EXHIBIT 10.6
OPTION AGREEMENT
This Option Agreement (this "Agreement") is made and entered into as of
this 4th day of June, 2003, by and among FinancialIndustries Corporation, a
Texas corporation (the "Company"), Equita Financial and Insurance Services of
Texas, Inc., a Texas corporation ("Purchaser"), and, solely for purposes of
Section 4.5, M&W Insurance Services, Inc., a Delaware corporation ("M&W").
RECITALS
WHEREAS, the Company has acquired or entered into agreements to acquire a
group of companies (the "New Era Marketing Companies"), which are expected to
broaden the Company's premium base and transition the Company to a full range
financial services company;
WHEREAS, Purchaser brought the opportunity to acquire the New Era Marketing
Companies to the Company;
WHEREAS, Investors Life Insurance Company of North America and Family Life
Insurance Company, each a wholly-owned subsidiary of the Company, have entered
into a marketing agreement with Purchaser pursuant to which Purchaser will
provide marketing services with respect to the Company's senior group (over age
55) products (the "Services"); and
WHEREAS, in connection with the introduction of the New Era Marketing
Companies opportunity to the Company and the provisions of the Services to the
Company, the Company desires to grant to Purchaser options to acquire Common
Stock and other rights set forth herein in exchange for the consideration
described herein.
AGREEMENT
For and in consideration of the mutual promises and covenants contained in
this Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
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Section 1. Purchase Options.
1.1 Options to Purchase Shares. In consideration of the introduction of the
New Era Marketing Companies opportunity to the Company and the provis- ion of
the Services, the Company has agreed to grant Purchaser the option to purchase
shares of Common Stock as provided in Section 1.2 (the "Base Option") and in
Section 1.3 (the "Additional Option" and together with the Base Option, the
"Purchase Option").
1.2 Base Option.
(a) Base Option Qualifying Premiums. As used in this Agreement,
(i)"Base Option Qualifying Premiums" means the aggregate amount of
collected premiums for life insurance or annuity products issued by the
Company or any insurance company affiliate of the Company as of the date
hereof and any insurance company which becomes an affiliate of the Company
after the date hereof, unless such future affiliate, at the time that the
Company entered into a letter of intent or other expression of intent or
purchase contract, whichever is earliest, (i) was engaged in the marketing
and sale of life insurance policies, annuity contracts or other financial
related products for the senior (over age 55) market (the "Senior
Business") for at least 12 months (to include, without limitation, assumed
reinsurance and direct written premiums by any such person) and (ii)
derived more than fifty percent (50%)of its revenues from the Senior
Business, that, in each case, are marketed by or through Marketing Sub (as
defined in Section 4.2), whether through a contact made by an employee or
agent of Marketing Sub or a marketing relationship developed through any
insurance company affiliate of the Company (except as provided above),
Marketing Sub, Purchaser, or any of their respective agents and (ii) "Base
Option Determination Period" means the period beginning on July 1, 2003 and
ending on December 31, 2005. Within ten (10) business days following the
end of each calendar month within the Base Option Determination Period, the
Company shall deliver to Purchaser a good-faith estimate of the Base Option
Qualifying Premiums for that immediately preceding calendar month. Within
ten (10) business days following the end of the Base Option Determination
Period, the Company shall deliver to Purchaser a written calculation of
Base Option Qualifying Premiums specifying in reasonable detail the basis
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for such calculation. Purchaser shall have the right, at reasonable times
and upon reasonable notice, to inspect such books and records of the
Company, Marketing Sub and the Insurance Companies as may be reasonably
necessary to determine whether the calculation of Base Option Qualifying
Premiums is correct. Purchaser may deliver to the Company, within twenty
(20) business days following the end of the Base Option Determination
Period, a written objection to the calculation of Base Option Qualifying
Premiums and, if such objection is not resolved to the satisfaction of
Purchaser within five (5) business days, then the disagreement shall be
referred to a national accounting firm jointly selected by the Company and
Purchaser (excluding firms which provide material services to the Company
or Purchaser) (the "Base Option Arbitrator") who will determine the correct
amount of Base Option Qualifying Premiums. In the event the parties cannot
agree upon the selection of the Base Option Arbitrator within five (5)
business days, each party shall select a Base Option Arbitrator (the fees
and expenses of which will be borne by the selecting party) and such Base
Option Arbitrators shall select within ten (10) days a Base Option
Arbitrator that will determine the amount of Base Option Qualifying
Premiums. The fees and expenses of the Base Option Arbitrator selected to
determine the amount of Base Option Qualifying Premiums shall be borne by
the Company and Purchaser in the same proportion that the dollar amount of
the disputed Base Option Qualifying Premiums which are not resolved in
favor of the Company or Purchaser (as applicable) bears to the total dollar
amount of the disputed Base Option Qualifying Premiums resolved by the Base
Option Arbitrator. For illustration purposes only, (A) if the total amount
of the disputed Base Option Qualifying Premiums by Purchaser is $1,000,000,
and Base Option Arbitrator resolved $500,000 of the disputed Base Option
Qualifying Premiums in favor of Purchaser, the Company and Purchaser shall
bear the Base Option Arbitrator's fees and expenses equally; or (B) if the
total amount of disputed Base Option Qualifying Premiums by Purchaser is
$1,000,000 and Base Option Arbitrator resolved $250,000 of the disputed
Base Option Qualifying Premiums in favor of the Purchaser, Purchaser shall
bear 75 percent and the Company shall bear 25 percent of the Base Option
Arbitrator's fees and expenses. Each of Purchaser and the Company shall
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bear the fees, costs and expenses of its own Base Option Arbitrator, if
applicable, and all of its other expenses incurred in connection with
matters contemplated by this Section 1.1(a). Any such determination by the
Base Option Arbitrator shall be final, binding and conclusive upon the
Company and Purchaser. If Purchaser does not object to the Company's
calculation of Base Option Qualifying Premiums within the twenty (20)
business day period specified above, then the Company's determination of
Base Option Qualifying Premiums shall be final, binding and conclusive upon
the Company and Purchaser.
