Financial Industries Corporation
Austin Centre, 701 Brazos
Austin, Texas 78701
Dear Shareholder:
You are invited to attend the Annual Meeting of Shareholders of
Financial Industries Corporation, which will be held at the Austin
Centre, 701 Brazos, Austin, Texas 78701 on May 19, 1998, at 11:00
a.m. local time. For those of you who cannot be present at this
meeting, we urge that you participate by indicating your choices on
the enclosed proxy and completing and returning it to us in the
enclosed postage paid envelope at your earliest convenience. By
returning your proxy promptly, you will assist us in reducing the
Company's expenses relating to the meeting. You can revoke your
signed proxy at any time before it is used.
We appreciate your support and cooperation in returning the enclosed
proxy.
Cordially,
Roy F. Mitte
Chairman, President and Chief Executive
Officer
Financial Industries Corporation
Austin Centre, 701 Brazos
Austin, Texas 78701
Notice is hereby given that the 1998 Annual Meeting of Shareholders
of Financial Industries Corporation is scheduled to be held at the
Austin Centre, 701 Brazos, Austin, Texas 78701 on May 19, 1998,
11:00 a.m., local time, for the following purposes:
1. The election of eleven Directors for the ensuing year.
2. Such other business that may properly come before the
meeting or any adjournment thereof.
Only those Shareholders of record at the closed of business on March
27, 1998 (the "Record Date") will be entitled to notice of and vote
at the meeting or any adjournment thereof.
The Proxy Statement accompanies this notice.
April 16, 1998
By Order of the Board of Directors
Eugene E. Payne
Secretary
YOUR VOTE IS IMPORTANT
We hope that you will be able to attend the meeting in person. IF
YOU DO NOT EXPECT TO ATTEND IN PERSON, PLEASE SIGN AND DATE THE
ENCLOSED PROXY AND MAIL IT PROMPTLY in the enclosed envelope for
which no postage is necessary if mailed in the United States. It
will assist us in reducing the expenses of the Annual Meeting if
shareholders who do not attend in person return the signed proxy
promptly. You may revoke your proxy at any time before it is voted.
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS OF
Financial Industries Corporation
Austin Centre 701 Brazos Austin, Texas 78701
This Proxy is furnished in connection with the solicitation of
proxies by the Board of Directors of Financial Industries Corporation
(FIC or the Company) for use at the Annual Meeting of Shareholders to
be held May 19, 1998, at the Austin Centre, 701 Brazos, Austin, Texas
78701. Solicitation of proxies may be made by mail and telephone and
the expenses will be borne by FIC. The Company intends to reimburse
broker-dealers and others for forwarding the proxy materials to
beneficial owners of FIC's Common Stock. The approximate date on
which this Proxy Statement and the enclosed Form of Proxy will be
sent or given to shareholders is April 16, 1998.
A copy of FIC's Annual Report of Shareholders for the year ended
December 31, 1997, including financial statements, has either been
previously forwarded to Shareholders or is included with this Proxy
Statement.
A copy of the Company's Annual Report to the Securities and Exchange
Commission on form 10-K, including Financial Statements and Financial
Schedules, may be obtained by Shareholders without charge upon the receipt of a
written request addressed to Robert S. Cox, Financial Industries Corporation,
Austin Centre, 701 Brazos, Austin, Texas 78701.
Only shareholders of record on the books of FIC at the closed of
business on March 27, 1998, will be entitled to vote at the Annual
Meeting. At the close of business on such date, there were
outstanding and entitled to vote 5,427,965 shares of Common Stock.
Each shareholder of FIC Common Stock is entitled to one vote for each
share standing in his or her name on the books of the Company, as of
the Record Date, on all business to come before the meeting.
However, in voting for Directors, each shareholder may cumulate votes
for the election of Directors for those candidates whose names have
been placed in nomination; that is, each Shareholder may cast as many
votes as there are Directors to be elected multiplied by the number
of shares then registered in his or her name and to cast all such
votes for one candidate or distribute such votes among the nominees
for Director in accordance with the Shareholder's choice. Each share
will be entitled to eleven (11) votes on a cumulative basis in voting
for Directors. The right to vote cumulatively may be exercised only
in the event that a Shareholder gives written notice of his decision
to vote cumulatively to the Secretary of FIC on or before the day
preceding the Annual Meeting. If any Shareholder complies with that
written notice requirement, all Shareholders may cumulate their
votes. FIC's management does not intend to request cumulative voting
of their shares and is not aware of an intention by any Shareholder
to do so. However, should any Shareholder elect to vote
cumulatively, the person authorized to vote shares represented by
executed proxies, if authority to vote for the election of Directors
is not withheld, will have full discretion and authority to vote
cumulatively and to allocate votes among any or all of the Board of
Directors' nominees as they may determine or, if authority to vote
for a specific candidates has been withheld, among those nominees for
whom authority to vote has not been withheld.
