IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
FINANCIAL INDUSTRIES
CORPORATION
Plaintiff, CIVIL ACTION NO.
A03 CA 033 SS
vs.
THE ROY F. AND JOANN COLE
MITTE FOUNDATION, ROY F.
MITTE and JOANN COLE MITTE
Defendants.
COMPROMISE SETTLEMENT AGREEMENT
AND MUTUAL RELEASE
This Compromise Settlement Agreement and Mutual Release (this "Agreement")
is entered into between Financial Industries Corporation ("FIC") and Robert
Bender ("Bender"), on the one hand, and Roy F. Mitte ("Roy"), Joann Cole Mitte
("Joann"), Scott Mitte ("Scott"), Jan Mitte ("Jan"), and The Roy F. and Joann
Cole Mitte Foundation (the "Foundation"), on the other hand. FIC, Bender, Roy,
Joann, Scott, Jan and the Foundation are each referred to herein as a "Party"
and sometimes collectively referred to herein as the "Parties"; Roy, Joann,
Scott, Jan, and the Foundation are sometimes referred to herein as the "Mitte
Parties."
RECITALS
WHEREAS, FIC filed suit against Roy, Joann, and the Foundation in the case
styled Financial Industries Corporation v. Roy F. Mitte, Joann Cole Mitte, and
The Roy F. and Joann Cole Mitte Foundation, Cause No. A03 CA 033 SS, United
States District Court for the Western District of Texas, Austin Division (the
"Litigation");
WHEREAS, FIC's claims in the Litigation relate to alleged circumstances
that are more fully described in the "Financial Industries Corp. Report of the
Audit Committee of the Board of Directors Concerning Payment of the Personal
Expenses of the Chairman" dated September 17, 2002, (the "Mitte Audit"), and the
Report of Internal Audit Concerning Payment of Mitte Foundation Expenses (the
"Foundation Audit"). All references to the Litigation in this Agreement
expressly include and encompass the claims and alleged circumstances relating to
or arising out of the Mitte Audit and the Foundation Audit;
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WHEREAS, FIC's claims in the Litigation also relate to the alleged
impropriety of certain donations, particularly a $1 million donation from FIC to
the Foundation, made in January 2002. All references to the Litigation in this
Agreement expressly include and encompass the claims and alleged circumstances
relating to or arising out of any such donations by FIC to the Foundation in any
and all years (the "Donations");
WHEREAS, Roy has asserted that he was wrongfully terminated from his
position as Chairman of the Board and Chief Executive Officer of FIC. Roy,
Joann, and the Foundation have filed certain counterclaims against FIC in the
Litigation seeking, among other things, damages for breach of contract of the
Employment Agreement (as hereinafter defined) between Roy and FIC. All
references to the Litigation in this Agreement expressly include and encompass
the claims and alleged circumstances relating to or arising out of Roy's
Employment Agreement or the termination thereof;
WHEREAS, the Mitte Parties presently beneficially own, collectively,
1,627,610 shares(1) (the "Mitte Stock") of common stock, $0.20 par value per
share, of FIC (such class of stock being referred to as "Common Stock");
WHEREAS, on January 20, 2003, the Mitte Parties made demand that FIC call a
special meeting of shareholders;
WHEREAS, on February 10, 2003, FIC and the Mitte Parties agreed that FIC's
annual meeting of shareholders would be held on May 9, 2003, in return for the
Mitte Parties' withdrawal of their demand for an earlier special meeting;
WHEREAS, FIC and the Mitte Parties thereafter entered into discussions and
negotiations toward a mutually acceptable compromise settlement, and in the
course of such discussions agreed to delays in the outside date for the annual
meeting of shareholders, most recently to June 12, 2003;
WHEREAS, the Parties desire to compromise and settle the disputes and
controversies between them, including, without limitation, all claims and
counterclaims that were, or could have been, brought in the Litigation; and
WHEREAS, the Parties intend that the full terms and conditions of their
compromise and settlement be set forth in this Agreement.
NOW THEREFORE, in consideration of the recitals, covenants, releases, and
agreements contained herein, and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the Parties agree as
follows:
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1 Includes 1,552,206 shares of Common Stock owned by the Foundation, 35,520
shares of Common Stock held for Roy's benefit in FIC's Employee Stock Ownership
Plan, 39,820 shares of Common Stock held by Roy personally, and 64 shares of
Common Stock held for Scott's benefit in FIC's Employee Stock Ownership Plan.
Does not include 6,600 shares of Common Stock issuable upon exercise of employee
stock options held by Roy.
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1.0 Payments.
1.1 In consideration for the cancellation of the Employment Agreement
(defined in Section 4) and the relinquishment of Roy's rights thereunder, and
for the general release and other provisions set forth herein, FIC will pay to
Roy the sum of THREE MILLION DOLLARS ($3,000,000.00) in full satisfaction of all
amounts due and allegedly due to Roy from FIC, and all amounts due and allegedly
due to FIC from Roy and the Foundation, with respect to claims made, or that
could have been made, in connection with the Employment Agreement, the Mitte
Audit, the Foundation Audit (including without limitation, the Donations and any
and all of the factual circumstances and matters addressed in the Foundation
Audit), and/or the Litigation.
In consideration for the Foundation withdrawing its request for a special
meeting, granting its proxy to FIC or its designees under certain terms and
conditions described herein, and for the general release and other provisions
set forth herein, FIC specifically agrees that it is relinquishing its claims
against the Foundation without any monetary payments by the Foundation in
relation to the alleged expenses and reimbursement claims identified in, arising
out of, connected with or related in any way to the Litigation, the Foundation
Audit and/or the Donations.