(b) Grant of Base Option. The Company hereby grants to Purchaser a
conditional option to acquire, in the sole discretion of Purchaser, up to
169,000 shares of Common Stock from the Company at a per share exercise
price equal to $16.42 per share (such price, the "Base Option Exercise
Price"), but only if Base Option Qualifying Premiums for the Determination
Period exceed $200,000,000 (the "Base Option"). The exercise of the Base
Option shall be subject to the filing of appropriate documents with, and to
the extent necessary, approval of, the Commissioner of Insurance of the
State of Washington and such notices and consents as may be required under
the insurance laws of any jurisdiction in which any of the Company or its
subsidiaries is domiciled or does business. The Base Option may only be
exercised once by delivery of written notice to the Company, signed by
Purchaser, indicating that the Base Option is being exercised and
specifying the number of shares of Common Stock it will acquire. Such
notice may not be given until final determination of Base Option Qualifying
Premiums pursuant to Section 1.2(a). Unless earlier exercised, the Base
Option expires on December 31, 2006. The closing of the exercise of the
Base Option pursuant to this Section 1.2(b) shall occur within ten (10)
business days following delivery of the written exercise notice, the Base
Option Exercise Price shall be paid in immediately available funds at the
closing, and the acquired shares of Common Stock shall be delivered to
Purchaser at the closing free and clear of any and all liens, claims and
encumbrances (other than any such liens, claims and encumbrances created by
Purchaser).
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1.3 Additional Option.
(a) Qualifying Premiums. As used in this Agreement, (i) "Additional
Option Qualifying Premiums" means the aggregate amount of collected
premiums for life insurance or annuity products issued by the Company or
any insurance company affiliate of the Company as of the date hereof,
unless such future affiliate, at the time that the Company entered into a
letter of intent or other expression of intent or purchase contract,
whichever is earliest, (i) was engaged in the marketing and sale of life
insurance policies, annuity contracts or other financial related products
for the Senior Business for at least 12 months (to include, without
limitation, assumed reinsurance and direct written premiums by any such
person) and (ii) derived more than fifty percent (50%) of its revenues from
the Senior Business, in each case, that are marketed by or through
Purchaser and (ii) "Additional Option Determination Period" means the
period beginning on July 1, 2003 and ending on December 31, 2005. Within
ten (10) business days following the end of each calendar month within the
Additional Option Determination Period, the Company shall deliver to
Purchaser a good-faith estimate of the Additional Option Qualifying
Premiums for that immediately preceding calendar month. Within ten (10)
business days following the end of the Additional Option Determination
Period, the Company shall deliver to Purchaser a written calculation of
Additional Option Qualifying Premiums specifying in reasonable detail the
basis for such calculation. Purchaser shall have the right, at reasonable
times and upon reasonable notice, to inspect such books and records of the
Company, the Insurance Companies and Marketing Sub as may be reasonably
necessary to determine whether the calculation of Additional Option
Qualifying Premiums is correct. Purchaser may deliver to the Company,
within twenty (20) business days following the end of the Additional Option
Determination Period, a written objection to the calculation of Additional
Option Qualifying Premiums and, if such objection is not resolved to the
satisfaction of Purchaser within five (5) business days, then the
disagreement shall be referred to a national accounting firm jointly
selected by the Company and Purchaser (excluding firms which provide
material services to the Company or Purchaser) (the "Additional Option
Arbitrator") who will determine the correct amount of Additional Option
Qualifying Premiums. In the event the parties cannot agree upon the
selection of the Additional Option Arbitrator within five (5) business
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days, each party shall select an Additional Option Arbitrator (the fees and
expenses of which will be borne by the selecting party) and such Additional
Option Arbitrators shall select within ten (10) days an Additional Option
Arbitrator that will determine the amount of Additional Option Qualifying
Premiums. The fees and expenses of the Additional Option Arbitrator
selected to determine the amount of Additional Option Qualifying Premiums
shall be borne by the Company and Purchaser in the same proportion that the
dollar amount of the disputed Additional Option Qualifying Premiums which
are not resolved in favor of the Company or Purchaser (as applicable) bears
to the total dollar amount of the disputed Additional Option Qualifying
Premiums resolved by the Additional Option Arbitrator. For illustration
purposes only, (A) if the total amount of the disputed Additional Option
Qualifying Premiums by Purchaser is $1,000,000, and the Additional Option
Arbitrator resolved $500,000 of the disputed Additional Option Qualifying
Premiums in favor of Purchaser, the Company and Purchaser shall bear the
Additional Option Arbitrator's fees and expenses equally; or (B) if the
total amount of disputed Additional Option Qualifying Premiums by Purchaser
is $1,000,000 and the Additional Option Arbitrator resolved $250,000 of the
disputed Additional Option Qualifying Premiums in favor of the Purchaser,
Purchaser shall bear 75 percent and the Company shall bear 25 percent of
the Additional Option Arbitrator's fees and expenses. Each of Purchaser and
the Company shall bear the fees, costs and expenses of its own Additional
Option Arbitrator, if applicable, and all of its other expenses incurred in
connection with matters contemplated by this Section 1.3(a). Any such
determination by the Additional Option Arbitrator shall be final, binding
and conclusive upon the Company and Purchaser. If Purchaser does not object
to the Company's calculation of Additional Option Qualifying Premiums
within the twenty (20) business day period specified above, then the
Company's determination of Additional Option Qualifying Premiums shall be
final, binding and conclusive upon the Company and Purchaser.