The proxy solicited by this Proxy Statement is revokable at any
time prior to the exercise thereof at the meeting by written notice
submitted to Eugene E. Payne, Secretary, Financial Industries
Corporation, Austin Centre, 701 Brazos, Austin, Texas 78701 or by
delivery of a subsequent proxy. All shares represented by executed
and unrevoked proxies will be voted in accordance with instructions
contained therein. Proxies submitted without specification will be
voted to elect the nominees for Directors named herein.
ELECTION OF DIRECTORS
The following eleven nominees are proposed for election as
Directors to serve until the next Annual Meeting of Shareholders or
until their successors are elected and qualified. All nominees are
now Directors of the Company, except Dr. Jerome H. Supple. Proxies
solicited by the Board of Directors will be voted in favor of the
election of these nominees unless authorization to do so is withheld
in the proxy. If any nominee for election as Director is unable or
unwilling to serve, which the Board of Directors does not anticipate,
the persons acting under the proxy will vote for such other person as
management may recommend. An affirmative vote by a majority of those
shares constituting at least a quorum at the Annual Meeting of
Shareholders is required for the election of Directors. The Board of
Directors recommends a vote "FOR" each of the nominees.
The names and ages of the nominees, their principal occupations
or employment during the past five years and other data regarding
them are set forth on the following pages. The data supplied below
is based on information provided by the nominees, except to the
extent that such data is known to the Company.
Director Principal Occupation
Name Age Since and Other Information
John D. Barnett 54 1991 Vice President-Investments,
Investment Professionals, Inc.
since August 1996. Vice
President-Investments of
Prudential Securities from April
1983 to July 1996.
Joseph F. Crowe 59 1992 Director of FIC since February
1992. Vice President of FIC from
February 1992 to January 1997,
when he retired from active
service with the Company. Vice
President of ILCO from May 1991 to
January 1997. Director of ILCO
from May 1991 to October 1997.
Executive Vice President of
Investors Life Insurance Company
of North America and Investors
Life Insurance Company of Indiana
(formerly known as
InterContinental Life Insurance
Company) from June 1991 to January
1997. Director of Investors Life
Insurance Company of North America
and InterContinental Life
Insurance Company from June 1991
to January 1997. Executive Vice
President and Director of Family
Life Insurance Company from June
1991 to January 1997. From
December 1986 to March 1991,
Executive Vice President of
Personal Financial Security
Division of Aetna Life & Casualty
Company.
Jeffrey H. Demgen 45 1995 Director of FIC since May 1995.
Vice President of FIC since August
1996. Vice President and Director
of ILCO since August 1996.
Director of Family Life Insurance
Company since October 1992.
Executive Vice President of Family
Life Insurance Company since
August 1996. Senior Vice
President of Family Life Insurance
Company from October 1992 to
August 1996. Executive Vice
President and Director of
Investors Life Insurance Company
of North America since August
1996. Senior Vice President and
Director of Investors Life
Insurance Company of North America
from October 1992 to June 1995.
Executive Vice President of
Investors Life Insurance Company
of Indiana (formerly known as
InterContinental Life Insurance
Company) since August 1996.
Senior Vice President of
InterContinental Life Insurance
Company from October 1992 to June
1995. Executive Vice President
and Director of Investors Life
Insurance Company of Indiana from
August 1996 to December 1997, when
it merged into ILIC. Senior Vice
President of United Insurance
Company of America from September
1984 to July 1992.
Theodore A. Fleron 58 1996 Vice President and Director of FIC
since August 1996. Vice President
and Director of ILCO since May
1991. Assistant Secretary of ILCO
since June 1990. Senior Vice
President, General Counsel,
Assistant Secretary and Director
of Investors Life Insurance
Company of North America and
Investors Life Insurance Company
of Indiana (formerly known as
InterContinental Life Insurance
Company) since July 1992. General
Counsel, Assistant Secretary and
Director of Investors Life
Insurance Company of North America
and InterContinental Life
Insurance Company from January
1989 to July 1992. Senior Vice
President, General Counsel,
Director and Assistant Secretary
of Investors Life Insurance
Company of Indiana from June 1995
to December 1997, when it merged
into ILIC. Senior Vice President,
General Counsel, Director and
Assistant Secretary of Family Life
Insurance Company since August
1996.
James M. Grace 54 1976 Vice President, Treasurer and
Director of FIC. Vice President
and Treasurer of ILCO since
January 1985. Executive Vice
President, Treasurer and Director
of Investors Life Insurance
Company of Indiana (formerly know
as InterContinental Life Insurance
Company ) since 1989. Executive
Vice President and Treasurer of
Investors Life Insurance Company
of North America since 1989.
Executive Vice President,
Treasurer and Director of Family
Life Insurance Company since June
1991. Director, Executive Vice
President and Treasurer of
Investors Life Insurance Company
of Indiana from February 1995 to
December 1997, when it merged into
ILIC.
