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 June 30, 1996, or
_______________
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____________ to ____________
Commission file number 0-4366
______
Regan Holding Corp.
___________________
(Exact Name of Registrant as Specified in Its Charter)
California 68-0211359
__________ __________
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1179 N. McDowell Blvd., Petaluma, California 94954
____________________________________________ _____
(Address of Principal Executive Offices) (Zip Code)
(707) 778-8638
______________
(Registrant's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the registrant's common stock, as
of June 30, 1996 was:
Common Stock-Series A 26,982,595
Common Stock-Series B 610,688
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, December 31,
1996 1995
____ ____
ASSETS: (Unaudited) (Audited)
Cash and cash equivalents $ 949,512 $1,496,631
Investments at market value 8,196,774 5,067,426
Accounts receivable 534,239 1,507,128
Prepaid expenses 255,988 106,539
Marketing supplies inventory 154,623 178,714
Income taxes receivable -- 5,687
__ _____
Total Current Assets 10,091,136 8,362,125
__________ _________
Net fixed assets 1,730,307 1,687,025
Organization costs-net 17,375 19,306
Deferred tax assets 1,899,184 2,097,660
Other assets 370,081 138,685
_______ _______
TOTAL ASSETS $14,108,083 $12,304,801
___________ ___________
LIABILITIES, REDEEMABLE COMMON STOCK,
AND SHAREHOLDERS' DEFICIT:
LIABILITIES:
Accounts payable $ 77,014 $ 77,569
Income taxes payable 63,702 --
Accrued liabilities 1,549,971 1,293,110
Notes payable-current portion -- 87,688
_________ ______
Total Current Liabilities 1,690,687 1,458,367
_________ _________
Loan payable 132,285 132,285
Deferred incentive compensation 151,691 172,272
_______ _______
Total Non-Current Liabilities 283,976 304,557
_______ _______
TOTAL LIABILITIES 1,974,663 1,762,924
_________ _________
COMMITMENTS -- --
REDEEMABLE COMMON STOCK (Note 2) 12,651,673 12,682,750
__________ __________
SHAREHOLDERS' DEFICIT:
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:
26,982,595 and 27,005,885
shares at June 30, 1996 and
December 31, 1995,
respectively 3,802,071 3,802,071
Series B common stock,
no par value:
Authorized: 615,242 shares
Issued and outstanding:
610,688 shares -- --
Paid-in capital from retirement
of common stock 18,267 --
Accumulated deficit (4,251,095) (6,047,382)
Unrealized gains (losses)
on investments (net of taxes) (87,496) 104,438
_______ _______
TOTAL SHAREHOLDERS' DEFICIT (518,253) (2,140,873)
________ __________
TOTAL LIABILITIES, REDEEMABLE
COMMON STOCK AND SHAREHOLDERS'
DEFICIT $14,108,083 $12,304,801
___________ ___________
See accompanying notes to consolidated financial statements.
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Income Statements
(Unaudited)
For the Six Months Ended For the Three Months Ended
June 30, June 30,
________ ________
1996 1995 1996 1995
____ ____ ____ ____
INCOME:
Marketing allowance $ 5,556,717 $ 4,921,196 $ 3,045,374 $ 2,347,504
Commission income 2,343,543 1,968,131 1,241,816 1,092,395
Administrative fees 1,622,599 1,536,229 764,814 774,491
Investment income 317,208 145,532 182,782 88,453
Other income 24,816 38,468 2,713 22,034
______ ______ _____ ______
TOTAL INCOME 9,864,883 8,609,556 5,237,499 4,324,877
_________ _________ _________ _________
EXPENSES:
Salaries and related
benefits 3,968,528 2,741,427 2,021,008 1,404,549
Sales promotion and
support 1,385,573 651,564 936,113 406,238
Professional fees 281,940 198,687 55,122 92,225
Occupancy expense 278,075 261,459 129,923 142,653
Depreciation and
amortization 226,331 162,817 117,712 88,684
Courier and postage 169,329 119,562 87,400 59,988
Stationery and supplies 155,594 74,962 69,691 51,580
Equipment expense 141,237 111,678 72,692 78,317
Travel and entertainment 106,503 90,859 89,186 64,989
Interest expense 8,443 7,197 4,237 3,140
Other miscellaneous
expenses 116,643 45,021 57,057 13,513
_______ ______ ______ ______
TOTAL EXPENSES 6,838,196 4,465,233 3,640,141 2,405,876
_________ _________ _________ _________
INCOME FROM OPERATIONS 3,026,687 4,144,323 1,597,358 1,919,001
PROVISION FOR INCOME
TAXES 1,230,400 1,399,530 650,747 399,530
_________ _________ _______ _______
NET INCOME $ 1,796,287 $ 2,744,793 $ 946,611 $ 1,519,471
___________ ___________ _________ ___________
EARNINGS PER SHARE:
Weighted average
shares outstanding 27,613,502 27,518,797 27,610,431 27,518,797
Earnings per share
from operations $ .11 $ .15 $ .06 $ .07
Provision for income
taxes .04 .05 .02 .01
___ ___ ___ ___
Earnings per share $ .07 $ .10 $ .04 $ .06
__________ __________ __________ __________
See accompanying notes to consolidated financial statements.
