SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (date of earliest event reported): June 4, 2003
FINANCIAL INDUSTRIES CORPORATION
(Exact name of Registrant as specified in charter)
Texas 0-4690 74-2126975
(State or other (Commission (I.R.S. employer
jurisdiction of file number) identification no.)
incorporation)
6500 River Place Blvd., Building One
Austin, Texas 78730
(Address of principal executive offices)
Registrant's telephone number, including area code: (512) 404-5000
__________________________
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Introduction: On June 5, 2003, Financial Industries Corporation ("FIC"), through
a subsidiary, acquired three companies in the secondary education financial
services market. Each of the three transactions is described below. In
connection with the acquisitions, FIC, or its subsidiaries, entered into the
transactions which are described below:
Item 5 - Other Events and Regulation FD Disclosure.
(1) Acquisition of Marketing Companies:
A newly-created subsidiary of FIC, FIC Financial Services, Inc. ("FICFS")
acquired all of the issued and outstanding capital stock of: (i) Total
Consulting Group, Inc. ("TCG"), (ii) JNT Group, Inc. ("JNT") and (iii)
three companies collectively referred to as "Paragon" - Paragon Benefits,
Inc., The Paragon Group, Inc., and Paragon National, Inc. (collectively the
"New Era Marketing Companies"). The Acquisitions were consummated pursuant
to three separate Stock Purchase Agreements by and among the parties and
were executed as a component of the strategic business plan outlined by FIC
earlier this year.
(a) TCG. TCG is a consulting firm and registered investment advisor with
clients in the secondary education marketplace. The Stock Purchase
Agreement by and among FICFS, FIC, TCG and the shareholders of TCG is
attached as Exhibit 10.1, hereto, which is also incorporated herein by
reference. The consideration paid by FICFS for the purchase of TCG was
$1,984,824 in cash and 97,417 shares of restricted common stock of
FIC. The restricted common stock is subject to a lock-up period of 12
months for shareholders other than Mike Cochran ("Cochran") and John
Pesce ("Pesce"). The restricted common stock issued to Cochran and
Pesce is locked-up pursuant to a three-year vesting schedule, which is
subject to the continued employment of Cochran and Pesce under the
five-year employment agreements entered into between Cochran, Pesce,
and FICFS. FICFS entered into the employment agreements with the two
principals of TCG to ensure the continuity of its business operations.
(b) JNT. JNT is an independent fee-based third party administrator
operating principally in Texas and California. The Stock Purchase
Agreement by and among FICFS, FIC, JNT and the shareholders of JNT is
attached as Exhibit 10.2, hereto, which is also incorporated herein by
reference. The consideration paid by FICFS for the purchase of JNT was
$514,583.45 in cash and 17,899 shares of restricted common stock of
FIC. The restricted stock portion of the consideration is subject to a
three-year vesting restriction based on the three-year employment
agreement entered into by and between FICFS and the principal of JNT,
Earl W. Johnson.
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(c) Paragon. Paragon provides employee benefit products and services to
the secondary education marketplace. The Stock Purchase Agreement by
and among FICFS, the Registrant, Paragon and the shareholders of
Paragon is attached as Exhibit 10.3, hereto, which is also
incorporated herein by reference. The consideration paid by FICFS for
the purchase of Paragon was $1,410,750 in cash and 105,593 shares of
restricted common stock of the Registrant. A portion of the restricted
stock is subject to forfeiture if certain business targets are not
met. Additionally, FICFS entered into employment agreements with three
of the principals of Paragon, Scott A. Bell, Wayne S. Desselle (both
for five- year terms), and Chris Murphy ( for a three-year term).
The purchase price for the Acquisitions was determined in arms-length
negotiations among the parties. There were no material relationships
among the various sellers and FIC or any of its affiliates, any
director or officer of FIC, or any associate of any such director or
officer prior to the Acquisitions.
