<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to
Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2)
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
CITIZENS FINANCIAL CORPORATION
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
1) Title of each class of securities to which transaction applies:
_________________________________________________________
2) Aggregate number of securities to which transaction applies:
_________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
_________________________________________________________
4) Proposed maximum aggregate value of transaction:
_________________________________________________________
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________
<PAGE> 2
2) Form, Schedule or Registration Statement No.:
___________________________________________________________
3) Filing Party:
___________________________________________________________
4) Date Filed:
___________________________________________________________
<PAGE> 3
CITIZENS FINANCIAL CORPORATION
THE MARKETPLACE, SUITE 300
12910 SHELBYVILLE ROAD
LOUISVILLE, KENTUCKY 40243
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, MAY 21, 1998
The 1998 Annual Meeting of Shareholders of Citizens Financial
Corporation will be held at the offices of the Company, The Marketplace, Suite
300, 12910 Shelbyville Road, Louisville, Kentucky, on Thursday, May 21, 1998 at
2:00 p.m., Eastern Daylight Time, for the following purposes:
(1) to elect directors of the Company to serve until the next Annual
Meeting of Shareholders and until their successors are elected and qualify (the
"Election of Directors"); and
(2) to transact such other business as may properly come before the
Meeting or any adjournments thereof, including matters incident to its conduct.
Please consult the accompanying Proxy Statement for further
information concerning the Meeting, the Election of Directors and other
matters.
April 17, 1998 is the record date for the determination of
shareholders entitled to notice of, and to vote at, the Meeting. Accordingly,
only shareholders of record at the close of business on that date are entitled
to vote at the Meeting or any adjournments thereof.
You are cordially invited to attend the Meeting in person. If you
cannot, please sign and date the accompanying form of Proxy and return it
promptly in the return envelope enclosed for your use. No postage is required
if the envelope is mailed in the United States.
By Authority of the Board of Directors
Darrell R. Wells
President and Chief Executive Officer
April 29, 1998
<PAGE> 4
CITIZENS FINANCIAL CORPORATION
THE MARKETPLACE, SUITE 300
12910 SHELBYVILLE ROAD
LOUISVILLE, KENTUCKY 40243
PROXY STATEMENT
SOLICITATION AND REVOCATION OF PROXIES
The Board of Directors of Citizens Financial Corporation (the
"Company") is soliciting proxies to be voted at the 1998 Annual Meeting of
Shareholders of the Company to be held on Thursday, May 21, 1998, at 2:00 p.m.,
Eastern Daylight Time, at the offices of the Company, The Marketplace, Suite
300, 12910 Shelbyville Road, Louisville, Kentucky 40243, and at any
adjournments thereof (the "Meeting").
If the accompanying form of Proxy is properly signed and returned
prior to the Meeting, the shares it represents will be voted at the Meeting in
accordance with the directions, if any, noted thereon; or, if no contrary
directions are given, they will be voted [i] in the election of directors as
hereinafter described and [ii] on any other matters that may come before the
Meeting, including matters incident to its conduct. Any shareholder giving a
proxy may revoke it at any time before the shares it represents are voted by
giving written notice of such revocation to the Secretary of the Company at the
address shown above.
The accompanying form of Proxy may not be used [i] to authorize
shares to be voted by anyone other than the persons named therein or
substitutes appointed by the Board of Directors or [ii] to vote with respect to
nominees other than those named herein or substitutes appointed by the Board of
Directors.
This Proxy Statement and the accompanying form of Proxy are being
first mailed to shareholders on or about April 29, 1998.
