EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of the 4th day of June,
2003 ("Agreement Date") by and between Financial Industries Corporation, a Texas
company ("Company"), and Xxxxxxx X. Xxxxxx ("Executive"), a resident of Texas.
In consideration of the mutual agreements contained herein, the Company and
Executive agree as follows:
ARTICLE I.
DEFINITIONS
The terms set forth below have the following meanings (such meanings to be
applicable to both the singular and plural forms, except where otherwise
expressly indicated):
1.1 "Accrued Base Salary" means the amount of executive's Base Salary
which is accrued but not yet paid as of the Date of termination.
1.2 "Affiliate" means any Person that directly or indirectly controls, is
controlled by, is under common control with, the Company. For the
purposes of this definition, the term "control" when used with respect
to any Person means (a) the power to direct or cause the direction of
management or policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise,
or (b) for purposes of Section 1.11 and Article VII, the power
substantially to influence the direction of strategic management
policies of such Person, and provided the Company has a direct or
indirect commercial relationship with such Person, all as determined
by the Compensation Committee of the Board or its successor. As of the
date hereof, the Affiliates of the Company include all companies as
listed on Exhibit 21.1 of the Company s Annual Report on Form 10-K
filed on April 18, 2003 with the Securities and Exchange Commission
and FIC Financial Services, Inc., a Nevada corporation. The term also
includes any company which becomes an Affiliate of the Company on or
after the date of this Agreement.
1.3 "Accrued Annual Bonus" means the amount any Annual Bonus earned but
not yet paid with respect to any Fiscal Year ended prior to the date
of termination.
1.4 "Agreement" -- as defined in the introductory paragraph of this
Agreement.
1.5 "Agreement Date" -- as defined in the introductory paragraph of this
Agreement.
1.6 "Anniversary Date" means any annual anniversary of the Agreement Date.
1.7 "Base Salary" -- as described in Section 4.1.
1.8 "Beneficiary" -- as defined in Section 9.2.
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1.9 "Board" means the Board of Directors of Company unless the context
indicates otherwise.
1.10 "Cause" means any of the following:
(a) Executive's conviction of, plea of guilty to, or plea of nolo
contendere to a felony (other than a traffic-related felony) that
involves fraud, dishonesty or moral turpitude;
(b) any willful action by Executive resulting in criminal, or civil
liability by a court of competent jurisdiction under Federal or
State workplace harassment or discrimination laws; or violation
of internal Company workplace harassment, discrimination or other
workplace policy under which such action could be and could
reasonably be expected to be grounds for immediate termination of
a member of Senior Management (other than mere failure to meet
performance goals, objectives, or measures), including, but not
limited to, any finding against the Company by the EEOC or other
governmental entity under Federal or State workplace harassment
or discrimination laws wherein Executive was the party which
caused the adverse finding against the Company; or any willful
action by executive, wherein after thorough investigation by the
company, it is determined by the company that executive has
violated internal company workplace harassment or discrimination
policies under which such action could reasonably be expected to
be grounds for termination.
(c) Executive's willful and intentional material breach of this
Agreement,
(d) Executive's habitual neglect of duties, (other than resulting
from Executive's incapacity due to physical or mental illness)
which results in substantial financial detriment to the Company
or any Affiliate;
(e) Executive's personally engaging in such conduct as results or is
likely to result in (i) substantial damage to the reputation of
the Company or any Affiliate, as a respectable business, and (ii)
substantial financial detriment (whether immediately or over
time) to the Company or any Affiliate,
(f) Executive's willful and intentional material misconduct in the
performance or gross negligence of his duties under this
Agreement that results in substantial financial detriment to the
Company or any Affiliate,
(g) Executive's intentional failure (including a failure caused by
gross negligence) to cause the Company or any Affiliate to comply
with applicable law and regulations material to the business of
the Company which results in substantial financial detriment to
the Company or any Affiliate,
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(h) Executive's willful or intentional failure to comply in all
material respects with a specific written direction of the Chief
Executive Officer of the Company that is consistent with
reasonable business practice and not inconsistent with this
agreement and executive's responsibility hereunder; provided,
however, that no such written direction shall require Executive
to perform any illegal act.
(i) the failure of FICFS to produce a positive Net Financial Impact
for any full fiscal year which begins on or after two years after
the effective date of this Agreement. For purposes of this
clause, the determination of "Net Financial Impact" for any
period shall include:
(a) the Net Income of FICFS, and
(b) the Enterprise Value Contribution of FICFS to FIC
(determined in accordance with the valuation process
described in Exhibit A hereto) and the GAAP net income of
any Insurance Company owned by FIC as of the effective date
of this Agreement, to the extent attributable to any
insurance or annuity policy production, either as direct
written premium or assumed reinsurance premium, whether such
produced insurance or annuity premium resulted directly
through a New Era Company, through a contact made by an
employee or agent of a New Era Company; through a marketing
relationship developed through a New Era Company (including
the relationship with Equita Financial and Insurance
services of Texas, Inc.), or income derived from efforts of
any employee of a New Era Company,.
For purposes of clauses (c),(d), and( e), (f) and (g) of the
preceding sentence, Cause shall not mean the mere existence
or occurrence of any one or more of the following, and for
purposes of clause (e) of the preceding sentence, Cause
shall not mean the mere existence or occurrence of item (iv)
below:
(i) bad judgment,
(ii) negligence other than Executive's habitual neglect of
duties or gross negligence;
(iii)any act or omission that Executive believed in good
faith to have been in the interest of the Company
(without intent of Executive to gain therefrom,
directly or indirectly, a profit to which he was not
legally entitled), or
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(iv) failure to meet performance goals, objectives or
measures;
provided, that for purposes of clauses (c), (d), (e), (f),
(g) and (h), any act or omission that is curable shall not
constitute Cause unless the Company gives Executive written
notice of such act or omission that specifically refers to
this Section and, within 10 days after such notice is
received by Executive, Executive fails to cure such act or
omission.
1.11 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
1.12 "Company" means Financial Industries Corporation, a Texas company.
1.13 "Competitive Business" means as of any date any corporation (other
than the Company or any Affiliate of the Company) or other Person or
(and any branch, office or operation thereof) that engages in, or
proposes to engage in:
(a) (i) the delivery of any consulting service, investment advice,
administrative service to any educational institution or city,
county, or state governmental entity or (ii) the marketing or
sale of any form of annuity, insurance or securities products of
any kind that either FIC or any affiliate as of such date does,
or has under active consideration a proposal to, market or sell
(any such form of annuity, insurance or security, a "Company
Product") to any educational institution or city, county or state
governmental entity.