(b) Grant of Additional Option. The Company hereby grants to Purchaser
a conditional option to acquire, in the sole discretion of Purchaser, up to
158,000 shares of Common Stock from the Company at a per share exercise
price equal to $16.42 per share (such price, the "Additional Option
Exercise Price"), but only at the rate of 10,000 shares for each
$10,000,000 increment by which the Additional Option Qualifying Premiums
for the Additional Option Determination Period exceed $200,000,000. The
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exercise of the Additional Option shall be subject to the filing of
appropriate documents with, and to the extent necessary, approval of, the
Commissioner of Insurance of the State of Washington and such notices and
consents as may be required under the insurance laws of any jurisdiction in
which any of the Company or its subsidiaries is domiciled or does business.
The Additional Option may only be exercised once by delivery of written
notice to the Company, signed by Purchaser, indicating that the Additional
Option is being exercised and specifying the number of shares of Common
Stock it will acquire. Such notice may not be given until final
determination of Additional Option Qualifying Premiums pursuant to Section
1.3(a). Unless earlier exercised, the Additional Option expires on December
31, 2006. The closing of the exercise of the Additional Option pursuant to
this Section 1.3(b) shall occur within ten (10) business days following
delivery of the written exercise notice, the Additional Option Exercise
Price shall be paid in immediately available funds at the closing, and the
acquired shares of Common Stock shall be delivered to Purchaser at the
closing free and clear of any and all liens, claims and encumbrances (other
than any such liens, claims and encumbrances created by Purchaser).
1.4 Certain Adjustment Events.
(a) In case the Company shall hereafter (i) pay a dividend or make a
distribution on its capital stock in shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock into a greater number of shares,
(iii) combine its outstanding shares of Common Stock into a smaller number
of shares or (iv) issue by reclassification of its Common Stock other
securities of the Company, the kind and amount of Common Stock and other
securities shall be adjusted so that Purchaser upon the exercise of the
Purchase Option shall be entitled to receive the number of shares of Common
Stock or other securities of the Company that Purchaser would have owned
immediately following such action had the Purchase Option been exercised
immediately prior thereto.
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(b) In case of any capital reorganization or reclassification, or any
consolidation or merger to which the Company is a party other than a merger
or consolidation in which the Company is the continuing corporation, or in
case of any sale or conveyance to another entity of all or substantially
all of the assets of the Company, or in the case of any statutory exchange
of securities with another corporation (including any exchange effected in
connection with a merger of a third corporation into the Company),
Purchaser shall have the right thereafter to exercise the Purchase Option
and receive the kind and amount of securities, cash or other property that
Purchaser would have owned or have been entitled to receive immediately
after such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance had the Purchase Option been
exercised immediately prior to the effective date of such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or
conveyance. The above provisions of this Section 1.4(b) shall similarly
apply to successive reorganizations, reclassifications, consolidations,
mergers, statutory exchanges, sales or conveyances.
(c) Whenever the number of shares of Common Stock purchasable upon the
exercise of the Purchase Option is adjusted, as herein provided, the
applicable exercise price shall be adjusted by multiplying such exercise
price immediately prior to such adjustment by a fraction, the numerator of
which shall be the number of shares of Common Stock purchasable upon
exercise of the Purchase Option immediately prior to such adjustment, and
the denominator of which shall be the number of the shares of Common Stock
so purchasable immediately thereafter.
(d) Whenever the number of shares of Common Stock purchasable upon the
exercise of the Purchase Option or the exercise price is adjusted, as
herein provided, the Company shall promptly mail by first class mail,
postage prepaid, to Purchaser notice of such adjustment setting forth a
brief statement of the facts requiring such adjustment and the computation
by which such adjustment was made.
(e) In the event that the Company makes a distribution to its
shareholders (other than cash dividends that in the aggregate do not
exceed, in any calendar year, an annualized rate of 3% of the closing price
for the Company's Common Stock as reported on the NASDAQ National Market or
other exchange or quotation system on which the Common Stock is traded on
the trading day prior to the date of declaration of any such cash dividend)
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or undertakes some other capital change or transaction that the Company's
Board of Directors (the "Board") in its reasonable judgment determines is a
distribution, change or transaction that warrants an adjustment similar to
those otherwise provided in this Section 1.4, based upon the intent hereof
but with respect to which the provisions hereof are not specifically
applicable, adjustments to the number of shares of Common Stock purchasable
upon exercise of the Purchase Option and the exercise price shall be made
as a result of such distribution, change or transaction.
1.5 Reservation of Common Stock. The Company covenants that it will, at all
times during which the Purchase Option remains exercisable, maintain a
sufficient number of authorized and unissued shares of Common Stock (or shares
of Common Stock held in treasury) to fully comply with the provisions of this
Agreement.
Section 2. Representations and Warranties of the Company. The Company
hereby represents and warrants to Purchaser that:
2.1 Organization and Standing. The Company is a corporation validly
existing and in good standing under the laws of the State of Texas. The Company
has all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified or registered as a foreign corporation to transact business under
the laws of, and in each jurisdiction where, the character of its activities or
the location of the properties owned or leased by it requires such qualification
or registration, except where the failure to be so duly qualified or licensed
and in good standing could not reasonably be expected to have a material adverse
effect on the business, properties, results of operations or condition of the
Company and its subsidiaries taken as a whole (a "Material Adverse Effect").
2.2 Authority. The Company has full corporate power and authority to
execute, deliver and perform this Agreement and any other agreements, documents,
and instruments contemplated by this Agreement (collectively, the "Documents")
to which it is a party. The execution, delivery and performance of this
Agreement and the Documents to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by the Board, do not require any further corporate proceedings on the
part of the Company, and do not and will not violate or conflict with the
Company's Articles of Incorporation or Bylaws. This Agreement and the Documents
to which it is a party have been and will be duly and validly executed and
delivered by the Company, and, assuming this Agreement and such Documents
constitute the valid and binding obligations of Purchaser, this Agreement and
such Documents constitute valid and binding agreements of the Company,
enforceable against the Company in accordance with their terms, except that
enforcement thereof may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors' rights and remedies generally and (b) general principles of equity
(regardless of whether enforceability is considered in a
proceeding at law or in equity).
