<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
-------------------
CITIZENS CORPORATION
(Name of the Issuer)
ALLMERICA FINANCIAL CORPORATION
CITIZENS ACQUISITION CORPORATION
(Name of Persons Filing Statement)
COMMON STOCK, $0.01 PAR VALUE
(Title of Class of Securities)
01-174533 10 9
(CUSIP Number of Class of Securities)
JOHN F. KELLY, ESQ.
440 LINCOLN STREET
WORCESTER, MASSACHUSETTS 01653
(508) 855-1000
(Name of Person Authorized to Receive
Notices on Behalf of Filing Persons)
Copy to:
LAUREN I. NORTON, ESQ.
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110
(617) 951-7000
This statement is filed in connection with (check the appropriate box):
a. [_] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [_] The filing of a registration statement under the Securities Act of
1933.
c. [X] A tender offer.
d. [_] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [_]
CALCULATION OF FILING FEE
- --------------------------------------------------------------------------------
Transaction Value* Amount of Filing Fee
- --------------------------------------------------------------------------------
$170,894,100.00 $34,178.82
- --------------------------------------------------------------------------------
* For purposes of calculating the fee only. This amount assumes the purchase
of 5,892,900 shares of common stock, par value $.01 per share, of Citizens
Corporation at $29.00 net in cash per share, which represents all
outstanding shares at October 30, 1998 not owned directly or indirectly by
the persons filing this statement. The amount of the filing fee calculated
in accordance with Rule 0-11 equals 1/50th of 1% of the value of the shares
to be purchased.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
Amount Previously Paid: $34,178.82 Filing Parties: Allmerica Financial
Corporation and
Citizens Acquisition
Corporation
Form or Registration No.: Schedule 14D-1 Date Filed: November 2, 1998
================================================================================
Page 1 of 9 Pages
<PAGE>
INTRODUCTION
This Rule 13e-3 Transaction Statement (the "Schedule 13E-3") relates to a
tender offer by Citizens Acquisition Corporation, a Delaware corporation (the
"Purchaser"), and wholly owned indirect subsidiary of Allmerica Financial
Corporation, a Delaware corporation ("AFC"), to purchase all of the outstanding
shares of common stock, par value $0.01 per share (the "Shares"), of Citizens
Corporation, a Delaware corporation ("Citizens") that AFC does not already own.
The offer is being made at a price of $29.00 per Share, net to the seller in
cash, without interest (the "Offer Price") upon the terms and subject to the
conditions set forth in the Offer to Purchase dated November 2, 1998 (the "Offer
to Purchase") and in the related Letter of Transmittal (which, as amended or
supplemented from time to time, together constitute the "Offer"), copies of
which are filed as Exhibits (d)(1) and (d)(2) hereto, respectively. Capitalized
terms used herein but not defined are used as defined in the Offer to Purchase.
This Schedule 13E-3 is being filed by the Purchaser and AFC.
The Purchaser is making the Offer for the purpose of acquiring at least 90
percent of the outstanding Shares and then consummating a "short-form merger"
under Section 253 of the General Corporation Law of the State of Delaware (the
"DGCL"), pursuant to which the Purchaser will be merged into Citizens (the
"Merger" and, together with the Offer, the "Transaction"). As a result of the
Merger, the Purchaser will cease to exist and Citizens will continue as the
surviving corporation (the "Surviving Corporation"), and will be wholly owned
indirect subsidiary of AFC. In the Merger, each Share outstanding immediately
prior to the effective time of the Merger (the "Effective Time") (other than
Shares held in Citizens' treasury, by any subsidiary of AFC or by the Purchaser
and other than Shares held by Stockholders who have properly exercised appraisal
rights with respect thereto in accordance with Section 262 of the DGCL) shall,
at the Effective Time, by virtue of the Merger and without any action on the
part of the holder thereof, be canceled and converted into the right to receive
the Offer Price, or any higher price per Share paid in the Offer (the "Merger
Price"), payable to the holder thereof, without interest thereon, upon the
surrender of the certificate or certificates formerly representing such Shares.
The following cross reference sheet is being supplied pursuant to General
Instruction F to the Schedule 13E-3 and shows the location in the Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1") filed by the Purchaser and
AFC with the Securities and Exchange Commission on the date hereof, of the
information required to be included in response to the items of this Statement.
The information set forth in the Schedule 14D-1, including all exhibits thereto,
is hereby expressly incorporated herein by reference.
-2-
<PAGE>
CROSS REFERENCE SHEET
Where Located in
Item in Schedule 13E-3 Schedule 14D-1
- ---------------------- --------------
Item 1(a).................................................. Item 1(a)
Item 1(b).................................................. Item 1(b)
Item 1(c).................................................. Item 1(c)
Item 1(d).................................................. *
Item 1(e).................................................. *
Item 1(f).................................................. *
Item 2..................................................... Item 2
Item 3(a)(1)............................................... Item 3(a)(1)
Item 3(a)(2)............................................... Item 3(b)
Item 3(b).................................................. *
Item 4..................................................... *
Item 5..................................................... Item 5
Item 6(a).................................................. Item 4(a)
Item 6(b).................................................. *
Item 6(c).................................................. Item 4(b)
Item 6(d).................................................. Item 4(c)
Item 7(a).................................................. Item 5
Item 7(b).................................................. *
Item 7(c).................................................. *
Item 7(d).................................................. *
Item 8..................................................... *
Item 9..................................................... *
Item 10.................................................... Item 6
Item 11.................................................... Item 7
Item 12.................................................... *
Item 13.................................................... *
Item 14.................................................... *
Item 15(a)................................................. *
Item 15(b)................................................. Item 8
Item 16.................................................... Item 10(f)
Item 17.................................................... Item 11
- ----------------------
* The item is not required by Schedule 14D-1, is inapplicable or is answered
in the negative.
-3-
<PAGE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The name of the issuer of the class of equity security which is the
subject of the Rule 13e-3 transaction is Citizens Corporation, a Delaware
corporation, and the address of its principal executive offices is 440 Lincoln
Street, Worcester, Massachusetts 01653.
(b) The information set forth in the Offer to Purchase under
"Introduction" is incorporated herein by reference.
(c) The information set forth in the Offer to Purchase under "The Offer--
Price Range of Shares; Dividends" is incorporated herein by reference.
(d) The information set forth in the Offer to Purchase under "The Offer--
Price Range of Shares; Dividends" is incorporated herein by reference.
(e) Not applicable.
(f) The Information set forth in the Offer to Purchase under "Special
Factors--Transactions Concerning the Shares" is incorporated herein by
reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a) - (d) and (g) This Statement is being filed by the Purchaser and AFC.
The information set forth in the Offer to Purchase under "Introduction" and "The
Offer--Certain Information Concerning AFC and the Purchaser" is incorporated
herein by reference. The names, business addresses, present principal
occupations or employment and citizenship of the directors and executive
officers of AFC and certain of its subsidiaries, including the Purchaser, are
set forth in Appendix A to the Offer to Purchase and are incorporated herein by
reference.
(e) - (f) During the last five years, none of the AFC Entities nor, to the
best of their knowledge, any of the persons listed in Appendix A to the Offer to
Purchase (i) has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors), or (ii) was party to a civil proceeding of
a judicial or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order enjoining
further violations of, or prohibiting activities subject to, federal or state
securities laws of finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a) - (b) The information set forth in the Offer to Purchase under
"Special Factors--Background," "Special Factors--Interests of Certain Persons in
the Transaction," "Special Factors--Past Contacts and Transactions Between AFC
and Citizens," and "Special Factors--Transactions Concerning the Shares" is
incorporated herein by reference.
-4-
<PAGE>
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in the Offer to Purchase under
"Introduction," "The Offer--Terms of the Offer" and "The Offer--Conditions of
the Offer" is incorporated herein by reference.
(b) Not applicable.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a) - (g) The information set forth in the Offer to Purchase under
"Special Factors--Certain Effects of the Transaction" and "Special Factors--
Plans for Citizens After the Transaction" is incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth in the Offer to Purchase under "The Offer--
Source and Amount of Funds" is incorporated herein by reference.
(b) The information set forth in the Offer to Purchase under "The Offer--
Certain Fees and Expenses; Utilization of Citizens Employees" is incorporated
herein by reference.
(c) Not applicable.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVE, REASONS AND EFFECTS.
(a) - (d) The information set forth in the Offer to Purchase under
"Special Effects--Background," "Special Factors--Purpose of and Reasons for the
Transaction," "Special Factors--Certain Effects of the Transaction," "Special
Factors--Plans for Citizens After the Transaction," and "Special Factors--
Certain Tax Consequences," is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a) - (b) The information set forth in the Offer to Purchase under
"Special Factors--Fairness of the Transaction" is incorporated herein by
reference.
(c) The information set forth in the Offer to Purchase under "Special
Factors--Transaction Structure" is incorporated herein by reference.
(d) - (e) The information set forth in the Offer to Purchase under
"Special Factors --Background," "Special Factors--Transaction Structure" and
"Special Factors--Fairness of the Transaction" is incorporate herein by
reference.
(f) Not applicable.
-5-
<PAGE>
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) - (c) The information set forth in the Offer to Purchase under
"Special Factors--Fairness of the Transaction" and "Special Factors-Financial
Analysis by AFC's Financial Advisor" is incorporated herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) - (b) The information set forth in the Offer to Purchase under
"Introduction" and "Special Factors--Interests of Certain Persons in the
Transaction" is incorporated herein by reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
Not applicable.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a) The information set forth in the Offer to Purchase under "Special
Factors--Interests of Certain Persons in the Transaction" is incorporated herein
by reference.
(b) The information set forth in the Offer to Purchase under "Special
Factors--Fairness of the Transaction" and "Special Factors--Interests of Certain
Persons in the Transaction" is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in the Offer to Purchase under "The Offer--
Certain Regulatory and Legal Matters--Appraisal Rights" is incorporated herein
by reference.
(b) Not Applicable.
(c) Not Applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in the Offer to Purchase under "The Offer--
Certain Information Concerning Citizens" is incorporated herein by reference.
(b) Not applicable.
-6-
<PAGE>
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The information set forth in The Offer to Purchase under "Special
Factors--Background," "Special Factors--Plans for Citizens After the
Transaction," "Special Factors--Interests of Certain Persons in the
Transaction," and "The Offer--Certain Fees and Expenses; Utilization of Citizens
Employees" is incorporated herein by reference.
(b) The information set forth in The Offer to Purchase under "The Offer--
Certain Fees and Expenses; Utilization of Citizens Employees" is incorporated
herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
Additional information concerning the Transaction is set forth in the Offer
to Purchase and the related Letter of Transmittal and is incorporated herein by
reference.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) Not applicable.
(b) Presentation of Goldman, Sachs & Co. to the Board of Directors of
AFC dated October 27, 1998.
(c) Not applicable.
(d)(1) Offer to Purchase dated November 2, 1998.
(d)(2) Letter of Transmittal.
(d)(3) Letter from Goldman, Sachs & Co. to brokers, dealers, commercial
banks, trust companies and other nominees.
(d)(4) Letter to Clients of brokers, dealers, commercial banks, trust
companies and other nominees.
(d)(5) Notice of Guaranteed Delivery.
(d)(6) Guidelines for Certification of Taxpayer Identification Number on
substitute Form W-9.
(d)(7) Summary Advertisement dated November 2, 1998.
(e) Section 262 of the Delaware General Corporation Law included as
Appendix B to the Offer to Purchase as Exhibit (d)(1) hereto.
(f) Not applicable.
(g)(1) Complaint filed in Finkelstein v. O'Brien, et al. (Civil Action No.
16748, Delaware Court of Chancery).
(g)(2) Complaint filed in McKinnie v. O'Brien, et al. (Civil Action No.
16749, Delaware Court of Chancery).
(g)(3) Complaint filed in Specht v. O'Brien, et al. (Civil Action No.
16746, Delaware Court of Chancery).
(g)(4) Complaint filed in Steiner v. O'Brien, et al. (Civil Action No.
16747, Delaware Court of Chancery).
(g)(5) Complaint filed in Susser v. O'Brien, et al. (Civil Action No.
16745, Delaware Court of Chancery).
-7-
<PAGE>
SIGNATURES
After due inquiry and to the best of my knowledge and belief, each of the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Date: November 2, 1998 ALLMERICA FINANCIAL CORPORATION
By: /s/ Edward J. Parry, III
-----------------------------------
Name: Edward J. Parry, III
Title: Vice President, Treasurer,
and Chief Financial Officer
CITIZENS ACQUISITION CORPORATION
By: /s/ Edward J. Parry, III
-----------------------------------
Name: Edward J. Parry, III
Title: President and Treasurer
-8-
<PAGE>
EXHIBIT INDEX
Exhibits
--------
(a) Not applicable.
(b) Presentation of Goldman, Sachs & Co. to the Board of Directors of AFC
dated October 27, 1998.
(c) Not applicable.
(d)(1) Offer to Purchase dated November 2, 1998.
(d)(2) Letter of Transmittal.
(d)(3) Letter from Goldman, Sachs & Co. to brokers, dealers, commercial banks,
trust companies and other nominees.
(d)(4) Letter to Clients of brokers, dealers, commercial banks, trust companies
and other nominees.
(d)(5) Notice of Guaranteed Delivery.
(d)(6) Guidelines for Certification of Taxpayer Identification Number on
substitute Form W-9.
(d)(7) Summary Advertisement dated November 2, 1998.
(e) Section 262 of the Delaware General Corporation Law included as Appendix
B to the Offer to Purchase as Exhibit (d)(1) hereto.
(f) Not applicable.
(g)(1) Complaint filed in Finkelstein v. O'Brien, et al. (Civil Action No.
16748, Delaware Court of Chancery).
(g)(2) Complaint filed in McKinnie v. O'Brien, et al. (Civil Action No. 16749,
Delaware Court of Chancery).
(g)(3) Complaint filed in Specht v. O'Brien, et al. (Civil Action No. 16746,
Delaware Court of Chancery).
(g)(4) Complaint filed in Steiner v. O'Brien, et al. (Civil Action No. 16747,
Delaware Court of Chancery).
(g)(5) Complaint filed in Susser v. O'Brien, et al. (Civil Action No. 16745,
Delaware Court of Chancery).
-9-
<PAGE>
EX-B
Material Presented to the Board of Directors
CONFIDENTIAL
MATERIAL PRESENTED TO THE BOARD OF DIRECTORS
OF
ALLMERICA FINANCIAL CORPORATION
AT A MEETING ON
OCTOBER 27, 1998
The following pages contain material that was provided to the Board of
Directors of Allmerica Financial Corporation (the "Company") in connection with
a meeting of the Board of Directors held to evaluate the proposed acquisition of
shares of common stock of Citizens Corporation ("Citizens") described in other
materials filed by the Company with the Securities and Exchange Commission. The
accompanying material was prepared for use solely by the Board of Directors of
the Company and not with a view toward public disclosure under federal or state
securities laws. The information contained in this material was obtained from
the Company, Citizens and other sources without independent verification by
Goldman, Sachs & Co. or is derived therefrom. No representation or warranty,
express or implied, is made as to the accuracy or completeness of such
information.
All estimates and projections contained herein, including financial
projections for Citizens which have been prepared by the management of Citizens,
involve numerous and significant subjective determinations which may or may not
be correct. Because this material was prepared for use solely in the context of
a presentation or presentations to the Board of Directors of the Company, was
not prepared to comply with the disclosure standards set forth under any
securities laws and may be used by persons not as familiar with the business and
affairs of the Company as the Board of Directors, the Company, Citizens,
Goldman, Sachs & Co. and their respective legal and financial advisors and
accountants disclaim any responsibility to any such persons relating to the use
of any of the material contained herein. Neither the Company nor Goldman, Sachs
& Co. expects to update or otherwise revise the accompanying materials.
<PAGE>
[GOLDMAN SACHS LOGO] DRAFT
DISCUSSION MATERIALS
PROJECT TIGER
GOLDMAN, SACHS & CO.
OCTOBER 27, 1998
<PAGE>
TABLE OF EXHIBITS
EXHIBIT
TRADING HISTORY 1
PEER COMPARISON 2
COMPANY'S PROJECTIONS 3
VALUATION ANALYSES 4
<PAGE>
CITIZENS CORPORATION
DAILY STOCK PRICE AND TRADING VOLUME FROM 10/26/1997 TO 10/26/1998
SUMMARY STATISTICS
Closing Price 10/26/1998: $ 27.56
High Closing Price: 5/8/1998 $ 34.63
Low Closing Price: 9/3/1998 & 9/4/1998 23.88
Average Closing Price:
Last 30 days: $ 27.16
Last 60 days: 26.72
Last 180 days: 30.32
Last 12 Months: 29.82
Total Volume Last 12 Months: 2,369,100
Average Daily Volume: 9,514
1
<PAGE>
CITIZENS CORPORATION
COMMON STOCK PRICE AND TRADING VOLUME HISTORY
[LINE GRAPHS]
[The left graph shows the daily closing market price (ranging from a low of
$23.88 to a high of $34.63) and daily trading volume (ranging from a low of 100
to a high of 707,700) for the shares of Citizens Common Stock during the period
from October 27, 1997 to October 26, 1998. The right graph shows the weekly
closing market price (ranging from a low of $15.25 to a high of $34.63) and
weekly trading volume (ranging from a low of 2,600 to a high of 2,045,200
(excluding the week of the initial public offering)) for the shares of Citizens
Common Stock during the period from the initial public offering on March 19,
1993 to October 26, 1998.]