(b) any other business that as of such date is a direct and material
competitor of the Company and its Affiliates to the extent that
prior to the Date of Termination the Company or its Affiliates
engaged at any time within 12 months in or had under active
consideration a proposal to engage in such competitive business;
and that is located anywhere in the United States where the Company or its
Affiliates is then engaged in, or has under active consideration a proposal to
engage in, any of such activities.
1.14 "Current CEO" means Xxxxxx X. Xxxxx, the Chairman, President and Chief
Executive Officer of the Company as of the Agreement Date.
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1.15 "Date of Termination" means the date of the receipt of the Notice of
Termination by Executive (if such Notice of Termination is given by or
on behalf of Company) or by Company (if such Notice of Termination is
given by Executive), or any later date, not more than 15 days after
the giving of such Notice of Termination, specified in such notice, as
of which Executive's employment with the Company shall be terminated;
provided, however, that:
(i) if Executive's employment is terminated by reason of death, the
Date of Termination shall be the date of Executive's death; and
(ii) if Executive's employment is terminated by reason of Disability,
the Date of Termination shall be the 30th day after Executive's
receipt of the physician's certification of Disability, unless,
before such date, Executive shall have resumed the full-time
performance of Executive's duties; and
(iii)if Executive terminates his employment without Good Reason, the
Date of Termination shall be the 30th day after the giving of
such Notice of Termination; and
(iv) if no Notice of Termination is provided, the Date of Termination
shall be the last date on which Executive is employed by the
Company.
1.16 . "Disability" means a mental or physical condition which renders
Executive unable or incompetent to carry out the material job
responsibilities which Executive held or the material duties to which
executive was assigned at the time the disability occurred, which
exists for (i) at least 4 consecutive months or (ii) at least 6 months
in any twelve month period. The determination as to whether Executive
is disabled, as defined herein, shall be made by an independent Doctor
of Medicine ("Physician") selected by the Company. Before the
Executive can be declared to be disabled, such Physician shall provide
a copy of the diagnosis of disability to the Executive. Executive
shall have the option to submit a diagnosis by a physician of his
choosing within (30) days of receiving the diagnosis from the
Physician selected by the Company. If the diagnosis provided the
Physician selected by Executive finds that the Executive is not
disabled, the Company and the Executive or the Executive's agent shall
designate a mutually agreeable third physician and obtain a third
diagnosis within (30) days of receipt of the diagnosis from the second
physician selected by the Executive. The diagnosis of the two
physicians in agreement shall then prevail. The cost of obtaining the
first and third diagnosis shall be paid by the Company.
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1.17 "Employment Period" -- as defined in Section 3.1.
1.18 "Executive" -- as defined in the introductory paragraph of this
Agreement.
1.19 FICFS means FIC Financial Services, Inc., a Nevada corporation which
is, as of the date of this Agreement, is a wholly-owned subsidiary of
the Company.
1.20 "Fiscal Year" means the calendar year, which is the period used in
connection with the preparation of the consolidated financial
statements of Company.
1.21 "Good Reason" means the occurrence of any one of the following events
unless Executive specifically agrees in writing that such event shall
not be Good Reason:
(a) any material breach of the Agreement by the Company, including
any of the following, each of which shall be deemed material:
(i) any material adverse change in the title, status,
responsibilities, authorities or perquisites of Executive
which is initiated by any person other than the Current CEO;
(ii) causing or requiring Executive to report to anyone other
than the Chief Executive Officer of the Company;
(iii)assignment to Executive of duties materially inconsistent
with his position and duties described in this Agreement,
including status, offices, or responsibilities as
contemplated under Section 2.1or any other action by the
Company which results in an adverse change in such position,
status, offices, titles or responsibilities; or
(iv) any reduction or failure to pay Executive's Base Salary in
violation of Section 4.1.;
provided, that no act or omission described in clauses (i) through
(iv) of this Section shall constitute Good Reason unless Executive
gives Company written notice of such act or omission and the Company
fails to cure such act or omission within 30-days after delivery of
such notice (except that Executive shall not be required to provide
such notice in case of intentional acts or omissions by a Company or
more than once in cases of repeated acts or omissions); or
(b) relocation of the Company's executive offices or Executive's own
office location to a location that is outside the Austin, Texas
metropolitan area;
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In the event of an occurrence or omission constituting Good Reason, Executive
shall not be entitled to terminate his employment for Good Reason unless within
3 months after Executive first obtains actual knowledge of such an event
constituting Good Reason, he notifies Company of the events constituting such
Good Reason and of his intention to terminate employment for Good Reason by a
Notice of Termination.
1.22 "New Era Company" means FICFS and any company which is a subsidiary of
FICFS.
1.23 "Net Income of FICFS" means the net income of FICFS, as determined by
the Company in accordance with generally accepted accounting
principles. In determining Net Income, expenses of FICFS shall include
expenses, including, but not limited to, overhead and general
corporate expenses of the Company and its Affiliates, allocated to
FICFS in accordance with expense allocation agreements, procedures and
policies established by the Company, and its Affiliates. Such expense
allocation agreements shall be consistent with the requirements
imposed upon the life insurance company subsidiaries of the Company
under the insurance holding company laws and regulations of the states
in which such subsidiaries are authorized to conduct business. In lieu
of participating with the Company and its Affiliates in such
allocation agreements with respect to the following "optional
services", Executive may elect to obtain such "optional services" from
vendors other than the Company if such services are available from
outside vendors at a lesser cost or are of a higher quality. For
purposes of this Agreement, "optional services" means, and are limited
to, general office equipment and supplies, personal computer
equipment, printing and general sales support functions. Executive
acknowledges that, in no event, shall "optional services" include
general corporate functions, including, but not limited to, internal
audit, accounting, executive or legal. To the extent that Executive
elects to obtain "optional services" from sources other than the
Company, the full cost of such services shall be allocated to the
expenses of FICFS.
1.24 "Notice of Termination" means a written notice of termination of
Executive's employment given in accordance with Section 7.1 by the
Company, or by Executive, as the case may be, which sets forth (a) the
specific termination provision in this Agreement relied upon by the
party giving such notice, (b) in reasonable detail the specific facts
and circumstances claimed to provide a basis for such Termination of
Employment, and (c) if the Date of Termination is other than the date
of receipt of such Notice of Termination, the Date of Termination.
