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, 1998, 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)
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
---------- ----------
The number of shares outstanding of the registrant's common stock, as of
July 24, 1998 was:
Common Stock-Series A 25,906,857
Common Stock-Series B 600,398
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(Unaudited) (Audited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 6,411,048 $ 5,194,332
Investments 12,154,671 7,692,279
Accounts receivable 2,476,308 1,239,306
Prepaid expenses 599,544 572,932
Marketing supplies inventory 276,030 228,853
Deferred income taxes-current 467,219 488,437
----------------- -----------------
Total Current Assets 22,384,820 15,416,139
----------------- -----------------
Net fixed assets 2,894,901 2,610,324
Deferred income taxes-non current 617,094 783,477
Other assets 525,566 471,001
----------------- -----------------
Total Non-Current Assets 4,037,561 3,864,802
----------------- -----------------
TOTAL ASSETS $ 26,422,381 $ 19,280,941
================= =================
LIABILITIES, REDEEMABLE COMMON STOCK,
AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable $ 265,631 $ 344,071
Accrued liabilities 5,176,154 2,605,854
Income taxes payable 702,723 389,561
----------------- -----------------
Total Current Liabilities 6,144,508 3,339,486
----------------- -----------------
Loan payable 132,285 132,285
Deferred incentive compensation 254,776 149,609
----------------- -----------------
Total Non-Current Liabilities 387,061 281,894
----------------- -----------------
TOTAL LIABILITIES 6,531,569 3,621,380
----------------- -----------------
REDEEMABLE COMMON STOCK (Note 2) 11,565,951 11,842,651
----------------- -----------------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 100,000,000 shares
authorized, no shares issued or outstanding -- --
Series A common stock, no par value, 45,000,000 shares
authorized, 20,555,724 and 20,614,014 shares issued
and outstanding at June 30, 1998 and
December 31, 1997, respectively 3,274,373 3,382,914
Paid-in capital from redemption and retirement
of common stock 803,865 611,559
Paid-in capital from non-employee stock options 12,500 --
Retained earnings (accumulated deficit) 4,242,626 (182,433)
Net unrealized gains (losses) on investments (8,503) 4,870
----------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 8,324,861 3,816,910
----------------- -----------------
TOTAL LIABILITIES, REDEEMABLE COMMON
STOCK & SHAREHOLDERS' EQUITY $ 26,422,381 $ 19,280,941
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Income Statements
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME:
Marketing allowances $ 7,299,358 $ 3,018,124 $ 11,679,636 $ 5,260,803
Commission income 3,453,208 1,237,775 5,593,692 2,284,118
Administrative fees 1,725,134 904,766 3,074,350 1,590,156
Investment income 286,061 119,962 501,104 312,583
Other income 98,000 44,040 157,238 111,695
------------- -------------- ------------ --------------
TOTAL INCOME 12,861,761 5,324,667 21,006,020 9,559,355
------------- -------------- ------------ --------------
EXPENSES:
Salaries and related benefits 4,236,744 2,473,535 7,723,470 5,014,909
Sales promotion and support 946,320 677,224 1,967,427 1,100,906
Occupancy 232,870 201,983 471,490 369,712
Professional fees 293,493 149,175 574,402 357,992
Litigation settlement (Note 3) 1,104,401 -- 1,104,401 --
Depreciation and amortization 224,133 146,007 429,000 288,734
Courier and postage 150,372 86,520 313,128 203,044
Equipment 146,712 86,983 255,385 159,626
Stationery and supplies 203,410 78,859 328,200 173,654
Travel and entertainment 158,580 75,807 243,382 112,959
Insurance expense 45,084 52,095 84,641 86,461
Other miscellaneous expenses 62,376 47,158 100,083 84,675
------------- -------------- ------------ --------------
TOTAL EXPENSES 7,804,495 4,075,346 13,595,009 7,952,672
------------- -------------- ------------ --------------
INCOME FROM OPERATIONS 5,057,266 1,249,321 7,411,011 1,606,683
PROVISION FOR INCOME TAXES 2,038,123 515,090 2,985,952 669,779
------------- -------------- ------------ --------------
NET INCOME $ 3,019,143 $ 734,231 $ 4,425,059 $ 936,904
============= ============ =============== ============
EARNINGS PER SHARE:
Weighted average shares outstanding-
basic and diluted 26,592,383 26,848,054 26,643,344 26,672,941
Basic earnings per share $ .11 $ .03 $ .17 $ .04
============= ============= ============= =============
Diluted earnings per share $ .11 $ .03 $ .17 $ . 04
============= ============= ============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Paid-in
Capital
Paid-in Capital from Retained
from Retirement Non-Employee Earnings/ Unrealized
Series A Common Stock of Stock (Accumulated Gains
Shares Amount Common Stock Options Deficit) (Losses) Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance
January 1, 1998 20,614,014 $ 3,382,914 $ 611,559 $ -- $ (182,433) $ 4,870 $ 3,816,910
Net income for the
six months ended
June 30, 1998 4,425,059 4,425,059
Redemption and
retirement of
common stock (58,290) (108,541) 192,306 83,765
Non-employee stock
option expense 12,500 12,500
Net unrealized losses
on investments (22,225) (22,225)
Deferred tax on net
unrealized losses 8,852 8,852
----------- ----------- ------------ ---------- ----------- ---------- ------------
Balance
June 30, 1998 20,555,724 $ 3,274,373 $ 803,865 $ 12,500 $ 4,242,626 $ (8,503) $ 8,324,861
=========== =========== ============ ========== =========== ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,425,059 $ 936,904
Adjustments to reconcile net income to cash (used in)
provided by operating activities:
Depreciation and amortization of fixed assets 394,424 285,663
Amortization of intangible assets 34,578 32,042
Producer stock option expense 12,500 --
Amortization/accretion of investments (28,075) (8,192)
Realized loss on sales of investments -- 28,994
Changes in assets and liabilities
Net change in accounts receivable (1,237,002) (203,175)
Net change in marketing supplies inventory (47,177) 22,765
Net change in prepaid expenses (26,612) (91,744)
Net change in income taxes payable 313,162 276,234
Net change in deferred tax assets 196,453 238,545
Net change in accounts payable (78,440) (64,826)
Net change in accrued liabilities 2,570,300 (416,258)
Net change in other assets and liabilities 16,024 24,948
-------------- --------------
Net cash provided by operating activities 6,545,194 1,061,900
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (5,873,148) (20,880,107)
Proceeds from sales and maturities of investments 1,416,606 24,359,825
Purchases of fixed assets (679,001) (841,574)
Purchase of organization costs -- (3,034)
-------------- --------------
Net cash (used in) provided by investing activities (5,135,543) 2,635,110
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemptions and retirement of common stock (192,935) (184,576)
-------------- --------------
Net cash used in financing activities (192,935) (184,576)
-------------- --------------
INCREASE IN CASH
AND CASH EQUIVALENTS 1,216,716 3,512,434
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 5,194,332 2,202,596
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,411,048 $ 5,715,030
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
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 ("LMG"), 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 consolidated balance sheet data at December 31,
1997, was derived from audited financial statements, but does not include
all disclosures required by generally accepted accounting principles. The
results for the six months ended June 30, 1998, 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, 1997, 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, 1998, redeemable common stock was
redeemed and retired as follows:
<TABLE>
<CAPTION>
Series A Redeemable Series B Redeemable Total Redeemable
Common Stock Common Stock Common Stock
Carrying Carrying Carrying
(Issuance) (Issuance) (Issuance)
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance
December 31, 1997 5,507,326 $ 10,040,068 600,861 $ 1,802,583 6,108,187 $11,842,651
Redemption and
retirement of common
stock (147,675) (275,311) (463) (1,389) (148,138) (276,700)
---------- ------------ ---------- ------------ ---------- ------------
Balance
June 30, 1998 5,359,651 $ 9,764,757 600,398 $ 1,801,194 5,960,049 $ 11,565,951
========= =========== ========== ============ ========= ============
</TABLE>
3. Litigation Settlement
In December 1996, LMG and American National Insurance Company ("American
National") were named in a lawsuit filed in the Circuit Court of Jefferson
County, Alabama, alleging misrepresentation and price discrimination in
connection with the sale of certain annuity products issued by American
National and marketed by LMG. American National and LMG have denied the
allegations contained in the complaint as well as any wrongdoing with
respect to the sale and issuance of annuities. However, on June 17, 1998,
in order to avoid protracted litigation, American National and LMG entered
into a settlement agreement with the plaintiffs and other class members.
LMG's portion of the settlement, net of recovery under its errors and
omissions insurance policy, has been recorded as an expense in the
accompanying income statement.
<PAGE>
4. Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income is defined as the change in
equity of a business enterprise during a period resulting from transactions
and other events and circumstances from non-owner sources. The Company's
comprehensive income for the six month period ended June 30, 1998, and June
30, 1997, includes unrealized losses, net of deferred tax, of $13,373 and
$75,426, respectively.