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2.3 Consents and Approvals. No consent from or filing with any person or
entity (including, without limitation, any governmental authority) on the part
of the Company is required in connection with the execution or delivery by the
Company of this Agreement or any of the Documents to which it is a party or the
consummation by the Company of the transactions contemplated hereby or thereby,
other than (a) filings with the Securities and Exchange Commission (the "SEC"),
state securities laws administrators and the National Association of Securities
Dealers, (b) the filing of appropriate documents with, and to the extent
necessary, approval of, the Commissioner of Insurance of the State of Washington
and such notices and consents as may be required under the insurance laws of any
jurisdiction in which any of the Company or its subsidiaries does business and
(c) consents which have been obtained on or prior to the date hereof.
2.4 Capitalization and Voting Rights. The authorized capital stock of the
Company as of the date hereof consists of 25,000,000 shares of common stock, par
value $0.20, of which 9,605,939 shares are issued and outstanding and, prior to
giving effect to the transactions contemplated by that certain Stock Purchase
and Option Agreement dated of even date herewith between the Company and
American Physician Services Group, Inc., 2,252,457 shares were held as treasury
shares by the Company or a subsidiary of the Company. There are no other
authorized or outstanding classes or series of capital stock of the Company. The
outstanding shares of Common Stock are all duly and validly authorized and
issued, fully paid and nonassessable. Except as set forth on Schedule 2.4
attached hereto or pursuant to this Agreement, there are not outstanding any
options, warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition (contingent or otherwise) from the
Company of any shares of Common Stock. Except as set forth on Schedule 2.4
attached hereto or pursuant to this Agreement, the Company is not a party to any
agreement, and, to the Company's knowledge, there is no agreement between any
persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any Common Stock, the election of the Company's
directors, or the voting of the Company's directors.
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2.5 Issuance and Ownership of Shares. The shares of Common Stock purchased
by Purchaser upon exercise of the Purchase Option, when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
set forth herein, will be duly and validly issued, fully paid, and
nonassessable, and will be issued free of any encumbrances (other than
encumbrances created by Purchaser) and any restrictions on transfer other than
restrictions under applicable state and federal securities laws. Except as set
forth on Schedule 2.5 attached hereto, the Company has not directly or
indirectly, since January 1, 2002, acquired or redeemed, or entered into any
agreement providing for the acquisition or redemption of, any shares of Common
Stock.
2.6 Offering. Subject to the truth and accuracy of Purchaser's
representations and warranties set forth in Section 3 of this Agreement, the
grant of the Purchase Option is, and the issuance of the shares of Common Stock
upon exercise thereof will be, exempt from the registration requirements of any
applicable state and federal securities laws (other than notice filings required
under applicable law), and neither the Company nor any authorized agent acting
on its behalf will take any action that would cause the loss of such exemption.
2.7 Litigation. Except as set forth in Schedule 2.7 attached hereto, there
is no action, suit, proceeding or investigation pending or, to the Company's
knowledge, threatened against the Company that questions the validity of this
Agreement or the right of the Company to enter into this Agreement and to
consummate the transactions contemplated hereby.
2.8 Compliance with Other Instruments. The execution, delivery and
performance of this Agreement and the Documents to which the Company is a party,
and the consummation of the transactions contemplated hereby and thereby, will
not (with or without the passage of time and giving of notice) result in (a) any
violation or default under, or be in conflict with the provisions of, any
agreement, instrument, judgment, order, writ, decree or contract currently in
effect and applicable to the Company, (b) the creation of any lien, charge or
encumbrance upon any assets of the Company, or (c) the suspension, revocation,
impairment, forfeiture, or nonrenewal of any material permit, license,
authorization, or approval applicable to the Company, its business or operations
or any of its assets or properties, except, in the case of each of the foregoing
clauses (a) through (c), for breaches that, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
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2.9 Securities Filings. Since January 1, 1999, the Company has filed with
the SEC all reports and forms required to be filed by it with the SEC pursuant
to the Securities Act of 1933, as amended (the "Securities Act"), and the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (all such
reports, including all schedules thereto, are referred to collectively as the
"Company Securities Filings"). As of their respective dates (or in the case of
registration statements, at the time of effectiveness), or as of the date of the
last amendment thereof, if amended after filing prior to the date hereof, or as
modified by any subsequent Company Securities Filings prior to the date hereof,
none of the Company Securities Filings contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Each of the Company Securities Filings at
the time of filing (or in the case of registration statements, at the time of
effectiveness), or as of the date of the last amendment thereof, if amended
after filing prior to the date hereof, or as modified by any subsequent Company
Securities Filings prior to the date hereof, complies in all material respects
with the applicable requirements of the Exchange Act and the Securities Act, as
applicable.
2.10 Financial Statements. Except as noted thereon, the audited
consolidated and unaudited consolidated interim financial statements of the
Company and its subsidiaries included in the Company Securities Filings (the
"Company Financial Statements") were prepared in accordance with generally
accepted accounting principles applicable to the business of the Company and its
subsidiaries during the period involved, consistently applied in accordance with
past accounting practices, and fairly present (subject to normal and recurring
year-end adjustments and the exclusion of footnote disclosure in interim Company
Financial Statements) the consolidated financial condition and the consolidated
results of operations of the Company and its subsidiaries as of the dates and
for the periods indicated (except as modified by any subsequent Company
Securities Filings prior to the date hereof). Except as set forth on Schedule
2.10 attached hereto, for liabilities contemplated by this Agreement or as
reflected in the Company Financial Statements, as of their respective dates
(except as modified by any subsequent Company Securities Filings prior to the
date hereof), neither the Company nor any of its subsidiaries had any debts,
obligations, guaranties of obligations of another or liabilities (contingent or
otherwise) that would be required in accordance with generally accepted
accounting principles to be disclosed in the Company Financial Statements,
except for such debts, obligations, guaranties or liabilities which,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
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2.11 Absence of Certain Changes or Events. Except as set forth in the
Company Securities Filings or set forth on Schedule 2.11 attached hereto, since
March 31, 2003 through the date of this Agreement, there has not been any event
or occurrence that could reasonably be expected to have a Material Adverse
Effect.