Dale E. Mitte 63 1994 Director of FIC since 1994. Senior
Vice President since January 1993
and Vice President, Chief
Underwriter and Director since
December 1988 of Investors Life
Insurance Company of North America
and Investors Life Insurance
Company of Indiana (formerly known
as InterContinental Life Insurance
Company). Director from June 1991
to April 1992 and Vice President
and Chief Underwriter since June
1991 of Family Life Insurance
Company. Director, Senior Vice
President and Chief Underwriter of
Investors Life Insurance Company
of Indiana form June 1995 to
December 1997, when it merged into
ILIC.
Roy F. Mitte 66 1976 Chairman of the Board, President
and Chief Executive Officer of
FIC. Chairman of the Board,
President and Chief Executive
Officer of InterContinental Life
Corporation (ILCO) and Investors
Life Insurance Company of Indiana
(formerly known as
InterContinental Life Insurance
Company) since January 1985.
President of ILCO since April
1985. Chairman of the Board,
President and Chief Executive
Officer of Investors Life
Insurance Company of North America
since December 1988. Chairman of
the Board, President and Chief
Executive Officer of Family Life
Insurance Company since June 1991.
Chairman of the Board, President
and Chief Executive Officer of
Investors Life Insurance Company
of Indiana from February 1995 to
December 1997, when it merged into
ILIC.
Frank Parker 69 1994 President, Gateway Tugs, Inc. and
Par-Tex Marine, Inc., both of
which are located in Brownsville,
Texas and are engaged in operating
and chartering harbor and
intracoastal tug boats, for more
than the last five years.
Eugene E. Payne 55 1992 Vice President, Secretary and
Director of FIC. Vice President of
ILCO since December 1988 and
Secretary and Director of ILCO
since May 1989. Executive Vice
President, Secretary and Director
of Investors Life Insurance
Company of North America since
December 1988. Executive Vice
President since December 1988 and
Director since May 1989 of
Investors Life Insurance Company
of Indiana (formerly known as
InterContinental Life Insurance
Company). Executive Vice
President, Secretary and Director
of Family Life Insurance Company
since June 1991. Director,
Executive Vice President and
Secretary of Investors Life
Insurance Company of Indiana from
February 1995 to December 1997,
when it merged into ILIC.
Thomas C. Richmond 56 1996 Director of FIC since August 1996.
Director of ILCO from March 1994
to August 1996. Director from
March 1989 to February 1990,
Senior Vice President since
January 1993 and Vice President
from March 1989 to January 1993 of
Investors Life Insurance Company
of North America and Investors
Life Insurance Company of Indiana
(formerly known as
InterContinental Life Insurance
Company). Senior Vice President
of Family Life Insurance Company
since June 1991. Senior Vice
President of Investors Life
Insurance Company of Indiana from
June 1995 to December 1997, when
it merged into ILIC.
Jerome H. Supple 62 President and Professor of
Chemistry, Southwest Texas State
University, San Marcos, Texas
since 1989. Director, Frost Bank.
Dr. Supple is also active in a
number of professional and
educational organizations
including: American Association of
State Colleges and Universities,
Board of Directors; American
Council of Education/ Commission
on Governmental Relations;
Commission on Colleges - Class
1993/Southern Association of
Colleges and Schools; National
Collegiate Athletic Association
President's Commission;
Association of Texas Colleges and
Universities, Board of Directors;
American Association for the
Advancement of Science; and
American Association of Higher
Education.
All of the nominees names above were elected Directors at the
1997 Annual Meeting of Shareholders, except Dr. Supple, who has been
nominated by the Board of Directors to be elected at the 1998 Annual
Meeting of Shareholders.
The incumbent directors, except for Mr. Nadler, have been
nominated for submission to vote of the shareholders for reelection
at the 1998 Annual Meeting of Shareholders.
EXECUTIVE OFFICERS
The following table sets forth the names and ages of the persons
who currently serve as the Company's executive officers together with
all positions and offices held by them with the Company. Officers are
elected to serve at the will of the Board of Directors or until their
successors have been elected and qualified.
Name Age Positions and Offices
Roy F. Mitte 66 Chairman of the Board, President and Chief
Executive Officer
James M. Grace 54 Vice President and Treasurer
Eugene E. Payne 55 Vice President and Secretary
Jeffrey H. Demgen 45 Vice President
In May 1991, Roy F. Mitte suffered a stroke, resulting in partial
paralysis affecting his speech and mobility. Mr. Mitte continues to
make the requisite decisions in his capacity as Chief Executive
Officer, although his ability to communicate and his mobility are
impaired.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to
file reports of beneficial ownership on Form 3 and changes in
beneficial ownership on Forms 4 and 5 with the Securities and Exchange
Commission. Officers, directors and greater than ten percent
shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on reviews of the copies of such forms furnished to
the Company, or written representatives that no Forms 5 were required,
the Company believes that during the period from January 1, 1997
through December 31, 1997, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent
beneficial owners were compiled with.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Amount and Nature
Name and Address of of Beneficial Percent
Beneficial Owner Ownership of Class
Roy F. Mitte,
Chairman of the Board,
President and Chief
Executive Officer,
701 Brazos
Suite 1400,
Austin, Texas 78701 1,866,520 (1) 34.39% (1)
InterContinental Life
Corporation
701 Brazos
Suite 1400,
Austin, Texas 78701 727,115 (2) 12.19% (3)
Investors Life Insurance
Company of North America
701 Brazos
Suite 1400
Austin, Texas 78701 727,115 (2) 12.19% (3)
Heartland Advisors, Inc.