VOTING AT MEETING
Only shareholders of record of the Company's Class A Stock (the
"Class A Stock"), at the close of business on April 17, 1998 (the "Record
Date"), are entitled to notice of, and to vote in person or by duly authorized
proxy at, the Meeting. On the Record Date, there were 1,075,615 shares of the
Class A Stock outstanding and entitled to vote. Each such share is entitled to
one vote on all matters that may come before the Meeting other than the
election of directors. In the election of directors, a shareholder is entitled
by Kentucky law to exercise "cumulative" voting rights; that is, the
shareholder is entitled to cast as many votes as equals the number of shares
owned by the shareholder multiplied by the number of directors to be elected
and may cast all such votes for a single director nominee or distribute them
among the nominees in any manner the shareholder may see fit. Proxies received
may be voted cumulatively. See "Discretionary Authority In Election of
Directors," below.
Under Kentucky law, abstentions and broker non-votes on any matter
are not counted in determining the number of votes required for election of a
director or passage of any matter submitted to shareholders. Abstentions and
broker non-votes are counted for purposes of determining the existence of a
quorum.
<TABLE>
<CAPTION>
IMPORTANT
<S> <C> <C>
Shareholders can help the Company avoid the necessity and expense of sending follow-up
letters to ensure a quorum by promptly returning the enclosed Proxy. Please mark, date,
sign and return the enclosed Proxy in order that the necessary quorum may be represented
at the meeting. The enclosed envelope requires no postage if mailed in the United States.
</TABLE>
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table reflects certain information regarding the
beneficial ownership of the Class A Stock and the Company's 1995 Class B
Convertible Preferred Stock (the "Preferred Stock") held as of the Record Date
[i] by the only person known by the Company to own beneficially more than five
percent (5%) of the Class A Stock and [ii] by the directors and the executive
officers of the Company as a group. Unless otherwise indicated, the Company
believes that each person named or included below has sole voting and
investment power with respect to the Class A Stock and the Preferred Stock
attributed to such person.
<TABLE>
<CAPTION>
Ownership of Class A Stock Ownership of Preferred Stock
<S> <C> <C> <C> <C>
Percent of Percent of
Shareholder Shares<F1> Class<F2> Shares Class<F2>
5% HOLDER
Darrell R. Wells 960,322<F3> 65.43% 196<F3> 52.97%
Suite 310
4350 Brownsboro Road
Louisville, Kentucky 40207
DIRECTORS AND EXECUTIVE OFFICERS AS
A GROUP
13 Persons 1,050,163<F4,F5> 70.40% 208<F5> 56.22%
</TABLE>
[FN]
<F1> Includes shares of the Class A Stock issuable upon conversion of the
Preferred Stock held by such persons. As of the Record Date, each
share of the Preferred Stock was immediately convertible into 2,000
shares of the Class A Stock. The Preferred Stock is not entitled to
vote except in cases of certain dividend arrearages and certain
fundamental changes in the rights of the holders of the Preferred
Stock.
<F2> Percentage calculations for the Class A Stock are based on outstanding
shares of the Class A Stock and shares of the Class A Stock issuable
upon conversion of the shares of the Preferred Stock held by such
person, plus, in the case of the group, the shares referred to in Note
4. Percentage calculations for the Preferred Stock are based on
outstanding shares of the Preferred Stock.
<F3> Mr. Wells shares voting and investment power with respect to 49,315
shares of the Class A Stock and nine (9) shares of the Preferred Stock.
Frank T. Kiley, who beneficially owns 6,303 shares of the Class A Stock
and nine (9) shares of the Preferred Stock, may be deemed to be
affiliated with Mr. Wells for certain purposes. Excluding the shares
of the Class A Stock issuable upon conversion of the Preferred Stock,
Mr. Wells beneficially owns 568,322 shares of the Class A Stock, which
represents 52.83% of the outstanding shares of the Class A Stock.
<F4> Includes 5,000 shares of the Class A Stock issuable pursuant to
purchase options that are deemed to be beneficially owned because the
options are exercisable presently or within 60 days after the Record
Date. See "Aggregate Year-End Option Values."
<F5> Includes shares beneficially owned by Mr. Wells. Excluding the shares
of the Class A Stock issuable upon conversion of the Preferred Stock
held by such group, the members of such group beneficially own 634,163
shares of the Class A Stock, which represents 58.96% of the outstanding
shares of the Class A Stock and the shares referred to in Note 4.