2.12 No Undisclosed Liabilities. Except as set forth on Schedule 2.12
attached hereto, disclosed in the Company Securities Filings or Company
Financial Statements, and except for such debts, obligations, guaranties or
liabilities which, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect, the Company and its subsidiaries do
not have any liabilities or obligations whatsoever, whether accrued, contingent
or otherwise. The Company knows of no basis for any claim against the Company or
any subsidiary of the Company for any liability or obligation, except (a) to the
extent set forth or reflected in the Company Securities Filings or the Company
Financial Statements, (b) to the extent expressly set forth on any Schedule
attached hereto or otherwise as described in this paragraph, (c) liabilities and
obligations incurred in the normal and ordinary course of business, consistent
with past practices both as to amount and frequency, since Xxxxx 00, 0000, (x)
those incident to transactions previously disclosed to the public, or (e) those
which, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
2.13 New Era Transactions. Concurrently with the execution and delivery of
this Agreement by the Company, the Company and FIC Financial Services, Inc.
("FIC Financial") have (a) consummated the transactions contemplated under each
of those certain Stock Purchase Agreements of even date herewith listed on
Schedule 2.13 of this Agreement, (b) entered into that certain Marketing
Agreement of even date herewith among Investors Life Insurance Company of North
America, Family Life Insurance Company and Equita and (c) entered into that
certain Employment Agreement of even date herewith by and between the Company
and Xxx Xxxxxx (collectively, the "New Era Transactions").
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2.14 No Severance Benefits; Rights Plans. Neither this Agreement, nor the
Documents, nor any of the transactions contemplated hereby or thereby will
result in any employee, former employee or other person being entitled to any
severance benefit or change of control benefit. As of the date hereof, the
Company is not a party to any shareholder rights plan or similar anti-takeover
agreement or arrangement.
Section 3. Representations of Purchaser. Purchaser represents and warrants
to the Company that:
3.1 Authority. Purchaser (a) is duly incorporated, validly existing and in
good standing under the laws of the State of Texas, (b) has full corporate power
and authority to execute, deliver and perform this Agreement and any other
Documents to which it is a party. This Agreement and the Documents to which it
is a party have been and will be duly and validly executed and delivered by
Purchaser, and, assuming this Agreement and such Documents constitute the valid
and binding obligations of the Company, this Agreement and such Documents
constitute valid and binding agreements of Purchaser, enforceable against
Purchaser in accordance with their terms, except that enforcement thereof may be
limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and (b) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
3.2 Consents and Approvals. No consent from or filing with any person or
entity (including, without limitation, any governmental authority) on the part
of Purchaser is required in connection with the execution or delivery by
Purchaser of this Agreement or any of the Documents to which it is a party or
the consummation by Purchaser of the transactions contemplated hereby or
thereby, other than (a) filings with the SEC, state securities laws
administrators and the National Association of Securities Dealers and (b) the
filing of appropriate documents with, and to the extent necessary, approval of,
the Commissioner of Insurance of the State of Washington and such notices and
consents as may be required under the insurance laws of any jurisdiction in
which the Company or its subsidiaries is domiciled or does business.
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3.3 Litigation. There is no action, suit, proceeding or investigation
pending or, to Purchaser's knowledge, threatened against Purchaser that
questions the validity of this Agreement or the right of Purchaser to enter into
this Agreement and to consummate the transactions contemplated hereby.
3.4 Investment Representations. Purchaser:
(a) Is an accredited investor, and has not retained or consulted
with any purchaser representative, as such terms are defined in
Rule 501 of Regulation D promulgated under the Securities Act, in
connection with its execution of this Agreement and the Documents to
which it is a party and the consummation of the transactions
contemplated hereby and thereby;
(b) Has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of an
investment in the Company;
(c) Will acquire the Purchase Option and any shares of Common
Stock issuable upon exercise of the Purchase Option (to the extent
such shares are not then covered by an effective registration
statement) for its own account for investment and not with the view
toward resale or redistribution in a manner which would require
registration under the Securities Act, the Texas Securities Act, as
amended, or the securities laws of any other state, and Purchaser does
not have any reason to anticipate any change in its respective
circumstances or other particular occasion or event which would cause
Purchaser to sell its Purchase Option or shares of Common Stock
issuable upon exercise thereof, or any part thereof or interest
therein, and Purchaser has no present intention of dividing the
Purchase Option or shares of Common Stock issuable upon exercise
thereof with others or reselling or otherwise disposing of the shares
of Common Stock or any part thereof or interest therein either
currently or after the passage of a fixed or determinable amount of
time or upon the occurrence or nonoccurrence of any predetermined
event or circumstance;
- 15 -
(d) In connection with entering into this Agreement and the
Documents to which it is a party, and in making the investment
decisions associated therewith, has neither received nor relied on any
representations or warranties from the Company, or the officers,
directors, shareholders, employees, partners, managers, members,
agents, consultants, personnel or similarly related parties of the
Company, other than those representations and warranties expressly set
forth in this Agreement;
(e) Is able to bear the economic risk of an investment in the
shares of Common Stock upon exercise of the Purchase Option and has
sufficient net worth to sustain a loss of its entire investment
without material economic hardship if such a loss should occur;
(f) Acknowledges that an investment in shares of Common Stock
involves a high degree of risk, and that such Common Stock may be or
become an illiquid investment;
(g) Understands that the Purchase Option is, and the shares of
Common Stock issuable upon exercise thereof will upon such issuance
be, "restricted securities" as defined under Rule 144 of the
Securities Act, and that such Purchase Option and shares of Common
Stock may not be sold or offered for sale in the absence of an
effective registration statement under the Securities Act and any
state securities laws or pursuant to an exemption from registration;
(h) Acknowledges that each certificate representing the shares of
the Common Stock upon exercise of the Purchase Option, to the extent
not then covered by an effective registration statement, will be
endorsed with substantially the following legend until such time as
such shares of Common Stock have been registered: THE SECURITIES
EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THEY MAY
NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE APPLICABLE SECURITIES UNDER THE ACT
AND ANY STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION; and
- 16 -
(i) Is domiciled in the jurisdiction and at the address set forth
in Section 6.6.
