIFICATION OF APPOINTMENT OF PRINCIPAL INDEPENDENT AUDITORS
The Board of Directors recommends that the shareholders vote "FOR"
ratification of the appointment of PricewaterhouseCoopers LLP as principal
independent auditors for the year ended December 31, 2003, and your proxy will
be so voted unless you specify otherwise.
The Board of Directors has appointed PricewaterhouseCoopers LLP, as
principal independent auditors for the Company for the year ended December 31,
2003.
Representatives of PricewaterhouseCoopers LLP are expected to be present
at the Annual Meeting and will be available to respond to appropriate questions.
Those representatives will have the opportunity to make a statement if they
desire to do so.
The approval of this appointment requires the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock.
15
ITEM 3
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors knows of no
matters which will be presented for consideration at the Annual Meeting other
than the proposals set forth in this proxy statement. If any other matters
properly come before the Annual Meeting, it is intended that the persons named
in the proxy will act in respect thereof in accordance with their best judgment.
SHAREHOLDER PROPOSALS
Any shareholder who intends to present a proposal at the 2004 Annual
Meeting of Shareholders for inclusion in the Company's Proxy Statement and proxy
form relating to such meeting must submit such proposal in writing, along with
proof of eligibility, to the Company's Secretary (2090 Marina Avenue, Petaluma,
CA 94954). Such proposals must be received by the Company no later than November
22, 2003.
SOLICITATION OF PROXIES
The cost of soliciting proxies in the accompanying form has been or will
be paid by the Company. In addition to solicitation by mail, arrangements may be
made with brokerage houses and other custodians, nominees and fiduciaries to
send proxy material to their principals, and the Company may reimburse them for
their expenses in doing so. To the extent necessary in order to assure
sufficient representation, officers and regular employees of the Company may
engage (without additional compensation) in the solicitation of proxies
personally, by telephone, electronic mail or facsimile.
ANNUAL REPORT AND FORM 10-K
Without charge, beneficial owners of our Common Stock as of the record
date of April 30, 2003 may obtain copies of our Annual Report on Form 10-K,
including financial statements and financial statement schedules, required to be
filed with the SEC for 2002 by submitting a written request to G. Steven Taylor,
Chief Financial Officer, at 2090 Marina Avenue, Petaluma, California 94954.
16