<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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
[X] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
CITIZENS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
CITIZENS CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(2) or Item 22(a) of
Schedule 14A.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
<PAGE>
CITIZENS
CORPORATION
NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT
ANNUAL MEETING
OF SHAREHOLDERS
MAY 20, 1997
<PAGE>
LOGO
440 LINCOLN STREET
WORCESTER, MASSACHUSETTS
APRIL 23, 1997
TO OUR SHAREHOLDERS:
Enclosed is a Notice of Annual Meeting of Shareholders of Citizens
Corporation, which will be held on Tuesday, May 20, 1997, at 1:00 in the
afternoon, in the Wright Room, 1st Floor, Allmerica Financial Headquarters,
440 Lincoln Street, Worcester, Massachusetts 01653.
The accompanying Notice and Proxy Statement describe in detail the matters
to be acted on at the meeting. You are cordially invited to attend the meeting
and vote your shares in person. However, if you are unable to attend, please
complete, sign and return the enclosed proxy in the envelope provided as soon
as possible. Your cooperation will assure your shares being voted and will
also greatly assist our officers in preparing for the meeting.
Sincerely,
LOGO
John F. O'Brien
Chairman of the Board,
President and
Chief Executive Officer
LOGO
<PAGE>
CITIZENS CORPORATION
-------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 1997
-------------------------------------
To the Shareholders of
CITIZENS CORPORATION:
The Annual Meeting of Shareholders of Citizens Corporation ("the Company")
will be held at Allmerica Financial Headquarters, Wright Room, 1st Floor, 440
Lincoln Street, Worcester, Massachusetts on Tuesday, May 20, 1997, at 1:00
p.m. for the purpose of considering and voting on:
1. Election of a Board of Directors consisting of six persons to serve for
a period of one year and until their respective successors shall be
elected and qualified;
2. Ratification of the appointment of Price Waterhouse LLP as the
independent public accountants of the Company for 1997; and,
3. Such other business as may properly come before the meeting and any
adjournment thereof.
The Board of Directors has fixed March 21, 1997 as the record date for
determining the shareholders of the Company entitled to notice of and to vote
at the Annual Meeting and any adjournment thereof.
By Order of the Board of Directors,
LOGO
Richard J. Baker
Vice President and Secretary
April 23, 1997
Worcester, Massachusetts
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN,
DATE AND MAIL PROMPTLY THE ENCLOSED PROXY, WHICH IS BEING SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS. A RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT PURPOSE.
<PAGE>
CITIZENS CORPORATION
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 1997
INTRODUCTION
This Proxy Statement, with the accompanying proxy card, is being mailed to
shareholders on or about April 23, 1997 and is furnished in connection with
the solicitation of proxies by the Board of Directors of Citizens Corporation
("the Company") for use at the Annual Meeting of Shareholders of the Company
to be held on May 20, 1997 ("the Annual Meeting").
As of March 21, 1997, 35,267,300 shares of the Company's common stock, par
value $.01 per share (the "Common Stock"), were outstanding and entitled to be
voted. Each share of Common Stock entitles the holder to one vote.
The record date and hour for determining shareholders entitled to vote at
the Annual Meeting has been fixed at the close of business on March 21, 1997.
The shares of Common Stock represented by the enclosed proxy will be voted
as directed by the shareholder or, in the absence of such direction, in favor
of the election of the nominees for Director designated herein and in favor of
the ratification of Price Waterhouse LLP as the Company's independent public
accountants for 1997. The enclosed proxy confers discretionary authority with
respect to any other proposals which may properly be brought before the Annual
Meeting. As of the date hereof, management is not aware of any other matters
to be presented for action at the Annual Meeting. However, if any other
matters properly come before the Annual Meeting, the proxies solicited hereby
will be voted in accordance with the recommendation of the Board of Directors.
As long as a quorum (a majority of issued and outstanding shares of Common
Stock entitled to vote at the Annual Meeting) is present at the Annual
Meeting, a plurality of the votes properly cast, either in person or by proxy,
is required to elect Directors. A majority of the votes properly cast, either
in person or by proxy, is required to ratify the appointment of Price
Waterhouse LLP as the Company's independent public accountants for 1997. Votes
may be cast in favor of the election of the nominees for director or withheld;
votes that are withheld will have no effect on the outcome of the election of
directors. Abstentions and broker non-votes will have the effect of a vote
against the other matters presently contemplated to be considered at the
Annual Meeting.
Any shareholder giving a proxy may revoke it at any time before it is
exercised by delivering written notice thereof to the Secretary. Any
shareholder attending the Annual Meeting may vote in person whether or not the
shareholder had previously filed a proxy. Presence at the Annual Meeting by a
shareholder who has signed a proxy does not in itself revoke the proxy.
The enclosed proxy is being solicited by the Board of Directors of the
Company. The cost of soliciting proxies will be borne by the Company, and will
consist primarily of preparing and mailing the proxies and Proxy Statements.
The Company will also reimburse brokerage houses and other custodians,
nominees and fiduciaries for their expenses in sending proxy materials to the
beneficial owners.
1
<PAGE>
The Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1996, including financial statements for the Company and its
subsidiaries and the report of Price Waterhouse LLP thereon, was mailed to
shareholders on March 31, 1997. The Annual Report and financial statements are
neither a part of this Proxy Statement nor incorporated herein by reference.
ITEM I
NOMINEES FOR ELECTION AS DIRECTORS
Six Directors are to be elected at the Annual Meeting to constitute the
Board of Directors of the Company and to serve as Directors for a period of
one year following their election and until their respective successors are
elected and qualified. All of the nominees are currently Directors of the
Company. The Board of Directors recommends a vote FOR all nominees. All
nominees have indicated their willingness to serve and, unless otherwise
directed, it is intended that proxies received in response to this
solicitation will be voted in favor of the election of the six persons named
below.