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1.25 "Person" means any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated
organization, corporation, institution, public benefit corporation,
entity or government instrumentality, division, agency, body or
department.
1.26 "Pro-rata Annual Bonus" means the product of (i) the Maximum Annual
Bonus multiplied by (ii) a fraction of which the numerator is the
number of days which have elapsed in such Fiscal Year through the Date
of Termination and the denominator of which is 365.
1.27 "Restricted Stock" means the shares of common stock, par value $0.01,
of FICFS provided to Executive in accordance with the provisions of
Article VI.
1.28 "Senior Management" means Vice Presidents or the General Counsel of
the Company.
1.29 "Taxes" means the incremental federal, state, and local income taxes
payable by Executive with respect to any applicable item of income.
1.30 "Termination For Good Reason" means a Termination of Employment by
Executive for a Good Reason.
1.31 "Termination of Employment" means a termination by the Company or
Executive of Executive's employment with the Company and its
Affiliates.
1.32 "Termination Without Cause" means a Termination of Employment by the
Company for any reason other than Cause or Executive's death or
Disability.
1.33 "IRR Requirements" shall mean the internal rate of return, net of
taxes, established by the Company or its subsidiaries from time to
time, in its sole discretion; the parties hereto acknowledge that, as
of the date of this Agreement, the target internal rate of return ,
using industry average expense assumptions, so established is 11%.
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ARTICLE II.
DUTIES
2.1 Duties. During the Employment Period (as hereinafter defined),
Executive agrees to serve as (i) the President of FICFS and (ii) Vice
President of the Company and will, subject to the direction of the
Company's Chief Executive Officer, perform duties of substantially the
same character as those ordinarily performed by persons in similar
positions. Such duties shall include participation with the Chief
Financial Officer and the Controller in the general supervision of the
investment activities of FIC and FICFS, consistent with the investment
guidelines approved from time to time by the board of directors of the
Company. Executive will report to the Chief Executive Officer of the
Company. Executive shall devote his best efforts and skill, attention
and energies to the business and affairs of the Company on a full time
basis in order to discharge the duties of Executive hereunder.
2.2 Directives. During the Employment Period, Executive shall follow the
lawful directives of the CEO which are consistent with stated policy
of the Board of Directors of the Company. During the Employment
Period, Executive shall perform the duties assigned to him, and shall
devote his full business time, attention and effort, excluding any
periods of disability, vacation, or sick leave to which Executive is
entitled, to the affairs of the Company and shall use his best efforts
to promote the interests of the Company. The Executive shall not
engage in any other business or commercial activity for profit,
including service on the board of directors of any corporation other
than the Company, without the prior written consent of the CEO. The
preceding sentence is not intended to prevent Executive from acting as
a passive investor in any business which does not involve the personal
efforts of Executive. The Executive and the Company acknowledges that
his business time is not limited to a fixed number of hours per week.
ARTICLE III.
EMPLOYMENT PERIOD
3.1 Employment Period. Subject to the termination provisions hereinafter
provided, the term of Executive's employment under this Agreement (the
"Employment Period") shall begin on the Agreement Date and end on
March 31, 2009. The employment of Executive by Company shall not be
terminated other than in accordance with Article VII.
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ARTICLE IV.
COMPENSATION
4.1 Salary. Executive shall be paid in accordance with normal payroll
practices (but not less frequently than monthly) an annual salary at a
rate of $250,000 per year ("Base Salary"). During the Employment
Period, the Base Salary shall be reviewed periodically and may be
increased from time to time as shall be determined by the Chief
Executive Officer and subsequently ratified by the Board. After any
such increase, the term "Base Salary" shall thereafter refer to the
increased amount. Any increase in Base Salary shall not limit or
reduce any other obligation of the Company to Executive under this
Agreement. Base Salary shall not be reduced at any time without the
express written consent of Executive.
4.2 Annual Bonus. Executive will be eligible for an annual bonus, not to
exceed $200,000 per year. The amount of any annual bonus shall be
established by the CEO on the following basis: (i) one-third of the
amount of the annual bonus will be based upon performance criteria
established by the CEO with respect to the operating results of FICFS,
(ii) one-third of the amount of the annual bonus will be established
by the CEO with respect to the operating results of FIC and (iii)
one-third of the amount of the annual bonus will be determined at the
sole discretion of the CEO.
4.3 Restricted Stock. On the Effective Date, FICFS shall award to
Executive 60 shares of the common stock, par value $0.01, of FICFS,
subject to the terms and provisions of Article VI hereof. This 60
shares shall evidence a then current 6% ownership interest in the
common stock of FICFS. Thereafter, any adjustments in the issued and
outstanding capital stock of FICFS shall require Executive's prior
written consent, but in no event shall Executive's ownership
percentage be less than 6%. Executive acknowledges that all amounts
provided by FIC to FICFS shall be in the form of loans, the initial
loan being for $7.5 million at an interest rate of 5.4%, and future
loans on such terms and conditions as agreed to by the Company and
Executive at the time each such loan is provided, and that the amount
of such loans shall be taken into account in any valuation of FICFS to
be made in accordance with the provisions of this Agreement.
4.4 Savings and Retirement Plans. Executive shall be eligible to
participate during the Employment Period in any Company's savings and
retirement plans, practices, policies and programs, in accordance with
the terms thereof, at the highest available level, if any, applicable
from time to time to members of Senior Management, including any
supplemental executive retirement plan.
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4.5 Stock Options. Executive shall be granted options to purchase common
stock of FIC, in accordance with the provisions of the Option
Agreement dated June 4, 2003 between the Company and Executive.
ARTICLE V
OTHER BENEFITS
5.1 Welfare Benefits. During the Employment Period, Executive and his
family shall be eligible to participate in at the highest level, and
shall receive all benefits under, any Company's welfare benefit plans,
practices, policies and programs provided or made generally available
by the Company to Senior Management (including medical, dental,
disability, salary continuance, employee life, group life, dependent
life, accidental death and travel accident insurance plans and
programs), in accordance with their terms as in effect from time to
time.
5.2 Fringe Benefits. During the Employment Period, Executive shall be
entitled to the following fringe benefits (a) those generally
appplicable to Senior Management in accordance with their terms as in
effect from time to time; (b) a monthly discretionary business
development allowance, not to exceed $2,000, (c) a moving expense
allowance of $17,500 payable on the Effective Date.
5.3 Success Fee. For Executive's efforts in bringing the transaction known
as "New Era" marketing to FIC, Executive will be paid by FIC, upon
execution of this agreement, a lump sum of $400,000. This Fee is
ordinary income to the Executive and is subject to appropriate payroll
taxes.