1.2 (a) Subject to the provisions of Section 1.2(b), the payments to be
made by FIC pursuant to Section 1.1 above will be made in three equal annual
installments of One Million Dollars ($1,000,000), beginning on June 1, 2003,
with a like payment on June 1, 2004 and June 1, 2005, by wire transfer or
cashier's or certified check. In the event of the death of Roy prior to the
completion of FIC's payment obligations in this Agreement, FIC will continue
making payments in accordance with this Section 1.2 to Joann or, in the event of
the death of Joann prior to the completion of FIC's payment obligations in this
Agreement, to Roy's estate or Joann's estate, as applicable, or his or her
devisees, legatees, heirs or other appropriate assigns or appointees. The
Parties agree that FIC's failure to make a timely payment due to Roy, Joann or
such other persons in accordance with this Section 1.2, after written notice
delivered to FIC and the failure of FIC to cure by making such payment within 10
days following receipt of such notice, will result in (i) the immediate and
automatic termination of any obligation of the Mitte Parties set forth in
Sections 2.1 of this Agreement, and (ii) the acceleration of any and all FIC's
remaining payment obligations under this Agreement.
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(b) Roy agrees to provide to FIC, promptly following the filing of his
federal income tax return on Form 1040 for each of the years ended December 31,
2003, 2004 and 2005, a duly executed Internal Revenue Service Form 4669 (or any
successor form) which reports as ordinary income the $1,000,000 installment paid
to Roy by FIC pursuant to Section 1.2(a) in such calendar year (each, a "Form
4669"). Notwithstanding anything to the contrary contained in this Section
1.2(b), in the event that Roy fails to provide to FIC a Form 4669 with respect
to the year ended December 31, 2003 prior to June 1, 2004, FIC shall hold back
from the $1,000,000 installment payable to Roy on such date pursuant to Section
1.2(a), the amount of $270,000 until such time as Roy delivers such Form 4669 to
FIC. In the event that Roy fails to provide to FIC a Form 4669 with respect to
the year ended December 31, 2004 prior to June 1, 2005, FIC shall hold back from
the $1,000,000 installment payable to Roy on such date pursuant to Section
1.2(a), the amount of $270,000 until such time as Roy delivers such Form 4669 to
FIC. With respect to the third $1,000,000 installment payable to Roy on June 1,
2005 pursuant to Section 1.2(a), FIC shall hold back from such payment the
amount of $270,000 until such time as Roy (i) delivers a duly executed Form 4669
with respect to the year ended December 31, 2005 or (ii) directs FIC to pay to
the Internal Revenue Service such amount as an estimated tax payment; provided,
that in the case of clause (ii), Roy shall still be obligated to deliver to FIC
a duly executed Form 4669 for the year ended December 31, 2005 as required by
this Section 1.2(b). In the event of the death of Roy, Roy's obligations under
this Section 1.2(b) may be fulfilled by Joann or by the executor of Roy's
estate, which shall be considered performance by Roy for all purposes.
1.3 In the event of a Change of Control (as defined below) of FIC, FIC's
payment obligations as set forth in Sections 1.1 and 1.2 above shall accelerate
and become immediately payable in full at the time of such Change of Control;
provided, however, that FIC shall hold back from the amount payable upon a
Change of Control, the sum of $270,000 per $1,000,000 installment paid as a
result of the Change of Control (it being agreed that any such amounts held back
by FIC will be paid to Roy following the delivery by Roy of a duly executed Form
4669 for the year in which the Change of Control occurred). For purposes of this
Agreement, a "Change of Control" shall mean the occurrence of any of the
following: (i) any person, entity or group within the meaning of Sections 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
becoming the beneficial owner (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of more than fifty percent (50%) of the combined voting
power of the then outstanding voting securities entitled to vote generally in
the election of the Board of Directors of FIC; (ii) a merger, reorganization or
consolidation whereby FIC's equity holders existing immediately prior to such
merger, reorganization or consolidation do not, immediately after consummation
of such reorganization, merger or consolidation, own more than fifty percent
(50%) of the combined voting power of the surviving entity's outstanding voting
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securities entitled to vote generally in the election of the Board of Directors
of the surviving entity, as determined immediately after such sale; or (iii) the
sale of all or substantially all of FIC's assets to any person, entity or group,
in a single transaction or a series of similar transactions, within the meaning
of Sections 13(d) or 14(d) of the Exchange Act in which FIC, any subsidiary of
FIC, or FIC's equity holders existing immediately prior to such sale
beneficially own less than fifty percent (50%) of the combined voting power of
such acquiring entity's outstanding voting securities entitled to vote generally
in the election of directors, as determined immediately after such sale.
2.0 Proxy; Sale of Mitte Stock; Annual Shareholders Meeting.
2.1 Subject to the conditions in this Section 2.1(a) through (e) and all
other terms of this Agreement, the Mitte Parties will grant to any persons named
as proxies by FIC in any proxy statement filed with the Securities and Exchange
Commission by the management of FIC for the purpose of soliciting proxies for
any annual or special meeting of shareholders of FIC their irrevocable proxy for
any and all shares of Common Stock held by any of the Mitte Parties for the
following purposes:
(a) For so long as FIC complies with the provisions of Section 2.4 below by
providing a Purchase Offer (as defined below) as therein provided, such proxy
may be voted "for" all nominees for the Board of Directors of FIC named on FIC's
proxy statement, "against" any proposal by a person other than FIC for the
removal of any members of the Board of Directors, "withheld" as to any nominees
for the Board of Directors proposed by any person other than FIC, "against" any
proposal by any person other than FIC to amend the bylaws or articles of
incorporation of FIC, and in accordance with the recommendation of the Board of
Directors of FIC or at their discretion as permitted by applicable law with
respect to any shareholder proposal submitted pursuant to Rule 14a-8 under the
Exchange Act. FIC expressly agrees, warrants and represents that it will not
propose at the 2003 annual shareholders meeting any amendment to the articles of
incorporation or bylaws of FIC that would increase the ownership threshold for a
shareholder's ability to call a special meeting of shareholders. Such proxy
shall not extend to any other matters that may be proposed by FIC at an annual
or special meeting during such Purchase Period in which the proxy is in effect,
including without limitation, any other amendment to the articles of
incorporation or bylaws of FIC, any action relative to a merger of FIC or the
sale of all or substantially all of the assets of FIC, or the issuance or sale
by FIC of any of its equity securities.