In the event that any of the nominees should be unavailable to serve as a
Director, it is intended that the proxies will be voted for the election of
such substitute nominees, if any, as shall be designated by the Board of
Directors. Management has no reason to believe that any nominee will be
unavailable to serve. Biographical information as to each nominee follows:
JAMES A. COTTER, JR., 57
Director since 1993 Audit Committee Compensation Committee, Chair
Mr. Cotter has been a broker with the firm of H.C. Wainwright & Co. since
January 1994, and previously was a broker with the firm of Gruntal & Co. (June
1993--January 1994). He previously served as a Managing Director and Treasurer
of Schooner Trading Company. Mr. Cotter is also Chairman of Olde Port Bank and
Trust of Portsmouth, New Hampshire and a Director of Allmerica Property &
Casualty Companies, Inc. ("APY").
NEAL J. CURTIN, 52
Director since 1993Audit Committee Compensation Committee
Mr. Curtin has been a Partner in the law firm of Bingham, Dana & Gould,
Boston, Massachusetts, since 1975.
DONA SCOTT LASKEY, 53
Director since 1993 Audit Committee, Chair
Ms. Laskey is an attorney in private practice. From 1989 until December 1996
she practiced law with the firm of Tillman, McTier, Coleman, Talley, Newbern &
Kurrie, Valdosta, Georgia. She is also a Director of APY and of FNB Bancorp,
Inc.
2
<PAGE>
JAMES R. MCAULIFFE, 52
Director since 1992 Vice President of the Company
Mr. McAuliffe has served as President of the Company's subsidiary, Citizens
Insurance Company of America ("Citizens Insurance"), since December 1994. From
1986 until December 1994, Mr. McAuliffe was Vice President and Chief
Investment Officer of Allmerica Financial Life Insurance and Annuity Company
("AFLIAC") and also First Allmerica Financial Life Insurance Company
("FAFLIC"), a wholly-owned subsidiary of Allmerica Financial Corporation
("AFC"). Mr. McAuliffe has been Vice President of AFC from February 1995
through December 1995 and since February 1997, Vice President of APY since
August 1992, a Director of APY from August 1992 to December 1994 and a
Director of AFLIAC from April 1987 through May 1995 and since May 1996.
JOHN F. O'BRIEN, 53
Director since 1992 Chairman of the Board, President and Chief Executive
Officer of the Company
Mr. O'Brien has been a Director, Chief Executive Officer and President of
AFC since February 1995. He has also served as a Director, Chief Executive
Officer and President of FAFLIC since August 1989. In addition to his
positions with AFC and FAFLIC, Mr. O'Brien has served as a Director, President
and Chief Executive Officer of APY, a majority-owned, publicly traded
subsidiary of AFC, since August 1992, and has been a Director of The Hanover
Insurance Company ("Hanover"), a wholly-owned subsidiary of APY, since
September 1989, Citizens Insurance since March 1992 and the Company, for which
he also serves as Chief Executive Officer, since December 1992. Mr. O'Brien is
also a Trustee or Director and executive officer of Allmerica Investment
Trust, Allmerica Securities Trust and Allmerica Funds. Additionally, Mr.
O'Brien is a Director and/or holds offices at various other non-public FAFLIC
affiliates including SMA Financial Corp. and AFLIAC. Mr. O'Brien also
currently serves as a Director of The TJX Companies, Inc., an off-price family
apparel retailer, ABIOMED, Inc., a medical device company, Cabot Corporation,
a diversified specialty chemicals and materials and energy company, and The
Life Insurance Association of Massachusetts. He also currently serves as a
member of the executive committee of the Mass Capital Resource Company, a
Massachusetts investment partnership. Prior to joining FAFLIC, Mr. O'Brien
served as an officer of FMR Corp., the parent company of various financial
services companies in the Fidelity Group and as a Director and/or an executive
officer at various other of FMR Corp.'s affiliates.
ERIC A. SIMONSEN, 51
Director since 1992 Vice President of the Company
Mr. Simonsen has served as Vice President of AFC since February 1995. Mr.
Simonsen has been a Director and Vice President of APY since August 1992 and
of AFLIAC since September 1990. He has also served as Vice President and
Director of FAFLIC since September 1990 and April 1996, respectively. Mr.
Simonsen has been President of Allmerica Service Company, Inc. since December
1996. Mr. Simonsen was Chief Financial Officer of AFC from February 1995 to
December 1996, of FAFLIC and AFLIAC from September 1990 to December 1996, of
APY from August 1992 to December 1996 and of the Company from December 1992 to
December 1996. He was previously Principal and Chief Financial Officer of The
Lincoln Group, Inc. (manufacturers of book covering materials).
3
<PAGE>
CERTAIN INFORMATION REGARDING DIRECTORS
In 1996 the Board of Directors held seven regularly scheduled meetings. All
of the Directors attended at least 75% of the Board and Committee meetings on
which he or she served. The Board of Directors has an Audit Committee and a
Compensation Committee. The Board of Directors does not have a standing
nominating committee.
The Audit Committee of the Board of Directors is comprised of Ms. Laskey
(Chair), Mr. Cotter and Mr. Curtin. The committee met two times during 1996
and all committee members attended all meetings. The committee, among other
duties: (a) recommends the engagement of the independent accountants of the
Company and approves their fee and the scope and timing of their audit
services; (b) reviews with the independent accountants their report on
financial and accounting matters, their recommendations for improvements in
the internal controls of the Company, and the implementation of such
recommendations; and (c) reviews the Company's internal audit program. The
committee reports to the Board on its activities and findings.