Section 4. Covenants.
4.1 Board Seats. As soon as practicable following the date hereof, the
Company shall appoint Xxxxxx Xxxxxxxx (or any substitute designee of Purchaser
reasonably acceptable to the Company) (the "Purchaser Nominee") to serve on the
Board. The Company further agrees, with respect to the 2003 annual shareholders
meeting and 2004 annual shareholders meeting, (a) to propose as a nominee for
election to the Board at such meeting the individual designated as the Purchaser
Nominee, (b) to include the name of the Purchaser Nominee on the Company's proxy
statement and proxy card for such meeting, (c) to recommend to its shareholders
the election of the Purchaser Nominee to the Board, (d) to solicit proxies on
behalf of the Purchaser 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. Notwithstanding anything to the contrary herein, in the event that
the attorneys-in-fact or proxies referenced in clause (e) of the preceding
sentence utilize cumulative voting, such persons shall cumulate votes in favor
of the Purchaser Nominee if such cumulative voting will result in the election
of at least eight directors. If the Purchaser Nominee is removed for cause or is
otherwise unwilling or unable to serve as a director of the Company for any
reason, Purchaser shall notify the Company in writing of a replacement Purchaser
Nominee and the Company shall cause such replacement Purchaser Nominee to be
appointed provided that such replacement Purchaser Nominee is reasonably
acceptable to the Company. The Company represents and warrants that its Articles
of Incorporation and Bylaws permit the actions set forth in this Section 4.1
without Company shareholder approval; provided that the Company does not make
any representation as to the applicability or requirements of any provision of
the Texas Business Corporation Act, as amended, with respect to such actions.
- 17 -
4.2 Creation of Subsidiary. Promptly following the execution of this
Agreement, the Company shall (a) create a wholly-owned subsidiary for the
principal purpose of marketing and selling life and annuity insurance products
("Marketing Sub"), and (b) use its commercially reasonable efforts to hire Xxx
Xxxxxx (upon terms agreeable to the Company and Xxx Xxxxxx) who will have
primary responsibility for implementation of Marketing Sub's insurance and
securities marketing plans and who will report directly to the most senior
executive officer of the Company. The Company agrees to use all commercially
reasonable efforts to facilitate the production and acceptance of life and
annuity insurance products by Marketing Sub and Purchaser, including, without
limitation, appropriately staffing and structuring Marketing Sub to enable full
implementation of its insurance and securities marketing plans, providing
appropriate and legally approved policy forms which are competitive with similar
products within the industry and marketplace, ensuring a customary underwriting
process for issuance of products, and maintaining adequate reserves to enable
full realization of Marketing Sub's insurance and securities marketing plans.
Nothing contained in this Section 4.2 is intended to confer any right of
employment and Xxx Xxxxxx has no rights to enforce the provisions of this
Section 4.2.
4.3 Expenses. Except as set forth in Sections 1.2(a) and 1.3(a), all
expenses incurred by the parties hereto shall be borne solely and entirely by
the party that has incurred such expenses.
4.4 Publicity. Neither party nor any of their respective affiliates shall
issue or cause the publication of any press release or other announcement with
respect to this Agreement or the transactions contemplated hereby without a
prior consultation of the other party, except as may be required by law or by
any listing agreement with a national securities exchange or quotation system,
and will use reasonable efforts to provide copies of such release or other
announcement to the other party, and give due consideration to such comments as
the other party may have, prior to such release.
4.5 Voting of Shares. With respect to the 204,918 shares of Common Stock
acquired by M&W pursuant to a Stock Purchase Agreement dated as of the date
hereof between M&W and The Xxx X. and Xxxxx Xxxx Mitte Foundation (the
"Foundation"), notwithstanding anything to the contrary contained in that
certain Equita Acknowledgement and Agreement dated as of the date hereof between
the Company and the Foundation, M&W hereby agrees that, solely for the benefit
of the Company, the terms of the proxy granted to the Company with respect to
such shares of Common Stock pursuant to Section 2.1(a) of that certain
Compromise and Settlement Agreement and Mutual Release dated as of May 15, 2003
among the Company, the Foundation and the other parties thereto, shall continue
solely with respect to the election of directors at the Company's 2003 annual
shareholders' meeting, and following such 2003 annual shareholders' meeting,
such proxy shall be of no further force or effect.
- 18 -
Section 5. Indemnification.
5.1 Survival. The representations and warranties of the parties contained
herein or in any Document (unless otherwise provided in such Document) shall
survive for a period of two (2) years following the date of this Agreement (the
"Survival Period").
5.2 Indemnification by the Company.
(a) The Company shall indemnify Purchaser and its affiliates, and
their respective partners, principals, officers, directors, managers,
members, employees, independent contractors, agents, representatives, and
other similarly situated parties, and the successors, heirs and personal
representatives of any of them (collectively, "Purchaser Indemnified
Parties"), against and hold them harmless from any and all damage, claim,
loss, liability and expense (including, without limitation, reasonable
expenses of investigation and attorneys' fees and expenses) (collectively,
"Damages") incurred or suffered by any Purchaser Indemnified Party arising
out of or relating to any breach of any representation, warranty, covenant
or other agreement of the Company contained herein or in any Document that
is asserted in writing to the Company prior to the expiration of the
Survival Period. The Company acknowledges and agrees that Purchaser is also
relying on, among other things, the representations, warranties, covenants
and other agreements of the Company contained herein in acquiring shares of
Common Stock from the Xxx X. and Xxxxx Xxxx Mitte Foundation pursuant to a
stock purchase agreement of even date herewith (the "Purchase Agreement").