(b) For so long as FIC complies with the provisions of Section 2.4 below by
providing a Purchase Offer (as defined below) as therein provided, such proxy
may be voted in the manner specified in Section 2.1(a) above. In addition, to
the extent such matter is proposed by FIC at the 2004 annual meeting, or at any
annual or special meeting of shareholders after such 2004 annual meeting, such
proxy, if then in effect, may be voted "for" an amendment to the articles of
incorporation of FIC to (i) raise the ownership threshold for a shareholder's
ability to call a special meeting of shareholders to 30% or (ii) provide that
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cumulative voting shall not be permitted in the election of the Board of
Directors of FIC. Such proxy shall not extend to any other matters that may be
proposed by FIC at an annual or special meeting during any Purchase Period in
which the proxy is in effect, including without limitation, any other amendment
to the articles of incorporation or bylaws of FIC, any action relative to a
merger of FIC, the sale of all or substantially all of the assets of FIC, or the
issuance or sale by FIC of any of its equity securities.
(c) With respect to any other matters not addressed in Section 2.1(a) and
2.1(b), the Common Stock held by the Mitte Parties will be voted in accordance
with the written instructions provided by the Mitte Parties.
(d) THE PROXY GRANTED PURSUANT TO THIS SECTION 2.1 WILL BE IRREVOCABLE AND
COUPLED WITH AN INTEREST BUT IS SUBJECT TO TERMINATION AS PROVIDED HEREIN.
Concurrent with the execution and delivery of this Agreement, the Mitte Parties
shall execute and deliver to FIC the proxy attached hereto as Exhibit A. In
furtherance of the provisions of this Section 2.1, the Mitte Parties agree that
they will not, so long as such proxy is in effect with respect to any shares of
Mitte Stock pursuant to this Agreement, (i) solicit proxies or consents,
directly or indirectly, or become a "participant" in any "solicitation" (as such
terms are defined in Regulation 14A under the Exchange Act) of proxies or
consents to vote, or seek to advise or influence any person with respect to the
voting of, the Common Stock of FIC, other than in accordance with the formal
recommendation of the Board of Directors of FIC with respect to any such matter;
(ii) with respect to the Common Stock of FIC (a) form or join any "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) after the date of
this Agreement or (b) in the event that the Mitte Parties or any of their
respective affiliates have formed or joined any such group prior to the date
hereof, participate in or benefit from any additional action by such group or
any member thereof after the date of this Agreement that would constitute a
violation of this Section 2.1 if undertaken by such group or the Mitte Parties
or any such affiliate alone; (iii) disclose any intention, plan or arrangement
inconsistent with any of the foregoing; (iv) call for a special meeting of
shareholders in which directors of FIC will be elected or removed; or (v)
advise, assist or encourage any other person in connection with any of the
foregoing.
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(e) For clarity and as otherwise provided herein, the proxy in this Section
2.1, will immediately and automatically terminate if FIC fails (after any
applicable notice and cure period) to timely make any of the payments provided
for in Sections 1.1, 1.2 or 1.3; or fails to produce a bona fide purchaser who
makes a Purchase Offer before the end of any applicable Purchase Period as
provided for in Section 2.4; or if FIC fails, within 10 days after having
received written notice from a Mitte Party of such failure, to fulfill in all
material respects its obligations under Section 2.2 or Section 6.1 of this
Agreement; provided, however, the termination of the proxy as provided for in
this Section 2.1(e) shall not work to terminate or reduce in any respect the
obligations of FIC otherwise provided in this Agreement.
(f) Unless previously terminated in accordance with applicable provisions
of this Agreement, the proxy granted pursuant to this Section 2.1 will terminate
on May 15, 2005.
2.2 The Mitte Parties collectively beneficially own as of the date of this
Agreement (not including the stock option shares referenced in footnote 1)
1,627,610 shares of FIC Common Stock. On or prior to June 1, 2003, (a) FIC (or
another bona fide purchaser or purchasers) shall purchase 39,820 shares of
Common Stock held by Roy at a purchase price of $14.64 per share and (b) FIC
shall pay to Roy in consideration of the cancellation of 6,600 options (the
"Options") to acquire Common Stock held by Roy on the date of this Agreement,
the amount of $42,636 less any applicable withholding taxes. The stock purchase
agreement to be used in the purchase and sale transaction referred to in clause
(a) above, as well as for any other purchase and sale transactions under this
Agreement, including, without limitation, transactions under Sections 2.3 and
2.4: (i) shall not contain any seller warranties and representations (other than
as to ownership, authority to sell, enforceability, and that the shares are to
be conveyed free of liens, proxies, voting agreements and similar impediments);
(ii) will not call for any legal opinions; and (iii) will not call for any
indemnities post-closing, other than with respect to the matters referenced in
(i) above. Following receipt by Roy of the payment referred to in clause (b)
above, Roy acknowledges and agrees that the Options shall be cancelled and of no
further force or effect and that Roy shall have no further rights under any
Option Agreement between Roy and FIC which governs the terms of such Options.
2.3 On or prior to June 1, 2003, FIC (or another bona fide purchaser or
purchasers) shall purchase 35,502 shares of Common Stock attributable to Roy
under the FIC Employee Stock Ownership Plan at a purchase price of $14.64 per
share.
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2.4 (a) During the periods ending August 15, 2003, May 15, 2004, November
15, 2004 and May 15, 2005 (each, a "Purchase Period"), FIC agrees to use its
commercially reasonable efforts to locate a bona fide purchaser or purchasers to
purchase at least 388,052 shares of Common Stock held by the Foundation in each
such period for a cash purchase price of $14.64 per share (or, in the event of
any period in which the Foundation owns less than 388,052 shares, the amount
then held); provided, however, that, notwithstanding the foregoing, in the event
that FIC locates a bona fide purchaser or purchasers during any such Purchase
Period to purchase more than 388,052 shares of Common Stock held by the
Foundation, the entire excess amount shall be applied to any future Purchase
Period(s) as FIC may direct and shall have the effect of reducing the number of
shares of Common Stock that must be the subject of a Purchase Offer (as defined
below) in any subsequent Purchase Period(s) for FIC to retain the proxy granted
to it in this Agreement in accordance with the provisions of Section 2.4(b).