</FN>
ELECTION OF DIRECTORS
At the Meeting, a full Board of Directors will be elected to
serve until the next Annual Meeting of Shareholders and until their
respective successors are elected and qualify. The Bylaws of the
Company provide that the Board of Directors shall consist of eight (8)
persons.
Unless a proxy is marked to give a different direction, the
shares it represents will be voted to elect the eight (8) persons named in
the following table, subject to the matters described in "Discretionary
Authority In Election of Directors," below. All of the nominees were
elected at the 1997 Annual Meeting of Shareholders and in previous years as
shown in the table. The terms of all present directors will expire at
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<PAGE> 6
the conclusion of the election of directors at the Meeting. All of the
nominees have agreed to serve if elected. If there are more nominees at the
Meeting than there are directorships, the nominees receiving the highest
number of votes will be elected to the available directorships.
<TABLE>
<CAPTION>
Ownership of Ownership of
CLASS A STOCK<F1,F2> PREFERRED STOCK<F1,F2>
<S> <C> <C> <C> <C> <C> <C>
Name, Age, and Principal Occupation(s)
Present Positions or Employment(s) During
with the Company and Director Past Five or More Years and Percent Percent
CITIZENS SECURITY<F3> SINCE CERTAIN DIRECTORSHIPS<F4> SHARES OF CLASS SHARES OF CLASS
John H. Harralson, Jr. 1990 Publisher, Southern Publishing 12,468 1.16% -- --
70 d/b/a The Voice Tribune
Director of the Company (suburban newspaper
and Citizens Security publishing), Louisville,
Kentucky
Lane A. Hersman 1995 Present principal positions with 6,200<F5> 0.58% -- --
46 the Company and Citizens
Executive Vice President Security since July, 1995;
and Chief Operating formerly senior financial
Officer and Director of the management positions with the
Company; President and Company since 1991 and
Chief Executive Officer and Citizens Security since 1988
Director of Citizens
Security
Frank T. Kiley 1990 Principal, Security Management 24,303 2.22% 9 2.43%
51 Company (investments and
Director of the Company investment management),
Louisville, Kentucky
Charles A. Mays 1994 Executive Vice President 2,500 0.23% 1 0.27%
59 and Chief Financial Officer,
Director of the Company Commonwealth Bank and Trust
and Citizens Security Company, Louisville, Kentucky
Earle V. Powell 1990 Retired; Trustee, Kentucky 16,465 1.53% -- --
81 Teachers Retirement System
Director of the Company
and Citizens Security
Thomas G. Ward 1990 President, Texas 5 Corporation 24,169 2.24% 2 0.54%
60 (telecommunications) since
Director of the Company 1990; President, Third Kentucky
and Citizens Security Cellular Corporation, Lexington,
Kentucky since 1995
Darrell R. Wells<F6> 1990 General Partner, 960,322<F6> 65.43% 196<F6> 52.97%
55 Security Management Company
President and Chief (investments and investment
Executive Officer, Director management), Louisville
and Chairman of the Kentucky, Director, Churchill
Board of the Company Downs Incorporated and Jundt
Growth Fund
Margaret A. Wells<F6> 1993 Homemaker and civic 960,322<F6> 65.43% 196<F6> 52.97%
51 volunteer
Director of the Company
</TABLE>
3
<PAGE> 7
[FN]
<F1> Amounts as of the Record Date as furnished by persons named in
the table. All nominees have sole voting and investment power
with respect to their beneficially owned shares except for Mr.
Wells as to the shares described in Note 3 under "Security
Ownership of Certain Beneficial Owners and Management" and Ms.
Wells as to shares beneficially owned by Mr. Wells. See Note 6.
Percentage calculations for the Class A Stock are based on
outstanding shares of the Class A Stock and shares of the Class
A Stock issuable upon conversion of the shares of the Preferred
Stock held by each such director, and in the case of Mr.