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Deficit
(Unaudited)
Common Gains/
Shares Amount Stock Deficit (Losses) Total
______ ______ _____ _______ ________ _____
Balance
January 1,
1996 21,070,791 $3,802,071 $ -- $(6,047,382) $104,438 $(2,140,873)
Net income
for the
six
months
ended
June 30,
1996 1,796,287 1,796,287
Mandatory
redemption
and
retirement
of common
stock 18,267 18,267
Unrealized
losses on
investments (327,870) (327,870)
Deferred
taxes on
unrealized
losses 135,936 135,936
__________ ___________ ________ ____________ _________ __________
Balance
June 30,
1996 21,070,791 $3,802,071 $18,267 $(4,251,095) $ (87,496) $ (518,253)
__________ __________ _______ ____________ __________ ___________
See accompanying notes to consolidated financial statements
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited) For the Six For the Six
Months Ended Months Ended
June 30, 1996 June 30, 1995
_____________ _____________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,796,287 $ 2,744,793
Adjustments to reconcile
net income to cash provided by
operating activities:
Depreciation and amortization 224,400 146,160
Amortization of organization
costs 1,931 1,222
Net change in accounts receivable 972,889 (183,402)
Net change in income taxes
payable/receivable 69,389 (434,933)
Net change in prepaid expenses (149,449) (119,978)
Net change in marketing supplies
inventory 24,091 (32,788)
Net change in deferred tax assets 334,412 716,258
Net change in accounts payable (555) 24,860
Net change in accrued liabilities 256,861 189,297
Net change in other assets and
liabilities (251,977) 13,792
________ ________
Net cash provided by
operating activities 3,278,279 3,065,281
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (10,028,522) (3,799,477)
Proceeds from maturities
and sales of investments 6,571,304 1,019,010
Purchase of fixed assets (267,682) (539,589)
Purchase of organization costs -- (9,120)
__________ _______
Net cash used in investing
activities (3,724,900) (3,329,176)
__________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of
common stock -- 1,067
Repayment of note payable (87,688) (139,999)
Mandatory redemption of
common stock (12,810) --
_______ __________
Net cash used in financing
activities (100,498) (138,932)
________ _________
Decrease in cash and cash
equivalents (547,119) (402,827)
Cash and cash equivalents,
beginning of period 1,496,631 651,189
_________ _______
Cash and cash equivalents,
end of period $ 949,512 $ 248,362
__________ __________
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 8,443 $ 7,197
Income taxes paid $ 826,600 $1,102,375
See accompanying notes to consolidated financial statements
REGAN HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Financial Information
The accompanying consolidated financial statements are
prepared in conformity with generally accepted accounting
principles and include the accounts of Regan Holding Corp.,
and its wholly-owned subsidiaries, Legacy Marketing Group,
Legacy Financial Services, Inc., and LifeSurance
Corporation. All intercompany transactions have been
eliminated.
The statements are unaudited but reflect all adjustments
(consisting only of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair
presentation of the Company's financial position and results
of operations. The results for the six months ended June
30, 1996 are not necessarily indicative of the results to be
expected for the entire year. Users of these financial
statements are encouraged to refer to the Annual Report on
Form 10-K for the year ended December 31, 1995 for
additional disclosure.
2. Redeemable Common Stock
The Company is obligated to repurchase certain of its shares
of common stock, pursuant to various agreements under which
the stock was issued. During the six months ended June 30,
1996, 23,290 shares of redeemable Series A common stock
were redeemed for approximately $13,000. The redeemed
shares were effectively retired. The excess of original
proceeds over the redemption value has been reflected as
additional paid-in capital in the accompanying financial
statements. At June 30, 1996, the number of remaining
shares of redeemable Series A and Series B common stock
totaled 5,911,804 and 610,688, respectively.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
Summary--During the quarter ended June 30, 1996, the Company
recorded net income of $947,000, or $.04 per share, compared with
$1,519,000, or $.06 per share, during the quarter ended June 30,
1995. During the six months ended June 30, 1996, the Company had
net income of $1,796,000, or $.07 per share, compared with
$2,745,000, or $.10 per share, during the six months ended June
30, 1995. These decreases between periods are attributable
primarily to increases in operating expenses, as discussed below.
