[FIC LOGO]
Financial Industries Corporation
6500 River Place Blvd.
Austin, Texas 78730
Dear Shareholder:
You are invited to attend the Annual Meeting of Shareholders of Financial
Industries Corporation, which will be held at the offices of the Company at 6500
River Place Blvd., Bldg. One, Austin, Texas 78730 on August 24, 2001, at 10:00
a.m. local time. For those of you who cannot be present at this meeting, we urge
that you participate by indicating your choices on the enclosed proxy and
completing and returning it to us in the enclosed postage paid envelope at your
earliest convenience. By returning your proxy promptly, you will assist us in
reducing the Company's expenses relating to the meeting. You can revoke your
signed proxy at any time before it is used.
We appreciate your support and cooperation in returning the enclosed proxy.
Cordially,
Roy F. Mitte
Chairman, President and
Chief Executive Officer
Financial Industries Corporation
6500 River Place Blvd., Bldg. One
Austin, Texas 78730
NOTICE OF ANNUAL MEETING
TO BE HELD August 24, 2001
Notice is hereby given that the 2001 Annual Meeting of Shareholders of Financial
Industries Corporation is scheduled to be held at the 6500 River Place Blvd.,
Bldg. One, Austin, Texas 78730 on August 24, 2001, 10:00 a.m., local time, for
the following purposes:
1. The election of thirteen Directors for the ensuing year.
2. Such other business that may properly come before the meeting or
any adjournment thereof.
Only those Shareholders of record at the close of business on July 16, 2001 (the
"Record Date") will be entitled to notice of and vote at the meeting or any
adjournment thereof.
The Proxy Statement accompanies this notice.
July 24, 2001
By Order of the Board of Directors
Steven P. Schmitt
Secretary
YOUR VOTE IS IMPORTANT
We hope that you will be able to attend the meeting in person. IF YOU DO NOT
EXPECT TO ATTEND IN PERSON, PLEASE SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT
PROMPTLY in the enclosed envelope for which no postage is necessary if mailed in
the United States. It will assist us in reducing the expenses of the Annual
Meeting if shareholders who do not attend in person return the signed proxy
promptly. You may revoke your proxy at any time before it is voted.
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS OF
Financial Industries Corporation
6500 River Place Blvd., Bldg. One, Austin, Texas 78730
This Proxy is furnished in connection with the solicitation of proxies by the
Board of Directors of Financial Industries Corporation (FIC or the Company) for
use at the Annual Meeting of Shareholders to be held August 24, 2001, at 6500
River Place Blvd., Bldg. One, Austin, Texas 78730. Solicitation of proxies may
be made by mail and telephone and the expenses will be borne by FIC. The Company
intends to reimburse broker-dealers and others for forwarding the proxy
materials to beneficial owners of FIC's common stock. The approximate date on
which this Proxy Statement and the enclosed Form of Proxy will be sent or given
to shareholders is July 24, 2001.
A copy of FIC's Annual Report of Shareholders for the year ended December 31,
2000, including financial statements, has either been previously forwarded to
Shareholders or is included with this Proxy Statement.
A copy of the Company's Annual Report to the Securities and Exchange Commission
on form 10-K, including Financial Statements and Financial Schedules, may be
obtained by Shareholders without charge upon the receipt of a written request
addressed to Robert S. Cox, Financial Industries Corporation, 6500 River Place
Blvd., Bldg. One, Austin, Texas 78730.
Only shareholders of record on the books of FIC at the close of business on July
16. 2001, will be entitled to vote at the Annual Meeting. At the close of
business on such date, there were outstanding and entitled to vote 9,579,570
shares of common stock. Each shareholder of FIC common stock is entitled to one
vote for each share standing in his or her name on the books of the Company, as
of the Record Date, on all business to come before the meeting. However, in
voting for Directors, each shareholder may cumulate votes for the election of
Directors for those candidates whose names have been placed in nomination; that
is, each Shareholder may cast as many votes as there are Directors to be elected
multiplied by the number of shares then registered in his or her name and to
cast all such votes for one candidate or distribute such votes among the
nominees for Director in accordance with the Shareholder's choice. Each share
will be entitled to thirteen (13) votes on a cumulative basis in voting for
Directors. The right to vote cumulatively may be exercised only in the event
that a Shareholder gives written notice of his decision to vote cumulatively to
the Secretary of FIC on or before the day preceding the Annual Meeting. If any
Shareholder complies with that written notice requirement, all Shareholders may
cumulate their votes. FIC's management does not intend to request cumulative
voting of their shares and is not aware of an intention by any Shareholder to do
so. However, should any Shareholder elect to vote cumulatively, the person
authorized to vote shares represented by executed proxies, if authority to vote
for the election of Directors is not withheld, will have full discretion and
authority to vote cumulatively and to allocate votes among any or all of the
Board of Directors' nominees as they may determine or, if authority to vote for
a specific candidates has been withheld, among those nominees for whom authority
to vote has not been withheld.
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The proxy solicited by this Proxy Statement is revokable at any time prior to
the exercise thereof at the meeting by written notice submitted to Steven P.
Schmitt, Secretary, Financial Industries Corporation, 6500 River Place Blvd.,
Bldg. One, Austin, Texas 78730 or by delivery of a subsequent proxy. All shares
represented by executed and unrevoked proxies will be voted in accordance with
instructions contained therein. Proxies submitted without specification will be
voted to elect the nominees for Directors named herein.
ELECTION OF DIRECTORS
The following thirteen nominees are proposed for election as Directors to serve
until the next Annual Meeting of Shareholders or until their successors are
elected and qualified. All nominees are now Directors of the Company. All of the
directors, other than S. Tim Casey, W. Lewis Gilcrease and Elizabeth T. Nash
were elected at the 2000 annual shareholders meeting. Mr. Casey was appointed as
a director in June 2001, to fill a vacancy created by the resignation of Dr.
Jerome H. Supple. Dr. Gilcrease and Mrs. Nash, were appointed as directors in
June 2001 to fill vacancies created by an increase in the number of directors
from eleven to thirteen. Proxies solicited by the Board of Directors will be
voted in favor of the election of these nominees unless authorization to do so
is withheld in the proxy. If any nominee for election as Director is unable or
unwilling to serve, which the Board of Directors does not anticipate, the
persons acting under the proxy will vote for such other person as management may
recommend. An affirmative vote by a majority of those shares constituting at
least a quorum at the Annual Meeting of Shareholders is required for the
election of Directors. The Board of Directors recommends a vote "FOR" each of
the nominees.
