PRELIMINARY COPY - SUBJECT TO
COMPLETION DATED APRIL 18, 2003
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. 3)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 14a-12
Financial Industries Corporation
(Name of Registrant as Specified In Its Charter)
_________________________________________________
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed
[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 6500 River Place Blvd., Building
One, Austin, Texas on May 9, 2003, at 10:00 a.m. local time.
At this year's Annual Meeting, shareholders will be asked to elect eleven
(11) directors. Additional information about the Annual Meeting is provided in
the attached Notice of Annual Meeting and Proxy Statement.
Whether or not you plan to attend the Annual Meeting, we encourage you to
vote as soon as possible. You may vote by mailing a completed proxy card to us
in the enclosed postage paid envelope at your earliest convenience. Voting your
proxy will ensure your representation at the Annual Meeting. You can revoke your
signed proxy at any time before it is used.
The Board of Directors urges you to carefully review the proxy materials
and to vote FOR the director nominees.
I hope to see you at the May 9, 2003 Annual Meeting.
This Annual Meeting is of particular importance to all shareholders of FIC
in light of the attempt by the Mitte Family to take control of your Board with
an unspecified slate of director nominees hand-selected by the Mitte Family and
the attempt by the Otter Creek Group to take control of your Board with a slate
of director nominees who have no history or familiarity with the Company or its
business. Whether or not you expect to attend, you are requested to vote your
shares by signing, dating and returning the enclosed WHITE proxy card in the
envelope provided. The Board also urges you not to sign any proxy cards sent to
you by the Mitte Family, the Otter Creek Group or any other person. Even if you
have previously signed a proxy card sent to you by the Mitte Family or the Otter
Creek Group, you can revoke it by signing, dating and mailing the enclosed WHITE
Proxy card in the envelope provided.
Sincerely,
/s/ Eugene E. Payne
Eugene E. Payne
Chairman, President and
Chief Executive Officer
FINANCIAL INDUSTRIES CORPORATION
6500 River Place Blvd., Building One
Austin, Texas 78730
NOTICE OF ANNUAL MEETING
TO BE HELD FRIDAY, MAY 9, 2003
To the Shareholders of Financial Industries Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Financial
Industries Corporation ("FIC" or the "Company") will be held at 6500 River Place
Blvd., Building One, Austin, Texas on Friday, May 9, 2003, at 10:00 a.m. local
time. The Annual Meeting will be held for the purposes stated below and more
fully described in the accompanying Proxy Statement, and to transact such other
business as may properly come before the Annual Meeting or any adjournments
thereof:
1. To elect eleven (11) directors to hold office for the ensuing year.
2. To transact any other business that may properly come before the Annual
Meeting or any postponement or adjournment thereof.
The Board of Directors has fixed the close of business on Tuesday, March
18, 2003 as the Record Date to determine which shareholders are entitled to
notice of and to vote at the Annual Meeting or any postponement or adjournment
thereof. Only shareholders of record at the close of business on the Record Date
are entitled to notice of, and to vote at, the Annual Meeting. A list of
shareholders entitled to vote at the Annual Meeting will be available for
inspection at the office of the Company for 10 days prior to the Annual Meeting.
By Order of the Board of Directors
Theodore A. Fleron
Secretary
Austin, Texas
April __, 2003
PRELIMINARY COPY - SUBJECT TO
COMPLETION DATED APRIL 18, 2003
FINANCIAL INDUSTRIES CORPORATION
6500 River Place Blvd., Building One
Austin, Texas 78730
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FRIDAY, MAY 9, 2003
PURPOSE OF MEETING
General
The enclosed Proxy Statement and the accompanying Proxy are being mailed to
the shareholders of Financial Industries Corporation ("FIC" or the "Company") on
or about April ___, 2003, in connection with the solicitation of Proxies by the
Board of Directors of the Company. The Proxy is for use at FIC's Annual Meeting
of Shareholders (the "Annual Meeting") at the time and the place and for the
purposes set forth in the accompanying Notice of Annual Meeting.
This Proxy Statement contains important information regarding FIC's Annual
Meeting, the proposals on which you are being asked to vote, information you may
find useful in determining how to vote and voting procedures.
At the Annual Meeting, shareholders will consider and vote on the following
matters:
1. The election of eleven (11) directors to hold office for the ensuing
year.
2. Any other business that may properly come before the Annual Meeting or
any postponement or adjournment thereof.
Pending Litigation with Mitte Family
In October 2002, a Special Committee of the Company's Board of Directors
voted to terminate the employment agreement of Roy F. Mitte, the Company's
Chairman and Chief Executive Officer, by reason of Mr. Mitte's physical or
mental disability extending over a period of six consecutive months or more. Mr.
Mitte was given the opportunity to submit to medical and mental examinations if
he believed that he did not suffer from such disability and he chose not to do
so. The Special Committee further voted to terminate Mr. Mitte's employment
agreement on the alternative basis that the actions of Mr. Mitte, as described
in the Report of the Audit Committee of the Board of Directors Concerning
Payment of Personal Expenses of the Chairman, dated September 17, 2002 (the
"Audit Committee Report"), constituted breaches of such agreement that excused
further performance thereof by FIC.
The Audit Committee, which consisted at the time of John D. Barnett, David
G. Caldwell, W. Lewis Gilcrease and Frank Parker, found that over the course of
almost ten years, the Company had paid, or reimbursed Mr. Mitte for, expenses
that were personal in nature. These payments and reimbursements included:
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o Direct payments of amounts charged to an MBNA MasterCard in the name
of Mr. Mitte in amounts totaling $455,561 from August 1992 through
August 2002, most of which appeared to have been personal in nature;
o Reimbursements made to Mr. Mitte's Administrative Assistant for
expenditures in the total amount of $17,983, which similarly appeared
to have involved personal expenses of Mr. Mitte or his family; and
o Direct payments to vendors in the total amount of $70,880 for personal
expenses of Mr. Mitte and his family.
The determination that these amounts constituted personal expenses of Mr.
Mitte and his family was based on a careful review and analysis of these
expenses. Ernst & Young LLP was retained to review the Company's records of the
expenses and payments thereof, and the conclusions in the Audit Committee Report
reflect the results of Ernst & Young's analysis of these documents. In addition,
as is more fully set out in the Audit Committee Report, the Audit Committee's
counsel interviewed a number of witnesses, including but not limited to Mr.
Mitte's personal assistant, concerning the expenditures. The Company believes
that the personal nature of the expenses is evident from even a cursory review
of the documents reflecting them. For example, amounts charged to the MBNA
MasterCard and reimbursed by the Company included substantial charges by grocery
stores, drugstores, department stores and home improvement stores.
The Audit Committee did not find evidence of similar payment of or
reimbursement for expenses of any other officer or director that appeared
personal in nature. In addition, as is more fully described in the Audit
Committee Report, the Audit Committee noted that Mr. Mitte's responses when
questioned concerning such expenses typically involved such actions as
terminating the officer in question or attempting to obtain personally
embarrassing information to use against such person (even in the absence of any
apparent factual basis suggesting that such information existed).
The Audit Committee further noted that in January 2002, Mr. Mitte caused
the transfer of $1,000,000 from the Company to the Roy F. and Joann Cole Mitte
Foundation (the "Mitte Foundation"), a charitable foundation controlled by Mr.
Mitte, in contravention of his earlier statement to the Compensation Committee
of the Board that no donation would be made from FIC to the Mitte Foundation
during 2002, and without the prior approval of the Board, which is customarily
required for an interested transaction of this nature. This statement was the
basis for the recommendation of the Compensation Committee, and the decision of
the Board of Directors, to increase Mr. Mitte's salary for the 2002 fiscal year.
Although a unanimous written consent of the Board of Directors was circulated at
the request of Mr. Mitte to approve the donation after the wire transfer had
already been made, the written consent never became effective because less than
all of the directors signed the written consent.
The Audit Committee presented its conclusions in the Audit Committee
Report. Thereafter, the members of the Audit Committee were appointed to serve
on a Special Committee of the Board of Directors, formed in September 2002, for
the purpose of making a recommendation to the Board with respect to the findings
contained in the Audit Committee Report. In October 2002, the responsibilities
and authority of the Special Committee were further defined to empower the
Special Committee take any action it deemed necessary with respect to the
conclusions of the Audit Committee Report. The Special Committee consisted of
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Tim Casey, Theodore Fleron, John Barnett, David Caldwell, Lewis Gilcrease,
Elizabeth Nash and Frank Parker. The Special Committee approved the termination
of Mr. Mitte's employment agreement by reason of physical or mental disability
extending over a period of six consecutive months or more. In the alternative,
the Special Committee approved the termination of Mr. Mitte's employment
agreement because of material breaches thereof excusing further performance by
FIC.
Thereafter, the Company made demand upon Mr. Mitte for the repayment of
$550,095.20 as amounts paid or reimbursed by the Company, over the course of
approximately ten years, that appeared to constitute personal expenses of Mr.
Mitte or members of his family. The Company further made demand that Mr. Mitte
repay the sum of $1,000,000 transferred to the Mitte Foundation in January of
2002. In response, attorneys for Mr. Mitte contended that expenses identified in
the Audit Committee Report in the aggregate amount of $34,008.09 were legitimate
Company-related expenses. Without waiving any rights, the Company agreed to
reduce its demand by the amount of such expenses, and accordingly made demand
upon Mr. Mitte for the payment of $1,516,087.11. Although attorneys representing
the Company thereafter had a number of communications with attorneys
representing Mr. Mitte, no repayment was made.
On January 20, 2003, attorneys representing the Mitte Foundation sent a
demand that the Company hold a special shareholders meeting for the purpose of
removing all members of the board of directors and electing unidentified
directors that would be proposed by the Mitte Foundation, Roy Mitte, Mr. Mitte's
wife, Joann Cole Mitte, and Mr. Mitte's son, Scott Mitte (collectively, the
"Mitte Family"). These attorneys informed the Company that they were prepared to
pursue litigation if their demands were not met. The Mitte Foundation's demand,
if granted by the Company or ordered by a court, would have required holding a
shareholders' meeting without proxy materials of the Company or the
dissemination to shareholders of all appropriate financial and other information
concerning the Company's performance in 2002. Specifically, the federal
securities laws require that each proxy statement furnished to shareholders by
the Company must be accompanied or preceded by an annual report to shareholders
which includes audited financial statements for the prior fiscal year. The Mitte
Foundation demanded that the Company hold a special shareholders' meeting on
February 4, 2003, only fifteen days after the date of the demand letter. The
Company could not have prepared audited financial statements for fiscal year
2002 so soon after the fiscal year, nor was it otherwise required to file such
financial statements by such time under the federal securities laws, which allow
90 days following the end of the fiscal year to prepare such information. As a
result, the Company could not have disseminated proxy materials to its
shareholders in compliance with the federal securities laws. Accordingly, in
light of the Mitte Foundation's demand for a special meeting, the Company was
forced to commence litigation against Mr. Mitte, the Mitte Foundation, and Joann
Cole Mitte, which sought to delay the meeting alleging, among other things, Mr.
Mitte's violation of certain provisions of the securities laws as described
below.
