-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PY+n2LyCGsOHVA1l6w6J3mPPemvCH1OZVe4XadrNi73BfKGEmgmw2sgndk8yrfO7 F9HEKJWlleJyiKw1T7Sh0g== 0000035733-03-000048.txt : 20030610 0000035733-03-000048.hdr.sgml : 20030610 20030610160531 ACCESSION NUMBER: 0000035733-03-000048 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20030605 ITEM INFORMATION: Other events ITEM INFORMATION: Regulation FD Disclosure FILED AS OF DATE: 20030610 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FINANCIAL INDUSTRIES CORP CENTRAL INDEX KEY: 0000035733 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 742126975 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-04690 FILM NUMBER: 03739202 BUSINESS ADDRESS: STREET 1: LEGAL DEPARTMENT STREET 2: 6500 RIVER PLACE BLVD., BUILDING ONE CITY: AUSTIN STATE: TX ZIP: 78730 BUSINESS PHONE: 512 404-5000 MAIL ADDRESS: STREET 1: 6500 RIVER PLACE BLVD., BUILDING ONE STREET 2: LEGAL DEPARTMENT CITY: AUSTIN STATE: TX ZIP: 78730 FORMER COMPANY: FORMER CONFORMED NAME: GOLDEN UNITED INVESTMENT CO STOCK PLAN DATE OF NAME CHANGE: 19731128 FORMER COMPANY: FORMER CONFORMED NAME: ILEX CORP DATE OF NAME CHANGE: 19730801 FORMER COMPANY: FORMER CONFORMED NAME: GOLDEN UNITED INVESTMENT CO DATE OF NAME CHANGE: 19730801 8-K 1 fic8k060503.txt FIC 8-K 060503 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________________ FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (date of earliest event reported): June 4, 2003 FINANCIAL INDUSTRIES CORPORATION (Exact name of Registrant as specified in charter) Texas 0-4690 74-2126975 (State or other (Commission (I.R.S. employer jurisdiction of file number) identification no.) incorporation) 6500 River Place Blvd., Building One Austin, Texas 78730 (Address of principal executive offices) Registrant's telephone number, including area code: (512) 404-5000 __________________________ -1- Introduction: On June 5, 2003, Financial Industries Corporation ("FIC"), through a subsidiary, acquired three companies in the secondary education financial services market. Each of the three transactions is described below. In connection with the acquisitions, FIC, or its subsidiaries, entered into the transactions which are described below: Item 5 - Other Events and Regulation FD Disclosure. (1) Acquisition of Marketing Companies: A newly-created subsidiary of FIC, FIC Financial Services, Inc. ("FICFS") acquired all of the issued and outstanding capital stock of: (i) Total Consulting Group, Inc. ("TCG"), (ii) JNT Group, Inc. ("JNT") and (iii) three companies collectively referred to as "Paragon" - Paragon Benefits, Inc., The Paragon Group, Inc., and Paragon National, Inc. (collectively the "New Era Marketing Companies"). The Acquisitions were consummated pursuant to three separate Stock Purchase Agreements by and among the parties and were executed as a component of the strategic business plan outlined by FIC earlier this year. (a) TCG. TCG is a consulting firm and registered investment advisor with clients in the secondary education marketplace. The Stock Purchase Agreement by and among FICFS, FIC, TCG and the shareholders of TCG is attached as Exhibit 10.1, hereto, which is also incorporated herein by reference. The consideration paid by FICFS for the purchase of TCG was $1,984,824 in cash and 97,417 shares of restricted common stock of FIC. The restricted common stock is subject to a lock-up period of 12 months for shareholders other than Mike Cochran ("Cochran") and John Pesce ("Pesce"). The restricted common stock issued to Cochran and Pesce is locked-up pursuant to a three-year vesting schedule, which is subject to the continued employment of Cochran and Pesce under the five-year employment agreements entered into between Cochran, Pesce, and FICFS. FICFS entered into the employment agreements with the two principals of TCG to ensure the continuity of its business operations. (b) JNT. JNT is an independent fee-based third party administrator operating principally in Texas and California. The Stock Purchase Agreement by and among FICFS, FIC, JNT and the shareholders of JNT is attached as Exhibit 10.2, hereto, which is also incorporated herein by reference. The consideration paid by FICFS for the purchase of JNT was $514,583.45 in cash and 17,899 shares of restricted common stock of FIC. The restricted stock portion of the consideration is subject to a three-year vesting restriction based on the three-year employment agreement entered into by and between FICFS and the principal of JNT, Earl W. Johnson. - 2 - (c) Paragon. Paragon provides employee benefit products and services to the secondary education marketplace. The Stock Purchase Agreement by and among FICFS, the Registrant, Paragon and the shareholders of Paragon is attached as Exhibit 10.3, hereto, which is also incorporated herein by reference. The consideration paid by FICFS for the purchase of Paragon was $1,410,750 in cash and 105,593 shares of restricted common stock of the Registrant. A portion of the restricted stock is subject to forfeiture if certain business targets are not met. Additionally, FICFS entered into employment agreements with three of the principals of Paragon, Scott A. Bell, Wayne S. Desselle (both for five- year terms), and Chris Murphy ( for a three-year term). The purchase price for the Acquisitions was determined in arms-length negotiations among the parties. There were no material relationships among the various sellers and FIC or any of its affiliates, any director or officer of FIC, or any associate of any such director or officer prior to the Acquisitions. (2) Marketing Agreement: In addition to the acquisitions described in Item 1, above, and the establishment of FICFS as a wholly-owned subsidiary of FIC, the life insurance company subsidiaries of FIC (Investors Life Insurance Company of North America ("Investors Life"), and Family Life Insurance Company ("Family Life") entered into a marketing agreement with Equita Financial and Insurance Services of Texas, Inc. ("Equita"), a Dallas-based company engaged in the marketing and sale of insurance policies, annuity contracts and related financial products. Under the terms of the agreement, Equita was granted an exclusive appointment to market products underwritten by Investors Life and Family Life ("Products") to individuals in the "senior market" (individuals over the age of fifty-five) (the "Exclusive Market"). The appointment is for a ten-year period; however, the exclusive rights of Equita terminate unless $75,000,000 in net written premiums for Products are collected with respect to the Exclusive Market in 2004 and $150,000,000 in premiums for Products are collected with respect to the Exclusive Market for each calendar year thereafter. The agreement provides for a carry over of production in excess of the minimum requirements the next year for purposes of satisfying the production requirements for that year. If the aggregate level of net level premium production in the Exclusive Market reaches $1.45 billion, the exclusive of Equita terminates if the level of net written premium in any year is less than $50 million. The agreement provides for certain adjustments to the above-described production requirements in the event that either Investors Life or Family Life does not make available for sale an index annuity product by April 30, 2004. - 3 - FIC's life insurance subsidiaries and Equita expect to develop new Products specifically targeted to the Exclusive Market. The FIC companies retain the right to require that such Products meet the internal rate of return requirements established by the FIC companies. The agreement provides that certain existing and future marketing operations of FIC's insurance subsidiaries are excluded from the rights provided to Equita and it includes provision for the extension of the exclusive to companies that may be acquired by FIC in the future, unless such new acquisition had a previously- established operation in the senior market. (3) Stock Purchase and Option Agreement - American Physicians Service Group, Inc. ("APS"): In consideration of the role which APS served in having brought the opportunity to acquire the New Era Marketing Companies to FIC and APS's intention to actively assist FIC in promoting FIC's business plan, FIC sold 27,395 shares of its common stock, par value $.20 ("Common Stock") per share to APS, at a purchase price of $14.64 per share. These shares represent a portion of the shares which FIC recently purchased from Roy F. Mitte pursuant to the provisions of the previously announced settlement of the litigation between FIC, Mitte family members, and the Mitte Foundation (the "Settlement Agreement"). The provisions of the Settlement Agreement are described in FIC's Quarterly Report on Forms 10-Q and 10-Q/A for the quarterly period ended March 31, 2003. In addition, FIC granted to APS an option to acquire up to 323,000 shares of Common Stock at a per share exercise price equal to $16.42 per share, but only if "Qualifying Premiums" for the "Determination Period" exceed $200,000,000. The Qualifying Premiums requirement refers, with certain exceptions, to the amount of premiums for life insurance and annuity products marketed through FIC Financial Services, Inc. ("FICFS"), the newly-established subsidiary of FIC which purchased the New Era Marketing Companies and includes premiums received by FIC's life insurance subsidiaries in connection with the Equita Marketing Agreement described above. The Determination Period means the period beginning on July 1, 2003 and ending on December 31, 2005. Unless earlier exercised, the option expires on December 31, 2006. The agreement provides that, following the closing date, FIC shall appoint Kenneth Shifrin, Chairman and CEO of APS (or any substitute designee of APS reasonably acceptable to FIC (the "APS Nominee") to serve on the FIC Board. In addition, FIC agreed that, with respect to the 2003 annual shareholders meeting and 2004 annual shareholders meeting, (a) to propose as a nominee for election to the FIC Board at such meeting the individual designated as the APS Nominee, (b) to include the name of the APS Nominee on FIC's proxy statement and proxy card for such meeting, (c) to recommend to its - 4 - shareholders the election of the APS Nominee of the Board, (d) to solicit proxies on behalf of the APS 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. In the event that the attorneys-in-fact or proxies referenced in clause (e) utilize cumulative voting, such persons shall cumulate votes in favor of the APS Nominee if such cumulative voting will result in the election of at least four directors. (4) Stock Purchase and Option Agreement - Equita Financial and Insurance Services of Texas, Inc. ("Equita"): In consideration of the role which Equita served in having brought the opportunity to acquire the New Era Marketing Companies to FIC and Equita's intention to assist FIC in the implementation of its business plan through the marketing agreement described above, FIC granted to Equita an option to acquire up to 169,000 shares of Common Stock at a per share exercise price equal to $16.42 per share, but only if "Qualifying Premiums" for the "Determination Period" exceed $200,000,000. The definitions of Qualifying Premiums and Determination Period are the same as those for the option granted to APS with respect to the base option only. In addition, FIC granted to Equita an additional option to purchase up to 158,000 shares of Common Stock at a per share exercise price equal to $16.42 per share, but only at the rate of 10,000 shares for each $10,000,000 increment by which Qualifying Premiums for the Determination Period exceed $200,000,000. Unless earlier exercised, the options granted to Equita expire on December 31, 2006. The agreement provides that, following the closing date, FIC shall appoint Eugene Woznicki (or any substitute designee of Equita reasonably acceptable to FIC (the Equita Nominee) to serve on the FIC Board. In addition, FIC agreed that, with respect to the 2003 annual shareholders meeting and 2004 annual shareholders meeting, (a) to propose as a nominee for election to the FIC Board at such meeting the individual designated as the Equita Nominee, (b) to include the name of the Equita Nominee on FIC's proxy statement and proxy card for such meeting, (c) to recommend to its shareholders the election of the Equita Nominee of the Board, (d) to solicit proxies on behalf of the Equita 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. In the event that the attorneys-in-fact or proxies referenced in clause (e) utilize cumulative voting, such persons shall cumulate votes in favor of the Equita Nominee if such cumulative voting will result in the election of at least eight directors. (5) Registration Rights Agreement: In connection with the options granted to APS and Equita, the shares of FIC common stock purchased by APS from FIC and the shares of FIC common stock acquired by APS and M&W Insurance Services, Inc. (an affiliate of Equita) from the Mitte Foundation, FIC agreed to (i) on or prior to October 1, 2003, file with the Securities and Exchange Commission a shelf registration statement pursuant to Rule 415 under the Securities Act on Form S-1 or Form S-3, if the use of such form is then available as determined by the Company, to cover resales of such - 5 - shares, and (ii) use its commercially reasonable efforts to cause the shelf registration statement to be declared effective as soon as reasonably practicable following its filing with the SEC. In addition, FIC agreed to use its reasonable best efforts to keep the shelf registration statement continuously effective for a period ending on March 31, 2007, unless the need to discontinue the registration statement in effect to that date should occur. FIC also agreed to include the shares of restricted stock issued in connection with the acquisition of the New Era Marketing Companies in the same shelf registration statement. (6) Employment Agreement and Option Agreement - William P. Tedrow: In order to implement its business plan for the New Era Marketing Companies, FIC appointed William P. Tedrow as President of FICFS and a Vice President of FIC. In addition, FIC and Mr. Tedrow entered into an employment agreement, for a term ending March 31, 2009. The agreement provides for an annual base salary of $250,000, with provision for an annual bonus, not to exceed $200,000 per year. The amount of any annual bonus shall be established by the Chief Executive Officer ("CEO") of FIC 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. In addition, the agreement provides Mr. Tedrow with a 6% stock interest in FICFS subject to a right of repurchase by FIC and a lump sum payment of $400,000 for Mr. Tedrow's efforts in organizing and intergrating the New Era Marketing Companies to FIC. The restricted stock interest is repurchase by FIC on December, 31, 2008, or earlier upon termination of the employment agreement or the termination of the employment of Mr. Tedrow. The repurchase price is based upon the valuation of FICFS and an actuarial valuation of the block of insurance and annuity policies produced by or through FICFS; provided, however, if the repurchase is made in connection with the termination of Mr. Tedrow's employment for cause, or if Mr. Tedrow terminates his employment without good reason (as defined in the agreement), the repurchase price is limited to $10. If the repurchase price exceeds $5 million, FIC may, in lieu of paying such excess in cash, deliver to Mr. Tedrow a subordinated note of FIC, such note to be for a ten-year term, with equal 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%; In addition, FIC granted to Mr. Tedrow an option to purchase up to 150,000 shares of Common Stock at a per share exercise price of $13.07, but only if "Qualifying Premiums" for the "Determination Period" exceed $200,000,000. The definitions of Qualifying Premiums and Determination Period are the same as those for the option granted to APS. Unless earlier exercised, the options expire on December 31, 2006, or earlier in the event of the termination of Mr. Tedrow's employment for cause or if he terminates his employment without good cause. - 6 - (7) FIC has issued $15,000,000 aggregate principal amount of Floating Rate Senior Notes due 2033 (the "Senior Notes") and entered into a Senior Notes Subscription Agreement ("Subscription Agreement") with InCapS Funding I, Ltd. ("InCapS"), wherein InCapS agreed to purchase the Senior Notes. The Senior Notes were issued on May 22, 2003 pursuant to an indenture between FIC and Wilmington Trust Company, as Trustee (the "Indenture"). Sandler O'Neill & Partners, L.P. acted as the placement agent for the Senior Notes under the terms of a placement agreement dated May 13, 2003 (the "Placement Agreement", and collectively the Subscription Agreement, Indenture and Placement Agreement are referred to as the "Operative Documents"). The principal amount of the Senior Notes is to be paid on May 23, 2033 and interest shall be paid quarterly, beginning on August 23, 2003, at the rate of 4.20% over LIBOR (LIBOR is recalculated quarterly and the interest rate may not exceed 12.5% prior to May 2008). FIC may redeem the Senior Notes at any time on or after May 23, 2008 by payment of 100% of the principal amount of the Senior Notes being redeemed plus unpaid interest accrued to the payment date. In accordance with the terms of the Operative Documents, the entire principal and any interest accrued, but unpaid, may become immediately due and payable upon an event of default, which includes: failure to pay interest within 30 days of any due date; failure to pay principal when due; the bankruptcy or insolvency of FIC; or the merger of FIC or sale of all or substantially all of FIC's assets unless the successor entity to a merger is a United States corporation (or a foreign corporation which agrees to be bound by certain tax provisions included in the Indenture). The Operative Documents also place certain limitations on the offer or sale of securities of FIC, if such offer or sale would render invalid the Senior Notes' exemption from the registration requirements of the Securities Act of 1933; and further restrict, for a two year period, purchases of senior notes which are restricted securities. Item 7. FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibits The following exhibits are included with this Report: Exhibit 10.1 Stock Purchase Agreement , by and among Total Compensation Group Consulting, Inc., John Pesce, Mike Cochran, Arthur A. Howard, Geoffrey Calaway, W.M. Hartman, Edward F. Harman, III, M.B. Donaldson, Teri Hoyt, Alycia Andrews, Charles Francis, Tom Cook, David Allen, and Marcus Smith (collectively the "Sellers"), Financial Industries Corporation, and FIC Financial Services, Inc. (the "Purchaser"). - 7 - Exhibit 10.2 Stock Purchase Agreement by and among JNT Group, Inc., Earl W. Johnson (the "Seller"), Total Compensation Group Consulting, Inc., Financial Industries Corporation, and FIC Financial Services, Inc.("Purchaser"). Exhibit 10.3 Stock Purchase Agreement by and among Paragon Benefits, Inc., The Paragon Group, Inc., Paragon National, Inc., Scott A. Bell, Wayne C. Desselle, and Chris Murphy (collectively Bell, Desselle, and Murphy as the "Sellers"), Financial Industries Corporation, and FIC Financial Services, Inc.,( the "Purchaser"). Exhibit 10.4 Marketing Agreement by and among Investors Life Insurance Company of North America, Family Life Insurance Company and Equita Financial and Insurance Services of Texas, Inc. Exhibit 10.5 Stock Purchase and Option Agreement by and between Financial Industries Corporation, and American Physicians Service Group, Inc. Exhibit 10.6 Stock Option Agreement by and among Financial Industries Corporation, Equita Financial and Insurance Services of Texas, Inc., and, solely for purposes of Section 4.5 of the agreement, M&W Insurance Services, Inc. Exhibit 10.7 Registration Rights Agreement by and among Financial Industries Corporation, American Physicians Service Group, Inc., M&W Insurance Services, Inc., Equita Financial and Insurance Services of Texas, Inc. Exhibit 10.8 Employment Agreement by and between Financial Industries Corporation and William P. Tedrow. Exhibit 10.9 Stock Option Agreement between Financial Industries Corporation and William P. Tedrow. Exhibit 10.10 Senior Notes Subscription Agreement between Financial Industries Corporation and InCapS Funding I, Ltd., Exhibit 10.11 Placement Agreement with Sandler O'Neill & Partners, L.P. (The "Placement Agent"), as agent of FIC, with respect to the issue and sale by FIC and the placement by the Placement Agent of $15,000,000 aggregate principal amount of Floating Rate Senior Notes of FIC. Exhibit 10.12 Indenture Agreement between Financial Industries Corporation and Wilmington Trust Company, as trustee, pertaining to the issuance by FIC of the Floating Rate Senior Debt Securities due 2033. - 8 - Exhibit 99.1 Press release dated June 5, 2003 issued by Financial Industries Corporation Item 9. REGULATION FD DISCLOSURE On June 5, 2003, Financial Industries Corporation ("FIC") issued a press release announcing that it has acquired three companies in the secondary education financial services market. A copy of the press release is filed as Exhibit 99.1 to this report and is incorporated herein by reference. In a separate transaction, APS and M&W Insurance Services, Inc. (an affiliate of Equita) also announced that they had purchased 312, 484 shares and 204,918 shares, respectively, of FIC stock from the Roy F. and Joann Cole Mitte Foundation. These purchases represent a reduction in the number of shares for which FIC was to locate a purchaser in connection with the terms of the Settlement Agreement. In addition, APS purchased 27,395 shares from FIC, which shares represent a portion of the shares which FIC recently purchased from Roy F. Mitte pursuant to the provisions of the Settlement Agreement. NOTE: The information in Item 9 of this report (including Exhibit 99.1) is furnished pursuant to Item 9 and shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section. Such information will not be deemed an admission as to the materiality of any information contained in Item 9 that is required to be disclosed solely by regulation FD. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. FINANCIAL INDUSTRIES CORPORATION Date: June 5, 2003 By: /s/ Eugene E. Payne __________________________________ Eugene E. Payne President and Chief Executive Officer - 9 - EX-10 3 tcg-spa.txt EXHIBIT 10.1 - TCG SPA EXHIBIT 10.1 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (this "Agreement") is made and entered into as of this ______ day of May, 2003, by and among Total Compensation Group Consulting, Inc., a Texas corporation (the "Company"), John Pesce ("Pesce") an individual residing in the state of Texas, Mike Cochran ("Cochran"), an individual residing in the state of Texas, Arthur A. Howard ("Howard"), an individual residing in the state of Texas, Geoffrey Calaway ("Calaway"), an individual residing in the state of Texas, W.M. Hartman ("W. Hartman"), an individual residing in the state of Texas, Edward F. Harman, III ("E. Hartman"), an individual residing in the state of Texas, M.B. Donaldson ("Donaldson"), an individual residing in the state of Texas, Teri Hoyt ("Hoyt"), an individual residing in the state of Texas, Alycia Andrews ("Andrews"), an individual residing in the state of Texas, Charles Francis ("Francis"), an individual residing in the state of Texas, Tom Cook ("Cook"), an individual residing in the state of Arizona, David Allen ("Allen"), an individual residing in the state of Texas, and Marcus Smith ("Smith"), an individual residing in the state of Texas (collectively Pesce, Cochran, Howard, Calaway, W. Hartman, E. Hartman, Donaldson, Hoyt, Andrews, Francis, Cook, Allen and Smith shall be referred to herein as the "Sellers"), Financial Industries Corporation, a Texas corporation ("FIC") and FIC Financial Services, Inc., a Nevada corporation ("Purchaser" or "FICFS"). WHEREAS, the Sellers are the owners of all of the issued and outstanding shares of the Company's capital stock, which consists of 28,313 shares of common stock par value $0.10 per share ("Company Stock"); WHEREAS, the Sellers desire to sell the Company Stock to the Purchaser, on the terms and subject to the conditions set forth herein; and WHEREAS, the Purchaser desires to purchase all of the Seller's right, title and interest to the Company Stock, on the terms and subject to the conditions set forth herein. NOW, THEREFORE, 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: - 1 - Section 1. Purchase and Sale of the Company Stock. 1.1 Purchase and Sale; Closing. At the Closing (as defined below) the Purchaser shall purchase, and the Sellers shall to sell to the Purchaser (the "Purchase"), the Company Stock. The purchase price for the Company Stock (the "Purchase Price") shall consist of an aggregate sale price equal to the sum of (i) $1,984,824.00 in cash, by payment of cashier's check or wire transfer of immediately available funds to the account of each Seller set forth on their respective signature page, as included on and made a part of Schedule 1.1 attached hereto; and (ii) a total of 90,945 [$1,327,797 divided by $14.60] shares of FIC's common stock, par value $0.20 per share (the "FIC Stock"), as allocated to each Seller set forth on their respective signature page. The portion of the Purchase Price which involves the exchange of FIC Stock for the Company Stock is subject to the terms and conditions of sections 1.2 and 4.4 herein. At the Closing, the Sellers shall deliver to the Purchaser certificates representing all of the outstanding Company Stock, against payment by the Purchaser of the Purchase Price. The Company Stock acquired in the Purchase shall be delivered to Purchaser at the Closing, free and clear of any and all liens, claims or encumbrances (other than any such liens, claims or encumbrances created by Purchaser). Subject to satisfaction of all conditions to close, the Closing shall occur 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 Stock Restrictions. The FIC Stock issued to Sellers pursuant to Section 1.1 shall be held in escrow by Purchaser as follows: (a) Each Seller, other than Pesce and Cochran, agree that the transferability of the FIC Stock issued to them as part of the Purchase Price shall be restricted and otherwise locked up for a minimum period of twelve (12) months following the Closing Date (the "Lockup Restrictions"). During the period of the Lockup Restrictions, Purchaser shall hold the FIC Stock in escrow (the "Escrow Fund"). Any sales of the FIC Stock upon the expiration of the Escrow Fund will remain subject to compliance with applicable federal and state securities laws. Upon expiration of the intended term for the Lockup Restrictions or upon a Change of Control of FIC (but only if the employment agreements between (i) FICFS and Pesce and (ii) FICFS and Cochran, both dated even date herewith (the "Employment Agreements") have not been ratified by the buyer as described in Section 1.21(d) of the Employment Agreements) Purchaser shall, within three (3) days, deliver to each Seller his or her respective shares of FIC Stock previously held in the Escrow Fund. During the period covered by the Lockup Restrictions, and at all times thereafter, the FIC Stock issued as a part of the Purchase Price shall carry with it all the relative rights and preferences of all of the shares of common stock of FIC, and each holder of such FIC Stock shall enjoy and be entitled to the relative rights and preferences as all of the holders of common stock of FIC, including, without limitation, the right to vote such shares and to receive dividends related thereto. - 2 - (b) Pesce and Cochran agree that the FIC Stock issued to them as a portion of the Purchase Price shall be held in escrow by Purchaser as follows: (i) Establishment of the Pesce-Cochran Escrow Fund. At the Closing, all of the FIC Stock issued to Pesce and Cochran will be deposited with Purchaser to be held in escrow (the "Pesce-Cochran Escrow Fund"). The Pesce-Cochran Escrow Fund will be governed by the terms set forth in this Section 1.2(b). (ii) Escrow Period; Distribution of Pesce-Cochran Escrow Fund upon Termination of Escrow Period. Subject to the following requirements, the Pesce-Cochran Escrow Fund shall be in existence beginning on the Closing Date and shall terminate on the date which is three (3) years from the Closing Date. The FIC Stock in the Pesce-Cochran Escrow Fund shall be distributed as follows: (i) on the date which is one year from the Closing Date, as long as the Employment Agreements have not been terminated by their respective terms (unless such termination specifically vests Pesce and Cochran in the FIC Stock pursuant to the Employment Agreements), Purchaser shall distribute forty percent (40%) of the FIC Stock held in the Pesce-Cochran Escrow Fund to Pesce and Cochran, in equal amounts; (ii) on the date which is two years from the Closing Date, as long as the Employment Agreements have not been terminated by their respective terms (unless such termination specifically vests Pesce and Cochran in the FIC Stock pursuant to the Employment Agreements), Purchaser shall distribute two-thirds (2/3) of the remaining FIC Stock held in the Pesce-Cochran Escrow Fund to Pesce and Cochran, in equal amounts; and (iii) on the date which is three years from the Closing Date, as long as the Employment Agreements have not been terminated by their respective terms (unless such termination specifically vests Pesce and Cochran in the FIC Stock pursuant to the Employment Agreements), Purchaser shall distribute the remaining FIC Stock held in the Pesce-Cochran Escrow Fund to Pesce and Cochran, in equal amounts. Any sales of FIC Stock released from the Pesce-Cochran Escrow Fund will remain subject to compliance with applicable federal and state securities laws. - 3 - (iii) Forfeit of Shares in Escrow Fund. If at any time during the period which is within three (3) years of the Closing Date, Pesce or Cochran terminate their Employment Agreement for other than Good Reason (as defined in their respective Employment Agreements), or are terminated with Cause (as defined in their respective Employment Agreements), as such terms are defined therein, Pesce and Cochran shall forfeit any amount of FIC Stock remaining in the Pesce-Cochran Escrow Fund and such shares shall revert to Purchaser. (iv) Early Termination of the Pesce-Cochran Escrow Fund. In the event of a Change of Control of FIC (unless the Employment Agreements have been ratified by the buyer as described in Section 1.21(d) of the Employment Agreements), or in the event that the employment of Pesce or Cochran is terminated Without Cause (as defined in their respective Employment Agreements) or in the event Pesce or Cochran terminate their employment agreement for Good Reason (as defined in their respective Employment Agreements), then the restrictions applicable to the Pesce-Cochran Escrow Fund shall immediately be terminated, and all FIC Stock held in the Pesce-Cochran Escrow Fund shall, within three (3) days, be distributed to Pesce and Cochran, in equal amounts. Section 2. Representations and Warranties of the Sellers. The Sellers hereby represent and warrant, jointly and severally, to Purchaser that, as of the date of this Agreement: 2.1 Organization and Standing. The Company is a corporation duly formed, 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"). The Purchaser has been furnished a complete and correct copy of the Company's Articles of Incorporation and Bylaws, as currently in effect. - 4 - 2.2 Authority. (a) All corporate action on the part of Sellers necessary for the authorization, execution, delivery and performance of this Agreement and any other documents, instruments and transactions contemplated by this Agreement (collectively, the "Documents"), and the performance of all the obligations of Sellers hereunder have been taken or will be taken at or prior to the Closing. The execution, delivery and performance of this Agreement and the Documents and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by the Board of Directors of the Company (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 have been and will be duly and validly executed and delivered by the Company and the Sellers, and constitute valid and legally binding obligations of the Company and the Sellers, enforceable against the Company and the Sellers in accordance with their respective terms, except that enforcement thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). (b) Each individual Seller has the capacity to execute and deliver this Agreement, to carry out his or her obligations hereunder and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered on behalf of each Seller and, assuming the due authorization, execution and delivery by the Purchaser, constitutes a legal, valid and binding obligation of each Seller enforceable in accordance with its terms, except as may be limited by bankruptcy, insolvency, moratorium or other laws affecting creditors' rights generally and general principles of equity. 2.3 Absence of Conflicting Agreements or Required Consents. The execution, delivery and performance by the Sellers and the Company of this Agreement does not and will not violate, conflict with or result in the breach or default of any provision of the Company's Articles of Incorporation or Bylaws. Other than as set forth in Schedule 2.3 attached hereto, except for such violations, conflicts, breaches, defaults, consents, approvals, authorizations, orders, Actions, registrations, filings, declarations, notifications and Encumbrances that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or materially impair or delay the consummation of the transactions contemplated hereby, the execution, delivery and performance by the Sellers and the Company of this Agreement do not and will not (a) conflict with or violate any law or Governmental Order applicable to the Sellers or the Company or any of their respective properties or assets, (b) require any consent, approval, authorization or other order of, action by, registration or filing with or declaration or notification to any Governmental Authority or any other party, or (c) conflict with, result in any violation or breach of, - 5 - constitute a default (or event which with the giving of notice, or lapse of time or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any Encumbrance on any of the Sellers' or the Company's respective assets, or result in the imposition or acceleration of any payment, time of payment, vesting or increase in the amount of compensation or benefit payable, pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license or permit, or franchise to which a Seller or the Company is a party or by which their respective assets are bound. 2.4 Ownership of the Company Stock. (a) The Sellers constitute all shareholders of the Company. The authorized capital of the Company immediately prior to the Closing consists of 500,000 shares of common stock, par value $0.10, of which 28,313 shares are issued and outstanding and 500,000 shares of preferred stock, par value $0.10 of which 0 shares are issued and outstanding. Of the shares outstanding, 16,110 are Class A common stock, 3,890 are Class B common stock, 2,222 are Class C common stock, 2,778 are Class D common stock, 2,778 are Class E common stock, and 535 are Class F common stock. There are no other authorized or outstanding classes or series of capital stock of the Company. Upon the consummation of the transactions contemplated hereby, Purchaser will own, directly or indirectly, 100% of the issued and outstanding shares in the Company. No person or entity has any preemptive right to purchase any shares or any other securities of the Company. There are no outstanding securities or other instruments of the Company which are convertible into or exchangeable for any shares of the Company and there are no commitments to issue such securities or instruments or otherwise make a person or entity a shareholder of the Company (except the Purchaser pursuant to this Agreement). Except as set forth in Schedule 2.4, attached hereto, there is no existing option, warrant, right, call, or commitment of any character granted or issued by the Company governing the issuance of any shares of the Company or any "phantom" securities giving the holder thereof any economic attributes of ownership. All shares of the Company have been offered, issued and sold in compliance with applicable law. The Company Stock constitutes all of the outstanding shares of the Company. (b) The Sellers have good and marketable title to, and own, the Common Stock, beneficially and of record. The Common Stock is fully paid and non-assessable and, except for any right of the Purchaser under this Agreement, is free and clear of all Encumbrances, demands, preemptive rights and adverse claims of any nature. The Sellers have full voting power over all Common Stock, subject to no proxy, shareholders' agreement, voting trust or other agreement relating to the voting of any of the shares of the Company. There is no agreement between the Sellers and any other person or entity with respect to the disposition of the Common Stock. Upon the consummation of the Closing the Sellers will have transferred to the Purchaser good title to all Common Stock. - 6 - 2.5 Litigation. Except as disclosed in Schedule 2.5, (i) there is no Action against the Sellers (with respect to the Company) or the Company pending, or, to the knowledge of the Seller or the Company, threatened to be brought by or before any person, entity or Governmental Authority, in each case with respect to the Company, which would, if adversely determined as to such Seller or the Company, result in a liability to the Company, (ii) neither the Sellers nor the Company are subject to any Governmental Order (nor, to the knowledge of the Company and the Sellers, are there any such Governmental Orders threatened to be imposed by any Governmental Authority), in each case with respect to the Company and (iii) there is no Action pending, or, to the knowledge of the Sellers or the Company, threatened to be brought before any Governmental Authority, that seeks to question, delay or prevent the consummation of the transactions contemplated hereby. 2.6 Financial Statements. Except as noted thereon, the unaudited financial statements of the Company provided to Purchaser by the Company for the monthly periods from January 1, 2003 through February 28, 2003, and for the one month and twelve months ended December 31, 2002 (the "Company Financial Statements") were prepared on a modified cash basis of accounting to reflect the accrual of certain expenses and the recording of certain accounts receivable and certain accounts payable, but otherwise in accordance with Statements of Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants (the "Standards"), applicable to the business of the Company during the periods involved, consistently applied in accordance with past accounting practices, and fairly present the financial condition and the results of operations of the Company as of the dates and for the periods indicated. Necessary adjustments have been made in order for the Company's tax returns to be prepared and filed on a cash basis of accounting. Except as set forth on Schedule 2.6 attached hereto, for liabilities contemplated by this Agreement or as reflected in the Company Financial Statements, as of their respective dates, the Company did not have any debts, obligations, guaranties of obligations of another or liabilities (contingent or otherwise) outside the ordinary course of business that would be required in accordance with the Standards to be disclosed in the Company Financial Statements, or otherwise discloed in a manner consistent with past accounting practices, and except for such debts, obligations, guaranties or liabilities incurred in the ordinary course of business which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. - 7 - 2.7 Absence of Certain Changes or Events. Except as set forth on Schedule 2.7 attached hereto, since December 31, 2002 through the date of this Agreement and the Closing, (a) other than in the ordinary course of business consistent with past practice, the Company has not sold, transferred, leased, subleased, licensed or otherwise disposed of any material assets (for the purposes of this clause (a), a "material asset" is an individual asset that has a value in excess of $10,000 or assets that have an aggregate value in excess of $25,000); (b) the Company has not made any material change in any method of accounting or accounting practice or policy used by the Company, other than changes required by law or under GAAP; (c) the Company has not suffered any material casualty loss or damage, whether or not covered by insurance; (d) there has not been any direct or indirect redemption or other acquisition by the Company of any Common Stock, or any declaration, setting aside or payment of any distribution in respect of the Common Stock; (e) there has not been any Material Adverse Effect; (f) the Company has been operated only in the ordinary and usual course consistent with past practice; (g) the Company has not created, incurred, assumed or guaranteed any liabilities, obligations or Indebtedness for borrowed money (other than from Purchaser); (h) the Company has not compromised, settled, granted any waiver or release relating to, or otherwise adjusted any material Action, Indebtedness or any other claims or rights of the Company; (i) the Company has not paid or promised a bonus to any employee (unless such bonus is reflected on or reserved against in the Company Financial Statements), (j) the Company has not entered into any employment or consulting agreement or arrangement with any person and no prior employment agreements or consulting agreements or arrangements have been modified, and (k) the Company has not entered into any agreement, contract, commitment or arrangement to do any of the foregoing. 2.8 Material Contracts. Complete and accurate copies of all written Material Contracts of the Company have been delivered or made available to the Purchaser except as otherwise noted and set forth in Schedule 2.8. Each Material Contract is legal, valid and binding on the Company and, to the knowledge of the Sellers and the Company, the other parties thereto, and enforceable in accordance with the terms thereof, (b) each Material Contract is in full force and effect, (c) neither the Company nor the Sellers are in default under any Material Contract, (d) neither the Sellers nor the Company has waived any of their respective rights under any Material Contract and (e) to the knowledge of the Sellers and the Company, no other party to any Material Contract has breached or is in default thereunder and there does not exist any event or condition that, with or without the lapse of time or the giving of notice, would become such a breach or default or would cause the acceleration of any obligation thereunder. Notwithstanding the foregoing, the Securities Exchange Commission rules require that the Company obtain the consent of those clients who have signed an Investment Advisory Agreement ("IAA") with the Company in connection with any transaction that would result in a material change in the ownership of the Company. The Company and Sellers represent that they will use their best efforts to obtain these consents prior to the consummation of the transaction contemplated by this Agreement with regard to each current signed - 8 - IAA with applicable clients of the Company. In the event any client with an IAA elects not to consent to such matter, such clients may elect to terminate the applicable IAA. The Company and Sellers represent and warrant that in the event of such a termination, the Company and Sellers will use their best efforts to have a new IAA signed by the applicable terminating client within a reasonable period of time after the transaction contemplated by this Agreement is completed, but can make no assurances with regard to whether or when such terminating clients will sign new IAA with the Company. 2.9 Insurance. Except as set forth in Schedule 2.9, attached hereto, (i) all insurance policies to which the Company is a party or under which the Company is covered as an additional named insured or otherwise (or replacement policies therefore) are in full force and effect, and the Sellers or the Company has paid all premiums due and are not in default, (ii) no notice of cancellation or non-renewal with respect to, or disallowance of any claim under, any such policy has been received by the Sellers or the Company and (iii) neither the Sellers nor the Company have been refused insurance with respect to the Company, nor has coverage with respect to the Company been previously canceled or materially limited, by an insurer to which a Seller or the Company has applied for such insurance, or with which a Sellers or the Company has held insurance, within the last three years. 2.10 Permits and Licenses; Compliance with Law. (a) Except as set forth in Schedule 2.10, attached hereto, (i) the Company currently holds all the permits, licenses, authorizations, certificates, exemptions and approvals of Governmental Authorities or other persons or entities necessary for the current operation and conduct of the Company in all material respects as it is being conducted by the Company (collectively, "Permits"), and all Permits are in full force and effect, (ii) the Company has not received written notice from any Governmental Authority revoking, canceling, rescinding, materially modifying or refusing to renew any Permit and (iii) the Company is in compliance in all material respects with the requirements of all Permits. - 9 - (b) Except as disclosed in Schedule 2.10, attached hereto, (i) the Company is in compliance in all material respects with all laws and Governmental Orders applicable to the conduct of the Company as it is being conducted and (ii) the Company has not been charged by any Governmental Authority with a violation of any law or any Governmental Order relating to the conduct of the Company. 2.11 Employee Benefit Matters. (a) Schedule 2.11, attached hereto, identifies each Employee Benefit Plan. Purchaser has been furnished copies of the Employee Benefit Plans (and, if applicable, related trust agreements) and all amendments thereto and written interpretations thereof together with the three most recent annual reports (Form 5500 including, if applicable, Schedule B thereto) and the most recent actuarial valuation report prepared in connection with any Employee Benefit Plan. Neither the Company nor any of their ERISA Affiliates have now, or have maintained in the past, any Employee Benefit Plan which is (i) a multiemployer plan, (ii) a Title IV Plan or (iii) Employee Benefit Plan maintained in connection with any trust described in Section 501(c)(9) of the Internal Revenue Code (the "Code"). (b) No transaction prohibited by Section 406 of ERISA or Section 4975 of the Code has occurred with respect to any Employee Benefit Plan or arrangement which is covered by Title I of ERISA which transaction has or will cause the Company to incur any material liability under ERISA, the Code or otherwise, excluding transactions effected pursuant to and in compliance with a statutory or administrative exemption. (c) Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and has been so qualified during the period since its adoption; each trust created under any such Employee Benefit Plan is exempt from tax under Section 501(a) of the Code and has been so exempt since its creation. Purchaser has been provided with the most recent determination letter of the Internal Revenue Service relating to each such Employee Benefit Plan. Each Employee Benefit Plan has been maintained in substantial compliance with its terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations, including ERISA and the Code. - 10 - (d) The Company does not have any current or projected liability in respect of post-employment or post-retirement health or medical or life insurance benefits for retired, former or current employees of the Company. (e) Except as disclosed in Schedule 2.11, attached hereto, there is no contract, plan or arrangement (written or otherwise) covering any employee or former employee of the Company that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to the terms of Section 280G of the Code and no employee or former employee of the Company will become entitled to any bonus, retirement, severance, job security or similar benefit or enhanced such benefit (including acceleration of vesting or exercise of an incentive award) as a result of the transactions contemplated hereby. (f) There are no pending, or, to the knowledge of any Company, or the Sellers, threatened or anticipated, claims under or with respect to any Employee Benefit Plan, by any employee or beneficiary covered under any such Employee Benefit Plan, or otherwise involving such Employee Benefit Plan (other than routine claims for benefits). (g) The Company and Sellers represent and warrant that any Employee Benefit Plan shall be terminated concurrent with the Closing of this Agreement. 2.12 Intellectual Property. Except as disclosed in Schedule 2.12, attached hereto, (a) the rights of the Company in or to its intellectual property do not conflict with or infringe on the rights of any other person or entity, and the Company has not received any claim from any person or entity to such effect nor, to the Company's nor the Sellers' knowledge, has any such claim been threatened, (b) the Company owns, licenses or otherwise have the right to use, all their intellectual property and (c) to the knowledge of the Company and Sellers, no other person or entity is infringing or diluting the rights of the Company with respect to its intellectual property. 2.13 Taxes. Except as disclosed in Schedule 2.13, attached hereto, (i) all income and franchise tax returns required to be filed by the Company has been timely filed, and such income and franchise tax returns are true, complete and correct in all material respects; (ii) all income and franchise taxes shown on such tax returns have been timely paid other than such taxes, if any, as are described in Schedule 2.13 and are being contested in good faith and as to which adequate reserves (determined in accordance with GAAP) have been provided in the Company Financial Statements; (iii) no adjustment relating to such tax returns has been proposed in writing by any tax authority and remains unresolved; (iv) there are no tax liens on any of the Company's assets (other than liens for taxes that are not yet due and payable); and (v) all income and franchise taxes that the Company is required to pay, withhold or collect have been duly paid, withheld or collected and, to the extent required, have been paid to the proper tax authority. - 11 - 2.14 No Brokers. Except for Arthur A. Howard, the Sellers know of no other party entitled to any broker, transaction, or finder's fees related to the transaction contemplated by this Agreement. Each Seller acknowledges and understands that the Purchaser has agreed to, in addition to the Purchase Price, pay Arthur A. Howard a transaction closing fee equal to $52,000, simultaneous with the funding of the Purchase Price. Each of the Sellers further understands and agrees that such transaction closing fee is payable to Mr. Howard in addition to other amounts payable to him under this Agreement by the Purchaser. Each Seller further acknowledges and understands that the Purchaser shall treat such transaction closing fee as part of the fees, costs and expenses associated with the acquisition of the Company Stock pursuant to this Agreement. 2.15 Enterprise Interests. Schedule 2.15 contains a complete and correct listing of each company, entity or enterprise in which the Company has an equity interest. 2.16 Assets. The Company has good and valid title to all material assets the Company owns, including those reflected in the Company Financial Statements or thereafter acquired, except those sold or otherwise disposed of since the date of the Company Financial Statements not in violation of this Agreement, in each case free and clear of all Encumbrances. 2.17 Real Property. (a) Schedule 2.17, attached hereto, sets forth a complete list of all real property and interests in real property owned in fee by the Company (the "Owned Properties") and a complete list of all real property and interests in real property leased by the Company (the "Leased Properties"; an Owned Property or a Leased Property being sometimes referred to herein, individually, as a "Subject Property" and collectively, as "Subject Properties"). The Company has good and marketable fee title to all Owned Property free and clear of all Encumbrances except (i) as set forth on Schedule 2.17, (ii) easements, covenants, rights-of-way and other similar restrictions, whether or not of record, (iii) any conditions that may be shown by a current, accurate survey or physical inspection of any Subject Property made prior to the Closing and (v) (A) zoning, building and other similar restrictions, and (B) Encumbrances, easements, covenants, rights-of-way and other similar restrictions that have been placed by a developer, landlord or other third party on any Subject Property which is not owned in fee by the Company and subordination or similar agreements relating thereto. Except as set forth on Schedule 2.17, all buildings and structures included within any Owned Property lie wholly within the - 12 - boundaries of the Owned Property and do not encroach upon the property of, or otherwise conflict with the property rights of, any other party. Except as set forth in Schedule 2.17, the Company is the lessee of all the Leased Property and is in possession of the premises purported to be leased thereunder, and each such lease is a valid obligation of such lessee without any material default thereunder by such lessee. The consummation of the transactions contemplated by this Agreement will not result in a breach of, or a default under, any lease with respect to any Leased Property. 2.18 No Undisclosed Liabilities. Except as set forth on Schedule 2.18, 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 does not have any liabilities or obligations whatsoever, whether accrued, contingent or otherwise. The Sellers know of no basis for any claim against the Company or Sellers for any liability or obligation, except (a) to the extent set forth or reflected in the Company Financial Statements or disclosed on Schedule 2.6, (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 December 31, 2002, or (d) those which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 2.19 Acknowledgements of the Sellers. In connection with the issuance of the FIC Stock as part of the Purchase Price, the Sellers (a) understand that the FIC Stock has not been registered under the Securities Act or the securities laws of any state at the time the FIC Stock is delivered to the Sellers; and (b) acknowledges that each certificate representing the FIC stock will be endorsed with substantially the following legends: 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. 2.20 Employment Agreements of Pesce and Cochran. Pesce and Cochran acknowledge that a material inducement for Purchaser's payment of the Purchase Price hereunder is Pesce and Cochran entering into employment agreements with Purchaser, or an affiliate of Purchaser, which contain non-competition and non-solicitation provisions. - 13 - 2.21 Investment Representations. Each Seller who will receive FIC Stock represents and warrants to FIC and FICFS: (a) that such Seller and such Seller's advisers (including a Seller Representative, if any) has been furnished and has carefully read information pertaining to FIC and its business profile; (b) that such Seller and such Seller's advisers (including a Seller Representative, if any) have been furnished all materials relating to FIC and all matters related to FIC which have been requested, and have been afforded the opportunity to obtain any additional information necessary to verify the accuracy of any information set forth in FIC's business profile and related materials; (c) that such Seller and such Seller's advisers (including a Seller Representative, if any) have had an opportunity to ask questions of or receive answers from FIC or its representatives, and FIC and its representatives have answered all inquiries which such Seller and his or her advisers (including a Seller Representative, if any) has put to them concerning FIC, the FIC Stock or any other matters relating to FIC; (d) the Seller understands that the FIC Stock has not been registered under the Securities Act or under the securities laws of any state, that FIC has no intention to register the FIC Stock, that Seller has no right to require such registration, and that the FIC Stock cannot be sold unless it is registered under applicable federal and state securities laws or unless exemptions from registration are available; (e) the Seller understands that an investment in FIC involves a high degree of risk and other considerations relating to a purchase of FIC Stock, that such Seller is subscribing for the FIC Stock without being furnished any offering literature or prospectus other than FIC's business profile, and that this transaction and FIC's business profile most likely have not been scrutinized by, nor meet the investment guidelines of, the securities administrator in my state of residence as would be the case with a full registration because of the FIC Stock made the subject of this issuance; (f) that such Seller alone has the requisite knowledge, sophistication and experience in financial and business matters to enable such Seller to assess the relative merits and risks of this investment, or together with such Seller's Representative has the requisite knowledge, sophistication and experience in financial and business matters to be capable of evaluating the risks and merits of this investment, and has made such investigations in connection herewith as have been deemed necessary or desirable so as not to rely upon FIC or its representatives for legal, tax or economic information related to this investment; - 14 - (g) such Seller is not relying on FIC or its representatives or the references to any legal opinions, if any, with respect to the legal, tax and other economic considerations relating to this investment. To the extent that such Seller has sought advice with regard to such considerations, such Seller has relied on the advice of, or have consulted with, his or her personal legal, tax, investment and/or other advisers; (h) No oral or written representations have been made or oral or written information furnished to a Seller or a Seller's adviser(s) in connection with FIC or the FIC Stock which are in any way inconsistent with the information provided to me related to FIC; (i) Seller acknowledges and understands that the actual results of operations of FIC may vary materially from the financial forecast and financial projections contained in any business profile or plans, and that neither FIC, nor any of its officers, directors, shareholders, employees, agents or professionals, including their accountants and attorneys, make any representation or warranty as to such actual results of operations or as to any benefits which a Seller may be allocated pursuant to this investment; (j) that each Seller has reached the age of majority (if a natural person) in the jurisdiction of such Seller's residence and is a qualified accredited investor (whether by hisself or together with a Seller Representative); (k) that each Seller has adequate means of providing for current needs and personal contingencies, has no need for liquidating this investment, is able to bear the economic risk of an investment in FIC, can sustain the loss of the entire investment without economic hardship if a total loss should occur, and such Seller's commitment to similar investments is reasonable in relation to my net worth; (l) The FIC Stock being acquired hereunder is being acquired for Seller's own account, or for one or more fiduciary accounts as to which Seller has sole investment discretion, for long-term investment and not with a view to or for resale, fractionalization or division in connection with any distribution thereof; (m) Seller is not subscribing for the purchase of FIC Stock as a result of or subsequent to any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or any seminar or meeting; - 15 - (n) each Seller verifies, under penalty of perjury, that the social security or taxpayer identification number shown next to such Seller's signature is true, correct and complete and that Seller is not subject to backup withholding either (i) because Seller has not been notified that Seller is subject to backup withholding as a result of a failure to report all interest or dividends, or (ii) because the Internal Revenue Service has notified Seller that Seller is no longer subject to backup withholding; (o) Within five days after receipt of a request from FIC, each Seller will provide such information and deliver such documents as may reasonably be necessary to comply with any and all laws and ordinances to which FIC is subject. Section 3. Representations of Purchaser and FIC. Purchaser and FIC represent and warrant to the Company and the Sellers that: 3.1 Authority. FICFS (a) is duly formed, validly existing and in good standing under the laws of the State of Nevada, (b) has full organizational 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 have been and will be duly and validly executed and delivered by FICFS, and, assuming this Agreement and the Documents constitute the valid and legally binding obligations of the Company and the Sellers, this Agreement and the Documents constitute valid and binding agreements of FICFS, enforceable against FICFS 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 (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 the consummation by Purchaser of the transactions contemplated hereby. 3.3 Offering. Subject to the truth and accuracy of the Company's and the Sellers' representations and warranties set forth in Section 2 of this Agreement, the offer and issuance of the FIC Stock as contemplated by this Agreement is exempt from the registration requirements of any applicable state and federal securities laws (other than notice filings required under applicable law), and neither the Purchaser, FIC, nor any authorized agent acting on their behalf will take any action that would cause the loss of such exemption. - 16 - 3.4 Litigation. Except as set forth in Schedule 3.4 attached hereto, there is no action, suit, proceeding or investigation pending or, to Purchaser's knowledge, threatened against Purchaser that questions the validity of this Agreement or the right of Purchaser to enter into this Agreement and to consummate the transactions contemplated hereby. 3.5 Ownership of Shares. The FIC Stock delivered by Purchaser hereunder as consideration for a portion of the Purchase Price for the Company Stock, when delivered in accordance with the terms of this Agreement for the consideration set forth herein, will be duly and validly issued, fully paid, and nonassessable, free and clear of any encumbrances (other than encumbrances created by the Company or the Sellers) and any restrictions on transfer other than under applicable state and federal securities laws and will convey to the Sellers good and marketable title to such FIC Stock. 3.6 Broker, Transaction or Finder's Fees. Except for Arthur A. Howard, neither Purchaser nor FIC know of no other party entitled to any broker, transaction, or finder's fees related to the transaction contemplated by this Agreement. Purchaser agrees that, in addition to the Purchase Price, it will pay Arthur A. Howard a transaction closing fee equal to $52,000, simultaneous with the funding of the Purchase Price. This transaction closing fee is payable to Mr. Howard in addition to other amounts under this Agreement to which he shall be entitled. Purchaser shall treat such transaction closing fee as a part of the fees, costs and expenses associated with acquisition of the Company Stock pursuant to this Agreement. Section 4. Covenants and Agreements. 4.1 Conduct of the Business Prior to Closing; Access. The Company and the Sellers covenant as follows: (a) Between the date hereof and the Closing Date, except as expressly contemplated by this Agreement, or except with the written consent of the Purchaser (which consent shall not be unreasonably withheld), the Sellers and the Company will use all reasonable efforts to preserve the business of the Company intact, to preserve the good will of customers, employees and others having business relations with the Company, to retain their key employees, and to maintain insurance in full force and effect, will operate their business in the ordinary course of business consistent with past practice - 17 - and will not: (i) subject any of their assets to any Encumbrance that will not be released at or prior to the Closing Date; (ii) make any material changes in the operations of the Company; (iii) other than, in each case, in the ordinary course of business consistent with past practice, sell, transfer, lease, sublease, license or otherwise dispose of any material assets (for the purposes of this clause (iii), a "material asset" is an individual asset that has a value in excess of $10,000 or assets that have an aggregate value in excess of $25,000); (iv) (A) grant any increase, or announce any increase, in the wages, salaries, compensation, bonuses, incentives, pension, severance or termination pay or other benefits payable by the Company to any of the officers or employees of the Company, including any increase or change pursuant to any Employee Benefit Plan, (B) establish or increase (or promise to increase) or accelerate the payment or vesting of any benefits under any Employee Benefit Plan with respect to officers or employees of the Company or (C) enter into any employment, consulting or severance agreements with any officers or employees or consultants to the Company or change the terms thereof, in the case of clauses (A), (B) and (C), (v) make any material change in any method of accounting or accounting practice or policy used by the Company, other than changes required by Law or under GAAP; (vi) terminate or amend in any material respect any Material Contract; (vii) merge or consolidate with, or acquire securities or any interest in, any person or entity, or enter into any joint venture, partnership or similar arrangement; (viii) fail to pay any creditor any amount owed to such creditor when due (after the expiration of any applicable grace periods), except if any such amount is being disputed in good faith in the ordinary course of business consistent with past practice; (ix) terminate, discontinue, close or dispose of any business operation or otherwise materially change the character or conduct of its business; (x) declare, set aside or pay any dividend or other distribution in respect of any the Company Stock; (xi) make any commitments by the Company for any individual capital expenditure in excess of $20,000; (xii) amend the Company's Articles of Incorporation or Bylaws; (xiii) amend any material term of any outstanding Indebtedness, issue or sell any new debt securities, create, incur, assume or guarantee any Indebtedness or enter into any new credit facility (other than roll-overs under existing facilities), (xiv) compromise, settle, grant any waiver or release relating to, or otherwise adjust, any material Action, Indebtedness or any other claims or rights of the Company; (xv) enter into any new agreement, contract, commitment or arrangement that will continue in effect after the Closing Date and not be terminable by the Company on not more than 60 days' written notice without payment of premium or penalty; (xvi) make any change in the ownership of the Company or grant or assign any Company Stock, options, rights or phantom shares in the Company; or (xvii) enter into any agreement, contract, commitment or arrangement to do any of the foregoing. - 18 - (b) Pending the Closing Date, the Company shall: (i) Give to the Purchaser and its representatives reasonable access during normal business hours to all of the employees, properties, books and records of the Company and furnish the Purchaser and its representatives with such information concerning the Company as the Purchaser may reasonably require, including such access and cooperation as may be necessary to allow the Purchaser and its representatives to interview the employees, to examine the books and records of the Company, and to inspect the real property and equipment; (ii) Furnish the Purchaser within 20 days after the end of each month ending between the date of this Agreement and the Closing Date a statement of income and a balance sheet for the Company for the month just ended; and (iii) From time to time, furnish to the Purchaser such additional information (financial or otherwise) concerning the Company as the Purchaser may reasonably request (which right to request information shall not be exercised in any way which would unreasonably interfere with the normal operations, business or activities of the Sellers or the Company). 4.2 Cooperation. Following the execution of this Agreement, the Purchaser, FIC, the Sellers and the Company agree as follows: (a) The parties shall each use their reasonable best efforts, and shall cooperate fully with each other in preparing, filing, prosecuting, and taking any other actions with respect to, any filings, applications, requests, or actions which are or may be necessary, to obtain the consents, approvals, authorizations or other orders of any Governmental Authority or other person which are or may be necessary in connection with the transactions contemplated by this Agreement. (b) Without limiting the foregoing, the Sellers shall cooperate with the Purchaser at the Purchaser's request and in so doing use their best efforts from and after the Closing Date to obtain consents to the Material Contracts set forth in Schedule 2.8, as required in accordance with the terms of such Material Contracts; (c) If the Purchaser or the Company receives an administrative or other order or notification relating to any violation or claimed violation of the rules and regulations of any Governmental Authority that could affect the Purchase's, the Sellers' or the Company's ability to consummate the transactions contemplated hereby, the Purchaser, the Sellers or the Company shall promptly notify the other party or parties thereof and shall use its reasonable best efforts to take such steps as may be necessary to remove any such impediment to the transactions contemplated by this Agreement; and no such notification shall affect the representations or warranties of the parties or the conditions to their respective obligations hereunder; and - 19 - (d) Subject to the terms and conditions of this Agreement, each of the parties agrees to use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated hereby as soon as practicable but in no event later than the Closing. 4.3 Taxes. Income taxes for the year 2003 for the Company shall be allocated (i) to the Sellers for the period from January 1, 2003 to the Closing Date, and (ii) to the Purchaser for the period from the Closing Date to December 31, 2003. The Purchaser shall be responsible for filing or causing to be filed all tax returns required to be filed by or on behalf of the Company after the Closing Date. The Purchaser and the Sellers shall cooperate with the exchange of information to allow the Sellers to complete such accounting as shall be necessary to fulfill the requirements of this Section 4.3, including information necessary to complete and interim accounting for the year 2003 through the Closing Date. With respect to any such income tax return required to be filed by the Purchaser for a taxable period of the Company beginning on or before the Closing Date, the Purchaser shall deliver, at least twenty days prior to the due date for filing of such tax return (including extensions), to Sellers a statement setting forth the amount of tax for which Sellers are responsible pursuant to this section (the "Statement"), and copies of such tax return. 