The names and ages of the nominees, their principal occupations or employment
during the past five years and other data regarding them are set forth on the
following pages. The data supplied below is based on information provided by the
nominees, except to the extent that such data is known to the Company.
Name Age Since Director and Other Information
John D. 58 1991 Director of FIC since 1991. Vice President, Investment
Barnett Professionals, Inc. from 1996 to present. Vice President,
Investments of Prudential Securities from 1983 to 1996.
S. Tim Casey 58 2001 Senior Vice President of FIC Property Management and
FIC Realty Services, Inc. since 1996. Director, Real
Estate Council of Austin since 1998. Past President,
Building Owners and Managers Association of Austin.
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Name Age Since Director and Other Information
Joseph F. 63 1992 Director of FIC since February 29, 1992. Vice President
Crowe of FIC from February 29, 1992 to January 3, 1997. Vice
President of InterContinental Life Corporation ("ILCO")
from May 1991 to January, 1997. Director of ILCO from
May, 1991 until September, 1997. Director and
Executive Vice President of Investors Life Insurance
Company of North America "Investors-NA") and
Investors Life Insurance Company of Indiana ("Investors-
IN") from June, 1991 to January, 1997. Director and
Executive Vice President of Family Life Insurance
Company ("FLIC") from June, 1991 to January, 1997.
Jeffrey H. 48 1995 Director of FIC since May, 1995. Vice President of FIC
Demgen since August, 1996. Vice President and Director of ILCO
since August, 1996. Director of FLIC since October,
1992. Executive Vice President of FLIC since August,
1996. Senior Vice President of FLIC from October,
1992 to August, 1996. Executive Vice President and
Director of Investors - NA since August, 1996. Senior
Vice President and Director of Investors - NA from
October, 1992 to June, 1995. Executive Vice President
and Director of Investors-IN since August, 1996. Senior
Vice President of Investors-IN from October, 1992 to
June, 1995.
Theodore A. 61 1996 Vice President and Director of FIC since August, 1996.
Fleron Vice President and Director of ILCO since May, 1991.
Assistant Secretary of ILCO since June, 1990. Senior
Vice President, General Counsel, Assistant Secretary and
Director of Investors - NA and Investors-IN since July,
1992. Senior Vice President, General Counsel, Director
and Assistant Secretary of FLIC since August, 1996.
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Name Age Since Director and Other Information
James M. 57 1976 Vice President and Treasurer of FIC since 1976; Director
Grace of FIC since 1976. Vice President and Treasurer of
ILCO since 1985; Director of ILCO since 1985.
Executive Vice President, Treasurer and Director of
Investors-IN since 1985; Executive Vice President,
Treasurer and Director of Investors-NA since 1989;
Director since 1989. Executive Vice President, Treasurer
and Director of FLIC since 1991.
W. Lewis 69 2001 Dentist practicing in San Marcos, Texas. Director of
Gilcrease ILCO from 1988 to June, 2001. Director of FIC from
1979 to July, 1991.
Roy F. Mitte 69 1976 Chairman of the Board, President and Chief Executive
Office of FIC since 1976. Chairman of the Board,
President and Chief Executive Officer of ILCO and
Investors-IN since 1985. Chairman of the Board,
President and Chief Executive Officer of Investors-NA
since December, 1988. Chairman of ILG Securities
Corporation since December 1988. Chairman of the
Board, President and Chief Executive Officer of FLIC
since June, 1991.
M. Scott Mitte 44 2000 Director of FIC since October, 2000. Director of ILCO
from October, 2000 to June 2001. Executive Director
and Vice-President of the Roy F. and Joann Cole Mitte
Foundation since 1999.
Elizabeth T. 51 2001 Director of ILCO from 1998 to June 2001. Member of
Nash the Board of Regents, Texas State University System from
1993 through 1999, Chairman from 1997 to 1998, Vice-
Chairman from 1996 to 1997. Board member of the
Development Foundation of Southwest Texas State
University since 1987, Chairman from 1992 to 1997,
Vice-Chairman from 1989 to 1992.
Frank Parker 72 1994 Private investor. Prior to June, 1997, President of
Gateway Tugs, Inc. and Par-Tex Marine, Inc., both of
which are located in Brownsville, Texas and were engaged
in operating and chartering harbor and intracoastal tug
boats. Director of FIC since May, 1994.
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Name Age Since Director and Other Information
Thomas C. 58 1996 Director of FIC since August, 1996. Director of ILCO
Richmond from March, 1994 to August, 1996. Senior Vice
President since January 1993 of Investors -NA and Investors-IN.
Steven P. 54 2000 Director of FIC since October, 2000. Director of ILCO
Schmitt since 1994. Vice President of FIC and ILCO since
October, 2000. Executive Vice President of Family Life
Insurance Company since October, 2000. Executive Vice
President of Investors-NA and Investors-IN since
October, 2000. Senior Vice President of Investors-NA
and Investors-IN from April, 1992 through October, 2000
and Director and Assistant Secretary of Investors-NA and
Investors-IN since August, 1989. Senior Vice President
of Family Life Insurance Company from April, 1992
through October, 2000 and Director of FLIC since June,
1999.
EXECUTIVE OFFICERS
The following table sets forth the names and ages of the persons who currently
serve as the Company's executive officers together with all positions and
offices held by them with the Company. Officers are elected to serve at the will
of the Board of Directors or until their successors have been elected and
qualified.
Name Age Positions and Offices
Roy F. Mitte 69 Chairman of the Board, President
and Chief Executive Officer
Jeffrey H. Demgen 48 Vice President
James M. Grace 57 Vice President and Treasurer
Steven P. Schmitt 54 Vice President and Secretary
In May 1991, Roy F. Mitte suffered a stroke, resulting in partial paralysis
affecting his speech and mobility. Mr. Mitte continues to make the requisite
decisions in his capacity as Chief Executive Officer, although his ability to
communicate and his mobility are impaired.
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COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
beneficial ownership on Form 3 and changes in beneficial ownership on Forms 4
and 5 with the Securities and Exchange Commission. Officers, directors and
greater than ten percent shareholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the Company, or
written representations that no Form 5s were required, the Company believes that
during the period from January 1, 2000 through December 31, 2000, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with, other than with respect to (i)
Mr. Parker, who filed a Form 5 in February, 2000, to report the transfer to him
in February, 1998 of 2,000 shares of the Company's common stock upon the
dissolution of his employer (Par-Tex Marine), (ii) Mr. M. Scott Mitte, who filed
a Form 5 in February, 2001, to report his election as a director on October 13,
2000 and (iii) Steven P. Schmitt, who filed a Form 5 in February, 2001, to
report his election as a director on October 13, 2000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information as of June 11, 2001 as to all persons
who, to the knowledge of the Registrant, were the beneficial owners of five
percent (5%) or more of the common stock of the Registrant.