5.34 Vacation. During the Employment Period, Executive shall be entitled to
paid vacation time under the plans, practices, policies, and programs
generally applicable to members of Senior Management in accordance
with their terms as in effect from time to time.
5.45 Expenses. Executive shall be promptly reimbursed for all actual and
reasonable employment-related business expenses he incurs during the
Employment Period in accordance with any Company's practices,
policies, and procedures generally applicable to members of Senior
Management in accordance with their terms as in effect from time to
time, including the timely submission of required receipts and
accountings. Notwithstanding the foregoing, no expense shall be
reimbursed more than once.
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ARTICLE VI.
RESTRICTED STOCK
6.1 Issuance of Restricted Stock. On the Effective Date, Executive shall
be issued a stock certificate in respect of the shares of Restricted
Stock specified in Section 4.3. Such certificate shall be registered
in the name of Executive, and shall bear the following legend:
The shares of stock represented by this certificate are subject to
restrictions and limitations on transferability contained in the
Employment Agreement dated June 4, 2003 between the registered owner
and Financial Industries Corporation, a Texas company
The stock certificate shall be held in the custody of the Company and Executive
shall deliver a stock power, endorsed in blank, relating to such shares.
6.2 Rights, Restrictions and Conditions Applicable to Restricted Stock.
Executive shall not be permitted to sell, transfer, pledge or assign
shares of Restricted Stock. Any purported transfer in violation of any
provision of this Agreement shall be void and ineffectual, shall not
operate to transfer any interest or title in the purported transferee.
Prior to Repurchase of the Restricted Stock in accordance with the
provisions of Section 6.3, Executive shall generally have the rights
of a stockholder of FICFS, including the right to vote the shares and
to receive any dividends thereon which are declared by the Board of
directors of FICFS.
Until the first Repurchase Event to occur:
(a) if there is any change in the number of outstanding shares of
capital stock (common or preferred) of FICFS through the
declaration of stock dividends, stock splits or the like, the
number of shares of Restricted Stock granted to Executive shall
be automatically adjusted. If there is any change in the number
of outstanding shares of total stock of FICFS through any change
in the capital account of FICFS, the Company shall make
appropriate adjustments and/or modifications to the number of
shares of Restricted Stock awarded to Executive so as to keep
Executives ownership interest in the common stock of FICFS at 6%.
(b) the Company will provide commercially reasonable efforts support
to FICFS in order to assist Executive in implementing the
business plan of FICFS approved by the Company. These reasonable
efforts will include , to the extent consistent with pricing
assumptions and expense levels designed to attain the reasonable
profit objectives of the Company and its Affiliates, developing
products using industry average expense levels; development of
necessary reinsurance accounting support; development of
sufficient policy processing capability; maintaining an adequate
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capital and surplus base in Investors Life Insurance Company of
North America or Family Life Insurance Company to support the
insurance policy and annuity production of FICFS; provided,
however, that the obligations of the Company hereunder shall not
include the development, marketing or sale of any insurance or
annuity product which does not meet the IRR Requirements
established by the Company or its subsidiaries with respect to
such insurance or annuity product;
(c) the Company will cause FICFS to prepare financial statements,
based on generally accepted accounting principles, on a periodic
basis. The initial financial statements shall be for the period
ended December 31, 2003; thereafter, such financial statements
shall be prepared on a semi-annual basis.
6.3 Repurchase of Restricted Stock.
(a) On the first date that a Repurchase Event occurs, the Company
shall purchase all the shares of Restricted Stock issued to
Executive from the Executive and Executive shall sell all the
shares of Restricted Stock to the Company in accordance with the
terms and conditions of this Section (the Repurchase). Repurchase
Event shall mean any of the following:
(i) the termination of this Agreement by the Company in
accordance with Section 7.1 or by the Executive in
accordance with Section 7.1;
(ii) the termination of this Agreement in accordance with Section
7.2;
(iii)the termination of this Agreement in accordance with
Section 7.3;
(iv) December 31, 2008,
(b) Unless the Executive elects a later date as provided in the
following sentence, the Repurchase shall occur on the date
determined by the Company, but not later than ninety (90) days of
the occurrence of the first Repurchase Event to occur (the
"Repurchase Date"). Executive may elect to defer the date of
determination of the Repurchase Price for a period of up to
twenty-four months following the Repurchase Event, in which case,
the Repurchase Date shall be not later than ninety (90) days
following the date on which the Repurchase Price is so determined
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(c) If the Repurchase occurs pursuant to a Repurchase Event described
in Section 6.3 (a)(ii), (iii) or (iv) above, then the Repurchase
will be calculated in accordance with the valuation process set
forth in Exhibit A (the Repurchase Price ). If the Repurchase
occurs pursuant to a Repurchase Event described in Section 6.3
(a)(i) above, then the Repurchase Price will be ten dollars
($10);
(d) If the amount to be paid to Executive in accordance with the
provisions of this Section 6.3 exceeds $5 million, the Company
may, in lieu of paying such excess in cash, deliver to Executive
a subordinated note of the Company, such note to be for a
ten-year term, with payments of principal and interest on a
semi-annual basis, and bearing interest at the then- prevailing
rate for ten-year U.S. Treasury notes, plus 2.5%;
(e) The purchase price for the Repurchase will be made by the Company
no later than ninety (90) days following the Repurchase Date in
cash or other immediately available funds (or, if applicable in
accordance with the provisions of clause c, above, , in cash and
notes) to a bank account designated in writing by the Executive
to the Company. In the event that the Executive fails to provide
such bank account information to the Company five (5) business
days prior to the date that such payment is due, the Company may
deliver the Repurchase Price to the Executive in the same manner
that it delivered the last payment required pursuant to Section
4.1 above.
6.4 Premium Reporting.
For the period ending December 31, 2003, and on a quarterly basis
thereafter, the Company will provide Executive with an accounting of all
premiums which qualify for inclusion in the determination of the Enterprise
Value Contribution to FIC, as set forth in Exhibit A, hereto. Following
each such reporting period, Executive may, within 30 days, notify the
accounting department and the CEO of FIC, in writing, if Executive does not
concur with the premium accounting set forth in such report. If Executive
does not so notify FIC that Executive disagrees with such premium
accounting report, together with an explanation of the reasons for such
disagreement, then the premium accounting set forth in such report shall be
binding on both Executive and the Company. If FIC and Executive cannot
resolve any disagreements which involve a premium accounting report, then
the matter shall be submitted to mediation as described in 9.16.
