EXHIBIT 10.3
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DLB CAPITAL FUND FNIN, LLC
187 DANBURY ROAD
WILTON, CONNECTICUT 06897
February 1, 2007
Financial Industries Corporation
6500 River Place Boulevard, Building One
Austin, Texas 78730
Attention: R. Keith Long
RE: ENGAGEMENT LETTER
Dear Keith:
This engagement letter confirms the agreement between DLB Capital Fund
FNIN, LLC (the "CONSULTANT"), and Financial Industries Corporation (the
"COMPANY"), as follows:
1. ENGAGEMENT; SERVICES. The Company hereby engages the
Consultant to render management consulting services to the Company during the
term of this engagement letter. The Consultant shall report directly to the
Board of Directors of the Company (the "BOARD"). The management consulting
services to be provided by the Consultant are listed on Appendix A attached
hereto. For the avoidance of any doubt, the Consultant will not act as financial
advisor to the Company in connection with any sale or other change-of-control
transaction.
The Company will give to a person designated by the Consultant (who
shall be William J. Shea, or in the event of any inability or unwillingness of
Mr. Shea to act in this capacity, a comparably experienced and skilled
professional reasonably acceptable to the Board) (the "DESIGNEE") at least as
much prior notice of the time, place, and subject matter of each regularly
scheduled or special meeting of any board of directors (or committee thereof) of
the Company, or any proposed action by written consent of any board of directors
(or committee thereof) of the Company, as is given to any other director or
committee member; such notices in all cases to include true and complete copies
of all documents and other materials furnished by or on behalf of the Company to
any director (or committee member) in connection with such meeting or consent.
The Designee will be entitled to physically attend any such meeting, or if a
meeting is held by means of an audio- or video-conference, to participate in the
meeting by such means. Notwithstanding anything to the contrary, the Designee
shall not be entitled to attend or listen to any portion of a meeting or receive
any document to the extent it would vitiate privilege.
2. COMPENSATION. In consideration of the Consultant's services,
during the term of this engagement letter, the Company will pay the Consultant a
non-refundable cash fee of $36,666 per month, payable semi-monthly (i.e.,
$18,333 each half-month, for an aggregate of $439,996 over the twelve-month term
of this engagement letter) in advance. The full cash fee for the first month of
the term will be due upon the Company's execution of this engagement letter, and
Financial Industries Corporation
Investors Life Insurance Company
February 1, 2007
Page 2
subsequent cash fees will be due on the 15th and last day of each calendar
month, beginning on February 28, 2007 and ending on January 14, 2008.
3. TERM. This engagement letter and the term of the Consultant's
consulting engagement hereunder will continue in effect through the earlier of
(i) January 31, 2008, (ii) a termination by the Company for Cause, (iii) a
termination by the Consultant by reason of the Company's material breach of this
engagement letter that is not cured within ten (10) days of written notice
thereof to the Company describing in reasonable detail the nature of the alleged
breach, or (iv) a Change of Control Transaction if the Company is obligated to
make the change of control payment pursuant to Section 4(e) of the CEO
Engagement Letter, dated as of the date hereof, between the Company and William
Prouty. The provisions of Sections 4 through 9 hereof will survive expiration or
termination of this engagement letter and the Consultant's engagement hereunder,
as will the Consultant's right to receive any cash fees accrued prior to the
effective date of termination. In the event of a termination by the Consultant
pursuant to clause (iii) above, all cash fees that would have accrued over the
then remaining term of this engagement letter shall immediately be due and
payable. For purposes of this engagement letter, "CHANGE OF CONTROL TRANSACTION"
shall mean any transaction or series of transactions that result in (i) the
acquisition by any person (or persons who would be deemed a person under Section
13d-3 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder) of 50% or more of the outstanding shares of
the Company's common stock, or (ii) the sale or other transfer or disposition of
all or substantially all of the consolidated assets of the Company; in each
case, whether structured as a tender or exchange offer, share exchange, merger,
consolidation, business combination, recapitalization, reorganization,
liquidation, dissolution, or similar transaction or series of transactions For
purposes of this engagement letter, except as otherwise expressly noted herein,
"CAUSE" by the Company shall mean if (i) the Consultant or any of its
representatives or agents is convicted of, admits guilt in a written document
filed with a court of competent jurisdiction to or enters a plea of nolo
contendere to, an allegation of fraud, embezzlement, misappropriation, or any
felony; (ii) a material breach of the Consultant's obligations under this
engagement letter which is not cured within ten (10) days of the Company's
written notice thereof to the Consultant describing in reasonable detail the
nature of the alleged breach or (iii) William Prouty is no longer acting as CEO
for by the Company other than as a result of a termination without "Cause" or
resignation by Mr. Prouty for "Good Reason" (each as defined in the CEO
engagement agreement pursuant to which Mr. Prouty acts as CEO of the Company).