2
<PAGE>
CITIZENS CORPORATION
ANALYSIS OF TRADING VOLUME, FROM 10/27/1997 TO 10/26/1998
8/14/1998:
700,000 SHARES OR
11% OF TOTAL FLOAT
SOLD AT $27.06
ONE YEAR DAILY
AVERAGE TRADING
VOLUME AS A % OF
FLOAT = 0.15%
[BAR GRAPHS]
[The top graph shows the one year total number of shares traded in various
stock price ranges (ranging in dollar increments from $23.00 to $34.99) as a
percentage of total shares traded of Citizens Common Stock during the period
from October 27, 1997 to October 26, 1998. This graph indicates the following:
Range Percentage
----- ----------
23.00-23.99 0.36%
24.00-24.99 0.48%
25.00-25.99 1.68%
26.00-26.99 2.79%
27.00-27.99 41.15%
28.00-28.99 20.99%
29.00-29.99 4.36%
30.00-30.99 3.69%
31.00-31.99 10.98%
32.00-32.99 4.69%
33.00-33.99 4.60%
34.00-34.99 4.23%
The bottom graph shows the one year total number of shares traded in and
below various stock price ranges (ranging in dollar increments from $23.00 to
$34.99) as a percentage of total shares traded of Citizens Common Stock during
the period from October 27, 1997 to October 26, 1998. This graph indicates the
following:
Range Percentage
----- ----------
less than or equal to 23.99 0.36%
less than or equal to 24.99 0.84%
less than or equal to 25.99 2.52%
less than or equal to 26.99 5.31%
less than or equal to 27.99 46.46%
less than or equal to 28.99 67.45%
less than or equal to 29.99 71.80%
less than or equal to 30.99 75.50%
less than or equal to 31.99 86.48%
less than or equal to 32.99 91.17%
less than or equal to 33.99 95.77%
less than or equal to 34.99 100.00%
3
<PAGE>
ANNUAL RATES OF RETURN(a)
P&C COMPOSITE:
SAFECO CORP.
OHIO CASUALTY
COMMERCE GROUP
HARLEYSVILLE GROUP
SELECTIVE INSURANCE GROUP
FROM
CZC IPO(b) 3 YEARS 1 YEAR YTD
- --------------------------------------------------------------------------------
Citizens 2.5% 15.5% (4.7)% (4.4)%
S&P 500 16.7 22.8 22.3 13.0
P&C Composite 10.3 12.4 (11.0) (15.1)
- --------------------------------------------------------------------------------
(a) Includes reinvestment of dividends. As of October 26, 1998.
(b) IPO dated March 19, 1993.
4
<PAGE>
CITIZENS CORPORATION
DAILY INDEXED COMMON STOCK PRICE HISTORY
[LINE GRAPHS]
[The left graph shows the daily indexed common stock price history of
Citizens Common Stock compared to the S&P 500 Index and a group of selected
property and casualty companies (SAFECO Corp., Ohio Casualty, Commerce Group,
Harleysville Group, and Selective Insurance Group (the "P&C Composite")) from
October 27, 1997 to October 26, 1998. This graph indicates that the stock price
increase or decrease for the last one year (daily from October 27, 1997 to
October 26, 1998) for Citizens, the S&P 500 Index and the P&C Composite were
approximately (5%), 22% and (11%), respectively. The right graph shows the
weekly indexed common stock price history of Citizens Common Stock compared to
the S&P 500 Index and the P&C Composite from the Citizens initial public
offering on March 19, 1993 to October 26, 1998. This graph indicates that the
stock price increase or decrease since Citizens initial public offering on March
19, 1993 (weekly from March 19, 1993 to October 26, 1998) for Citizens, the S&P
500 Index and the P&C Composite were approximately 15%, 138% and 42%,
respectively.]
5
<PAGE>
SHAREHOLDER PROFILE
CITIZENS CORPORATION
INSTITUTIONS(a) # OF SHARES % OF TOTAL
- --------------------------------------------------------------------------------
Prudential Insurance Co. of America 1,418,300 4.02%
First Chicago NBD 620,480 1.76
Ohio State Teach Retirement 494,000 1.40
Barclays Bank 353,632 1.14
Mellon Bank 333,103 0.94
Fidelity Management 259,900 0.74
Buchanan Parker Asset 219,970 0.62
Brandywine Asset Mgmt 161,500 0.46
Vanguard Group 97,400 0.28
Neuberger & Berman 77,450 0.21
Other Institutions 1,187,506 3.37
----------- -------
TOTAL INSTITUTIONS: 5,272,345 14.94%
ALLMERICA FINANCIAL: 29,389,200 83.30%
TOTAL OFFICERS & DIRECTORS: 23,213 0.07%
RETAIL OWNERSHIP: 597,342 1.69%
----------- -------
TOTAL SHARES OUTSTANDING: 35,282,100 100.00%
=========== =======
- --------------------------------------------------------------------------------
(a) Source: Spectrum International Ownership Report. Data as of June 30, 1998.
Reflects the sale of approximately 700,000 shares by Franklin Resources on
August 14, 1998. Allmerica purchased approximately 295,700 of the shares
sold and the remaining shares are assumed to be held by Other Institutions.
6
<PAGE>
COMPARISON OF SELECTED CITIZENS PEERS(a)
<TABLE>
<CAPTION>
Price/Earnings IBES 1998 P/E
Market Price % of 52 -------------------- 5-Year to 5-Year Price/
Cap 10/26/98 Wk High 1998 1999 Growth Growth Book
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CITIZENS - IBES $ 972 $ 27.56 78.9% 13.8 x 10.8 x 10.0% 1.38 % 1.05 x
CITIZENS - MANAGEMENT 14.1 12.0 5.0 2.83
- ------------------------------------------------------------------------------------------------------------------------------------
SAFECO 6,143 43.50 77.7 16.9 12.4 10.0 1.69 1.08
OHIO CASUALTY 1,214 37.00 71.5 14.0 14.0 10.0 1.40 0.90
COMMERCE GROUP 1,176 32.63 82.3 13.6 12.4 10.0 1.36 1.75
HARLEYSVILLE GROUP 612 21.03 73.8 11.7 10.5 10.0 1.17 1.25
SELECTIVE INSURANCE 524 18.00 61.5 9.2 8.4 10.0 0.92 0.88
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH 82.3% 16.9 x 14.0 x 10.0% 1.69 % 1.75 x
MEDIAN 73.8 13.6 12.4 10.0 1.36 1.08
LOW 61.5 9.2 8.4 10.0 0.92 0.88
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Market data as of 10/26/98. Financial data as of 06/30/98, except for
Statutory Surplus, which is as of 12/31/97.
(b) Trust Preferred counted as 50% equity, 50% debt.
(c) Net Premiums Written and Surplus LTM from 6/30/98 where available,
otherwise LTM from 12/31/97.
(d) Estimated % of 1997 total net premiums written.
<PAGE>
COMPARISON OF SELECTED CITIZENS PEERS(a) (CONT.)
<TABLE>
<CAPTION>
Personal
LTM Dividend Debt/ NPW/ Lines
ROACE Yield Capital(b) Surplus(c) % NPW(d)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CITIZENS - IBES 9.6 % 0.7 % 0.0 % 1.2 x 68.2 %
CITIZENS - MANAGEMENT
- ---------------------------------------------------------------------------------------------------------
SAFECO 8.0 3.2 31.7 0.7 58.0
OHIO CASUALTY 9.9 4.8 0.0 1.1 50.0
COMMERCE GROUP 14.5 3.3 0.0 1.5 90.0
HARLEYSVILLE GROUP 13.2 2.4 18.5 1.5 40.0
SELECTIVE INSURANCE 13.0 3.1 19.0 1.5 42.5
- ---------------------------------------------------------------------------------------------------------
HIGH 14.5 % 4.8 % 31.7 % 1.5 x 90.0 %
MEDIAN 13.0 3.2 18.5 1.5 50.0
LOW 8.0 2.4 0.0 0.7 40.0
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Market data as of 10/26/98. Financial data as of 06/30/98, except for
Statutory Surplus, which is as of 12/31/97.
(b) Trust Preferred counted as 50% equity, 50% debt.
(c) Net Premiums Written and Surplus LTM from 6/30/98 where available,
otherwise LTM from 12/31/97.
(d) Estimated % of 1997 total net premiums written.
7
<PAGE>
RELATIVE PERFORMANCE
P&C COMPOSITE:
SAFECO CORP.
OHIO CASUALTY
COMMERCE GROUP
HARLEYSVILLE GROUP
SELECTIVE INSURANCE GROUP
[LINE GRAPH]
[The left graph compares price to next fiscal year earnings ratios (using median
EPS estimates provided by IBES) monthly from April 1993 to September 1998 for
Citizens, the S&P 500 Index and the P&C Composite. This graph indicates that
during such time period Citizens traded approximately in line with the P&C
Composite and traded below the S&P 500 Index. The right graph compares the price
to book ratios monthly from April 1993 to September 1998 for Citizens, the S&P
500 Index and the P&C Composite. This graph indicates that during such time
period Citizens traded below the P&C Composite and the S&P 500 Index.]
(a) Earnings are median I/B/E/S.
8
<PAGE>
EARNINGS ESTIMATES
BROKER ESTIMATES LT GROWTH RATE
- --------------------------------------------------------------------------------
1998 1999
---- ----
Conning & Co. $2.55 $2.80 N/A
Dowling & Partner 1.90 2.30 N/A
Fox Pitt Kelton 2.00 2.55 N/A
Nutmeg 2.30 3.00 N/A
Philo Smith & Co. 2.00 2.50 N/A
IBES MEDIAN 2.00 2.55 10.0%
MANAGEMENT 1.95 2.29 5.0(a)
(a) Assumes growth rate consistent with management's projected EPS growth in
2000 over 1999.
9
<PAGE>
GAAP PROJECTIONS - CITIZENS CORPORATION
<TABLE>
<CAPTION>
1998 -- 2000
1997A 1998E 1999E 2000E CAGR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Premiums Written $ 863.7 $ 890.9 $ 926.8 $ 970.9 4.4 %
Net Premiums Earned 855.3 877.1 907.0 946.6 3.9
Net Investment Income 101.8 98.2 96.5 96.0 (1.1)
Net Realized Gains 28.8 36.9 N/A N/A N/A
Total Revenue 992.4 1,018.2 1,009.6 1,048.6 1.5
Loss & LAE (a) 645.3 673.6 683.8 709.1 2.6
Operating Expenses 228.3 229.5 230.8 238.6 2.0
Total Expenses 873.6 903.1 914.6 947.7 2.4
Net Income 94.2 93.4 81.3 85.0 (4.6)
Net Operating Income 75.5 69.4 81.3 85.0 10.7
- ------------------------------------------------------------------------------------------------------------------------------------
Net Operating Income w/ Normalized Cats (b) 74.9 85.4 81.3 85.0 (0.2)
- ------------------------------------------------------------------------------------------------------------------------------------
Memorandum
Year Over Year NPW Growth 3.1 % 4.0 % 4.8 %
Year Over Year O.I. w/ Normalized Cats Growth (b) 13.9 (4.8) 4.6
Loss Ratio (a) 75.4 % 76.8 75.4 74.9
Expense Ratio 26.7 26.2 25.4 25.2
Combined Ratio 102.1 103.0 100.8 100.1
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes policyholder dividends.
(b) Assumes 245 basis points of expected CAT losses (158 bps after-tax).
10
<PAGE>
GAAP DIVIDEND DISCOUNTED CASH FLOW ANALYSIS(a)
PER SHARE VALUE
<TABLE>
<CAPTION>
EARNINGS PER SHARE
-------------------------------------------------------
1998 1999 2000 2001 2002 CAGR
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
IBES $2.00 $2.55 $2.81 $3.09 $3.39 14.1%
Management--5% Growth After 2000 1.95 2.29 2.39 2.51 2.64 7.8
Management--10% Growth After 2000 1.95 2.29 2.39 2.63 2.89 10.3
</TABLE>
<TABLE>
<CAPTION>
Forward Price/Earnings Multiple of 2003 EPS
Estimate Discount ---------------------------------------------------------
Source Rate 10x 11x 12x 13x 14x
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
IBES 10.0% $26.15 $28.70 $31.25 $33.80 $36.35
12.0 24.35 26.73 29.10 31.47 33.85
14.0 22.71 24.92 27.13 29.34 31.55
Management -- 10.0% $19.56 $21.45 $23.34 $25.23 $27.12
5% Growth After 2000 12.0 18.22 19.98 21.74 23.50 25.26
14.0 16.99 18.63 20.27 21.91 23.55
Management -- 10.0% $22.39 $24.56 $26.74 $28.91 $31.09
10% Growth After 2000 12.0 20.85 22.88 24.90 26.92 28.95
14.0 19.45 21.33 23.22 25.10 26.99
</TABLE>
(a) Represents the present value of (i) dividends from the first quarter of
1999 to 2002 and (ii) the terminal value at 2002 at various Price/2003E EPS
multiples. The present value of dividends is calculated assuming a constant
dividend of $0.20. Dividends and terminal value discounted to December 31,
1998. Analysis does not include synergies.
11
<PAGE>
STATUTORY DISCOUNTED CASH FLOW ANALYSIS(a)
PER SHARE VALUE
<TABLE>
<CAPTION>
Terminal Multiple of GAAP Earnings
-----------------------------------------------------------
10.0x 11.0x 12.0x 13.0x 14.0x
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10.0% $27.5 $29.0 $30.6 $32.1 $33.6
Discount 12.0 25.7 27.1 28.6 30.0 31.4
Rate 14.0 24.2 25.4 26.7 28.0 29.3
</TABLE>
(a) Represents the present value of (i) the discounted maximum dividends of
Citizens Insurance Co. of America from 1999 to 2003, (ii) the terminal
value at various multiples of 2004 GAAP earnings, and (iii) an estimated
$20 million valuation of Citizens of Ohio and The Midwest (1.2x 1997
surplus). Excludes potential synergies and reflects assumptions with
respect to future reserve development, premium growth, combined ratio and
investment yields.
12
<PAGE>
SUMMARY OF MINORITY BUY-IN TRANSACTIONS
FINAL PREMIUM OVER
60 - 90% EXISTING SHAREHOLDERS MARKET PRICE
- ------------------------------ ------------
Financial Institutions(11)
Low (0.8)
Median 12.7
High 37.1
All Industries(46)
Low (11.1)
Median 19.9
High N.M.
() indicates the number of transactions profiled.
13
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
CITIZENS CORPORATION
BY
CITIZENS ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
ALLMERICA FINANCIAL CORPORATION
AT
$29.00 NET PER SHARE
- --------------------------------------------------------------------------------
THIS OFFER AND YOUR RIGHT TO WITHDRAW YOUR TENDER WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON WEDNESDAY, DECEMBER 2, 1998, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
Citizens Acquisition Corporation, a subsidiary of Allmerica Financial
Corporation, is offering to purchase all of the outstanding shares of common
stock of Citizens Corporation that Allmerica Financial Corporation or its
subsidiaries do not already own.
If you desire to tender all or any portion of your shares, you should
either:
. request your broker, dealer, commercial bank, trust company or other
nominee to effect the transaction for you, or
. complete and sign the enclosed Letter of Transmittal, and mail or deliver
it, together with any other required documents, to the Depositary and
tender your shares to the Depositary by either:
--delivering your share certificates with the Letter of Transmittal, or
--arranging for your shares to be transferred by book-entry to the
Depositary's account at DTC, as described on page 22.
If your shares are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee (in "street name") you must contact such
person to tender your shares.
You may direct any questions and requests for assistance to the Information
Agent or the Dealer Managers at their addresses and telephone numbers shown on
the back cover of this Offer to Purchase. Additional copies of this Offer to
Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be
obtained from the Information Agent or from brokers, dealers, commercial banks
or trust companies.
THIS OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THIS OFFER A NUMBER OF
SHARES OF COMMON STOCK OF CITIZENS CORPORATION WHICH, WHEN ADDED TO THE SHARES
ALREADY OWNED BY ALLMERICA FINANCIAL CORPORATION OR ITS SUBSIDIARIES,
CONSTITUTES AT LEAST 90% OF THE TOTAL SHARES OF COMMON STOCK OF CITIZENS
CORPORATION OUTSTANDING. SEE "THE OFFER--CONDITIONS OF THE OFFER."
If you desire to tender your shares but cannot before the offer expires
because:
. your certificates are not immediately available,
. you are unable to deliver all of the documents required by the Letter of
Transmittal prior to the expiration of the offer, or
. you cannot complete the procedure for book-entry transfer on a timely
basis,
then you may tender your shares by following the procedures for guaranteed
delivery as described below on pages 22-23.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
----------------
The Dealer Managers for the Offer are:
GOLDMAN, SACHS & CO.
----------------
THE DATE OF THIS OFFER TO PURCHASE IS NOVEMBER 2, 1998
<PAGE>
TABLE OF CONTENTS
INTRODUCTION................................................................ 3
SPECIAL FACTORS............................................................. 4
Background................................................................ 4
Purpose of and Reasons for the Transaction................................ 5
Transaction Structure..................................................... 5
Fairness of the Transaction............................................... 6
Certain Projections for Citizens.......................................... 7
Financial Analysis by AFC's Financial Advisor............................. 9
Certain Litigation........................................................ 12
Certain Effects of the Transaction........................................ 13
Plans for Citizens after the Transaction.................................. 14
Interests of Certain Persons in the Transaction........................... 14
Past Contacts and Transactions between AFC and Citizens................... 15
Transactions Concerning the Shares........................................ 16
Certain Tax Consequences.................................................. 16
THE OFFER................................................................... 17
Terms of the Offer........................................................ 17
Conditions of the Offer................................................... 18
Acceptance for Payment and Payment........................................ 20
Procedures for Tendering Shares........................................... 21
Withdrawal Rights......................................................... 24
Price Range of Shares; Dividends.......................................... 25
Certain Information Concerning AFC and the Purchaser...................... 26
Certain Information Concerning Citizens................................... 28
Available Information..................................................... 30
Source and Amount of Funds................................................ 31
Certain Regulatory and Legal Matters...................................... 31
Certain Fees and Expenses; Utilization of Citizens Employees.............. 33
Miscellaneous............................................................. 34
Appendix A
Directors and Executive Officers of AFC and certain of its Subsidiaries... A-1
Appendix B
Section 262 of the Delaware General Corporation Law....................... B-1
2
<PAGE>
TO THE HOLDERS OF COMMON STOCK
OF CITIZENS CORPORATION:
INTRODUCTION
Citizens Acquisition Corporation (the "Purchaser"), a Delaware corporation
and wholly owned subsidiary of Allmerica Financial Corporation, a Delaware
corporation ("AFC"), hereby offers to purchase all of the outstanding shares of
common stock, par value $0.01 per share (the "Shares"), of Citizens
Corporation, a Delaware corporation ("Citizens"), that AFC and its subsidiaries
do not already own, at a price of $29.00 per Share, net to the seller in cash
without interest (the "Offer Price"). This offer is being made upon the terms
and is subject to the conditions set forth in this Offer to Purchase and in the
related Letter of Transmittal (which, as amended or supplemented from time to
time, together constitute the "Offer").