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ARTICLE VII.
TERMINATION BENEFITS
7.1 Termination for Cause or Other than for Good Reason, etc.
(a) If Company terminates Executive's employment with the Companies
for Cause or Executive terminates his employment other than for
Good Reason, death or Disability, the Executive shall be entitled
to receive immediately after the Date of Termination a lump sum
amount equal to the sum of Executive's Accrued Base Salary and
Executive shall not be entitled to receive any severance or other
payment, other than (i) any amounts Executive may be entitled to
pursuant to Article VI, hereunder and (ii) compensation and
benefits which relate to or derive from Executive's employment
with the Company on or prior to the Date of Termination and which
are otherwise payable in case of termination for Cause or other
than for Good Reason, death or Disability, as applicable.
(b) Executive's employment may be terminated for Cause only if (i)
Company provides Executive (before the Date of Termination) with
at least twenty days advance written notice and specifies in
detail in writing the basis of a claim of Cause and provides
Executive, with or without counsel, at Executive's election, an
opportunity to be heard and present arguments and evidence on
Executive's behalf , (ii) the Chief Executive Officer of the
Company determines that the acts or omissions constitute Cause
which Executive failed to cure after being given an opportunity
to cure if required by Section 1.11, and to the effect that
Executive's employment should be terminated for Cause and (iii)
Company thereafter provides Executive a Notice of Termination
which specifies in detail the basis of such Termination of
Employment for Cause.
7.2 Termination for Death or Disability. If, before the end of the
Employment Period, Executive's employment terminates due to his death
or Disability, Executive or his Beneficiaries, as the case may be,
shall be entitled to receive immediately after the Date of
Termination, a lump sum amount which is equal to the sum of
Executive's Accrued Base Salary, Accrued Annual Bonus, unreimbursed
expenses and any amounts which Executive may be entitled to pursuant
to Article VI, hereunder.
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7.3 Termination Without Cause or for Good Reason. In the event of a
Termination Without Cause or a Termination for Good Reason (in either
case occurring during the Employment Period), Executive shall be
entitled to receive the following:
a) promptly after the date of termination, (but in no event later
than ten business days after the date of termination) a lump sum
amount equal to the sum of (i) the unpaid amount on the remaining
portion of Executive's Accrued Base Salary for the year in which
the termination occurs (measured from the date of termination to
the Anniversary Date); plus (ii) the Pro-rata Annual Bonus that
was potentially earnable for the Fiscal Year in which the
termination occurred; plus any reimbursable expenses.
b) promptly after the date of termination, (but in no event later
than ten business days after the date of termination) a lump sum
amount equal the sum of (i) the Base Salary and the Pro-rata
Annual Bonus for the Fiscal Year during which the termination
occurs, multiplied by (ii) the number of full Fiscal Years from
the January 1st next following the last day of the Fiscal Year in
which such termination occurs to December 31, 2006 (but not less
than two years);
(c) the benefits specified in Section 5.1 and Section 5.2 to which
Executive is entitled as of the date of termination, for the
greater of (i) the number of months remaining in the initial term
of the agreement or (ii) twenty-four months following the date of
termination.
Notwithstanding anything herein to the contrary, the benefits
provided in Section 7.3 shall be provided only upon Executive's
execution of a release and waiver as described in Section 7.5
- 16 -
7.4 Other Rights. This Agreement shall not prevent or limit Executive's
continuing or future participation in any benefit, bonus, incentive or
other plan, program or policy provided by the Company and for which
Executive may qualify, and shall not impair the Company's rights to
amend or terminate any benefit, bonus, incentive or other plan program
or policy; provided however that no such amendment or termination
shall treat Executive less favorably than other Senior Management and
Executive's benefits, bonus and incentives in the aggregate shall not
be reduced. Amounts which are vested benefits or which Executive is
otherwise entitled to receive under any plan, program or policy and
any other payment or benefit required by law at or after the Date of
Termination shall be payable in accordance with such plan, program or
policy or applicable law execept as expressly modified by this
Agreement.
7.5 Waiver and Release. Notwithstanding anything here in to the contrary,
upon any Termination of Employment (other than due to death)
(a) the Executive shall execute a release and waiver in form mutually
agreed by Executive and the Company (which agreement neither
party shall unreasonably withhold) which releases, waives, and
forever discharges the Company, its Affiliates, and their
respective subsidiaries, affiliates, employees, officers,
shareholders, members, partners, directors, agents, attorneys,
predecessors, successors and assigns, from and against any and
all claims, liabilities, demands, causes of action, costs,
expenses, attorneys' fees, damages and obligations of every kind
and nature in law, equity, or otherwise, known and unknown,
suspected and unsuspected, disclosed and undisclosed, including
but not limited to any and all such claims and demands directly
or indirectly arising out of or in any way connected with the
Executive's employment with and services as a director of the
Company and its Affiliates; claims or demands related to
compensation or other amounts under any compensatory arrangement,
stock, stock options, or any other ownership interests in the
Company or any Affiliate, vacation pay, fringe benefits, expense
reimbursements, severance benefits, or any other form of
compensation or equity; claims pursuant to any federal, state,
local law, statute of cause of action including, but not limited
to, the federal Civil Rights Act of 1964, as amended; the federal
Age Discrimination in Employment Act of 1967, as amended; the
federal Americans with Disabilities Act of 1990; tort law,
contract law; wrongful discharge, discrimination; defamation;
harassment; or emotional distress; provided that Executive's
waiver and release shall not relieve the Companies from any of
the following obligations, to the extent they are to be performed
after the date of the release and waiver: (i) payment of amounts
due under Sections 7.1, 7.2 or 7.3, as applicable and (ii) any
- 17 -
obligations under the. second sentence of Section 7.4; and
provided further that (x) neither party shall release the other
from his or its obligations under Article VIII of this agreement,
to the extent such obligations are to be performed after the Date
of Termination, and (y) Executive shall not be precluded from
defending against Cause Claims (as defined in Section 7.5(b));
and
(b) the Company shall execute a release and waiver in form mutually
agreed by Executive and the Company (which agreement neither
party shall unreasonably withhold) which releases, waives, and
forever discharges the Executive and his executors,
administrators, successors and assigns, from and against any and
all claims, liabilities, demands, causes of action, costs,
expenses, attorneys' fees, damages and obligations of every kind
and nature in law, equity, or otherwise, known and unknown,
suspected and unsuspected, disclosed and undisclosed, including
but not limited to any and all such claims and demands directly
or indirectly arising out of or in any way connected with the
Executive's employment with or service as a director of the
Company and its Affiliates, but excluding any such claims
liabilities, demands, causes of action, costs, expenses,
attorneys' fees, damages or obligations arising out of or in any
way connected with events, acts or conduct giving rise to or in
any way connected with Executive's Termination of Employment for
Cause ("Cause Claims"), provided, however, that (i) neither party
shall release the other from his or its obligations under Article
VIII of this agreement, to the extent such obligations are to be
performed after the Date of Termination, and (ii) Executive shall
not be precluded from defending against Cause Claims.