The material allegations made by the Company against the Mitte Family are
set out in detail in the Company's Original Complaint, filed on January 23, 2003
in the United States District Court for the Western District of Texas, Austin
Division, Case No. A03-CA-033SS. The following allegations were made by the
Company in the Complaint:
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o The Mitte Family omitted material information required to be disclosed
under Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and the regulations issued thereunder, as well as
violated the proxy solicitation rules contained in Regulation 14A of
the Exchange Act;
o Over a ten-year period, Roy Mitte caused FIC to pay, or to reimburse
Mr. Mitte for, personal expenditures of Mr. Mitte or his family, in an
amount exceeding $500,000;
o In January 2002, Roy Mitte caused the transfer of $1,000,000 from FIC
to the Mitte Foundation, in contravention of a promise made by Mr.
Mitte to the Compensation Committee of the Board of Directors that no
such transfers would be sought or made in 2002; and
o FIC has borne significant expenses that properly should have been paid
or reimbursed by the Mitte Foundation.
The following relief was sought by the Company:
o A declaratory judgment that the Company may defer any shareholders'
meeting until, among other things, the Company and Mitte could
properly solicit proxies in compliance with the federal securities
laws;
o A preliminary injunction preventing, among other things, the Mitte
Foundation from demanding that the Company notice a special
shareholders' meeting:
o A monetary judgment against Mr. Mitte for the amount of personal
expenses which he improperly caused FIC to pay or reimburse him;
o A monetary judgment against the Mitte Foundation in the amount of
$1,000,000 and for all sums which FIC has improperly paid or borne on
behalf of the Mitte Foundation;
o A monetary judgment against Mr. Mitte in the amount of $1,000,000, in
the event that the Mitte Foundation fails to repay this amount; and
o Interest, attorneys' fees, and all other sums to which FIC proves
itself justly entitled.
On March 19, 2003, Mr. Mitte filed a counterclaim against the Company
alleging breach of contract with respect to the Company's failure to pay Mr.
Mitte severance benefits and compensation that Mr. Mitte claims he is entitled
to receive under his employment agreement with the Company. Mr. Mitte seeks
actual damages, interest and attorney's fees and costs.
The Company has not yet filed an answer to Mr. Mitte's counterclaim. Both
the Mitte Family and the Company are currently engaged in discovery with respect
to the pending litigation.
- 4 -
As you may know, the Mitte Family has commenced a proxy solicitation for
the purpose of taking control of your company by electing Mr. Mitte's slate of
director nominees. The Board of Directors believes that the attempt by Mr. Mitte
to take over your company is directly related to the courageous action of your
current management and independent Board members to remove Mr. Mitte from his
position as Chairman and Chief Executive Officer once they discovered his
alleged misappropriation of corporate funds and to seek reimbursement for the
Company.
YOUR BOARD STRONGLY URGES YOU NOT TO RETURN ANY PROXY CARD SENT TO YOU BY
THE MITTE FAMILY. THE BEST WAY TO SUPPORT THE COMPANY'S NOMINEES AND THE BOARD
OF DIRECTORS' DETERMINATIONS IS TO VOTE "FOR" THE COMPANY'S NOMINEES ON THE
WHITE PROXY CARD ENCLOSED WITH THIS PROXY STATEMENT.
Otter Creek Group
On March 18, 2003, the Company received a letter from an attorney
purporting to represent Otter Creek Management Inc. and its affiliates (the
"Otter Creek Group") and other persons claiming to be shareholders of the
Company requesting a special shareholders meeting to remove the Company's Board
of Directors and replace them with other unnamed directors. Given the close
proximity to the already scheduled annual meeting, the Company responded that
such a duplicative meeting was unnecessary and would be a waste of the Company's
resources, due to the fact that all of the Company's directors would be up for
election at the Annual Meeting. On April 8, 2003, Otter Creek Management, Inc.
filed a preliminary proxy statement with the SEC relating to the Annual Meeting
requesting proxies for proposals to elect eight directors and to amend the
Company's bylaws to reduce the size of the Board to eight members. Otter Creek
Management Inc. filed an amendment to its preliminary proxy statement with the
SEC on April 16, 2003.
The Company is unaware of the motives of the Otter Creek Group in
soliciting proxies in opposition of the Company's board of directors, other than
its statement in the preliminary proxy materials that it seeks to elect a board
of directors that will pursue a sale of the Company. Given the fact that the
Board of Directors formed a special committee and engaged an internationally
recognized investment banking firm three months ago to explore strategic
alternatives to maximize shareholder value, including a sale of the Company, and
determined that such action was not in the best interest of the Company's
shareholders at this time, it is unclear why the Otter Creek Group is making
such proposals.
Management of the Company feels that these proposals by a shareholder with
relatively small holdings and with no long-term investment goals would be
detrimental to the growth of the Company and long-term value to its other
shareholders. Additionally, the Otter Creek Group has not provided any
information to shareholders as to how it intends to operate the Company pending
a potential sale transaction or in the event that it is unable to consummate any
such sale. The Company's nominees provide superior breadth of experience and
continuity to continue with management's growth plans, which it believes will
enhance shareholder value far in excess of a sale of the Company during the
current depressed market conditions. Accordingly, the persons authorized to vote
shares represented by the Proxy will have full discretion and authority to vote
"AGAINST" the Otter Creek Group's proposal to reduce the size of the Board to
eight members.
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ACCORDINGLY, YOUR BOARD URGES YOU NOT TO RETURN ANY PROXY CARD SENT TO YOU
BY THE OTTER CREEK GROUP, AND TO VOTE "FOR" THE COMPANY'S NOMINEES ON THE WHITE
PROXY CARD ENCLOSED WITH THIS PROXY STATEMENT.
Unsolicited Indication of Interest from the Pillar Foundation Group
In December 2002, the Company received an unsolicited indication of
interest from the Pillar Foundation Group ("Pillar"). As previously publicly
disclosed by the Company, the Company believes that the letters sent to FIC by
Pillar did not constitute an offer. Rather, the letter stated that it was as an
indication of interest to enter into a letter of intent with respect to the
acquisition of all or part of the outstanding common shares of FIC at a
tentative valuation of $13 to $18 per share. Pillar did not indicate the source
of funds for any such transaction, nor the structure or timing of any possible
transaction. Furthermore, Pillar stated in the letter that any transaction would
be subject to numerous due diligence and other identified and unnamed
conditions, such as determination of a final price, regulatory and board
approvals, and execution by sellers of a satisfactory stock purchase agreement.
In fact, the letter did not even state clearly whether Pillar intended to
acquire shares from FIC or from other shareholders. In addition, Pillar did not
have an established reputation in the insurance industry for consummating
transactions of this magnitude and there was no evidence that it had the
financial ability to do so. Because the valuation indicated by Pillar was below
book value and because of the depressed state of the U. S. capital markets and
poor general economic conditions, the Board of Directors concluded that it would
not be in the best interest of the Company's shareholders to sell the Company
for a depressed price in the existing economic conditions.
Nevertheless, in the exercise of its fiduciary duties, on December 13,
2002, the Board of Directors unanimously approved the appointment of a Special
Committee to review unsolicited indications of interest in the acquisition of
the Company. On January 6, 2003, the Board of Directors unanimously approved a
realignment of the Special Committee to include only independent directors and
it authorized the Special Committee to select an investment banking firm to
perform a valuation analysis of FIC and to explore strategic alternatives to
improve shareholder value including a sale of FIC. The Special Committee
interviewed four firms and selected Salomon Smith Barney.
Among the alternatives considered by the Special Committee were a sale of
the company consistent with recent unsolicited indications of interest in FIC
and various management alternatives, including an increased operating efficiency
strategy, a growth through acquisitions strategy and a marketing alliances
strategy. Through an exhaustive study of all business projections and financial
assumptions, it was determined that pursuing any or all of the management plan
was more advantageous to shareholder value than the sale, merger, or
consolidation of the company at this time given current market conditions for
sale transactions in the insurance industry and general economic conditions. The
Special Committee ultimately determined, based in part on the analysis performed
by Salomon Smith Barney, that it was in the best interest of FIC's shareholders
at that time to allow FIC's new management to implement its business plan for
FIC. The Board of Directors voted to accept the Special Committee's
recommendation.
- 6 -
VOTING PROCEDURES
Who Can Vote
The Board of Directors of the Company has fixed the close of business on
March 18, 2003 as the record date (the "Record Date") for the Annual Meeting.
Only shareholders of record on the Record Date are entitled to notice of, and to
vote at, the Annual Meeting. On the Record Date, there were 9,625,630 shares of
FIC's common stock ("Common Stock") issued, outstanding and entitled to vote.
Holders of record as of the Record Date are entitled to one (1) vote per share
on all matters to be acted on at the Annual Meeting. However, in voting for
directors, each shareholder may cumulate votes; 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. Since there are eleven directors nominated for
election, each share will be entitled to eleven (11) 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 May 8, 2003. If any
shareholder complies with the written notice requirement, all shareholders may
cumulate their votes.
How You Can Vote
Voting by Mail. The accompanying Proxy is designed to permit you, as a
holder of the Company's Common Stock, to vote for or withhold voting for any or
all of the nominees for election as directors under Proposal 1 and to authorize
proxies to vote in their discretion with respect to any other proposal brought
before the Annual Meeting. If you return your signed Proxy before the Annual
Meeting, we will vote your shares as you direct. You can specify whether your
shares should be voted for all, some or none of the nominees for director in
Proposal 1.
If you do not specify on your Proxy how you want to vote your shares, those
persons specified in the Proxy will vote your shares "FOR" the election of
directors in Proposal 1 and "AGAINST" any proposal that may be properly brought
before the Annual Meeting by the Mitte Family or the Otter Creek Group. If any
shareholder elects to vote cumulatively, the persons authorized to vote shares
represented by the Proxy 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 so as to elect the maximum number of management
nominees as believed possible under the then prevailing circumstances or, if
authority to vote for specific candidates has been withheld, among those
nominees for whom authority to vote
has not been withheld.
Voting in Person at the Meeting; Revocation of Proxy. The Company
encourages you to attend its Annual Meeting. Mailing your Proxy does not prevent
you from voting in person at the Annual Meeting if you so desire. Any
shareholder of the Company completing a Proxy has the right to revoke his or her
Proxy at any time prior to the exercise thereof at the Annual Meeting. You may
revoke your Proxy by: (1) delivering written notice of revocation to Theodore A.
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Fleron, Secretary, Financial Industries Corporation, 6500 River Place Blvd.,
Bldg. One, Austin, Texas 78730 at or prior to the Annual Meeting, (2) delivering
of a subsequent Proxy, or (3) voting in person at the Meeting (attendance at the
Annual Meeting will not in and of itself constitute a revocation of your Proxy -
you must vote at the Annual Meeting). The delivery of a later-dated Proxy to the
Company (unless later revoked as described in the previous sentence) will have
the effect of revoking any prior proxy card which you may deliver to any
third-party, including with respect to any matter or proposal on such proxy card
that is not on the Proxy and for which the named proxies therein have
discretionary authority to vote on. If you plan to attend the Meeting and vote
in person, we will provide you with a ballot at the Annual Meeting. If your
shares are registered directly in your name, you are considered the shareholder
of record and you have the right to vote your shares in person at the Annual
Meeting. If your shares are held in the name of your broker or other nominee,
you are considered the beneficial owner of shares held in street name. If you
wish to vote your shares at the Annual Meeting, you will need to bring with you
to the Annual Meeting a legal proxy from your broker or other nominee
authorizing you to vote such shares.