Amount and Nature
Name and Address of of Beneficial Percent
Beneficial Owner Ownership of Class 4
The Roy F. and Joann Cole Mite Foundation
6500 River Place Blvd., Bldg One
Austin, Texas 78730 1,552,206 1 16.20%
Roy F. Mitte,
Chairman of the Board,
President and Chief Executive Officer
6500 River Place Blvd., Bldg. One
Austin, Texas 78730 1,625,127 1,2 16.96 %
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Amount and Nature
Name and Address of of Beneficial Percent
Beneficial Owner Ownership of Class 4
Investors Life Insurance Company of North America
6500 River Place Blvd., Bldg. One
Austin, Texas 78701 1,427,073 3 14.89%
Investors Life Insurance Company of Indiana
6500 River Place Blvd., Bldg. One
Austin, Texas 78701 663,682 3 6.92%
Fidelity Management &
Research Company
82 Devonshire Street
Boston, MA 02109 1,307,020 13.64%
(1) The Roy F. and Joann Cole Mitte Foundation is a non-profit
corporation/membership organization and its two members are Roy F. Mitte
and Joann Cole Mitte. The Internal Revenue Service has determined that the
Foundation is exempt from federal income tax under section 501(a) of the
Internal Revenue Code (the "Code") as an organization described in section
501(c)(3) of the Code. Roy F. Mitte is also Chairman, President and Chief
Executive Officer of both FIC and ILCO. For purposes of this table, Mr.
Mitte is deemed to have beneficial ownership of the shares owned by the
Foundation.
(2) Includes shares owned individually by Mr. Mitte in addition to the shares
owned by the Foundation.
(3) Represents shares owned by Investors-NA and Investors-IN and not treated as
issued and outstanding. Investors-IN is a direct subsidiary of
Investors-NA. Investors-NA is an indirect subsidiary of FIC. Assumes
exercise of options held by Investors-NA to acquire shares of FIC.
(4) Assumes that outstanding stock options or warrants held by non-affiliated
persons have not been exercised and that outstanding stock options held by
Investors-NA have been exercised.
The following table contains information as of June 11, 2001 as to the Common
Stock of the Registrant beneficially owned by each director, nominee and
executive officer and by all executive officers and directors of the Registrant
as a group. The information contained in the table has been obtained by the
Registrant from each director and executive officer, except for the information
known to the Registrant. Except as indicated in the notes to the table, each
beneficial owner has sole voting power and sole investment power as to the
shares listed opposite his name.
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Amount and Nature of Percent of
Name Beneficial Ownership 1,2 Class
John Barnett 2,000 *
S. Tim Casey 12,903 4 *
Joseph F. Crowe 56,500 *
Jeffrey H. Demgen 11,471 4 *
Theodore A. Fleron 23,357 4 *
W. Lewis Gilcrease -0-
James M. Grace 30,269 4 *
Roy F. Mitte 1,625,127 3 16.96%
M. Scott Mitte 33 4 *
Elizabeth T. Nash 220 *
Frank Parker 12,000 *
Thomas C. Richmond 16,224 4 *
Steven P. Schmitt 15,808 4 *
All Executive Officers,
and Directors as
a group (13 persons) 1,805,912 18.85%
* Less than 1%.
(1) Includes shares issuable upon exercise of options granted under the ILCO
1999 Non-Qualified Stock Option Plan to officers and directors who are also
employees of FIC or its subsidiaries to the extent that such options are
exercisable within 60 days.
(2) Includes shares converted from InterContinental Life Corporation in
connection with the May 18, 2001 merger of ILCO with FIC. Shareholders of
ILCO received 1.1 shares of FIC common stock for each share of ILCO common
stock held by such shareholders.
(3) Includes 1,552,206 shares owned by the Roy F. and Joann Cole Mitte
Foundation, 37,620 shares owned directly by Mr. Mitte and 35,301 shares
allocated to Mr. Mitte's account under the Employees Savings and Investment
Plan.
(4) Includes shares beneficially acquired through participation in the
Employees Savings and Investment Plan, a group plan available to eligible
employees of the Company and its subsidiaries.
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COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Summary Compensation Table
The following table sets forth information concerning the compensation of the
Company's Chief Executive Officer and each of the three other persons who were
serving as executive officers of the Company at the end of 2000 and received
cash compensation exceeding $100,000 during 2000:
Annual Compensation
Long Term
Name and Compensation
Principal Awards/Stock All Other
Position Year Salary1 Bonus3 Other2 Options (Shares) Compensation
Roy F. Mitte,
Chairman, 2000 $ 503,500 $2,500,000 -0- -0- -0-
President and 1999 503,500 2,500,000 -0- -0- -0-
Chief Executive 1998 503,500 2,500,000 -0- -0- -0-
Officer
James M. 2000 195,000 25,000 -0- -0- -0-
Grace, Vice 1999 195,000 20,000 -0- -0- -0-
President and 1998 195,000 25,000 -0- -0- -0-
Treasurer
Steven P. 20004 108,846 16,000 -0- -0- -0-
Schmitt, Vice
President and
Secretary
Jeffrey H. 2000 160,000 20,000 -0- -0- -0-
Demgen, Vice 1999 150,000 20,000 -0- -0- -0-
President 1998 145,384 15,000 -0- -0- -0-
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(1) The salaries and bonuses set forth in the table were paid by ILCO, except
that FIC and/or Family Life authorized payment of a portion of Mr. Mitte's
salary in each of 1998, 1999 and 2000. The executive officers of FIC have
also been executive officers of Family Life, the insurance subsidiary of
FIC, and ILCO and its insurance subsidiaries. FIC and/or Family Life
reimbursed ILCO (or, in the case of Mr. Mitte, authorized payment of) the
following amounts as FIC's or Family Life's share of the executive
officers' cash compensation and bonus for 1998,1999 and 2000 (i) Mr. Mitte:
$1,111,821, $1,111,821 and $1,111,821, respectively; (ii) Mr. Grace:
$64,152, $62,694 and $64,152, respectively; (iii) Mr. Schmitt: $39,888, and
(iv) Mr. Demgen: $72,173, $76,500 and $81,000, respectively.