5. Recent Accounting Pronouncement - Internal Use Software Cost
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
provides guidance on determining whether computer software is internal-use
software and on accounting for the proceeds of computer software originally
developed or obtained for internal use and then subsequently sold to the
public. It also provides guidance on capitalization of the costs incurred
for computer software developed or obtained for internal use. The Company
has not yet determined the impact, if any, of adopting SOP 98-1, which will
be effective for the Company's year ending December 31, 1999.
6. Reclassification
Certain amounts in the 1997 financial statements have been reclassified to
conform with 1998 classifications.
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Except for historical information contained herein, the matters discussed
in this report contain forward looking statements that involve risks and
uncertainties that could cause actual results to differ materially.
Results of Operations
Summary--The Company's net income for the quarter ended June 30, 1998
increased approximately $2.3 million, or 311.2%, from the corresponding quarter
in 1997 and approximately $3.5 million, or 372.3%, for the six months ended June
30, 1998, compared with the corresponding period in 1997. This increase is
attributable primarily to increases in revenue, as discussed below.
Income--The Company's major sources of income are marketing allowances,
commission overrides and administrative fees from sales and administration of
annuity and life insurance products on behalf of the two insurance companies for
which the Company markets and administers policies (the "Carriers"). Levels of
marketing allowances and commission overrides are directly related to, and
increase with, the volume of sales of such products. Administration fees are a
function not only of product sales, but also administration of policies inforce
and producer appointments. Total income increased approximately $7.5 million, or
141.6%, during the three months ended June 30, 1998, compared to the three
months ended June 30, 1997. For the six months ended June 30, 1998, total income
increased $11.4 million, or 119.7% over the corresponding six month period in
1997. This increase resulted primarily from increases in sales volume, as
discussed below.
Marketing allowances and commission income, combined, increased
approximately $6.5 million, or 151.3%, in the second quarter of 1998, compared
to the second quarter of 1997. Such allowances and commissions increased
approximately $9.7 million, or 128.9% for the six month period ended June 30,
1998, compared with the six month period ended June 30, 1997. This increase is
due primarily to increases in volume of sales by the Company's distribution
network on behalf of the Carriers. Premium placed inforce for the Carriers
totaled approximately $452.5 million and $730.8 million, respectively during the
three months and six months ended June 30, 1998, compared to $175.8 million and
$322.5 million during the same periods in 1997, representing increases of 157.4%
and 126.6%, respectively. Also contributing to increases in income during the
first six months of 1998 were shifts to sales of products which yield higher
marketing allowances and commission income.
Administrative fees increased approximately $820,000, or 90.6%, in the
second quarter of 1998, compared to the same period in 1997. For the six months
ended June 30, 1998, administrative fees increased approximately $1.5 million,
or 96.5%, over the corresponding period in 1997. These increases are due
primarily to increases in the number of policies sold and administered during
the respective periods and to a shift in policies administered to those which
generate higher administrative fees.
During the second quarter of 1998, the Company marketed and administered
insurance products for two Carriers, American National Insurance Company
("American National") and IL Annuity and Insurance Company ("IL Annuity").
During the second quarter of 1998, 14.0% and 80.7% of the Company's total
revenue resulted from agreements with American National and IL Annuity,
respectively. On May 29, 1998, the Company entered into marketing and
administrative agreements with a third carrier, Transamerica Life Insurance and
Annuity Company ("Transamerica"). Sales of Transamerica annuity products are
expected to begin in the third quarter of 1998.
Expenses--Total expenses increased approximately $3.7 million, or 91.5%,
during the three months ended June 30, 1998, compared to the three months ended
June 30, 1997, and $5.6 million, or 70.9%, during the six months ended June 30,
1998, compared to the corresponding six months of 1997. This increase is
attributable primarily to increases in compensation, sales promotion and
support, litigation settlement, stationery and supplies, and travel and
entertainment, as discussed below.
As a service organization, the Company's primary expenses are salaries and
related employee benefits, which increased approximately $1.8 million, or 71.3%,
in the first quarter of 1998, compared to the same period in 1997, and
approximately $2.7 million, or 54.0%, in the first six months of 1998, compared
to the same period in 1997. This increase resulted primarily from increases in
the number of full-time equivalent employees, which rose to 294 at June 30,
1998, compared with 190 at June 30, 1997. This increase in employment was
necessary to accommodate increases in sales volume, as discussed above. Salaries
and benefits also increased during the first six months of 1998 due to the
addition of personnel at higher pay levels and to scheduled pay increases for
existing employees.