Voting Shares Held in Company Plans. Shares of Common Stock held in the
Company's 401K plan for its employees and affiliates are held of record and are
voted by the trustees of the 401K plan. Participants in the 401K plan may direct
the trustees as to how to vote shares allocated to their accounts. Shares for
which the trustees do not receive voting directions from participants will not
be voted by the trustees.
Discretionary Authority of Named Proxies with respect to Otter Creek Group
Proposal
According to the preliminary proxy statement filed by the Otter Creek Group
on April 8, 2003, as amended on April 16, 2003, the Otter Creek Group intends to
bring a proposal before the Annual Meeting to amend the bylaws of the Company to
decrease the size of the Board of Directors to eight members. If such a proposal
is properly brought before the Annual Meeting, the persons authorized to vote
shares represented by the Proxy will have full discretion and authority to vote
"AGAINST" the Otter Creek Group's proposal to reduce the size of the Board to
eight members. By delivering the White Proxy Card enclosed herewith (and not
properly revoking such Proxy), the shares represented by such Proxy will be
voted "AGAINST" the proposal to amend the bylaws to reduce the size of the Board
of Directors to eight members pursuant to the proxies' discretionary authority
given thereby, even if a prior-dated proxy card was delivered to the Otter Creek
Group by such shareholder voting in favor of the proposal.
Required Votes
The holders of a majority of the shares entitled to vote who are either
present in person or represented by proxy at the Annual Meeting will constitute
a quorum for the transaction of business at the Annual Meeting. The affirmative
vote of a plurality of the votes cast at the Annual Meeting is required for the
election of directors (Proposal 1).
Treatment of Abstentions and Broker Non-Votes
In accordance with Texas law, a shareholder entitled to vote for the
election of directors can withhold authority to vote for certain nominees for
director. A Proxy that has properly withheld authority with respect to the
election of one or more directors will not be voted with respect to the director
or directors indicated, although it will be counted for purposes of determining
whether there is a quorum. Any shares held by brokers or nominees for which they
have no discretionary power to vote on a particular matter and for which they
have received no instructions from the beneficial owners or persons entitled to
vote ("broker non-votes") will be counted as shares that are present for
purposes of determining the presence of a quorum. However, for purposes of
determining the outcome of any matter as to which the broker has indicated on
the Proxy that it does not have discretionary authority to vote, those shares
will be treated as not entitled to vote with respect to that matter (even though
those shares may be entitled to vote on other matters). Under applicable rules
of conduct, brokers do not have discretionary authority over any proposal to be
presented at the Annual Meeting when the matter to be voted upon is being
opposed by management or subject to a contest. Therefore, broker non-votes will
have no effect in determining the outcome of the election of directors.
Costs and Methods of Proxy Solicitation
The Company has hired Georgeson Shareholder Communications Inc.
("Georgeson") to provide solicitation and advisory services in connection with
the Proxy solicitation, for which Georgeson is to receive a fee estimated at
$70,000, together with reimbursement for reasonable out-of-pocket expenses. In
addition to the solicitation of Proxies by use of the mail, Georgeson, as well
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as officers and employees of the Company, may solicit the return of Proxies by
personal interview, telephone, facsimile, telegram, email or via the Internet.
Georgeson will request brokerage houses and other custodians, nominees and
fiduciaries to forward soliciting material to the beneficial owners of shares of
Common Stock. The Company has also agreed to indemnify Georgeson against certain
liabilities and expenses. It is anticipated that Georgeson will employ
approximately 50 persons to solicit shareholders for the Annual Meeting.
Costs incidental to these solicitations of Proxies will be borne by the
Company and include expenditures for printing, postage, legal, accounting,
public relations, soliciting, advertising and related expenses and are expected
to be approximately $200,000 in addition to the fees of Georgeson described
above (excluding the amount normally expended by the Company for the
solicitation of proxies at its annual meetings). Total costs incurred to date
for, in furtherance of, or in connection with these solicitations of Proxies are
approximately $90,000.
The Company expects to use Computershare Investor Services to act as
inspector with respect to the tabulation of Proxies in connection with the
Annual Meeting. The Company expects to pay Computershare Investor Services a fee
of approximately $18,700 for its services, plus reimbursement for reasonable
out-of-pocket expenses, estimated to be approximately $4,000. The Company
expects to seek reimbursement from the Mitte Family and the Otter Creek Group
for one-third of such payments.
Certain information about the directors and executive officers of the
Company and certain employees and other representatives of the Company who may
also solicit Proxies is set forth in the attached Schedule I to this
Proxy Statement.
Additional Information
A copy of FIC's Annual Report to Shareholders for the year ended December
31, 2002, 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 SEC 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. Copies are also available on the Company's website at
www.ficgroup.com under the "Investor Relations" section.
PROPOSAL 1 ELECTION OF DIRECTORS
The Company's Bylaws provide that the number of directors must be at least
three but not more than twenty-five. The Board of Directors is elected each year
at the Annual Meeting of Shareholders. In the event a director nominee is unable
or declines to serve, the Proxies will be voted for any nominee who may be
designated by the Board to fill the vacancy. As of the date of this Proxy
Statement, the Board is not aware of any nominee who is unable or will decline
to serve as a director. Each director will serve until the 2004 Annual Meeting
of Shareholders and until he or she is succeeded by another qualified director
who has been elected, or until his or her death, resignation or removal.
- 9 -
The nominees for director are: John D. Barnett, Theodore A. Fleron, Dr. W.
Lewis Gilcrease, Richard A. Kosson, Fred W. Lazenby, James B. Morgan, Elizabeth
T. Nash, Frank Parker, Dr. Eugene E. Payne, Jerold H. Rosenblum, and Robert C.
Wilson, III. Of the nominees, four are not currently directors of the Company:
Fred W. Lazenby, James B. Morgan, Jerold H. Rosenblum and Robert C. Wilson, III.
The remaining nominees currently serve as directors.
Additional information about the election of directors and a brief
biography of each nominee are set forth below.
Nominees for Election as Directors
John D. Barnett, 60, is a Principal and Senior Vice President of Investment
Professionals, Inc., a broker-dealer located in San Antonio, Texas. He has been
with Investment Professionals since 1996 and is the head of that firm's Fixed
Income Division. Previously, from 1983 to 1996, Mr. Barnett was associated with
Prudential Securities, Inc., where he served both institutional and individual
clients. At the time he left Prudential, he was First Vice
President-Investments. He has completed the NASD registered principal and
investment advisor examination requirements and holds life and health insurance
and variable annuity licenses. Mr. Barnett is a director of a non-profit
organization. He is a graduate of Howard Payne University and earned an M.A.
degree from Southwest Texas State University. He has served as a director of FIC
since 1991, and has served on several committees of the Board, including the
Audit Committee. He currently serves on the Executive Committee, as Lead
Director, and the Investment Committee.
Theodore A. Fleron, 63, is Vice President, General Counsel of FIC since 1996,
Secretary of FIC since December 2002 and has been a director since 1996. He is
also a director of the life insurance subsidiaries of FIC and serves as Senior
Vice President, General Counsel and Secretary of those companies. Mr. Fleron has
been associated with FIC since December 1989 and has been involved in all
aspects of FIC's legal matters, including corporate and federal securities,
insurance regulation and litigation. Previously, he was associated with CIGNA
Corporation and its predecessor, INA Corporation, from 1974 to 1989, where he
served as Senior Counsel in the Law Department. Prior to joining INA
Corporation, he had insurance industry experience at a large mutual insurance
company and a small stock life insurance company. Mr. Fleron is a member of the
American Bar Association, as well as the Business Law Section and the Labor and
Employment Law Section of the ABA. He is a graduate of Brown University and
received his law degree from the University of Pennsylvania School of Law.
W. Lewis Gilcrease, 71, has served as a director of FIC since 1979. During his
tenure as a director, Dr. Gilcrease has served on various committees of the FIC
board, including the Audit Committee. He currently serves on the Nominating
Committee. Following his graduation from the University of Texas Dental School
in 1965, Dr. Gilcrease opened a dental practice in San Marcos, Texas, which he
currently operates. He was a founding member and former Chairman of the Board of
Balcones Savings Association, later known as Balcones Bank, from 1979 to 1991,
where he assisted in the establishment of bank policy and oversaw loan
approvals. Dr. Gilcrease has been active in various civic and professional
organizations, including past president of the Southwest Texas State University
("SWTSU") Alumni Association and a founding member of the SWTSU Bobcat Athletic
Foundation. He is chairman and president of the Strahan Foundation, which
supports athletic programs at SWTSU and the SWTSU Support Foundation, which
assists SWTSU's real estate activities. Dr. Gilcrease is a graduate of SWTSU,
where he also earned a masters degree. He is a member of the American Dental
Association and is active in state and local dental associations.
- 10 -
Richard A. Kosson, 70, is a partner in the public accounting firm of Citrin
Cooperman & Company, LLP, Springfield, NJ. He is a member of the New Jersey
Society of Certified Public Accountants and is licensed as an accountant in both
New Jersey and New York. His clients have included companies in manufacturing,
wholesale and service organizations, insurance and industrial distribution. Mr.
Kosson previously served as Chairman of the NJSPCA Insurance Trust and has
served as president and director of various organizations, including several
public corporations. He is a graduate of Rutgers University. Mr. Kosson has
served as a director of FIC since December 2002. He was a director of
InterContinental Life Corporation ("ILCO") from 1981 to May 2001, when ILCO
became a wholly-owned subsidiary of FIC.
Fred W. Lazenby, 71, is President and Chief Executive Officer of LNC
Corporation, a private investment company since 1994. In 1983, he founded
Southlife Holding, where he served as Chairman and Chief Executive Officer until
retirement in 1994. During his tenure, Southlife Holding acquired four life
insurance companies in the southeastern United States, including Southwestern
General, a life insurance company located in Dallas, Texas. Southlife Holding
became a public company in 1986 and merged into Providian Corp. in 1989. Mr.
Lazenby began his career in the life insurance business in 1956, when he joined
National Life and Accident Insurance Company as an agent. During a twenty-seven
year career at National Life, he served in various management capacities and was
elected President of National Life in 1980. From 1984 to 1999, he served as a
director of the National Bank of Commerce. Mr. Lazenby is active in a number of
civic and charitable organizations. He was recently appointed to the Small
Business Administration Board of Advisors for a two-year term. He is a graduate
of Vanderbilt University and resides in Nashville, Tennessee.
James B. Morgan, 62, has been a partner in the law firm of Handy & Morgan,
Hurst, Texas since 1969. His practice consists primarily of business and tax
law, estate planning and probate and school law. Mr. Morgan has served as the
attorney for several school districts in the Ft. Worth, Texas area. He is board
certified in Estate Planning and Probate Law by the Texas Board of Legal
Specialization. Mr. Morgan served on the advisory board of Chase Bank of Texas
(Hurst) from 1971 to 2000. He currently serves as a director of MercantileBank
Texas, Ft. Worth, Texas, a position he has held since 2001. Mr. Morgan has been
active in a number of civic and charitable organizations, including the board of
New Horizons Ranch and Center (a residential treatment facility for abused
children) and the board of the Education Service Center for Region XI (Texas).
He is a graduate of Baylor University and the Baylor University School of Law.