4.4 Registration Rights. (a) Registration of Shares. For purposes of this Agreement, "Holder" means Sellers and "Registrable Shares" means any shares of FIC Stock held by a Holder, and any and all shares of FIC Stock issued as (or issuable upon the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, shares of FIC Stock held by a Holder until the date on which (i) such share of FIC Stock has been effectively registered under the Securities Act and disposed of in accordance with the a Shelf Registration Statement (as defined below), (ii) such share of FIC Stock is distributed to the public pursuant to Rule 144 under the Securities Act, or (iii) such share of FIC Stock may be sold or transferred pursuant to Rule 144(k) under the Securities Act (or any similar provision then in effect). During the time which a Holder holds Registrable Shares, if FIC files with the SEC a shelf registration statement pursuant to Rule 415 under the Securities Act (a "Shelf Registration Statement") on Form S-1 or Form S-3, if the use of such form is then available as determined by FIC, FIC agrees to include the Registrable Shares held by the Holders as part of such Shelf Registration Statement. FIC has no obligation pursuant to this section 4.4 or this Agreement to file a Shelf Registration Statement. - 20 - (b) Suspension of Registration. Notwithstanding anything to the contrary in this Section 4.4, FIC may prohibit offers and sales of Registrable Shares pursuant to a Shelf Registration Statement at any time if (A)(i) it is in possession of material non-public information, (ii) the Board of Directors of FIC believes in good faith that such prohibition is necessary in order to avoid a legal requirement to disclose such material non-public information and (iii) the Board of Directors of FIC believes in good faith that disclosure of such material non-public information would not be in the best interests of FIC and its shareholders, (B)(i) FIC has made a public announcement relating to an acquisition or business combination transaction including FIC and/or one or more of its subsidiaries that is material to FIC and its subsidiaries taken as a whole and (ii) the Board of Directors of FIC believes in good faith that it would be impracticable at the time to obtain any financial statements relating to such acquisition or business combination transaction that would be required to be set forth in the Shelf Registration Statement, or (C) such Shelf Registration Statement contains financial information that no longer meets the requirements of any applicable rule of Regulation S-X (the period during which any such prohibition of offers and sales of Registrable Shares pursuant to a Shelf Registration Statement is in effect pursuant to clause (A) or (B) of this subsection (c) is referred to herein as a "Suspension Period"). A Suspension Period shall commence on and include the date on which the Holders of Registrable Shares covered by a Shelf Registration Statement receive written notice from FIC that offers and sales of Registrable Shares cannot be made thereunder in accordance with this subsection (c) and shall, with respect to each Holder, end on the date on which that Holder either is advised in writing by FIC that offers and sales of Registrable Shares pursuant to the Shelf Registration Statement and use of the prospectus contained therein may be resumed (a "Resumption Notice") or receives a copy of a prospectus supplement. FIC agrees that it must promptly deliver a Resumption Notice to each Holder when none of the requisite conditions for the Suspension Period continue to exist or a prospectus supplement as soon as reasonably practicable. (c) Damages. Neither FIC nor Purchaser shall not be liable to any Holders for damages pursuant to this Section 4.4. (d) No Further Obligations of FIC. Neither FIC nor Purchaser shall have any further obligations to Holders pursuant to this Section 4.4. (e) Further Obligations of the Holders. In the event that FIC files a Shelf Registration Statement in connection with the registration of Registrable Shares pursuant to this Section 4.4, each Holder agrees to timely provide to FIC, at its request, such information and materials as it may reasonably request in order to effect the registration of such Registrable Shares. - 21 - (f) Expenses. In the event that FIC files a Shelf Registration Statement pursuant to this section 4.4, FIC shall bear, on behalf of the Holders, all reasonable costs and expenses of such registration, including, but not limited to, the Company's printing, legal and accounting fees and expenses, and SEC filing fees. Holders shall be responsible for any fees and disbursements of Holders' counsel. Further, neither FIC nor Purchaser shall have any obligation to pay or otherwise bear the commissions or discounts attributable to the Registrable Shares being offered and sold by the Holders. (g) Indemnification of FIC. (i) Right to Indemnification. In the event that FIC registers any of the Registrable Shares under the Securities Act, each Holder of the Registrable Shares so registered will indemnify and hold harmless FIC and Purchaser, each of their directors, each of their officers who have signed or otherwise participated in the preparation of the registration statement, and each underwriter of the Registrable Shares so registered (including any broker or dealer through whom such of the shares may be sold) from and against any and all losses, claims, damages, expenses or liabilities, joint or several, to which they or any of them may become subject under the Securities Act, applicable state securities laws or under any other statute or at common law or otherwise, and, except as hereinafter provided, will reimburse FIC or Purchaser and each such director, officer, underwriter or controlling person for any legal or other expenses reasonably incurred by them or any of them in connection with investigating or defending any actions whether or not resulting in any liability, insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement, in any preliminary or amended preliminary prospectus or in the final prospectus (or in the registration statement or prospectus as from time to time amended or supplemented) or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, but only insofar as any such statement or omission was made in reliance upon and in conformity with information furnished in writing to FIC in connection therewith by such Holder expressly for use therein; provided, however, that such Holder's obligations hereunder shall be limited to an amount equal to the proceeds received by such Holder from Registrable Shares sold in such registration. - 22 - (ii) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which FIC or Purchaser seeks indemnification under this subsection (g) but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding that this subsection (g) provides for indemnification, in such case, then FIC, Purchaser and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of FIC on the one hand and of such Holder on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of FIC on the one hand and of the Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by FIC on the one hand or by the Holder on the other, and each party's relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case, (i) no such Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Shares offered by it pursuant to such registration statement; and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Except as otherwise provided in this clause (ii), the provisions of Section 5.4 shall govern the notice and other procedural aspects of any indemnification claim brought pursuant to this subsection (g). Section 5. Indemnification. 5.1 Survival. The representations, warranties covenants and other agreements of the parties contained herein or in any Document shall survive the Closing for a period of two (2) years following the Closing Date (the "Survival Period"). - 23 - 5.2 Indemnification by the Company and the Sellers. The Company and the Sellers, jointly and severally, shall indemnify FIC, Purchaser and their affiliates, 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 or Sellers contained herein or in any Document, that is asserted in writing to the Company or Sellers prior to the expiration of the Survival Period. Notwithstanding the provisions of this Section 5.2, the maximum liability of the Company and the Sellers under this Agreement shall be the aggregate amount of consideration paid by Purchaser hereunder, and each Seller's maximum liability shall be limited to an amount equal to the proceeds received by him or her pursuant to this Agreement. 5.3 Indemnification by Purchaser. Purchaser shall indemnify the Sellers and their respective successors, heirs and personal representatives (collectively, the "Sellers Indemnified Parties"), against and hold them harmless from any and all Damages incurred or suffered by any Sellers 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 aggregate amount of consideration paid by Purchaser hereunder and the maximum liability of Purchaser to any Seller shall be limited to an amount equal to the consideration paid to such Seller pursuant to this Agreement. 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 who is not a Purchaser Indemnified Party or a Sellers 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 - 24 - in any material respect the Indemnifying Party's ability to defend such claim, action or proceeding. The Indemnifying Party shall have the right to assume the defense of any such action or proceeding at its expense. 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. Conditions to Closing. 6.1 Conditions to Purchaser's and FIC's Obligations. The obligation of Purchaser and FIC to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (a) No court or governmental entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any order or other law (whether temporary, preliminary or permanent) that is in effect and enjoins or otherwise prohibits consummation of the transactions contemplated by this Agreement. (b) The representations and warranties of the Company and the Sellers contained herein (or in any certificate delivered pursuant hereto) that are qualified by reference to a Material Adverse Effect shall be true and correct as of the Closing as if made as of the Closing and all other representations and warranties of the Company shall be true and correct as of the Closing as if made as of the Closing, except for such inaccuracies as have not had a Material Adverse Effect, and Purchaser shall have received a certificate to such effect dated the Closing Date and executed by a duly authorized officer of the Company. - 25 - (c) The covenants and agreements of the Company and the Sellers to be performed on or prior to the Closing shall have been duly performed in all material respects, and Purchaser shall have received a certificate to such effect dated the Closing Date and executed by a duly authorized officer of the Company. (d) The Sellers shall have delivered certificates representing the Company Stock in the name of Purchaser. (e) Pesce and Cochran shall have entered into employment contracts with FICFS. 6.2 Conditions to the Company's and the Sellers' Obligations. The obligation of the Company and the Sellers to consummate the transactions to be performed by them in connection with the Closing is subject to satisfaction of the following conditions: (a) No court or governmental entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any order or other law (whether temporary, preliminary or permanent) that is in effect and enjoins or otherwise prohibits consummation of the transactions contemplated by this Agreement. (b) The representations and warranties of Purchaser and FIC contained herein (or in any certificate delivered pursuant hereto) that are qualified by reference to a material adverse effect shall be true and correct as of the Closing as if made as of the Closing and all other representations and warranties of Purchaser and FIC shall be true and correct as of the Closing as if made as of the Closing, except for such inaccuracies as would not materially impair the transactions contemplated by this Agreement, and the Company shall have received a certificate to such effect dated the Closing Date and executed by Purchaser. (c) The covenants and agreements of Purchaser and FIC to be performed on or prior to the Closing shall have been duly performed in all material respects, and the Company shall have received a certificate to such effect dated the Closing Date and executed by Purchaser. - 26 - (d) Purchaser shall have delivered the Purchase Price. (e) FICFS shall have entered into employment contracts with Pesce and Cochran. Section 7. Termination. 7.1 Termination. This Agreement may be terminated at any time prior to the Closing: (a) by mutual written agreement of the Sellers, Purchaser, and FIC; or (b) by either the Sellers or Purchaser (including FIC) by giving written notice of such termination to the other party, if such other party shall breach any of its material covenants or agreements under this Agreement which would result in a failure of the condition set forth in Section 6.1(c), in the case of a termination by Purchaser or FIC, and the condition set forth in Section 6.2(c), in the case of a termination by the Sellers, and such breach, if reasonable possibility of cure therefore exists, has not been cured within twenty (20) days following the giving of written notice of such breach by the non-breaching party to the breaching party; or (c) by either Purchaser or the Sellers by giving written notice of such termination to the other party, if any order permanently enjoining or otherwise prohibiting consummation of the transactions contemplated hereby shall become final and non-appealable; or (d) by Purchaser or the Sellers by giving written notice of such termination to the other, if any condition to such party's obligations hereunder has not been satisfied or waived and the Closing shall not have occurred on or prior to May 30, 2003; provided, however, that the right to terminate this Agreement pursuant to this Section 7.1(d) shall not be available to any party who is then in material breach of this Agreement; or (e) by Purchaser or by the Sellers if FICFS and Pesce and Cochran have not entered into employment agreements. 7.2 Effect of Termination. In the event of the termination of this Agreement in accordance with Section 7.1 hereof, this Agreement shall thereafter become void and have no effect, and no party hereto or its respective affiliates or their directors, officers, employees, shareholders or agents shall have any liability to the other parties hereto or their respective affiliates, directors, officers, employees, shareholders or agents except for the obligations of the parties hereto; provided, that nothing herein will relieve any party from liability for a breach of this Agreement prior to such termination. - 27 - Section 8. Definitions. Unless otherwise stated in this Agreement, the following capitalized terms have the following meanings: "Action" means any action, suit, claim, arbitration, grievance, complaint, charge, proceeding or investigation (of which either the Sellers or the Company have knowledge) commenced by or pending before any Governmental Authority. "Change of Control" means, for purposes of Section 1.2 herein, the definition given to the term "Change of Control" in the Employment Agreements. "Employee Benefit Plans" means all "employee benefit plans" within the meaning of Section 3(3) of ERISA (whether or not subject to ERISA), all bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement, severance and other employee benefit plans, programs, policies or arrangements, and all employment, retention, change of control or compensation agreements, in each case for the benefit of, or relating to, any current employee or former employee of the Company. "Encumbrance" means any security interest, pledge, mortgage, lien (including tax liens), charge, encumbrance, easement, adverse claim, adverse preferential arrangement, restriction or defect in title. GAAP means United States generally accepted accounting principles and practices as in effect from time to time and applied consistently throughout the periods involved. "Governmental Authority" means any United States federal, state or local government or any foreign government, any governmental, regulatory, legislative, executive or administrative authority, agency or commission or any court, tribunal, or judicial body. "Governmental Order" means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority. Governmental Orders shall not include Permits. "Indebtedness" means obligations with regard to borrowed money and shall expressly not include either accounts payable or accrued liabilities that are incurred in the ordinary course of business or obligations under capital, financing or operating leases regardless of how such leases maybe classified or accounted for on financial statements. - 28 - "Material Contracts" means the written agreements, contracts, policies, plans, mortgages, understandings, arrangements or commitments to which the Sellers or the Company is a party as described below: (i) any agreement or contract providing for payments to any person or entity in excess of $20,000 per year, excluding leases of equipment or real property or licenses with respect to Intellectual Property, which are subject to paragraph (iv) below; (ii) any employment agreement, consulting agreement or similar contract; (iii) any retention or severance agreement or similar contract with respect to any individual who is to be employed by the Company following the Closing Date; (iv) any lease of equipment or real property or license with respect to Intellectual Property (other than licenses granted in connection with the purchase of equipment or other assets) by the Company from another person or entity providing for payments to another person or entity in excess of $25,000 per year; (v) any joint venture, partnership or similar agreement or contract of the Company; (vi) any agreement or contract under which the Company has borrowed or loaned any money in excess of $25,000 or issued or received any note, bond, indenture or other evidence of Indebtedness in excess of $25,000 or directly or indirectly guaranteed Indebtedness, liabilities or obligations of others in an amount in excess of $25,000; or (vii) any agreement or contract with any officer, manager, Seller or employee of the Company or any of their family members (other than employment agreements covered in clause (i) or agreements or contracts containing terms substantially similar to terms available to employees generally). Section 9. Miscellaneous. 9.1 Successors and Assigns. 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. 9.2 Entire Agreement. This Agreement, including 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. - 29 - 9.3 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. 9.4 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. 9.5 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 Travis County, Texas, and venue for any action relating to this Agreement shall be proper only in federal or state courts located within Travis County, Texas. Each party agrees that it must bring any action related to this Agreement or any other Document only in the federal or state courts located within Travis County, Texas. 9.6 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 9.6. 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 9.6. - 30 - Purchaser: FIC Financial Services, Inc. 6500 River Place Blvd., Building One Austin, Texas 78730 Attn: William P. Tedrow FIC: Financial Industries Corporation 6500 River Place Blvd., Building One Austin, Texas 78730 Attn: Gene Payne and Ted Fleron Company: Total Compensation Group Consulting, Inc. 4201 Bee Cave Road, Suite C-101 Austin, Texas 78746 Attn: Mike Cochran Each of the Sellers: At the address set forth opposite their respective names on their respective signature pages included on and made a part of Schedule 1.1, attached hereto. 9.7 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 other Documents and to consummate the transactions contemplated. Each party will use its good faith efforts to carry out and comply with the provisions of this Agreement. 9.8 No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person other than the parties hereto and their respective successors and permitted assigns. 9.9 Adjustments in Shares Issued Pursuant to Section 1.1. The number of shares of FIC Stock to be issued pursuant to Section 1.1 of this Agreement shall be adjusted in the event the Closing does not take place on May 19, 2003; and in such event, the parties agree that the price per share, based on formula defined in such section, shall be recalculated, and adjustments may be made in the number of shares of FIC Stock issuable, without the necessity of any further signature or other requirements on the part of the Sellers, the Purchaser, the Company, or any other party. [Signature page follows] - 31 - SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase Agreement as of the day and year first above written. PURCHASER: FIC FINANCIAL SERVICES, INC. By:_____________________________________ Name:___________________________________ Title:__________________________________ FINANCIAL INDUSTRIES CORPORATION By:_____________________________________ Name:___________________________________ Title:__________________________________ COMPANY: Total Compensation Group Consulting, Inc. By:_____________________________________ Name:___________________________________ Title:__________________________________ [Add individual Seller signature pages] - 32 - EX-10 4 jem-spa.txt EXHIBIT 10.2 - JNT -SPA EXHIBIT 10.2 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (this "Agreement") is made and entered into as of this ______ day of May, 2003, by and among JNT Group, Inc., a Texas corporation (the "Company"), Earl W. Johnson ("Johnson" or "Seller") an individual residing in the state of Texas, Total Compensation Group Consulting, Inc., a Texas corporation ("TCG"), Financial Industries Corporation, a Texas corporation ("FIC"), and FIC Financial Services, Inc., a Nevada Corporation ("Purchaser" or "FICFS"). WHEREAS, Seller and TCG are the owners of all of the issued and outstanding shares of the Company's capital stock, which consists of 1,000 shares of common stock par value $1.00 per share ("Company Stock"); WHEREAS, Seller desires to sell the Company Stock to the Purchaser, on the terms and subject to the conditions set forth herein; and WHEREAS, the Purchaser desires to purchase all of the Seller's rights, title and interest to the Company Stock, on the terms and subject to the conditions set forth herein; and WHEREAS, the Purchaser desires TCG to affirm the status of its ownership in the Company, which, in connection with a separate transaction involving TCG and FIC or one of its affiliates, will become derivatively owned by FIC after the completion of such transaction. NOW, THEREFORE, 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. Purchase and Sale of the Company Stock. 1.1 Purchase and Sale; Closing. At the Closing (as defined below) the Purchaser shall purchase, and the Seller shall to sell to the Purchaser (the "Purchase"), the Company Stock. The purchase price for the Company Stock (the "Purchase Price") shall be paid solely to the Seller and shall consist of an aggregate sale price equal to the sum of (a) $514,583.45 in cash, by payment of cashier's check or wire transfer of immediately available funds to the account of Seller set forth on Schedule 1.1 attached hereto; and (b) a total of 16,710 [$243,966 divided by $14.60] shares of FIC's common stock, par value $0.20 per share (the "FIC Stock"). All consideration paid by Purchaser for the Company Stock owned by TCG is set forth in a separate agreement between Purchaser, FIC and the shareholders of TCG dated even date herewith (the "TCG Agreement"), it being understood that no separate consideration is being exchanged between FIC and TCG related to the Company Stock held by TCG. The portion of the Purchase Price which involves the exchange of FIC Stock for the Company Stock is subject - 1 - to the terms and conditions of sections 1.2 and 4.4 herein. At the Closing, the Seller and TCG shall deliver to the Purchaser certificates representing all of the outstanding Company Stock, against payment by the Purchaser of the Purchase Price. The Company Stock acquired in the Purchase shall be delivered to Purchaser at the Closing, free and clear of any and all liens, claims or encumbrances (other than any such liens, claims or encumbrances created by Purchaser). Subject to satisfaction of all conditions to close, the Closing shall occur 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 Stock Restrictions. The FIC Stock issued to Seller pursuant to Section 1.1 shall be held in escrow by Purchaser as follows: (a) Establishment of the Escrow Fund. At the Closing, all of the FIC Stock issued to Seller will be deposited with Purchaser to be held in escrow (the "Escrow Fund"). The Escrow Fund will be governed by the terms set forth in this Section 1.2. (b) Escrow Period; Distribution of Escrow Fund upon Termination of Escrow Period. Subject to the following requirements, the Escrow Fund shall be in existence beginning on the Closing Date and shall terminate on the date which is three (3) years from the Closing Date. The FIC Stock in the Escrow Fund shall be distributed as follows: (i) on the date which is one year from the Closing Date, as long as the employment agreement between FICFS and Johnson, dated even date herewith (the "Employment Agreement") has not been terminated according to its terms, Purchaser shall distribute one-third (1/3) of the FIC Stock held in the Escrow Fund to Johnson; (ii) on the date which is two years from the Closing Date, as long as the Employment Agreement has not been terminated according to its terms, Purchaser shall distribute one-half (1/2) of the remaining FIC Stock held in the Escrow Fund to Johnson; and (iii) on the date which is three years from the Closing Date, as long as the Employment Agreement has not been terminated according to its terms, Purchaser shall distribute the remaining FIC Stock held in the Escrow Fund to Johnson. Any sales of FIC Stock released from the Escrow Fund will remain subject to compliance with applicable federal and state securities laws. - 2 - (c) Forfeit of Shares in Escrow Fund. If at any time during the period which is within three (3) years of the Closing Date, Johnson terminates the Employment Agreement for other than Good Reason, or is terminated with Cause, as such terms are defined in the Employment Agreement, Seller shall forfeit any amount of FIC Stock remaining in the Escrow Fund and such shares shall revert to Purchaser. Section 2. Representations and Warranties of the Seller. The Seller hereby represents and warrants to Purchaser and FIC that, as of the date of this Agreement: 2.1 Organization and Standing. The Company is a corporation duly formed, 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. (a) All corporate action on the part of Seller necessary for the authorization, execution, delivery and performance of this Agreement and any other documents, instruments and transactions contemplated by this Agreement (collectively, the "Documents"), and the performance of all the obligations of Seller hereunder have been taken or will be taken at or prior to the Closing. The execution, delivery and performance of this Agreement and the Documents and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by the Board of Directors of the Company (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 have been and will be duly and validly executed and delivered by the Company and the Seller, and constitute valid and legally binding obligations of the Company and the Seller, enforceable against the Company and the Seller in accordance with their respective terms, except that enforcement thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). - 3 - (b) Seller has the capacity to execute and deliver this Agreement, to carry out his obligations hereunder and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered on behalf of the Seller and, assuming the due authorization, execution and delivery by the Purchaser, constitutes a legal, valid and binding obligation of Seller enforceable in accordance with its terms, except as may be limited by bankruptcy, insolvency, moratorium or other laws affecting creditors' rights generally and general principles of equity. 2.3 Absence of Conflicting Agreements or Required Consents. The execution, delivery and performance by the Seller and the Company of this Agreement does not and will not violate, conflict with or result in the breach or default of any provision of the Company's Articles of Incorporation or Bylaws. Other than as set forth in Schedule 2.3 attached hereto, except for such violations, conflicts, breaches, defaults, consents, approvals, authorizations, orders, Actions, registrations, filings, declarations, notifications and Encumbrances that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or materially impair or delay the consummation of the transactions contemplated hereby, the execution, delivery and performance by the Seller and the Company of this Agreement do not and will not (a) conflict with or violate any law or Governmental Order applicable to the Seller or the Company or any of their respective properties or assets, (b) require any consent, approval, authorization or other order of, action by, registration or filing with or declaration or notification to any Governmental Authority or any other party, or (c) conflict with, result in any violation or breach of, constitute a default (or event which with the giving of notice, or lapse of time or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any Encumbrance on any of the Seller's or the Company's respective assets, or result in the imposition or acceleration of any payment, time of payment, vesting or increase in the amount of compensation or benefit payable, pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license or permit, or franchise to which the Seller or the Company is a party or by which their respective assets are bound. - 4 - 2.4 Ownership of the Company Stock. The Seller (other than and excluding the rights, title and interest in the Company Stock owned by TCG) owns all rights, title and interest (legal or beneficial) in and to all the Company Stock of the Company, free and clear of all liens or other encumbrances. The authorized capital of the Company immediately prior to the Closing consists of 1,000,000 shares of common stock, par value $1.00, of which 1,000 shares are issued and outstanding. There are no other authorized or outstanding classes or series of capital stock of the Company. Upon the consummation of the transactions contemplated hereby, Purchaser will own, directly or indirectly, 100% of the issued and outstanding shares in the Company. No person or entity has any preemptive right to purchase any shares or any other securities of the Company. There are no outstanding securities or other instruments of the Company which are convertible into or exchangeable for any shares of the Company and there are no commitments to issue such securities or instruments or otherwise make a person or entity a shareholder of the Company (except the Purchaser pursuant to this Agreement). Except as set forth in Schedule 2.4, attached hereto, there is no existing option, warrant, right, call, or commitment of any character granted or issued by the Company governing the issuance of any shares of the Company or any "phantom" securities giving the holder thereof any economic attributes of ownership. All shares of the Company have been offered, issued and sold in compliance with applicable law. The Company Stock constitutes all of the outstanding shares of the Company. (b) The Seller has good and marketable title to, and owns, the Common Stock, beneficially and of record. The Common Stock is fully paid and non-assessable and, except for any right of the Purchaser under this Agreement, is free and clear of all Encumbrances, demands, preemptive rights and adverse claims of any nature. The Seller has full voting power over all Common Stock, subject to no proxy, shareholders' agreement, voting trust or other agreement relating to the voting of any of the shares of the Company. There is no agreement between the Seller and any other person or entity with respect to the disposition of the Common Stock. Upon the consummation of the Closing the Seller will have transferred to the Purchaser good title to all Common Stock. - 5 - 2.5 Litigation. Except as disclosed in Schedule 2.5, (i) there is no Action against the Seller or TCG (with respect to the Company) or the Company pending, or, to the knowledge of the Seller or the Company, threatened to be brought by or before any person, entity or Governmental Authority, in each case with respect to the Company, which would, if adversely determined as to such Seller or the Company, result in a liability to the Company, (ii) neither the Seller nor the Company are subject to any Governmental Order (nor, to the knowledge of the Company and the Seller, are there any such Governmental Orders threatened to be imposed by any Governmental Authority), in each case with respect to the Company and (iii) there is no Action pending, or, to the knowledge of the Seller or the Company, threatened to be brought before any Governmental Authority, that seeks to question, delay or prevent the consummation of the transactions contemplated hereby. 2.6 Financial Statements. Except as noted thereon, the unaudited financial statements of the Company provided to Purchaser by Seller for the periods ending December 31, 2001, December 31, 2002, and February 28, 2003 (the "Company Financial Statements") were prepared on a modified cash basis of accounting to reflect the accrual of certain expenses and the recording of certain accounts receivable and certain accounts payable, but otherwise in accordance with Statements of Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants (the "Standards"), applicable to the business of the Company during the periods involved, consistently applied in accordance with past accounting practices, and fairly present the financial condition and the results of operations of the Company as of the dates and for the periods indicated. Seller represents and warrants that as of the Closing Date, the Company will have at least $84,000 in assets (the "Closing Assets"), which will be reflected on a balance sheet as of the Closing Date, prepared in accordance with the Standards. The Closing Assets will consist of at least $42,000 in combined cash and receivables from parties other than Paragon Benefits, Inc., The Paragon Group, Inc. or Paragon National, Inc. Necessary adjustments to the Company Financial Statements have been made in order for the Company's tax returns to be prepared and filed on a cash basis of accounting. Except as set forth on Schedule 2.6 attached hereto, the Company did not have any debts, obligations, guaranties of obligations of another or liabilities (contingent or otherwise) that would be required in accordance with the Standards to be disclosed in the Company Financial Statements, or otherwise disclosed in a manner consistent with past accounting practices. - 6 - 2.7 Absence of Certain Changes or Events. Except as set forth on Schedule 2.7 attached hereto, since December 31, 2002 through the date of this Agreement and the Closing, (a) other than in the ordinary course of business consistent with past practice, the Company has not sold, transferred, leased, subleased, licensed or otherwise disposed of any material assets (for the purposes of this clause (a), a "material asset" is an individual asset that has a value in excess of $10,000 or assets that have an aggregate value in excess of $25,000); (b) the Company has not made any material change in any method of accounting or accounting practice or policy used by the Company, other than changes required by law; (c) the Company has not suffered any material casualty loss or damage, whether or not covered by insurance; (d) there has not been any direct or indirect redemption or other acquisition by the Company of any Common Stock, or any declaration, setting aside or payment of any distribution in respect of the Common Stock; (e) there has not been any Material Adverse Effect; (f) the Company has been operated only in the ordinary and usual course consistent with past practice; (g) the Company has not created, incurred, assumed or guaranteed any liabilities, obligations or Indebtedness for borrowed money (other than from Purchaser); (h) the Company has not compromised, settled, granted any waiver or release relating to, or otherwise adjusted any material Action, Indebtedness or any other claims or rights of the Company; (i) the Company has not paid or promised a bonus to any employee (unless such bonus is reflected on or reserved against in the Company Financial Statements), (j) the Company has not entered into any employment or consulting agreement or arrangement with any person and no prior employment agreements or consulting agreements or arrangements have been modified, and (k) the Company has not entered into any agreement, contract, commitment or arrangement to do any of the foregoing. 2.8 Material Contracts. Schedule 2.8, attached hereto, sets forth all Material Contracts of the Company as of the date hereof. Complete and accurate copies of all written Material Contracts listed in Schedule 2.8 have been delivered or made available to the Purchaser (except as otherwise noted therein). Except as set forth in Schedule 2.8, (a) each Material Contract is legal, valid and binding on the Company and, to the knowledge of the Seller and the Company, the other parties thereto, and enforceable in accordance with the terms thereof, (b) each Material Contract is in full force and effect, (c) neither the Company nor the Seller are in default under any Material Contract, (d) neither the Seller nor the Company has waived any of their respective rights under any Material Contract and (e) to the knowledge of the Seller and the Company, no other party to any Material Contract has breached or is in default thereunder and there does not exist any event or condition that, with or without the lapse of time or the giving of notice, would become such a breach or default or would cause the acceleration of any obligation thereunder. - 7 - 2.9 Insurance. Except as set forth in Schedule 2.9, attached hereto, (i) all insurance policies to which the Company is a party or under which the Company is covered as an additional named insured or otherwise (or replacement policies therefore) are in full force and effect, and the Sellers or the Company has paid all premiums due and are not in default, (ii) no notice of cancellation or non-renewal with respect to, or disallowance of any claim under, any such policy has been received by the Seller or the Company and (iii) neither the Seller nor the Company have been refused insurance with respect to the Company, nor has coverage with respect to the Company been previously canceled or materially limited, by an insurer to which Seller or the Company has applied for such insurance, or with which Seller or the Company has held insurance, within the last three years. 2.10 Permits and Licenses; Compliance with Law. (a) Except as set forth in Schedule 2.10, attached hereto, (i) the Company currently holds all the permits, licenses, authorizations, certificates, exemptions and approvals of Governmental Authorities or other persons or entities necessary for the current operation and conduct of the Company in all material respects as it is being conducted by the Company (collectively, "Permits"), and all Permits are in full force and effect, (ii) the Company has not received written notice from any Governmental Authority revoking, canceling, rescinding, materially modifying or refusing to renew any Permit and (iii) the Company is in compliance in all material respects with the requirements of all Permits. (b) Except as disclosed in Schedule 2.10, attached hereto, (i) the Company is in compliance in all material respects with all laws and Governmental Orders applicable to the conduct of the Company as it is being conducted and (ii) the Company has not been charged by any Governmental Authority with a violation of any law or any Governmental Order relating to the conduct of the Company. - 8 - 2.11 Employee Benefit Matters. (a) Schedule 2.11, attached hereto, identifies each Employee Benefit Plan. Purchaser has been furnished copies of the Employee Benefit Plans (and, if applicable, related trust agreements) and all amendments thereto and written interpretations thereof together with the three most recent annual reports (Form 5500 including, if applicable, Schedule B thereto) and the most recent actuarial valuation report prepared in connection with any Employee Benefit Plan. Neither the Company nor any of their ERISA Affiliates have now, or have maintained in the past, any Employee Benefit Plan which is (i) a multiemployer plan, (ii) a Title IV Plan or (iii) Employee Benefit Plan maintained in connection with any trust described in Section 501(c)(9) of the Internal Revenue Code (the "Code"). (b) No transaction prohibited by Section 406 of ERISA or Section 4975 of the Code has occurred with respect to any Employee Benefit Plan or arrangement which is covered by Title I of ERISA which transaction has or will cause the Company to incur any material liability under ERISA, the Code or otherwise, excluding transactions effected pursuant to and in compliance with a statutory or administrative exemption. (c) Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and has been so qualified during the period since its adoption; each trust created under any such Employee Benefit Plan is exempt from tax under Section 501(a) of the Code and has been so exempt since its creation. Purchaser has been provided with the most recent determination letter of the Internal Revenue Service relating to each such Employee Benefit Plan. Each Employee Benefit Plan has been maintained in substantial compliance with its terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations, including ERISA and the Code. (d) The Company does not have any current or projected liability in respect of post-employment or post-retirement health or medical or life insurance benefits for retired, former or current employees of the Company. - 9 - (e) Except as disclosed in Schedule 2.11, attached hereto, there is no contract, plan or arrangement (written or otherwise) covering any employee or former employee of the Company that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to the terms of Section 280G of the Code and no employee or former employee of the Company will become entitled to any bonus, retirement, severance, job security or similar benefit or enhanced such benefit (including acceleration of vesting or exercise of an incentive award) as a result of the transactions contemplated hereby. (f) There are no pending, or, to the knowledge of any Company, or the Seller, threatened or anticipated, claims under or with respect to any Employee Benefit Plan, by any employee or beneficiary covered under any such Employee Benefit Plan, or otherwise involving such Employee Benefit Plan (other than routine claims for benefits). 2.12 Intellectual Property. Except as disclosed in Schedule 2.12, attached hereto, (a) the rights of the Company in or to its intellectual property do not conflict with or infringe on the rights of any other person or entity, and the Company has not received any claim from any person or entity to such effect nor, to the Company's nor the Seller's knowledge, has any such claim been threatened, (b) the Company owns, licenses or otherwise have the right to use, all their intellectual property and (c) to the knowledge of the Company and Seller, no other person or entity is infringing or diluting the rights of the Company with respect to its intellectual property. 2.13 Taxes. Except as disclosed in Schedule 2.13, attached hereto, (i) all income and franchise tax returns required to be filed by the Company has been timely filed, and such income and franchise tax returns are true, complete and correct in all material respects; (ii) all income and franchise taxes shown on such tax returns have been timely paid other than such taxes, if any, as are described in Schedule 2.13 and are being contested in good faith and as to which adequate reserves have been provided in the Company Financial Statements; (iii) no adjustment relating to such tax returns has been proposed in writing by any tax authority and remains unresolved; (iv) there are no tax liens on any of the Company's assets (other than liens for taxes that are not yet due and payable); and (v) all income and franchise taxes that the Company is required to pay, withhold or collect have been duly paid, withheld or collected and, to the extent required, have been paid to the proper tax authority. - 10 - 2.14 No Brokers. There are no brokers, financial advisors or finders or other persons or entities who have any valid claim against the Seller or the Company, or any of their respective assets for a commission, finders' fee, brokerage fee, advisory fee or other similar fee in connection with this Agreement, or the transactions contemplated hereby, by virtue of any actions taken by or on behalf of the Company, the Seller or the Company's officers, employees or agents. 2.15 Enterprise Interests. Schedule 2.15 contains a complete and correct listing of each company, entity or enterprise in which the Company has an equity interest. 2.16 Assets. The Company has good and valid title to all material assets the Company owns, including those reflected in the Company Financial Statements or thereafter acquired, except those sold or otherwise disposed of since the date of the Company Financial Statements not in violation of this Agreement, in each case free and clear of all Encumbrances. 2.17 Real Property. (a) Schedule 2.17, attached hereto, sets forth a complete list of all real property and interests in real property owned in fee by the Company (the "Owned Properties") and a complete list of all real property and interests in real property leased by the Company (the "Leased Properties"; an Owned Property or a Leased Property being sometimes referred to herein, individually, as a "Subject Property" and collectively, as "Subject Properties"). The Company has good and marketable fee title to all Owned Property free and clear of all Encumbrances except (i) as set forth on Schedule 2.17, (ii) easements, covenants, rights-of-way and other similar restrictions, whether or not of record, (iii) any conditions that may be shown by a current, accurate survey or physical inspection of any Subject Property made prior to the Closing and (v) (A) zoning, building and other similar restrictions, and (B) Encumbrances, easements, covenants, rights-of-way and other similar restrictions that have been placed by a developer, landlord or other third party on any Subject Property which is not owned in fee by the Company and subordination or similar agreements relating thereto. Except as set forth on Schedule 2.17, all buildings and structures included within any Owned Property lie wholly within the boundaries of the Owned Property and do not encroach upon the property of, or otherwise conflict with the property rights of, any other party. Except as set forth in Schedule 2.17, the Company is the lessee of all the Leased Property and is in possession of the premises purported to be leased thereunder, and each such lease is a valid obligation of such lessee without any material default thereunder by such lessee. The consummation of the transactions contemplated by this Agreement will not result in a breach of, or a default under, any lease with respect to any Leased Property. - 11 - 2.18 No Undisclosed Liabilities. Except as set forth on Schedule 2.18, 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 does not have any liabilities or obligations whatsoever, whether accrued, contingent or otherwise. Seller agrees to and does hereby release the Company, FIC and the Purchaser from and against any and all loans and other indebtedness owed to Seller by the Company in connection with all dates prior to the Closing Date. Seller knows of no basis for any claim against the Company or Seller for any liability or obligation, except (a) to the extent set forth or reflected in the Company Financial Statements or disclosed on Schedule 2.6, (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 December 31, 2002, or (d) those which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 2.19 Acknowledgements of the Seller. In connection with the issuance of the FIC Stock as part of the Purchase Price, the Seller (a) understands that the FIC Stock has not been registered under the Securities Act or the securities laws of any state at the time the FIC Stock is delivered to the Seller; and (b) acknowledges that each certificate representing the FIC stock will be endorsed with substantially the following legends: 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. 2.20 Employment Agreement of Johnson. Johnson acknowledges that a material inducement for Purchaser's payment of the Purchase Price hereunder is Johnson entering into an employment agreement with Purchaser, which contains non-competition and non-solicitation provisions. 2.21 Investment Representations. Seller represents and warrants to FIC and FICFS: - 12 - (a) that Seller and Seller's advisers (including a Seller Representative, if any) has been furnished and has carefully read information pertaining to FIC and its business profile; (b) that Seller and Seller's advisers (including a Seller Representative, if any) has been furnished all materials relating to FIC and all matters related to FIC which have been requested, and has been afforded the opportunity to obtain any additional information necessary to verify the accuracy of any information set forth in FIC's business profile and related materials; (c) that Seller and Seller's advisers (including a Seller Representative, if any) has had an opportunity to ask questions of or receive answers from FIC or its representatives, and FIC and its representatives have answered all inquiries which Seller and his advisers (including a Seller Representative, if any) has put to them concerning FIC, the FIC Stock or any other matters relating to FIC; (d) Seller understands that the FIC Stock has not been registered under the Securities Act or under the securities laws of any state, that FIC has no intention to register the FIC Stock, that Seller has no right to require such registration, and that the FIC Stock cannot be sold unless it is registered under applicable federal and state securities laws or unless exemptions from registration are available; (e) Seller understands that an investment in FIC involves a high degree of risk and other considerations relating to a purchase of FIC Stock, that Seller is subscribing for the FIC Stock without being furnished any offering literature or prospectus other than FIC's business profile, and that this transaction and FIC's business profile most likely have not been scrutinized by, nor meet the investment guidelines of, the securities administrator in Seller's state of residence as would be the case with a full registration because of the FIC Stock made the subject of this issuance; (f) that Seller alone has the requisite knowledge, sophistication and experience in financial and business matters to enable Seller to assess the relative merits and risks of this investment, or together with Seller's Representative has the requisite knowledge, sophistication and experience in financial and business matters to be capable of evaluating the risks and merits of this investment, and has made such investigations in connection herewith as have been deemed necessary or desirable so as not to rely upon FIC or its representatives for legal, tax or economic information related to this investment; - 13 - (g) Seller is not relying on FIC or its representatives or the references to any legal opinions, if any, with respect to the legal, tax and other economic considerations relating to this investment. To the extent that Seller has sought advice with regard to such considerations, Seller has relied on the advice of, or have consulted with, his or her personal legal, tax, investment and/or other advisers; (h) No oral or written representations have been made or oral or written information furnished to Seller or Seller's adviser(s) in connection with FIC or the FIC Stock which are in any way inconsistent with the information provided to me related to FIC; (i) Seller acknowledges and understands that the actual results of operations of FIC may vary materially from the financial forecast and financial projections contained in any business profile or plans, and that neither FIC, nor any of its officers, directors, shareholders, employees, agents or professionals, including their accountants and attorneys, make any representation or warranty as to such actual results of operations or as to any benefits which a Seller may be allocated pursuant to this investment; (j) Seller has reached the age of majority (if a natural person) in the jurisdiction of such Seller's residence and is a qualified accredited investor (whether by himself or together with a Seller Representative); (k) that Seller has adequate means of providing for current needs and personal contingencies, has no need for liquidating this investment, is able to bear the economic risk of an investment in FIC, can sustain the loss of the entire investment without economic hardship if a total loss should occur, and Seller's commitment to similar investments is reasonable in relation to Seller's net worth; (l) The FIC Stock being acquired hereunder is being acquired for Seller's own account, or for one or more fiduciary accounts as to which Seller has sole investment discretion, for long-term investment and not with a view to or for resale, fractionalization or division in connection with any distribution thereof; - 14 - (m) Seller is not subscribing for the purchase of FIC Stock as a result of or subsequent to any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or any seminar or meeting; (n) Seller verifies, under penalty of perjury, that the social security or taxpayer identification number shown next to Seller's signature is true, correct and complete and that Seller is not subject to backup withholding either (i) because Seller has not been notified that Seller is subject to backup withholding as a result of a failure to report all interest or dividends, or (ii) because the Internal Revenue Service has notified Seller that Seller is no longer subject to backup withholding; (o) Within five days after receipt of a request from FIC, Seller will provide such information and deliver such documents as may reasonably be necessary to comply with any and all laws and ordinances to which FIC is subject. Section 2A. Representations of TCG. 2A.1 Acknowledgement of Consideration. TCG hereby acknowledges that it is receiving no consideration in connection with this Agreement and the transactions contemplated herein, but that the shareholders of TCG have contracted to receive sufficient consideration with respect to the transactions contemplated by the TCG Agreement and that such consideration is adequately set forth and contained in the TCG Agreement. 2A.2 Authority. All corporate action on the part of TCG necessary for the authorization, execution, delivery and performance of this Agreement and any other documents, instruments and transactions contemplated by this Agreement (collectively, the "Documents"), and the performance of all the obligations of TCG hereunder has been taken or will be taken at or prior to the Closing. This Agreement and the Documents have been and will be duly and validly executed and delivered by TCG , and constitute valid and legally binding obligations of TCG , enforceable against it in accordance with their respective 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). - 15 - 2A.3 Ownership of the Company Stock. TCG owns all rights, title and interest (legal or beneficial) in and to 400 shares of the Company Stock, free and clear of all liens or other encumbrances. The Company Stock acquired by Purchaser hereunder from TCG, when transferred and delivered in accordance with the terms of this Agreement for the consideration set forth herein, will be duly and validly issued, fully paid, and nonassessable, and will be issued free of any encumbrances (other than encumbrances created by Purchaser) and any restrictions on transfer. TCG has not directly or indirectly, since January 2, 2003, acquired or redeemed, or entered into any agreement providing for the acquisition or redemption of, any shares of Company Stock. 2A.4 Litigation. There is no action, suit, proceeding or investigation pending or, to the knowledge of TCG, threatened against the Company or TCG that questions the validity of this Agreement or the right of the Company or TCG to enter into this Agreement and to consummate the transactions contemplated hereby. Section 3. Representations of Purchaser. Purchaser represents and warrants to the Company, the Seller and TCG that: 3.1 Authority. FICFS (a) is duly formed, validly existing and in good standing under the laws of the State of Nevada, (b) has full organizational 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 have been and will be duly and validly executed and delivered by Purchaser, and, assuming this Agreement and the Documents constitute the valid and legally binding obligations of the Company and the Seller, this Agreement and the 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 (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 the consummation by Purchaser of the transactions contemplated hereby. - 16 - 3.3 Offering. Subject to the truth and accuracy of the Company's and the Seller's representations and warranties set forth in Section 2 and to TCG's representations and warranties set forth in Section 2A of this Agreement, the offer and issuance of the FIC Stock as contemplated by this Agreement is exempt from the registration requirements of any applicable state and federal securities laws (other than notice filings required under applicable law), and neither the Purchaser nor any authorized agent acting on its behalf will take any action that would cause the loss of such exemption. 3.4 Litigation. Except as set forth in Schedule 3.4 attached hereto, there is no action, suit, proceeding or investigation pending or, to Purchaser's knowledge, threatened against Purchaser that questions the validity of this Agreement or the right of Purchaser to enter into this Agreement and to consummate the transactions contemplated hereby. 3.5 Ownership of Shares. The FIC Stock delivered by Purchaser hereunder as consideration for a portion of the Purchase Price for the Company Stock, when delivered in accordance with the terms of this Agreement for the consideration set forth herein, will be duly and validly issued, fully paid, and nonassessable, free and clear of any encumbrances (other than encumbrances created by the Company or the Seller) and any restrictions on transfer other than under applicable state and federal securities laws and will convey to the Seller good and marketable title to such FIC Stock. Section 4. Covenants and Agreements. 4.1 Conduct of the Business Prior to Closing; Access. The Company and the Seller covenant as follows: (a) Between the date hereof and the Closing Date, except as expressly contemplated by this Agreement, or except with the written consent of the Purchaser (which consent shall not be unreasonably withheld), the Seller and the Company will use all reasonable efforts to preserve the business of the Company intact, to preserve the good will of customers, employees and others having business relations with the Company, to retain their key employees, and to maintain insurance in full force and effect, will operate their business in the ordinary course of business consistent with past practice and will not: (i) subject any of their assets to any Encumbrance that will not be released at or prior to the Closing Date; (ii) make any - 17 - material changes in the operations of the Company; (iii) other than, in each case, in the ordinary course of business consistent with past practice, sell, transfer, lease, sublease, license or otherwise dispose of any material assets (for the purposes of this clause (iii), a "material asset" is an individual asset that has a value in excess of $10,000 or assets that have an aggregate value in excess of $25,000); (iv) (A) grant any increase, or announce any increase, in the wages, salaries, compensation, bonuses, incentives, pension, severance or termination pay or other benefits payable by the Company to any of the officers or employees of the Company, including any increase or change pursuant to any Employee Benefit Plan, (B) establish or increase (or promise to increase) or accelerate the payment or vesting of any benefits under any Employee Benefit Plan with respect to officers or employees of the Company or (C) enter into any employment, consulting or severance agreements with any officers or employees or consultants to the Company or change the terms thereof, in the case of clauses (A), (B) and (C), (v) make any material change in any method of accounting or accounting practice or policy used by the Company, other than changes required by Law; (vi) terminate or amend in any material respect any Material Contract; (vii) merge or consolidate with, or acquire securities or any interest in, any person or entity, or enter into any joint venture, partnership or similar arrangement; (viii) fail to pay any creditor any amount owed to such creditor when due (after the expiration of any applicable grace periods), except if any such amount is being disputed in good faith in the ordinary course of business consistent with past practice; (ix) terminate, discontinue, close or dispose of any business operation or otherwise materially change the character or conduct of its business; (x) declare, set aside or pay any dividend or other distribution in respect of any the Company Stock; (xi) make any commitments by the Company for any individual capital expenditure in excess of $20,000; (xii) amend the Company's Articles of Incorporation or Bylaws; (xiii) amend any material term of any outstanding Indebtedness, issue or sell any new debt securities, create, incur, assume or guarantee any Indebtedness or enter into any new credit facility (other than roll-overs under existing facilities), (xiv) compromise, settle, grant any waiver or release relating to, or otherwise adjust, any material Action, Indebtedness or any other claims or rights of the Company; (xv) enter into any new agreement, contract, commitment or arrangement that will continue in effect after the Closing Date and not be terminable by the Company on not more than 60 days' written notice without payment of premium or penalty; (xvi) make any change in the ownership of the Company or grant or assign any Company Stock, options, rights or phantom shares in the Company; or (xvii) enter into any agreement, contract, commitment or arrangement to do any of the foregoing. - 18 - (b) Pending the Closing Date, the Company shall: (i) Give to the Purchaser and its representatives reasonable access during normal business hours to all of the employees, properties, books and records of the Company and furnish the Purchaser and its representatives with such information concerning the Company as the Purchaser may reasonably require, including such access and cooperation as may be necessary to allow the Purchaser and its representatives to interview the employees, to examine the books and records of the Company, and to inspect the real property and equipment; (ii) Furnish the Purchaser within 20 days after the end of each month ending between the date of this Agreement and the Closing Date a statement of income and a balance sheet for the Company for the month just ended; and (iii) From time to time, furnish to the Purchaser such additional information (financial or otherwise) concerning the Company as the Purchaser may reasonably request (which right to request information shall not be exercised in any way which would unreasonably interfere with the normal operations, business or activities of the Sellers or the Company). 4.2 Cooperation. Following the execution of this Agreement, the Purchaser, the Seller and the Company agree as follows: (a) The parties shall each use their reasonable best efforts, and shall cooperate fully with each other in preparing, filing, prosecuting, and taking any other actions with respect to, any filings, applications, requests, or actions which are or may be necessary, to obtain the consents, approvals, authorizations or other orders of any Governmental Authority or other person which are or may be necessary in connection with the transactions contemplated by this Agreement. (b) Without limiting the foregoing, the Seller shall cooperate with the Purchaser at the Purchaser's request and in so doing use their best efforts from and after the Closing Date to obtain consents to the Material Contracts set forth in Schedule 2.8, as required in accordance with the terms of such Material Contracts; - 19 - (c) If the Purchaser or the Company receives an administrative or other order or notification relating to any violation or claimed violation of the rules and regulations of any Governmental Authority that could affect the Purchase's, the Seller's or the Company's ability to consummate the transactions contemplated hereby, the Purchaser, the Sellers or the Company shall promptly notify the other party or parties thereof and shall use its reasonable best efforts to take such steps as may be necessary to remove any such impediment to the transactions contemplated by this Agreement; and no such notification shall affect the representations or warranties of the parties or the conditions to their respective obligations hereunder; and (d) Subject to the terms and conditions of this Agreement, each of the parties agrees to use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated hereby as soon as practicable but in no event later than the Closing. 4.3 Taxes. The Purchaser shall be responsible for filing or causing to be filed all tax returns required to be filed by or on behalf of the Company after the Closing Date. 4.4 Registration Rights. (a) Registration of Shares. For purposes of this Agreement, "Holder" means Sellers and "Registrable Shares" means any shares of FIC Stock held by a Holder, and any and all shares of FIC Stock issued as (or issuable upon the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, shares of FIC Stock held by a Holder until the date on which (i) such share of FIC Stock has been effectively registered under the Securities Act and disposed of in accordance with the a Shelf Registration Statement (as defined below), (ii) such share of FIC Stock is distributed to the public pursuant to Rule 144 under the Securities Act, or (iii) such share of FIC Stock may be sold or transferred pursuant to Rule 144(k) under the Securities Act (or any similar provision then in effect). During the time which a Holder holds Registrable Shares, if FIC files with the SEC a shelf registration statement pursuant to Rule 415 under the Securities Act (a "Shelf Registration Statement") on Form S-1 or Form S-3, if the use of such form is then available as determined by FIC, FIC agrees to include the Registrable Shares held by the Holders as part of such Shelf Registration Statement. FIC has no obligation pursuant to this section 4.4 or this Agreement to file a Shelf Registration Statement. - 20 - (b) Suspension of Registration. Notwithstanding anything to the contrary in this Section 4.4, FIC may prohibit offers and sales of Registrable Shares pursuant to a Shelf Registration Statement at any time if (A)(i) it is in possession of material non-public information, (ii) the Board believes in good faith that such prohibition is necessary in order to avoid a legal requirement to disclose such material non-public information and (iii) the Board believes in good faith that disclosure of such material non-public information would not be in the best interests of FIC and its shareholders or (B)(i) FIC has made a public announcement relating to an acquisition or business combination transaction including FIC and/or one or more of its subsidiaries that is material to FIC and its subsidiaries taken as a whole and (ii) the Board believes in good faith that it would be impracticable at the time to obtain any financial statements relating to such acquisition or business combination transaction that would be required to be set forth in the Shelf Registration Statement, or (C) such Shelf Registration Statement contains financial information that no longer meets the requirements of any applicable rule of Regulation S-X (the period during which any such prohibition of offers and sales of Registrable Shares pursuant to a Shelf Registration Statement is in effect pursuant to clause (A) or (B) of this subsection (c) is referred to herein as a "Suspension Period"). A Suspension Period shall commence on and include the date on which the Holders of Registrable Shares covered by a Shelf Registration Statement receive written notice from FIC that offers and sales of Registrable Shares cannot be made thereunder in accordance with this subsection (b) and shall, with respect to each Holder, end on the date on which that Holder either is advised in writing by FIC that offers and sales of Registrable Shares pursuant to the Shelf Registration Statement and use of the prospectus contained therein may be resumed (a "Resumption Notice") or receives a copy of a prospectus supplement. FIC agrees that it must promptly deliver a Resumption Notice to each Holder when none of the requisite conditions for the Suspension Period continue to exist or a prospectus supplement as soon as reasonably practicable. (c) Damages. Neither FIC nor Purchaser shall be liable to the Holder for any damages pursuant to this Section 4.4. (d) No Further Obligations of FIC. Neither FIC nor Purchaser shall have any further obligations to Holder pursuant to this Section 4.4. - 21 - (e) Further Obligations of the Holder. In the event that FIC files a Shelf Registration Statement in connection with the registration of Registrable Shares pursuant to this Section 4.4, Holder agrees to timely provide to FIC, at its request, such information and materials as it may reasonably request in order to effect the registration of such Registrable Shares. (f) Expenses. In the event that FIC files a Shelf Registration Statement pursuant to this section 4.4, FIC shall bear, on behalf of the Holder, all reasonable costs and expenses of such registration required under this Section 4.4, including, but not limited to, the Company's printing, legal and accounting fees and expenses, and SEC filing fees. Holder shall be responsible for any fees and disbursements of Holder's counsel. Further, neither FIC nor Purchaser shall have an obligation to pay or otherwise bear the commissions or discounts attributable to the Registrable Shares being offered and sold by the Holder. (g) Indemnification of FIC. (i) Right to Indemnification. In the event that FIC registers any of the Registrable Shares under the Securities Act, a Holder of the Registrable Shares so registered will indemnify and hold harmless FIC and Purchaser, each of their directors, each of their officers who have signed or otherwise participated in the preparation of the registration statement, and each underwriter of the Registrable Shares so registered (including any broker or dealer through whom such of the shares may be sold) from and against any and all losses, claims, damages, expenses or liabilities, joint or several, to which they or any of them may become subject under the Securities Act, applicable state securities laws or under any other statute or at common law or otherwise, and, except as hereinafter provided, will reimburse FIC or Purchaser and each such director, officer, underwriter or controlling person for any legal or other expenses reasonably incurred by them or any of them in connection with investigating or defending any actions whether or not resulting in any liability, insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement, in any preliminary or amended preliminary prospectus or in the final prospectus (or in the registration statement or prospectus as from time to time amended or supplemented) or arise out of or are based upon the omission or alleged omission to state therein a material fact - 22 - required to be stated therein or necessary in order to make the statements therein not misleading, but only insofar as any such statement or omission was made in reliance upon and in conformity with information furnished in writing to FIC in connection therewith by such Holder expressly for use therein; provided, however, that such Holder's obligations hereunder shall be limited to an amount equal to the proceeds received by such Holder from Registrable Shares sold in such registration. (ii) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which FIC or Purchaser seeks indemnification under this subsection (g) but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding that this subsection (g) provides for indemnification, in such case, then FIC (or Purchaser) and Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of FIC (or Purchaser) on the one hand and of the Holder on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of FIC (or Purchaser) on the one hand and of the Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by FIC (or Purchaser) on the one hand or by the Holder on the other, and each party's relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case, (i) Holder will not be required to contribute any amount in excess of the public offering price of all such Registrable Shares offered by it pursuant to such registration statement; and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Except as otherwise provided in this clause (ii), the provisions of Section 5.4 shall govern the notice and other procedural aspects of any indemnification claim brought pursuant to this subsection (g). - 23 - 4.5 Retirement of Certain Debt. Purchaser agrees to and does hereby covenant to retire those certain promissory notes (#73071 and #74431) payable to Prosperity Bank, the combined principal amount of which shall not exceed $89,062.84. Section 5. Indemnification. 5.1 Survival. The representations, warranties covenants and other agreements of the parties contained herein or in any Document shall survive the Closing for a period of two (2) years following the Closing Date (the "Survival Period"). 5.2 Indemnification by the Seller. The Seller shall indemnify Purchaser and FIC and their affiliates, 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 or the Seller contained herein or in any Document, that is asserted in writing to Seller prior to the expiration of the Survival Period. Notwithstanding the provisions of this Section 5.2, the maximum liability of the Seller under this Agreement shall be the aggregate amount of consideration paid by Purchaser hereunder. 