(2) Does not include the value of perquisites and other personal benefits
because the aggregate amount of any such compensation does not exceed the
lesser of $50,000 or 10 percent of the total amount of annual salary and
bonus for any named individual.
(3) The data in this column represents the amount of annual bonus awarded.
(4) Steven P. Schmitt was appointed as an executive officer in the year 2000,
thus only his compensation for the year 2000 is disclosed.
Option Grants in 2000
None of the persons named in the Summary Compensation Table, above, received a
stock option grant during the year 2000.
Aggregated Options Exercised in 2000
No stock options were exercised during the year 2000 by individuals who were
executive officers of the Company as of December 31, 2000.
Aggregated Stock Option Values
The following table sets forth information with respect to the unexercised
options held by the executive officers of the Company. The value of unexercised
in-the-money stock options at December 31, 2000 shown below are presented in
accordance with SEC rules. The actual amount, if any, realized upon exercise of
stock options will depend upon the market price of the common stock of the
Company relative to the exercise price per share of the stock option at the time
the stock option is exercised. There is no assurance that the values of
unexercised in-the-money stock options reflected in the following table will be
realized.
The information set forth in the following table has not been adjusted to
reflect the conversion of the common stock of ILCO to shares of FIC in
connection with the May 18, 2001 merger of ILCO with FIC. Shareholders of ILCO
received 1.1 shares of FIC common stock for each share of ILCO common stock held
at the time of the merger.
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Number of Unexercised Value of Unexercised
Options Held at In-the-Money Options
December 31, 2000 at December 31, 20001
Name Exercisable Unexercisable Exercisable Unexercisable
Roy F. Mitte 2,000 8,000 $ 1,000 $ 4,000
Jeffrey H. Demgen 2,000 8,000 $ 1,000 $ 4,000
James M. Grace 2,000 8,000 $ 1,000 $ 4,000
Steven P. Schmitt 2,000 8,000 $ 1,000 $ 4,000
(1) Based on the closing price of ILCO's common stock on NASDAQ on December 31,
2000 ($9.50).
Pension Plan Table
The following table sets forth estimated annual pension benefits payable upon
retirement at age of 65 under the noncontributory defined benefit plan ("Pension
Plan") to an employee in the final pay and years of service classifications
indicated, assuming a straight life annuity form of benefit. The benefits are
provided under a plan maintained by ILCO. The amounts shown in the table do not
reflect the reduction related to Social Security benefits referred to below.
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Years of Service
30 or
Remuneration 15 20 25 more
$125,000 $29,437 $ 39,250 $ 49,062 $ 58,875
150,000 35,325 47,100 58,875 70,650
160,000 37,680 50,240 62,800 75,360
175,000 41,212 54,950 68,687 82,425
200,000 47,100 62,800 78,500 94,200
The normal retirement benefit provided under the Pension Plan is equal to 1.57%
of final average eligible earnings less 0.65% of the participant's Social
Security covered compensation multiplied by the number of years of credited
service (up to 30 years). The compensation used in determining benefits under
the Pension Plan is the highest average earnings received in any five
consecutive full-calendar years during the last ten full-calendar years before
the participant's retirement date. The maximum amount of annual salary and bonus
that can be used in determining benefits under the Pension Plan is $200,000 for
any year prior to 1994 and is $150,000 for 1994, 1995, and 1996 and is $160,000
for 1997 and each subsequent year.
The annual eligible earnings, for 2000 only, covered by the Pension Plan (salary
up to $160,000) with respect to the individuals reported in the Summary
Compensation Table were as follows, with their respective years of credited
service under the Pension Plan at December 31, 2000 being shown in parentheses:
Mr. Mitte, $160,000 (13 years), Mr. Grace, $160,000 (13 years), Mr. Demgen,
$160,000 (8 years), and Mr. Schmitt, $108,846 (29 years).
EMPLOYMENT AGREEMENTS
(a) Mr. Mitte and FIC are parties to an employment agreement, providing for the
employment of Mr. Mitte as Chairman, President and Chief Executive Officer of
the Company. The agreement, which was initially effective February 25, 1982,
provides for five-year terms and for automatic renewals for successive five-year
periods, unless otherwise terminated in accordance with the terms of the
agreement. The original agreement provided that the level of compensation will
be fixed each year by agreement, but not less than $120,000 per year. In
addition, the agreement provides that Mr. Mitte is entitled to reimbursement for
reasonable business expenses and to participate in all fringe benefit plans and
arrangements available generally to employees of the Company. On March, 24,
2001, the Compensation Committee of the Board of Directors recommended a
modification to the employment agreement, effective as of the date of the
closing of the proposed merger between the Company and FIC. The Compensation
Committee recommended that the minimum level of compensation be increased to
$503,500. In addition, the amendment would provide that Mr. Mitte is entitled to
receive an annual bonus in an amount to be determined by the Compensation
Committee of the Board of Directors. Upon the occurrence of a change in control
(as defined in the amendment), the amendment would provide that the amount of
the bonus is to be fixed at the rate of $2.5 million per year. The amendment
would further provide that (i) in the event of the death of Mr. Mitte, the rate
of compensation which was being paid to him at that time will continue to be
paid for a period of twelve months following the date of death and (ii) if the
employment of Mr. Mitte is terminated during the term of the agreement, he is
entitled to receive the payments otherwise due for the remainder of the then
current term. The Board of Directors of the Company approved the recommendation
of the Compensation Committee at its meeting on March 24, 2001. Subsequently,
Mr. Mitte requested a modification of the proposed amendment whereby the period
for which payments would be made in the event of his death would be for the
remainder of the term of his employment then in effect and that the amount of
such payments be based on both that monthly base salary then in effect and the
bonus amount paid to him by FIC and ILCO for the year 2001. The Compensation
Committee considered the request and recommended that the modification be
approved by the Board of Directors. On April 4, 2001, the Board of Directors
approved the recommendation of the Compensation Committee. Thereafter, the
amendment to the employment agreement was executed by the parties.
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( b) In addition, a subsidiary of the Company (ILCO) has an employment agreement
with James M. Grace. From 1991 to January, 2001, James Grace had an employment
agreement with ILCO, which would become effective upon the occurrence of certain
events related to (i) the retirement or date of death or disability of Roy F.
Mitte or (ii) the date that any person who is not currently a control person
with respect to the Company acquired, or entered into an agreement to acquire,
control of the Company, directly or indirectly. This agreement provided that Mr.