Tendering stockholders will not be obligated to pay brokerage commissions or,
except as set forth in Instruction 6 of the Letter of Transmittal, stock
transfer taxes on the purchase of Shares by the Purchaser pursuant to the
Offer. AFC will pay all charges and expenses of Goldman, Sachs & Co. ("Goldman
Sachs"), as the Dealer Managers, First Chicago Trust Company of New York, as
the Depositary (the "Depositary") and Corporate Investor Communications, Inc.
as the Information Agent (the "Information Agent") in connection with the
Offer.
THE OFFER IS SUBJECT TO THE CONDITION THAT THE STOCKHOLDERS OF CITIZENS
VALIDLY TENDER (AND DO NOT PROPERLY WITHDRAW) A SUFFICIENT NUMBER OF SHARES
SUCH THAT, UPON CONSUMMATION OF THE OFFER, AFC AND ITS SUBSIDIARIES (INCLUDING
THE PURCHASER) OWN IN THE AGGREGATE AT LEAST 90% OF OUTSTANDING SHARES (THE
"MINIMUM CONDITION"). THE PURCHASER RESERVES THE RIGHT TO WAIVE THE MINIMUM
CONDITION AND TO PURCHASE PURSUANT TO THE OFFER LESS THAN THE MINIMUM NUMBER OF
SHARES NECESSARY TO SATISFY THE MINIMUM CONDITION. THE OFFER IS ALSO SUBJECT TO
OTHER TERMS AND CONDITIONS CONTAINED IN THIS OFFER TO PURCHASE. SEE "THE
OFFER--TERMS OF THE OFFER" AND "--CONDITIONS OF THE OFFER."
If a sufficient number of Shares are tendered pursuant to the Offer such that
the Minimum Condition is satisfied, AFC intends to cause the Purchaser to be
merged with and into Citizens (the "Merger" and, together with the "Offer," the
"Transaction") in a "short form" merger under Section 253 of the General
Corporation Law of the State of Delaware (the "DGCL"). In such case, the Merger
would be effected without any action by the Board of Directors or stockholders
of Citizens. Following consummation of the Merger, Citizens will continue as
the surviving corporation (the "Surviving Corporation") and will be an indirect
wholly owned subsidiary of AFC. At the effective time of the Merger (the
"Effective Time"), each Share issued and outstanding immediately prior to the
Effective Time (other than Shares held in Citizens' treasury, by AFC and its
subsidiaries, or by stockholders who shall have properly demanded and perfected
appraisal rights under Section 262 of the DGCL) will be canceled and converted
automatically into the right to receive the Offer Price in cash, or any higher
price paid per Share pursuant to the Offer, without interest (the "Merger
Price").
If AFC and the Purchaser choose to waive the Minimum Condition and consummate
the Offer, or otherwise do not purchase Shares pursuant to the Offer, they may
elect (i) to promptly take such steps as are necessary to cause a merger to be
effected pursuant to a merger agreement to be approved by the Boards of
Directors and stockholders of the Purchaser and Citizens, which will, if the
Shares remain registered under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), require filing with the United States Securities and
Exchange Commission (the "Commission") of certain disclosure materials prior to
approval of such Merger by Citizens stockholders, (ii) if there continues to be
less than 300 record holders of Shares, terminate registration of the Shares
under the Exchange Act and delist the Shares on the New York Stock Exchange
(the "NYSE"), or (iii) for an indeterminate period, delay any Merger and engage
in certain
3
<PAGE>
open market or privately negotiated purchases, at prices which may be greater
or less than the Offer Price, in order to increase AFC and the Purchaser's
combined ownership to or above 90% of the outstanding Shares, so as to enable
the Purchaser to effect a merger as a "short form" merger. See "The Tender
Offer--Transaction Structure." As a consequence, no assurance can be given as
to when, or if, the Purchaser will cause a merger to be consummated and,
similarly, no assurance can be given as to when, or if, the consideration would
be paid to stockholders who do not tender their Shares in the Offer.
Citizens has advised AFC that as of October 1, 1998, there were 34,986,400
Shares issued and outstanding, held of record by 153 shareholders, and that as
of such date 67,300 Shares were issuable upon exercise of outstanding options
(the "Options") granted under Citizens' 1994 Long Term Stock Incentive Plan,
which Options were held of record by 12 persons. (See "Special Factors--
Interests of Certain Persons in the Transaction" and "--Certain Effects of the
Transaction" for information concerning outstanding Options.) As of October 1,
1998, AFC and its subsidiaries owned 29,093,500 Shares, or approximately 83% of
the total Shares outstanding, the directors and officers of AFC owned
approximately 5,900 Shares, or less than 1% of the total Shares outstanding,
and stockholders unaffiliated with AFC (the "Unaffiliated Stockholders") owned
5,887,000 Shares, or approximately 17% of the total Shares outstanding. Based
on the foregoing, AFC estimates that approximately 2,396,600 Shares will need
to be validly tendered pursuant to the Offer (and not properly withdrawn) for
the Minimum Condition to be satisfied.
IF THE PURCHASER INCREASES THE OFFER PRICE PRIOR TO THE EXPIRATION OF THE
OFFER, THE INCREASED OFFER PRICE SHALL BE PAID TO ALL HOLDERS OF SHARES
PURCHASED PURSUANT TO THE OFFER, WHETHER SUCH SHARES WERE TENDERED PRIOR TO OR
AFTER SUCH INCREASE.
SPECIAL FACTORS
BACKGROUND
Citizens was formed in 1993 as a holding company for Citizens Insurance
Company of America ("Citizens Insurance"), a Michigan insurance company, in
connection with the initial public offering of Citizens common stock. In March
and April 1993, Citizens issued an aggregate of 6,981,600 Shares in its initial
public offering. As a result of Citizens' initial public offering,
approximately 19% of the Shares became publicly held. The remaining 81% of the
Shares continued to be held by AFC's subsidiaries. The Citizens' initial public
offering was undertaken primarily to facilitate Citizens Insurance's access to
the public capital markets. Since 1991, the management and operations of
Citizens and other subsidiaries of AFC have been combined in part.
In 1995 and 1996, Citizens' Board of Directors (the "Citizens Board")
authorized the aggregate repurchase of up to 1,800,000 Shares. Citizens
purchased Shares from time to time in the open market at prevailing prices. See
"Transactions Concerning the Shares." As a result of the reduction in the
number of shares outstanding, AFC and its subsidiaries currently own
approximately 83% of the Shares.
In May 1998, AFC hired new senior management to manage its property and
casualty business. As part of its strategic plan for its property and casualty
business, such management has sought to further integrate AFC's various
property and casualty businesses which it believed could be better accomplished
with Citizens as a wholly owned subsidiary of AFC. As a part of this
initiative, in September 1998, AFC management determined to consider the
possible acquisition of the remaining Shares held by the public. In September
1998, AFC retained Goldman Sachs as its financial advisor to evaluate a
potential transaction with Citizens. AFC management then determined to present
a proposal to acquire the publicly held Shares to the Board of Directors of AFC
(the "AFC Board") at its regularly scheduled meeting to be held on October 27,
1998. The proposal included a cash tender offer for all of the publicly held
Shares and a second-step merger of the Purchaser into Citizens provided the
Minimum Condition was satisfied. To ensure that all Citizens stockholders were
treated
4
<PAGE>
equally, the proposal provided that the price per Share paid in such Merger
would be the same as the price paid pursuant to the tender offer.
At its October 27, 1998 meeting, after extensive discussion of the proposal
and consideration of the presentations by its financial and legal advisors, the
AFC Board determined that the terms of the Transaction were fair to the
Unaffiliated Stockholders and approved the commencement of the Offer for all of
the outstanding Shares that AFC and its subsidiaries did not already own at the
Offer Price. See "Fairness of the Transaction." John F. O'Brien, a director and
the Chief Executive Officer of each of AFC and Citizens, was present at the
meeting but abstained from voting on the Transaction. The AFC Board also
approved the Merger, subject to the satisfaction of the Minimum Condition and
the consummation of the Offer. In determining to approve the Offer and the
Offer Price, the AFC Board considered a number of factors including, without
limitation, the current and historical market price of the Shares, as well as
the future earnings potential of Citizens. In arriving at its determination
that the terms of the Transaction were fair to the Unaffiliated Stockholders,
the AFC Board also considered several valuation methods discussed by Goldman
Sachs in its presentation. See "Fairness of the Transaction," "Certain
Projections for Citizens" and "Financial Analysis by AFC's Financial Advisor."
Later on October 27, 1998, at a regularly scheduled meeting of the Board of
Directors of Citizens (the "Citizens Board"), the executive officers of AFC
advised the Citizens Board that AFC intended to commence the Offer. In
contemplation of the Offer, the Citizens Board formed a special committee of
the Citizens Board (the "Citizens Special Committee"), consisting of James A.
Cotter, Jr., Dona Scott Laskey and Neal J. Curtin, each of whom were the only
Citizens directors that were neither present or former directors, officers or
employees of AFC. The Citizens Special Committee appointed James Cotter as its
chairperson. AFC issued a press release regarding the Offer on October 27,
1998.
PURPOSE OF AND REASONS FOR THE TRANSACTION
AFC and the Purchaser are pursuing the Transaction for the purpose of
increasing AFC's indirect ownership of Citizens from 83% to 100%. AFC believes
that with Citizens as a wholly owned subsidiary it will be able to more
effectively manage its property and casualty business. In addition, as a result
of AFC's initial public offering in 1995, AFC believes it has ready access to
the public capital markets and thus direct access by Citizens to the public
capital markets is no longer necessary.
AFC believes that the costs associated with the listing of the Shares on the
NYSE and Citizens being a reporting company under the Exchange Act outweigh any
resulting benefits. The present requirement to maintain the listing of the
Shares on the NYSE and registration of the Shares under the Exchange Act
imposes on Citizens direct and indirect compliance costs that would be
eliminated after consummation of the Transaction. In addition, compliance with
such ongoing requirements impose an administrative burden on Citizens,
resulting in the diversion of management time and resources.
In addition, boards of directors of publicly traded companies often have to
address conflicts of interest that inevitably arise as a result of the
differing interests and goals of majority and minority stockholders. AFC
believes that eliminating the potential for any conflict between the interests
of AFC and the other stockholders of Citizens is a substantial benefit of the
Transaction.
TRANSACTION STRUCTURE
The Offer is structured as a tender offer which does not require the approval
of the Citizens Board or any committee thereof. If, following consummation of
the Offer, AFC and its subsidiaries, including the Purchaser, own 90% or more
of the Shares, AFC will cause its subsidiaries to transfer any and all Shares
they own to Purchaser. AFC will then cause the Purchaser and Citizens to effect
the Merger as a short-form merger under Section 253 of the DGCL which will not
require any action
5
<PAGE>
or approval by the Citizens Board or any Citizens stockholder. The Transaction
has been structured to permit the Unaffiliated Stockholders to decide whether
or not to tender their Shares pursuant to the Offer and to provide a mechanism
for the Unaffiliated Stockholders to obtain cash for their Shares at the
earliest possible time. The Transaction has not been structured to require that
a majority of the Shares held by the Unaffiliated Stockholders be tendered in
order for the Purchaser to consummate the Offer or the subsequent Merger.
If AFC and the Purchaser choose to waive the Minimum Condition and consummate
the Offer, or otherwise do not purchase Shares pursuant to the Offer, the
Purchaser may either (i) elect to promptly take such steps as are necessary to
cause a merger to be effected pursuant to a merger agreement approved by the
Boards of Directors and stockholders of each of the Purchaser and Citizens
which, if the Shares remain registered under the Exchange Act, will require
filing with the Commission of certain disclosure materials prior to such
approval of the Merger by Citizens' stockholders, (ii) if there continues to be
less than 300 record holders of Shares, terminate registration of the Shares
and delist the Shares on the NYSE or (iii) for an indeterminate period, delay a
merger and engage in open market or privately negotiated purchases in order to
increase AFC's and the Purchaser's combined ownership to or above 90% of the
Shares, at prices which may be greater or less than the Offer Price. Any such
acquisition of Shares by AFC or the Purchaser would have to be made in
accordance with applicable legal requirements, including those of Regulation
13D and Rules 10b-18 and 13e-3 under the Exchange Act. After completion or
termination of the Offer, AFC and the Purchaser also reserve the right, but
have no current intention, to sell Shares in open market or negotiated
transactions. There can be no assurance that AFC or the Purchaser will acquire
such additional Shares in such circumstances or over what period of time such
additional Shares, if any, might be acquired. As a consequence, no assurance
can be given as to when, or if, AFC or the Purchaser will cause a merger to be
consummated, and similarly no assurance can be given as to when, or if, the
consideration will be paid to stockholders who do not tender their Shares in
the Offer.
As a result of the Merger, the Purchaser will cease to exist and Citizens
will continue as the Surviving Corporation. Each Share outstanding immediately
prior to the Merger (other than Shares held in Citizens' treasury or by the
Purchaser and other than Shares held by any stockholder that properly perfects
its right to appraisal under Section 262 of the DGCL ("Dissenting Shares"))
shall, without any action on the part of the holder of such Share, be canceled
and converted into the right to receive the Merger Price, which will be an
amount in cash equal to the Offer Price, or any higher price per Share paid in
the Offer. The Merger Price will be payable to the holders of such canceled
Shares upon the surrender of the Certificate or certificates formerly
representing such Shares. No interest will be paid on the Merger Price.
Dissatisfied holders of Shares who have not tendered their Shares in the
Offer may elect to exercise appraisal rights in respect of the Merger in
accordance with Section 262 of the DGCL. See "The Offer--Certain Regulatory and
Legal Matters--Appraisal Rights" and Appendix B to this Offer to Purchase.
Holders of Shares who tender and do not withdraw their Shares in the Offer are
not entitled to appraisal rights.
FAIRNESS OF THE TRANSACTION
AFC and the Purchaser believe that the Transaction, including the Offer Price
and the Merger Price, is fair to the Unaffiliated Stockholders. The Offer Price
and the Merger Price were determined by AFC and the Purchaser after considering
the factors set forth below and without negotiations with or input by Citizens
or the Citizens Special Committee. The factors considered by the AFC Board and
the Purchaser included the following:
. The current and historical trading prices of the Shares and the fact that
the $29.00 per Share price to be paid in the Offer and the Merger
represents a premium of approximately 5.2% over the closing price for the
Shares on October 26, 1998, the last trading day before the public
6
<PAGE>
announcement of the Transaction (as reported on the NYSE Composite Tape)
and a premium of 6.7% and 8.5% over the average of the closing prices of
the Shares for the 30 and 60 day periods, respectively, immediately prior
to such public announcement.
. The information and analyses presented by Goldman Sachs, AFC's financial
advisor. See "Financial Analysis by AFC's Financial Advisor."
. That the Offer Price and the Merger Price represent a premium of
approximately 11% over the book value per Share of $26.21 as of June 30,
1998.
. That the Offer Price and the Merger Price represent a premium of
approximately 7% over the most recent price paid by Citizens for its
purchase of Shares. See "Transactions Concerning the Shares."
. That the terms of the Transaction, including the structural features of
the Offer which provide for a prompt cash tender offer for all
outstanding Shares held by the Unaffiliated Stockholders to be followed,
if certain conditions are satisfied, by a merger for the same
consideration, enable the Unaffiliated Stockholders to obtain the
benefits of the Transaction in exchange for their Shares at the earliest
possible time.
. That the Transaction structure permits each Unaffiliated Stockholder to
decide whether or not to tender their Shares pursuant to the Offer, but
does not require that a majority of the Shares held by the Unaffiliated
Stockholders be tendered in order for the Purchaser to consummate the
Offer or the subsequent Merger.
. That the Shares have generally had low trading volume and the Offer will
provide holders with the opportunity for liquidity, without the
transaction costs associated with open-market sales.
. AFC's knowledge of the business, assets, operating results and prospects
of Citizens, the risks involved in achieving those prospects and the
general condition, outlook and trends of the property and casualty
industry.
. That AFC has no present intention of selling its Shares to a third party
and no third party has made a bid for the Shares.
. That the Unaffiliated Stockholders may exercise rights of appraisal under
the DGCL in connection with the Merger.
AFC and the Purchaser did not find it practicable to, and therefore did not,
quantify or otherwise assign relative weights to the individual factors
considered in reaching their conclusion as to fairness. Neither AFC nor the
Purchaser considered the liquidation value of Citizens because the
Unaffiliated Stockholders, without the approval of AFC, do not have the power
to liquidate Citizens.
Citizens will be obligated to file a Solicitation/Recommendation Statement
on Schedule 14D-9 (the "Schedule 14D-9") with the Commission within ten
business days of the date of this Offer to Purchase.
CERTAIN PROJECTIONS FOR CITIZENS
The following sets forth certain financial information and projections (the
"Projections") for Citizens for the fiscal years ending December 31, 1998,
1999 and 2000. Citizens does not in the ordinary course publicly disclose
projections as to future revenues or earnings and the Projections were not
prepared with a view to public disclosure. These Projections were not prepared
in accordance with generally accepted accounting principles and Citizens'
independent accountants have not examined or compiled any of the following
Projections or expressed any conclusion or provided any other form of
assurance with respect to such Projections and accordingly assume no
responsibility for such Projections. These Projections were delivered to
Goldman Sachs solely in connection with their due diligence investigation of
Citizens in order for them to prepare the financial analysis described below
in connection with the Transaction. The Projections were prepared with a
7
<PAGE>
limited degree of precision, and were not prepared with a view to compliance
with the guidelines established by the American Institute of Certified Public
Accountants regarding projections, which would require a more complete
presentation of data than as shown below. While presented with numerical
specificity, the Projections were prepared by Citizens in the ordinary course
in July 1998, and are based upon a variety of estimates and hypothetical
assumptions, which, although considered reasonable by Citizens at the time the
Projections were prepared, may not or may no longer be accurate, may not be
realized, and are also inherently subject to significant business, economic and
competitive uncertainties, most of which are beyond the control of Citizens.