Hersman, the shares referred to in Note 5. Percentage
calculations for the Preferred Stock are based on outstanding
shares of the Preferred Stock.
<F2> Includes shares of the Class A Stock issuable upon conversion of
the Preferred Stock held by such director. As of the Record
Date, each share of the Preferred Stock was immediately
convertible into 2,000 shares of the Class A Stock. The
Preferred Stock is not entitled to vote except in cases of
certain dividend arrearages and certain fundamental changes in
the rights of the holders of the Preferred Stock.
<F3> Citizens Security Life Insurance Company ("Citizens Security")
was the Company's corporate predecessor and is now its principal
subsidiary.
<F4> Directorships in publicly-held companies other than the Company,
in registered investment companies and, in the case of certain
directors, other organizations deemed material by them.
<F5> Includes 5,000 shares of the Class A Stock issuable pursuant to
purchase options that are deemed to be beneficially owned
because the options are exercisable presently or within 60 days
after the Record Date.
<F6> Darrell R. Wells is the husband of Margaret A. Wells. Under the
federal securities laws, a director is presumed to be the
beneficial owner of securities held by members of the director's
immediate family sharing the director's household. Accordingly,
the shares reported as beneficially owned by Mr. Wells and Ms.
Wells are the same shares. See "Security Ownership of Certain
Beneficial Owners and Management."
</FN>
Five (5) meetings of the Board of Directors were held during
1997. The Board of Directors has delegated certain functions to standing
committees of the Board. The Executive Committee is authorized to perform
all of the functions of the Board of Directors except as limited by the
Company's Articles of Incorporation and Bylaws and by certain provisions
contained in the resolution creating the Executive Committee. The Executive
Committee held one (1) meeting during 1997. The members of the Executive
Committee for 1997 were Messrs. Hersman, Kiley, Wells and Mays. The
Audit Committee's prescribed functions are [i] to recommend to the Board of
Directors the accounting firm to be selected as the independent auditors
for the Company and its subsidiaries and [ii] to act on behalf of the Board
in meeting with the independent auditors and the appropriate corporate
officers to review matters relating to corporate financial reporting,
accounting procedures, policies and controls, and the scope of the
respective audits of the independent auditors and any internal auditor of
the Company. In addition, the Audit Committee is responsible for reviewing
and reporting the results of each audit and making recommendations to the
Board with respect to financial reporting and accounting practices,
policies, controls and safeguards. The Audit Committee held one (1) meeting
during 1997. The members of the Audit Committee for 1997 were Ms. Wells and
Messrs. Harralson, Kiley, Mays, Powell, Ward, and Wells. The Company has
not established standing nominating or compensation committees or
committees performing similar functions. All directors attended 75% or
more of the combined total of the meetings of the Board of Directors and of
all committees on which they served.
DISCRETIONARY AUTHORITY
IN ELECTION OF DIRECTORS
The Board of Directors has no reason to believe that any of the
nominees will be unavailable to serve as a director. If any nominee should
become unavailable before the Meeting, the persons named in the accompanying
form of Proxy, or their substitutes, reserve the right to vote for a
substitute nominee selected by the Board of Directors. In addition, if any
shareholder or shareholders shall vote shares cumulatively or otherwise for
the election of a director or directors other than the nominees named above,
or
4
<PAGE> 8
substitute nominees, or for less than all of them, the persons named in the
accompanying form of Proxy, or their substitutes, reserve the right to vote
cumulatively for some number less than all of the nominees named above or
any substitute nominees, and for such of the persons nominated as they may
choose.
If for any reason more than eight (8) persons are to be elected
directors, the persons named in the accompanying form of Proxy, or their
substitutes, are not authorized to vote shares represented by proxies
received for more than eight (8) nominees. If for any reason less than
eight (8) persons are to be elected directors, the persons named in the
accompanying form of Proxy, or their substitutes, reserve the right to vote
such shares for nominees equal in number to the number to be elected from
among those named above or substitute nominees.