790 North Milwaukee St.
Milwaukee, WI 53202 320,400 5.00% (4)
(1) Of these shares, 1,493,216 are held jointly by Mr. Mitte with his
wife, Joann C. Mitte. Mr. Mitte and his wife also control the Roy
F. and Joanne Cole Mitte Foundation, a Texas non-profit
corporation (the "Foundation"), which owns 373,304 common shares
of FIC stock as a result of a donation made by Mr. Mitte and his
wife from their personal holdings. The holdings of the Foundation
combined with Mr. and Mrs. Mitte's remaining personal holdings in
FIC stock constitutes 34.39 percent of the outstanding common
stock of that company.
(2) Of such shares, 145,500 shares are owned by Investors Life
Insurance Company of North America (Investors-NA), 44,250 shares
are owned by Investors Life Insurance Company of Indiana
(Investors-IN)(formerly known as InterContinental Life Insurance
Company), and 537,365 shares are issuable upon exercise of an
option held by Investors-NA. Investors-NA is a direct subsidiary
of ILCO. Investors-IN is a direct subsidiary of Investors-NA.
(3) Assumes that outstanding stock options or warrants held by other
persons have not been exercised.
(4) As reported to the Company on a Schedule 13(G) filed by Heartland
Advisors, Inc. According to the Schedule 13(G), the shares are
held for various investment advisory accounts and the interest of
one such account (Heartland Value Fund, a registered investment
company) is more than 5% of the common stock of FIC. The Schedule
13(G) was filed on January 27, 1998.
The following table contains information as of March 16, 1998 as
to the Common Stock of the Company beneficially owned by each Director,
nominee and executive officer and by all executive officers, nominees
and directors of the Company as a group. Messrs. Crowe, Demgen,
Fleron and Richmond and Dr. Supple did not beneficially own any shares
of FIC as of April 6, 1998. The information contained in the table has
been obtained by the Company from each Director, nominee and executive
officer except for information known to the Company. Except as
indicated in the notes to the table, each beneficial owner has sole
voting power and sole investment power as to the shares listed opposite
his name.
Amount and Nature of Percent
Name Beneficial Ownership of Class
John Barnett 2,000 *
Joseph F. Crowe -0- (2)
Jeffrey H. Demgen -0- (2)
Theodore A. Fleron -0-
James M. Grace 5,600 (2) *
Dale E. Mitte 2,000 *
Roy F. Mitte 1,866,520(1,2) 34.39%
Leonard A. Nadler 1,665 *
Frank Parker 10,000 *
Eugene E. Payne 5,360 (2) *
Thomas C. Richmond -0-
Jerome H. Supple -0-
All Executive Officers,
Nominees and Directors as
a group (11 persons) 1,893,145(1,2) 34.87%
(1) As of March 16, 1998, Mr. Mitte, jointly with his wife Joann,
currently owns 1,493,216 common shares of Financial Industries
Corporation ("FIC"). Mr. Mitte and his wife also control the Roy
F. and Joanne Cole Mitte Foundation, a Texas non-profit
corporation (the "Foundation"), which owns 373,304 common shares
of FIC stock as a result of a donation made by Mr. Mitte and his
wife from their personal holdings. The holdings of the Foundation
combined with Mr. and Mrs. Mitte's remaining personal holdings in
FIC stock constitutes 34.39 percent of the outstanding common
stock of that company. Mr. Mitte holds the position of Chairman,
President and Chief Executive Officer of FIC. Messrs. Grace and
Crowe and Drs. Payne and Supple serve as Directors of the
Foundation.
(2) No executive officer or director holds any options to acquire FIC
Common Stock. Messrs. Roy Mitte, Grace, Payne and Demgen are
executive officers and/or directors of ILCO and beneficially owned
approximately 62% of the outstanding shares of ILCO common stock
as of March 16, 1998. Since FIC beneficially owns 60.68% of ILCO
Common Stock, Mr. Roy Mitte's personal holdings are combined with
FIC's holdings in determining the percentage of ILCO Common Stock
beneficially owned by Mr. Mitte. ILCO beneficially owned 727,115
shares of FIC Common Stock (12.19% of the outstanding shares) as
of March 16, 1998.
* Less than 1%.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Summary Compensation Table
The following table sets forth information concerning the
compensation of the Company's Chief Executive Officer and each of the
three other persons who were serving as executive officers of the
Company at the end of 1997 and received cash compensation exceeding
$100,000 during 1997:
Annual Compensation
Long Term
Compensa-
tion
Awards
Name and Stock
Principal Options All Other
Position Year Salary(1) Bonus(8) Other(2) (Shares) Compensation(9)
Roy F. Mitte,
Chairman of
Board,
President and
Chief 1997 $503,500 $1,500,000
Executive 1996 $503,500 -0- -0- $2,446,397(3)
Officer 1995 $503,500 -0- -0- $1,120,513(4)
James M.