5.3 Indemnification by Purchaser. Purchaser shall indemnify the Seller and his respective successors, heirs and personal representatives (collectively, the "Seller Indemnified Parties"), against and hold them harmless from any and all Damages incurred or suffered by any Seller 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 aggregate amount of consideration paid by Purchaser hereunder. - 24 - 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 who is not a Purchaser Indemnified Party or a Seller Indemnified Party shall give prompt written notice to the party from whom such indemnification is sought (the "Indemnifying Party") of the assertion of any claim, or the commencement of any action or proceeding, in respect of which indemnity may be sought hereunder; provided that the failure to give such notice shall not affect the Indemnified Party's rights to indemnification hereunder, unless such failure shall prejudice in any material respect the Indemnifying Party's ability to defend such claim, action or proceeding. The Indemnifying Party shall have the right to assume the defense of any such action or proceeding at its expense. 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. - 25 - Section 6. Conditions to Closing. 6.1 Conditions to Purchaser's or FIC's Obligations. The obligation of Purchaser or FIC to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (a) No court or governmental entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any order or other law (whether temporary, preliminary or permanent) that is in effect and enjoins or otherwise prohibits consummation of the transactions contemplated by this Agreement. (b) The representations and warranties of the Company, Seller, and TCG contained herein (or in any certificate delivered pursuant hereto) that are qualified by reference to a Material Adverse Effect shall be true and correct as of the Closing as if made as of the Closing and all other representations and warranties of the Company, Seller and TCG shall be true and correct as of the Closing as if made as of the Closing, except for such inaccuracies as have not had a Material Adverse Effect, and Purchaser shall have received a certificate to such effect dated the Closing Date and executed by a duly authorized officer of the Company. (c) The covenants and agreements of the Company, the Seller and TCG to be performed on or prior to the Closing shall have been duly performed in all material respects, and Purchaser shall have received a certificate to such effect dated the Closing Date and executed by a duly authorized officer of the Company. (d) Seller and TCG shall have delivered certificates representing the Company Stock in the name of Purchaser. (e) Johnson shall have entered into an employment contract with FICFS. 6.2 Conditions to the Company's, Seller's and TCG's Obligations. The obligation of the Company, the Seller and TCG to consummate the transactions to be performed by them in connection with the Closing is subject to satisfaction of the following conditions: (a) No court or governmental entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any order or other law (whether temporary, preliminary or permanent) that is in effect and enjoins or otherwise prohibits consummation of the transactions contemplated by this Agreement. - 26 - (b) The representations and warranties of Purchaser contained herein (or in any certificate delivered pursuant hereto) that are qualified by reference to a material adverse effect shall be true and correct as of the Closing as if made as of the Closing and all other representations and warranties of Purchaser shall be true and correct as of the Closing as if made as of the Closing, except for such inaccuracies as would not materially impair the transactions contemplated by this Agreement, and the Company shall have received a certificate to such effect dated the Closing Date and executed by Purchaser. (c) The covenants and agreements of Purchaser to be performed on or prior to the Closing shall have been duly performed in all material respects, and the Company shall have received a certificate to such effect dated the Closing Date and executed by Purchaser. (d) Purchaser shall have delivered the Purchase Price. (e) FICFS shall have entered into an employment contract with Johnson. Section 7. Termination. 7.1 Termination. This Agreement may be terminated at any time prior to the Closing: (a) by mutual written agreement of the Seller and Purchaser; or (b) by either the Seller or Purchaser by giving written notice of such termination to the other party, if such other party shall breach any of its material covenants or agreements under this Agreement which would result in a failure of the condition set forth in Section 6.1(b), in the case of a termination by Purchaser, and the condition set forth in Section 6.2(b), in the case of a termination by the Seller, and such breach, if reasonable possibility of cure therefore exists, has not been cured within twenty (20) days following the giving of written notice of such breach by the non-breaching party to the breaching party; or (c) by either Purchaser or the Seller by giving written notice of such termination to the other party, if any order permanently enjoining or otherwise prohibiting consummation of the transactions contemplated hereby shall become final and non-appealable; or - 27 - (d) by Purchaser or the Seller by giving written notice of such termination to the other, if any condition to such party's obligations hereunder has not been satisfied or waived and the Closing shall not have occurred on or prior to May 30, 2003; provided, however, that the right to terminate this Agreement pursuant to this Section 7.1(d) shall not be available to any party who is then in material breach of this Agreement; or (e) by Purchaser or by the Seller if FICFS and Johnson have not entered into the employment agreement contemplated by sections 6.1(e) and 6.2(e) hereunder. 7.2 Effect of Termination. In the event of the termination of this Agreement in accordance with Section 7.1 hereof, this Agreement shall thereafter become void and have no effect, and no party hereto or its respective affiliates or their directors, officers, employees, shareholders or agents shall have any liability to the other parties hereto or their respective affiliates, directors, officers, employees, shareholders or agents except for the obligations of the parties hereto; provided, that nothing herein will relieve any party from liability for a breach of this Agreement prior to such termination. Section 8. Definitions. Unless otherwise stated in this Agreement, the following capitalized terms have the following meanings: "Action" means any action, suit, claim, arbitration, grievance, complaint, charge, proceeding or investigation (of which either the Seller or the Company have knowledge) commenced by or pending before any Governmental Authority. "Employee Benefit Plans" means all "employee benefit plans" within the meaning of Section 3(3) of ERISA (whether or not subject to ERISA), all bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement, severance and other employee benefit plans, programs, policies or arrangements, and all employment, retention, change of control or compensation agreements, in each case for the benefit of, or relating to, any current employee or former employee of the Company. "Encumbrance" means any security interest, pledge, mortgage, lien (including tax liens), charge, encumbrance, easement, adverse claim, adverse preferential arrangement, restriction or defect in title. - 28 - GAAP means United States generally accepted accounting principles and practices as in effect from time to time and applied consistently throughout the periods involved. "Governmental Authority" means any United States federal, state or local government or any foreign government, any governmental, regulatory, legislative, executive or administrative authority, agency or commission or any court, tribunal, or judicial body. "Governmental Order" means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority. Governmental Orders shall not include Permits. "Indebtedness" means obligations with regard to borrowed money and shall expressly not include either accounts payable or accrued liabilities that are incurred in the ordinary course of business or obligations under capital, financing or operating leases regardless of how such leases maybe classified or accounted for on financial statements. "Material Contracts" means the written agreements, contracts, policies, plans, mortgages, understandings, arrangements or commitments to which the Seller or the Company is a party as described below: (i) any agreement or contract providing for payments to any person or entity in excess of $20,000 per year, excluding leases of equipment or real property or licenses with respect to Intellectual Property, which are subject to paragraph (iv) below; (ii) any employment agreement, consulting agreement or similar contract; (iii) any retention or severance agreement or similar contract with respect to any individual who is to be employed by the Company following the Closing Date; (iv) any lease of equipment or real property or license with respect to Intellectual Property (other than licenses granted in connection with the purchase of equipment or other assets) by the Company from another person or entity providing for payments to another person or entity in excess of $25,000 per year; (v) any joint venture, partnership or similar agreement or contract of the Company; (vi) any agreement or contract under which the Company has borrowed or loaned any money in excess of $25,000 or issued or received any note, bond, indenture or other evidence of Indebtedness in excess of $25,000 or directly or indirectly guaranteed Indebtedness, liabilities or obligations of others in an amount in excess of $25,000; or - 29 - (vii) any agreement or contract with any officer, manager, Seller or employee of the Company or any of their family members (other than employment agreements covered in clause (i) or agreements or contracts containing terms substantially similar to terms available to employees generally). Section 9. Miscellaneous. 9.1 Successors and Assigns. 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. 9.2 Entire Agreement. This Agreement, including 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. 9.3 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. 9.4 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. - 30 - 9.5 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 Travis County, Texas, and venue for any action relating to this Agreement shall be proper only in federal or state courts located within Travis County, Texas. Each party agrees that it must bring any action related to this Agreement or any other Document only in the federal or state courts located within Travis County, Texas. 9.6 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 8.6. 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 8.6. FIC: Financial Industries Corporation 6500 River Place Blvd., Building One Austin, Texas 78730 Attn: Gene Payne or Ted Fleron Purchaser: FIC Financial Services, Inc. 6500 River Place Blvd., Building One Austin, Texas 78730 Attn: William P. Tedrow Seller: Earl Johnson 2445 Teal Shore Court League City, Texas 77573 9.7 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 other Documents and to consummate the transactions contemplated. Each party will use its good faith efforts to carry out and comply with the provisions of this Agreement. - 31 - 9.8 No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person other than the parties hereto and their respective successors and permitted assigns. 9.9 Adjustments in Shares Issued Pursuant to Section 1.1. The number of shares of FIC Stock to be issued pursuant to Section 1.1 of this Agreement shall be adjusted in the event the Closing does not take place on May 19, 2003; and in such event, the parties agree that the price per share, based on formula defined in such section, shall be recalculated, and adjustments may be made in the number of shares of FIC Stock issuable, without the necessity of any further signature or other requirements on the part of the Seller, the Purchaser, the Company, or any other party. [Signature page follows] - 32 - SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase Agreement as of the day and year first above written. FIC: FINANCIAL INDUSTRIES CORPORATION By:____________________________________ Name:__________________________________ Title:_________________________________ PURCHASER: FIC FINANCIAL SERVICES, INC. By:____________________________________ Name:__________________________________ Title:_________________________________ COMPANY: JNT Group, Inc. By:____________________________________ Name:__________________________________ Title:_________________________________ TCG: Total Compensation Group Consulting, Inc. By: __________________________________ Name: Mike Cochran Title: President - 33 - EX-10 5 spa-paragon.txt EXHIBIT 10.3 - PARAGON STOCK PURCHASE AGREEMENT EXHIBIT 10.3 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (this "Agreement") is made and entered into as of this ______ day of May, 2003, by and among Paragon Benefits, Inc., a Texas corporation ("Paragon Benefits"), The Paragon Group, Inc., a Texas corporation ("Paragon Group"), Paragon National, Inc., a Texas corporation ("Paragon National") (collectively, Paragon Benefits, Paragon Group, and Paragon National shall be referred to herein as the "Companies" or each individually as a "Company"), Scott A. Bell ("Bell") an individual residing in the state of Texas, Wayne C. Desselle ("Desselle"), an individual residing in the state of Texas, and Chris Murphy ("Murphy"), an individual residing in the state of Texas, (collectively Bell, Desselle, and Murphy shall be referred to herein as the "Sellers" or individually each a "Seller"), Financial Industries Corporation, a Texas corporation ("FIC"), and FIC Financial Services, Inc., a Nevada corporation ("FICFS" or "Purchaser"). WHEREAS, the Sellers are the owners of all of the issued and outstanding shares of the capital stock of: (i) Paragon Benefits, which consists of 20,000 shares of common stock par value $0.10 per share, (ii) Paragon Group, which consists of 30,000 shares of common stock par value $0.10 per share, and (iii) Paragon National, which consists of 20,000 shares of common stock par value $0.10 per share (collectively the issued and outstanding shares of capital stock of Paragon Benefits, Paragon Group and Paragon National shall be referred to as the "Company Stock"); WHEREAS, the Sellers desire to sell the Company Stock to the Purchaser, on the terms and subject to the conditions set forth herein; and WHEREAS, the Purchaser desires to purchase all of the Sellers' right, title and interest to the Company Stock, on the terms and subject to the conditions set forth herein. NOW, THEREFORE, 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: - 1 - Section 1. Purchase and Sale of the Company Stock. 1.1 Purchase and Sale; Closing. At the Closing (as defined below) the Purchaser shall purchase, and the Sellers shall to sell to the Purchaser (the "Purchase"), the Company Stock. The purchase price for the Company Stock (the "Purchase Price") shall consist of an amount of cash equal to the sum of $ 1,410,750, by payment at the Closing of cashier's check or wire transfer of immediately available funds to the account of Sellers, and in the respective allocations, as set forth on Schedule 1.1 attached hereto. Subject to satisfaction of all conditions to close, the Closing shall occur 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 Contingent Purchase Price. The Purchaser shall pay to Sellers a contingent purchase price for the sale of the Company Stock (the "Contingent Purchase Price"), based upon the achievement of certain financial performance goals for the Companies as set forth below. The Contingent Purchase Price shall be an amount of 98,578 shares of FIC common stock, par value $0.20 per share (the "FIC Stock"), and as may be adjusted by the provisions of this Section 1.2, payable to Sellers in the respective allocations as set forth on Schedule 1.2. The Seller's right to receive the Contingent Purchase Price is subject to substantial restrictions, as expressed in this Section 1.2 and Section 4, and serves a bona fide purpose of the Purchaser in insuring the commitment of Sellers to the future success and operations of the Companies. (a) Establishment of the Escrow Fund. The FIC Stock issued to Sellers as part of the Contingent Purchase Price will be deposited with Purchaser to be held in escrow (the "Escrow Fund"). The Escrow Fund will be governed by the terms set forth in this Section 1.2. (b) Escrow Period; Distribution of Escrow Fund upon Termination of Escrow Period. Subject to the following requirements, the Escrow Fund shall be in existence beginning on the Closing Date and shall terminate on March 31, 2008 (the "Termination Date"). The FIC Stock in the Escrow Fund shall be distributed as follows: (i) Purchaser shall distribute to Sellers, or their heirs or successors, 20% of the FIC Stock held in the Escrow Fund each year (the "Annual Distribution"), subject to the requirements set forth in the following subsections of this Section 1.2(b). The first Annual Distribution shall occur on March 31, 2004 and each Annual Distribution thereafter shall be on March 31st of each subsequent year, with the final Annual Distribution to occur on March 31, 2008 (each March 31st shall be referred to herein as a "Distribution Date"). - 2 - (ii) Sellers agree that the pro forma financial statement ("Pro Forma Financials") attached hereto as Schedule 1.2(b), is a fair and reasonable estimate of the future net income of the Companies. The estimated net income level for each year reflected in the Pro Forma Financials shall be referred to as the "Target Annual Net Income". Within seventy-five (75) days after the end of each calendar year, starting with the year ending December 31, 2003 and ending with the year ending December 31, 2007, the Company shall calculate the actual net income of the Companies for such taxable calendar year (the "Companies Net Income"). As long as the Companies Net Income for such calendar year is equal to the Target Annual Net Income for such calendar year, Purchaser shall release to Sellers the Annual Distribution for such year by the Distribution Date. Such FIC Stock released to Sellers shall be free and clear of all Encumbrances, however, shall be subject to the restrictions set forth in Section 4.4 herein. (iii) If the Companies Net Income is less than the Target Annual Net Income for any given calendar year, then the Annual Distribution for such year shall be decreased as follows: in any calendar year, for each 2% that the Companies Net Income is below the Target Annual Net Income, Purchaser shall withhold 1% of the Annual Distribution for such year. For example, if the Companies Net Income in any calendar year is only 90% of the Target Annual Net Income, Purchaser will withhold 5% of the Annual Distribution for such year and distribute the remaining Annual Distribution to Sellers by the Distribution Date for such year. The decrease in the Annual Distribution for any year may not exceed 30% of the Annual Distribution for such year. (iv) If in any calendar year reflected in the Pro Forma Financials, the Companies Net I ncome is not equal to the Target Annual Net Income for such calendar year and the Sellers have not received an Annual Distribution pursuant to subsection (iii) above, then for every subsequent year reflected in the Pro Forma Financials, Purchaser shall: (a) calculate the Companies Net Income for each year which has been completed; and (b) add up the total of the Companies Net Income for each completed year. The sum of the Companies Net Income for each completed year shall be referred to as the "Cumulative Companies Net Income" and the sum of the Target Annual Net Income for each completed year shall be referred to as the "Cumulative Target Net Income". If the Cumulative Companies Net Income equals or exceeds the Cumulative Target Net Income, Puchaser shall distribute to Sellers the amount of FIC Stock withheld pursuant to subsection (iii), above. - 3 - (v) If the Companies Net Income is greater than the Target Annual Net Income for any given calendar year, then the Annual Distribution for such year shall be increased as follows: in any calendar year, for each 2% that the Companies Net Income exceeds the Target Annual Net Income, Purchaser shall issue to Sellers the Annual Distribution and an additional one percent (1%) of the Annual Distribution (the "Additional Annual Distribution") in shares of common stock of FIC. For example, if the Companies Net Income in any calendar year is 110% of the Target Annual Net Income for such year, FIC will issue 105% of the Annual Distribution for such year by the Distribution Date for such year. The maximum amount of the common stock of FIC which may be issued to Sellers as an Additional Annual Distribution is 30% of the Annual Distribution for such year. (vi) The Escrow Fund shall terminate on the Termination Date. Any FIC Stock not distributed to Sellers pursuant to this Section 1.2(b) shall revert to Puchaser and Sellers shall have no further rights or interests in such FIC Stock. (vii) For each Seller, if such Seller terminates his employment agreement between such Seller and FICFS (the "Employment Agreement") for "Good Reason", as such term is defined in section 1.21 of each such Employment Agreement, prior to December 31, 2007, all unearned portions of the Contingent Purchase Price still held in the Escrow Fund which is allocated to such Seller shall be accelerated and immediately due and issueable to that Seller from the Escrow Fund. However, if a specific Seller terminates his Employment Agreement for Good Reason and the unearned portion of the Contingent Purchase Price for such Seller is accelerated and payable, the unearned portion of the Contingent Purchase Price for another Seller shall not be accelerated and shall remain in the Escrow Fund. - 4 - Section 2. Representations and Warranties of the Sellers. The Sellers hereby represent and warrant, jointly and severally, to Purchaser and to FIC that, as of the date of this Agreement: 2.1 Organization and Standing. Each Company is a corporation duly formed, validly existing and in good standing under the laws of the State of Texas. Each 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. Each 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 each 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 each Company taken as a whole (a "Material Adverse Effect"). The Purchaser has been furnished complete and correct copies of the Companies' Articles of Incorporation and bylaws, each as currently in effect. 2.2 Authority. (a) All corporate action on the part of the Companies necessary for the authorization, execution, delivery and performance of this Agreement and any other documents, instruments and transactions contemplated by this Agreement (collectively, the "Documents"), and the performance of all the obligations of Sellers hereunder have been taken or will be taken at or prior to the Closing. The execution, delivery and performance of this Agreement and the Documents and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by the Board of Directors of each Company (the "Boards"), do not require any further corporate proceedings on the part of each Company, and do not and will not violate or conflict with each Company's Articles of Incorporation or Bylaws. This Agreement and the Documents have been and will be duly and validly executed and delivered by the Companies and the Sellers, and constitute valid and legally binding obligations of the Companies and the Sellers, enforceable against the Companies and the Sellers in accordance with their respective terms, except that enforcement thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). - 5 - (b) Each individual Seller has the capacity to execute and deliver this Agreement, to carry out his or her obligations hereunder and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered on behalf of each Seller and, assuming the due authorization, execution and delivery by the Purchaser, constitutes a legal, valid and binding obligation of each Seller enforceable in accordance with its terms, except as may be limited by bankruptcy, insolvency, moratorium or other laws affecting creditors' rights generally and general principles of equity. 2.3 Absence of Conflicting Agreements or Required Consents. The execution, delivery and performance by the Sellers and the Companies of this Agreement do not and will not violate, conflict with or result in the breach or default of any provision of the Companies' Articles of Incorporation or bylaws. To the best of Sellers' knowledge, except for such violations, conflicts, breaches, defaults, consents, approvals, authorizations, orders, Actions, registrations, filings, declarations, notifications and Encumbrances that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or materially impair or delay the consummation of the transactions contemplated hereby, the execution, delivery and performance by the Sellers and the Companies of this Agreement do not and will not (a) conflict with or violate any law or Governmental Order applicable to the Sellers or the Companies or any of their respective properties or assets, (b) require any consent, approval, authorization or other order of, action by, registration or filing with or declaration or notification to any Governmental Authority or any other party, or (c) conflict with, result in any violation or breach of, constitute a default (or event which with the giving of notice, or lapse of time or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any Encumbrance on any of the Sellers' or the Companies' respective assets, or result in the imposition or acceleration of any payment, time of payment, vesting or increase in the amount of compensation or benefit payable, pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license or permit, or franchise to which a Seller or a Company is a party or by which their respective assets are bound. - 6 - 2.4 Ownership of the Company Stock. (a) The authorized capital stock of Paragon Benefits is 1,000,000 shares of common stock, par value $0.10 per share, of which 20,000 shares are issued and outstanding as of the date hereof; the authorized capital stock of Paragon Group is 1,000,000 shares of common stock, par value $0.10 per share, of which 30,000 shares are issued and outstanding as of the date hereof; and the authorized capital stock of Paragon National is 1,000,000 shares of common stock, par value $0.10 per share, of which 10,000 shares are issued and outstanding as of the date hereof. The Sellers constitute all shareholders of the Companies. Upon the consummation of the transactions contemplated hereby, Purchaser will own, directly or indirectly, 100% of the issued and outstanding shares in the Companies. No person or entity has any preemptive right to purchase any shares or any other securities of the Companies. There are no outstanding securities or other instruments of the Companies which are convertible into or exchangeable for any shares of the Companies and there are no commitments to issue such securities or instruments or otherwise make a person or entity a shareholder of a Company (except the Purchaser pursuant to this Agreement). Except as set forth in Schedule 2.4, attached hereto, there is no existing option, warrant, right, call, or commitment of any character granted or issued by any Company governing the issuance of any shares of such Company or any "phantom" securities giving the holder thereof any economic attributes of ownership. All shares of each Company have been offered, issued and sold in compliance with applicable law. The Company Stock constitutes all of the outstanding shares of the Companies. (b) The Sellers have good and marketable title to, and own, the Common Stock, beneficially and of record. The Common Stock is fully paid and non-assessable and, except for any right of the Purchaser under this Agreement, are free and clear of all Encumbrances, demands, preemptive rights and adverse claims of any nature. The Sellers have full voting power over all Common Stock, subject to no proxy, shareholders' agreement, voting trust or other agreement relating to the voting of any of the shares of any Company. There is no agreement between the Sellers and any other person or entity with respect to the disposition of the Common Stock. Upon the consummation of the Closing the Sellers will have transferred to the Purchaser good title to all Common Stock. 2.5 Litigation. (a) there is no Action against the Sellers (with respect to the Companies) or the Companies pending, or, to the knowledge of the Seller or the Companies, threatened to be brought by or before any person, entity or Governmental Authority, in each case with respect to the Companies, which would, if adversely determined as to such Seller or the Companies, result in a liability to any Company, (b) neither the Sellers nor the Companies - 7 - are subject to any Governmental Order (nor, to the knowledge of the Companies and the Sellers, are there any such Governmental Orders threatened to be imposed by any Governmental Authority), in each case with respect to any Company and (c) there is no Action pending, or, to the knowledge of the Sellers or the Companies, threatened to be brought before any Governmental Authority, that seeks to question, delay or prevent the consummation of the transactions contemplated hereby. 2.6 Financial Statements (a) The Purchaser has been furnished unaudited balance sheets and profit and loss statements for the Companies as of December 31, 2001 and December 31, 2002 (the "Company Financial Statements"). Except as otherwise disclosed in Schedule 2.6, (i) the Company Financial Statements (including any notes thereto) present fairly, in all material respects, the financial position of the Companies as of the dates thereof and the results of its operations for the periods then ended subject to year-end adjustments which are, in the aggregate, not material and (ii) the balance sheets contained in the Company Financial Statements present fairly the valuation of each Company's assets. (b) Except as set forth in Schedule 2.6, the Companies have no material liability or obligation, secured or unsecured (whether absolute, accrued, contingent or otherwise, and whether due or to become due), of a nature to be reflected in a balance sheet or disclosed in the notes thereto, except such liabilities and obligations that are adequately accrued or reserved against in the Company Financial Statements or disclosed in the notes thereto or that were incurred after the date of the Company Financial Statements either in the ordinary course of business of each Company consistent with past practice or in connection with the transactions contemplated by this Agreement. 2.7 Absence of Certain Changes or Events. Since December 31, 2002 through the date of this Agreement and the Closing, (a) other than in the ordinary course of business consistent with past practice, the Companies have not sold, transferred, leased, subleased, licensed or otherwise disposed of any material assets (for the purposes of this clause (a), a "material asset" is an individual asset that has a value in excess of $10,000 or assets that have an aggregate value in excess of $25,000); (b) the Companies have not made any material change in any method of accounting or accounting practice or policy used by a Company, other than changes required by law; (c) the Companies have not suffered any - 8 - material casualty loss or damage, whether or not covered by insurance; (d) there has not been any direct or indirect redemption or other acquisition by a Company of any Common Stock, or any declaration, setting aside or payment of any distribution in respect of any Common Stock; (e) there has not been any Material Adverse Effect; (f) each Company has been operated only in the ordinary and usual course consistent with past practice; (g) no Company has created, incurred, assumed or guaranteed any liabilities, obligations or Indebtedness for borrowed money (other than from Purchaser); (h) no Company has compromised, settled, granted any waiver or release relating to, or otherwise adjusted any material Action, Indebtedness or any other claims or rights of such Company; (i) no Company has paid or promised a bonus to any employee (unless such bonus is reflected on or reserved against in the Company Financial Statements), (j) no Company has entered into any employment or consulting agreement or arrangement with any person and no prior employment agreements or consulting agreements or arrangements have been modified, and (k) no Company has entered into any agreement, contract, commitment or arrangement to do any of the foregoing, except for the issuance of options to Chris Murphy to purchase 10,000 shares of Paragon Group, which will be exercised simultaneously with the closing. 2.8 Material Contracts. Schedule 2.8, attached hereto, sets forth all Material Contracts of each Company as of the date hereof. Complete and accurate copies of all written Material Contracts listed in Schedule 2.8 have been delivered or made available to the Purchaser (except as otherwise noted therein). Except as set forth in Schedule 2.8, (a) each Material Contract is legal, valid and binding on the Company which is a party thereto and, to the knowledge of the Sellers and such Company, the other parties thereto, and enforceable in accordance with the terms thereof, (b) each Material Contract is in full force and effect, (c) neither the Companies nor the Sellers are in default under any Material Contract, (d) neither the Sellers nor the Companies have waived any of their respective rights under any Material Contract and (e) to the knowledge of the Sellers and the Companies, no other party to any Material Contract has breached or is in default thereunder and there does not exist any event or condition that, with or without the lapse of time or the giving of notice, would become such a breach or default or would cause the acceleration of any obligation thereunder. Notwithstanding anything to the contrary herein, Sellers agree to assume all responsibility for automobile leases. - 9 - 2.9 Insurance. Except as set forth in Schedule 2.9, attached hereto, (i) all insurance policies to which any Company is a party or under which such Company is covered as an additional named insured or otherwise (or replacement policies therefore) are in full force and effect, and the Sellers or the Companies have paid all premiums due and are not in default, (ii) no notice of cancellation or non-renewal with respect to, or disallowance of any claim under, any such policy has been received by the Sellers or the Companies and (iii) neither the Sellers nor the Companies have been refused insurance with respect to the Companies, nor has coverage with respect to any such Company been previously canceled or materially limited, by an insurer to which a Seller or a Company has applied for such insurance, or with which a Sellers or a Company has held insurance, within the last three years. 2.10 Permits and Licenses; Compliance with Law. (a) (i) each Company currently holds all the permits, licenses, authorizations, certificates, exemptions and approvals of Governmental Authorities or other persons or entities necessary for the current operation and conduct of each such Company in all material respects as it is being conducted by such Company (collectively, "Permits"), and all Permits are in full force and effect, (ii) no Company has received any written notice from any Governmental Authority revoking, canceling, rescinding, materially modifying or refusing to renew any Permit and (iii) each Company is in compliance in all material respects with the requirements of all Permits. (b) (i) each Company is in compliance in all material respects with all laws and Governmental Orders applicable to the conduct of each such Company as it is being conducted and (ii) no Company has been charged by any Governmental Authority with a violation of any law or any Governmental Order relating to the conduct of such Company. 2.11 Employee Benefit Matters. (a) Schedule 2.11, attached hereto, identifies each Employee Benefit Plan. Purchaser has been furnished copies of the Employee Benefit Plans (and, if applicable, related trust agreements) and all amendments thereto and written interpretations thereof together with the three most recent annual reports (Form 5500 including, if applicable, Schedule B thereto) and the most recent actuarial valuation report prepared in connection with any Employee Benefit Plan. Neither the Companies nor any of their ERISA Affiliates have now, or have maintained in the past, any Employee Benefit Plan which is (i) a multiemployer plan, (ii) a Title IV Plan or (iii) Employee Benefit Plan maintained in connection with any trust described in Section 501(c)(9) of the Internal Revenue Code (the "Code"). - 10 - (b) No transaction prohibited by Section 406 of ERISA or Section 4975 of the Code has occurred with respect to any Employee Benefit Plan or arrangement which is covered by Title I of ERISA which transaction has or will cause the Companies to incur any material liability under ERISA, the Code or otherwise, excluding transactions effected pursuant to and in compliance with a statutory or administrative exemption. (c) Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and has been so qualified during the period since its adoption; each trust created under any such Employee Benefit Plan is exempt from tax under Section 501(a) of the Code and has been so exempt since its creation. Purchaser has been provided with the most recent determination letter of the Internal Revenue Service relating to each such Employee Benefit Plan. Each Employee Benefit Plan has been maintained in substantial compliance with its terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations, including ERISA and the Code. (d) The Companies do not have any current or projected liability in respect of post-employment or post-retirement health or medical or life insurance benefits for retired, former or current employees of the Companies. (e) Except as disclosed in Schedule 2.11, attached hereto, there is no contract, plan or arrangement (written or otherwise) covering any employee or former employee of the Companies that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to the terms of Section 280G of the Code and no employee or former employee of the Companies will become entitled to any bonus, retirement, severance, job security or similar benefit or enhanced such benefit (including acceleration of vesting or exercise of an incentive award) as a result of the transactions contemplated hereby. (f) There are no pending, or, to the knowledge of any Company, or the Sellers, threatened or anticipated, claims under or with respect to any Employee Benefit Plan, by any employee or beneficiary covered under any such Employee Benefit Plan, or otherwise involving such Employee Benefit Plan (other than routine claims for benefits). - 11 - 2.12 Intellectual Property. (a) the rights of the Companies in or to their intellectual property do not conflict with or infringe on the rights of any other person or entity, and the Companies have not received any claim from any person or entity to such effect nor, to the Companies' or the Sellers' knowledge, has any such claim been threatened, (b) the Companies own, license or otherwise have the right to use, all their intellectual property and (c) to the knowledge of the Companies and Sellers, no other person or entity is infringing or diluting the rights of any Company with respect to its intellectual property. 2.13 Taxes. (i) all tax returns required to be filed by the Companies have been timely filed, and such tax returns are true, complete and correct in all material respects; (ii) all taxes shown on such tax returns have been timely paid other than such taxes, if any, as are described in Schedule 2.13 and are being contested in good faith and as to which adequate reserves have been provided in the Company Financial Statements; (iii) no adjustment relating to such tax returns has been proposed in writing by any tax authority and remains unresolved; (iv) there are no tax liens on any of the Companies' assets (other than liens for taxes that are not yet due and payable); and (v) all taxes that the Companies are required to pay, withhold or collect have been duly paid, withheld or collected and, to the extent required, have been paid to the proper tax authority. Purchaser has been furnished with copies of the Companies 2001 federal tax returns. 2.14 No Brokers. There are no brokers, financial advisors or finders or other persons or entities who have any valid claim against the Sellers or the Companies, or any of their respective assets for a commission, finders' fee, brokerage fee, advisory fee or other similar fee in connection with this Agreement, or the transactions contemplated hereby, by virtue of any actions taken by or on behalf of the Companies, the Sellers or the Companies' officers, employees or agents. 2.15 No Affiliates or Subsidiaries. Other than the Companies, no Company has any Affiliate or Subsidiary. "Affiliate" 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 that directly or indirectly controls, is controlled by, or is under common control with a Company. For the purposes of this definition, the term "control" means (a) the power to direct or cause the direction of management or policies of such Affiliate, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, or (b) the power substantially to influence the direction of strategic management policies of such Affiliate. "Subsidiary" means any 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 which is under the control of a Company. - 12 - 2.16 Assets. The Companies have good and valid title to all material asset each Company owns, including those reflected in the Company Financial Statements or thereafter acquired, except those sold or otherwise disposed of since the date of the Company Financial Statements not in violation of this Agreement, in each case free and clear of all Encumbrances. 2.17 Real Property. (a) Schedule 2.17, attached hereto, sets forth a complete list of all real property and interests in real property owned in fee by the Companies (the "Owned Properties") and a complete list of all real property and interests in real property leased by the Companies (the "Leased Properties"; an Owned Property or a Leased Property being sometimes referred to herein, individually, as a "Subject Property" and collectively, as "Subject Properties"). The Companies have good and marketable fee title to all Owned Property free and clear of all Encumbrances except (i) as set forth on Schedule 2.17, (ii) easements, covenants, rights-of-way and other similar restrictions, whether or not of record, (iii) any conditions that may be shown by a current, accurate survey or physical inspection of any Subject Property made prior to the Closing and (v) (A) zoning, building and other similar restrictions, and (B) Encumbrances, easements, covenants, rights-of-way and other similar restrictions that have been placed by a developer, landlord or other third party on any Subject Property which is not owned in fee by the Companies and subordination or similar agreements relating thereto. Except as set forth on Schedule 2.17, all buildings and structures included within any Owned Property lie wholly within the boundaries of the Owned Property and do not encroach upon the property of, or otherwise conflict with the property rights of, any other party. Except as set forth in Schedule 2.17, the Companies are the lessee of all the Leased Property and is in possession of the premises purported to be leased thereunder, and each such lease is a valid obligation of such lessee without any material default thereunder by such lessee. The consummation of the transactions contemplated by this Agreement will not result in a breach of, or a default under, any lease with respect to any Leased Property. - 13 - 2.18 No Undisclosed Liabilities. Except as set forth on Schedule 2.18, 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 Companies do not have any liabilities or obligations whatsoever, whether accrued, contingent or otherwise. The Sellers know of no basis for any claim against the Companies or Sellers for any liability or obligation, except (a) to the extent set forth or reflected in the Company Financial Statements or disclosed on Schedule 2.8, (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 December 31, 2002, or (d) those which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 2.19 Acknowledgements of the Sellers. In connection with the issuance of the FIC Stock as part of the Purchase Price, the Sellers (a) understand that the FIC Stock has not been registered under the Securities Act or the securities laws of any state at the time the FIC Stock is delivered to the Sellers; and (b) acknowledges that each certificate representing the FIC stock will be endorsed with substantially the following legends: 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. 2.20 Employment Agreements of Bell and Desselle. Bell and Desselle acknowledge that a material inducement for Purchaser's payment of the Purchase Price hereunder is Bell and Desselle entering into employment agreements with Purchaser which contain non-competition and non-solicitation provisions. - 14 - 2.21 Investment Representations. Each Seller represents and warrants to FIC and FICFS: (a) that such Seller and such Seller's advisers (including a Seller Representative, if any) has been furnished and has carefully read information pertaining to FIC and its business profile; (b) that such Seller and such Seller's advisers (including a Seller Representative, if any) have been furnished all materials relating to FIC and all matters related to FIC which have been requested, and have been afforded the opportunity to obtain any additional information necessary to verify the accuracy of any information set forth in FIC's business profile and related materials; (c) that such Seller and such Seller's advisers (including a Seller Representative, if any) have had an opportunity to ask questions of or receive answers from FIC or its representatives, and FIC and its representatives have answered all inquiries which such Seller and his or her advisers (including a Seller Representative, if any) has put to them concerning FIC, the FIC Stock or any other matters relating to FIC; (d) such Seller understands that the FIC Stock has not been registered under the Securities Act or under the securities laws of any state, that FIC has no intention to register the FIC Stock, that such Seller has no right to require such registration, and that the FIC Stock cannot be sold unless it is registered under applicable federal and state securities laws or unless exemptions from registration are available; (e) such Seller understands that an investment in FIC involves a high degree of risk and other considerations relating to a purchase of FIC Stock, that such Seller is acquiring such FIC Stock without being furnished any offering literature or prospectus other than FIC's business profile, and that this transaction and FIC's business profile most likely have not been scrutinized by, nor meet the investment guidelines of, the securities administrator in such Seller's state of residence as would be the case with a full registration because of the FIC Stock made the subject of this issuance; (f) that such Seller alone has the requisite knowledge, sophistication and experience in financial and business matters to enable such Seller to assess the relative merits and risks of this investment, or together with such Seller's Representative has the requisite knowledge, sophistication and experience in financial and business matters to be capable of evaluating the risks and merits of this investment, and has made such investigations in connection herewith as have been deemed necessary or desirable so as not to rely upon FIC or its representatives for legal, tax or economic information related to this investment; - 15 - (g) such Seller is not relying on FIC or its representatives or the references to any legal opinions, if any, with respect to the legal, tax and other economic considerations relating to this investment. To the extent that such Seller has sought advice with regard to such considerations, such Seller has relied on the advice of, or have consulted with, his personal legal, tax, investment and/or other advisers; (h) No oral or written representations have been made or oral or written information furnished to a Seller or a Seller's adviser(s) in connection with FIC or the FIC Stock which are in any way inconsistent with the information provided to such Seller related to FIC; (i) Seller acknowledges and understands that the actual results of operations of FIC may vary materially from the financial forecast and financial projections contained in any business profile or plans, and that neither FIC, nor any of its officers, directors, shareholders, employees, agents or professionals, including their accountants and attorneys, make any representation or warranty as to such actual results of operations or as to any benefits which a Seller may be allocated pursuant to this investment; (j) that each Seller has reached the age of majority in the jurisdiction of such Seller's residence and is a qualified accredited investor (whether by himself or together with a Seller Representative); (k) that each such Seller has adequate means of providing for current needs and personal contingencies, has no need for liquidating this investment, is able to bear the economic risk of an investment in FIC, can sustain the loss of the entire investment without economic hardship if a total loss should occur, and such Seller's commitment to similar investments is reasonable in relation to such Seller's net worth; (l) The FIC Stock being acquired hereunder is being acquired for such Seller's own account, or for one or more fiduciary accounts as to which such Seller has sole investment discretion, for long-term investment and not with a view to or for resale, fractionalization or division in connection with any distribution thereof; - 16 - (m) Seller is not acquiring the FIC Stock as a result of or subsequent to any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or any seminar or meeting; (n) each Seller verifies, under penalty of perjury, that the social security or taxpayer identification number shown next to such Seller's signature is true, correct and complete and that Seller is not subject to backup withholding either (i) because Seller has not been notified that Seller is subject to backup withholding as a result of a failure to report all interest or dividends, or (ii) because the Internal Revenue Service has notified Seller that Seller is no longer subject to backup withholding; (o) Within five days after receipt of a request from FIC, each Seller will provide such information and deliver such documents as may reasonably be necessary to comply with any and all laws and ordinances to which FIC is subject. Section 3. Representations of Purchaser. Purchaser represents and warrants to the Companies and the Sellers that: 3.1 Authority. Purchaser (a) is duly formed, validly existing and in good standing under the laws of the State of Nevada, (b) has full organizational 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 have been and will be duly and validly executed and delivered by Purchaser, and, assuming this Agreement and the Documents constitute the valid and legally binding obligations of the Companies and the Sellers, this Agreement and the 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 (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 the consummation by Purchaser of the transactions contemplated hereby. - 17 - 3.3 Offering. Subject to the truth and accuracy of the Companies' and the Sellers' representations and warranties set forth in Section 2 of this Agreement, the offer and issuance of the FIC Stock as contemplated by this Agreement is exempt from the registration requirements of any applicable state and federal securities laws (other than notice filings required under applicable law), and neither the Purchaser nor any authorized agent acting on its behalf will take any action that would cause the loss of such exemption. 3.4 Litigation. Except as set forth in Schedule 3.4 attached hereto, there is no action, suit, proceeding or investigation pending or, to Purchaser's knowledge, threatened against Purchaser that questions the validity of this Agreement or the right of Purchaser to enter into this Agreement and to consummate the transactions contemplated hereby. 3.5 Ownership of Shares. The FIC Stock delivered by Purchaser hereunder as consideration for a portion of the Purchase Price for the Company Stock, when delivered in accordance with the terms of this Agreement for the consideration set forth herein, will be duly and validly issued, fully paid, and nonassessable, free and clear of any Encumbrances (other than encumbrances created by the Companies or the Sellers) and any restrictions on transfer other than pursuant to this Agreement or under applicable state and federal securities laws and will convey to the Sellers good and marketable title to such FIC Stock. Section 4. Covenants and Agreements. 4.1 Conduct of the Business Prior to Closing; Access. The Companies and the Sellers covenant as follows: (a) Between the date hereof and the Closing Date, except as expressly contemplated by this Agreement, or except with the written consent of the Purchaser (which consent shall not be unreasonably withheld), the Sellers and the Companies will use all reasonable efforts to preserve the business of each Company intact, to preserve the good will of customers, employees and others having business relations with the Companies, to retain their key employees, and to maintain insurance in full force and effect, will operate their business in the ordinary course of business consistent with past practice and will not: (i) subject any of their assets to any Encumbrance that will not be released at or prior to the Closing Date; (ii) make any material changes in the operations of any Company; (iii) other - 18 - than, in each case, in the ordinary course of business consistent with past practice, sell, transfer, lease, sublease, license or otherwise dispose of any material assets (for the purposes of this clause (iii), a "material asset" is an individual asset that has a value in excess of $10,000 or assets that have an aggregate value in excess of $25,000); (iv) (A) grant any increase, or announce any increase, in the wages, salaries, compensation, bonuses, incentives, pension, severance or termination pay or other benefits payable by any Company to any of the officers or employees of the Companies, including any increase or change pursuant to any Employee Benefit Plan, (B) establish or increase (or promise to increase) or accelerate the payment or vesting of any benefits under any Employee Benefit Plan with respect to officers or employees of the Companies or (C) enter into any employment, consulting or severance agreements with any officers or employees or consultants to the Companies or change the terms thereof, in the case of clauses (A), (B) and (C), (v) make any material change in any method of accounting or accounting practice or policy used by the Companies, other than changes required by Law or under GAAP; (vi) terminate or amend in any material respect any Material Contract; (vii) merge or consolidate with, or acquire securities or any interest in, any person or entity, or enter into any joint venture, partnership or similar arrangement; (viii) fail to pay any creditor any amount owed to such creditor when due (after the expiration of any applicable grace periods), except if any such amount is being disputed in good faith in the ordinary course of business consistent with past practice; (ix) terminate, discontinue, close or dispose of any business operation or otherwise materially change the character or conduct of its business; (x) declare, set aside or pay any dividend or other distribution in respect of any the Company Stock; (xi) make any commitments by the Companies for any individual capital expenditure in excess of $20,000; (xii) amend the Companies' Articles of Incorporation or bylaws; (xiii) amend any material term of any outstanding Indebtedness, issue or sell any new debt securities, create, incur, assume or guarantee any Indebtedness or enter into any new credit facility (other than roll-overs under existing facilities), (xiv) compromise, settle, grant any waiver or release relating to, or otherwise adjust, any material Action, Indebtedness or any other claims or rights of the Companies; (xv) enter into any new agreement, contract, commitment or arrangement that will continue in effect after the Closing Date and not be terminable by the Company which is a party thereto on not more than 60 days' written notice without payment of premium or penalty; (xvi) make any change in the ownership of the Companies or grant or assign any Company Stock, options, rights or phantom shares in the Companies; or (xvii) enter into any agreement, contract, commitment or arrangement to do any of the foregoing. - 19 - (b) Pending the Closing Date, the Companies shall: (i) Give to the Purchaser and its representatives reasonable access during normal business hours to all of the employees, properties, books and records of the Companies and furnish the Purchaser and its representatives with such information concerning the Companies as the Purchaser may reasonably require, including such access and cooperation as may be necessary to allow the Purchaser and its representatives to interview the employees, to examine the books and records of the Companies, and to inspect the real property and equipment; (ii) Furnish the Purchaser within 20 days after the end of each month ending between the date of this Agreement and the Closing Date a statement of income and a balance sheet for each Company for the month just ended; and (iii) From time to time, furnish to the Purchaser such additional information (financial or otherwise) concerning the Companies as the Purchaser may reasonably request (which right to request information shall not be exercised in any way which would unreasonably interfere with the normal operations, business or activities of the Sellers or the Companies). (c) Notwithstanding anything to the contrary herein, the Sellers and Purchaser agree that Sellers may receive their customary distributions from the Companies respective operating accounts prior to Closing, including an out of the ordinary distribution as a carry-over from 2002, which are to be treated as taxable income to the Sellers. 4.2 Cooperation. Following the execution of this Agreement, the Purchaser, the Sellers and the Companies agree as follows: (a) The parties shall each use their reasonable best efforts, and shall cooperate fully with each other in preparing, filing, prosecuting, and taking any other actions with respect to, any filings, applications, requests, or actions which are or may be necessary, to obtain the consents, approvals, authorizations or other orders of any Governmental Authority or other person which are or may be necessary in connection with the transactions contemplated by this Agreement. (b) Without limiting the foregoing, the Sellers shall cooperate with the Purchaser at the Purchaser's request and in so doing use their best efforts from and after the Closing Date to obtain consents to the Material Contracts set forth in Schedule 2.8, as required in accordance with the terms of such Material Contracts; - 20 - (c) If the Purchaser or a Company receives an administrative or other order or notification relating to any violation or claimed violation of the rules and regulations of any Governmental Authority that could affect the Purchase's, the Sellers' or the Companies' ability to consummate the transactions contemplated hereby, the Purchaser, the Sellers or the Companies shall promptly notify the other party or parties thereof and shall use its reasonable best efforts to take such steps as may be necessary to remove any such impediment to the transactions contemplated by this Agreement; and no such notification shall affect the representations or warranties of the parties or the conditions to their respective obligations hereunder; and (d) Subject to the terms and conditions of this Agreement, each of the parties agrees to use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated hereby as soon as practicable but in no event later than the Closing. 4.3 Taxes. (a) Taxes for the year 2003 for all of the Companies shall be allocated (i) to the Sellers for the period from January 1, 2003 to the Closing Date, and (ii) to the Purchaser for the period from the Closing Date to December 31, 2003. The Purchaser shall be responsible for filing or causing to be filed all tax returns required to be filed by or on behalf of the Companies after the Closing Date. With respect to any such tax return required to be filed by the Purchaser for a taxable period of a Company beginning on or before the Closing Date, the Purchaser shall deliver, at least twenty days prior to the due date for filing of such tax return (including extensions), to Sellers a statement setting forth the amount of tax for which Sellers are responsible pursuant to this section (the "Statement"), and copies of such tax return. (b) The Purchaser and each of the Sellers will make an election under Section 338(h)(10) of the Code (and any comparable election under state, local, or foreign tax law) with respect to the acquisition of the Companies by the Purchaser. The Purchaser and each of the Sellers will cooperate fully with one another in the making of such election. In particular, and not by way of limitation, in order to effect such election, on or prior to the Closing Date, Purchaser and each of the Sellers will jointly execute necessary copies of Internal Revenue Service Form 8023 and all attachments required to be filed therewith pursuant to applicable Treasury regulations. - 21 - 4.4 Registration Rights. (a) Registration of Shares. For purposes of this Agreement, "Holder" means Sellers and "Registrable Shares" means any shares of FIC Stock held by a Holder, or any other shares of the common stock of FIC issued to a Holder pursuant to Section 1.2 hereof, which are included in the definition of FIC Stock for purposes of this Section 4.4, and any and all shares of FIC Stock issued as (or issuable upon the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, shares of FIC Stock held by a Holder until the date on which (i) such share of FIC Stock has been effectively registered under the Securities Act and disposed of in accordance with the a Shelf Registration Statement (as defined below), (ii) such share of FIC Stock is distributed to the public pursuant to Rule 144 under the Securities Act, or (iii) such share of FIC Stock may be sold or transferred pursuant to Rule 144(k) under the Securities Act (or any similar provision then in effect). During the time which a Holder holds Registrable Shares, if FIC files with the SEC a shelf registration statement pursuant to Rule 415 under the Securities Act (a "Shelf Registration Statement") on Form S-1 or Form S-3, if the use of such form is then available as determined by FIC, FIC agrees to include the Registrable Shares held by the Holders as part of such Shelf Registration Statement. FIC has no obligation pursuant to this section 4.4 or this Agreement to file a Shelf Registration Statement. (b) Suspension of Registration. Notwithstanding anything to the contrary in this Section 4.4, FIC may prohibit offers and sales of Registrable Shares pursuant to a Shelf Registration Statement at any time if (A)(i) it is in possession of material non-public information, (ii) the Board of Directors of FIC believes in good faith that such prohibition is necessary in order to avoid a legal requirement to disclose such material non-public information and (iii) the Board of Directors of FIC believes in good faith that disclosure of such material non-public information would not be in the best interests of FIC and its shareholders or (B)(i) FIC has made a public announcement relating to an acquisition or business combination transaction including FIC and/or one or more of its - 22 - subsidiaries that is material to FIC and its subsidiaries taken as a whole and (ii) the Board of Directors of FIC believes in good faith that it would be impracticable at the time to obtain any financial statements relating to such acquisition or business combination transaction that would be required to be set forth in the Shelf Registration Statement , or (C) such Shelf Registration Statement contains financial information that no longer meets the requirements of any applicable rule of Regulation S-X (the period during which any such prohibition of offers and sales of Registrable Shares pursuant to a Shelf Registration Statement is in effect pursuant to clause (A) or (B) of this subsection (c) is referred to herein as a "Suspension Period"). A Suspension Period shall commence on and include the date on which a Holder of Registrable Shares covered by a Shelf Registration Statement receives written notice from FIC that offers and sales of Registrable Shares cannot be made thereunder in accordance with this subsection (b) and shall, with respect to each Holder, end on the date on which that Holder either is advised in writing by FIC that offers and sales of Registrable Shares pursuant to the Shelf Registration Statement and use of the prospectus contained therein may be resumed (a "Resumption Notice") or receives a copy of a prospectus supplement. FIC agrees that it must promptly deliver a Resumption Notice to each Holder when none of the requisite conditions for the Suspension Period continue to exist or a prospectus supplement as soon as reasonably practicable. (c) Damages. Neither FIC nor Purchaser shall be liable to any Holder for damages pursuant to this Section 4.4. (d) No Further Obligations of FIC. Neither FIC nor Purchaser shall have any further obligations to a Holder pursuant to this Section 4.4. (e) Further Obligations of the Holders. In the event that FIC files a Shelf Registration Statement in connection with the registration of Registrable Shares pursuant to this Section 4.4, each Holder agrees to timely provide to FIC, at its request, such information and materials as it may reasonably request in order to effect the registration of such Registrable Shares. - 23 - (f) Expenses. In the event that FIC files a Shelf Registration Statement pursuant to this section 4.4, FIC or Purchaser shall bear, on behalf of the Holders, all reasonable costs and expenses of such registration required under this Section 4.4, including, but not limited to, the Company's printing, legal and accounting fees and expenses, and SEC filing fees. Holders shall be responsible for any fees and disbursements of Holders' counsel. Further, neither FIC nor Purchaser shall have no obligation to pay or otherwise bear the commissions or discounts attributable to the Registrable Shares being offered and sold by a Holder. (g) Indemnification of FIC and Purchaser. (i) Right to Indemnification. In the event that FIC registers any of the Registrable Shares under the Securities Act, each Holder of the Registrable Shares so registered will indemnify and hold harmless FIC and Purchaser, each of their directors, each of their officers who have signed or otherwise participated in the preparation of the registration statement, and each underwriter of the Registrable Shares so registered (including any broker or dealer through whom such of the shares may be sold) from and against any and all losses, claims, damages, expenses or liabilities, joint or several, to which they or any of them may become subject under the Securities Act, applicable state securities laws or under any other statute or at common law or otherwise, and, except as hereinafter provided, will reimburse FIC or Purchaser and each such director, officer, underwriter or controlling person for any legal or other expenses reasonably incurred by them or any of them in connection with investigating or defending any actions whether or not resulting in any liability, insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement, in any preliminary or amended preliminary prospectus or in the final prospectus (or in the registration statement or prospectus as from time to time amended or supplemented) or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, but only insofar as any such statement or omission was made in reliance upon and in conformity with information furnished in writing to FIC in connection therewith by such Holder expressly for use therein; provided, however, that such Holder's obligations hereunder shall be limited to an amount equal to the proceeds received by such Holder from Registrable Shares sold in such registration. - 24 - (ii) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which FIC or Purchaser seeks indemnification under this subsection (g) but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding that this subsection (g) provides for indemnification, in such case, then FIC (or Purchaser) and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of FIC (or Purchaser) on the one hand and of such Holder on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of FIC (or Purchaser) on the one hand and of the Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by FIC (or Purchaser) on the one hand or by the Holder on the other, and each party's relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case, (i) no such Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Shares offered by it pursuant to such registration statement; and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Except as otherwise provided in this clause (ii), the provisions of Section 5.4 shall govern the notice and other procedural aspects of any indemnification claim brought pursuant to this subsection (g). - 25 - 4.5 Release of Personal Guaranties/Obligations. Purchaser and Companies agree to use their commercially reasonable best efforts to remove each Seller from any and all personal guaranty and/or obligations related to the Companies, as set forth on Schedule 4.5 attached hereto, within a reasonable time after the Closing. In the event the Purchaser and Companies are unsuccessful in removing Sellers from all personal guaranties and/or obligations listed on Schedule 4.5, the Purchasers shall indemnify and hold Sellers harmless for any obligations, costs and expenses incurred by a Seller arising after the Closing related to any personal guaranties and/or obligations listed on Schedule 4.5 for the benefit of the Companies, pursuant to Section 5 herein. Section 5. Indemnification. 5.1 Survival. The representations, warranties covenants and other agreements of the parties contained herein or in any Document shall survive the Closing for a period of two (2) years following the Closing Date (the "Survival Period"). 5.2 Indemnification by the Companies and the Sellers. The Companies and the Sellers, jointly and severally, shall indemnify Purchaser and FIC and their affiliates, 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 or Sellers contained herein or in any Document, that is asserted in writing to the Company or Sellers prior to the expiration of the Survival Period. Notwithstanding the provisions of this Section 5.2, the maximum liability of the Companies and the Sellers under this Agreement shall be the aggregate amount of consideration paid by Purchaser hereunder, including the value of the FIC Stock issued as part of the Purchase Price, as of the date of its issuance. - 26 - 5.3 Indemnification by Purchaser. Purchaser shall indemnify the Sellers and their respective successors, heirs and personal representatives (collectively, the "Sellers Indemnified Parties"), against and hold them harmless from any and all Damages incurred or suffered by any Sellers 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, or the application of the indemnification covenant of Section 4.5 herein, 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 aggregate amount of consideration paid by Purchaser hereunder. 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 who is not a Purchaser Indemnified Party or a Sellers Indemnified Party shall give prompt written notice to the party from whom such indemnification is sought (the "Indemnifying Party") of the assertion of any claim, or the commencement of any action or proceeding, in respect of which indemnity may be sought hereunder; provided that the failure to give such notice shall not affect the Indemnified Party's rights to indemnification hereunder, unless such failure shall prejudice in any material respect the Indemnifying Party's ability to defend such claim, action or proceeding. The Indemnifying Party shall have the right to assume the defense of any such action or proceeding at its expense. 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. - 27 - Section 6. Conditions to Closing. 6.1 Conditions to Purchaser's Obligations. The obligation of Purchaser or FIC to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (a) Any necessary approvals. (b) No court or governmental entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any order or other law (whether temporary, preliminary or permanent) that is in effect and enjoins or otherwise prohibits consummation of the transactions contemplated by this Agreement. (c) The representations and warranties of the Companies and the Sellers contained herein (or in any certificate delivered pursuant hereto) that are qualified by reference to a Material Adverse Effect shall be true and correct as of the Closing as if made as of the Closing and all other representations and warranties of the Companies shall be true and correct as of the Closing as if made as of the Closing, except for such inaccuracies as have not had a Material Adverse Effect, and Purchaser shall have received a certificate to such effect dated the Closing Date and executed by a duly authorized officer of each Company. (d) The covenants and agreements of the Companies and the Sellers to be performed on or prior to the Closing shall have been duly performed in all material respects, and Purchaser shall have received a certificate to such effect dated the Closing Date and executed by a duly authorized officer of the Company. (e) The Sellers shall have delivered certificates representing the Company Stock in the name of Purchaser. - 28 - (f) Bell and Desselle shall have entered into employment contracts with FICFS. 