(2) Marketing Agreement: In addition to the acquisitions described in Item 1,
above, and the establishment of FICFS as a wholly-owned subsidiary of FIC,
the life insurance company subsidiaries of FIC (Investors Life Insurance
Company of North America ("Investors Life"), and Family Life Insurance
Company ("Family Life") entered into a marketing agreement with Equita
Financial and Insurance Services of Texas, Inc. ("Equita"), a Dallas-based
company engaged in the marketing and sale of insurance policies, annuity
contracts and related financial products. Under the terms of the agreement,
Equita was granted an exclusive appointment to market products underwritten
by Investors Life and Family Life ("Products") to individuals in the
"senior market" (individuals over the age of fifty-five) (the "Exclusive
Market"). The appointment is for a ten-year period; however, the exclusive
rights of Equita terminate unless $75,000,000 in net written premiums for
Products are collected with respect to the Exclusive Market in 2004 and
$150,000,000 in premiums for Products are collected with respect to the
Exclusive Market for each calendar year thereafter. The agreement provides
for a carry over of production in excess of the minimum requirements the
next year for purposes of satisfying the production requirements for that
year. If the aggregate level of net level premium production in the
Exclusive Market reaches $1.45 billion, the exclusive of Equita terminates
if the level of net written premium in any year is less than $50 million.
The agreement provides for certain adjustments to the above-described
production requirements in the event that either Investors Life or Family
Life does not make available for sale an index annuity product by April 30,
2004.
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FIC's life insurance subsidiaries and Equita expect to develop new Products
specifically targeted to the Exclusive Market. The FIC companies retain the
right to require that such Products meet the internal rate of return
requirements established by the FIC companies.
The agreement provides that certain existing and future marketing
operations of FIC's insurance subsidiaries are excluded from the rights
provided to Equita and it includes provision for the extension of the
exclusive to companies that may be acquired by FIC in the future, unless
such new acquisition had a previously- established operation in the senior
market.
(3) Stock Purchase and Option Agreement - American Physicians Service Group,
Inc. ("APS"): In consideration of the role which APS served in having
brought the opportunity to acquire the New Era Marketing Companies to FIC
and APS's intention to actively assist FIC in promoting FIC's business
plan, FIC sold 27,395 shares of its common stock, par value $.20 ("Common
Stock") per share to APS, at a purchase price of $14.64 per share. These
shares represent a portion of the shares which FIC recently purchased from
Roy F. Mitte pursuant to the provisions of the previously announced
settlement of the litigation between FIC, Mitte family members, and the
Mitte Foundation (the "Settlement Agreement"). The provisions of the
Settlement Agreement are described in FIC's Quarterly Report on Forms 10-Q
and 10-Q/A for the quarterly period ended March 31, 2003. In addition, FIC
granted to APS an option to acquire up to 323,000 shares of Common Stock at
a per share exercise price equal to $16.42 per share, but only if
"Qualifying Premiums" for the "Determination Period" exceed $200,000,000.
The Qualifying Premiums requirement refers, with certain exceptions, to the
amount of premiums for life insurance and annuity products marketed through
FIC Financial Services, Inc. ("FICFS"), the newly-established subsidiary of
FIC which purchased the New Era Marketing Companies and includes premiums
received by FIC's life insurance subsidiaries in connection with the Equita
Marketing Agreement described above. The Determination Period means the
period beginning on July 1, 2003 and ending on December 31, 2005. Unless
earlier exercised, the option expires on December 31, 2006.
The agreement provides that, following the closing date, FIC shall appoint
Kenneth Shifrin, Chairman and CEO of APS (or any substitute designee of APS
reasonably acceptable to FIC (the "APS Nominee") to serve on the FIC Board.
In addition, FIC agreed that, with respect to the 2003 annual shareholders
meeting and 2004 annual shareholders meeting, (a) to propose as a nominee
for election to the FIC Board at such meeting the individual designated as
the APS Nominee, (b) to include the name of the APS Nominee on FIC's proxy
statement and proxy card for such meeting, (c) to recommend to its
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shareholders the election of the APS Nominee of the Board, (d) to solicit
proxies on behalf of the APS Nominee to the same extent proxies are
solicited on behalf of any other nominee for election to the Board and
(e) to cause the attorneys-in-fact or proxies named in the applicable proxy
cards to vote the shares with respect to which proxies are given in the
manner directed by such proxy cards. In the event that the
attorneys-in-fact or proxies referenced in clause (e) utilize cumulative
voting, such persons shall cumulate votes in favor of the APS Nominee if
such cumulative voting will result in the election of at least four
directors.
