PRE 14A 1 p10001_pre14a.htm PRELIMINARY PROXY STATEMENT

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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 o

Check the appropriate box:

 

 

x

Preliminary Proxy Statement

 

 

o

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

 

o

Definitive Proxy Statement

 

 

o

Definitive Additional Materials

 

 

o

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.

 

 

o

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:

 

 


 

 

o

Fee paid previously with preliminary materials.

 

 

o

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 filing.

 

 

(1)

Amount previously paid:

 

 

 

[●]

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

 

Schedule 13E-3

 

 

(3)

Filing Party:

 

 

 

Regan Holding Corp.

 

 

(4)

Date Filed:

 

 

 

[●]

 

 


REGAN HOLDING CORP.
2090 Marina Avenue
Petaluma, CA 94954
(707) 778-8638

[●], 2010

Dear Shareholder:

          You are cordially invited to attend a special meeting of shareholders, which will be held at [●] on [●], 2010, at our Headquarters located at 2090 Marina Avenue, Petaluma, California 94954. I hope that you will be able to attend the meeting, and I look forward to seeing you.

          At the meeting, shareholders will vote on an Agreement and Plan of Merger (the “Reorganization Plan”). The Reorganization Plan provides for the merger of Regan Holding Corp. (“Regan”) with and into a newly created Delaware corporation, The Legacy Alliance Inc. (“Legacy”), with Legacy surviving the merger (the “Reorganization”). Under the terms of the Reorganization Plan, any shareholder who is the record holder of less than 4,500 shares of Regan Series A Common Stock and/or Regan Series B Common Stock (together, “Regan Common Stock”) will receive $0.10 in cash in exchange for each share of Regan Common Stock that he or she owns, and any shareholder who is the record holder of 4,500 or more shares of Regan Common Stock will receive one share of Legacy common stock (“Legacy Common Stock”) for each block of 4,500 shares of Regan Common Stock that he or she owns and $0.10 in cash per share for any remaining shares of Regan Common Stock in lieu of any fractional shares. A copy of the Reorganization Plan is attached as Appendix A to the enclosed proxy statement.

          The primary purpose of the Reorganization is to be able to realize a significant cost savings resulting from the termination of our current reporting obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which will be achieved by reducing the total number of record holders of Regan Common Stock to below 300.

          Dissenters’ rights are available to all shareholders, and shareholders who exercise those rights properly as described in the enclosed proxy statement will be entitled to receive cash for their shares. Unless they properly exercise dissenters’ rights, shareholders receiving Legacy Common Stock will not receive cash in exchange for any blocks of 4,500 shares of Regan Common Stock—only shares of Legacy Common Stock will be issued to shareholders for such blocks, although cash will be paid in lieu of fractional shares. Shareholders owning less than 4,500 shares of Regan Common Stock who receive cash in exchange for their shares will not receive any shares of Legacy Common Stock.

          Our principal reasons for effecting the Reorganization are the estimated direct and indirect cost savings of approximately $453,000 per year, plus an additional $257,000 in annual costs relating to compliance with Section 404 of the Sarbanes-Oxley Act, that we expect to experience as a result of our common stock not being registered under the Exchange Act. Although our shareholders will lose the benefits of holding registered stock, such as a reduction in the amount of publicly available information about our company and the elimination of certain corporate governance safeguards resulting from the Sarbanes-Oxley Act, we believe these benefits are outweighed by the costs relating to the continued registration of our common stock. These costs and benefits are described in more detail in the enclosed proxy statement. At the meeting, shareholders will also vote to approve Article 13 of Legacy’s Certificate of Incorporation, pursuant to which no holder of Legacy Common Stock may “transfer” shares of Legacy Common Stock without the consent of Legacy if, as a result of an attempted transfer, the party who would receive the shares would own of record fewer than the lesser of (i) 100 shares of Legacy Common Stock or (ii) the total number of shares of Legacy Common Stock owned of record by the transferring stockholder prior to the proposed transfer. This restriction may be noted conspicuously on Legacy Common Stock certificates issued in connection with or transferred after the effective date of the Reorganization. For purposes of Legacy’s Certificate of Incorporation, “transfer” means any type of disposition, including but not limited to a sale, gift, contribution, pledge or other action that would result in a change of the record ownership of any share of common stock. It is the intent of Legacy that this restriction on transfer will be enforced to the full extent it is enforceable against stockholders under the laws of the State of Delaware. Following the Reorganization, the officers of Regan, who will become the officers of Legacy, will have discretionary authority as the officers of Legacy to determine issues relating to a


proposed transfer, including without limitation whether the transfer would or would not be in violation of Legacy’s Certificate of Incorporation and whether such restrictions may or may not be enforced against a holder requesting a transfer of shares. The recording of a transfer on the stock records of Legacy shall be conclusive evidence that Legacy has consented to the transfer, if required under Legacy’s Certificate of Incorporation, and any transfer of shares recorded on the stock records of Legacy will be valid for all purposes.

          Regan’s Board of Directors (the “Board”) believes that the transfer restriction in Legacy’s Certificate of Incorporation is in the best interest of Regan and its shareholders because it is expected to slow the growth in the number of stockholders in the future, and thus enable Legacy to avoid or delay the need to again register its common stock, which would be required if the number of stockholders of record exceeded 500.

          At the meeting, shareholders will also vote to approve a proposal to adjourn the meeting to solicit additional proxies to approve the Reorganization or Article 13 of Legacy’s Certificate of Incorporation if there are not sufficient votes present at the meeting.

          We plan to effect the Reorganization by filing a certificate of merger with the Delaware Secretary of State as soon as possible after we obtain shareholder approval of the Reorganization Plan. The certificate of merger will specify an effective date that is either the same as or shortly after the filing date. The effective date specified in the certificate of merger will also serve as the record date for determining the ownership of shares for purposes of the Reorganization.

          The Board has established [●], 2010 as the record date for determining shareholders who are entitled to notice of the special meeting and to vote on the matters presented at the meeting. Whether or not you plan to attend the special meeting, please complete, sign and date the proxy card and return it in the envelope provided in time for it to be received by [●], 2010. If you attend the meeting, you may vote in person, even if you have previously returned your proxy card.

          The Board has determined that the Reorganization is fair to our unaffiliated shareholders and has voted unanimously in favor of approval of the Reorganization Plan, Article 13 of Legacy’s Certificate of Incorporation and any adjournment of the meeting, if necessary or appropriate, to solicit additional proxies. On behalf of the Board, I urge you to vote FOR approval of the Reorganization Plan, FOR approval of Article 13 of Legacy’s Certificate of Incorporation and FOR any adjournment of the meeting, if necessary or appropriate, to solicit additional proxies.

 

 

 

Sincerely,

 

 

 

/s/ R. Preston Pitts

 

 

 

R. Preston Pitts

 

President, Chief Operating Officer,

 

Chief Financial Officer and Secretary



REGAN HOLDING CORP.
2090 Marina Avenue
Petaluma, CA 94954
(707) 778-8638

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [●], 2010

          A special meeting of shareholders of Regan Holding Corp. (“Regan”) will be held at [●] on [●], 2010, at our headquarters located at 2090 Marina Avenue, Petaluma, California 94954, for the following purposes:

 

 

 

 

(1)

To vote on an Agreement and Plan of Merger (the “Reorganization Plan”) providing for the merger of Regan with and into The Legacy Alliance Inc. (“Legacy”), with Legacy surviving the merger (the “Reorganization”), and (a) the holders of less than 4,500 shares of Regan Series A Common Stock and/or Series B Common Stock (together, “Regan Common Stock”) receiving $0.10 in cash in exchange for each of their shares of Regan Common Stock, and (b) holders of 4,500 or more shares of Regan Common Stock receiving one share of Legacy common stock (“Legacy Common Stock”) for each block of 4,500 shares of Regan Common Stock that he or she owns and $0.10 in cash per share for any remaining shares of Regan Common Stock in lieu of any fractional shares. The Reorganization Plan is attached as Appendix A to the enclosed proxy statement.

 

 

 

 

(2)

To vote on Article 13 of Legacy’s Certificate of Incorporation, pursuant to which no holder of Legacy Common Stock may “transfer” shares of Legacy Common Stock without the consent of Legacy if, as a result of an attempted transfer, the party who would receive the shares would own of record fewer than the lesser of (a) 100 shares of Legacy Common Stock or (b) the total number of shares of Legacy Common Stock owned of record by the transferring stockholder prior to the proposed transfer.

 

 

 

 

(3)

To approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the meeting to approve each of the foregoing proposals.

 

 

 

 

(4)

To transact any other business as may properly come before the special meeting or any adjournment of the meeting.

The Board of Directors recommends that you vote FOR the above proposals.

          Statutory dissenters’ rights will be available for this transaction. If our shareholders approve the Reorganization Plan, shareholders who elect to dissent from the Reorganization Plan are entitled to receive the “fair value” of their shares of Regan Common Stock if they comply with the provisions of Section 1300 et seq. of the General Corporation Law of the State of California (the “Dissenters’ Rights Statute”). We have attached a copy of the Dissenters’ Rights Statute as Appendix B to the enclosed proxy statement.

          After the Reorganization and pursuant to the Certificate of Incorporation of Legacy, no holder of Legacy Common Stock may “transfer” shares of Legacy Common Stock without the consent of Legacy if, as a result of an attempted transfer, the party who would receive the shares would own of record fewer than the lesser of (i) 100 shares of Legacy Common Stock or (ii) the total number of shares of Legacy Common Stock owned of record by the transferring stockholder prior to the proposed transfer. This restriction may be noted conspicuously on Legacy Common Stock certificates issued in connection with or transferred after the effective date of the Reorganization. For purposes of Legacy’s Certificate of Incorporation, “transfer” means any type of disposition, including but not limited to a sale, gift, contribution, pledge or other action that would result in a change of the record ownership of any share of common stock. It is the intent of Legacy that this restriction on transfer will be enforced to the full extent, but only to the extent, it is enforceable against stockholders under the laws of the State of Delaware. Following the Reorganization, the officers of Regan, who will become the officers of Legacy, will have


discretionary authority as officers of Legacy to determine issues relating to a proposed transfer, including without limitation whether the transfer would or would not be in violation of Legacy’s Certificate of Incorporation and whether such restrictions may or may not be enforced against a holder requesting a transfer of shares. The recording of a transfer on the stock records of Legacy shall be conclusive evidence that Legacy has consented to the transfer, if required under Legacy’s Certificate of Incorporation, and any transfer of shares recorded on the stock records of Legacy will be valid for all purposes.

          Regan’s Board of Directors (the “Board”) believes that the transfer restriction in Legacy’s Certificate of Incorporation is in the best interest of Regan and its shareholders because it is expected to slow the growth in the number of stockholders in the future, and thus enable Legacy to avoid or delay the need to again register its common stock, which would be required if the number of stockholders of record exceeded 500.

          The Board has set the close of business on [●], 2010 as the record date for determining the shareholders who are entitled to notice of, and to vote at, the meeting or any adjournment of the meeting.

          We hope that you will be able to attend the meeting. We ask, however, whether or not you plan to attend the meeting, that you mark, date, sign and return the enclosed proxy card as soon as possible. Promptly returning your proxy card will help ensure the greatest number of shareholders are present whether in person or by proxy.

          If you attend the meeting in person, you may revoke your proxy at the meeting and vote your shares in person. You may revoke your proxy at any time before the proxy is exercised.

 

 

 

By Order of the Board of Directors,

 

 

 

/s/ R. Preston Pitts

 

 

 

R. Preston Pitts

 

President, Chief Operating Officer,

 

Chief Financial Officer and Secretary


 

 

Dated:

[●], 2010

At:

Petaluma, California



TABLE OF CONTENTS

 

 

 

 

 

Page

SUMMARY TERM SHEET

 

3

 

SPECIAL FACTORS

 

9

 

PURPOSE OF THE REORGANIZATION

 

9

ALTERNATIVES CONSIDERED

 

10

BACKGROUND OF THE REORGANIZATION

 

11

REASONS FOR THE REORGANIZATION

 

13

PURPOSES AND REASONS OF LEGACY FOR THE REORGANIZATION

 

14

EFFECTS OF THE REORGANIZATION ON REGAN, REGAN SHAREHOLDERS, AND REGAN AFFILIATES

 

14

EFFECTS OF THE REORGANIZATION ON SHAREHOLDERS GENERALLY

 

16

EFFECTS OF THE REORGANIZATION ON AFFILIATES

 

17

EFFECTS OF THE REORGANIZATION ON UNAFFILIATED SHAREHOLDERS

 

18

RECOMMENDATION OF THE BOARD OF DIRECTORS; FAIRNESS OF THE REORGANIZATION

 

19

DETERMINATION OF FAIRNESS BY LEGACY AND REGAN AFFILIATES

 

23

OPERATIONS OF LEGACY FOLLOWING THE REORGANIZATION

 

23

OPINION OF INDEPENDENT FINANCIAL ADVISOR

 

23

CALIFORNIA HEARING REGARDING THE FAIRNESS OF THE MERGER

 

27

FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION

 

27

DIFFERENCES BETWEEN THE RIGHTS OF REGAN SHAREHOLDERS AND LEGACY STOCKHOLDERS

 

30

PRO FORMA EFFECT OF THE REORGANIZATION

 

39

 

 

 

PROPOSAL 1: AGREEMENT AND PLAN OF MERGER

 

47

 

 

SUMMARY OF THE AGREEMENT AND PLAN OF MERGER

 

49

TERMINATION OF SECURITIES ACT REGISTRATION AND EXCHANGE ACT REPORTING REQUIREMENTS

 

51

TERMS OF THE LEGACY COMMON STOCK

 

51

SOURCE OF FUNDS AND EXPENSES

 

51

VOTE REQUIRED

 

52

 

 

 

PROPOSAL 2: ARTICLE 13 OF LEGACY’S CERTIFICATE OF INCORPORATION

 

53

 

 

 

VOTE REQUIRED

 

53

 

 

 

QUESTIONS AND ANSWERS

 

55

 

 

 

IMPORTANT NOTICES

 

58

 

 

 

INFORMATION REGARDING THE SPECIAL MEETING OF SHAREHOLDERS

 

59

 

 

 

TIME AND PLACE OF MEETING

 

59

RECORD DATE AND MAILING DATE

 

59

NUMBER OF SHARES OUTSTANDING

 

59

PROPOSALS TO BE CONSIDERED

 

59

DISSENTERS’ RIGHTS

 

59

PROCEDURES FOR VOTING BY PROXY

 

59

REQUIREMENTS FOR SHAREHOLDER APPROVAL

 

60

COUNTING OF VOTES

 

60



 

 

 

SOLICITATION OF PROXIES

 

60

 

DISSENTERS’ RIGHTS

 

61

 

 

 

INFORMATION ABOUT REGAN, ITS AFFILIATES AND LEGACY

 

63

 

 

 

OVERVIEW OF LEGACY’S BUSINESS

 

63

OVERVIEW OF REGAN’S BUSINESS

 

63

LEGACY PROPERTIES

 

70

REGAN PROPERTIES

 

70

LEGACY LEGAL PROCEEDINGS

 

71

REGAN LEGAL PROCEEDINGS

 

71

DIRECTORS AND EXECUTIVE OFFICERS

 

71

STOCK OWNERSHIP BY AFFILIATES

 

72

RELATED PARTY TRANSACTIONS

 

73

MARKET FOR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

73

DESCRIPTION OF CAPITAL STOCK

 

74

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

75

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

75

SHAREHOLDER PROPOSALS

 

75

SHAREHOLDER COMMUNICATIONS

 

75

OTHER MATTERS

 

75

 

 

 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

 

76

 

 

 

PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

 

77

 

 

 

WHERE YOU CAN FIND MORE INFORMATION

 

83


 

 

 

 

APPENDIX A

AGREEMENT AND PLAN OF MERGER

 

A-1

 

APPENDIX B

CALIFORNIA DISSENTERS’ RIGHTS STATUTE

 

B-1

 

APPENDIX C

FINANCIAL STATEMENTS AND MANAGEMENT’S DISCUSSION AND ANALYSIS

 

C-1

 

APPENDIX D

OPINION OF INDEPENDENT FINANCIAL ADVISOR

 

D-1

 

 

APPENDIX E

TERMS OF LEGACY COMMON STOCK

 

E-1

 

 

 

 

APPENDIX F

LEGACY’S CERTIFICATE OF INCORPORATION

 

F-1

 

 

 

 

APPENDIX G

LEGACY’S BYLAWS

 

G-1



REGAN HOLDING CORP.
2090 Marina Avenue
Petaluma, CA 94954
(707) 778-8638

PROXY STATEMENT
For the Special Meeting of Shareholders
To Be Held on [●], 2010

          The board of directors (the “Board”) of Regan Holding Corp. (“Regan” or the “Company”) is furnishing this proxy statement in connection with its solicitation of proxies for use at a special meeting of shareholders. The date of this proxy statement is [●], 2010. We first mailed this proxy statement to our shareholders on or about [●], 2010.

          At the meeting, shareholders will be asked to vote on an Agreement and Plan of Merger (the “Reorganization Plan”). The Reorganization Plan provides for the merger of Regan with and into The Legacy Alliance Inc. (“Legacy”), with Legacy surviving the merger (the “Reorganization”). Under the terms of the Reorganization Plan, holders of less than 4,500 shares of Regan Series A Common Stock and/or Series B Common Stock (together, “Regan Common Stock”) will receive $0.10 in cash in exchange for each of their shares of Regan Common Stock (the “Cash-out Price”) and holders of 4,500 or more shares of Regan Common Stock will receive one share of Legacy common stock (“Legacy Common Stock”) for each block of 4,500 shares of Regan Common Stock that he or she owns and $0.10 in cash per share for each remaining share of Regan Common Stock in lieu of any fractional shares. Because Securities and Exchange Commission (“SEC”) rules classify the Reorganization as a “Rule 13e-3 Transaction,” we will sometimes use that term in referring to this transaction.

          The Reorganization is designed to reduce the number of shareholders of record of Regan Common Stock to below 300, which will allow us to terminate the registration of Regan Common Stock under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Board has determined that it is in the best interests of Regan and its shareholders to effect the Reorganization because Regan will realize significant cost savings as a result of the termination of its reporting obligations under the Exchange Act. The Board believes these cost savings and the other benefits of deregistration described in this proxy statement outweigh the loss of the benefits of registration to our shareholders, such as a reduction in publicly available information about the Company and the elimination of certain corporate governance safeguards resulting from the Sarbanes-Oxley Act.

          We plan to effect the Reorganization by filing a certificate of merger with the Delaware Secretary of State as soon as possible after we obtain shareholder approval of the Reorganization Plan. As Regan is a California corporation, we will also file the certificate of merger with the California Secretary of State. The certificate of merger will specify an effective date that is either the same as or shortly after the filing date. We will refer to this effective date as the “effective date of the Reorganization.” The type of consideration (cash or Legacy Common Stock or a combination of the two) that you receive in exchange for your shares of Regan Common Stock in the Reorganization will depend on the number of shares of Regan Common Stock you hold of record on the effective date of the Reorganization.

          Dissenters’ rights are available to all shareholders, and shareholders who exercise those rights as described on page [●] and in Appendix B will be entitled to receive cash for their shares. Unless they properly exercise dissenters’ rights, shareholders receiving Legacy Common Stock will not receive cash in exchange for any blocks of 4,500 shares of Regan Common Stock—only shares of Legacy Common Stock will be issued to shareholders for such blocks. Shareholders owning less than 4,500 shares of Regan Common Stock who receive cash in exchange for their shares will not receive any shares of Legacy Common Stock.

          At the meeting, shareholders will also vote to approve Article 13 of Legacy’s Certificate of Incorporation, pursuant to which no holder of Legacy Common Stock may “transfer” shares of Legacy Common Stock without the consent of Legacy if, as a result of an attempted transfer, the party who would receive the shares would own of record fewer than the lesser of (i) 100 shares of Legacy Common Stock or (ii) the total number of shares of Legacy Common Stock owned of record by the transferring stockholder prior to the proposed transfer. This restriction may be noted conspicuously on Legacy Common Stock certificates issued in connection with or transferred after the effective date of the Reorganization. For purposes of Legacy’s Certificate of Incorporation, “transfer” means any type of disposition, including but not limited to a sale, gift, contribution, pledge or other action that would result in a change of the record ownership of any share of common stock. It is the intent of Legacy that this restriction on transfer will be enforced to the full extent, but only to the extent, it is enforceable against stockholders under the laws of the State of Delaware. Following the


Reorganization, the officers of Regan, who will become the officers of Legacy, will have discretionary authority as the officers of Legacy to determine issues relating to a proposed transfer, including without limitation whether the transfer would or would not be in violation of Legacy’s Certificate of Incorporation and whether such restrictions may or may not be enforced against a holder requesting a transfer of shares. The recording of a transfer on the stock records of Legacy shall be conclusive evidence that Legacy has consented to the transfer, if required under Legacy’s Certificate of Incorporation, and any transfer of shares recorded on the stock records of Legacy will be valid for all purposes.

          The Board believes that the transfer restriction in Legacy’s Certificate of Incorporation is in the best interest of Regan and its shareholders because it is expected to slow the growth in the number of stockholders in the future, and thus enable Legacy to avoid or delay the need to again register its common stock, which would be required if the number of stockholders of record exceeded 500.

          At the meeting, shareholders will also vote to approve a proposal to adjourn the meeting to solicit additional proxies to approve the Reorganization or Article 13 of Legacy’s Certificate of Incorporation if there are not sufficient votes present at the meeting.

          This proxy statement provides you with detailed information about the proposed Reorganization and Article 13 of Legacy’s Certificate of Incorporation. We encourage you to read this entire document carefully.

          The Board has determined that the Rule 13e-3 Transaction is fair to Regan’s shareholders and has unanimously approved the Reorganization Plan, Article 13 of Legacy’s Certificate of Incorporation and any adjournment of the meeting, if necessary or appropriate, to solicit additional proxies. The transaction cannot be completed, however, unless the Reorganization Plan and Article 13 of Legacy’s Certificate of Incorporation are approved by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote as of the record date. Our current directors and executive officers beneficially own approximately 51.01% (not including stock options) of our outstanding shares of common stock and have indicated that they intend to vote their shares in favor of the Reorganization Plan and approval of Article 13 of Legacy’s Certificate of Incorporation. As a result, we expect the Reorganization Plan and Article 13 of Legacy’s Certificate of Incorporation to be approved

          The Securities and Exchange Commission has not approved or disapproved the Reorganization or the transactions contemplated thereby nor has it determined if this proxy statement is truthful or complete. The SEC has not passed upon the fairness or merits of the Reorganization or the transactions contemplated thereby, nor upon the accuracy or adequacy of the information contained in this proxy statement. Any representation to the contrary is a criminal offense.

2


SUMMARY TERM SHEET

          This summary highlights information contained elsewhere in this document and may not contain all of the information that is important to you. Regan urges you to read carefully the remainder of this document, including the attached appendices, and the other documents to which we have referred you because this section does not provide all the information that might be important to you with respect to the proposals being considered at the special meeting of shareholders. We have included page references to direct you to a more complete description.

The Companies

The Legacy Alliance Inc.
2090 Marina Avenue
Petaluma, California 94954
(707) 778-8638

          The Legacy Alliance Inc. is a newly-formed Delaware corporation which was organized solely for the purpose of facilitating the Reorganization.

Regan Holding Corp.
2090 Marina Avenue
Petaluma, California 94954
(707) 778-8638

          Regan Holding Corp. is a holding company, incorporated in the State of California in 1990, whose primary operating subsidiary is Legacy Marketing Group. Legacy Marketing Group designs and markets fixed annuity products on behalf of certain unaffiliated insurance carriers in each of the United States, except Alabama and New York.

 

 

 

 

Structure of the Reorganization (See page [●]). In the Reorganization, shareholders who are the record holders of less than 4,500 shares of Regan Common Stock will be entitled to receive cash in the amount of $0.10 per share for each share of Regan Common Stock they own as of the effective date of the Reorganization and shareholders who are the record holders of 4,500 or more shares of Regan Common Stock will receive one share of Legacy Common Stock for each block of 4,500 shares of Regan Common Stock that he or she owns and $0.10 in cash per share for any remaining shares of Regan Common Stock in lieu of any fractional shares.

 

 

 

Dissenters’ rights are available to all shareholders, and shareholders who exercise those rights as described in this proxy statement and in Appendix B will be entitled to receive cash for their shares. Unless they properly exercise dissenters’ rights, shareholders receiving Legacy Common Stock will not receive cash in exchange for any blocks of 4,500 shares of Regan Common Stock—only shares of Legacy Common Stock will be issued to shareholders for such blocks. Shareholders owning less than 4,500 shares of Regan Common Stock who receive cash in exchange for their shares will not receive any shares of Legacy Common Stock. See page [●] for additional information.

 

 

We selected this structure principally because it presented a means by which a significant proportion of our shareholders could retain an equity interest in Legacy, while enabling us to reduce our common shareholder base to the extent necessary to permit us to terminate our registered status with the SEC. See page [●] for a discussion of the structural alternatives we considered.

 

 

Terms of Legacy Common Stock to be Received by Certain Regan Shareholders Pursuant to the Reorganization (See page [●]). The terms of Legacy Common Stock are set forth in Appendix E and are substantially similar to those of the Regan Common Stock in all material respects, except:

 

 

 

 

o

Article 13 of Legacy’s Certificate of Incorporation would limit the size of the company’s stockholder base by restricting certain “transfers” of shares that would create “odd lot” stockholders. As a result of this change, stockholders of Legacy following the merger would not be able to transfer shares of Legacy Common Stock if, following the transfer, the stockholder receiving the shares would own of record fewer than the lesser of (i) 100 shares of Legacy Common Stock or (ii) the total number of shares of Legacy Common Stock owned of record by the transferring stockholder prior to the proposed transfer. Article 13 would not generally limit transfers to or among “street name” accounts, as shares held for beneficial owners by banks or brokers are typically held of record by a depository nominee which is the record holder of more than 100 shares. The restriction imposed by Article 13 of Legacy’s Certificate of Incorporation would not be binding with respect to shares issued and will not become effective as to Regan shareholders unless the Reorganization Plan is approved and the merger is carried out.

3


 

 

 

 

o

Article 13 of Legacy’s Certificate of Incorporation is expected to enable Legacy to slow future growth in the number of its stockholders of record. This would decrease the likelihood that Legacy would need to register its common stock under the Exchange Act, incurring all of the associated burdens, risks and expenses described throughout this proxy statement. However, Article 13 could have a negative impact on the liquidity of Legacy Common Stock. Article 13 would also limit the ability of stockholders to make future gifts or sales of fewer than the lesser of (i) 100 shares of Legacy Common Stock or (ii) the total number of shares of Legacy Common Stock owned of record by the transferring stockholder prior to the proposed transfer. Therefore, stockholders would not have the same level of flexibility in share transfers that they currently enjoy.

 

 

 

 

o

Regan’s Board believes that Article 13 of Legacy’s Certificate of Incorporation is in the best interest of Regan and its shareholders because it is expected to slow the growth in the number of stockholders in the future, and thus enable Legacy to avoid or delay the need to register its common stock, which would be required if the number of stockholders of record exceeded 500.

          See Appendix E for more detailed information regarding the terms of the Legacy Common Stock.

 

 

Legacy Common Stock Issued in Reliance on Exemption from Registration (See page [●]). The shares of Legacy Common Stock are being issued without registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on an exemption under Section 3(a)(10) of the Securities Act for any security which is issued, partly in exchange for other securities and partly for cash, where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any state governmental authority expressly authorized by law to grant such approval. This exemption will be available for the Reorganization to the extent the California Corporations Commission has approved the Reorganization Plan in accordance with California Corporations Code § 25142.

 

 

Determination of Shares “Held of Record” (See page [●]). Because SEC rules require that we count “record holders” for purposes of determining our reporting obligations, the Reorganization is based on shares held of record without regard to the ultimate control of the shares. A shareholder “of record” is the shareholder whose name is listed on the front of the stock certificate, regardless of who ultimately has the power to vote or sell the shares. For example, if a shareholder holds separate certificates individually, as a joint tenant with someone else, as trustee, and in an IRA, those four certificates represent shares held by four different record holders, even if a single shareholder controls the voting or disposition of those shares. Similarly, shares held by a broker in “street name” on a shareholder’s behalf are held of record by the broker, with the individual shareholder being the “beneficial owner” of the shares. Therefore, if that broker is the record shareholder for one or more accounts representing collectively 4,500 or more shares of Regan Common Stock, then each block of 4,500 shares of Regan Common Stock registered in the broker’s name will be exchanged for Legacy Common Stock and $0.10 cash per share for any remaining shares. Because the Reorganization only affects record shareholders, it does not matter whether any of the underlying beneficial owners with a given broker own fewer than the applicable threshold number of shares. In any case, any cash or shares of Legacy Common Stock that a beneficial owner is entitled to receive will be calculated by the broker that holds the shares of record based on that beneficial owner’s individual stock ownership and distributed to the beneficial owner after the broker receives such cash or shares.

 

 

 

If you hold your shares in “street name,” you should talk to your broker, nominee or agent to determine how they expect the Reorganization to affect you. Because other “street name” holders who hold through your broker, agent or nominee may adjust their holdings prior to the effective time of the Reorganization, you may have no way of knowing whether you will be cashed out or will receive Legacy Common Stock in the transaction until it is completed. However, because we think it is unlikely that many brokerage firms or other nominees will hold 4,500 or more shares in their “street name” accounts, we think it is unlikely that “street name” holders will receive Legacy Common Stock

 

 

Consolidation of “Street Name” Ownership (See page [●]). In view of the SEC’s shareholder-counting rules described above, a single shareholder with 4,500 or more shares of Regan Common Stock held in various accounts would receive cash for his or her shares in the Reorganization if each of those accounts individually held fewer than 4,500 shares. To avoid this, the shareholder may either consolidate his or her record ownership into a single form of ownership representing more than 4,500 shares in order to avoid receiving only cash for his or her shares, or seek to acquire additional shares prior to the effective date of the Reorganization. Alternatively, as is described more fully in “Determination of Shares ‘Held of Record’” above, a shareholder who holds less than 4,500 shares of Regan Common Stock may place his or her shares into “street name” with a broker holding 4,500 or more shares of Regan Common Stock in such accounts and thereby avoid receiving cash for each block of 4,500 of his or her shares of Regan Common Stock. To ensure that the record ownership of the shares will be reflected appropriately on our transfer agent’s records on the effective date of the Reorganization, shareholders should initiate any transfers of their shares at

4


 

 

 

least three business days prior to our special shareholders’ meeting, as we intend to effect the Reorganization promptly thereafter and it will take into account only those transfers that have settled by the effective date.

 

 

Effects of the Reorganization (See page [●]). As a result of the Reorganization:


 

 

 

 

o

Our number of common shareholders of record, measured as of [●], 2010, will be reduced from approximately 3,400 to fewer than 300, and the number of outstanding shares of Regan Common Stock will decrease from approximately 24,076,000 to approximately 5,000 shares of Legacy Common Stock, resulting in a decrease in the number of shares common stock that will be available for purchase and sale in the market

 

 

 

 

o

We estimate that approximately 5,000 shares of Legacy Common Stock will be issued to approximately 200 Regan shareholders of record in connection with the Reorganization.

 

 

 

 

o

At the effective time of the Reorganization, the officers and directors of Regan will become the officers and directors of Legacy.

 

 

 

 

o

All stock options or other rights of Regan shareholders to acquire shares of Regan Common Stock will vest prior to the effective time of the Reorganization and if unexercised, will terminate at the effective time of the Reorganization.

 

 

 

 

o

We will be entitled to terminate the registration of Regan Common Stock under the Exchange Act, which will mean that we will no longer be required to file reports with the SEC or be classified as a public company. This will greatly reduce the amount of information that is publicly available about the Company and will eliminate certain corporate governance safeguards resulting from the Sarbanes-Oxley Act, such as the requirement for an audited report on our internal controls and disclosure requirements relating to our audit committee composition, code of ethics and director nomination process. Additionally, beginning six months after the effective date of the Reorganization, our executive officers, directors and other affiliates, who will become the executive officers, directors and other affiliates of Legacy, will no longer be subject to many of the reporting requirements and restrictions of the Exchange Act, including the reporting and short-swing profit provisions of Section 16.

 

 

 

 

o

We will eliminate the costs and expenses associated with our registration under the Exchange Act, which we estimate will be approximately $453,000 per year, plus an additional $257,000 in annual costs relating to compliance with Section 404 of the Sarbanes-Oxley Act for a total of $710,000, which includes $207,000 in time-saving costs. We estimate that professional fees and other expenses related to the Reorganization will be approximately $301,000, which we intend to pay with working capital.

 

 

 

 

o

Basic and diluted earnings per share will increase from $0.00 per share on a historical basis to $47.20 per share on a pro forma basis for the year ended December 31, 2008. Basic and diluted earnings per share will increase from $0.11 per share on a historical basis to $614.80 per share on a pro forma basis for the nine months ended September 30, 2009.

 

 

 

 

o

Book value per common equivalent share, which includes the Legacy Common Stock, will decrease from ($0.17) on a historical basis to ($789.80) on a pro forma basis as of September 30, 2009.

 

 

 

 

o

The percentage ownership of Regan Common Stock beneficially owned by our executive officers and directors as a group will increase from approximately 51.0% (not including stock options) to 55.0%. Each of Lynda L. Pitts, R. Preston Pitts and Ute Scott-Smith will receive Legacy Common Stock for some of his or her Regan Common Stock in the Reorganization.

 

 

 

 

o

The exchange of Regan Common Stock outstanding prior to the Reorganization for the relatively small number of shares of Legacy Common Stock that will be outstanding after the Reorganization will further reduce the already limited liquidity of our common stock.

For a more detailed description of these effects and the effects of the Reorganization on our affiliates and shareholders generally, including those receiving cash, those receiving Legacy Common Stock and those receiving a combination of Legacy Common Stock and cash in lieu of fractional shares, see pages [●] through [●].

5


 

 

Reasons for the Reorganization (See page [●]). Our principal reasons for effecting the Reorganization are:


 

 

 

 

o

The cost savings of approximately $453,000 per year, plus an additional $257,000 in annual costs relating to compliance with Section 404 of the Sarbanes-Oxley Act for a total cost of $710,000, which includes a time-saving cost of $207,000, that we expect to experience as a result of the deregistration of Regan Common Stock under the Exchange Act, together with the anticipated decrease in expenses relating to servicing a relatively large number of shareholders holding small positions in Regan Common Stock; and

 

 

 

 

o

Our belief that our shareholders have not benefited proportionately from the costs relating to the registration of Regan Common Stock, principally as a result of the absence of any trading market for our stock.


 

 

Fairness of the Reorganization (See page [●]). Based on a careful review of the facts and circumstances as described beginning on page [●], our Board and each of our affiliates believe that the terms and provisions of the Rule 13e-3 Transaction and the Legacy Common Stock are fair to our shareholders, including those receiving solely cash, those receiving Legacy Common Stock, and those receiving a combination of Legacy Common Stock and cash in lieu of fractional shares. Our Board unanimously approved, and recommends that shareholders vote in favor of, the Reorganization.