Grace,
Vice
President 1997 $195,000 $40,000
and 1996 $195,000 $15,000 -0- -0-
Treasurer 1995 $195,000 $10,000 -0- -0-
Eugene E.
Payne, 1997 $195,000 $40,000
Vice 1996 $195,000 $15,000 -0- -0-
President 1995 $195,000 $10,000 -0- -0-
&Secretary
Jeffrey
H. Demgen,
Vice Presi- 1997 $117,884 $30,000
dent 1996 $102,500 $ 7,500 -0- -0-
(1) The salaries and bonuses set forth in the table were paid by
ILCO, except that FIC and/or Family Life authorized payment of a
portion of Mr. Mitte's salary in each of 1995, 1996 and 1997. The
executive officers of FIC have also been executive officers of
Family Life, the insurance subsidiary of FIC, and ILCO and its
insurance subsidiaries. FIC and/or Family Life reimbursed ILCO
(or, in the case of Mr. Mitte, authorized payment of) the following
amounts as FIC's or Family Life's share of the executive officers'
cash compensation and bonus for 1995, 1996 and 1997: (i) Mr. Mitte:
$216,857, $216,857 and $999,746, respectively;(ii) Mr. Grace:
$88,293, $83,987 and $68,150, respectively; (iii) Dr. Payne:
$79,875, $83,987 and $68,150, respectively; and (iv) Mr. Demgen:
$46,125 and $66,548 (1996 and 1997 only).
The bonuses for Mr. Grace, Dr. Payne and Mr. Demgen represent
amounts paid in 1997, but include the bonuses awarded with respect
to the years 1996 and 1997.
Mr. Mitte and FIC are parties to an employment agreement, providing
for the employment of Mr. Mitte as Chairman, President and Chief
Executive Officer of the Company. The agreement, which was
initially effective February 25, 1982, provides for five-year terms
and for automatic renewals for successive five-year periods, unless
otherwise terminated in accordance with the terms of the agreement.
The agreement provides that the level of compensation will be fixed
each year by agreement, but not less than $120,000 per year. In
addition, the agreement provides that Mr. Mitte is entitled to
reimbursement for reasonable business expenses and to participate
in all fringe benefit plans and arrangements available generally to
employees of the Company.
(2) Does not include the value of perquisites and other personal
benefits because the aggregate amount of any such compensation does
not exceed the lesser of $50,000 or 10 percent of the total amount
of annual salary and bonus for any named individual.
(3) During 1996, ILCO paid Mr. Mitte: (i) $1,862,000 for the
cancellation in 1996 of options to purchase 121,500 shares of the
Company's common stock, plus interest at the rate of 8% per year on
such amount for a one year period (for a total of $2,011,737); (ii)
$120,700 for the federal income tax reimbursement relating to the
cancellation in 1995 of options to purchase 50,000 shares of the
Company's common stock; and (iii) $313,960 for the federal income
tax reimbursement relating to the 1996 options cancellation
described above in this footnote. Each of these payments was made
pursuant to the contract referred to in footnote 4.
(4) In 1989, ILCO's Board of Directors granted Mr. Mitte options
to purchase 600,000 shares of ILCO's Common Stock. In October
1992, Mr. Mitte surrendered to ILCO for cancellation options to
purchase 120,000 shares. ILCO and Mr. Mitte entered into a
contract in 1993 providing for the cancellation of 240,000 options
for an aggregate amount of $3,237,120 in 1993 and the cancellation
in subsequent years of the remaining options for an aggregate
amount of $3,610,240. In addition, the Company agreed to pay Mr.
Mitte the amount necessary to ensure that Mr. Mitte will receive
the same amount, after federal income tax, that he would have
received if the options had been cancelled in 1992. During 1995,
Mr. Mitte was paid $836,582 for the cancellation in 1995 of options
to purchase 50,000 shares of ILCO's Common Stock, $156,323 for the
federal income tax reimbursement relating to the cancellation in
1994 of options to purchase 68,500 shares and $127,608 as the final
payment relating to the cancellation in 1993 of options to purchase
240,000 shares. These option cancellation payments were made
pursuant to the contract referred to above. FIC's Compensation
Committee made a recommendation to FIC's Board of Directors, which
it adopted, that, in lieu of paying Mr. Mitte a bonus as it has in
the past, FIC pay $407,000 of these option cancellation payments to
Mr. Mitte, with the balance of $713,513 being paid by ILCO.
Directors' Compensation
Directors who are not officers or employees of the Company
are paid a $5,000 annual fee, and are compensated $1,000 for each
regular or special meeting of the Board of Directors which they
attend in person.