Accordingly, there can be no assurance that any of the Projections will be
realized and the actual results for 1998, 1999 and 2000 may vary materially
from those shown. The inclusion of the Projections herein should not be
regarded as a representation by Citizens, the Purchaser, AFC, the Citizens
Special Committee, Goldman Sachs or any other person that the projected results
will be achieved. These Projections should be read in conjunction with the
historical financial information of Citizens included elsewhere in this Offer
to Purchase--See "Certain Information Concerning Citizens."
The material assumptions underlying the following Projections concern (i)
growth in written premium, (ii) level of net investment income, (iii) expected
loss ratios and (iv) expected levels of underwriting expenses as a percentage
of written premium. The Projections assume that the rate of overall growth in
Citizens' property and casualty insurance business will be modest. Net
investment income is forecast to decline modestly, resulting primarily from
lower investment yields. Total statutory loss and loss adjustment expense
("LAE") ratio for Citizens is forecast to be approximately 76.1%, 74.8% and
74.3% in 1998, 1999 and 2000, respectively. Statutory underwriting expense
ratios are forecast to be 25.1%, 24.3% and 24.0% in 1998, 1999 and 2000,
respectively.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-------------------------------
1998 1999 2000
ESTIMATED ESTIMATED ESTIMATED
--------- --------- ---------
<S> <C> <C> <C>
Net premiums written............................ $ 890.9 $ 926.8 $ 970.9
======= ======= =======
Net premiums earned............................. $ 877.1 $ 907.0 $ 946.6
Net investment income........................... 98.2 96.5 96.0
Net realized gains.............................. 36.9 -- --
Other income.................................... 6.0 6.0 6.0
------- ------- -------
Total revenue................................. 1,018.2 1,009.5 1,048.6
Loss and LAE.................................... 667.5 678.4 703.4
Operating expenses.............................. 229.5 230.8 238.6
Policyholder dividends.......................... 6.1 5.4 5.7
------- ------- -------
Total expenses................................ 903.1 914.6 947.7
Income before taxes............................. 115.1 94.9 100.9
Federal income taxes............................ 21.8 13.7 16.0
------- ------- -------
Net income...................................... $ 93.3(1) $ 81.2 $ 84.9
======= ======= =======
Adjusted net income............................. $ 69.3(1) $ 81.2 $ 84.9
======= ======= =======
</TABLE>
- --------
(1) Projected net income and adjusted net income for 1998 reflect expected
catastrophe losses that are higher than those projected for 1999 and 2000.
Please see "Certain Information Concerning Citizens--Selected Financial
Information" and "Recent Developments" for information concerning certain
historical results of Citizens and its subsidiaries for the six months
ended June 30, 1998 and the three months ended September 30, 1998.
The foregoing Projections constitute "forward looking statements" and readers
should be aware that the following important factors among others, in some
cases have affected and in the future could affect, Citizens actual results and
could cause the Citizens actual results for 1998, 1999 and 2000 to differ
materially from those in the Projections.
8
<PAGE>
These factors include, among others, the following possibilities: (i) adverse
catastrophe experience and severe weather; (ii) adverse loss development for
events Citizens insured in prior years; (iii) heightened competition, including
the intensification of price competition, the entry of new competitors, and the
introduction of new products by new and existing competitors; (iv) adverse
state and federal legislation, including decreases in rates, limitations on
premium levels, increases in minimum capital and reserve requirements, benefit
mandates, limitations on the ability to manage care and utilization, and tax
treatment of insurance products; (v) changes in interest rates causing a
reduction of investment income or in the market value of interest rate
sensitive investments; (vi) failure to obtain new customers, retain existing
customers or reductions in policies in force by existing customers; (vii)
higher service, administrative, or general expense due to the need for
additional advertising, marketing, administrative or management information
systems expenditures; (viii) loss or retirement of key executives; (ix)
increases in medical costs, including increases in utilization, costs of
medical services, pharmaceuticals, durable medical equipment and other covered
items; (x) termination of provider contracts or renegotiation at less cost-
effective rates or terms of payment; (xi) changes in Citizens liquidity due to
changes in asset and liability matching; (xii) restrictions on insurance
underwriting, based on certain criteria; (xiii) adverse changes in the ratings
obtained by independent rating agencies such as Moody's, Standard and Poors and
A.M. Best; and (xiv) uncertainty related to the Year 2000 issue.
FINANCIAL ANALYSIS BY AFC'S FINANCIAL ADVISOR
AFC has retained Goldman Sachs as its financial advisors in connection with
the Offer. Goldman Sachs were requested to review data relating to Citizens
which was supplied by AFC and Citizens, as well as published financial and
market information. Goldman Sachs relied upon the accuracy and completeness of
all of the financial and other information reviewed by it and has assumed such
accuracy and completeness for purposes of preparing the Goldman Sachs Report
(as defined below). Goldman Sachs were not requested to perform any independent
examination or investigation of Citizens' businesses or assets. Accordingly,
Goldman Sachs did not attempt to verify the accuracy or completeness of the
information supplied by AFC, Citizens or obtained through other sources. The
Goldman Sachs Report was provided for the information and assistance of the AFC
Board in connection with its consideration of the Offer and does not constitute
a recommendation as to whether any holder of Shares should tender their Shares
in connection with the Offer.
In preparing the Goldman Sachs Report, Goldman Sachs reviewed, among other
things: Annual Reports on Form 10-K of Citizens for the five years ended
December 31, 1997; selected Statutory Annual Statements filed by certain
insurance subsidiaries of Citizens with the insurance departments of the states
under the laws of which they are respectively organized; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q; certain other
communications from Citizens to their respective stockholders; and the
Projections. Goldman Sachs also held discussions with members of the senior
management of AFC and Citizens regarding the past and current business
operations, financial condition, and future prospects of Citizens. In addition,
Goldman Sachs reviewed the reported price and trading activity for the Shares,
compared certain financial and stock market information for Citizens with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations and performed such other studies and analyses as it considered
appropriate.
At a meeting between representatives of Goldman Sachs, the AFC Board and
AFC's counsel on October 27, 1998, Goldman Sachs discussed certain financial
analyses regarding Citizens (the "Goldman Sachs Report"), a summary of which is
set forth below. The Goldman Sachs Report has been filed as an exhibit to the
Rule 13e-3 Transaction Statement on Schedule 13E-3 with respect to the Offer
(the "Schedule 13E-3"). The description of the analyses set forth below is
qualified by reference to the text of the Goldman Sachs Report.
9
<PAGE>
(a) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for the Shares separately and in
comparison to the Standard & Poor's industrial average of 500 stocks (the
"S&P 500 Index") and an index comprised of certain property and casualty
insurance companies (the "Property & Casualty Composite") for the last year
immediately preceding the AFC Board meeting (daily from October 27, 1997 to
October 26, 1998) and since Citizens' initial public offering on March 19,
1993 (weekly from March 19, 1993 to October 26, 1998). The Property &
Casualty Composite consists of the following companies: SAFECO Corporation,
Ohio Casualty Corporation, The Commerce Group Inc., Harleysville Group Inc.
and Selective Insurance Group, Inc. These companies were chosen because
they are publicly-traded companies with operations that for purposes of
analysis may be considered similar to Citizens. These analyses indicated
that: (i) the stock price increase or decrease for the last one year (daily
from October 27, 1997 to October 26, 1998) for Citizens, the S&P 500 Index
and the Property & Casualty Composite were approximately (5%), 22% and
(11%), respectively; and (ii) the stock price increase or decrease since
Citizens initial public offering on March 19, 1993 (weekly from March 19,
1993 to October 26, 1998) for Citizens, the S&P 500 Index and the Property
& Casualty Composite were approximately 15%, 138% and 42%, respectively.
In addition, Goldman Sachs analyzed the annual rates of return (including
reinvestment of dividends) for Citizens, the S&P 500 Index and the Property
& Casualty Composite for the following time periods: (i) since the Citizens
initial public offering on March 19, 1993; (ii) for the three year period
ending October 26, 1998; (iii) for the one year period ending October 26,
1998; and (iv) since January 1, 1998 to October 26, 1998. Such analysis
indicated that the annual rate of return over such periods for (i) Citizens
was 2.5%, 15.5%, (4.7%) and (4.4%), respectively; (ii) for the S&P 500
Index was 16.7%, 22.8%, 22.3% and 13.0%, respectively; and (iii) for the
Property & Casualty Composite was 10.3%, 12.4%, (11.0%) and (15.1%),
respectively.
(b) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to Citizens to corresponding
financial information, ratios and public market multiples for the companies
comprising the Property & Casualty Composite (the "Property & Casualty
Composite Companies"). Goldman Sachs calculated and compared various
financial multiples and ratios. The multiples of Citizens were calculated
using a price of $27.56 per Share, the closing price of the Shares on the
New York Stock Exchange on October 26, 1998. The multiples and ratios for
Citizens were based on information provided by Citizens' management and
I/B/E/S International, Inc. ("IBES") and the multiples for each of the
Property & Casualty Composite Companies were based on the most recent
publicly available information. IBES is a data service that monitors and
publishes compilations of earnings estimates by selected research analysts
regarding companies of interest to institutional investors. For purposes of
its evaluation, Goldman Sachs considered, among other multiples and ratios,
(a) price/estimated 1998 earnings ratios ("1998 P/E Ratios") and 1999
("1999 P/E Ratios"); (b) five-year earnings per share ("EPS") growth rates
(provided by IBES other than the growth rate for Citizens derived from
information provided by Citizens' management) ("5-Year EPS Growth Rates");
(c) 1998 P/E Ratios as a ratio of 5-Year EPS Growth Rates ("1998 P/E to 5-
Year Growth Ratios") and (d) price as a multiple of book value
("Price/Book").
Goldman Sachs' analyses of the Property & Casualty Composite Companies
indicated that (a) 1998 P/E Ratios ranged from a low of 9.2x to a high of
16.9x for the Property & Casualty Composite Companies, with a median of
13.6x, as compared to 13.8x (based on IBES estimates) and 14.1x (based on
Citizens' management estimates) for Citizens, and 1999 P/E Ratios ranged
from a low of 8.4x to a high of 14.0x for the Property & Casualty Composite
Companies, with a median of 12.4x, as compared to 10.8x (based on IBES
estimates) and 12.0x (based on Citizens' management estimates) for
Citizens; (b) the 5-Year EPS Growth Rates for each of the Property &
Casualty Composite Companies equalled 10%, with a median of 10.0%, as
compared to 10.0% (based on IBES estimates) and 5.0% (derived from
information provided by Citizens' management) for Citizens; (c) 1998 P/E to
5-Year Growth Ratios ranged from a low
10
<PAGE>
of 0.92% to a high of 1.69% for the Property & Casualty Composite
Companies, with a median of 1.36%, as compared to 1.38% (based on IBES
estimates) and 2.83% (based on Citizens' management estimates) for Citizens
and (d) Price/Book multiples ranged from a low of 0.88x to a high of 1.75x
for the Property & Casualty Composite Companies, with a median of 1.08x, as
compared to 1.05x for Citizens.
In addition, Goldman Sachs compared price to next fiscal year earnings
ratios (using median EPS estimates provided by IBES) monthly from April
1993 to September 1998 for Citizens, the S&P 500 Index and the Property &
Casualty Composite. This analysis indicated that during such time period
Citizens traded approximately in line with the Property & Casualty
Composite and traded below the S&P 500 Index. Goldman Sachs also compared
the Price/Book ratios monthly from April 1993 to September 1998 for
Citizens, the S&P 500 Index and the Property & Casualty Composite. This
analysis indicated that during such time period Citizens traded below the
Property & Casualty Composite and the S&P 500 Index.
(c) Discounted Cash Flow Analysis. Goldman Sachs performed a discounted
cash flow analysis for the common stock of Citizens on a standalone basis
under the following three scenarios: (a) using earnings estimates provided
by IBES (the "IBES Case"); (b) using United States generally accepted
accounting principles ("GAAP") earnings estimates provided by Citizens'
management and assuming a 5% EPS growth rate after 2000 (the "5% Management
Case") and (c) using GAAP earnings estimates provided by Citizens'
management and assuming a 10% EPS growth rate after 2000 (the "10%
Management Case"). Goldman Sachs calculated the present value, to January
1, 1999, of dividends from the first quarter of 1999 through the fourth
quarter of 2002 using discount rates of 10%, 12% and 14% and assuming a
constant annual dividend of $0.20. Goldman Sachs calculated Citizens'
terminal values in the year 2002 based on price/estimated 2003 GAAP
earnings ratios ranging from 10x to 14x. These terminal values were then
discounted to January 1, 1999 using discount rates of 10%, 12% and 14%. For
purposes of its analysis, Goldman Sachs did not consider any possible
synergies as a result of the transaction. Using the discounted cash flow
methodology described above, the implied per share values for Citizens
ranged (i) from $22.71 to $36.35 in the IBES Case; (ii) from $16.99 to
$27.12 in the 5% Management Case; and (iii) from $19.45 to $31.09 in the
10% Management Case.
Goldman Sachs also performed a discounted cash flow analysis for the
common stock of Citizens on a standalone basis using the maximum dividends
permitted under Michigan law without regulatory approval ("Maximum
Dividend") and terminal values of Citizens Insurance Company of America
plus an estimated valuation (employing a multiple of surplus) of Citizens
Insurance Company of The Midwest and Citizens Insurance Company of Ohio of
$20 million. Goldman Sachs calculated the present value, to January 1,
1999, of Maximum Dividends of Citizens Insurance Company of America from
1999 through 2003 using discount rates of 10%, 12% and 14%. The Maximum
Dividend in each year was calculated as follows: the greater of (i) 10% of
the previous year's surplus and (ii) the previous year's net income (based
on Michigan law) excluding realized gains; subject to a maximum ratio of
net premiums written to surplus of 1.65x. Goldman Sachs calculated
Citizens' terminal values in 2003 based on price/estimated 2004 GAAP
earnings ratios ranging from 10x to 14x. These terminal values were then
discounted to January 1, 1999 using discount rates of 10%, 12% and 14%.
Certain assumptions used in this analysis, including premium growth, loss
ratios, expense ratios, dividend ratios, reserve development, investment
yields and tax-exempt investments/total invested assets were estimated
using Citizens' management projections and historical data of Citizens
Insurance Company of America. Using the discounted cash flow methodology
described above, the implied per share values for Citizens ranged from
$24.20 to $33.60.
(d) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to selected transactions between stockholders owning
between 60% to 90% of the target
11
<PAGE>
company, on the one hand, and the target company, on the other hand, in the
financial services industry (the "Financial Services Transactions") and for
all industries (the "Selected Transactions"). Such analysis indicated that
the premium paid in such transactions as compared to the target company
stock price one day prior to announcement of such transactions ranged from
(i) a low of (0.8%) to a high of 37.1%, with a median of 12.7% for the
Financial Services Transactions and (ii) a low of (11.1%) with a median of
19.9% for the Selected Transactions.
The preparation of the Goldman Sachs Report was a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying the Goldman Sachs Report. No company or transaction used in the
above analyses as a comparison is directly comparable to Citizens or the
contemplated transaction. The analyses were prepared solely for purposes of
Goldman Sachs providing the Goldman Sachs Report to the AFC Board and do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of the parties or their respective
advisors, none of AFC, Citizens, Goldman Sachs or any other person assumes
responsibility if future results are materially different from those forecast.
As described above, the Goldman Sachs Report was one of many factors taken into
consideration by the AFC Board in making its determination to proceed with the
Offer.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with AFC having acted as co-managing underwriter of a public offering
of AFC's common stock in October 1995. AFC selected Goldman Sachs as its
financial advisor because it is a nationally recognized investment banking firm
that has substantial experience in transactions similar to the Offer.
A copy of the Goldman Sachs Report has been filed as Exhibit (b) to the
Schedule 13E-3 filed by AFC and Citizens and is incorporated herein by
reference. The foregoing summary does not purport to be a complete description
of the analyses performed by Goldman Sachs and is qualified by reference to the
Goldman Sachs Report filed as Exhibit (b) to the Schedule 13E-3. Copies of the
Goldman Sachs Report are available for inspection and copying at the principal
executive offices of AFC during regular business hours by any stockholder of
AFC, or a stockholder's representative who has been so designated in writing. A
copy of the Goldman Sachs Report shall be provided by AFC to any stockholder or
any representative of a stockholder who has been so designated in writing upon
written request and at the expense of the requesting stockholder or
representative.
CERTAIN LITIGATION
Since the announcement by AFC of its intention to commence the Offer, five
lawsuits have been commenced by Unaffiliated Stockholders in the Delaware Court
of Chancery: Susser v. O'Brien, et al, Civil Action No. 16745; Specht v.
O'Brien, et al, Civil Action No. 16746; Steiner v. O'Brien, et al, Civil Action
No. 16747; Finkelstein v. O'Brien, et al, Civil Action No. 16748; and McKinnie
v. O'Brien, et al, Civil Action No. 16749. Each of the actions purports to be a
class action brought on behalf of the Unaffiliated Stockholders and asserts
claims against AFC, Citizens and the members of the Citizens Board. The actions
each allege that, through the conduct of the defendants, AFC has proposed to
acquire the Shares at an unfair and inadequate price, in violation of fiduciary
duties allegedly owed by the defendants to the Unaffiliated Stockholders. The
various complaints purport by their terms to seek injunctive relief preventing
consummation of the Offer and related Merger, or rescission if they
12
<PAGE>
are successfully consummated, and compensatory damages. No motion for
injunctive relief has been filed. The complaints have not yet been formally
served upon the defendants and the time within which the defendants have to
respond to the complaints accordingly has not expired. The defendants
anticipate that the complaints will be consolidated into a single action. AFC
believes the actions to be without merit, and intends to defend the actions
vigorously. The description of the lawsuits set forth above is qualified by
reference to the complaints filed in such lawsuits which have been filed as
exhibits to the Schedule 13E-3.