(4) Stock Purchase and Option Agreement - Equita Financial and Insurance
Services of Texas, Inc. ("Equita"): In consideration of the role which
Equita served in having brought the opportunity to acquire the New Era
Marketing Companies to FIC and Equita's intention to assist FIC in the
implementation of its business plan through the marketing agreement
described above, FIC granted to Equita an option to acquire up to 169,000
shares of Common Stock at a per share exercise price equal to $16.42 per
share, but only if "Qualifying Premiums" for the "Determination Period"
exceed $200,000,000. The definitions of Qualifying Premiums and
Determination Period are the same as those for the option granted to APS
with respect to the base option only. In addition, FIC granted to Equita an
additional option to purchase up to 158,000 shares of Common Stock at a per
share exercise price equal to $16.42 per share, but only at the rate of
10,000 shares for each $10,000,000 increment by which Qualifying Premiums
for the Determination Period exceed $200,000,000. Unless earlier exercised,
the options granted to Equita expire on December 31, 2006.
The agreement provides that, following the closing date, FIC shall appoint
Eugene Woznicki (or any substitute designee of Equita reasonably acceptable
to FIC (the Equita Nominee) to serve on the FIC Board. In addition, FIC
agreed that, with respect to the 2003 annual shareholders meeting and 2004
annual shareholders meeting, (a) to propose as a nominee for election to
the FIC Board at such meeting the individual designated as the Equita
Nominee, (b) to include the name of the Equita Nominee on FIC's proxy
statement and proxy card for such meeting, (c) to recommend to its
shareholders the election of the Equita Nominee of the Board, (d) to
solicit proxies on behalf of the Equita Nominee to the same extent proxies
are solicited on behalf of any other nominee for election to the Board and
(e) to cause the attorneys-in-fact or proxies named in the applicable proxy
cards to vote the shares with respect to which proxies are given in the
manner directed by such proxy cards. In the event that the
attorneys-in-fact or proxies referenced in clause (e) utilize cumulative
voting, such persons shall cumulate votes in favor of the Equita Nominee if
such cumulative voting will result in the election of at least eight
directors.
(5) Registration Rights Agreement: In connection with the options granted to
APS and Equita, the shares of FIC common stock purchased by APS from FIC
and the shares of FIC common stock acquired by APS and M&W Insurance
Services, Inc. (an affiliate of Equita) from the Mitte Foundation, FIC
agreed to (i) on or prior to October 1, 2003, file with the Securities and
Exchange Commission a shelf registration statement pursuant to Rule 415
under the Securities Act on Form S-1 or Form S-3, if the use of such form
is then available as determined by the Company, to cover resales of such
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shares, and (ii) use its commercially reasonable efforts to cause the shelf
registration statement to be declared effective as soon as reasonably
practicable following its filing with the SEC. In addition, FIC agreed to
use its reasonable best efforts to keep the shelf registration statement
continuously effective for a period ending on March 31, 2007, unless the
need to discontinue the registration statement in effect to that date
should occur. FIC also agreed to include the shares of restricted stock
issued in connection with the acquisition of the New Era Marketing
Companies in the same shelf registration statement.