The decrease in net income in the second quarter of 1996,
compared with the comparable period of 1995, is also attributable
to tax benefits recognized in the second quarter of 1995 related
to alternative minimum tax credits. No such tax benefits were
recognized during the second quarter of 1996.
Income--Sales by the Company's distribution network, for the
insurance companies with which the Company contracts, resulted in
premium placed inforce of approximately $183,221,000 during the
quarter ended June 30, 1996, compared with $174,825,000 during
the quarter ended June 30, 1995, representing a 5% increase.
Income from insurance sales activities also increased as a result
of a change in the mix of products sold to products which yielded
higher marketing allowances and commissions. Correspondingly,
income from insurance sales activities increased 25% to
$4,287,000 during the second quarter of 1996, compared with
$3,440,000 during the comparable period in 1995.
During the six months ended June 30, 1996, premium placed inforce
through the Company's distribution network totaled $341,627,000,
compared with approximately $320,192,000 during the six months
ended June 30, 1995, which represented a 7% increase. Income
from insurance sales activity also increased as a result of a
change in the sales mix to products which yielded higher
marketing allowances and commissions. Accordingly, income from
insurance sales activity increased 15% to $7,900,000 during the
six months ended June 30, 1996, from $6,889,000 during the six
months ended June 30, 1995.
Income from administration of insurance policies totaled $765,000
during the quarter ended June 30, 1996, compared with $775,000
during the quarter ended June 30, 1995. During the six months
ended June 30, 1996, administrative fee income totaled
$1,623,000, compared with $1,536,000 during the comparable period
in 1995. These fees did not increase proportionately with the
increase in the number of applications received and policies
administered, due primarily to a fee reduction for policy
maintenance activities performed by the Company under its
Processing Agreement with American National Insurance Company.
The reduced fee became effective on March 1, 1996.
Investment income represents earnings from investments in
marketable securities. Such earnings increased 107% to $183,000
during the quarter ended June 30, 1996, from $88,000 during the
quarter ended June 30, 1995. Likewise, investment income
increased 118% to $317,000 during the six months ended June 30,
1996, from $146,000 during the comparable period in 1995. These
increases resulted primarily from increases in the amount of
assets invested.
Expenses--Expenses totaled $3,640,000 during the quarter ended
June 30, 1996, compared with $2,406,000 during the quarter ended
June 30, 1995. During the six months ended June 30, 1996,
expenses totaled $6,838,000, compared with $4,465,000 during the
six months ended June 30, 1995. These increases are largely
attributable to planned increases in the number of Company
employees and expansion of the Company's infrastructure to
prepare for projected increases in sales of annuity, life
insurance and variable products.
As a service organization, the Company's predominant expense is
salaries and related employee benefits. Salaries and related
benefits increased 44% to $2,021,000 during the quarter ended
June 30, 1996, from $1,405,000 during the quarter ended June 30,
1996. Salaries and related benefits increased 45% to $3,969,000
during the six months ended June 30, 1996, from $2,741,000 during
the comparable period in 1995. These increases were due
primarily to increases in the average number of full-time
equivalent employees to 142 during the quarter ended June 30,
1996, from 104 during the comparable period in 1995, and to 138
during the six months ended June 30, 1996, from 94 during the
comparable period in 1995. Such increases were necessary to
accommodate increases in operating volume and also resulted from
efforts to create operating capacity for anticipated increases in
sales.
Sales promotion and support expense consists primarily of the
cost of sales promotion meetings, and design and printing of
sales brochures for use by producers throughout the Company's
distribution network. This expense totaled $936,000 during the
second quarter of 1996, or 18% of revenue, compared with $406,000
during the second quarter of 1995, or 9% of revenues. During the
six months ended June 30, 1996, this expense totaled $1,386,000,
or 14% of revenues, compared with $652,000, or 8% of revenues,
during the comparable period during 1995. These increases are
attributable primarily to accrual during 1996 for the cost of the
annual national sales convention to be held in May of 1997.
Professional fees, which include legal fees, outside accounting
fees and consulting fees, increased to $282,000 during the six
months ended June 30, 1996 from $199,000 during the six months
ended June 30, 1995. This increase is due largely to legal fees
incurred during the first quarter of 1996 in preparation for the
1996 Annual Meeting of Shareholders.
Provision for Income Taxes--The Company files consolidated
returns for federal income tax purposes.