CERTAIN EFFECTS OF THE TRANSACTION
The Offer, when followed by the Merger, will have the effect of eliminating
the Shares (other than Dissenting Shares) of Unaffiliated Stockholders. As a
result of the Merger, Target will be a wholly owned indirect subsidiary of AFC.
PARTICIPATION IN FUTURE GROWTH. If the Offer and the Merger are consummated,
Unaffiliated Stockholders will not have the opportunity to participate in the
future earnings, profits, and growth of Citizens and will not have a right to
vote on corporate matters. AFC, as the ultimate parent company of Citizens,
will indirectly own a 100% interest in the net book value and net earnings of
Citizens and will benefit from any increase in the value of Citizens following
the Offer and the Merger. Similarly, AFC will bear the risk of any decrease in
the value of Citizens after the Merger and Unaffiliated Stockholders will not
face the risk of a decline in the value of Citizens after the Merger.
EFFECT ON THE MARKET FOR THE SHARES. Notwithstanding the intention of AFC to
effectuate the Merger and eliminate the Shares of Unaffiliated Stockholders
pursuant to Section 253 of the DGCL, if the Minimum Condition is not met, the
Purchaser may choose to waive the Minimum Condition and purchase the Shares
tendered pursuant to the Offer. Under such circumstances, the Purchaser would
not have the requisite 90% ownership necessary to effect a "short form" merger
and may decide not to consummate the Merger. Such a purchase would reduce the
number of Shares that trade publicly and the number of stockholders, which
would be likely to further adversely affect the liquidity and market value of
any remaining Shares held by the public after the Offer. If after the
consummation of the Offer the number of record holders remained below 300, AFC
could terminate the registration of the Shares under the Exchange Act and the
Shares would be no longer eligible for listing on the NYSE.
EXCHANGE ACT REGISTRATION. Termination of registration of the Shares under
the Exchange Act would substantially reduce the information required to be
furnished by Citizens to its stockholders and would make certain provisions of
the Exchange Act, such as the short-swing profit recovery provisions of Section
16(b) and the requirement of furnishing a proxy statement in connection with
stockholders' meetings pursuant to Section 14(a), no longer applicable to
Citizens. Furthermore, if the Purchaser acquires a substantial number of
Shares, the ability of "affiliates" of Citizens and persons holding "restricted
securities" of Citizens to dispose of such securities pursuant to Rule 144
under the Securities Act of 1933, as amended, may be impaired or eliminated.
MARGIN REGULATIONS. The Shares are currently "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which means that, among other things, brokers may
extend credit on the collateral of the Shares for the purpose of buying,
carrying or trading in securities. Depending upon factors such as the number of
record holders of the Shares and the number and market value of publicly held
Shares, following the purchase of Shares pursuant to the Offer the Shares might
no longer constitute "margin securities" for purposes of the Federal Reserve
Board's margin regulations and therefore could no longer be used as collateral
for credit extended by brokers. In addition, if registration of the Shares
under the Exchange Act were terminated, the Shares would no longer constitute
"margin securities."
13
<PAGE>
STOCK OPTIONS. At the time of the Merger, each outstanding option or right to
purchase Shares (a "Company Option") will be converted into an option to
purchase shares of common stock of AFC. Each such Company Option shall continue
to be exercisable upon the same terms and conditions as in effect with respect
to such Company Option prior to the Merger, except that (i) such Company Option
shall be exercisable for that number of shares of AFC Common Stock equal to the
product of (x) the number of Shares for which such Company Option was
exercisable multiplied by (y) the quotient obtained by dividing (A) the Offer
Price by (B) the Average AFC Stock Price (as defined below) (such quotient
being referred to herein as the "Stock Price Ratio"); and (ii) the exercise
price of such option shall be equal to the exercise price per share of such
option as of the date hereof divided by the Stock Price Ratio. The term
"Average AFC Stock Price" shall mean the average of the Closing Market Prices
(as defined below) for the twenty consecutive trading days ending on the
trading day prior to the closing date of the Merger. The "Closing Market
Prices" for any trading day means the closing sales price of the AFC common
stock as reported in the New York Stock Exchange Composite Tape (as reported by
the Wall Street Journal or, if not reported thereby, as reported by another
source as mutually agreed by AFC and Citizens) for that day.
PLANS FOR CITIZENS AFTER THE TRANSACTION
It is expected that, following the Transaction, the business and operations
of Citizens will be continued by Citizens substantially as they are currently
being conducted. None of the AFC Entities (as defined below) have any present
plan or proposal that would result in an extraordinary material corporate
transaction, such as a merger, reorganization, liquidation, relocation of
operations, or sale or transfer of assets, involving Citizens or any of its
subsidiaries, or any material changes in Citizens' corporate structure or
business or the composition of its management or personnel, except that the
Purchaser expects that the Citizens Board will be reduced from seven to four
directors, each of whom will be officers of AFC. Upon consummation of the
Merger, AFC intends to conduct a review of Citizens and its assets, businesses,
operations, properties, policies, corporate structure, capitalization,
financing needs, dividend and distributions policy, and management and consider
if any changes would be desirable in light of the circumstances then existing.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Stockholders should be aware that members of the Citizens Board other than
the members of the Citizens Special Committee have certain interests which are
referred to below, and which may present them with actual or potential
conflicts of interest in connection with the Transaction.
Four of the seven members of the Citizens Board are currently members of the
AFC Board or are officers of AFC, and several of Citizens' executive officers
are also officers of AFC. Such persons are expected to retain their respective
positions at AFC following the consummation of the Merger. In addition, certain
of the Citizens' directors and executive officers own shares of common stock of
Citizens or of AFC (or both). As of October 1, 1998, the following directors
and executive officers of AFC, FAFLIC (as defined below), SMA Financial (as
defined below), APY (as defined below), Hanover and the Purchaser (collectively
the "AFC Entities") owned the following number of Shares: (1) James R.
McAuliffe--1,500 Shares and options to purchase 11,200 Shares which are
currently vested and exercisable; (2) John F. O'Brien--1,000 Shares; (3) Eric
A. Simonsen--3,000 Shares and (4) Philip E. Soule--100 Shares. No other
director or executive officer of the AFC Entities holds any Shares. In addition
to the foregoing information regarding Shares owned by directors and officers
of the AFC Entities (certain of whom are directors or officers of Citizens),
according to Citizens' most recent proxy statement and the most recently filed
Forms 4. James A. Cotter, a Director of Citizens, holds 1,500 Shares and Neal
J. Curtin, also a Director of Citizens, holds 263 Shares.
Except as disclosed in this Offer to Purchase, neither Citizens, the
Purchaser, AFC, any of AFC's other subsidiaries nor any executive officer or
director of any of the foregoing listed in
14
<PAGE>
Appendix A has (i) engaged in any transactions involving the Shares during the
period of sixty business days prior to the date hereof or (ii) is a party to
any contract, arrangement or understanding with respect to any securities of
Citizens.
Based on inquiries made by representatives of the Purchaser, each of the
natural persons listed in Appendix A that owns Shares intends to tender in
response to the Offer all of the Shares that they own or of which they control
the disposition. The fact that such persons tender their Shares does not in any
manner constitute a recommendation by such persons for other Citizens
stockholders to tender Shares, and no director or executive officer of the
Purchaser, AFC, or any of their respective subsidiaries makes any
recommendation for any stockholder to tender or choose not to tender in
response to the Offer. Holders of the Shares must make their own decisions
whether to tender and, if so, the number of Shares to tender.
PAST CONTACTS AND TRANSACTIONS BETWEEN AFC AND CITIZENS
During Citizens' previous three fiscal years, Citizens has engaged in certain
transactions and entered into various agreements with AFC and its subsidiaries,
and AFC and its subsidiaries have had numerous contacts with Citizens. Certain
employees working on behalf of Citizens have assisted AFC and the Purchaser
with respect to the Transaction, primarily by providing information concerning
Citizens for the preparation of this Offer to Purchase in compliance with the
requirements of the Exchange Act. Principally, this information has included
financial information of Citizens and stock ownership and stock transaction
data with respect to officers and directors of Citizens. No employee working on
behalf of Citizens has, or will, receive any additional or separate
compensation for such services.
Citizens is a party to a consolidated service agreement among AFC and its
subsidiaries under which FAFLIC (an AFC subsidiary, as defined below), and
other AFC subsidiaries provide management, space, technology, administrative
and other services to Citizens. Citizens and its subsidiaries were charged
approximately $20.5 million, $13.3 million and $9.7 million by certain
affiliates of AFC for services rendered under the agreement during 1997, 1996
and 1995, respectively. These charges amounted to approximately $30.5 million
and $8.4 million for the six months ended June 30, 1998 and 1997, respectively.
Services were charged to Citizens under this policy, prior to 1998, based on
either (1) the low end of market prices when reasonably available, or (2) the
"full cost" of providing those services plus 10%. Under the agreement, "full
cost" is defined as direct chargeable costs plus assigned overhead costs, as
determined in accordance with the agreement. The 10% surcharge was intended to
cover other direct and indirect costs which were not specifically identifiable
and were not cost-effective to measure. Since January 1, 1998, services
provided under the consolidated service agreement are charged to Citizens based
on "full cost," without surcharge. The Citizens Board of Directors has approved
the consolidated service agreement and periodically reviews the dollar amount
of charges from other subsidiaries of AFC.
Beginning in 1996, AFC and Citizens' computer data centers were consolidated
under FAFLIC. This resulted in the increase in total intercompany charges to
Citizens from 1995 to 1996. Beginning in 1997, certain other functions, such as
accounting, internal audit, tax management, cash management, human resource
management, and facilities management, which had been performed independently
by Citizens, were consolidated and managed by AFC. This resulted in the
increase in total intercompany charges to Citizens from 1996 to 1997.
On January 1, 1998, all employees of Citizens became employees of FAFLIC
under a single employer arrangement for AFC and its subsidiaries. In
conjunction with this transition, AFC and Citizens consolidated certain
additional functions, which had been performed independently by Citizens,
including technology, claims, customer service, premium billing, training,
printing and mail. Accordingly, these services are now charged to Citizens by
FAFLIC in accordance with the consolidated service agreement, resulting in the
increase in total charges from 1997 to 1998.
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<PAGE>
However, under the single employment arrangement, the costs related to the
majority of former Citizens employees are absorbed directly by Citizens, and
are not reflected in the intercompany charges summarized above.
TRANSACTIONS CONCERNING THE SHARES
Since January 1996, Citizens has repurchased an aggregate of 896,500 Shares
at the times and in the amounts summarized in the following schedule:
<TABLE>
<CAPTION>
RANGE OF
NUMBER OF PER SHARE
SHARES OF CITIZENS PURCHASE PRICE AVERAGE
COMMON STOCK --------------- PER SHARE
PURCHASED HIGH LOW PURCHASE PRICE
------------------ ------- ------- --------------
<S> <C> <C> <C> <C>
1996
First Quarter.............. 117,200 $ 20.00 $ 18.63 $19.07
Second Quarter............. 469,000 19.75 17.88 18.70
Third Quarter.............. 14,600 19.00 18.50 18.87
Fourth Quarter............. -- -- -- --
1997
First Quarter.............. -- -- -- --
Second Quarter............. -- -- -- --
Third Quarter.............. -- -- -- --
Fourth Quarter............. -- -- -- --
1998
First Quarter.............. -- -- -- --
Second Quarter............. -- -- -- --
Third Quarter.............. 295,700 27.06 27.06 27.06
Fourth Quarter (through
October 30, 1998)......... -- -- -- --
</TABLE>
CERTAIN TAX CONSEQUENCES
The following summary is a general discussion of certain of the United States
Federal income tax consequences of the Offer and the Merger. It does not
discuss all aspects of Federal income taxation that may be relevant to
particular holders and thus, for example, may not be applicable to holders of
shares who are not citizens or residents of the United States, who acquired
their shares as compensation or pursuant to the exercise of compensatory
options or that are entities subject to typical tax treatment. This summary is
based upon laws, regulations, rulings and decisions now in effect, all of which
are subject to change. No rulings as to any of the matters discussed in this
summary have been requested or received from the Internal Revenue Service
("IRS").
DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH STOCKHOLDER IS URGED
TO CONSULT HIS OR HER TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO SUCH
STOCKHOLDER OF THE OFFER AND THE MERGER, INCLUDING THE EFFECTS OF APPLICABLE
STATE, LOCAL, FOREIGN OR OTHER TAX LAW.
Sales of Shares pursuant to the Offer and the surrender of Shares pursuant to
the Merger will be taxable transactions for Federal income tax purposes and may
also be taxable transactions under applicable state, local, foreign and other
tax laws. This summary does not discuss any aspect of state, local or foreign
tax laws. The Federal income tax consequences to a holder of Shares may vary
depending upon the holder's particular facts and circumstances.
A sale of Shares pursuant to the Offer and the surrender of Shares pursuant
to the Merger will be treated as a sale or exchange of the Shares exchanged or
surrendered. Accordingly, a tendering holder of Shares and a holder
transferring Shares pursuant to the Merger will ordinarily recognize gain or
loss equal to the difference between the amount of cash received by the holder
pursuant to the Transaction and the holder's tax basis in the Shares sold
pursuant to the Transaction. If the Shares are held as capital assets, the gain
or loss will be a capital gain or loss, which will be a long-term capital gain
or long-term capital loss if the Shares have been held for more than one year.
16
<PAGE>
THE OFFER
TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment), the Purchaser will accept for payment and thereby purchase any and
all Shares validly tendered on or prior to the Expiration Date (as defined
below) and not properly withdrawn in accordance with the procedures set forth
below under "Withdrawal Rights."
THE OFFER IS NOT CONDITIONED UPON THE APPROVAL OF THE CITIZENS BOARD OR ANY
COMMITTEE THEREOF. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS.
SEE "CONDITIONS OF THE OFFER."
The term "Expiration Date" means 12:00 Midnight, New York City time, on
Wednesday, December 2, 1998, unless and until the Purchaser, in its sole
discretion, shall have extended the period of time for which the Offer is open,
in which event the term "Expiration Date" shall mean the latest time and date
at which the Offer, as so extended by the Purchaser, shall expire. All Shares
purchased pursuant to the Offer will be purchased at the Offer Price, net to
the seller in cash.
Subject to the applicable regulations of the Commission, the Purchaser
expressly reserves the right, in its sole discretion, at any time and from time
to time, to extend the period during which the Offer is open for any reason,
including the occurrence of any of the conditions specified below under
"Conditions of the Offer," by giving oral or written notice of such extension
to the Depositary. During any such extension, all Shares previously tendered
and not withdrawn will remain subject to the Offer, subject to the right of a
tendering stockholder to withdraw such stockholder's Shares. See "Withdrawal
Rights" below. The Purchaser shall not have any obligation to pay interest on
the Offer Price, whether or not the Purchaser exercises its right to extend the
Offer. The rights reserved by the Purchaser in this paragraph are in addition
to the Purchaser's right to terminate the Offer pursuant to the provisions of
the "Conditions of the Offer".
Subject to the applicable regulations of the Commission, the Purchaser also
expressly reserves the right, in its sole discretion, at any time or from time
to time to (i) delay acceptance for payment of or, regardless of whether such
Shares were theretofore accepted for payment, payment for any Shares pending
receipt of any regulatory or governmental approvals specified in "Certain
Regulatory and Legal Matters," (ii) terminate the Offer and not accept for
payment any Shares upon the occurrence of any of the conditions specified in
"Conditions of the Offer," (iii) waive any unsatisfied condition including the
Minimum Condition and accept for payment and pay for all Shares validly
tendered prior to the Expiration Date and not properly withdrawn, (iv) extend
the Offer and, subject to the right of stockholders to withdraw Shares until
the Expiration Date, retain the Shares that have been tendered during the
period or periods for which the Offer has been extended, or (v) otherwise amend
the Offer in any respect, by giving oral or written notice of such extension,
delay, termination, waiver or amendment to the Depositary and by making a
public announcement thereof. The Purchaser acknowledges (i) that Rule 14e-1(c)
under the Exchange Act requires the Purchaser to pay the consideration offered
or return the Shares tendered promptly after the termination or withdrawal of
the Offer, and (ii) that the Purchaser may not delay acceptance for payment of,
or payment for (except as provided in case (i) of the preceding sentence), any
Shares upon the occurrence of any of the conditions specified in "Conditions of
the Offer" without extending the period of time during which the Offer is open.
There can be no assurance that the Purchaser will exercise its right to
extend the Offer. Any such extension, delay, termination, waiver or amendment
will be followed as promptly as practicable by public announcement thereof, and
such announcement in the case of an extension will be made no later than 9:00
a.m., New York City time, on the next business day after the previously
scheduled
17
<PAGE>
Expiration Date. Without limiting the manner in which the Purchaser may choose
to make any public announcement, subject to applicable law (including Rule 14d-
4(c) under the Exchange Act, which requires that material changes be promptly
disseminated to holders of Shares), the Purchaser shall have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a release to the Dow Jones News Service.
If the Purchaser extends the Offer or if the Purchaser (whether before or
after its acceptance for payment of the tendered Shares) is delayed in its
acceptance for payment of or payment for the Shares or if the Purchaser is
unable to accept for payment or pay for the Shares pursuant to the Offer for
any reason, then, without prejudice to the Purchaser's rights under the Offer,
the Depositary may retain tendered Shares on behalf of the Purchaser, and such
Shares may not be withdrawn except to the extent tendering stockholders are
entitled to withdrawal rights as described in "The Offer--Withdrawal Rights."
However, the ability of the Purchaser to delay the payment for the Shares that
the Purchaser has accepted for payment is limited by Rule 14e-1(c) under the
Exchange Act, which requires that a bidder pay the consideration offered or
return the securities deposited by or on behalf of holders of securities
promptly after the termination or withdrawal of such bidder's offer.