Sales promotion and support expense consists primarily of costs relating to
the Company's annual national sales conventions, payments made to the Company's
higher level Producers for recruitment and development of additional Producers,
and costs relating to various sales meetings and training activities. Also
included in sales promotion and support expense is the cost of designing and
printing sales brochures for use by Producers in the Company's sales
distribution network. It is expected that these expenses will continue to be a
major element of the Company's cost structure, as attendance at the national
sales conventions increases, as the number of Producers marketing products for
the Company increases, and as new products are introduced. This expense
increased approximately $269,096 or 39.7% for the quarter ended June 30, 1998,
as compared with the quarter ended June 30, 1997, and approximately $866,521 or
78.7% for the six months ended June 30, 1998, as compared with the corresponding
period in 1997, due primarily to an increase in the accrual of costs associated
with the Company's national sales conventions and to increased anticipated
attendance at such conventions, as well as increased commissions paid to
Producers.
In order to avoid protracted future litigation, the Company's principal
subsidiary, LMG, together with American National Insurance Company, entered into
an agreement to settle a lawsuit filed in Jefferson County, Alabama. LMG's net
cost of the settlement, approximately $1.1 million, has been recorded as an
expense during the second quarter of 1998. See Part II, Item 1. "Legal
Proceedings" and footnotes to accompanying financial statements.
Stationery and supplies expense increased approximately $125,000, or
157.9%, for the quarter ended June 30, 1998, and approximately $154,546, or
89.0%, for the six months ended June 30, 1998, when compared with the
corresponding periods in 1997. These increases are primarily the result of
additional supplies necessary to support the increased volume of business and
increased number of employees as described above.
Professional fees increased $144,318, or 96.7% for the three month period
ended June 30, 1998 and $216,410, or 60.5% for the six month period ended June
30, 1998 as compared with the corresponding periods in 1997. These increases are
primarily the result of increased legal fees associated with the settlement of
the litigation described in Part II, Item 1. "Legal Proceedings."
Travel and entertainment increased approximately $83,000, or 109.2%, for
the quarter ended June 30, 1998, as compared with the quarter ended June 30,
1997, and approximately $130,000, or 115.5%, for the six months ended June 30,
1998, as compared with the corresponding period in 1997. The increases are due
to increased travel duties and responsibilities of the Company's marketing
department, travel related to the implementation of the carrier relationship
with Transamerica as discussed above, and to travel related to set-up and
training for an east coast service center which became operational in July 1998.
Liquidity and Capital Resources
The Company's ability to mobilize its assets remained strong, with cash and
investments representing 70.3% of the Company's total assets as of June 30,
1998.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 3 of Part I of the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, is incorporated herein by this reference. On June 17,
1998, American National and LMG entered into a settlement agreement with
plaintiffs and other class members pursuant to which LMG is released from
further liability with respect to such claims. Under the terms of the
settlement, LMG agreed to pay approximately $1.1 million, net of reimbursement
under its errors and omissions insurance policy.
Item 4. Submission of Matters to a Vote of Security-Holders
The following matters were submitted to a vote of shareholders of the
Company at the Annual Meeting of Shareholders, which was held May 27, 1998. The
results of shareholder votes were as follows:
Broker
For Against Abstain Non-Votes
(i)Ratification of the Appointment of
Coopers & Lybrand L.L.P., as the
principal independent accountants
for the Company for the year ended
December 31, 1998 20,608,156 2,655 374,480 --
Item 5. Other Information
In June of 1998, LMG and American National amended the terms of the
Marketing Agreement and Insurance Processing Agreement to extend the initial
terms thereof to October 1, 1998. LMG and American National are in the process
of negotiating a five year extension of these agreements.
Item 6. Exhibits and Reports on Form 8-K
(a) Index to Exhibits
Exhibit 10(a) Amendment Two to Marketing Agreement with American National
Insurance Company
Exhibit 10(b) Amendment One to Insurance Processing Agreement with American
National Insurance Company
Exhibit 11 Statement re: Computation of Per Share Earnings--Basic
and Diluted
Exhibit 27 Financial Data Schedule
(b) On June 11, 1998, the Company filed a form 8-K to report that, on June 1,
1998, LMG entered into an Administrative Services Agreement and a Marketing
Agreement with Transamerica Life Insurance and Annuity Company.