The Compensation Committee of the Board of Directors is comprised of Mr.
Cotter (Chair) and Mr. Curtin. This committee has oversight responsibility
with respect to compensation matters involving Directors and officers of the
Company and of Citizens Insurance. The committee met twice during 1996 and
both committee members attended all meetings.
Directors who are not officers or employees of the Company, Hanover,
Citizens Insurance or other affiliated companies receive $15,000 as an annual
retainer, $1,000 for each Board meeting attended and $1,000 for each Committee
meeting attended, in addition to reimbursable expenses for each meeting
attended. Directors who are salaried employees of FAFLIC or of any affiliate
or subsidiary receive no additional compensation for their services as
Directors of the Company.
ITEM II
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The firm of Price Waterhouse LLP has been selected by the Board of
Directors, subject to ratification by the shareholders, to be the Company's
independent public accountants for 1997. Representatives of Price Waterhouse
LLP will be present at the Annual Meeting, will have the opportunity to make a
statement if they desire to do so, and will be available to respond to
appropriate questions from shareholders.
The Board of Directors recommends that you vote FOR the proposal to ratify
the selection of the firm of Price Waterhouse LLP as independent public
accountants for the Company for 1997. If ratification is not obtained, the
Board of Directors will reconsider the appointment.
4
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth the number of shares of Common Stock of AFC,
APY and Citizens Corporation owned as of March 21, 1997 by (i) each Director
of the Company, (ii) the officers named in the Summary Compensation Table
appearing later in this Proxy Statement, and (iii) all Directors, nominees and
officers as a group. This information has been furnished by the persons listed
in the table.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES OF NUMBER OF SHARES OF
COMMON STOCK OF COMMON STOCK OF COMMON STOCK OF
NAME OF BENEFICIAL OWNER AFC* APY* CITIZENS*
- ------------------------ ------------------- ------------------- -------------------
<S> <C> <C> <C>
James A. Cotter, Jr..... -- 1,700(1) 1,100(1)
Neal J. Curtin.......... -- -- 263
Howard S. Feldman....... -- -- 3,000
Roger H. Gardner........ -- -- 3,800
Dona Scott Laskey....... -- 1,040 --
William J. Lohr......... -- -- 450
James R. McAuliffe...... 5,035(2) 1,600 9,900
John F. O'Brien......... 270(3) 16,000 1,000
Eric A. Simonsen........ 146(4) 9,000(5) 3,000(6)
Directors and executive
officers as a group
(15 persons)........... 17,100(7) 39,690 23,813
</TABLE>
- --------
* Each of the amounts represents less than 1% of the outstanding shares of
Common Stock as of March 21, 1997. As to shares beneficially owned, each
person has sole voting and investment power, except as indicated in other
footnotes to this table. Amounts include shares that beneficial owner named
above has the right to acquire within 60 days of March 21, 1997, upon
exercise of outstanding stock options.
(1) Includes 100 shares owned by Mr. Cotter's spouse.
(2) Shares held for the benefit of Mr. McAuliffe by the trustees of the First
Allmerica Financial Life Insurance Company's Employees' 401(k) Matched
Savings Plan (the "FAFLIC Plan").
(3) Includes 198 shares held for the benefit of Mr. O'Brien by the trustees of
the FAFLIC Plan.
(4) Shares held for the benefit of Mr. Simonsen by the trustees of the FAFLIC
Plan.
(5) Includes an aggregate of 3,000 shares of Common Stock of APY held in
trusts for the benefit of Mr. Simonsen's children. Mr. Simonsen is trustee
of the trusts and he disclaims beneficial ownership of the shares held in
the trusts.
(6) Includes an aggregate of 1,000 shares of Common Stock of Citizens held in
trusts for the benefit of Mr. Simonsen's children. Mr. Simonsen is trustee
of the trusts and he disclaims beneficial ownership of the shares held in
the trusts.
(7) Includes 15,359 shares held by the trustees of the FAFLIC Plan. See notes
2-5 above.
5
<PAGE>
Set forth below, as of March 21, 1997, is the name of the only person known
to the Company to be the beneficial owner of more than 5% of the outstanding
shares of Common Stock of the Company:
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME AND ADDRESS OF BENEFICIAL OF
OF BENEFICIAL OWNER OWNERSHIP CLASS
------------------- ----------------- -------
<S> <C> <C>
The Hanover Insurance Company......................... 29,093,500 82.5%
100 North Parkway
Worcester, MA 01653
</TABLE>
All of Hanover's common stock is owned by APY. SMA Financial Corp., a
wholly-owned subsidiary of AFC, owns 35,472,600 shares (59.47%) of the
outstanding common stock of APY. All of these companies are located at 440
Lincoln Street, Worcester, Massachusetts.
EXECUTIVE COMPENSATION
The Company does not pay any compensation to its officers directly. The
Company's operating subsidiary, Citizens Insurance, pays the compensation of
its employees. Pursuant to the terms of intercompany services agreements, the
Company and Citizens Insurance are charged for an allocated portion of the
compensation FAFLIC pays to its employees who perform services for the
companies.