Consummation of the Offer is conditioned upon satisfaction of the Minimum
Condition and the other conditions set forth in "The Offer--Conditions of the
Offer". The Purchaser reserves the right (but shall not be obligated) to waive
any or all such conditions and to waive the Minimum Condition and to accept for
payment pursuant to the Offer less than the minimum number of Shares necessary
to satisfy the Minimum Condition, to the extent permitted under applicable law.
If the Purchaser materially changes the terms of the Offer, or waives a
material condition of the Offer, the Purchaser will extend the Offer to the
extent required by Rule 14e-1 under the Exchange Act. The minimum period during
which an offer must remain open following material changes in the terms of the
offer, other than a change in price or a change in percentage of securities
sought or a change in any dealer's soliciting fee, will depend upon the facts
and circumstances, including the materiality of the changes. With respect to a
change in price or a change in percentage of securities sought or a change in
any dealer's soliciting fee, a minimum ten business day period from the date of
such change is generally required to allow for adequate dissemination to
stockholders. Accordingly, if, prior to the Expiration Date, the Purchaser
should decrease the number of Shares being sought, or increase or decrease the
consideration offered pursuant to the Offer, and if the Offer is scheduled to
expire at any time earlier than the period ending on the tenth business day
from and including the date that notice of such increase or decrease is first
published, sent or given to holders of Shares, the Offer will be extended at
least until the expiration of such ten business day period. For purposes of the
Offer a "business day" means any day other than a Saturday, Sunday or federal
holiday and consists of the time period from 12:01 a.m. through 12:00 midnight,
New York City time.
This Offer to Purchase and the related Letter of Transmittal and, if
required, other relevant materials will be mailed to record holders of Shares
and will be furnished to brokers, dealers, commercial banks, trust companies
and similar persons whose names, or the names of whose nominees, appear on the
stockholder list or, if applicable, who are listed as participants in a
clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
CONDITIONS OF THE OFFER
The Offer is conditioned upon the satisfaction of the Minimum Condition and
the other conditions set forth below. The Purchaser reserves the right (but
shall not be obligated to) to waive any or all such conditions.
Notwithstanding any other provisions of the Offer and in addition to (and not
in limitation of) the Purchaser's rights to extend and amend the Offer any time
in its sole discretion, the Purchaser shall
18
<PAGE>
not be required to accept for payment, purchase or pay for, subject to Rule
14e-1(c) under the Exchange Act, any tendered Shares (whether or not any Shares
have theretofore been accepted for payment or paid for pursuant to the Offer),
and may terminate the Offer as to any Shares not then paid for, if at any time
before the time of acceptance for payment of any such Shares, any one or more
of the following events shall occur:
1. there shall have occurred (i) any general suspension of trading in, or
limitation on prices for, securities on any national securities exchange or
the over-the-counter market in the United States, (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States (whether or not mandatory), (iii) the commencement or
escalation of a war, armed hostilities or other national or international
crises directly or indirectly involving the United States, (iv) any
limitation or proposed limitation (whether or not mandatory) imposed by any
governmental authority on, or any other event that might have material
adverse significance with respect to, the nature or extension of credit or
further extension of credit by banks or other lending institutions in the
United States, (v) a decline of at least 25% in the Standard & Poor's 500
Index from the date of this Offer to Purchase through the date of
termination or expiration of the Offer or (vi) in the case of any of the
foregoing, a material acceleration or worsening thereof; or
2. any material adverse change (or any condition, event or development
involving a prospective material adverse change) shall have occurred or be
likely to occur in the business, prospects, financial condition, results of
operations, properties, assets, liabilities, capitalization, stockholders'
equity, licenses, franchises or businesses of Citizens and its subsidiaries
taken as a whole; or
3. there shall have been threatened, instituted or pending any action,
proceeding, application, claim or counterclaim by any government or
governmental authority or agency, domestic or foreign, or by or before any
court or governmental, regulatory or administrative agency, authority or
tribunal, domestic, foreign or supranational, which (i) challenges the
acquisition by the Purchaser of the Shares, restrains, prohibits or delays
or seeks to restrain, prohibit or delay the performance of the transactions
contemplated by the Offer or the Merger or seeks to obtain any material
damages as a result thereof, (ii) makes or seeks to make illegal, the
acceptance for payment, purchase or payment for any Shares or the
consummation of the Offer or the Merger, (iii) prohibits or limits or seeks
to prohibit or limit the ownership or operations by the Purchaser or any of
its affiliates of all or any substantial portion of the business or assets
of Citizens or any of its subsidiaries or of the Purchaser or any of its
affiliates or compels or seeks to compel the Purchaser or any of its
affiliates to dispose of or to hold separate all or any substantial portion
of the business or assets of Citizens or any of its subsidiaries or of the
Purchaser or any of its affiliates, or imposes or seeks to impose any
material limitation on the ability of the Purchaser to conduct such
business or own such assets, (iv) imposes or seeks to impose limitations on
the ability of the Purchaser or any affiliate of the Purchaser to acquire
or hold or to exercise full rights of ownership of the Shares, including,
but not limited to, the right to vote any Shares purchased by them on all
matters properly presented to the stockholders or would otherwise adversely
affect Citizens or its subsidiaries or their respective businesses or
assets, (v) may result in a material diminution in the benefits expected to
be derived by the Purchaser or any of its affiliates as a result of the
Offer or the Merger, (vi) seeks to impose voting, procedural, price or
other requirements in addition to those under the DGCL and federal
securities laws (each as in effect on the date of commencement of the
Offer) or any material condition to the Offer or the Merger that is
unacceptable to the Purchaser or any of its affiliates, or (vii) challenges
or adversely affects the Offer or the Merger; or
4. there shall be any statute, rule, regulation, order or injunction
enacted, promulgated, entered, enforced or deemed applicable to the Offer
or the Merger, or any other action shall have been taken or threatened in
writing, by any government, governmental authority or court, domestic
foreign or supranational, or in the reasonable good faith judgment of the
Purchaser
19
<PAGE>
could be expected to result, directly or indirectly, in any of the
consequences referred to in clause (i) through (vii) of paragraph 3 above;
or
5. either the Purchaser, AFC or any of AFC's subsidiaries shall not have
received or obtained all required state insurance regulatory approvals
necessary for the Purchaser to consummate the Offer or the Merger on terms
and conditions satisfactory to the Purchaser and AFC in their sole
discretion; or
6. either the Purchaser or AFC shall not have received any necessary
third-party consent or waiver to transfer ownership of Shares to the
Purchaser or to effect any other aspect of the Offer or the Merger; or
7. the Purchaser shall become aware that any material right of Citizens
or any of its subsidiaries under any governmental license, permit or
authorization is reasonably likely to be impaired or otherwise adversely
affected as a result of, or in connection with, the Offer or the Merger.
The foregoing conditions are for the sole benefit of the Purchaser, shall be
subject to the sole interpretation of the Purchaser and may be asserted by the
Purchaser regardless of the circumstances giving rise to any such condition and
may be waived by the Purchaser, in whole or in part, at any time and from time
to time, in the sole discretion of the Purchaser. The failure by the Purchaser
at any time to exercise any of the foregoing rights will not be deemed a waiver
of any other right and each right will be deemed an ongoing right which may be
asserted at any time and from time to time. Any determination by the Purchaser
concerning the events described above will be final and binding on all holders
of Shares.
ACCEPTANCE FOR PAYMENT AND PAYMENT
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment) the Purchaser will purchase, by accepting for payment, and will pay
for, subject to the Minimum Condition (which may be waived at the discretion of
the Purchaser), any and all shares validly tendered and not properly withdrawn
prior to the Expiration Date promptly after the later to occur of (i) the
Expiration Date, and (ii) the satisfaction or waiver of the conditions of the
Offer set forth above in "Conditions of the Offer." In addition, subject to
applicable rules of the Commission, the Purchaser expressly reserves the right
to delay acceptance for payment of, or payment for, Shares pending receipt of
any regulatory or governmental approvals specified below in "Certain Regulatory
and Legal Matters."
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (a) certificates
for such Shares (individually a "Share Certificate" and collectively the "Share
Certificates") or timely confirmation (a "Book-Entry Confirmation") of the
book-entry transfer of such Shares into the Depositary's account at the
Depository Trust Company (the "Book-Entry Transfer Facility"), pursuant to the
procedures set forth below in "Procedures for Tendering Shares," (b) the Letter
of Transmittal properly completed and duly executed, with any required
signature guarantees, or, in the case of a book-entry transfer, an Agent's
Message (as defined below), and (c) any other documents required by the Letter
of Transmittal. The term "Agent's Message" means a message transmitted by the
Book-Entry Transfer Facility to, and received by, the Depositary and forming a
part of a Book-Entry Confirmation, which states that the Book-Entry Transfer
Facility has received an express acknowledgment from the participant in the
Book-Entry Transfer Facility tendering the Shares that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that Purchaser may enforce such agreement against the participant.
For purposes of the Offer, the Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares validly tendered and not properly
withdrawn as, if and when the
20
<PAGE>
Purchaser gives oral or written notice to the Depositary of the Purchaser's
acceptance of such Shares for payment pursuant to the Offer. In all cases upon
the terms and subject to the conditions of the Offer, payment for Shares
purchased pursuant to the Offer will be made by deposit of the purchase price
therefor with the Depositary, which will act as agent for tendering
stockholders for the purpose of receiving payment from the Purchaser and
transmitting payment to validly tendering stockholders. UNDER NO CIRCUMSTANCES
WILL INTEREST ON THE PURCHASE PRICE FOR SHARES BE PAID BY THE PURCHASER BY
REASON OF ANY DELAY IN MAKING SUCH PAYMENT.
If any Shares tendered, and not withdrawn, are not purchased pursuant to the
Offer for any reason, or if Share Certificates are submitted representing more
Shares than are tendered, Share Certificates representing unpurchased or
untendered Shares will be returned, without expense to the tendering
stockholder (or, in the case of Shares delivered by book-entry transfer into
the Depositary's account at the Book-Entry Transfer Facility pursuant to the
procedures set forth below in "Procedures for Tendering Shares," such Shares
will be credited to an account maintained within such Book-Entry Transfer
Facility), as promptly as practicable following the expiration, termination or
withdrawal of the Offer.
IF THE PURCHASER INCREASES THE OFFER PRICE PRIOR TO THE EXPIRATION DATE, SUCH
INCREASE SHALL BE PAID TO ALL HOLDERS OF SHARES THAT ARE PURCHASED PURSUANT TO
THE OFFER, WHETHER SUCH SHARES WERE TENDERED PRIOR TO OR AFTER SUCH INCREASE.
The Purchaser reserves the right to transfer or assign in whole or in part
from time to time to one or more direct or indirect subsidiaries of the
Purchaser the right to purchase all or any portion of the Shares tendered
pursuant to the Offer, but any such transfer or assignment will not relieve the
Purchaser of its obligations under the Offer and will in no way prejudice the
rights of tendering stockholders to receive payment for Shares validly tendered
and accepted for payment pursuant to the Offer.
By accepting the benefits of the Offer through the tender of Shares and the
receipt of payment for Shares, a tendering stockholder is (under the
Purchaser's view of applicable law) barred from thereafter attacking in any
legal proceeding the fairness of the consideration received by stockholders in
the Offer. For this reason, the Letter of Transmittal to be executed by
tendering stockholders includes a release of any such claims, which will be
effective upon receipt of payment for tendered Shares.
PROCEDURES FOR TENDERING SHARES
VALID TENDER OF SHARES. Except as set forth below, for Shares to be validly
tendered pursuant to the Offer, the Letter of Transmittal, properly completed
and duly executed, together with any required signature guarantees and any
other documents required by the Letter of Transmittal (all as described in the
Letter of Transmittal), must be received by the Depositary at the address set
forth on the back cover of this Offer to Purchase on or prior to the Expiration
Date and either (i) Share Certificates representing tendered Shares must be
received by the Depositary or such Shares must be tendered pursuant to the
procedure for book-entry transfer set forth below, and a Book-Entry
Confirmation must be received by the Depositary, in each case on or prior to
the Expiration Date, or (ii) the guaranteed delivery procedures set forth below
must be complied with.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING STOCKHOLDER
AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
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<PAGE>
BOOK-ENTRY TRANSFER. The Depositary will establish accounts with respect to
the Shares at the Book-Entry Transfer Facility for purposes of the Offer within
two business days after the date of this Offer to Purchase. Any financial
institution that is a participant in the system of the Book-Entry Transfer
Facility may make book-entry delivery of Shares by causing such Book-Entry
Transfer Facility to transfer such Shares into the Depositary's account at such
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for such transfer. However, although delivery of Shares
may be effected through book-entry transfer into the Depositary's account at
the Book-Entry Transfer Facility, the Letter of Transmittal, properly completed
and duly executed, with any required signature guarantees and any other
required documents must, in any case, be transmitted to and received by, the
Depositary at one of its addresses set forth on the back cover of this Offer to
Purchase on or prior to the Expiration Date, or the guaranteed delivery
procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH
SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO
THE DEPOSITARY.
SIGNATURE GUARANTEES. Signatures on all Letters of Transmittal must be
guaranteed by a firm that is a bank, broker, credit union, savings association
or other entity which is a member in good standing of the Securities Transfer
Agents Medallion Program or by any other bank, broker, dealer, credit union,
savings association, or other entity which is an "eligible guarantor
institution," as such term is defined in Rule 17Ad-15 under the Exchange Act
(each of the foregoing constituting an "Eligible Institution"), unless the
Shares tendered thereby are tendered (i) by a registered owner of Shares who
has not completed either the box labeled "Special Payment Instructions" or the
box labeled "Special Delivery Instructions" on the Letter of Transmittal, or
(ii) for the account of an Eligible Institution. See Instruction 1 of the
Letter of Transmittal.
If the Share Certificates are registered in the name of the signer of the
Letter of Transmittal, no endorsements of Share Certificates or separate stock
powers are required. However, if the Share Certificates are registered in the
name of a person other than the signer of the Letter of Transmittal, or if
payment is to be made to, or Share Certificates for unpurchased Shares are to
be issued or returned to, a person other than the registered owner, then the
tendered certificates must be endorsed or accompanied by duly executed stock
powers, signed exactly as the name or names of the registered owner(s) appear
on the certificates, with the signatures on the certificates or stock powers
guaranteed by an Eligible Institution as provided in the Letter of Transmittal.
See Instructions 1 and 5 of the Letter of Transmittal.
If the Share Certificates are forwarded separately to the Depositary, a
properly completed and duly executed Letter of Transmittal must accompany each
such delivery.
GUARANTEED DELIVERY. If a stockholder desires to tender pursuant to the Offer
and such stockholder's Share Certificates are not immediately available or time
will not permit all required documents to reach the Depositary on or prior to
the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, such Shares may nevertheless be tendered if all of
the following guaranteed delivery procedures are duly complied with:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly exercised Notice of Guaranteed Delivery,
substantially in the form provided by the Purchaser, is received by
the Depositary, as provided below, on or prior to the Expiration Date;
and
(iii) the Share Certificates (or a Book-Entry Confirmation) representing
all tendered Shares in proper form for transfer together with a
properly completed and duly executed Letter of Transmittal, with any
required signature guarantees (or, in the case of a book-entry
transfer,
22
<PAGE>
an Agent's Message in lieu of the Letter of Transmittal) and any other
documents required by the Letter of Transmittal are received by the
Depositary within three NYSE trading days after the date of execution of
such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile transmission or mailed to the Depositary and must include a
guarantee by an Eligible Institution in the form set forth in such Notice of
Guaranteed Delivery.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING
THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE
TENDERING STOCKHOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE DEPOSITARY. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Notwithstanding any other provisions hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of Share Certificates or of Book-Entry Confirmation
with respect to, such Shares a properly completed and duly executed Letter of
Transmittal, with any required signature guarantees (or, in the case of a
book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal),
and any other documents required by the Letter of Transmittal. Accordingly,
payment might not be made to all tendering stockholders at the same time, and
will depend upon when Share Certificates or Book-Entry Confirmations of such
Shares are received into the Depositary's account at a Book-Entry Transfer
Facility.
BACK-UP FEDERAL TAX WITHHOLDING. UNDER THE FEDERAL INCOME TAX LAWS, THE
DEPOSITARY WILL BE REQUIRED TO WITHHOLD 31% OF THE AMOUNT OF ANY PAYMENTS MADE
TO CERTAIN STOCKHOLDERS PURSUANT TO THE TRANSACTION. TO PREVENT BACK-UP
FEDERAL INCOME TAX WITHHOLDING, EACH STOCKHOLDER MUST PROVIDE THE DEPOSITARY
WITH HIS CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT HE IS NOT
SUBJECT TO BACK-UP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE
FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL. SEE INSTRUCTION 10 OF THE
LETTER OF TRANSMITTAL.
APPOINTMENT AS PROXY. By executing the Letter of Transmittal, a tendering
stockholder irrevocably appoints designees of the Purchaser, and each of them,
as such stockholder's attorneys-in-fact and proxies, with full power of
substitution, in the manner set forth in the Letter of Transmittal, to the
full extent of such stockholder's rights with respect to the Shares tendered
by such stockholder and accepted for payment and paid for by the Purchaser and
with respect to any and all other Shares and other securities or rights issued
or issuable in respect of such Shares on or after the date of this Offer to
Purchase. All such proxies shall be considered coupled with an interest in the
tendered Shares, are irrevocable and are granted in consideration of, and are
effective upon, the acceptance for payment of such shares by the Purchaser in
accordance with the terms of the Offer. Upon such acceptance for payment, all
prior powers of attorney and proxies given by such stockholder with respect to
such Shares and such other securities or rights will be revoked, without
further action, and no subsequent powers of attorneys and proxies may be given
by such stockholder (and if given, will not be deemed effective). The
designees of the Purchaser will, with respect to the Shares for which such
appointment is effective, be empowered to exercise all voting and other rights
of such stockholder as they in their sole discretion may deem proper at any
annual or special meeting of the stockholders, or any adjournment or
postponement thereof, by written consent in lieu of any such meeting or
otherwise. Purchaser reserves the right to require that, in order for Shares
to be deemed validly tendered, immediately upon Purchaser's payment for such
Shares, Purchaser must be able to exercise full voting rights with respect to
such Shares.