Grace would be entitled to perform all of the duties of the position or
positions held by him with the Company and all subsidiaries of the Company on
the date immediately preceding the commencement date of the agreement and he
would be entitled to an annual rate of compensation which is not less than the
annual rate of compensation in effect as of the date immediately preceding the
commencement date of the agreement.
This agreement was superseded by an employment agreement between ILCO and Mr.
Grace which became effective on January 8, 2001. The new agreement provides for
the employment of Mr. Grace through August 12, 2005 at a salary of $195,000 per
year. Mr. Grace shall perform the duties he performed at the time of the
effective date of the agreement, or other similar duties as may be assigned from
time to time. The agreement may be terminated by the Company only in limited
circumstances. In the event of a change of control of the Company, the remaining
amounts payable under this agreement shall become immediately due and payable in
one lump sum and the agreement shall terminate.
Directors' Compensation
Directors who are not officers or employees of the Company are paid a $5,000
annual fee, and are compensated $1,000 for each regular or special meeting of
the Board of Directors which they attend in person.
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Members of Compensation Committee
The Compensation Committee makes recommendations to the Board of Directors with
respect to the Chief Executive Officer's compensation. During the year 2000, the
following directors were members of the Compensation Committee are John D.
Barnett, Frank Parker and Jerome H. Supple.
Compensation Committee Interlocks and Insider Participation
Roy F. Mitte determines the compensation of all executive officers of the
Company, other than the Chief Executive Officer. Mr. Mitte is the Chairman of
the Board, President and Chief Executive Officer of the Company and ILCO. He
also determined the compensation of all executive officers of ILCO, other than
the Chief Executive Officer.
Reports on Executive Compensation and Report of Audit Committee
The following reports and the performance graph shall not be deemed incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
Chief Executive Officer's Report
The following report is made by Chief Executive Officer with respect to
compensation policies applicable to the Company's executive officers, other than
the Chief Executive Officer.
The goal of the Company's compensation policies is to ensure that an appropriate
relationship exists between executive pay and the creation of shareholder value,
while at the same time motivating and retaining senior managers. Executive
compensation is based on several factors, including corporate performance. While
sales, earnings, return on equity and other performance measurers are considered
in making annual executive compensation decisions, no formulas, pre-established
target levels or minimum performance thresholds are used. Each executive
officer's individual initiatives and achievements and the performance of the
operations directed by the executive are integral factors utilized in
determining that officer's compensation.
Since the executive officers of the Company are also executive officers of ILCO,
they receive cash compensation from the Company and ILCO. In addition, the
executive officers of both companies are provided long-term equity-based
compensation in the form of stock options granted under the ILCO 1999 Stock
Option Plan and ILCO's Savings and Investment (401K) Plan. They also participate
in medical and pension plans that are generally available to employees of the
Company and ILCO. The objectives of the ILCO 1999 Stock Option Plan and the 401K
Plan are to create a strong link between executive compensation and shareholders
return and enable senior managers to develop and retain a significant and
long-term equity investment.
-14-
Under the Company's 1999 Stock Option Plan, options to buy FIC's common stock at
100% of the fair market value on the date of grant but in no event less than
$6.8181 per share (as adjusted upon the merger of ILCO with FIC on May 18, 2001)
can be granted to officers of the Company and its subsidiary and affiliated
companies. The 1999 Stock Option Plan, which was adopted by ILCO in March, 1999
and became effective upon its approval by the shareholders of ILCO at the annual
meeting on May 18, 1999, authorized the ILCO Board of Directors to grant options
to purchase up to a maximum of 800,000 shares of ILCO's common stock. In
connection with the May 18, 2001 merger of ILCO with FIC, each outstanding
option to purchase shares of ILCO common stock under the 1999 Stock Option Plan
was assumed by FIC and converted into an option to purchase the number of shares
of FIC common stock, rounded up to the nearest 1/100 of a share, equal to the
number of shares of ILCO common stock subject to the original option multiplied
by 1.1. The exercise price per share of FIC common stock under the new option is
equal to the former exercise price per share of ILCO common stock under the
option immediately prior to the merger divided by 1.1, and rounded to the
nearest penny. In accordance with the terms of the ILCO stock option plan under
which the options were issued, any fractional shares resulting from the
foregoing adjustments will be eliminated. All other terms of the options,
including the vesting schedule, remain unchanged. At June 28, 2001, options to
purchase 367,400 shares of FIC's common stock were outstanding, of which options
to buy 26,400 shares were held by executive officers of the Company. FIC's Board
of Directors administers the plan.
The Company's 401K Plan allows eligible employees to make voluntary
contributions on a tax deferred basis. During 1997, the Plan was changed to
provide for a matching contribution by participating companies. The match, which
was in the form of shares of ILCO common stock prior to the merger of ILCO with
FIC and FIC shares subsequent to the merger, is equal to 100% of an eligible
participant's elective deferral contributions, as defined in the Plan, not to
exceed 1% of the participant's plan compensation. Effective January 1, 2000, the
Plan was amended to increase the match percentage from 1% to 2%. Allocations are
made on a quarterly basis to the account of participants who have at least 250
hours of service in that quarter.
The 401K Plan also includes participant accounts which were transferred from the
ILCO Employee Stock Ownership Plan ("ESOP"). The merger of the ILCO ESOP into
the ILCO 401K Plan was approved in May, 1998. The ESOP was a noncontributory
employee benefit plan available to all employees who have completed one year of
service. Allocations of contributions were made to participants in accordance
with their compensation. Vesting of participants in their accounts occurs in
annual installments over a period of approximately ten years. As of March 31,
2001, that portion of the assets of the 401K Plan which represent participant
accounts transferred from the ESOP consisted of 751,751 shares of ILCO's common
stock of which 53,180 shares were allocated to executive officers of the Company
and the balance of the shares were allocated to the other participants. In
connection with the merger of ILCO with FIC, the ILCO shares in the ESOP were
converted to FIC common stock, at the 1.1 to 1 exchange ratio.
The Company provide medical and pension benefits to their executive officers
that are generally available to employees.
The foregoing report has been furnished by Roy F. Mitte.
-15-
Compensation Committee's Report
The Compensation Committee of the Board of Directors makes a recommendation to
the Board of Directors each year with respect to the Chief Executive Officer's
compensation for that year. For the year 2000, the Committee recommended that
the Chief Executive Officer's compensation continue at the same level in effect
for the year 1999. In addition, the Committee recommended that the Chief
Executive Officer receive a cash bonus in the amount of $965,000.