EXECUTIVE OFFICERS OF THE COMPANY
The Company's executive officers, as listed below, are elected
annually to their executive offices and serve at the pleasure of the Board
of Directors.
<TABLE>
<CAPTION>
Present Positions With the Principal Occupation
NAME/AGE COMPANY AND/OR CITIZENS SECURITY<F1> IN PAST FIVE OR MORE YEARS
<S> <C> <C>
Darrell R. Wells President and Chief Executive Officer, Director General Partner, Security Management
55 and Chairman of the Board of the Company Company (investments and investment
management), Louisville, Kentucky
Lane A. Hersman Executive Vice President and Chief Operating Present principal positions with the Company
46 Officer and Director of the Company; and with Citizens Security since July, 1995;
President and Chief Executive Officer and formerly senior financial management
Director of Citizens Security positions with the Company since 1991 and
with Citizens Security since 1988
Robert N. Greenwood Vice President, Operations, of the Company Present position with the Company since
63 Senior Vice President, Operations, of Citizens 1992 and with Citizens Security since 1989
Security
James L. Head Vice President, Administration, of the Present positions with the Company since
64 Company; Senior Vice President, 1992 and with Citizens Security since 1990
Administration, of Citizens Security
Stephen L. Marco Vice President and Chief Actuary of the Present positions with the Company since
47 Company; Senior Vice President and Chief 1993 and with Citizens Security since 1992
Actuary of Citizens Security
Paul M. Marquess Vice President, Agency, of the Company; Present positions with the Company and
60 Senior Vice President, Agency, of Citizens Citizens Security since June, 1996; formerly
Citizens Security Manager, Management Development, Agency
Group, Providian Corporation (insurance
holding corporation)
Brent L. Nemec Vice President, Chief Financial Officer, Present positions with the Company and
43 and Treasurer of the Company; Senior Vice Citizens Security since July, 1996; formerly
President, Chief Financial Officer, and Second Vice President, Financial Reporting
Treasurer of Citizens Security Agency Group, Providian Corporation
(insurance holding corporation)
</TABLE>
[FN]
<F1> Citizens Security Life Insurance Company ("Citizens Security") was the
Company's corporate predecessor and is now its principal subsidiary.
</FN>
5
<PAGE> 9
EXECUTIVE COMPENSATION
The following table provides certain summary information
concerning compensation paid or accrued by the Company and its subsidiaries
to or on behalf of the Company's President and Chief Executive Officer
and its Executive Vice President and Chief Operating Officer (together, the
"Named Executive Officers") for the fiscal years ended December 31, 1997,
1996 and 1995. Disclosure for the remaining executive officers is not
required because none had annual salary and bonus that exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Other
Annual All Other
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION COMPENSATION
<S> <C> <C> <C> <C> <C>
Darrell R. Wells, President and Chief 1997 $ 0 $ 0 $ 0 $ 0
Executive Officer, Director and Chairman
of the Board<F1> 1996 $ 0 $ 0 $ 0 $ 0
1995 $ 0 $ 0 $ 0 $ 0
Lane A. Hersman, Executive Vice 1997 $109,100 $ 0 $ 0<F2> $ 5,400<F3>
President and Chief Operating Officer and
Director 1996 $103,750 $ 0 $ 0<F2> $ 1,126<F3>
1995 $95,050 $ 0 $ 0<F2> $ 1,242<F3>
</TABLE>
[FN]
<F1> Mr. Wells was first elected an officer of the Company in 1995.
He does not receive any compensation for serving as an officer.
<F2> Other Annual Compensation consists of personal use of an automobile.
The aggregate cost to the Company of such personal benefits did not
exceed the lesser of $50,000 or 10% of the annual salary received by
Mr. Hersman.
<F3> Includes contribution by Company to Mr. Hersman's 401(k) plan
(beginning in 1997) and term life insurance premiums.