23
<PAGE>
RELEASE OF CLAIMS. By accepting the Offer through the tender of Shares
pursuant to the Offer, the tendering stockholder agrees to release, and
releases, all claims with respect to or in respect of the Shares other than the
right to receive payment for the tendered Shares expressly provided herein and
that, upon payment for the Shares, to waive any right to attack (and agrees to
be barred from thereafter attacking) in any legal proceeding the fairness of
the consideration paid in the Offer.
DETERMINATION OF VALIDITY. All questions as to the form of documents and
validity, eligibility (including time of receipt) and acceptance for payment of
any tender of Shares will be determined by the Purchaser, in its sole
discretion, whose determination shall be final and binding on all parties. The
Purchaser reserves the absolute right to reject any or all tenders determined
by it not to be in proper form, or the acceptance of or payment for which may,
in the opinion of the Purchaser's counsel, be unlawful. The Purchaser also
reserves the absolute right to waive any of the conditions of the Offer or any
defect or irregularity in any tender of Shares of any particular stockholder
whether or not similar defects or irregularities are waived in the case of
other stockholders.
The Purchaser's interpretation of the terms and conditions of the Offer
(including the Letter of Transmittal and the instructions thereto) will be
final and binding. No tender of Shares will be deemed to have been validly made
until all defects and irregularities have been cured or waived. None of the
Purchaser, any of its affiliates or assigns, if any, the Depositary, the
Information Agent or any other person will be under any duty to give any
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification.
The Purchaser's acceptance for payment of Shares tendered pursuant to any one
of the procedures described above will constitute a binding agreement between
the tendering stockholder and the Purchaser upon the terms and subject to the
conditions of the Offer.
WITHDRAWAL RIGHTS
Except as otherwise provided in this section, tenders of Shares made pursuant
to the Offer are irrevocable. Shares tendered pursuant to the Offer may be
withdrawn at any time prior to the Expiration Date and, unless theretofore
accepted for payment as provided herein, may also be withdrawn at any time
sixty days after the date hereof.
If, for any reason whatsoever, acceptance for payment of any Shares tendered
pursuant to the Offer is delayed, or the Purchaser is unable to accept for
payment or pay for Shares tendered pursuant to the Offer, then, without
prejudice to the Purchaser's rights set forth herein, the Depositary may,
nevertheless, on behalf of the Purchaser, retain tendered Shares and such
Shares may not be withdrawn except to the extent that the tendering stockholder
is entitled to and duly exercises withdrawal rights as described in this
Section. Any such delay will be by an extension of the Offer to the extent
required by law.
For a withdrawal to be effective, a written transmission notice of withdrawal
must be timely received by the Depositary at one of its addresses set forth on
the back cover of this Offer to Purchase. Any such notice of withdrawal must
specify the name of the person who tendered the Shares to be withdrawn, the
number of Shares to be withdrawn, and (if Share Certificates have been
tendered) the name of the registered holder of the Shares as set forth on the
Share Certificates, if different from that of the person who tendered such
Shares. If Share Certificates have been delivered or otherwise identified to
the Depositary, then prior to the physical release of such certificates, the
tendering stockholder must submit the serial numbers shown on the particular
certificates evidencing the Shares to be withdrawn and the signature on the
notice of withdrawal must be guaranteed by an Eligible Institution, except in
the case of Shares tendered for the account of the Eligible Institution. If
Shares have been tendered pursuant to the procedures for book-entry transfer
set forth in "The Offer--Procedures for Tendering Shares," the notice of
withdrawal must specify the name and number of
24
<PAGE>
the account at the appropriate Book-Entry Transfer Facility to be credited with
the withdrawn Shares, in which case a notice of withdrawal will be effective if
delivered to the Depositary by any method of delivery described in the first
sentence of this paragraph. Withdrawals of Shares may not be rescinded. Any
Shares properly withdrawn will be deemed not validly tendered for purposes of
the Offer, but may be retendered at any subsequent time prior to the Expiration
Date by following any of the procedures described in "The Offer--Procedures for
Tendering Shares."
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, in its sole
discretion whose determination shall be final and binding. None of the
Purchaser, any of its affiliates or assigns, if any, the Depositary, the
Information Agent or any other person will be under any duty to give any
notification of any defects or irregularities in any notice of withdrawal or
incur any liability for failure to five any such notification.
PRICE RANGE OF SHARES; DIVIDENDS
The common stock of Citizens is traded on the New York Stock Exchange under
the symbol "CZC." The following table sets forth, for the fiscal quarters
indicated, the high and low closing sales prices per Share as reported on the
NYSE Composite Tape and the dividends per Share declared.
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
--------- --------- ---------
<S> <C> <C> <C>
1996
First Quarter................................... $20 1/8 $18 1/2 $0.05
Second Quarter.................................. $19 5/8 $18 $0.05
Third Quarter................................... $22 3/8 $18 1/2 $0.05
Fourth Quarter.................................. $22 3/4 $20 1/8 $0.05
1997
First Quarter................................... $25 1/8 $22 $0.05
Second Quarter.................................. $27 13/16 $23 7/8 $0.05
Third Quarter................................... $30 7/16 $27 13/16 $0.05
Fourth Quarter.................................. $31 1/16 $27 13/16 $0.05
1998
First Quarter................................... $34 $26 11/16 $0.05
Second Quarter.................................. $34 5/8 $30 9/16 $0.05
Third Quarter................................... $31 7/16 $23 7/8 $0.05
Fourth Quarter (through October 30)............. $30 1/4 $25 7/8 --
</TABLE>
Citizens declared a cash dividend of $0.05 on July 28, 1998 which is payable
on November 16, 1998. The record date for such dividend is November 2, 1998.
On October 26, 1998, the last full trading day preceding public announcement
of the Offer, the closing price per share of Citizens common stock on the NYSE
Composite Tape was $27 9/16. On October 30, 1998, the most recent practicable
date prior to the printing of this Offer to Purchase, the closing price per
share of Citizens common stock on the NYSE Composite Tape was $30 1/4.
STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES
PRIOR TO DECIDING WHETHER TO TENDER IN RESPONSE TO THE OFFER.
25
<PAGE>
CERTAIN INFORMATION CONCERNING AFC AND THE PURCHASER
AFC is the holding company for a diversified group of insurance and financial
services companies with total assets as of June 30, 1998 of $25.8 billion.
Through its subsidiaries, AFC offers financial products and services in two
major areas: Risk Management and Retirement and Asset Accumulation. Within
these broad areas, AFC operates principally in four operating segments:
Property & Casualty; Corporate Risk Management Services; Allmerica Financial
Services and Allmerica Asset Management. Purchaser is a Delaware corporation
and a wholly owned indirect subsidiary of Parent. To date, Purchaser has not
conducted any business other than incident to its formation and commencement of
the Offer.
AFC currently owns approximately 83% of the
outstanding shares of common stock of Citizens (Public)
through its wholly owned subsidiaries First |
Allmerica Financial Life Insurance Company | 100%
("FAFLIC"), a Massachusetts corporation, SMA |
Financial Corp. ("SMA"), a Massachusetts [AFC]
corporation, Allmerica Property & Casualty, | |
Inc., a Delaware corporation ("Allmerica P&C") | -------
and the Hanover Insurance Company ("Hanover"), | | 100%
a New Hampshire corporation. | [FAFLIC]
| |
The Risk Management group includes two | | 100%
segments: Property & Casualty and Corporate Risk | |
Management Services. The Property & Casualty | [SMA Financial Corp.]
segment includes property and casualty insurance | | |
products, such as automobile insurance, 30% | 70% | | 100%
homeowners insurance, commercial multiple peril | ------- |
insurance, and workers' compensation insurance. [Allmerica P&C] [AFLIAC]
These products are offered by Allmerica P&C |
through its operating subsidiaries, Hanover and | 100%
Citizens. The Corporate Risk Management Services |
segment includes the group life and health (Public)[Hanover]
insurance products and services business of | |
FAFLIC, which assist employers in administering | 17% | 83%
employee benefit programs and in managing | |
the related risks. ---------- |
| |
The Retirement and Asset [Citizens]
Accumulation group includes two |
segments: Allmerica Financial Services | 100%
and Allmerica Asset Management. These |
segments include the individual financial [Citizens Insurance]
products, group financial products, and
Guaranteed Investment Contract (GICs)
businesses of FAFLIC and its wholly owned
subsidiary Allmerica Financial Life
Insurance and Annuity Company ("AFLIAC"),
as well as AFC's registered investment
advisor and broker-dealer affiliates. The
Allmerica Financial Services segment
provides variable annuities, variable
universal life and traditional life
insurance products distributed via
retail channels as well as group retirement products, such as defined benefit
and 401(K) plans and tax-sheltered annuities distributed to institutions.
Through its Allmerica Asset Management segment, AFC offers its customers the
option of investing in three types of Guaranteed Investment Contracts; the
traditional GIC, the synthetic GIC and the "floating rate" GIC. This segment is
also a registered investment advisor providing investment advisory services,
primarily to affiliates, and to other institutions, such as insurance companies
and pension plans.
Each of the AFC Entities has executive offices at 440 Lincoln Street,
Worcester, Massachusetts 01653 (telephone (508) 855-1000).
26
<PAGE>
SELECTED FINANCIAL INFORMATION. Set forth below is certain consolidated
financial information with respect to AFC and its subsidiaries excerpted from
the information contained in the AFC Annual Report on Form 10-K (the "AFC 10-
K") and the AFC Quarterly Report on Form 10-Q for the quarter ended June 30,
1998 (the "AFC 10-Q"). More comprehensive financial information is included in
the AFC 10-K and such AFC 10-Q and other documents filed by AFC with the
Commission, and the following summary is qualified in its entirety by
reference to such information. The AFC 10-K and the AFC 10-Q and such other
documents are available for inspection and copies thereof should be obtainable
in the manner set forth below under "--Available Information." Certain prior
year amounts have been reclassified to conform to the current year
presentation.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
OF ALLMERICA FINANCIAL CORPORATION
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS ENDED AT OR FOR THE
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- -----------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.................... $ 1,720.6 $ 1,687.4 $ 3,395.6 $ 3,285.1 $ 3,263.9
--------- --------- --------- --------- ---------
Income before extraordinary
item....................... $ 127.1 $ 53.6 $ 209.2 $ 181.9 $ 146.0
Extraordinary item-
demutualization
expenses(1)................ -- -- -- -- (12.1)
--------- --------- --------- --------- ---------
Net income.................. $ 127.1 $ 53.6 $ 209.2 $ 181.9 $ 133.9
========= ========= ========= ========= =========
Net income per share
(basic)(2)................. $ 2.12 $ 1.07 $ 3.83 $ 3.63 $ 2.61
========= ========= ========= ========= =========
Net income per share
(diluted)(2)............... $ 2.10 $ 1.07 $ 3.82 $ 3.63 $ 2.61
========= ========= ========= ========= =========
Adjusted Net Income(3)...... $ 105.9 $ 72.9 $ 181.0 $ 137.9 $ 116.4
========= ========= ========= ========= =========
BALANCE SHEET DATA (AT
PERIOD END):
Total assets................ $25,816.4 $20,963.5 $22,549.0 $18,970.3 $17,757.7
Long-term debt.............. 199.5 202.2 202.1 202.2 202.3
Total liabilities........... 22,814.8 18,050.3 19,714.8 16,461.6 15,425.0
Minority interest:
Mandatorily redeemable pre-
ferred securities of a
subsidiary trust holding
solely junior subordinated
debentures of AFC(4)...... 300.0 300.0 300.0 -- --
Common stock(5)............ 162.2 830.7 152.9 784.0 758.5
--------- --------- --------- --------- ---------
462.2 1,130.7 452.9 784.0 758.5
Equity...................... 2,539.4 1,782.5 2,381.3 1,724.7 1,574.2
</TABLE>
- --------
(1) Demutualization expenses relate to costs associated with conversion from a
mutual life insurance company to a stock life insurance company. The
demutualization resulted in the issuance of 37.5 million shares of AFC
common stock. Concurrent with the demutualization was an initial public
offering which resulted in issuance of an additional 12.6 million shares
of AFC common stock. The demutualization and initial public offering
occurred during the quarter ended December 31, 1995.
(2) Net income per share for the six months ended June 30, 1998 and 1997, and
for the years ended December 31, 1997 and 1996 are based on a weighted
average of the number of shares outstanding for each period presented. The
net income per share for the year ended December 31, 1995 is unaudited and
is pro forma based on a weighted average of the number of shares that
would have been outstanding for the year had the demutualization
transaction and the initial public offering of AFC Common Stock occurred
as of January 1, 1995, and does not represent a projection or forecast of
AFC's consolidated results of operations for any future period.
All earnings per share amounts for all periods presented have been prepared
in conformity with Statement of Financial Accounting Standards No. 128,
Earnings Per Share. The adoption of the aforementioned standard did not
have a material effect on previously reported earnings per share. The
diluted weighted average shares outstanding applicable to AFC Common Stock
were 60.4 million and 50.3 million for the six months ended June 30, 1998
and 1997, respectively, and 54.8 million, 50.1 million and 50.1 million for
the years ended December 31, 1997, 1996 and 1995, respectively. The basic
weighted average shares outstanding for the six months ended June 30, 1998
and 1997 were 59.9 million and
27
<PAGE>
50.2 million, respectively, and 54.7 million, 50.1 million, and 50.1
million for the years ended December 31, 1997, 1996 and 1995, respectively.
(3) Adjusted net income represents net income adjusted to eliminate certain
items which management believes are not indicative of overall operating
trends, including net realized gains and losses on the sales of
investments, net gains and losses on disposals of businesses,
extraordinary items, and differential earnings tax adjustments. While
these items may be significant components in understanding and assessing
AFC's financial performance, management believes adjusted net income
enhances an investor's understanding of AFC's results of operations by
highlighting net income attributable to the normal, recurring operations
of the business. However, adjusted net income should not be construed as a
substitute for net income determined in accordance with generally accepted
accounting principles.
(4) In February 1997, AFC Capital Trust (the "Trust"), a subsidiary business
trust of AFC, issued $300.0 million Series A Capital Securities, which pay
cumulative dividends at a rate of 8.207% semiannually. The Trust exists
for the sole purpose of issuing the Capital Securities and investing the
proceeds thereof in an equivalent amount of 8.207% Junior Subordinated
Deferrable Interest Debentures due 2027 of AFC. Through certain
guarantees, the Subordinated Debentures and the terms of related
agreements, AFC has irrevocably and unconditionally guaranteed the
obligations of the Trust under the Capital Securities.
(5) AFC's interest in APY, through its wholly owned subsidiary SMA Financial
Corp., was represented by ownership of 59.5%, 59.5% and 58.3% as of June
30, 1997, December 31, 1996 and December 31, 1995, respectively.
Subsequent to the merger of AFC and APY on July 16, 1997, minority
interest reflects AFC's 82.5% interest in Citizens Corporation.
CERTAIN INFORMATION CONCERNING CITIZENS
Citizens, through its wholly owned subsidiaries including Citizens
Insurance, underwrites personal and commercial property and casualty insurance
in five major lines: personal automobile, homeowners, commercial automobile,
workers' compensation and commercial multiple peril.
Citizens maintains a clear focus of the core disciplines of underwriting,
pricing, claims adjusting, marketing and sales. In particular, Citizens seeks
to achieve and maintain underwriting profitability in each of its five major
product lines. Citizens' overall strategy is to improve profitability through
operating efficiencies and to pursue measured growth in existing markets and,
as opportunities arise, in new markets which offer long term growth potential.
In addition, by focusing on its established major segment product lines,
Citizens typically does not pursue the development of new products with
relatively unpredictable risk profiles.
28
<PAGE>
SELECTED FINANCIAL INFORMATION. Set forth below is certain selected
consolidated financial information with respect to Citizens and its
subsidiaries excerpted from the information contained in the Citizens' Annual
Report on Form 10-K (the "Citizens 10-K") and Citizens' Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998. More comprehensive financial
information is included in the Citizens' 10-K and the Citizens' 10-Q and other
documents filed by Citizens with the Commission, and the following summary is
qualified in its entirety by reference to such information. The Citizens' 10-K
and the Citizens' 10-Q and such other documents are available for inspection
and copies thereof should be obtainable in the manner set forth below under "--
Available Information."
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
OF CITIZENS CORPORATION
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS ENDED AT OR FOR THE
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- -----------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues................ $ 497.8 $ 491.8 $ 992.4 $ 945.6 $ 906.5
=========== =========== =========== =========== ===========
Net income.............. $ 35.0 $ 45.0 $ 94.2 $ 84.1 $ 74.9
Dividends on Series A
preferred stock....... -- -- -- -- (2.0)
----------- ----------- ----------- ----------- -----------
Net income available to
common shareholders.... $ 35.0 $ 45.0 $ 94.2 $ 84.1 $ 72.9
=========== =========== =========== =========== ===========
Per common share data
(basic and diluted)
Net income available to
common
shareholders(1)....... $ 0.99 $ 1.27 $ 2.67 $ 2.37 $ 2.02
=========== =========== =========== =========== ===========
Adjusted Net Income(2).. $ 30.6 $ 33.5 $ 76.9 $ 75.1 $ 72.5
=========== =========== =========== =========== ===========
BALANCE SHEET DATA (AT
PERIOD END):
Total assets............ $ 2,647.1 $ 2,534.7 $ 2,605.3 $ 2,503.0 $ 2,470.8
Total liabilities....... 1,722.4 1,733.5 1,732.4 1,748.5 1,788.0
Equity.................. 924.7 801.2 872.9 754.5 682.8
ADDITIONAL DATA:
Book value per
share(1)............... $ 26.21 $ 22.72 $ 24.75 $ 21.39 $ 19.04
Ratio of earnings to
fixed charges(3)....... 60.4x 57.7x 63.5x 56.5x 25.3x
Statutory combined
ratios(4)
Citizens............... 102.8 102.9 101.1 100.4 98.6
Property and casualty
industry.............. 103.5 100.8 101.8 105.8 106.5
Cash dividends declared
per share.............. $ 0.10 $ 0.10 $ 0.20 $ 0.20 $ 0.20
</TABLE>
- --------
(1) All earnings per share amounts for all periods presented have been prepared
in conformity with Statement of Financial Accounting Standards No. 128,
Earnings Per Share. The adoption of the aforementioned standard had no
effect on previously reported earnings per share. The weighted average
shares outstanding applicable to Citizens Common Stock were 35.3 million
for the six months ended June 30, 1998 and 1997. The weighted average
shares outstanding applicable to Citizens Common Stock were 35.3 million,
35.5 million and 36.1 million for the years ended December 31, 1997, 1996
and 1995, respectively.