4. REPRESENTATIONS OF PARTIES. Each of the parties represents and
warrants to each other party that such representing party has all requisite
right, power, and authority to execute and deliver this engagement letter and to
perform all of its obligations hereunder, and such execution, delivery, and
performance will not violate any provision of the representing party's governing
documents, nor any applicable statute, regulation, code, rule, regulation,
judicial injunction, judgment, decree, or other order, or other law or legal
requirement, nor any contract or other agreement or commitment to which it is a
party or by which it is bound. Each of the parties acknowledges and agrees that
the Consultant, will be acting as an independent contractor to the Company, and
not in the capacity of an employee, officer, director, manager, or partner of
Financial Industries Corporation
Investors Life Insurance Company
February 1, 2007
Page 3
any of them. (For the avoidance of doubt, it is acknowledged that Mr. Prouty,
who is an affiliate of the Consultant, will act as an executive officer of the
Company.)
5. INFORMATION. In connection with the Consultant's consulting
services to the Company, the Company will provide the Consultant with all
relevant information that the Consultant reasonably may request. The Consultant
will be entitled to use and rely on such information without independent
verification, and the Company warrants that all such information will be true,
complete, and accurate, and will include all information needed to make the
information provided not misleading.
6. COMPANY'S OBLIGATIONS. Any amount payable by the Company to
the Consultant hereunder, whether in respect of compensation,
expense-reimbursement, indemnification or otherwise, if not paid within 30 days
following the date due hereunder, will bear interest from the date due until the
date paid at the prime rate, as reflected in the Wall Street Journal, plus one
percent per annum, compounded annually.
7. PROFESSIONAL JUDGMENT; EXCULPATION AND INDEMNIFICATION. The
Company acknowledges that the performance of the Consultant's consulting
services will involve the expression of professional ideas, advice, judgments,
opinions, projections, analyses, and estimates by the Consultant and its
officers, employees, agents, representatives, and other personnel, and that it
is in the Company's interest to have such ideas, advice, judgments, opinions,
projections, analyses, and estimates expressed frankly, without concern on the
part of the Consultant or its personnel that such ideas, advice, judgments,
opinions, projections, analyses, and estimates may be deemed to be
representations, warranties, or covenants upon which the Company may rely, or
otherwise may subject the Consultant or its personnel to liability. Accordingly,
the Company acknowledges and agrees as follows:
(i) The Consultant does not hereby, and the Consultant and its
personnel, including Mr. Prouty in his capacity as an executive officer
of the Company, will not hereafter, make any representation, warranty,
or covenant concerning ideas, advice, judgments, opinions, projections,
analyses, or estimates that the Consultant or its personnel (including
Mr. Prouty) may express to the Company.
(ii) Any decision any of the Company may make to rely on any
ideas, advice, judgments, opinions, projections, analyses, or estimates
expressed by the Consultant or any of its personnel (including Mr.
Prouty) will be at the Company's own risk; and all such decisions will
be made by and be the sole responsibility of the Company, which will
make an independent analysis thereof. The Company will have the
responsibility to apprise themselves of any and all consequences of
such decisions, including business, legal, tax, regulatory, and
accounting consequences.
(iii) Neither the Consultant nor any of its affiliates nor any
of the respective officers, directors, members, managers, employees,
agents, representatives, or other personnel of the Consultant or any of
its affiliates, including Mr. Prouty (each, an "INDEMNITEE," and
Financial Industries Corporation
Investors Life Insurance Company
February 1, 2007
Page 4
collectively, the "INDEMNITEES"), will be liable for any loss,
liability, claim, damage, or expense, including attorneys' fees and
disbursements, (collectively "LOSSES") under or in connection with this
engagement letter, the transactions hereby contemplated, or the
Consultant's engagement and rendering of services hereunder, except,
with respect to any Indemnitee, to the extent that such Losses are
finally determined by a court of competent jurisdiction to have been
directly and primarily caused by the bad faith or willful misconduct of
such Indemnitee.