The following table sets forth all compensation for services rendered in all
capacities to the Company or its subsidiaries for each of the fiscal years
ended December 31, 1996, 1995 and 1994 of: (i) the Chief Executive Officer of
the Company and (ii) each of the other four most highly compensated
individuals who received total compensation in excess of $100,000 directly or
indirectly attributable to the Company or its subsidiaries and who was serving
as an officer at December 31, 1996 (collectively, "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
---------------------------- ------------------
OTHER ANNUAL SECURITIES LTIP ALL OTHER
COMPEN- UNDERLYING PAY- COMPEN-
NAME AND SALARY BONUS SATION OPTIONS OUTS SATION
PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6)
------------------ ---- ------- ------- ------------ ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
John F. O'Brien(7)...... 1996 42,500 90,800 5,471 -- 25,000 6,011
Chairman, President 1995 131,750 131,750 18,602 -- 42,500 20,439
and CEO of CZC 1994 20,300 11,200 3,076 -- -- 5,162
James R. McAuliffe(8)... 1996 355,000 157,975 98,831 7,000 150,000 4,500
Vice President, CEO & 1995 305,000 114,985 67,560 14,000 190,000 4,500
President of Citizens 1994 8,540 2,485 -- -- -- 677
Howard S. Feldman(9).... 1996 170,000 78,750 -- 5,000 -- 4,500
Vice President of
Citizens 1995 143,846 60,344 -- 5,000 -- 4,315
1994 62,500 -- 119,192 -- -- 1,134
William J. Lohr(9)...... 1996 147,000 54,390 -- 4,000 -- 4,500
Vice President and 1995 137,000 45,553 -- 4,000 -- 5,135
Treasurer of Citizens 1994 125,000 7,500 -- 2,500 -- 5,000
Roger H. Gardner(9)..... 1996 149,000 40,230 -- 2,500 -- 4,500
Vice President of
Citizens 1995 142,000 35,145 -- 2,500 -- 4,500
1994 135,000 8,100 -- 3,000 -- 5,400
</TABLE>
6
<PAGE>
- --------
(1) With the exception of Mr. O'Brien, amounts shown reflect annual salary
earned and received by each of the Named Executive Officers from Citizens
Insurance. Mr. O'Brien receives compensation from FAFLIC in his capacity
as an employee and executive officer of FAFLIC. Mr. O'Brien does not
receive compensation directly from the Company or any subsidiary of the
Company. The amounts shown in the table reflect the portions of Mr.
O'Brien's compensation that have been allocated as an expense to the
Company and its subsidiaries. See footnote 7.
(2) The amount shown for 1996 for Mr. O'Brien includes $50,000, which
represents an allocated portion of a special bonus payment. Amounts shown
are bonuses earned by the Named Executive Officers pursuant to annual
incentive plans for managers and key employees, except that the amounts
shown with respect to Mr. O'Brien reflect allocated amounts paid to Mr.
O'Brien in connection with FAFLIC's annual incentive bonus plan.
(3) The amounts shown for Mr. O'Brien reflect the portions of amounts
reimbursed for the payment of taxes that have been allocated as an expense
to the Company and its subsidiaries. See footnote 7. The amounts reported
for Mr. McAuliffe and Mr. Feldman include the following moving expenses
paid by Citizens Insurance of $47,491 in 1995 and $82,825 in 1996 for Mr.
McAuliffe and $119,192 in 1994 for Mr. Feldman.
(4) The securities underlying the options shown are shares of the Company's
Common Stock.
(5) Amounts shown for Mr. McAuliffe represent installment payments vesting and
received in the respective year pursuant to awards which were earned under
FAFLIC's Long-Term Performance Unit Plan (the "Long-Term Performance
Plan") in 1993, 1995 and 1996. No such cash amounts were earned in 1994 by
participants in respect of units granted under the Long-Term Performance
Plan with values determinable based on FAFLIC's surplus level at the end
of 1994. Amounts shown for Mr. O'Brien represent an allocated portion of
$500,000 of installment payments vested and received under the Long-Term
Performance Plan.
(6) This column includes amounts earned in 1996 but deferred by each of the
Named Executive Officers (other than Mr. O'Brien) pursuant to the terms of
his respective employer's 401(k) Matched Savings Plan. The amount shown
with respect to Mr. O'Brien for fiscal year 1996 represents an allocated
portion of $4,500 earned under FAFLIC's Executive Non-Qualified Retirement
Plan and a $115,727 payment of a premium on a life insurance policy.
(7) Mr. O'Brien receives compensation from FAFLIC in his capacity as an
employee of FAFLIC. Mr. O'Brien does not receive compensation directly
from the Company or any subsidiary of the Company. Mr. O'Brien's 1996
compensation from FAFLIC included $850,000 in base salary, $1,816,000 in
special bonus and annual incentive bonus, $4,500 earned under FAFLIC's
Executive Non-Qualified Retirement Plan, $115,727 for a life insurance
premium paid by FAFLIC, $109,422 in reimbursement for the payment of taxes
in connection therewith and $500,000 for installment payments vested and
received under the Long-Term Performance Plan. The amounts shown in the
table with respect to Mr. O'Brien for 1996 have been allocated as an
expense to the Company and its subsidiaries and equal 5% of Mr. O'Brien's
total compensation.
(8) Beginning January 1, 1995, amounts paid to Mr. McAuliffe were paid by
Citizens Insurance as compensation for his services as President and Chief
Executive Officer of Citizens Insurance. In 1994, Mr. McAuliffe received
compensation directly from FAFLIC and amounts reported reflect an
allocation to the Company for services rendered.
(9) The amounts indicated are total compensation paid to Messrs. Feldman,
Gardner and Lohr directly by Citizens Insurance for services rendered in
their capacities as employees and executive officers of Citizens
Insurance.
7
<PAGE>
OPTION GRANTS TABLES
The following tables contains information concerning the grant of non-
qualified stock options in 1996 to the Named Executive Officers.