6.2 Conditions to the Companies' and the Sellers' Obligations. The obligation of the Companies and the Sellers to consummate the transactions to be performed by them in connection with the Closing is subject to satisfaction of the following conditions: (a) Any necessary approvals. (b) No court or governmental entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any order or other law (whether temporary, preliminary or permanent) that is in effect and enjoins or otherwise prohibits consummation of the transactions contemplated by this Agreement. (c) The representations and warranties of Purchaser contained herein (or in any certificate delivered pursuant hereto) that are qualified by reference to a material adverse effect shall be true and correct as of the Closing as if made as of the Closing and all other representations and warranties of Purchaser shall be true and correct as of the Closing as if made as of the Closing, except for such inaccuracies as would not materially impair the transactions contemplated by this Agreement, and the Company shall have received a certificate to such effect dated the Closing Date and executed by Purchaser. (d) The covenants and agreements of Purchaser or FIC to be performed on or prior to the Closing shall have been duly performed in all material respects, and the Companies shall have received a certificate to such effect dated the Closing Date and executed by Purchaser. (e) Purchaser shall have delivered the Purchase Price. (f) FICFS shall have entered into employment contracts with Bell and Desselle. - 29 - Section 7. Termination. 7.1 Termination. This Agreement may be terminated at any time prior to the Closing: (a) by mutual written agreement of the Sellers and Purchaser; or (b) by either the Sellers or Purchaser by giving written notice of such termination to the other party, if such other party shall breach any of its material covenants or agreements under this Agreement which would result in a failure of the condition set forth in Section 6.1(c), in the case of a termination by Purchaser, and the condition set forth in Section 6.2(c), in the case of a termination by the Sellers, and such breach, if reasonable possibility of cure therefore exists, has not been cured within twenty (20) days following the giving of written notice of such breach by the non-breaching party to the breaching party; or (c) by either Purchaser or the Sellers by giving written notice of such termination to the other party, if any order permanently enjoining or otherwise prohibiting consummation of the transactions contemplated hereby shall become final and non-appealable; or (d) by Purchaser or the Sellers by giving written notice of such termination to the other, if any condition to such party's obligations hereunder has not been satisfied or waived and the Closing shall not have occurred on or prior to May 30, 2003; provided, however, that the right to terminate this Agreement pursuant to this Section 7.1(f) shall not be available to any party who is then in material breach of this Agreement; or (e) by Purchaser or by the Sellers if FICFS and Bell and Desselle have not entered into employment agreements. 7.2 Effect of Termination. In the event of the termination of this Agreement in accordance with Section 7.1 hereof, this Agreement shall thereafter become void and have no effect, and no party hereto or its respective affiliates or their directors, officers, employees, shareholders or agents shall have any liability to the other parties hereto or their respective affiliates, directors, officers, employees, shareholders or agents except for the obligations of the parties hereto; provided, that nothing herein will relieve any party from liability for a breach of this Agreement prior to such termination. - 30 - Section 8 Definitions. Unless otherwise stated in this Agreement, the following capitalized terms have the following meanings: "Action" means any action, suit, claim, arbitration, grievance, complaint, charge, proceeding or investigation (of which either the Sellers or the Companies have knowledge) commenced by or pending before any Governmental Authority. "Employee Benefit Plans" means all "employee benefit plans" within the meaning of Section 3(3) of ERISA (whether or not subject to ERISA), all bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement, severance and other employee benefit plans, programs, policies or arrangements, and all employment, retention, change of control or compensation agreements, in each case for the benefit of, or relating to, any current employee or former employee of the Companies. "Encumbrance" means any security interest, pledge, mortgage, lien (including tax liens), charge, encumbrance, easement, adverse claim, adverse preferential arrangement, restriction or defect in title. "Governmental Authority" means any United States federal, state or local government or any foreign government, any governmental, regulatory, legislative, executive or administrative authority, agency or commission or any court, tribunal, or judicial body. "Governmental Order" means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority. Governmental Orders shall not include Permits. "Indebtedness" means obligations with regard to borrowed money and shall expressly not include either accounts payable or accrued liabilities that are incurred in the ordinary course of business or obligations under capital, financing or operating leases regardless of how such leases maybe classified or accounted for on financial statements. - 31 - "Material Contracts" means the written agreements, contracts, policies, plans, mortgages, understandings, arrangements or commitments to which the Sellers or any Company is a party as described below: (i) any agreement or contract providing for payments to any person or entity in excess of $20,000 per year, excluding leases of equipment or real property or licenses with respect to Intellectual Property, which are subject to paragraph (iv) below; (ii) any employment agreement, consulting agreement or similar contract; (iii) any retention or severance agreement or similar contract with respect to any individual who is to be employed by the Companies following the Closing Date; (iv) any lease of equipment or real property or license with respect to Intellectual Property (other than licenses granted in connection with the purchase of equipment or other assets) by a Company from another person or entity providing for payments to another person or entity in excess of $25,000 per year; (v) any joint venture, partnership or similar agreement or contract of any Company; (vi) any agreement or contract under which a Company has borrowed or loaned any money in excess of $25,000 or issued or received any note, bond, indenture or other evidence of Indebtedness in excess of $25,000 or directly or indirectly guaranteed Indebtedness, liabilities or obligations of others in an amount in excess of $25,000; or (vii) any agreement or contract with any officer, manager, Seller or employee of the Companies or any of their family members (other than employment agreements covered in clause (i) or agreements or contracts containing terms substantially similar to terms available to employees generally). Section 9. Miscellaneous. 9.1 Successors and Assigns. 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. 9.2 Entire Agreement. This Agreement, including 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. - 32 - 9.3 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. 9.4 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. 9.5 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 TRAVIS COUNTY, TEXAS, AND VENUE FOR ANY ACTION RELATING TO THIS AGREEMENT SHALL BE PROPER ONLY IN FEDERAL OR STATE COURTS LOCATED WITHIN TRAVIS COUNTY, TEXAS. EACH PARTY AGREES THAT IT MUST BRING ANY ACTION RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT ONLY IN THE FEDERAL OR STATE COURTS LOCATED WITHIN TRAVIS COUNTY, TEXAS. 9.6 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 9.6. 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 9.6. - 33 - Purchaser: FIC Financial Services, Inc. 6500 River Place Blvd., Building One Austin, Texas 78730 Attn: Pat Tedrow FIC: Financial Industries Corporation 6500 River Place Blvd., Building One Austin, Texas 78730 Attn: Gene Payne and Ted Fleron Companies: Paragon Benefits, Inc. Paragon Group, Inc. Paragon National, Inc. 4201 Bee Cave Road, C-105 Austin, Texas 78746 Attn: Scott A. Bell Each of the Sellers: At the address set forth opposite their respective names on their respective signature pages included on and made a part of Schedule 1.1, attached hereto. 9.7 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 other Documents and to consummate the transactions contemplated. Each party will use its good faith efforts to carry out and comply with the provisions of this Agreement. 9.8 No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person other than the parties hereto and their respective successors and permitted assigns. 9.9 Adjustments in Shares Issued Pursuant to Section 1.2. The number of shares of FIC Stock to be issued pursuant to Section 1.2 of this Agreement shall be adjusted in the event the Closing does not take place on May 19, 2003; and in such event, the parties agree that the price per share, based on formula defined in such section, shall be recalculated, and adjustments may be made in the number of shares of FIC Stock issuable, without the necessity of any further signature or other requirements on the part of the Sellers, the Purchaser, the Company, or any other party. [Signature page follows] - 34 - SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase Agreement as of the day and year first above written. PURCHASER: FIC FINANCIAL SERVICES, INC. By:____________________________________ Name:__________________________________ Title: ________________________________ FIC: FINANCIAL INDUSTRIES CORPORATION By:____________________________________ Name:__________________________________ Title:_________________________________ COMPANY: PARAGON BENEFITS, INC. By:____________________________________ Name:__________________________________ Title:_________________________________ - 35 - PARAGON GROUP, INC. By:____________________________________ Name:__________________________________ Title:_________________________________ PARAGON NATIONAL, INC. By:____________________________________ Name:__________________________________ Title:_________________________________ - 36 - EX-10 6 equita-mkting.txt EXHIBIT 10.4 - EQUITA MARKETING AGMT EXHIBIT 10.4 MARKETING AGREEMENT This Marketing Agreement (the "Agreement") is executed to be effective this ___ day of _______, 2003, by and among INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA, a Washington corporation ("Investors Life"), FAMILY LIFE INSURANCE COMPANY, a Washington corporation ("Family Life") (collectively, the "Companies" and individually the "Company"), and EQUITA FINANCIAL AND INSURANCE SERVICES OF TEXAS, INC., a Texas corporation ("Equita"). WITNESSETH: WHEREAS, the Companies are engaged in the issuance of life insurance, annuities and related financial products; WHEREAS, Equita is engaged in the marketing and sale of life insurance, annuities and related financial products; and WHEREAS, the Companies desire to retain the services of Equita for the purpose of marketing and selling insurance policies, annuity contracts and related financial products issued by the Companies; NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereto agree as follows. 1. Definitions. For purposes of this Agreement: "Affiliate" shall mean, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person. "Business Day" shall mean a day on which banks are open for business in Dallas, Texas, other than a Saturday or Sunday. "Control" (and its derivative terms, including "controls" and "controlled by") shall mean the possession of the power to direct or cause the direction of the management and policies of a Person, unless such power is solely the result of an official position with or corporate office held by the Person; control shall be presumed to exist if any Person, directly or indirectly, owns, controls, holds with the power to vote, or holds shareholders' proxies representing more than 10 % of the voting securities of any other Person. - 1 - "Exclusive Market" means individuals over the age of fifty-five (55), commonly known as the "Senior Market." "IRR Requirements" shall mean the target internal rate of return, net of taxes, established by the Companies 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 so established by the Companies is 11%. "Person" shall mean any individual, corporation, general or limited partnership, association, limited liability company, joint venture, trust, unincorporated association or organization or government or political subdivision thereof. "Proceeding" shall mean any action, arbitration, audit, examination, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted, or heard by or before or otherwise involving, any court, administrative agency or arbitrator, whether at law, equity or otherwise. "Products" shall mean life insurance policies, annuity contracts and other financial related products issued or sold by the Companies or their Affiliates. 2. Appointment; Limitations. (a) Appointment. Subject to the provisions of this Agreement, each of the Companies independently, on behalf of themselves and their Affiliates which are licensed insurance companies, hereby appoints Equita to procure, through Equita's marketing network (including, without limitation, agents and brokers contracted by Equita as independent contractors), applications for the Products; provided, however, that such procurement of applications shall be subject to the applicable Rate Book of Investors Life or Family Life. Such appointment by Investors Life and Family Life shall be exclusive with regard to the marketing and sale of Products to the Exclusive Market, and without the prior written consent of Equita, which consent may be withheld in Equita's sole and absolute discretion, neither of the Companies may appoint other agents and brokers for the marketing and sale of Products in the Exclusive Market; provided, however, that the exclusive marketing rights granted to Equita under this Agreement shall not extend to: (i) the marketing and sale of Products in the Exclusive Market by agents of the Companies who are appointed with Investors Life or Family Life as of the date of this Agreement, or - 2 - (ii) the marketing and sale of Products, other than Products designed jointly by Equita and the Companies for distribution in the Exclusive Market or Products substantially similar to such jointly-developed Products, by agents of the Companies and their Affiliates, where such marketing and sale of Products is primarily designed for distribution in other than the Exclusive Market; provided, however, the maximum amount of premium which may sold under this sub-paragraph shall be limited to $1,000,000 per month; or (iii) the marketing and sale of Products by agents of Family Life in connection with the Mortgage Lender lead system of Family Life, as such system exists as of the date of this Agreement, whether such agents were appointed prior to or after the date of this Agreement, or (iv) the marketing and sale of Products by agents of an Affiliate of the Companies which is acquired after the date of this Agreement to the extent that such Affiliate (A) was continuously engaged in the marketing and sale of Products for the Exclusive Market commencing at least twelve (12) months prior to the date the Companies or an Affiliate entered into a letter of intent or other expression of interest or a purchase contract, whichever is earliest, for the acquisition of such new Affiliate and continuing to the date of closing of the acquisition, and (B) the marketing and sale in the Exclusive Market constitutes at least fifty percent (50%) of the business of such new Affiliate; or (v) assumption reinsurance by the Companies of Products issued by third party insurers. provided further, however, for purposes of sub-paragraphs (i) and (iii), above, such existing agents shall not be authorized to market Products developed after the date of this Agreement, or Products substantially similar to such Products, and targeted to the Exclusive Market. Equita's appointment by the Companies for other markets, including, without limitation, the marketing of tax qualified insurance and annuity Products to school districts, is non-exclusive. It is acknowledged and agreed by the Companies that during the term of this Agreement, Equita and its Affiliates, and its marketing network may market and sell life insurance policies, annuity contracts and related financial products on behalf of insurance companies, including, without limitation, in the Exclusive Market, other than through the Companies or their Affiliates and such activities shall not constitute a breach or violation of any of the terms of this Agreement. (b) Termination of Exclusive. Notwithstanding the terms of Section 2(a) to the contrary, Equita's exclusive appointment with respect to the Exclusive Market shall terminate unless $75,000,000 in net written premiums for Products are collected with respect to the Exclusive Market in 2004 and $150,000,000 in premiums for Products are collected with respect to the Exclusive Market for each calendar year thereafter; provided, however, the following items shall be taken into account with respect to the determination of the foregoing requirements: - 3 - (i) if net written premium collected by the Companies for the Products in the Exclusive Market is in excess of the required amount in any year, such excess shall be carried over to the next year for purposes of this calculation; and (ii) if, after an aggregate amount of net written premium of $1.425 billion has been collected by the Companies, for any year thereafter, the amount of net written premium collected by the Companies in any year is less than $50,000,000, Equita's exclusive appointment with respect to the Exclusive Market shall terminate; and (iii) all premium, other than premium from the sources described in Sections 2(a)(i) to 2(a)(v) hereof, for Products sold in the Exclusive Market, whether sold by Equita or by members of Equita's marketing network or by others, shall be counted in determining whether the required sales have occurred. (iv) if at least one of the Companies does not have an indexed annuity Product which meets the IRR Requirements of such Company available for sale to the Exclusive Market by April 30, 2004, then the required net written premium for 2004 shall be reduced by $6,250,000 for each calendar month, or portion thereof, after April 2004, that the indexed annuity Product is not available; and if such Product is not available in any year after 2004, Equita may either reduce the required annual requirement by $12,500,000 for each month, or portion thereof, the Product is not available or Equita may terminate this Agreement. For illustration purposes only, if neither of the Companies has an indexed annuity Product available for sale to the Exclusive Market until August 1, 2004, then the required net written premium for 2004 would be $56,250,000. (c) Reservation of Rights. In its reasonable discretion, the Companies shall have the right at any time and from time to time, without liability to Equita: (i) to change commissions on any policy form or rider upon advance written notice to Equita (but any such change shall not affect commissions on applications received by the Companies prior to such written notice); (ii) to withdraw any policy forms or add new policy forms; (iii) to withdraw from doing business in or marketing in all or any portion of any jurisdiction; - 4 - (iv) to modify or change the premium rates respecting the Products; (v) to reject applications for insurance without specifying the cause of such rejection; (vi) to refuse to contract with any agent or broker with whom Equita may have contracted as a part of its marketing network; and (vii) to terminate the contract of any of Equita's agents or brokers without specifying the cause of such termination. (d) Limitations on Authority. Equita's right, power or authority on behalf of the Companies with respect to the marketing and sale of the Products shall exist only as expressly stated in this Agreement. Without limiting the generality of the foregoing, Equita shall have no authority to do or perform, and expressly agrees not to do or perform, any of the following acts on behalf of the Companies: (i) incur any indebtedness or liability; (ii) make, alter or discharge contracts; (iii) waive forfeitures; (iv) quote rates other than as quoted by the Companies; (v) extend the time for payment of any premium; (vi) waive payment in cash; (vii) guarantee dividends; (viii) deliver any policy unless the first premium is secured while the applicant is in good health; (ix) institute any Proceeding on behalf of the Companies without prior written approval from the Companies; (x) violate the insurance laws of any jurisdiction in which Equita may be soliciting applications for insurance on behalf of the Companies under this Agreement; (xi) withhold any monies or property of the Companies; (xii) rebate or offer to rebate all or any part of a premium on any Product; or (xiii) perpetrate any fraud against the Companies. - 5 - 3. Responsibilities. (a) Marketing and Sales. Subject to the terms of this Agreement, Equita shall use commercially reasonable efforts to promote market and sell Products which are targeted to the Exclusive Market. In performing its obligations under this Agreement, Equita shall abide by the rules and regulations of the Companies now or hereafter in force, which rules and regulations shall constitute a part of this Agreement and are incorporated into this Agreement by this reference; provided, however, the Companies shall provide Equita with reasonable advance written notice of all of its rules and regulations and any changes thereto. Equita shall not be charged with knowledge of any rule or regulation as to which reasonable advance written notice is not given by the Companies. All monies received by Equita for or on behalf of the Companies shall be securely held by Equita and shall be immediately paid over to the Companies. Any advertisement, circular, illustration or other communication using the name of the Companies or the name or description of any Product (whether written, verbal, audio or visual) must be approved by the Companies prior to its use. If Equita shall submit to the Companies, in writing addressed to the person designated in Section 14(a) hereof, for approval an advertisement, circular, illustration or other communication or any other marketing or training materials for use in connection with the marketing or sale of Products, whether or not including the name of the Companies or any of its Affiliates or the name or description of any Product, such approval shall be deemed given if written notice of objection from the Companies is not received within forty-five (45) days after submission by Equita; provided that if no response has been received within thirty (30) days of the initial submission, Equita shall have sent a second request to the Companies (Attn: Pat Tedrow), which request shall advise of the fifteen (15) day time period to respond. (b) Use of Agent Sales Force. Subject to approval by the Companies and the terms of this Agreement, Equita may contract with agents and brokers comprising its marketing network to sell the Products. Each such agent or broker shall independently contract directly with either Investors Life or Family Life in writing on a form specified by the applicable Company, which shall become effective when executed by the applicable Company and the agent or broker, and the appointment has been completed with the applicable insurance department. Each such agent or broker must be licensed for the particular jurisdiction or jurisdictions in which the agent or broker is marketing Products. Equita shall have no authority to modify or amend any part of any such contract between the applicable Company and Equita's agent or broker. - 6 - (c) Product Development. The Companies agree to use its commercially reasonable efforts to develop Products specifically targeted for sale to the Exclusive Market, which products shall include, but not limited to, those policies set forth on Exhibit _____ attached hereto and incorporated herein by reference for all purposes. The Companies further covenant and agree to use commercially reasonable efforts to continue to develop Products for the Exclusive Market, which shall include an indexed annuity to be developed by April 30, 2004; provided, however, that the obligations of the Companies under this section shall extend only to Products which meet the IRR Requirements established by the Companies from time to time. (d) Internal Sales Force. During the term of this Agreement, the Companies and their Affiliates shall not hire or contract with any agents to serve as an internal or corporate sales force for the marketing of Products in the Exclusive Market. All marketing and sales activities in the Exclusive Market customarily conducted by a sales agent or sales manager shall be conducted by independent agents, including Equita and the agents in Equita's agent marketing network, subject to the terms of this Agreement. 4. Compensation. (a) Commission Schedule. Subject to the provisions of this Section 4, Equita shall be paid commissions by the applicable Company on premiums paid to and received by the Companies with respect to Products sold by Equita on behalf of the applicable Company in accordance with the relevant commission schedule set forth on Exhibit A attached hereto and incorporated herein by reference for all purposes. (b) Commission Adjustments. All commissions shall be reduced by commissions paid to the agents and brokers (or to their executors, administrators or estates) with whom Equita has contracted as a part of its marketing network. In addition, first year and renewal commissions are subject to the following modifications: (i) no commissions shall be paid on premiums for short term insurance or flat extra premiums (substandard); (ii) commissions shall not be paid on policies reinstated unless such reinstatement was accomplished by Equita; (iii) commissions on policy forms or riders for ages that are not shown in Rate Book of the applicable Company, for the conversion of term policies or changes of one form of insurance to another, or for the rewriting or replacement of lapsed or surrendered policies, are not covered by this Agreement but may be quoted on application to the applicable Company and may be changed from time to time; (iv) if a policy is reissued, the applicable Company may modify the rate of first year and renewal commissions and the period for which renewals will be paid; and - 7 - (v) commissions shall be payable hereunder only in accordance with rules and regulations of the applicable Company and shall not be allowed on premiums waived or commuted by reason of death, disability or exercise of policy options. (c) Internal Marketing Allowance. Equita and the Companies will cooperate in the development of an overall marketing program, including the division of any internal marketing allowance for agents and the duties required with respect thereto. The Companies agree to cover all costs of members of Equita's marketing network who qualify for any conventions or award programs sponsored by the Companies. Equita may share such any portion of the internal marketing allowance payable to Equita with agents in its marketing network or with other agents or brokers who, with Equita's consent, as required by this Agreement, become agents for the Companies for the sale of Products in the Exclusive Market. (d) Commission Payments. Commissions that become payable under this Agreement shall be paid to Equita, its successors or assigns. Furthermore, the Companies shall pay to Equita those commissions that Equita's agents or brokers would have received from the Companies under their contracts but that, for some reason other than the failure of such agents or brokers to qualify, are not paid to such agent or brokers; provided, however, that such commissions shall be paid in accordance with the provisions of this Agreement. (e) Monthly Statement. Each month, each Company will provide Equita a copy of Equita's commission account statement. Unless Equita notifies the applicable Company in writing within one hundred eighty (180) days after receipt of such statement of any differences between such statement and Equita's account, such statement shall be competent and conclusive evidence of the state of Equita's account. (f) Reinsurance. The Companies will each use commercially reasonable efforts to enter into reinsurance arrangements with a reinsurance company designated by Equita, which reinsurance agreements shall provide for the reinsurance of no more than twenty percent (20%) of the net written premium received by the applicable Company for Products sold in the Exclusive Market by agents appointed through Equita. The reinsurance agreement(s) shall include terms and provisions acceptable to the Companies, including (i) a "funds held" provision, (ii) a requirement that the reinsurer be an accredited reinsurer in such jurisdiction as may be necessary in order that the Companies receive credit on their statutory financial statements for reinsurance ceded, (iii) a provision that, if required in order to qualify as an accredited reinsurer, the reinsurer will provide a letter of credit from a commercial bank acceptable to the Companies in such amount as may be required in order for the Companies to receive credit on their statutory financial statements for reinsurance ceded and (iv) a provision that ceding allowance shall be based on an industry-average level of expenses. - 8 - 5. Commission Advances. (a) The Companies shall pay advances or loans against future commissions to agents or brokers comprising Equita's marketing network only at the advance written request of Equita. Any such sums that may be advanced or loaned to Equita by reason of the practice of the Companies of paying advances against future commission earnings or for any other reason shall be and become a debt from Equita to the applicable Company, due and payable on demand. Equita shall be liable for any claims the Companies may have against the agents or brokers comprising Equita's marketing network for advances or loans, but only to the extent that the advance or loan is approved in writing as provided above. (b) All debts of Equita to the Companies shall bear interest at the rate of six percent (6%) per annum. After maturity, all debts shall bear interest at the highest rate permitted by law. After termination of this Agreement, all debts created hereunder are due and payable immediately without further notice or demand. (c) If either of the Companies shall return the premiums on a policy for any cause, Equita shall repay to the applicable Company on demand the amount of commission received on the premiums so returned. 6. Expense Reimbursements. Equita shall pay directly or to reimburse the applicable Company upon demand for the following expenses: (a) all agent taxes, municipal license fees and local and state taxes for the jurisdiction or jurisdictions in which Equita conducts marketing and sales activities for the Companies; and (b) all reasonable charges provided in rules and regulations of the Companies, including charges for not taken policies, for applications not completed and for policies reissued for a reduced amount, a change in date or a change of plan. 7. Records. All books, documents, vouchers, receipts, lists, notices or other papers of any kind used by Equita in any transaction involving the Companies, if furnished by the Companies, shall remain the property of the Companies; shall be open to inspection by the Companies at all times; and, upon request by the Companies, all unused materials furnished by the Companies shall be returned to the Companies at termination of this Agreement. All uncollected premium receipts and undelivered policies sent to Equita for delivery and collection shall be promptly returned to the applicable Company. - 9 - 8. Confidentiality. (a) Equita acknowledges that in conducting business outlined in this Agreement, Equita will be given or will obtain access to confidential and proprietary information regarding one or both of the Companies that is not generally ascertainable from public or published sources. Equita shall retain such information in strict confidence and not to use or disclose to others any of such information except as strictly necessary to perform its obligations under this Agreement. Upon termination of this Agreement, Equita shall deliver promptly all of such confidential and proprietary information (without retaining copies thereof), in whatever form (written or electronic) in its possession to the Company providing same. (b) The Companies acknowledge that in conducting business outlined in this Agreement, the Companies will be given or will obtain access to confidential and proprietary information regarding Equita that is not generally ascertainable from public or published sources. The Companies shall retain such information in strict confidence and not to use or disclose to others any of such information except as strictly necessary to perform its obligations under this Agreement. Upon termination of this Agreement, the Companies shall deliver promptly all of such confidential and proprietary information (without retaining copies thereof), in whatever form (written or electronic) in its possession to Equita. 9. Term. The term of this Agreement shall commence upon the execution and delivery of this Agreement and shall expire ten (10) years later; provided, however, this Agreement shall automatically renew for successive one year terms unless either party has, by written notice to the other at least 60 days prior to the end of the then current term, expressed its desire that this Agreement shall expire at the end of such term, in which event this Agreement shall expire at the end of such term. 10. Termination. (a) This Agreement may be terminated: (i) by Equita upon at least 60 days prior written notice to the Companies; (ii) by the mutual consent of the parties; or - 10 - (iii)by the Companies upon written notice to Equita if (A) Equita ceases or suspends its business operations; (B) Equita files for protection from creditors under the applicable provisions of the United States Bankruptcy Code or any similar law; (C) Equita breaches any provision of this Agreement, if Equita has not made substantial efforts to cure such breach within thirty (30) days following written notice from the Companies detailing such breach and such breach has not been fully cured within seventy-five (75) days following such written notice from the Companies; (iv) by Equita upon written notice to the Companies if (A) the Companies cease or suspend its business operations (other than as a result of a merger or consolidation with one another or an Affiliate of FIC); (B) any insurance commissioner or similar regulatory agency takes any action against Investors Life or its parent company, Financial Industries Corporation ("FIC"), which results in the appointment of a trustee, conservator, liquidator or similar third party overseer; (C) the Companies file for protection from creditors under the applicable provisions of the United States Bankruptcy Code or any similar law; or (D) the Companies breach any provision of this Agreement if the Companies have not made substantial efforts to cure such breach within thirty (30) days following written notice from Equita detailing such breach and such breach has not been fully cured within seventy-five (75) days following such written notice from Equita; (b) No such termination shall impair Equita's right to receive commissions on policies previously procured by the agents or brokers comprising its marketing network, except as provided in this Agreement. Furthermore, termination in accordance with this Section shall not relieve a breaching or defaulting party of liability arising from any breach or default under this Agreement, and certain terms and conditions of this Agreement that, by their terms or implication, survive termination shall continue in effect, as set forth in this Agreement. Without limiting the generality of the foregoing, termination of this Agreement shall not affect the effectiveness of Sections 7, 8, 11 and 12. (c) Notwithstanding the foregoing or any other provision of this Agreement to the contrary, if the Companies terminate this Agreement other than pursuant to Section 10(a)(iii) above and the Companies, directly or indirectly, through Affiliates, or otherwise, retain agents previously a part of Equita's marketing network to market and sell Products, the termination shall not affect Equita's right to commissions in accordance with the terms of this Agreement, as if it were still in effect, which right shall continue as long as such agents market Products for the Companies. (d) Notwithstanding the foregoing or any other provision of this Agreement to the contrary, following termination of this Agreement, Equita and its Affiliates and their respective agents may continue to service existing customers for the Companies and receive commissions for renewals and increases in accordance with the terms hereof. - 11 - (e) Notwithstanding the foregoing or any other provision of this Agreement to the contrary, for a period of three (3) years following termination of this Agreement, Equita and its Affiliates shall not solicit, or aid or abet the solicitation of, any person for the purpose of persuading or attempting to persuade such person to terminate a Product purchased during the term of this Agreement by such person from Investors Life, Family Life or an Affiliate of either of the Companies, or to replace such Product with the insurance of another insurer. 11. Indemnification. (a) Indemnification by Equita. Equita shall indemnify, defend and hold harmless the Companies and their Affiliates against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries and deficiencies, including interest, penalties, settlement costs, costs of investigation and reasonable attorneys' fees (collectively, "Damages"), that any of such parties shall incur or suffer, which arise or result from, or relate to: (i) the breach by Equita of any of its material obligations under this Agreement; or (ii) the activities of Equita and its employees and Affiliates, and agents or brokers who are members of Equita's marketing network in connection with the marketing and sale of Products; provided, however, in no event shall Equita's indemnity extend to the activities of agents or brokers that were not introduced to the Companies by Equita and that, at the request of the Companies, became members of Equita's marketing network; (b) Indemnification by the Companies . Investors Life, or Family Life, as applicable, shall indemnify, defend and hold harmless Equita and its Affiliates against and in respect of any and all Damages that any of such parties shall incur or suffer, which arise or result from, or relate to: (i) the breach by the applicable Company of any of its obligations under this Agreement; or (ii) the activities of Investors Life, Family Life and their respective employees, agents, brokers or Affiliates (other than Equita and members of Equita's marketing network) in connection with the marketing and sale of Products, including, without limitation, in the case of the Companies, all underwriting, acceptance, administration, surrender, loan, withdrawal, and termination activities. - 12 - (c) Claim Notice and Defense: Third Party Claims. If any claim or demand, or any Proceeding is commenced for which a party would be liable for Damages (an "Indemnifying Party") to another party (an "Indemnified Party") is asserted against or sought to be collected from such Indemnified Party by a Person other than a party hereto or any Affiliate thereof (a "Third Party Claim"), then the Indemnified Party shall promptly deliver to the Indemnifying Party a written notice with respect to such Third Party Claim (a "Claim Notice"); provided, however, no failure or delay in giving any such Claim Notice shall relieve the Indemnifying Party of its obligations except, and only to the extent, that it is prejudiced thereby. The Indemnifying Party shall respond to the Indemnified Party within 30 days of receipt of a Claim Notice setting forth whether the Indemnifying Party disputes its liability with respect to the matters covered by such Claim Notice; and if the Indemnifying Party does not dispute such liability, whether it, at its sole cost and expense, desires to assume the defense of the matters set forth in such Claim Notice. The Indemnified Party may take any action it deems to be necessary or appropriate to preserve its rights prior to receipt of such response from the Indemnifying Party but shall not settle or proceed to final judgment with respect to such Third Party Claim prior to the expiration of such 30 day period. If the Indemnifying Party does not dispute its liability with respect to the matters covered by the Claim Notice, the Indemnifying Party shall have the right to direct, through counsel of its own choosing, the defense or settlement of any Proceeding brought against the Indemnified Party in respect of Third Party Claims; provided, however, that the Indemnifying Party shall not settle any matter without obtaining the Indemnified Party's prior consent thereto if such settlement provides for any remedy other than the payment of money damages or does not provide for a full release of the Indemnified Party or, regardless of the terms of such settlement, if the Indemnifying Party disputes its liability with respect to the Third Party Claim. If the Indemnifying Party elects to assume the defense of any such Third Party Claim or Proceeding, the Indemnified Party may participate in such defense at its own expense. If the Indemnifying Party fails to defend or, after commencing or undertaking any such defense, fails to prosecute or withdraws from such defense other than as a result of a settlement, the Indemnified Party shall have the right to direct, through counsel of its own choosing, the defense or settlement of any such Proceeding; provided, however, that if the Indemnified Party assumes the defense of any such Third Party Claim or Proceeding pursuant to this Section 11(c) and proposes to settle such Third Party Claim or Proceeding prior to a final judgment thereon or to forego appeal with respect thereto, then the Indemnified Party shall give the Indemnifying Party prompt written notice thereof and the Indemnifying Party shall have the right either (i) to participate in and consent (which consent shall not be unreasonably withheld) to the settlement or (ii) to assume or reassume the defense of such Proceeding. - 13 - The party directing the defense shall pursue such defense diligently and promptly. The parties shall cooperate in the defense of all Third Party Claims. In connection with the defense of any Third Party Claim, each party shall make available to the party controlling such defense any books, records or other documents within its control that are reasonably requested in the course of or necessary or appropriate for such defense; provided, however, that appropriate arrangements are made to safeguard the confidentiality of such materials. (d) Claim Notice and Defense: Claims Between the Parties. If an Indemnified Party has a claim against an Indemnifying Party that does not involve a Third Party Claim, the Indemnified Party shall give written notice of such claim to the Indemnifying Party specifying the nature, estimated amount and the specific basis for such claim. The Indemnifying Party shall respond to the Indemnified Party within 30 days of receipt of such notice setting forth whether the Indemnifying Party disputes its liability with respect to the matters covered by such notice. If the Indemnifying Party disputes its liability with respect to such matters, then the Indemnified Party and the Indemnifying Party shall negotiate in good faith to resolve such dispute. If not so resolved or if no timely response is made, either party may pursue whatever remedies it may have. If the Indemnifying Party does not dispute its liability, it shall pay or reimburse the Indemnified Party for such claim within thirty (30) days of receipt of the notice. 12. Costs. Subject to the provisions of Section 11, if any Proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys' fees and other costs incurred in that Proceeding, in addition to any other relief to which it or they may be entitled. 13. Governing Law. This Agreement shall be construed and interpreted in accordance with, and governed by, the laws of the State of Texas as applied to contracts that are executed and performed entirely in Texas. 14. Notices. All notices, requests, demands and other communications required or permitted with respect to this Agreement shall be in writing and shall be deemed to have been duly given (i) on the date delivered, if delivered personally or by courier; or (ii) the date received, if sent by facsimile, by overnight express or by first class U.S. mail, registered or certified, postage prepaid, and properly addressed to the party to whom notice is to be given, as follows: - 14 - (a) If to the Companies: Financial Industries Corporation River Place Pointe 6500 River Place Blvd., Building 1 Austin, Texas 78730 Attention: Theodore A. Fleron Fax: (512) 404-5051 (b) If to Equita: Equita Financial and Insurance Services of Texas, Inc. 11551 Forest Central Drive Forest Central II, Second Floor Dallas, Texas 75243 Attention: Richard G. Wolfe, President Fax: (214) 553-5384 With a copy to: Hance, Scarborough Wright Ginsberg & Brusilow 14755 Preston Road, Suite 600, L.B. 64 Dallas, Texas 75254 Attention: Paul B. Sander, Esq. Fax: (972) 702-0662 Any party may change its address for purposes of this Section 14 by giving the other parties written notice of the new address in the manner set forth above. 15. Entire Agreement; Waiver. This Agreement, including the schedules hereto (which are incorporated into this Agreement by this reference), constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations and understandings of the parties. No waiver of any of the provisions of this Agreement shall be deemed to be, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. 16. Binding Effect; Assignment. This Agreement shall be binding on, and shall inure to the benefit of, the parties to it and their respective successors and permitted assigns. The rights and obligations of any party under this Agreement shall not be assignable without prior written consent of the other party. 17. Third Parties. Nothing in this Agreement, whether express or implied, is intended to confer any rights or in remedies under or by reason of this Agreement on any Persons other than the parties to it and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third Persons to any party to this agreement, nor shall any provision give any third Persons any right of subrogation or action over against any party to this Agreement. - 15 - 18. Amendment. This Agreement may be amended, modified or supplemented only by a written instrument executed by all parties. 19. Severability. If any portion of this Agreement is declared by a court of competent jurisdiction to be invalid or unenforceable, such declaration shall not affect the validity or enforceability of the remaining provisions. 20. Headings. The subject headings of the paragraphs and subsections of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions. 21. Counterparts. This Agreement may be executed simultaneously in one or more counterparts, each of which parts shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 22. Other Companies. The Companies acknowledge that the Companies or Affiliates, including FIC, may from time to time, directly or indirectly, charter or acquire additional life insurance companies that will become an Affiliate of one or more of the Companies or other Affiliates. In the event of any such chartering or acquisition, the Companies agree to take such steps as are necessary to cause each such subsequently chartered or acquired insurance company to execute and deliver to Equita an addendum to, or additional counterpart of, this Agreement thereby agreeing to be bound by all the terms and conditions hereof as if a "Company" as if originally a party hereto; provided, however, the failure of the Companies to cause any such new Affiliate to execute and deliver a counterpart of this Agreement shall not affect the inclusion of Products issued by such new Affiliate with respect to such new Affiliate for purposes of the compensation payable under this Agreement. 23. Public Disclosure. No public disclosure of the existence of this Agreement or the transactions which are the subject of this Agreement. The only party authorized to grant such approval by Equita is Richard G. Wolfe, President of Equita. Equita acknowledges that the Companies are subsidiaries of a public company and that FIC is required under the federal securities laws and regulations to make certain filings with the U..S. Securities and Exchange Commission ("SEC"). To the extent that FIC determines in its sole discretion (after consultation with Equita, which consultation has taken place prior to the date of this Agreement) that this Agreement is required to be included in any filings made by FIC with the SEC, Equita agrees that the disclosures made in such filings are not contrary to the provisions of this Section 23. - 16 - 24. Authority. Each of the parties hereto represents and warrants to the other that (a) the execution, delivery and performance of this Agreement by such party has been duly and properly authorized by all necessary corporate action and will not violate any provision of the articles or certificate of incorporation, bylaws or other governing instrument of such party; (b) the individual executing this Agreement on behalf of such party has been duly authorized to execute this Agreement; and (c) this Agreement constitutes the legal, valid and binding obligation of Equita and the Companies, enforceable against each of them in accordance with their respective terms. IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on the day and year first above written. INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA By: __________________________________ Name: Title: FAMILY LIFE INSURANCE COMPANY By:____________________________________ Name: Title: EQUITA FINANCIAL AND INSURANCE SERVICES OF TEXAS, INC. By: ___________________________________ Name: Title: - 17 - ADDENDUM Addendum to Marketing Agreement dated as of , 2003, by and among INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA, a Washington corporation ("Investors Life"), FAMILY LIFE INSURANCE COMPANY, a Washington corporation ("Family Life") (collectively, the "Companies" and individually the "Company"), and EQUITA FINANCIAL AND INSURANCE SERVICES OF TEXAS, INC., a Texas corporation ("Equita"). WITNESSETH: WHEREAS, Equita is entering into the Marketing Agreement with Investors Life and Family Life, subsidiaries of Financial Industries Corporation ("FIC") to which this Addendum is attached (the "Agreement"); and WHEREAS, Equita desires assurance that the Affiliates of FIC acquired after the date of the Agreement which are involved in the marketing and sale of the Products will be subject to the obligations of the Companies to the extent provided under the Agreement; NOW, THEREFORE, for and in consideration of the benefits to be received by the Companies under the Agreement, FIC hereby agrees as follows: FIC acknowledges that Section 2 of the Agreement provides that the appointment of Equita by the Companies to the marketing and sale of Products to the Exclusive Market, to the extent provided therein, will, under certain circumstances, extend to Affiliates of FIC which are acquired after the date of the Agreement. FIC agrees to take such steps as are necessary to cause each such subsequently chartered or acquired insurance company to conduct its marketing and sales activities in a manner which is consistent with the terms and provisions of the Agreement and any related agreement; including, without limitation, causing each such new Affiliate to execute and deliver to Equita an addendum to, or counterpart of, the Agreement or an agreement on the same terms and conditions for the remaining term of the Agreement; provided, however, that the failure of FIC to cause the new Affiliate to execute and deliver such addendum, counterpart or new agreement shall not affect the inclusion of Products issued by such new Affiliate in the calculation of compensation due Equita under the terms of the Agreement. - 18 - IN WITNESS WHEREOF, the FIC has executed this Addendum on this ____ day of _________________, 2003. FINANCIAL INDUSTRIES CORPORATION By:____________________________________ Name: Title: - 19 - EX-10 7 aps-option.txt EXHIBIT 10.5 - APS OPTION AGREEMENT EXHIBIT 10.5 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: - 1 - 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 marketed - 2 - 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 - 3 - favor of 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 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. - 8 - 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 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 - 9 - 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 March 31, 2003, (d) 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 Pat Tedrow (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; (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; - 13 - (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. - 14 - Section 4. Covenants. 4.1 Board Seats. As soon as practicable following the date hereof, the Company shall appoint Kenneth Shifrin (or any substitute designee of Purchaser reasonably acceptable to the Company) (the "Purchaser Nominee") to serve on the Board. The Company further agrees, with respect to the 2003 annual shareholders meeting and 2004 annual shareholders meeting, (a) to propose as a nominee for election to the Board at such meeting the individual designated as the Purchaser Nominee, (b) to include the name of the Purchaser Nominee on the Company's proxy statement and proxy card for such meeting, (c) to recommend to its shareholders the election of the Purchaser Nominee 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. - 15 - 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 Pat Tedrow (upon terms agreeable to the Company and Pat Tedrow) 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 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 Pat Tedrow 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 Roy F. and Joann Cole 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. - 16 - Section 5. Indemnification. 5.1 Survival. The representations and warranties of the parties contained herein or in any Document (unless otherwise provided in such Document) shall survive for a period of two (2) years following the date of this Agreement (the "Survival Period"). 5.2 Indemnification by the Company. (a) The Company shall indemnify Purchaser and its affiliates, and their respective partners, principals, officers, directors, managers, members, employees, independent contractors, agents, representatives, and other similarly situated parties, and the successors, heirs and personal representatives of any of them (collectively, "Purchaser Indemnified Parties"), against and hold them harmless from any and all damage, claim, loss, liability and expense (including, without limitation, reasonable expenses of investigation and attorneys' fees and expenses) (collectively, "Damages") incurred or suffered by any Purchaser Indemnified Party arising out of or relating to any breach of any representation, warranty, covenant or other agreement of the Company contained herein or in any Document that is asserted in writing to the Company prior to the expiration of the Survival Period. The Company acknowledges and agrees that Purchaser is also relying on, among other things, the representations, warranties, covenants and other agreements of the Company contained herein in acquiring shares of Common Stock from the Roy F. and Joann Cole 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: - 17 - (i) the Company shall indemnify the Purchaser Indemnified Parties against and hold them harmless from any and all Damages incurred or suffered by any Purchaser Indemnified Party arising out of or relating to actions, claims or suits, pending or threatened, which may be brought against the Purchaser Indemnified Parties relating to the Compromise and Settlement Agreement, dated May 15, 2003, entered into among the Company and the other parties thereto (the "Settlement Agreement"); provided that the provisions of this Section 5.2(b) shall not apply to any breach or alleged breach by any Purchaser Indemnified Party of any provision of the Purchase Agreement; and (ii) the Maximum Liability shall not be applicable with respect to any claim for indemnity under this Section 5.2(b). 5.3 Indemnification by Purchaser. Purchaser shall indemnify the Company and its affiliates, and their respective partners, principals, officers, directors, employees, independent contractors, agents, representatives and other similarly situated parties, and the successors, heirs and personal representatives of any of them (collectively, the "Company Indemnified Parties"), against and hold them harmless from any and all Damages incurred or suffered by any Company Indemnified Party arising out of or relating to any breach of any representation, warranty, covenant or other agreement of Purchaser contained herein or in any Document that is asserted in writing to Purchaser prior to the expiration of the Survival Period. Notwithstanding the provisions of this Section 5.3, the maximum liability of Purchaser under this Agreement shall be the Maximum Liability. 5.4 Indemnification; Notice and Settlements. A party seeking indemnification pursuant to Sections 5.2 or 5.3 (an "Indemnified Party") with respect to a claim, action or proceeding initiated by a person or entity who is not a Purchaser Indemnified Party or a Company Indemnified Party shall give prompt written notice to the party from whom such indemnification is sought (the "Indemnifying Party") of the assertion of any claim, or the commencement of any action or proceeding, in respect of which indemnity may be sought hereunder; provided that the failure to give such notice shall not affect the Indemnified Party's rights to indemnification hereunder, unless such failure shall prejudice in any material respect the Indemnifying Party's ability to defend such claim, action or proceeding. The Indemnifying Party shall have the right to assume the defense of any such action or proceeding at its expense, provided that no settlement shall be executed without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld). If the Indemnifying Party shall elect not to assume the defense of any such action or proceeding, or fails to make such an election within 20 days after it receives such notice pursuant to the first sentence of this Section 5.4, the Indemnified Party may assume such defense at the expense of the Indemnifying Party. The - 18 - 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 TRAVIS COUNTY, TEXAS, AND VENUE FOR ANY ACTION RELATING TO THIS AGREEMENT SHALL BE PROPER ONLY IN FEDERAL OR STATE COURTS LOCATED WITHIN TRAVIS 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 TRAVIS 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 6500 River Place Blvd., Building One Austin, Texas 78730 Attn: Gene Payne and Ted Fleron Facsimile No.: (512) 404-5051 Purchaser: American Physicians Service Group, Inc. 1301 Capital of Texas Hwy., Suite C-300 Austin, Texas 78746 Attn: Chairman and Chief Executive Officer Facsimile No.: (512) 314-4398 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: ___________________________________ Name:__________________________________ Title:_________________________________ PURCHASER: AMERICAN PHYSICIANS SERVICE GROUP, INC. By:____________________________________ Kenneth S. Shifrin, Chairman of the Board and Chief Executive Officer - 22 - 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 Pat Tedrow. 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., Earl W. Johnson, 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., Scott A. Bell, Wayne C. Desselle, Chris Murphy, Financial Industries Corporation and FIC Financial Services, Inc. 3. Stock Purchase Agreement, dated as of June 4, 2003, among Total Compensation Consulting Group, Inc., John Pesce, Mike Cochran, Arthur A. Howard, Geoffrey Calaway, W.M. Hartman, Edward F. Harman, III, M.B. Donaldson, Teri Hoyt, Alycia Andrews, Charles Francis, Tom Cook, David Allen, Marcus Smith, Financial Industries Corporation and FIC Financial Services, Inc. EX-10 8 equita-option.txt EXHIBIT 10.6 - EQUITA OPTION AGREEMENT EXHIBIT 10.6 OPTION AGREEMENT This Option Agreement (this "Agreement") is made and entered into as of this 4th day of June, 2003, by and among FinancialIndustries Corporation, a Texas corporation (the "Company"), Equita Financial and Insurance Services of Texas, Inc., a Texas corporation ("Purchaser"), and, solely for purposes of Section 4.5, M&W Insurance Services, Inc., a Delaware corporation ("M&W"). RECITALS WHEREAS, the Company has acquired or entered into agreements to acquire a group of companies (the "New Era Marketing Companies"), which are expected to broaden the Company's premium base and transition the Company to a full range financial services company; WHEREAS, Purchaser brought the opportunity to acquire the New Era Marketing Companies to the Company; WHEREAS, Investors Life Insurance Company of North America and Family Life Insurance Company, each a wholly-owned subsidiary of the Company, have entered into a marketing agreement with Purchaser pursuant to which Purchaser will provide marketing services with respect to the Company's senior group (over age 55) products (the "Services"); and WHEREAS, in connection with the introduction of the New Era Marketing Companies opportunity to the Company and the provisions of the Services to the Company, the Company desires to grant to Purchaser options to acquire Common Stock and other rights set forth herein in exchange for the consideration described herein. AGREEMENT For and in consideration of the mutual promises and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: - 1 - Section 1. Purchase Options. 1.1 Options to Purchase Shares. In consideration of the introduction of the New Era Marketing Companies opportunity to the Company and the provis- ion of the Services, the Company has agreed to grant Purchaser the option to purchase shares of Common Stock as provided in Section 1.2 (the "Base Option") and in Section 1.3 (the "Additional Option" and together with the Base Option, the "Purchase Option"). 1.2 Base Option. (a) Base Option Qualifying Premiums. As used in this Agreement, (i)"Base Option Qualifying Premiums" means the aggregate amount of collected premiums for life insurance or annuity products issued by the Company or any insurance company affiliate of the Company as of the date hereof and any insurance company which becomes an affiliate of the Company after the date hereof, unless such future affiliate, at the time that the Company entered into a letter of intent or other expression of intent or purchase contract, whichever is earliest, (i) was engaged in the marketing and sale of life insurance policies, annuity contracts or other financial related products for the senior (over age 55) market (the "Senior Business") for at least 12 months (to include, without limitation, assumed reinsurance and direct written premiums by any such person) and (ii) derived more than fifty percent (50%)of its revenues from the Senior Business, that, in each case, are marketed by or through Marketing Sub (as defined in Section 4.2), whether through a contact made by an employee or agent of Marketing Sub or a marketing relationship developed through any insurance company affiliate of the Company (except as provided above), Marketing Sub, Purchaser, or any of their respective agents and (ii) "Base Option Determination Period" means the period beginning on July 1, 2003 and ending on December 31, 2005. Within ten (10) business days following the end of each calendar month within the Base Option Determination Period, the Company shall deliver to Purchaser a good-faith estimate of the Base Option Qualifying Premiums for that immediately preceding calendar month. Within ten (10) business days following the end of the Base Option Determination Period, the Company shall deliver to Purchaser a written calculation of Base Option Qualifying Premiums specifying in reasonable detail the basis - 2 - for such calculation. Purchaser shall have the right, at reasonable times and upon reasonable notice, to inspect such books and records of the Company, Marketing Sub and the Insurance Companies as may be reasonably necessary to determine whether the calculation of Base Option Qualifying Premiums is correct. Purchaser may deliver to the Company, within twenty (20) business days following the end of the Base Option Determination Period, a written objection to the calculation of Base Option Qualifying Premiums and, if such objection is not resolved to the satisfaction of Purchaser within five (5) business days, then the disagreement shall be referred to a national accounting firm jointly selected by the Company and Purchaser (excluding firms which provide material services to the Company or Purchaser) (the "Base Option Arbitrator") who will determine the correct amount of Base Option Qualifying Premiums. In the event the parties cannot agree upon the selection of the Base Option Arbitrator within five (5) business days, each party shall select a Base Option Arbitrator (the fees and expenses of which will be borne by the selecting party) and such Base Option Arbitrators shall select within ten (10) days a Base Option Arbitrator that will determine the amount of Base Option Qualifying Premiums. The fees and expenses of the Base Option Arbitrator selected to determine the amount of Base Option Qualifying Premiums shall be borne by the Company and Purchaser in the same proportion that the dollar amount of the disputed Base Option Qualifying Premiums which are not resolved in favor of the Company or Purchaser (as applicable) bears to the total dollar amount of the disputed Base Option Qualifying Premiums resolved by the Base Option Arbitrator. For illustration purposes only, (A) if the total amount of the disputed Base Option Qualifying Premiums by Purchaser is $1,000,000, and Base Option Arbitrator resolved $500,000 of the disputed Base Option Qualifying Premiums in favor of Purchaser, the Company and Purchaser shall bear the Base Option Arbitrator's fees and expenses equally; or (B) if the total amount of disputed Base Option Qualifying Premiums by Purchaser is $1,000,000 and Base Option Arbitrator resolved $250,000 of the disputed Base Option Qualifying Premiums in favor of the Purchaser, Purchaser shall bear 75 percent and the Company shall bear 25 percent of the Base Option Arbitrator's fees and expenses. Each of Purchaser and the Company shall - 3 - bear the fees, costs and expenses of its own Base Option Arbitrator, if applicable, and all of its other expenses incurred in connection with matters contemplated by this Section 1.1(a). Any such determination by the Base Option Arbitrator shall be final, binding and conclusive upon the Company and Purchaser. If Purchaser does not object to the Company's calculation of Base Option Qualifying Premiums within the twenty (20) business day period specified above, then the Company's determination of Base Option Qualifying Premiums shall be final, binding and conclusive upon the Company and Purchaser. (b) Grant of Base Option. The Company hereby grants to Purchaser a conditional option to acquire, in the sole discretion of Purchaser, up to 169,000 shares of Common Stock from the Company at a per share exercise price equal to $16.42 per share (such price, the "Base Option Exercise Price"), but only if Base Option Qualifying Premiums for the Determination Period exceed $200,000,000 (the "Base Option"). The exercise of the Base Option shall be subject to the filing of appropriate documents with, and to the extent necessary, approval of, the Commissioner of Insurance of the State of Washington and such notices and consents as may be required under the insurance laws of any jurisdiction in which any of the Company or its subsidiaries is domiciled or does business. The Base Option may only be exercised once by delivery of written notice to the Company, signed by Purchaser, indicating that the Base Option is being exercised and specifying the number of shares of Common Stock it will acquire. Such notice may not be given until final determination of Base Option Qualifying Premiums pursuant to Section 1.2(a). Unless earlier exercised, the Base Option expires on December 31, 2006. The closing of the exercise of the Base Option pursuant to this Section 1.2(b) shall occur within ten (10) business days following delivery of the written exercise notice, the Base Option Exercise Price shall be paid in immediately available funds at the closing, and the acquired shares of Common Stock shall be delivered to Purchaser at the closing free and clear of any and all liens, claims and encumbrances (other than any such liens, claims and encumbrances created by Purchaser). - 4 - 1.3 Additional Option. (a) Qualifying Premiums. As used in this Agreement, (i) "Additional Option Qualifying Premiums" means the aggregate amount of collected premiums for life insurance or annuity products issued by the Company or any insurance company affiliate of the Company as of the date hereof, unless such future affiliate, at the time that the Company entered into a letter of intent or other expression of intent or purchase contract, whichever is earliest, (i) was engaged in the marketing and sale of life insurance policies, annuity contracts or other financial related products for the Senior Business for at least 12 months (to include, without limitation, assumed reinsurance and direct written premiums by any such person) and (ii) derived more than fifty percent (50%) of its revenues from the Senior Business, in each case, that are marketed by or through Purchaser and (ii) "Additional Option Determination Period" means the period beginning on July 1, 2003 and ending on December 31, 2005. Within ten (10) business days following the end of each calendar month within the Additional Option Determination Period, the Company shall deliver to Purchaser a good-faith estimate of the Additional Option Qualifying Premiums for that immediately preceding calendar month. Within ten (10) business days following the end of the Additional Option Determination Period, the Company shall deliver to Purchaser a written calculation of Additional Option Qualifying Premiums specifying in reasonable detail the basis for such calculation. Purchaser shall have the right, at reasonable times and upon reasonable notice, to inspect such books and records of the Company, the Insurance Companies and Marketing Sub as may be reasonably necessary to determine whether the calculation of Additional Option Qualifying Premiums is correct. Purchaser may deliver to the Company, within twenty (20) business days following the end of the Additional Option Determination Period, a written objection to the calculation of Additional Option Qualifying Premiums and, if such objection is not resolved to the satisfaction of Purchaser within five (5) business days, then the disagreement shall be referred to a national accounting firm jointly selected by the Company and Purchaser (excluding firms which provide material services to the Company or Purchaser) (the "Additional Option Arbitrator") who will determine the correct amount of Additional Option Qualifying Premiums. In the event the parties cannot agree upon the selection of the Additional Option Arbitrator within five (5) business - 5 - days, each party shall select an Additional Option Arbitrator (the fees and expenses of which will be borne by the selecting party) and such Additional Option Arbitrators shall select within ten (10) days an Additional Option Arbitrator that will determine the amount of Additional Option Qualifying Premiums. The fees and expenses of the Additional Option Arbitrator selected to determine the amount of Additional Option Qualifying Premiums shall be borne by the Company and Purchaser in the same proportion that the dollar amount of the disputed Additional Option Qualifying Premiums which are not resolved in favor of the Company or Purchaser (as applicable) bears to the total dollar amount of the disputed Additional Option Qualifying Premiums resolved by the Additional Option Arbitrator. For illustration purposes only, (A) if the total amount of the disputed Additional Option Qualifying Premiums by Purchaser is $1,000,000, and the Additional Option Arbitrator resolved $500,000 of the disputed Additional Option Qualifying Premiums in favor of Purchaser, the Company and Purchaser shall bear the Additional Option Arbitrator's fees and expenses equally; or (B) if the total amount of disputed Additional Option Qualifying Premiums by Purchaser is $1,000,000 and the Additional Option Arbitrator resolved $250,000 of the disputed Additional Option Qualifying Premiums in favor of the Purchaser, Purchaser shall bear 75 percent and the Company shall bear 25 percent of the Additional Option Arbitrator's fees and expenses. Each of Purchaser and the Company shall bear the fees, costs and expenses of its own Additional Option Arbitrator, if applicable, and all of its other expenses incurred in connection with matters contemplated by this Section 1.3(a). Any such determination by the Additional Option Arbitrator shall be final, binding and conclusive upon the Company and Purchaser. If Purchaser does not object to the Company's calculation of Additional Option Qualifying Premiums within the twenty (20) business day period specified above, then the Company's determination of Additional Option Qualifying Premiums shall be final, binding and conclusive upon the Company and Purchaser. (b) Grant of Additional Option. The Company hereby grants to Purchaser a conditional option to acquire, in the sole discretion of Purchaser, up to 158,000 shares of Common Stock from the Company at a per share exercise price equal to $16.42 per share (such price, the "Additional Option Exercise Price"), but only at the rate of 10,000 shares for each $10,000,000 increment by which the Additional Option Qualifying Premiums for the Additional Option Determination Period exceed $200,000,000. The - 6 - exercise of the Additional Option shall be subject to the filing of appropriate documents with, and to the extent necessary, approval of, the Commissioner of Insurance of the State of Washington and such notices and consents as may be required under the insurance laws of any jurisdiction in which any of the Company or its subsidiaries is domiciled or does business. The Additional Option may only be exercised once by delivery of written notice to the Company, signed by Purchaser, indicating that the Additional Option is being exercised and specifying the number of shares of Common Stock it will acquire. Such notice may not be given until final determination of Additional Option Qualifying Premiums pursuant to Section 1.3(a). Unless earlier exercised, the Additional Option expires on December 31, 2006. The closing of the exercise of the Additional Option pursuant to this Section 1.3(b) shall occur within ten (10) business days following delivery of the written exercise notice, the Additional Option Exercise Price shall be paid in immediately available funds at the closing, and the acquired shares of Common Stock shall be delivered to Purchaser at the closing free and clear of any and all liens, claims and encumbrances (other than any such liens, claims and encumbrances created by Purchaser). 