Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of The Commission Only (as Permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement and form of proxy card
[_] 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)
<page>
Payment of Filing Fee (Check the appropriate box):
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<page>
[FIC LOGO]
Financial Industries Corporation
6500 River Place Blvd.
Austin, Texas 78730
Dear Shareholder:
You are invited to attend the Annual Meeting of Shareholders of Financial
Industries Corporation, which will be held at the offices of the Company at 6500
River Place Blvd., Bldg. One, Austin, Texas 78730 on June 4, 2002, at 10:00 a.m.
local time.
You will find information regarding the matters to be voted on at the
meeting in the following pages. For those of you who cannot be present at this
meeting, we urge that you participate by indicating your choices on the enclosed
proxy and completing and returning it to us in the enclosed postage paid
envelope at your earliest convenience. By returning your proxy promptly, you
will assist us in reducing the Company's expenses relating to the meeting. You
can revoke your signed proxy at any time before it is used.
We appreciate your support and cooperation in returning the enclosed proxy.
Cordially,
Roy F. Mitte
Chairman, President and Chief Executive Officer
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<page>
Financial Industries Corporation
6500 River Place Blvd., Building One
Austin, Texas 78730
NOTICE OF ANNUAL MEETING
TO BE HELD JUNE 4, 2002
Notice is hereby given that the 2002 Annual Meeting of Shareholders of
Financial Industries Corporation is scheduled to be held at the 6500 River Place
Blvd., Bldg. One, Austin, Texas 78730 on June 4, 2002, 10:00 a.m., local time,
for the following purposes:
1. The election of twelve Directors for the ensuing year.
2. Such other business that may properly come before the meeting or any
adjournment thereof.
Only those Shareholders of record at the close of business on April 22,
2002 (the "Record Date") will be entitled to notice of and vote at the meeting
or any adjournment thereof.
The Proxy Statement accompanies this notice.
By Order of the Board of Directors
Thomas C. Richmond
Secretary
April 30, 2002
YOUR VOTE IS IMPORTANT
We hope that you will be able to attend the meeting in person. IF YOU DO NOT
EXPECT TO ATTEND IN PERSON, PLEASE SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT
PROMPTLY in the enclosed envelope for which no postage is necessary if mailed in
the United States. It will assist us in reducing the expenses of the Annual
Meeting if shareholders who do not attend in person return the signed proxy
promptly. You may revoke your proxy at any time before it is voted.
-2-
<page>
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS OF
Financial Industries Corporation
6500 River Place Blvd., Building One - Austin, Texas 78730
VOTING PROCEDURES
General Information
This Proxy is furnished in connection with the solicitation of proxies by the
Board of Directors of Financial Industries Corporation ("FIC" or the "Company")
for use at the Annual Meeting of Shareholders (the "Annual Meeting") to be held
June 4, 2002, at 10:00 a.m., local time, at 6500 River Place Blvd., Bldg. One,
Austin, Texas 78730. Solicitation of proxies may be made by mail and telephone
and the expenses will be borne by FIC. The Company intends to reimburse
broker-dealers and others for forwarding the proxy materials to beneficial
owners of FIC's common stock. The approximate date on which this Proxy Statement
and the enclosed Form of Proxy will be sent or given to shareholders is April
30, 2002.
Who Can Vote
Only shareholders of record at the close of business on April 22, 2002 (the
"Record Date"), are entitled to notice of, and to vote at, the Annual Meeting.
At the Record Date, there were approximately 9,534,203 shares of FIC's common
stock ("Common Stock") outstanding. Each shareholder is entitled to one vote for
each share of Common Stock registered in that person's name as of the Record
Date, on all business to come before the 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 12 directors nominated for
election, each share will be entitled to twelve (12) 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 June 3, 2002. If any
shareholder complies with the written notice requirement, all shareholders may
cumulate their votes. FIC's management does not intend to request cumulative
voting of their shares and is not aware of an intention by any shareholder to do
so.
How You Can Vote
If you return your signed proxy before the 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.
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<page>
IF YOU DO NOT SPECIFY ON YOUR PROXY CARD HOW YOU WANT TO VOTE YOUR SHARES, WE
WILL VOTE THEM "FOR" THE ELECTION OF ALL NOMINEES FOR DIRECTOR AS SET FORTH
UNDER "ELECTION OF DIRECTORS" BELOW. IF ANY SHAREHOLDER ELECTS TO VOTE
CUMULATIVELY, THE PERSON AUTHORIZED TO VOTE SHARES REPRESENTED BY EXECUTED
PROXIES, IF AUTHORITY TO VOTE FOR THE ELECTION OF DIRECTORS IS NOT WITHHELD,
WILL HAVE FULL DISCRETION AND AUTHORITY TO VOTE CUMULATIVELY AND TO ALLOCATE
VOTES AMONG ANY OR ALL OF THE BOARD OF DIRECTORS' NOMINEES AS THEY MAY DETERMINE
OR, IF AUTHORITY TO VOTE FOR A SPECIFIC CANDIDATES HAS BEEN WITHHELD, AMONG
THOSE NOMINEES FOR WHOM AUTHORITY TO VOTE HAS NOT BEEN WITHHELD.
Voting Shares Held in Company Plans
Shares of Common Stock held in the 401K plan for employees of FIC and its
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.