CZC OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE VALUE
-------------------------------------------------- ----------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES BASE PRICE EXPIRATION PRESENT
NAME GRANTED (#)(1) IN 1996 ($ PER SHARE) DATE VALUE ($)(2)
---- -------------- ---------- ------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
John F. O'Brien......... 0 0 -- -- 0
James R. McAuliffe...... 7,000 13.5 18.25 05/21/06 57,610
Howard S. Feldman....... 5,000 9.6 18.25 05/21/06 41,150
William J. Lohr......... 4,000 7.7 18.25 05/21/06 32,920
Roger H. Gardner........ 2,500 4.8 18.25 05/21/06 20,575
</TABLE>
- --------
(1) The securities underlying the options granted were shares of the Company's
Common Stock. The options granted become exercisable in 20% increments on
the first, second, third, fourth and fifth anniversaries of the date of
grant.
(2) In accordance with Securities and Exchange Commission rules, the Black-
Scholes option pricing model was chosen to estimate the grant date present
value of the options set forth in the table. The Company's use of the
model should not be construed as an endorsement of its accuracy at valuing
options. All stock option valuation models, including the Black-Scholes
model, require a prediction about the future movement of the stock price.
The following assumptions were made for purposes of calculating the Grant
Date Present Value; options exercised from 2.5 to 7 years, stock price
volatility of .1875, divided yield of 1.09%, risk-free interest rates
between 5.29% and 6.33%, and no adjustments made for forfeitures or
transferability. The real value of the options depends upon the actual
performance of the Company's Common Stock during the applicable period.
YEAR-END 1996 OPTION VALUE TABLE
The following table sets forth information for the Named Executive Officers
regarding unexercised options to acquire shares of the Company's Common Stock
held as of December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT YEAR-END MONEY OPTIONS AT YEAR-END
1996 (#) 1996(1)($)
------------------------------- ----------------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
---- ------------------------------- ----------------------------
<S> <C> <C>
John F. O'Brien......... -- --
James R. McAuliffe...... 2,800/18,200 16,200/94,550
Howard S. Feldman....... 1,000/9,000 5,625/43,750
William J. Lohr......... 1,800/8,700 11,750/45,875
Roger H. Gardner........ 1,700/6,300 11,513/34,925
</TABLE>
- --------
(1) Calculated based on the difference between the option exercise price and
$22.50, the closing price per share of Citizens Corporation's Common Stock
on the New York Stock Exchange on December 31, 1996.
8
<PAGE>
LONG-TERM INCENTIVE AWARDS
No Long-Term Incentive Awards were granted to the Named Executive Officers
during 1996 under FAFLIC's Long-Term Performance Plan (the "Long-Term
Performance Plan").
PENSION BENEFITS
FAFLIC, Hanover and Citizens Insurance each maintain a tax-qualified, non-
contributory defined benefit retirement plan ("Pension Plan") for the benefit
of eligible employees of FAFLIC and its subsidiaries.
Until December 31, 1994, annual benefits under the Pension Plan were based
primarily upon each employee's years of service and compensation during the
highest five consecutive plan years of employment or the last 60 months if
greater. Such benefits under the Pension Plan were frozen as of December 31,
1994 for most participants, with the exception of certain grandfathered
employees, including Mr. McAuliffe and Mr. Gardner. These benefits will be
paid to participants as a monthly annuity at age 65 unless a participant
terminates with 15 or more years of service in which case monthly benefits may
commence anytime after the participant's 55th birthday. Effective as of
January 1, 1995, the Pension Plan was converted into a cash balance plan, such
that benefits are no longer determined primarily by final average compensation
and years of service. Instead, annually each employee accrues a benefit that
is equal to a percentage of the employee's salary, similar to a defined
contribution plan arrangement. Amounts contributed by the employer to an
employee are allocated to a memorandum account as to which the employee is
permitted to make investment elections from among choices provided by the
employer. Upon termination of employment of a participant, the amount in the
participant's memorandum account as of such date, is eligible for
distribution. If the amount in the participant's memorandum account plus the
present value of the benefit frozen under the Pension Plan as of December 31,
1994 is less than $3,500, all benefits are distributed immediately in a lump
sum.
The estimated annual benefits payable under the Pension Plan upon retirement
at normal retirement age for each of the Named Executive Officers is as
follows: Mr. O'Brien: $428,138; Mr. McAuliffe: $408,166; Mr. Feldman: $40,859;
Mr. Lohr: $77,018; and Mr. Gardner: $64,895. Such figures include amounts that
have accrued under the Pension Plan as in effect on December 31, 1994,
including $332,466 for Mr. McAuliffe and $59,042 for Mr. Gardner. With respect
to benefits attributable to the cash balance component of the Pension Plan, it
was assumed that each individual's salary and bonus for the years until
retirement were as shown in the Summary Compensation Table; that employer
allocations were made to the Pension Plan at a rate of 7% of eligible
compensation (7% is the actual amount accrued in 1996, although the plan only
guarantees an accrual rate of 0.5%); and that investment earnings accrued to
each participant's memorandum account under the Pension Plan at a rate of 6%
per year.
The estimated annual benefits under the Pension Plan shown for each of the
Named Executive Officers are not reduced to reflect the limitations imposed by
Federal tax laws, which place upper limits on the benefits which may be
provided to any individual by tax-qualified pension plans. FAFLIC, Hanover and
Citizens Insurance each have adopted an Excess Benefit Plan, an unfunded, non-
qualified plan, which provides that it will pay directly the difference
between the retirement benefit normally calculated under the Pension Plan and
the maximum amount which may be paid from the Pension Plan consistent with
Federal tax law. In addition, effective June 1, 1995, certain employees of
FAFLIC and its subsidiaries may participate, in the discretion of the Board of
Directors, in either FAFLIC's unfunded, Non-Qualified Executive Retirement
Plan or its unfunded, Non-Qualified Executive Deferred Compensation Plan.