1.4 Certain Adjustment Events. (a) In case the Company shall hereafter (i) pay a dividend or make a distribution on its capital stock in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares or (iv) issue by reclassification of its Common Stock other securities of the Company, the kind and amount of Common Stock and other securities shall be adjusted so that Purchaser upon the exercise of the Purchase Option shall be entitled to receive the number of shares of Common Stock or other securities of the Company that Purchaser would have owned immediately following such action had the Purchase Option been exercised immediately prior thereto. - 7 - (b) In case of any capital reorganization or reclassification, or any consolidation or merger to which the Company is a party other than a merger or consolidation in which the Company is the continuing corporation, or in case of any sale or conveyance to another entity of all or substantially all of the assets of the Company, or in the case of any statutory exchange of securities with another corporation (including any exchange effected in connection with a merger of a third corporation into the Company), Purchaser shall have the right thereafter to exercise the Purchase Option and receive the kind and amount of securities, cash or other property that Purchaser would have owned or have been entitled to receive immediately after such reorganization, reclassification, consolidation, merger, statutory exchange, sale or conveyance had the Purchase Option been exercised immediately prior to the effective date of such reorganization, reclassification, consolidation, merger, statutory exchange, sale or conveyance. The above provisions of this Section 1.4(b) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, statutory exchanges, sales or conveyances. (c) Whenever the number of shares of Common Stock purchasable upon the exercise of the Purchase Option is adjusted, as herein provided, the applicable exercise price shall be adjusted by multiplying such exercise price immediately prior to such adjustment by a fraction, the numerator of which shall be the number of shares of Common Stock purchasable upon exercise of the Purchase Option immediately prior to such adjustment, and the denominator of which shall be the number of the shares of Common Stock so purchasable immediately thereafter. (d) Whenever the number of shares of Common Stock purchasable upon the exercise of the Purchase Option or the exercise price is adjusted, as herein provided, the Company shall promptly mail by first class mail, postage prepaid, to Purchaser notice of such adjustment setting forth a brief statement of the facts requiring such adjustment and the computation by which such adjustment was made. (e) In the event that the Company makes a distribution to its shareholders (other than cash dividends that in the aggregate do not exceed, in any calendar year, an annualized rate of 3% of the closing price for the Company's Common Stock as reported on the NASDAQ National Market or other exchange or quotation system on which the Common Stock is traded on the trading day prior to the date of declaration of any such cash dividend) - 8 - or undertakes some other capital change or transaction that the Company's Board of Directors (the "Board") in its reasonable judgment determines is a distribution, change or transaction that warrants an adjustment similar to those otherwise provided in this Section 1.4, based upon the intent hereof but with respect to which the provisions hereof are not specifically applicable, adjustments to the number of shares of Common Stock purchasable upon exercise of the Purchase Option and the exercise price shall be made as a result of such distribution, change or transaction. 1.5 Reservation of Common Stock. The Company covenants that it will, at all times during which the Purchase Option remains exercisable, maintain a sufficient number of authorized and unissued shares of Common Stock (or shares of Common Stock held in treasury) to fully comply with the provisions of this Agreement. Section 2. Representations and Warranties of the Company. The Company hereby represents and warrants to Purchaser that: 2.1 Organization and Standing. The Company is a corporation validly existing and in good standing under the laws of the State of Texas. The Company has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. The Company is duly qualified or registered as a foreign corporation to transact business under the laws of, and in each jurisdiction where, the character of its activities or the location of the properties owned or leased by it requires such qualification or registration, except where the failure to be so duly qualified or licensed and in good standing could not reasonably be expected to have a material adverse effect on the business, properties, results of operations or condition of the Company and its subsidiaries taken as a whole (a "Material Adverse Effect"). 2.2 Authority. The Company has full corporate power and authority to execute, deliver and perform this Agreement and any other agreements, documents, and instruments contemplated by this Agreement (collectively, the "Documents") to which it is a party. The execution, delivery and performance of this Agreement and the Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by the Board, do not require any further corporate proceedings on the part of the Company, and do not and will not violate or conflict with the Company's Articles of Incorporation or Bylaws. This Agreement and the Documents to which it is a party have been and will be duly and validly executed and delivered by the Company, and, assuming this Agreement and such Documents constitute the valid and binding obligations of Purchaser, this Agreement and such Documents constitute valid and binding agreements of the Company, enforceable against the Company in accordance with their terms, except that enforcement thereof may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). - 9 - 2.3 Consents and Approvals. No consent from or filing with any person or entity (including, without limitation, any governmental authority) on the part of the Company is required in connection with the execution or delivery by the Company of this Agreement or any of the Documents to which it is a party or the consummation by the Company of the transactions contemplated hereby or thereby, other than (a) filings with the Securities and Exchange Commission (the "SEC"), state securities laws administrators and the National Association of Securities Dealers, (b) the filing of appropriate documents with, and to the extent necessary, approval of, the Commissioner of Insurance of the State of Washington and such notices and consents as may be required under the insurance laws of any jurisdiction in which any of the Company or its subsidiaries does business and (c) consents which have been obtained on or prior to the date hereof. 2.4 Capitalization and Voting Rights. The authorized capital stock of the Company as of the date hereof consists of 25,000,000 shares of common stock, par value $0.20, of which 9,605,939 shares are issued and outstanding and, prior to giving effect to the transactions contemplated by that certain Stock Purchase and Option Agreement dated of even date herewith between the Company and American Physician Services Group, Inc., 2,252,457 shares were held as treasury shares by the Company or a subsidiary of the Company. There are no other authorized or outstanding classes or series of capital stock of the Company. The outstanding shares of Common Stock are all duly and validly authorized and issued, fully paid and nonassessable. Except as set forth on Schedule 2.4 attached hereto or pursuant to this Agreement, there are not outstanding any options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition (contingent or otherwise) from the Company of any shares of Common Stock. Except as set forth on Schedule 2.4 attached hereto or pursuant to this Agreement, the Company is not a party to any agreement, and, to the Company's knowledge, there is no agreement between any persons and/or entities, which affects or relates to the voting or giving of written consents with respect to any Common Stock, the election of the Company's directors, or the voting of the Company's directors. - 10 - 2.5 Issuance and Ownership of Shares. The shares of Common Stock purchased by Purchaser upon exercise of the Purchase Option, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration set forth herein, will be duly and validly issued, fully paid, and nonassessable, and will be issued free of any encumbrances (other than encumbrances created by Purchaser) and any restrictions on transfer other than restrictions under applicable state and federal securities laws. Except as set forth on Schedule 2.5 attached hereto, the Company has not directly or indirectly, since January 1, 2002, acquired or redeemed, or entered into any agreement providing for the acquisition or redemption of, any shares of Common Stock. 2.6 Offering. Subject to the truth and accuracy of Purchaser's representations and warranties set forth in Section 3 of this Agreement, the grant of the Purchase Option is, and the issuance of the shares of Common Stock upon exercise thereof will be, exempt from the registration requirements of any applicable state and federal securities laws (other than notice filings required under applicable law), and neither the Company nor any authorized agent acting on its behalf will take any action that would cause the loss of such exemption. 2.7 Litigation. Except as set forth in Schedule 2.7 attached hereto, there is no action, suit, proceeding or investigation pending or, to the Company's knowledge, threatened against the Company that questions the validity of this Agreement or the right of the Company to enter into this Agreement and to consummate the transactions contemplated hereby. 2.8 Compliance with Other Instruments. The execution, delivery and performance of this Agreement and the Documents to which the Company is a party, and the consummation of the transactions contemplated hereby and thereby, will not (with or without the passage of time and giving of notice) result in (a) any violation or default under, or be in conflict with the provisions of, any agreement, instrument, judgment, order, writ, decree or contract currently in effect and applicable to the Company, (b) the creation of any lien, charge or encumbrance upon any assets of the Company, or (c) the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Company, its business or operations or any of its assets or properties, except, in the case of each of the foregoing clauses (a) through (c), for breaches that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. - 11 - 2.9 Securities Filings. Since January 1, 1999, the Company has filed with the SEC all reports and forms required to be filed by it with the SEC pursuant to the Securities Act of 1933, as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act") (all such reports, including all schedules thereto, are referred to collectively as the "Company Securities Filings"). As of their respective dates (or in the case of registration statements, at the time of effectiveness), or as of the date of the last amendment thereof, if amended after filing prior to the date hereof, or as modified by any subsequent Company Securities Filings prior to the date hereof, none of the Company Securities Filings contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Each of the Company Securities Filings at the time of filing (or in the case of registration statements, at the time of effectiveness), or as of the date of the last amendment thereof, if amended after filing prior to the date hereof, or as modified by any subsequent Company Securities Filings prior to the date hereof, complies in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as applicable. 2.10 Financial Statements. Except as noted thereon, the audited consolidated and unaudited consolidated interim financial statements of the Company and its subsidiaries included in the Company Securities Filings (the "Company Financial Statements") were prepared in accordance with generally accepted accounting principles applicable to the business of the Company and its subsidiaries during the period involved, consistently applied in accordance with past accounting practices, and fairly present (subject to normal and recurring year-end adjustments and the exclusion of footnote disclosure in interim Company Financial Statements) the consolidated financial condition and the consolidated results of operations of the Company and its subsidiaries as of the dates and for the periods indicated (except as modified by any subsequent Company Securities Filings prior to the date hereof). Except as set forth on Schedule 2.10 attached hereto, for liabilities contemplated by this Agreement or as reflected in the Company Financial Statements, as of their respective dates (except as modified by any subsequent Company Securities Filings prior to the date hereof), neither the Company nor any of its subsidiaries had any debts, obligations, guaranties of obligations of another or liabilities (contingent or otherwise) that would be required in accordance with generally accepted accounting principles to be disclosed in the Company Financial Statements, except for such debts, obligations, guaranties or liabilities which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. - 12 - 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 March 31, 2003, (d) 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 Pat Tedrow (collectively, the "New Era Transactions"). - 13 - 2.14 No Severance Benefits; Rights Plans. Neither this Agreement, nor the Documents, nor any of the transactions contemplated hereby or thereby will result in any employee, former employee or other person being entitled to any severance benefit or change of control benefit. As of the date hereof, the Company is not a party to any shareholder rights plan or similar anti-takeover agreement or arrangement. Section 3. Representations of Purchaser. Purchaser represents and warrants to the Company that: 3.1 Authority. Purchaser (a) is duly incorporated, validly existing and in good standing under the laws of the State of Texas, (b) has full corporate power and authority to execute, deliver and perform this Agreement and any other Documents to which it is a party. This Agreement and the Documents to which it is a party have been and will be duly and validly executed and delivered by Purchaser, and, assuming this Agreement and such Documents constitute the valid and binding obligations of the Company, this Agreement and such Documents constitute valid and binding agreements of Purchaser, enforceable against Purchaser in accordance with their terms, except that enforcement thereof may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). 3.2 Consents and Approvals. No consent from or filing with any person or entity (including, without limitation, any governmental authority) on the part of Purchaser is required in connection with the execution or delivery by Purchaser of this Agreement or any of the Documents to which it is a party or the consummation by Purchaser of the transactions contemplated hereby or thereby, other than (a) filings with the SEC, state securities laws administrators and the National Association of Securities Dealers and (b) the filing of appropriate documents with, and to the extent necessary, approval of, the Commissioner of Insurance of the State of Washington and such notices and consents as may be required under the insurance laws of any jurisdiction in which the Company or its subsidiaries is domiciled or does business. - 14 - 3.3 Litigation. There is no action, suit, proceeding or investigation pending or, to Purchaser's knowledge, threatened against Purchaser that questions the validity of this Agreement or the right of Purchaser to enter into this Agreement and to consummate the transactions contemplated hereby. 3.4 Investment Representations. Purchaser: (a) Is an accredited investor, and has not retained or consulted with any purchaser representative, as such terms are defined in Rule 501 of Regulation D promulgated under the Securities Act, in connection with its execution of this Agreement and the Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby; (b) Has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Company; (c) Will acquire the Purchase Option and any shares of Common Stock issuable upon exercise of the Purchase Option (to the extent such shares are not then covered by an effective registration statement) for its own account for investment and not with the view toward resale or redistribution in a manner which would require registration under the Securities Act, the Texas Securities Act, as amended, or the securities laws of any other state, and Purchaser does not have any reason to anticipate any change in its respective circumstances or other particular occasion or event which would cause Purchaser to sell its Purchase Option or shares of Common Stock issuable upon exercise thereof, or any part thereof or interest therein, and Purchaser has no present intention of dividing the Purchase Option or shares of Common Stock issuable upon exercise thereof with others or reselling or otherwise disposing of the shares of Common Stock or any part thereof or interest therein either currently or after the passage of a fixed or determinable amount of time or upon the occurrence or nonoccurrence of any predetermined event or circumstance; - 15 - (d) In connection with entering into this Agreement and the Documents to which it is a party, and in making the investment decisions associated therewith, has neither received nor relied on any representations or warranties from the Company, or the officers, directors, shareholders, employees, partners, managers, members, agents, consultants, personnel or similarly related parties of the Company, other than those representations and warranties expressly set forth in this Agreement; (e) Is able to bear the economic risk of an investment in the shares of Common Stock upon exercise of the Purchase Option and has sufficient net worth to sustain a loss of its entire investment without material economic hardship if such a loss should occur; (f) Acknowledges that an investment in shares of Common Stock involves a high degree of risk, and that such Common Stock may be or become an illiquid investment; (g) Understands that the Purchase Option is, and the shares of Common Stock issuable upon exercise thereof will upon such issuance be, "restricted securities" as defined under Rule 144 of the Securities Act, and that such Purchase Option and shares of Common Stock may not be sold or offered for sale in the absence of an effective registration statement under the Securities Act and any state securities laws or pursuant to an exemption from registration; (h) Acknowledges that each certificate representing the shares of the Common Stock upon exercise of the Purchase Option, to the extent not then covered by an effective registration statement, will be endorsed with substantially the following legend until such time as such shares of Common Stock have been registered: THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE APPLICABLE SECURITIES UNDER THE ACT AND ANY STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION; and - 16 - (i) Is domiciled in the jurisdiction and at the address set forth in Section 6.6. Section 4. Covenants. 4.1 Board Seats. As soon as practicable following the date hereof, the Company shall appoint Eugene Woznicki (or any substitute designee of Purchaser reasonably acceptable to the Company) (the "Purchaser Nominee") to serve on the Board. The Company further agrees, with respect to the 2003 annual shareholders meeting and 2004 annual shareholders meeting, (a) to propose as a nominee for election to the Board at such meeting the individual designated as the Purchaser Nominee, (b) to include the name of the Purchaser Nominee on the Company's proxy statement and proxy card for such meeting, (c) to recommend to its shareholders the election of the Purchaser Nominee to the Board, (d) to solicit proxies on behalf of the Purchaser Nominee to the same extent proxies are solicited on behalf of any other nominee for election to the Board and (e) to cause the attorneys-in-fact or proxies named in the applicable proxy cards to vote the shares with respect to which proxies are given in the manner directed by such proxy cards. Notwithstanding anything to the contrary herein, in the event that the attorneys-in-fact or proxies referenced in clause (e) of the preceding sentence utilize cumulative voting, such persons shall cumulate votes in favor of the Purchaser Nominee if such cumulative voting will result in the election of at least eight directors. If the Purchaser Nominee is removed for cause or is otherwise unwilling or unable to serve as a director of the Company for any reason, Purchaser shall notify the Company in writing of a replacement Purchaser Nominee and the Company shall cause such replacement Purchaser Nominee to be appointed provided that such replacement Purchaser Nominee is reasonably acceptable to the Company. The Company represents and warrants that its Articles of Incorporation and Bylaws permit the actions set forth in this Section 4.1 without Company shareholder approval; provided that the Company does not make any representation as to the applicability or requirements of any provision of the Texas Business Corporation Act, as amended, with respect to such actions. - 17 - 4.2 Creation of Subsidiary. Promptly following the execution of this Agreement, the Company shall (a) create a wholly-owned subsidiary for the principal purpose of marketing and selling life and annuity insurance products ("Marketing Sub"), and (b) use its commercially reasonable efforts to hire Pat Tedrow (upon terms agreeable to the Company and Pat Tedrow) who will have primary responsibility for implementation of Marketing Sub's insurance and securities marketing plans and who will report directly to the most senior executive officer of the Company. The Company agrees to use all commercially reasonable efforts to facilitate the production and acceptance of life and annuity insurance products by Marketing Sub and Purchaser, including, without limitation, appropriately staffing and structuring Marketing Sub to enable full implementation of its insurance and securities marketing plans, providing appropriate and legally approved policy forms which are competitive with similar products within the industry and marketplace, ensuring a customary underwriting process for issuance of products, and maintaining adequate reserves to enable full realization of Marketing Sub's insurance and securities marketing plans. Nothing contained in this Section 4.2 is intended to confer any right of employment and Pat Tedrow has no rights to enforce the provisions of this Section 4.2. 4.3 Expenses. Except as set forth in Sections 1.2(a) and 1.3(a), all expenses incurred by the parties hereto shall be borne solely and entirely by the party that has incurred such expenses. 4.4 Publicity. Neither party nor any of their respective affiliates shall issue or cause the publication of any press release or other announcement with respect to this Agreement or the transactions contemplated hereby without a prior consultation of the other party, except as may be required by law or by any listing agreement with a national securities exchange or quotation system, and will use reasonable efforts to provide copies of such release or other announcement to the other party, and give due consideration to such comments as the other party may have, prior to such release. 4.5 Voting of Shares. With respect to the 204,918 shares of Common Stock acquired by M&W pursuant to a Stock Purchase Agreement dated as of the date hereof between M&W and The Roy F. and Joann Cole Mitte Foundation (the "Foundation"), notwithstanding anything to the contrary contained in that certain Equita Acknowledgement and Agreement dated as of the date hereof between the Company and the Foundation, M&W hereby agrees that, solely for the benefit of the Company, the terms of the proxy granted to the Company with respect to such shares of Common Stock pursuant to Section 2.1(a) of that certain Compromise and Settlement Agreement and Mutual Release dated as of May 15, 2003 among the Company, the Foundation and the other parties thereto, shall continue solely with respect to the election of directors at the Company's 2003 annual shareholders' meeting, and following such 2003 annual shareholders' meeting, such proxy shall be of no further force or effect. - 18 - Section 5. Indemnification. 5.1 Survival. The representations and warranties of the parties contained herein or in any Document (unless otherwise provided in such Document) shall survive for a period of two (2) years following the date of this Agreement (the "Survival Period"). 5.2 Indemnification by the Company. (a) The Company shall indemnify Purchaser and its affiliates, and their respective partners, principals, officers, directors, managers, members, employees, independent contractors, agents, representatives, and other similarly situated parties, and the successors, heirs and personal representatives of any of them (collectively, "Purchaser Indemnified Parties"), against and hold them harmless from any and all damage, claim, loss, liability and expense (including, without limitation, reasonable expenses of investigation and attorneys' fees and expenses) (collectively, "Damages") incurred or suffered by any Purchaser Indemnified Party arising out of or relating to any breach of any representation, warranty, covenant or other agreement of the Company contained herein or in any Document that is asserted in writing to the Company prior to the expiration of the Survival Period. The Company acknowledges and agrees that Purchaser is also relying on, among other things, the representations, warranties, covenants and other agreements of the Company contained herein in acquiring shares of Common Stock from the Roy F. and Joann Cole Mitte Foundation pursuant to a stock purchase agreement of even date herewith (the "Purchase Agreement"). Accordingly, Damages of a Purchaser Indemnified Party under this Agreement shall include, but shall not be limited to, Damages associated with acquiring or holding shares of Common Stock arising out of or relating to any breach of any representation, warranty, covenant or other agreement of the Company contained in Section 2 of this Agreement subject to the limitations set forth in this Section 5. Notwithstanding the provisions of this Section 5.2, the maximum liability of the Company under this Agreement shall be $3,000,000 (the "Maximum Liability"). - 19 - (b) Notwithstanding any provision herein to the contrary: (i) the Company shall indemnify the Purchaser Indemnified Parties against and hold them harmless from any and all Damages incurred or suffered by any Purchaser Indemnified Party arising out of or relating to actions, claims or suits, pending or threatened, which may be brought against the Purchaser Indemnified Parties relating to the Compromise and Settlement Agreement, dated May 15, 2003, entered into among the Company and the other parties thereto (the "Settlement Agreement"); provided that the provisions of this Section 5.2(b) shall not apply to any breach or alleged breach by any Purchaser Indemnified Party of any provision of the Purchase Agreement; and (ii) the Maximum Liability shall not be applicable with respect to any claim for indemnity under this Section 5.2(b). 5.3 Indemnification by Purchaser. Purchaser shall indemnify the Company and its affiliates, and their respective partners, principals, officers, directors, employees, independent contractors, agents, representatives and other similarly situated parties, and the successors, heirs and personal representatives of any of them (collectively, the "Company Indemnified Parties"), against and hold them harmless from any and all Damages incurred or suffered by any Company Indemnified Party arising out of or relating to any breach of any representation, warranty, covenant or other agreement of Purchaser contained herein or in any Document that is asserted in writing to Purchaser prior to the expiration of the Survival Period. Notwithstanding the provisions of this Section 5.3, the maximum liability of Purchaser under this Agreement shall be the Maximum Liability. - 20 - 5.4 Indemnification; Notice and Settlements. A party seeking indemnification pursuant to Sections 5.2 or 5.3 (an "Indemnified Party") with respect to a claim, action or proceeding initiated by a person or entity who is not a Purchaser Indemnified Party or a Company Indemnified Party shall give prompt written notice to the party from whom such indemnification is sought (the "Indemnifying Party") of the assertion of any claim, or the commencement of any action or proceeding, in respect of which indemnity may be sought hereunder; provided that the failure to give such notice shall not affect the Indemnified Party's rights to indemnification hereunder, unless such failure shall prejudice in any material respect the Indemnifying Party's ability to defend such claim, action or proceeding. The Indemnifying Party shall have the right to assume the defense of any such action or proceeding at its expense, provided that no settlement shall be executed without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld). If the Indemnifying Party shall elect not to assume the defense of any such action or proceeding, or fails to make such an election within 20 days after it receives such notice pursuant to the first sentence of this Section 5.4, the Indemnified Party may assume such defense at the expense of the Indemnifying Party. The Indemnified Party shall have the right to participate in (but not control) the defense of an action or proceeding defended by the Indemnifying Party hereunder and to retain its own counsel in connection with such action or proceeding, but the fees and expenses of such counsel shall be at the Indemnified Party's expense unless (i) the Indemnifying Party and the Indemnified Party have mutually agreed in writing to the retention of such counsel or (ii) the named parties in any such action or proceeding (including impleaded parties) include the Indemnifying Party and the Indemnified Party, and representation of the Indemnifying Party and the Indemnified Party by the same counsel would create a conflict (in which case the Indemnifying Party shall not be permitted to assume the defense of such claim, action or proceeding); provided that, unless otherwise agreed by the Indemnifying Party, if the Indemnifying Party is obligated to pay the fees and expenses of such counsel, the Indemnifying Party shall be obligated to pay only the fees and expenses associated with one attorney or law firm (plus local counsel as required), as applicable, for the Indemnified Party. An Indemnifying Party shall not be liable under Section 5.2 or 5.3 for any settlement effected without its written consent, of any claim, action or proceeding in respect of which indemnity may be sought hereunder. - 21 - Section 6. Miscellaneous. 6.1 Transferability; Successors and Assigns. Except in connection with the sale of all the outstanding capital stock of Purchaser, or the sale of all or substantially all of the assets of Purchaser, neither this Agreement nor any of the rights, interests or obligations hereunder (including, without limitation, the right to exercise the Purchase Option) shall be assigned, transferred or conveyed by Purchaser without the prior written consent of the Company, which consent may be granted or withheld in its sole discretion; provided that Purchaser shall be entitled to pledge the Purchase Option in connection with a bona fide loan, and, subject to compliance with the securities laws, the lender may foreclose on such pledge without the prior written consent of the Company. Subject to the preceding sentence, the provisions of this Agreement shall be binding upon, and inure to the benefit of, the permitted respective successors, assigns, heirs, executors and administrators of the parties hereto. 6.2 Entire Agreement. This Agreement, including the Documents and all schedules and exhibits hereto, embody the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings relating to such subject matters. 6.3 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Signatures delivered by telecopy shall be considered for all purposes to be the same as original signatures. 6.4 Severability. If any provision of this Agreement is held by final judgment of a court of competent jurisdiction to be invalid, illegal or unenforceable, such invalid, illegal or unenforceable provision shall be severed from the remainder of this Agreement, and the remainder of this Agreement shall be enforced. In addition, the invalid, illegal or unenforceable provision shall be deemed to be automatically modified, and, as so modified, to be included in this Agreement, such modification being made to the minimum extent necessary to render the provision valid, legal and enforceable. - 22 - 6.5 Governing Law; Venue. This Agreement Shall Be Governed By And Construed In Accordance With The Laws Of The State Of Texas, Irrespective Of Any Conflict-Of-Laws Rule Or Principle Of Any Jurisdiction That Might Refer The Governance Or Construction Of This Agreement To The Laws Of Any Other Jurisdiction. This Agreement Can Be Performed In Whole Or In Part In Travis County, Texas, And Venue For Any Action Relating To This Agreement Shall Be Proper Only In Federal Or State Courts Located Within Travis 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 Travis County, Texas. 6.6 Notices. Any notices or demands required or permitted to be given hereunder shall be deemed sufficiently given if in writing and delivered, transmitted or mailed (with all postage and charges prepaid), addressed to the recipient at the address provided below, or at such other address as any party may from time to time designate by written notice to the other parties given in accordance with this Section 6.6. Any such notice, if personally delivered or transmitted by facsimile, shall be deemed to have been given on the date so delivered or transmitted or, if mailed, be deemed to have been given on the day after such notice is placed in the United States mail in accordance with this Section 6.6. Company: Financial Industries Corporation 6500 River Place Blvd., Building One Austin, Texas 78730 Attn: Gene Payne and Ted Fleron Facsimile No.: (512)404-5051 - 23 - Purchaser: Equita Financial and Insurance Services of Texas, Inc. 11551 Forest Central Drive Forest Central Drive II, Second Floor Attn: Richard G. Wolfe, President Facsimile No.: (214) 553-5384 With a copy to: Hance Scarborough Wright Ginsberg & Brusilow 14755 Preston Road, Suite 600, L.B. 64 Dallas, Texas 75254 Attention: Paul B. Sander, Esq. Fax: (972) 702-0662 6.7 Further Assurances. Each party of this Agreement hereby covenants and agrees, without the necessity of any further consideration, to execute and deliver any and all such further documents and take any and all such other actions as may be reasonably necessary to appropriately carry out the intent and purposes of this Agreement and the Documents and the transactions contemplated hereby and thereby. Each party will use its good faith efforts to carry out and comply with the provisions of this Agreement. 6.8 No Third-Party Beneficiaries. Except as provided in Sections 5.2 and 5.3, this Agreement shall not confer any rights or remedies upon any person other than the parties hereto and their respective successors and permitted assigns. 6.9 Amendments. This Agreement may not be amended or modified except by an instrument in writing signed by each of the parties. [signature page follows] - 24 - SIGNATURE PAGE TO OPTION AGREEMENT IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement as of the day and year first above written. COMPANY: FINANCIAL INDUSTRIES CORPORATION By:____________________________________ Name:__________________________________ Title:_________________________________ PURCHASER: EQUITA FINANCIAL AND INSURANCE SERVICES OF TEXAS, INC. By:____________________________________ Name:__________________________________ Title:_________________________________ - 25 - SIGNATURE PAGE TO OPTION AGREEMENT IN WITNESS WHEREOF, solely with respect to Section 4.5, the undersigned has executed this Option Agreement as of the day and year first above written. M&W M&W INSURANCE SERVICES, INC. By:____________________________________ Name:__________________________________ Title:_________________________________ - 26 - Schedule 2.4 Capitalization Options 1. Employee Stock Option Plans - there are outstanding options to purchase 180,036 shares, as of the date hereof. 2. Option Agreement of even date herewith between the Company and Equita Financial and Insurance Services of Texas, Inc. 3. Option Agreement of even date herewith between the Company and Pat Tedrow. 4. Options held by Investors Life Insurance Company of North America ("Investors Life") - 500,411 shares are issuable upon exercise of an option held by Investors Life, as of the date hereof. Voting Agreements 1. Settlement Agreement (as defined in Section 5.2(b)(i)). - 27 - Schedule 2.5 Issuance and Ownership of Shares 1. Settlement Agreement. - 28 - Schedule 2.7 Litigation None. - 29 - Schedule 2.10 Financial Statements 1. Settlement Agreement. - 30 - Schedule 2.11 Absence of Certain Changes or Events None. - 31 - Schedule 2.12 Undisclosed Liabilities 1. Settlement Agreement. 2. New Era Transactions. - 32 - Schedule 2.13 Stock Purchase Agreements 1. Stock Purchase Agreement, dated as of June 4, 2003, among JNT Group, Inc., Earl W. Johnson, 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., Scott A. Bell, Wayne C. Desselle, Chris Murphy, Financial Industries Corporation and FIC Financial Services, Inc. 3. Stock Purchase Agreement, dated as of June 4, 2003, among Total Compensation Consulting Group, Inc., John Pesce, Mike Cochran, Arthur A. Howard, Geoffrey Calaway, W.M. Hartman, Edward F. Harman, III, M.B. Donaldson, Teri Hoyt, Alycia Andrews, Charles Francis, Tom Cook, David Allen, Marcus Smith, Financial Industries Corporation and FIC Financial Services, Inc. - 33 - EX-10 9 reg-rights.txt EXHIBIT 10.7 - REGISTRATION RIGHTS EXHIBIT 10.7 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and entered into as of this 4th day of June, 2003, by and among Financial Industries Corporation, a Texas corporation (the "Company"), American Physicians Service Group, Inc., a Texas corporation ("APS"), M&W Insurance Services, Inc., a Delaware corporation ("M&W"), Equita Financial and Insurance Services of Texas, Inc., a Texas corporation ("Equita" and, together with APS and M&W, the "Buyers"). RECITALS WHEREAS, pursuant to various purchase and option agreements, the Buyers acquired shares of common stock, par value $.20 per share (the "Common Stock"), of the Company and/or options to acquire shares of Common Stock; and WHEREAS, in connection with entering into such agreements, the Company has granted certain registration rights as described in this Agreement to the Buyers. 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. Registration of Shares. For purposes of this Agreement, "Holders" means the Buyers and (to the extent not prohibited by Section 8) any transferees of the Buyers, and "Registrable Shares" means any shares of Common Stock held by the Holders as of the date of this Agreement, all shares of Common Stock issuable upon exercise of options held by the Holders as of the date of this Agreement, and any and all shares of Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, shares of Common Stock held by a Holder on the date hereof or issued subsequent to the date hereof pursuant to an option to acquire shares of Common Stock held by the Holders on the date hereof until the date on which (a) the resale of such share of Common Stock by a Holder has been effectively registered under the Securities Act of 1933, as amended (the - 1 - "Securities Act"), and disposed of in accordance with the Shelf Registration Statement (as defined below), (b) such share of Common Stock is distributed by a Holder to the public pursuant to Rule 144 under the Securities Act, or (c) such share of Common Stock may be sold or transferred by a Holder pursuant to Rule 144(k) under the Securities Act (or any similar provision then in effect). The Company shall (x) on or prior to October 1, 2003, file with the Securities and Exchange Commission ("SEC") a shelf registration statement pursuant to Rule 415 under the Securities Act (the "Shelf Registration Statement") on Form S-1 or Form S-3, if the use of such form is then available as determined by the Company, to cover resales of Registrable Shares by the Holders, and (y) use its commercially reasonable efforts to cause such Shelf Registration Statement to be declared effective as soon as reasonably practicable following its filing with the SEC, but in any event not later than the first anniversary of the date hereof; provided, however, that the Company will be deemed to be in compliance with this clause (y) if such Shelf Registration Statement is declared effective on or prior to the first anniversary of the date hereof (and, in such event, the Company shall not be liable to any Holder for failure to cause the Shelf Registration Statement to be declared effective prior to such date). None of the Company nor any of its securityholders (other than the Holders of Registrable Shares in such capacity or other shareholders having registration rights in effect as of the date of this Agreement permitting them to participate therein) shall have the right to include any of the Company's securities in the Shelf Registration Statement. The Company shall not be required to effect more than one registration pursuant to this Section 1. Section 2. Effectiveness of Registration. The Company shall use its reasonable best efforts to keep the Shelf Registration Statement continuously effective for a period ending on March 31, 2007, or such shorter period that will terminate when each of the Registrable Shares covered by the Shelf Registration Statement shall cease to be a Registrable Share. Notwithstanding the foregoing, upon the occurrence of any event that would cause the Shelf Registration Statement to (a) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made, (b) not be effective and usable for resale of Registrable Shares during the period that such Shelf Registration Statement is required to be effective and usable or (c) contain financial information that no longer meets the requirements of any applicable rule of Regulation S-X, the Company shall as promptly as practicable file an amendment to the Shelf Registration Statement, which in the case of clause (a), corrects any such misstatement or omission and, in the case of clause (c), updates such financial information. In the case of clause (a), (b) or (c), no offers or sales of Registrable Shares shall be made pursuant to the Shelf Registration Statement during the period that the Shelf Registration Statement is unusable and the Company shall use its reasonable best efforts to cause such amendment to be declared effective and such Shelf Registration Statement to become usable as soon as practicable thereafter. - 2 - Section 3. Suspension of Registration. Notwithstanding anything to the contrary in this Agreement, the Company may prohibit offers and sales of Registrable Shares pursuant to the Shelf Registration Statement at any time if (a) (i) it is in possession of material non-public information, (ii) the Board of Directors of the Company (the "Board") believes in good faith that such prohibition is necessary in order to avoid a legal requirement to disclose such material non-public information and (iii) the Board believes in good faith that disclosure of such material non-public information would not be in the best interests of the Company and its shareholders or (b) (i) the Company has made a public announcement relating to an acquisition or business combination transaction including the Company and/or one or more of its subsidiaries that is material to the Company and its subsidiaries taken as a whole and (ii) the Board believes in good faith that it would be impracticable at the time to obtain any financial statements relating to such acquisition or business combination transaction that would be required to be set forth in the Shelf Registration Statement (the period during which any such prohibition of offers and sales of Registrable Shares pursuant to the Shelf Registration Statement is in effect pursuant to clause (a) or (b) of this Section 3 is referred to herein as a "Suspension Period"). A Suspension Period shall commence on and include the date on which the Holders of Registrable Shares covered by the Shelf Registration Statement receive written notice from the Company that offers and sales of Registrable Shares cannot be made thereunder in accordance with this Section 3 and shall, with respect to each Holder, end on the date on which that Holder either is advised in writing by the Company that offers and sales of Registrable Shares pursuant to the Shelf Registration Statement and use of the prospectus contained therein may be resumed (a "Resumption Notice") or receives a copy of a prospectus supplement; provided, however, that Suspension Periods in the aggregate shall in no event be longer than forty-five (45) days in any one (1) year period during which the Shelf Registration Statement is required to remain effective in accordance with this Agreement. The Company agrees that it must promptly deliver a Resumption Notice to each Holder when none of the requisite conditions for the Suspension Period continue to exist or a prospectus supplement as soon as reasonably practicable. - 3 - Section 4. Damages. The Company recognizes and agrees that the Holders will not have an adequate remedy at law if the Company fails to comply with this Agreement and that damages may not be readily ascertainable, and the Company expressly agrees that, in the event of such failure, upon proper proof a Holder may be entitled to (a) specific performance of any and all provisions hereof or (b) enjoin the Company from continuing to commit any such breach of this Agreement. Section 5. Further Obligations of the Company. In connection with the registration required under this Agreement, the Company agrees that it shall also do the following: (a) furnish to each Holder such copies of each preliminary and final prospectus and such other documents as said Holder may reasonably request to facilitate the public offering of its Registrable Shares pursuant to the Shelf Registration Statement; (b) use all reasonable efforts to register or qualify the Registrable Shares under the applicable securities or blue sky laws of such jurisdictions as any selling Holder may reasonably request; provided, however, that the Company shall not be obligated to qualify to do business in any jurisdictions where it is not then so qualified or to take any action which would subject it to the service of process in suits other than those arising out of the offer or sale of the securities covered by the Shelf Registration Statement in any jurisdiction where it is not then so subject; (c) permit each Holder or its counsel or other representatives to inspect and copy such corporate documents and records as may reasonably be requested by them related to the Shelf Registration Statement; (d) furnish to each Holder copies of all documents filed with and all correspondence from or to the SEC in connection with any such offering of securities; (e) use all reasonable efforts to insure that all necessary approvals from the National Association of Securities Dealers, Inc. ("NASD"), if any, are obtained; and (f) use all reasonable efforts to list all Registrable Shares (to the extent necessary) on each securities exchange or automated interdealer quotation system on which the Common Stock is listed or quoted. - 4 - Section 6. Further Obligations of the Holders. In connection with the registration of Registrable Shares pursuant to this Agreement, each Holder agrees to timely provide to the Company, at its request, such information and materials as it may reasonably request in order to effect the registration of such Registrable Shares. Section 7. Expenses. The Company shall bear, on behalf of the Holders, all reasonable costs and expenses of the registration required under this Agreement, including, but not limited to, the Company's printing, legal and accounting fees and expenses, SEC and NASD filing fees, blue sky fees and expenses, and the reasonable fees and disbursements (such fees not to exceed $10,000) of one counsel for the Holders; provided, however, that the Company shall have no obligation to pay or otherwise bear the commissions or discounts attributable to the Registrable Shares being offered and sold by the Holders, or the fees and expenses of more than one counsel for the Holders. Section 8. Transferability of Registration Rights. The rights to register Registrable Shares granted by the Company under this Agreement may be assigned by a Holder, provided that (a) such assignment is only made in connection with an assignment by such Holder of not less than 100,000 of its Registrable Shares in a manner permitted by this Agreement and otherwise in accordance with applicable law; and (b) such assignee or transferee must agree in writing to be bound by all of the provisions of this Agreement. The rights to register Registrable Shares cannot be transferred in connection with a sale of Registrable Shares to the public pursuant to an effective registration statement or Rule 144. Section 9. Mergers, Etc. The Company shall not, directly or indirectly, enter into any merger, consolidation or reorganization in which the Company shall not be the surviving corporation unless the proposed surviving corporation shall, prior to such merger, consolidation or reorganization, agree in writing to assume the obligations of the Company under this Agreement, and for that purpose references hereunder to Registrable Shares shall be deemed to be references to the securities which the Holders would be entitled to receive in exchange for Registrable Shares under any such merger, consolidation or reorganization; provided, however, that the provisions of this Agreement shall not apply in the event of any merger, consolidation, or reorganization in which the Company is not the surviving corporation if all Holders are entitled to receive in exchange for their Registrable Shares consideration consisting solely of (i) cash, (ii) securities of the acquiring corporation which may be immediately sold to the public without registration under the Securities Act, or (iii) securities of the acquiring corporation which the acquiring corporation has agreed to register within forty-five (45) days of completion of the transaction for resale to the public pursuant to the Securities Act. - 5 - Section 10. Indemnification of Holders of Registrable Shares. 10.1 Right to Indemnification. In connection with the Company's registration of Registrable Shares pursuant to this Agreement, the Company will indemnify and hold harmless each Holder (which for purposes of only this Section 10 includes such Holder's respective affiliates, partners, principals, officers, directors, managers, members, employees, independent contractors, agents, underwriters, representatives, and other similarly situated parties, and the successors, heirs and personal representatives of any of them) (collectively, the "Holder Indemnified Parties") from and against any and all losses, claims, damages, expenses or liabilities, joint or several, to which such Holder becomes subject under the Securities Act, applicable state securities laws or under any other statute or at common law or otherwise, as incurred, and, except as hereinafter provided, will reimburse each such Holder, if any, for any legal or other expenses reasonably incurred by such Holder in connection with investigating or defending any actions whether or not resulting in any liability, as incurred, insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement, in any preliminary or amended preliminary prospectus or in the final prospectus (or the registration statement or prospectus as from time to time amended or supplemented by the Company) or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act or any state securities laws applicable to the Company and relating to action or inaction required of the Company in connection with such registration, unless (a) such untrue statement or alleged untrue statement or omission or alleged omission was made in such registration statement, preliminary or amended preliminary prospectus or final prospectus in reliance upon and in conformity with information furnished in writing to the Company in connection therewith by such Holder expressly for use therein, or unless (b) in the case of a sale directly by such Holder, such untrue statement or alleged untrue statement or omission or alleged omission was contained in a preliminary prospectus and corrected in a final or amended prospectus copies of which were delivered to such Holder on a timely basis, and such Holder failed to deliver a copy of the final or amended prospectus at or prior to the confirmation for the sale of the Registrable Shares to the person asserting any such loss, claim, damage or liability in any case where such delivery is required by the Securities Act. - 6 - 10.2 Procedures Governing Indemnification Claims. In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which any Holder seeks indemnification under this Section 10 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 10 provides for indemnification in such case, then the Company and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and of the Holder seeking indemnification on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or by the Holder on the other, and each party's relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case, (a) no Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Shares offered by such Holder pursuant to such registration statement; and (b) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Except as otherwise provided in this clause (b), the provisions of Section 10.3 shall govern the notice and other procedural aspects of any indemnification claim brought pursuant to this Section 10. - 7 - 10.3 Indemnification; Notice and Settlements. A party seeking indemnification pursuant to Sections 10.1 or 11.1 (an "Indemnified Party") with respect to a claim, action or proceeding initiated by a person or entity who is not a Holder Indemnified Party or a Company Indemnified Party shall give prompt written notice to the party from whom such indemnification is sought (the "Indemnifying Party") of the assertion of any claim, or the commencement of any action or proceeding, in respect of which indemnity may be sought hereunder; provided that the failure to give such notice shall not affect the Indemnified Party's rights to indemnification hereunder, unless such failure shall prejudice in any material respect the Indemnifying Party's ability to defend such claim, action or proceeding. The Indemnifying Party shall have the right to assume the defense of any such action or proceeding at its expense, provided that no settlement shall be executed without the prior written consent of the Indemnified Party. 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 10.3, 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 (a) the Indemnifying Party and the Indemnified Party have mutually agreed in writing to the retention of such counsel or (b) 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 10.1 or 11.1 for any settlement effected without its written consent, of any claim, action or proceeding in respect of which indemnity may be sought hereunder. - 8 - Section 11. Indemnification of Company. 11.1 Right to Indemnification. In the event that the Company registers any of the Registrable Shares under the Securities Act, each Holder of the Registrable Shares so registered will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed or otherwise participated in the preparation of the registration statement, and each underwriter of the Registrable Shares so registered (including any broker or dealer through whom such of the shares may be sold) (collectively, the "Company Indemnified Parties") from and against any and all losses, claims, damages, expenses or liabilities, individually and not jointly and severally, to which such Holder may become subject under the Securities Act, applicable state securities laws or under any other statute or at common law or otherwise, and, except as hereinafter provided, will reimburse the Company and each such director, officer, underwriter or controlling person for any legal or other expenses reasonably incurred by them or any of them in connection with investigating or defending any actions whether or not resulting in any liability, insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement, in any preliminary or amended preliminary prospectus or in the final prospectus (or in the registration statement or prospectus as from time to time amended or supplemented) or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, but only insofar as any such statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company in connection therewith by such Holder expressly for use therein; provided, however, that such Holder's obligations hereunder shall be limited to an amount equal to the proceeds received by such Holder from Registrable Shares sold in such registration. - 9 - 11.2 In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which the Company seeks indemnification under this Section 11 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding that this Section 11 provides for indemnification, in such case, then the Company and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and of such Holder on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or by the Holder on the other, and each party's relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case, (a) no such Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Shares offered by it pursuant to such registration statement; and (b) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Except as otherwise provided in this clause (b), the provisions of Section 10.3 shall govern the notice and other procedural aspects of any indemnification claim brought pursuant to this Section 11. Section 12. Rule 144. The Company agrees that, from and after the date of this Agreement until such time as the Holders do not own any of the Registrable Shares, the Company will (a) use its commercially reasonable efforts to ensure that the current public information requirements of subsection (c) of Rule 144 remain satisfied and (b) cooperate promptly in providing any information or documentation that it needs to provide to Holders to enable Holders to sell shares of Common Stock pursuant to a transaction otherwise permissible under Rule 144. The Company agrees that its cooperation pursuant to clause (b) of the immediately preceding sentence shall, with respect to any sale by a Holder of not less than twenty thousand (20,000) shares of Common Stock in any one transaction, be at the Company's reasonable cost and expense and, to the extent the proposed sale can be effected under Rule 144, include a "Rule 144" opinion issued by counsel of the Company's choice. The Holders agree that the Company does not have any obligation under this Section 12 during any period in which the Holders are able to sell shares of Common Stock under an effective registration statement. - 10 - Section 13. Miscellaneous. 13.1 Successors and Assigns. Except as provided in Section 8, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by operation of law or otherwise without the prior written consent of the parties hereto, which consent may be granted or withheld in the sole discretion of the parties. 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. 13.2 Entire Agreement. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. 13.3 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. 13.4 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. - 11 - 13.5 Governing Law; Venue. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, IRRESPECTIVE OF ANY CONFLECT-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 TRAVIS COUNTY, TEXAS, AND VENUE FOR ANY ACTION RELATING TO THIS AGREEMENT SHALL BE PROPER ONLY IN FEDERAL OR STATE COURTS LOCATED WITHIN TRAVIS COUNTY, TEXAS. EACH PARTY AGREES THAT IT MUST BRING ANY ACTION RELATED TO THIS AGREEMENT ONLY IN THE FEDERAL OR STATE COURTS LOCATED WITHIN TRAVIS COUNTY, TEXAS. 13.6 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 of such party as set forth on the signature page of this Agreement, 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 13.6. 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 13.6. 13.7 Further Assurances. Each party to 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 transactions contemplated hereby. Each party will use its good faith efforts to carry out and comply with the provisions of this Agreement. 13.8 No Third-Party Beneficiaries. Except as provided in Sections 10.1 and 11.1, this Agreement shall not confer any rights or remedies upon any person or entity other than the parties hereto and their respective successors and permitted assigns. 13.9 Amendments. This Agreement may not be amended or modified except by an instrument in writing signed by each of the parties. - 12 - SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the day and year first above written. COMPANY: FINANCIAL INDUSTRIES CORPORATION By: __________________________________ Name: ________________________________ Title: _______________________________ Address: 6500 River Place Blvd., Building One Austin, Texas 78730 Attn: Gene Payne and Ted Fleron Facsimile No.: (512) 404-5210 BUYERS: AMERICAN PHYSICIANS SERVICE GROUP, INC. By: ___________________________________ Kenneth S. Shifrin, Chairman of the Board and Chief Executive Officer Address: 1301 Capital of Texas Hwy., Suite C-300 Austin, Texas 78746 Attn: Chairman and Chief Executive Officer Facsimile No.: (512) 314-4398 - 13 - EQUITA FINANCIAL AND INSURANCE SERVICES OF TEXAS, INC. By: ___________________________________ Richard G. Wolfe, President Address: 11551 Forest Central Drive Forest Central II, Second Floor Dallas, Texas 75243 Attn: Richard G. Wolfe, President Facsimile No.: (214) 553-5384 M&W INSURANCE SERVICES, INC. By:____________________________________ Richard G. Wolfe, President Address: 11551 Forest Central Drive Forest Central II, Second Floor Dallas, Texas 75243 Attn: Richard G. Wolfe, President Facsimile No.: (214) 553-5384 - 14 - EX-10 10 tedrow.txt EXHIBIT 10.8 - TEDROW EMPLOYMENT AGREEMENT 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 William P. Tedrow ("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. - 1 - 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, - 2 - (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 - 3 - (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 Eugene E. Payne, the Chairman, President and Chief Executive Officer of the Company as of the Agreement Date. - 4 - 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. - 5 - 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; - 6 - 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. - 7 - 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%. - 8 - 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. - 9 - 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. - 10 - 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. - 11 - 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 - 12 - 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 - 13 - (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. - 14 - 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. - 15 - 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 - 18 - 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 Travis 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 6500 River Place Blvd., Building One Austin, Texas 78730 Attention: Theodore A. Fleron, Vice President and General Counsel Facsimile No.: (512) 404-5051 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: ______________________ WILLIAM P. TEDROW - 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 EX-10 11 tedrow-soa.txt EXHIBIT 10.9 - TEDROW SOA EXHIBIT 10.9 FINANCIAL INDUSTRIES CORPORATION STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (the "Agreement") is made and entered into as of June 4, 2003, (the "Agreement Date"), between Financial Industries Corporation, a Texas corporation (the "Company"), and William P. Tedrow (the "Optionee"). RECITALS: WHEREAS, the Company desires to employ Optionee to be President of FIC Financial Services, Inc., a Nevada corporation and subsidiary of the Company ("FICFS"), and as a Vice President of the Company. WHEREAS, in order to retain the Optionee, the Company has concluded that the Optionee requires certain incentives, including, without limitation, an option to purchase shares of common stock of the Company (the "Common Stock"). NOW, THEREFORE, in consideration of the foregoing premises, the parties to this Agreement agree as follows: 1. Grant. Subject to the terms and conditions set forth in this Agreement, the Company hereby grants the Optionee an option to purchase up to 150,000 shares of Common Stock (the "Option"). The exercise price of the Option shall be $13.07 per share (the "Exercise Price"). 2. Term. The Options will expire on December 31, 2006 (the "Expiration Date"), unless sooner terminated pursuant to the terms of this Agreement. 3. Exercise. (a) Exercisability. The Option may be exercised only if Qualifying Premiums (as defined below) for the Determination Period (as defined below) exceed $200,000,000. The exercise of the 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 Option may only be exercised once by delivery of written notice to the Company, signed by the Optionee, indicating that the Option is being - 1 - exercised and specifying the number of shares of Common Stock the Optionee will acquire. Such notice may not be given until final determination of Qualifying Premiums pursuant to Section 3(b). Unless earlier exercised, the Option expires on December 31, 2006. The closing of the exercise of the Option pursuant to this Section 3(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 the Optionee at the closing free and clear of any and all liens, claims and encumbrances (other than any such liens, claims and encumbrances created by the Optionee). (b) 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 marketed by or through any insurance company affiliate of the Company (except as provided above), FICFS whether through a contact made by an employee or agent of FICFS or a marketing relationship developed through FICFS (including Equita Financial and Insurance Services of Texas, Inc.), 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 the Determination Period, the Company shall deliver to the Optionee a written calculation of Qualifying Premiums specifying in reasonable detail the basis for such calculation. Any disagreements with respect to the Qualifying Premiums amount shall be resolved using the dispute resolution mechanisms set forth in Section 9.8 that certain Employment Agreement of even date herewith, between the Company and the Optionee (the "Employment Agreement"). - 2 - (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 the Optionee upon the exercise of the Option shall be entitled to receive the number of shares of Common Stock or other securities of the Company that the Optionee would have owned immediately following such action had the 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), the Optionee shall have the right thereafter to exercise the Option and receive the kind and amount of securities, cash or other property that the Optionee would have owned or have been entitled to receive immediately after such reorganization, reclassification, consolidation, merger, statutory exchange, sale or conveyance had the 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 3(c) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, statutory exchanges, sales or conveyances. - 3 - (iii) Whenever the number of shares of Common Stock purchasable upon the exercise of the 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 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 Option or the Exercise Price is adjusted, as herein provided, the Company shall promptly mail by first class mail, postage prepaid, to the Optionee 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 in its reasonable judgment determines is a distribution, change or transaction that warrants an adjustment similar to those provided in this Section 3(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 Option and the Exercise Price shall be made as a result of such distribution, change or transaction. (d) Reservation of Common Stock. The Company covenants that it will, at all times during which the 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. - 4 - 4. Investment Intent; Legends. The Optionee agrees that the shares of Common Stock acquired upon exercise of the Option shall be acquired for his own account for investment only and not with a view to, or for resale in connection with, any distribution or public offering hereof within the meaning of the Securities Act of 1933, as amended (the "Act"), or other applicable securities laws. If the Company so determines, any stock certificates issued upon exercise of the Option shall bear a legend to the effect that the shares have been so acquired. The Company may, but in no event shall be required to, bear any expenses of complying with the Act, other applicable securities laws, or the rules and regulations of any national securities exchange or other regulatory authority in connection with the registration, qualification, or transfer, as the case may be, of the Option or any shares of Common Stock acquired upon the exercise thereof. The Optionee will not transfer the shares acquired pursuant to the Option unless (a) the Company previously shall have been furnished with an opinion of counsel, satisfactory to it, to the effect that such transfer will not involve any violation of the Act or other applicable securities laws, or (b) the shares shall have been duly registered in compliance with the Act and other applicable securities laws. 5. Transferability. The Option shall not be transferable except by will or by the laws of descent and distribution. Except as otherwise expressly provided herein, during the Optionee's lifetime, the Option may be exercised only by him. No assignment or transfer of the Option, whether voluntary or involuntary, by operation of law or otherwise, except a transfer by will or by the laws of descent or distribution, shall vest in the assignee or transferee any interest or right whatsoever in the Option. 