Revocation of Proxies
The proxy solicited by this Proxy Statement is revokable at any time prior to
the exercise thereof at the meeting (1) by written notice submitted to Thomas C.
Richmond, Secretary, Financial Industries Corporation, 6500 River Place Blvd.,
Bldg. One, Austin, Texas 78730, (2) by delivery of a subsequent proxy, or (3) by
voting in person at the Meeting.
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 Meeting will constitute a quorum for
the transaction of business at the Meeting. The affirmative vote of a plurality
of the votes cast at the Meeting is required for the election of directors. 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.
Additional Information
A copy of FIC's Annual Report of Shareholders for the year ended December 31,
2001, including financial statements, has either been previously forwarded to
Shareholders or is included with this Proxy Statement.
A copy of the Company's Annual Report to the Securities and Exchange Commission
on form 10-K, including Financial Statements and Financial Schedules, may be
obtained by Shareholders without charge upon the receipt of a written request
addressed to Robert S. Cox, Financial Industries Corporation, 6500 River Place
Blvd., Bldg. One, Austin, Texas 78730. Copies are also available on the
Company's website at www.ficgroup.com under the "Investment" section.
-4-
<page>
ELECTION OF DIRECTORS
The following twelve nominees are proposed for election as directors to serve
until the next annual meeting of shareholders or until their successors are
elected and qualified. All nominees are now directors of the Company. All of the
directors, other than Hans Annarino and David G. Caldwell were elected at the
2001 annual shareholders meeting. Hans Annarino was appointed as a director in
December 2001, to fill a vacancy created by the retirement of Steven P. Schmitt.
David G. Caldwell was appointed as a director in January, 2002 to fill a vacancy
created by the retirement of James M. Grace. Proxies solicited by the Board of
Directors will be voted in favor of the election of these nominees unless
authorization to do so is withheld in the proxy. If any nominee for election as
Director is unable or unwilling to serve, which the Board of Directors does not
anticipate, the persons acting under the proxy will vote for such other person
as management may recommend. An affirmative vote by a majority of those shares
constituting at least a quorum at the annual meeting of shareholders is required
for the election of directors. The Board of Directors recommends a vote "FOR"
each of the nominees.
The names and ages of the nominees, their principal occupations or employment
during the past five years and other data regarding them are set forth on the
following pages. The data supplied below is based on information provided by the
nominees, except to the extent that such data is known to the Company.
Name Age Since Director and Other Information
Hans Annarino 59 2001 Director and Vice President of FIC
since December 2001; Regional Vice
President of Family Life Insurance
Company from 1991 through December 2001.
John D. Barnett 59 1991 Director of FIC since 1991. Vice
President, Investment Professionals,
Inc. from 1996 to present. Vice
President, Investments of Prudential
Securities from 1983 to 1996.
David G. Caldwell 50 2002 Director of FIC since January 2002.
Private legal practice since 1997.
S. Tim Casey 59 2001 Senior Vice President of FIC Property
Management and FIC Realty Services, Inc.
since 1996. Director, Real Estate
Council of Austin since 1998. Past
President, Building Owners and Managers
Association of Austin.
-5-
<page>
Name Age Since Director and Other Information
Jeffrey H. Demgen 49 1995 Director of FIC since May 1995. Vice
President of FIC since August 1996.
Vice President and Director of
InterContinental Life Corporation since
August 1996. Director of Family Life
Insurance Company since October 1992.
Executive Vice President of Family Life
since August 1996 and Senior Vice
President from October 1992 to August
1996. Executive Vice President and
Director of Investors Life Insurance
Company of North America since August
1996 and Senior Vice President and
Director from October 1992 to June 1995.
Executive Vice President and Director of
Investors Life Insurance Company of
Indiana from August 1996 to February
2002 and Senior Vice President from
October 1992 to June 1995.
Theodore A. Fleron 62 1996 Vice President and Director of FIC since
August 1996. Vice President and
Director of InterContinental Life
Corporation since May 1991. Senior Vice
President, General Counsel, Assistant
Secretary and Director of Investors Life
Insurance Company of North America and
since July 1992 and Secretary since
September 2001. Senior Vice President,
General Counsel and Director of
Investors Life Insurance Company of
Indiana from July 1992 to February 2002.
Senior Vice President, General Counsel,
Director and Assistant Secretary of
Family Life Insurance Company since
August 1996 and Secretary since
September 2001.
W. Lewis Gilcrease 70 2001 Dentist practicing in San Marcos, Texas.
Director of ILCO from 1988 to June,
2001. Director of FIC from 1979 to
July, 1991 and from 2001 to present.
M. Scott Mitte 45 2000 Director of FIC since October 2000.
Executive Director and Vice-President of
the Roy F. and Joann Cole Mitte
Foundation since 1999.
-6-
<page>
Name Age Since Director and Other Information
Roy F. Mitte 70 1976 Chairman of the Board, President and
Chief Executive Office of FIC since
1976. Chairman of the Board, President
and Chief Executive Officer of
InterContinental Life Corporation since
1985 and of Investors Life Insurance
Company of Indiana from 1985 to February
2002. Chairman of the Board, President
and Chief Executive Officer of Investors
Life Insurance Company of North America
since December 1988. Chairman of ILG
Securities Corporation since December
1988. Chairman of the Board, President
and Chief Executive Officer of Family
Life Insurance Company since June 1991.