The Company experienced both federal and state net operating
losses ("NOLs") in prior years that can be used to offset taxes
payable in current and future profitable years. In addition, the
Company has recorded federal and state alternative minimum tax
("AMT") credit carryforward benefits. Included in deferred tax
assets at June 30, 1996 are state NOL carryforwards of $2,480,000
and federal and state AMT credit carryforwards of $1,249,000 and
$300,000, respectively. The NOL carryforwards expire December
31, 1997. The AMT credit carryforwards have no expiration date.
Realization of the NOL carryforwards is dependent on generating
sufficient taxable income prior to expiration of the loss
carryforwards. Although realization is not assured, management
believes it is more likely than not that all of the deferred tax
asset will be realized. The amount of the deferred tax asset
considered realized could, however, be reduced in the near term
if estimates of future taxable income during the carryforward
period are reduced.
The provision for income taxes was $651,000 and $400,000 for the
three months ended June 30, 1996 and 1995, respectively, and
$1,230,000 and $1,400,000 for the six months ended June 30, 1996
and 1995, respectively. The Company's effective tax rate was 41%
and 34% for the six months ended June 30, 1996 and 1995,
respectively, and 41% and 21% during the three months ended June
30, 1996 and 1995, respectively. The effective rates during the
three months and the six months ended June 30, 1995, were lower
than during comparable periods during 1996 due to recognition
during the second quarter of 1995 of federal AMT credit
carryforwards.
Financial Condition
During the six months ended June 30, 1996, the Company continued
to generate positive cash flows from operations, which resulted
in a 39% net increase in cash and investments to $9,146,000 at
June 30, 1996, from $6,564,000 at December 31, 1995.
Total liabilities increased to $1,975,000 at June 30, 1996, from
$1,763,000 at December 31, 1995, due primarily to accrual of
costs related to the 1997 national sales convention during the
producers' qualification period, and to increases in income taxes
payable resulting from timing differences between recognition and
payment.
Liquidity and Capital Resources
The Company's business is not capital intensive. Its cash flows
from operations totaled $3,278,000 during the six months ended
June 30, 1996 and were applied primarily to the purchase of
investments in U.S. Treasury securities and other marketable
securities backed by U.S. Government agencies. As a result, cash
and investments increased $2,582,000, or 39%, during the six
month period ended June 30, 1996. Such amounts represented 65%
of the Company's total assets at June 30, 1996.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibit 3 Bylaws and amendments thereto
Exhibit 27 Financial Data Schedule
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: August 14, 1996 Signature: /s/ Lynda Regan
Lynda Regan
President & Chief Executive
Officer
Date: August 14, 1996 Signature: /s/ R. Preston Pitts
R. Preston Pitts
Chief Financial Officer
BYLAWS OF
REGAN HOLDING CORP.
ARTICLE I - OFFICES
Section 1. The principal executive office of Regan Holding
Corp. (the "Corporation") shall be at 199 Petaluma Boulevard
North, 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
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, (l) 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 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 (l) 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 a written waiver of notice, or a
consent to the holding of the 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 VI 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;
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 if 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
fixes 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.
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 three (3) nor more
than seven (7), until changed by amendment of the Articles of
Incorporation or amendment of the Bylaws approved by the
shareholders. The authorized number of directors within such
range at any time shall be set by the Board of Directors.
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.
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.
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
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), 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
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 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. Resignations. 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. The Chairman
will have the right to accept such resignation at the date
specified, or immediately. If the resignation is accepted 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 presumes 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
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 or more
directors as alternate members of any committee, who may replace
any absent member at any meeting of the committee. The
appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of
directors. 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, a President, one or more Vice Presidents, a Secretary
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, and such different time is
accepted, such resignation shall be effective upon its receipt by
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.
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,
taking 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.
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.
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. Semi-Annual Reports. The Corporation will
furnish shareholders semi-annual reports. Therefore, the Annual
Report to shareholders, described in the California Corporations
Code, is expressly waived and dispensed with.
Section 6. 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.