</FN>
The following table provides information with respect to the
Named Executive Officers concerning unexercised options to purchase the
Class A Stock held as of December 31, 1997:
AGGREGATED YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of unexercised in-the-
Number of unexercised options at year end money options at year end <F1>
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C>
Darrell R. Wells 0/0 $0/0
Lane A. Hersman 5,000/0 $0/0
</TABLE>
[FN]
<F1> Closing high bid as of the last trading day of 1997 (December 31,
1997) minus the exercise price.
</FN>
6
<PAGE> 10
Lane A. Hersman is employed by the Company as Executive Vice
President and Chief Operating Officer and by Citizens Security as President
and Chief Executive Officer under an agreement expiring June 30, 1998 that
provides for cash compensation (included in the Summary Compensation Table)
and certain personal benefits (including those benefits described in Notes 2
and 3 to the Summary Compensation Table and other benefits standard for
executive employees). If the Company should terminate his employment before
the specified termination date other than in the event of his death or for
cause, Mr. Hersman would be entitled to a severance payment equal to his
then current salary for a period of one year.
Each member of the Board of Directors who is not a full-time
employee of the Company or its subsidiaries or who is not otherwise
compensated as such receives a fee of $4,000 per year and meeting attendance
fees of at least $3,600 per year.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
BY DIRECTORS AND EXECUTIVE OFFICERS
The Securities Exchange Act of 1934 requires the Company's
directors and executive officers and any person beneficially owning more
than ten percent (10%) of the Class A Stock to file certain reports
of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Based solely on its review of reports filed with the
SEC, the Company believes that all filing requirements applicable to its
directors, executive officers, and ten percent (10%) beneficial owners were
satisfied during 1997.
CERTAIN TRANSACTIONS INVOLVING
DIRECTORS AND EXECUTIVE OFFICERS
Darrell R. Wells provides portfolio management for the Company
and Citizens Security, through SMC Advisors, Inc. ("SMC") of which he is the
principal officer, a director, and the sole shareholder. Frank T. Kiley
is also an officer and director of SMC. In July 1994, the Company and
Citizens Security entered into separate contracts with SMC for portfolio
management services. The contracts provide for aggregate annual fixed fees
of $30,000 and incentive compensation equal to five percent (5%) of the sum
of the net realized capital gains and losses plus the net unrealized capital
gains and losses in the bond and stock portfolios of the Company and
Citizens Security during each year. Total fixed fees paid or accrued by the
Company under these contracts for 1996 were $30,000 (equal to about .04% of
average cash and invested assets during 1996), while no incentive
compensation was payable for 1996. Total fixed fees paid or accrued by the
Company under these contracts for 1997 were $30,000 (equal to about .04% of
average cash and invested assets during 1997). Additionally, $306,767 in
incentive fees were incurred and paid during 1997 (equal to about .47% of
average cash and invested assets during 1997). Any excess of net realized
and unrealized capital losses over net realized and unrealized capital gains
at the end of a year is not carried forward to the next year. The contracts
provide for automatic renewal for successive one-year periods unless either
party gives at least 30 days' notice of termination as of the end of the
then current period. The contracts have been renewed for 1998. The
contracts are also subject to termination in certain events of default or
insolvency. Portfolio investments are limited to investments that are
eligible under the Kentucky Insurance Code and regulations and are to be in
accordance with the overall investment policies of the Company and Citizens
Security.
In connection with its acquisition of Integrity National Life
Insurance Company in September, 1995, the Company obtained $6,400,000 in
financing from a commercial bank. As part of its security for the
financing, the bank required that Mr. Wells personally guarantee $2,000,000
of the financing. In consideration of the guaranty by Mr. Wells, the
Company entered into a guarantor's compensation agreement with Mr. Wells
under which the Company paid a fee of 10% of the $2,000,000 amount
guaranteed by Mr. Wells (that is, $200,000) on the date of the bank
financing and agreed to pay
7
<PAGE> 11
a further guaranty fee on each anniversary thereof as long as the Mr. Wells'
guaranty remains outstanding. All payments are to be in the form of
promissory notes except as hereinafter described. The guarantor's
compensation agreement calls for annual fees to be based on a percentage of
the outstanding principal balance of the amount guaranteed by Mr. Wells,
beginning with 10% on the first anniversary and thereafter decreasing in
stages to 0.5% on the last anniversary before maturity, for an average
percentage fee of 4.21% per annum over the entire term.