(iv) The Company will indemnify, defend, and hold harmless
each of the Indemnitees from and against any Losses that such
Indemnitee may incur in connection with this engagement letter, the
transactions hereby contemplated, or the Consultant's engagement and
rendering of services hereunder, except to the extent that such Losses
are finally determined by a court of competent jurisdiction to have
been directly and primarily caused by the bad faith or willful
misconduct of an Indemnitee.
(v) If and to the extent that the indemnification provided for
in this Section 7 is for any reason unenforceable or otherwise
unavailable to any Indemnitee in respect of any Losses, then the
Company will, in lieu of indemnifying such Indemnitee, contribute to
such Indemnitee in respect of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Company, on the one
hand, and such Indemnitee, on the other hand, in connection with the
matters that gave rise to such Losses. Relative fault will be
determined by reference to, among other things, the Company's and such
Indemnitee's relative conduct, intent, knowledge, access to information
and opportunity to have avoided or mitigated such Losses. The Company
agrees that it would not be just and equitable if contribution pursuant
to this paragraph were determined by pro rata allocation or by any
other method of allocation that does not take account of the equitable
considerations referred to above in this paragraph.
(vi) The rights of indemnification and contribution hereby
granted are not exclusive and are in addition to, and not in
substitution for, any other rights of indemnification and contribution
that any Indemnitee may now or hereafter have against the Company or
any other person.
(vii) Each of the Indemnitees is an intended third-party
beneficiary of and personally entitled to enforce the provisions of
this Section 7.
(viii) Notwithstanding the foregoing, the provisions of this
Section 7 shall not apply to the extent, if any, that the application
of such provisions to any Indemnitee would violate the Texas Business
Corporation Act or other applicable law.
8. GOVERNING LAW. This engagement letter is governed by the
internal laws of the State of Texas, applied to agreements between residents of
the State of Texas made and entirely to be performed in the State of Texas.
Financial Industries Corporation
Investors Life Insurance Company
February 1, 2007
Page 5
9. CONFIDENTIALITY. The Consultant and its representatives and
agents shall keep as confidential all material non-public information received
from the Company in conjunction with this engagement, except (i) as requested by
the Company or its legal counsel; (ii) as required by legal proceedings (but the
Consultant will provide prior notice if and to the extent lawful and practicable
to the Company to afford them the opportunity to seek a protective order) or
(iii) as reasonably required in the performance of this engagement. All
obligations as to non-disclosure shall cease as to any part of such information
to the extent that such information is or becomes public other than as a result
of a breach of this provision.
10. ASSIGNMENT. No party may assign any of its rights or delegate
any of its obligations under this engagement letter to any other person, and any
attempt to do so will be void, provided, that the Consultant may freely assign
its payment rights hereunder (but may not delegate its obligations) in whole or
in part.
Please countersign this engagement letter to confirm the
Company's agreement and return it to the undersigned with a check for the first
month's cash fee.
We look forward to working with you.
Very truly yours,
DLB CAPITAL FUND FNIN, LLC
By /s/ William Prouty
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Name: William Prouty
Title: Authorized Signatory
AGREED:
FINANCIAL INDUSTRIES CORPORATION
By /s/ R. Keith Long
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Name: R. Keith Long
Title: Chairman
SIGNATURE PAGE FOR CONSULTING
SERVICES ENGAGEMENT LETTER
APPENDIX A
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1. Assist the Company in bringing the SEC filing process current such that
a shareholders meeting can be held on or before June 30, 2007.
2. Facilitate the introduction of the Company to potential merger and
acquisition opportunities.
3. Advise the Company's Board and management on strategy and opportunities
for performance improvement.
4. Assist in improving the Company's relationships with regulatory
authorities.
5. Assist in improving the Company's relationships with rating agencies.
6. Assist in optimizing the Company's financial and capital structures.
APPENDIX A