 

 

 

Our affiliates are listed on page [●] and include all of our directors and executive officers. Because of our affiliates’ positions with Regan, each is deemed to be engaged in the Rule 13e-3 Transaction and has a conflict of interest with respect to the transaction because he or she is in a position to structure it in a way that benefits his or her interests differently from the interests of unaffiliated shareholders. At present, three of our five directors beneficially own more than 4,500 shares of Regan Common Stock, and we anticipate that they will receive a combination of Legacy Common Stock and cash in lieu of fractional shares in the transaction. After the transaction, we anticipate that our directors and executive officers will beneficially own approximately 55.0% of Legacy’s outstanding shares. See “—Stock Ownership by Affiliates” on page [●] for more information regarding stock owned by our affiliates.

 

 

 

In the course of determining that the Rule 13e-3 Transaction is fair to and in the best interests of our unaffiliated shareholders, including unaffiliated shareholders who will receive shares of Legacy Common Stock and cash in lieu of fractional shares for their shares of Regan Common Stock and unaffiliated shareholders who will receive cash for their shares of Regan Common Stock, the Board and each of our affiliates considered a number of positive and negative factors affecting these groups of shareholders in making their determinations. The principal factors considered by the Board include:


 

 

 

 

o

The report delivered by Taylor Consulting Group, Inc. (“Taylor Consulting”), our independent financial advisor, to the Board that a range of $0.04 to $0.08 per share represents the range of fair value of the Regan Common Stock, and that the $0.10 per share that is paid in cash and the Legacy Common Stock that is received in the Reorganization would be fair, from a financial point of view, to Regan’s shareholders;

 

 

 

 

o

Shareholders who own 4,500 or more shares of Regan Common Stock will hold an equity interest in Legacy, the surviving entity following consummation of the Reorganization Plan;

 

 

 

 

o

Shareholders will have the right to vote on the Reorganization Plan, and the Reorganization Plan must be approved by a majority of the shares entitled to vote;

 

 

 

 

o

Shareholders not entitled to receive cash for all of their shares of Regan Common Stock under the Reorganization Plan but who wish to liquidate their holdings may do so through the exercise of dissenters’ rights;

 

 

 

 

o

Shareholders receiving cash for their shares of Regan Common Stock will not incur brokerage fees or commissions in connection with the liquidation of their holdings;

 

 

 

 

o

Shareholders have the opportunity to receive Legacy Common Stock by transferring or consolidating their shares or placing them in (or removing them from) “street name” accounts as described above in “Consolidation of ‘Street Name’ Ownership;”

 

 

 

 

o

The Board’s belief that the advantages and disadvantages of the rights, preferences and limitations of the Legacy Common Stock will balance in comparison to the relative rights of Regan Common Stock, given that the decreased value associated with the imposition of odd-lot restrictions is offset by the increased value represented by the decreased financial burdens on the surviving corporation;

6


 

 

 

 

o

The Board’s belief that the Reorganization should not be taxable to shareholders receiving only Legacy Common Stock under the Reorganization Plan and that, except with respect to shareholders who have acquired their shares within the prior 12 months, the cash consideration offered in the Reorganization would be taxed as a capital gain;

 

 

 

 

o

Basic and diluted earnings per share will increase approximately from $0.00 on a historical basis to $47.20 on a pro forma basis for the year ended December 31, 2008 and will increase approximately from $0.11 per share on a historical basis to $614.80 on a pro forma basis for the nine months ended September 30, 2009; and

 

 

 

 

o

Book value per common equivalent share will change approximately from ($0.17) on a historical basis to ($789.80) on a pro forma basis as of September 30, 2009.


 

 

Effectiveness of the Reorganization (See page [●]). The Reorganization will not be effected unless and until the Reorganization Plan is approved by a majority of the votes entitled to be cast on the Reorganization Plan. Assuming the shareholders approve the Reorganization Plan, as shortly thereafter as is practicable, Legacy will file the certificate of merger with the Delaware Secretary of State thereby effecting the Reorganization. The certificate of merger will specify an effective date that is either the same as or shortly after the filing date.

 

 

 

Notwithstanding shareholder approval, however, at any time prior to the effective date of the Reorganization, the Board may abandon the Reorganization without any further shareholder action. If at any time prior to the effective date of the Reorganization the Board determines that (1) the estimated cost of payments to dissenting shareholders or legal expenses makes the Reorganization inadvisable or (2) the number of shareholders dissenting from or voting against the Reorganization Plan reflects a material negative reaction among a significant portion of the shareholders, the Board may elect to abandon the Reorganization.

 

 

 

Because our current directors and executive officers beneficially own approximately 51.0% (not including stock options) of our outstanding shares of common stock and have indicated that they intend to vote their shares in favor of the Reorganization Plan, we expect the Reorganization Plan to be approved.

 

 

 

We currently anticipate that the Reorganization will be effected in the first quarter of 2010. See page [●] for more detailed information.

 

 

Conditions and Regulatory Approvals (See page [●]). Aside from shareholder approval of the Reorganization Plan, and issuance of a permit by the California Commissioner of Corporations regarding the “fairness” of the Reorganization, the Reorganization is not subject to any conditions or regulatory approvals.

 

 

Dissenters’ Rights (See page [●]). Regan shareholders are entitled to dissent from the Reorganization under Section 1300 et seq. of the California Corporations Code (the “Dissenters’ Rights Statute”). If you dissent, you are entitled to the statutory rights and remedies of dissenting shareholders provided the Dissenters’ Rights Statute as long as you comply with the applicable procedures set forth in the Dissenters’ Rights Statute. The Dissenters’ Rights Statute provides that a dissenting shareholder is entitled to receive cash in an amount equal to the “fair value” of his or her shares.

 

 

 

To perfect dissenters’ rights, among other things, you must give Regan written notice of your intent to dissent from the Reorganization Plan prior to the vote of the shareholders at the special meeting and you must not vote your shares in favor of the Reorganization Plan. Any shareholder who returns a signed proxy but fails to provide instructions as to the manner in which his or her shares are to be voted will be deemed to have voted in favor of the proposal and will not be entitled to assert dissenters’ rights.

 

 

 

Generally, under the Dissenters’ Rights Statute, Regan will make an initial offer of payment to dissenting shareholders, if any, of an amount it estimates to be the “fair value” of the common stock. If a dissenting shareholder believes the payment offer is less than the fair value of the common stock, he or she may notify Regan of his or her estimate of fair value. If Regan and the dissenting shareholder cannot settle the amount of fair value, fair value will be determined in a court proceeding in the Superior Court of Sonoma County, California.

7


 

 

 

However, to the extent the long-arm provision of California Corporations Code § 2115 is held to apply to Legacy, California Corporations Code § 500, which imposes certain limitations on distributions to stockholders, would prevent Legacy from making payments to holders exercising dissenters’ rights until the requirements of § 500 are satisfied.

The Agreement and Plan of Merger provides that Regan will not be required to complete the merger if dissenters’ rights have been exercised with respect to 10% or more, in the aggregate, of all outstanding shares of Regan. As a result, exercise of dissenters’ rights with respect to 10% or more of the outstanding shares of Regan could prevent the merger from going forward. Regan is entitled to waive this requirement and permit the merger to proceed even if 10% or more of the outstanding shares of Regan exercise dissenters’ rights.

See page [●] and Appendix B for additional information regarding procedures for asserting dissenters’ rights and the determination of “fair value” of the common stock.

8


SPECIAL FACTORS

Purpose of Reorganization

          The primary purpose of the Reorganization is to enable us to terminate the registration of our common stock under Section 12(g) of the Exchange Act. Although shareholders of Regan Common Stock and stockholders of Legacy Common Stock will be kept informed as to business and financial status after the Reorganization as described below, we anticipate that deregistration will enable us to save significant legal, accounting and administrative expenses relating to our public disclosure and reporting requirements under the Exchange Act.

          After the Reorganization, as a non-SEC registered company Legacy’s auditing expenses will decrease significantly because we and our auditors will not be required to comply with standards prescribed by the SEC and the Public Company Accounting Oversight Board with respect to our audit and because our auditors will not be required to review the information we must include in our periodic SEC reports as described more fully below. Our other reporting processes will also be significantly simplified because we will no longer be required to comply with disclosure and reporting requirements under the Exchange Act and the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). These requirements include preparing and filing current and periodic reports with the SEC regarding our business, financial condition, Board and management team, having these reports reviewed by outside counsel and independent auditors and documenting, testing and reporting on our internal control structure.

          In particular, after we have deregistered our stock with the SEC, we will no longer be required to file annual reports on Form 10-K, quarterly reports on Form 10-Q or proxy statements with the SEC. The SEC’s periodic reporting and proxy statement rules require detailed disclosures regarding executive compensation, corporate governance and management stock ownership that are not required in our audited financial statements. Additionally, we will no longer be required to include management’s discussion and analysis of our financial results in annual reports to shareholders. Currently, our attorneys and external auditors perform detailed reviews of management’s discussion and analysis of our financial results to assure consistency with audited financial statements and to ensure we are in compliance with applicable disclosure requirements.

          We also incur substantial costs in management time and legal and accounting fees related to the preparation, review and filing of our periodic reports and proxy statements. As a result of the elimination of the disclosure and reporting requirements under the Exchange Act, we estimate that we will save approximately $134,000 per year in management time and $299,000 per year in legal and accounting fees before taking into account the effects of the increased internal controls reporting and auditing standards described below. We also expect to save approximately $20,000 annually in administrative costs related to soliciting proxies for routine annual meetings, including printing and mailing costs and transfer agent fees related to the proxy solicitation.

          After we have deregistered our stock with the SEC, we will not be required to comply with Section 404 of the Sarbanes-Oxley Act, which requires that we document, test and assess our internal control structure and that our external auditors report on management’s assessment of our internal control structure. As a result, we estimate that we will save approximately $73,000 per year in management time and $184,000 per year in internal control consulting and auditing fees.

          We are required to comply with many of the same securities law requirements that apply to large public companies with substantial compliance resources. Our resources are more limited, however, and as is shown above, these compliance activities represent a significant administrative and financial burden to a company of our relatively small size and market capitalization. We also incur less tangible but nonetheless significant expenditure of management’s time and attention that could otherwise be deployed toward revenue-enhancing activities.

          In summary, our estimated cost of compliance with the Exchange Act and the Sarbanes-Oxley Act is substantial, representing an estimated annual cost to us of approximately $710,000, which includes $207,000 in time-saving costs. Our anticipated cost and time savings are also summarized under “—Reasons for the Reorganization.”

          As of [●], 2010, we had approximately 3400 common shareholders of record, but approximately 90% of the outstanding shares as of that date were held by approximately 120 shareholders. Additionally, of our 3400 common shareholders, approximately 3200 shareholders hold fewer than 4,500 shares, or an aggregate of approximately 7.5% of our outstanding common stock as of [●], 2010. Regan Common Stock is not traded on any established market. Trading is infrequent, the trading volume is low and the Board believes there is little likelihood that a more active market will develop. However, because we have more than 300 shareholders of record and our common stock is registered under Section 12(g) of the Exchange Act, we are required to comply with the disclosure and reporting requirements under the Exchange Act and the Sarbanes-Oxley Act.

9


          In light of the limited market for Regan Common Stock, we believe the termination of our status as an SEC-registered company will not have a significant impact on any future efforts by Legacy to raise additional capital or to acquire other business entities. We believe the Reorganization will provide a more efficient means of using our capital to benefit our shareholders by allowing us to save significant administrative, accounting, and legal expenses incurred in complying with the disclosure, reporting and compliance requirements described above. Moreover, we believe that our limited trading market and the resulting inability of our shareholders to realize the full value of their investment in Regan Common Stock through an efficient market has resulted in little relative benefit for our shareholders as compared to the costs of maintaining our registration. Finally, the Reorganization will give shareholders owning more than 4,500 shares the opportunity to obtain an equity interest in Legacy and therefore to participate in any future growth and earnings of the company and in any future value received as a result of the sale of the company.

Alternatives Considered

          In making our decision to proceed with the Reorganization, we considered other alternatives. We rejected these alternatives because we believed the Reorganization would be the simplest and most cost-effective manner in which to achieve the purposes described above. These alternatives included:

 

 

Reverse Stock Split. The Board considered the use of a process known as a reverse stock split as an alternative to the Reorganization. A reverse stock split would have involved a mechanism that proportionately decreased the number of shares of stock held by shareholders. In a reverse stock split, shareholders receive one share of stock for every 4,500 (for example) shares owned; those shareholders holding only fractional shares interests following the split are cashed out. As a result, there are fewer shareholders. The Board did not choose this alternative because California Corporations Code § 500 prevents California corporations from performing reverse stock splits without a minimum amount of retained earnings, and Regan does not meet the requirements for the tests of such retained earnings.

 

 

Tender Offer. The Board also considered making a tender offer to purchase outstanding shares of Regan Common Stock from Regan’s shareholders. This alternative could have reduced the number of shareholders through the sale of common stock held by them. However, it is uncertain whether this process would result in Regan having fewer than 300 shareholders – a threshold that Regan must meet in order to go private and reduce the burdens associated with being a reporting company. For this reason, the Board did not use this alternative.

 

 

Cash-out Merger. The Board considered a cash-out merger in which holders of Regan Common Stock would receive cash in exchange for their shares. The capital cost of such a transaction would be much higher than that of the proposed Reorganization, however. Assuming that all of the 24,076,000 shares held of record as of [●], 2010 were exchanged for $0.10 in cash, the capital cost of the transaction would be $2,408,000, as compared to the current anticipated capital cost of approximately $180,000. Additionally, issuing shares of Legacy Common Stock instead of cash to a portion of our shareholders will enable those shareholders to continue to retain an equity interest in our company.

 

 

Expense Reductions in Other Areas. While we might be able to offset the expenses relating to SEC registration by reducing expenses in other areas, we have not pursued such an alternative because there are no areas in which we could achieve comparable savings without adversely affecting a vital part of our business or impeding our opportunity to grow. We believe the expense savings that the Reorganization would enable us to accomplish will not adversely affect our ability to execute our business plan, but will instead position us to execute it more efficiently. For these reasons, we did not analyze cost reductions in other areas as an alternative to the Reorganization.

 

 

Business Combination. We have neither sought nor received any proposals from third parties for any business combination transactions such as a merger, consolidation, or sale of all or substantially all of our assets. Our Board did not seek any such proposals because these types of transactions are inconsistent with the narrower purpose of the proposed transaction, which is to discontinue our SEC reporting obligations. The Board believes that by implementing a deregistration transaction, our management will be better positioned to focus its attention on our customers and the communities in which we operate and expenses will be reduced.

 

 

Maintaining the Status Quo. The Board considered maintaining the status quo. In that case, we would continue to incur the significant expenses, as outlined in “—Reasons for the Reorganization” below, of being an SEC-reporting company without the expected commensurate benefits. Thus, the Board considered maintaining the status quo not to be in the best interests of the Company or its unaffiliated shareholders.

10


Background of the Reorganization

          As an SEC reporting company, Regan is required to prepare and file with the SEC, among other items, the following:

 

 

Annual Reports on Form 10-K;

 

 

Quarterly Reports on Form 10-Q;

 

 

Periodic Reports on 8-K; and

 

 

Proxy Statements and related materials as required by Regulation 14A under the Exchange Act.

          In addition, as an SEC reporting company, Regan is required to comply with laws and various regulatory requirements, including but not limited to the Sarbanes-Oxley Act. While the compliance date has been extended a number of times, Regan spent significant management time and resources to begin to comply with the Sarbanes-Oxley Act. Such resources included hiring of consultants to perform a risk assessment, identify significant business processes, document internal control procedures, assess the design of those controls and design and perform tests of the effectiveness of internal controls. Beyond the one time costs, there would be significant annual costs for external review.

          The costs associated with these reports, other filing obligations and compliance with regulatory requirements comprise a significant corporate expense. These costs include counsel fees, auditor fees, cost of printing and mailing the SEC documents and the word processing, consultant fees, specialized software and filing costs associated with the SEC reports and other filings. These SEC registration-related expenses have been increasing over the years, and Regan believes that they will continue to increase as Regan is required to comply with the Sarbanes-Oxley Act. These costs include both hard dollar costs and time costs related to implementation and compliance.

          Beginning in 2005, the Board began to discuss at its regular board meetings possible reorganization structures that would eliminate the SEC reporting requirements and compliance with the Sarbanes-Oxley Act. The Board also discussed the benefits of using management’s time to develop additional business and strategic opportunities, as well as reducing expenses incurred to comply with the Sarbanes-Oxley Act and the SEC reporting requirements. The discussions involved SEC reporting requirements and the Sarbanes-Oxley Act, as well the implications for Regan as a public company. The Board felt that there were really no benefits to being an SEC reporting company, given the size of Regan and factoring in the corporate expense involved with compliance. Discussions were held on the need for future capital and the alternatives available and that the Board would continue to explore options in the future and obtain additional information on the process and costs of going private.

          During the regularly scheduled Board meeting of December 11, 2007, the Board asked for a cost estimate of remaining a public company and the financial burden of being a public company. There was also a general discussion on the benefits of remaining public versus the cost of compliance. The Board indicated that Regan must find a way to continue to reduce expenses and if the Board could find a suitable alternative structure, or reorganization that could eliminate the significant corporate expenses of remaining a public company, it should be pursued.

          At the regularly scheduled Board meeting of June 16, 2008, the Board shared further analysis of the costs of remaining a public company and complying with the Sarbanes-Oxley Act. Such analysis revealed an approximate annual savings to Regan of $500,000. The Board discussed and reviewed information on the positives and negatives of remaining public. Possible reorganization structures were discussed, including a reverse stock split and Regan purchasing a number of shares of stock back, so that the number of shareholders would be reduced below the threshold required to comply with SEC reporting requirements. The Board committed to continue to pursue alternatives and to present additional findings at the next regularly scheduled board meeting.

          On September 22, 2008, during the regularly scheduled Board meeting, the Board reviewed additional alternative structures and possible reorganization opportunities that would be more suitable given Regan’s size, current structure and needs, while eliminating the need for Regan to comply with the SEC reporting requirements and the Sarbanes-Oxley Act. The Board had a detailed conversation regarding the option of Regan forming a new company and initiating a cash out merger transaction. The Board resolved to formulate a detailed proposal regarding this option for further discussion at the next regularly scheduled Board meeting.

11


          During the regularly scheduled Board meeting of December 5, 2008, the Board reviewed details regarding the possible reorganization of Regan, whereby certain shareholders of Regan would form a new company which would merger with Regan in a cash out merger transaction whereby the number of shareholders would be reduced below 300. A detailed summary of the costs associated with such proposal was reviewed and discussed by the Board. The Board decided to pursue this option and that further discussions would occur at the next regularly scheduled Board meeting after consulting with outside counsel. Further, the Board committed to investigating the feasibility and advisability of the proposed transaction which would permit Regan to discontinue its registration under the Exchange Act; to select, engage and incur expenses for accountants, fairness opinion advisors and legal professionals.

          At the regularly scheduled Board meeting on April 27, 2009, the Board held a meeting with representatives of Dewey & LeBoeuf to discuss the proposed transaction. Dewey & LeBoeuf is an international law firm that has in the past represented Regan in connection with certain securities law matters. The Board had extensive discussions regarding the process, implications and alternatives for going private. Dewey & LeBoeuf provided the Board with details as to the proposed approach to reorganizing Regan to eliminate the SEC reporting requirements, as well as compliance with the Sarbanes-Oxley Act. Representatives of Dewey & LeBoeuf also led an extensive discussion of the feasibility, legal and regulatory requirements, procedural issues and timeline for a possible going private transaction by Regan. There was also a discussion of the Board’s fiduciary duties to Regan and its shareholders, fairness issues, the approximate cost of a possible going private transaction, and possible effects of such a transaction on Regan and its remaining shareholders. The Board contacted Taylor Consulting to discuss the possible provision of a fairness opinion, including performance of certain valuation services as to the current value of the shares of Regan stock in connection with the opinion. Regan subsequently executed an agreement with and engaged Taylor Consulting to perform the services in connection with the fairness opinion.

          During the regularly scheduled Board meeting on August 18, 2009, Taylor Consulting presented to the Board its views regarding the fair value of Regan’s stock. Its presentation included a discussion on considerations made, methodologies utilized, analyses performed and the range of valuation results, including information on the fair value per share. Based on the information provided by Taylor Consulting, the Board considered the price to be paid for the shares of Common Stock converted into the right to receive cash in the merger and that the proposed merger transaction would be fair to the Company and its shareholders (including unaffiliated shareholders).

          On September 1, 2009, the Board held a special meeting of the independent special committee to further consider the cash out merger. The special committee was comprised entirely of independent directors and held the meeting without the officers being present. Representatives of Dewey & LeBoeuf discussed the proposed merger agreement and provided the Board the opportunity to discuss the proposed transaction further.

12


          On December 1, 2009, the Board held a meeting to finalize the transactions. At the meeting, legal counsel presented a draft Reorganization Plan, a draft application to the Commissioner, a draft proxy statement and transaction statement on Schedule 13E-3 and discussed the necessary SEC disclosures. The Board approved the form of Reorganization Plan, application to the Commissioner, proxy statement and Schedule 13E-3 and authorized management to make all necessary filings with the SEC or otherwise to consummate the proposed going private transaction. The Board also approved $0.10 per share of Regan Common Stock as the price to be paid in cash and one share of Legacy Common Stock as the price to be paid in Legacy Common Stock for each 4,500 shares of Regan Common Stock. At such meeting the opinion of Taylor Consulting, that the $0.10 per share to be paid in cash and the Legacy Common Stock to be received in the Reorganization was fair, from a financial point of view, to Regan’s shareholders, including both those shareholders who may have their shares redeemed for cash and those shareholders who may receive shares of Legacy Common Stock and cash in lieu of any fractional shares, was received by the Board. At the meeting, the Board reviewed a proposed Agreement and Plan of Merger and unanimously approved a resolution adopting the agreement, authorizing management to proceed with the merger transaction and to seek shareholder approval of the Reorganization.

Reasons for the Reorganization

          As described above in “—Purpose of the Reorganization,” the Reorganization will allow us to save significant costs related to the preparation, review and filing of our periodic reports and annual proxy statement. We also expect to experience savings in proxy solicitation costs, including printing and mailing costs. We expect printing and mailing costs to be lower because we will have fewer shareholders who are entitled to vote and because the financial and proxy statements that we deliver to shareholders after the Reorganization will not include many of the disclosures required under the proxy or periodic reporting rules, such as disclosures regarding executive compensation, corporate governance and management ownership, and management’s discussion and analysis of our financial results.

          For 2010 and subsequent years, we expect to eliminate or incur a time-savings for the following fees and expenses related to the preparation, review and filing of periodic reports on Form 10-K and Form 10-Q and annual proxy statements. These fees and expenses do not reflect Section 404 compliance expenses, which are described in a separate table below:

 

 

 

 

 

Legal Fees (including Edgar conversion)

 

$

77,000

 

Independent Auditor Fees

 

 

182,000

 

Other (insurance, board of director fees)

 

 

40,000

 

Proxy Solicitation, Printing and Mailing Costs

 

 

20,000

 

Management and Staff Time

 

 

134,000

 

 

 

 

 

 

Total Annual Non-404 Savings

 

$

453,000

 

          We also expect to save the following fees and expenses related to compliance with the requirements under Section 404 of the Sarbanes Oxley Act :

 

 

 

 

 

Annual Consulting Fees

 

$

75,000

 

Independent Auditor Fees

 

 

109,000

 

Management and Staff Time

 

 

73,000

 

 

 

 

 

 

Total Estimated Annual Savings

 

$

257,000

 

          As is noted above, we incur substantial time-saving costs in management time spent on securities compliance activities. Although it is impossible to quantify these costs specifically, we estimate that our management and staff currently spend an average of approximately 16% of their time on activities directly related to compliance with federal securities laws, such as preparing and reviewing SEC-compliant financial statements and periodic reports, maintaining and overseeing disclosure and internal controls, monitoring and reporting transactions and other data relating to insiders’ stock ownership, and consulting with external auditors and counsel on compliance issues. In addition, we estimate our management and staff spend approximately an additional 8% of their time on activities related to compliance with Section 404 of the Sarbanes-Oxley Act, for a total additional annual time savings of $73,000.

          In addition, Regan Common Stock is not listed on an exchange and has historically been very thinly traded. We do not enjoy sufficient market liquidity to enable our shareholders to trade their shares easily. We also do not have sufficient liquidity in Regan Common Stock to enable us to use it as potential acquisition currency. As a result, we do not believe that the registration of our common stock under the Exchange Act has benefited our shareholders in proportion to the costs we have incurred, and expect to incur, as a result of this registration.

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Purposes and Reasons of Legacy for the Reorganization

          Legacy was organized solely for the purpose of facilitating the Reorganization. As a result, Legacy’s purpose and reasons for engaging in the Reorganization are the same as those set forth above in “—Purpose of Reorganization,” and “—Reasons for the Reorganization.”

Effects of the Reorganization on Regan, Regan Shareholders, and Regan Affiliates

          The Reorganization is designed to reduce the number of Regan common shareholders of record below 300, which will allow us to terminate the registration of Regan Common Stock under the Exchange Act. Based on information as of [●], 2009, we believe that the Reorganization will reduce our number of common shareholders of record from approximately 3400 to approximately 200. We estimate that approximately 1,800,000 shares held by approximately 3200 common shareholders of record will be exchanged for cash in the Reorganization and that approximately 22,276,000 shares held by approximately 200 common shareholders of record will be exchanged for Legacy Common Stock and cash in lieu of any fractional shares in the Reorganization. In addition to the exchange of shares of Regan Common Stock for cash or shares of Legacy Common Stock and cash in lieu of any fractional shares, we believe the Reorganization will have the following effects on Regan:

Positive Effects

 

 

Elimination of Exchange Act Registration. After the Reorganization, we will not be subject to the periodic reporting requirements under the Exchange Act. Additionally, beginning 90 days after the Reorganization, Legacy will not be subject to the proxy, tender offer or short-swing profit reporting and recovery provisions of the Exchange Act. We plan to maintain our existing internal control procedures and continue to evaluate them for potential improvements but will not be required to document, test and report on our internal control structure as required by Section 404 of the Sarbanes-Oxley Act. We expect to eliminate costs and expenses and incur a time savings associated with the Exchange Act registration, which we estimate would be up to approximately $453,000 on an annual basis, plus an additional $257,000 in annual costs related to compliance with Section 404 of the Sarbanes-Oxley Act for a total of $710,000, which includes a time savings of $207,000. Additionally, as a non-SEC reporting company, we believe our management team, which currently spends a significant amount of time on activities related to compliance with the Exchange Act, will have significantly more time to devote to business development and revenue-enhancing activities. See “—Background of the Reorganization” and “—Reasons for the Reorganization” for a discussion of the nature of the information we will no longer be required to provide.

 

 

Improved Earnings Per Share. Basic and diluted earnings per share will increase from $0.00 per share on a historical basis to $47.20 per share on a pro forma basis for the year ended December 31, 2008 and from $0.11 per share on a historical basis to $614.80 per share on a pro forma basis for the nine months ended September 30, 2009. The pro forma earnings per share have been calculated with regard to estimated transaction expenses or anticipated expense savings resulting from the Reorganization.

 

 

Elimination of Liability under Section 18 of the Exchange Act. Because Legacy will no longer be required to file any reports under the Exchange Act, it will no longer be subject to liability under Section 18 of the Exchange Act. Generally, Section 18 provides that if Regan makes a false or misleading statement with respect to any material fact in any of its filings pursuant to the Exchange Act, in light of the circumstances at the time the statement was made, Regan will be liable to any person who purchases or sells a security at a price that is affected by the statement.

 

 

Majority of shareholders will maintain a continuing interest. Since a substantial majority of shares of Regan stock are owned by less than 300 shareholders, the holders of more than 92.5% of the outstanding shares of Regan Common Stock will be able to be equity holders in the successor enterprise. As explained above, as a result of expected cost reduction, such enterprise will be more likely to succeed financially.

Negative Effects

 

 

Effect on Market for Shares. Regan Common Stock is not currently traded on an exchange or automated quotation system, and, to management’s knowledge, no shares of Regan Common Stock have traded or been redeemed since 2006. Thus, Regan Common Stock is not liquid. Following the Reorganization, the number of outstanding shares of Regan Common Stock available will decrease by approximately 99%, resulting in a further loss of liquidity. Only approximately 5,000 shares of Legacy Common Stock will be outstanding after the Reorganization, which results in a limited third-party market for Legacy’s shares. As a result, holders will lose liquidity in their current investment in the Company, which could decrease the market value of such security.

14


 

 

Termination of Redemption Rights. Holders of certain currently outstanding shares of Regan Common Stock have certain limited rights to require Regan to redeem their shares. However, under California law, Regan is not currently permitted to make any cash distributions, thus preventing any redemptions. After the Reorganization, the only outstanding stock will be Legacy Common Stock with respect to which there will be no redemption rights.

 

 

Decrease in Book Value Per Common Equivalent Share. Book value per common equivalent share, which includes the Legacy Common Stock, will decrease from ($0.17) on a historical basis to ($789.80) on a pro forma basis as of September 30, 2009.

 

 

Termination of Stock Options. All stock options or other rights to acquire shares of Regan Common Stock held by Regan shareholders prior to the effective time of the Reorganization, including any that are unvested, will be vested pursuant to the terms of the Reorganization Plan and if unexercised prior to the effective time of the Reorganization, will terminate.

 

 

Financial Effects of the Reorganization. We estimate that professional fees and other expenses related to the transaction will total approximately $301,000. We estimate these expenses will be as follows:


 

 

 

 

 

SEC filing fees

 

$

500

 

Legal Fees

 

 

200,000

 

Accounting Fees

 

 

5,500

 

Financial Advisor Fees

 

 

45,000

 

Exchange Agent Fees

 

 

30,000

 

Proxy printing and mailing costs

 

 

20,000

 

 

 

 

 

 

Total

 

$

301,000

 


 

 

 

We plan to pay these fees and expenses with working capital. We do not expect that the payment of these expenses will have a material adverse effect on our capital adequacy, liquidity, results of operations or cash flow.

 

 

Elimination of Protection under Section 16 of the Exchange Act. Because neither Regan Common Stock nor Legacy Common Stock will be registered under the Exchange Act, beginning six months after the effectiveness of the Reorganization, Legacy will no longer be entitled under Section 16 of the Exchange Act to any “short-swing” profits realized by its directors, officers or 10% shareholders on purchases and sales of Legacy’s securities that occur within a six-month period.

Other Effects

 

 

Conduct of Business after the Reorganization. We expect our business and operations to continue as they are currently being conducted and, except as disclosed below and for the additional management and staff time that will be available for non-SEC-related activities, the transaction is not anticipated to have any effect upon the conduct of our business.

 

 

Raising Additional Capital and Obtaining Financing After the Reorganization. In light of the limited market for Regan Common Stock and the availability of capital from sources other than public markets, we believe the termination of our status as a company with stock registered under the Exchange Act will not have a significant impact on any future efforts to raise additional capital. If we need to raise additional capital to support growth in the future, we have several financing alternatives that will not be affected by our deregistration, including raising additional equity through private offerings, issuing trust preferred securities or borrowing funds from a correspondent bank.

 

 

Plans or Proposals. Other than as described in this proxy statement, we do not have any current plans or proposals to effect any extraordinary corporate transaction such as a merger, reorganization or liquidation; to sell or transfer any material amount of our assets; to change our Board or management; to change materially our indebtedness or capitalization; or otherwise to effect any material change in our corporate structure or business. As stated throughout this proxy statement, we believe there are significant advantages in effecting the Reorganization and becoming a non-

15


 

 

 

reporting company. Although management has neither the intention at present to enter into any of the transactions described above nor is involved with negotiations relating to any such transaction, there is always a possibility that we may enter into such an arrangement or transaction in the future, including, but not limited to, entering into a merger or acquisition transaction, making a public or private offering of our shares, or any other arrangement or transaction we may deem appropriate. We will disclose the terms of such a transaction at the appropriate time upon advice of counsel.

Effects of the Reorganization on Shareholders Generally

          The Reorganization will have the following effects on shareholders regardless of whether they are affiliated or unaffiliated shareholders. We expect, however, that many of the shares held by our affiliates will not be cashed out because none of our affiliates will likely hold fewer than 4,500 shares of Regan Common Stock of record at the effective time of the Reorganization. The effects will vary depending on whether the shareholder receives cash or Legacy Common Stock and cash in lieu of any fractional shares.

          The following sections describe the material effects that we expect to result from the Reorganization with respect to shares that are exchanged for cash or Legacy Common Stock and cash in lieu of any fractional shares. You may experience a combination of these effects if you receive both cash and Legacy Common Stock. The effects described below assume that 1,800,000 shares are exchanged for cash and that 22,276,000 shares are exchanged for Legacy Common Stock.

          Shares Exchanged for Cash. As to shares of Regan Common Stock that are exchanged in the Reorganization for cash, shareholders will experience the following effects:

Positive Effects

 

 

Shareholders will receive $0.10 in cash per share.

 

 

Shareholders will be able to liquidate their ownership interests without incurring brokerage costs.

Negative Effects

 

 

Shareholders who receive cash for all of their shares will no longer have any equity or voting interest in Legacy and will not participate in any future potential earnings or growth of Legacy or in any stockholder votes.

 

 

Shareholders who receive cash may be required to pay federal and, if applicable, state and local income taxes on cash received in the Reorganization to the extent a shareholder’s basis in shares of Regan Common Stock is less than $0.10 per share (the cash-out price), which is unlikely. See “—Federal Income Tax Consequences of the Reorganization.”

          Shares Exchanged for Legacy Common Stock. As to blocks of 4,500 shares of Regan Common Stock that are exchanged in the Reorganization for Legacy Common Stock, shareholders will experience the following effects:

Positive Effects

 

 

Basic and diluted earnings per share will increase from $0.00 per share on a historical basis to $47.20 per share on a pro forma basis for the year ended December 31, 2008 and will increase from $0.11 per share on a historical basis to $614.80 per share on a pro forma basis for the nine months ended September 30, 2009. The pro forma earnings per share have been calculated with regard to estimated transaction expenses or anticipated expense savings resulting from the Reorganization.

 

 

Holders of Legacy Common Stock will continue to have the same participation and voting rights as holders of Regan Common Stock and will retain an equity interest in Legacy.

Negative Effects

 

 

Legacy Common Stock will not be traded on an exchange or automated quotation system, and fewer shares will be available to its holders for trading after the Reorganization than were available with respect to Regan Common Stock. This represents a reduction in liquidity for Legacy’s stockholders, which may have an adverse effect on the market value of the stock they hold.

16


 

 

Holders of certain currently outstanding shares of Regan Common Stock have certain limited rights to require Regan to redeem their shares. However, under California law, Regan is not currently permitted to make any cash distributions, thus preventing any redemptions. After the Reorganization, the only outstanding stock with be Legacy Common Stock with respect to which there will be no redemption rights.