Elizabeth T. Nash 52 2001 Director of FIC since June 2001.
Director of InterContinental Life
Corporation from 1998 to May 2001.
Member of the Board of Regents, Texas
State University System from 1993
through 1999, Chairman from 1997 to
1998, Vice-Chairman from 1996 to 1997.
Board member of the Development
Foundation of Southwest Texas State
University since 1987, Chairman from
1992 to 1997, Vice-Chairman from 1989
to 1992.
Frank Parker 72 1994 Director of FIC since May 1994. Private
investor. Prior to June 1997, President
of Gateway Tugs, Inc. and Par-Tex
Marine, Inc., both of which are located
in Brownsville,Texas and were engaged in
operating and chartering harbor and
intracoastal tug boats.
Thomas C. Richmond 60 1996 Director of FIC since August 1996. Vice
President and Secretary of FIC since
September 2001. Director of
InterContinental Life Corporation from
March 1994 to August 1996 and from
December 2001 to present. Executive
Vice President of Investors Life
Insurance Company of North America and
Family Life Insurance Company since
September 2001 and of Investors Life
Insurance Company of Indiana from
September 2001 to February 2002. Senior
Vice President from January 1993 to
September 2001 of Investors Life
Insurance Company of North America,
Investors Life Insurance Company of
Indiana, and Family Life Insurance
Company.
-7-
<page>
EXECUTIVE OFFICERS
The following table sets forth the names and ages of the persons who currently
serve as the Company's executive officers together with all positions and
offices held by them with the Company. Officers are elected to serve at the will
of the Board of Directors or until their successors have been elected and
qualified.
Name Age Positions and Offices
Roy F. Mitte 70 Chairman of the Board, President and
Chief Executive Officer
Jeffrey H. Demgen 49 Vice President and Treasurer
Thomas C. Richmond 60 Vice President and Secretary
Hans Annarino 59 Vice President
In May 1991, Roy F. Mitte suffered a stroke, resulting in partial paralysis
affecting his speech and mobility. Mr. Mitte continues to make the requisite
decisions in his capacity as Chief Executive Officer, although his ability to
communicate and his mobility are impaired.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
beneficial ownership on Form 3 and changes in beneficial ownership on Forms 4
and 5 with the Securities and Exchange Commission. Officers, directors and
greater than ten percent shareholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the Company, or
written representations that no Form 5s were required, the Company believes that
during the period from January 1, 2001 through December 31, 2001, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with.
-8-
<page>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information as of April 1, 2002 as to all persons
who, to the knowledge of the Registrant, were the beneficial owners of five
percent (5%) or more of the common stock of the Registrant.
Amount and Nature
Name and Address of of Beneficial Percent
Beneficial Owner Ownership of Class (4)
Roy F. and Joann Cole Mitte
Foundation
6500 River Place Blvd.
Austin, Texas 78730 1,552,206 (1) 16.28%
Roy F. Mitte
6500 River Place Blvd.
Austin, Texas 78730 1,592,007 (1,2) 16.70%
Family Life Insurance Company
6500 River Place Blvd.
Austin, Texas 78730 648,640 6.37% (3)
Investors Life Insurance
Company of North America
6500 River Place Blvd.
Austin, Texas 78730 1,427,073 (4) 13.02% (5)
Fidelity Management &
Research Company
82 Devonshire Street
Boston, MA 02109 1,307,020 (6) 13.71%
Wellington Management
Company, LLP
75 State Street
Boston, MA 02109 560,200 (7) 5.88%
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<page>
(1) The Roy F. and Joann Cole Mitte Foundation is a non-profit
corporation/membership organization and its two members are Roy F. Mitte
and Joann Cole Mitte. The Internal Revenue Service has determined that the
Foundation is exempt from federal income tax under section 501(a) of the
Internal Revenue Code (the "Code") as an organization described in section
501(c)(3) of the Code. Roy F. Mitte is also Chairman, President and Chief
Executive Officer of both FIC and ILCO. For purposes of this table, Mr.
Mitte is deemed to have beneficial ownership of the shares owned by the
Foundation.
(2) Includes 35,401 shares allocated to Mr. Mitte's account under the 401K Plan
and 4,400 shares which may be acquired pursuant to options which are
exercisable within 60 days.
(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 13(G) 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 its beneficial ownership had increased to 340,000 shares.
According to the Schedule 13(G) filings, as amended, Fidelity acts as
investment advisor to the Fidelity Low-Priced Stock Fund, a registered
investment company, and the Fund is the beneficial owner of 340,000 shares
of FIC common stock.
(7) As reported on a Schedule 13(G) filed by Wellington Management Company, LLP
("WMC") on February 14, 2002. According to the Schedule 13(G) 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.
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<page>
The following table contains information as of April 1, 2002 as to the Common
Stock of the Registrant beneficially owned by each director, nominee and
executive officer and by all executive officers and directors of the Registrant
as a group. The information contained in the table has been obtained by the
Registrant from each director and executive officer, except for the information
known to the Registrant. Except as indicated in the notes to the table, each
beneficial owner has sole voting power and sole investment power as to the
shares listed opposite his name.