In September, 1996, the Company and Mr. Wells agreed to a first
amendment to the guarantor's compensation agreement. In lieu of paying Mr.
Wells the fee of $200,000 called for by the agreement on the first
anniversary of the bank financing, the Company agreed to pay SMC an
additional fee of 15% of the sum of the net realized capital gains and
losses plus the net unrealized capital gains and losses in the bond and
stock portfolios of the Company during the period from October 1, 1996
through September 30, 1997 (by virtue of the Company's payments to the bank
described in the following paragraph, the fee was subsequently reduced from
15% to about 12.8%). Pursuant to the terms of the first amendment, during
1997 the Company paid SMC a guaranty fee of $133,464 for the twelve month
period ended September 30, 1997. In September, 1997, the Company and
Mr. Wells agreed to a second amendment to the guarantor's compensation
agreement which essentially renewed for another year (through September 22,
1998) the provisions set forth in the first amendment. The formula for
calculating the amount the Company will owe SMC is the same as that set
forth in the first amendment. Accordingly, the amount payable to SMC
pursuant to the second amendment will not be determinable until September,
1998. For the period between September 30, 1997 and December 31, 1997 a
guaranty fee of $36,119 has been accrued. Unless the parties otherwise
agree, these modifications will not apply to any future period after
September 22, 1998. In the event the Company's investment advisory
agreement with SMC is terminated, any portion of the fee that SMC does not
receive will become payable to Mr. Wells.
The Company has made total payments of $390,000 to the bank on
the portion of the bank financing guaranteed by Mr. Wells, reducing the
balance to $1,610,000. Assuming that there are no further payments on that
portion and no future modifications of the kind described in the preceding
paragraph, the Company's total payments to Mr. Wells for the period from
September 22, 1998 through maturity will be approximately $88,550.
The annual guaranty fees to Mr. Wells are payable in the form of
non-negotiable promissory notes of the Company due in 2003. The notes bear
interest at the prime rate charged by the commercial bank. The guarantor's
compensation agreement also provides that the Company and Mr. Wells may
agree to exchange the notes for securities of the Company on terms to be
determined by a majority of the members of the Company's Board of Directors
who are not affiliated with Mr. Wells. The $200,000 note issued on the date
of the bank financing in 1995, together with $29,743 in accrued interest
thereon, was prepaid by the Company on April 7, 1997.
OTHER MATTERS
No business other than the Election of Directors is expected to
come before the Meeting, except for matters incident to its conduct.
Should any other matters requiring a vote of shareholders arise, including
a question of adjourning the Meeting, the persons named in the accompanying
form of Proxy or their substitutes will vote thereon according to their
judgment of the best interests of the Company.
INDEPENDENT PUBLIC ACCOUNTANTS
On August 6, 1997, the Board of Directors approved the
appointment of Ernst & Young, LLP as the Company's independent public
accountants and auditors with respect to the Company's financial
8
<PAGE> 12
statements for the year ending December 31, 1997. Ernst & Young, LLP has
conducted the audits of the Company since its organization in 1990 and has
conducted the audits of Citizens Security since the year ended December 31,
1989. The Board of Directors ordinarily selects an independent certified
public accountant and auditor for a year in the last half of the year. It
has not yet made a selection for the current year.
It is expected that a representative of Ernst & Young, LLP will
be present at the Meeting, will have the opportunity to make a statement if
the representative desires to do so, and will be available to respond to
appropriate questions.