Under the Non-Qualified Executive Retirement Plan, participating employees may
(i) elect to defer compensation in an amount not to exceed the annual dollar
amount that can be deferred under a tax qualified 401(k) plan for the year,
(ii) elect to defer additional compensation in
9
<PAGE>
an amount not to exceed 12.5% of the participant's annual salary, (iii)
receive and defer the amount, if any, that the participant would have received
as a matching employer's contribution under his employer's 401(k) Matched
Savings Plan, and (iv) receive and defer the amount, if any, that the
participant would have been credited under his employer's Cash Balance and
Excess Benefit Plans had the participant participated in such plan during the
year. Under the Non-Qualified Executive Deferred Compensation Plan, certain
other employees may elect to defer up to 12.5% of their annual salaries. In
both cases, AFC shall from time to time designate one or more investments in
which each participant's accounts shall be deemed to be invested for the
purpose of determining the participant's gains and income on such account.
Participation in the Non-Qualified Executive Retirement Plan is in lieu of
participation in the corresponding Qualified Retirement and/or Pension Plans
of FAFLIC, Hanover or Citizens Insurance.
COMPENSATION COMMITTEE REPORT
GENERAL. The Compensation Committee ("Committee") of the Board of Directors
is comprised of the Directors whose names appear at the end of this report,
none of whom is an employee of the Company or of any affiliate or subsidiary
of the Company. Among other duties, the Committee has oversight responsibility
with respect to compensation matters involving Directors and officers of the
Company and its primary operating subsidiary, Citizens Insurance. As a holding
company, the Company has no employees of its own and does not pay any
compensation to its officers. Employees of Citizens Insurance are compensated
directly by Citizens Insurance.
This report reflects the compensation philosophy of Citizens Insurance and
the Company as endorsed by the Committee. The report also reflects the
Committee's review of the actions taken by the Board of AFC for the Chief
Executive Officer, and by the Board of Citizens Insurance with respect to the
Named Executive Officers other than Mr. O'Brien ("Citizens Officers"), during
1996.
COMPENSATION PHILOSOPHY. The Executive Compensation Program is designed to
support the following objectives:
. to attract and retain individuals key to the future success of the
Company;
. to align the interests of executives with those of shareholders;
. to motivate and reward the profitable growth of the Company;
. to ensure that the Company has competitive opportunities for key
personnel.
The key elements of the Executive Compensation Program consist of base
salary, annual incentive compensation, and long-term incentive compensation. A
general description of each element and the review taken by the Committee for
the 1996 fiscal period are presented in the following material. In addition,
general background and a summary of the actions taken by the Compensation
Committee and Board of Directors of AFC with respect to Mr. O'Brien are also
described.
BASE SALARY. The chief goals of the Company and its subsidiaries are
achieving superior underwriting profitability in all phases of the
underwriting cycle, maintaining consistent market presence in core product
lines, growing market share in core markets, and enhancing shareowner value.
In furtherance of these goals, annual base salaries of the Citizens Officers
and other key executives are generally set at levels considered to be
competitive with amounts paid to executive officers with comparable
qualifications, experience and responsibilities at similarly sized property
and casualty insurance companies. For this purpose, survey data covering base
salary levels and total cash compensation data of peer companies are collected
to provide a frame of reference.
10
<PAGE>
ANNUAL INCENTIVE COMPENSATION. Annual incentive compensation is closely tied
to the success of Citizens Insurance in achieving significant financial
performance goals. Citizens Insurance maintains an incentive plan which
provides supplementary cash compensation to reward selected managers and key
employees of Citizens Insurance who, through exceptional performance,
contribute materially to the long-term growth and financial success of the
Company. For 1996, the incentive plan had two components: (a) the corporate
and business unit return on equity; and (b) the successful completion of
individual performance goals. Awards under the incentive plan may range from
0-100% of a participant's base salary.
Mr. McAuliffe's 1996 incentive compensation was based on performance
measures which included a corporate and goal based upon GAAP Consolidated Net
Income Return on Equity of AFC and Citizens and the successful completion of
individual goals. Achievement of the corporate goal was also assessed in light
of performance on Focus Goals. Focus Goals include established targets on
staff, staffing costs, revenue, expense and business unit contribution.
LONG-TERM COMPENSATION. The Board of Citizens Insurance has ratified the
participation of certain Citizens Insurance's officers in the FAFLIC Long-Term
Performance Unit Plan ("Long-Term Performance Plan").
The objectives of the Long-Term Performance Plan include providing
incentives to attract and retain top executives and achieving significant
long-term financial results for FAFLIC and its subsidiaries. Criteria
considered in determining participation in the Long-Term Performance Plan
include the direct and measurable impact the executive has on longer-term
financial results, the influence the individual has on strategic direction and
the degree of risk inherent in the individual's business decisions. Previously
awarded units are payable dependent upon specific increases in capital,
surplus and equity position determined at of the end of a three-year plan
cycle and payments are made subject to a subsequent three-year vesting cycle.
The last three-year plan cycle under the Long-Term Performance Plan began in
1995. Therefore, no Named Executive Officers were awarded Long-Term
Performance Plan units in 1996, although certain awards made in 1995 will
continue to vest through 1999. Commencing in 1997, long-term incentive
compensation awards will be made to the Named Executive Officers pursuant to
AFC's Long-Term Stock Incentive Plan.