Amount and Nature of Percent of
Name Beneficial Ownership (1,2) Class
Hans Annarino 11,807 (2,3,4) *
John Barnett 2,000 *
David G. Caldwell 7 *
S. Tim Casey 15,278 (2,3) *
Jeffrey H. Demgen 11,959 (2,3) *
Theodore A. Fleron 18,457 (2,3) *
W. Lewis Gilcrease -0-
Roy F. Mitte 1,592,007 (1,2,3) 16.70%
Michael Scott Mitte 45 *
Elizabeth T. Nash 220 *
Frank Parker 12,000 *
Thomas C. Richmond 14,236 (2,3,5) *
All Executive Officers,
and Directors as
a group (12 persons) 1,680,216 17.62%
* Less than 1%.
(1) The shares are owned by the Roy F. and Joann Cole Mitte Foundation, a
non-profit corporation/membership organization with two members, Roy F.
Mitte and Joann Cole Mitte. The Internal Revenue Service has determined
that the Foundation is exempt from federal income tax under section 501(a)
of the Internal Revenue Code (the "Code") as an organization described in
section 501(c)(3) of the Code. Roy F. Mitte is also Chairman, President and
Chief Executive Officer of FIC. For purposes of this table, Mr. Mitte is
assumed 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.
-11-
<page>
(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 April 1, 2002, as follows: Mr. Annarino -
3,667 shares; Mr. Casey - 4,400 shares; Mr. Demgen - 2,200 shares; Mr.
Fleron - 2,200 shares; Mr. Mitte - 4,400 shares; and Mr. Richmond - 2,200
shares.
(4) Includes 2,157 shares owned by Mr. Annarino's spouse.
(5) Reflects open market sale on March 1, 2002 of 2,200 shares of FIC common
stock which were acquired by Mr. Richmond in connection with the exercise
on April 12, 2001 of options granted under the Stock Option Plan. At the
time of exercise, the Plan issued 2,000 shares of ILCO common stock, which
shares were converted to 2,200 shares of FIC common stock following the May
18, 2001 merger of ILCO with FIC.
BOARD, COMMITTEES AND MEETINGS
The business of the Company is managed under the direction of the Board of
Directors (the "Board"). The Board met formally eight times during 2001 and each
of the incumbent directors at December 31, 2001 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
six different times during 2001. Among the committees established by the Board
are the following:
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 responsibilities
of the Audit Committee include: (i) reviewing the scope of the annual audits of
the financial statements of the Company, (ii) reviewing the audit results with
the independent auditors and management and (iii) evaluating the performance of
the independent auditors of the Company. The Audit Committee met formally four
times during 2001. The directors serving on the Audit Committee during 2001 were
John D. Barnett, Frank Parker and W. Lewis Gilcrease. Dr. Gilcrease became a
member of the Audit Committee in December, 2001, following the resignation of
Joseph F. Crowe as a director of the Company. David G. Caldwell was appointed as
a member of the Audit Committee in January, 2002. Each of the members of the
Audit Committee is "independent", as defined by the listing standards of the
Nasdaq Stock Market, Inc.("NASDAQ").
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 responsibilities
of the Compensation Committee include recommending to the Board the amount and
nature of the compensation paid by the Company to the Chief Executive Officer.
The members of the Compensation Committee during 2001 were: Mr. Barnett, Mr.
Parker and, until December, 2001, Joseph F. Crowe. The Compensation Committee
held one meeting during 2001, which was attended by all of the members of the
Committee.
-12-
<page>
Executive Committee
The Executive Committee provides advice and counsel to the Chairman of the Board
and the Chief Executive Officer, and acts on behalf of the Board as to such
matters as may be determined by the Board from time to time, as to matters of a
technical or non-policy nature, or where urgent action is required and a meeting
of the Board is not practicable. The current members of the Executive Committee
are Roy F. Mitte, Thomas C. Richmond, Jeffrey H. Demgen, and Hans Annarino.
The Board does not have a nominating committee.
Family relationships
M. Scott Mitte is Roy F. Mitte's son.
AUDIT COMMITTEE CHARTER AND REPORT
The Audit Committee operates pursuant to a Charter approved by the Board. The
Charter, a copy of which was appended to the Company's annual meeting proxy
statement as filed with the Securities and Exchange Commission in 2001, 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 relating to (i) the
annual financial information to be provided to shareholders and the Securities
and Exchange Commission (SEC); (ii) the system of internal controls that
management has established; and (iii) the internal and external audit process.
The Audit Committee makes periodic reports to the Board concerning its
activities.
Report of the Audit Committee
The Audit Committee oversees the Company's financial reporting process on behalf
of the Board. Management has the primary responsibility for the financial
statements and the reporting process including the systems of internal controls.
In the performance of its oversight responsibilities, the Audit Committee has
reviewed with management the Company's audited financial statements for the year
ended December 31, 2001.
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<page>
The Audit Committee has discussed with PricewaterhouseCoopers, LLC ("PWC"), our
independent auditors, the matters required to be discussed under the provisions
of Statement of Auditing Standards No. 61 (SAS 61), Communications with Audit
Committees. In addition, the Audit Committee has received the written
disclosures and the letter from the independent auditors required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees) and has discussed with the independent auditors the independent
auditors' independence. The Audit Committee also considered whether the
provision of services by PWC not related to the audit of the Company's financial
statements and to the review of the Company's interim financial statements is
compatible with maintaining the independence of PWC.
The Committee discussed with the Company's internal and independent auditors the
overall scope and plans for their respective audits. The 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, 2001
for filing with the Securities and Exchange Commission.