The compensation policies and practices of the Compensation Committee are
subjective and are not based upon specific criteria. The Committee did consider
the Company's overall financial performance and its continuing progress in
expense management, maintenance of a high quality investment portfolio and
marketing of insurance products designed to generate an acceptable level of
profitability. The Committee recognized the Chief Executive Officer's leadership
role in the Company's performance and his ability to select, recruit and
motivate qualified people to implement the Company's policies that have
contributed to that performance.
Since the Chief Executive Officer's 2000 compensation is not based on any
particular measures of the Company's performance, such as sales, earning or
return on equity, there is no specific discussion in this report of the
relationship of the Company's performance to the Chief Executive Officer's
compensation for 2000.
The foregoing report is submitted by the members of the Compensation Committee
Performance Graph
The graph and table below compare the cumulative total shareholder return on the
Company's Common Stock for the last five calendar years with the cumulative
total return on The Nasdaq Stock Market (US) and an index of stocks of life
insurance companies traded on Nasdaq over the same period (assuming the
investment on December 31, 1995 of $100 in the Company's Common Stock, The
Nasdaq Stock Market (U.S.) and an index of stocks of life insurance companies
traded on Nasdaq and the reinvestment of all dividends).
-16-
[PERFORMANCE GRAPH OMITTED]
12/31/95 12/30/96 12/29/97 12/29/98 12/31/99 12/31/00
The Company (1) $100.00 $153.70 $ 272.00 $ 325.02 $ 135.10 $ 126.10
The Nasdaq Stock Market (US) $100.00 $123.00 $ 150.70 $ 213.10 $ 394.80 $ 237.40
Index of Nasdaq Life Ins. Stocks (2) $100.00 $129.00 $ 170.60 $ 256.00 $ 148.60 $ 164.20
(1) The dollar amounts for the Company's Common Stock are based on the closing
bid prices on Nasdaq on the dates indicated.
(2) The Index of Nasdaq Life Insurance Stocks is comprised of life insurance
companies whose stocks were traded on Nasdaq during the last five calendar
years (38 issues listed during that period, of which 15 issues were traded
on December 31, 2000). These peer companies were selected by the Company on
a line-of-business basis.
-17-
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is primarily responsible for
providing assistance to the Board of Directors in fulfilling its
responsibilities in matters relating to (i) the annual financial information to
be provided to shareholders and the Securities and Exchange Commission (SEC);
(ii) the system of internal controls that management has established; and (iii)
the internal and external audit process. In addition, the Audit Committee
provides an avenue for communication between internal audit, the independent
accountants, financial management and the Board of Directors. The Audit
Committee makes periodic reports to the Board of Directors concerning its
activities. Each of the members of the Audit Committee is "independent", as
defined by the listing standards of the Nasdaq Stock Market, Inc.("NASDAQ"). A
copy of the charter of the Audit Committee adopted by the Board of directors is
attached as Annex "A" to the Proxy Statement
In the performance of its oversight responsibilities, the Audit Committee has
reviewed with management the Company's audited financial statements for the year
ended December 31, 2000.
The Audit Committee has discussed with the independent auditors the matters
required to be discussed under the provisions of Statement of Auditing Standards
No. 61, Communications with Audit Committees. In addition, the Audit Committee
has received the written disclosures and the letter from the independent
auditors required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees) and has discussed with the independent
auditors the independent auditors' independence. The Audit Committee also
considered whether the provision of services by PricewaterhouseCoopers, LLP not
related to the audit of the Company's financial statements and to the review of
the Company's interim financial statements is compatible with maintaining the
independence of PricewaterhouseCoopers.
On the basis of the reviews and discussions described above, in reliance on
management and the independent auditors, and subject to the limitations of the
role of the Audit Committee, the Audit Committee recommended to the Board of
Directors that the financial statements referred to above be included in the
Annual Report of the Company on Form 10-K for the year ended December 31, 2000.
The foregoing report is submitted by the members of the Audit Committee
John D. Barnett, Chairman
Joseph F. Crowe 1
Frank Parker
Jerome H. Supple 2
(1) Mr. Crowe was appointed to the Audit Committee in March, 2001 and
participated in the review and discussion of the Form 10-K report
for the year ended December 31, 2000.
(2) Dr. Supple resigned from the Board of Directors in June, 2001.
-18-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) As part of the financing arrangement for the acquisition of Family Life
Insurance Company, Family Life Corporation ("FLC"), a subsidiary of FIC,
entered into a Senior Loan agreement under which $50 million was provided
by a group of banks. The balance of the financing consisted of a $30
million subordinated note issued by FLC to Merrill Lynch Insurance Group,
Ins. ("Merrill Lynch") and $14 million borrowed by another subsidiary of
FIC from an affiliate of Merrill Lynch and evidenced by a senior
subordinated note in the principal amount of $12 million and a junior
subordinated note in the principal amount of $2 million and $25 million
lent by two insurance company subsidiaries of ILCO. The latter amount was
represented by a $22.5 million loan from Investors-NA to FLC and a $2.5
million loan provided directly to FIC by Investors-CA. In addition to the
interest provided under those loans, Investors-NA and Investors-CA were
granted by FIC non-transferable options to purchase, in the amounts
proportionate to their respective loans, up to a total of 9.9 percent of
shares of FIC's common stock at a price of $10.50 per share ($2.10 per
share as adjusted for the five-for-one stock split in November, 1996),
equivalent to the then current market price, subject to adjustment to
prevent dilution. In connection with the merger of FIC and ILCO on May 18,
2001, the option agreement was amended to provide that the number of shares
which could be purchased upon exercise is 500,411, which number is equal to
9.9% of the number of shares of FIC common stock outstanding prior to the
effective date of the merger. The original provisions of the options
provided for their expiration on June 12, 1998 if not previously exercised.
In connection with the 1996 amendments to the subordinated notes, as
described below, the expiration date of the options were extended to
September 12, 2006.
On July 30, 1993, the subordinated indebtedness owed to Merrill Lynch and
its affiliate was prepaid. The Company paid $38 million plus accrued
interest to retire the indebtedness, which had a principal balance of
approximately $50 million on July 30, 1993. The primary source of the funds
used to prepay the subordinated debt was new subordinated loans totaling
$34.5 million that FLC and another subsidiary of FIC obtained from
Investors-NA. The principal amount of the new subordinated debt is payable
in four equal annual installments in 2000, 2001, 2002 and 2003 and bears
interest at an annual rate of 9%. The other terms of the new debt are
substantially the same as those of the $22.5 million subordinated loans
that Investors-NA had previously made to FLC and that continue to be
outstanding.
