Execution Copy
STOCK PURCHASE AND OPTION AGREEMENT
This Stock Purchase and Option Agreement (this "Agreement") is made and
entered into as of this 4th day of June, 2003, by and between Financial
Industries Corporation, a Texas corporation (the "Company"), and American
Physicians Service Group, Inc., a Texas corporation ("Purchaser").
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 and intends to actively assist the Company in
promoting the Company's business plan, which includes the acquisition and
integration of the New Era Marketing Companies (collectively, the "Services");
WHEREAS, in connection with the Services provided to the Company, the
Company desires to grant to Purchaser an option to acquire Common Stock and
other rights set forth herein in exchange for the consideration described
herein; and
WHEREAS, the Company desires to issue and sell to Purchaser, and
Purchaser desires to acquire from the Company, 27,395 shares (the "Shares") of
common stock, par value $.20 per share (the "Common Stock"), of the Company at a
purchase price equal to $14.64 per share and under the other terms and
conditions set forth 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:
Section 1. Sale of Shares and Purchase Option.
----------------------------------
1.1 Purchase and Sale; Closing. Subject to the terms and conditions of this
Agreement, and in reliance on the respective representations and warranties of
the Company and Purchaser, Purchaser hereby agrees to acquire from the Company,
and the Company agrees to issue and sell to Purchaser (the "Purchase"), the
Shares. The aggregate purchase price for the Shares (the "Purchase Price") shall
be $401,063. The Purchase Price shall be paid in cash, tendered by Purchaser by
wire transfer of immediately available funds to the Company in accordance with
the Company's wire transfer instructions provided to Purchaser, at the closing
of the Purchase (the "Closing"). The Shares acquired in the Purchase shall be
delivered to Purchaser at the Closing, free and clear of any and all liens,
claims, security interests, pledges, mortgages, restrictions or encumbrances of
any kind (the "Encumbrances"), other than those restrictions arising from
applicable federal and state securities laws and any Encumbrances created by
Purchaser. The Closing shall occur concurrently with the execution of this
Agreement and at such place and time as the parties may mutually agree. The date
on which the Closing actually occurs is referred to herein as the "Closing
Date."
1.2 OPTION TO PURCHASE SHARES. In consideration of the Services, the Company has
agreed to grant Purchaser an option to purchase shares of Common Stock as
provided in this Section 1.2.
(a) QUALIFYING PREMIUMS. As used in this Agreement, (i) "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
2
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, Equita Financial and Insurance
Services of Texas, Inc. ("Equita"), or any of their respective agents and (ii)
"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 Determination Period, the Company shall deliver to
Purchaser a good-faith estimate of the Qualifying Premiums for that immediately
preceding calendar month. Within ten (10) business days following the end of the
Determination Period, the Company shall deliver to Purchaser a written
calculation of 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, Marketing
Sub and the Insurance Companies as may be reasonably necessary to determine
whether the calculation of Qualifying Premiums is correct. Purchaser may deliver
to the Company, within twenty (20) business days following the end of the
Determination Period, a written objection to the calculation of 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 "Arbitrator") who will determine the correct amount of Qualifying Premiums.
In the event the parties cannot agree upon the selection of the Arbitrator
within five (5) business days, each party shall select an Arbitrator (the fees
and expenses of which will be borne by the selecting party) and such Arbitrators
shall select within ten (10) days an Arbitrator that will determine the amount
of Qualifying Premiums. The fees and expenses of the Arbitrator selected to
determine the amount of Qualifying Premiums shall be borne by the Company and
Purchaser in the same proportion that the dollar amount of the disputed
Qualifying Premiums which are not resolved in favor of the Company or Purchaser
(as applicable) bears to the total dollar amount of the disputed Qualifying
Premiums resolved by the Arbitrator. For illustration purposes only, (A) if the
total amount of the disputed Qualifying Premiums by Purchaser is $1,000,000, and
Arbitrator resolved $500,000 of the disputed Qualifying Premiums in favor of
3
Purchaser, the Company and Purchaser shall bear the Arbitrator's fees and
expenses equally; or (B) if the total amount of disputed Qualifying Premiums by
Purchaser is $1,000,000 and Arbitrator resolved $250,000 of the disputed
Qualifying Premiums in favor of the Purchaser, Purchaser shall bear 75 percent
and the Company shall bear 25 percent of the Arbitrator's fees and expenses.