The Company also has in place a Long Term Stock Incentive Plan ("Stock
Plan"), which was adopted in 1994. The objectives of the Stock Plan include
providing incentives for participants to make substantial contributions to the
Company's long-term business growth, enhancing the Company's ability to
attract and retain executive officers and other key employees, rewarding
participants for their contributions to the success of the Company, and
aligning the interests of executive officers and other key employees with
those of the Company's shareholders. Up to 200,000 shares are available for
awards under the Stock Plan. For 1996, options were awarded under the Stock
Plan to Named Officers as follows: options covering 7,000 shares to Mr.
McAuliffe; options covering 5,000 shares to Mr. Feldman; options covering
4,000 shares to Mr. Lohr; and options covering 2,500 shares to Mr. Gardner.
Factors considered in determining the grant of options under the Stock Plan to
Citizens Officers as indicated included the contribution of each individual to
the Company's long-term performance and the importance of such individual's
responsibilities within the organization.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. John F. O'Brien, President and
Chief Executive Officer of AFC, serves as Chairman of the Board, President,
and Chief Executive Officer of the Company, and serves as Chairman of the
Board of Citizens Insurance. Mr. O'Brien's compensation is established and
reviewed by the Compensation Committee of the Board of Directors of AFC. He
receives no compensation directly from the Company or its subsidiaries, but
for 1996 a portion of his FAFLIC compensation was allocated and charged to
Citizens Insurance and the Company.
In approving the 1996 compensation package for Mr. O'Brien, AFC's
Compensation Committee compared Mr. O'Brien's compensation against the
comparative base salaries, annual and long-term incentives and other
11
<PAGE>
compensation of chief executives of a peer group of companies. The peer goup
companies included (i) insurance companies identified as having distribution
systems, products/product mix and/or markets similar to FAFLIC and its
subsidiaries; (ii) a subset of insurance companies that were identified by
scope of financial activity (such as assets, revenue, and net written
premium); and (iii) a subset of financial service companies that provide for a
stratification of salary data based on similarity in the nature and scope of
business activities. The Committee assumes (a) that such independent variables
are meaningful in determining CEO compensation, and (b) that a correlation
exists between pay and such variables. However, the approach does not consider
variances in the business strategies and goals of each company, the relative
competitive positions of the companies, and the personal characteristics and
accomplishments of the individual executives. Therefore, the review of Mr.
O'Brien's compensation by AFC's Compensation Committee also included an
assessment of the performance of FAFLIC and its subsidiaries in terms of
profitability and growth in the various business lines, as well as an
evaluation of the capital positions of the companies, the implementation of
significant cost controls and other strategic initiatives. In comparison to
the peer group of companies, Mr. O'Brien's base salary was near the median,
while the potential for incentive compensation, as a percentage of base
salary, was below the median.
Mr. O'Brien's 1996 incentive compensation performance measures included a
corporate goal based upon GAAP Consolidated Net Income Return on Equity of
AFC, business unit Return on Equity, focus goals relating to earnings per
share, revenue, AFC's stock price and individual performance goals. Individual
performance goals included significant improvement in earnings and capital;
development of alternate distribution systems; initiatives to improve
technology; and continued development and implementation of a strategic plan
for the Company. Achievement of individual performance goals and other
initiatives undertaken by Mr. O'Brien during 1996 resulted in performance that
exceeded expectations.
The AFC Compensation Committee carefully reviewed Mr. O'Brien's personal
achievements against his 1996 goals and based on its evaluation, the Committee
approved Mr. O'Brien's annual incentive compensation award of 96% of his base
salary, out of a maximum potential of 100% of base salary. In addition, the
AFC Committee approved a special bonus award to Mr. O'Brien in the amount of
$1,000,000.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER OF CITIZENS INSURANCE. James R.
McAuliffe has served as the President and Chief Executive Officer of Citizens
Insurance since December 1, 1994. Mr. McAuliffe's compensation is established
by the Board of Directors of Citizens Insurance. In determining Mr.
McAuliffe's base salary for 1996, the Board of Citizens Insurance compared
base salaries paid to Chief Executive Officers in other property and casualty
companies of comparable size. Mr. McAuliffe also received incentive payments
totaling $157,975 for 1996, which amount was determined based on factors
including Citizens Insurance's performance for the year and Mr. McAuliffe's
management contributions. Mr. McAuliffe also received stock options covering a
total of 7,000 shares of Common Stock under the Company's Stock Plan.
The Committee believes that the executive compensation policies of the Board
of Directors of AFC and Citizens Insurance are appropriate both to attract and
retain corporate officers and other key employees of outstanding abilities and
to motivate them to perform to the full extent of their abilities.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of the
Internal Revenue Code, enacted in 1993, generally disallows a tax deduction to
public companies for compensation over $1 million paid to the corporation's
Chief Executive Officer and four other most highly compensated executive
officers. Qualifying performance-based compensation will not be subject to the
deduction limit if certain requirements are met. The Company and Citizens
Insurance intend to monitor the impact of Section 162(m) in order to balance
the benefits of favorable tax treatment with a need to apply prudent judgment
in carrying out the Company's and Citizens Insurance's compensation
philosophy.
MEMBERS OF THE COMPENSATION COMMITTEE:
James A. Cotter, Jr., Chairman
Neal J. Curtin
12
<PAGE>
COMMON STOCK PERFORMANCE CHART
Set forth below is a line graph comparing the 45 month cumulative total
stockholder return of the Common Stock against the cumulative total return of
the S&P 500 Index and the S&P Property-Casualty Insurance Index.