The foregoing report is submitted by the members of the Audit Committee
John D. Barnett, Chairman
Frank Parker
Lewis Gilcrease (1)
David G. Caldwell (2)
(1) Mr. Gilcrease was appointed to the Audit Committee in December, 2001
and participated in the review and discussion of the Form 10-K report for
the year ended December 31, 2001.
(2) Mr. Caldwell was appointed to the Audit Committee in January, 2002 and
participated in the review and discussion of the Form 10-K report for the
year ended December 31, 2001.
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<page>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Summary Compensation Table
The following table sets forth information concerning the compensation of the
Company's Chief Executive Officer and each of the Registrant's four most highly
compensated executive officers other than the CEO who were serving as executive
officers at the end of 2001 and received cash compensation exceeding $100,000
during 2001:
<table>
<s> <c> <c> <c> <c> <c> <c>
Annual Compensation Long Term Compensation
Name and Other Annual Stock Options All Other
Principal Position Year Salary (1) Bonus Compensation (Shares) (4) Long Term
(2, 3) Compensation (5)
Roy F. Mitte, 2001 $514,904 $2,500,000 $18,500 -0- -0-
Chairman, 2000 503,500 2,500,000 -0- -0- -0-
President and 1999 503,500 2,500,000 -0- 10,000 -0-
Chief Executive
Officer
James M. Grace, 2001 195,000 327,846 3,000 -0-
Vice President 2000 195,000 25,000 -0- -0- 6,337
and Treasurer (7) 1999 195,000 20,000 191,215 10,000 1,600
Steven P. Schmitt 2001 145,192 3,519 2,500 -0-
Vice President 2000 (6) 108,846 16,000 -0- -0- 2,004
and Secretary (7) 1999 10,000
Jeffrey H. Demgen 2001 163,862 -0- 18,000 -0-
Vice President 2000 160,000 20,000 -0- -0- 2,021
1999 150,000 20,000 -0- 10,000 1,600
Thomas C. Richmond 2001 (6) 138,846 -0- 20,690 -0-
Vice President 2000 -0-
1999 10,000
</table>
(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.
-15-
<page>
The executive officers of FIC have also been executive officers of Family Life,
Investors Life and Investors-IN, 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 for 1999 and 2000 (i) Mr.
Mitte: $1,111,821 and $1,111,821, respectively; (ii) Mr. Grace: $62,694 and
$64,152, respectively; (iii) Mr. Schmitt: $39,888 (for the year 2000 only); and
(iv) Mr. Demgen: $76,500 and $81,000 respectively. In the year 2001, 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 Exercises and Value
Unexercised in 2001" below. In 2001, Mr. Mitte, Mr. Grace Mr. Schmitt and Mr.
Demgen exercised options to purchase 2,000 shares of ILCO common stock under the
Stock Option Plan. Mr. Richmond exercised options to purchase 2,000 shares of
ILCO common stock and 2,200 shares of FIC stock under the Stock Option Plan.
Also includes the value realized by Mr. Grace in connection with the exercise of
stock options in 1999. Mr. Grace exercised options to purchase 24,000 shares of
ILCO's common stock under the former ILCO Non-Qualified Option Plan.
(4) The data in this column represents the number of ILCO share options granted
to each of the above-named executive officer in 1999. The shares were granted
pursuant to the Stock Option Plan. Subsequent to 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.
-16-
<page>
(5) All Other Compensation includes:
(i) The executive officers of the Company participate in the
InterContinental Life Corporation Employees Savings and Investment
Plan ("401K Plan"). For the years 1999 and 2000, ILCO contributed the
following amounts and for the year 2001 FIC contributed the following
amount to the named participant's 401K Plan account: (a) Mr. Grace:
$1,600, $2,021, and $3,400 respectively, (b) Mr. Demgen: $1,600, $
2,021, and $3,303 respectively, (c) Mr. Schmitt: $2,004 in the year
2000 and $2,903 in the year 2001; and (d) Mr. Richmond: $2,776 for the
year 2001 only. (ii) amounts paid by ILCO to Mr. Grace to supplement
his benefits under ILCO's Pension Plan. The Pension Plan supplement
relates to each of the past service years for Mr. Grace which were
affected by the limitation on compensation which the Pension Plan may
take into account for benefit accrual purposes. Under federal pension
rules, an employee's benefit under a qualified pension plan, such as
the ILCO Pension Plan, is limited to certain maximum amounts.
(6) Steven P. Schmitt was appointed as an executive officer in the year 2000,
thus only his compensation for the years 2000 and 2001 are disclosed. Thomas C.
Richmond was appointed as an executive officer in the year 2001, thus only his
compensation for the year 2001 is included.
(7) James M. Grace and Steven P. Schmitt were both officers and directors of FIC
during 2001; however, both retired from active service at December 31, 2001.
Option Grants in 1999
In 1999, the persons named in the Summary Compensation Table, above, in addition
to 41 other employees of ILCO, its subsidiaries and affiliates, 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. As of March 6, 2002, options to purchase 64,750 shares of FIC
Common Stock had been exercised, options to purchase 312,000 shares of FIC
Common Stock remain to be exercised pursuant to the terms of the Stock Option
Plan, and options to exercise 34,650 shares of FIC Common Stock had terminated
since the date of the Merger. Additionally, subsequent to the Merger, 22,000
options to purchase shares of FIC Common Stock were granted pursuant to the
Stock Option Plan.