 

 

Book value per common equivalent share, which includes the Legacy Common Stock, will decrease from ($0.17) on a historical basis to ($789.80) on a pro forma basis as of September 30, 2009.

 

 

No holder of Legacy Common Stock may transfer shares of Legacy Common Stock without the consent of Legacy if, as a result of an attempted transfer, the party who would receive the shares would own of record fewer than the lesser of (a) 100 shares of Legacy Common Stock or (b) the total number of shares of Legacy Common Stock owned of record by the transferring stockholder prior to the proposed transfer.

 

 

Although we do not believe the issuance of the Legacy Common Stock will be taxable to recipients, the Internal Revenue Service may not agree and could challenge our characterization. See “—Federal Income Tax Consequences of the Reorganization” for more information.

Effects of the Reorganization on Affiliates

          In addition to the effects the Reorganization will have on shareholders generally, which are described above, the Reorganization will have some additional positive and negative effects specifically on our executive officers and directors, each of whom may, as a result of his or her position, be deemed an affiliate of Regan and will, pursuant to the Reorganization Plan, be deemed an affiliate of Legacy. As used in this proxy statement, the term “affiliated shareholder” means any shareholder who is a director or executive officer of Regan or the beneficial owner of 10% or more of Regan’s outstanding shares, and the term “unaffiliated shareholder” means any shareholder other than an affiliated shareholder.

Positive Effects

•              No Further Reporting Obligations or Restrictions under Section 16 of the Exchange Act. Beginning six months after the effective date of the Reorganization, the executive officers, directors and other affiliates, who will be the executive officers, directors and other affiliates of Legacy, will no longer be subject to the reporting and short-swing profit provisions of Section 16 of the Exchange Act. After that time, Legacy’s affiliates may realize “short-swing” profits on purchases and sales of Legacy’s securities that occur within a six-month period. Currently, under Section 16 of the Exchange Act, Regan would be entitled to receive any such short-swing profits from the affiliate.

•              No Further Disclosure Obligations under the Exchange Act. After the Reorganization, Legacy will no longer be subject to the periodic reporting requirements of the Exchange Act, and beginning six months after the effective date of the Reorganization, Legacy will not be subject to the short-swing profit reporting and recovery provisions of the Exchange Act. As a result, information about Legacy’s affiliates’ compensation and stock ownership will no longer be publicly available.

•              Consolidation of Management Ownership. As a result of the Reorganization, we expect that the percentage of beneficial ownership of Legacy’s common stock held by Regan’s current directors and executive officers as a group will increase from approximately 51.0%, (not including stock options), before the Reorganization to approximately 55.0% after the Reorganization. See “Information About the Company and Its Affiliates—Stock Ownership by Affiliates” for information about the number of shares of common stock held by our directors, executive officers and significant shareholders.

•              Improved Earnings Per Share. Because each of our affiliates will receive Legacy Common Stock in the Reorganization, his or her basic and diluted earnings per share will increase from $0.00 per share on a historical basis to $47.20 per share on a pro forma basis for year ended December 31, 2008 and from $0.11 per share on a historical basis to $614.80 on a pro forma basis for the nine months ended September 30, 2009. The pro forma earnings per share have been calculated with regard to estimated transaction expenses or anticipated expense savings resulting from the Reorganization.

17


•              Elimination of Liability under Section 18 of the Exchange Act. Because Legacy will no longer be required to file any reports under the Exchange Act, its affiliates will no longer be subject to liability under Section 18 with respect to such reports. Currently, if any of Regan’s affiliates make a statement in any of Regan’s filings under the Exchange Act that, in light of the circumstances at the time the statement is made, is false or misleading with respect to any material fact, the affiliate may be liable under Section 18 of the Exchange Act to any person that purchases or sells a security at a price that is affected by the statement.

Negative Effects

•              Decreased Book Value per Share. Because each of our affiliates will receive Legacy Common Stock in the Reorganization, his or her book value per common equivalent share, which includes the Legacy Common Stock, will decrease from ($0.17) on a historical basis to ($789.80) on a pro forma basis as of September 30, 2009.

•              Public Trading Market Not Available. Because Legacy Common Stock will not be registered under the Exchange Act after the Reorganization, executive officers and directors of Legacy will be deprived of the ability to dispose of their shares of Legacy Common Stock into a public trading market under Rule 144 of the Securities Act, which provides a “safe harbor” for resales of stock by affiliates of an issuer. As a result, they will need to resell their shares in a private transaction, which could result in reduced liquidity for the recipient and a lower purchaser price for the shares.

          The following table reflects our affiliates’ interests in Regan’s net book value and net earnings at September 30, 2009 and after the Reorganization, stated as both a percentage and a dollar amount and based in each case on his or her proportionate ownership of the then outstanding shares of Regan Common Stock (or Legacy Common Stock, as applicable).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliates’ Interest in Book Value

 

 

 

 

Affiliates

 

Before Reorg %

 

Before Reorg $

 

After Reorg %

 

After Reorg $

 

Lynda Pitts

 

 

46.7%

 

$

(1,918,899

)

 

49.9%

 

$

(1,972,131

)

R. Preston Pitts

 

 

3.1%

 

$

(126,541

)

 

3.7%

 

$

(146,903

)

Ute Scott-Smith

 

 

1.2%

 

$

(51,213

)

 

1.3%

 

$

(52,127

)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliates’ Interest in Net Earnings

 

 

 

Affiliates

 

Before Reorg %

 

Before Reorg $

 

After Reorg %

 

After Reorg $

 

Lynda Pitts

 

 

46.7%

 

$

1,280,667

 

 

49.9%

 

$

1,535,156

 

R. Preston Pitts

 

 

3.1%

 

$

84,453

 

 

3.7%

 

$

114,353

 

Ute Scott-Smith

 

 

1.2%

 

$

34,179

 

 

1.3%

 

$

40,577

 

Effects of the Reorganization on Unaffiliated Shareholders

          In addition to the effects the Reorganization will have on shareholders generally, which are described above, the Reorganization will also have the following negative effects on our unaffiliated shareholders:

          Reduction in Publicly Available Information.Legacy will no longer be required to file public reports of its financial condition and other aspects of its business with the SEC after the Reorganization. Specifically, Legacy will no longer be required to make public disclosures regarding executive compensation, corporate governance matters, or management stock ownership. As a result, unaffiliated stockholders of Legacy will have less legally-mandated access to information about Legacy’s business and results of operations than they had prior to the Reorganization. Regan’s affiliated shareholders, however, because of their positions as directors and/or executive officers of Legacy, will continue to have continuous access to all information regarding our financial condition and other aspects of our business.

          Elimination of Protections under Section 18 of the Exchange Act. Because Legacy will no longer be required to file any reports under the Exchange Act, Legacy’s unaffiliated stockholders will no longer be afforded the protections under Section 18 with respect to false or misleading statements in such reports. Currently, if Regan or any of its affiliates makes a false or misleading statement with respect to any material fact in any of Regan’s filings under the Exchange Act, in light of the circumstances at the time the statement was made, Regan or the affiliate may be liable under Section 18 of the Exchange Act to any person who purchases or sells a security at a price that is affected by the statement.

18


Recommendation of the Board of Directors; Fairness of the Reorganization

          The Board believes that the Reorganization is substantively and procedurally fair to Regan’s unaffiliated shareholders who will receive cash and to those who will receive Legacy Common Stock and cash in lieu of fractional shares. The Board, including those directors who are not employees of Regan, has approved, and recommends that the shareholders approve, the Reorganization Plan.

          Each director and executive officer is deemed a “filing person” in connection with this transaction. As filing persons, they have each determined in their individual capacity that the Reorganization is substantively and procedurally fair to our unaffiliated shareholders in each of the constituencies described above. No individual filing person, however, is making any recommendation to shareholders as to how to vote. See “—Determination of Fairness by Regan Affiliates” for information regarding the filing persons’ fairness determination.

          All of our directors and executive officers have indicated that they intend to vote their shares of Regan Common Stock (and any shares with respect to which they have or share voting power) in favor of the Reorganization Plan. Our directors and executive officers beneficially own approximately 51.0% (not including stock options) of our outstanding common stock. Although the Board as a whole recommends that the shareholders vote in favor of the Reorganization Plan for the reasons set forth in “—Reasons for the Reorganization,” no director or executive officer is making any recommendation to the shareholders in his or her individual capacity.

          We considered a number of factors in determining to approve the Reorganization, including the effects described under “—Effects of the Reorganization on Regan,” “Effects of the Reorganization on Shareholders Generally,” “—Effects of the Reorganization on Affiliates” and “—Effects of the Reorganization on Unaffiliated Shareholders,” and the factors described under “Purpose of the Reorganization” and “—Reasons for the Reorganization.” The Board also reviewed the tax and pro forma financial effects of the Reorganization on Regan and its shareholders and Legacy and its stockholders. See “—Federal Income Tax Consequences of the Reorganization” and “Pro Forma Consolidated Financial Information.”

          After the Reorganization, Regan Common Stock will not be registered under the Exchange Act. The Board considered the views of management regarding the cost savings to be achieved by eliminating the reporting and disclosure requirements related to the registration of the common stock under the Exchange Act, including indirect savings resulting from reductions in the time and effort currently required of management to comply with the reporting and other requirements associated with continued registration of the common stock under the Exchange Act. Similarly, the Board also considered the prospective decrease in the administrative expense we will incur in connection with soliciting proxies for routine special meetings of shareholders. Management determined that the Reorganization would result in the cost savings described in “—Reasons for the Reorganization.”

          Additionally, the Board considered the effect that terminating the registration of the common stock would have on the market for our common stock and the ability of holders of common stock to buy and sell shares. However, the Board determined that, even as an SEC-registered company, Regan has not had an active, liquid trading market for its common stock and that its shareholders derive little relative benefit from its status as an SEC-registered company. For example, even as an SEC-registered company, to management’s knowledge, no trades or redemptions of Regan Common Stock have occurred since 2006. The Board determined that the cost savings and reduced management time to be achieved by terminating registration of the common stock under the Exchange Act outweighed any potential detriment from eliminating the registration.

          We considered alternatives to the proposed deregistration transaction but ultimately approved the Reorganization proposal. Please read the discussion under “—Alternatives Considered” for a description of these alternatives.

          Substantive Fairness. The Board considered numerous factors, discussed below, in reaching its conclusions that the Reorganization is substantively fair to our unaffiliated shareholders who will receive cash and to those who will receive Legacy Common Stock and cash in lieu of fractional shares. In reaching these conclusions, the Board considered all of the factors as a whole and did not assign specific weights to particular factors:

          Factors Affecting All Unaffiliated Shareholders

•              Opinion of Independent Financial Advisor. Taylor Consulting Group, Inc. (“Taylor Consulting”), as the independent financial advisor to the Board, has delivered its opinion that the $0.10 per share to be paid in cash and the Legacy Common Stock to be received in the Reorganization is fair to all of Regan’s shareholders, which includes those receiving cash and those receiving Legacy Common Stock and cash in lieu of any fractional shares The Board reviewed and considered the financial analyses, which analyses were done on a going concern basis, presented by Taylor Consulting to the Board in connection with the opinion and adopted Taylor Consulting’s conclusions and

19


analyses as its own. In the opinion of Taylor Consulting, and in the opinion of the Board, the $0.10 per share price to be paid to shareholders receiving cash represents “going concern value,” although it is not labeled as such, as it is derived from the expected operating results of Regan and the values of other financial institutions with similar characteristics that are going concerns, and does not take into account the effects of the Reorganization. The Board considered the conclusions drawn in the fairness opinion as factors supporting its recommendation to approve the Reorganization Plan and its conclusion as to the fairness of the cash consideration to unaffiliated shareholders who would receive cash for their shares. Because the fairness opinion addressed the financial fairness of the Reorganization Plan to all shareholders as a group and the Reorganization Plan does not distinguish between affiliates and non-affiliates as to its effects, the Board also viewed the opinion as a factor supporting its conclusion as to fairness of the cash consideration to unaffiliated shareholders who will receive Legacy Common Stock under the Reorganization Plan. A copy of the opinion is attached as Appendix D. See “Opinion of Independent Financial Advisor” for additional information.

•              Historical Market Prices of Regan Common Stock. The price per share to be paid in the Reorganization represents a 100% premium over the last known trading price for Regan Common Stock prior to announcement of the Reorganization ($0.05). Because Regan Common Stock is not currently traded on an exchange or automated quotation system, to management’s knowledge, no shares of Regan Common Stock have traded or been redeemed since 2006. The average known trading price for 2006 was $0.05. The Board viewed this premium as being substantively fair to each group of unaffiliated shareholders (those receiving cash and those receiving Legacy Common Stock and cash in lieu of any fractional shares) based on the involuntary nature of the transaction and information provided to the Board by Taylor Consulting regarding the fair value of Regan, as more fully described in “—Opinion of Independent Financial Advisor” below. Our stock is not listed on an exchange, however, and there is not an organized trading market for Regan Common Stock. As a result, the historical market prices of Regan Common Stock formed only a minimal factor supporting its recommendation to approve the Reorganization Plan and its conclusion as to the fairness of the cash consideration to unaffiliated shareholders.

•              Earnings. The price per share that will be paid to shareholders receiving cash in the Reorganization reflects a multiple of over 10 times Regan’s earnings per share for the year ended December 31, 2008. Though the earnings per share for the nine months ended September 30, 2009 of $0.11 is comparable to the price per share being offered, the Board viewed this in conjunction with past and future projections, coupled with its analysis as to the premium described above, as a factor supporting its decision to approve the Reorganization Plan and its conclusion as to the fairness of the cash consideration to unaffiliated shareholders.

•              Absence of Firm Offers. The Board considered the absence of any firm offers for the acquisition of Regan, the fact that the Board has no plans to seek an acquisition of Regan in the foreseeable future and its opinion that firm offers are not likely to be forthcoming as factors tending to support its recommendation to approve the Reorganization and its conclusion as to the fairness of the cash consideration to unaffiliated shareholders.

•              Liquidation Value. In light of these factors, and because the Reorganization consideration was greater than Regan’s book value, the Board concluded that the determination of a liquidation value was not material to the financial fairness of the transaction. However, it is not possible to predict with certainty the future value of our assets or liabilities or the intrinsic value that those assets or liabilities may have to a specific buyer that has not been identified. As a result, although we believe the possibility is remote, the liquidation of our assets and liabilities could conceivably produce a higher value than our value as a going concern.

Factors Affecting Shareholders Receiving Cash

•              Book Value: The price per share to be paid in the Reorganization reflects a multiple of 3.8 times Regan’s December 31, 2008 book value per share of ($0.28) and 2.7 times its September 30, 2009 book value per share of ($0.17). Although book value was a factor, among others that the Board considered in determining the cash consideration to be paid to shareholders receiving cash in the Reorganization, the Board determined that it was not directly relevant because book value is a historical number that may not reflect the fair market values of our assets and liabilities.

•              Liquidity Provided. The Reorganization will provide liquidity, without brokerage costs, to shareholders who will receive cash for their shares. We believe this provides a significant benefit to investors seeking a more liquid investment alternative, given the lack of an active, organized market for our stock. The Board considered the opportunity to provide this liquidity as a factor supporting its recommendation to approve the Reorganization Plan and its conclusion as to the fairness of the cash consideration to unaffiliated shareholders receiving cash in the Reorganization.

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•              Tax Consequences. The Board considered that, except with respect to shareholders who have acquired their shares within the prior 12 months, the cash consideration offered in the Reorganization would be taxed, if at all, as a long-term capital gain for shareholders terminating their actual and constructive stock ownership in Regan. Although the transaction may result in a taxable event to unaffiliated shareholders receiving cash in the Reorganization, the Board determined that if it did, this negative factor was mitigated somewhat by the positive factor that the cash to be received by these shareholders would likely receive tax-advantaged long-term capital gains treatment.

          Factors Affecting Shareholders Receiving Legacy Common Stock.In addition to the effects of the cash payment under the Reorganization Plan on shareholders who will receive Legacy Common Stock and cash in lieu of any fractional shares as described in “-Shareholders Receiving Cash-Opinion of Independant Financial Advisor,” “—Historical Market Prices of Our Common Stock, “—Earnings,” “—Absence of Firm Offers” and “—Liquidation Value” above, the following factors will affect shareholders receiving Legacy Common Stock and were considered in the Board’s determination as to the substantive fairness of the Reorganization.

•              Equity Interest in the Company. Shareholders receiving Legacy Common Stock will hold an equity interest in Legacy and will continue to have the opportunity to participate in any future growth and earnings, including any future sale or change in control. The Board viewed this factor as supporting its determination of fairness to these groups of unaffiliated shareholders because fewer shareholders will be forced to involuntarily liquidate their equity interests than if the Board had selected to structure the Reorganization as a cash-out merger without the Legacy Common Stock.

•              Earnings Per Share. Basic and diluted earnings per share will increase from $0.00 per share on a historical basis to $47.20 per share on a pro forma basis for the year ended December 31, 2008 and will increase from $0.11 per share on a historical basis to $614.80 on a pro forma basis for the nine months ended September 30, 2009. The Board viewed the effect on diluted earnings per share as a factor, among others, that supported its conclusion of substantive fairness of the Reorganization to shareholders receiving Legacy Common Stock because holders of Legacy Common Stock will continue to share in the earnings of surviving corporation.

•              Book Value Per Common Equivalent Share. Book value per common equivalent share, which includes the Legacy Common Stock, will decrease approximately from ($0.28) on a historical basis to ($1,335.20) on a pro forma basis as of December 31, 2008 and from ($0.17) on a historical basis to ($789.80) on a pro forma basis as of September 30, 2009. The decrease in book value per common equivalent share is due to the 4,500 to 1 exchange of 24,076,000 shares for a total of approximately 5,000 shares outstanding, offset in part by cost savings (net of taxes and interest) of $347,000 and $331,000 on a pro forma basis as of December 31, 2008 and September 30, 2009, respectively. The Board viewed the decrease as nominal and believes the effect on book value is essentially neutral to shareholders receiving Legacy Common Stock.

•              Odd-Lot Restrictions. No holder of Legacy Common Stock may “transfer” shares of Legacy Common Stock without the consent of Legacy if, as a result of an attempted transfer, the party who would receive the shares would own of record fewer than the lesser of (i) 100 shares of Legacy Common Stock or (ii) the total number of shares of Legacy Common Stock owned of record by the transferring stockholder prior to the proposed transfer. The Board viewed these restrictions as nominal in light of the certainty provided by such restrictions with respect to slowing the growth of the number of stockholders so as not to trigger SEC reporting obligations and believes the restrictions are essentially neutral to shareholders receiving Legacy Common Stock.

•              Tax Consequences. The Board noted that the Reorganization should not result in a taxable event for shareholders receiving Legacy Common Stock. These tax consequences contributed to the Board’s recommendation and conclusion as to the substantive fairness of the Reorganization to unaffiliated shareholders who will receive Legacy Common Stock. See “—Federal Income Tax Consequences of the Reorganization” for more information regarding the tax consequences of the Reorganization.

•              Loss of Benefits of SEC Registration of our Stock. After the Reorganization, neither Regan Common Stock nor Legacy Common Stock will be registered under the Exchange Act. This will greatly reduce the amount of information that is publicly available about Legacy, including detailed analyses by management of financial results, current reports of significant corporate events, copies of material contracts involving Legacy, and information as to executive and director compensation and stock ownership. It will also eliminate certain corporate governance safeguards resulting from the Sarbanes-Oxley Act, such as the requirement for an audited report on internal controls and disclosure requirements relating to the audit committee, code of ethics and director nominations process. Additionally, beginning

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               six months after the effective date of the Reorganization, Legacy’s executive officers, directors and other affiliates will no longer be subject to the provisions of Section 16 of the Exchange Act, which allow Legacy to recover profits realized by its insiders as a result of their trading in Legacy securities under certain circumstances. The Board noted that while the loss of the benefits of SEC registration was, standing alone, a negative factor in its fairness determination, the fact that Legacy would continue to provide its audited financial statements to stockholders provided offsetting benefits.

•              Equal Participation and Voting Rights. Holders of Legacy Common Stock will continue to have the same rights to vote and participate in dividends as they did as holders of Regan Common Stock.

The Board concluded that the overall terms of Legacy Common Stock were fair to the shareholders receiving this stock because the Legacy Common Stock includes equal voting and participation rights with respect to Regan Common Stock and stockholders of Legacy will continue to have an opportunity to participate in any future growth and earnings of the surviving corporation.

          Fairness. The Board, including those who are not employees of Regan, has unanimously approved the Reorganization and the Reorganization Plan and is seeking shareholder approval of the Reorganization Plan. Our affiliates, which include Lynda L. Pitts and R. Preston Pitts, participated in the Board discussions regarding pursuing a transaction designed to allow Regan to deregister its common stock. Each of our affiliates potentially has a conflict of interest with respect to the Reorganization because he or she is in a position to structure the Reorganization in a way that benefits his or her interests differently from the interests of the unaffiliated shareholders. As described under “—Effects of Reorganization on Affiliates” on page [●], the Reorganization will have various positive effects on our affiliates that it will not have on unaffiliated shareholders. In particular, we anticipate that shares of Regan Common Stock held by our affiliates will be exchanged for both cash and Legacy Common Stock in the Reorganization. Because there will be fewer outstanding shares of Legacy Common Stock after the Reorganization than there were shares of Regan Common Stock prior to the Reorganization, the affiliates will own a larger percentage of the common stock of the surviving corporation than they held in Regan.

          The affirmative vote of a majority of the votes eligible to be cast will be required to approve the Reorganization Plan. Approval by a majority of unaffiliated shareholders is not required. The Board considered such a provision unnecessary in light of the facts that the provisions of the Reorganization apply regardless of whether a shareholder is an affiliate, and shareholders will receive either cash or Legacy Common Stock and cash in lieu of any fractional shares based on the number of shares owned and regardless of whether they are affiliated or unaffiliated shareholders. In addition, directors Lynda L. Pitts, R. Preston Pitts, and Ute Scott-Smith will each receive Legacy Common Stock for at least some of his or her Regan Common Stock in the Reorganization. The Board also determined that the other safeguards regarding the fairness of the transaction as described in the following two paragraphs supported its decision not to require separate approval of the Reorganization by the unaffiliated shareholders.

          The Board also noted that shareholders who wish to increase their record holdings in order to avoid the exchange of their Regan Common Stock for cash may do so by consolidating their shares under a single holder of record, purchasing shares of Regan Common Stock from other shareholders prior to the effective time of the Reorganization or placing them in “street name” with a broker holding more than 4,500 shares. Conversely, shareholders who wish to receive cash but hold more than the applicable threshold number of shares of Regan Common Stock may subdivide or sell their Regan Common Stock before the Reorganization is effected. In either case, shareholders may have difficulty finding buyers or sellers of Regan Common Stock because the market for our stock is inactive and Regan Common Stock is not traded or listed on an exchange or quotation system. Regan’s shareholder list is available for inspection by shareholders in accordance with state law, as described more fully below, and shareholders wishing to buy or sell shares in order to obtain cash or Legacy Common Stock and cash in lieu of any fractional shares may review the list or contact our Chairman of the Board or Chief Financial Officer to authorize them to provide their names to potential counterparties requesting such information.

          In addition, shareholders will be entitled to dissenters’ rights under California law. This further supports the fairness to all shareholders, as it provides an alternative process by which dissenting shareholders may obtain the fair value of their shares in cash. However, due to the numerous procedural steps required in order to exercise dissenters’ rights under California law, a dissenting shareholder may not receive cash for his or her shares for several months following such shareholder’s proper notice of intent to demand payment, particularly if the process leads to an appraisal proceeding. And to the extent the long-arm provision of California Corporations Code § 2115 is held to apply to Legacy, California Corporations Code § 500, which imposes certain limitations on distributions to stockholders, would prevent Legacy from making payments to holders exercising dissenters’ rights until the requirements of § 500 are satisfied. See “Dissenters’ Rights” and Appendix B.

          No unaffiliated representative acting solely on behalf of unaffiliated shareholders for the purpose of negotiating the terms of the Reorganization or preparing a report covering its fairness, except for the opinion of our independent financial advisor with respect to the price to be paid to shareholders receiving cash, or Legacy Common Stock and cash in lieu of fractional shares, in the

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Reorganization, was retained by Regan or by a majority of directors who are not employees of Regan. The Board concluded that the retention of an unaffiliated shareholder representative was not necessary because both unaffiliated and affiliated shareholders may exercise dissenters’ rights under California law. We expect, however, that no shares held by our affiliates will be exchanged only for cash because all of our affiliates will likely hold 4,500 or more shares of record at the effective time of the Reorganization. After consideration of the factors described above, the Board believes that the Reorganization is fair notwithstanding the absence of an unaffiliated shareholder approval requirement or unaffiliated representative. In addition, the Board did not consider it necessary to obtain legal counsel for unaffiliated shareholders.

          After consideration of the factors described above, the Board has determined that the Reorganization is fair, notwithstanding the absence of an unaffiliated shareholder approval requirement, an unaffiliated shareholder representative and the provision of legal counsel at Regan’s expense, to Regan’s unaffiliated shareholders who will receive cash and those who will receive Legacy Common Stock and cash in lieu of any fractional shares in the Reorganization. Additionally, the Board believes that the Reorganization is fair to each of these constituencies. Finally, the Board has determined that the Reorganization is fair to affiliated shareholders for the same reasons specified as to unaffiliated shareholders, given that its terms do not distinguish between these groups.

Determination of Fairness by Legacy and Regan Affiliates

          Legacy was organized for the sole purpose of facilitating the Reorganization. Its only shareholders are Lynda L. Pitts and R. Preston Pitts. Ms. Pitts is also is also Regan’s Chairman of the Board and Chief Executive Officer and Mr. Pitts is Regan’s President, Chief Operating Officer, Chief Financial Officer and Secretary, making them our affiliates.

          These affiliates, in addition to Legacy, are deemed to be “filing persons” for purposes of this transaction.

          For Legacy and each of our affiliates, its purpose and reasons for engaging in the Reorganization, alternatives considered and analyses regarding substantive terms and fairness of the Reorganization to unaffiliated shareholders receiving cash or Legacy Common Stock and cash in lieu of fractional shares in the Reorganization were the same as those of the Board, and Legacy and each of these affiliates adopted the analyses of the Board with respect to these issues. Based on these factors and analyses, Regan and each of our affiliates have concluded that the Reorganization is fair to our unaffiliated shareholders who will receive cash or Legacy Common Stock and cash in lieu of any fractional shares.

Operations of Legacy Following the Reorganization

          Following the Reorganization, Legacy will continue to conduct our existing operations in the same manner as now conducted. The officers and directors of Regan immediately before the Reorganization will become the officers and directors of Legacy following the Reorganization.

Opinion of Independent Financial Advisor

          Our Board requested that Taylor Consulting Group, Inc. (“Taylor Consulting”) provide fairness opinion services related to the Reorganization Plan. Specifically, Taylor Consulting was asked to render its opinion to the Board and Regan’s shareholders as to the fairness of the Reorganization from a financial point of view. The summary set forth below is qualified in its entirety by the complete fairness opinion attached as Appendix D.

          The full text of the written opinion should be read carefully in its entirety for a description of the assumptions made, procedures followed, matters considered, and qualifications and limitations of the review undertaken in rendering the opinion. The opinion of Taylor Consulting was addressed to our Board of Directors and was given solely with respect to the Reorganization. Taylor Consulting has consented to the discussion of its opinion and the use of its name in this Proxy Statement, and has agreed to the inclusion of a reproduction of its opinion as Appendix D to this Proxy Statement.

          Taylor Consulting has not been requested to, and did not, (a) initiate any discussions with, or solicit any indications of interest from, third parties with respect to the Reorganization, the assets, businesses or operations of Regan, or any alternatives to the Reorganization, (b) negotiate the terms of the Reorganization (and, therefore, Taylor Consulting has assumed that such terms are the most beneficial terms, from Regans’s perspective, that could, under the circumstances, be negotiated among the parties to the Reorganization) or (c) advise our Board of Directors or any other party with respect to alternatives to the Reorganization. In addition, Taylor Consulting is not expressing any opinion as to the market price or value of our common stock after announcement of the Reorganization.

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          Taylor Consulting’s opinion (a) does not address the merits of the underlying business decision to enter into the Reorganization or the merits of any alternative transaction, including without limitation, a rights offering, the direct sale of registered or unregistered common stock, or a follow-on common stock offering, (b) is not a recommendation as to how our Board of Directors or any shareholder should vote or act with respect to any matters relating to the Reorganization, or whether to proceed with the Reorganization or any related transaction and (c) does not indicate that the consideration received is the best possible consideration attainable under any circumstances.

          In connection with preparing its opinion, Taylor Consulting made such reviews, studies and analyses as it deemed necessary and pertinent under the circumstances. Taylor Consulting also took into account its assessment of general economic, market, and financial conditions; its experience and knowledge of Regan from previous valuations; as well as its experience in business valuations in general. Among other things, Taylor Consulting has:

•              Reviewed our filings with the SEC, including our annual reports and audited financial statements on Form 10-K for the fiscal years ended December 31, 2005 through 2008, and the quarterly report on Form 10-Q for the fiscal quarter ended March 31, June 30 and September 30, 2009;

•              Reviewed certain internal financial statements and detailed supporting information , which we provided, for the fiscal years ended December 31, 2005 through 2008, and for the eleven months ended November 30, 2009, showing adjustments for discontinued operations;

•              Reviewed various financial projections through fiscal year 2014 prepared and provided by our management;

•              Reviewed certain internal financial information related to outstanding and exercised stock options as well as Regan’s equity capitalization (i.e., the capitalization table) , which we provided;

•              Reviewed Regan’s Marketing Agreements with various insurance carriers;

•              Reviewed Regan’s Shareholder Agreement;

•              Reviewed drafts of the following documents prepared in connection with, or having relevance to, the Reorganization:

          o          The Agreement and Plan of Merger; and

          o          A legal memorandum describing the Reorganization.

•              Conducted multiple discussions with Regan’s management where Taylor Consulting conducted interviews concerning operations, business strategy, financial performance, prospects for future product development, and our management’s views of the strategic rationale for the Reorganization;

•              Compared Regan’s financial ratios with those of a portfolio of publicly-traded guideline companies operating within a similar line of business that Taylor Consulting considered potentially relevant;

•              Compared Regan’s financial ratios with those indicated by a portfolio of guideline transactions of companies operating within a similar line of business that Taylor Consulting considered potentially relevant;

•              Reviewed analyst reports, public filings, and other information to gain insight into the outlook of the industry and of the companies which operate within the industry;

•              Assessed the general condition of the capital and securities markets;

•              Considered Taylor Consulting’s previous reports titled Valuation of Series A and B Redeemable Common Stock and Non-Redeemable Common Stock of Regan Holding Corp. as of various dates beginning in 1993 through December 31, 2006; and

•              Conducted other financial studies, analyses and investigations as Taylor Consulting deemed appropriate for the purposes of its opinion.

In performing its analyses and rendering its opinion with respect to the Reorganization, Taylor Consulting, with consent of our Board of Directors:

•              Relied upon the accuracy, completeness, and fair presentation of all information, data, advice, opinions and representations obtained from public sources or provided to it from private sources, including our management, and did not independently verify such information;

•              Assumed that any estimates, forecasts, and projections provided to Taylor Consulting were reasonably prepared and based upon the best currently available information and good faith judgment of our management;

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•             Assumed that our management has not included in its financial projections the costs or benefits associated with the Reorganization;

•             Assumed that information supplied to Taylor Consulting and representations made in the draft Agreement and Plan of Merger are complete and accurate in all respects;

•             Assumed that the final versions of all documents reviewed by Taylor Consulting in draft form conform in all material respects to the drafts reviewed;

•             Assumed that all of the conditions required to implement the Reorganization will be satisfied and that the Reorganization will be completed in accordance with the draft Agreement and Plan of Merger without any amendments thereto or any waivers of any terms or conditions thereof;

•             Relied upon the fact that we and our Board of Directors have been advised by counsel as to all legal matters with respect to the Reorganization, including whether all procedures required by law to be taken in connection with the Reorganization have been duly, validly and timely taken; and

•             Assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Reorganization will be obtained without any adverse effect (including any delay, limitation, condition, or restriction) on us or the contemplated benefits expected to be derived from the Reorganization.

          Taylor Consulting is not a legal, tax, accounting or regulatory advisor and has relied upon, without independent verification, the assessment of us and our legal, tax, accounting, and regulatory advisors with respect to such matters. Taylor Consulting has made no assessment as to the impact or timing implications, if any, of any ongoing legal or regulatory investigations.

          Although developments following the date of the Taylor Consulting opinion may affect the opinion, Taylor Consulting assumes no obligation to update, revise, or reaffirm its opinion. The Taylor Consulting opinion is necessarily based upon market, economic, and other conditions that were in effect on, and information made available to Taylor Consulting as of, the date of the opinion. You should understand that developments subsequent to December 1, 2009 may affect the conclusion expressed in the Taylor Consulting opinion, and that Taylor Consulting disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion. The Taylor Consulting opinion is limited to the fairness as of December 1, 2009, from a financial point of view, to the Board and Regan’s shareholders as to the fairness of the Reorganization.

          While this summary describes the analysis and factors that Taylor Consulting deemed material in its presentation to our Board of Directors, it is not a comprehensive description of all analyses and factors considered by Taylor Consulting. The preparation of a fairness opinion is a complex process that involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or a summary description. In arriving at its opinion, Taylor Consulting did not attribute any particular weight to any analysis or factor considered by it, except as noted, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Taylor Consulting believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all analyses and factors, could create a misleading or incomplete view of the evaluation process underlying its opinion. The conclusion reached by Taylor Consulting was based on all analyses and factors taken as a whole, and also on the application of Taylor Consulting’s own experience and judgment.

Valuation Steps.

          A summary of the financial analyses performed by Taylor Consulting group in determining its fairness conclusion as of December 1, 2009, is included below. Taylor Consulting utilized the income approach (applied with the discounted cash flow methodology) and the market approach (applied with the comparable transaction methodology and the guideline company methodology). Ultimately, Taylor Consulting reached its conclusion on the value determined based primarily through the discounted cash flow methodology.

Income Approach – Discounted Cash Flow Analysis.

          Taylor Consulting projected future cash flows from operations based on the projections of future operating results through 2014 provided by our management. Those cash flows recognized the requirements for working capital and the fixed capital investment needs of the business. An expected weighted average cost of capital was calculated at 19.2%, based on the expected returns required by debt and equity investors in the business. This weighted average cost of capital was utilized for all years in the analysis.

          Taylor Consulting projected our free cash flow through 2014 relying on certain key assumptions regarding revenue growth and EBITDA margin. Taylor Consulting estimated the present value of all cash flows after the projection period using a perpetuity

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formula, which incorporated a long-term expected annual growth rate based on these key assumptions. As a result, Taylor Consulting’s discounted cash flow analysis indicated an estimated enterprise value for Regan of $3.9 million to $4.8 million.