Following graduation from law school, he served as an attorney with the Office
of Chief Counsel, Internal Revenue Service, Washington, DC, until he began his
private law practice. He is a member of the School Law Section of the State Bar
of Texas, the Texas Association of School Boards and the National School Boards
Association Council of School Attorneys.
Elizabeth T. Nash, 53, has been a member of the Texas State University System
Foundation ("TSUS Foundation"), which manages the real estate assets of the nine
educational institutions in Texas, since 2000. The TSUS Foundation oversees the
operations, financing and development and contractual negotiations for the TSUS
properties. Ms. Nash has been a member of the Southwest Texas University
Development Foundation since 1987, where she has served as Chairman and
currently serves on its Investment Committee. From 1993 to 1999, she served on
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the Board of Regents of the Texas State University System, where she served
terms as Chairman and Vice Chairman. She also holds the position of
Secretary/Treasurer of Chuck Nash Chevrolet Oldsmobile Buick Jeep, Inc. in San
Marcos, Texas and is involved in the daily business operations of this
family-owned business. Ms. Nash currently serves as president of the Seton
Hospital Development Board. She also serves on the advisory board of Wells Fargo
Bank in San Marcos and is on the board of Capital of Texas Public Broadcasting
Telecommunications Council. She is a graduate of the University of Texas. Ms.
Nash has been a director of FIC since June 2001 and has served on several
committees, including the Audit Committee and Special Committees. She served as
a director of ILCO from 1998 to May 2001 when ILCO became a wholly-owned
subsidiary of FIC.
Frank Parker, 73, was President/Owner of Gateway Tugs, Inc., operator of harbor
tugs at Port Brownsville and Par-Tex Marine, Inc., operator of intracoastal tugs
in Brownsville, Texas until his retirement in 1998. Currently, a private
investor, he has served as a director of a number of civic organizations and was
a founding director of the Sunrise Bank in Brownsville. For ten years, he served
as a director of West Gulf Maritime Association-Houston, a policy making board
for six Texas ports. Mr. Parker is a graduate of the University of Texas with a
BBA degree. He has been a director of FIC since 1994 and has served on several
committees, including the Audit Committee, the Compensation Committee, the
Nominations Committee and several Special Committees.
Eugene E. Payne, 60, is Chairman, President and Chief Executive Officer of FIC,
a position he has held since November, 2002. He joined FIC in 1989 and served
for twelve years in an executive capacity in every major business area,
including chief operations officer and chief marketing officer. In 2000, Dr.
Payne elected early retirement from FIC and taught management strategy and
entrepreneurship as chairman of the management department at Southwest Texas
State University's College of Business. He returned to FIC as Interim Chairman
in August 2002 and was elected to his current positions in November, 2002. He
also served as a director of FIC from 1992 to 2000 and as a director of ILCO
(currently a wholly-owned subsidiary of FIC) from 1989 to 2000. Prior to joining
FIC, Dr. Payne served as vice president for administration and finance for Texas
Tech University and for the Texas Tech Medical School, from 1981 to 1989 and
vice president for finance and administration at Southwest Texas State
University from 1974 to 1981. He began his career as a management scientist at
the corporate headquarters of E.I. DuPont and later served on the corporate
staff of EDS Corporation. He received a BS and MS from Texas A&M University and
a Ph.D. in industrial engineering and management science from the University of
Oklahoma. He has published, consulted or testified as an expert witness in the
areas of management systems, entrepreneurship, financing, facilities funding and
strategic planning.
Jerold H. Rosenblum, 68, was Senior Vice President and Chief Counsel of CIGNA
Group Insurance until his retirement in 1998. His career at CIGNA, and its
predecessor INA Corporation, began in 1976. He held a number of positions within
the CIGNA companies, including Chief Counsel for the Special Benefits Division,
Chief Counsel for the International Life Division and Senior Counsel in INA
Corporation's individual and group life insurance operations. In 1984, he was
elected Assistant General Counsel of CIGNA Corporation. Prior to joining INA
Corporation, Mr. Rosenblum had insurance industry experience at other companies
and served as a senior attorney with the U. S. Securities and Exchange
Commission. He is a graduate of Ohio State University and received his law
- 12 -
degree from American University. He is a member of the American Bar
Association's Committee on Torts and Insurance Practice. He was formerly an
active member of several other ABA committees as well as those of the American
Council of Life Insurance. He was a former Chairman of its Securities Committee,
focusing much of that committee's attention on Federal and State regulation of
annuities. He was formerly Vice Chairman of the Insurance Federation of
Pennsylvania, the Commonwealth's Life Insurance Guarantee Fund. Mr. Rosenblum is
also a member of The Association of Life Insurance Counsel. He has served as
lecturer on life insurance industry topics and has written extensively on life
insurance legal issues. He is also a director of CIGNA Life Insurance Company of
New York, which operates primarily in the state of New York and markets group
insurance products.
Robert C. Wilson, III, 55, is President and majority owner of Houston RCW Three,
Inc., a real estate developer located in Houston, Texas, since 1982. From
November 1997 to October 1999, Mr. Wilson was Managing Director and President of
WMF Robert C. Wilson, a wholly-owned subsidiary of the Washington Mortgage
Financial Group, Ltd., which serviced a mortgage loan portfolio. Previously, he
was Chairman, Director and majority owner of The Robert C. Wilson Company, a
Houston-based regional real estate financial service and mortgage banking firm
engaged in the origination and servicing of income property loans for the major
life insurance companies, corporations and pension funds, from 1971 to November,
1997 when the company was sold to Washington Mortgage Financial Group, Ltd. From
1994 to 1996, Mr. Wilson was Chairman, Director and majority owner of Wilson,
Cantwell & Spelman, a Denver-based real estate financial service and mortgage
banking firm engaged in the origination and servicing of income property loans
for a number of major life insurance companies, corporations and pension funds.
He is a graduate of the University of Texas and is active in various civic
activities as well as numerous professional organizations related to real estate
and mortgage banking.
Required Vote
Assuming the presence of a quorum, the holders of at least a plurality of
the issued and outstanding shares of Common Stock present, either in person or
by proxy, at the Annual Meeting must vote in favor of a nominee in order to
elect a director. The Directors have informed the Company that they intend to
vote all of their shares of Common Stock in favor of the nominees.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE
INDIVIDUALS NOMINATED FOR ELECTION AS A DIRECTOR. THE SHARES REPRESENTED BY
PROXIES MAY BE VOTED IN THE DISCRETION OF THE PROXY HOLDERS SO AS TO ELECT THE
MAXIMUM NUMBER OF MANAGEMENT NOMINEES WHICH MAY BE ELECTED BY CUMULATIVE VOTING.
Board Meetings and Committees
The business of the Company is managed under the direction of the Board of
Directors (the "Board"). The Board met formally eight times during 2002 and each
of the incumbent directors at December 31, 2002 attended at least 75% of the
aggregate number of meetings of the Board and respective committees on which he
or she served. In addition, the Board took action on items by unanimous consent
two different times during 2002. Among the standing committees established by
the Board at December are the following:
- 13 -
Audit Committee. The Audit Committee is chosen by the Board from those
members who are not officers or employees of the Company or its subsidiaries.
The Directors serving on the Audit Committee during 2002 were Chairman John D.
Barnett, David Caldwell, Frank Parker and W. Lewis Gilcrease. On December 13,
2002, the Audit Committee was realigned to include the following individuals:
Chairman Richard Kosson, David Caldwell, W. Lewis Gilcrease and Elizabeth Nash.
Mr. Caldwell resigned from the Board and the Audit Committee in January 2003,
citing personal reasons for his resignation.
The Audit Committee's primary function is to assist the Board in fulfilling
its oversight responsibilities with respect to (i) the annual financial
information to be provided to shareholders and the 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. Each of the members of the Audit Committee is
"independent", as defined by the current listing standards of The Nasdaq Stock
Market, Inc. ("Nasdaq").
The Audit Committee met formally four times during 2002 to review the
Company's Annual Report on Form 10-K filed on April 1, 2002, and the Quarterly
Reports on Form 10-Q filed on May 15, 2002, August 26, 2002, and November 14,
2002.
Additionally, on August 13, 2002, as the Audit Committee was prepared to
meet to discuss the Company's Quarterly Report on Form 10-Q for the period
ending June 30, 2002, management of the Company reported to the Audit Committee
that in connection with the preparation of the Form 10-Q, management discovered
that certain expenses which were paid by the Company during the reporting period
and prior reporting periods may have been personal, rather than business-related
expenses, of Roy F. Mitte, the then President and Chief Executive Officer of the
Company. On August 15, 2002, the Audit Committee of the Board retained
independent counsel to conduct a review for the current and prior periods. In
connection with such review, the Audit Committee met four times.
The members of the Audit Committee also served on a Special Committee which
was formed in September 2002, for the purpose of reviewing the Report of the
Audit Committee regarding the personal expenses and other matters related to Roy
F. Mitte that were detailed in the Report of the Audit Committee. The Special
Committee was charged with the responsibility of making recommendations to the
Board with respect to actions to be taken with respect to the personal expenses
which Mr. Mitte allegedly caused to be paid to himself, the unauthorized
donation which he allegedly caused to be made to the Mitte Foundation and the
other matters detailed in the Report of the Audit Committee. The Special
Committee met formally six times during 2002.
Compensation Committee. The Compensation Committee is chosen by the Board
from those members who are not officers or employees of the Company or its
subsidiaries. The members of the Compensation Committee during 2002 were: John
Barnett and Frank Parker. On December 13, 2002, the Compensation Committee was
realigned to include the following individuals: Chairman John Barnett, David
Caldwell, Richard Kosson, and Frank Parker. 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. Mr.
Caldwell resigned from the Board and the Compensation Committee in January 2003,
citing personal reasons for his resignation.
- 14 -
The Compensation Committee did not formally meet in 2002. See the section
entitled "Compensation Committee's Report".
Nominations Committee. On December 13, 2002, Lewis Gilcrease, Frank Parker
and Eugene Payne were appointed members of the Nominations/Governing Committee.
The Nominations Committee did not meet during 2002 but met in February and March
2003 to nominate directors for the 2003 Annual Meeting of Shareholders. The
Nominations Committee will not consider nominees recommended by the Company's
shareholders.
- 15 -
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. Information pertaining to the business experience of the current
executive officers is set forth in the Company's Form 10-K Report for the year
ended December 31, 2002.
Name Age Positions and Offices
Eugene E. Payne 60 Chairman of the Board, President and Chief
Executive Officer
George M. Wise, III 42 Vice President and Chief Financial Officer
Jeffrey H. Demgen 50 Vice President and Chief Marketing Officer
Thomas C. Richmond 61 Vice President and Chief Operating Officer
Theodore A. Fleron 63 Vice President, Secretary and General Counsel
Eugene E. Payne became Chairman, President and CEO of the Company on November 4,
2002. On October 31, 2002, the Company terminated the employment agreement of
the former Chairman, President and CEO, Roy F. Mitte.
COMPLIANCE WITH SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), 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 Forms 5 were required, the Company
believes that during the period from January 1, 2002 through December 31, 2002,
all Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with.
- 16 -
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information as of February 28, 2003 as to all
persons who, to the knowledge of the Company, were the beneficial owners of five
percent (5%) or more of the Company's Common Stock.