For purposes of example only, if a Purchase Offer were made during the
Purchase Period ended August 15, 2003 for 500,000 shares of Common Stock,
388,052 of such shares of Common Stock shall be applied to the Purchase Period
ended August 15, 2003 in satisfaction of FIC's obligations under Section 2.4(b)
for such Purchase Period and the remaining 111,948 shares of Common Stock shall
be applied to any future Purchase Period(s) as FIC may direct. Consequently, if
a Purchase Offer were made for 388,052 shares of Common Stock during the
Purchase Period ended May 15, 2004 and for 276,104 shares of Common Stock for
the Purchase Period ended November 15, 2004, FIC would be deemed to have
satisfied the provisions of Section 2.4(b) for the continuation of the proxy for
the periods ended May 15, 2004 and November 15, 2004 by applying the excess
111,948 shares of Common Stock from the Purchase Offer made during the Purchase
Period ended August 15, 2003 to the Purchase Period ended November 15, 2004. For
the avoidance of doubt, shares of Common Stock subject to a Purchase Offer (as
defined below) shall count towards the foregoing amounts even if the Foundation
elects not to accept such Purchase Offer.
(b) In the event that a third party introduced by FIC makes a bona fide
offer or offers to purchase for cash at the purchase price of $14.64 per share
(in one transaction or a series of transactions) at least 388,052 shares of
Common Stock held by the Foundation during each separate Purchase Period (or
such lesser amounts as are described in Section 2.4(a) to the extent applicable)
(collectively, in any one Purchase Period, a "Purchase Offer"), then the proxy
given pursuant to Section 2.1 above will remain in effect with respect to all
shares of FIC Common Stock held the Mitte Parties until the end of the next
Purchase Period or until earlier released by FIC. For the avoidance of doubt, if
a third party purchaser or purchasers introduced or arranged by FIC offers to
buy shares of Common Stock held by the Foundation in the amounts and at the
price of $14.64 per share by the end of each Purchase Period specified in this
Section 2.4, the proxy given pursuant to Section 2.1 above shall remain in
effect until the end of the next Purchase Period, whether or not the Foundation
accepts such Purchase Offer. Also for the avoidance of doubt, if FIC fails to
produce a third party purchaser or purchasers who offers to purchase at least
388,052 shares of Common Stock held by the Foundation (or such lesser amounts as
are described in Section 2.4(a) to the extent applicable) during such Purchase
Period at the price of $14.64 per share by the end of the applicable Purchase
Period specified in this Section 2.4, then the proxy given pursuant to Section
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2.1 above shall immediately terminate. Except as provided in the proviso to this
sentence, the Mitte Parties shall be under no obligation to sell any such shares
of Mitte Stock for which a Purchase Offer is made, but the proxy relating to
such shares of Mitte Stock shall remain in effect so long as the Purchase Offer
is made in accordance with the terms of this Section 2.4; provided, however,
that in the event that FIC or a third party or parties make a bona fide Purchase
Offer to buy up to 517,402 shares of Common Stock held by the Foundation at a
purchase price of $14.64 per share on or prior to August 15, 2003, the
Foundation shall be obligated to sell such shares if FIC or such third party or
parties tender the purchase price to the Foundation on or prior to such date. In
consideration of the agreements of the Foundation set forth in this Section 2.4,
FIC and its subsidiaries agree not to sell, issue, transfer or convey any shares
of Common Stock to a third party for cash between the date hereof and August 15,
2003, without first directing such third party to purchase the desired number of
shares (up to 517,402 shares) of Common Stock from the Foundation. Any violation
of the immediately preceding sentence by FIC or its subsidiaries shall result in
an immediate termination of the proxy described in Sections 2.1 and 2.4.
(c) Notwithstanding anything in this Agreement to the contrary, the
foregoing provisions of this Section 2.4 shall in no way obligate FIC or any
other person to make a Purchase Offer with respect to shares of Mitte Stock or
consummate any such purchase (other than the purchase of shares of Common Stock
held by Roy pursuant to Sections 2.2 and 2.3), and a consequence under this
Agreement of the failure of the Purchase Offer being made or purchase pursuant
thereto being consummated following the Mitte Parties' election to accept such
offer shall include the termination of the proxy granted hereby at the end of
the respective Purchase Period with respect to the shares of Common Stock held
by the Mitte Parties. Any purchaser of shares pursuant to this Section 2.4 shall
acquire such shares free of the proxy.
(d) The obligations of FIC under this Section 2.4 relate solely to the
1,552,206 shares of Common Stock owned by the Foundation as of the date of this
Agreement and do not extend to any shares of Common Stock acquired by the
Foundation or any of the Mitte Parties after the date of this Agreement. The
applicability of the proxy described in Sections 2.1 and 2.4 relates solely to
the shares of Common Stock set forth on Schedule A attached hereto and do not
extend to any shares of Common Stock acquired by the Foundation or any of the
Mitte Parties after the date of this Agreement.
2.5 This Agreement shall supercede any and all prior agreements or
understandings between FIC and the Mitte Parties with respect to the record date
for and the date of the 2003 Annual Meeting of Shareholders, and each of FIC and
the Mitte Parties agree that the Board of Directors of FIC shall have the
absolute and sole discretion to set the record date and meeting date for the
2003 Annual Meeting of Shareholders and any future shareholders meetings subject
to applicable law with respect thereto. Notwithstanding the foregoing, unless
required by applicable law or order of any court of competent jurisdiction, FIC
agrees that the annual meeting of shareholders held in 2004 and 2005 shall be
held after June 10th of each respective year.
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2.6 In the event that the Mitte Parties transfer any shares of Mitte Stock
to any third party by sale, gift or otherwise, other than in accordance with
Section 2.4 of this Agreement, the proxy granted to FIC in Section 2.1 hereof
shall survive any such transfer to a third party unless (i) FIC agrees in
writing at the time of such transfer to terminate the proxy with respect to
those shares of Mitte Stock, (ii) such third-party transferee does not, after
giving effect to the transfer of the Mitte Stock, beneficially own (either
individually or collectively with any other person for which such third party
would be deemed to be part of a "group" as defined in Sections 13(d) or 14(d) of
the Exchange Act) more than two percent (2%) of the then outstanding shares of
FIC Common Stock or (iii) such transfer is effected in the open-market pursuant
to the provisions of Rule 144 under the Securities Act or under an effective
registration statement. In furtherance of the foregoing, concurrent with the
execution and delivery of this Agreement, the Mitte Parties shall tender to FIC
all certificates representing the Mitte Shares and FIC shall place the following
legend upon such certificates and return such certificates to the Mitte Parties:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN IRREVOCABLE
PROXY DATED AS OF MAY 15, 2003 WITH RESPECT TO THE VOTING OF SUCH SHARES. A COPY
OF SUCH IRREVOCABLE PROXY MAY BE OBTAINED FROM FINANCIAL INDUSTRIES CORPORATION
AT ITS PRINCIPAL EXECUTIVE OFFICES.