Market Approach – Comparable Transaction Analysis.

          Several transactions that occurred within approximately six years prior to the valuation date involving companies that were initially deemed the most comparable to Regan were gathered from various sources. Acquisitions included those by BNC Corp., Hilb, Rogal, and Hamilton Company, DCAP Group, Inc., AXA Financial, Inc., Metlife, Inc., Goldman Sachs Group, Inc., Hub International Ltd., Humana, Inc., and the Willis Group Holdings. Though these transactions were for companies operating in a somewhat similar line of business as Regan, Taylor Consulting ultimately concluded that the companies included in the analysis were insufficiently comparable to Regan due to differences in size, diversity of sales channels, product offerings, corporate structure, and other factors. Therefore, though Taylor Consulting considered the estimated enterprise value for Regan determined through the comparable transaction analysis, Taylor Consulting relied on the estimated enterprise value for Regan indicated primarily by the discounted cash flow analysis.

Market Approach – Guideline Company Analysis.

          Taylor Consulting reviewed the financial performance and trading multiples of seven public companies in the life insurance industry. The companies consisted of Allianz SE, American Equity Investment Life Holding Co., Aon Corporation, Arthur J Gallagher & Co., Brown & Brown Inc., FBL Financial Group Inc., and Willis Group Holdings Ltd. Though these companies operate in a similar line of business as Regan, Taylor Consulting ultimately concluded that the companies included in the analysis were insufficiently comparable to Regan due to differences in size, diversity of sales channels, product offerings, corporate structure, and other factors. Therefore, though Taylor Consulting considered the estimated enterprise value for Regan determined through the guideline company analysis, Taylor Consulting relied on the estimated enterprise value for Regan indicated primarily by the discounted cash flow analysis.

Summary of Overall Equity Value.

          Relying on the indication of value determined through the discounted cash flow analysis described above, Taylor Consulting arrived at an estimated enterprise value for Regan of $3.9 million to $4.8 million. After subtracting debt and considering discontinued operations and other assets and liabilities, Taylor Consulting arrived at an estimated aggregate equity value of $0.9 million to $1.8 million. The enterprise value and aggregate equity value described above were determined on a going concern basis.

          Based upon Taylor Consulting’s study and subject to the assumptions and limitations set forth in Appendix D and Taylor Consulting’s engagement letter dated June 4, 2009, it is Taylor Consulting’s opinion, as of December 1, 2009, that the terms in the Reorganization Plan are fair, from a financial perspective, to the shareholders of Regan, including both those shareholders who may have their shares redeemed for cash and those shareholders who may receive shares in Legacy.

Taylor Consulting’s Fairness Opinion.

          Based upon these analyses, Taylor Consulting delivered a written opinion as of December 1, 2009 to the Board that shareholders receiving one share of Legacy Common Stock for each 4,500 shares of Regan Common Stock, and $0.10 for each remaining share of Regan Common Stock was fair, from a financial point of view, as of the date of the opinion to all Regan shareholders.

          Taylor Consulting’ opinion does not address the underlying business decision to engage in the Reorganization. Taylor Consulting is not expressing an opinion or recommendation as to how shareholders should vote with respect to the Reorganization Plan.

          As noted above, the discussion in this section is merely a summary of the analyses and examinations that Taylor Consulting considered to be material to its opinion. It is not a comprehensive description of all analyses and examinations actually conducted by Taylor Consulting. The fact that any specific analysis has been referenced in the summary above is not meant to indicate that the analysis was given greater weight than any other analysis. Accordingly, the ranges of valuations resulting from any particular analysis described above should not be taken to be Taylor Consulting’ view of the actual value of Regan.

          In performing its analysis, Taylor Consulting made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Regan. The analyses performed by Taylor Consulting are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those suggested by those analyses. The analyses do not purport to be appraisals or to reflect the prices at which any securities have traded or may trade at any time in the future. Accordingly, those analyses and estimates are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, and Taylor Consulting does not assume any responsibility if future results are materially different from those projected.

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California Fairness Hearing.

          Section 3(a)(10) of the Securities Act, provides an exemption from the registration requirements of the Securities Act for “any security which is issued in exchange for one or more bona fide outstanding securities . . . where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange have the right to appear . . . by any state or territorial banking or insurance commission or other governmental authority expressly authorized by law to grant such approval.”

          Section 25142 of the California Corporate Securities Law of 1968 authorizes the Commissioner of Corporations of the State of California to (1) hold a hearing upon the fairness of the terms and conditions of the Reorganization and in particular the cash consideration to be paid and the Legacy Common Stock to be issued in the Reorganization in exchange for Regan Common Stock and (2) approve the terms and conditions of such issuance and exchange. Approval by the California Commissioner of the fairness of the terms of the issuance of Legacy Common Stock means that the issuance of such shares will be exempt from registration under the Securities Act pursuant to the exemption provided by Section 3(a)(10) of the Securities Act.

          On December [●], 2009, in accordance with the terms of the Agreement and Plan of Merger, Legacy has filed an application to obtain a permit from the Commissioner of Corporations for the State of California after a hearing before such Commissioner so that the cash consideration to be paid and the Legacy Common Stock to be issued in the Reorganization in exchange for Regan Common Stock will be exempt from registration under the federal securities laws. You will have the opportunity to appear and be heard at the fairness hearing in connection with the merger. If issued, the effectiveness of the permit will be conditioned upon approval of the Reorganization Plan at the special meeting by Regan’s shareholders.

Federal Income Tax Consequences of the Reorganization

          The following is a general summary of certain U.S. federal income tax considerations of the Reorganization limited solely to U.S. holders (as defined below) of Regan Common Stock who hold their stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”) (generally, property held for investment), and all references to “holders” or “shareholders” should be interpreted accordingly. This summary is based on the Code, Treasury regulations issued under the Code, and administrative rulings and court decisions, all as in effect as of the date hereof and all of which are subject to change at any time, possibly with retroactive effect. Any such change, which may or may not be retroactive, could alter the tax consequences described below and could adversely affect shareholders.

          This summary does not discuss all of the U.S. federal income tax considerations that may be relevant to a particular U.S. holder in light of its particular circumstances or to U.S. holders subject to special treatment under the U.S. federal income tax laws, including, without limitation: brokers or dealers in securities or foreign currencies; traders in securities that use a mark-to-market method of accounting for securities holdings; shareholders who are subject to alternative minimum tax; tax-exempt organizations; shareholders who are not U.S. holders (as defined below); expatriates; partnerships or pass-through entities (or investors thereof); shareholders that have a functional currency other than the U.S. dollar; banks, mutual funds, financial institutions or insurance companies; shareholders who acquired Regan Common Stock in connection with stock option or stock purchase plans or in other compensatory transactions; or shareholders who hold Regan Common Stock as part of an integrated investment, including a straddle, hedge or other risk reduction strategy, or as part of a conversion transaction or constructive sale. This summary does not discuss any state, local, non-U.S. or other tax consequences.

          For purposes of this discussion, the term “U.S. holder” means a beneficial owner of Regan Common Stock that is for U.S. federal income tax purposes:

•              a citizen or resident of the United States;

•              a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state within the United States, or the District of Columbia;

•              an estate that is subject to U.S. federal income tax on its income regardless of its source; or

•              a trust that (i) is subject to the supervision of a court within the United States and the control of one or more U.S. persons or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

          If a partnership (including any entity treated as a partnership for U.S. federal income tax purposes) holds Regan Common Stock, the tax treatment of a partner will depend on the status of the partners and the activities of the partnership. If a U.S. holder is a

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partner in a partnership holding Regan Common Stock, the U.S. holder should consult its tax advisors about the U.S. federal, state, local and non-U.S. tax consequences of the Reorganization.

          The merger has been structured and is intended to qualify as a reorganization under Section 368(a) of the Code. Regan has not sought an opinion of counsel that the merger will be treated as a reorganization within the meaning of Section 368(a) and does not intend to request a ruling from the Internal Revenue Service (the “IRS”) as to the U.S. federal income tax consequences of the merger. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a position contrary to any of those set forth below. It is assumed for purposes of the remainder of this discussion that the merger will qualify as a reorganization within the meaning of the Code.

          SHAREHOLDERS ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE REORGANIZATION, INCLUDING ANY FEDERAL, STATE, LOCAL OR NON-U.S. TAX CONSEQUENCES TO THEM OF THE REORGANIZATION IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES.

          Exchange of Regan Common Stock Solely for Cash.

          A holder of Regan Common Stock who receives only cash in the merger (or pursuant to the exercise dissenters’ rights) generally should recognize capital gain or loss in an amount equal to the difference between the cash received and the holder’s adjusted tax basis in the Regan Common Stock. Tax gain or loss must be calculated separately for each identifiable block of Regan Common Stock exchanged in the merger. This gain or loss will generally be long-term or short-term capital gain or loss, depending upon whether the holder of Regan Common Stock held the shares for more than one year at the effective time of the merger. If, however, after the merger, the holder actually or constructively owns shares of Legacy Common Stock, the receipt of cash in the merger (or pursuant to the exercise of dissenters’ rights) could also be taxed as a dividend under the circumstances described below under “-- Possible Dividend Treatment of Cash Received.”

          Exchange of Regan Common Stock for Legacy Common Stock and Cash In Lieu of Fractional Shares.

          A holder of Regan Common Stock who receives Legacy Common Stock in the merger should not recognize taxable gain or loss on the exchange, except to the extent such holder receives a cash payment in lieu of fractional shares, as described below. For U.S. federal income tax purposes, a holder’s adjusted tax basis in the Legacy Common Stock received (including fractional shares deemed received as described below) will equal the holder’s adjusted tax basis in the Regan Common Stock exchanged in the merger and the holding period of the Legacy Common Stock received (including fractional shares deemed received as described below) will include the time period that such holder held their shares exchanged in the merger.

          Cash in Lieu of Fractional Shares. Cash received by a holder of Regan Common Stock in lieu of fractional shares should be treated as if the holder received the fractional shares in the merger and then received the cash in a redemption of the fractional shares. The holder generally should recognize gain or loss equal to the difference between the amount of the cash received in lieu of fractional shares and the portion of the holder’s adjusted tax basis in the Regan Common Stock that is allocable to the fractional shares. Such gain or loss generally should be capital gain or loss and should be long-term capital gain or loss if the holding period for such shares of Regan Common Stock is more than one year at the effective time of the merger. Shareholders who receive cash in lieu of fractional shares should consult their tax advisors regarding the character of any gain recognized in the merger.

          Possible Dividend Treatment of Cash Received.

          In determining whether a holder’s receipt of cash has the effect of a distribution of a dividend, the holder should generally be treated as if it first exchanged all of its Regan Common Stock for Legacy Common Stock and then Legacy immediately redeemed all or a portion of the Legacy Common Stock for the cash that the holder actually received pursuant to the merger agreement (or pursuant to the exercise of dissenters’ rights), which is referred to as the deemed redemption. Generally, the gain recognized in the deemed redemption should be treated as a capital gain if the deemed redemption (1) “completely terminates” the shareholder’s interest in Legacy, (2) is “substantially disproportionate” with respect to the holder, or (3) is “not essentially equivalent to a dividend.” In applying the above tests, a holder may, under the constructive ownership rules, be deemed to own stock that is owned by other persons or stock underlying a holder’s option to purchase such stock in addition to the stock actually owned by the holder.

          In general, the receipt of cash in the merger will result in a “complete termination” of the shareholder’s interest as long as the shareholder does not actually or constructively own any Legacy Common Shares immediately after the merger. The receipt of cash in the merger will in general be “substantially disproportionate” with respect to the shareholder if the percentage of shares of common stock owned by the shareholder immediately after the merger is less than 80% of the percentage of shares directly and constructively owned by the shareholder immediately before the merger (giving effect to the difference in number of outstanding shares due to the merger), and the shareholder does not own directly and constructively 50% or more of Legacy’s outstanding common stock after the

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Reorganization. The receipt of cash in the merger should, in general, be “not essentially equivalent to a dividend” if the merger results in a “meaningful reduction” in the shareholder’s proportionate interest in Regan. Gain recognized by certain minority shareholders (e.g., shareholders who would have owned less than 1% of the Legacy Common Stock if they had exchanged all of their Regan Common Stock for Legacy Common Stock) who exercise no control over Legacy’s corporate affairs, who receive solely cash in the merger (or pursuant to dissenters’ rights), generally should be characterized as capital gain under the “not essentially equivalent to a dividend” test described above. Shareholders (including shareholders who may not meet the test described in the preceding sentence) should consult their tax advisors regarding the character of any gain recognized in the merger.

          It is anticipated that most shareholders who receive solely cash in the merger (or pursuant to dissenters’ rights) should qualify for capital gain or loss treatment as a result of satisfying the “complete termination” requirements. However, if direct or constructive ownership of shares by a shareholder prevents compliance with the “complete termination” requirements, such shareholder may nonetheless qualify for capital gain or loss treatment by satisfying either the “substantially disproportionate” or the “not essentially equivalent to a dividend” requirements.

          BECAUSE OF THE HIGHLY COMPLEX AND FACT-SPECIFIC NATURE OF THESE RULES, EACH HOLDER OF REGAN COMMON STOCK IS STRONGLY URGED TO CONSULT ITS TAX ADVISOR AS TO THE APPLICATION OF THESE RULES TO THE PARTICULAR FACTS RELEVANT TO SUCH HOLDER, INCLUDING THE AMOUNT, IF ANY, OF SUCH HOLDER’S CONSTRUCTIVE STOCK OWNERSHIP.

          Backup Withholding.

          Backup withholding may apply with respect to the cash consideration received by a holder of Regan Common Stock in the merger unless the holder provides proof of an applicable exception or furnishes its taxpayer identification number on IRS Form W-9 (or applicable substitute) and otherwise complies with applicable requirements of the backup withholding rules. A holder of Regan Common Stock who does not provide Legacy (or the exchange agent) with its correct taxpayer identification number may also be subject to penalties imposed by the IRS.

          Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against the holder’s U.S. federal income tax liability, provided that the holder furnishes certain required information to the IRS.

          Reporting Requirements.

          U.S. holders of Regan Common Stock receiving Legacy Common Stock in the merger will be required to attach to their U.S. federal income tax returns for the taxable year in which the merger occurs a statement, and maintain a permanent record, of certain facts relating to the exchange of stock in connection with the merger, including the holder’s adjusted tax basis in the Regan Common Stock transferred to Legacy, the fair market value of the Legacy Common Stock received and the amount of cash received by such holder, if any, pursuant to the merger. U.S. holders should consult with their tax advisors with respect to the preceding information statement and record keeping requirements.

          THE FOREGOING DISCUSSION OF U.S. FEDERAL INCOME TAX CONSEQUENCES IS NOT INTENDED TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL TAX CONSEQUENCES RELATING TO THE MERGER. TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND UPON THE FACTS OF YOUR PARTICULAR SITUATION. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, WE URGE YOU TO CONSULT WITH YOUR TAX ADVISOR REGARDING THE APPLICABILITY TO YOU OF THE RULES DISCUSSED ABOVE AND THE PARTICULAR TAX EFFECTS TO YOU OF THE MERGER, INCLUDING THE APPLICATION OF STATE, LOCAL AND NON-U.S. TAX LAWS.

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DIFFERENCES BETWEEN THE RIGHTS OF REGAN SHAREHOLDERS AND
LEGACY STOCKHOLDERS

          If the Reorganization is consummated, shares of Regan Common Stock will be automatically converted into shares of Legacy Common Stock. We believe the description below summarizes the material differences between your rights as a Regan shareholder prior to the Reorganization and the rights you would have as a Legacy stockholder following the Reorganization, but it may not contain all of the information important to you. The description is qualified in its entirety by reference to the full text of the current Amended and Restated Articles of Incorporation of Regan, which we refer to as the California articles, and the current Amended and Restated Bylaws of Regan, which we refer to as the California bylaws, and the Certificate of Incorporation of Legacy, a copy of which is attached hereto as Annex F, which we refer to as the Delaware certificate, and the Bylaws of Legacy, a copy of which is attached hereto as Appendix G, which we refer to as the Delaware bylaws and the respective corporation laws of California and Delaware. A copy of the California articles and California bylaws are on file with the SEC and are available from Regan upon request. See “Where You Can Find More Information” beginning on page [●].

          Your rights as a Regan shareholder prior to the Reorganization are governed by the California Corporations Code and the California articles and California bylaws. If the Reorganization is consummated, your rights as a Legacy stockholder will be governed by the Delaware General Corporation Law and the Delaware certificate and the Delaware bylaws. Approval by our shareholders of the principal terms of the Reorganization will automatically result in the adoption of all the provisions set forth in the Delaware certificate, with the exception of Article 13, which is subject to approval under Proposal 2, and Delaware bylaws upon consummation of the Reorganization.

The Charters and Bylaws of Regan and Legacy

          There are significant similarities and differences between the proposed charter documents of Legacy (the Delaware certificate and the Delaware bylaws) and the current charter documents of Regan (the California articles and the California bylaws). For example, both the Delaware certificate and the California articles authorize the issuance shares of common stock. However, where the California articles authorize the issuance of shares of undesignated preferred stock and provide that the board is entitled to determine the rights, preferences, privileges and restrictions of the authorized and unissued preferred stock at the time of issuance, the Delaware certificate does not authorize the issuance of preferred stock.

          In general, it has been the Board’s intention to make minimal substantive changes in the rights of our shareholders in preparing the Delaware certificate. Although permitted by law in both states, neither the Delaware certificate nor the California articles provide for a classified board of directors, which would divide the board into multiple classes, with each director serving for a multiple-year term and only a portion of the total number of directors being elected at each annual meeting.

          In preparing the Delaware certificate and the Delaware bylaws, we have also included certain provisions that enable the stockholders of Legacy to have rights similar to those that they have automatically as shareholders of a California corporation, but that are not granted automatically under Delaware law. In particular, under California law, holders of 10% of our shares have a statutory right to call special meetings of shareholders. The Delaware General Corporation Law, however, does not provide for this right automatically, but instead provides that the certificate of incorporation or bylaws of a corporation may confer upon stockholders the right to call a special meeting of stockholders. Accordingly, the Delaware bylaws continue this right for holders of 20% of our shares explicitly.

Size of the Board of Directors

          California law provides that the authorized number of directors of a corporation may be fixed in the corporation’s articles of incorporation or bylaws, or a range may be established for the authorized number of directors, with the board itself given authority to fix the exact authorized number of directors within such range. The California bylaws specify a range of three to seven for the authorized number of directors and authorize the board to fix the exact authorized number of directors within the range. Changes in the authorized number of directors on our board of directors outside these limits can be made only with the approval of holders of a majority of the outstanding voting stock of Regan. In addition, under California law, the authorized number of directors cannot be reduced below five if a number of shares equal to or greater than 16 2/3% of the total outstanding shares are voted in opposition to such a reduction. The authorized number of directors of Regan is currently set at five.

          Delaware law provides that the authorized number of directors of a corporation, or the range of authorized directors, may be fixed by, or in the manner provided in, the corporation’s bylaws, unless the certificate of incorporation fixes the number of directors, in which case a change in the number of directors shall be made only by amendment to the certificate of incorporation, which generally requires approval by the board of directors and the stockholders. The Delaware bylaws specify that the authorized number of directors shall be one or more and authorize the board to fix the exact authorized number of directors. Changes in the authorized

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number of directors on the Legacy board can be made by a resolution of the Legacy board of directors or an amendment to the Delaware bylaws approved by holders of a majority of the outstanding voting stock of Legacy.

Cumulative Voting

          Cumulative voting entitles a shareholder to cast, in any election of directors, a number of votes equal to the number of directors to be elected at the election multiplied by the number of shares registered in such shareholder’s name. The shareholder may cast all of such votes for a single nominee or may distribute them among any two or more nominees. Under California law, shareholders of a corporation have the right to cumulative voting, unless the corporation elects otherwise (and provided that the corporation has shares listed on the New York Stock Exchange or traded on the NASDAQ Stock Market). Under Delaware law, cumulative voting in the election of directors is not permitted unless specifically provided for in the corporation’s certificate of incorporation.

          Cumulative voting with respect to directors of Regan is provided under the California bylaws. The Delaware certificate does not provide for cumulative voting with respect to directors of Legacy, and stockholders of Legacy will not be entitled to elect directors using cumulative voting.

Stockholder Voting; Elections

          On all matters submitted to a vote of shareholders of Regan, the shareholder is entitled to one vote for each share of capital stock held by such shareholder, unless otherwise restricted by the California articles or applicable law. Except as where otherwise required in the California bylaws or by law, a majority of the shares represented and voting at a duly held meeting at which a quorum is present shall be the act of the shareholders. Similarly, on all matters submitted to a vote of stockholders of Legacy, the stockholders will be entitled to one vote for each share of capital stock held by such stockholder. All elections will be determined by a plurality of votes cast, and except as otherwise required by law, the Delaware certificate or Delaware bylaws, all other matters will be determined by a majority of the votes cast.

Board of Directors Quorum and Vote Requirements

          Under the California bylaws, the presence of one-third of the total authorized number of directors or two directors, whichever is greater, constitutes a quorum for the transaction of business. Under the Delaware bylaws, the presence of a majority of the total number of members of the board of directors constitutes a quorum for the transaction of business, unless the board of directors consists of one or two directors, then the one or two directors, respectively, shall constitute a quorum. Except as otherwise required by law, in the case of both Regan and Legacy, the vote of a majority of the directors present at any meeting at which a quorum is present constitutes the act of the board of directors. Additionally, any action required or permitted to be taken at a meeting of the Regan board of directors or the Legacy board of directors, respectively, may be taken without a meeting if all members of the board of directors consent thereto in writing (or, in the case of Legacy, by electronic transmission), and that writing or those writings are filed with the minutes or proceedings of the board of directors.

Shareholder Meetings

          The California bylaws and the Delaware bylaws contain similar requirements with respect to calling and conducting meetings of Regan’ shareholders and meetings of Legacy’s stockholders, respectively. The annual meeting of the Regan shareholders may be held at any place within or outside the State of California and at any time designated by the board of directors. Similarly, the annual meeting of the Legacy stockholders may be held at any place within or outside the State of Delaware and at a time designated by resolution of the board of directors.

          Special meetings of the shareholders of Regan may be called at any time by the chairman of the board, the chief executive officer, the president, the board of directors or by one or more shareholders holding not less than 10% of the voting power of Regan. Similarly, special meetings of the stockholders of Legacy may be called at any time by the chairperson of the board, the chief executive officer, the president, the board of directors or by one or more stockholders holding not less than 20% of the voting power of Legacy.

          The presence in person or by proxy of the holders of record of a majority of shares entitled to vote at a meeting of the Regan shareholders or the Legacy stockholders constitutes a quorum for the transaction of business at the applicable meeting.

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Action of Shareholders by Written Consent

          Under the California bylaws, any action required or permitted to be taken at any annual or special meeting of the Regan shareholders may be taken without a meeting and without prior notice if a consent in writing setting forth the action so taken is 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 that notice of any such shareholder approval without a meeting by less than unanimous written consent shall be given as required by the California Corporations Code.

          Under the Delaware General Corporation Law, unless otherwise provided in the certificate of incorporation, any action required or permitted to be taken at any annual or special meeting of stockholders of a corporation, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock 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 and shall be delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. The Delaware certificate does not prohibit or restrict the right of stockholders to act by written consent, and the Delaware bylaws expressly provide for the taking of stockholder action by written consent in accordance with the Delaware General Corporation Law.

Filling Vacancies on the Board of Directors

          Under California law, any vacancy on a corporation’s board, other than one created by removal of a director by the corporation’s shareholders, may be filled by the board itself. Even if the number of directors still in office is less than a quorum, the vacancy may be filled by the affirmative vote of a majority of the directors present at a duly called and held meeting, by the unanimous written consent of the directors then in office or by a sole remaining director. A vacancy created by removal of a director by the corporation’s shareholders may be filled by the board only if so authorized by the corporation’s articles of incorporation or by a bylaw provision approved by the corporation’s shareholders.

          The California bylaws provide that, except for a vacancy created by the removal of a director, Regan’s board has the power to fill all vacancies on the board itself generally, and in the case of a vacancy created by the removal of a director, the California bylaws require the shareholders to fill such vacancy.

          Under Delaware law, unless otherwise provided in the certificate of incorporation or bylaws:

 

 

vacancies and newly created directorships may be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director; and

 

whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.

          Under Delaware law, if at any time a corporation shall have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary with like responsibility, may call a special meeting of stockholders in accordance with the certificate of incorporation or bylaws, or may apply to the Delaware Court of Chancery for a decree summarily ordering an election. If, at the time of filling any vacancy or newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted prior to any such increase), the Court of Chancery may, upon application of any stockholder holding 10% of the outstanding voting stock entitled to vote in an election of directors, summarily order an election to be held to fill the vacancies or newly created directorships (or to replace directors chosen by the board to fill any such vacancies or newly created directorships).

          The Delaware bylaws provide that any vacancy or newly created directorship may be filled by a person selected by a majority of the remaining directors then in office, even if less than a quorum, or by a plurality of the votes cast at a meeting of stockholders.

Monetary Liability of Directors

          The California articles and bylaws and the Delaware certificate and bylaws provide for the elimination of personal monetary liability of the directors of Regan and Legacy, respectively, to the fullest extent permissible under the laws of the respective states. However, due to differences between California and Delaware law, the provision eliminating monetary liability of directors set forth in the Delaware certificate may be more expansive than the corresponding provision in the California articles. For a more detailed explanation of the foregoing, see “— Significant Differences between the Corporation Laws of California and Delaware — Limitation of Liability and Indemnification,” beginning on page [●] below.

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Bylaw Amendments

          Both the California bylaws and the Delaware bylaws provide that they may be amended either by the holders of a majority of the outstanding shares entitled to vote or by the affirmative vote of the board, except that under California law the board cannot unilaterally amend the provision of the California bylaws that governs the range of directors, as discussed under “— Significant Differences between the Corporation Laws of California and Delaware — Size of the Board of Directors” beginning on page [●] above.

Significant Differences between the Corporation Laws of California and Delaware

          The following provides a summary of major substantive differences between the corporation laws of California and Delaware. It is not an exhaustive description of all of the differences between the laws of the two states. Accordingly, all statements herein are qualified in their entirety by reference to the California Corporations Code and the Delaware General Corporation Law, respectively.

          Shareholder Voting in Acquisitions

          California and Delaware laws are substantially similar in terms of when shareholder approval is required for a corporation to undertake various types of acquisition transactions. Both California and Delaware law generally require that a majority of the shareholders of both the acquiring and target corporations approve a statutory merger. In addition, both California and Delaware law require that a sale of all or substantially all of the assets of a corporation be approved by a majority of the outstanding voting shares of the corporation selling its assets.

          Delaware law does not require a shareholder vote of the surviving corporation in a merger (unless provided otherwise in the corporation’s certificate of incorporation) if:

 

 

The merger agreement does not amend the existing certificate of incorporation;

 

Each share of stock of the surviving corporation outstanding immediately before the transaction is an identical outstanding share after the merger; and

 

Either:


 

 

•          

no shares of common stock of the surviving corporation (and no shares, securities or obligations convertible into such stock) are to be issued in the merger; or

 

•          

the shares of common stock of the surviving corporation to be issued in the merger (including shares issuable upon conversion of any other shares, securities or obligations to be issued in the merger) do not exceed twenty percent (20%) of the shares of common stock of the surviving corporation outstanding immediately prior to the transaction.

          California law contains a similar exception to its voting requirements for reorganizations, where shareholders or the corporation itself immediately prior to the reorganization will own immediately after the reorganization equity securities constituting more than five-sixths (5/6) of the voting power of the surviving or acquiring corporation or its parent entity.

          Limitations on Certain Business Combinations

          Delaware, like a number of states, has adopted special laws designed to make certain kinds of “unfriendly” corporate takeovers, or other non-board approved transactions involving a corporation and one or more of its significant shareholders, more difficult.

          Under Section 203 of the Delaware General Corporation Law, a Delaware corporation subject to that statute is prohibited from engaging in a “business combination” with an “interested stockholder” for three years following the date that that person or entity becomes an interested stockholder. With certain exceptions, an interested stockholder is a person or entity that owns, individually or with or through other persons or entities, fifteen percent (15%) or more of the corporation’s outstanding voting stock (including rights to acquire stock pursuant to an option, warrant, agreement, arrangement or understanding, or upon the exercise of conversion or exchange rights, and also stock as to which the person has voting rights only). The three-year moratorium imposed by Section 203 on business combinations does not apply if:

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•              Prior to the time at which the interested stockholder becomes an interested stockholder, the board of directors of the corporation approves either the business combination or the transaction that resulted in the person or entity becoming an interested stockholder;

•              Upon consummation of the transaction that makes the person or entity an interested stockholder, the interested stockholder owns at least eighty-five percent (85%) of the corporation’s voting stock outstanding at the time the transaction commenced (excluding, for purposes of determining voting stock outstanding, shares owned by directors who are also officers of the corporation and shares held by employee stock plans that do not give employee participants the right to decide confidentially whether to accept a tender or exchange offer); or

•              At or subsequent to the time at which the person or entity becomes an interested stockholder, the business combination is approved both by the board of directors and by the stockholders (acting at a meeting and not by written consent) by sixty-six and two-thirds percent (66 2/3%) of the outstanding voting stock not owned by the interested stockholder.

          The restrictions on business combinations contained in Section 203 will not apply if, among other reasons, the corporation elects in its original certificate of incorporation not to be governed by that section or if the corporation, by action of its stockholders, adopts an amendment to its certificate of incorporation or bylaws expressly electing not to be governed by Section 203 (and any such amendment so adopted shall be effective immediately in the case of a corporation that both has never had a class of voting stock that is listed on a national securities exchange or held of record by more than 2,000 stockholders).

          California law does not have a section similar to Delaware Section 203, but it does have different provisions that may limit a corporation’s ability to engage in certain business combinations. California law requires that, in a merger of a corporation with a shareholder (or its affiliate) who holds more than fifty percent (50%) but less than ninety percent (90%) of the corporation’s common stock, the other shareholders of the corporation must receive common stock in the transaction, unless all the corporation’s shareholders consent to the transaction. This provision of California law may have the effect of making a “cash-out” merger by a majority shareholder (possibly as the second step in a two-step merger) more difficult to accomplish. Although Delaware law does not parallel California law in this respect, under some circumstances Section 203 does provide similar protection to shareholders against coercive two-tiered bids for a corporation in which the shareholders are not treated equally.

          California law also provides that, except in certain circumstances, when a tender offer or a proposal for a reorganization or sale of assets is made by an interested party (generally a controlling or managing party of the corporation), the interested party must provide the other shareholders with an affirmative written opinion as to the fairness of the consideration to be paid to the shareholders. This fairness opinion requirement does not apply to corporations that have fewer than the lesser of 100 shareholders of record or to a transaction that has been qualified under California state securities laws. Furthermore, if a tender of shares or a vote is sought pursuant to an interested party’s proposal and a later proposal is made by another party at least ten days prior to the date of acceptance of the interested party’s proposal, the shareholders must be informed of the later offer and be afforded a reasonable opportunity to withdraw their vote, consent or proxy, and to withdraw any tendered shares. Delaware law has no comparable provision.

          Removal of Directors

          In general, under California law, any director, or the entire board of directors, may be removed, with or without cause, with the approval of a majority of the outstanding shares entitled to vote. In the case of a corporation with cumulative voting or whose board is classified, however, no individual director may be removed (unless the entire board is removed) if the number of votes cast against such removal would be sufficient to elect the director under cumulative voting rules. In addition, shareholders holding at least ten percent (10%) of the outstanding shares of any class may bring suit to remove any director in case of fraudulent or dishonest acts or gross abuse of authority or discretion.

          Under Delaware law, any director, or the entire board of directors, of a corporation that does not have a classified board of directors or cumulative voting may be removed with or without cause with the approval of a majority of the outstanding shares entitled to vote at an election of directors. In the case of a Delaware corporation whose board is classified, unless the certificate of incorporation provides otherwise, stockholders may effect such removal only for cause. In addition, as in California, if a Delaware corporation has cumulative voting, and if less than the entire board is to be removed, a director may not be removed without cause by a majority of the outstanding shares if the votes cast against such removal would be sufficient to elect the director under cumulative voting rules.

          The California articles and California bylaws do not provide for a classified board of directors but do provide for cumulative voting. As a result, no individual director of Regan may be removed (unless the entire board is removed) if the number of votes cast

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against such removal would be sufficient to elect the director under cumulative voting rules. Pursuant to the Delaware certificate and Delaware bylaws, Legacy will have neither a classified board nor cumulative voting, and the directors of Legacy following the Reorganization will be subject to removal with or without cause, with the approval of a majority of the outstanding shares entitled to vote at an election of directors.

          Limitation of Liability and Indemnification

          California and Delaware have similar laws respecting the liability of directors of a corporation and the indemnification by the corporation of its officers, directors, employees and other agents for damages they incur. The laws of both states also permit corporations to adopt a provision in their charters eliminating the liability of a director to the corporation or its shareholders for monetary damages for breach of the director’s fiduciary duty of care. Nonetheless, as discussed below, there are certain differences between the laws of the two states respecting indemnification and limitation of liability. In general, however, Delaware law is somewhat broader in allowing corporations to indemnify and limit the liability of corporate agents, which the board believes, among other things, helps Delaware corporations in attracting and retaining outside directors.

          The Delaware General Corporation Law was amended in 1986 in response to widespread concern about the ability of Delaware corporations to attract capable directors in light of then-current difficulties in obtaining and maintaining directors and officers insurance. The legislative commentary to the law states that it is “intended to allow Delaware corporations to provide substitute protection, in various forms, to their directors and to limit director liability under certain circumstances.”

          Elimination of Director Personal Liability for Monetary Damages

          Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to include a provision in its certificate of incorporation which limits or eliminates the personal liability of a director for monetary damages arising from breaches of his or her fiduciary duties to the corporation or its stockholders, provided that no such provision may eliminate or limit director monetary liability for:

•              Breaches of the director’s duty of loyalty to the corporation or its stockholders;

•              Acts or omissions not in good faith or involving intentional misconduct or knowing violations of law;

•              The payment of unlawful dividends or unlawful stock repurchases or redemptions; or

•              Transactions in which the director received an improper personal benefit.

          California law contains similar authorization for a corporation to eliminate the personal liability of directors for monetary damages, except where such liability is based on:

•              intentional misconduct or knowing and culpable violation of law;

•              acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director;

•              receipt of an improper personal benefit;

•              acts or omissions that show reckless disregard for the director’s duty to the corporation or its shareholders, where the director in the ordinary course of performing a director’s duties should be aware of a risk of serious injury to the corporation or its shareholders;

•              acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the corporation and its shareholders;

•              transactions between the corporation and a director who has a material financial interest in such transaction; and

•              liability for improper distributions, loans or guarantees.