In June, 1996, the provisions of the notes from Investors-NA to FIC, Family
Life Corporation ("FLC") and Family Life Insurance Investment Company
("FLIIC") were modified as follows: (a) the $22.5 million note was amended
to provide for twenty quarterly principal payments, in the amount of
$1,125,000 each, to commence on December 12, 1996; the final quarterly
principal payment is due on September 12, 2001; the interest rate on the
note remains at 11%, (b) the $30 million note was amended to provide for
forty quarterly principal payments, in the amount of $163,540 each for the
period December 12, 1996 to September 12, 2001; beginning with the
principal payment due on December 12, 2001, the amount of the principal
payment increases to $1,336,458; the final quarterly principal payment is
due on September 12, 2006; the interest rate on the note remains at 9%, (c)
the $4.5 million note was amended to provide for forty quarterly principal
payments, in the amount of $24,531 each for the period December 12, 1996 to
September 12, 2001; beginning with the principal payment due on December
12, 2001, the amount of the principal payment increases to $200,469; the
final quarterly principal payment is due on September 12, 2006; the
interest rate on the note remains at 9%, (d) the $2.5 million note was
amended to provide that the principal balance of the note is to be repaid
in twenty quarterly installments of $125,000 each, commencing December 12,
1996 with the final payment due on September 12, 2001; the rate of interest
remains at 12% and (e) the Master PIK note, which was issued to provide for
the payment in kind of interest due under the terms of the $2.5 million
note prior to June 12, 1996, was amended to provide that the principal
balance of the note ($1,977,119) is to be paid in twenty quarterly
principal payments, in the amount of $98,855.95 each, to commence December
12, 1996 with the final payment due on September 12, 2001; the interest
rate on the note remains at 12%.
In December, 1998, FLIIC was dissolved. In connection with the dissolution,
all of the assets and liabilities of FLIIC became the obligations of
FLIIC's sole shareholder (FIC). Accordingly, the obligations under the
provisions of the $4.5 million note described above are now the obligations
of FIC.
-19-
(b) The data processing needs of ILCO's and FIC's insurance subsidiaries are
provided to ILCO's and FIC's insurance subsidiaries by FIC Computer
Services, Inc. ("FIC Computer"), a subsidiary of FIC. Under the provisions
of the data processing agreement FIC Computer provides data processing
services to each subsidiary for fees equal to such subsidiary's
proportionate share of FIC Computer's actual costs of providing those
services to all of the subsidiaries. Family Life paid $1,758,000 and ILCO's
insurance subsidiaries paid $2,427,000 to FIC Computer for data processing
services provided during the year 2000.
(c) In 1995, Family Life entered into a reinsurance agreement with Investors-NA
pertaining to universal life insurance written by Family Life. The
reinsurance agreement is on a co-insurance basis and applies to all covered
business with effective dates on and after January 1, 1995. The agreement
applies to only that portion of the face amount of the policy which is less
than $200,000; face amounts of $200,000 or more are reinsured by Family
Life with a third party reinsurer.
(d) In 1996, Family Life entered into a reinsurance agreement with
Investors-NA, pertaining to annuity contracts written by Family Life. The
agreement applies to contracts written on or after January 1, 1996.
(e) In January, 2001, the Compensation Committee of the Company recommended
that the Company make a donation of $375,000 to the Roy F. and Joann Cole
Mitte Foundation (the "Foundation"). At the Company's board meeting held on
January 17, 2001, the Board of Directors approved the donation to the
Foundation. A similar action was taken by the ILCO Compensation Committee
and the ILCO Board of Directors in January, 2001 and a donation was made by
ILCO to the Foundation in the amount of $375,000. The Foundation is a
charitable entity exempt from federal income tax under section 501(a) of
the Code as an organization described in section 501(c)(3) of the Code, and
owns 16.03% of the outstanding shares of FIC's common stock. The sole
members of the Foundation are Roy F. Mitte, Chairman, President and Chief
Executive Officer of FIC, ILCO and their insurance subsidiaries, and his
wife, Joann Cole Mitte.
(f) On May 22, 2001, the Board of Directors of the Company approved the
purchase from James M. Grace of the shares of common stock owned by Mr.
Grace at the current market price of $16.80. In accordance with the terms
of the arrangement, the Company purchased 89,446 shares from Mr. Grace
117,515 shares of the common stock of the Company from the Company at a
price of $16.80 per share. With respect to the shares allocated to Mr.
Grace's accounts in the Employee Stock Ownership Plan and the Employee
Savings and Investment Plan (28,069 shares), the Company agreed to defer
the payment for said shares until such time that the shares may be
distributed to Mr. Grace, or purchased from the accounts, in accordance
with the terms and provisions of the plans;
(g) In June, 2001, the Company granted Mr. Roy F. Mitte a loan in the amount of
$5 million. The loan, which bears interest at the rate of 7.5% per annum,
is for a one-year period. The note provides for the quarterly payment of
interest, prepayment of principal without penalty and final payment of
principal and interest in June, 2002. As of the date of this Proxy
Statement, Mr. Mitte had repaid $1.536 million of the principal amount of
the loan.
-20-
BOARD, COMMITTEES AND MEETINGS
FIC's Board of Directors met formally four times during 2000. During the year
ended December 31, 2000, all of the incumbent Directors at December 31, 2000
attended at least 75% of the aggregate number of meetings of the Board of
Directors and respective Committees on which he or she served.
The Board has an Audit Committee, which met formally four times during 2000. The
Directors serving on the Audit Committee during 2000 were John D. Barnett, Frank
Parker and Jerome H. Supple. Mr. Crowe was appointed as a member of the Audit
Committee in March, 2001. The responsibilities of the Audit Committee include:
(i) reviewing the scope of the annual audits of the financial statements of the
Company, (ii) reviewing the audit results with the independent auditors and
management and (iii) evaluating the performance of the independent auditors of
the Company.
The members of the Compensation Committee during 2000 were: Messrs, Barnett and
Parker and Dr. Supple. The Compensation Committee held one meeting during 2000,
which was attended by all of the members of the Committee. The responsibilities
of the Compensation Committee include recommending to the Board the amount and
nature of the compensation paid by the Company to the Chief Executive Officer.