<PAGE>
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: July 30, 1998 Signature: /s/ R. Preston Pitts
----------------- ------------------------------------
R. Preston Pitts,
President & Chief Operating Officer
Date: July 30, 1998 Signature: /s/ David A. Skup
----------------- ------------------------------------
David A. Skup,
Chief Financial Officer
<PAGE>
Exhibit 11
Statement re: Computation of Per Share Earnings--Basic and Diluted
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1998 1997
<S> <C> <C>
Common shares outstanding entire period 26,515,773 26,833,880
Weighted average common shares retired upon redemption 76,610 14,174
------------- ------------
Total weighted average shares outstanding 26,592,383 26,848,054
============= ==========
Net income $ 3,019,143 $ 734,231
============= ============
Earnings per share--basic and diluted $ 0.11 $ 0.03
============= ============
Six Months Ended
June 30,
1998 1997
Common shares outstanding entire period 26,515,773 26,620,653
Weighted average common shares retired upon redemption 127,571 52,288
------------- ------------
Total weighted average shares outstanding 26,643,344 26,672,941
============= ============
Net income $ 4,425,059 $ 936,904
============= ============
Earnings per share--basic and diluted $ 0.17 $ 0.04
============= ============
</TABLE>
Exhibit 10(a)
AMENDMENT TWO TO MARKETING AGREEMENT
This document is Amendment Two to the Marketing Agreement made and entered into,
effective June 1, 1993, and amended by Amendment One to Marketing Agreement
dated September 16, 1993 (the "Agreement"), by and between American National
Insurance Company ("American National") a Texas corporation, and Legacy
Marketing Group ("LMG"), a California corporation.
In consideration of mutual covenants contained herein , the parties agree as
follows:
1. Section 3.1 of the Agreement is hereby deleted in its entirety and the
following new Section 3.1 shall be substituted therefore.
"3.1 Subject to termination as hereinafter provided, this Agreement shall
remain in force and effect until the close of business on October 1, 1998,
the initial term of this Agreement. This Agreement may be renewed by mutual
agreement for successive terms of one (1) year unless terminated by either
party by prior written notice to the other at least one hundred eighty
(180) days prior to the end of the initial term or the renewal term."
2. Except as specifically amended hereby, all terms and provisions of the
Marketing Agreement shall remain in full force and effect.
LEGACY MARKETING GROUP AMERICAN NATIONAL INSURANCE
COMPANY
By /s/ R. Preston Pitts By: /s/ James Pozzi
Title: President Title: Senior Vice President
Witness: /s/ Karen Obendorf Witness: /s/ David Skup
Date: June 4, 1998 Date: June 4, 1998
Exhibit 10(b)
AMENDMENT TWO TO INSURANCE PROCESSING AGREEMENT
This document is Amendment Two to the Insurance Processing Agreement made and
entered into, effective June 1, 1993, and amended by Amendment One to Marketing
Agreement dated September 16, 1993 (the "Agreement"), by and between American
National Insurance Company ("American National") a Texas corporation, and Legacy
Marketing Group ("LMG"), a California corporation.
In consideration of mutual covenants contained herein , the parties agree as
follows:
1. Section 6.1 of the Agreement is hereby deleted in its entirety and the
following new Section 6.1 shall be substituted therefore.
"6.1 Subject to termination as hereinafter provided, this Agreement shall
remain in force and effect until the close of business on October 1, 1998,
the initial term of this Agreement. This Agreement may be renewed by mutual
agreement for successive terms of one (1) year unless terminated by either
party by prior written notice to the other at least one hundred eighty
(180) days prior to the end of the initial term or the renewal term."
2. Except as specifically amended hereby, all terms and provisions of the
Insurance Processing Agreement shall remain in full force and effect.
LEGACY MARKETING GROUP AMERICAN NATIONAL INSURANCE
COMPANY
By /s/ R. Preston Pitts By: /s/ James Pozzi
Title: President Title: Senior Vice President
Witness: /s/ Karen Obendorf Witness: /s/ David Skup
Date: June 4, 1998 Date: June 4, 1998
<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, 1998, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,411,048
<SECURITIES> 12,154,671
<RECEIVABLES> 2,476,308
<ALLOWANCES> 0
<INVENTORY> 276,030
<CURRENT-ASSETS> 22,384,820
<PP&E> 5,097,336
<DEPRECIATION> (2,202,435)
<TOTAL-ASSETS> 26,422,381
<CURRENT-LIABILITIES> 6,144,508
<BONDS> 0
11,565,951
0
<COMMON> 3,274,373
<OTHER-SE> 5,050,488
<TOTAL-LIABILITY-AND-EQUITY> 8,324,861
<SALES> 21,006,020
<TOTAL-REVENUES> 21,006,020
<CGS> 0
<TOTAL-COSTS> 13,595,009
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,411,011
<INCOME-TAX> 2,985,952
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,425,059
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