          The current California articles eliminate the liability of directors to Regan for monetary damages to the fullest extent permissible under California law. The Delaware certificate similarly eliminates the liability of directors to Legacy for monetary

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damages to the fullest extent permissible under Delaware law. As a result, following the Reorganization, directors of Legacy cannot not be held liable for monetary damages even for gross negligence or lack of due care in carrying out their fiduciary duties as directors, so long as that gross negligence or lack of due care does not involve bad faith, a knowing violation of law, the payment of unlawful dividends or unlawful stock redemptions, a breach of their duty of loyalty, or their receipt of an improper personal benefit.

          Indemnification

          California law requires indemnification of expenses when the indemnified individual has defended successfully the action brought against that individual on the merits. Delaware law requires indemnification of expenses when the individual being indemnified has successfully defended any action, claim, issue or matter therein, on the merits or otherwise. Delaware law generally permits indemnification of expenses, including attorneys’ fees, actually and reasonably incurred in the defense or settlement of a derivative or third-party action, provided the person seeking indemnification is determined to have acted in good faith and in a manner reasonably believed to be in best interests of the corporation (and such determination must be made, with respect to a person who is an officer or director at the time of such determination, by a majority vote of the disinterested directors, by a committee of such directors, by independent counsel or by the stockholders). Unless otherwise determined by the court, however, no indemnification may be made in respect of any action or suit brought by or in the right of the corporation (e.g., a derivative action) in which such person is adjudged liable to the corporation. Expenses incurred by an officer or director in defending an action may be paid in advance under Delaware law or California law, if the director or officer undertakes to repay such amounts if it is ultimately determined that he or she is not entitled to indemnification, provided that, under Delaware law, the requirement to provide such an undertaking only applies to current officers and directors. In addition, the laws of both states authorize a corporation to purchase indemnity insurance for the benefit of its officers, directors, employees and agents whether or not the corporation would have the power to indemnify against the liability covered by the policy.

          California law permits a California corporation to provide rights to indemnification beyond those provided under California law to the extent such additional indemnification is authorized in the corporation’s articles of incorporation. Therefore, if so authorized, rights to indemnification may be provided pursuant to agreements or bylaw provisions which make mandatory the permissive indemnification provided by California law. The California articles authorize indemnification beyond that expressly mandated by California law. Delaware law does not require authorizing provisions in the certificate of incorporation. Delaware law also provides that the indemnification and advancement of expenses provided by, or granted pursuant to, the Delaware General Corporation Law shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office.

          Inspection of Shareholder Lists and Books and Records

          Both California and Delaware law allow any shareholder to inspect a corporation’s shareholder list for a purpose reasonably related to the person’s interest as a shareholder. California law provides, in addition, for an absolute right to inspect and copy the corporation’s shareholder list by persons holding an aggregate of five percent (5%) or more of the corporation’s voting shares, or shareholders holding an aggregate of one percent (1%) or more of such shares who have contested the election of directors. Delaware law also allows the shareholders to inspect the list of shareholders entitled to vote at a meeting within a ten-day period preceding a shareholders’ meeting for any purpose germane to the meeting. Delaware law, however, contains no provisions comparable to the absolute right of inspection provided by California law to certain shareholders.

          Under California law any shareholder may examine the accounting books and records and the minutes of the shareholders and the board and its committees, provided that the inspection is for a purpose reasonably related to the shareholder’s interests as a shareholder. The Delaware statute may be slightly more favorable to shareholders in this respect, in that a stockholder with a proper purpose is not limited to inspecting accounting books and records and minutes, and may examine other records as well. In addition, California law limits the right of inspection of shareholder lists to record shareholders, whereas Delaware has extended that right to beneficial owners of shares.

          Appraisal Rights

          Under both California and Delaware law, a shareholder of a corporation participating in certain major corporate transactions may, under varying circumstances, be entitled to appraisal rights, by which the shareholder may demand to receive cash in the amount determined to be the fair value of his or her shares in lieu of the consideration he or she would otherwise receive in the transaction. Under Delaware law, except as otherwise provided by the certificate of incorporation, appraisal rights are only available in connection with specified mergers or consolidations involving the corporation.

36


          Under Delaware law, fair value is determined without reference to any element of value arising from the accomplishment or expectation of the merger or consolidation, and appraisal rights are generally not available:

•              with respect to the sale, lease or exchange of all or substantially all of the assets of a corporation;

•              with respect to a merger or consolidation of a corporation whose shares are either listed on a national securities exchange or are held of record by more than 2,000 holders (provided that appraisal rights will nonetheless be available if the shareholders are required by the terms of the agreement of merger or consolidation to accept for such stock: (i) shares of the surviving or resulting corporation, (ii) shares of another corporation that is either listed on a national securities exchange or held of record by more than 2,000 holders, or (iii) cash in lieu of fractional shares or any combination thereof); or

•              to shareholders of a corporation surviving a merger if no vote of the shareholders of the surviving corporation is required to approve the merger under Section 251(f) of the Delaware General Corporation Law.

          The limitations on the availability of appraisal rights under California law are different from those under Delaware law. Shareholders of a California corporation whose shares are listed on a national securities exchange generally do not have such appraisal rights unless the holders of at least five percent (5%) of the class of outstanding shares claim the right or the corporation or any law restricts the transfer of the shares to be received. Appraisal rights are also not available if the shareholders of a corporation or the corporation itself, or both, immediately prior to the reorganization will own immediately after the reorganization equity securities representing more than five-sixths (5/6) of the voting power of the surviving or acquiring corporation or its parent entity. On the other hand, California law generally affords appraisal rights in a sale of all or substantially all assets type of reorganization, while Delaware law does not.

          In addition, there are procedural differences in exercising appraisal rights under California and Delaware law. These differences include, but are not limited to the following:

•              Under the Delaware General Corporation Law, in order to exercise appraisal rights, a stockholder must deliver a written appraisal demand either prior to the taking of the vote on the merger (if the merger agreement is submitted to the stockholders at a meeting) or within 20 days following notice of the availability of appraisal rights (with respect to merger agreements adopted by written consent of stockholders and certain other mergers). By comparison, under the California Corporations Code a stockholder who has not voted in favor of the cash-out merger is not required to deliver a written appraisal demand until 30 days after the date on which a notice of the approval of the cash-out merger is mailed to the stockholder; and

•              Under the Delaware General Corporation Law, a petition for an appraisal must be filed within 120 days after the effective date of the merger in order for stockholders who have demanded an appraisal to perfect their appraisal rights. By comparison, under the California Corporations Code, if the parties do not agree on the status of shares as dissenting shares or their fair market value, the stockholder has until six months after the date on which notice of approval of the cash-out merger was mailed to the stockholder to file a complaint in the California Superior Court requesting a determination of these matters.

See “Dissenters’ Rights” beginning on page [●] of this proxy statement and Section 1300, et seq. of the California Corporations Code, which is attached to this proxy statement/prospectus as Annex B.

          Dissolution

          Under California law, the holders of fifty percent (50%) or more of a corporation’s total voting power may authorize the corporation’s dissolution, with or without the approval of the corporation’s board of directors, and this right may not be modified by the articles of incorporation. Under Delaware law, unless the board of directors approves the proposal to dissolve, the dissolution must be unanimously approved by all the shareholders entitled to vote on the matter. Only if the dissolution is initially approved by the board of directors may the dissolution be approved by a simple majority of the outstanding shares of the Delaware corporation’s stock entitled to vote. In addition, Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with such a board-initiated dissolution. However, the Delaware certificate contains no such supermajority voting requirement.

37


          Interested Director Transactions

          Under both California and Delaware law, certain contracts or transactions in which one or more of a corporation’s directors (or, in Delaware, directors or officers) has an interest are not void or voidable solely because of such interest provided that certain conditions, such as obtaining the required approval and fulfilling the requirements of good faith and full disclosure, are met. With certain exceptions, the conditions are similar under California and Delaware law. Under California law, (1) either the shareholders or the board of directors must approve any such contract or transaction after full disclosure of the material facts, and, in the case of board approval, the contract or transaction must also be “just and reasonable” (in California), or (2) the contract or transaction must have been just and reasonable or fair as to the corporation at the time it was approved. In the latter case, California law explicitly places the burden of proof on the interested director. Under California law, to shift the burden of proof on the validity of the contract by shareholder approval, the interested director would not be entitled to vote his or her shares at a shareholder meeting with respect to any action regarding such contract or transaction. To shift the burden of proof on the validity of the contract by board approval under California law, the contract or transaction must be approved by a majority vote of a quorum of the directors, without counting the vote of any interested directors (except that interested directors may be counted for purposes of establishing a quorum). Under Delaware law, any such contract or transaction will not be void or voidable solely as a result of the director or officer’s interest if: (1) the material facts as to the director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors, and the board in “good faith” authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to the director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in “good faith” by vote of the shareholders; or (3) the contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors or the shareholders.

          Under Delaware law, the party seeking to demonstrate that a contract or transaction involving an interested director or officer should not be void or voidable solely as a result of the interest must demonstrate compliance with one of the three safe-harbor provisions listed above.

          Shareholder Derivative Suits

          California law provides that a shareholder bringing a derivative action on behalf of a corporation need not have been a shareholder at the time of the transaction in question, if certain tests are met. Under Delaware law, a shareholder may bring a derivative action on behalf of the corporation only if the shareholder was a shareholder of the corporation at the time of the transaction in question or if his or her stock thereafter came to be owned by him or her by operation of law.

          California law also provides that the corporation or the defendant in a derivative suit may make a motion to the court for an order requiring the plaintiff shareholder to furnish a security bond. Delaware does not have a similar bonding requirement.

          Dividends and Repurchases of Shares

          Delaware law is more flexible than California law with respect to declaring and paying dividends and implementing share repurchase programs. Delaware law permits a corporation to declare and pay dividends out of “surplus” (which is generally defined as the amount by which the fair value of the corporation’s net assets exceeds the sum of its liabilities and stated capital) or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year, so long as the capital of the corporation following the payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets. In addition, Delaware law generally provides that a corporation may redeem or repurchase its shares if the capital of the corporation would not be impaired following the transaction.

          Under Section 500 of the California Corporations Code, a corporation may not make any distribution to its shareholders unless either:

•              the corporation’s retained earnings immediately prior to the proposed distribution equal or exceed the amount of the proposed distribution; or

•              immediately after giving effect to the distribution, the corporation’s assets (exclusive of goodwill, capitalized research and development expenses and deferred charges) would be at least equal to one and one fourth (1 1/4) times its liabilities (not including deferred taxes, deferred income and other deferred credits), and the corporation’s current assets would be at least equal to its current liabilities (or one and one fourth (1 1/4) times its current liabilities if the average pre-tax and pre- interest expense earnings for the preceding two fiscal years were less than the average interest expense for such years).

38


          Under the California Corporations Code, “a distribution to its shareholders” is defined as the transfer of cash or property by a corporation to its shareholders without consideration, whether by way of dividend or otherwise, except a dividend in shares of the corporation, or the purchase or redemption of its shares for cash or property, including the transfer, purchase, or redemption by a subsidiary of the corporation. These tests are applied to California corporations on a consolidated basis.

          The 550,000 shares of Regan’s Series B Common Stock currently outstanding and approximately 3,248,000 of the shares of Regan’s Series A Common Stock currently outstanding are redeemable at the option of the shareholders, subject to certain limitations under the contracts by which they were acquired, under the California articles and under Section 500 of the California Corporations Code as described above. Because Regan has not been permitted under Section 500 to make distributions to its shareholders, no shares of Series A Common Stock or Series B Common Stock have been redeemed for several years. All Regan Series A Common Stock and all Regan Series B Common Stock Common Stock, including any redemption rights, will be terminated and canceled following the Reorganization.

          Application of the California General Corporation Law to Delaware Corporations

          Under Section 2115 of the California Corporations Code, corporations not organized under California law but which have significant contacts with California may be subject to a number of provisions of the California Corporations Code. However, an exemption from Section 2115 is provided for corporations whose shares are listed on a major national securities exchange. Following the proposed Reorganization, the common stock of Legacy will not to be listed on a national securities exchange, and, accordingly, we currently expect that Legacy will not be exempt from Section 2115.

PRO FORMA EFFECT OF THE REORGANIZATION

          The following selected pro forma financial data illustrates the pro forma effect of the Reorganization on Regan’s financial statements for the year ended December 31, 2008 and the nine months ended September 30, 2009. Management has prepared this information based on its estimate that 1,800,000 shares of Regan Common Stock will be exchanged for an aggregate of $180,000 in cash and 22,276,000 shares of Regan Common Stock will be exchanged for 5,000 shares of Legacy Common Stock in the Reorganization, and that the cost savings will be $394,000 and $377,000 for the period ending December 31, 2008 and September 30, 2009, respectively. Please see “Pro Forma Consolidated Financial Information” for the complete pro forma financial information relating to this transaction.

Selected Pro Forma Consolidated Financial Data (Unaudited)

PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

          The following unaudited pro forma consolidated balance sheet as of September 30, 2009 (the “Pro Forma Balance Sheet”), and the unaudited pro forma consolidated statements of operations for the year ended December 31, 2008 and the nine months ended September 30, 2009 (the “Pro Forma Statements of Operations”), show the pro forma effect of the Reorganization. Pro forma adjustments to the Pro Forma Balance Sheet are computed as if the Reorganization occurred at September 30, 2009, while the pro forma adjustments to the Pro Forma Statements of Operations are computed as if the Reorganization were consummated on January 1, 2008 in the case of the Statement of Operations for the year ended December 31, 2008 and on January 1, 2009 in the case of the nine months ended September 30, 2009. The following financial statements do not reflect any anticipated cost savings that may be realized by The Legacy Alliance, Inc. (“Legacy”) after consummation of the Reorganization.

          The pro forma information does not purport to represent what Legacy’s results of operations actually would have been if the Reorganization had occurred on any of the dates indicated above.

Pro Forma Consolidated Financial Statements (Unaudited)

          The following unaudited pro forma consolidated balance sheets as of September 30, 2009 and December 31, 2008 and the unaudited pro forma consolidated income statements for the year ended December 31, 2008, and the nine months ended September 30, 2009, give effect to the following:

 

 

We have assumed that the merger occurred as of September 30, 2009 and December 31, 2008, respectively, for the purposes of the consolidated balance sheets, and as of January 1, 2008 and January 1, 2009 with respect to the consolidated income statements for the year ended December 31, 2008, and the nine months ended September 30, 2009, respectively.

39


 

 

We have assumed that a total of approximately 1,800,000 common stock fractional shares are cashed out in the merger at a price of $0.10 per share for a total of $180,000.

 

 

We have assumed that all of the cash required to consummate the merger will be provided from a combination of a capital contribution of $10,000 and a loan of $170,000 at an annual simple interest rate of 6%.

 

 

We have adjusted for anticipated annual cost savings, estimated to be approximately $503,000 (this excludes the $207,000 in estimated annual time-savings). For the year ended December 31, 2008, $394,000 (adjusted for lower Sarbanes-Oxley Act expense) and $377,000 for the nine months ended September 30, 2009. The applicable incremental federal income tax rate is based on an effective federal and state tax rate of 9.70% and 10.33% (after utilization of federal NOL carryforwards and related valuation allowance adjustments) for the year ended December 31, 2008 and nine months ended September 30, 2009, respectively. This is an estimate of the actual cost incurred in these periods for legal, accounting and other professional fees associated with the filing requirements under the Exchange Act. This adjustment is not a prediction of future results. No adjustment is made for employee overhead, indirect or incidental expenses.

40


REGAN HOLDING CORP. AND SUBSIDIARIES
Pro Forma Consolidated Balance Sheet
As of September 30, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

Historical

 

Pro Forma Adjustments (Unaudited)

 

Pro Forma Combined

 

 

 

           

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,208,000

 

$

 

$

1,208,000

 

Trading investments

 

 

3,032,000

 

 

 

 

3,032,000

 

Accounts receivable, net of allowance of $29,000

 

 

360,000

 

 

 

 

360,000

 

Notes receivable, net of allowance of $20,000

 

 

210,000

 

 

 

 

210,000

 

Prepaid expenses and deposits

 

 

144,000

 

 

 

 

144,000

 

Current assets from discontinued operations

 

 

225,000

 

 

 

 

225,000

 

 

 

                 

Total current assets

 

 

5,179,000

 

 

 

 

5,179,000

 

 

 

                 

Net fixed assets

 

 

556,000

 

 

 

 

556,000

 

Building lease deposit

 

 

1,000,000

 

 

 

 

1,000,000

 

Other assets

 

 

27,000

 

 

 

 

27,000

 

 

 

                 

Total non-current assets

 

 

1,583,000

 

 

 

 

1,583,000

 

 

 

                 

Total assets

 

$

6,762,000

 

$

 

$

6,762,000

 

 

 

                 

Liabilities, redeemable common stock, and shareholders’ deficit Liabilities

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

3,174,000

 

$

(331,000

)

$

2,843,000

 

Current portion of deferred compensation payable

 

 

425,000

 

 

 

 

425,000

 

Current portion of capital lease liabilities

 

 

49,000

 

 

 

 

49,000

 

Short-term borrowings

 

 

378,000

 

 

170,000

 

 

548,000

 

Current liabilities from discontinued operations

 

 

361,000

 

 

 

 

361,000

 

 

 

                 

Total current liabilities

 

 

4,387,000

 

 

(161,000

)

 

4,226,000

 

 

 

                 

Deferred compensation payable

 

 

4,523,000

 

 

 

 

4,523,000

 

Deferred gain on sale of building

 

 

1,676,000

 

 

 

 

1,676,000

 

Capital lease liabilities, less current portion

 

 

121,000

 

 

 

 

121,000

 

Other liabilities

 

 

165,000

 

 

 

 

165,000

 

 

 

                 

Total non-current liabilities

 

 

6,485,000

 

 

 

 

6,485,000

 

 

 

                 

Total liabilities

 

 

10,872,000

 

 

(161,000

)

 

10,711,000

 

 

 

                 

Equity

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

9,818,000

 

 

(3,656,000

)

 

6,162,000

 

Capital surplus

 

 

6,650,000

 

 

3,486,000

 

 

10,136,000

 

Accumulated deficit

 

 

(20,578,000

)

 

331,000

 

 

(20,247,000

)

 

 

                 

Total shareholders’ deficit

 

 

(4,110,000

)

 

161,000

 

 

(3,949,000

)

 

 

                 

Total liabilities, redeemable common stock, and shareholders’ deficit

 

$

6,762,000

 

$

 

$

6,762,000

 

 

 

                 

41


REGAN HOLDING CORP. AND SUBSIDIARIES
Pro Forma Consolidated Balance Sheet
As of December 31, 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

Historical

 

Pro Forma Adjustments (Unaudited)

 

Pro Forma Combined

 

 

 

           

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

628,000

 

$

 

$

628,000

 

Trading investments

 

 

641,000

 

 

 

 

641,000

 

Accounts receivable, net of allowance of $0

 

 

447,000

 

 

 

 

447,000

 

Notes receivable, net of allowance of $0

 

 

175,000

 

 

 

 

175,000

 

Prepaid expenses and deposits

 

 

146,000

 

 

 

 

146,000

 

Current assets from discontinued operations

 

 

322,000

 

 

 

 

322,000

 

 

 

                 

Total current assets

 

 

2,359,000

 

 

 

 

2,359,000

 

 

 

                 

Net fixed assets

 

 

1,655,000

 

 

 

 

1,655,000

 

Building lease deposit

 

 

1,000,000

 

 

 

 

1,000,000

 

Other assets

 

 

32,000

 

 

 

 

32,000

 

 

 

                 

Total non-current assets

 

 

2,687,000

 

 

 

 

2,687,000

 

 

 

                 

Total assets

 

$

5,046,000

 

$

 

$

5,046,000

 

 

 

                 

Liabilities, redeemable common stock, and shareholders’ deficit Liabilities

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

3,808,000

 

$

(347,000

)

$

3,461,000

 

Current portion of deferred compensation payable

 

 

1,181,000

 

 

 

 

1,181,000

 

Current portion of capital lease liabilities

 

 

69,000

 

 

 

 

69,000

 

Short-term borrowings

 

 

230,000

 

 

170,000

 

 

400,000

 

Current liabilities from discontinued operations

 

 

398,000

 

 

 

 

398,000

 

 

 

                 

Total current liabilities

 

 

5,686,000

 

 

(177,000

)

 

5,509,000

 

 

 

                 

Deferred compensation payable

 

 

4,133,000

 

 

 

 

4,133,000

 

Deferred gain on sale of building

 

 

1,882,000

 

 

 

 

1,882,000

 

Capital lease liabilities, less current portion

 

 

64,000

 

 

 

 

64,000

 

Other liabilities

 

 

134,000

 

 

 

 

134,000

 

 

 

                 

Total non-current liabilities

 

 

6,213,000

 

 

 

 

6,213,000

 

 

 

                 

Total liabilities

 

 

11,899,000

 

 

(177,000

)

 

11,722,000

 

 

 

                 

Equity

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

9,818,000

 

 

(3,656,000

)

 

6,162,000

 

Capital surplus

 

 

6,650,000

 

 

3,486,000

 

 

10,136,000

 

Accumulated deficit

 

 

(23,321,000

)

 

347,000

 

 

(22,974,000

)

 

 

                 

Total shareholders’ deficit

 

 

(6,853,000

)

 

177,000

 

 

(6,676,000

)

 

 

                 

Total liabilities, redeemable common stock, and shareholders’ deficit

 

$

5,046,000

 

$

 

$

5,046,000

 

 

 

                 

42


REGAN HOLDING CORP. AND SUBSIDIARIES
Pro Forma Consolidated Statement of Operations
For the Nine Months Ended September 30, 2009

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

Historical

 

Pro Forma Adjustments (Unaudited)

 

Pro Forma Combined

 

 

 

           

Marketing allowances and commission overrides

 

$

12,560,000

 

$

 

$

12,560,000

 

Trailing commissions

 

 

196,000

 

 

 

 

196,000

 

Other revenue

 

 

2,360,000

 

 

 

 

2,360,000

 

 

 

                 

Total revenue

 

 

15,116,000

 

 

 

 

15,116,000

 

 

 

                 

Expenses

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative (1)

 

 

10,171,000

 

 

(377,000

)

 

9,794,000

 

Depreciation and amortization

 

 

1,266,000

 

 

 

 

1,266,000

 

Other

 

 

434,000

 

 

 

 

434,000

 

 

 

                 

Total expenses

 

 

11,871,000

 

 

 

 

11,494,000

 

 

 

                 

Operating income (loss)

 

 

3,245,000

 

 

 

 

3,622,000

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

 

 

 

 

 

 

 

 

Investment income, net

 

 

26,000

 

 

 

 

26,000

 

Interest expense

 

 

(39,000

)

 

(8,000

)

 

(47,000

)

 

 

                 

Total other (expense) income, net

 

 

(13,000

)

 

 

 

(21,000

)

 

 

                 

Income before income taxes

 

 

3,232,000

 

 

 

 

3,601,000

 

Provision for (benefit from) income taxes

 

 

341,000

 

 

38,000

 

 

379,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                 

Income (loss) from continuing operations

 

 

2,891,000

 

 

 

 

3,222,000

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 

 

 

 

 

 

 

 

 

Loss from operation of discontinued segments: Legacy Financial Services, Values Financial Network, and prospectdigital

 

 

(168,000

)

 

 

 

(168,000

)

(Benefit from) provision for income taxes

 

 

(20,000

)

 

 

 

(20,000

)

 

 

                 

Loss from discontinued operations

 

 

(148,000

)

 

 

 

(148,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

                 

Net income (loss) available for common shareholders

 

$

2,743,000

 

$

331,000

 

$

3,074,000

 

 

 

                 

Basic and diluted net income per share:

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.12

 

 

 

 

$

644.40

 

Net income available for common shareholders

 

$

0.11

 

 

 

 

$

614.80

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding used to compute basic and diluted net income per share amounts

 

 

24,076,000

 

 

(24,071,000

)

 

5,000

 


 

 

(1)

Assumes cost savings of $377,000 ($136,000 audit and accounting fees; $53,000 legal fees; $138,000 in internal compliance costs); $20,000 in SEC filings and shareholder costs; $24,000 Board of Director costs; and $6,000 in other costs. Tax provision adjustment is based on an effective federal and state tax rate of 10.33% (after utilization of federal NOL carryforwards and valuation allowance adjustments).

43


REGAN HOLDING CORP. AND SUBSIDIARIES
Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2008

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

Historical

 

Pro Forma Adjustments (Unaudited)

 

Pro Forma Combined

 

 

 

           

Marketing allowances and commission overrides

 

$

7,676,000

 

$

 

$

7,676,000

 

Trailing commissions

 

 

1,378,000

 

 

 

 

1,378,000

 

Sale of Legacy TM, LP Class B interest

 

 

6,500,000

 

 

 

 

6,500,000

 

Other revenue

 

 

3,586,000

 

 

 

 

3,586,000

 

 

 

                 

Total revenue

 

 

19,140,000

 

 

 

 

19,140,000

 

 

 

                 

Expenses

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative (1)

 

 

13,543,000

 

 

(394,000

)

 

13,149,000

 

Depreciation and amortization

 

 

3,852,000

 

 

 

 

3,852,000

 

Internal use software impairment loss

 

 

152,000

 

 

 

 

152,000

 

Other

 

 

789,000

 

 

 

 

789,000

 

 

 

                 

Total expenses

 

 

18,336,000

 

 

 

 

17,942,000

 

 

 

                 

Operating income (loss)

 

 

804,000

 

 

 

 

 

1,198,000

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

 

 

 

 

 

 

 

 

Investment income, net

 

 

377,000

 

 

 

 

377,000

 

Interest expense

 

 

(480,000

)

 

(10,000

)

 

(490,000

)

 

 

                 

Total other (expense) income, net

 

 

(103,000

)

 

 

 

(113,000

)

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

701,000

 

 

 

 

1,085,000

 

Provision for (benefit from) income taxes

 

 

213,000

 

 

37,000

 

 

250,000

 

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

 

488,000

 

 

 

 

 

835,000

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 

 

 

 

 

 

 

 

 

Loss from operation of discontinued segments: Legacy Financial Services, Values Financial Network, and prospectdigital

 

 

(695,000

)

 

 

 

(695,000

)

(Benefit from) provision for income taxes

 

 

(97,000

)

 

 

 

(97,000

)

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

 

(598,000

)

 

 

 

 

(598,000

)

 

 

                 

Net income (loss) available for common shareholders

 

$

(110,000

)

$

347,000

 

$

237,000

 

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net income per share:

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.02

 

 

 

 

$

167.00

 

Net income available for common shareholders

 

$

(0.00

)

 

 

 

$

47.40

 

Weighted average shares outstanding used to compute basic and diluted net income per share amounts

 

 

24,076,000

 

 

(24,071,000

)

 

5,000

 


 

 

(1)

Assumes cost savings of $394,000 ($182,000 audit and accounting fees; $70,000 legal fees; $75,000 in internal compliance costs); $27,000 in SEC filings and Shareholder costs; $32,000 in Board of Director costs; and $8,000 in other costs. Tax provision adjustment is based on an effective federal and state tax rate of 9.70% (after utilization of federal NOL carryforwards and related valuation allowance adjustments).

44


REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Pro Forma Earnings to Fixed Charges
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended 12/31/2008

 

Year Ended 12/31/2007

 

Pro Forma Year Ended 12/31/2008

 

NineMonths Ended 9/30/2009

 

Nine Months Ended 9/30/2008

 

Pro Forma Nine Months Ended 9/30/2009

 

 

 

                       

Add

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                   

Pretax income

 

$

6,000

 

$

(9,045,000

)

$

389,000

 

$

3,064,000

 

$

2,058,000

 

$

2,296,000

 

Fixed charges

 

 

480,000

 

 

750,000

 

 

490,000

 

 

39,000

 

 

457,000

 

 

47,000

 

Interest expensed and capitalized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of capitalized interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributed income of equity investees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share of per-tax losses of equity investees for which charges arising from guarantees are included in fixed charges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest capitalized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preference security dividend requirements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minority interest in pretax income of subsidiaries that have not incurred fixed charges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                   

Total Earnings

 

$

486,000

 

$

(8,295,000

)

$

879,000

 

$

3,103,000

 

$

2,515,000

 

$

2,343,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Charges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expensed and capitalized

 

$

480,000

 

$

750,000

 

$

490,000

 

$

39,000

 

$

457,000

 

$

47,000

 

Amortized premiums, discounts, and capitalized expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest within rental expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preference security dividend requirements of consolidated subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                   

Total Fixed Charges

 

$

480,000

 

$

750,000

 

$

490,000

 

$

39,000

 

$

457,000

 

$

47,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratio of earnings to fixed charges

 

 

101

%

 

-1106

%

 

179

%

 

7956

%

 

550

%

 

4985

%

45


REGAN HOLDING CORP. AND SUBSIDIARIES
Pro Forma Book Value Per Share
As of September 30, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

Historical

 

Pro Forma Adjustments (Unaudited)

 

Pro Forma Combined

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

9,818,000

 

 

(3,656,000

)

 

6,162,000

 

Capital surplus

 

 

6,650,000

 

 

3,486,000

 

 

10,136,000

 

Accumulated deficit

 

 

(20,578,000

)

 

331,000

 

 

(20,247,000

)

 

 

                 

Total equity

 

 

(4,110,000

)

 

161,000

 

 

(3,949,000

)

 

 

 

 

 

 

 

 

 

 

 

Outstanding shares as of September 30, 2009

 

 

24,076,000

 

 

(24,071,000

)

 

5,000

 

Book value per share as of September 30, 2009

 

$

(0.17

)

 

 

 

$

(789.80

)

46


PROPOSAL 1: AGREEMENT AND PLAN OF MERGER

          Structure. The Reorganization Plan provides for the merger of Regan with and into Legacy, with Legacy surviving the merger. Legacy is a Delaware corporation newly-formed solely to effect the Reorganization. In the Reorganization, record shareholders owning less than 4,500 shares of Regan Common Stock will receive $0.10 in cash in exchange for each share of Regan Common Stock that he or she owns, and any shareholder who is the record holder of 4,500 or more shares of Regan Common Stock will receive one share of Legacy Common Stock for each block of 4,500 shares of Regan Common Stock that he or she owns and $0.10 in cash per share of remaining Regan Common Stock in lieu of any fractional shares. Record ownership in each case will be measured as of the effective date of the Reorganization.

          Because the purpose of Reorganization is to reduce the number of shareholders of record of our common stock below 300, the Reorganization Plan permits our Board to increase the 4,500 share thresholds prior to the date of the special shareholders’ meeting to the extent necessary to ensure that the number of record shareholders of our common stock will be less than 300 upon effectiveness of the Reorganization. If such action is necessary, we will notify our shareholders through a supplement to this Proxy Statement and will postpone the special shareholders’ meeting to the extent necessary to allow shareholders to consider such action and change their votes if they so desire.

          Determination of Shares “Held of Record.” Shareholders owning less than 4,500 shares of Regan Common Stock will receive $0.10 in cash in exchange for each share of Regan Common Stock that he or she owns, and any shareholder who is the record holder of 4,500 or more shares of Regan Common Stock will receive one share of Legacy Common Stock for each block of 4,500 shares of Regan Common Stock that he or she owns and $0.10 in cash per share of remaining Regan Common Stock in lieu of any fractional shares. Because SEC rules require that we count “record holders” for purposes of determining our reporting obligations, the Reorganization proposal is based on the number of shares held of record without regard to the ultimate control of the shares.

          A shareholder “of record” is the shareholder whose name is listed on the front of the stock certificate, regardless of who ultimately has the power to vote or sell the shares. For example, if a shareholder holds four separate certificates (individually, as a joint tenant with someone else, as trustee, and in an IRA), those certificates represent shares held by four different record holders, even if a single shareholder controls the voting or disposition of those shares. Similarly, shares held by a broker in “street name” on a shareholder’s behalf are held of record by the broker.

          As a result, a single shareholder with 4,500 or more shares of Regan Common Stock held in various accounts would receive cash for his or her shares in the Reorganization if each of those accounts individually holds fewer than 4,500 shares. To avoid this, the shareholder may either consolidate his or her record ownership into a single form of ownership representing more than 4,500 shares, in order to avoid receiving only cash for his or her shares, or acquire additional shares in the market prior to the effective date of the Reorganization.

          Shares Held in Street Name. It is important that our shareholders understand how shares that are held by them in “street name” will be treated. Shareholders who have transferred their shares of Regan Common Stock into a brokerage or custodial account are no longer shown on our shareholder records as the record holder of these shares. Instead, the brokerage firm or custodian will typically hold all shares of Regan Common Stock that its clients have deposited with it in a single nominee name — this is what is meant by “street name.” If that single nominee is the record shareholder for one or more accounts representing collectively more than 4,500 shares of Regan Common Stock, then all of the stock registered in the nominee’s name will be exchanged for Legacy Common Stock and cash in lieu of any fractional shares. Because the Reorganization only affects record shareholders, it does not matter whether any of the underlying beneficial owners with a given broker owns fewer than the applicable threshold number of shares.

          In any case, any cash and/or shares of Legacy Common Stock that a beneficial owner is entitled to receive will be calculated by the broker that holds the shares of record based on that beneficial owner’s individual stock ownership and distributed to the beneficial owner after the broker receives such cash or shares. Therefore, if that broker is the record shareholder for one or more accounts representing collectively 4,500 or more shares of Regan Common Stock, then each block of 4,500 shares of Regan Common Stock registered in the broker’s name will be exchanged for Legacy Common Stock and $0.10 cash per share will be exchanged for any remaining shares. Because the Reorganization only affects record shareholders, it does not matter whether any of the underlying beneficial owners with a given broker owns fewer than the applicable threshold number of shares.

          If you hold your shares in “street name,” you should talk to your broker, nominee or agent to determine how they expect the Reorganization to affect you. Because other “street name” holders who hold through your broker, agent or nominee may adjust their holdings prior to the effective time of the Reorganization, you may have no way of knowing whether you will be cashed out or will receive Legacy Common Stock in the transaction until it is completed. However, because we think it is unlikely that many brokerage firms or other nominees will hold 4,500 or more shares in their “street name” accounts, we think it is unlikely that “street name” holders will receive Legacy Common Stock.

47


          Legal Effectiveness. The merger becomes effective when the parties execute and file a certificate of merger with the Delaware Secretary of State, or at a later time if agreed to by the parties (the “Effective Time”).

          At the Effective Time, in addition to the effects set forth in applicable state laws:

 

 

 

 

all the property, rights, privileges, powers and franchises of Regan and Legacy shall vest in Legacy as the surviving corporation, and all debts liabilities and duties of Regan and Legacy shall become the debts, liabilities and duties of Legacy as the surviving corporation;

 

 

 

 

Legacy’s Certificate of Incorporation in effect immediately prior to the Effective Time will become the Certificate of Incorporation of Legacy as the surviving corporation;

 

 

 

 

Legacy’s Bylaws as in effect immediately prior to the Effective Time will become the Bylaws of Legacy as the surviving corporation;

 

 

 

 

the directors of Regan immediately prior to the Effective Time will become the directors of Legacy as the surviving corporation;

 

 

 

 

the officers of Regan immediately prior to the Effective Time will become the officers of Legacy as the surviving corporation;

 

 

 

 

each share of Regan Common Stock issued and held in Regan’s treasury immediately prior to the Effective Time, and each share of Regan Common Stock that is owned by Legacy will automatically be canceled and retired;

 

 

 

 

each share of Regan Common Stock issued and outstanding immediately prior to the Effective Time (other than shares to be cancelled according to the first bullet point above or any dissenting shares—see below) will be converted into 0.0002 shares of Legacy Common Stock (i.e., each 4,500 shares of Regan Common Stock will be converted into one share of Legacy Common Stock); and

 

 

 

 

all stock options or other rights to acquire shares of Regan Common Stock will terminate.