Members of Compensation Committee
The Compensation Committee makes recommendations to the Board
of Directors with respect to the Chief Executive Officer's
compensation. The members of the Compensation Committee are John
D. Barnett, Leonard A. Nadler and Frank Parker.
Compensation Committee Interlocks and Insider Participation
Roy F. Mitte determines the compensation of all executive
officers of the Company, other than the Chief Executive Officer.
Mr. Mitte is the Chairman of the Board, President and Chief
Executive Officer of the Company and ILCO. He also determines the
compensation of all executive officers of ILCO, other than the
Chief Executive Officer.
Reports on Executive Compensation
The following reports and the performance graph following
those reports shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement
into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates this information by reference,
and shall not otherwise be deemed filed under such Acts.
Chief Executive Officer's Report
The following report is made by Chief Executive Officer with
respect to compensation policies applicable to the Company's
executive officers, other than the Chief Executive Officer.
The goal of the Company's compensation policies is to ensure
that an appropriate relationship exists between executive pay and
the creation of shareholder value, while at the same time
motivating and retaining senior managers. Executive compensation
is based on several factors, including corporate performance.
While sales, earnings, return on equity and other performance
measurers are considered in making annual executive compensation
decisions, no formulas, pre-established target levels or minimum
performance thresholds are used. Each executive officer's
individual initiatives and achievements and the performance of the
operations directed by the executive are integral factors utilized
in determining that officer's compensation.
Since the executive officers of the Company are also
executive officers of ILCO, they receive cash compensation from the
Company and ILCO. In addition, since a significant portion of the
Company's net income is derived from its equity in ILCO's net
income, the executive officers of both companies are provided long-
term equity-based compensation in the form of ILCO stock options,
ILCO's Employee Stock Ownership Plan ("ESOP") and ILCO's Savings
and Investment (401K) Plan. They also participate in medical and
pension plans that are generally available to employees of the
Company and ILCO. The objectives of the stock option plan, the
ESOP and the 401K Plan are to create a strong link between
executive compensation and shareholders return and enable senior
managers to develop and retain a significant and long-term equity
investment.
Under ILCO's Non-Qualified Stock Option Plan, options to buy
ILCO's Common stock at 100% of the fair market value on the date of
grant but in no event less that $3.33 per share can be granted to
officers, directors, agents and other. At December 31, 1997,
options to purchase 84,000 shares were outstanding, of which
options to buy 36,000 shares were held by executive officers of the
Company and ILCO. ILCO's Board of Directors administers both
plans. Options were granted in 1988, 1991 and 1995. No options
were granted in 1992, 1993, 1994 , 1996 or 1997.
ILCO's ESOP is a noncontributory employee benefit plan
available to all employees who have completed one year of service.
Allocations of ILCO's contributions are made to participants in
accordance with their compensation. Vesting of participants in
their accounts occurs in annual installments over a period of
approximately ten years. The assets of the ESOP consist of 350,296
shares of ILCO's Common Stock, of which are 45,512 shares are
allocated to the accounts of executive officers of the Company and
ILCO and the balance of the shares are allocated to the other
participants.
ILCO's 401K Plan allows eligible employees to make voluntary
contributions on a tax deferred basis. During 1997, the Plan was
amended to provide for a matching contribution by participating
companies. The match, which is in the form of shares of ILCO
common stock, is equal to 100% of an eligible participant's
elective deferral contributions, as defined in the Plan, not to
exceed 1% of the participant's plan compensation. Allocations are
made on a quarterly basis to the account of participants who have
at least 250 hours of service in that quarter.
The Company and ILCO provide medical and pension benefits to
their executive officers that are generally available to employees.
The foregoing report has been furnished by Roy F. Mitte.
Compensation Committee's Report
The Compensation Committee of the Board of Directors makes a
recommendation to the Board of Directors each year with respect to
the Chief Executive Officer's compensation for that year. For the
year 1997, the Committee recommended that the Chief Executive
Officer's compensation continue at the same level in effect for the
year 1996 ($216,857). In addition, the Committee recommended that
the Chief Executive Officer receive a cash bonus in the amount of
$750,000.
The compensation policies and practices of the Compensation
Committee are subjective and are not based upon specific criteria.
The Committee did consider the Company's overall financial
performance and its continuing progress in expense management,
maintenance of a high quality investment portfolio and marketing of
insurance products designed to generate an acceptable level of
profitability. The Committee recognized the Chief Executive
Officer's leadership role in the Company's performance and his
ability to select, recruit and motivate qualified people to
implement the Company's policies that have contributed to that
performance.
Since the Chief Executive Officer's 1997 compensation is not
based on any particular measures of the Company's performance, such
as sales, earning or return on equity, there is no specific
discussion in this report of the relationship of the Company's
performance to the Chief Executive Officer's compensation for 1997.