-17-
<page>
Aggregated Option Exercises and Value Unexercised in 2001
The following table sets forth information concerning each exercise of stock
options during 2001 by each of the individuals who were executive officers of
the Company as of December 31, 2001, as well as the value, as of December 31,
2001, of unexercised options of such executive officers. The value of
unexercised in-the-money stock options at December 31, 2001 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 Exercises in 2001
and 2001 Option Values
<table>
<s> <c> <c> <c> <c> <c>
Number of Value of
Unexercised Unexercised
Options Held at In-the-Money
December 31, 2001 Options at
Shares Acquired Exercisable/ December 31, 2001
Name on Exercise(#)(1) Value Realized($) Unexercisable Exercisable/Unexercisable (2)
Roy F. Mitte 2,000 $18,500 2200 /6600 $ 11,810 $ 35,430
James M. Grace 2,000 3,000 2200 / 0 $ 11,810 $ 0
Steven P. Schmitt 2,000 2,500 2200 / 0 $ 11,810 $ 0
Jeffrey H. Demgen 2,000 18,000 2200 /6600 $ 11,810 $ 35,430
Thomas C. Richmond 2,000
2,200 20,690 0 /6600 $ 0 $ 35,430
</table>
(1) Each exercise of 2,000 shares listed in the above table were exercises
of ILCO Common Stock granted under the Stock Option Plan prior to May 18,
2001. Mr. Richmond also exercised 2,200 shares of FIC Common Stock
subsequent to May 18, 2001.
(2) Based on the closing price of the Company's common stock on NASDAQ
(Symbol: FNIN) on December 31, 2001 ($13.55).
-18-
<page>
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.
Years of Service
30 or
Remuneration 15 20 25 more
$125,000 $ 29,437 $ 39,250 $ 49,062 $ 58,875
150,000 35,325 47,100 58,875 70,650
160,000 37,680 50,240 62,800 75,360
175,000 41,212 54,950 68,687 82,425
200,000 47,100 62,800 78,500 94,200
The normal retirement benefit provided under the Pension Plan is equal to 1.57%
of final average eligible earnings less 0.65% of the participant's Social
Security covered compensation multiplied by the number of years of credited
service (up to 30 years). The compensation used in determining benefits under
the Pension Plan is the highest average earnings received in any five
consecutive full-calendar years during the last ten full- calendar years before
the participant's retirement date. The maximum amount of annual salary and bonus
that can be used in determining benefits under the Pension Plan is $200,000 for
any year prior to 1994 and is $150,000 for 1994, 1995 and 1996 and is $160,000
for 1997 and each subsequent year.
The annual eligible earnings, for 2001 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, 2001 being shown in parentheses:
Mr. Mitte, $160,000 (14 years); Mr. Grace, $160,000 (14 years); Mr. Demgen,
$160,000 (9 years); Mr. Schmitt, $145,192 (30 years); and Mr. Richmond, $138,846
(13 years).
Compensation of Directors
Directors who are not officers or employees of the Company are paid a $5,000
annual fee, and are compensated $1,000 for each regular or special meeting of
the Board of Directors which they attend in person. In the case of telephonic
meetings of the Board, non-employee directors who participate in such telephonic
meetings are compensated $500 for such meeting. Directors who participate via
telephone in a regular or special meeting which is held by other than conference
telephone are not entitled to a fee for such a meeting.
-19-
<page>
Non-employee directors serving on committees of the Board are compensated in the
amount of $500 for each committee meeting they attend whether such participation
is in person or by telephone, provided that the committee meeting is held on a
day other than that on which the Board meets.
Employment Agreements and Change In Control Arrangements
Roy F. Mitte. Mr. Mitte and FIC are parties to an employment agreement,
providing for the employment of Mr. Mitte as Chairman, President and Chief
Executive Officer of the Company. The agreement, which was initially effective
February 25, 1982, provides for five-year terms and for automatic renewals for
successive five-year periods, unless otherwise terminated in accordance with the
terms of the agreement. The original agreement provided that the level of
compensation was to be fixed each year by agreement, but not less than $120,000
per year, and further provided that Mr. Mitte is entitled to reimbursement for
reasonable business expenses, and to participate in all fringe benefit plans and
arrangements available generally to employees of the Company. In 2001, the
employment agreement was amended as follows: (i) the minimum level of
compensation was increased to $503,500; (ii) Mr. Mitte is entitled to receive an
annual bonus in an amount to be determined by the Compensation Committee of the
Board of Directors; (iii) upon the occurrence of a change in control (as defined
in the amendment), the amount of the bonus is to be fixed at the rate of $2.5
million per year; (iv) in the event of the death of Mr. Mitte, payments would
continue to his estate for the remainder of the term of his employment then in
effect, and that the amount of such payments shall be based on both that monthly
base salary then in effect and the bonus amount paid to him by FIC and ILCO for
the year 2001; and (v) if the employment of Mr. Mitte is terminated during the
term of the agreement, he is entitled to receive the payments otherwise due for
the remainder of the then current term.
James Grace. On January 8, 2001, Mr. Grace and ILCO entered into an
employment agreement which superceded a prior employment agreement. The
obligations under the agreement were assumed by FIC subsequent to the Merger.