          Exchange of Stock Certificates. Promptly after the Effective Time, Legacy as the surviving corporation will cause a bank or trust company (the “Exchange Agent”) to mail to each holder of Regan Common Stock certificates immediately prior to the Effective Time (a) a letter of transmittal and (b) instructions for how to surrender the Regan Common Stock certificates in exchange for certificates evidencing shares of Legacy Common Stock and/or cash. Upon proper surrender of a certificate, the certificate holder will be entitled to receive in exchange a certificate representing the number of whole shares of Legacy Common Stock which that holder’s shares of Regan Common Stock have been converted into (and any cash in lieu of any fractional shares or other distributions to which the holder is entitled), and the Regan Common Stock certificate will be canceled.

          After the Effective Time, until properly surrendered, each Regan Common Stock certificate is deemed to represent only the right to receive the applicable number of whole shares of Legacy Common Stock into which the shares of Regan Common Stock formerly represented by the Certificate have been converted, cash in lieu of any fractional shares or other distributions to which the holder is entitled. No dividends or other distributions declared or made after the Effective Time with respect to Legacy Common Stock with a record date after the Effective Time will be paid to the holder of any unsurrendered Regan Common Stock certificate until such certificate is properly surrendered.

          No fractional shares of Legacy Common Stock will be issued, but in lieu of any fractional shares each holder of Regan Common Stock otherwise entitled to a fraction of a share of Legacy Common Stock will receive an amount of cash from Legacy equal to the product of (i) such fraction, multiplied by (ii) $450.00.

          If any Regan Common Stock certificate has been lost, stolen or destroyed, upon the holder of such certificate’s execution of an affidavit to that effect and, if required by Legacy as the surviving corporation, posting of a bond, the Exchange Agent will issue the appropriate consideration to the holder.

          Shares of Regan Common Stock outstanding immediately prior to the Effective Time which are held by shareholders who have exercised and perfected dissenters’ rights for such shares in accordance with the California Corporations Code will not be converted into shares of Legacy Common Stock and/or cash in lieu of fractional shares and instead will be cashed out for the appraised value of such shares.

48


Summary of the Agreement and Plan of Merger

          Regan’s Representations and Warranties. In connection with the Reorganization Plan, Regan has made representations and warranties to Legacy relating to:

 

 

 

 

organization and qualification;

 

 

 

 

capital stock;

 

 

 

 

authority;

 

 

 

 

consents, approvals and the absence of violations;

 

 

 

 

opinion of financial advisor; and

 

 

 

 

the required vote of Regan shareholders.

          Legacy’s Representations and Warranties. Legacy has made similar representations and warranties to Regan relating to:

 

 

 

 

organization and qualification;

 

 

 

 

capital stock;

 

 

 

 

authority;

 

 

 

 

consents, approvals and the absence of violations; and

 

 

 

 

the required vote of Legacy stockholders.

          Covenants. Regan and Legacy have made certain covenants in connection with the Reorganization Plan:

 

 

 

 

Fairness Hearing. The Reorganization Plan requires Legacy to prepare, with Regan’s cooperation, a permit application and notice to holders of Regan Common Stock in connection with a hearing held by the California Commissioner of Corporations to consider the terms and conditions of the Reorganization Plan and the fairness of such terms. Regan must provide the notice to all holders of Regan Common Stock entitled to receive the notice under California law. Regan and Legacy must use commercially reasonable efforts to file the permit application and notice and obtain the permit approving the fairness of the merger and the Reorganization Plan such that the issuance of Legacy Common Stock in connection with the merger shall be exempt from the registration requirements of Section 5 of the Securities Act pursuant to Section 3(a)(10) of the Securities Act.

 

 

 

 

Proxy Statement. Regan must prepare, with Legacy’s cooperation, a proxy statement relating to the Reorganization Plan including the recommendation of Regan’s Board in favor of adoption of the Reorganization Plan, approval of the merger and Reorganization Plan (with no dissent) and the conclusion of Regan’s Board that the terms of the Reorganization Plan are fair and in the best interests of Regan’s shareholders. The proxy statement must be amended and/or supplemented as required, and Regan and Legacy must cooperate in delivering any such amendments and/or supplements to the holders of Regan Common Stock and/or filing any such amendment or supplement with the appropriate government officials. Regan agrees that the proxy statement will comply in all material respects with applicable law and none of the information supplied in the proxy statement will, at the date of mailing to shareholders or at the time of the meeting, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading.

 

 

 

 

Letter of Transmittal. After issuance of the permit (or before issuance to the extent permitted by the California Commissioner of Corporations), Regan must deliver a proxy statement and a form of Letter of Transmittal to all holders of Regan Common Stock. Regan and its agents and representatives may not solicit the vote or consent of any holder of Regan Common Stock in connection with the merger in violation of any applicable federal or state securities laws. The information relating to Regan and Legacy included in the notice, permit application and the proxy statement must not contain untrue statements of material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading.

49


 

 

 

 

Special Meeting of Shareholders. Regan will take all action necessary to convene a meeting of holders of Regan Common Stock as promptly as practicable after the California Commissioner of Corporations issues the permit to consider and vote upon adoption of the Reorganization Plan, such approval being recommended by Regan’s Board, and the other transactions contemplated by the Reorganization Plan.

 

 

 

 

Reasonable Best Efforts. Regan and Legacy must use reasonable best efforts to do all things necessary, proper or advisable under applicable laws to effectively consummate in the most expeditious manner practicable, the transactions contemplated by the Reorganization Plan as promptly as practicable. Unless otherwise required by law or any listing agreements with an applicable stock exchange, Regan and Legacy will each use reasonable best efforts to consult with each other before issuing any public statements with respect to the Reorganization Plan or any related transaction and will not issue any such statements prior to consultation.

          Conditions to Closing. The obligations of Regan and Legacy to consummate the Reorganization Plan are subject to the satisfaction or waiver on or prior to closing of the following conditions:

 

 

 

 

issuance of the permit by the California Commissioner of Corporations;

 

 

 

 

approval of the Reorganization Plan by the required vote of Regan shareholders;

 

 

 

 

the absence of any injunction or restraint prohibiting consummation of the transactions; and

 

 

 

 

the receipt of all required consents and approvals.

          Conditions to Legacy’s Obligations to Consummate the Reorganization Plan. Legacy’s obligations to consummate the Reorganization Plan are subject to the satisfaction or waiver by Legacy on or prior to closing of the following further conditions:

 

 

 

 

Regan’s performance of all its obligations required to be performed at or prior to the Effective Time;

 

 

 

 

the accuracy of Regan’s representations and warranties;

 

 

 

 

Legacy’s receipt of an officer’s certificate from Regan certifying that both of the foregoing conditions have been satisfied; and

 

 

 

 

Regan must have taken all action necessary with respect to the rights of dissenting shares pursuant to the California Corporations Code and at the Effective Time less than 10% of the shares of Regan are dissenting shares or eligible to become dissenting shares.

          Conditions to Regan’s Obligations to Consummate the Reorganization Plan. Regan’s obligations to consummate the merger are subject to the satisfaction or waiver by Regan on or prior to closing of the following further conditions:

 

 

 

 

Legacy’s performance of all its obligations required to be performed at or prior to the Effective Time;

 

 

 

 

the accuracy of Legacy’s representations and warranties; and

 

 

 

 

Regan’s receipt of an officer’s certificate from Legacy certifying that both of the foregoing have been satisfied.

          Termination of the Reorganization Plan. The Reorganization Plan automatically terminates if the California Commissioner of Corporations notifies Legacy or Regan of a determination not to grant the fairness hearing, not to permit mailing of notice of the hearing and/or not to issue the permit. Additionally, prior to the Effective Time and upon written notice, the Reorganization Plan may be terminated and abandoned:

 

 

 

 

by the mutual written consent of Regan and Legacy;

 

 

 

 

by Regan, if Legacy has committed a material breach and has not cured within 20 business days following receipt of notice of such breach;

50


 

 

 

 

by Legacy, if Regan has committed a material breach and has not cured within 20 business days following receipt of notice of such breach;

 

 

 

 

by either Regan or Legacy if (i) there is a law, rule or regulation prohibiting consummation of the merger or (ii) any judgment, injunction order or decree of a court of other governmental entity is properly entered that permanently prohibits either Regan or Legacy from consummating the merger and such judgment, order or decree is final and nonappealable; and

 

 

 

 

by either Regan or Legacy if (i) the permit is not issued by the California Commissioner of Corporations or (ii) Regan fails to obtain the affirmative vote of the holders of a majority of the outstanding shares of Regan Common Stock entitled to vote approving the Reorganization Plan.

Termination of Exchange Act Registration and Reporting Requirements. Regan’s Common Stock is currently registered under the Exchange Act. We will be permitted to terminate our periodic SEC reporting obligations under Section 13 of the Exchange Act once we can certify that Regan has fewer than 300 shareholders of record, and the registered status of our common stock under Section 12 of the Exchange Act will terminate thereafter. This means that we will not be required to file annual, quarterly or current reports on Form 10-K, 10-Q or 8-K immediately following our certification to the SEC as described above and that our obligations under the SEC’s short-swing profit reporting and recovery (i.e., Section 16) rules will terminate six months thereafter.

Terms of the Legacy Common Stock

•          Dividend Rights. The holders of Legacy Common Stock shall be entitled to receive distributions out of any funds legally available therefor, payable pro rata to them based on the total aggregate number of shares of Legacy Common Stock held by them in relation to the total aggregate number of shares of Legacy Common Stock then outstanding. Legacy’s board of directors may, at its sole discretion, declare and pay dividends on Legacy Common Stock, subject to applicable capital and solvency restrictions under Delaware law.

•          Voting Rights. Except as otherwise provided in Legacy’s Certificate of Incorporation (including any resolutions adopted by Legacy’s board of directors pursuant to its Certificate of Incorporation), each holder of Legacy Common Stock shall be entitled to one vote for each share of Legacy Common Stock held by such holder on all matters submitted to stockholders for a vote. Holders of Common Stock do not have any cumulative voting rights.

•          Liquidation Rights. In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of Legacy, the holders of Legacy Common Stock will be entitled to share ratably in assets remaining after the satisfaction in full of prior rights of creditors, including, but not limited to, holders of Legacy’s indebtedness.

•          Odd-Lot Transfers. No holder of Legacy Common Stock may “transfer” shares of Legacy Common Stock without the consent of Legacy if, as a result of an attempted transfer, the party who would receive the shares would own of record fewer than the lesser of: (a) 100 shares of Legacy Common Stock or (b) the total number of shares of Legacy Common Stock owned of record by the transferring stockholder prior to the proposed transfer. This restriction may be noted conspicuously on Legacy Common Stock certificates issued in connection with or transferred after the effective date of the Reorganization. For purposes of Legacy’s Certificate of Incorporation, “transfer” means any type of disposition, including but not limited to a sale, gift, contribution, pledge or other action that would result in a change of the record ownership of any share of common stock. It is the intent of Legacy that this restriction on transfer will be enforced to the full extent, but only to the extent, it is enforceable against stockholders under the laws of the State of Delaware. Following the Reorganization, the officers of Regan, who will become the officers of Legacy, will have discretionary authority as officers of Legacy to determine issues relating to a proposed transfer, including without limitation whether the transfer would or would not be in violation of Legacy’s Certificate of Incorporation and whether such restrictions may or may not be enforced against a holder requesting a transfer of shares. The recording of a transfer on the stock records of Legacy shall be conclusive evidence that Legacy has consented to the transfer, if required under Legacy’s Certificate of Incorporation, and any transfer of shares recorded on the stock records of Legacy will be valid for all purposes.

          See Appendix E for more detailed information on the terms of the Legacy Common Stock.

Source of Funds and Expenses

          We estimate that approximately $180,000 will be required to pay for the shares of Regan Common Stock exchanged for cash in the Reorganization. We plan to pay these fees and expenses with a combination of a capital contribution and loans on the following terms: Lynda L. Pitts and R. Preston Pitts, directors and executive officers of Regan and Legacy, (a) have purchased Legacy Common Stock for an aggregate of $10,000 and (b) will lend up to an aggregate of $170,000. Interest on the unpaid principal amount of the loan will accrue monthly at a rate of 6% per annum and principal and interest are due upon demand. At September 30, 2009, we had approximately $1,208,000 in cash and cash equivalents.

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          Additionally, Regan will use working capital to pay all of the expenses related to the Reorganization. We estimate that these expenses will be as follows:

 

 

 

 

 

SEC filing fees

 

$

500

 

Legal Fees

 

 

200,000

 

Accounting Fees

 

 

5,500

 

Financial Advisor Fees

 

 

45,000

 

Exchange Agent Fees

 

 

30,000

 

Proxy printing and mailing costs

 

 

20,000

 

 

 

   

 

         

Total

 

$

301,000

 

Required Vote.

          Approval of the Reorganization Plan requires the affirmative vote of the holders of a majority of the outstanding shares entitled to vote as of the record date. The Board has unanimously voted in favor of the Reorganization Plan.

          The Board unanimously recommends that Regan’s shareholders vote “FOR” the proposal to approve the Reorganization Plan.

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PROPOSAL 2: ARTICLE 13 OF LEGACY’S CERTIFICATE OF INCORPORATION

          Odd-Lot Transfers. After the Reorganization and pursuant to the Certificate of Incorporation of Legacy, no holder of Legacy Common Stock may “transfer” shares of Legacy Common Stock without the consent of Legacy if, as a result of an attempted transfer, the party who would receive the shares would own of record fewer than the lesser of: (i) 100 shares of Legacy Common Stock; or (ii) the total number of shares of Legacy Common Stock owned of record by the transferring stockholder prior to the proposed transfer. This restriction may be noted conspicuously on Legacy Common Stock certificates issued in connection with or transferred after the effective date of the Reorganization. For purposes of Legacy’s Certificate of Incorporation, “transfer” means any type of disposition, including but not limited to a sale, gift, contribution, pledge or other action that would result in a change of the record ownership of any share of common stock. It is the intent of Legacy that this restriction on transfer will be enforced to the full extent, but only to the extent, it is enforceable against stockholders under the laws of the State of Delaware. Following the Reorganization, the officers of Regan, who will become the officers of Legacy, will have discretionary authority as officers of Legacy to determine issues relating to a proposed transfer, including without limitation whether the transfer would or would not be in violation of Legacy’s Certificate of Incorporation and whether such restrictions may or may not be enforced against a holder requesting a transfer of shares. The recording of a transfer on the stock records of Legacy shall be conclusive evidence that Legacy has consented to the transfer, if required under Legacy’s Certificate of Incorporation, and any transfer of shares recorded on the stock records of Legacy will be valid for all purposes. The proposed Article 13 of Legacy’s Certificate of Incorporation is detailed in Appendix F.

          Regan’s Board believes that the transfer restriction in Legacy’s Certificate of Incorporation is in the best interest of Regan and its shareholders because it is expected to slow the growth in the number of stockholders in the future, and thus enable Legacy to avoid or delay the need to again register its common stock, which would be required if the number of stockholders of record exceeded 500.

Required Vote.

          Approval of Article 13 of Legacy’s Certificate of Incorporation requires the affirmative vote of the holders of a majority of the outstanding shares entitled to vote as of the record date. The Board has unanimously voted in favor of approving Article 13 of Legacy’s Certificate of Incorporation.

          The Board unanimously recommends that Regan’s shareholders vote “FOR” the proposal to approve Article 13 of Legacy’s Certificate of Incorporation.

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PROPOSAL 3: ADJOURNMENT OF THE SPECIAL MEETING

          Adjournment of the Special Meeting. If at the special meeting of shareholders the number of shares of our common stock represented and voting in favor of approving Proposal 1 or Proposal 2 is insufficient to approve either proposal under California law, we intend to move to adjourn the special meeting in order to enable our Board to solicit additional proxies in respect of such proposal. In that event, we will ask our shareholders to vote only upon the adjournment proposal, and not the proposal receiving an insufficient number of affirmative votes.

          In this proposal, we are asking you to authorize the holder of any proxy solicited by our Board to vote in favor of granting discretionary authority to the proxy or attorney-in-fact to adjourn the special meeting to another time and place for the purpose of soliciting additional proxies. If the shareholders approve the adjournment proposal, we could adjourn any adjourned session of the special meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from shareholders that have previously voted. Among other things, approval of the adjournment proposal could mean that, even if we had received proxies representing a sufficient number of votes against approval of Proposal 1 or Proposal 2 to defeat either proposal, we could adjourn the special meeting without a vote on such proposal and seek to convince the holders of those shares to change their votes to votes in favor of approval of such proposal.

Required Vote.

          This Proposal 3 to adjourn the special meeting for the purpose of soliciting additional proxies, if necessary, will be approved if the votes cast in favor of the proposal by shares present in person or represented by proxy and entitled to vote, exceed the votes cast against the proposal.

          The Board unanimously recommends that Regan’s shareholders vote “FOR” the proposal to adjourn the special meeting.

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QUESTIONS AND ANSWERS

 

 

Q:

Why did you send me this proxy statement?

 

 

A:

We sent you this proxy statement and the enclosed proxy card because our Board is soliciting your votes for use at our special meeting of shareholders.

 

 

 

This proxy statement summarizes information that you need to know in order to cast an informed vote at the meeting. However, you do not need to attend the meeting to vote your shares. Instead, you may simply complete, sign and return the enclosed proxy card.

 

 

 

We first sent this proxy statement, notice of the special meeting and the enclosed proxy card on or about [●], 2010 to all shareholders entitled to vote. The record date for those entitled to vote is [●], 2010. On that date, there were [●] shares of our common stock outstanding. Shareholders are entitled to one vote for each share of common stock held as of the record date.

 

 

Q:

What is the time and place of the special meeting?

 

 

A:

The special meeting will be held on [●], 2010, at our Headquarters located at 2090 Marina Avenue, Petaluma, California 94954, at [●] Pacific Time.

 

 

Q:

Who may be present at the special meeting and who may vote?

 

 

A:

All holders of our common stock may attend the special meeting in person. However, only holders of our common stock of record as of [●], 2010 may cast their votes in person or by proxy at the special meeting.

 

 

Q:

What is the vote required?

 

 

A:

Both Proposal 1 (the Reorganization Plan) and Proposal 2 (Article 13 of Legacy’s Certificate of Incorporation) must receive the affirmative vote of the holders of a majority of the outstanding shares of Regan entitled to vote in order to be approved. Proposal 3 (adjournment of the special meeting in order to solicit additional proxies) will be approved if the votes cast in favor of the proposal shares of Regan present in person or represented by proxy and entitled to vote, exceed the votes cast against the proposal. As a result, if you do not vote your shares, either in person or by proxy, or if you abstain from voting on the proposal, it will have the effect of a negative vote, provided that a quorum is present at the meeting. Similarly, if your shares are held in a brokerage account and you do not instruct your broker on how to vote on a proposal, your broker will not be able to vote for you, which will also have the effect of a negative vote.

 

 

Q:

How many votes do I have?

 

 

A:

You will have one vote for every share of Regan Common Stock you owned on [●], the record date.

 

 

Q:

How many votes can be cast by all shareholders?

 

 

A:

As of [●] (the record date), [●] shares of Regan Common Stock were issued and outstanding and held of record by approximately [●] shareholders.

 

 

Q:

What happens if the meeting is postponed or adjourned?

 

 

A:

Your proxy will be good and may be voted at the postponed or adjourned meeting. You will still be able to change or revoke your proxy until it is voted.

 

 

Q:

Why should I vote to approve the Reorganization Plan?

 

 

A:

The Board believes that the Reorganization is in the best interests of all Regan shareholders. The Reorganization will reduce the number of holders of shares of Regan Common Stock to below 300 persons, which will then allow termination of the registration of Regan Common Stock under the Exchange Act. The Board believes that the monetary expense and burden to management incident to continued compliance with the Exchange Act significantly outweigh any material benefits derived from continued registration of shares.

55



 

 

 

The Reorganization will also serve as a source of liquidity for those shareholders who receive cash for their shares of Regan Common Stock. The Board recognizes that there is no active trading market for Regan Common Stock. The Board believes the Reorganization provides a means for those shareholders with a limited number of shares to receive cash for their shares at a fair price and without out-of-pocket costs.

 

 

Q:

How will the Reorganization affect day-to-day operations?

 

 

A:

The Reorganization will have very little effect on the day-to-day operations of the surviving entity, Legacy. Legacy will continue to conduct Regan’s existing operations in the same manner as now conducted. The officers, directors and affiliates of Regan will continue to hold those positions in Legacy following the Reorganization.

 

 

Q:

How was the cash price for shares of Regan Common Stock determined?

 

 

A:

The Board retained Taylor Consulting, an independent financial advisor experienced in financial analysis and valuation, to assist the Board in determining a fair price for the shares of Regan Common Stock which will be exchanged for cash in the Reorganization. Taylor Consulting delivered a presentation to the Board indicating a range of $0.04 to $0.08 per share represented a range of fair value of the Regan Common Stock. The Board considered the independent valuation and other factors and determined that the cash consideration under the Reorganization should be $0.10 per share. Subsequently, Taylor Consulting issued an opinion to the Board that the cash consideration to be paid and the Legacy Common Stock to be issued under the Reorganization was fair, from a financial point of view, to Regan’s shareholders, including both those shareholders who may have their shares redeemed for cash and those shareholders who may receive shares of Legacy Common Stock and cash in lieu of any fractional shares. A copy of the fairness opinion of Taylor Consulting is attached as Appendix D.

 

 

Q:

When will the Reorganization be completed?

 

 

A:

We currently plan to complete the transaction during the first quarter of 2010 so that the Exchange Act registration of Regan Common Stock can also be terminated in the first quarter of 2010.

 

 

Q:

What is the purpose of the “Odd Lot Restrictions” contained in Article 13 of the Certificate of Incorporation of Legacy?

 

 

A:

Article 13 of the Certificate of Incorporation of Legacy will allow Legacy to slow the future growth of its stockholder base by not allowing transfers of shares to “odd lot” stockholders (i.e. those having fewer than 100 shares of Legacy Common Stock or the total number of shares of Legacy Common Stock previously owned by the transferring stockholder) and contain the risk that Legacy would have to re-register its stock under the Securities Act and incur the attendant costs and expenses of registration and reporting under the Exchange Act.

 

 

Q:

What is the recommendation of our Board regarding the proposals?

 

 

A:

The Board has determined that the Rule 13e-3 Transaction is fair to our unaffiliated shareholders, including those receiving cash and those receiving Legacy Common Stock and cash in lieu of any fractional shares, and that approval of the Reorganization Plan is advisable and in the best interests of Regan and each of these constituent groups. Our Board has voted unanimously in favor of approval of the Reorganization Plan, Article 13 of Legacy’s Certificate of Incorporation and any adjournment of the meeting, if necessary or appropriate, to solicit additional proxies and unanimously recommends that you vote FOR approval of the Reorganization Plan, FOR approval of Article 13 of Legacy’s Certificate of Incorporation and FOR any adjournment of the meeting, if necessary or appropriate, to solicit additional proxies.

 

 

Q:

What do I need to do now?

 

 

A:

Please sign, date, and complete your proxy card and promptly return it in the enclosed, self-addressed, prepaid envelope so that your shares can be represented at the special meeting. If you wish to exercise dissenters’ rights, see page [●] and Appendix B.

56



 

 

Q:

May I change my vote after I have mailed my signed proxy card?

 

 

A:

Yes. Just send by mail a written revocation or a new, later-dated, completed and signed proxy card before the special meeting, or attend the special meeting and vote in person. You may not change your vote by facsimile or telephone.

 

 

Q:

If my shares are held in “street name” by my broker, how will my shares be voted?

 

 

A:

Following the directions that your broker will mail to you, you may instruct your broker how to vote your shares. If you do not provide any instructions to your broker, your shares will not be voted on the proposals described in this proxy statement.

 

 

Q:

Will my shares held in “street name” or another form of record ownership be combined for voting purposes with shares I hold of record?

 

 

A:

No. Because any shares you may hold in street name will be deemed to be held by a different shareholder from any shares you hold of record, any shares so held will not be combined for voting purposes with shares you hold of record. Similarly, if you own shares in various registered forms, such as jointly with your spouse, as trustee of a trust, or as custodian for a minor, you will receive, and will need to sign and return, a separate proxy card for those shares because they are held in a different form of record ownership. Shares held by a corporation or business entity must be voted by an authorized officer of the entity, and shares held in an IRA must be voted under the rules governing the account.

 

 

Q:

If I am receiving cash and/or Legacy Common Stock in the Reorganization, when will I get my stock?

 

 

A:

After the special meeting and the closing of the transaction, we will mail you instructions on how to exchange your Regan Common Stock certificate(s) for cash and/or Legacy Common Stock, as appropriate. After you sign the forms provided and return your stock certificate(s), we will send you your cash and/or Legacy Common Stock.

 

 

Q:

I don’t know where my stock certificate is. How will I get my cash or Legacy Common Stock?

 

 

A:

The materials we will send you will include an affidavit that you will need to sign attesting to the loss of your certificate. Legacy may require that you provide a bond to cover any potential loss.

 

 

Q:

Should I send in my stock certificates now?

 

 

A:

No. PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES WITH YOUR PROXY.

 

 

 

If you hold your shares in your name as a stockholder of record, then shortly after the Reorganization is completed you will receive a letter of transmittal with instructions informing you how to send in your stock certificates to the exchange agent in order to receive the applicable consideration in respect of your shares of our common stock. You should use the letter of transmittal to exchange your stock certificates for the applicable consideration which you are entitled to receive as a result of the Reorganization. If you hold your shares in “street name” through a broker, bank or other nominee, then you will receive instructions from your broker, bank or other nominee as to how to effect the surrender of your “street name” shares in exchange for the applicable consideration.

 

 

57



 

 

Q:

Will I have dissenters’ rights in connection with the Reorganization?

 

 

A:

Yes. See page [●] and Appendix B for additional information.

 

 

Q:

What if I have questions about Reorganization or the voting process?

 

 

A:

Please direct any questions about the Reorganization or the voting process to R. Preston Pitts, our President, Chief Operating Officer, Chief Financial Officer and Secretary, at our headquarters located at 2090 Marina Avenue, Petaluma, California 94954, telephone (707) 778-8638.

IMPORTANT NOTICES

          We have not authorized any person to give any information or to make any representations other than the information and statements included in this proxy statement. You should not rely on any other information. The information contained in this proxy statement is correct only as of the date of this proxy statement, regardless of the date it is delivered or when the Reorganization is effected.

          We will update this proxy statement to reflect any factors or events arising after its date that individually or together represent a material change in the information included in this document.

          The words “Regan”, the “Company”, “we”, “our”, and “us”, as used in this proxy statement, refer to Regan and its wholly-owned subsidiary, Legacy Marketing Group, collectively, unless the context indicates otherwise.

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INFORMATION REGARDING THE
SPECIAL MEETING OF SHAREHOLDERS

Time and Place of Meeting

          We are soliciting proxies through this proxy statement for use at the special meeting of Regan shareholders. The special meeting will be held at [●] on [●], 2010, at our headquarters located at 2090 Marina Avenue, Petaluma, California 94954.

Record Date and Mailing Date

          The close of business on [●], 2010 is the record date for the determination of shareholders entitled to notice of and to vote at the special meeting. We first mailed the proxy statement and the accompanying form of proxy to shareholders on or about [●], 2010.

Number of Shares Outstanding

          As of the close of business on the record date, Regan had 45,000,000 shares of Series A Common Stock authorized, of which approximately 23,526,000 shares were issued and outstanding, and 615,242 shares of Series B Common Stock authorized, of which approximately 550,000 shares were issued and outstanding. Each outstanding share is entitled to one vote on all matters presented at the meeting.

Proposals to be Considered

          Shareholders will be asked to vote on the following proposals:

 

 

An Agreement and Plan of Merger providing for the merger of Regan with and into Legacy, with Legacy surviving the merger and the holders of less than 4,500 shares of Regan Common Stock receiving $0.10 in cash in exchange for each of their shares of such stock and the holders of more than 4,500 shares of Regan Common Stock receiving one share of Legacy Common Stock in exchange for each of their blocks of 4,500 shares of Regan Common Stock and cash in lieu of any fractional shares;

 

 

Article 13 of Legacy’s Certificate of Incorporation, pursuant to which no holder of Legacy Common Stock may “transfer” shares of Legacy Common Stock without the consent of Legacy if, as a result of an attempted transfer, the party who would receive the shares would own of record fewer than (i) 100 shares of Legacy Common Stock or (ii) the total number of shares of Legacy Common Stock owned of record by the transferring stockholder prior to the proposed transfer;

 

 

to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the meeting to approve each of the foregoing proposals; and

 

 

any other business as may properly come before the meeting or any adjournment of the meeting.

The Reorganization Plan containing the terms of the proposed Reorganization is attached as Appendix A. The terms of the Legacy Common Stock are attached as Appendix E.

Dissenters’ Rights

          Shareholders are entitled to dissenters’ rights in connection with the Reorganization Plan. See “Dissenters’ Rights” and Appendix B.

Procedures for Voting by Proxy

          If you properly sign, return and do not revoke your proxy, the persons appointed as proxies will vote your shares according to the instructions you have specified on the proxy. If you sign and return your proxy but do not specify how the persons appointed as proxies are to vote your shares, your proxy will be voted FOR approval of the Reorganization Plan, FOR the approval of Article 13 of Legacy’s Certificate of Incorporation, FOR any adjournment of the meeting, if necessary or appropriate, to solicit additional proxies and in the best judgment of the persons appointed as proxies on all other matters that are unknown to us as of a reasonable time prior to this solicitation and that are properly brought before the special meeting.

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          You can revoke your proxy at any time before it is voted by delivering to Regan’s Corporate Secretary, 2090 Marina Avenue, Petaluma, California 94954, either a written revocation of the proxy or a duly signed proxy bearing a later date or by attending the special meeting and voting in person.

Requirements for Shareholder Approval

          A quorum will be present at the meeting if a majority of the outstanding shares of Regan Common Stock are represented in person or by valid proxy. Based on the [●] shares outstanding as of the record date, a quorum will consist of [●] shares represented either in person or by proxy. We will count abstentions and broker non-votes, which are described below, in determining whether a quorum exists.

          Approval of the Reorganization Plan requires the affirmative vote of a majority of the outstanding shares entitled to vote on the Reorganization Plan. Approval of Article 13of Legacy’s Certificate incorporation requires the affirmative vote of a majority of the outstanding shares entitled to vote on Article 13 of Legacy’s Certificate of Incorporation. Proposal 3 to adjourn the special meeting for the purpose of soliciting additional proxies, if necessary, will be approved if the votes cast in favor of the proposal by shares present in person or represented by proxy and entitled to vote, exceed the votes cast against the proposal. Regan’s directors and executive officers beneficially own 12,282,000 shares, representing approximately 51.0% (not including stock options) of the outstanding shares of Regan Common Stock. Each director and executive officer has indicated that he or she intends to vote his or her shares in favor of the Reorganization Plan, approval of Article 13of Legacy’s Certificate of Incorporation and any adjournment of the special meeting for the purpose of soliciting additional proxies.

          To be approved, Proposal 1 must receive “FOR” votes from the holders of a majority of the shares of Regan Common Stock outstanding as of the record date and “FOR” votes from the holders of a majority of the shares of Legacy Common Stock outstanding as of the record date.

          To be approved, Proposal 2 must receive “FOR” votes from the holders of a majority of the shares of Regan Common Stock outstanding as of the record date and “FOR” votes from the holders of a majority of the shares of Legacy Common Stock outstanding as of the record date.

          To be approved, Proposal 3 must receive more “FOR” votes from the holders of the shares of Regan Common Stock present in person or represented by proxy and entitled to vote than “AGAINST” votes.

Counting of Votes with respect to Proposals 1 and 2

          Abstentions. Although abstentions do not count as votes in favor of or against a given matter, they will have the effect of negative votes because approval is based on a percentage of the votes eligible to be cast, as opposed to votes actually cast.

          Broker Non-Votes. Generally, brokers who hold shares for the accounts of beneficial owners must vote these shares as directed by the beneficial owner. If, after the broker transmits proxy materials to the beneficial owner, no voting direction is given by the beneficial owner, the broker may vote the shares in his or her own discretion, if permitted to do so by the exchange or other organization of which the broker is a member. Brokers may not vote in their own discretion with respect to any of the proposed amendments. Proxies that contain a broker vote on one or more proposals but no vote on others are referred to as “broker non-votes” with respect to the proposals not voted upon. A broker non-vote, with respect to a proposal for which the broker has no discretionary voting authority, does not count as a vote in favor of or against that particular proposal. Based on the same reasoning that applies to abstentions as discussed above, broker non-votes will have the effect of votes against the proposals presented at the special meeting.

Solicitation of Proxies

          Proxies are being solicited by our Board, and Regan pays all costs for such solicitation. In addition, our directors, officers and employees may, without additional compensation, solicit proxies by personal interview, telephone or fax. We will direct brokerage firms or other custodians, nominees or fiduciaries to forward our proxy solicitation materials to the beneficial owners of common stock held of record by these institutions and will reimburse them for the reasonable out-of-pocket expenses they incur in connection with this process.

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DISSENTERS’ RIGHTS

          Under California law, you are entitled to dissenters’ rights in connection with the Reorganization. If you submit a demand to us for the purchase of your shares in accordance with Section 1300, et seq. of the California Corporations Code following shareholder approval of the Reorganization Plan, and if you do not vote your shares in favor of the Reorganization Plan, you will be entitled to receive a cash payment equal to the fair market value of your Regan Common Stock as of [●], 2010. This cash payment from us for your shares may be more than, less than, or the same as the value of the merger consideration for your shares.

          Your failure to follow exactly the procedures specified under California law will result in the loss of your dissenters’ rights, and merely voting against approval of the Reorganization Plan will not perfect your dissenters’ rights. The relevant sections from Section 1300, et seq. of the California Corporations Code are attached as Appendix B to this proxy statement.

IF YOU VOTE IN FAVOR OF THE REORGANIZATION PLAN, YOU WILL WAIVE YOUR DISSENTERS’ RIGHTS UNDER CALIFORNIA LAW.

          CHAPTER 13 OF THE CALIFORNIA CORPORATIONS CODE PROVIDES THAT FAIR MARKET VALUE FOR PURPOSES OF DISSENTERS’ RIGHTS SHALL BE DETERMINED WITHOUT TAKING INTO ACCOUNT ANY APPRECIATION FROM THE PROPOSED REORGANIZATION.