Each of Purchaser and the Company shall bear the fees, costs and expenses of its
own Arbitrator, if applicable, and all of its other expenses incurred in
connection with matters contemplated by this Section 1.2(a). Any such
determination by the Arbitrator shall be final, binding and conclusive upon the
Company and Purchaser. If Purchaser does not object to the Company's calculation
of Qualifying Premiums within the twenty (20) business day period specified
above, then the Company's determination of Qualifying Premiums shall be final,
binding and conclusive upon the Company and Purchaser.
(b) Grant of Option. The Company hereby grants to Purchaser a conditional option
to acquire, in the sole discretion of Purchaser, up to 323,000 shares of Common
Stock from the Company at a per share exercise price equal to $16.42 per share
(such price, the "Exercise Price"), but only if Qualifying Premiums for the
Determination Period exceed $200,000,000 (the "Purchase Option"). The exercise
of the Purchase 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 Purchase Option may only be
exercised once by delivery of written notice to the Company, signed by
Purchaser, indicating that the Purchase 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 Qualifying Premiums pursuant to Section 1.2.
Unless earlier exercised, the Purchase Option expires on December 31, 2006. The
closing of the exercise of the Purchase Option pursuant to this Section 1.2(a)
shall occur within ten (10) business days following delivery of the written
exercise notice, the 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).
4
(c) CERTAIN ADJUSTMENT EVENTS.
(i) In case the Company shall hereafter (A) pay a dividend or make a
distribution on its capital stock in shares of Common Stock, (B) subdivide its
outstanding shares of Common Stock into a greater number of shares, (C) combine
its outstanding shares of Common Stock into a smaller number of shares or (D)
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.
(ii) 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 1.2(c)(ii) shall
similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, statutory exchanges, sales or conveyances.
5
(iii) Whenever the number of shares of Common Stock purchasable upon the
exercise of the Purchase Option is adjusted, as herein provided, the 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.
(iv) 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.
(v) 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) 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 provided in this Section 1.2(c) 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.
1.3 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.
6
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).
7
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 this Agreement, 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.
2.5 ISSUANCE AND OWNERSHIP OF SHARES. The Shares and 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
8
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 offer, issuance and
sale of the Shares are, the grant of the Purchase Option is, and the issuance of
the shares of Common Stock upon exercise of the Purchase Option 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.
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
9
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.
10
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").
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.
11
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.
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.
12
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 Shares, 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 the Shares, the
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 Shares, the Purchase Option or shares of Common
Stock issuable upon exercise thereof with others or reselling or otherwise
disposing of the Shares, the Purchase Option or the shares of Common Stock
issuable upon exercise thereof 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;
13
(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 and
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 Shares are, 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 Shares, 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 and 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
(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 Xxxxxxx Xxxxxxx (or any substitute designee of Purchaser
14
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 of 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 four 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.
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, including, without limitation, appropriately staffing and
15
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 Section 1.2(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 312,484 shares of Common Stock
acquired by Purchaser pursuant to a Stock Purchase Agreement dated as of the
date hereof between Purchaser and The Xxx X. and Xxxxx Xxxx Mitte Foundation
(the "Foundation"), notwithstanding anything to the contrary contained in that
certain APS Acknowledgement and Agreement dated as of the date hereof between
the Company and the Foundation, Purchaser 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.
Section 5. INDEMNIFICATION.
16
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 $5,000,000 (the "Maximum Liability").
(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
17
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.
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
18
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.
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.
19
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.
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.
20
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
Purchaser: American Physicians Service Group, Inc.
0000 Xxxxxxx xx Xxxxx Xxx., Xxxxx X-000
Xxxxxx, Xxxxx 00000
Attn: Chairman and Chief Executive Officer
Facsimile No.: (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.
21
SIGNATURE PAGE
TO
STOCK PURCHASE AND OPTION AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase and Option Agreement as of the day and year first above written.
COMPANY: FINANCIAL INDUSTRIES CORPORATION
By: /s/ Xxxxxx Xxxxx
--------------------------------------------
Name: Xxxxxx Xxxxx
--------------------------------------------
Title: CEO, President and Chairman
--------------------------------------------
PURCHASER: AMERICAN PHYSICIANS SERVICE GROUP, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
-------------------------------------------------
Xxxxxxx X. Xxxxxxx,
Chairman of the Board and Chief Executive Officer
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)).
Schedule 2.5
Issuance and Ownership of Shares
1. Settlement Agreement.
Schedule 2.7
Litigation
None.
Schedule 2.10
Financial Statements
1. Settlement Agreement.
Schedule 2.11
Absence of Certain Changes or Events
None.
Schedule 2.12
Undisclosed Liabilities
1. Settlement Agreement.
2. New Era Transactions.
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.