The agreement provided for the employment of Mr. Grace through August 12, 2005
at a salary of $195,000 per year. Mr. Grace's obligations were to perform the
duties he performed at the time of the effective date of the agreement, or other
similar duties as may be assigned from time to time. The agreement allowed for
termination by the Company only in limited circumstances. It further provided
that in the event of a change of control of the Company, the remaining amounts
payable under this agreement shall become immediately due and payable in one
lump sum and the agreement shall terminate.
In January 2002, the Company and Mr. Grace entered into a modification of the
agreement, whereby the Company paid to Mr. Grace the present value of the
remaining installments under the agreement. The amount of the payment, prior to
withholdings, was $636,311.43. The Company also agreed to pay the full cost of
medical insurance coverage for Mr. Grace for the period from January 2002 to
August 2005. In connection with the modification of the agreement, Mr. Grace
submitted his resignation as an officer and director of the Company and its
subsidiaries. In addition, the Company purchased from Mr. Grace 27,424 shares of
FIC common stock at a price of $16.80 per share, which purchase was made in
accordance with the provisions of an agreement approved by FIC's board of
directors in May 2001.
-20-
<page>
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 and Frank Parker, both outside
directors. The Compensation Committee met once in 2001.
Roy F. Mitte determines the compensation of all executive officers of the
Company, other than the Chief Executive Officer. Mr. Mitte is the Chairman of
the Board, President and Chief Executive Officer of FIC. He also determines the
compensation of all executive officers of FIC, other than the Chief Executive
Officer.
Reports on Executive Compensation
The following reports shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
Chief Executive Officer's Report
The following report is made by Chief Executive Officer with respect to
compensation policies applicable to the Company's executive officers, other than
the Chief Executive Officer.
The goal of the Company's compensation policies is to ensure that an appropriate
relationship exists between executive pay and the creation of shareholder value,
while at the same time motivating and retaining senior managers. Executive
compensation is based on several factors, including corporate performance. While
sales, earnings, return on equity and other performance 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.
-21-
<page>
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
subsidiary 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.
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 401(k) Plan was amended and
restated to comply with the Economic Growth and Tax Relief Reconciliation Act of
2001.
The Company provide medical and pension benefits to their executive officers
that are generally available to employees.
The foregoing report has been furnished by Roy F. Mitte.
Compensation Committee's Report
The Compensation Committee of the Board of Directors makes a recommendation to
the Board of Directors each year with respect to the Chief Executive Officer's
compensation for that year. For the year 2001, the Committee recommended that
the Chief Executive Officer's compensation continue at the same level in effect
for the year 2000. In addition, the Committee recommended that the Chief
Executive Officer receive a cash bonus in the amount of $2,500,000.
The compensation policies and practices of the Compensation Committee are
subjective and are not based upon specific criteria. The Committee did consider
the Company's overall financial performance and its continuing progress in
expense management, maintenance of a high quality investment portfolio and
marketing of insurance products designed to generate an acceptable level of
profitability. The Committee recognized the Chief Executive Officer's leadership
role in the Company's performance and his ability to select, recruit and
motivate qualified people to implement the Company's policies that have
contributed to that performance.
-22-
<page>
Since the Chief Executive Officer's 2001 compensation is not based on any
particular measures of the Company's performance, such as sales, earning or
return on equity, there is no specific discussion in this report of the
relationship of the Company's performance to the Chief Executive Officer's
compensation for 2001.
The foregoing report is submitted by the members of the Compensation Committee.
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. For the year ended December 31, 2001, the $1 million level
was exceeded with respect to the Chief Executive Officer.
Performance Graph
The graph and table below compare the cumulative total shareholder return on the
Company's Common Stock for the last five calendar years with the cumulative
total return on The Nasdaq Stock Market (US) and an index of stocks of life
insurance companies traded on Nasdaq over the same period (assuming the
investment on December 31, 1996 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).
-23-
<page>
[PERFORMANCE GRAPH OMITTED]
<table>
<s> <c> <c> <c> <c> <c> <c>
12/30/96 12/29/97 12/29/98 12/31/99 12/31/00 12/31/01
The Company (1) $100.00 $176.90 $142.90 $ 87.90 $ 82.00 $129.30
The Nasdaq Stock Market (US) $100.00 $122.50 $172.70 $320.80 $193.00 $153.10
Index of Nasdaq Life Ins. Stocks (2) $100.00 $132.20 $133.30 $115.10 $127.30 $158.30
</table>
(1) The dollar amounts for the Company's Common Stock are based on the closing
bid prices on Nasdaq on the dates indicated.
(2) The Index of Nasdaq Life Insurance Stocks is comprised of life insurance
companies whose stocks were traded on Nasdaq during the last five calendar years
(31 issues listed during that period, of which 14 issues were traded on December
31, 2001). These peer companies were selected by the Company on a
line-of-business basis.
-24-
<page>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the period January 1, 2001 to December 31, 2001, the Registrant reports the
following information in accordance with the provisions of section 229.404 of
the Regulations of the U.S. Securities and exchange Commission. Management
believes that the transactions described herein were in the ordinary course of
business and on terms as favorable to the Registrant and its subsidiaries as if
the transactions had involved unaffiliated persons or organizations.