Amount and
Nature of
Beneficial Percent
Name and Address of Beneficial Owner Ownership of Class(3)
Roy F. and Joann Cole Mitte Foundation
6836 Bee Caves Road, Suite 262
Austin, Texas 78746 1,552,206 (1) 16.16%
Roy F. Mitte
3701 Westlake Drive
Austin, Texas 78746 1,594,326 (1)(2) 16.59%
Family Life Insurance Company
6500 River Place Blvd.
Austin, Texas 78730 648,640 6.32% (3)
Investors Life Insurance
Company of North America
6500 River Place Blvd.
Austin, Texas 78730 1,427,073 (4) 12.93% (5)
Fidelity Management &
Research Company
82 Devonshire Street
Boston, MA 02109 1,307,020 (6) 13.60%
Wellington Management Company, LLP
75 State Street
Boston, MA 02109 656,800 (7) 6.84%
____________________
(1) As reported on a Schedule 13D/A filed by the Roy F. and Joann Cole Mitte
Foundation on February 13, 2003. According to the 13D/A filing, The
Foundation is a not-for-profit corporation organized under the laws of the
State of Texas, and exempt from federal income tax under Section 501(a) of
the Internal Revenue Code of 1986, as amended, as an organization described
in Section 501(c)(3).
(2) Includes 35,520 shares allocated to Mr. Mitte's account under the Employee
Stock Purchase Plan and 6,600 shares which may be acquired pursuant to
options which are exercisable within 60 days. For purposes of this table,
Mr. Mitte is deemed to have beneficial ownership of the shares owned by the
Foundation.
- 17 -
(3) Assumes that outstanding stock options or warrants held by non-affiliated
persons have not been exercised and that outstanding stock options held by
Family Life Insurance Company have been exercised.
(4) Of such shares, 926,662 shares are owned by Investors Life Insurance
Company of North America ("Investors Life") and 500,411 shares are issuable
upon exercise of an option held by Investors Life. All shares are held as
treasury shares.
(5) Assumes that outstanding stock options or warrants held by non-affiliated
persons have not been exercised and that outstanding stock options held by
Investors Life have been exercised.
(6) As reported to the Company on a Schedule 13G filed on June 11, 2001, by FMR
Corporation, the parent company of Fidelity Management & Research Company
("Fidelity") and Fidelity Management Trust Company. The Company also notes
that Fidelity filed a Schedule 13G/A on February 13, 2001, reporting that
the beneficial ownership of Fidelity Low Price Stock Fund, an investment
company registered under the Investment Company Act of 1940, was 340,000
shares. According to the Schedule 13G filings, as amended, Fidelity acts as
investment advisor to the Fidelity Low Priced Stock Fund, and the Fund is
the beneficial owner of 340,000 shares of FIC common stock.
(7) As reported on a Schedule 13G filed by Wellington Management Company, LLP
("WMC") on February 12, 2003. According to the Schedule 13G filing, WMC
acts as investment advisor to certain clients of WMC and such clients have
the right to receive, or the power to direct the receipt of, dividends
from, or the proceeds from the sale of, such securities. The filing further
states that no such client is known to have such right or power with
respect to more than five percent of the common stock of the Company.
- 18 -
The following table contains information as of March 25, 2003 as to the
Common Stock of FIC beneficially owned by (1) each director and director
nominee, (2) each of the named executive officers, and (c) the directors and
executive officers as a group. In general, "beneficial ownership" refers to
shares that a director nominee, director or executive officer has the power to
vote, or the power to dispose of, and stock options that are currently
exercisable or become exercisable within 60 days of March 25, 2003. The
information contained in the table has been obtained by the Company from each
director nominee, director and executive officer, except for the information
known to the Company.
Amount and Nature of
Name Beneficial Ownership Percent of Class
Non-Employee Directors:
John Barnett 2,000 *
W. Lewis Gilcrease -0- --
Richard A. Kosson 1,940 *
Michael Scott Mitte (5) 64 (2) *
Elizabeth T. Nash 220 *
Frank Parker 12,000 *
Employee Directors:
Roy F. Mitte (5) 1,594,326 (1)(2)(3) 16.59%
Named Executive Officers:
Jeffrey H. Demgen 14,459 (2)(3) *
Theodore A. Fleron** 21,040 (2)(3) *
Eugene E. Payne** -0- --
Thomas C. Richmond 18,868 (2)(3) *
George M. Wise, III 500 *
Director Nominees (not currently Directors of FIC):
Fred W. Lazenby 17,979 (4) *
James B. Morgan -0- --
Jerold H. Rosenblum -0- --
Robert C. Wilson, III -0- --
All Executive Officers, Directors,
and Director Nominees as a
group (16 persons) 1,683,396 17.45%
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_________________________
* Less than 1%.
** Also a Nominee.
(1) As reported on a Schedule 13D/A filed by the Roy F. and Joann Cole
Mitte Foundation on February 13, 2003. According to the 13D/A filing, The
Foundation is a not-for-profit corporation organized under the laws of the State
of Texas, and exempt from federal income tax under Section 501(a) of the
Internal Revenue Code of 1986, as amended, as an organization described in
Section 501(c)(3). For purposes of this table, Mr. Mitte is deemed to have
beneficial ownership of the shares owned by the Foundation.
(2) Includes shares beneficially acquired through participation in the
Company's 401K Plan and/or the Employee Stock Purchase Plan, which are group
plans for eligible employees.
(3) Include shares issuable upon exercise of options granted under the
Stock Option Plan to executive officers and directors who are also employees of
the Company or its subsidiaries, to the extent that such options are exercisable
within 60 days of March 25, 2003, as follows: Mr. Demgen - 4,400 shares; Mr.
Fleron - 4,400 shares; Mr. Mitte - 6,600 shares; and Mr. Richmond - 4,400
shares.
(4) Includes: (i) shares owned by Mr. Lazenby, (ii) 1,000 shares owned by a
trust for which he acts as trustee and (iii) 2,542 shares owned by his spouse,
with respect to which he disclaims beneficial ownership.
(5) Not a Nominee.
- 20 -
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Summary Compensation Table
The following table sets forth information concerning the compensation of
the Company's Chief Executive Officers and each of the Company's four most
highly compensated executive officers other than the Chief Executive Officer who
were serving as executive officers at the end of 2002 and received cash
compensation exceeding $100,000 during 2002. Note: The Company does not have
four other executive officers who received compensation in excess of $100,000
other than those listed below:
Annual Compensation
Long-Term Compensation
Stock
Apprec-
iation
Other Term All Other
Annual Rights(4) Long-Term
Name and Fiscal Compen- Compen- Compen-
Principal Position Year Salary(1) Bonus sation (2)(3) sation (5) sation (#)
Roy F. Mitte, Chairman, 2002 $690,116 $2,500,000 $12,360 -0- -0-
President and Chief 2001 514,904 2,500,000 18,500 -0- -0-
Executive Officer (7) 2000 503,500 2,500,000 -0- -0- -0-
Eugene E. Payne, Chairman, 2002 63,171 -0- -0- 30,000
President and Chief
Executive Officer
Jeffrey H. Demgen, Vice 2002 180,000 30,000 30,154 -0- 3,600
President 2001 163,862 -0- 18,000 -0- 3,303
2000 160,000 20,000 -0- -0- 2,021
Thomas C. Richmond, Vice 2002 180,000 20,000 18,520 -0- -0-
President 2001(6) 138,846 -0- 20,690 -0- 2,776
Theodore A. Fleron, Vice 2002(6) 141,827 20,000 31,518 -0- 2,819
President
__________________
(1) On May 18, 2001, pursuant to that certain Agreement and Plan of Merger,
as amended (the "Merger Agreement"), dated as of January 17, 2001, among FIC,
ILCO, and ILCO Acquisition Company, a Texas corporation and wholly-owned
subsidiary of FIC ("Merger Sub"), Merger Sub was merged with and into ILCO (the
"Merger"). ILCO was the surviving corporation of the Merger and became a
wholly-owned subsidiary of FIC. In accordance with the Merger Agreement, FIC
issued 1.1 shares of common stock, par value $0.20 per share ("FIC Common
Stock"), for each share of common stock, par value $0.22 per share, of ILCO
outstanding at the time of the Merger ("ILCO Common Stock"). In addition, each
share of ILCO Common Stock issuable pursuant to outstanding options was assumed
by FIC and became an option to acquire FIC Common Stock with the number of
shares and exercise price adjusted for the exchange ratio in the Merger. Prior
to the Merger, 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 year.
- 21 -
The executive officers of FIC have also been executive officers of Family Life
and Investors Life, the insurance subsidiaries of FIC. Prior to May 18, 2001,
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 2000 (i) Mr. Mitte: $1,111,821;
and (ii) Mr. Demgen: $81,000. In the years 2001 and 2002 executive officer
payments have been apportioned based on a cost allocation agreement among the
life insurance subsidiaries and FIC.
(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% of the total amount of annual salary and bonus for any named
individual.
(3) Includes the value realized by each executive officer in connection
with the exercise of stock options granted under the 1999 ILCO Non-Qualified
Stock Option Plan (the "Stock Option Plan"). See "Aggregated Option/SAR
exercises and Value Unexercised in 2002" below. In 2002, Mr. Mitte and Mr.
Richmond exercised options to purchase 2,200 shares of FIC common stock and Mr.
Demgen and Mr. Fleron exercised options to purchase 4,400 shares of FIC common
stock under the Stock Option Plan.
(4) The data in this column represents the number of FIC stock appreciation
rights granted to Eugene E. Payne in 2002. The stock appreciation rights were
granted under the terms and provisions of the Financial Industries Corporation
Equity Incentive Plan adopted by FIC in 2002, a copy of which was filed with the
Securities and Exchange Commission on November 14, 2002 as an Exhibit to FIC's
Quarterly Report on Form 10-Q for the period ended September 30, 2002.
(5) The executive officers of the Company participate in the
InterContinental Life Corporation Employees Savings and Investment Plan ("401K
Plan"). For the year 2000, ILCO contributed the following amounts and for the
years 2001 and 2002 FIC contributed the following amount to the named
participant's 401K Plan account: (a) Mr. Demgen: $ 2,021, $3,303, and $3,600
respectively, (b) Mr. Richmond: $2,776 in the year 2001 and $0 in the year 2002;
and (d) Mr. Fleron: $2,819 for the year 2002 only.
(6) Thomas C. Richmond was appointed as an executive officer in the year
2001, thus only his compensation for the years 2001 and 2002 are included.
Theodore A. Fleron was appointed as an executive officer in the year 2002 and
thus only his compensation for the year 2002 is included.
(7) Mr. Mitte was Chairman, President and Chief Executive Officer of FIC
from January 1, 2002 through October 31, 2002. Eugene Payne has been Chairman
President and Chief Executive Officer since November 4, 2002 and was Interim
Chairman of the Board of Directors of FIC from August 19, 2002 through November
4, 2002.
Options Vesting Upon a Change of Control in 2002
In 1999, certain officers of FIC and its life insurance subsidiaries were
each granted options to purchase 10,000 shares of ILCO common stock, pursuant to
the InterContinental Life Corporation 1999 Stock Option Plan ("Stock Option
Plan"). On May 18, 2001, each share of ILCO Common Stock issuable pursuant to
outstanding options was assumed by FIC and became an option to acquire FIC
Common Stock with the number of shares and exercise price adjusted for the
exchange ratio in the Merger. Prior to the Merger, 78,000 shares of ILCO Common
Stock had been issued pursuant to the Stock Option Plan. On May 18, 2001, the
outstanding options were converted to options to purchase 389,400 shares of FIC
Common Stock.