Accordingly, Damages of a Purchaser Indemnified Party under this Agreement
shall include, but shall not be limited to, Damages associated with
acquiring or holding shares of Common Stock arising out of or relating to
any breach of any representation, warranty, covenant or other agreement of
the Company contained in Section 2 of this Agreement subject to the
limitations set forth in this Section 5. Notwithstanding the provisions of
this Section 5.2, the maximum liability of the Company under this Agreement
shall be $3,000,000 (the "Maximum Liability").
- 19 -
(b) Notwithstanding any provision herein to the contrary:
(i) the Company shall indemnify the Purchaser Indemnified
Parties against and hold them harmless from any and all Damages
incurred or suffered by any Purchaser Indemnified Party arising
out of or relating to actions, claims or suits, pending or
threatened, which may be brought against the Purchaser
Indemnified Parties relating to the Compromise and Settlement
Agreement, dated May 15, 2003, entered into among the Company and
the other parties thereto (the "Settlement Agreement"); provided
that the provisions of this Section 5.2(b) shall not apply to any
breach or alleged breach by any Purchaser Indemnified Party of
any provision of the Purchase Agreement; and
(ii) the Maximum Liability shall not be applicable with
respect to any claim for indemnity under this Section 5.2(b).
5.3 Indemnification by Purchaser. Purchaser shall indemnify the Company and
its affiliates, and their respective partners, principals, officers, directors,
employees, independent contractors, agents, representatives and other similarly
situated parties, and the successors, heirs and personal representatives of any
of them (collectively, the "Company Indemnified Parties"), against and hold them
harmless from any and all Damages incurred or suffered by any Company
Indemnified Party arising out of or relating to any breach of any
representation, warranty, covenant or other agreement of Purchaser contained
herein or in any Document that is asserted in writing to Purchaser prior to the
expiration of the Survival Period. Notwithstanding the provisions of this
Section 5.3, the maximum liability of Purchaser under this Agreement shall be
the Maximum Liability.
- 20 -
5.4 Indemnification; Notice and Settlements. A party seeking
indemnification pursuant to Sections 5.2 or 5.3 (an "Indemnified Party") with
respect to a claim, action or proceeding initiated by a person or entity who is
not a Purchaser Indemnified Party or a Company Indemnified Party shall give
prompt written notice to the party from whom such indemnification is sought (the
"Indemnifying Party") of the assertion of any claim, or the commencement of any
action or proceeding, in respect of which indemnity may be sought hereunder;
provided that the failure to give such notice shall not affect the Indemnified
Party's rights to indemnification hereunder, unless such failure shall prejudice
in any material respect the Indemnifying Party's ability to defend such claim,
action or proceeding. The Indemnifying Party shall have the right to assume the
defense of any such action or proceeding at its expense, provided that no
settlement shall be executed without the prior written consent of the
Indemnified Party (which consent shall not be unreasonably withheld). If the
Indemnifying Party shall elect not to assume the defense of any such action or
proceeding, or fails to make such an election within 20 days after it receives
such notice pursuant to the first sentence of this Section 5.4, the Indemnified
Party may assume such defense at the expense of the Indemnifying Party. The
Indemnified Party shall have the right to participate in (but not control) the
defense of an action or proceeding defended by the Indemnifying Party hereunder
and to retain its own counsel in connection with such action or proceeding, but
the fees and expenses of such counsel shall be at the Indemnified Party's
expense unless (i) the Indemnifying Party and the Indemnified Party have
mutually agreed in writing to the retention of such counsel or (ii) the named
parties in any such action or proceeding (including impleaded parties) include
the Indemnifying Party and the Indemnified Party, and representation of the
Indemnifying Party and the Indemnified Party by the same counsel would create a
conflict (in which case the Indemnifying Party shall not be permitted to assume
the defense of such claim, action or proceeding); provided that, unless
otherwise agreed by the Indemnifying Party, if the Indemnifying Party is
obligated to pay the fees and expenses of such counsel, the Indemnifying Party
shall be obligated to pay only the fees and expenses associated with one
attorney or law firm (plus local counsel as required), as applicable, for the
Indemnified Party. An Indemnifying Party shall not be liable under Section 5.2
or 5.3 for any settlement effected without its written consent, of any claim,
action or proceeding in respect of which indemnity may be sought hereunder.
- 21 -
Section 6. Miscellaneous.
6.1 Transferability; Successors and Assigns. Except in connection with the
sale of all the outstanding capital stock of Purchaser, or the sale of all or
substantially all of the assets of Purchaser, neither this Agreement nor any of
the rights, interests or obligations hereunder (including, without limitation,
the right to exercise the Purchase Option) shall be assigned, transferred or
conveyed by Purchaser without the prior written consent of the Company, which
consent may be granted or withheld in its sole discretion; provided that
Purchaser shall be entitled to pledge the Purchase Option in connection with a
bona fide loan, and, subject to compliance with the securities laws, the lender
may foreclose on such pledge without the prior written consent of the Company.
Subject to the preceding sentence, the provisions of this Agreement shall be
binding upon, and inure to the benefit of, the permitted respective successors,
assigns, heirs, executors and administrators of the parties hereto.
6.2 Entire Agreement. This Agreement, including the Documents and all
schedules and exhibits hereto, embody the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and thereof
and supersede all prior agreements and understandings relating to such subject
matters.
6.3 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Signatures delivered by telecopy shall
be considered for all purposes to be the same as original signatures.
6.4 Severability. If any provision of this Agreement is held by final
judgment of a court of competent jurisdiction to be invalid, illegal or
unenforceable, such invalid, illegal or unenforceable provision shall be severed
from the remainder of this Agreement, and the remainder of this Agreement shall
be enforced. In addition, the invalid, illegal or unenforceable provision shall
be deemed to be automatically modified, and, as so modified, to be included in
this Agreement, such modification being made to the minimum extent necessary to
render the provision valid, legal and enforceable.