Nevertheless, the Committee does believe that it is noteworthy
that (i) the Company's net income for 1997 was $16,328,000 ($3.01
basic and $2.92 diluted per share) compared to net income of
$16,157,000 ($2.98 basic and $2.90 diluted per share) for 1996,
(ii) net income for the year 1997 includes $3.2 million from the
sale of Family Life's interest in the Bridgepoint Square Offices
and (iii) $6.4 million from FIC's equity interest in ILCO's net
income (including $3.8 million related to ILCO's gain from the sale
of its interest in the Bridgepoint Square Offices. FIC has a 45.4%
equity interest in the net income of ILCO.
The foregoing report is submitted by the members of the
Compensation Committee.
Performance Graph
The graph and table below compare the cumulative total
shareholder return on the Company's Common Stock for the last five
calendar years with the cumulative total return on The Nasdaq Stock
Market (US) and an index of stocks of life insurance companies
traded on Nasdaq over the same period (assuming the investment on
December 31, 1992 of $100 in the Company's Common Stock, The Nasdaq
Stock Market (U.S.) and an index of stocks of life insurance
companies traded on Nasdaq and the reinvestment of all dividends).
[Performance Graph Omitted]
12/31/92 12/31/93 12/30/94 12/29/95 12/29/96 12/31/97
The Company (1)$ 100.00 $ 77.85 $ 60.78 $ 72.55 $111.52 $183.28
The Nasdaq
Stock Market
(US) $ 100.00 $114.80 $112.20 $158.70 $195.20 $239.50
Index of
Nasdaq Life Ins.
Stocks (2) $ 100.00 $119.60 $102.90 $154.60 $199.50 $263.40
(1) The dollar amounts for the Company's Common Stock are based on the
closing bid prices on Nasdaq on the dates indicated.
(2) The Index of Nasdaq Life Insurance Stocks is comprised of life
insurance companies whose stocks were traded on Nasdaq during the last
five calendar years (41 issues traded during that period, of which 25
issues were traded on December 31, 1997). These peer companies were
selected by the Company on a line-of-business basis.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) The obligations of ILCO under the ILCO Senior Loan are guaranteed
by FIC. FIC presently owns 1,966,346 shares of ILCO Common Stock,
constituting 45.40% of such shares outstanding, and holds options to
acquire an additional 1,702,155 shares at the average bid price of such
shares during the six-month period preceding the date of any such
purchase. In the event that such options were to be fully exercised,
the total number of ILCO's shares owned by FIC would constitute 60.80%
of ILCO's outstanding Common Stock. The current Senior Loan of ILCO is
scheduled to be fully repaid on October 1, 1998. Accordingly, unless
ILCO s Senior Loan is extended, or ILCO otherwise incurs indebtedness
which is guaranteed by FIC, FIC s rights under the 1986 option
agreement would expire on October 1, 1998.
(b) Roy F. Mitte serves as Chairman, President and Chief Executive
Officer of both FIC and ILCO. James M. Grace serves as Vice President,
Treasurer and Director of both companies; Dr. Payne serves as Vice
President, Secretary and Director of both companies; Messrs. Demgen and
Fleron serve as Vice Presidents and Directors of both companies. Mr.
Roy Mitte holds beneficial ownership of 34.39% of the outstanding
shares of the Company (see "Security Ownership of Certain Beneficial
Owners").
(c) In connection with the December, 1997 sale of Bridgepoint Square
Offices by Investors-NA and Family Life Insurance Company, FIC Realty
received a commission in the amount of $156,000, of which $122,538 was
paid by Investors-NA and $33,462 by Family Life.
(d) As part of the financing arrangement for the acquisition of Family
Life, a $22.5 million loan was made by Investors Life Insurance Company
of North America (Investors-NA) to FLC, a subsidiary of FIC, and a
$2.5 million loan was made by Investors-CA to FIC. In addition to the
interest provided under those loans, Investors-NA and Investors Life
Insurance Company of California (now merged into Investors-NA) were
granted by FIC non-transferable options to purchase, in the amounts
proportionate to their respective loans, up to a total of 9.9 percent
of shares of FIC's common stock at a price of $10.50 per share,
equivalent to the then current market price, subject to adjustment to
prevent dilution. As a result of the FIC's five-for-one stock split,
which was effective November 12, 1996, the option price is currently
$2.10 per share. The options originally were to expire on June 12,
1998 if not previously exercised. In connection with the 1996
amendments to the subordinated notes, as described below, the
expiration date of the options were extended to September 12, 2006.
On July 30, 1993, the subordinated indebtedness owed to Merrill Lynch
and its affiliate was prepaid. The Company paid $38 million plus
accrued interest to retire the indebtedness, which had a principal
balance of approximately $50 million on July 30, 1993. The primary
source of the funds used to prepay the subordinated debt was new
subordinated loans totaling $34.5 million that FLC and another
subsidiary of FIC obtained from Investors-NA. The principal amount of
the new subordinated debt is payable in four equal annual installments
in 2000, 2001, 2002 and 2003 and bears interest at an annual rate of
9%. The other terms of the new debt are substantially the same as
those of the $22.5 million subordinated loans that Investors-NA had
previously made to FLC and that continue to be outstanding.