(a) As part of the financing arrangement for the acquisition of Family Life
Insurance Company, Family Life Corporation ("FLC"), a subsidiary of FIC,
entered into a Senior Loan agreement under which $50 million was provided
by a group of banks. The balance of the financing consisted of a $30
million subordinated note issued by FLC to Merrill Lynch Insurance Group,
Ins. ("Merrill Lynch") and $14 million borrowed by another subsidiary of
FIC from an affiliate of Merrill Lynch and evidenced by a senior
subordinated note in the principal amount of $12 million and a junior
subordinated note in the principal amount of $2 million and $25 million
lent by two insurance company subsidiaries of ILCO. The latter amount was
represented by a $22.5 million loan from Investors 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.
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.
-25-
<page>
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 (c)
the $4.5 million note was amended to provide for forty quarterly principal
payments, in the amount of $24,531 each for the period December 12, 1996 to
September 12, 2001; beginning with the principal payment due on December
12, 2001, the amount of the principal payment increases to $200,469; the
final quarterly principal payment is due on September 12, 2006; the
interest rate on the note remains at 9%.
(b) 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 $1,591,341, Investors
Life paid $1,687,304, and Investors-IN paid $606,466 to FIC Computer for
data processing services provided during 2001.
(c) 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.
(d) 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.
(e) On January 8, 2001, the Company donated $375,000 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 16.31%
of the outstanding shares of FIC's common stock. The sole members of the
Foundation are Roy F. Mitte, Chairman, President and Chief Executive
Officer of FIC, and their insurance subsidiaries, and his wife, Joann Cole
Mitte.
(f) On January 2, 2002, FIC made a donation of $1,000,000 to the Foundation.
(g) In June, 2001, the Company granted Mr. Roy F. Mitte a loan in the amount of
$5 million. The terms of the loan were disclosed in the 2001 proxy
statement dated July 24, 2001 and filed with the Securities and Exchange
Commission on July 23, 2001. The loan was for a one-year period; however,
Mr. Mitte paid the loan in full on August 22, 2001.
-26-
<page>
INDEPENDENT AUDITORS
Relationship With Independent Auditors
FIC's accounting firm for the current year is PricewaterhouseCoopers, LLP.
Representatives of PricewaterhouseCoopers LLP are expected to be available for
comment at the Shareholders Meeting and will be given an opportunity to respond
to appropriate questions.
Fees Paid to Independent Public Accountants
PricewaterhouseCoopers, LLP has billed the Company and its subsidiaries fees as
set forth in the table below for (i) the audit of the Company's annual financial
statements for the year 2001 of and reviews of quarterly financial statements,
(ii) financial information systems design and implementation work rendered in
the year 2001 and (iii) all other services rendered in the year 2001.
Financial
Information
Systems
Design and
Implementation
Audit Fees Fees All Other Fees
Fiscal Year 2001 $283,308 $ -0- $300,679 (1)
(1) Includes expenses related to tax services and expenses related to audit
work for the Merger. On May 18, 2001, pursuant to that certain Agreement
and Plan of Merger, as amended, 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, for each
share of common stock, par value $0.22 per share, of ILCO outstanding at
the time of the Merger.
SHAREHOLDER PROPOSALS
It is contemplated by the management of FIC that the next Annual Meeting of the
Shareholders of FIC will be held on or about June 1, 2003. Proposals submitted
by any security holders and intended to be included in FIC's Proxy Statement and
Form of Proxy relating to the meeting must be received by the Company at its
principal executive offices no later than December 31, 2002 and must be in
compliance with applicable laws and Securities and Exchange Commission
regulations.
-27-
<page>
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 30, 2002
By Order of the Board of Directors
Financial Industries Corporation
Thomas C. Richmond
Secretary
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PROXY
FINANCIAL INDUSTRIES CORPORATION
Annual Meeting of Shareholders, June 4, 2002
Roy F. Mitte and Thomas C. Richmond, or either of them, each with the power
of substitution, are hereby authorized to represent and vote the shares of the
undersigned, 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 Tuesday, June 4, 2002, or at any postponements or
adjournments thereof, as indicated below.
1. ELECTION OF DIRECTORS _______ FOR all nominees
listed below
(except as
indicated)
_______ WITHHOLD
authority to
vote for all
nominees listed
below
If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name in the list below.
Hans Annarino, John D. Barnett, David G. Caldwell, S. Tim Casey, Jeffrey H.
Demgen, Theodore A. Fleron, W. Lewis Gilcrease, M. Scott Mitte, Roy F. Mitte,
Elizabeth T. Nash, Frank Parker, Thomas C. Richmond
2. In their discretion, the proxies are authorized to vote upon such
other matters which may properly come before the meeting or at any
postponements or adjournments thereof.
(Continued on reverse side)
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(Continued from reverse side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTIONS ARE GIVEN, THIS PROXY WILL
CONSTITUTE AUTHORIZATION TO VOTE THE UNDERSIGNED'S SHARES FOR THE ELECTION OF
NOMINEES FOR DIRECTOR WHOSE NAMES ARE LISTED ON THE REVERSE. It will be voted on
other business matters which may properly be brought before the meeting in
accordance with the best judgment of the proxies.
The Board of Directors recommends a vote "FOR" on all matters set forth in this
proxy.
Please date, sign and return in the
enclosed postage paid envelope.
Dated: ___________________, 2002
Signature _____________________
Signature _____________________
(if held jointly)
In the case of joint or common
ownership, each owner should sign.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FINANCIAL
INDUSTRIES CORPORATION
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