(6) Employment Agreement and Option Agreement - William P. Tedrow: In order to
implement its business plan for the New Era Marketing Companies, FIC
appointed William P. Tedrow as President of FICFS and a Vice President of
FIC. In addition, FIC and Mr. Tedrow entered into an employment agreement,
for a term ending March 31, 2009. The agreement provides for an annual base
salary of $250,000, with provision for an annual bonus, not to exceed
$200,000 per year. The amount of any annual bonus shall be established by
the Chief Executive Officer ("CEO") of FIC on the following basis: (i)
one-third of the amount of the annual bonus will be based upon performance
criteria established by the CEO with respect to the operating results of
FICFS, (ii) one-third of the amount of the annual bonus will be established
by the CEO with respect to the operating results of FIC and (iii) one-third
of the amount of the annual bonus will be determined at the sole discretion
of the CEO. In addition, the agreement provides Mr. Tedrow with a 6% stock
interest in FICFS subject to a right of repurchase by FIC and a lump sum
payment of $400,000 for Mr. Tedrow's efforts in organizing and intergrating
the New Era Marketing Companies to FIC. The restricted stock interest is
repurchase by FIC on December, 31, 2008, or earlier upon termination of the
employment agreement or the termination of the employment of Mr. Tedrow.
The repurchase price is based upon the valuation of FICFS and an actuarial
valuation of the block of insurance and annuity policies produced by or
through FICFS; provided, however, if the repurchase is made in connection
with the termination of Mr. Tedrow's employment for cause, or if Mr. Tedrow
terminates his employment without good reason (as defined in the
agreement), the repurchase price is limited to $10. If the repurchase price
exceeds $5 million, FIC may, in lieu of paying such excess in cash, deliver
to Mr. Tedrow a subordinated note of FIC, such note to be for a ten-year
term, with equal payments of principal and interest on a semi-annual basis,
and bearing interest at the then-prevailing rate for ten-year U.S.
Treasury notes, plus 2.5%;
In addition, FIC granted to Mr. Tedrow an option to purchase up to 150,000
shares of Common Stock at a per share exercise price of $13.07, but only if
"Qualifying Premiums" for the "Determination Period" exceed $200,000,000.
The definitions of Qualifying Premiums and Determination Period are the
same as those for the option granted to APS. Unless earlier exercised, the
options expire on December 31, 2006, or earlier in the event of the
termination of Mr. Tedrow's employment for cause or if he terminates his
employment without good cause.
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(7) FIC has issued $15,000,000 aggregate principal amount of Floating Rate
Senior Notes due 2033 (the "Senior Notes") and entered into a Senior Notes
Subscription Agreement ("Subscription Agreement") with InCapS Funding I,
Ltd. ("InCapS"), wherein InCapS agreed to purchase the Senior Notes. The
Senior Notes were issued on May 22, 2003 pursuant to an indenture between
FIC and Wilmington Trust Company, as Trustee (the "Indenture"). Sandler
O'Neill & Partners, L.P. acted as the placement agent for the Senior Notes
under the terms of a placement agreement dated May 13, 2003 (the "Placement
Agreement", and collectively the Subscription Agreement, Indenture and
Placement Agreement are referred to as the "Operative Documents").
The principal amount of the Senior Notes is to be paid on May 23, 2033 and
interest shall be paid quarterly, beginning on August 23, 2003, at the rate
of 4.20% over LIBOR (LIBOR is recalculated quarterly and the interest rate
may not exceed 12.5% prior to May 2008). FIC may redeem the Senior Notes at
any time on or after May 23, 2008 by payment of 100% of the principal
amount of the Senior Notes being redeemed plus unpaid interest accrued to
the payment date. In accordance with the terms of the Operative Documents,
the entire principal and any interest accrued, but unpaid, may become
immediately due and payable upon an event of default, which includes:
failure to pay interest within 30 days of any due date; failure to pay
principal when due; the bankruptcy or insolvency of FIC; or the merger of
FIC or sale of all or substantially all of FIC's assets unless the
successor entity to a merger is a United States corporation (or a foreign
corporation which agrees to be bound by certain tax provisions included in
the Indenture). The Operative Documents also place certain limitations on
the offer or sale of securities of FIC, if such offer or sale would render
invalid the Senior Notes' exemption from the registration requirements of
the Securities Act of 1933; and further restrict, for a two year period,
purchases of senior notes which are restricted securities.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
The following exhibits are included with this Report:
Exhibit 10.1
Stock Purchase Agreement , by and among Total Compensation Group
Consulting, Inc., John Pesce, Mike Cochran, Arthur A. Howard, Geoffrey
Calaway, W.M. Hartman, Edward F. Harman, III, M.B. Donaldson, Teri
Hoyt, Alycia Andrews, Charles Francis, Tom Cook, David Allen, and
Marcus Smith (collectively the "Sellers"), Financial Industries
Corporation, and FIC Financial Services, Inc. (the "Purchaser").