The Board does not have a nominating committee.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
FIC's accounting firm for the current year is PricewaterhouseCoopers, LLP.
Representatives of PricewaterhouseCoopers LLP are expected to be available for
comment at the Shareholders Meeting and will be given an opportunity to respond
to appropriate questions.
FEES PAID TO INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers, LLP has billed the Company and its subsidiaries fees as
set forth in the table below for (i) the audit of the Company's annual financial
statements for the year 2000 of and reviews of quarterly financial statements,
(ii) financial information systems design and implementation work rendered in
the year 2000 and (iii) all other services rendered in the year 2000. The table
does not include fees paid to PricewaterhouseCoopers by ILCO and its
subsidiaries for services rendered in the year 2000 with respect either ILCO or
its subsidiaries:
-21-
Financial
Information
Systems
Design and
Implementation
Audit Fees Fees All Other Fees
Fiscal Year 2000 $216,640 $ -0- $77,742
SHAREHOLDER PROPOSALS
It is contemplated by the management of FIC that the next Annual Meeting of the
Shareholders of FIC will be held on or about May 23, 2002. Proposals submitted
by any security holders and intended to be included in FIC's Proxy Statement and
Form of Proxy relating to the meeting must be received by the Company at its
principal executive offices no later than December 31, 2001 and must be in
compliance with applicable laws and Securities and Exchange Commission
regulations.
ADDITIONAL MATTERS
At the date hereof, there are no other matters which the Board of Directors
intends to present or has reason to believe others will present at the meeting.
However, if any other matter should be presented, the persons named in the
accompanying proxy will vote according to their best judgment in the interest of
FIC with respect to such matters.
Date: June 24, 2001
By Order of the Board of Directors
Financial Industries Corporation
Steven P. Schmitt
Secretary
-21-
Annex A
Financial Industries Corporation
Audit Committee Charter
The Audit Committee ("the Committee"), of the Board of Directors of Financial
Industries Corporation (the "Company"), will have the responsibilities and
duties as described below:
ORGANIZATION
The Audit Committee will be comprised of three or more directors as determined
by the Board of Directors. The members of the Audit Committee will meet the
independence and experience requirements of the Nasdaq Stock Market,
Inc.("NASDAQ"). The members of the Committee will be elected annually at the
organizational meeting of the Board of Directors and will be listed in the
annual report to shareholders. One of the members of the Audit Committee will be
elected Committee Chair by the Board of Directors.
STATEMENT OF POLICY
The Audit Committee is a part of the Board of Directors. It's primary function
is to assist the Board of Directors in fulfilling its oversight responsibilities
with respect to (i) the annual financial information to be provided to
shareholders and the Securities and Exchange Commission (SEC); (ii) the system
of internal controls that management has established; and (iii) the internal and
external audit process. In addition, the Audit Committee provides an avenue for
communication between internal audit, the independent accountants, financial
management and the Board of Directors. The Audit Committee should have a clear
understanding with the independent accountants that they must maintain free and
open communications with the Audit Committee, and that the ultimate
accountability of the independent accountants is to the Board of Directors and
the Audit Committee. The Audit Committee will make periodic reports to the Board
of Directors concerning its activities.
MEETINGS
The Audit Committee is to meet at least four times annually and as many
additional times as the Audit Committee deems necessary. The Audit Committee is
to meet in separate executive sessions with the chief financial officer,
independent accountants and internal audit at least once each year and at other
times when considered appropriate.
ATTENDANCE
Audit Committee members will strive to be present at all meetings. As necessary
or desirable, the Audit Committee Chair may request that members of management
and representatives of the independent accountants and internal audit be present
at Audit Committee meetings.
A-1
-22-
RESPONSIBILITIES AND PROCESSES
The following is a general description of the principal recurring processes of
the Audit Committee in carrying out its oversight responsibilities. The
processes are set forth as a guide, with the understanding that the Audit
Committee may supplement as needed and appropriate:
Review and reassess the adequacy of this charter annually and recommend any
proposed changes to the Board of Directors for approval. This should be
done in compliance with applicable NASDAQ Audit Committee Requirements.
Review with the Company's management, internal audit and independent
accountants the Company's accounting and financial reporting controls.
Review with the Company's management, internal audit and independent
accountants significant accounting and reporting principles, practices and
procedures applied by the Company in preparing its financial statements.
Discuss with the independent accountants their judgements about the
quality, not just the acceptability, of the Company's accounting principles
used in financial reporting.
Review the scope and general extent of the independent accountants' annual
audit. The Committee's review should include an explanation from the
independent accountants of the factors considered by the accountants in
determining the audit scope, including the major risk factors. The
independent accountants should confirm to the Audit Committee that no
limitations have been placed on the scope or nature of their audit
procedures. The Audit Committee will review annually with management the
fee arrangement with the independent accountants.
Inquire as to the independence of the independent accountants and obtain
from the independent accountants, at least annually, a formal written
statement delineating all relationships between the independent accountants
and the Company as contemplated by Independence Standards Board Standard
No. 1, Independence Discussions with Audit Committees.
Review the interim financial statements with management and the independent
auditors prior to filing of the Company's Quarterly Report on Form 10-Q.
Discuss the results of the quarterly review and any other matters required
to be communicated to the Audit Committee by the independent auditors under
generally accepted auditing standards.
At the completion of the annual audit, review with management, internal
audit and the independent accountants the following:
The annual financial statements and related footnotes and financial
information to be included in the Company's annual report to
shareholders and on Form 10-K.
Results of the audit of the financial statements and the related
report thereon and, if applicable, a report on changes during the year
in accounting principles and their application.
A-2
-23-
Significant changes to the audit plan, if any, and any serious disputes or
difficulties with management encountered during the audit. Inquire about
the cooperation received by the independent accountants during their audit,
including access to all requested records, data and information. Inquire of
the independent accountants whether there have been any disagreements with
management which, if not satisfactorily resolved, would have caused them to
issue a nonstandard report on the Company's financial statements.
Other communications as required to be communicated to the Audit Committee
by the independent accountants under generally accepted auditing standards.
Discuss with the independent accountants the quality of the Company's financial
and accounting personnel. Also, elicit the comments of management regarding the
responsiveness of the independent accountants to the Company's needs.
Recommend to the Board of Directors the selection, retention or termination of
the Company's independent accountants.
Review with management, internal audit and the independent accountants the
adequacy and effectiveness of the legal and business ethics compliance programs
of the Company that may have a material impact on the financial statements.
A-3
-24-