6. No Rights as Shareholder. The Optionee shall not have any rights as a shareholder of the Company with respect to any of the shares subject to the Option, except to the extent that such shares shall have been purchased and transferred to him. The Company shall not be required to issue or transfer any certificates for shares purchased upon exercise of the Option until all applicable requirements of law have been complied with and, if such shares have been registered pursuant to Section 4 hereof, such shares shall have been duly listed on any securities exchange on which the Common Stock may then be listed. - 5 - 7. No Right to Employment. The Option shall not confer on the Optionee any right to continue in the service of the Company or any of its subsidiaries or affect the right of the Company or any subsidiary to terminate Optionee's employment at any time; and nothing contained in this Agreement shall be deemed a waiver or modification of any provision contained in any agreement between the Optionee and the Company or any parent or subsidiary thereof, including, without limitation, the Employment Agreement. The Option shall not affect the right of the Company or any parent or subsidiary thereof to reclassify, recapitalize, or otherwise change its capital or debt structure or to merge, consolidate, convey any or all of its assets, dissolve, liquidate, wind up, or otherwise reorganize. 8. Termination of Employment. (a) Capitalized terms used in this Section 8, but not otherwise defined, shall have the meanings given to such terms in the Employment Agreement. (b) If Optionee's employment with the Company and FICFS is terminated for any reason, other than by the Company for Cause or by the Optionee without Good Reason, prior to the Expiration Date, the Options shall expire on the Expiration Date. In the event of an Optionee's death prior to the Expiration Date, the Option may be exercised by the legal representatives of the Optionee or any persons to whom the Option is transferred by will or by the laws of descent and distribution in accordance with and under the terms of this Agreement. The shares acquired under the foregoing provision shall be subject to this Agreement and the transferee shall execute such agreements as the Company requires to evidence that the transferee is bound by such agreements. In the event of the Optionee's Disability prior to the Expiration Date, the Options may be exercised by the Optionee or his legal representatives in accordance with and under the terms of this Agreement. (c) If the Company terminates Optionee's employment with the Company and FICFS for Cause, or Optionee terminates Optionee's employment with the Company and FICFS without Good Reason, then the Option shall automatically expire concurrent with such termination, if prior to the Expiration Date. - 6 - 9. Interpretation of Agreement. All disputes, controversies or claims arising out of or relating to this Agreement or the performance, breach, validity, interpretation or enforcement hereof, will be resolved by using dispute resolution mechanisms set forth in Section 9.8 of the Employment Agreement. 10. Withholding for Tax Purposes. Any amount of Common Stock that is payable or transferable to the Optionee hereunder may be reduced by any amount or amounts which the Company is required to withhold under the then applicable provisions of the Internal Revenue Code of 1986, as amended, or any other federal, state or local tax withholding requirement. If the Optionee does not elect to satisfy withholding requirements in this fashion, the issuance of the shares of Common Stock payable or transferable to the Optionee hereunder shall be contingent upon the Optionee's satisfaction of any withholding obligations that may apply and the Optionee's presentation of evidence satisfactory to the Board that such withholding obligations have been satisfied. 11. Notice. Whenever any notice is required or permitted hereunder, such notice must be in writing and personally delivered, sent by telecopy, sent by mail, or sent by overnight courier. Any notice required or permitted to be delivered hereunder will be deemed to be delivered on the date that it is personally delivered; if sent by telecopy, on the date that it is electronically confirmed; if sent by overnight courier, or the next business day following the dates so sent; or, whether actually received or not, on the third business day after it is deposited in the United States mail, certified or registered, postage prepaid, addressed to the person who is to receive it at the address that such person has theretofore specified by written notice delivered in accordance herewith. The Company or Optionee may change, at any time and from time to time, by written notice to the other, the address that it or he or she had therefore specified for receiving notices. Until changed in accordance herewith, the Company and the Optionee specify their respective addresses as set forth below: - 7 - Company: Financial Industries Corporation 6500 River Place Blvd., Building One Austin, Texas 78730 Attn: Gene Payne and Ted Fleron Facsimile No.: (512) 404-5051 Optionee: At his most recent address on file with the Company 12. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without regard to the principles of conflict of laws. IN WITNESS WHEREOF, the Company and Optionee have caused this Agreement to be executed as of the day and year first above written. FINANCIAL INDUSTRIES CORPORATION By:____________________________________ Name:__________________________________ Title:_________________________________ OPTIONEE By: __________________________________ William P. Tedrow - 8 - EX-10 12 subscription.txt EXHIBIT 10.10 - SENIOR NOTES SUBSCRIPTION EXHIBIT 10.10 SENIOR NOTES SUBSCRIPTION AGREEMENT May 13, 2003 THIS SENIOR NOTES SUBSCRIPTION AGREEMENT (this "Subscription Agreement") is made between Financial Industries Corporation (the "Company") and InCapS Funding I, Ltd., a newly formed exempted company with limited liability established under the laws of the Cayman Islands (the "Purchaser"). RECITALS: A. The Company desires to issue $15,000,000 aggregate principal amount of its Floating Rate Senior Notes (the "Senior Notes") (the "Offering"), to be issued pursuant to an Indenture (the "Indenture"), by the Company, as Issuer, Wilmington Trust Company, as Trustee and the holders, from time to time, of the Senior Notes; and B. The Purchaser intends to complete an offering of its securities (the "CBO Offering") on or about May 22, 2003 or such other business day as may be agreed upon by the Company and the placement agent ("Placement Agent") identified in the Placement Agreement (the "Closing Date") and to use the proceeds of the CBO Offering to, among other things, acquire the Senior Notes from the Company and other senior notes, capital securities and surplus notes in a quantity and with other particular characteristics, in the aggregate, sufficient to permit the successful completion of the CBO Offering; and C. In consideration of the premises and the mutual representations and covenants hereinafter set forth, the parties hereto agree as follows: ARTICLE I PURCHASE AND SALE OF SENIOR NOTES 1.1. Upon the execution of this Subscription Agreement, subject to the conditions precedent set forth in Section 1.5, the Purchaser hereby agrees to purchase from the Company the Senior Notes at a price equal to $15,000,000 (the "Purchase Price") and the Company agrees to sell $15,000,000 aggregate principal amount of Senior Notes to the Purchaser for the Purchase Price. The rights and preferences of the Senior Notes will be set forth in the Indenture in form and substance reasonably acceptable to the Purchaser. The Purchase Price is payable by the Purchaser on the Closing Date in immediately available funds to the account designated by Wilmington Trust Company against delivery of the aforementioned Senior Notes. 1.2. The certificate for the Senior Notes shall be authenticated by the Trustee and delivered in definitive form by the Company on the Closing Date to the Purchaser or its designee, shall be registered in the name of the Purchaser and shall represent the aggregate principal amount of the Senior Notes being purchased by the Purchaser. - 1 - 1.3. Each of the provisions of the Placement Agreement between the Company and the Placement Agent named therein, dated May 13, 2003 (the "Placement Agreement'), including the definitions therein, are hereby incorporated by reference into this Subscription Agreement. In addition, to the extent provided for in the Placement Agreement, the Purchaser shall be entitled to the benefits of the Placement Agreement and shall be entitled to enforce such obligations of the Company under the Placement Agreement as fully as if the Purchaser were a parry to such Placement Agreement, it being agreed between the parties that any and all representations, covenants and other agreements made by the Company to the Placement Agent in the Placement Agreement shall be deemed to have also been made to the Purchaser. 1.4. If any condition specified herein or in the Placement Agreement shall not have been fulfilled when and as required to be fulfilled by, on behalf of or in respect of the Company or the Senior Notes, this Subscription Agreement may be terminated by the Purchaser by notice to the Company at any time at or prior to the Closing Date, and such termination shall be without liability of any party to any other party except as provided in Section 5(h) of the Placement Agreement and except that Sections 1, 7, and 8 of the Placement Agreement shall survive any such termination and remain in full force and effect. 1.5. If the CBO Offering is not successfully completed for any reason, including, without limitation, as a result of the inability of the Purchaser to acquire sufficient senior notes, capital securities and surplus notes from the Company and other issuers and sellers in a quantity and with other particular characteristics, in the aggregate, sufficient to satisfy rating agency criteria with respect to expected ratings on the securities to be issued by the Purchaser and other criteria deemed necessary or advisable by the Purchaser, all obligations of the Purchaser hereunder and any claims against the Purchaser hereunder shall automatically terminate and be extinguished and shall not thereafter revive. 1.6. Notwithstanding any other provision of this Subscription Agreement, the obligations of the Purchaser hereunder are limited recourse obligations of the Purchaser, payable solely from the proceeds of the CBO Offering, and if the CBO Offering is not completed or the proceeds of the CBO Offering are insufficient to satisfy the obligations of the Purchaser, all obligations of the Purchaser hereunder and any claims against the Purchaser hereunder shall be extinguished and shall not thereafter revive. No recourse shall be had to any subscriber, officer, director, employee, administrator, shareholder, incorporator or agent of the Purchaser or their respective successors or assigns for any obligations hereunder. The Wilmington Trust Company and the Company further agree (i) not to take any action in respect of any claims hereunder against any subscriber, officer, director, employee, administrator, shareholder, incorporator or agent of the Purchaser and (ii) not to institute against the Purchaser any insolvency, bankruptcy, reorganization, liquidation or similar proceedings in any jurisdiction until one year and one day or, if longer, the applicable preference period then in effect, as the case may be, shall have elapsed since the final payments to the holders of the securities issued by the Purchaser in connection with the CBO Offering. - 2 - ARTICLE II REPRESENTATIONS AND WARRANTIES OF PURCHASER 2.1. The Purchaser understands and acknowledges that (i) the Senior Notes have not been and will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), or any other applicable securities laws, (ii) the Senior Notes are being offered for sale by the Company in transactions not requiring registration under the Securities Act, and (iii) the Senior Notes may not be offered, sold, pledged or otherwise transferred by the Purchaser except in compliance with the registration requirements of the Securities Act, or any other applicable securities laws, pursuant to an exemption therefrom or in a transaction not subject thereto. 2.2. The Purchaser represents and warrants that (i) it is not a "U.S. person" (as such term is defined in Rule 902 under the Securities Act), (ii) it is not acquiring the Senior Notes for the account or benefit of any U.S. person, and (iii) the offer and sale of Senior Notes to the Purchaser constitutes an "offshore transaction" under Regulation S under the Securities Act. 2.3. The Purchaser represents and warrants that it is purchasing the Senior Notes for its own account, for investment and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the Securities Act or other applicable securities laws, subject to any requirement of law that the disposition of its property be at all times within its control and subject to its ability to resell such Senior Notes pursuant to an effective registration statement under the Securities Act or pursuant to an exemption therefrom or in a transaction not subject thereto, and the Purchaser agrees to the legends and transfer restrictions applicable to the Senior Notes contained in the Indenture. 2.4. The Purchaser is an exempted company with limited liability duly incorporated, validly existing and in good standing under the laws of the jurisdiction where it is organized, with full power and authority to execute, deliver and perform this Subscription Agreement, to make the representations and warranties specified herein, and to consummate the transactions contemplated herein and it has full right and power to subscribe for the Senior Notes. 2.5. No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any governmental body, agency or court having jurisdiction over the Purchaser, other than those that have been made or obtained, is necessary or required for the performance by the Purchaser of its obligations under this Subscription Agreement or to consummate the transactions contemplated herein. 2.6. This Subscription Agreement has been duly authorized, executed and delivered by the Purchaser. - 3 - 2.7. The Purchaser is not in violation of or default under any term of its Memorandum of Association or Articles of Association, of any provision of any mortgage, indenture, contract, agreement, instrument or contract to which it is a party or by which it is bound or of any judgment, decree, order, writ or, to its knowledge, any statute, rule or regulation applicable to the Purchaser which would prevent the Purchaser from performing any material obligation set forth in this Subscription Agreement. The execution, delivery and performance of and compliance with this Subscription Agreement, and the consummation of the transactions contemplated herein, will not, with or without the passage of time or giving of notice, result in any such violation or default or the suspension, revocation, impairment, forfeiture or non-renewal of any permit, license, authorization or approval applicable to the Purchaser, its business or operations or any of its assets or properties which would prevent the Purchaser from performing any material obligations set forth in this Subscription Agreement. 2.8. The Purchaser understands and acknowledges that the Company will rely upon the truth and accuracy of the foregoing acknowledgments, representations, warranties and agreements and agrees that if any of the foregoing acknowledgments, representations, warranties or agreements cease to be accurate, it shall promptly notify the Company. ARTICLE III MISCELLANEOUS 3.1. Any notice or other communication given hereunder shall be deemed sufficient if in writing and sent by registered or certified mail, return receipt requested, international courier, or delivered by hand against written receipt therefor, or by facsimile transmission and confirmed by telephone, to the following addresses, or such other address as may be furnished to the other parties as herein provided: To the Company: Financial Industries Corporation 6500 River Place Boulevard, Building 1 Austin, TX 78730 Attention: Theodore A. Fleron Telephone: 512-404-5040 Fax: 512-404-5051 To the Purchaser: InCapS Funding I, Ltd. c/o Maples Finance Limited P.O. Box 1093 GT Queensgate House South Church Street George Town, Grand Cayman Cayman Islands Attention: Directors Telephone: 345-945-7099 Fax: 345-945-7100 - 4 - To the Purchaser for service of all process: CT Corporation 111 Eighth Avenue, 13th Floor New York, N.Y. 10011 Unless otherwise expressly provided herein, notices shall be deemed to have been given when received. 3.2. This Subscription Agreement shall not be changed, modified or amended except by a writing signed by the parties hereto. 3.3. Upon the execution and delivery of this Subscription Agreement by the parties hereto, this Subscription Agreement shall become a binding obligation of each such party with respect to the matters covered herein, including those incorporated by reference from the Placement Agreement. 3.4. THIS SUBSCRIPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES OF SAID STATE OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. EACH OF THE PURCHASER AND THE COMPANY, ON BEHALF OF ITSELF AND ITS SUBSIDIARIES, HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. EACH OF THE PURCHASER AND THE COMPANY, ON BEHALF OF ITSELF AND ITS SUBSIDIARIES, IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 3.5. The parties hereto agree to execute and deliver all such further documents, agreements and instruments and take such other and further action as may be necessary or appropriate to carry out the purposes and intent of this Subscription Agreement. 3.6. This Subscription Agreement may be executed in one or more counterparts each of which shall be deemed an original, but all of which shall together constitute one and the same instrument. Signatures appear on the following page - 5 - IN WITNESS WHEREOF, this Subscription Agreement is agreed to and accepted as of the day and year first written above. FINANCIAL INDUSTRIES CORPORATION By: __________________________________ Name: Title: IN WITNESS WHEREOF, I have set my hand the day and year first written above. INCAPS FUNDING I, LTD. By: ________________________________ Name: Title: - 6 - EX-10 13 placement.txt EXHIBIT 10.11 - PLACEMENT AGREEMENT EXHIBIT 10.11 $15,000,000 FINANCIAL INDUSTRIES CORPORATION PLACEMENT AGREEMENT New York, New York May 13, 2003 SANDLER O'NEILL & PARTNERS, L.P. 919 Third Avenue 6th Floor New York, New York 10022 Ladies and Gentlemen: Financial Industries Corporation, a Texas corporation (the "Company") confirms its agreement (the "Agreement") with Sandler O'Neill & Partners, L.P., as agent of the Company (the "Placement Agent"), with respect to the issue and sale by the Company and the placement by the Placement Agent of $15,000,000 aggregate principal amount of Floating Rate Senior Notes (principal amount of $1,000 per security) of the Company (the "Senior Notes"). The Senior Notes will be issued pursuant to the Indenture, to be dated as of the Closing Date (the "Indenture"), between the Company and Wilmington Trust Company, as indenture trustee (the "Indenture Trustee"). The Indenture, this Agreement and the Subscription Agreement (as defined in Section 2(a) hereof) are hereinafter referred to collectively as the "Operative Documents." SECTION 1. Representations and Warranties. (a) The Company represents and warrants to the Placement Agent and the Purchaser (as defined in Section 2(a) hereof) of Senior Notes as of the date hereof and as of the Closing Date, and agrees with the Placement Agent and the Purchaser, as follows: (i) Similar Offerings. Within a period of six months before or after the date hereof, the Company has not, directly or indirectly, solicited any offer to buy or offered to sell, and will not, directly or indirectly, solicit any offer to buy or offer to sell, in the United States or to any United States citizen or resident, any security which is or would be integrated with the sale of the Senior Notes (including any securities of the same or a similar class as the Senior Notes, other than the Senior Notes) in a manner that would require the Senior Notes to be registered under the Securities Act of 1933, as amended (the "1933 Act"). - 1 - (ii) Incorporated Documents. The documents of the Company filed with the Securities and Exchange Commission (the "Commission") in accordance with the Securities Exchange Act of 1934, as amended (the "1934 Act"), from and including the commencement of the fiscal year covered by the Company's most recent Annual Report on Form 10-K, at the time they were or hereafter are filed by the Company with the Commission (collectively, the "1934 Act Reports"), complied and will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder (the "1934 Act Regulations"), and, at the date of this Agreement and on the Closing Date, do not and will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and other than such instruments, agreements, contracts and other documents as are filed as exhibits to the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, there are no instruments, agreements, contracts or documents of a character described in Item 601 of Regulation S-K promulgated by the Commission to which the Company or any of its subsidiaries is a party. (iii) Independent Accountants. The accountants of the Company who certified the financial statements included in the 1934 Act Reports (the "Independent Accountants") are independent public accountants of the Company and its subsidiaries within the meaning of the 1933 Act and the rules and regulations of the Commission thereunder (the "1933 Act Regulations"). (iv) Financial Statements and Information. The consolidated historical financial statements of the Company, together with the related schedules and notes, included in the 1934 Act Reports present fairly, in all material respects, the respective consolidated financial positions of the Company and its consolidated subsidiaries at the respective dates indicated, and the consolidated statements of income, changes in stockholders' equity and cash flows of the Company and its consolidated subsidiaries for the respective periods specified; said financial statements have been prepared in conformity with generally accepted accounting principles in the United States applied on a consistent basis throughout the periods involved, except as disclosed in the notes to such financial statements; the supporting schedules, if any, included in the 1934 Act Reports present fairly, in all material respects, the information required to be stated therein and any pro forma financial statements and the related notes thereto included in the 1934 Act Reports present fairly the information shown therein, have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and have been properly compiled on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein; except as modified - 2 - by the statutory financial statements relating to the first quarter of 2003, which financial statements will be consistent with the restatements as filed by the Company on its most recent annual report filed on Form 10-K, the statutory financial statements of each subsidiary that is engaged in an insurance business (each, an "Insurance Subsidiary") as filed with the applicable insurance regulatory authorities in the jurisdiction in which each such Insurance Subsidiary is organized (each such regulatory authority, a "State Regulatory Authority") for the years ended December 31, 2002, 2001 and 2000 and for any quarters ended subsequent to December 31, 2002, including all supporting documents filed therewith (collectively, the "Insurance Subsidiary Financial Statements"): (i) have been prepared in accordance with statutory accounting principles promulgated by the National Association of Insurance Commissioners, as applied, with respect to each Insurance Subsidiary, by the applicable State Regulatory Authority of such entity, consistently applied for the periods covered thereby and present fairly the statutory financial position of such Insurance Subsidiaries as at the respective dates thereof and the results of operations of such Insurance Subsidiaries for the respective periods then ended; and (ii) complied in all material respects with all applicable laws, rules and regulations when filed, and, to the knowledge of the Company, no material deficiency has been asserted with respect to any Insurance Subsidiary Financial Statements by any applicable Regulatory Agency. As used herein, the term "Regulatory Agency" means any federal or state agency charged with the supervision or regulation of insurance companies, or any court, administrative agency or commission or other governmental agency, authority or instrumentality having supervisory or regulatory authority with respect to the Company or any of its subsidiaries. (v) No Material Adverse Change. Since the respective dates as of which information is given in the 1934 Act Reports, there has not been (A) any material adverse change in the condition, financial, regulatory or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business (a "Material Adverse Effect") or (B) any dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock other than regular dividends on the Company's common stock declared and paid consistent with past practice. - 3 - (vi) Internal Controls. Each of the Company and its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with the management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with the management's general or specific authorization, (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences, (v) material information relating to the Company and its subsidiaries is made known to management, (vi) management has evaluated the effectiveness of such internal accounting controls and (vii) management has disclosed to the Independent Accountants and the audit committee (A) all significant deficiencies in the design or operation of internal controls which could adversely affect the ability of the Company and its subsidiaries to record, process, summarize, and report financial data, and have identified for the Independent Accountants any material weaknesses in internal controls and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the internal controls of the Company and its subsidiaries, and any such deficiencies or fraud would not, singularly or in the aggregate, be expected to result in a Material Adverse Effect. (vii) Regulatory Matters. Neither the Company nor any of its subsidiaries is subject or is party to, or has received any notice or advice that any of them may become subject or party to any investigation with respect to, any corrective, suspension or cease and-desist order, agreement, consent agreement or other regulatory enforcement action, proceeding or order with or by, or is a party to any commitment letter or similar undertaking to, or is subject to any directive by, or has been a recipient of any supervisory letter from, or has adopted any board resolutions at the request of, any Regulatory Agency that currently relates to or restricts in any material respect their business or that in any manner relates to their capital and surplus adequacy or their management (each, a "Regulatory Agreement"), nor has the Company or any of its subsidiaries been advised by any Regulatory Agency that it is considering issuing or requesting any such Regulatory Agreement; there is no unresolved violation, criticism or exception by any Regulatory Agency with respect to any report or statement relating to any examinations of the Company or any of its subsidiaries which, in the reasonable judgment of the Company, is expected to result in a Material Adverse Effect; and without limiting the generality of the foregoing, there are no restrictions or limitations on the authority of any Insurance Subsidiary to pay dividends, other than general restrictions and limitations applicable to all insurance companies domiciled in the state of organization of such Insurance Subsidiary pursuant to applicable law. - 4 - (viii) No Undisclosed Liabilities. Neither the Company nor any of its subsidiaries has any material liability, whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due, including any liability for taxes (and there is no past or present fact, situation, circumstance, condition or other basis for any present or future action, suit, proceeding, hearing, charge, complaint, claim or demand against the Company or its subsidiaries giving rise to any such liability), except (i) for liabilities set forth in the financial statements referred to in Section I (a)(iv) above and (ii) normal fluctuations in the amount of the liabilities referred to in clause (i) above occurring in the ordinary course of business of the Company and all of its subsidiaries since the date of the most recent balance sheet included in such financial statements. (ix) Insurance Reserving Practices. The Company and its Insurance Subsidiaries have made no material change in their insurance reserving practices since the respective dates as of which information is given in the 1934 Act Reports. (x) Reinsurance Treaties. All reinsurance and retrocessional treaties, contracts, agreements and arrangements to which any Insurance Subsidiary is a party are in full force and effect and no Insurance Subsidiary is in violation of, or in default in the performance, observance or fulfillment of, any obligation, agreement, covenant or condition contained therein, with such exceptions that would not, singularly or in the aggregate, have a Material Adverse Effect; and no Insurance Subsidiary has received any notice from any of the other parties to such treaties, contracts, agreements or arrangements that such other party intends not to perform thereunder and, to the best knowledge of the Company and the Insurance Subsidiaries, none of the other parties to such treaties, contracts, agreements or arrangements will be unable to perform thereunder except to the extent adequately and properly reserved for in the consolidated financial statements of the Company, with such exceptions that would not, singularly or in the aggregate, have a Material Adverse Effect. (xi) Good Standing of the Company. The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Texas and has full power and authority under such laws to own, lease and operate its properties and to conduct its business, to enter into and perform its obligations under each of the Operative Documents to which it is a party, and to issue the Senior Notes. - 5 - (xii) Good Standing of the Subsidiaries. Each "significant subsidiary" (as defined in Rule 1-02 of Regulation S-X) of the Company (a "Significant Subsidiary") and each Insurance Subsidiary has been duly organized and is validly existing as an entity in good standing under the laws of the jurisdiction in which it is chartered and has full power and authority under such laws to own, lease and operate its properties and to conduct its current and contemplated business. (xiii) Foreign Qualifications. Each of the Company and its subsidiaries is duly qualified as a foreign entity to transact business and is each in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to be so qualified would not singularly, or in the aggregate, in the reasonable judgment of the Company, be expected to result in a Material Adverse Effect. (xiv) Capital Stock Duly Authorized and Validly Issued. All of the issued and outstanding capital stock of the Company has been duly authorized and validly issued and is fully paid and nonassessable; all of the issued and outstanding capital stock of each subsidiary of the Company has been duly authorized and validly issued, is fully paid and nonassessable and is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equitable right; and none of the issued and outstanding capital stock of the Company or its Significant Subsidiaries was issued in violation of any preemptive or similar rights arising by operation of law, under the charter, by-laws or code of regulations of the Company or any of its Significant Subsidiaries or under any agreement to which the Company or any of its Significant Subsidiaries is a party. (xv) Authorization of this Agreement. This Agreement has been duly authorized, executed and delivered the Company. (xvi) Authorization of Indenture. The Indenture has been duly authorized by the Company and, on the Closing Date, will have been duly executed and delivered by the Company, and assuming due authorization, execution and delivery of the Indenture by the Indenture Trustee, the Indenture will constitute a valid, legal and binding agreement of the Company, enforceable against the Company in accordance with its terms, except to the extent that enforceability may be limited by the (a) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity) (collectively, the "Enforceability Exceptions"). - 6 - (xvii) Authorization of Senior Notes. The Senior Notes have been duly authorized by the Company; on the Closing Date, the Senior Notes will have been duly executed by the Company and, when authenticated in the manner provided for in the Indenture and delivered by the Company to the Purchaser against payment therefor as contemplated in the Subscription Agreement, will constitute valid, legal and binding obligations of the Company, enforceable against the Company in accordance with their terms, except to the extent that enforceability may be limited by the Enforceability Exceptions; and the Senior Notes will be in the form contemplated by, and entitled to the benefits of, the Indenture. (xviii) Not an Investment Company. The Company is not, and immediately following consummation of the transactions contemplated hereby and the application of the net proceeds therefrom the Company will not be, an "investment company" or an entity "controlled" by an "investment company", in each case within the meaning of Section 3(a) of the Investment Company Act of 1940, as amended (the "1940 Act") without regard to Section 3(c) of the 1940 Act. (xix) Absence of Defaults and Conflicts. Neither the Company nor any of its Significant Subsidiaries or Insurance Subsidiaries is in violation of its charter, by-laws or code of regulations; neither the Company nor any of its subsidiaries is in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which it is a party or by which it or any of them may be bound or to which any of its properties or assets is subject (collectively, "Agreements and Instruments"), except for such defaults under Agreements and Instruments that, in the reasonable judgment of the Company, are not expected to result in a Material Adverse Effect; and the execution, delivery and performance of the Operative Documents by the Company, the issuance, sale and delivery of the Senior Notes, the consummation of the transactions contemplated by the Operative Documents, and compliance by the Company with the terms of the Operative Documents to which it is a party have been duly authorized by all necessary corporate action on the part of the Company, and do not and will not, whether with or without the giving of notice or passage of time or both, violate, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any, security interest, mortgage, pledge, lien, charge, encumbrance, claim or equitable right upon any properties or assets of the Company or any of its Significant Subsidiaries or Insurance Subsidiaries pursuant to any of the Agreements and Instruments, nor will such action result in any violation of the provisions of the charter, by-laws or code of - 7 - regulations of the Company or any of its Significant Subsidiaries or Insurance Subsidiaries, or violation by the Company or any of its Significant Subsidiaries or Insurance Subsidiaries of any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government authority, agency (including, without limitation, each applicable Regulatory Agency) or instrumentality or court, domestic or foreign, having jurisdiction over the Company or any of its Significant Subsidiaries or Insurance Subsidiaries or their respective properties or assets (collectively, "Governmental Entities"). As used herein, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its Significant Subsidiaries or Insurance Subsidiaries prior to its scheduled maturity. (xx) Absence of Labor Dispute. No labor dispute with the employees of the Company or any of its subsidiaries exists or, to the knowledge of the executive officers of the Company, is imminent, which, in the reasonable judgment of the Company, is expected to result in a Material Adverse Effect. (xxi) Absence of Proceedings. There is no action, suit, proceeding, inquiry or investigation (including, without limitation, any action to revoke or deny renewal of any Insurance License (as defined in paragraph (xxiii) below)) before or brought by any Governmental Entity, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any of its subsidiaries, which, in the reasonable judgment of the Company, is expected to result in a Material Adverse Effect or materially and adversely affect the consummation of the transactions contemplated by the Operative Documents or the performance by the Company of its obligations hereunder or thereunder; and the aggregate of all pending legal or governmental proceedings to which the Company or any of its subsidiaries is a party or of which any of their respective properties or assets is the subject, including ordinary routine litigation incidental to the business, are not, in the reasonable judgment of the Company, expected to result in a Material Adverse Effect. (xxii) Absence of Further Requirements. No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any Governmental Entity, other than those that have been made or obtained, is necessary or required for the authorization, execution, delivery or performance by the Company of its obligations under the Operative Documents or the Senior Notes, or the consummation by the Company of the transactions contemplated by the Operative Documents. - 8 - (xxiii) Possession of Licenses and Permits. Each of the Company and its subsidiaries, other than any Insurance Subsidiary, possesses such permits, orders, certificates, licenses, approvals, consents and other authorizations (collectively, "Governmental Licenses") issued by the appropriate Governmental Entities necessary to conduct the business now operated by it, with such exceptions that would not, in the reasonable judgment of the Company, be expected to, singularly or in the aggregate, have a Material Adverse Effect; each Insurance Subsidiary is duly licensed or authorized (including, without limitation, from its applicable State Regulatory Authority) as an insurer in each jurisdiction where it is required to be so licensed or authorized to conduct its business (collectively "Insurance Licenses"), with such exceptions that would not, in the reasonable judgment of the Company, be expected to, singularly or in the aggregate, have a Material Adverse Effect; the Company and its subsidiaries are in compliance with the terms and conditions of all of its Governmental Licenses and Insurance Licenses, as applicable, except where the failure so to comply, in the reasonable judgment of the Company, is not expected to, singularly or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses and Insurance Licenses are valid and in full force and effect, except when the invalidity of such Governmental Licenses or Insurance Licenses or the failure of such Governmental Licenses or Insurance Licenses to be in full force and effect, in the reasonable judgment of the Company, is not expected to have a Material Adverse Effect; and neither the Company nor any of its subsidiaries has received any notice of proceedings, and to the knowledge of the Company or any of its subsidiaries, there has been no threatened action, suit, proceeding or investigation, relating to the revocation, termination, suspension or modification of any such Governmental Licenses or Insurance Licenses which, singularly or in the aggregate, in the reasonable judgment of the Company, is expected to result in a Material Adverse Effect. (xxiv) Title to Property. Each of the Company and its subsidiaries has good and marketable title to all of its respective real and personal properties, in each case free and clear of all liens, encumbrances and defects, except such as, in the reasonable judgment of the Company, singularly or in the aggregate, are not expected to result in a Material Adverse Effect; and all of the leases and subleases under which the Company or any of its subsidiaries holds properties are in full force and effect, except when the failure of such leases and subleases to be in full force and effect, in the reasonable judgment of the Company, singularly or in the aggregate, is not expected to have a Material Adverse Effect, and neither the Company nor any of its subsidiaries has any notice of any claim of any sort that has been asserted by anyone adverse to the rights of the - 9 - Company or any of its subsidiaries under any of the leases or subleases under which the Company or any of its subsidiaries holds properties, or affecting or questioning the rights of such entity to the continued possession of the leased or subleased premises under any such lease or sublease, except when such claim, in the reasonable judgment of the Company, singularly or in the aggregate, is not expected to have a Material Adverse Effect. (xxv) Stabilization. The Company has not taken and will not take, directly or indirectly, any action designed to, or that might be reasonably expected to, cause or result in stabilization or manipulation of the price of the Senior Notes. (xxvi) No General Solicitation. Neither the Company nor any of its Affiliates (as defined in Rule 501(b) under the 1933 Act) or any person acting on its or any of their behalf (other than the Placement Agent, as to whom the Company makes no representation) has engaged or will engage, in connection with the offering of the Senior Notes, in any form of general solicitation or general advertising within the meaning of Rule 502(c) under the 1933 Act. (xxvii) No Directed Selling Efforts. Neither the Company nor any of its Affiliates or any person acting on its or any of their behalf (other than the Placement Agent, as to whom the Company makes no representation) has engaged or will engage in any directed selling efforts within the meaning of Regulation S under the 1933 Act ("Regulation S") with respect to the offering of the Senior Notes. (xxviii) No RegiatrSlmbject to compliance by the Placement Agent with the relevant provisions of Section 6 hereof, it is not necessary in connection with the offer, sale and delivery of the Senior Notes by the Company in the manner contemplated by this Agreement to register the Senior Notes under the 1933 Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended. (xxix) Authorization of Subscription Agreement. The Subscription Agreement has been duly authorized, executed and delivered by the Company, and assuming due authorization, execution and delivery of the Subscription Agreement by the Purchaser, the Subscription Agreement will constitute a valid, legal and binding agreement of the Company, enforceable against the Company in accordance with its terms, except to the extent that enforceability may be limited by the Enforceability Exceptions. (b) Any certificate signed by the Company, any duly authorized officer of the Company or any of its subsidiaries and delivered to the Placement Agent or to counsel for the Placement Agent shall be deemed a representation and warranty by the Company, to the Placement Agent as to the matters covered thereby. - 10 - SECTION 2. Sale and Delivery through Placement Agent; Closing. (a) The Company proposes to issue and sell the Senior Notes on May 22, 2003 (or such other date mutually agreed to by the Company and the Placement Agent) (the "Closing Date") to InCapS Funding I, Ltd., a newly formed company with limited liability incorporated under the laws of the Cayman Islands (the "Purchaser"), pursuant to the terms of the Senior Notes Subscription Agreement, entered into on the date hereof (the "Subscription Agreement"), between the Company and the Purchaser. In addition, the Company agrees that the Purchaser shall be entitled to the benefit of, and to rely on, the provisions of this Agreement to the extent such provisions address or relate to the Purchaser or the Senior Notes to be purchased by the Purchaser. (b) The Company hereby grants to the Placement Agent the exclusive right to arrange the placement of the Senior Notes with the Purchaser on their behalf. The Placement Agent accepts such right and agrees to use its best efforts, on and prior to the Closing Date, to effect such placement. (c) Deliveries of certificates for the Senior Notes shall be made by the Company to or on behalf of the Purchaser at the offices of Sidley Austin Brown & Wood LLP in The City of New York, and payment of the purchase price for the Senior Notes shall be made by the Purchaser to the Company by wire transfer of immediately available funds to a bank designated by the Company contemporaneous with closing on the Closing Date. Certificates for the Senior Notes in the aggregate principal amount thereof shall be registered in the name of the Purchaser. (d) As compensation to the Placement Agent for its placement of the Senior Notes, the Company hereby agrees to pay on the Closing Date to the Placement Agent in immediately available funds a commission of 3% of the aggregate principal amount of Senior Notes to be delivered by the Company hereunder on the Closing Date. (e) In performing its duties under this Agreement, the Placement Agent shall be entitled to rely upon any notice, signature or writing which the Placement Agent shall in good faith believe to be genuine and to be signed or presented by a proper party or parties. The Placement Agent may rely upon any opinions or certificates or other documents delivered by the Company or its counsel or designees either to it or the Purchaser. In addition, in connection with the performance of its duties under this Agreement, the Placement Agent shall not be liable for any error of judgment or any action taken or omitted to be taken unless it was grossly negligent or engaged in willful misconduct in connection with such performance or non-performance. No provision of this Agreement shall require the Placement Agent to expend or risk its own funds or otherwise incur any financial liability on behalf of the Purchaser in connection with the performance of any of its duties hereunder. The Placement Agent shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement. - 11 - SECTION 3. Notice of Material Events. The Company covenants with the Placement Agent and the Purchaser that, prior to the completion of the initial placement of the Senior Notes through the Placement Agent, the Company will immediately notify the Placement Agent, and confirm such notice in writing, of any event or development that, in the reasonable judgment of the Company, is expected to result in a Material Adverse Effect. SECTION 4. Payment of Ex ep nses. Whether or not this Agreement or the Subscription Agreement is terminated or the sale of the Senior Notes is consummated, the Company will pay all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation, issuance and delivery of the certificates for the Senior Notes, (ii) the fees and disbursements of the Company's counsel, accountants and other advisors, and (iii) the fees and disbursements of counsel for the Indenture Trustee incurred on or prior to the Closing Date. SECTION 5. Conditions of Placement Agent's Obligations. The obligations of the Placement Agent and the Purchaser on the Closing Date are subject to the accuracy of the representations and warranties of the Company contained in Section 1 hereof or any officer of the Company or any of its subsidiaries delivered pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder, and to the following further conditions: (a) Opinion of Counsel for the Company. On the Closing Date, the Placement Agent and the Purchaser shall have received the favorable opinion, dated as of the Closing Date, of Bracewell & Patterson, LLP, special counsel for the Company, in substantially the form set out in Annex A hereto, in form and substance reasonably satisfactory to counsel for the Placement Agent. Such counsel may state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company or any of its subsidiaries and public officials. (b) Opinion of Special Tax Counsel for the Company. On the Closing Date, the Placement Agent and the Purchaser shall have received an opinion, dated as of the Closing Date, of Bracewell & Patterson, LLP, special tax counsel for the Company, in form and substance satisfactory to counsel for the Placement Agent, to the effect that the Senior Notes will constitute indebtedness of the Company for United States federal income tax purposes. Such opinion may be conditioned on, among other things, the initial and continuing accuracy of the facts, financial and other information, covenants and representations set forth in certificates of officers of the Company and other documents deemed necessary for such opinion. (c) Opinion of Counsel to the Indenture Trustee. On the Closing Date, the Placement Agent and the Purchaser shall have received the favorable opinion, dated as of the Closing Date, of Morris, James, Hitchens & Williams LLP, counsel for the Indenture Trustee, in substantially the form set out in Annex B hereto, in form and substance reasonably satisfactory to counsel for the Placement Agent. - 12 - (d) Certificates. On the Closing Date, there shall not have been, since the date hereof or since the respective dates as of which information is given in the 1934 Act Reports, any Material Adverse Effect, and the Placement Agent shall have received a certificate of the Chairman, the Chief Executive Officer, the President, any Executive Vice President or any Vice President of the Company and of the Chief Financial Officer or Chief Accounting Officer of the Company, dated as of the Closing Date, to the effect that (i) there has been no such Material Adverse Effect, (ii) the representations and warranties in Section 1 hereof were true and correct when made and are true and correct with the same force and effect as though expressly made on and as of the Closing Date, and (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied on or prior to the Closing Date. (e) Maintenance of Ratings. From the date of this Agreement through the Closing Date, (i) there shall not have occurred a downgrading in or withdrawal of the rating assigned to the debt securities of the Company or any Insurance Subsidiary or the financial strength or claims paying ability of the Company or any Insurance Subsidiary, in each case by A.M. Best & Co. or any "nationally recognized statistical rating organization," as that term is defined by the Commission for the purposes of Rule 436(g)(2) under the 1933 Act, and (ii) neither A.M. Best & Co. nor any such organization shall have publicly announced that it has under surveillance or review its rating of any debt security or the financial strength or the claims paying ability of the Company or any Insurance Subsidiary. (f) Purchaser's Sale of Securities. The Purchaser shall have sold securities issued by it in such an amount that the net proceeds therefrom shall be available on the Closing Date and shall be sufficient to purchase the Senior Notes and all other senior notes, surplus notes and capital securities contemplated in agreements similar to this Agreement and the Subscription Agreement. (g) Additional Documents. On the Closing Date, the Placement Agent and the Purchaser shall have been furnished such documents and opinions as they may reasonably request in connection with the issue, sale and placement of the Senior Notes; and all proceedings taken by the Company in connection with the issuance, sale and placement of the Senior Notes shall be satisfactory in form and substance to the Placement Agent and the Purchaser. (h) Termination ofAgreement. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Placement Agent by notice to the Company at any time on or prior to the Closing Date. If the sale of the Senior Notes provided for herein is not consummated because any condition set forth in Section 5(a), (b), (c), (d), (e) or (g) is not satisfied, because of any termination pursuant to Section 10(a) hereof or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof, the Company will reimburse the Placement Agent upon demand for all documented out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by the Placement Agent in connection with the proposed offering of the Senior Notes. In addition, such termination shall be subject to Section 4 hereof, and Sections 7 and 8 hereof shall survive any such termination and remain in full force and effect. - 13 - SECTION 6. Offers and Sales of the Senior Notes. (a) Offer and Sale Procedures. The Placement Agent and the Company hereby establish and agree to observe the following provisions with respect to the offer, issue, sale and placement of the Senior Notes: (i) Offers and Sales only to the Purchaser. Offers and sales of the Senior Notes will be made only to the Purchaser in a transaction not requiring registration under the 1933 Act. (ii) No General Solicitation. No general solicitation or general advertising (within the meaning of Rule 502(c) under the 1933 Act) has been or will be used in connection with the offering of the Senior Notes. (iii) No Directed Selling Efforts. No directed selling efforts (within the meaning of Regulation S) has been or will be used with respect to the offering of the Senior Notes. (iv) Purchaser Notification. Prior to or contemporaneously with the purchase of the Senior Notes by the Purchaser, the Placement Agent will take reasonable steps to inform the Purchaser that the Senior Notes (A) have not been and will not be registered under the 1933 Act, (B) are being sold to them without registration under the 1933 Act in accordance with an exemption from registration under the 1933 Act and (C) may not be offered, sold or otherwise transferred except in accordance with the legend set forth in the Indenture. (b) Covenants of the Company. The Company covenants with the Placement Agent and the Purchaser as follows: (i) Due Diligence. In connection with the initial placement of the Senior Notes, the Company agrees that, prior to any offer or sale of the Senior Notes through the Placement Agent, the Placement Agent and the Purchaser shall have the right to make reasonable inquiries into the business of the Company and its subsidiaries. The Company also agrees to provide answers to the Placement Agent and the Purchaser, if requested, concerning the Company and its subsidiaries (to the extent that such information is available or can be acquired and made available without unreasonable effort or expense and to the extent the provision thereof is not prohibited by applicable law) and the terms and conditions of the offering of the Senior Notes. - 14 - (ii) Integration. The Company agrees that it will not, and will cause its Affiliates not to, make any offer or sale of securities of the Company of any class if, as a result of the doctrine of "integration" referred to in Rule 502 under the 1933 Act, such offer or sale would render invalid the exemption from the registration requirements of the 1933 Act provided by Section 4(2) thereof or by Rule 144A or otherwise. (iii) Restriction on Repurchases. Until the expiration of two (2) years (or such shorter period as may hereafter be referred to in Rule 144(k) (or similar successor rule)) after the original issuance of the Senior Notes, the Company will not, and will cause its Affiliates not to, purchase or agree to purchase or otherwise acquire any Senior Notes which are "restricted securities" (as such term is defined under Rule 144(a)(3) under the 1933 Act), whether as beneficial owner or otherwise, unless, immediately upon any such purchase, the Company or any Affiliate shall submit such Senior Notes to the Indenture Trustee for cancellation. SECTION 7. Indemnification. (a) Indemnification of the Placement Agent and the Purchaser. The Company agrees to indemnify and hold harmless: (x) the Placement Agent and the Purchaser, (y) each person, if any, who controls (within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act) the Placement Agent or the Purchaser (each such person, a "controlling person") and (z) the respective partners, directors, officers, employees and agents of the Placement Agent and the Purchaser or any such controlling person, as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, relating to or arising out of, or based upon, in whole or in part, (A) any untrue statement or alleged untrue statement of a material fact included in the 1934 Act Reports, or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (B) any untrue statement or alleged untrue statement of material fact contained in any written information or documents executed in favor of or furnished or made available to the Placement Agent or the Purchaser by the Company; (C) any omission or alleged omission to state in any written information or documents executed in favor of or furnished or made available to the Placement Agent or the Purchaser by the Company a material fact necessary to make the statements therein not misleading; or (D) the breach or alleged breach of any representation, warranty and agreement of the Company contained herein or in the Subscription Agreement; - 15 - (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, or breach or alleged breach of any such representation, warranty or agreement; provided, that (subject to Section 7(c) hereof) any such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by the Placement Agent), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, or breach or alleged breach of any such representation, warranty or agreement, to the extent that any such expense is not paid under (i) or (ii) above. (b) Actions against Parties; Notification. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof, and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. Counsel to the indemnified parties shall be selected by the Placement Agent. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified parry) also be counsel to the indemnified parry. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 7 or Section 8 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. - 16 - (c) Settlement without Consent if Failure to Reimburse. If at any time an indemnified party shall have validly requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 7(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement, provided, however, that an indemnifying party shall not be liable for any such settlement effected without its consent if such indemnifying party (1) reimburses such indemnified party with respect to those fees and expenses of counsel that it determines in good faith are reasonable and (2) provides written notice within 10 days after receipt of the request for reimbursement to the indemnified party substantiating the unpaid balance as unreasonable, in each case prior to the date of such settlement. SECTION 8. Contribution. In order to provide for just and equitable contribution in circumstances under which the indemnification provided for in Section 7 hereof is for any reason held to be unenforceable for the benefit of an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Placement Agent, on the other hand, from the offering of the Senior Notes pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and the Placement Agent, on the other hand, in connection with the statements, omissions or breaches which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Placement Agent, on the other hand, in connection with the offering of the Senior Notes pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Senior Notes pursuant to this Agreement (before deducting expenses) received by the Company and the total commission received by the Placement Agent bear to the aggregate of such net proceeds and commissions. The Company and the Placement Agent agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 8. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 8 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement, omission or alleged omission or breach or alleged breach. - 17 - Notwithstanding the provisions of this Section 8, the Placement Agent shall not be required to contribute any amount in excess of the total commissions received by it. No person guilty of fraudulent misrepresentation (within the meaning of Section 11 (f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8, the Purchaser, each person, if any, who controls the Placement Agent or the Purchaser within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and the respective partners, directors, officers, employees and agents of the Placement Agent, the Purchaser or any such controlling person shall have the same rights to contribution as the Placement Agent, while each officer and director of the Company and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. SECTION 9. Representations Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto shall remain operative and in full force and effect, and shall survive delivery of the Senior Notes by the Company. SECTION 10. Termination of Agreement. (a) Termination; General. The Placement Agent may terminate this Agreement, by notice to the Company, at any time on or prior to the Closing Date if, since the time of execution of this Agreement or, in the case of (i), since the respective dates as of which information is given in the 1934 Act Reports, (i) there has occurred any Material Adverse Effect, or (ii) there has occurred any material adverse change in the financial markets in the United States, any outbreak of hostilities or escalation thereof or any other calamity or crisis, or any change or development involving political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Placement Agent, impracticable to market the Senior Notes or to enforce contracts for the sale of the Senior Notes, or (iii) trading in any securities of the Company has been suspended or limited by the Commission or any national stock exchange or market on or in which such securities are traded or quoted, or if trading generally on the American Stock Exchange, the New York Stock Exchange or the Nasdaq National Market has been suspended or limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers or any other governmental authority, or (iv) a banking moratorium has been declared by United States federal, Delaware or New York authorities. - 18 - (b) Liabilities. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 and Section 5 hereof, and provided further that Sections 1, 7 and 8 hereof shall survive such termination and remain in full force and effect. SECTION 11. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Placement Agent shall be directed to Sandler O'Neill & Partners, L.P., as follows: 919 Third Avenue, 6`h Floor, New York, New York 10022, Attention: Thomas W. Killian, Principal, with a copy to Sidley Austin Brown & Wood LLP, 787 Seventh Avenue, New York, New York 10019, Attention: Edward F. Petrosky; and notices to the Company shall be directed to Financial Industries Corporation, 6500 River Place Boulevard, Building 1, Austin, Texas 78730, Attention: Theodore A. Fleron, with a copy to Bracewell & Patterson, LLP, 111 Congress Avenue, Suite 2300, Austin, Texas 78701, Attention: David Jones. SECTION 12. Parties. This Agreement shall inure to the benefit of and be binding upon each of the Placement Agent and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Placement Agent, the Purchaser and the Company, and their respective successors and the controlling persons and other persons referred to in Sections 1, 7 and 8 hereof and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Placement Agent, the Purchaser and the Company and their respective successors, and said controlling persons and other persons and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. SECTION 13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES OF SAID STATE OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. - 19 - THE COMPANY, ON BEHALF OF ITSELF AND ITS SUBSIDIARIES, HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE COMPANY, ON BEHALF OF ITSELF AND ITS SUBSIDIARIES, IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. SECTION 14. Disclosure of Tax Treatment and Tax Structure. Notwithstanding anything herein to the contrary, any party to this Agreement (and. each employee, representative or other agent of any party to this Agreement) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the offering and all materials of any kind (including opinions or other tax analyses) that are provided to it relating to such tax treatment and tax structure. However, such information relating to the tax treatment or tax structure is required to be kept confidential to the extent necessary to comply with any applicable federal or state securities laws. For this purpose, "tax structure" means any facts relevant to the federal income tax treatment of the offering contemplated by this Agreement but does not include information relating to the identity of the Offeror. SECTION 15. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. - 20 - If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Placement Agent and the Company in accordance with its terms. Very truly yours, FINANCIAL INDUSTRIES CORPORATION By: ____________________________ Name: Title: CONFIRMED AND ACCEPTED, as of the date first above written: SANDLER O'NEILL & PARTNERS, L.P. By: Sandler O'Neill & Partners Corp., the sole general partner By: _________________________________ Name: Title: - 21 - ANNEX A Pursuant to Section 5(a) of the Placement Agreement, special counsel for the Company shall deliver an opinion in substantially the following form: 1. The Company is incorporated and is validly existing as a corporation in good standing under the laws of the State of Texas. 2. The Company has corporate power and authority to (i) execute and deliver, and to perform its obligations under, the Operative Documents to which it is a party and (ii) issue and perform its obligations under the Senior Notes. 3. (i) Each Significant Subsidiary is validly existing and in good standing under the laws of the jurisdiction of its organization; and (ii) to the best of our knowledge, all of the issued and outstanding shares of capital stock of each Significant Subsidiary are owned of record by the Company, directly or through other subsidiaries. 4. To our knowledge, there are no restrictions or limitations on the authority of any of the Insurance Subsidiaries to pay dividends, other than general restrictions and limitations applicable to all insurance companies domiciled in the state of organization of such Insurance Subsidiary pursuant to applicable law. 5. To our knowledge, no Insurance License of any of the Insurance Subsidiaries has been suspended, revoked, withdrawn, surrendered or limited in anyway. 6. No consent, approval, authorization or order of or filing, registration or qualification with any Governmental Entity is required under any law or regulation of the United States or the states in which the Company and any Insurance Subsidiary is organized in connection with the authorization, execution, delivery and performance by the Company or the Insurance Subsidiaries of the Operative Documents or the Senior Notes and the consummation of the transactions contemplated thereby except as have already been obtained or made. 7. Each of the Placement Agreement and the Subscription Agreement has been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery by the Placement Agent and the Purchaser, respectively, constitutes a valid and binding instrument of the Company, enforceable against the Company in accordance with its terms, except as rights to indemnity and contribution thereunder may be limited under applicable law or public policy, and subject to the qualifications that (i) enforcement thereof may be limited by bankruptcy, insolvency, receivership, reorganization, liquidation, voidable preference, moratorium or other laws (including the laws of fraudulent conveyance and transfer) or judicial decisions affecting the enforcement of creditors' rights generally or the reorganization of financial institutions and (ii) the enforceability of the obligations of the Company thereunder is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and to the effect of certain laws and judicial decisions upon the availability and enforceability of certain remedies, including the remedies of specific performance and self-help. A-1 8. The Indenture has been duly authorized, executed, and delivered by the Company and, assuming due authorization, execution and delivery by the Indenture Trustee constitutes a valid and binding instrument of the Company, enforceable against the Company in accordance with its terms, except as rights to indemnity and contribution thereunder may be limited under applicable law or public policy, and subject to the qualifications that (i) enforcement thereof may be limited by bankruptcy, insolvency, receivership, reorganization, liquidation, voidable preference, moratorium or other laws (including the laws of fraudulent conveyance and transfer) or judicial decisions affecting the enforcement of creditors' rights generally or the reorganization of financial institutions and (ii) the enforceability of the Company's obligations thereunder is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and to the effect of certain laws and judicial decisions upon the availability and enforceability of certain remedies, including the remedies of specific performance and self-help. 9. The Senior Notes have been duly authorized for issuance by the Company pursuant to the Indenture and, when executed, authenticated and delivered in the manner provided for in the Indenture and paid for in accordance with the Subscription Agreement therefor, will constitute valid and binding obligations of the Company and will entitle the holders thereof to the benefits of the Indenture, enforceable against the Company in accordance with their terms, except as rights to indemnity and contribution thereunder may be limited under applicable law or public policy, and subject to the qualifications that (i) enforcement thereof may be limited by bankruptcy, insolvency, receivership, reorganization, liquidation, voidable preference, moratorium or other laws (including the laws of fraudulent conveyance and transfer) or judicial decisions affecting the enforcement of creditors' rights generally or the reorganization of financial institutions and (ii) the enforceability of the Company's obligations thereunder is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and to the effect of certain laws and judicial decisions upon the availability and enforceability of certain remedies, including the remedies of specific performance and self-help. 10. The execution, delivery and performance of the Operative Documents and the Senior Notes by the Company and the consummation by the Company of the transactions contemplated by the Operative Documents will not result in any violation of the charter or bylaws of the Company, any Significant Subsidiary or any Insurance Subsidiary. 11. Assuming (i) the accuracy of the representations and warranties, and compliance with the agreements, contained in the Placement Agreement and the Subscription Agreement and (ii) that the Senior Notes are sold in the manner contemplated by, and in accordance with, the Placement Agreement, the Subscription Agreement and the Indenture, it is not necessary in connection with the offer, sale and delivery of the Senior Notes by the Company to the Purchaser to register the Senior Notes under the 1933 Act or to qualify an indenture under the Trust Indenture Act of 1939, as amended. A-2 12. The Company is not, and, following the issuance of the Senior Notes and the consummation of the transactions contemplated by the Operative Documents and the application of the proceeds therefrom, the Company will not be, an "investment company" or entity "controlled" by an "investment company", in each case within the meaning of Section 3(a) of the 1940 Act, without regard to Section 3(c) of such Act. In rendering such opinions, such counsel may (A) state that its opinion is limited to the laws of New York, the laws of the State of Texas and the Federal laws of the United States and (B) rely as to matters involving the application of laws of any jurisdiction other than New York, Texas or the United States, to the extent deemed proper and specified in such opinion, upon the opinion of other counsel of good standing believed to be reliable and who are satisfactory to you and as to matters of fact, to the extent deemed proper, on certificates of responsible officers of the Company, the Insurance Subsidiaries and public officials. A-3 Annex B Pursuant to Section 5(c) of the Placement Agreement, counsel to the Indenture Trustee shall deliver an opinion in substantially the following form: 1. Wilmington Trust Company ("WTC") is a Delaware banking corporation with trust powers, duly incorporated, validly existing and in good standing under the laws of the State of Delaware, with requisite corporate power and authority to execute and deliver, and to perform its obligations under, the Indenture. 2. The execution, delivery, and performance by WTC of the Indenture have been duly authorized by all necessary corporate action on the part of WTC, and the Indenture has been duly executed and delivered by WTC. 3. The execution, delivery and performance of the Indenture by WTC and the consummation of any of the transactions by WTC contemplated thereby are not prohibited by (i) the charter or bylaws of WTC, (ii) any law or administrative regulation of the State of Delaware or the United States of America governing the banking and trust powers of WTC, or (iii) to our knowledge (based and relying solely on the Officer Certificates), any agreements or instruments to which WTC is a party or by which WTC is bound or any judgments or order applicable to WTC. 4. The Senior Notes delivered on the date hereof have been authenticated by due execution thereof and delivered by WTC, as Indenture Trustee, in accordance with the Indenture. 