(c) Executive hereby agrees that the execution of this Agreement is
adequate consideration for the execution of such a release, and
hereby acknowledges that the Company would not have executed this
Agreement had Executive not agreed to execute such a release
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ARTICLE VIII.
RESTRICTIVE COVENANTS
8.1 Non-Competition. During the period that Executive is an active
employee of the Company and for a period of:
(i) five (5) years thereafter if the termination of employment
is pursuant to Section 7.1 or the Disability provisions of
Section 7.2, and
(ii) two years thereafter if the termination of employment is
pursuant to Section 7.3
(the Non-competition Period), Executive will not:
(a) engage or participate in, become employed by, serve as a director
of, or render advisory or consulting or other services in
connection with any competitive business;
(b) directly or indirectly, for himself or on behalf of another, (i)
solicit any customers of the Company or its Affiliates for the
benefit of any business directly or indirectly in competition
with the business of the Company or its Affiliates, or (ii)
request, advise or induce any person who is a customer, employee,
contractor, vendor, or lessor of the Company or its Affiliates to
withdraw, curtail, or cancel, or engage in any other activity
that could adversely affect, the relationship such person has
with the Company or its Affiliates.(b) directly or indirectly,
for himself or on behalf of another, (i) solicit any customers of
the Company or its Affiliates for the benefit of any business
directly or indirectly in competition with the business of the
Company or its Affiliates, or (ii) request, advise or induce any
person who is a customer, employee, contractor, vendor, or lessor
of the Company or its Affiliates to withdraw, curtail, or cancel,
or engage in any other activity that could adversely affect, the
relationship such person has with the Company or its Affiliates.
(c) directly or indirectly, for himself or on behalf of another,
solicit for employment or engagement as an independent
contractor, or for any other similar purpose, any person who was
in the six-month period preceding the solicitation, or is at the
time of the solicitation, an employee or independent contractor
of the Company or its Affiliates.
- 19 -
8.2 Confidentiality. The Company agrees to disclose to Executive from time
to time Confidential Information which may be necessary for Executive
to perform under this Agreement. Executive agrees that he will not
directly or indirectly, acting alone or in conjunction with others,
disclose to any person, firm or corporation any Confidential
Information. Confidential Information shall include all confidential
or proprietary information of the Company, its Affiliates or FICFS,
including, without limitation, all marketing techniques, pricing
information, business plans, ideas and opportunities, financial
statements and projections, specialized customer information
concerning unique or novel marketing habits, any special products or
services that the Company, its Affiliates or FICFS may offer or
provide to its customers or its agent force form time to time, all
past or present customer lists and contacts of the Company, its
Affiliates or FICFS (regardless of whether obtained by or through
Executive's efforts, directly or indirectly, or handled by Executive
for the Company, its Affiliates or FICFS ), all trade, technical or
technological secrets, any details of organization or business
affairs, any processes, services, compensation and other employment
practices, research, pricing practices, price lists and procedures,
purchasing, accounting, production, operations, organization,
finances, any other information, method, technique or system, or any
other confidential or proprietary information relating to the business
of the Company, its affiliates or FICFS. Notwithstanding the
foregoing, Confidential Information shall not be deemed to include any
information which (i) is or becomes generally available to the public
or known by a knowledgeable person in the industry (except as a result
of Executive s breach of this Agreement) or (ii) is or becomes
lawfully available to Executive on a non-confidential basis from a
third party without, to the Executive s knowledge, breach by that
third party of any obligation of confidence concerning that
Confidential Information. Nothing herein shall prevent disclosure of
any Confidential Information if, upon the advice of counsel, Executive
is compelled to disclose such Confidential Information, provided that
Executive provides notice of any such compelled disclosure so that the
Company may seek a protective order or confidential treatment.
8.3 Reasonableness of Restrictive Covenants.
(a) Executive acknowledges that the covenants contained in Sections
8.1 and 8.2 are reasonable in the scope of the activities
restricted, the geographic area covered by the restrictions, and
the duration of the restrictions, and that such covenants are
reasonably necessary to protect the Company's relationships with
its employees, clients and suppliers. Executive further
acknowledges such covenants are essential elements of this
Agreement and that, but for such covenants, the Company would not
have entered into this Agreement.
- 20 -
(b) The Company and Executive have each consulted with their
respective legal counsel and have been advised concerning the
reasonableness and propriety of such covenants. Executive
acknowledges that his observance of the covenants contained in
Sections 8.1 and 8.2 will not deprive him of the ability to earn
a livelihood or to support his dependents.
8.4 Right to Injunction; Survival of Undertakings.
(a) In recognition of the necessity of the limited restrictions
imposed by Sections 8.1 and 8.2, the parties agree that it would
be impossible to measure solely in money the damages that any of
the Company would suffer if Executive were to breach any of his
obligations under such Sections. Executive acknowledges that any
breach of any provision of such Sections would irreparably injure
the Company. Accordingly, Executive agrees that the Company shall
be entitled, in addition to any other remedies to which Company
may be entitled under this Agreement or otherwise, to an
injunction to be issued by a court of competent jurisdiction, to
restrain any actual breach, or threatened breach, of such
provisions, and Executive hereby waives any right to assert any
defense that any of the Company has to adequate remedy at law for
any such breach.
(b) If a court determines that any of the covenants included in this
Article VIII are unenforceable in whole or in part because of
such covenant's duration or geographical or other scope, such
court may modify the duration or scope of such provision, as the
case may be, so as to cause such covenant as so modified to be
enforceable.
(c) All of the provisions of this Article VIII shall survive any
Termination of Employment without regard to (i) the reasons for
such termination or (ii) the expiration of the Employment Period.
(d) Company shall have any further obligation to pay or provide
severance or benefits hereunder if a court determines that the
Executive has breached any covenant in this Article VIII.
- 21 -
ARTICLE IX.