- 22 -
6.5 Governing Law; Venue. This Agreement Shall Be Governed By And Construed
In Accordance With The Laws Of The State Of Texas, Irrespective Of Any
Conflict-Of-Laws Rule Or Principle Of Any Jurisdiction That Might Refer The
Governance Or Construction Of This Agreement To The Laws Of Any Other
Jurisdiction. This Agreement Can Be Performed In Whole Or In Part In Xxxxxx
County, Texas, And Venue For Any Action Relating To This Agreement Shall Be
Proper Only In Federal Or State Courts Located Within Xxxxxx County, Texas. Each
Party Agrees That It Must Bring Any Action Related To This Agreement Or Any
Document Only In The Federal Or State Courts Located Within Xxxxxx County,
Texas.
6.6 Notices. Any notices or demands required or permitted to be given
hereunder shall be deemed sufficiently given if in writing and delivered,
transmitted or mailed (with all postage and charges prepaid), addressed to the
recipient at the address provided below, or at such other address as any party
may from time to time designate by written notice to the other parties given in
accordance with this Section 6.6. Any such notice, if personally delivered or
transmitted by facsimile, shall be deemed to have been given on the date so
delivered or transmitted or, if mailed, be deemed to have been given on the day
after such notice is placed in the United States mail in accordance with this
Section 6.6.
Company: Financial Industries Corporation
0000 Xxxxx Xxxxx Xxxx., Xxxxxxxx Xxx
Xxxxxx, Xxxxx 00000
Attn: Xxxx Xxxxx and Xxx Xxxxxx
Facsimile No.: (000)000-0000
- 23 -
Purchaser: Equita Financial and Insurance Services
of Texas, Inc.
11551 Forest Central Drive
Forest Central Drive II, Second Floor
Attn: Xxxxxxx X. Xxxxx, President
Facsimile No.: (000) 000-0000
With a
copy to: Xxxxx Xxxxxxxxxxx Xxxxxx Xxxxxxxx & Xxxxxxxx
00000 Xxxxxxx Xxxx, Xxxxx 000, L.B. 64
Xxxxxx, Xxxxx 00000
Attention: Xxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
6.7 Further Assurances. Each party of this Agreement hereby covenants and
agrees, without the necessity of any further consideration, to execute and
deliver any and all such further documents and take any and all such other
actions as may be reasonably necessary to appropriately carry out the intent and
purposes of this Agreement and the Documents and the transactions contemplated
hereby and thereby. Each party will use its good faith efforts to carry out and
comply with the provisions of this Agreement.
6.8 No Third-Party Beneficiaries. Except as provided in Sections 5.2 and
5.3, this Agreement shall not confer any rights or remedies upon any person
other than the parties hereto and their respective successors and permitted
assigns.
6.9 Amendments. This Agreement may not be amended or modified except by an
instrument in writing signed by each of the parties.
[signature page follows]
- 24 -
SIGNATURE PAGE
TO
OPTION AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement
as of the day and year first above written.
COMPANY: FINANCIAL INDUSTRIES CORPORATION
By:____________________________________
Name:__________________________________
Title:_________________________________
PURCHASER: EQUITA FINANCIAL AND INSURANCE SERVICES
OF TEXAS, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
- 25 -
SIGNATURE PAGE
TO
OPTION AGREEMENT
IN WITNESS WHEREOF, solely with respect to Section 4.5, the undersigned has
executed this Option Agreement as of the day and year first above written.
M&W M&W INSURANCE SERVICES, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
- 26 -
Schedule 2.4
Capitalization
Options
1. Employee Stock Option Plans - there are outstanding options to
purchase 180,036 shares, as of the date hereof.
2. Option Agreement of even date herewith between the Company and Equita
Financial and Insurance Services of Texas, Inc.
3. Option Agreement of even date herewith between the Company and Xxx
Xxxxxx.
4. Options held by Investors Life Insurance Company of North America
("Investors Life") - 500,411 shares are issuable upon exercise of an
option held by Investors Life, as of the date hereof.
Voting Agreements
1. Settlement Agreement (as defined in Section 5.2(b)(i)).
- 27 -
Schedule 2.5
Issuance and Ownership of Shares
1. Settlement Agreement.
- 28 -
Schedule 2.7
Litigation
None.
- 29 -
Schedule 2.10
Financial Statements
1. Settlement Agreement.
- 30 -
Schedule 2.11
Absence of Certain Changes or Events
None.
- 31 -
Schedule 2.12
Undisclosed Liabilities
1. Settlement Agreement.
2. New Era Transactions.
- 32 -
Schedule 2.13
Stock Purchase Agreements
1. Stock Purchase Agreement, dated as of June 4, 2003, among JNT Group,
Inc., Xxxx X. Xxxxxxx, Total Compensation Group Consulting, Inc.,
Financial Industries Corporation and FIC Financial Services, Inc.
2. Stock Purchase Agreement, dated as of June 4, 2003, among Paragon
Benefits, Inc., The Paragon Group, Inc., Paragon National, Inc., Xxxxx
X. Xxxx, Xxxxx X. Xxxxxxxx, Xxxxx Xxxxxx, Financial Industries
Corporation and FIC Financial Services, Inc.
3. Stock Purchase Agreement, dated as of June 4, 2003, among Total
Compensation Consulting Group, Inc., Xxxx Xxxxx, Xxxx Xxxxxxx, Xxxxxx
X. Xxxxxx, Xxxxxxxx Xxxxxxx, X.X. Xxxxxxx, Xxxxxx X. Xxxxxx, III, M.B.
Xxxxxxxxx, Xxxx Xxxx, Xxxxxx Xxxxxxx, Xxxxxxx Xxxxxxx, Xxx Xxxx, Xxxxx
Xxxxx, Xxxxxx Xxxxx, Financial Industries Corporation and FIC
Financial Services, Inc.
- 33 -