Upon termination of the proxy in accordance with this Agreement, the Mitte
Parties shall tender to FIC any remaining certificates representing the Mitte
Shares and FIC shall promptly remove the foregoing legend from such certificates
and return such certificates to the Mitte Parties.
Subject to the limitations of this Section 2.6, the Mitte Parties may
dispose of their stock in a donative transaction to any charitable or
educational organization exempt from taxation under the Internal Revenue Code at
any time with the transferee receiving such shares free of the proxy.
3.0 Dismissal of Litigation; Resignations.
3.1 Promptly following the first payment from FIC to Roy as provided in
Section 1.2, and the purchase of 39,820 shares of Roy's stock as provided in
Section 2.2, the parties shall cause their attorneys of record to file with the
Court a Joint Motion to Dismiss with Prejudice, in the form attached hereto as
Exhibit B, dismissing the Litigation with prejudice. None of the Parties shall
file this Agreement with the Court or disclose the terms of this Agreement to
the Court (unless so ordered by the Court), and the above-described Joint Motion
shall merely state that the Parties have executed a settlement agreement
resolving all of the claims between them. The Parties hereby agree that each
Party shall be solely responsible for its own attorneys' fees and costs incurred
in connection with this Litigation and the negotiations leading to the execution
of this Agreement.
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3.2 Upon the filing with the Court of a Joint Motion to Dismiss with
Prejudice, Roy and Scott shall tender resignations to FIC from their positions
on the Board of Directors of FIC and any of its subsidiaries, and as any officer
of FIC and any of its subsidiaries. Upon such resignations, all compensation
(including directors' fees) previously paid or payable to Roy and Scott for
service on the Board of Directors of FIC or any of its subsidiaries shall
immediately terminate, and FIC shall have no further obligation to Roy or Scott
other than as set forth in this Agreement.
4.0 Cancellation of Employment Agreement; Releases.
4.1 Employment Agreement. Each of FIC and Roy acknowledge and agree that
the Employment Agreement dated February 25, 1982, by and between FIC and Roy, as
amended by the First Amendment to Employment Agreement dated as of April 4, 2001
(the "Employment Agreement"), is cancelled and of no further force and effect.
4.2 General Release by FIC. FIC, on behalf of itself and each of its
current and former directors, officers, shareholders, employees, parent
companies, subsidiaries, affiliates, member firms, predecessors, successors,
assigns, trustees, agents, attorneys, accountants, insurers, and representatives
of any kind, if any, and Bender (collectively, the "FIC Releasing Parties"),
hereby covenant not to sue and fully, finally, and forever generally RELEASE,
SURRENDER, REMISE, ACQUIT, AND FOREVER DISCHARGE the Mitte Parties, individually
and collectively, and their current and former directors, officers,
shareholders, employees, parent companies, subsidiaries, affiliates, member
firms, predecessors, successors, family, heirs, executors, administrators,
assigns, trustees, agents, attorneys, accountants, insurers, and representatives
of any kind, if any (collectively, the "Mitte Released Parties"), jointly and
severally, from any and all claims, disputes, demands, actions, liabilities,
damages, suits (whether at law or in equity), promises, accounts, costs,
expenses, setoffs, contributions, attorneys' fees and/or causes of action of
whatever kind or character, whether past, present, future, KNOWN OR UNKNOWN,
liquidated or unliquidated, accrued or unaccrued, or which may hereinafter arise
as a result of the discovery of new and/or additional facts (collectively, the
"Claims"), which the FIC Releasing Parties have had, may now have or might claim
to have, or may have in the future against the Mitte Released Parties,
INCLUDING, WITHOUT LIMITATION, ANY AND ALL STATUTORY AND COMMON LAW CLAIMS FOR
BREACH OF EXPRESS OR IMPLIED CONTRACT, TORTIOUS INTERFERENCE WITH CONTRACT,
PROMISSORY ESTOPPEL, BREACH OF IMPLIED COVENANTS, SPECIFIC PERFORMANCE, BREACH
OF FIDUCIARY DUTY, INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS, NEGLIGENCE, AN
ACCOUNTING, FRAUD, NEGLIGENT MISREPRESENTATION, FRAUDULENT INDUCEMENT, INCLUDING
FRAUDULENT INDUCEMENT TO ENTER INTO THIS AGREEMENT, INFRINGEMENT OF INTELLECTUAL
PROPERTY, MISAPPROPRIATION OF TRADE SECRETS, CONVERSION, OR ANY OTHER CLAIM THAT
ARISES PRIOR TO THE EFFECTIVE DATE OF THIS AGREEMENT, including without
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limitation claims arising out of, in any way relating to, or in connection with:
(1) the Litigation; (2) the Mitte Audit; (3) the Foundation Audit; (4) the
Donations; (5) the Employment Agreement or the termination thereof; (6) Roy's,
Scott's and/or Bender's service, actions and conduct as an officer, director, or
employee of FIC or of each other; (7) the demand by the Mitte Parties for a
special meeting of shareholders; or (8) any other claims that were or with
reasonable diligence could have been asserted in the Litigation or that are in
any way related to items (2) through (7) immediately above, except for the
obligations contained in this Agreement.