MISCELLANEOUS
9.1 Approvals. The Company represents and warrants to Executive it has
taken all corporate action necessary to authorize this Agreement.
9.2 No Mitigation. In no event shall Executive be obligated to seek other
employment or take any other action to mitigate the amounts payable to
Executive under any of the provisions of this Agreement, nor shall the
amount of any payment hereunder be reduced by any compensation earned
as a result of Executive's employment by another employer, except that
any continued welfare benefits provided for by Article 7 shall not
duplicate any benefits that are provided to Executive and his family
by such other employer and shall be secondary to any coverage provided
by such other employer. The Company s obligation to make the payments
provided for in this Agreement and otherwise perform the obligations
hereunder shall not (unless Executive is terminated for Cause) be
affected by any circumstances, including set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company
may have against Executive.
9.3 Beneficiary. If Executive dies prior to receiving all of the amounts
payable to him in accordance with the terms and conditions of this
Agreement, such amounts shall be paid to the beneficiary
("Beneficiary") designated by Executive in writing to the Company
during his lifetime, or if no such Beneficiary is designated, to
Executive's estate. Such payments shall be made in a lump sum to the
extent so payable and, to the extent not payable in a lump sum, in
accordance with the terms of this Agreement. Such payments shall not
be less than the amount payable to Executive as if Executive had lived
to the date of payment and were the payee. Executive, without the
consent of any prior Beneficiary, may change his designation of
Beneficiary or Beneficiaries at any time or from time to time by
submitting to the Company a new designation in writing.
9.4 Assignment; Successors. This Agreement is personal to Executive and he
may not assign his duties or obligations under it. Company may not
assign its respective rights and obligations under this Agreement
without the prior written consent of Executive, except to a successor
to the Company's business which expressly assumes the Company's
obligations hereunder in writing. This Agreement shall be binding upon
and inure to the benefit of Executive, his estate and Beneficiaries,
the Company and its successors and permitted assigns. Company shall
require any successor to all or substantially all of the business
and/or assets of such Company, whether direct or indirect, by
purchase, merger, consolidation, acquisition of stock, or otherwise,
expressly to assume and agree to perform this Agreement in the same
manner and to the same extent as such Company would be required to
perform if no such succession had taken place.
- 22 -
9.5 Non-alienation. Except as is otherwise expressly provided herein,
benefits payable under this Agreement shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, charge, garnishment, execution or levy of any
kind, either voluntary or involuntary, prior to actually being
received by Executive, and any such attempt to dispose of any right to
benefits payable hereunder shall be void.
9.6 Severability. If all or any part of this Agreement is declared to be
unlawful or invalid, such unlawfulness or invalidity shall not serve
to invalidate any portion of this Agreement not declared to be
unlawful or invalid. Any provision so declared to be unlawful or
invalid shall, if possible, be construed in a manner which will give
effect to the terms of such provision to the fullest extent possible
while remaining lawful and valid.
9.7 Amendment; Waiver. This Agreement shall not be amended or modified
except by written instrument executed by Company and Executive. A
waiver of any term, covenant or condition contained in this Agreement
shall not be deemed a waiver of any other term, covenant or condition,
and any waiver of any default in any such term, covenant or condition
shall not be deemed a waiver of any later default thereof or of any
other term, covenant or condition.
9.8 Arbitration. Any dispute, controversy or claim arising out of or in
connection with or relating to this Agreement or any breach or alleged
breach thereof shall be submitted to and settled by binding
arbitration in Austin, Texas, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (or at any
other place or under any other form of arbitration mutually acceptable
to the parties so involved). Any dispute, controversy or claim
submitted for resolution shall be submitted to three (3) arbitrators,
each of whom is a nationally recognized executive compensation
specialist. The Company shall select one arbitrator, the Executive
shall select one arbitrator and the third arbitrator shall be selected
by the first two arbitrators. Any award rendered shall be final and
conclusive upon the parties and a judgment thereon may be entered in
the highest court of a forum, state or federal, having jurisdiction.
The expenses of the arbitration shall be borne equally by the parties,
except that in the discretion of the arbitrators any award may include
the fees and costs of a party's attorneys if the arbitrator expressly
determines that the party against whom such award is entered has
caused the dispute, controversy or claim to be submitted to
arbitration in bad faith or as a dilatory tactic. No arbitration shall
be commenced after the date when institution of legal or equitable
proceedings based upon such subject matter would be barred by the
applicable statute of limitations. Notwithstanding anything to the
contrary contained in this Section 9.8 or elsewhere in this Agreement,
either party may bring an action in the Xxxxxx County, Texas District
Court, in order to maintain the status quo ante of the parties. The
"status quo ante" is defined as the last peaceable, uncontested status
between the parties. However, neither the party bringing the action
nor the party defending the action thereby waives its right to
arbitration of any dispute, controversy or claim arising out of or in
connection or relating to this Agreement. Notwithstanding anything to
the contrary contained in this Section 9.8 or elsewhere in this
Agreement, either party may seek relief in the form of specific
- 23 -
performance, injunctive or other equitable relief in order to enforce
the decision of the arbitrator. The parties agree that in any
arbitration commenced pursuant to this Agreement, the parties shall be
entitled to such discovery (including depositions, requests for the
production of documents and interrogatories) as would be available in
a federal district court pursuant to Rules 26 through 37 of the
Federal Rules of Civil Procedure. In the event that either party fails
to comply with its discovery obligations hereunder, the arbitrator(s)
shall have full power and authority to compel disclosure or impose
sanctions to the full extent of Rule 37, Federal Rules of Civil
Procedure.
9.9 Notices. All notices hereunder shall be in writing and delivered by
hand, by nationally-recognized delivery service that guarantees
overnight delivery, or by first-class, registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to Company, to: Financial Industries Corporation
0000 Xxxxx Xxxxx Xxxx., Xxxxxxxx Xxx
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxxx X. Xxxxxx,
Vice President and General Counsel
Facsimile No.: (000) 000-0000
If to Executive, to: At his most recent home address on file
with the Company
Either party may from time to time designate a new address by notice
given in accordance with this Section. Notice shall be effective when
actually received by the addressee.
9.10 Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
9.11 Captions. The captions of this Agreement are not a part of the
provisions hereof and shall have no force or effect.
9.12 Entire Agreement. This Agreement forms the entire agreement between
the parties hereto with respect to the subject matter contained in the
Agreement and shall supersede all prior agreements, promises and
representations regarding employment, compensation, severance or other
payments contingent upon termination of employment, whether in writing
or otherwise.