FINANCIAL STATEMENTS
Financial statements of the Company for its most recent year are
contained in the 1997 Annual Report to Shareholders, a copy of which is
included with the copies of this Proxy Statement mailed to shareholders.
Additional copies are available to shareholders on request addressed to the
President, The Marketplace, Suite 300, 12910 Shelbyville Road, Louisville,
Kentucky 40243. The Annual Report and such financial statements are not to
be considered as part of this Proxy Statement because they are not deemed
material for the exercise of prudent judgment in regard to the matters to be
acted upon at the Meeting.
PROPOSALS BY SHAREHOLDERS
Any shareholder proposals that may be included in the Board of
Directors' proxy statement and form of proxy for presentation at the 1999
Annual Meeting of Shareholders must be received by the Company at The
Marketplace, Suite 300, 12910 Shelbyville Road, Louisville, Kentucky 40243
not later than December 29, 1998.
GENERAL INFORMATION
This solicitation of proxies by the Board of Directors is being
conducted primarily by mail. The Company will bear the costs of the
solicitation, which may include reimbursement paid to brokerage firms and
others for their reasonable expenses in forwarding solicitation material for
the Meeting to beneficial owners. Certain officers, directors, and regular
employees of the Company may also solicit proxies on behalf of the Board of
Directors by means of telephone calls, personal interviews, and mail at no
additional expense to the Company, except any actual out-of-pocket
communications charges that, if incurred, are not expected to exceed $500.
All shareholders who do not expect to attend the Meeting are
urged to complete, date, sign, and return the accompanying form of Proxy in
the return envelope enclosed for that purpose.
9
<PAGE> 13
(Front)
PROXY
CITIZENS FINANCIAL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SHAREHOLDERS MEETING ON MAY 21, 1998
The undersigned hereby appoints James L. Head and Len E. Schweitzer
and each or either of them, as true and lawful agents and proxies, with full
power of substitution in each, to represent the undersigned in all matters
coming before the 1998 Annual Meeting of Shareholders of Citizens Financial
Corporation to be held at the office of the Company, The Marketplace, Suite
300, 12910 Shelbyville Road, Louisville, Kentucky on Thursday, May 21, 1998 at
2:00 p.m. Eastern Daylight Time, and any adjournments thereof, and to vote all
shares owned of record by the undersigned as follows:
1. ELECTION OF DIRECTORS
Nominees: John H. Harralson, Jr., Lane A. Hersman, Frank T.
Kiley, Charles A. Mays, Earle V. Powell, Thomas G.
Ward, Darrell R. Wells and Margaret A. Wells.
[ ] VOTE FOR all nominees listed above, except vote withheld from
following nominees (if any):
___________________________________________________________________
OR
[ ] VOTE WITHHELD from all nominees listed above.
2. OTHER MATTERS
In their discretion, to vote with respect to any other matters that
may come before the Meeting or any adjournments thereof, including
matters incident to its conduct.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER
SPECIFIED ABOVE BY THE SHAREHOLDER. TO THE EXTENT CONTRARY SPECIFICATIONS ARE
NOT GIVEN, THIS PROXY WILL BE VOTED FOR THE NOMINEES LISTED IN ITEM 1 WITH THE
DISCRETIONARY AUTHORITY SET FORTH IN THE ACCOMPANYING PROXY STATEMENT.
<TABLE>
<CAPTION>
PLEASE DATE AND SIGN ON THE REVERSE SIDE
<PAGE> 14
<S> <C> <C>
_____________________________________________________________________________________________
(Back)
</TABLE>
PLEASE SIGN EXACTLY AS Dated: _________________, 1998
NAME APPEARS BELOW
______________________Signature
______________________Signature
(Joint Owners Should Each Sign.
Attorneys-in-Fact, Executors,
Administrators, Custodians,
Partners, or Corporation Officers
Should Give Full Title).
PLEASE DATE, SIGN, AND RETURN THIS PROXY
IN THE ENCLOSED ENVELOPE PROMPTLY.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