4.3 General Release by Mitte Released Parties. The Mitte Released Parties
hereby covenant not to sue and fully, finally, and forever generally RELEASE,
SURRENDER, REMISE, ACQUIT, AND FOREVER DISCHARGE the FIC Releasing Parties,
individually and collectively, jointly and severally, from any and all Claims,
which the Mitte Released Parties have had, may now have or might claim to have,
or may have in the future against the FIC Releasing Parties, INCLUDING, WITHOUT
LIMITATION, ANY AND ALL STATUTORY AND COMMON LAW CLAIMS FOR BREACH OF EXPRESS OR
IMPLIED CONTRACT, TORTIOUS INTERFERENCE WITH CONTRACT, PROMISSORY ESTOPPEL,
BREACH OF IMPLIED COVENANTS, SPECIFIC PERFORMANCE, BREACH OF FIDUCIARY DUTY,
INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS, NEGLIGENCE, AN ACCOUNTING, FRAUD,
NEGLIGENT MISREPRESENTATION, FRAUDULENT INDUCEMENT, INFRINGEMENT OF INTELLECTUAL
PROPERTY, MISAPPROPRIATION OF TRADE SECRETS, CONVERSION, OR ANY OTHER CLAIM THAT
ARISES PRIOR TO THE EFFECTIVE DATE OF THIS AGREEMENT, including without
limitation claims arising out of, in any way relating to, or in connection with:
(1) the Litigation; (2) the Mitte Audit; (3) the Foundation Audit; (4) the
Donations; (5) the Employment Agreement or the termination thereof; (6) Roy's,
Scott's and/or Bender's service, actions and conduct as an officer, director, or
employee of FIC or of each other; (7) the demand by the Mitte Parties for a
special meeting of shareholders; or (8) any other claims that were or with
reasonable diligence could have been asserted in the Litigation or that are in
any way related to items (2) through (7) immediately above, except for the
obligations contained in this Agreement. The Parties specifically agree that the
terms of the General Release in Section 4.3 do not in any way impact, affect,
impair, release, waive or otherwise discharge the right of the Mitte Parties to
request a special shareholders meeting of FIC after the termination of the proxy
provided herein for any reason.
4.4 Preservation of Certain Matters. Notwithstanding the foregoing, the
parties expressly agree that the foregoing release given by the Mitte Parties
does not in any manner constitute a release by Roy of any employee benefits to
which he is entitled, including without limitation: employee disability or life
insurance; rights under any employee retirement income plan; rights under any
401(k) plan, employee stock ownership plan or similar plan; and any rights Roy
has or may have to continue any such benefits at his own expense following the
execution of this Agreement.
4.5 Intended Beneficiaries. These general releases shall be binding on and
run to the benefit of each of the Parties hereto and all of the present and
former predecessors, successors, subsidiaries, affiliates, servants, attorneys,
agents, employees, officers, directors, shareholders, partners, principals,
heirs, assigns, and representatives of the Parties hereto and the other persons
and entities listed in this provision.
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5.0 Arbitration. All Parties agree, if necessary, to arbitrate any
irreconcilable issues relative to this Agreement in binding arbitration before a
panel of three arbitrators. If the parties cannot agree on the three
arbitrators, the panel shall be selected by the presiding judge of the Travis
County, Texas district courts. Any such arbitration will not exceed one day, and
will be based solely upon the documentary submissions, affidavits, and oral
argument, and will not include witness testimony. By signing this Agreement, the
Parties understand that by agreeing to binding arbitration for any dispute
arising out of this Agreement the Parties are giving up any rights to have the
dispute litigated in a court or jury trial. The agreement by the Parties to
binding arbitration is completely voluntary. The prevailing party shall be
entitled to recover reasonable fees and expenses (including attorneys' fees) in
any such arbitration.
6.0 General Provisions.
6.1 Health Insurance. To the extent permitted by FIC's plans and the
insurer thereof as in effect from time to time, FIC will continue Roy's and
Joann's current health insurance coverage as currently in effect for five years
from the date of this Agreement at no cost to Roy or Joann. In the event that at
any time during such five year period, the plan or insurer thereof,
notwithstanding commercially reasonable efforts by FIC to continue such
coverage, does not permit Roy and Joann to continue to participate in such plan,
FIC will provide Roy and Joann with an aggregate maximum annual allowance of
$10,000 (pro rated for any partial year) for the remainder of such five-year
period.
6.2 Confidentiality Agreement. The Parties to this Agreement and their
attorneys agree that this Agreement shall be strictly confidential and no Party
(or that Party's successors, assigns, agents, attorneys, employees, employers,
representatives, or any other person or entity against whom this Agreement is
enforceable or their respective successors, assigns, agents, attorneys,
employees, employers, or representatives) may disclose the terms of this
Agreement or furnish a copy of this Agreement to any other person or entity,
except as is expressly required by law, rule, regulation, or legal process or as
is required and necessary to be disclosed to shareholders, employees, officers,
directors, investors, insurers, attorneys, the Securities and Exchange
Commission, securities exchanges, or governmental agencies in connection with
any disclosure, filing, business necessity, or contractual obligation, or as is
necessary or is required for obtaining tax, legal, or financial advice. Any
person to whom such information is disclosed shall be informed that this
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Agreement is confidential. The Parties specifically agree that each and every
term of this Section 6.2 applies to any and all information in the custody or
control of Bender or FIC that Bender has ever prepared, written, acquired,
attained, or gained during his employment with FIC or otherwise, that relates or
pertains in any way to items (1) through (8) described in the release language
in Sections 4.2 and 4.3. Notwithstanding the provisions of this paragraph, the
Parties to this Agreement and their attorneys agree and consent that they are
permitted to state the following regarding the terms of this Agreement and only
the following (or substantially similar words to this effect): "The Parties to
the Litigation have settled all of their claims against each other. None of the
parties to the Litigation admitted any liability, or that any of the claims that
either party had against the other were valid and/or enforceable. The Litigation
was resolved to the mutual satisfaction of all the Parties."