- 22 -
During 2002, options to purchase 115,650 shares of FIC common stock were
exercised pursuant to the Stock Option Plan. Options to exercise 33,000 shares
of FIC common stock were granted in 2002 and options to exercise 55,550 shares
terminated or lapsed during 2002. As of February 28, 2003, options to purchase
202,250 shares of FIC Common Stock remain to be exercised pursuant to the terms
of the Stock Option Plan.
In accordance with the terms of the plan, which defined a "change in
control" as the termination, by resignation or otherwise, of Roy F. Mitte as
Chairman of the Board and Chief Executive Officer, all person holding
outstanding options under the Stock Option Plan became fully vested in such
options as of October 31,
2002.
Stock Appreciation Rights Granted in 2002
On November 4, 2002, FIC adopted an Equity Incentive Plan (the "Plan"). The
purpose of the Plan is to provide motivation to key employees of the Company and
its subsidiaries to put forth maximum efforts toward the continued growth,
profitability, and success of the Company and its subsidiaries by providing
incentives to such key employees through performance-related incentives,
including, but not limited to the performance of the Common Stock of the
Company. Toward this objective, stock appreciation rights or performance units
may be granted to key employees of the Company and its subsidiaries on the terms
and subject to the conditions set forth in the Plan. On November 4, 2002, Eugene
Payne was granted stock appreciation rights (SARs) with respect to 30,000 shares
of the Common Stock of the Company, pursuant to terms and provisions of the
Plan. The exercise price of each unit is $14.11, which was 100% of the Fair
Market Value of the Common Stock of the Company on the date of such grant.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential realizable
value at assumed rates
of stock price appre-
ciation for option
Individual Grants term
- ----------------------------------------------------------------------------- -----------------------
Name Number of Percent
Securities of total
underlying options/ Exercise
Options/ SARs granted or base Expira-
SARs to employees price tion
granted(#) in fiscal year ($/shr) Date 5%($) 10%($)
Roy F. Mitte(1) - - - - - -
Eugene E. Payne(1) 30,000 48% $14.11 November 1, 2009 $172,200 $401,700
Jeffrey H. Demgen - - - - - -
Thomas C. Richmond - - - - - -
Theodore A. Fleron - - - - - -
_________________________
(1) Mr. Mitte was Chairman, President and Chief Executive Officer of FIC
from January 1, 2002 through October 31, 2002. Eugene Payne has been Chairman
President and Chief Executive Officer since November 4, 2002 and was Interim
Chairman of the Board of Directors of FIC from August 19, 2002 through November
4, 2002.
- 23 -
Aggregated Option/SAR Exercises and Value Unexercised in 2002
The following table sets forth information concerning each exercise of
stock options during 2002 by each of the individuals who were executive officers
of the Company as of December 31, 2002, as well as the value, as of December 31,
2002, of unexercised options of such executive officers. The value of
unexercised in-the-money stock options at December 31, 2002 shown below are
presented in accordance with SEC rules. The actual amount, if any, realized upon
exercise of stock options will depend upon the market price of the Common Stock
of the Company relative to the exercise price per share of the stock option at
the time the stock option is exercised. There is no assurance that the values of
unexercised in-the-money stock options reflected in the following table will be
realized.
Aggregated Option/SAR Exercises in 2002
and 2002 Option /SAR Values
Number of
Unexercised
Options/
SARs Held at
December
Shares 31, 2002 Value of Unexercised In-
Acquired Exercisable/ the-Money Options/SARs
on Exer- Value Unexer- at December 31, 2002
Name cise(#)(1) Realized($) cisable(2) Exercisable/Unexercisable (3)
- ---------------------------------------------------------------------------------------------
Jeffrey H. Demgen 4,400 30,154 4400/0 $26,656 $ 0
Theodore A. Fleron 4,400 31,158 4400/0 $26,656 $ 0
Thomas C. Richmond 2,200 18,520 4400/0 $26,656 $ 0
Eugene E. Payne (4) 0 0 0/30,000 $ 0 $3,900
_______________________
(1) Each exercise of shares listed in the above table were exercises of FIC
Common Stock granted under the ILCO Stock Option Plan.
(2) All options granted under the ILCO stock Option Plan were exercisable
as of October 31, 2002 pursuant to the change of control provisions set forth in
the Plan.
(3) The value of unexercised in-the-money options equals the difference
between the option exercise price and the closing price of the Company's Common
Stock on Nasdaq (Symbol: FNIN) on December 31, 2002 ($14.24), multiplied by the
number of shares underlying the options.
(4) The data in this column represents the number of FIC stock appreciation
rights granted to Eugene Payne in 2002. The stock appreciation rights were
granted under the terms and provisions of the Financial Industries Corporation
Equity Incentive Plan adopted by FIC in 2002, a copy of which was filed with the
Securities and Exchange Commission on November 14, 2002 as an Exhibit to FIC's
Quarterly Report on Form 10-Q for the period ended September 30, 2002.
Defined Benefit Plan
The following Pension Plan table sets forth estimated annual pension
benefits payable upon retirement at age of 65 under the Company's
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 amounts shown in the table do not reflect the
reduction related to Social Security benefits referred to below.
- 24 -
Years of Service
Remuneration 15 20 25 30 or 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 2002 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, 2002 being shown in parentheses:
Mr. Mitte, $160,000 (15 years); Mr. Demgen, $160,000 (10 years); Mr. Richmond,
$160,000 (14 years); and Mr. Fleron, $141,827 (15 years).
Compensation of Directors
Directors who were not officers or employees of the Company in 2002 were
paid a $5,000 annual fee, and were compensated $1,000 for each regular or
special meeting of the Board of Directors which they attended in person. In the
case of telephonic meetings of the Board, non-employee directors who
participated in such telephonic meetings were compensated $500 for each such
meeting. Directors who participated via telephone in a regular or special
meeting which were held by other than conference telephone were not entitled to
a fee for such meeting.
Non-employee directors serving on committees of the Board were compensated
in the amount of $500 for each committee meeting they attended whether such
participation was in person or by telephone, provided that the committee meeting
was held on a day other than that on which the Board meets.
Effective as of January 1, 2003, each Director who is not also an employee
of the Company shall receive, as a payment for his or her services as a
Director, an annual fee of $20,000, payable in January of each year, plus $1,000
for each meeting of the Board of Directors at which such Director is in
attendance. In the event that a Director attends a meeting of the Board of
Directors which has been designated as a regular meeting via telephone, rather
- 25 -
than in person, the fee payable to such Director for attendance at such regular
meeting shall be reduced to $500. Non-employee Directors who serve on committees
of the Board, other than the Audit Committee or the Executive Committee, receive
an annual fee of $2,000, plus $1,000 for each meeting at which the Director is
in attendance. Non-employee Directors who serve on the Audit Committee receive
an annual fee of $5,000, plus $1,000 for each meeting of the Audit Committee at
which the Director is in attendance. The Lead Director, who serves on the
Executive Committee, receives an annual fee of $10,000 for his services on such
committee.
Employment Agreements and Change In Control Arrangements
Roy F. Mitte. Prior to October 31, 2002, Mr. Mitte and FIC were 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, provided for five-year terms and for
automatic renewals for successive five-year periods, unless otherwise terminated
in accordance with the terms of the agreement. On October 31, 2002, the
agreement was terminated according to its terms. Mr. Mitte remains a
non-managerial employee of FIC and is paid a salary equivalent to the salary of
a non-employee director of the Company.
Eugene E. Payne. On November 4, 2002, the Company and Dr. Payne entered
into an employment agreement, providing for the employment of Dr. Payne as
Chairman, President and Chief Executive Officer of the Company. The agreement
provides for a three-year term; however, on the first anniversary of the
agreement date and thereafter, the employment period shall be automatically
extended each day by one day to create a new two year term until, at any time
after the first anniversary of the agreement date, the Company delivers written
notice (an "Expiration Notice") to Dr. Payne or Dr. Payne delivers an Expiration
Notice to the Company, in either case, to the effect that the agreement shall
expire on a date specified in the Expiration Notice (the "Expiration Date") that
is not less than two years after the date the Expiration Notice is delivered to
the Company or to Dr. Payne, respectively. Dr. Payne's initial base salary under
the agreement is $360,000 per year. During the employment period, the base
salary shall be reviewed periodically and may be increased from time to time as
shall be determined by the Board of the Company. Additionally, Dr. Payne shall
be eligible for an annual bonus based upon target performance goals, as
determined by the Board on an annual basis, in accordance with normal Company
administrative practices for senior management, which provides for a payment
opportunity of at least the highest target level generally available to senior
management under any Company annual bonus plan upon the achievement of the
target annual goals. As of the agreement date, the Company also awarded Dr.
Payne stock appreciation rights (SARs) with respect to 30,000 shares of the
Common Stock of the Company, pursuant to terms and provisions of the Financial
Industries Corporation Equity Incentive Plan. A copy of this agreement is
attached as an exhibit to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2002 as filed with the SEC.
Jeffrey H. Demgen. On May 1, 2002, the Company and Mr. Demgen entered into
an employment agreement, which agreement was amended on August 17, 2002. The
Agreement provides for employment through December 31, 2005, at the rate of
$180,000 per year. The amendment provides that the employment agreement shall
not terminate upon the voluntary resignation of Mr. Demgen. A copy of this
agreement was filed with the SEC in the Company's Quarterly Report on Form 10-Q
for the period ending June 30, 2002.
- 26 -
Thomas A. Richmond. On December 13, 2002, the Company and Mr. Richmond
entered into an employment agreement, providing for the employment of Mr.
Richmond as Chief Operating Officer and Vice President of the Company. The
agreement provides for a three-year term; however, at the end of the term the
agreement is automatically renewed for successive one-year periods unless either
the Company or Mr. Richmond gives notice at least 90 days before the end of any
term that they choose not to renew the agreement. The agreement provides for a
base salary of $190,000, which base salary shall be reviewed periodically and
may be increased from time to time as shall be determined by the Chief Executive
Officer and subsequently ratified by the Board. Mr. Richmond is also eligible
for an annual bonus based upon target performance goals, as determined by the
Chief Executive Officer on an annual basis, in accordance with normal Company
administrative practices for senior management, as described above. A copy of
this agreement is attached as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2002 as filed with the SEC.
Theodore A. Fleron. On December 13, 2002, the Company and Mr. Fleron
entered into an employment agreement, providing for the employment of Mr. Fleron
as General Counsel and Vice President of the Company. The agreement provides for
a three-year term; however, at the end of the term the agreement is
automatically renewed for successive one-year periods unless either the Company
or Mr. Fleron gives notice at least 90 days before the end of any term that they
choose not to renew the agreement. The agreement provides for a base salary of
$190,000, which base salary shall be reviewed periodically and may be increased
from time to time as shall be determined by the Chief Executive Officer and
subsequently ratified by the Board. Mr. Fleron is also eligible for an annual
bonus based upon target performance goals, as determined by the Chief Executive
Officer on an annual basis, in accordance with normal Company administrative
practices for senior management, as described above. A copy of this agreement is
attached as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2002 as filed with the Securities and Exchange
Commission.