          A copy of Section 1300, et seq. of the California Corporations Code is attached to this proxy statement as Appendix B. You should read it for more complete information concerning dissenting shareholders’ rights. The following discussion in this section is qualified in its entirety by reference to Appendix B, and the following discussion does not constitute legal advice or a recommendation that shareholders should exercise their dissenters’ rights.

THE REQUIRED PROCEDURES SET FORTH IN SECTION 1300, ET SEQ. OF THE CALIFORNIA CORPORATIONS CODE MUST BE FOLLOWED EXACTLY OR ANY DISSENTING SHAREHOLDERS’ RIGHTS MAY BE LOST. FURTHERMORE, THE FAIR MARKET VALUE OF YOUR SHARES DETERMINED UNDER SECTION 1300, ET SEQ. MAY BE MORE THAN, LESS THAN, OR THE SAME AS THE VALUE OF THE MERGER CONSIDERATION FOR YOUR SHARES.

          In order to be entitled to exercise dissenting shareholders’ rights, you may not vote in favor of the Reorganization Plan. Thus, if you wish to dissent and you execute and return a proxy in the accompanying form, you must specify that your shares are to be voted “AGAINST” the Reorganization Plan or you must return the proxy with instructions to vote “ABSTAIN.” You will lose your potential dissenting shareholders’ rights by voting “FOR” the Reorganization Plan.

          To be effective, an exercise of dissenting shareholder’s rights must be made by, or on behalf of, the registered shareholder. Beneficial owners who do not also hold their shares of record may not directly make dissenters’ rights demands. The beneficial holder must, in such cases, have the registered owner submit the required demand in respect of those shares. If you hold your shares of Regan Common Stock in a brokerage account or in other nominee form and you wish to exercise dissenters’ rights, you should consult with your broker or the other nominee to determine the appropriate procedures for the making of a demand by the nominee.

          Upon shareholder approval of the Reorganization Plan, Regan will have 10 days following the approval to send to those shareholders who did not vote in favor of the Reorganization Plan a written notice of such shareholder approval accompanied by: (i) a copy of Section 1300, et seq. of the California Corporations Code; (ii) a statement of the price determined by Regan to represent the fair market value of the dissenting shares as of [●], 2010; and (iii) a brief description of the procedures to be followed if a shareholder desires to exercise dissenting shareholders’ rights.

          Within 30 days after the date on which the notice of the approval of the Reorganization Plan is mailed, a shareholder who plans to exercise dissenting shareholders’ rights must make written demand upon Regan for the purchase of dissenting shares and payment to the shareholder of their fair market value. The written demand must specify the number of shares held of record by the shareholder and a statement of what the shareholder claims to be the fair market value of those shares as of [●], 2010. At the same time, the shareholder must surrender, at Regan’s principal office or the office of its exchange agent, the certificates representing the dissenting shares to be stamped or endorsed with a statement that they are dissenting shares or to be exchanged for certificates of appropriate denomination so stamped or endorsed. Any shares of Regan Common Stock that are transferred prior to their submission for endorsement will lose their status as dissenting shares, and a dissenting shareholder may not withdraw his or her dissent or demand for payment unless Regan consents to the withdrawal.

          If Regan and the dissenting shareholder agree that the surrendered shares are dissenting shares and agree upon the price of the shares, the dissenting shareholder will be entitled to the agreed price with interest from the date of such agreement. The applicable

61


interest rate will be the rate then set by law for the accrual of interest on judgments for money. Regan must pay the fair value of the dissenting shares within 30 days after the amount thereof has been agreed upon or 30 days after any statutory or contractual conditions to the Reorganization have been satisfied, whichever is later. The obligation to pay for the dissenting shares is subject to receipt of the certificates representing them.

          If Regan denies that the shares surrendered are dissenting shares, or if the dissenting shareholder and Regan fail to agree upon a fair market value of such shares, then the dissenting shareholder must, within six months after the notice of approval is mailed, file a complaint in the Superior Court of the proper County in California requesting the court to make such determination(s) or intervene in any pending action brought by any other dissenting shareholder. If the complaint is not filed or intervention in a pending action is not made within the specified six-month period, the dissenters’ rights will be lost. If the fair market value of the dissenting shares is at issue, the court will determine, or will appoint one or more impartial appraisers to determine, such fair market value.

          Importantly, however, to the extent the long-arm provision of California Corporations Code § 2115 is held to apply to Legacy, California Corporations Code § 500, which imposes certain limitations on distributions to stockholders, would prevent Legacy from making payments to holders exercising dissenters’ rights until the requirements of § 500 are satisfied.

          The Agreement and Plan of Merger provides that Regan will not be required to complete the merger if dissenters’ rights have been exercised with respect to 10% or more, in the aggregate, of all outstanding shares of Regan. As a result, exercise of dissenters’ rights with respect to 10% or more of the outstanding shares of Regan could prevent the merger from going forward. Regan is entitled to waive this requirement and permit the merger to proceed even if 10% or more of the outstanding shares of Regan exercise dissenters’ rights.

          If any of the actions or events described above occurs after the effective time of the Reorganization, the foregoing references to “Regan” shall instead be deemed to refer to “Legacy” as the surviving corporation in the merger.

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INFORMATION ABOUT REGAN, ITS AFFILIATES AND LEGACY

Overview of Legacy’s Business

          Legacy is a newly-formed Delaware corporation which was organized solely for the purpose of facilitating the Reorganization. Regan will merge into Legacy and will cease to exist after the Reorganization. Legacy has not conducted any activities other than those incident to its formation, its negotiation and execution of the Reorganization Plan, and its assistance in preparing various SEC filings related to the proposed going private transaction. Legacy has no significant assets, liabilities or shareholders’ equity. The address and telephone number of Legacy’s principal offices are the same as Regan.

          Legacy has not been convicted in a criminal proceeding during the past five years, nor has it been a party to any judicial or administrative proceeding during the past five years that resulted in a judgment, decree or final order enjoining it from future violations of, or prohibiting activities subject to, federal or state securities law, or finding any violation of federal or state securities laws.

          Following the Reorganization, Legacy will continue the business of Regan substantially as currently conducted, but without having to meet the registration requirements of the Securities Act and reporting requirements of the Exchange Act.

Overview of Regan’s Business

          Regan is a holding company, incorporated in the State of California in 1990, whose primary operating subsidiary is Legacy Marketing Group (“Legacy Marketing”). Legacy Marketing designs and markets fixed annuity products on behalf of certain unaffiliated insurance carriers in each of the United States, except Alabama and New York.

          Legacy Marketing’s primary marketing agreements are with American National Insurance Company, Investors Insurance Corporation, and OM Financial Life Insurance Company/Americom Life. The marketing agreements grant Legacy Marketing the exclusive right to market certain proprietary fixed annuity products issued by these insurance carriers. An annuity is a contract in which an insurance company makes a series of income payments at regular intervals in return for a premium that a policyholder has paid. Annuities are most often bought for future retirement income. Only an annuity can pay an income that can be guaranteed to last as long as the policyholder lives. Under the terms of these agreements, Legacy Marketing is responsible for recruiting independent insurance agents (who we refer to as “Producers”), who have contracted with Legacy Marketing to sell fixed annuity products, and are appointed with the applicable insurance carrier. For these sales, the insurance carriers pay marketing allowances and commissions to Legacy Marketing based on the premium amount of insurance policies placed inforce. Legacy Marketing is responsible for paying sales commissions to the Producers.

          Legacy Marketing sells fixed annuity products through a network of Producers.Each Producer has entered into a non-exclusive agreement with Legacy Marketing, which defines the parties’ business relationship. Such agreements typically may be terminated by either party with or without cause or prior notice.

          Legacy Marketing’s sales network is built on a multi-level structure in which Producers may recruit other Producers. Recruited Producers are referred to as “downline” Producers within the original Producer’s network. Recruited Producers may also recruit other Producers, creating a hierarchy under the original Producer. The standard Producer contract contains an eight-level design in which a Producer may advance from one level to the next based on sales commission amounts earned or the size of the Producer’s downline network. As a Producer advances to higher levels within the system, he/she receives higher commissions on sales made through his/her downline network. This creates a financial incentive for Producers to build a hierarchy of downline Producers, which contributes to their financial growth and to the growth of Legacy Marketing. If a Producer leaves the network, his/her downline Producers can still remain contracted with Legacy Marketing and receive sales commissions. Producers at the highest levels are called “Wholesalers.”

          Legacy Marketing provides tools and services that assist Wholesalers with recruiting, training and support responsibilities associated with the Producers in their hierarchy. In addition, Legacy Marketing assists Producers with programs designed to increase their sales and better serve their clients. Recruiting and training programs include visual presentations, informational videos and seminars. Legacy Marketing also produces product information, sales brochures, pre-approved advertisements and recruiting materials.

          Legacy Marketing works closely with the insurance carriers in product design and development. Legacy Marketing’s actuarial and marketing departments work with the insurance carriers to design proprietary fixed annuity products to be marketed by Legacy Marketing. All of these products include guarantees for the benefit of policyholders and are guaranteed by the issuing

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insurance carriers. These guarantees generally include (i) a contractually guaranteed minimum interest rate and (ii) the ability to allocate among various crediting rate strategies.

          The marketing agreements allow Legacy Marketing to enter into similar arrangements with other insurance carriers. The marketing agreement with American National expires on November 15, 2010, and may be renewed by mutual agreement for successive one-year terms. The agreement may be terminated by either party upon twelve months prior written notice without cause, and may be terminated by either party immediately for cause. The Company has not received notice of American National’s intent to cancel this agreement and it will be automatically renewed on November 15, 2010 for an additional year. The marketing agreement with Investors Insurance expires on March 31, 2010, and will be renewed automatically for successive one-year terms unless terminated earlier by either party upon twelve months prior written notice without cause. The marketing agreement with OM Financial (Americom) expires on June 10, 2010, and will automatically renew for successive one-year periods, unless terminated by Legacy Marketing with twelve months written notice or by OM Financial (Americom) with at least six months written notice. Either party may terminate the agreements immediately for cause. A marketing agreement with Washington National terminated on October 10, 2009.

          In addition to the marketing agreements, Legacy Marketing had administrative agreements with each of the four insurance carriers listed above. Effective October 17, 2007, Legacy Marketing entered into an agreement and strategic alliance with a subsidiary of Perot Systems Corporation (“Perot Systems”), whereby Legacy Marketing transferred its third party administration services function and the employees located in Rome, Georgia, who provide these services to Perot Systems in exchange for Perot Systems’ assumption of such administrative service functions.

          We owned an office building in Rome, Georgia, which was used to accommodate some of Legacy Marketing’s administrative activities. We financed the property with a mortgage loan, which totaled $2.6 million at December 31, 2007. On October 17, 2007, we entered into a lease with Perot Systems whereby Perot Systems leased our offices in Rome, Georgia, for a ten-year term at an initial rental price of $8.00 per square foot (a lease amount of approximately $300,000 per year). On May 23, 2008, the Company sold its office building in Rome, Georgia for $3.5 million for a gain of $214,000. Proceeds from the sale of the building were used to repay the mortgage on the property, the outstanding balance of which was $2.6 million. As a result of the sale, the lease with Perot Systems was terminated.

          On May 31, 2007, Regan and two of its subsidiaries, Legacy Financial Services Inc. (“Legacy Financial”) and Legacy Advisory Services Inc., entered into an agreement with Multi-Financial Securities Corporation whereby Legacy Financial transferred its registered representatives and customer accounts to Multi-Financial Securities Corporation. Under the agreement, on September 28, 2007, Multi-Financial Securities Corporation paid Legacy Financial $1.0 million (11.5%) of the aggregate gross dealer concessions earned at Legacy Financial Services between May 1, 2006, and April 30, 2007, by those transferred representatives who were, as of the measurement date (as defined in the agreement), registered with Multi-Financial Securities Corporation and in good standing with the Financial Industry Regulatory Authority (“FINRA”). In addition, on each of the first four anniversary dates of the measurement date, subject to certain conditions, Multi-Financial Securities Corporation is obligated to pay Legacy Financial Services an amount representing up to four and a half percent (4.5%) of each transferred representative’s aggregate gross dealer concessions earned with Multi-Financial Securities Corporation during the one year period prior to such anniversary date. As of December 31, 2008, Legacy Financial did not meet the specified terms in order to receive the second payment from Multi-Financial Securities Corporation and does not expect to receive any payments related to this agreement in the future.

          Legacy Financial was registered as a broker-dealer with, and was subject to regulation by, the SEC , FINRA, the Municipal Securities Rulemaking Board, and various state agencies. As a result of federal and state broker-dealer registration and self-regulatory organization memberships, Legacy Financial was subject to regulation that covers many aspects of its securities business. This regulation covers matters such as capital requirements, recordkeeping and reporting requirements, and employee-related matters, including qualification and licensing of supervisory and sales personnel. Also, these regulations included supervisory and organizational procedures intended to ensure compliance with securities laws and prevent improper trading on material nonpublic information. Rules of the self-regulatory organizations are designed to promote high standards of commercial honor and just and equitable principles of trade. A particular focus of the applicable regulations concerns the relationship between broker-dealers and their customers. As a result, many aspects of the broker-dealer customer relationship are subject to regulation, including “suitability” determinations as to customer transactions, limitations in the amounts that may be charged to customers, and correspondence with customers. As of September 29, 2008 Legacy Financial withdrew as a broker-dealer registered with FINRA, and FINRA approval of such withdrawal followed in January 2009.

          On January 25, 2007, prospectdigital LLC (“prospectdigital”), an indirect wholly owned subsidiary of Regan, sold certain of its assets, which primarily included fixed assets and other miscellaneous operating assets, to PD Holdings LLC (“PD Holdings”). In addition, PD Holdings agreed to assume certain liabilities of prospectdigital. The action was taken in a continuing effort to reduce

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Regan’s operating expenses, as prospectdigital continued to sustain losses through the date of sale. Lynda Pitts, Chief Executive Officer, and R. Preston Pitts, President, Chief Operating Officer, Chief Financial Officer and Secretary of Regan, are the primary owners of PD Holdings. In connection with the sale, Legacy Marketing and prospectdigital also entered into a service agreement with PD Holdings to provide certain administrative services to PD Holdings for a fee equal to the cost of the services provided.

          Prospectdigital received $116,000 in consideration of the sale, which was greater than the estimated fair value of the assets of prospectdigital being sold, as determined by a third-party independent valuation. The amount of consideration was approved by the Board of Regan.

          On July 20, 2006, Legacy Marketing entered into a credit agreement (the “Credit Agreement”) with Washington National Insurance Company (the “Lender”). Pursuant to the terms of the Agreement, the Lender made a non-revolving multiple advance term loan (the “Term Loan”) to Legacy Marketing totaling $6.0 million. On April 12, 2007, Legacy Marketing amended certain terms of the Credit Agreement through the execution of Amendment No. 1 to the Credit Agreement (the Credit Agreement, as so amended, the “Amended Agreement”) and (1) extended the final maturity of the loan under the Credit Agreement from April 1, 2012, to December 31, 2012; (2) changed certain of the requirements for mandatory prepayments under the Credit Agreement; (3) changed certain terms of the financial covenants specified in the Credit Agreement; and (4) revised certain definitions contained in the Credit Agreement. On March 28, 2008, the balance due of $6.0 million, plus accrued interest, on the Credit Agreement was repaid.

          On November 18, 2005, Regan sold its office buildings in Petaluma, California for $12.8 million. Proceeds from the sale of the buildings were used to repay the mortgage on the properties, the outstanding balance of which was $6,962,518.04, and the remainder of the proceeds was allocated to working capital. Regan and the third party buyer (the “Buyer”) further agreed to enter into a ten year lease agreement, concurrently with the sale of the buildings, whereby it leased back 71,612 square feet through March 14, 2007, and will continue to lease back 47,612 square feet for the remainder of the lease term. The monthly base rent was $1.33 per square foot in 2008 and $1.29 per square foot in 2007 and will increase annually by three percent during the term of the lease, in addition to monthly taxes and operating expenses.

          In January 2006, management of Regan decided to discontinue the operations of Values Financial Network (“VFN”). VFN incurred losses from operations of $579,000 for the year ended December 31, 2005. Regan incurred insignificant costs in connection with exiting the operations of VFN.

          Competitive Business Conditions

          The fixed annuity business is rapidly evolving and intensely competitive. Legacy Marketing’s primary market is fixed annuity products sold through independent Producers. Fixed annuity product sales in the United States were approximately $109 billion in 2008. Some of Legacy Marketing’s top competitors designing, marketing, and selling fixed annuity products through independent sales channels are Allianz Life of North America, American Equity Investment Life, and Aviva USA. These competitors may have greater financial resources than Legacy Marketing. However, we believe that Legacy Marketing’s business model allows greater flexibility, as it can adjust the mix of business sold if one or more of its carriers were to experience capital constraints or other events that affect their business models. Legacy Marketing’s competitors may respond more quickly to new or emerging products and changes in customer requirements. We are not aware of any significant new means of competition, products or services that our competitors provide or will soon provide. However, in the highly competitive fixed annuity marketplace, new distribution models, product innovations and technological advances may occur at any time and could present Legacy Marketing with competitive challenges. There can be no assurance that Legacy Marketing will be able to compete successfully. In addition, Legacy Marketing’s business model relies significantly on its Wholesaler distribution network to effectively market its products competitively. Maintaining relationships with these Wholesaler distribution networks requires introducing new products and services to the market in an efficient and timely manner, offering competitive commission schedules, and providing superior marketing, product training, and support. Due to competition among insurance companies and insurance marketing organizations for successful Wholesalers, there can be no assurance that Legacy Marketing will be able to retain some or all of its Wholesaler distribution networks.

          Recent Industry Developments

          During the past few years, several proposals relating to our business have been made by federal and state agencies and legislative bodies and securities and insurance self-regulatory organizations. As discussed below, a few of these proposals have become effective, and others may be made or adopted.

          On December 18, 2008, the Securities and Exchange Commission (“SEC”) adopted Rule 151A which, if it becomes effective in its current form, would require certain fixed indexed annuity sales to be registered with the SEC. In addition, under the

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rule registered fixed indexed annuities would only be able to be sold by Financial Industry Regulatory Authority (“FINRA”) registered broker-dealers and representatives. As a result, fixed indexed annuity sales would be subject to regulation and oversight by both the SEC and FINRA. In response to the rule’s adoption, a coalition of insurance companies and insurance marketing organizations have filed suit to block the implementation of the rule. In addition, on February 17, 2009 the National Association of Insurance Commissioners (“NAIC”) and NCOIL (the association of state insurance regulators and a group representing state legislators) filed a petition with the U.S. Court of Appeals for the District of Columbia Circuit to block implementation of the rule. On July 21, 2009 the U.S. Court of Appeals ruled that the SEC has the authority to classify indexed annuities as securities but that the SEC failed to properly consider the effect of the rule upon efficiency, competition, and capital formation. If the SEC can satisfy the court’s order and Rule 151A becomes effective in the form originally adopted, we could be adversely impacted as we would have to expand our distribution capabilities into broker dealers. In a filing with the U.S. Court of Appeals on December 8, 2009, the SEC stated that Rule 151A would not become effective before two years after completion of the proceedings.

          FINRA has issued guidance to its members indicating that broker-dealers regulated by FINRA have certain responsibilities with respect to the offer and sale of equity-indexed annuities, including an obligation to determine the suitability of such products for their customers, regardless of whether equity-indexed annuities are deemed to be securities. In addition, some state insurance regulators are considering whether additional suitability and disclosure regulations should be implemented with respect to all sales of fixed annuities, particularly with respect to senior citizens.

          Also, in recent years, the existing U.S. insurance and financial regulatory frameworks have come under scrutiny. Some state legislatures have considered laws that may alter or increase state regulation of insurance, reinsurance, and holding companies. Moreover, the NAIC and state insurance regulators regularly re-examine existing laws and regulations, often focusing on modifications to holding company regulations, interpretations of existing laws and the development of new laws pertaining to fixed annuities. Further, new accounting and actuarial proposals, including principles-based reserving, may be proposed and adopted. Changes in these laws and regulations or their interpretation could have a material adverse effect on our financial condition and results of operations.

          Our core business consists of selling fixed annuity products, on behalf of insurance carriers, through a network of independent insurance producers (“Producers”). If the initiatives undertaken by the SEC, FINRA or state insurance regulators with respect to equity indexed or other fixed annuities were to result in new legislation or regulation, the demand for fixed annuities products, our business and those of our Producers could be adversely affected and could have a material adverse effect on the insurance industry in general or on our financial condition and results of operations.

          In addition, the U.S. Congress is again considering legislation that would impose certain national uniform standards on insurance companies, establish an optional federal charter system for insurance companies and repeal the McCarran-Ferguson antitrust exemption for the business of insurance, any of which could have a significant impact on our business. If such laws or regulations are adopted, they could have a material adverse effect on our financial condition and results of operations.

          New tax regulations have also been adopted recently that affect the treatment of tax-sheltered annuity contracts. In addition, new accounting and actuarial proposals, including principles-based reserving, may be adopted. These developments also could have a material adverse effect on our financial condition and results of operations.

          Legacy Financial, a discontinued operation, was registered as a broker-dealer with, and was subject to regulation by, the SEC, FINRA, the Municipal Securities Rulemaking Board, and various state agencies. This regulation covers matters such as capital requirements, recordkeeping and reporting requirements, and employee-related matters, including qualification and licensing of supervisory and sales personnel. Any proceeding alleging violation of, or noncompliance with, laws and regulations applicable to Legacy Financial could harm its business and financial condition, and our results of discontinued operations. As of September 29, 2008, Legacy Financial withdrew as a broker-dealer with FINRA, and FINRA approval of such withdrawal followed in January 2009.

          Employees

          As of December 1, 2009, we employed 65 persons. None of our employees are represented by a collective bargaining agreement. We consider our relations with our employees to be good, and we will continue to strive to provide a positive work environment for our employees.

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          Risks Related to Regan

          We have experienced losses in recent years and if losses continue, our business could suffer.

          We had a net loss of $110,000 for the year ended December 31, 2008. The loss was primarily due to a loss at Legacy Marketing resulting from decreased revenue, excluding the gain from the sale of partnership interests of $6.5 million, and discontinued operations. We had a profit of $2,743,000 as of September 30, 2009. However, if our revenue declines and we incur net losses in future periods, our business and results of operations could suffer.

          We depend on a limited number of sources for our products, and any interruption, deterioration, or termination of the relationship with any of our insurance carriers could be disruptive to our business and harm our results of operations and financial condition.

          Legacy Marketing has marketing agreements with American National, Investors Insurance and OM Financial (Americom) and had a marketing agreement with Washington National that terminated in October 2009. During 2008, 26%, 14%, 12% and 10% of our total consolidated revenue of $12.6 million, excluding the gain from the sale of partnership interest of $6.5 million, resulted from fixed annuity products Legacy Marketing marketed and sold on behalf of Investors Insurance, Washington National, American National, and OM Financial (Americom), respectively.During 2007, 26%, 21%, 7% and 9% of our total consolidated revenue resulted from fixed annuity products Legacy Marketing marketed and sold on behalf of Washington National, American National, Investors Insurance, and OM Financial (Americom), respectively.

          The marketing agreement with American National is set to expire on November 15, 2010, and may be renewed by mutual agreement for successive one-year terms. The agreement may be terminated by either party upon twelve months prior written notice without cause, and may be terminated by either party immediately for cause. Regan has not received notice of American National’s intent to cancel this agreement, however, and it will be automatically renewed on November 15, 2010 for an additional year. The marketing agreement with Investors Insurance expires on March 31, 2010, and will be renewed automatically for successive one-year terms unless terminated earlier by either party upon twelve months prior written notice without cause. The marketing agreement with OM Financial (Americom) expires on June 10, 2010, and will automatically renew for successive one-year periods, unless terminated by Legacy Marketing with twelve months written notice or by OM Financial (Americom) with at least six months written notice. Either party may terminate the agreements immediately for cause. The marketing agreement with Washington National terminated on October 10, 2009.

          Effective October 17, 2007, Legacy Marketing terminated its carrier administrative agreements and entered into an agreement and strategic alliance with a subsidiary of Perot Systems, whereby Legacy Marketing agreed to transfer its third party administration services function and the employees who provide these services to Perot Systems in exchange for Perot Systems’ assumption of such administrative service functions. Perot Systems will also become the exclusive provider of administrative services for Legacy Marketing’s future portfolio of annuity products. In the twelve months ended December 31, 2007 and 2006, Legacy Marketing received approximately $5.3 million and $7.4 million, respectively, in gross revenue under the administrative agreements with carriers. The termination of administrative agreements does not affect the commissions earned by Legacy Marketing on additional premium received or assets under management with respect to the underlying insurance contracts.

          Any interruption, deterioration, or termination of the relationship with any of Legacy Marketing’s insurance carriers could be disruptive to our business and harm our results of operations and financial condition.

          If we fail to attract and retain key personnel, our business, operating results, and financial condition could be diminished.

          Our success depends largely on the skills, experience and performance of certain key members of our management. In the recent past, we have been successful in attracting and retaining key personnel. We have no agreements with these individuals requiring them to maintain their employment with us. If we lose one or more of these key employees, particularly Lynda L. Pitts, Chairman of the Board and Chief Executive Officer, or R. Preston Pitts, President, Chief Operating Officer, Chief Financial Officer and Secretary, our business, operating results, and financial condition could be diminished because we rely on their contacts, insurance carrier and Producer and Wholesaler relationships, and strategic direction to drive our revenues. However, we are not aware of any key personnel who are planning to retire or leave our company in the near future. Although we maintain and are the beneficiary of key person life insurance policies on the lives of Lynda L. Pitts and R. Preston Pitts, we do not believe the proceeds would be adequate to compensate Regan for their loss.

          Competition for employees in our industry can be a concern, particularly for personnel with training and experience. We may be unable to retain our highly skilled employees or to attract, assimilate, or retain other highly qualified employees in the future.

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          Our performance will depend on the growth of Legacy Marketing. If Legacy Marketing fails to grow, our financial performance could suffer.

          Our growth is, and for the foreseeable future will continue to be, dependent on Legacy Marketing’s ability to design and market competitive fixed annuity products and provide other products, services, and sales. The ability of Legacy Marketing to successfully perform these services could be affected by many factors, including: (i) the ability of Legacy Marketing to recruit, train and retain Producers and provide them with product and sales training, (ii) the degree of market acceptance of the products designed and marketed on behalf of our insurance carriers, (iii) the relationship between Legacy Marketing and our insurance carriers and their capacity to accept new premium and maintain good financial ratings, (iv) the failure of Legacy Marketing to comply with federal, state and other regulatory requirements applicable to the sale of insurance products and (v) competition from other financial services companies in the sale of insurance products.

          A large percentage of our revenue is derived from sales of fixed annuity products. The historical crediting rates of fixed annuity products are directly affected by financial market conditions. Changes in market or economic conditions can affect demand for these fixed annuities. Our future success depends on our ability to introduce and market new products and services that are financially attractive and address our customers’ changing demands. We may experience difficulties that delay or prevent the successful design, development, introduction and marketing of our products and services. These delays may cause customers to forego purchases of our products and services and instead purchase those of our competitors. The failure to be successful in our sales efforts could significantly decrease our revenue and operating results and result in weakened financial condition and prospects.

          We may be unable to effectively fund our working capital requirements, which could have a material adverse effect on our operating results and earnings.

          If our cash inflows and existing cash balances become insufficient to support future operating requirements or the redemption of our common stock, we will need to obtain additional funding either by incurring additional debt or issuing equity to investors in either the public or private capital markets. Our cash flows are primarily dependent upon the commissions we receive based on the premium generated from the sale of fixed annuity products that we sell. The market for these products is extremely competitive. New products are constantly being developed to replace existing products in the marketplace. If we are unable to keep pace with the development of such new products, our cash inflows could decrease. Due to this changing environment in which we operate, we are unable to predict whether our cash inflows will be sufficient to support future operating requirements. Our failure to obtain additional funding when needed could delay new product introduction or business expansion opportunities, which could cause a decrease in our operating results and financial condition. We are unaware of any material limitations on our ability to obtain additional funding. If additional funds are raised through the issuance of equity securities, the ownership percentage of our then-current shareholders would be reduced. Furthermore, any equity securities issued in the future may have rights, preferences, or privileges senior to that of our existing common stock.

          Significant repurchases of our common stock could materially decrease our cash position.

          Pursuant to the terms of our Amended and Restated Shareholder’s Agreement with Lynda L. Pitts, our Chief Executive Officer, upon the death of Mrs. Pitts, the heirs of Mrs. Pitts will have the option (but not the obligation) to sell to us all or a portion of the shares of Regan owned by Mrs. Pitts at the time of her death. In addition, we would also have the option (but not the obligation) to purchase from Mrs. Pitts’ estate all shares Regan Common Stock that were owned by Mrs. Pitts at the time of her death, or were transferred by her to one or more trusts prior to her death. The purchase price to be paid by us, if any, shall be equal to 125% of the fair market value of the shares. As of December 31, 2008, we believe 125% of the fair market value of the shares owned by Mrs. Pitts was equal to $562,000. We have purchased life insurance coverage for the purpose of funding this potential obligation. There can be no assurances, however, that the proceeds from this insurance coverage will be available or sufficient to cover the purchase price of the shares owned by Mrs. Pitts at the time of her death. If the insurance proceeds were not available or sufficient to cover the purchase price of Mrs. Pitts’ shares at the time of her death, our operating results and financial condition could be adversely affected.

          Risks Related to Regan’s Industry

          We may not be able to compete successfully with competitors that may have greater resources than we do.

          The fixed annuity business is rapidly evolving and intensely competitive. Legacy Marketing’s primary market is fixed annuities sold through independent Producers. Fixed annuity product sales in the United States were approximately $109 billion in 2008. Legacy Marketing had a 0.3% share of the 2008 fixed annuity product sales in the United States based on Legacy Marketing’s inforce premiums placed in 2008. Some of Legacy Marketing’s top competitors selling fixed annuities through independent sales

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channels are Allianz Life of North America, American Equity Investment Life, and Aviva USA. These competitors may have greater financial and other resources than we do, which allow them to respond more quickly than us under certain circumstances.

          Legacy Marketing is not aware of any significant new means of competition, products or services that its competitors provide or will soon provide. However, in the highly competitive fixed annuity marketplace, new distribution models, product innovations and technological advances may occur at any time and could present Legacy Marketing with competitive challenges. There can be no assurance that Legacy Marketing will be able to compete successfully. In addition, Legacy Marketing’s business model relies on its Wholesaler distribution networks to effectively market its products competitively. Maintaining relationships with these Wholesaler distribution networks requires introducing new products and services to the market in an efficient and timely manner, offering competitive commission schedules, and providing superior marketing, product training, and support. In the recent past, Legacy Marketing has been reasonably successful in expanding and maintaining its Wholesaler or Producer distribution network. However, due to competition among insurance companies and insurance marketing organizations for successful Wholesalers, there can be no assurance that Legacy Marketing will be able to retain some or all of its Wholesaler distribution networks.

          We may face increased governmental regulation and legal uncertainties, which could result in diminished financial performance.

          During the past few years, several proposals relating to our business have been made by federal and state agencies and legislative bodies and securities and insurance self-regulatory organizations. As discussed below, a few of these proposals have become effective, and others may be made or adopted.

          On December 18, 2008, the Securities and Exchange Commission (“SEC”) adopted Rule 151A which, if it becomes effective in its current form, would require certain fixed indexed annuity sales to be registered with the SEC. In addition, under the rule registered fixed indexed annuities would only be able to be sold by Financial Industry Regulatory Authority (“FINRA”) registered broker-dealers and representatives. As a result, fixed indexed annuity sales would be subject to regulation and oversight by both the SEC and FINRA. In response to the rule’s adoption, a coalition of insurance companies and insurance marketing organizations have filed suit to block the implementation of the rule. In addition, on February 17, 2009 the National Association of Insurance Commissioners (“NAIC”) and NCOIL (the association of state insurance regulators and a group representing state legislators) filed a petition with the U.S. Court of Appeals for the District of Columbia Circuit to block implementation of the rule. On July 21, 2009 the U.S. Court of Appeals ruled that the SEC has the authority to classify indexed annuities as securities but that the SEC failed to properly consider the effect of the rule upon efficiency, competition, and capital formation. If the SEC can satisfy the court’s order and Rule 151A becomes effective in the form originally adopted, we could be adversely impacted as we would have to expand our distribution capabilities into broker dealers. In a filing with the U.S. Court of Appeals on December 8, 2009, the SEC stated that Rule 151A would not become effective before two years after completion of the proceedings.

          FINRA has issued guidance to its members indicating that broker-dealers regulated by FINRA have certain responsibilities with respect to the offer and sale of equity-indexed annuities, including an obligation to determine the suitability of such products for their customers, regardless of whether equity-indexed annuities are deemed to be securities. In addition, some state insurance regulators are considering whether additional suitability and disclosure regulations should be implemented with respect to all sales of fixed annuities, particularly with respect to senior citizens.

          Also, in recent years, the existing U.S. insurance and financial regulatory frameworks have come under scrutiny. Some state legislatures have considered laws that may alter or increase state regulation of insurance, reinsurance, and holding companies. Moreover, the NAIC and state insurance regulators regularly re-examine existing laws and regulations, often focusing on modifications to holding company regulations, interpretations of existing laws and the development of new laws pertaining to fixed annuities. Further, new accounting and actuarial proposals, including principles-based reserving, may be proposed and adopted. Changes in these laws and regulations or their interpretation could have a material adverse effect on our financial condition and results of operations.

          Our core business consists of selling fixed annuity products, on behalf of insurance carriers, through a network of independent insurance producers (“Producers”). If the initiatives undertaken by the SEC, FINRA or state insurance regulators with respect to equity indexed or other fixed annuities were to result in new legislation or regulation, the demand for fixed annuities products, our business and those of our Producers could be adversely affected and could have a material adverse effect on the insurance industry in general or on our financial condition and results of operations.

          In addition, the U.S. Congress is again considering legislation that would impose certain national uniform standards on

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insurance companies, establish an optional federal charter system for insurance companies and repeal the McCarran-Ferguson antitrust exemption for the business of insurance, any of which could have a significant impact on our business. If such laws or regulations are adopted, they could have a material adverse effect on our financial condition and results of operations.

          New tax regulations have also been adopted recently that affect the treatment of tax-sheltered annuity contracts. In addition, new accounting and actuarial proposals, including principles-based reserving, may be adopted. These developments also could have a material adverse effect on our financial condition and results of operations.

          Legacy Financial, a discontinued operation, was registered as a broker-dealer with, and was subject to regulation by, the SEC, FINRA, the Municipal Securities Rulemaking Board, and various state agencies. This regulation covers matters such as capital requirements, recordkeeping and reporting requirements, and employee-related matters, including qualification and licensing of supervisory and sales personnel. Any proceeding alleging violation of, or noncompliance with, laws and regulations applicable to Legacy Financial could harm its business and financial condition, and our results of discontinued operations. As of September 29, 2008, Legacy Financial withdrew as a broker-dealer with FINRA, and FINRA approval of such withdrawal followed in January 2009.