6.3 Indemnification. (a) FIC shall indemnify, defend, and hold, to the
maximum extent permitted under applicable law, the Mitte Parties harmless from
and against any and all losses, claims, judgments, liabilities, amounts paid in
settlement, fines, court costs, pre- and post-judgment interest and other costs
or expenses (including reasonable fees and disbursements of counsel)
(collectively "Damages") to which any of the Mitte Parties may become subject or
may incur as a result of being made, or threatened with being made, a party to
any proceeding at law or in equity or before any governmental agency or board,
arising out of or based in whole or in part on their holding the position of
officer or director of FIC or any of its subsidiaries or their participation as
a party in negotiating and entering into this Agreement, except to the extent
that (i) a court of competent jurisdiction determines in a final, unappealable
judgment that such Damages would not qualify for indemnification under
applicable law or (ii) such Damages relate to investigations by any governmental
agency related to the matters raised in or by the Mitte Audit, the Foundation
Audit or the Donations. As to any such action or threatened action, FIC shall
advance reasonable documented out-of-pocket legal defense costs to the
appropriate Mitte Party, if such party agrees as provided in the Texas Business
Corporation Act to reimburse such expenses if required. FIC shall also take all
steps reasonably necessary to assure that the Mitte Parties are covered, in the
same manner that other former officers and directors are generally covered, with
respect to actions arising during their terms as or by reason of their service
as officers or directors of FIC or its subsidiaries, under any officer and
director liability policy.
(b) The Parties do not believe that FICA applies to the transactions
contemplated by this Agreement. Notwithstanding the foregoing, in the event that
FICA is subsequently assessed, Roy agrees, promptly following notice by FIC, to
pay to FIC his allocable share of any such amount and to indemnify FIC for any
related costs, interest and/or penalties which are assessed against FIC for the
failure to have previously withheld or paid such FICA amounts.
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6.4 Warranties of Good-Faith Efforts. Each Party hereby expressly agrees,
and warrants and represents that: he, she, or it (i) will not initiate, incite,
promote or assist in any civil or criminal actions against any of the other
parties, including the Foundation, FIC, FIC Management, Bender, or any Mitte
family member, except as expressly required by law; (ii) will not publish in any
way any disparaging remarks, descriptions, summaries, or statements about any of
the other parties relating in any way to the other parties, including the
Foundation, FIC, FIC Management, Bender, or any Mitte family member, except as
such statements are expressly required to give a fair and accurate assessment as
expressly required by law and/or any governmental authority for any regulatory
filing; and (iii) recognizes and acknowledges that FIC may be required by the
Securities Exchange Commission to modify any proxy materials relating to the
2003 Annual Shareholders' Meeting or other meetings. FIC will use all reasonable
efforts to exclude as much discussion as possible of the disputes concerning the
Litigation, the Mitte Audit, the Foundation Audit, the Donations, and any other
disputes between FIC, the Foundation, and the Mitte Parties, except as expressly
required and demanded by the Securities and Exchange Commission in connection
with such proxy statement or that which is required in such proxy statement
pursuant to Rule 14a-9 under the Exchange Act, or in any other public filings in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading. Additionally, the Parties further
acknowledge that FIC has responded by providing documents and witnesses for
interviews in response to an investigation initiated by the Texas Department of
Insurance and that FIC will continue to respond appropriately to such
investigation if required by law.
6.5 Authority to Release and Settle. Each Party hereby expressly warrants
and represents that: (i) it is the lawful owner of all Claims herein released;
(ii) it has full power and express authority to settle and release the Claims as
set forth in this Agreement; (iii) it has not made any assignment or transfer of
those Claims, including but not limited to assignment or transfer by subrogation
or by operation of law; (iv) it knows of no person or entity that intends to
assert a claim by, through, under, or on behalf of such Party; (v) it is not
relying upon any statements, understandings, representations, expectations, or
agreements other than those expressly set forth in this Agreement; (vi) it is
represented and has been advised by counsel in connection with this Agreement,
which such Party executes wholly voluntarily and of its own choice, volition,
judgment, belief and knowledge, after consultation with such counsel and not
under coercion or duress; (vii) it has made its own investigation of the facts
and is relying solely upon its own knowledge and the advice of its counsel;
(viii) it has no expectation that the other Party will disclose facts material
to this Agreement; and (ix) it knowingly waives any claim that this Agreement
was induced by any misrepresentation or nondisclosure and any right to rescind
or avoid this Agreement based upon presently existing facts, known or unknown.
The Parties agree and stipulate that each Party is relying upon these
representations and warranties in entering into this Agreement. These
representations and warranties shall survive the execution of this Agreement.
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6.6 Severability and Savings Clause. Should any clause, sentence,
provision, paragraph or part of this Agreement for any reason whatsoever, be
adjudged by any court of competent jurisdiction, or be held by any other
competent governmental authority having jurisdiction, to be invalid,
unenforceable, or illegal, such judgment or holding shall not affect, impair or
invalidate the remainder of this Agreement, but shall be confined in its
operation to the specific clause, sentence, provision, paragraph or part of this
Agreement directly involved, and the remainder of this Agreement, wherever
practicable, shall remain in full force and effect.
6.7 GOVERNING LAW AND VENUE. THIS AGREEMENT SHALL BE EXCLUSIVELY GOVERNED
BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF TEXAS EXCEPT THAT ANY
CONFLICTS OF LAW RULE REQUIRING REFERENCE TO THE LAWS OF ANOTHER JURISDICTION
SHALL BE DISREGARDED. EXCLUSIVE VENUE SHALL LIE IN TRAVIS COUNTY, TEXAS.
6.8 Further Assurances. The Parties agree that they shall, from time to
time, execute, acknowledge, and deliver, or cause to be executed, acknowledged,
and delivered to the other Parties instruments, agreements, lien waivers,
releases, and other documents as each Party shall reasonably request in order to
further evidence the releases and other covenants described in this Agreement,
including, but not limited to, the Agreed Judgment of Dismissal in conformance
with Section 3.1. The Parties further agree that the releases contracted herein
shall be broadly and comprehensively construed.
6.9 Entire Agreement Clause. This Agreement contains and constitutes the
entire agreement and understandings of the Parties and supersedes as of the
execution date all prior negotiations, discussions, undertakings or agreements
of any sort whatsoever, whether oral or written, or any claims that might have
ever been made by one Party against any opposing Party. There are no
representations, agreements, or inducements except as set forth expressly and
specifically in this Agreement.