George M. Wise, III. On December 13, 2002, the Company and Mr. Wise entered
into an employment agreement, providing for the employment of Mr. Wise as Chief
Financial Officer and Vice President of the Company. The agreement provides for
a three-year term; however, at the end of the term the agreement is
automatically renewed for successive one-year periods unless either the Company
or Mr. Wise gives notice at least 90 days before the end of any term that they
choose not to renew the agreement. The agreement provides for a base salary of
$190,000, which base salary shall be reviewed periodically and may be increased
from time to time as shall be determined by the Chief Executive Officer and
subsequently ratified by the Board. Mr. Wise is also eligible for an annual
bonus based upon target performance goals, as determined by the Chief Executive
Officer on an annual basis, in accordance with normal Company administrative
practices for senior management, as described above. A copy of this agreement is
attached as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2002 as filed with the SEC.
Compensation Committee Interlocks and Insider Participation
The compensation committee of FIC is chosen by the Board of Directors. The
Compensation Committee makes recommendations to the Board of Directors with
respect to the Chief Executive Officer's compensation. The current members of
the Compensation Committee are John D. Barnett, Richard A. Kosson and Frank
Parker, all outside directors. The Compensation Committee did not meet in 2002.
- 27 -
The Chief Executive Officer determines the compensation of all executive
officers of the Company, other than the Chief Executive Officer.
Reports on Executive Compensation
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 measures 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.
The executive officers are provided long-term equity-based compensation in
the form of (i) stock options granted under the ILCO 1999 Stock Option Plan
(which was adopted by FIC following the Merger) and (ii) matching shares issued
under ILCO's Savings and Investment (401K) Plan (which covers employees of FIC
and all of its subsidiaries). They also participate in medical and pension plans
that are generally available to employees of the Company. 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.
Under the Company's 1999 Stock Option Plan (the "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 subsidiaries and affiliated companies. The 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 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.
- 28 -
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. In 2001, the 401K Plan was amended and
restated to comply with the Economic Growth and Tax Relief Reconciliation Act of
2001.
The Company provides medical and pension benefits to its executive officers
that are generally available to employees.
The foregoing report has been furnished by Eugene E. Payne.
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. However, on September 23, 2002, at a
meeting of the Board of Directors of FIC, a special committee of the Board of
Directors was created to for the purpose of making recommendations to the Board
with respect to the Report of the Audit Committee (the "Special Committee"). The
members of the Special Committee consisted of Tim Casey, Theodore Fleron, John
Barnett, David Caldwell, Lewis Gilcrease, Elizabeth Nash, and Frank Parker. On
October 23, 2002, the Special Committee met with an executive search consultant
for the purpose of discussing an executive search to fill the role of Chairman,
Chief Executive Officer and President of the Company. The consultant presented
to the Special Committee recommendations of salary, bonus and benefits for a
potential candidate based on packages given to the top executive at similar
sized life insurance companies. On the same day the Chairman of the Special
Committee, John Barnett, appointed a sub-committee consisting of Theodore
Fleron, Lewis Gilcrease and David Caldwell to interview Eugene Payne for the
position. On October 29, 2002 the Special Committee met and received a report
from the sub-committee regarding employment negotiations. Based on the
recommendations of the executive search consultant and the independent research
of the sub-committee, a recommendation was made to offer Eugene Payne a salary
of $360,000, and 30,000 stock appreciation rights, and a performance based
bonus. This recommendation was submitted to and approved by the Board of
Directors on November 4, 2002.
The compensation of the executive officers of the Company has been
established pursuant to the employment agreements described under the
"Employment Agreements and Change in Control Arrangements", which agreements
were approved by the Board of Directors. The amount of any bonus or equity-based
compensation is dependent upon corporate performance and attainment of
individual goals.
The foregoing report was furnished by the Special Committee.
- 29 -
Deductibility of Executive Compensation under the Internal Revenue Code
Section 162(m) of the Internal Revenue Code generally limits the
deductibility of compensation to the Chief Executive Officer and the four other
most highly compensated officers in excess of $1 million per year, provided,
however, that certain "performance-based" compensation may be excluded from such
$1 million deduction limitation. Since Mr. Mitte was not an executive with the
Company on December 31, 2002, which is the relevant date for measuring
deductibility of compensation under section 162(m) of the Code, his entire
compensation for 2002 is deductible and thus the Company will not incur the
$350,000 in federal income taxes which had been reflected in the provision for
federal income taxes in the first and second quarter of 2002.
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 (U.S.) and an index of stocks
of life insurance companies traded on Nasdaq over the same period (assuming the
investment on December 31, 1997 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).
[GRAPHIC OMITTED]
12/29/97 12/29/98 12/31/99 12/31/00 12/31/01 12/31/02
- -----------------------------------------------------------------------------------------------------------------
The Company (1) $100.00 $ 80.70 $ 49.70 $ 46.40 $ 73.10 $ 78.20
The Nasdaq Stock Market (US) 100.00 141.00 261.50 157.40 124.90 86.30
Index of Nasdaq Life Ins. Stocks (2) 100.00 100.80 87.10 96.30 119.70 111.80
(1) The dollar amounts for the Company's Common Stock are based on the
closing bid prices on Nasdaq on the dates indicated.
- 30 -
(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 (29 issuers listed during that period, of which 12 issuers were
traded on December 31, 2002). These peer companies were selected by the Company
on a line-of-business basis.
INDEPENDENT AUDITORS
Relationship With Independent Auditors
FIC"s accounting firm for the current year is PricewaterhouseCoopers, LLP
("PWC"). Representatives of PricewaterhouseCoopers LLP are expected to be
available for comment at the Annual Meeting and will be given an opportunity to
respond to appropriate questions.
Fees Paid to Independent Public Accountants
The Audit Committee reviews and approves audit and permissible non-audit
services performed by PWC, as well as the fees charged by PWC for such services.
In its review of non-audit service fees and its appointment of PWC as FIC's
independent accountants, the Audit Committee considered whether the provision of
such services is compatible with maintaining PWC's independence.
PWC 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
fiscal year 2002 and reviews of quarterly financial statements, (ii) financial
information systems design and implementation work rendered in fiscal years 2002
and (iii) all other services rendered in the fiscal year 2002.
Financial
Information
Systems
Design and
Implement-
Audit Fees ation Fees All Other Fees(1)
Fiscal Year 2002 $751,867 $0 $29,116
________________
(1) All Other Fees billed to FIC for services rendered by PWC for fiscal
2002 are for tax services
- 31 -
AUDIT COMMITTEE CHARTER AND REPORT
The Audit Committee operates pursuant to a Charter approved by the Board.
The Charter, which was appended to the Company's annual meeting proxy statement
as filed with the SEC in 2001, was amended on December 13, 2002. The amended
Charter (the "Charter") sets out the responsibilities, authority and specific
duties of the Audit Committee. The Charter specifies, among other things, the
structure and membership requirements of the Committee, as well as the
relationship of the Audit Committee to the independent auditors, the internal
audit department, and management of the Company. Generally, the Audit Committee
is responsible for providing assistance to the Board in fulfilling its
responsibilities in matters with respect to (i) the annual financial information
to be provided to shareholders and the 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 auditors of the Company, the independent accountants, financial
management and the Board. The Audit Committee makes periodic reports to the
Board concerning its activities. The Charter, as amended, is attached as
Appendix A hereto.
Report of the Audit Committee
Composition. As of the date of this Proxy Statement, the Audit Committee of
the Board is composed of the three directors named below. Each member of the
Audit Committee meets the independence and financial experience requirements of
the Nasdaq Stock Market currently in effect.
Responsibilities. The Committee operates under a written charter, which was
amended and adopted by the Board of Directors on December 13, 2002. The Audit
Committee is responsible for general oversight of FIC's auditing, accounting and
financial reporting processes, system of internal controls, and tax, legal,
regulatory and ethical compliance. FIC's management is responsible for
maintaining FIC's books of account and preparing periodic financial statement
based thereon and the system of internal controls. The independent accountants
are responsible for auditing FIC's annual financial statements.
Review with Management and Independent Accountants. In this context, the
Audit Committee hereby reports as follows:
(1) The Audit Committee has reviewed and discussed with management and PWC,
our independent auditors, the Company's audited financial statements contained
in FIC's Annual Report on Form 10-K for the year ended December 31, 2002.
(2) The Audit Committee has discussed with PWC, the matters required to be
discussed under the provisions of Statement of Auditing Standards No. 61 (SAS
61), Communications with Audit Committees.
(3) 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
PWC their independence.
- 32 -
(4) The Audit Committee has considered whether the provision of services by
PWC covered by Audit Fees and All Other Fees is compatible with maintaining the
independence of PWC.
The Audit Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Audit
Committee meets with the internal and independent auditors, with and without
management present, to discuss the results of their examinations, their
evaluations of the Company's internal controls, and the overall quality of the
Company's financial reporting.
In reliance on the reviews and discussions referred to above, and subject
to the limitations of the role of the Audit Committee, the Audit Committee
recommended to the Board 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, 2002 for filing with the SEC.
The foregoing report is submitted by the members of the Audit Committee:
Richard A. Kosson, Chairman
Lewis Gilcrease
Elizabeth Nash
- 33 -
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management believes that the following transactions were in the ordinary
course of business and on terms as favorable to the Company and its subsidiaries
as if the transactions had involved unaffiliated persons or organizations.
Investors Life Loans
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 Life to FLC and a
$2.5 million loan provided directly to FIC by Investors-CA (which was
subsequently merged into Investors Life) (referred to as the "Investors Life
Loans"). In addition to the interest provided under the Investors Life Loans,
Investors Life 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% 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. The original provisions of the options provided for their expiration
on June 12, 1998 if not previously exercised. As part of the May 18, 2001 merger
of ILCO with FIC, the option agreement was amended to substitute the 9.9%
provision for a fixed number of shares. The fixed number of shares, 500,411, is
equivalent to the number of shares of FIC's common stock outstanding immediately
prior to the Merger. 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. These notes were paid off to Investors Life in June 2001.
On July 30, 1993, the subordinated indebtedness owed to Merrill Lynch and
its affiliate was prepaid. 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 Life (the "1993 Subordinated
Loans"). The principal amount of the 1993 Subordinated Loans was to be paid 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 1993 Subordinated Loans are
substantially the same as those of the $22.5 million subordinated loans that
Investors Life had previously made to FLC.
In June 1996, the provisions of the Investors Life Loans and the 1993
Subordinated Loans were modified. The 1993 Subordinated Loans were modified as
follows: (a) 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%, and (b) the $4.5 million note was amended to provide for
forty quarterly principal payments, in the amount of $24,531 each for the period
- 34 -
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%.
FIC Computer Services
The data processing needs of FIC's insurance subsidiaries are provided 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 $1,654,826 and Investors Life paid
$2,282,423 to FIC Computer for data processing services provided during 2002.
Reinsurance Arrangements
In 1995, Family Life entered into a reinsurance agreement with Investors
Life 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.
In 1996, Family Life entered into a reinsurance agreement with Investors
Life, pertaining to annuity contracts written by Family Life. The agreement
applies to contracts written on or after January 1, 1996.