          Adverse changes in tax laws could diminish the marketability of most of our products, resulting in decreased revenue.

          Under the Internal Revenue Code of 1986, as amended, income tax payable by policyholders on investment earnings is deferred during the accumulation period of most of the fixed annuity products that Legacy Marketing markets. This favorable income tax treatment results in our policyholders paying no income tax on their earnings in the fixed annuity products until they take a cash distribution. We believe that the tax deferral features contained within the fixed annuity products that Legacy Marketing markets give our products a competitive advantage over other non-insurance investment products where income taxes may be due on current earnings. If the tax code is revised to reduce the tax-deferred status of annuity products or to increase the tax-deferred status of competing non-insurance products, our business could be adversely impacted because our competitive advantage could be weakened. If the tax code is revised to change existing estate tax laws, our business could be adversely affected. We cannot predict other future tax initiatives that the federal government may propose that may affect us.

          We operate in an industry in which there is significant risk of litigation. Substantial claims against us could diminish our financial condition or results of operation.

          As a professional services firm primarily engaged in the marketing of fixed annuity products, we encounter litigation in the normal course of business. Although it is difficult to predict the ultimate outcome of these cases, management believes, based on discussions with legal counsel, that the ultimate disposition of these claims will not have a material adverse effect on our financial condition, cash flows or results of operations. In addition, companies in the insurance industry have been subject to substantial claims involving sales practices, agent misconduct, failure to properly supervise agents, and other matters in connection with the sale of fixed annuities. Increasingly, these lawsuits have resulted in the award of substantial judgments, including material amounts of punitive damages that are disproportionate to the actual damages. In some states juries have substantial discretion in awarding punitive damages that creates the potential for material adverse judgments in litigation. If any similar lawsuit or other litigation is brought against us, such proceedings may materially harm our business, financial condition, or results of operations.

Unresolved Staff Comments

          We received comments from the SEC in a letter dated December 17, 2009, which will be resolved and this proxy statement will then be amended to reflect such resolution.

Legacy Properties

          Legacy is a new Delaware corporation formed solely for the purpose of facilitating the Reorganization and has no properties.

Regan Properties

          We owned an office building in Rome, Georgia, which was used to accommodate some of Legacy Marketing’s operating activities. We financed the property with a mortgage loan, which totaled $2.6 million at December 31, 2007. On October 17, 2007, we entered into a lease with Perot Systems whereby Perot Systems leased our offices in Rome, Georgia, for a ten-year term at an initial rental price of $8.00 per square foot (a lease amount of approximately $300,000 per year). On May 23, 2008, the Company sold its office building in Rome, Georgia for $3.5 million for a gain of $214,000. Net proceeds from the sale of the building were used to repay the mortgage on the property, the outstanding balance of which was $2.6 million. As a result of the sale, the lease with Perot Systems was terminated.

70


          We currently lease an office building in Petaluma, California, which serves as the principal executive offices of Legacy Marketing.

Legacy Legal Proceedings

          Legacy is a new Delaware corporation formed solely for the purpose of facilitating the Reorganization and has no legal proceedings.

Regan Legal Proceedings

          We are involved in various claims and legal proceedings arising in the ordinary course of business. Although it is difficult to predict the ultimate outcome of these cases, we believe that the ultimate disposition of these claims will not have a material adverse effect on our financial condition, cash flows or results of operations.

Directors and Executive Officers

          Set forth below is certain information about our current directors and executive officers.

 

 

 

 

 

Name and Age

 

Principal Occupation

 

Director Since

 

 

 

 

 

 

 

 

 

 

Lynda L. Pitts
61 years old

 

Ms. Pitts has served as Chairman of the Board and Chief Executive Officer of the Company since 1992. She was Senior Vice President and Treasurer of the Company from 1990 to 1992.

 

1990

 

 

 

 

 

R. Preston Pitts
58 years old

 

Mr. Pitts served as Chief Financial Officer of the Company from 1994 to 1997, has served as President and Secretary of the Company since 1997, and as President, Secretary and Chief Operating Officer of the Company since 1998. As of April 19, 2004, he became interim Chief Financial Officer of the Company. Prior to joining the Company, he owned Pitts Company, a certified public accounting firm specializing in services for insurance companies, served as a financial officer for United Family Life Insurance Company and American Security Insurance Group, both Fortis-owned companies, and was an Audit Manager for Ernst & Young.

 

1995

 

 

 

 

 

Ute Scott-Smith
49 years old

 

Ms. Scott-Smith, ChFC, has run her own financial services business since January 2003. She also served as Senior Vice-President of the Company from 1990 to April of 1997.

 

1997

 

 

 

 

 

Dr. Donald Ratajczak
66 years old

 

Dr. Ratajczak is a consulting economist. Prior to April 1, 2003, he was the Chief Executive Officer and Chairman of the Board of Brainworks Ventures, Inc. until its merger with Assurance America Corp. Since then, he has served as a director of the combined entity. From 1973 until his retirement in June 2000, Dr. Ratajczak was Director of the Economic Forecasting Center in the J. Mack Robinson College of Business of Georgia State University. Prior to founding the Center in 1973, Dr. Ratajczak was Director of Research for the UCLA Business Forecasting Project. Dr. Ratajczak also serves as a director of Ruby Tuesday, Inc., Crown Craft, Citizens Trust Bank, and Assurance America.

 

2000

 

 

 

 

 

J. Daniel Speight, Jr.
52 years old

 

Mr. Speight was the Vice Chairman, Chief Financial Officer and a director of Flag Financial Corporation, a bank holding company, and of Flag Bank, a wholly owned subsidiary of Flag Financial from 1998 to 2006. In 2006, Flag Financial Corporate was acquired by RBC Centura. Mr. Speight has served as a managing principal in Bankers Capital Group LLC since 2006 to present. He served of counsel for the law firm James, Bates, Pope & Spivey in Macon, Georgia from 2007 to 2009. He is currently the Vice Chairman, Chief Operating Officer and Chief Financial Officer of State Bank and Trust Company located in Macon, Georgia. He is a member of the State Bar of Georgia.

 

2000

71


          Executive Officers

          Lynda L. Pitts and R. Preston Pitts, both of whom are directors also serve as executive officers of the Company and are identified above.

          Family Relationships

          Lynda L. Pitts, Chairman of the Board and Chief Executive Officer of the Company, is married to R. Preston Pitts, President, Chief Operating Officer, Chief Financial Officer, Secretary and director of the Company.

          Section 16(a) Beneficial Ownership Reporting Compliance

          Section 16(a) of the Exchange Act of 1934, as amended, requires the Company’s executive 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 year ended December 31, 2008, all reporting persons timely filed the required reports.

Stock Ownership by Affiliates

          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. Pitts, Chairman of the Board and Chief Executive Officer of the Company, and R. Preston Pitts, President, Chief Operating Officer, Chief Financial Officer and Secretary, whose ownership is listed below. The address for Lynda L. Pitts and R. Preston Pitts is 2090 Marina Avenue, Petaluma, California 94954.

          The table on the following page shows the amount of Regan Series A Stock beneficially owned by the Company’s directors and executive officers and the directors and executive officers of the Company as a group. The information set forth below is as of December 1, 2009. No director or executive officer owns any Regan Series B Stock.

Security Ownership of Certain Beneficial Owners and Management

 

 

 

 

 

 

 

 

 

 

 

Title of class

 

 

Name of Beneficial Owner

 

Amount and Nature of Beneficial Ownership

 

Percent of Class

 

Common Stock

 

 

Lynda L. Pitts, Director, Chairman of the Board & Chief Executive Officer

 

 

11,654,433

(1)

 

48.4

%

Common Stock

 

 

R. Preston Pitts, Director, President, Chief Operating Officer, Chief Financial Officer and Secretary

 

 

1,216,266

(2)

 

5.1

%

Common Stock

 

 

Ute Scott-Smith, Director

 

 

395,000

(3)

 

1.6

%

Common Stock

 

 

J. Daniel Speight, Jr., Director

 

 

90,000

(4)

 

0.4

%

Common Stock

 

 

Donald Ratajczak, Director

 

 

90,000

(4)

 

0.4

%

 

 

 

 

 

 

 

 

 

 

 

All executive officers and directors as a group

 

 

 

 

 

13,445,699

 

 

55.8

%

72



 

 

(1) Includes 413,700 shares issuable pursuant to stock options that are exercisable within 60 days.1

 

(2) Includes 475,000 shares issuable pursuant to stock options that are exercisable within 60 days.1

 

(3) Includes 95,000 shares issuable pursuant to stock options that are exercisable within 60 days.1

 

(4) Includes 90,000 shares issuable pursuant to stock options that are exercisable within 60 days.1

 

1 Pursuant to the Agreement and Plan of Merger, all unexercised options to purchase Regan Common Stock will terminate at the effective time of the merger.

Related Party Transactions

          Pursuant to the terms of the Amended and Restated Shareholder Agreement with Lynda L. Pitts, Chief Executive Officer of the Company and Chairman of the Company’s Board of Directors, upon the death of Ms. Pitts, the Company would have the option (but not the obligation) to purchase from Ms. Pitt’s estate all shares of Common Stock that were owned by Ms. Pitts at the time of her death, or were transferred by her to one or more trusts prior to her death. In addition, upon the death of Ms. Pitts, her heirs would have the option (but not the obligation) to sell their inherited shares to the Company. The purchase price to be paid by the Company shall be equal to 125% of the fair market value of the shares. As of December 31, 2008, the Company believes that 125% of the fair market value of the shares owned by Ms. Pitts was equal to $562,000. The Company has purchased life insurance coverage for the purpose of funding this potential obligation upon Ms. Pitts’ death.

          On March 26, 2008, the Company entered into an agreement to exchange its asset based trailing commissions (“trail commissions”) with Legacy TM for a limited partnership interest in Legacy TM (the “Partnership”). Subsequently, the Company sold a portion of its limited partnership interest – Class B interest – for $6.5 million in cash and retained an interest in the limited partnership – Class A interest. The transaction closed on March 26, 2008. The Class A limited partnership interest in the Partnership, retained by Legacy Marketing, includes the beneficial interest in 33 1/3% of the trail commission revenue received on those policies in effect on or prior to the closing date for the one year period subsequent to the closing date and all revenue associated with policies that become effective after the closing date. The Company’s limited partnership interest is unencumbered. Lynda Pitts, Chief Executive Officer, and R. Preston Pitts, President, Chief Operating Officer, Chief Financial Officer and Secretary of the Company, each of whom is also a director of the Company, are the general partners of the Partnership and together own all of the Class B interests in the Partnership.

          On September 8, 2008, the Company issued a Line of Credit Promissory Note to Lynda Pitts, Chief Executive Officer and Preston Pitts, President, Chief Operating Officer, Chief Financial Officer and Secretary of the Company. Pursuant to the Note, Lynda Pitts and Preston Pitts have advanced $225,000 in principal amount to the Company. Interest on the unpaid principal accrues monthly at a rate of 6% per annum. As of June 30, 2009, the note plus accrued interest was paid in full.

          Currently, Donald Ratajczak, Ute Scott-Smith and J. Daniel Speight, Jr. are the only independent directors of the Company as defined by the New York Stock Exchange.

Market for Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

          As of September 30, 2009, our Series A Common Stock was held by approximately 1,200shareholders of record and our Series B Common Stock was held by approximately 2,200 shareholders of record. There is no established public trading market for our stock.

          Our Board may, at its sole discretion, declare and pay dividends on Regan Common Stock, subject to capital and solvency restrictions under California law. To date, we have not paid any dividends on Regan Common Stock. Our ability to pay dividends is dependent on the ability of our wholly-owned subsidiaries to pay dividends or make other distributions to us. We do not anticipate paying dividends on any of our outstanding common stock in the foreseeable future.

73


          Regan Common Stock became subject to the Exchange Act in November 1991 as a result of the issuance of shares of Series B Stock in connection with the acquisition of LifeSurance Corporation. There has never been an active public trading market for Regan Common Stock. Prior to December 31, 1992, Regan 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 Regan, its independent insurance producers and employees, and the Confidential Private Placement Memorandum and Subscription Agreement (the “Subscription Agreement”) between the Regan 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 Regan’s ability to make such purchases under applicable corporate law. In connection with the merger in 1991 between Regan 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, Regan 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 Regan Common Stock that are not redeemable at the option of the holder (“Non-Redeemable Common Stock”). The repurchase prices of the Redeemable Common Stock and Non-Redeemable 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 Regan is not obligated to repurchase the Non-Redeemable Common Stock. The prices paid for the Redeemable and Non-Redeemable Common Stock were as follows:

 

 

 

 

 

 

 

 

 

 

 

Appraisal Date

 

Redeemable
Common
Stock
Series A

 

Price Per Share
Redeemable
Common
Stock
Series B

 

Non-Redeemable
Common
Stock

 

June 30, 2002

 

$

2.19

 

$

2.19

 

$

1.68

 

December 31, 2002

 

$

2.20

 

$

1.82

 

$

1.69

 

June 30, 2003

 

$

2.22

 

$

1.83

 

$

1.70

 

December 31, 2003

 

$

2.21

 

$

1.82

 

$

1.69

 

June 30, 2004

 

$

2.20

 

$

1.81

 

$

1.68

 

December 31, 2004

 

$

2.03

 

$

1.67

 

$

1.55

 

June 30, 2005

 

$

1.09

 

$

0.90

 

$

0.84

 

December 31, 2005

 

$

0.69

 

$

0.57

 

$

0.52

 

June 30, 2006

 

$

0.85

 

$

0.70

 

$

0.65

 

December 31, 2006

 

$

0.06

 

$

0.05

 

$

0.05

 

          There were no stock repurchases in 2008 and 2007. The Company is currently unable to redeem Redeemable Common Stock due to restrictions in California corporation law.

Description of Capital Stock

          The authorized capital stock of Regan Holding Corp. consists of 45,000,000 shares of Series A Common Stock, no par value per share, and 615,242 shares of Series B Common Stock, no par value per share. As of the record date, Series A Common Stock is held by approximately 1,200 holders of record and Series B Common Stock is held by approximately 2,200 holders of record. There are approximately 23,525,000shares of Series A Common Stock outstanding and approximately 550,000 shares of Series B Common Stock outstanding. All of the Series B and approximately 3,248,000 of the shares of Series A Common Stock are redeemable at the option of the shareholders, subject to limitations by contract, under the certificate of incorporation and under applicable law. Because Regan has not been permitted under California law to make distributions to its shareholders, no shares have been redeemed for several years. The Regan Common Stock will be terminated and canceled following the Reorganization. The following summary describes the material terms of our capital stock.

          All holders of Regan Common Stock are entitled to share equally in dividends from funds legally available therefor when, as, and if declared by the Board, and upon our liquidation or dissolution, whether voluntary or involuntary, to share equally in all of our assets available for distribution to the common shareholders. We may pay dividends in cash, property or shares of common stock,

74


unless we are insolvent or the dividend payment would render us insolvent. Each holder of Regan Common Stock is entitled to one vote for each share on all matters submitted to the shareholders, and shareholders are provided cumulative voting with respect to the election of directors. Holders of Regan Common Stock do not have any preemptive right to acquire any of our authorized but unissued capital stock. There is no redemption right, sinking fund provision, or right of conversion in existence with respect to Regan Common Stock. All outstanding shares of Regan Common Stock are fully paid and non-assessable. Generally, we may issue additional shares of Regan Common Stock without regulatory or shareholder approval, and common stock may be issued for cash or other property.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

          See Appendix C.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

          None.

Shareholder Proposals

          The SEC rules relating to shareholder proposals to be included in a meeting of shareholders other than a regularly scheduled annual meeting require that, in order for a proposal be included in the proxy statement relating to such meeting, a shareholder must deliver a written copy of the proposal to our principal executive offices a reasonable time before we begin to print and send our proxy materials. We have not held our 2009 annual meeting of shareholders, and the SEC rules relating to shareholder proposals to be included in an annual meeting of shareholders that has been changed by more than 30 days from the date of the previous year’s meeting require that, in order for a proposal be included in the proxy statement relating to such annual meeting, a shareholder must deliver a written copy of the proposal to our principal executive offices a reasonable time before we begin to print and send our proxy materials for our annual meeting. To ensure prompt receipt by the Company, the proposal should be sent certified mail, return receipt requested. Proposals must comply with our bylaws relating to shareholder proposals in order to be included in our proxy materials.

Shareholder Communications

          The Board has implemented a process for shareholders to send communications to the Board. Any shareholder desiring to communicate with the Board, or with specific individual directors, may so do by writing to Regan Holding Corp., R. Preston Pitts, Corporate Secretary, 2090 Marina Avenue, Petaluma, California 94954. The Secretary has been instructed by the Board to promptly forward all such communications to the addressees indicated thereon.

Other Matters

          Our Board knows of no other matters that may be brought before the meeting. If, however, any matter other than the election of directors, or matters incidental to the election of directors, should properly come before the meeting, votes will be cast pursuant to the proxies in accordance with the best judgment of the proxyholders. If you cannot be present in person, you are requested to complete, sign, date, and return the enclosed proxy promptly. An envelope has been provided for that purpose. No postage is required if mailed in the United States.

75


SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

 

2008

 

2007

 

2006

 

2005

 

2004

 

Selected Income Statement Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

19,140,000

 

$

19,867,000

 

$

25,845,000

 

$

24,857,000

 

$

34,009,000

 

Income (loss) from continuing operations

 

$

488,000

 

$

(9,349,000

)

$

(4,658,000

)

$

(11,248,000

)

$

(5,908,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations per share - basic:

 

$

0.02

 

$

(0.39

)

$

(0.19

)

$

(0.46

)

$

(0.25

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations per share - diluted:

 

$

0.02

 

$

(0.39

)

$

(0.19

)

$

(0.46

)

$

(0.25

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selected Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

5,046,000

 

$

20,463,000

 

$

27,694,000

 

$

30,400,000

 

$

47,618,000

 

Total non current liabilities

 

$

7,394,000

 

$

18,090,000

 

$

18,745,000

 

$

13,540,000

 

$

19,548,000

 

Redeemable common stock

 

$

5,897,000

 

$

5,897,000

 

$

5,897,000

 

$

6,219,000

 

$

7,486,000

 

Cash dividends declared

 

 

 

 

 

 

 

 

 

 

 

Selected Operating Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total fixed premium placed inforce (1)

 

$

374 million

 

$

410 million

 

$

508 million

 

$

480 million

 

$

800 million

 

(1) When a policyholder remits a premium payment with an accurate and completed application for an insurance policy, the policy is placed inforce. Inforce premium and policies are statistics of our carriers but are factors that directly affect our revenue.

76


PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma consolidated balance sheet as of September 30, 2009 (the “Pro Forma Balance Sheet”), and the unaudited pro forma consolidated statements of operations for the year ended December 31, 2008 and the nine months ended September 30, 2009 (the “Pro Forma Statements of Operations”), show the pro forma effect of the Reorganization. Pro forma adjustments to the Pro Forma Balance Sheet are computed as if the Reorganization occurred at September 30, 2009, while the pro forma adjustments to the Pro Forma Statements of Operations are computed as if the Reorganization were consummated on January 1, 2008 in the case of the Statement of Operations for the year ended December 31, 2008 and on January 1, 2009 in the case of the nine months ended September 30, 2009. The following financial statements do not reflect any anticipated cost savings that may be realized by The Legacy Alliance, Inc. (“Legacy”) after consummation of the Reorganization.

          The pro forma information does not purport to represent what Legacy’s results of operations actually would have been if the Reorganization had occurred on any of the dates indicated above.

Pro Forma Consolidated Financial Statements (Unaudited)

          The following unaudited pro forma consolidated balance sheets as of September 30, 2009 and December 31, 2008 and the unaudited pro forma consolidated income statements for the year ended December 31, 2008, and the nine months ended September 30, 2009, give effect to the following:

 

 

 

 

We have assumed that the merger occurred as of September 30, 2009 and December 31, 2008, respectively, for the purposes of the consolidated balance sheets, and as of January 1, 2008 and January 1, 2009 with respect to the consolidated income statements for the year ended December 31, 2008, and the nine months ended September 30, 2009, respectively.

 

 

 

 

We have assumed that a total of approximately 1,800,000 common stock fractional shares are cashed out in the merger at a price of $0.10 per share for a total of $180,000.

 

 

 

 

We have assumed that all of the cash required to consummate the merger will be provided from a combination of a capital contribution of $10,000 and a loan of $170,000 at an annual simple interest rate of 6%.

 

 

 

 

We have adjusted for anticipated annual cost savings, estimated to be approximately $503,000 (this excludes the $207,000 in estimated annual time-savings). For the year ended December 31, 2008, $394,000 (adjusted for lower SOX expense) and $377,000 for the nine months ended September 30, 2009. The applicable incremental federal income tax rate is based on an effective federal and state tax rate of 9.70% and 10.33% (after utilization of federal NOL carryforwards and related valuation allowance adjustments) for the year ended December 31, 2008 and nine months ended September 30, 2009, respectively. This is an estimate of the actual cost incurred in these periods for legal, accounting and other professional fees associated with the filing requirements under the Securities Exchange Act. This adjustment is not a prediction of future results. No adjustment is made for employee overhead, indirect or incidental expenses.

77



 

REGAN HOLDING CORP. AND SUBSIDIARIES

Pro Forma Consolidated Balance Sheet

As of September 30, 2009


 

 

 

 

 

 

 

 

 

 

 

 

 

Historical

 

Pro Forma
Adjustments
(Unaudited)

 

Pro Forma
Combined

 

 

 

           

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,208,000

 

$

 

$

1,208,000

 

Trading investments

 

 

3,032,000

 

 

 

 

3,032,000

 

Accounts receivable, net of allowance of $29,000

 

 

360,000

 

 

 

 

360,000

 

Notes receivable, net of allowance of $20,000

 

 

210,000

 

 

 

 

210,000

 

Prepaid expenses and deposits

 

 

144,000

 

 

 

 

144,000

 

Current assets from discontinued operations

 

 

225,000

 

 

 

 

225,000

 

 

 

                 

Total current assets

 

 

5,179,000

 

 

 

 

5,179,000

 

 

 

                 

Net fixed assets

 

 

556,000

 

 

 

 

556,000

 

Building lease deposit

 

 

1,000,000

 

 

 

 

1,000,000

 

Other assets

 

 

27,000

 

 

 

 

27,000

 

 

 

                 

Total non-current assets

 

 

1,583,000

 

 

 

 

1,583,000

 

 

 

                 

Total assets

 

$

6,762,000

 

$

 

$

6,762,000

 

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

Liabilities, redeemable common stock, and shareholders’ deficit

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

3,174,000

 

$

(331,000

)

$

2,843,000

 

Current portion of deferred compensation payable

 

 

425,000

 

 

 

 

425,000

 

Current portion of capital lease liabilities

 

 

49,000

 

 

 

 

49,000

 

Short-term borrowings

 

 

378,000

 

 

170,000

 

 

548,000

 

Current liabilities from discontinued operations

 

 

361,000

 

 

 

 

361,000

 

 

 

                 

Total current liabilities

 

 

4,387,000

 

 

(161,000

)

 

4,226,000

 

 

 

                 

Deferred compensation payable

 

 

4,523,000

 

 

 

 

4,523,000

 

Deferred gain on sale of building

 

 

1,676,000

 

 

 

 

1,676,000

 

Capital lease liabilities, less current portion

 

 

121,000

 

 

 

 

121,000

 

Other liabilities

 

 

165,000

 

 

 

 

165,000

 

 

 

                 

Total non-current liabilities

 

 

6,485,000

 

 

 

 

6,485,000

 

 

 

                 

Total liabilities

 

 

10,872,000

 

 

(161,000

)

 

10,711,000

 

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

9,818,000

 

 

(3,656,000

)

 

6,162,000

 

Capital surplus

 

 

6,650,000

 

 

3,486,000

 

 

10,136,000

 

Accumulated deficit

 

 

(20,578,000

)

 

331,000

 

 

(20,247,000

)

 

 

                 

Total shareholders’ deficit

 

 

(4,110,000

)

 

161,000

 

 

(3,949,000

)

 

 

                 

Total liabilities, redeemable common stock, and shareholders’ deficit

 

$

6,762,000

 

$

 

$

6,762,000

 

 

 

                 

78



 

REGAN HOLDING CORP. AND SUBSIDIARIES

Pro Forma Consolidated Balance Sheet

As of December 31, 2008


 

 

 

 

 

 

 

 

 

 

 

 

 

Historical

 

Pro Forma
Adjustments
(Unaudited)

 

Pro Forma
Combined

 

 

 

           

Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

628,000

 

$

 

$

628,000

 

Trading investments

 

 

641,000

 

 

 

 

641,000

 

Accounts receivable, net of allowance of $0

 

 

447,000

 

 

 

 

447,000

 

Notes receivable, net of allowance of $0

 

 

175,000

 

 

 

 

175,000

 

Prepaid expenses and deposits

 

 

146,000

 

 

 

 

146,000

 

Current assets from discontinued operations

 

 

322,000

 

 

 

 

322,000

 

 

 

                 

Total current assets

 

 

2,359,000

 

 

 

 

2,359,000

 

 

 

                 

Net fixed assets

 

 

1,655,000

 

 

 

 

1,655,000

 

Building lease deposit

 

 

1,000,000

 

 

 

 

1,000,000

 

Other assets

 

 

32,000

 

 

 

 

32,000

 

 

 

                 

Total non-current assets

 

 

2,687,000

 

 

 

 

2,687,000

 

 

 

                 

Total assets

 

$

5,046,000

 

$

 

$

5,046,000

 

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

Liabilities, redeemable common stock, and shareholders’ deficit

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

3,808,000

 

$

(347,000

)

$

3,461,000

 

Current portion of deferred compensation payable

 

 

1,181,000

 

 

 

 

1,181,000

 

Current portion of capital lease liabilities

 

 

69,000

 

 

 

 

69,000

 

Short-term borrowings

 

 

230,000

 

 

170,000

 

 

400,000

 

Current liabilities from discontinued operations

 

 

398,000

 

 

 

 

398,000

 

 

 

                 

Total current liabilities

 

 

5,686,000

 

 

(177,000

)

 

5,509,000

 

 

 

                 

Deferred compensation payable

 

 

4,133,000

 

 

 

 

4,133,000

 

Deferred gain on sale of building

 

 

1,882,000

 

 

 

 

1,882,000

 

Capital lease liabilities, less current portion

 

 

64,000

 

 

 

 

64,000

 

Other liabilities

 

 

134,000

 

 

 

 

134,000

 

 

 

                 

Total non-current liabilities

 

 

6,213,000

 

 

 

 

6,213,000

 

 

 

                 

Total liabilities

 

 

11,899,000

 

 

(177,000

)

 

11,722,000

 

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

9,818,000

 

 

(3,656,000

)

 

6,162,000

 

Capital surplus

 

 

6,650,000

 

 

3,486,000

 

 

10,136,000

 

Accumulated deficit

 

 

(23,321,000

)

 

347,000

 

 

(22,974,000

)

 

 

                 

Total shareholders’ deficit

 

 

(6,853,000

)

 

177,000

 

 

(6,676,000

)

 

 

                 

Total liabilities, redeemable common stock, and shareholders’ deficit

 

$

5,046,000

 

$

 

$

5,046,000

 

 

 

                 

79



 

REGAN HOLDING CORP. AND SUBSIDIARIES

Pro Forma Consolidated Statement of Operations

For the Nine Months Ended September 30, 2009


 

 

 

 

 

 

 

 

 

 

 

 

 

Historical

 

Pro Forma
Adjustments
(Unaudited)

 

Pro Forma
Combined

 

 

 

           

Revenue

 

 

 

 

 

 

 

 

 

 

Marketing allowances and commission overrides

 

$

12,560,000

 

$

 

$

12,560,000

 

Trailing commissions

 

 

196,000

 

 

 

 

196,000

 

Other revenue

 

 

2,360,000

 

 

 

 

2,360,000

 

 

 

                 

Total revenue

 

 

15,116,000

 

 

 

 

15,116,000

 

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative (1)

 

 

10,171,000

 

 

(377,000

)

 

9,794,000

 

Depreciation and amortization

 

 

1,266,000

 

 

 

 

1,266,000

 

Other

 

 

434,000

 

 

 

 

434,000

 

 

 

                 

Total expenses

 

 

11,871,000

 

 

 

 

11,494,000

 

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

3,245,000

 

 

 

 

3,622,000

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

 

 

 

 

 

 

 

 

Investment income, net

 

 

26,000

 

 

 

 

26,000

 

Interest expense

 

 

(39,000

)

 

(8,000

)

 

(47,000

)

 

 

                 

Total other (expense) income, net

 

 

(13,000

)

 

 

 

(21,000

)

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

3,232,000

 

 

 

 

3,601,000

 

Provision for (benefit from) income taxes

 

 

341,000

 

 

38,000

 

 

379,000

 

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

 

2,891,000

 

 

 

 

3,222,000

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 

 

 

 

 

 

 

 

 

Loss from operation of discontinued segments:Legacy Financial Services, Values Financial Network, and prospectdigital

 

 

(168,000

)

 

 

 

(168,000

)

(Benefit from) provision for income taxes

 

 

(20,000

)

 

 

 

(20,000

)

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

 

(148,000

)

 

 

 

(148,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

                 

Net income (loss) available for common shareholders

 

$

2,743,000

 

$

331,000

 

$

3,074,000

 

 

 

                 

Basic and diluted net income per share:

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.12

 

 

 

 

$

644.40

 

Net income available for common shareholders

 

$

0.11

 

 

 

 

$

614.80

 

Weighted average shares outstanding used to compute basic and diluted net income per share amounts

 

 

24,076,000

 

 

(24,071,000

)

 

5,000

 


 

 

(1)

Assumes cost savings of $377,000 ($136,000 audit and accounting fees; $53,000 legal fees; $138,000 in internal compliance costs); $20,000 in SEC filings and shareholder costs; $24,000 Board of Director costs; and $6,000 in other costs. Tax provision adjustment is based on an effective federal and state tax rate of 10.33% (after utilization of federal NOL carryforwards and valuation allowance adjustments).

80



 

REGAN HOLDING CORP. AND SUBSIDIARIES

Pro Forma Consolidated Statement of Operations

For the Twelve Months Ended December 31, 2008


 

 

 

 

 

 

 

 

 

 

 

 

 

Historical

 

Pro Forma
Adjustments
(Unaudited)

 

Pro Forma
Combined

 

 

 

           

Revenue

 

 

 

 

 

 

 

 

 

 

Marketing allowances and commission overrides

 

$

7,676,000

 

$

 

$

7,676,000

 

Trailing commissions

 

 

1,378,000

 

 

 

 

1,378,000

 

Sale of Legacy TM, LP Class B interest

 

 

6,500,000

 

 

 

 

6,500,000

 

Other revenue

 

 

3,586,000

 

 

 

 

3,586,000

 

 

 

                 

Total revenue

 

 

19,140,000

 

 

 

 

19,140,000

 

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative (1)

 

 

13,543,000

 

 

(394,000

)

 

13,149,000

 

Depreciation and amortization

 

 

3,852,000

 

 

 

 

3,852,000

 

Internal use software impairment loss

 

 

152,000

 

 

 

 

152,000

 

Other

 

 

789,000

 

 

 

 

789,000

 

 

 

                 

Total expenses

 

 

18,336,000

 

 

 

 

17,942,000

 

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

804,000

 

 

 

 

 

1,198,000

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

 

 

 

 

 

 

 

 

Investment income, net

 

 

377,000

 

 

 

 

377,000

 

Interest expense

 

 

(480,000

)

 

(10,000

)

 

(490,000

)

 

 

                 

Total other (expense) income, net

 

 

(103,000

)

 

 

 

(113,000

)

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

701,000

 

 

 

 

1,085,000

 

Provision for (benefit from) income taxes

 

 

213,000

 

 

37,000

 

 

250,000

 

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

 

488,000

 

 

 

 

 

835,000

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 

 

 

 

 

 

 

 

 

Loss from operation of discontinued segments: Legacy Financial Services, Values Financial Network, and prospectdigital

 

 

(695,000

)

 

 

 

(695,000

)

(Benefit from) provision for income taxes

 

 

(97,000

)

 

 

 

(97,000

)

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

 

(598,000

)

 

 

 

 

(598,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

                 

Net income (loss) available for common shareholders

 

$

(110,000

)

$

347,000

 

$

237,000

 

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net income per share:

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.02

 

   

 

$

167.00

 

Net income available for common shareholders

 

$

(0.00

)

   

 

$

47.40

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding used to compute basic and diluted net income per share amounts

 

 

24,076,000

 

 

(24,071,000

)

 

5,000

 


 

 

(1)

Assumes cost savings of $394,000 ($182,000 audit and accounting fees; $70,000 legal fees; $75,000 in internal compliance costs); $27,000 in SEC filings and Shareholder costs; $32,000 in Board of Director costs; and $8,000 in other costs. Tax provision adjustment is based on an effective federal and state tax rate of 9.70% (after utilization of federal NOL carryforwards and related valuation allowance adjustments).

81



 

REGAN HOLDING CORP. AND SUBSIDIARIES

Consolidated Pro Forma Earnings to Fixed Charges

(Unaudited)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended
12/31/2008

 

Year Ended
12/31/2007

 

Pro Forma
Year Ended
12/31/2008

 

Nine
Months Ended
9/30/2009

 

Nine
Months Ended
9/30/2008

 

Pro Forma
Nine
Months Ended
9/30/2009

 

 

 

                       

Add

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                   

Pretax income

 

$

6,000

 

$

(9,045,000

)

$

389,000

 

$

3,064,000

 

$

2,058,000

 

$

2,296,000

 

Fixed charges

 

 

480,000

 

 

750,000

 

 

490,000

 

 

39,000

 

 

457,000

 

 

47,000

 

Interest expensed and capitalized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of capitalized interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributed income of equity investees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share of per-tax losses of equity investees for which charges arising from guarantees are included in fixed charges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest capitalized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preference security dividend requirements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minority interest in pretax income of subsidiaries that have not incurred fixed charges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                   

Total Earnings

 

$

486,000

 

$

(8,295,000

)

$

879,000

 

$

3,103,000

 

$

2,515,000

 

$

2,343,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Charges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expensed and capitalized

 

$

480,000

 

$

750,000

 

$

490,000

 

$

39,000

 

$

457,000

 

$

47,000

 

Amortized premiums, discounts,and capitalized expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest within rental expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preference security dividend requirements of consolidated subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                   

Total Fixed Charges

 

$

480,000

 

$

750,000

 

$

490,000

 

$

39,000

 

$

457,000

 

$

47,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratio of earnings to fixed charges

 

 

101

%

 

-1106

%

 

179

%

 

7956

%

 

550

%

 

4985

%

82


REGAN HOLDING CORP. AND SUBSIDIARIES
Pro Forma Book Value Per Share
As of September 30, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro Forma

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

Pro Forma