9.13 Applicable Law. This Agreement shall be interpreted and construed in
accordance with the laws of the State of Texas, without regard to its
choice of law principles.
- 24 -
9.14 Survival of Executive's Rights. All of Executive's rights hereunder,
including his rights to compensation and benefits, and his obligations
under Article VIII hereof, shall survive the termination of
Executive's employment or the termination of this Agreement.
9.15 Joint and Several Liability. The obligations of the Company to
Executive under this Agreement shall be joint and several.
9.16 Mediation. Any dispute or controversy under this Agreement which calls
for resolution via Mediation shall be resolved in accordance with the
procedures set forth in this Section 9.16. The party submitting a
claim for Mediation shall give written notice to the other party that
they wish to invoke the provisions of this Section 9.16 ("Notice of
Mediation"). Thereafter, FIC shall select one mediator (any reference
to mediator herein may also include an arbitrator), the Executive
shall select one mediator and the third mediator shall be selected by
the first two mediators. The parties shall mediate the matter within
twenty (20) days of receipt of the Notice of Mediation by the party
receiving such notice. If the parties cannot reach an agreement at
such mediation, the parties hereby agree that the three mediators
shall reach a decision regarding the dispute or controversy within ten
(10) days of the mediation date. Such decision by the mediators shall
be binding on both the Company and Executive. The expenses of the
Mediation shall be borne equally by the parties, except that in the
discretion of the mediators any award may include the fees and costs
of either party's if the mediator expressly determines that the party
against whom such award is entered has caused the dispute or
controversy to be submitted to Mediation in bad faith or as a dilatory
tactic.
9.17 Key Man Life Insurance. The Company reserves the right to purchase
"key man" life insurance policy on the life of Executive, with the
Company named as the owner and beneficiary of such policy. The face
amount of such policy shall be determined by the Company from time to
time. Executive shall cooperate with the Company and the insurer
selected by the Company in connection with the issuance and
continuation of any such policy.
- 25 -
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
FINANCIAL INDUSTRIES CORPORATION
By:_______________________________
Name:_____________________________
Title:____________________________
EXECUTIVE: ______________________
XXXXXXX X. XXXXXX
- 26 -
Exhibit A
If the Repurchase of Executive's stock in FICFS (as defined in Section 6.3
of this Agreement) occurs pursuant to a Repurchase Event described in Section
6.3 (a)(ii), (iii) or (iv), the determination of the Repurchase Price shall be
made in accordance with the valuation process set forth in this Exhibit A.
The Repurchase Price for purposes of said Section 6.3 (a)(ii), (iii) or
(iv) shall be six percent (6%) of A minus B plus C, where:
"A" is the value resulting from the Valuation Criteria applied to
FICFS, as described below, "B" is $7.5 million, which is the
difference between (a) the value of the New Era Companies acquired by
FICFS concurrent with the Effective Date of this Agreement, as set
forth in the fairness opinion of Advest Corporation ($14 million), and
(b) the amount loaned by FIC to FICFS to acquire such New Era
Companies; provided, however, if the Repurchase Event occurs after the
third anniversary of the effective date of this Agreement,
"B" shall be zero for purposes of the determination of the Repurchase
Price, and
"C" is the value resulting from the Enterprise Value Contribution
described below.
A. FICFS
Valuation Criteria. The Company shall appoint an independent valuation
expert to value the FICFS subsidiary on a going concern basis, using generally
accepted evaluation techniques consistent with the approach taken by Advest
Corporation in its fairness opinion conducted for FIC's Board of Directors
during the second quarter of 2003. The valuation will value FICFS without taking
a deduction or discount of such value that is greater than is in the Advest
fairness opinion for [I] any "minority interest" considerations; [ii] the lack
of concurrent marketability of the enterprise; [iii] the lack of liquidity for
any equity interests; or [iv] any restrictions placed on the transfer of equity
interests by virtue of regulatory change of control or other compliance
requirements. The valuation will take into consideration historical financial
results, the maturity of FICFS at the valuation date, and to the extent deemed
appropriate, will adjust the "risk premium" from the Advest Valuation. The
valuation will also consider the growth characteristics of the business; its
market position within its target market; and the reputation and stature the
company has achieved in its marketplace.
Exhibit A-1
If, within 15 days after Executive receives the valuation prepared by the
independent valuation expert retained Company, Executive notifies the Company
that he is not in agreement with such valuation, the dispute shall be submitted
to arbitration in accordance with the procedure set forth in Section 9.8 of this
Agreement; provided, however, each arbitrator shall be a qualified valuation
expert with experience in life insurance company operations. The arbitration
panel shall conduct the valuation process in accordance with the procedures set
forth above.
C. Enterprise Value Contribution to FIC
Concurrent with the valuation process of FICFS, the Company will initiate
an actuarial valuation of the block of insurance and annuity policies produced
by or through FICFS (including, without limitation, production by or through
Equita Financial and Insurance Services of Texas, Inc. (Equita) pursuant to the
agreement dated as of June 4, 2003 between Equita and the life insurance company
subsidiaries of the Company), its employees and agents. The Chief Actuary of the
Company shall conduct the valuation. The valuation shall be conducted as if the
entire block of business was being sold. The valuation will be conducted on a
"GAAP Book Value Basis". The valuation will not include any deduction or
discount of such value for [I] any "minority interest" considerations; [ii] the
lack of concurrent marketability of the block of business; [iii] any
restrictions placed on the transfer of equity interests by virtue of regulatory
change of control or compliance requirements; or [iv] the tax consequences
resulting from the deemed transfer of the book of business. The actuary will
take into account a minimum of 15 years of expected profits from the book of
business, and will use a discount rate appropriate for transactions of this type
but in no event greater than the ten-year U.S. Treasury Note Rate, plus 7% . The
actuary will be directed to use expense levels consistent with industry
averages. Once the actuary has arrived at the "Present Value of Future Profits"
for the block of business, the GAAP profits from the book of business from prior
periods will be added to arrive at a Total Enterprise Value Contribution from
produced insurance.
If, within 15 days after Executive receives the valuation prepared by the
Company, Executive notifies the Company that he is not in agreement with such
valuation, the dispute shall be submitted to arbitration in accordance with the
procedure set forth in Section 9.8 of this Agreement; provided, however, each
arbitrator shall be a qualified actuary with experience in life insurance
company operations. The arbitration panel shall conduct the valuation process in
accordance with the procedures set forth above.
Exhibit A-2