Donation to Mitte Foundation
On January 2, 2002, Roy F. Mitte caused the Company to transfer $1,000,000
to the Roy F. and Joann Cole Mitte Foundation (the "Foundation"). 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
16.16% of the outstanding shares of FIC's Common Stock. The sole members of the
Foundation are Roy F. Mitte, former Chairman, President and Chief Executive
Officer of FIC, and his wife, Joann Cole Mitte. This transfer of funds was never
authorized by the Board of FIC and FIC has sued Mr. Mitte and the Foundation for
recovery of these funds.
- 35 -
PROPOSALS FOR 2004 ANNUAL MEETING
It is contemplated by the management of FIC that the next Annual Meeting of
the Shareholders of FIC will be held on or about June 1, 2004. Proposals
submitted by any security holders and intended to be included in FIC's Proxy
Statement and Form of Proxy relating to the 2004 Annual Meeting must be received
by the Company at its principal executive offices no later than December 31,
2003 and must be in compliance with applicable laws and SEC regulations.
In accordance with the rules and regulations of the SEC, FIC's management
will have discretionary authority to vote on any proposal raised by a
shareholder at the 2004 Annual Meeting if the proponent fails to notify the
Company on or before _______, 2003. All notices of proposals by shareholder,
whether or not included in the Company's proxy materials, should be sent to FIC,
6500 River Place Blvd. Building One, Austin, Texas 78730, Attention: Secretary.
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: April __, 2003
By Order of the Board of Directors
Financial Industries Corporation
Theodore A. Fleron
Secretary
- 36 -
Appendix A
__________
Financial Industries Corporation
Audit Committee Charter
This Audit Committee Charter was adopted by the Board of Directors of Financial
Industries Corporation ("FIC") on May 30, 2002, and has been revised on December
13, 2002.
The Audit Committee (the "Committee"), of the Board of Directors of FIC (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") and the regulations adopted by the U.S. Securities and Exchange
Commission (the "SEC") pursuant to the provisions of section 301 of the
Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"). 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.
At least one member of the Audit Committee shall satisfy the "financial expert"
requirements of section 407 of Sarbanes-Oxley, and the rules thereunder.
STATEMENT OF POLICY
The Audit Committee is a part of the Board of Directors. Its 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 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.
A-1
A quorum for any Audit Committee meeting shall be a majority of the Audit
Committee members.
The action of a majority of the members present at any meeting in which a quorum
is present shall be the action of the Audit Committee.
Notice for all meetings shall be given as required by the Bylaws of the Company.
Audit Committee meetings may be held in person, by telephone, or any other
method of communication in which all committee members may be heard.
The chair of the Audit Committee shall report results of its meeting to the full
Board of Directors at the next following Board meeting.
The agenda and other materials for any meeting should be provided to Audit
Committee members in advance of the meeting as may be practical.
The Chief Financial Officer of the Company shall coordinate the Audit Committee
meeting notices and distribution of materials to Audit Committee members.
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.
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 critical accounting and reporting principles, practices and
procedures applied by the Company in preparing its financial statements.
Discuss with the independent accountants their judgments about the quality,
not just the acceptability, of the Company's accounting principles used in
financial reporting.
A-2
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 the Chief Executive Office
("CEO") and Chief Financial Officer ("CFO") and other appropriate members
of management and the independent auditor prior to the filing of the
Company's Quarterly Report on Form 10-Q, and shall review with the CEO and
CFO the contents of any required certification related to the filing of the
Form 10-Q. Also, the committee shall discuss the results of the quarterly
review and any other matters required to be communicated to the committee
by the independent auditor 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.
The content of any required certifications to be completed by the CEO
and the CFO in connection with the filing of the annual report 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.
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.
A-3
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.
Review annually the qualifications and proposed audit fees for the
next fiscal year of the independent auditor currently retained by the
company and shall review such information regarding other potential
independent auditors as the committee may deem appropriate. Upon
completion of the review, the Committee shall retain an independent
auditor on behalf of and for the Company and shall approve the fees
for the audit.
The Committee shall review the effectiveness of the Company's internal
audit process and adequacy of staff and resources; approve the
appointment of the Company's senior internal audit executive; approve
the retention and compensation of any firm retained for outsourced
internal audit services; and review the cooperation afforded or
limitations, if any, imposed by management in the conduct of the
internal auditing. The senior internal audit executive shall be
authorized to report any matters pertaining to the internal audit
function directly to the Committee. The Committee shall have the sole
authority to terminate or reassign the senior internal audit
executive.
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.
Prepare the report of the Audit Committee to be included in the
Company's proxy statement for the annual meeting of shareholders, as
required under the rule of the SEC.
Establish procedures in accordance with the requirements of section
301 of Sarbanes-Oxley for:
the receipt, retention and treatment of complaints received by
the Company regarding accounting, internal accounting controls,
or auditing matters; and
the confidential, anonymous submission by Company employees of
concerns regarding questionable accounting or auditing matters.
CONSULTANTS
In the performance of its functions the Audit Committee shall have the authority
to retain consultants or legal counsel of its selection. The expenses incurred
by the Audit Committee in connection with the retention of such consultants and
legal counsel shall be paid for by the Company.
A-4
Schedule I
PARTICIPANTS IN THE SOLICITATION
Under applicable regulations of the SEC, each member of the FIC Board, each
director nominee and each executive officer of FIC may be deemed to be a
"participant" in FIC's solicitation of Proxies. In the event each of these
persons is deemed a "participant," without acknowledging that any such person is
a "participant," we furnish the following information.
Except as set forth below, the principal business addresses of each
director and executive officer are 6500 River Place Blvd., Austin, Texas 78730.
The principal occupation of each director and executive officer is set forth in
this Proxy Statement under the sections entitled "Proposal 1-Election of
Directors" and "Executive Officers," respectively.
John D. Barnett W. Lewis Gilcrease
Investment Professionals, Inc. 119 West San Antonio
16414 San Pedro Ave. San Marcos, TX 78666
San Antonio, TX 78232
Richard A. Kosson Fred W. Lazenby
Citrin Cooperman & Company, LLP 220 Great Circle Rd.
530 Morris Ave. Suite 122
Springfield, NJ 07081 Nashville, TN 37228
Elizabeth T. Nash Frank Parker
109 E. Mimosa Circle 4 Holly Lane
San Marcos, TX 78666 Brownsville, TX 78520
James B. Morgan Jerold H. Rosenblum
Handy & Morgan 5 Water Orchard Ct.
1409 Precinct Line Rd. Hilton Head Island, SC 29926
Hurst, TX 76053
Robert C. Wilson, III Eugene E. Payne
P.O. Box 27501 1300 Circle Ridge Drive
Houston, TX 77227 Austin, Texas 78746
Thomas C. Richmond Jeffrey H. Demgen
1004 Antelope Ridge 9510 Scenic Bluff Drive
Cedar Park, Texas 78613 Austin, Texas 78733
George M. Wise III Theodore A. Fleron
3001 Huron Club Court 1600 Easy Street
Austin, Texas 78733 Austin, Texas 78746
I-1
Information about the present ownership by participants and their
"associates" of FIC Common Stock is set forth under the section entitled
"Security Ownership of Certain Beneficial Owners and Management."
Information about related party transactions involving the participants and
their "associates" can be found under the sections entitled "Certain
Relationships and Related Transactions" and "Compensation of Executive Officers
and Directors-Employment Agreements and Change In Control Agreements."
No participant has been convicted in a criminal proceeding during the past
ten years.
Except as set forth in this Proxy Statement, no participant is or was,
within the past year, a party to any contract arrangement or understanding with
any person with respect to any securities of FIC.
Except as set forth in this Proxy Statement, none of the directors or
executive officers or any of their "associates" has any arrangement or
understanding with any person with respect to future employment or future
transactions with FIC.
Other than as disclosed in this Schedule or the Proxy Statement, to the
knowledge of FIC, neither FIC nor any of the participants has any substantial
interest, direct or indirect, by security holdings or otherwise, in any matter
to be acted upon at the Annual Meeting.
PURCHASES AND SALES OF SECURITIES
The following table sets forth information concerning all purchases and
sales of securities of the Company by the participants listed below during the
past two years.
Date of Nature of Number of
Name Transaction Transaction Shares
Jeffrey H. Demgen May 29, 2001 Sale * 2,200
June 1, 2001 Sale * 2,200
January 7, 2002 Sale * 2,200
May 29, 2002 Sale * 2,200
Theodore A. Fleron June 1, 2001 Sale * 2,200
March 25, 2002 Sale ** 5,100
April 10, 2002 Sale * 2,200
May 29, 2002 Sale * 2,200
Fred W. Lazenby March 14, 2001 Sale 12,862
August 22, 2002 Sale 2,000
August 23, 2001 Sale 2,000
August 24, 2001 Sale 9,600
October 12, 2001 Sale 10,000
July 22, 2002 Sale 200
I-2
Thomas C. Richmond July 23, 2001 Sale * 2,200
May 29, 2002 Sale * 2,200
George M. Wise III September 25, 2002 Purchase 200
* Sale of stock in connection with exercise of non-qualified stock options.
** ESOP diversification.
I-3
PRELIMINARY COPY - SUBJECT TO
COMPLETION DATED APRIL 18, 2003
PROXY
FINANCIAL INDUSTRIES CORPORATION
Annual Meeting of Shareholders
Friday, May 9, 2003
10:00 a.m.
This proxy is solicited by the Board of Directors for use at the Annual Meeting
on May 9, 2003.
Eugene E. Payne and Theodore A. Fleron, or either of them, each with the power
of substitution, are hereby authorized to represent and vote the shares of the
undersigned, as directed on the reverse side of this proxy, with all the powers
that the undersigned would possess if personally present at the Annual Meeting
of Shareholders of Financial Industries Corporation to be held on Friday, May 9,
2003, or at any postponements or adjournments thereof, and in their discretion
to vote and act upon any other matters as may properly come before said meeting
and any adjournments thereof, including without limitation, any proposal
proffered by the Otter Creek Group to reduce the size of the Board of Directors
to eight, which proposal the named proxies intend to vote "AGAINST" if properly
brought before the meeting. Such authority includes discretionary authority by
the proxies named herein to cumulate votes in order to elect as many nominees as
believed possible under the then prevailing circumstances.
If no choice is specified, the proxy will be voted "FOR" Item 1.
By signing the proxy, you revoke all prior proxies and appoint Eugene E. Payne
and Theodore A. Fleron, or either of them, with full power of substitution, to
vote your shares on the matters shown on the reverse side and any other matters
which may properly come before the Annual Meeting and all adjournments.
Continued on reverse side
The Board of Directors Recommends a vote "FOR" Item 1.
1. Election of Directors _____ Vote FOR all nominees
(except as indicated)
_____ Vote WITHHELD from all
nominees
To withhold authority to vote for any individual nominee, strike a line through
that nominee's name in the list below.
John D. Barnett, Theodore A. Fleron, Dr. W. Lewis Gilcrease, Richard A. Kosson,
Fred W. Lazenby, James B. Morgan, Elizabeth T. Nash, Frank Parker, Dr. Eugene E.
Payne, Jerold H. Rosenblum, Robert C. Wilson, III.
Please date, sign and return in the enclosed postage paid envelope.
Dated: ___________________, 2003
Signature(s) ___________________________
________________________________________
Please sign exactly as your name(s) appear on the Proxy. If held in joint
tenancy, all persons must sign. Trustees, administrators, etc. should include
title and authority. Corporations should provide full name of corporation and
title of authorized officer signing the Proxy.