5. None of the execution, delivery and performance by WTC of the Indenture and the consummation of any of the transactions by WTC contemplated thereby requires the consent, authorization, order or approval of, the withholding of objection on the part of, the giving of notice to, the registration with or the taking of any other action in respect of, any governmental authority or agency, under any law or administrative regulation of the State of Delaware or United States of America governing the banking and trust powers of WTC. B-1 EX-10 14 indenture.txt EXHIBIT 10.12 - INDENTURE AGREEMENT EXHIBIT 10.12 FINANCIAL INDUSTRIES CORPORATION as Issuer INDENTURE Dated as of May 22, 2003 WILMINGTON TRUST COMPANY as Trustee FLOATING RATE SENIOR DEBT SECURITIES DUE 2033 TABLE OF CONTENTS ARTICLE I DEFINITIONS.................................................. 1 SECTION 1.01 Definitions.......................................... 1 ARTICLE II DEBT SECURITIES.............................................. 5 SECTION 2.01 Authentication and Dating............................ 5 SECTION 2.02 Form of Trustee's Certificate of Authentication...... 5 SECTION 2.03 Form and Denomination of Debt Securities............. 6 SECTION 2.04 Execution of Debt Securities......................... 6 SECTION 2.05 Exchange and Registration of Transfer of Debt Securities........................................... 6 SECTION 2.06 Mutilated, Destroyed, Lost or Stolen Debt Securities. 9 SECTION 2.07 Temporary Debt Securities........................... 10 SECTION 2.08 Payment of Interest................................. 11 SECTION 2.09 Cancellation of Debt Securities Paid, etc........... 12 SECTION 2.10 Computation of Interest............................. 12 SECTION 2.11 CUSIP Numbers....................................... 14 ARTICLE III PARTICULAR COVENANTS OF THE COMPANY......................... 14 SECTION 3.01 Payment of Principal, Premium and Interest.......... 14 SECTION 3.02 Offices for Notices and Payments, etc............... 14 SECTION 3.03 Appointments to Fill Vacancies in Trustee's Office.. 15 SECTION 3.04 Provision as to Paying Agent........................ 15 SECTION 3.05 Certificate to Trustee.............................. 16 SECTION 3.06 Compliance with Consolidation Provisions............ 16 ARTICLE IV LISTS AND REPORTS........................................... 16 SECTION 4.01 Securityholders' Lists.............................. 16 SECTION 4.02 Preservation and Disclosure of Lists................ 17 SECTION 4.03 Reports............................................. 18 ARTICLE V REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS................. 19 SECTION 5.01 Events of Default................................... 19 SECTION 5.02 Payment of Debt Securities on Default; Suit Therefor 20 SECTION 5.03 Application of Moneys Collected by Trustee.......... 22 SECTION 5.04 Proceedings by Securityholders...................... 22 SECTION 5.05 Proceedings by Trustee.............................. 22 SECTION 5.06 Remedies Cumulative and Continuing.................. 23 SECTION 5.07 Direction of Proceedings and Waiver of Defaults by Majority of Securityholders......................... 23 SECTION 5.08 Notice of Defaults.................................. 24 SECTION 5.09 Undertaking to Pay Costs............................ 24 - i - ARTICLE VI CONCERNING THE TRUSTEE...................................... 24 SECTION 6.01 Duties and Responsibilities of Trustee.............. 24 SECTION 6.02 Reliance on Documents, Opinions, etc................ 25 SECTION 6.03 No Responsibility for Recitals, etc................. 26 SECTION 6.04 Trustee, Authenticating Agent, Paying Agents, Transfer Agents or Registrar May Own Debt Securities......... 27 SECTION 6.05 Moneys to be Held in Trust.......................... 27 SECTION 6.06 Compensation and Expenses of Trustee................ 27 SECTION 6.07 Officers' Certificate as Evidence................... 28 SECTION 6.08 Eligibility of Trustee.............................. 28 SECTION 6.09 Resignation or Removal of Trustee................... 29 SECTION 6.10 Acceptance by Successor Trustee..................... 30 SECTION 6.11 Succession by Merger, etc........................... 31 SECTION 6.12 Authenticating Agents............................... 31 ARTICLE VII CONCERNING THE SECURITYHOLDERS.............................. 32 SECTION 7.01 Action by Securityholders........................... 32 SECTION 7.02 Proof of Execution by Securityholders............... 33 SECTION 7.03 Who Are Deemed Absolute Owners...................... 33 SECTION 7.04 Debt Securities Owned by Company Deemed Not Outstanding......................................... 33 SECTION 7.05 Revocation of Consents; Future Holders Bound........ 34 ARTICLE VIII SECURITYHOLDERS MEETINGS.................................... 34 SECTION 8.01 Purposes of Meetings................................ 34 SECTION 8.02 Call of Meetings by Trustee......................... 35 SECTION 8.03 Call of Meetings by Company or Securityholders...... 35 SECTION 8.04 Qualifications for Voting........................... 35 SECTION 8.05 Regulations......................................... 35 SECTION 8.06 Voting.............................................. 36 SECTION 8.07 Quorum; Actions..................................... 36 ARTICLE IX SUPPLEMENTAL INDENTURES..................................... 37 SECTION 9.01 Supplemental Indentures without Consent of Securityholders..................................... 37 SECTION 9.02 Supplemental Indentures with Consent of Securityholders..................................... 38 SECTION 9.03 Effect of Supplemental Indentures................... 39 SECTION 9.04 Notation on Debt Securities......................... 39 SECTION 9.05 Evidence of Compliance of Supplemental Indenture to be Furnished to Trustee................................ 40 ii ARTICLE X REDEMPTION OF SECURITIES.................................... 40 SECTION 10.01 Optional Redemption................................. 40 SECTION 10.02 Notice of Redemption; Selection of Debt Securities.. 40 SECTION 10.03 Payment of Debt Securities Called for Redemption.... 41 ARTICLE XI CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE........... 41 SECTION 11.01 Company May Consolidate, etc., on Certain Terms..... 41 SECTION 11.02 Successor Entity to be Substituted.................. 42 SECTION 11.03 Opinion of Counsel to be Given to Trustee........... 43 ARTICLE XII SATISFACTION AND DISCHARGE OF INDENTURE..................... 43 SECTION 12.01 Discharge of Indenture.............................. 43 SECTION 12.02 Deposited Moneys to be Held in Trust by Trustee..... 43 SECTION 12.03 Paying Agent to Repay Moneys Held................... 44 SECTION 12.04 Return of Unclaimed Moneys.......................... 44 ARTICLE XIII IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS................................................... 44 SECTION 13.01 Indenture and Debt Securities Solely Corporate Obligations......................................... 44 ARTICLE XIV MISCELLANEOUS PROVISIONS.................................... 44 SECTION 14.01 Successors.......................................... 44 SECTION 14.02 Official Acts by Successor Entity................... 45 SECTION 14.03 Surrender of Company Powers......................... 45 SECTION 14.04 Addresses for Notices, etc.......................... 45 SECTION 14.05 Governing Law....................................... 45 SECTION 14.06 Evidence of Compliance with Conditions Precedent.... 45 SECTION 14.07 Business Day Convention............................. 46 SECTION 14.08 Table of Contents, Headings, etc.................... 46 SECTION 14.09 Execution in Counterparts........................... 46 SECTION 14.10 Separability........................................ 46 SECTION 14.11 Assignment.......................................... 46 EXHIBITS EXHIBIT A Form of Debt Security EXHIBIT B Form of Officers' Certificate iii THIS INDENTURE, dated as of May 22, 2003, between Financial Industries Corporation, a holding company incorporated in the State of Texas (hereinafter sometimes called the "Company"), and Wilmington Trust Company, a Delaware banking corporation, as trustee (hereinafter sometimes called the "Trustee"). W I T N E S S E T H : WHEREAS, for its lawful corporate purposes, the Company has duly authorized the issuance of its Floating Rate Senior Debt Securities due 2033 (the "Debt Securities") under this Indenture and to provide, among other things, for the execution and authentication, delivery and administration thereof, the Company has duly authorized the execution of this Indenture. NOW, THEREFORE, in consideration of the premises, and the purchase of the Debt Securities by the holders thereof, the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective holders from time to time of the Debt Securities as follows: ARTICLE I DEFINITIONS SECTION 1.01 Definitions. The terms defined in this Section 1.01 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.01. All accounting terms used herein and not expressly defined shall have the meanings assigned to such terms in accordance with generally accepted accounting principles and the term "generally accepted accounting principles" means such accounting principles as are generally accepted in the United States at the time of any computation. The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Authenticating Agent" means any agent or agents of the Trustee which at the time shall be appointed and acting pursuant to Section 6.12. "Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or state law for the relief of debtors. "Board of Directors" means the board of directors or the executive committee or any other duly authorized designated officers of the Company. - 1 - "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification and delivered to the Trustee. "Business Day" means any day other than a Saturday, Sunday or any other day on which banking institutions in Wilmington, Delaware, The City of New York or Austin, Texas are permitted or required by law or executive order to close. "Calculation Agent" means the Person identified as "Trustee" in the first paragraph hereof with respect to the Debt Securities. "Certificate" means a certificate signed by any one of the principal executive officer, the principal financial officer or the principal accounting officer of the Company. "Company" means Financial Industries Corporation, a holding company incorporated in the State of Texas, and, subject to the provisions of Article XI, shall include its successors and assigns. "Debt Security" or "Debt Securities" has the meaning stated in the first recital of this Indenture. "Debt Security Register" has the meaning specified in Section 2.05. "Default" means any event, act or condition that with notice or lapse of time, or both, would constitute an Event of Default. "Defaulted Interest" has the meaning set forth in Section 2.08. "Event of Default" means any event specified in Section 5.01, which has continued for the period of time, if any, and after the giving of the notice, if any, therein designated. "Indenture" means this Indenture as originally executed or, if amended or supplemented as herein provided, as so amended or supplemented, or both. "Interest Payment Date" means February 23, May 23, August 23 and November 23 of each year, commencing on August 23, 2003, subject to Section 14.07. "Interest Period" has the meaning set forth in Section 2.08. - 2 - "Interest Rate" means, with respect to any Interest Period, a per annum rate of interest equal to LIBOR, as determined on the LIBOR Determination Date for such Interest Period, plus 4.20%; provided, however, that the Interest Rate for any Interest Period prior to the Interest Period commencing on the Interest Payment Date in May 2008 may not exceed 12.5% per annum; provided, further, that the Interest Rate for any Interest Period may not exceed the highest rate permitted by New York law, as the same may be modified by United States law of general application. "LIBOR" means the London Interbank Offered Rate for three-month U.S. Dollar deposits in Europe as determined by the Calculation Agent according to Section 2.10(b). "LIBOR Banking Day" has the meaning set forth in Section 2.10(b)(i). "LIBOR Business Day" has the meaning set forth in Section 2.10(b)(i). "LIBOR Determination Date" has the meaning set forth in Section 2.10(b)(i). "Maturity Date" means May 23, 2033, subject to Section 14.07. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the Vice Chairman, the President or any Vice President, and by the Chief Financial Officer, the Treasurer, an Assistant Treasurer, the Comptroller, an Assistant Comptroller, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. Each such certificate shall include the statements provided for in Section 14.06 if and to the extent required by the provisions of such Section. "Opinion of Counsel" means an opinion in writing signed by legal counsel, who may be an employee of or counsel to the Company, or who may be other counsel reasonably satisfactory to the Trustee. Each such opinion shall include the statements provided for in Section 14.06 if and to the extent required by the provisions of such Section. The term "outstanding," when used with reference to Debt Securities, subject to the provisions of Section 7.04, means, as of any particular time, all Debt Securities authenticated and delivered by the Trustee or the Authenticating Agent under this Indenture, except (a) Debt Securities theretofore canceled by the Trustee or the Authenticating Agent or delivered to the Trustee for cancellation; (b) Debt Securities, or portions thereof, for the payment or redemption of which moneys in the necessary amount shall have been deposited in trust with the Trustee or with any Paying Agent (other than the Company) or shall have been set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent); provided, that, if such Debt Securities, or portions thereof, are to be redeemed prior to maturity thereof, notice of such redemption shall have been given as provided in Articles X and XIV or provision satisfactory to the Trustee shall have been made for giving such notice; and - 3 - (c) Debt Securities paid pursuant to Section 2.06 or in lieu of or in substitution for which other Debt Securities shall have been authenticated and delivered pursuant to the terms of Section 2.06 unless proof satisfactory to the Company and the Trustee is presented that any such Debt Securities are held by bona fide holders in due course. "Optional Redemption Date" has the meaning set forth in Section 10.01. "Optional Redemption Price" means an amount in cash equal to 100% of the principal amount of the Debt Securities being redeemed plus unpaid interest accrued on such Debt Securities to the Optional Redemption Date. "Paying Agent" has the meaning set forth in Section 3.04(e). "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Security" of any particular Debt Security means every previous Debt Security evidencing all or a portion of the same debt as that evidenced by such particular Debt Security; and, for the purposes of this definition, any Debt Security authenticated and delivered under Section 2.06 in lieu of a lost, destroyed or stolen Debt Security shall be deemed to evidence the same debt as the lost, destroyed or stolen Debt Security. "Principal Office of the Trustee" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which at all times shall be located within the United States and at the time of the execution of this Indenture shall be Rodney Square North, 1100 North Market Street, Wilmington, DE 19890-0001. "Reference Banks" has the meaning set forth in Section 2.10(b)(ii). "Resale Restriction Termination Date" means, with respect to any Debt Security, the date which is the later of (i) two years (or such shorter period of time as permitted by Rule 144(k) under the Securities Act of 1933, as amended) after the later of (y) the date of original issuance of such Debt Security and (z) the last date on which the Company or any Affiliate (as defined in Rule 405 under the Securities Act of 1933, as amended) of the Company was the holder of such Debt Security (or any predecessor thereto) and (ii) such later date, if any, as may be required by any subsequent change in applicable law. - 4 - "Responsible Officer" means, with respect to the Trustee, any officer within the Principal Office of the Trustee with direct responsibility for the administration of the Indenture, including any vice-president, any assistant vice-president, any secretary, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or other officer of the Principal Office of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Securityholder," holder of Debt Securities" or other similar terms, means any Person in whose name at the time a particular Debt Security is registered on the Debt Security Register. "Subsidiary" means, with respect to any Person, (i) any corporation, at least a majority of the outstanding voting stock of which is owned, directly or indirectly, by such Person or one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, (ii) any general partnership, joint venture or similar entity, at least a majority of the outstanding partnership or similar interests of which shall at the time be owned by such Person or one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, and (iii) any limited partnership of which such Person or any of its Subsidiaries is a general partner. For the purposes of this definition, "voting stock" means shares, interests, participations or other equivalents in the equity interest (however designated) in such Person having ordinary voting power for the election of a majority of the directors (or the equivalent) of such Person, other than shares, interests, participations or other equivalents having such power only by reason of the occurrence of a contingency. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended from time to time, or any successor legislation. "Trustee" means the Person identified as "Trustee" in the first paragraph hereof, and, subject to the provisions of Article VI hereof, shall also include its successors and assigns as Trustee hereunder. "United States" means the United States of America and the District of Columbia. "U.S. Person" has the meaning given to United States Person as set forth in Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended. - 5 - ARTICLE II DEBT SECURITIES SECTION 2.01 Authentication and Dating. Upon the execution and delivery of this Indenture, or from time to time thereafter, Debt Securities in an aggregate principal amount not in excess of $15,000,000 may be executed and delivered by the Company to the Trustee for authentication, and the Trustee shall thereupon authenticate and make available for delivery said Debt Securities to or upon the written order of the Company, signed by its Chairman of the Board of Directors or President, without any further action by the Company hereunder. In authenticating such Debt Securities, and accepting the additional responsibilities under this Indenture in relation to such Debt Securities, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon a copy of any Board Resolution or Board Resolutions relating thereto and, if applicable, an appropriate record of any action taken pursuant to such resolution, in each case certified by the Secretary or an Assistant Secretary or other officers with appropriate delegated authority of the Company, as the case may be. The Trustee shall have the right to decline to authenticate and deliver any Debt Securities under this Section if the Trustee, being advised by counsel, determines that such action may not lawfully be taken or if a Responsible Officer of the Trustee in good faith shall determine that such action would expose the Trustee to personal liability to existing Securityholders. The definitive Debt Securities shall be typed, printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Debt Securities, as evidenced by their execution of such Debt Securities. SECTION 2.02 Form of Trustee's Certificate of Authentication. The Trustee's certificate of authentication on all Debt Securities shall be in substantially the following form: This is one of the Debt Securities referred to in the within-mentioned Indenture. Wilmington Trust Company, not in its individual capacity but solely as trustee By: ___________________________ Authorized Officer - 6 - SECTION 2.03 Form and Denomination of Debt Securities. The Debt Securities shall be substantially in the form of Exhibit A hereto. The Debt Securities shall be in registered, certificated form without coupons and in minimum denominations of $100,000 and any multiple of $1,000 in excess thereof. The Debt Securities shall be numbered, lettered, or otherwise distinguished in such manner or in accordance with such plans as the officers executing the same may determine with the approval of the Trustee as evidenced by the execution and authentication thereof. SECTION 2.04 Execution of Debt Securities. The Debt Securities shall be signed in the name and on behalf of the Company by the manual or facsimile signature of its Chairman of the Board of Directors or President under its corporate seal (if legally required) which may be affixed thereto or printed, engraved or otherwise reproduced thereon, by facsimile or otherwise, and which need not be attested. Only such Debt Securities as shall bear thereon a certificate of authentication substantially in the form herein before recited, executed by the Trustee or the Authenticating Agent by the manual signature of an authorized officer, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate by the Trustee or the Authenticating Agent upon any Debt Security executed by the Company shall be conclusive evidence that the Debt Security so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. In case any officer of the Company who shall have signed any of the Debt Securities shall cease to be such officer before the Debt Securities so signed shall have been authenticated and delivered by the Trustee or the Authenticating Agent, or disposed of by the Company, such Debt Securities nevertheless may be authenticated and delivered or disposed of as though the Person who signed such Debt Securities had not ceased to be such officer of the Company; and any Debt Security may be signed on behalf of the Company by such Persons as, at the actual date of the execution of such Debt Security, shall be the proper officers of the Company, although at the date of the execution of this Indenture any such person was not such an officer. Every Debt Security shall be dated the date of its authentication. SECTION 2.05 Exchange and Registration of Transfer of Debt Securities. The Company shall cause to be kept, at the office or agency maintained for the purpose of registration of transfer and for exchange as provided in Section 3.02, a register (the "Debt Security Register") for the Debt Securities issued hereunder in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration and transfer of all Debt Securities as provided in this Article II. Such register shall be in written form or in any other form capable of being converted into written form within a reasonable time. - 7 - Debt Securities to be exchanged may be surrendered at the Principal Office of the Trustee or at any office or agency to be maintained by the Company for such purpose as provided in Section 3.02, and the Company shall execute, the Company or the Trustee shall register and the Trustee or the Authenticating Agent shall authenticate and make available for delivery in exchange therefor, the Debt Security or Debt Securities which the Securityholder making the exchange shall be entitled to receive. Upon due presentment for registration of transfer of any Debt Security at the Principal Office of the Trustee or at any office or agency of the Company maintained for such purpose as provided in Section 3.02, the Company shall execute, the Company or the Trustee shall register and the Trustee or the Authenticating Agent shall authenticate and make available for delivery in the name of the transferee or transferees, a new Debt Security for a like aggregate principal amount. Registration or registration of transfer of any Debt Security by the Trustee or by any agent of the Company appointed pursuant to Section 3.02, and delivery of such Debt Security, shall be deemed to complete the registration or registration of transfer of such Debt Security. All Debt Securities presented for registration of transfer or for exchange or payment shall (if so required by the Company or the Trustee or the Authenticating Agent) be duly endorsed by, or be accompanied by, a written instrument or instruments of transfer in form satisfactory to the Company and either the Trustee or the Authenticating Agent duly executed by, the holder or such holder's attorney duly authorized in writing. No service charge shall be made for any exchange or registration of transfer of Debt Securities, but the Company or the Trustee may require payment of a sum sufficient to cover any tax, fee or other governmental charge that may be imposed in connection therewith other than exchanges pursuant to Section 2.07, Section 9.04 or Section 10.03 not involving any transfer. The Company or the Trustee shall not be required to exchange or register a transfer of any Debt Security for a period of 15 days immediately preceding the date of selection of Debt Securities for redemption. Notwithstanding the foregoing, Debt Securities may not be transferred prior to the Resale Restriction Termination Date except in compliance with the legend set forth below, unless otherwise determined by the Company in accordance with applicable law, which legend shall be placed on each Debt Security: - 8 - THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY OR ANY INTEREST OR PARTICIPATION HEREIN, BY ITS ACCEPTANCE HEREOF OR THEREOF, AS THE CASE MAY BE, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY OR ANY INTEREST OR PARTICIPATION HEREIN PRIOR TO THE DATE WHICH IS THE LATER OF (i) TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(k) OF THE SECURITIES ACT) AFTER THE LATER OF (Y) THE DATE OF ORIGINAL ISSUANCE HEREOF AND (Z) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE (AS DEFINED IN RULE 405 UNDER THE SECURITIES ACT) OF THE COMPANY WAS THE HOLDER OF THIS SECURITY OR SUCH INTEREST OR PARTICIPATION (OR ANY PREDECESSOR THERETO) AND (ii) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY ANY SUBSEQUENT CHANGE IN APPLICABLE LAW, ONLY (A) TO THE COMPANY, (B) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON THE HOLDER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER", AS DEFINED IN RULE 144A, THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a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i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE AND HOLDING WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION. IN CONNECTION WITH ANY TRANSFER, THE HOLDER OF THIS SECURITY WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY THE INDENTURE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN MINIMUM DENOMINATIONS OF $100,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF THIS SECURITY IN DENOMINATIONS OF LESS THAN $100,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF THIS SECURITY OR ANY INTEREST OR PARTICIPATION HEREIN FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF DISTRIBUTIONS ON THIS SECURITY OR SUCH INTEREST OR PARTICIPATION, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN THIS SECURITY OR ANY INTEREST OR PARTICIPATION HEREIN. SECTION 2.06 Mutilated, Destroyed, Lost or Stolen Debt Securities. In case any Debt Security shall become mutilated or be destroyed, lost or stolen, the Company shall execute, and upon its written request the Trustee shall authenticate and deliver, a new Debt Security bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Debt Security, or in lieu of and in substitution for the Debt Security so destroyed, lost or stolen. In every case the applicant for a substituted Debt Security shall furnish to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company and the Trustee evidence to their satisfaction of the destruction, loss or theft of such Debt Security and of the ownership thereof. - 10 - The Trustee may authenticate any such substituted Debt Security and deliver the same upon the written request or authorization of any officer of the Company. Upon the issuance of any substituted Debt Security, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. In case any Debt Security which has matured or is about to mature or has been called for redemption in full shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Debt Security, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated Debt Security) if the applicant for such payment shall furnish to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless and, in case of destruction, loss or theft, evidence satisfactory to the Company and to the Trustee of the destruction, loss or theft of such Security and of the ownership thereof. Every substituted Debt Security issued pursuant to the provisions of this Section 2.06 by virtue of the fact that any such Debt Security is destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Debt Security shall be found at any time, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debt Securities duly issued hereunder. All Debt Securities shall be held and owned upon the express condition that, to the extent permitted by applicable law, the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debt Securities and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. SECTION 2.07 Temporary Debt Securities. Pending the preparation of definitive Debt Securities, the Company may execute and the Trustee shall authenticate and make available for delivery temporary Debt Securities that are typed, printed or lithographed. Temporary Debt Securities shall be issuable in any authorized denomination, and substantially in the form of the definitive Debt Securities but with such omissions, insertions and variations as may be appropriate for temporary Debt Securities, all as may be determined by the Company. Every such temporary Debt Security shall be executed by the Company and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with the same effect, as the definitive Debt Securities. Without unreasonable delay, the Company will execute and deliver to the Trustee or the Authenticating Agent definitive Debt Securities and thereupon any or all temporary Debt Securities may be surrendered in exchange therefor, at the Principal Office of the Trustee or at any office or agency maintained by the Company for such purpose as provided in Section 3.02, and the Trustee or the Authenticating Agent shall authenticate and make available for delivery in exchange for such temporary Debt Securities a like aggregate principal amount of such definitive Debt Securities. Such exchange shall be made by the Company at its own expense and without any charge therefor except that in case of any such exchange involving a registration of transfer the Company may require payment of a sum sufficient to cover any tax, fee or other governmental charge that may be imposed in relation thereto. Until so exchanged, the temporary Debt Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Debt Securities authenticated and delivered hereunder. - 11 - SECTION 2.08 Payment of Interest. Each Debt Security will bear interest at the then applicable Interest Rate (i) in the case of the initial Interest Period, for the period from, and including, the date of original issuance of such Debt Security to, but excluding, the initial Interest Payment Date and (ii) thereafter, for the period from, and including, the first day following the end of the preceding Interest Period to, but excluding, the related Interest Payment Date or, in the case of the last Interest Period, the related Optional Redemption Date or Maturity Date, as applicable (each such period, an "Interest Period"), on the principal thereof, on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest (including Defaulted Interest), payable (subject to the provisions of Article XII) on each Interest Payment Date. Interest on any Debt Security that is payable, and is punctually paid or duly provided for by the Company, on any Interest Payment Date shall be paid to the Person in whose name such Debt Security (or one or more Predecessor Securities) is registered at the close of business on the regular record date for such interest installment, except that interest payable on the Maturity Date or any Optional Redemption Date, as the case may be, shall be paid to the Person to whom principal is paid. In case (i) the Maturity Date of any Debt Security or (ii) any Debt Security or portion thereof is called for redemption and the related Optional Redemption Date is subsequent to the regular record date with respect to any Interest Payment Date and either on or prior to such Interest Payment Date, interest on such Debt Security will be paid upon presentation and surrender of such Debt Security. Any interest on any Debt Security that is payable, but is not punctually paid or duly provided for by the Company, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the holder on the relevant regular record date by virtue of having been such holder, and such Defaulted Interest shall be paid by the Company to the Persons in whose names such Debt Securities (or their respective Predecessor Securities) are registered at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the following manner: the Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each such Debt Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements reasonably satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as provided in this paragraph. Thereupon the Trustee shall fix a special record date for the payment of such Defaulted Interest, which shall not be more than fifteen nor less than ten days prior to the date of the proposed payment and not less than ten days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such special record date and, in the name and at the expense of the - 12 - Company, shall cause notice of the proposed payment of such Defaulted Interest and the special record date therefor to be mailed, first class postage prepaid, to each Securityholder at his or her address as it appears in the Debt Security Register, not less than ten days prior to such special record date. Notice of the proposed payment of such Defaulted Interest and the special record date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names such Debt Securities (or their respective Predecessor Securities) are registered on such special record date and thereafter the Company shall have no further payment obligation in respect of the Defaulted Interest. The term "regular record date", as used in this Section, shall mean the fifteenth day prior to the applicable Interest Payment Date, whether or not such day is a Business Day. Subject to the foregoing provisions of this Section, each Debt Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Debt Security shall carry the rights to interest accrued and unpaid, and to accrue, that were carried by such other Debt Security. SECTION 2.09 Cancellation of Debt Securities Paid, etc. All Debt Securities surrendered for the purpose of payment, redemption, exchange or registration of transfer, shall, if surrendered to the Company or any Paying Agent, be surrendered to the Trustee and promptly canceled by it, or, if surrendered to the Trustee or any Authenticating Agent, shall be promptly canceled by it, and no Debt Securities shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. All Debt Securities canceled by any Authenticating Agent shall be delivered to the Trustee. The Trustee shall destroy all canceled Debt Securities unless the Company otherwise directs the Trustee in writing, in which case the Trustee shall dispose of such Debt Securities as directed by the Company. If the Company shall acquire any of the Debt Securities, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Debt Securities unless and until the same are surrendered to the Trustee for cancellation. SECTION 2.10 Computation of Interest. (a) The amount of interest payable for any Interest Period will be computed on the basis of a 360-day year and the actual number of days elapsed in such Interest Period. (b) LIBOR shall be determined by the Calculation Agent for each Interest Period in accordance with the following provisions: (i) On the second LIBOR Business Day (provided, that on such day commercial banks are open for business (including dealings in foreign currency deposits) in London (a "LIBOR Banking Day"), and otherwise the next preceding LIBOR Business Day that is also a LIBOR Banking Day) prior to the March 1, June 1, September 1 or December 1, as the case may be, immediately succeeding the commencement of such Interest Period (or, in the case of the first Interest Period, on May 20, 2003) (each such day, a "LIBOR - 13 - Determination Date"), LIBOR shall equal the rate, as obtained by the Calculation Agent, for three-month U.S. Dollar deposits in Europe, which appears on Telerate (as defined in the International Swaps and Derivatives Association, Inc. 2000 Interest Rate and Currency Exchange Definitions) page 3750 or such other page as may replace such page 3750, as of 11:00 a.m. (London time) on such LIBOR Determination Date, as reported by Bloomberg Financial Markets Commodities News or any successor service ("Telerate Page 3750"). "LIBOR Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banking institutions in The City of New York or Wilmington, Delaware are authorized or obligated by law or executive order to be closed. If such rate is superseded on Telerate Page 3750 by a corrected rate before 12:00 noon (London time) on such LIBOR Determination Date, the corrected rate as so substituted will be LIBOR for such LIBOR Determination Date. (ii) If, on such LIBOR Determination Date, such rate does not appear on Telerate Page 3750, the Calculation Agent shall determine the arithmetic mean of the offered quotations of the Reference Banks to leading banks in the London interbank market for three-month U.S. Dollar deposits in Europe (in an amount determined by the Calculation Agent) by reference to requests for quotations as of approximately 11:00 a.m. (London time) on such LIBOR Determination Date made by the Calculation Agent to the Reference Banks. If, on such LIBOR Determination Date, at least two of the Reference Banks provide such quotations, LIBOR shall equal the arithmetic mean of such quotations. If, on such LIBOR Determination Date, only one or none of the Reference Banks provide such a quotation, LIBOR shall be deemed to be the arithmetic mean of the offered quotations that at least two leading banks in The City of New York (as selected by the Calculation Agent) are quoting on such LIBOR Determination Date for three-month U.S. Dollar deposits in Europe at approximately 11:00 a.m. (London time) (in an amount determined by the Calculation Agent). As used herein, "Reference Banks" means four major banks in the London interbank market selected by the Calculation Agent. (iii)If the Calculation Agent is required but is unable to determine a rate in accordance with at least one of the procedures provided above, LIBOR for such Interest Period shall be LIBOR in effect for the immediately preceding Interest Period. (c) All percentages resulting from any calculations on the Debt Securities will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)), and all dollar amounts used in or resulting from such calculation will be rounded to the nearest cent (with one-half cent being rounded upward). - 14 - (d) On each LIBOR Determination Date, the Calculation Agent shall notify, in writing, the Company and the Paying Agent of the applicable Interest Rate that applies to the related Interest Period. The Calculation Agent shall, upon the request of a holder of any Debt Securities, inform such holder of the Interest Rate that applies to the related Interest Period. All calculations made by the Calculation Agent in the absence of manifest error shall be conclusive for all purposes and binding on the Company and the holders of the Debt Securities. The Paying Agent shall be entitled to rely on information received from the Calculation Agent or the Company as to the applicable Interest Rate. The Company shall, from time to time, provide any necessary information to the Paying Agent relating to any original issue discount and interest on the Debt Securities that is included in any payment and reportable for taxable income calculation purposes. SECTION 2.11 CUSIP Numbers. The Company in issuing the Debt Securities may use a "CUSIP" number (if then generally in use), and, if so, the Trustee shall use a "CUSIP" number in notices of redemption as a convenience to Securityholders; provided, that any such notice may state that no representation is made as to the correctness of such number either as printed on the Debt Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Debt Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee in writing of any change in the CUSIP number. ARTICLE III PARTICULAR COVENANTS OF THE COMPANY SECTION 3.01 Payment of Principal, Premium and Interest. (a) The Company covenants and agrees that it will duly and punctually pay or cause to be paid all payments due in respect of the Debt Securities at the place, at the respective times and in the manner provided in this Indenture and the Debt Securities. Payment of the principal of and premium, if any, and interest on the Debt Securities due on the Maturity Date or any Optional Redemption Date, as the case may be, will be made by the Company in immediately available funds against presentation and surrender of such Debt Securities. At the option of the Company, each installment of interest on the Debt Securities due on an Interest Payment Date other than the Maturity Date or any Optional Redemption Date, as the case may be, may be paid (i) by mailing checks for such interest payable to the order of the holders of Debt Securities entitled thereto as they appear on the Debt Security Register or (ii) by wire transfer of immediately available funds to any account with a banking institution located in the United States designated by such holders to the Paying Agent no later than the related record date. Notwithstanding anything to the contrary contained in this Indenture or any Debt Security, if InCapS Funding I, Ltd. or a trustee thereof is the holder of any Debt Security, then all payments in respect of such Debt Security shall be made bythe Company in immediately available funds when due. - 15 - (b) The Company will treat the Debt Securities as indebtedness, and the interest payable in respect of such Debt Securities as interest, for all U.S. federal income tax purposes. All payments in respect of such Debt Securities will be made free and clear of U.S. withholding tax to any beneficial owner thereof that has provided an Internal Revenue Service Form W-8 BEN (or any substitute or successor form) establishing its non-U.S. status for U.S. federal income tax purposes. SECTION 3.02 Offices for Notices and Payments, etc. So long as any of the Debt Securities remain outstanding, the Company will maintain in Wilmington, Delaware or in Austin, Texas an office or agency where the Debt Securities may be presented for payment, an office or agency where the Debt Securities may be presented for registration of transfer and for exchange as provided in this Indenture and an office or agency where notices and demands to or upon the Company in respect of the Debt Securities or of this Indenture may be served. The Company will give to the Trustee written notice of the location of any such office or agency and of any change of location thereof. Until otherwise designated from time to time by the Company in a notice to the Trustee, or specified as contemplated by Section 2.05, such office or agency for all of the above purposes shall be the Principal Office of the Trustee. In case the Company shall fail to maintain any such office or agency in Wilmington, Delaware or in Austin, Texas, or shall fail to give such notice of the location or of any change in the location thereof, presentations and demands may be made and notices may be served at the Principal Office of the Trustee. In addition to any such office or agency, the Company may from time to time designate one or more offices or agencies outside Wilmington, Delaware or Austin, Texas where the Debt Securities may be presented for registration of transfer and for exchange in the manner provided in this Indenture, and the Company may from time to time rescind such designation, as the Company may deem desirable or expedient; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain any such office or agency in Wilmington, Delaware or in Austin, Texas for the purposes above mentioned. The Company will give to the Trustee prompt written notice of any such designation or rescission thereof. SECTION 3.03 Appointments to Fill Vacancies in Trustee's Office. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 6.09, a Trustee, so that there shall at all times be a Trustee hereunder. - 16 - SECTION 3.04 Provision as to Paying Agent. (a) If the Company shall appoint a Paying Agent other than the Trustee, it will cause such Paying Agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provision of this Section 3.04, (i) that it will hold all sums held by it as such agent for the payment of all payments due in respect of the Debt Securities (whether such sums have been paid to it by the Company or by any other obligor on the Debt Securities) in trust for the benefit of the holders of the Debt Securities; (ii) that it will give the Trustee prompt written notice of any failure by the Company (or by any other obligor on the Debt Securities) to make any payment in respect of the Debt Securities when the same shall be due and payable; and (iii)that it will, at any time during the continuance of any Event of Default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. (b) If the Company shall act as its own Paying Agent, it will, on or before each due date of the payments due in respect of the Debt Securities, set aside, segregate and hold in trust for the benefit of the holders of the Debt Securities a sum sufficient to make such payments so becoming due and will notify the Trustee in writing of any failure to take such action and of any failure by the Company (or by any other obligor under the Debt Securities) to make any payment in respect of the Debt Securities when the same shall become due and payable. Whenever the Company shall have one or more Paying Agents for the Debt Securities, it will, on or prior to each due date of the payments in respect of the Debt Securities, deposit with a Paying Agent a sum sufficient to pay all payments so becoming due, such sum to be held in trust for the benefit of the Persons entitled thereto and (unless such Paying Agent is the Trustee) the Company shall promptly notify the Trustee in writing of its action or failure to act. (c) Anything in this Section 3.04 to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining a satisfaction and discharge with respect to the Debt Securities, or for any other reason, pay, or direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or any such Paying Agent, such sums to be held by the Trustee upon the same terms and conditions herein contained. (d) Anything in this Section 3.04 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 3.04 is subject to Sections 12.03 and 12.04. - 17 - (e) The Company hereby initially appoints the Trustee to act as paying agent for the Debt Securities (the "Paying Agent"). SECTION 3.05 Certificate to Trustee. The Company will deliver to the Trustee on or before 120 days after the end of each fiscal year, so long as Debt Securities are outstanding hereunder, a Certificate stating that in the course of the performance by the signers of their duties as officers of the Company they would normally have knowledge of any default by the Company in the performance of any covenants of the Company contained herein, stating whether or not they have knowledge of any such default and, if so, specifying each such default of which the signers have knowledge and the nature thereof. SECTION 3.06 Compliance with Consolidation Provisions. The Company will not, while any of the Debt Securities remain outstanding, consolidate with, or merge into, any other Person, or merge into itself, or sell, convey, transfer or otherwise dispose of all or substantially all of its property and assets to any other Person unless the provisions of Article XI hereof are complied with. ARTICLE IV LISTS AND REPORTS SECTION 4.01 Securityholders' Lists. The Company covenants and agrees that it will furnish or cause to be furnished to the Trustee: (a) on each regular record date for an Interest Payment Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Securityholders of the Debt Securities as of such record date; and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; except that no such lists need be furnished under this Section 4.01 so long as the Trustee is in possession thereof by reason of its acting as Debt Security registrar. - 18 - SECTION 4.02 Preservation and Disclosure of Lists. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Debt Securities (1) contained in the most recent list furnished to it as provided in Section 4.01 or (2) received by it in the capacity of Debt Securities registrar (if so acting) hereunder. The Trustee may destroy any list furnished to it as provided in Section 4.01 upon receipt of a new list so furnished. (b) In case three or more holders of Debt Securities (hereinafter referred to as "applicants") apply in writing to the Trustee and furnish to the Trustee reasonable proof that each such applicant has owned a Debt Security for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other holders of Debt Securities with respect to their rights under this Indenture or under such Debt Securities and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall within five Business Days after the receipt of such application, at its election, either: (i) afford such applicants access to the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.02, or (ii) inform such applicants as to the approximate number of holders of Debt Securities whose names and addresses appear in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.02, and as to the approximate cost of mailing to such Securityholders the form of proxy or other communication, if any, specified in such application. If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Securityholder of Debt Securities whose name and address appear in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.02 a copy of the form of proxy or other communication which is specified in such request with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender, the Trustee shall mail to such applicants and file with the Securities and Exchange Commission, if permitted or required by applicable law, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the holders of all Debt Securities, as the case may be, or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If said Commission, - 19 - as permitted or required by applicable law, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, said Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Securityholders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application. (c) Each and every holder of Debt Securities, by receiving and holding the same, agrees with the Company and the Trustee that none of the Company, the Trustee or any Paying Agent shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the holders of Debt Securities in accordance with the provisions of subsection (b) of this Section 4.02, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under said subsection (b). SECTION 4.03 Reports. (a) The Company shall deliver to each holder of Debt Securities: (i) within 45 days after the end of each quarterly fiscal period, (1) unaudited consolidated financial statements of the Company (including balance sheet and income statement) covering such period and (2) an Officer's Certificate of the Company to the effect specified in Exhibit B hereto; (ii) within the earlier of (x) 90 days after the end of each fiscal year and (y) such earlier number of days prescribed by the Securities and Exchange Commission for the filing with it of a Form 10-K by companies subject to the informational reporting requirements of the Securities Exchange Act of 1934, as amended, (1) audited consolidated financial statements of the Company (including balance sheet and income statement) covering such fiscal year, (2) the report of the independent accountants with respect to such financial statements and (3) an Officer's Certificate of the Company detailing any material differences between the unaudited financial statements for such fiscal year delivered pursuant to clause (i) (1) above and those delivered pursuant to this clause; and (iii) within 7 days after the filing thereof, each Form 10-K and Form 10-Q that is prepared and filed by the Company with the Securities and Exchange Commission in accordance with the Securities Exchange Act of 1934, as amended, if any. (b) So long as the holder of the Debt Securities is InCapS Funding I, Ltd. or a trustee thereof, the Company will cause copies of the annual financial statements of the Company and/or Affiliates that are filed with the insurance regulator in the state in which the Company or any such Affiliate is incorporated to be delivered to the holder of the Debt Securities promptly following their filing. - 20 - ARTICLE V REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS SECTION 5.01 Events of Default. The following events shall be "Events of Default" with respect to Debt Securities: (a) the Company defaults in the payment of any interest upon any Debt Security when it becomes due and payable, and continuance of such default for a period of 30 days; or (b) the Company defaults in the payment of all or any part of the principal of (or premium, if any, on) any Debt Securities as and when the same shall become due and payable, whether at maturity, upon redemption, by acceleration of maturity pursuant to this Section or otherwise; or (c) the Company defaults in the performance of, or breaches, any of its covenants or agreements in Section 3.06 of this Indenture (other than a covenant or agreement a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the holders of not less than 25% in aggregate principal amount of the outstanding Debt Securities, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (d) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appoints a receiver, liquidator, assignee, custodian, trustee, sequestrator or other similar official of the Company or for any substantial part of its property, or orders the winding-up or liquidation of its affairs and such decree, appointment or order shall remain unstayed and in effect for a period of 90 consecutive days; or (e) the Company shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Company or of any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due. - 21 - If an Event of Default specified under clause (a), (b) or (c) of this Section 5.01 occurs and is continuing with respect to the Debt Securities, then, in each and every such case, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Debt Securities then outstanding hereunder, by notice in writing to the Company (and to the Trustee if given by Securityholders), may declare the entire principal of the Debt Securities and any premium and interest accrued, but unpaid, thereon to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable. If an Event of Default specified under clause (d) or (e) of this Section 5.01 occurs, then, in each and every such case, the entire principal amount of the Debt Securities and any premium and interest accrued, but unpaid, thereon shall ipso facto become immediately due and payable without further action. The foregoing provisions, however, are subject to the condition that if, at any time after the principal of the Debt Securities shall have become due by acceleration, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, (i) the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all the Debt Securities and all payments in respect of the Debt Securities which shall have become due otherwise than by acceleration (with interest upon all such payments, to the extent permitted by law) and such amount as shall be sufficient to cover reasonable compensation to the Trustee and each predecessor Trustee, their respective agents, attorneys and counsel, and all other amounts due to the Trustee pursuant to Section 6.06, if any, and (ii) all Events of Default under this Indenture, other than the non-payment of the payments in respect of Debt Securities which shall have become due by acceleration, shall have been cured, waived or otherwise remedied as provided herein, then, in each and every such case, the holders of a majority in aggregate principal amount of the Debt Securities then outstanding, by written notice to the Company and to the Trustee, may waive all defaults and rescind and annul such acceleration and its consequences, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned because of such rescission or annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company, the Trustee and the holders of the Debt Securities shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Company, the Trustee and the holders of the Debt Securities shall continue as though no such proceeding had been taken. - 22 - SECTION 5.02 Payment of Debt Securities on Default; Suit Therefor. The Company covenants that upon the occurrence of an Event of Default pursuant to clause (a) or (b) of Section 5.01 and upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the holders of the Debt Securities, the whole amount that then shall have become due and payable on all Debt Securities; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including a reasonable compensation to the Trustee, its agents, attorneys and counsel, and any other amounts due to the Trustee under Section 6.06. In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or any other obligor on such Debt Securities and collect in the manner provided by law out of the property of the Company or any other obligor on such Debt Securities wherever situated the moneys adjudged or decreed to be payable. In case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or any other obligor on the Debt Securities under Bankruptcy Law, or in case a receiver or trustee shall have been appointed for the property of the Company or such other obligor, or in the case of any other similar judicial proceedings relative to the Company or other obligor upon the Debt Securities, or to the creditors or property of the Company or such other obligor, the Trustee, irrespective of whether the principal of the Debt Securities shall then be due and payable as therein expressed or by acceleration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 5.02, shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of principal and interest owing and unpaid in respect of the Debt Securities and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for reasonable compensation to the Trustee and each predecessor Trustee, and their respective agents, attorneys and counsel, and for reimbursement of all other amounts due to the Trustee under Section 6.06) and of the Securityholders allowed in such judicial proceedings relative to the Company or any other obligor on the Debt Securities, or to the creditors or property of the Company or such other obligor, unless prohibited by applicable law and regulations, to vote on behalf of the holders of the Debt Securities in any election of a trustee or a standby trustee in arrangement, reorganization, liquidation or other bankruptcy or insolvency proceedings or Person performing similar functions in comparable proceedings, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its charges and expenses; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the Securityholders to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee such amounts as shall be sufficient to cover reasonable compensation to the Trustee, each predecessor Trustee and their respective agents, attorneys and counsel, and all other amounts due to the Trustee under Section 6.06. - 23 - Nothing herein contained shall be construed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Debt Securities or the rights of any holder thereof or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding. All rights of action and of asserting claims under this Indenture, or under any of the Debt Securities, may be enforced by the Trustee without the possession of any of the Debt Securities, or the production thereof at any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall be for the ratable benefit of the holders of the Debt Securities. In any proceedings brought by the Trustee (and also any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party), the Trustee shall be held to represent all the holders of the Debt Securities, and it shall not be necessary to make any holders of the Debt Securities parties to any such proceedings. SECTION 5.03 Application of Moneys Collected by Trustee. Any moneys collected by the Trustee shall be applied in the following order, at the date or dates fixed by the Trustee for the distribution of such moneys, upon presentation of the several Debt Securities in respect of which moneys have been collected, and stamping thereon the payment, if only partially paid, and upon surrender thereof if fully paid: First: To the payment of costs and expenses incurred by, and reasonable fees of, the Trustee, its agents, attorneys and counsel, and of all other amounts due to the Trustee under Section 6.06; Second: To the payment of the amounts then due and unpaid in respect of Debt Securities, in respect of which or for the benefit of which money has been collected, ratably, without preference or priority of any kind, according to the amounts due in respect of such Debt Securities; and Third: The balance, if any, to the Company. - 24 - SECTION 5.04 Proceedings by Securityholders. No holder of any Debt Security shall have any right to institute any suit, action or proceeding for any remedy hereunder, unless such holder previously shall have given to the Trustee written notice of an Event of Default with respect to the Debt Securities and unless the holders of not less than 25% in aggregate principal amount of the Debt Securities then outstanding shall have given the Trustee a written request to institute such action, suit or proceeding and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred thereby, and the Trustee for 60 days after its receipt of such notice, request and offer of indemnity shall have failed to institute any such action, suit or proceeding; provided, that no holder of Debt Securities shall have any right to prejudice the rights of any other holder of Debt Securities, obtain priority or preference over any other such holder or enforce any right under this Indenture except in the manner herein provided and for the equal, ratable and common benefit of all holders of Debt Securities. Notwithstanding any other provisions in this Indenture, the right of any holder of any Debt Security to receive payment of the principal of and premium, if any, and interest on such Debt Security when due, or to institute suit for the enforcement of any such payment, shall not be impaired or affected without the consent of such holder. For the protection and enforcement of the provisions of this Section, each and every Securityholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. SECTION 5.05 Proceedings by Trustee. In case of an Event of Default, the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. - 25 - SECTION 5.06 Remedies Cumulative and Continuing. Except as otherwise provided in Section 2.06, all powers and remedies given by this Article V to the Trustee or to the Securityholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any other powers and remedies available to the Trustee or the holders of the Debt Securities, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture or otherwise established with respect to the Debt Securities, and no delay or omission of the Trustee or of any holder of any of the Debt Securities to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein; and, subject to the provisions of Section 5.04, every power and remedy given by this Article V or by law to the Trustee or to the Securityholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Securityholders. SECTION 5.07 Direction of Proceedings and Waiver of Defaults by Majority of Securityholders. The holders of a majority in aggregate principal amount of the Debt Securities affected at the time outstanding shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee with respect to such Debt Securities; provided, however, that (subject to the provisions of Section 6.01) the Trustee shall have the right to decline to follow any such direction if the Trustee shall determine that the action so directed would be unjustly prejudicial to the holders not taking part in such direction or if the Trustee being advised by counsel determines that the action or proceeding so directed may not lawfully be taken or if a Responsible Officer of the Trustee shall determine that the action or proceedings so directed would involve the Trustee in personal liability. Prior to any declaration of acceleration, or ipso facto acceleration, of the maturity of the Debt Securities, the holders of a majority in aggregate principal amount of the Debt Securities at the time outstanding may on behalf of the holders of all of the Debt Securities waive (or modify any previously granted waiver of) any past Default or Event of Default and its consequences, except a default (a) in the payment of principal of or premium, if any, or interest on any of the Debt Securities or (b) in respect of covenants or provisions hereof which cannot be modified or amended without the consent of the holder of each Debt Security affected. Upon any such waiver or modification to such waiver, the Default or Event of Default covered thereby shall be deemed to be cured for all purposes of this Indenture and the Company, the Trustee and the holders of the Debt Securities shall be restored to their former positions and rights hereunder, respectively; but no such waiver or modification to such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. Whenever any Default or Event of Default hereunder shall have been waived as permitted by this Section, said Default or Event of Default shall for all purposes of the Debt Securities and this Indenture be deemed to have been cured and to be not continuing. - 26 - SECTION 5.08 Notice of Defaults. The Trustee shall, within 90 days after a Responsible Officer of the Trustee shall have actual knowledge or received written notice of the occurrence of a default with respect to the Debt Securities, mail to all Securityholders, as the names and addresses of such holders appear upon the Debt Security Register, notice of all defaults with respect to the Debt Securities known to the Trustee, unless such defaults shall have been cured before the giving of such notice (the term "default" for the purpose of this Section is hereby defined to be any event specified in Section 5.01, not including periods of grace, if any, provided for therein); provided, that, except in the case of default in the payment of the principal of or premium, if any, or interest on any of the Debt Securities, the Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Trustee in good faith determines that the withholding of such notice is in the interests of the Securityholders. SECTION 5.09 Undertaking to Pay Costs. All parties to this Indenture agree, and each holder of any Debt Security by such holder's acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Securityholder, or group of Securityholders, holding in the aggregate more than 10% in principal amount of the Debt Securities outstanding, or to any suit instituted by any Securityholder for the enforcement of the payment of the principal of or premium, if any, or interest on any Debt Security against the Company on or after the same shall have become due and payable. ARTICLE VI CONCERNING THE TRUSTEE SECTION 6.01 Duties and Responsibilities of Trustee. With respect to the holders of Debt Securities issued hereunder, the Trustee, prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. - 27 - No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct or bad faith, except that: (a) prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default which may have occurred: (i) the duties and obligations of the Trustee with respect to the Debt Securities shall be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations with respect to the Debt Securities as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform on their face to the requirements of this Indenture; (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith, in accordance with the direction of the Securityholders pursuant to Section 5.07, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; and (d) the Trustee shall not be charged with knowledge of any Default or Event of Default with respect to the Debt Securities unless either (1) a Responsible Officer shall have actual knowledge of such Default or Event of Default or (2) written notice of such Default or Event of Default shall have been given to the Trustee by the Company or any other obligor on the Debt Securities or by any holder of the Debt Securities, except that the Trustee shall be deemed to have knowledge of any Event of Default pursuant to Sections 5.01(a) or 5.01(b) hereof. None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers. - 28 - SECTION 6.02 Reliance on Documents, Opinions, etc. Except as otherwise provided in Section 6.01: (a) the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, note, debenture or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties; (b) any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an Officers' Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any Board Resolution may be evidenced to the Trustee by a copy thereof certified by the Secretary or an Assistant Secretary of the Company; (c) the Trustee may consult with counsel of its selection and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel; (d) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Securityholders, pursuant to the provisions of this Indenture, unless such Securityholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; (e) the Trustee shall not be liable for any action taken or omitted by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; nothing contained herein shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default (which has not been cured or waived) to exercise such of the rights and powers vested in it by this Indenture, and to use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, coupon or other paper or document, unless requested in writing to do so by the holders of a majority in aggregate principal amount of the outstanding Debt Securities affected thereby; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such expense or liability as a condition to so proceeding; and - 29 - (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents (including any Authenticating Agent) or attorneys, and the Trustee shall not be responsible for any misconduct or negligence on the part of any such agent or attorney appointed by it with due care. SECTION 6.03 No Responsibility for Recitals, etc. The recitals contained herein and in the Debt Securities (except in the certificate of authentication of the Trustee or the Authenticating Agent) shall be taken as the statements of the Company, and the Trustee and the Authenticating Agent assume no responsibility for the correctness of the same. The Trustee and the Authenticating Agent make no representations as to the validity or sufficiency of this Indenture or of the Debt Securities. The Trustee and the Authenticating Agent shall not be accountable for the use or application by the Company of any Debt Securities or the proceeds of any Debt Securities authenticated and delivered by the Trustee or the Authenticating Agent in conformity with the provisions of this Indenture. SECTION 6.04 Trustee, Authenticating Agent, Paying Agents, Transfer Agents or Registrar May Own Debt Securities. The Trustee, any Authenticating Agent, any Paying Agent, any transfer agent or any Debt Security registrar, in its individual or any other capacity, may become the owner or pledgee of Debt Securities with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, transfer agent or Debt Security registrar. SECTION 6.05 Moneys to be Held in Trust. Subject to the provisions of Section 12.04, all moneys received by the Trustee or any Paying Agent shall, until used or applied as herein provided, be held in trust for the purpose for which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee and any Paying Agent shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. So long as no Event of Default shall have occurred and be continuing, all interest allowed on any such moneys, if any, shall be paid from time to time to the Company upon the written order of the Company, signed by the Chairman of the Board of Directors, the President, the Chief Operating Officer, a Vice President, the Treasurer or an Assistant Treasurer of the Company. - 30 - SECTION 6.06 Compensation and Expenses of Trustee. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, such compensation as shall be agreed to in writing between the Company and the Trustee (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), and the Company will pay or reimburse the Trustee upon its written request for all documented reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the reasonable expenses and disbursements of its counsel and of all Persons not regularly in its employ) except any such expense, disbursement or advance that arises from its negligence, willful misconduct or bad faith. The Company also covenants to indemnify each of the Trustee (including in its individual capacity) and any predecessor Trustee (and its officers, agents, directors and employees) for, and to hold it harmless against, any and all loss, damage, claim, liability or expense including taxes (other than taxes based on the income of the Trustee), except to the extent such loss, damage, claim, liability or expense results from the negligence, willful misconduct or bad faith of such indemnitee, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in the premises. The obligations of the Company under this Section to compensate and indemnify the Trustee and to pay or reimburse the Trustee for documented expenses, disbursements and advances shall constitute additional indebtedness hereunder. Such additional indebtedness shall be secured by a lien prior to that of the Debt Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Debt Securities. Without prejudice to any other rights available to the Trustee under applicable law, when the Trustee incurs expenses or renders services in connection with an Event of Default specified in clause (d) or (e) of Section 5.01, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law. The provisions of this Section shall survive the resignation or removal of the Trustee and the defeasance or other termination of this Indenture. - 31 - SECTION 6.07 Officers' Certificate as Evidence. Except as otherwise provided in Sections 6.01 and 6.02, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence, willful misconduct or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee, and such certificate, in the absence of negligence, willful misconduct or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken or omitted by it under the provisions of this Indenture upon the faith thereof. SECTION 6.08 Eligibility of Trustee. The Trustee hereunder shall at all times be a U.S. Person that is a banking corporation or national association organized and doing business under the laws of the United States of America or any state thereof or of the District of Columbia and authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least fifty million U.S. dollars ($50,000,000) and subject to supervision or examination by federal, state, or District of Columbia authority. If such corporation or national association publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section the combined capital and surplus of such corporation or national association shall be deemed to be its combined capital and surplus as set forth in its most recent records of condition so published. The Company may not, nor may any Person directly or indirectly controlling, controlled by, or under common control with the Company, serve as Trustee, notwithstanding that such corporation or national association shall be otherwise eligible and qualified under this Article. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect specified in Section 6.09. If the Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to, this Indenture. - 32 - SECTION 6.09 Resignation or Removal of Trustee. (a) The Trustee, or any trustee or trustees hereafter appointed, may at any time resign by giving written notice of such resignation to the Company and by mailing notice thereof, at the Company's expense, to the holders of the Debt Securities at their addresses as they shall appear on the Debt Security Register. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee or trustees by written instrument, in duplicate, executed by order of its Board of Directors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor Trustee. If no successor Trustee shall have been so appointed and have accepted appointment within 30 days after the mailing of such notice of resignation to the affected Securityholders, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee, or any Securityholder who has been a bona fide holder of a Debt Security or Debt Securities for at least six months may, subject to the provisions of Section 5.09, on behalf of himself or herself and all others similarly situated, petition any such court for the appointment of a successor Trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor Trustee. (b) In case at any time any of the following shall occur: (i) the Trustee shall fail to comply with the provisions of the last paragraph of Section 6.08 after written request therefor by the Company or by any Securityholder who has been a bona fide holder of a Debt Security or Debt Securities for at least six months; (ii) the Trustee shall cease to be eligible in accordance with the provisions of Section 6.08 and shall fail to resign after written request therefor by the Company or by any such Securityholder; or (iii)the Trustee shall become incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, the Company may remove the Trustee and appoint a successor Trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor Trustee, or, subject to the provisions of Section 5.09, if no successor Trustee shall have been so appointed and have accepted appointment within 30 days of the occurrence of any of (i), (ii) or (iii) above, any Securityholder who has been a bona fide holder of a Debt Security or Debt Securities for at least six months may, on behalf of himself or herself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor Trustee. - 33 - (c) Upon prior written notice to the Company and the Trustee, the holders of a majority in aggregate principal amount of the Debt Securities at the time outstanding may at any time remove the Trustee and nominate a successor Trustee, which shall be deemed appointed as successor Trustee unless within ten Business Days after such nomination the Company objects thereto, in which case or in the case of a failure by such holders to nominate a successor Trustee, the Trustee so removed or any Securityholder, upon the terms and conditions and otherwise as in subsection (a) of this Section, may petition any court of competent jurisdiction for an appointment of a successor. (d) Any resignation or removal of the Trustee and appointment of a successor Trustee pursuant to any of the provisions of this Section shall become effective upon acceptance of appointment by the successor Trustee as provided in Section 6.10. SECTION 6.10 Acceptance by Successor Trustee. Any successor Trustee appointed as provided in Section 6.09 shall execute, acknowledge and deliver to the Company and to its predecessor Trustee an indenture supplemental hereto which shall contain such provisions as shall be deemed necessary or desirable to confirm that all of the rights, powers, trusts and duties of the retiring Trustee shall be vested in the successor Trustee, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations with respect to the Debt Securities of its predecessor hereunder, with like effect as if originally named as Trustee herein; but, nevertheless, on the written request of the Company or of the successor Trustee, the Trustee ceasing to act shall, upon payment of the amounts then due it pursuant to the provisions of Section 6.06, execute and deliver an instrument transferring to such successor Trustee all the rights and powers of the Trustee so ceasing to act and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor Trustee all such rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a lien upon all property or funds held or collected by such Trustee to secure any amounts then due it pursuant to the provisions of Section 6.06. No successor Trustee shall accept appointment as provided in this Section unless at the time of such acceptance such successor Trustee shall be eligible and qualified under the provisions of Section 6.08. In no event shall a retiring Trustee be liable for the acts or omissions of any successor Trustee hereunder. - 34 - Upon acceptance of appointment by a successor Trustee as provided in this Section, the Company shall mail notice of the succession of such Trustee hereunder to the holders of Debt Securities at their addresses as they shall appear on the Debt Security Register. If the Company fails to mail such notice within ten Business Days after the acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the Company. SECTION 6.11 Succession by Merger, etc. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided, that such corporation shall be otherwise eligible and qualified under this Article. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Debt Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee, and deliver such Debt Securities so authenticated; and in case at that time any of the Debt Securities shall not have been authenticated, any successor to the Trustee may authenticate such Debt Securities either in the name of any predecessor hereunder or in the name of the successor Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Debt Securities or in this Indenture provided that the certificate of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or authenticate Debt Securities in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. SECTION 6.12 Authenticating Agents. There may be one or more Authenticating Agents appointed by the Trustee upon the request of the Company with power to act on its behalf and subject to its direction in the authentication and delivery of Debt Securities issued upon exchange or registration of transfer thereof as fully to all intents and purposes as though any such Authenticating Agent had been expressly authorized to authenticate and deliver Debt Securities; provided, however, that the Trustee shall not have any liability to the Company for any acts or omissions of the Authenticating Agent with respect to the authentication and delivery of Debt Securities. Any such Authenticating Agent shall at all times be a corporation organized and doing business under the laws of the United States or of any state thereof or of the District of Columbia authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of at least - 35 - $50,000,000 and being subject to supervision or examination by federal, state or District of Columbia authority. If such corporation publishes reports of condition at least annually pursuant to law or the requirements of such authority, then for the purposes of this Section the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect herein specified in this Section. Any corporation into which any Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any Authenticating Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of any Authenticating Agent, shall be the successor of such Authenticating Agent hereunder, if such successor corporation is otherwise eligible under this Section without the execution or filing of any paper or any further act on the part of the parties hereto or such Authenticating Agent. Any Authenticating Agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any Authenticating Agent with respect to the Debt Securities by giving written notice of termination to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any Authenticating Agent shall cease to be eligible under this Section, the Trustee may, and upon the request of the Company shall, promptly appoint a successor Authenticating Agent eligible under this Section, shall give written notice of such appointment to the Company and shall mail notice of such appointment to all holders of Debt Securities as the names and addresses of such holders appear on the Debt Security Register. Any successor Authenticating Agent, upon acceptance of its appointment hereunder, shall become vested with all rights, powers, duties and responsibilities of its predecessor hereunder, with like effect as if originally named as Authenticating Agent herein. The Company agrees to pay to any Authenticating Agent from time to time reasonable compensation for its services. Any Authenticating Agent shall have no responsibility or liability for any action taken by it as such in accordance with the directions of the Trustee. - 36 - ARTICLE VII CONCERNING THE SECURITYHOLDERS SECTION 7.01 Action by Securityholders. Whenever in this Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Debt Securities may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action the holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by such Securityholders in person or by agent or proxy appointed in writing, or (b) by the record of such holders of Debt Securities voting in favor thereof at any meeting of such Securityholders duly called and held in accordance with the provisions of Article VIII, or (c) by a combination of such instrument or instruments and any such record of such a meeting of such Securityholders, or (d) by any other method the Trustee deems satisfactory. If the Company shall solicit from the Securityholders any request, demand, authorization, direction, notice, consent, waiver or other action or revocation of the same, the Company may, at its option, as evidenced by an Officers' Certificate, fix in advance a record date for such Debt Securities for the determination of Securityholders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other action or revocation of the same, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other action or revocation of the same may be given before or after the record date, but only the Securityholders of record at the close of business on the record date shall be deemed to be Securityholders for the purposes of determining whether Securityholders of the requisite proportion of outstanding Debt Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other action or revocation of the same, and for that purpose the outstanding Debt Securities shall be computed as of the record date; provided, however, that no such authorization, agreement or consent by such Securityholders on the record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. SECTION 7.02 Proof of Execution by Securityholders. Subject to the provisions of Sections 6.01, 6.02 and 8.05, proof of the execution of any instrument by a Securityholder or such Securityholder's agent or proxy shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The ownership of Debt Securities shall be proved by the Debt Security Register or by a certificate of the Debt Security registrar. The Trustee may require such additional proof of any matter referred to in this Section as it shall deem necessary. - 37 - The record of any Securityholders' meeting shall be proved in the manner provided in Section 8.06. SECTION 7.03 Who Are Deemed Absolute Owners. Prior to due presentment for registration of transfer of any Debt Security, the Company, the Trustee, any Authenticating Agent, any Paying Agent, any transfer agent and any Debt Security registrar may deem the Person in whose name such Debt Security shall be registered upon the Debt Security Register to be, and may treat such Person as, the absolute owner of such Debt Security (whether or not such Debt Security shall be overdue) for the purpose of receiving payment of or on account of the principal of and premium, if any, and interest on such Debt Security and for all other purposes; and none of the Company, the Trustee, any Authenticating Agent, any Paying Agent, any transfer agent or any Debt Security registrar shall be affected by any notice to the contrary. All such payments so made to any holder for the time being or upon such holder's order shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Debt Security. SECTION 7.04 Debt Securities Owned by Company Deemed Not Outstanding. In determining whether the holders of the requisite aggregate principal amount of Debt Securities have concurred in any direction, consent or waiver under this Indenture, Debt Securities which are owned by the Company or any other obligor on the Debt Securities or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Debt Securities shall be disregarded and deemed not to be outstanding for the purpose of any such determination, provided, that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Debt Securities which a Responsible Officer of the Trustee actually knows are so owned shall be so disregarded. Debt Securities so owned which have been pledged in good faith may be regarded as outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Debt Securities and that the pledgee is not the Company or any such other obligor or Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any such other obligor. In the case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. - 38 - SECTION 7.05 Revocation of Consents; Future Holders Bound. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 7.01, of the taking of any action by the holders of the percentage in aggregate principal amount of the Debt Securities specified in this Indenture in connection with such action, any holder (in cases where no record date has been set pursuant to Section 7.01) or any holder as of an applicable record date (in cases where a record date has been set pursuant to Section 7.01) of a Debt Security (or any Debt Security issued in whole or in part in exchange or substitution therefor) the serial number of which is shown by the evidence to be included in the Debt Securities the holders of which have consented to such action may, by filing written notice with the Trustee at the Principal Office of the Trustee and upon proof of holding as provided in Section 7.02, revoke such action so far as concerns such Debt Security (or so far as concerns the principal amount represented by any exchanged or substituted Debt Security). Except as aforesaid any such action taken by the holder of any Debt Security shall be conclusive and binding upon such holder and upon all future holders and owners of such Debt Security, and of any Debt Security issued in exchange or substitution therefor or on registration of transfer thereof, irrespective of whether or not any notation in regard thereto is made upon such Debt Security or any Debt Security issued in exchange or substitution therefor. ARTICLE VIII SECURITYHOLDERS' MEETINGS SECTION 8.01 Purposes of Meetings. A meeting of Securityholders may be called at any time and from time to time pursuant to the provisions of this Article VIII for any of the following purposes: (a) to give any notice to the Company or to the Trustee, or to give any directions to the Trustee, or to consent to the waiving of any default hereunder and its consequences, or to take any other action authorized to be taken by Securityholders pursuant to any of the provisions of Article V; (b) to remove the Trustee and nominate a successor trustee pursuant to the provisions of Article VI; (c) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 9.02; or (d) to take any other action authorized to be taken by or on behalf of the holders of any specified aggregate principal amount of such Debt Securities under any other provision of this Indenture or under applicable law. - 39 - SECTION 8.02 Call of Meetings by Trustee. The Trustee may at any time call a meeting of Securityholders to take any action specified in Section 8.01, to be held at such time and at such place in The City of New York, the Borough of Manhattan, or Wilmington, Delaware, as the Trustee shall determine. Notice of every meeting of the Securityholders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed to holders of Debt Securities affected at their addresses as they shall appear on the Debt Securities Register. Such notice shall be mailed not less than 20 nor more than 180 days prior to the date fixed for the meeting. SECTION 8.03 Call of Meetings by Company or Securityholders. In case at any time the Company pursuant to a Board Resolution, or the holders of at least 10% in aggregate principal amount of the Debt Securities, as the case may be, then outstanding, shall have requested the Trustee to call a meeting of Securityholders, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within 20 days after receipt of such request, then the Company or such Securityholders may determine the time and the place in Austin, Texas for such meeting and may call such meeting to take any action authorized in Section 8.01, by mailing notice thereof as provided in Section 8.02. SECTION 8.04 Qualifications for Voting. To be entitled to vote at any meeting of Securityholders a Person shall be (a) a holder of one or more Debt Securities or (b) a Person appointed by an instrument in writing as proxy by a holder of one or more Debt Securities. The only Persons who shall be entitled to be present or to speak at any meeting of Securityholders shall be the Persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. SECTION 8.05 Regulations. Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Securityholders, in regard to proof of the holding of Debt Securities and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. - 40 - The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Securityholders as provided in Section 8.03, in which case the Company or the Securityholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by majority vote at the meeting. Subject to the provisions of Section 7.04, at any meeting each holder of Debt Securities with respect to which such meeting is being held or proxy therefor shall be entitled to one vote for each $1,000 principal amount of Debt Securities held or represented by such holder; provided, however, that no vote shall be cast or counted at any meeting in respect of any Debt Security challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Debt Securities held by such chairman or instruments in writing as aforesaid duly designating such chairman as the Person to vote on behalf of other Securityholders. Any meeting of Securityholders duly called pursuant to the provisions of Section 8.02 or 8.03 may be adjourned from time to time by a majority of those present, whether or not constituting a quorum, and the meeting may be held as so adjourned without further notice. SECTION 8.06 Voting. The vote upon any resolution submitted to any meeting of holders of Debt Securities with respect to which such meeting is being held shall be by written ballots on which shall be subscribed the signatures of such holders or of their representatives by proxy and the serial number or numbers of the Debt Securities held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in triplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Securityholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 8.02. The record shall show the serial numbers of the Debt Securities voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. - 41 - Any record so signed and verified shall be conclusive evidence of the matters therein stated. SECTION 8.07 Quorum; Actions. The Persons entitled to vote a majority in aggregate principal amount of the Debt Securities then outstanding shall constitute a quorum for a meeting of Securityholders; provided, however, that if any action is to be taken at such meeting with respect to a consent, waiver, request, demand, notice, authorization, direction or other action which may be given by the holders of not less than a specified percentage in aggregate principal amount of the Debt Securities then outstanding, the Persons holding or representing such specified percentage in aggregate principal amount of the Debt Securities then outstanding will constitute a quorum. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of Securityholders, be dissolved. In any other case, the meeting may be adjourned for a period of not less than 10 days as determined by the permanent chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the permanent chairman of the meeting prior to the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 8.02, except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage, as provided above, of the aggregate principal amount of the Debt Securities then outstanding which shall constitute a quorum. Except as limited by the proviso in the first paragraph of Section 9.02, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted by the affirmative vote of the holders of a majority in aggregate principal amount of the Debt Securities then outstanding; provided, however, that, except as limited by the proviso in the first paragraph of Section 9.02, any resolution with respect to any consent, waiver, request, demand, notice, authorization, direction or other action that this Indenture expressly provides may be given by the holders of not less than a specified percentage in outstanding principal amount of the Debt Securities may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid only by the affirmative vote of the holders of not less than such specified percentage in aggregate principal amount of the Debt Securities then outstanding. Any resolution passed or decision taken at any meeting of holders of Debt Securities duly held in accordance with this Section shall be binding on all the Securityholders, whether or not present or represented at the meeting. - 42 - ARTICLE IX SUPPLEMENTAL INDENTURES SECTION 9.01 Supplemental Indentures without Consent of Securityholders. The Company, when authorized by a Board Resolution, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto, without the consent of the Securityholders, for one or more of the following purposes: (a) to evidence the succession of another corporation to the Company, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of the Company, pursuant to Article XI hereof; (b) to add to the covenants of the Company such further covenants, restrictions or conditions for the protection of the holders of Debt Securities as the Board of Directors shall consider to be for the protection of the holders of such Debt Securities, and to make the occurrence, or the occurrence and continuance, of a Default in any of such additional covenants, restrictions or conditions a Default or an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided, however, that in respect of any such additional covenant, restriction or condition such supplemental indenture may provide for a particular period of grace after Default (which period may be shorter or longer than that allowed in the case of other Defaults) or may provide for an immediate enforcement upon such Default or may limit the remedies available to the Trustee upon such default; (c) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture, provided, that any such action shall not adversely affect the interests of the holders of the Debt Securities then outstanding; (d) to add to, delete from, or revise the terms of Debt Securities, including, without limitation, any terms relating to the issuance, exchange, registration or transfer of Debt Securities as required by Section 2.05 (for purposes of assuring that no registration of Debt Securities is required under the Securities Act of 1933, as amended), provided, that any such action shall not adversely affect the interests of the holders of the Debt Securities then outstanding; - 43 - (e) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.10; (f) to make any change (other than as elsewhere provided in this Section) that does not adversely affect the rights of any Securityholder in any material respect; or (g) to provide for the issuance of and establish the form and terms and conditions of the Debt Securities, to establish the form of any certifications required to be furnished pursuant to the terms of this Indenture or the Debt Securities, or to add to the rights of the holders of Debt Securities. The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer and assignment of any property thereunder, but the Trustee shall not be obligated to, but may in its discretion, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section may be executed by the Company and the Trustee without the consent of the holders of any of the Debt Securities at the time outstanding, notwithstanding any of the provisions of Section 9.02. SECTION 9.02 Supplemental Indentures with Consent of Securityholders. With the consent (evidenced as provided in Section 7.01) of the holders of a majority in aggregate principal amount of the Debt Securities at the time outstanding affected by such supplemental indenture, the Company, when authorized by a Board Resolution, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the Debt Securities; provided, however, that no such supplemental indenture shall, without the consent of the holders of each Debt Security then outstanding and affected thereby, (i) change the Maturity Date of any Debt Security, or reduce the principal amount thereof or any premium thereon, or reduce the rate (or manner of calculation of the rate) or extend the time of payment of interest thereon, or reduce (other than as a result of the maturity or earlier redemption of any such Debt Security in accordance with the terms of this Indenture and such Debt Security) or increase the aggregate principal amount of Debt Securities then outstanding, or change any of the redemption provisions, or make the principal thereof or any interest or premium thereon payable in any coin or currency other than United States Dollars, or impair or affect the right of any Securityholder to institute suit for payment thereof, or (ii) reduce the aforesaid percentage of Debt Securities the holders of which are required to consent to any such supplemental indenture. - 44 - Upon the request of the Company accompanied by a Board Resolution authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Securityholders as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section, the Trustee shall transmit by mail, first class postage prepaid, a notice, prepared by the Company, setting forth in general terms the substance of such supplemental indenture, to the Securityholders as their names and addresses appear upon the Debt Security Register. Any failure of the Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. It shall not be necessary for the consent of the Securityholders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. SECTION 9.03 Effect of Supplemental Indentures. Upon the execution of any supplemental indenture pursuant to the provisions of this Article IX, this Indenture shall be, and shall be deemed to be, modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Debt Securities shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. SECTION 9.04 Notation on Debt Securities. Debt Securities authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article IX may bear a notation as to any matter provided for in such supplemental indenture. If the Company or the Trustee shall so determine, new Debt Securities so modified as to conform, in the opinion of the Board of Directors of the Company, to any modification of this Indenture contained in any such supplemental indenture may be prepared and executed by the Company, authenticated by the Trustee or the Authenticating Agent and delivered in exchange for the Debt Securities then outstanding. - 45 - SECTION 9.05 Evidence of Compliance of Supplemental Indenture to be Furnished to Trustee. The Trustee, subject to the provisions of Sections 6.01 and 6.02, shall, in addition to the documents required by Section 14.06, receive an Officers' Certificate as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Article IX. The Trustee shall also receive an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant to this Article IX is authorized or permitted by, and conforms to, the terms of this Article IX and that it is proper for the Trustee under the provisions of this Article IX to join in the execution thereof. ARTICLE X REDEMPTION OF SECURITIES SECTION 10.01 Optional Redemption. The Company shall have the right to redeem the Debt Securities, in whole or (provided that all accrued and unpaid interest has been paid on all Debt Securities for all Interest Periods terminating on or prior to such date) from time to time in part, on any Interest Payment Date on or after May 23, 2008 (each, an "Optional Redemption Date"), at the Optional Redemption Price. SECTION 10.02 Notice of Redemption; Selection of Debt Securities. In case the Company shall desire to exercise the right to redeem all, or, as the case may be, any part of the Debt Securities, it shall fix a date for redemption and shall mail, or cause the Trustee to mail (at the expense of the Company), a notice of such redemption at least 30 and not more than 60 days prior to the date fixed for redemption to the holders of Debt Securities so to be redeemed as a whole or in part at their last addresses as the same appear on the Debt Security Register. Such mailing shall be by first class mail. The notice if mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the holder of any Debt Security designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Debt Security. - 46 - Each such notice of redemption shall specify the CUSIP number, if any, of the Debt Securities to be redeemed, the date fixed for redemption, the price (or manner of calculation of the price) at which Debt Securities are to be redeemed, the place or places of payment, that payment will be made upon presentation and surrender of such Debt Securities, that interest accrued to the date fixed for redemption will be paid as specified in said notice, and that on and after said date interest thereon or on the portions thereof to be redeemed will cease to accrue. If less than all the Debt Securities are to be redeemed, the notice of redemption shall specify the numbers of the Debt Securities to be redeemed. In case the Debt Securities are to be redeemed in part only, the notice of redemption shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the date fixed for redemption, upon surrender of such Debt Security, a new Debt Security or Debt Securities in principal amount equal to the unredeemed portion thereof will be issued. Prior to 10:00 a.m., New York City time, on the Optional Redemption Date specified in the notice of redemption given as provided in this Section, the Company will deposit with the Trustee or with one or more Paying Agents an amount of money sufficient to redeem on such date all the Debt Securities so called for redemption at the applicable price therefor, together with unpaid interest accrued to such date. The Company will give the Trustee notice not less than 45 nor more than 60 days prior to the date fixed for redemption as to the price at which the Debt Securities are to be redeemed and the aggregate principal amount of Debt Securities to be redeemed and the Trustee shall select, in such manner as in its sole discretion it shall deem appropriate and fair, the Debt Securities or portions thereof (in integral multiples of $1,000) to be redeemed. SECTION 10.03 Payment of Debt Securities Called for Redemption. If notice of redemption has been given as provided in Section 10.02, the Debt Securities or portions of Debt Securities with respect to which such notice has been given shall become due and payable on the related Optional Redemption Date and at the place or places stated in such notice at the applicable price therefor, together with unpaid interest accrued thereon to said Optional Redemption Date, and on and after said Optional Redemption Date (unless the Company shall default in the payment of such Debt Securities at the redemption price, together with unpaid interest accrued thereon to said date) interest on the Debt Securities or portions of Debt Securities so called for redemption shall cease to accrue. On presentation and surrender of such Debt Securities at a place of payment specified in said notice, such Debt Securities or the specified portions thereof shall be paid and redeemed by the Company at the applicable price therefor, together with unpaid interest accrued thereon to said Optional Redemption Date. Upon presentation of any Debt Security redeemed in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to the holder thereof, at the expense of the Company, a new Debt Security or Debt Securities of authorized denominations in principal amount equal to the unredeemed portion of the Debt Security so presented. - 47 - ARTICLE XI CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE SECTION 11.01 Company May Consolidate, etc., on Certain Terms. Nothing contained in this Indenture or in the Debt Securities shall prevent any consolidation or merger of the Company with or into any other corporation or corporations (whether or not affiliated with the Company) or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or shall prevent any sale, conveyance, transfer or other disposition of all or substantially all of the property or capital stock of the Company or its successor or successors to any other corporation (whether or not affiliated with the Company, or its successor or successors) authorized to acquire and operate the same; provided, however, that the Company hereby covenants and agrees that (i) upon any such consolidation, merger (where the Company is not the surviving corporation), sale, conveyance, transfer or other disposition, the successor entity shall be a corporation organized and existing under the laws of the United States or any state thereof or the District of Columbia (unless such corporation has agreed to make all payments due in respect of the Debt Securities without withholding or deduction for, or on account of, any taxes, duties, assessments or other governmental charges under the laws or regulations of the jurisdiction of organization or residence (for tax purposes) of such corporation or any political subdivision or taxing authority thereof or therein unless required by applicable law, in which case such corporation shall have agreed to pay such additional amounts as shall be required so that the net amounts received and retained by the Securityholders, after payment of all taxes (including withholding taxes), duties, assessments or other governmental charges, will be equal to the amounts that such Securityholders would have received and retained had no such taxes (including withholding taxes), duties, assessments or other governmental charges been imposed) and such corporation expressly assumes all of the obligations of the Company under the Debt Securities and this Indenture and (ii) after giving effect to any such consolidation, merger, sale, conveyance, transfer or other disposition, no Default or Event of Default shall have occurred and be continuing. SECTION 11.02 Successor Entity to be Substituted. In case of any such consolidation, merger, sale, conveyance, transfer or other disposition contemplated in Section 11.01 and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and reasonably satisfactory in form to the Trustee, of the due and punctual payment of the principal of and premium, if any, and interest on all of the Debt Securities and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed or observed by the Company, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the Company, and thereupon the predecessor entity shall be relieved of any further liability or obligation hereunder or upon the Debt Securities. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of the Company, any or all of the Debt Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the - 48 - Trustee or the Authenticating Agent; and, upon the order of such successor corporation instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee or the Authenticating Agent shall authenticate and deliver any Debt Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee or the Authenticating Agent for authentication, and any Debt Securities which such successor corporation thereafter shall cause to be signed and delivered to the Trustee or the Authenticating Agent for that purpose. All the Debt Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Debt Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Debt Securities had been issued at the date of the execution hereof. SECTION 11.03 Opinion of Counsel to be Given to Trustee. The Trustee, subject to the provisions of Sections 6.01 and 6.02, shall receive, in addition to the Opinion of Counsel required by Section 9.05, an Opinion of Counsel as conclusive evidence that any consolidation, merger, sale, conveyance, transfer or other disposition, and any assumption, permitted or required by the terms of this Article XI complies with the provisions of this Article XI. ARTICLE XII SATISFACTION AND DISCHARGE OF INDENTURE SECTION 12.01 Discharge of Indenture. When (a) the Company shall deliver to the Trustee for cancellation all Debt Securities theretofore authenticated (other than any Debt Securities which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.06) and not theretofore canceled, or (b) all the Debt Securities not theretofore canceled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit with the Trustee, in trust, funds, which shall be immediately due and payable, sufficient to pay at maturity or upon redemption, as the case may be, all of the Debt Securities (other than any Debt Securities which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.06) not theretofore canceled or delivered to the Trustee for cancellation, including principal and premium, if any, and interest due or to become due to the Maturity Date or any Optional Redemption Date, as the case may be, but excluding, however, the amount of any moneys for the payment of principal of and premium, if any, or interest on the Debt Securities (1) theretofore repaid to the Company in accordance with the provisions of Section 12.04, or (2) paid to any state or to the District of Columbia pursuant to its unclaimed property or similar laws, and if in the case of either clause (a) or (b) above the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further effect except for the provisions of Sections 2.05, 2.06, 3.01, - 49 - 3.02, 3.04, 6.06, 6.09 and 12.04 hereof, which shall survive until such Debt Securities shall mature or are redeemed, as the case may be, and are paid in full. Thereafter, Sections 6.06, 6.09 and 12.04 shall survive, and the Trustee, on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with, and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture, provided, however, that the Company hereby agrees to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred by the Trustee in connection with this Indenture or the Debt Securities. SECTION 12.02 Deposited Moneys to be Held in Trust by Trustee. Subject to the provisions of Section 12.04, all moneys deposited with the Trustee pursuant to Section 12.01 shall be held in trust and applied by it to the payment, either directly or through any Paying Agent (including the Company if acting as its own Paying Agent), to the holders of the particular Debt Securities for the payment of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for principal, premium, if any, and interest. SECTION 12.03 Paying Agent to Repay Moneys Held. Upon the satisfaction and discharge of this Indenture, all moneys then held by any Paying Agent of the Debt Securities (other than the Trustee) shall, upon demand of the Company, be repaid to the Company or paid to the Trustee, and thereupon such Paying Agent shall be released from all further liability with respect to such moneys. SECTION 12.04 Return of Unclaimed Moneys. Any moneys deposited with or paid to the Trustee or any Paying Agent for payment of the principal of and premium, if any, or interest on Debt Securities and not applied but remaining unclaimed by the holders of Debt Securities for two years after the date upon which such principal, premium, if any, or interest, as the case may be, shall have become due and payable, shall be repaid to the Company by the Trustee or such Paying Agent on written demand; and the holder of any of the Debt Securities shall thereafter look only to the Company for any payment which such holder may be entitled to collect and all liability of the Trustee or such Paying Agent with respect to such moneys shall thereupon cease. - 50 - ARTICLE XIII IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS SECTION 13.01 Indenture and Debt Securities Solely Corporate Obligations. No recourse for the payment of the principal of or premium, if any, or interest on any Debt Security, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture or in any supplemental indenture, or in any such Debt Security, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer, director, employee or agent, as such, past, present or future, of the Company or of any predecessor or successor corporation of the Company, either directly or through the Company or any successor corporation of the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of the Debt Securities. ARTICLE XIV MISCELLANEOUS PROVISIONS SECTION 14.01 Successors. All the covenants, stipulations, promises and agreements of the Company contained in this Indenture shall bind its successors and assigns, whether so expressed or not. SECTION 14.02 Official Acts by Successor Entity. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the like board, committee, officer or other authorized Person of any entity that shall at the time be the lawful successor of the Company. SECTION 14.03 Surrender of Company Powers. The Company, by instrument in writing executed by authority of 2/3 (two thirds) of its Board of Directors and delivered to the Trustee, may surrender any of the powers reserved to the Company and thereupon such power so surrendered shall terminate both as to the Company and as to any permitted successor. - 51 - SECTION 14.04 Addresses for Notices, etc. Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the Securityholders on the Company may be given or served in writing by being deposited postage prepaid by registered or certified mail in a post office letter box addressed (until another address is filed by the Company with the Trustee for such purpose) to the Company at 6500 River Place Boulevard, Building. 1, Austin, Texas 78730, Attention: Theodore A. Fleron. Any notice, direction, request or demand by any Securityholder or the Company to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or made in writing at the office of Wilmington Trust Company at Rodney Square North, 1100 North Market Street, Wilmington, DE 19890-0001, Attention: Corporate Trust Administration. SECTION 14.05 Governing Law. This Indenture and the Debt Securities shall each be governed by, and construed in accordance with, the laws of the State of New York, without regard to conflict of laws principles of said State other than Section 5-1401 of the New York General Obligations Law. SECTION 14.06 Evidence of Compliance with Conditions Precedent. Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that in the opinion of the signers all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with (except that no such Opinion of Counsel is required to be furnished to the Trustee in connection with the authentication and issuance of Debt Securities issued on the date of this Indenture). Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture (except certificates delivered pursuant to Section 3.05) shall include (a) a statement that the person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. - 52 - SECTION 14.07 Business Day Convention. Notwithstanding anything to the contrary contained herein, if any Interest Payment Date, other than the Maturity Date or any Optional Redemption Date, falls on a day that is not a Business Day, then any interest payable will be paid on, and such Interest Payment Date will be moved to, the next succeeding Business Day, and additional interest will accrue for each day that such payment is delayed as a result thereof. If the Maturity Date or any Optional Redemption Date falls on a day that is not a Business Day, then the principal, premium, if any, and/or interest payable on such date will be paid on the next succeeding Business Day, and no additional interest will accrue in respect of such payment made on such next succeeding Business Day. SECTION 14.08 Table of Contents, Headings, etc. The table of contents and the titles and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. SECTION 14.09 Execution in Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. SECTION 14.10 Separability. In case any one or more of the provisions contained in this Indenture or in the Debt Securities shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Indenture or of such Debt Securities, but this Indenture and such Debt Securities shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein or therein. SECTION 14.11 Assignment. Subject to Article XI, the Company will have the right at all times to assign any of its rights or obligations under this Indenture and the Debt Securities to a direct or indirect wholly owned Subsidiary of the Company; provided, however, that, in the event of any such assignment, the Company shall remain liable for all such obligations. Subject to the foregoing, this Indenture is binding upon and inures to the benefit of the parties hereto and their respective successors and assigns. This Indenture may not otherwise be assigned by the parties thereto. - 53 - Wilmington Trust Company, in its capacity as Trustee, hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions herein above set forth. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed by their respective officers thereunto duly authorized, as of the day and year first above written. FINANCIAL INDUSTRIES CORPORATION By:____________________________________ Name: Title: WILMINGTON TRUST COMPANY, as Trustee By: ___________________________________ Name: Title: - 54 - EXHIBIT A FORM OF DEBT SECURITY [FORM OF FACE OF SECURITY] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY OR ANY INTEREST OR PARTICIPATION HEREIN, BY ITS ACCEPTANCE HEREOF OR THEREOF, AS THE CASE MAY BE, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY OR ANY INTEREST OR PARTICIPATION HEREIN PRIOR TO THE DATE WHICH IS THE LATER OF (i) TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(k) OF THE SECURITIES ACT) AFTER THE LATER OF (Y) THE DATE OF ORIGINAL ISSUANCE HEREOF AND (Z) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE (AS DEFINED IN RULE 405 UNDER THE SECURITIES ACT) OF THE COMPANY WAS THE HOLDER OF THIS SECURITY OR SUCH INTEREST OR PARTICIPATION (OR ANY PREDECESSOR THERETO) AND (ii) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY ANY SUBSEQUENT CHANGE IN APPLICABLE LAW, ONLY (A) TO THE COMPANY, (B) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON THE HOLDER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER", AS DEFINED IN RULE 144A, THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a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i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE AND HOLDING WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION. IN CONNECTION WITH ANY TRANSFER, THE HOLDER OF THIS SECURITY WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY THE INDENTURE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN MINIMUM DENOMINATIONS OF $100,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF THIS SECURITY IN DENOMINATIONS OF LESS THAN $100,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF THIS SECURITY OR ANY INTEREST OR PARTICIPATION HEREIN FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF DISTRIBUTIONS ON THIS SECURITY OR SUCH INTEREST OR PARTICIPATION, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN THIS SECURITY OR ANY INTEREST OR PARTICIPATION HEREIN. A-2 Floating Rate Senior Debt Security due 2033 of FINANCIAL INDUSTRIES CORPORATION Financial Industries Corporation, a holding company incorporated in the State of Texas (the "Company", which term includes any successor permitted under the Indenture (as defined herein)), for value received, promises to pay to JPMorgan Chase Bank, as Trustee for the benefit of the Noteholders of InCapS Funding I, Ltd., or registered assigns, the principal amount of FIFTEEN MILLION Dollars ($15,000,000) on May __, 2033 (the "Maturity Date") (or any Optional Redemption Date, as defined herein, or any earlier date of acceleration of the maturity of this Debt Security), and to pay interest on the outstanding principal amount of this Debt Security from May 22, 2003, or from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for, quarterly in arrears on February 23, May 23, August 23 and November 23 of each year, commencing on August 23, 2003 (each, an "Interest Payment Date"), at a floating rate per annum, which, with respect to any Interest Period (as defined in the Indenture), will be equal to LIBOR (as defined in the Indenture), as determined on the LIBOR Determination Date (as defined in the Indenture) for such Interest Period, plus 4.20% (the "Interest Rate") (provided that the Interest Rate for any Interest Period prior to the Interest Period commencing on the Interest Payment Date in May 2008 may not exceed 12.5% per annum; and provided, further, that the Interest Rate for any Interest Period may not exceed the highest rate permitted by New York law, as the same may be modified by United States law of general application) until the principal hereof shall have been paid or duly provided for, and on any overdue principal and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at an annual rate equal to the then applicable Interest Rate, compounded quarterly. The amount of interest payable for any Interest Period shall be computed on the basis of a 360-day year and the actual number of days elapsed in such Interest Period. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Debt Security (or one or more Predecessor Securities, as defined in the Indenture) is registered at the close of business on the "regular record date" for such interest installment, which shall be the fifteenth day prior to such Interest Payment Date, whether or not such day is a Business Day (as defined herein). Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the holders on such regular record date and may be paid to the Person in whose name this Debt Security (or one or more Predecessor Securities) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the holders of the Debt Securities not less than 10 days prior to such special record date, all as more fully provided in the Indenture. A-3 Payment of the principal of and premium, if any, and interest on this Debt Security due on the Maturity Date or any Optional Redemption Date, as the case may be, shall be made in immediately available funds against presentation and surrender of this Debt Security at the office or agency of the Trustee maintained for that purpose in Wilmington, Delaware, or at the office or agency of any other Paying Agent appointed by the Company maintained for that purpose in Wilmington, Delaware or Austin, Texas. Payment of interest on this Debt Security due on any Interest Payment Date other than the Maturity Date or any Optional Redemption Date, as the case may be, shall be made at the option of the Company by check mailed to the holder thereof at such address as shall appear in the Debt Security Register or by wire transfer of immediately available funds to an account appropriately designated by the holder hereof. Notwithstanding the foregoing, so long as the holder of this Debt Security is InCapS Funding I, Ltd. or a trustee thereof, payment of the principal of and premium, if any, and interest on this Debt Security shall be made in immediately available funds when due at such place and to such account as may be designated by InCapS Funding I, Ltd. or a trustee thereof. All payments in respect of this Debt Security shall be payable in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts. Notwithstanding anything to the contrary contained herein, if any Interest Payment Date, other than the Maturity Date or any Optional Redemption Date, falls on a day that is not a Business Day, then any interest payable will be paid on, and such Interest Payment Date will be moved to, the next succeeding Business Day, and additional interest will accrue for each day that such payment is delayed as a result thereof. If the Maturity Date or any Optional Redemption Date falls on a day that is not a Business Day, then the principal, premium, if any, and/or interest payable on such date will be paid on the next succeeding Business Day, and no additional interest will accrue in respect of such payment made on such next succeeding Business Day. The Company waives diligence, presentment, demand for payment, notice of nonpayment, notice of protest, and all other demands and notices. This Debt Security shall not be entitled to any benefit under the Indenture and shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Debt Security are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. A-4 IN WITNESS WHEREOF, the Company has duly executed this certificate. FINANCIAL INDUSTRIES CORPORATION By: ___________________________________ Name: Title: Dated: May 22, 2003 CERTIFICATE OF AUTHENTICATION This is one of the Debt Securities referred to in the within-mentioned Indenture. WILMINGTON TRUST COMPANY, not in its individual capacity but solely as the Trustee By: ___________________________________ Authorized Officer Dated: May 22, 2003 A-5 [FORM OF REVERSE OF SECURITY] This Debt Security is one of a duly authorized series of debt securities of the Company (collectively, the "Debt Securities"), all issued or to be issued pursuant to an Indenture (the "Indenture"), dated as of May 22, 2003, duly executed and delivered between the Company and Wilmington Trust Company, as Trustee (the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Debt Securities of which this Debt Security is a part. The Company shall have the right to redeem this Debt Security at its option, in whole or (provided that all accrued and unpaid interest has been paid on all Debt Securities for all Interest Periods terminating on or prior to such date) from time to time in part, on any Interest Payment Date on or after May 23, 2008 (each, an "Optional Redemption Date"), at the Optional Redemption Price (as defined herein). Any redemption pursuant to the preceding paragraph will be made upon not less than 30 days' nor more than 60 days' prior written notice. If the Debt Securities are only partially redeemed by the Company, the Debt Securities will be redeemed pro rata or by any other method utilized by the Trustee. In the event of redemption of this Debt Security in part only, a new Debt Security or Debt Securities for the unredeemed portion hereof will be issued in the name of the holder hereof upon the cancellation hereof. "Optional Redemption Price" means an amount in cash equal to 100% of the principal amount of this Debt Security being redeemed plus unpaid interest accrued thereon to the Optional Redemption Date. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Debt Securities may be declared, and, in certain cases, shall ipso facto become, due and payable, and upon any such declaration of acceleration shall become due and payable, in each case, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of a majority in aggregate principal amount of the Debt Securities at the time outstanding affected thereby, as specified in the Indenture, to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the Debt Securities; provided, however, that no such supplemental indenture shall, among other things, without the consent of the holders of each Debt Security then outstanding and affected thereby (i) change the Maturity Date of any Debt Security, or reduce the principal amount thereof or any premium thereon, or reduce the rate (or manner of calculation of the rate) or extend the time of payment of interest thereon, or reduce (other than A-6 as a result of the maturity or earlier redemption of any such Debt Security in accordance with the terms of the Indenture and such Debt Security) or increase the aggregate principal amount of Debt Securities then outstanding, or change any of the redemption provisions, or make the principal thereof or any interest or premium thereon payable in any coin or currency other than United States Dollars, or impair or affect the right of any holder to institute suit for payment thereof, or (ii) reduce the aforesaid percentage of Debt Securities the holders of which are required to consent to any such supplemental indenture. The Indenture also contains provisions permitting the holders of a majority in aggregate principal amount of the Debt Securities at the time outstanding, on behalf of the holders of all the Debt Securities, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture, and its consequences, except (a) a default in payments due in respect of any of the Debt Securities or (b) in respect of covenants or provisions of the Indenture which cannot be modified or amended without the consent of the holder of each Debt Security affected. Any such consent or waiver by the holder of this Debt Security (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Debt Security and of any Debt Security issued in exchange herefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Debt Security. No reference herein to the Indenture and no provision of this Debt Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to make all payments due in respect of this Debt Security at the time and place and at the rate and in the money herein prescribed. As provided in the Indenture and subject to certain limitations herein and therein set forth, this Debt Security is transferable by the holder hereof on the Debt Security Register (as defined in the Indenture) of the Company, upon surrender of this Debt Security for registration of transfer at the office or agency of the Trustee in Wilmington, Delaware, or at any other office or agency of the Company in Wilmington, Delaware or Austin, Texas, accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the holder hereof or such holder's attorney duly authorized in writing, and thereupon one or more new Debt Securities of authorized denominations and for the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be made for any such registration of transfer, but the Company or the Trustee may require payment of a sum sufficient to cover any tax, fee or other governmental charge payable in relation thereto as specified in the Indenture. A-7 Prior to due presentment for registration of transfer of this Debt Security, the Company, the Trustee, any Authenticating Agent, any Paying Agent, any transfer agent and the Debt Security registrar may deem and treat the holder hereof as the absolute owner hereof (whether or not this Debt Security shall be overdue and notwithstanding any notice of ownership or writing hereon) for the purpose of receiving payment of the principal of and premium, if any, and interest on this Debt Security and for all other purposes, and none of the Company, the Trustee, any Authenticating Agent, any Paying Agent, any transfer agent or any Debt Security registrar shall be affected by any notice to the contrary. As provided in the Indenture and subject to certain limitations herein and therein set forth, Debt Securities are exchangeable for a like aggregate principal amount of Debt Securities of different authorized denominations, as requested by the holder surrendering the same. The Debt Securities are issuable only in registered certificated form without coupons. No recourse shall be had for the payment of the principal of or premium, if any, or interest on this Debt Security, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer, director, employee or agent, past, present or future, as such, of the Company or of any predecessor or successor corporation of the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. All terms used but not defined in this Debt Security shall have the meanings assigned to them in the Indenture. THIS DEBT SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES OF SAID STATE OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. A-8 EXHIBIT B FORM OF OFFICERS' CERTIFICATE QUARTERLY FINANCIAL REPORT TO: Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890-0001 Attention: Corporate Trust Administration PLEASE COMPLETE FOR EACH INSURANCE SUBSIDIARY Name of Insurance Company:._________________________________ Date of Report: ___________ Current A.M. Best Insurer's Financial Strength Rating: ___________ Please provide the following information for the most recent quarterly period ended Quarter: __ March 31 __ June 30 __ September 30 __ December 31 Year: 20___ Most Recently Reported NAIC Risk Based Capital Ratio ___________% Total Policyholders' Surplus $__________ Ratio of Consolidated Debt and Preferred Stock to Total Policyholders' Surplus ___________% Total Admitted Assets $__________ Ratio of NAIC Class 1 & 2 Rated Investments to Total Fixed Income Investments ___________% Ratio of NAIC Class 1 & 2 Rated Investments to Total Investments ___________% Return on Policyholders' Surplus for the Trailing Twelve Month Period ___________% B-1 For Property & Casualty Companies: Expense Ratio ___________% Loss and LAE Ratio ___________% Combined Ratio . ___________% Net Premiums Written (trailing twelve month period) to Policyholders' Surplus. ___________% B-2 CERTIFICATION The undersigned hereby certifies that he/she has duly executed the attached Quarterly Financial Report, dated ______, __, for and on behalf of ____________, that he/she is the _______________ of such Company, and that he/she has authority to execute and file such instrument. The undersigned further certifies that he/she is familiar with such instrument and that the facts therein set forth are true to the best of his/her knowledge, information and belief. Name: _________________________________ B-3 LEGEND NAIC Risk Based Capital Ratio-P&C (Total Adjusted Capital (as defined in the NAIC RBC Instructions for P & C Insurers)/Authorized Control Level Risk- Based Capital) NAIC Risk Based Capital Ratio-Life (Total Adjusted Capital (as defined in the NAIC RBC Instructions for Life Insurers)/Authorized Control Level Risk- Based Capital) Total Capital and Surplus-Life Common Capital Stock + Preferred Capital Stock + Aggregate Write-Ins for other than special surplus funds + Surplus Notes + Gross Paid-In and Contributed Surplus +Aggregate Write-Ins for Special Surplus Funds +Unassigned Funds(Surplus) + Asset Valuation Reserve-Treasury Stock Total Capital and Surplus-P&C Aggregate Write-Ins for Special Surplus Funds + Common Capital Stock + Preferred Capital Stock + Aggregate Write-Ins for other than special surplus funds + Surplus Notes + Gross Paid-In and Con- tributed Surplus + Unassigned Funds (Surplus) - Treasury Stock Total Admitted Assets Total admitted assets as determined in accordance with statutory accounting principles Return on Policyholders' Surplus Net Income/Policyholders' Surplus for for the Trailing Twelve Month Period the Trailing Twelve Month Period Expense Ratio Other Underwriting Expenses Incurred/Net premiums Earned Loss and LAE Ratio (Losses Incurred + Loss Expenses Incurred)/Net Premiums Earned Combined Ratio Expense Ratio + Loss and LAE Ratio Net Premiums Written (trailing Net Premiums Written of the trailing twelve month period) to twelve month period / Policyholders' Policyholders' Surplus Surplus B-4 EX-99 15 press-release.txt EXHIBIT 99.1 - PRESS RELEASE OF 6/5/03 EXHIBIT 99.1 (BW) (Financial Industries Corporation) (FNIN) Financial Industries Corporation Acquires Three Companies Creates Niche in the Secondary Education Market AUSTIN, Texas - (BUSINESS WIRE) - June 5, 2003 - Financial Industries Corporation (FIC) announced today that it has acquired three companies in the secondary education financial services market, and is now positioned to become an industry leader in that market. The acquisitions were executed as a component of the strategic business plan outlined last spring by FIC's new management team, and are part of its vision to implement a comprehensive marketing plan for the company. The acquired companies will operate through a newly created, wholly owned subsidiary called FIC Financial Services, Inc., and include: o TotalCompensation Group Consulting, Inc., a consulting firm and registered investment advisor; o Paragon, a group of three companies providing employee benefits products and services; o JNT Group, Inc., an independent fee-based third party administrator. The total consideration for these acquisition transactions is $6.9 million payable 56% in cash and 44% in FIC stock. The FIC stock is subject to forfeiture in the event that certain business targets are not met. The company received a favorable fairness opinion on these transactions from its financial advisor, Advest, Inc., and the transactions were approved last week by the company's Board of Directors. "Each of these three companies brings to FIC knowledgeable people with developed relationships, and a proven track record providing benefit plan services and products for the educator and school administrator marketplace," said Eugene Payne, CEO, President and Chairman of FIC. "When they come together as FIC Financial Services, FIC expects to be transformed from a company offering a limited number of life insurance and fixed annuity products to a financial services organization offering a wide range of products." Payne also announced that William P. Tedrow, an insurance industry veteran with over 30 years experience, has been named President of FIC Financial Services, Inc. The founders of each of the three acquired companies have entered into employment agreements with the newly created subsidiary of FIC, which will employ approximately 32 people in addition to its managed agency force. It will be located with parent company FIC in Austin, Texas. - 1 - "The entire new management team at FIC is excited by the business prospects these three acquisitions bring to our company," said Payne. "FIC is now positioned to become a premier player in an important market niche, while the growth from the new subsidiary will result in a significant improvement in FIC's overall cost structure." The complete acquisition package was facilitated for FIC by representatives of American Physicians Service Group, Inc. (APS) and Equita Financial and Insurance Services, a new marketing partner for FIC. APS and Equita will receive options to purchase 492,000 shares of FIC stock at $16.42 per share (120% of the average closing price for the 15 trading days ended June 3, 2003) exercisable only if the newly formed subsidiary, FIC Financial Services, Inc., produces over $200 million in sales between July 1, 2003, and December 31, 2005. No options can be exercised if the new sales target is not reached. Equita was also granted an option to purchase 158,000 shares of FIC stock at $16.42 per share, fully exercisable only if its marketing activities generate over $360 million in sales. Last year FIC produced a total of $22 million in annuity and life insurance sales; 74 percent in annuities. A designated representative of each APS and Equita will fill two vacancies on FIC's Board of Directors created by the resignations of Roy and Scott Mitte. In a separate transaction, APS and an affiliate of Equita also announced today that they had purchased approximately 312, 484 shares and 204,918 shares, respectively, of FIC stock. A majority of this stock was purchased from the Mitte Foundation, and represents a reduction in shares for which FIC was to locate a purchaser in connection with the previously announced settlement between FIC, Mitte family members, and the Mitte Foundation. An additional 27,395 shares were purchased by APS from FIC, and represent some of the shares FIC purchased from Roy Mitte in connection with the same settlement agreement. About Total Compensation Group Consulting, Inc. TCG Consulting focuses on large employer group consulting and investment advisory services to educators' groups. The company provides retirement plan design and management services on a for-fee basis. About Paragon Paragon generates its revenue principally through the direct sales of supplemental insurance products, life insurance and annuity products. These products are sold to educators, city and state employees. Currently, Paragon employs 20 managed agents and has more than 450 broker relationships selling a broad range of products from a variety of insurers. About JNT Group, Inc. JNT Group is a fee-only third-party administrative services company. JNT's revenues are driven by administration fees paid by employers who receive JNT services. JNT currently administers plans for more than 60 school districts. - 2 - About Financial Industries Corporation FIC, through its various subsidiaries, owns real estate, an actuarial consulting firm, and markets and underwrites individual life insurance and annuity products. For more information on FIC, go to http://www.ficgroup.com This release may be considered proxy solicitation material. Information about the participants in such solicitation may be found in a filing on Schedule 14A made with the Securities and Exchange Commission (SEC) on April 18, 2003, or by contacting the Company at 512/404-5000. Shareholders are urged to read the Company's proxy statement carefully when it becomes available because it will contain important information. The proxy statement and other relevant documents will be available for free at the SEC's website at www.sec.gov, or by contacting the Company at 512/404-5000. This release may contain "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to risks, uncertainty and changes in circumstances, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Investors are reminded that these forward-looking statements must be considered in conjunction with the cautionary warnings and risk-factors which are detailed in the Company's most recent Annual Report on Form 10-K , Quarterly Report on Form 10-Q, and its other filings with the Securities and Exchange Commission. FIC is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise. Contact: Bob Bender, Corporate Relations Officer, 512-404-5080, bbender@ficgroup.com - 3 - -----END PRIVACY-ENHANCED MESSAGE-----