6.10 Amendments in Writing. This Agreement may only be amended or modified
by a written instrument that has been executed by the Parties and that
unequivocally indicates the Parties' intention to modify this Agreement. No
waiver of any breach of this Agreement shall be construed as an implied
amendment or agreement to amend or modify any provision of this Agreement.
6.11 No Author. All terms and provisions of this Agreement, and the
drafting of this Agreement, have been negotiated by the Parties at arm's length
and to mutual agreement, with consideration by and participation of
each, and no party shall be deemed the scrivener of this Agreement.
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6.12 Construction. Words used in the Agreement of any gender or neuter
shall be construed to include any other gender or neuter where appropriate.
Words used in this Agreement that are either singular or plural shall be
construed to include the other where appropriate.
6.13 Captions and Headings. The Parties agree that the captions and
headings contained in this Agreement are for convenience only and shall not be
deemed to constitute a part of this Agreement.
6.14 Multiple Counterparts. This Agreement may be executed in multiple
counterparts, any and all of which may contain the signatures of less than all
the Parties and all of which shall be construed together as a single document.
Each counterpart shall be fully effective as an original when all of the Parties
have executed this Agreement. Such counterparts may also be executed by
telefaxed signature.
6.15 No Admission of Fault. Neither the execution of this Agreement nor
compliance with its terms, nor the consideration provided for herein, shall
constitute or be construed as an admission of any fault, wrongdoing or liability
whatsoever on the part of any of the Parties, or any of their agents, attorneys,
representatives, or employees, but is in full settlement of disputed issues, and
all such liability is expressly denied.
6.16 No Waiver. The failure by any of the Parties to this Agreement to
enforce at any time, or for any period of time, any one or more of the terms or
conditions of this Agreement or a course of dealing between the Parties, shall
not be a waiver of such terms or conditions or of such Party's right thereafter
to enforce each and every term and condition of this Agreement.
6.17 The Effective Date. The Effective Date of this Agreement is May 15,
2003.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, each of the Parties have duly executed and delivered
this Agreement as of this 15th day of May, 2003.
FINANCIAL INDUSTRIES CORPORATION
By: /s/ Eugene E. Payne
______________________________
Eugene E. Payne
Its President
/s/ Robert Bender
______________________________
Robert Bender
/s/ Roy F. Mitte
______________________________
Roy F. Mitte
/s/ Joann Cole Mitte
______________________________
Joann Cole Mitte
/s/ Scott Mitte
______________________________
Scott Mitte
/s/ Jan Mitte
______________________________
Jan Mitte
THE ROY F. AND JOANN COLE MITTE FOUNDATION
By: /s/
__________________________
Name: _______________________
Title: ______________________
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Exhibit A
IRREVOCABLE PROXY
KNOW ALL MEN BY THESE PRESENTS, That the undersigned shareholders of
Financial Industries Corporation, a Texas corporation (the "Corporation") does
hereby appoint any such persons named as proxies in any Proxy Statement filed by
the Corporation with the Securities and Exchange Commission with full power of
substitution, as the true and lawful attorney and proxy of the undersigned for
and in his, her or its name, place, and stead to attend all meetings of the
shareholders of the Corporation, and to vote the shares of common stock, $0.20
par value per share, of the Corporation specified on Schedule A hereto and any
additional shares that may be acquired by the undersigned after the date hereof,
at any and all meetings of the shareholders or any adjournment thereof with
respect to the matters expressly set forth in Section 2.1 of that certain
Compromise Settlement Agreement and Mutual Release dated as of May 15, 2003 (the
"Settlement Agreement") among the undersigned, the Corporation and Robert
Bender. The undersigned hereby affirm that this proxy is given in connection
with the Settlement Agreement and that this proxy is COUPLED WITH AN INTEREST
AND IS IRREVOCABLE BUT IS SUBJECT TO TERMINATION AS PROVIDED IN THE SETTLEMENT
AGREEMENT, and each of the undersigned hereby ratifies and confirms all that the
proxy holders may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has set his, her or its hand
this 15th day of May, 2003.
____________________________________
Roy F. Mitte
____________________________________
Joann Cole Mitte
____________________________________
Scott Mitte
____________________________________
Jan Mitte
THE ROY F. AND JOANN COLE
MITTE FOUNDATION
By: _______________________________
Name: _____________________________
Title: ____________________________
Exhibit A
Exhibit B
FORM OF JOINT MOTION TO DISMISS WITH PREJUDICE
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
FINANCIAL INDUSTRIES
CORPORATION
Plaintiff, CIVIL ACTION NO.
A03 CA 033 SS
vs.
THE ROY F. AND JOANN COLE
MITTE FOUNDATION, ROY F.
MITTE and JOANN COLE MITTE
Defendants.
ORDER OF DISMISSAL WITH PREJUDICE
Plaintiff Financial Industries Corporation and Defendants and
counter-plaintiffs Roy F. Mitte, Joann Cole Mitte, and The Roy F. Mitte and
Joann Cole Mitte Foundation, through their counsel, have by Motion informed the
Court that they have reached a mutually acceptable compromise settlement of
their disputes, under the terms of which they have agreed to dismiss all claims
and counterclaims herein on the terms set out herein.
It is accordingly
ORDERED that this action, and all claims and counterclaims asserted herein,
is hereby DISMISSED, with prejudice to the filing of any claims that were, or
with reasonable diligence could have been asserted herein. Costs are taxed
against the party or parties originally incurring same.
SIGNED this ____ day of _____________, 2003.
_______________________________
UNITED STATES DISTRICT JUDGE
Schedule A
SCHEDULE A
SHARES OF COMMON
STOCK INITIALLY SUBJECT TO
IRREVOCABLE PROXY
Record Holder Number of Shares Certificate No(s).
Roy F. Mitte 75,340(2)
Joann Cole Mitte 0
Scott Mitte 64(3)
The Roy F. and Joann
Cole Mitte Foundation 1,552,206
- -------------------------
2 Such amount includes 35,520 shares of Common Stock held for Roy F. Mitte's
benefit in the Corporation's Employee Stock Ownership Plan.
3 Such amount is held for Scott Mitte's benefit in the Corporation's Employee
Stock Ownership Plan.
Schedule A