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Exhibit 10.2
Stock Purchase Agreement by and among JNT Group, Inc., Earl W. Johnson
(the "Seller"), Total Compensation Group Consulting, Inc., Financial
Industries Corporation, and FIC Financial Services, Inc.("Purchaser").
Exhibit 10.3
Stock Purchase Agreement by and among Paragon Benefits, Inc., The
Paragon Group, Inc., Paragon National, Inc., Scott A. Bell, Wayne C.
Desselle, and Chris Murphy (collectively Bell, Desselle, and Murphy as
the "Sellers"), Financial Industries Corporation, and FIC Financial
Services, Inc.,( the "Purchaser").
Exhibit 10.4
Marketing Agreement by and among Investors Life Insurance Company of
North America, Family Life Insurance Company and Equita Financial and
Insurance Services of Texas, Inc.
Exhibit 10.5
Stock Purchase and Option Agreement by and between Financial
Industries Corporation, and American Physicians Service Group, Inc.
Exhibit 10.6
Stock Option Agreement by and among Financial Industries Corporation,
Equita Financial and Insurance Services of Texas, Inc., and, solely
for purposes of Section 4.5 of the agreement, M&W Insurance Services,
Inc.
Exhibit 10.7
Registration Rights Agreement by and among Financial Industries
Corporation, American Physicians Service Group, Inc., M&W Insurance
Services, Inc., Equita Financial and Insurance Services of Texas, Inc.
Exhibit 10.8
Employment Agreement by and between Financial Industries Corporation
and William P. Tedrow.
Exhibit 10.9
Stock Option Agreement between Financial Industries Corporation and
William P. Tedrow.
Exhibit 10.10
Senior Notes Subscription Agreement between Financial Industries
Corporation and InCapS Funding I, Ltd.,
Exhibit 10.11
Placement Agreement with Sandler O'Neill & Partners, L.P. (The
"Placement Agent"), as agent of FIC, with respect to the issue and
sale by FIC and the placement by the Placement Agent of $15,000,000
aggregate principal amount of Floating Rate Senior Notes of FIC.
Exhibit 10.12
Indenture Agreement between Financial Industries Corporation and
Wilmington Trust Company, as trustee, pertaining to the issuance by
FIC of the Floating Rate Senior Debt Securities due 2033.
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Exhibit 99.1
Press release dated June 5, 2003 issued by Financial Industries
Corporation
Item 9. REGULATION FD DISCLOSURE
On June 5, 2003, Financial Industries Corporation ("FIC") issued a press release
announcing that it has acquired three companies in the secondary education
financial services market. A copy of the press release is filed as Exhibit 99.1
to this report and is incorporated herein by reference.
In a separate transaction, APS and M&W Insurance Services, Inc. (an affiliate of
Equita) also announced that they had purchased 312, 484 shares and 204,918
shares, respectively, of FIC stock from the Roy F. and Joann Cole Mitte
Foundation. These purchases represent a reduction in the number of shares for
which FIC was to locate a purchaser in connection with the terms of the
Settlement Agreement. In addition, APS purchased 27,395 shares from FIC, which
shares represent a portion of the shares which FIC recently purchased from Roy
F. Mitte pursuant to the provisions of the Settlement Agreement.
NOTE: The information in Item 9 of this report (including Exhibit 99.1)
is furnished pursuant to Item 9 and shall not be deemed to be
"filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 or otherwise subject to the liabilities of that
section. Such information will not be deemed an admission as to
the materiality of any information contained in Item 9 that is
required to be disclosed solely by regulation FD.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FINANCIAL INDUSTRIES CORPORATION
Date: June 5, 2003 By: /s/ Eugene E. Payne
__________________________________
Eugene E. Payne
President and Chief Executive Officer
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