The S&P Property-Casualty Insurance Index includes the following companies:
General Re Corp., The Chubb Corporation, The St. Paul Companies, Inc., Safeco
Corp., USF&G Corp., and Continental Corp.
COMPARISON OF 45 MONTH CUMULATIVE TOTAL RETURN* AMONG CITIZENS CORPORATION,
THE S&P 500 INDEX AND THE S&P PROPERTY-CASUALTY INSURANCE INDEX.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement period Citizens S & P S & P Insurance
(Fiscal Year Covered) Corporation 500 (Property-Casualty)
- --------------------- ----------- -------- --------------------
<S> <C> <C> <C>
Measurement PT -
03/19/93 $100 $100 $100
FYE 12/93 $77 $108 $95
FYE 12/94 $68 $109 $100
FYE 12/95 $75 $150 $135
FYE 12/96 $92 $185 $164
</TABLE>
The Compensation Committee Report and the Stock Price Performance Graph
above 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 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.
13
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and Directors, and persons who beneficially own more than ten percent
(10%) of the Common Stock, to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC") and
the New York Stock Exchange. Such persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on a review of the copies of such forms furnished to the Company and
written representations from the executive officers and Directors, the Company
believes that during 1996 there was full compliance with all Section 16(a)
filing requirements.
OTHER MATTERS
Management knows of no business which will be presented for consideration at
the Annual Meeting other than as stated in the Notice of Meeting. If, however,
other matters are properly brought before the Annual Meeting, it is the
intention of the proxyholders to vote the shares represented thereby on such
matters in accordance with the recommendation of the Board of Directors and
authority to do so is included in the proxy.
FORM 10-K
Shareholders may obtain without charge a copy of the Company's Annual Report
on Form 10-K, including financial statements and financial statement
schedules, required to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934 for the fiscal year ended
December 31, 1996, by calling (800)407-5222 or by writing to the Company at
440 Lincoln Street, Worcester, Massachusetts 01653 (attention: Secretary).
STOCKHOLDER PROPOSALS
Proposals submitted by shareholders of the Company must be received at
Citizens Corporation, 440 Lincoln Street, Worcester, Massachusetts 01653 on or
before December 1, 1997 in order to be considered for inclusion in the proxy
materials relating to the 1998 Annual Meeting of Shareholders.
DATED at Worcester, Massachusetts this 23rd day of April 1997.
By Order of the Board of Directors,
Richard J. Baker
Vice President and Secretary
14
<PAGE>
LOGO LOGO
First Allmerica Financial Life Insurance Company . Allmerica Financial Life
Insurance and Annuity Company (licensed in all states except NY & HI)
Allmerica Trust Company, N.A. . Allmerica Investments, Inc. . Allmerica
Investment Management Company, Inc.
Allmerica Asset Management, Inc. . Allmerica Property & Casualty Companies,
Inc. . The Hanover Insurance Company . AMGRO, Inc.
Allmerica Financial Alliance Insurance Company . Allmerica Financial Benefit
Insurance Company . Sterling Risk Management Services, Inc.
Citizens Corporation . Citizens Insurance Company of America . Citizens
Management Inc.
440 Lincoln Street, Worcester, Massachusetts 01653
271-5654 (Rev. 4/97)
<PAGE>
LOGO
CITIZENS CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 1997
The undersigned, having received the Notice of Annual Meeting of Shareholders
and the Board of Directors' Proxy Statement (the "Proxy Statement"), hereby
appoint(s) John F. O'Brien and John F. Kelly, and each of them, Proxies of the
undersigned (with full power of substitution) to attend the Annual Meeting of
Shareholders of Citizens Corporation to be held May 20, 1997, and all
adjournments thereof (the "Meeting"), and there to vote all shares of Common
Stock of Citizens Corporation that the undersigned would be entitled to vote,
if personally present, in regard to all matters which may come before the
Meeting.
The undersigned hereby confer(s) upon the Proxies, and each of them,
discretionary authority (i) to consider and act upon such business, matters or
proposals other than the business set forth below as may properly come before
the Meeting and (ii) with respect to the election of Directors in the event
that any of the nominees is unwilling to serve. THE PROXY WHEN PROPERLY
EXECUTED WILL BE VOTED IN THE MANNER SPECIFIED HEREIN. IF NO SPECIFICATION IS
MADE, THE PROXIES INTEND TO VOTE FOR EACH PROPOSAL AND FOR ALL NOMINEES FOR
DIRECTOR.
PLEASE MARK VOTE AS IN THIS EXAMPLE. [X]
1. For the election of all nominees listed below (except as otherwise
indicated).
NOMINEES:James A. Cotter, Jr., Neal J. Curtin, Dona Scott Laskey, James R.
McAuliffe, John F. O'Brien and Eric A. Simonsen
[_] FOR all nominees [_] WITHHOLD from all nominees
------------------------------------------------------
FOR all nominees, except those listed on the line above
2. Ratification of the appointment of Price Waterhouse LLP as the independent
public accountants of Citizens Corporation.
[_] FOR [_] AGAINST [_] ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WHICH RECOMMENDS
APPROVAL OF THE FOREGOING PROPOSALS
<PAGE>
LOGO
Mark here for address change and note
below. [_]
------------------ ---------
Signature Date
------------------ ---------
Signature Date
In signing, please write name(s)
exactly as appearing in the imprint on
this card. For shares held jointly,
each joint owner should sign. If
signing as executor, or in any other
representative capacity, or as an
officer of a corporation, please
indicate your full title as such.