Section 7. Liability of Directors. The liability of the
directors of the Corporation for monetary damages shall be
eliminated to the fullest extent permitted under California law.
a. In performing his or her duties, a director is
entitled to rely on information, opinions, reports or statements
prepared or presented by competent and reliable officers or
employees; by counsel, independent accountants or other persons
as to matters within their professional competence; or by a
committee of the board, upon which he or she does not serve, as
to matters within its designated authority provided that the
director acts in good faith, after reasonable inquiry when the
need is indicated by the circumstances and without knowledge that
any reliance is unwarranted.
b. The corporation shall indemnify any director who
was or is a party or is threatened to be made a party to any
proceeding other than an action by or in the right of the
corporation to obtain a favorable judgment for itself by reason
of the fact that such person is or was an agent of the
corporation, against expenses, fines, judgments, settlements and
other amounts actually and reasonably incurred in connection with
the proceeding if the person acted in good faith and in a manner
the person reasonably believed to be in the best interests of the
corporation and, in the case of criminal proceedings, had no
reasonable cause to believe that his or her conduct was unlawful.
The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contender or its equivalent
shall not, in itself, create a presumption that the person did
not act in good faith and in a manner that the person reasonably
believed to be in the corporation's best interests or that the
person had reasonable cause to believe that his or here conduct
was unlawful.
c. With respect to a suit by or on behalf of the
corporation to obtain a judgment in its favor by reason of the
fact that the person is or was the corporation's agent, any such
director or other agent will be indemnified against expenses
actually and reasonably incurred by such person in connection
with the defense or settlement of the action if the person acted
in good faith in a manner he or she believed to be in the best
interests of the corporation and its shareholders. No
indemnification shall be made under this subdivision (1) in
respect of any claim, issue or matter as to which the person
shall have been adjudged to be liable to the corporation in the
performance of that person's duty to the corporation and its
shareholders, unless and only to the extent that the court shall
determine upon application that, in light of all the
circumstances, the person is fairly and reasonably entitled to
indemnity for expenses and then only to the extent that the court
shall determine; (2) of amounts paid in settling or otherwise
disposing of a pending action without court approval; and (3) of
expenses incurred in defending a pending action that is settled
or otherwise disposed of without court approval.
d. To the extent that a director or other agent of
the corporation has been successful on the merits in defense of
the suit or any claim therein, that person shall be indemnified
against expenses actually and reasonably incurred by such person.
Any other indemnification may be made only if authorized in the
specific case upon a determination that indemnification is proper
because the person has met the applicable standard of conduct set
forth in the law. Such determination may be made by a majority
vote of a quorum of disinterested directors; if such a quorum is
not obtainable, by independent legal counsel in a written
opinion; approval of the shareholders, with the shares owned by
the person to be indemnified not being entitled to vote thereon;
or the court in which the proceeding is or was pending upon
application made by the corporation or the agent or attorney or
other person rendering services in connection with the defense,
whether or not the application by the agent, attorney or other
person is opposed by the corporation.
e. Expenses incurred in defending any proceeding may
be advanced by the corporation before the final disposition of
the proceeding upon receipt of an undertaking by or on behalf of
the director or other agent to repay that amount if it is
ultimately determined that such person is not entitled to
indemnification.
f. The indemnification authorized by this section
shall not be deemed exclusive of any additional rights to
indemnification for breach of duty to the corporation and its
shareholders while acting in the capacity of a director or
officer of the corporation to the extent authorized in the
articles of incorporation. The indemnification provided by this
section for acts, omissions or transactions while acting in the
capacity of, or while serving as, a director or officer of the
corporation but not involving breach of duty to the corporation
and its shareholders shall not be deemed exclusive of any other
rights to which those seeking indemnification may be entitled to
the extent the additional rights to indemnification are
authorized in the articles. The rights to indemnity hereunder
shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of the person. This
provision shall not affect any right to indemnification to which
persons other than the directors and officers may be entitled.
g. Liability insurance may be purchased and
maintained on behalf of any director or agent of the corporation
without regard to whether or not the corporation has power to
indemnify such person.
Section 8. 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. 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.
<TABLE> <S> <C>
<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 June 30, 1996 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 949,512
<SECURITIES> 8,196,774
<RECEIVABLES> 534,239
<ALLOWANCES> 0
<INVENTORY> 154,623
<CURRENT-ASSETS> 10,091,136
<PP&E> 2,723,943
<DEPRECIATION> (993,636)
<TOTAL-ASSETS> 14,108,083
<CURRENT-LIABILITIES> 1,690,687
<BONDS> 132,285
12,651,673
0
<COMMON> 3,802,071
<OTHER-SE> (4,338,591)
<TOTAL-LIABILITY-AND-EQUITY> (518,253)
<SALES> 0
<TOTAL-REVENUES> 9,864,883
<CGS> 0
<TOTAL-COSTS> 6,838,196
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,026,687
<INCOME-TAX> 1,230,400
<INCOME-CONTINUING> 1,796,287
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,796,287
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0
</TABLE>