As of June 12, 1996, the provisions of the notes from Investors-NA to
FIC, FLC and FLIIC were modified as follows: (a) the $22.5 million note
was amended to provide for twenty quarterly principal payments, in the
amount of $1,125,000 each, to commence on December 12, 1996; the final
quarterly principal payment is due on September 12, 2001; the interest
rate on the note remains at 11%, (b) the $30 million note was amended
to provide for forty quarterly principal payments, in the amount of
$163,540 each for the period December 12, 1996 to September 12, 2001;
beginning with the principal payment due on December 12, 2001, the
amount of the principal payment increases to $1,336,458; the final
quarterly principal payment is due on September 12, 2006; the interest
rate on the note remains at 9%, (c) the $4.5 million note was amended
to provide for forty quarterly principal payments, in the amount of
$24,531 each for the period December 12, 1996 to September 12, 2001;
beginning with the principal payment due on December 12, 2001, the
amount of the principal payment increases to $200,469; the final
quarterly principal payment is due on September 12, 2006; the interest
rate on the note remains at 9%, (d) the $2.5 million note was amended
to provide that the principal balance of the note is to be repaid in
twenty quarterly installments of $125,000 each, commencing December 12,
1996 with the final payment due on September 12, 2001; the rate of
interest remains at 12%, (e) the Master PIK note, which was issued to
provide for the payment in kind of interest due under the terms of the
$2.5 million note prior to June 12, 1996, was amended to provide that
the principal balance of the note ($1,977,119) is to be paid in twenty
quarterly principal payments, in the amount of $98,855.95 each, to
commence December 12, 1996 with the final payment due on September 12,
2001; the interest rate on the note remains at 12%.
(e) FIC was reimbursed by ILCO for rental expense and certain other
operating expenses incurred during 1997 on behalf of ILCO. The amount
of such reimbursement was approximately $822,000.
(f) Pursuant to a data processing agreement with a major service
company, the data processing needs of ILCO's and FIC's insurance
subsidiaries were provided at a central location until November 30,
1994. Commencing December 1, 1994, all of those data processing needs
are provided to ILCO's and FIC's Austin, Texas and Seattle, Washington
facilities by FIC Computer Services, Inc. ("FIC Computer"), a new
subsidiary of FIC. Each of FIC's and ILCO's insurance subsidiaries has
entered into a data processing agreement with FIC Computer whereby FIC
Computer provides data processing services to each subsidiary for fees
equal to such subsidiary's proportionate share of FIC Computer's actual
costs of providing those services to all of the subsidiaries.
Family Life paid $824,425 and ILCO's insurance subsidiaries paid
$3,010,110 to FIC Computer for data processing services provided during
1997.
(g) In 1995, Family Life entered into a reinsurance agreement with
Investors-NA pertaining to universal life insurance written by Family
Life. The reinsurance agreement is on a co-insurance basis and applies
to all covered business with effective dates on and after January 1,
1995. The agreement applies to only that portion of the face amount of
the policy which is less than $200,000; face amounts of $200,000 or
more are reinsured by Family Life with a third party reinsurer.
(h) In 1996, Family Life entered into a reinsurance agreement with
Investors-NA, pertaining to annuity contracts written by Family Life.
The agreement applies to contracts written on or after January 1, 1996.
BOARD, COMMITTEES AND MEETINGS
FIC's Board of Directors met formally three times during 1997.
All of the incumbent Directors attended at least 75% of the required
meetings, except Leonard Nadler, who attended two of the three meetings
(66%).
The Board has an Audit Committee which did not have any formal
meetings during 1997. The Board does not have a Nominating Committee.
The Directors serving on the Audit Committee in 1997 were Messrs. Dale
Mitte, Grace, Barnett and Crowe. The duties of the Audit Committee are
to review the financial statements and the results of the Company's
annual audit with FIC's independent auditors.
The members of the Compensation Committee during 1997 were:
Messrs, Barnett, Nadler and Parker. The Compensation Committee held
one meeting during 1997.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
FIC's accounting firm for the current year is Price Waterhouse
LLP. Representatives of Price Waterhouse LLP are expected to be
available for comment at the Shareholders Meeting and will be given an
opportunity to respond to appropriate questions.
SHAREHOLDER PROPOSALS
It is contemplated by the management of FIC that the next Annual
Meeting of the Shareholders of FIC will be held on or about May 20,
1999. Proposals submitted by any security holders and intended to be
included in FIC's Proxy Statement and Form of Proxy relating to the
meeting must be received by the Company at its principal executive
offices no later than December 31, 1998 and must be in compliance with
applicable laws and Securities and Exchange Commission regulations.
ADDITIONAL MATTERS
At the date hereof, there are no other matters which the Board of
Directors intends to present or has reason to believe others will
present at the meeting. However, if any other matter should be
presented, the persons named in the accompanying proxy will vote
according to their best judgment in the interest of FIC with respect to
such matters.
Date: April 16, 1997
By Order of the Board of Directors
Financial Industries Corporation
Eugene E. Payne
Secretary