(2) Adjusted net income represents net income adjusted to eliminate certain
items which management believes are not indicative of overall operating
trends, including net realized gains and losses on the sales of
investments. While these items may be significant components in
understanding and assessing Citizens' financial performance, management
believes adjusted net income enhances an investor's understanding of
Citizens' results of operations by highlighting net income attributable to
the normal, recurring operations of the business. However, adjusted net
income should not be construed as a substitute for net income determined in
accordance with generally accepted accounting principles.
(3) For purposes of determining the historical ratios of earnings to fixed
charges, earnings consist of earnings before federal income taxes plus
fixed charges. Fixed charges consist of the portion of operating lease
rentals representative of the interest factor. In addition, fixed charges
in 1995 include dividends on preferred stock.
(4) The amounts presented reflect ratios after policyholder dividends. Industry
averages are from A.M. Best.
29
<PAGE>
RECENT DEVELOPMENTS. The following selected consolidated financial
information sets forth certain of the results of Citizens and its subsidiaries
for the fiscal quarter ending September 30, 1998. The information is excerpted
from, and should be read in conjunction with, a press release issued by
Citizens on October 29, 1998, which release was filed by Citizens in a Current
Report on Form 8-K on November 2, 1998. All figures are unaudited, but have
been prepared in accordance with generally accepted accounting principles and
on a basis consistent with the audited financial information appearing
elsewhere in this Offer to Purchase.
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
1998 1997
--------- ---------
(DOLLARS IN
MILLIONS, EXCEPT
PER SHARE
AMOUNTS AND RATIOS)
<S> <C> <C>
STATEMENT OF INCOME DATA:
Net income(1).............................................. $ 30.0 $ 17.3
Net income per share (basic and diluted)(1)(2)............. 0.85 0.50
Adjusted net income(1)(3).................................. 13.0 12.2
BALANCE SHEET DATA (AT PERIOD END):
Equity..................................................... 913.6 834.6
ADDITIONAL DATA:
Book value per share(2).................................... 25.93 23.64
Statutory combined ratio(4)................................ 105.1 105.0
Cash dividends declared per share.......................... $ 0.05 $ 0.05
</TABLE>
- --------
(1) Year-to-date catastrophe losses of $47.3 million at September 30, 1998
represent the worst catastrophe experience in any single year of Citizens'
history.
(2) Earnings per share amounts for the periods presented have been prepared in
conformity with Statement of Financial Accounting Standards No. 128,
Earnings Per Share. The adoption of the aforementioned standard had no
effect on previously reported earnings per share. The weighted average
shares outstanding applicable to Citizens Common Stock were 35.2 million
and 35.3 million for the three months ended September 30, 1998 and 1997,
respectively.
(3) Adjusted net income represents net income adjusted to eliminate certain
items which management believes are not indicative of overall operating
trends, including net realized gains and losses on the sales of
investments. While these items may be significant components in
understanding and assessing Citizens' financial performance, management
believes adjusted net income enhances an investor's understanding of
Citizens' results of operations by highlighting net income attributable to
the normal, recurring operations of the business. However, adjusted net
income should not be construed as a substitute for net income determined in
accordance with generally accepted accounting principles.
(4) The amounts presented reflect ratios after policyholder dividends.
Catastrophe-related losses added 8.4 points to the combined ratio in the
third quarter of 1998, compared to 4.2 points for the same quarter in 1997.
AVAILABLE INFORMATION
AFC and Citizens are each subject to the informational requirements of the
Exchange Act, and in accordance therewith file reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information filed with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the following
Regional Offices of the Commission: Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549. The Commission maintains a Web
site that contains reports, proxy and information statements and other
materials that are filed through the Commission's Electronic Data Gathering,
Analysis, and Retrieval system. The Web site can be accessed at
http://www.sec.gov. AFC common stock and Citizens common stock are listed on
the NYSE and such material may also be inspected at the offices of the NYSE, 20
Broad Street, New York, New York 10005. After consummation of the Merger,
Citizens will no longer file reports, proxy statements or other information
with the Commission.
30
<PAGE>
AFC and the Purchaser have filed with the Commission a Schedule 13E-3. This
Offer to Purchase does not contain all of the information set forth in the
Schedule 13E-3, certain portions of which are omitted in accordance with the
rules and regulations of the Commission. Such additional information is
available for inspection and copying at the offices of the Commission.
Statements contained in this Offer to Purchase as to the contents of any
contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the Schedule 13E-3 or such other
document, each such statement being qualified in all respects by such
reference.
SOURCE AND AMOUNT OF FUNDS
If all outstanding Shares (other than shares owned by the Purchaser and
Shares subject to Options) are purchased pursuant to the Offer, the maximum
amount required by the Purchaser to purchase such Shares will be approximately
$171 million. In addition, the Purchaser and AFC expect to incur expenses of
approximately $2 million in connection with the Transaction. AFC plans to
provide the Purchaser with all funds needed to purchase Shares pursuant to the
Offer and to pay related fees and expenses from its working capital and other
cash on hand. The Offer is not conditioned upon obtaining any arrangements for
the financing of the Offer.
CERTAIN REGULATORY AND LEGAL MATTERS
GENERAL. Except as set forth in this section, neither AFC nor the Purchaser
is aware of any license or regulatory permit that appears to be material to the
business of Citizens and its subsidiaries, taken as a whole, that might be
adversely affected by the acquisition of Shares by the Purchaser pursuant to
the Offer, the Merger or otherwise or, except as set forth herein, or any
approval or other action by any governmental, administrative or regulatory
agency or authority that would be required prior to the acquisition of Shares
by the Purchaser pursuant to the Offer, the Merger or otherwise. Should any
such approval or other action be required, AFC and the Purchaser currently
contemplate that such approval or other action will be sought. While, except as
described in this Offer to Purchase, the Purchaser does not currently intend to
delay the acceptance for payment of Shares tendered pursuant to the Offer
pending the outcome of any such matter, there can be no assurance that any such
approval or other action, if needed, would be obtained or would be obtained
without substantial conditions or that adverse consequences might not result to
Citizens' business.
APPRAISAL RIGHTS. Holders of Shares will not have appraisal rights as a
result of the Offer. If the Merger is consummated, however, persons who hold
Shares at that time would have the right to appraisal of their Shares in
accordance with Section 262 of the DGCL (which is reproduced in full in
Appendix B hereto). Such appraisal rights, if the statutory procedures are
complied with, would result in a judicial determination of the "fair value" of
the Shares owned by such holders. Any such judicial determination of the fair
value of the Shares could be based upon considerations other than or in
addition to the price paid in the Offer and the Merger and the market value of
the Shares, including asset values, the investment value of the Shares and any
other valuation considerations generally accepted in the investment community.
The value so determined for Shares could be more or less than the value of the
consideration per Share to be paid pursuant to the Offer or the Merger and
payment of such consideration would take place subsequent to payment pursuant
to the Offer.
Several recent decisions by the Delaware courts have held that a substantial
stockholder of a corporation involved in a merger has a fiduciary duty to the
other stockholders which requires that the merger be fair to such other
stockholders. In determining whether a merger is fair to minority stockholders,
the Delaware courts have considered, among other things, the type and amount of
consideration received by the stockholders and whether there was fair dealing
among the parties. The Delaware Supreme Court indicated in Weinberger v. UOP,
Inc. and Rabkin v. Philip A. Hunt
31
<PAGE>
Chemical Corp. that ordinarily the remedy available to stockholders in a merger
that is found not to be "fair" to minority stockholders is the right to
appraisal described above or a damages remedy based on essentially the same
principles.
No provision has been made by Citizens, the Purchaser or AFC to allow access
to Citizens' files by Unaffiliated Stockholders or to obtain counsel or
appraisal services at the expense of Citizens, AFC or the Purchaser.
REGULATORY APPROVALS. AFC is not regulated as an insurance company but is, as
the owner of the capital stock of subsidiaries that are insurance companies
(the "Insurance Subsidiaries"), subject to the insurance holding company acts
of each of the states of domiciles of such subsidiaries. In Michigan, Indiana,
and Ohio, the Transaction described herein requires either (i) the notification
of the insurance department of such state, (ii) the prior approval of the
insurance department pursuant to the state's insurance holding company act or
(iii) the obtaining of an exemption from the prior approval requirements in the
change of control provisions of such act. In addition, if any of the
domiciliary states conclude that the Offer of the Merger constitutes a change
in control of a domiciliary insurer, several state insurance regulatory laws
contain provisions that require pre-notification to state agencies of a change
in control of a non-domestic admitted insurance company in that state. While
such pre-notification statutes do not authorize the state agency to disapprove
the change of control, such statutes do authorize issuance of a cease and
desist order with respect to the non-domestic admitted insurer if certain
conditions exist, such as undue market concentration. Therefore, the receipt of
all orders, approvals or exemptions required from regulatory authorities in
connection with the Offer and the Merger is a condition to the consummation of
each of the Offer and the Merger. If AFC or the Purchaser is unable to receive
or is delayed in receiving any such orders, approvals or exemptions, the
Purchaser might be unable to accept for payment or pay for Shares tendered
pursuant to the Offer, or be delayed in continuing or purchasing Shares
pursuant to the Offer. In such case, the Purchaser would not be obligated to
accept for payment or pay for Shares.
FEDERAL RESERVE BOARD REGULATIONS. Federal Reserve Board Regulations G, U and
X (the "Margin Regulations") restrict the extension or maintenance of credit
for the purpose of buying or carrying margin stock, such as the Shares, if the
credit is secured directly or indirectly by margin stock. Such secured credit
may not be extended or maintained in an amount that exceeds the maximum loan
value of the collateral. AFC and the Purchaser believe that any financing in
connection with the Offer will not be in violation of the Margin Regulations.
STATE ANTI-TAKEOVER LAWS. A number of states have adopted "anti-takeover"
statutes which purport, to varying degrees, to be applicable to attempts to
acquire securities of corporations which are incorporated in such states, or
whose business operations have substantial economic effects in such states, or
which have substantial assets, security holders, principal executive officers
or principal places of business in such states. In that regard, it should be
noted that in 1982 in Edgar v. MITE Corporation, the Supreme Court of the
United States invalidated on constitutional grounds the Illinois Business
Takeover Act, which, as a matter of state securities law, made takeovers of
corporations meeting certain requirements more difficult. However, in 1987, in
CTS Corp. v. Dynamics Corp. of America, the Supreme Court of the United States
held that a state may, as a matter of corporate law and, in particular, those
laws concerning corporate governance, constitutionally disqualify a potential
acquiror from voting on the affairs of a target corporation without prior
approval of the remaining stockholders, provided that such laws were applicable
under certain conditions, in particular, that the corporation has a substantial
number of stockholders in the state and is incorporated there.
Citizens is incorporated under the laws of the State of Delaware. Section 203
of the DGCL, subject to certain exceptions, prevents an "interested
stockholder" (generally a person who owns or has the right to acquire 15% or
more of a corporation's outstanding voting stock, or an affiliate or
32
<PAGE>
associate thereof) from engaging in a "business combination" (defined to
include mergers and certain other transactions) with a Delaware corporation for
a period of three years following the date such person became an interested
stockholder unless, among other things, prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction in which the interested stockholder became an interested
stockholder. The Section 203 limitations are not applicable to Citizens and
will not apply to the Merger.
Should any government official or any other person seek to apply any other
state anti-takeover statute or regulation to the Transaction, the Purchaser
will take such action as then appears desirable, which may include contesting
the validity or applicability of any such statute in appropriate legal
proceedings. If it is asserted that one or more state anti-takeover statutes
are applicable to the Offer, and an appropriate court does not determine that
such statutes and regulations are inapplicable or invalid as applied to the
Offer, the Purchaser might be required to file certain information with, or
receive approvals from, the relevant state authorities, and the Purchaser might
be unable to purchase or pay for Shares tendered pursuant to the Offer, or be
delayed in continuing or consummating the Offer. In such case, the Purchaser
may not be obligated to accept for payment or pay for any Shares tendered.
CERTAIN FEES AND EXPENSES; UTILIZATION OF CITIZENS EMPLOYEES
Goldman Sachs are acting as Dealer Managers in connection with the Offer and
have provided certain financial advisory services in connection with the Offer.
Pursuant to a letter agreement dated September 11, 1998 (the "Engagement
Letter"), AFC engaged Goldman Sachs to act as its exclusive financial advisor
in connection with the contemplated transaction. Pursuant to the terms of the
Engagement Letter, AFC has agreed to pay Goldman Sachs upon consummation of the
Merger a transaction fee of (i) $250,000 payable upon the expiration or earlier
termination of the Offer; (ii) subject to certain limitations, an additional
fee of $750,000 at such time as AFC, directly or indirectly, owns or controls
90% or more of the Shares, and (iii) if a fairness opinion with respect to the
Offer Price and Merger Price is requested by AFC, an additional fee of $200,000
payable upon delivery of such fairness opinion by Goldman Sachs. AFC has agreed
to reimburse Goldman Sachs for its reasonable out-of-pocket expenses, including
attorney's fees, and to indemnify Goldman Sachs against certain liabilities,
including certain liabilities under the federal securities laws.
The Purchaser has retained Corporate Investor Communications, Inc. to act as
the Information Agent and First Chicago Trust Company of New York to act as the
Depositary in connection with the Offer. The Information Agent may contact
holders of Shares by mail, telephone, telex, telegraph and personal interview
and may request brokers, dealers, banks, trust companies and other nominee
stockholders to forward the Offer materials to beneficial owners. The
Information Agent and the Depositary each will receive reasonable and customary
compensation for their services, will be reimbursed for certain reasonable out-
of-pocket expenses and will be indemnified against certain liabilities and
expenses in connection therewith, including certain liabilities under the
federal securities laws.
It is estimated that the expenses incurred by AFC and the Purchaser in
connection with the Transaction will be approximately as set forth below:
<TABLE>
<S> <C>
Financial Advisory Fees and Expenses.......................... $1,200,000
Legal Fees and Expenses....................................... 500,000
Information Agent Fees and Expenses........................... 20,000
Printing, Mailing, Solicitation, Distribution and Depositary
Expenses..................................................... 250,000
Filing Fees and Related Expenses.............................. 35,000
Miscellaneous................................................. 20,000
----------
Total......................................................... $2,025,000
</TABLE>
33
<PAGE>
Neither AFC or Purchaser will pay any fees or commissions to any broker or
dealer or other person or entity (other than as described in the preceding
paragraph) in connection with the solicitation of tenders of Shares pursuant to
the Offer. Brokers, dealers, commercial banks and trust companies will be
reimbursed by the Purchaser upon request for customary mailing expenses
incurred by them in forwarding material to their customers.
Certain employees of Citizens have assisted the Purchaser with respect to the
Transaction, primarily by providing information concerning Citizens for the
preparation of this Offer to Purchase to comply with requirements under the
Exchange Act. Principally, this information has included financial information
of Citizens and stock ownership and stock transaction data with respect to
officers and directors of Citizens. Certain employees of AFC also have assisted
the Purchaser with respect to the Transaction, including by preparing this
Offer to Purchase, and by evaluating and structuring the Transaction. No
employee of Citizens or AFC has, or will, receive any additional or separate
compensation for such services.
MISCELLANEOUS
The Offer is being made to all holders of Shares, but is not being made in
any jurisdiction where the making of such would not be in compliance with
applicable law. If the Purchaser becomes aware of any state where the making of
the Offer is prohibited by applicable law, the Purchaser will make a good faith
effort to comply with any such law. If, after the good faith effort, the
Purchaser cannot comply with any such law, the Offer will not be made to (nor
will tenders be accepted from or on behalf of) holders of Shares in such
jurisdiction. In those jurisdictions where securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer, the Offer shall be
deemed to be made on behalf of the Purchaser by Goldman Sachs or one or more
registered brokers or dealers that are licensed under the laws of such
jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER OR AFC NOT CONTAINED HEREIN OR IN THE
LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
Pursuant to Rules 13e-3 and 14d-1 of the General Rules and Regulations under
the Exchange Act, the Purchaser has filed a Schedule 13E-3 and a Schedule 14D-
1, together with exhibits in each case, furnishing additional information with
respect to the Offer and Merger. Such Schedule 13E-3, Schedule 14D-1 and any
amendments thereto, including exhibits, may be inspected and copies may be
obtained at the same places and in the same manner as set forth with respect to
information concerning Citizens in "Available Information" (except that they
will not be available at the regional offices of the Commission).
Citizens Acquisition Corporation
November 2, 1998
34
<PAGE>
APPENDIX A
DIRECTORS AND EXECUTIVE OFFICERS OF AFC AND CERTAIN OF ITS SUBSIDIARIES
The following table sets forth the name, present principal occupation or
employment and material occupation, positions, offices or employment for the
past five years of each director and executive officer of AFC, FAFLIC, SMA,
Allmerica P&C and Hanover. Unless otherwise indicated below, the address of
each director and officer is 440 Lincoln Street, Worcester, Massachusetts 01653
and each such person is a citizen of the United States.
PRESENT PRINCIPAL OCCUPATION AND
NAME FIVE-YEAR EMPLOYMENT HISTORY COMPANY & POSITION
- ------ ---------------------------- ------------------
BRUCE C. Vice President of AFC since February AFC: Vice President
ANDERSON 1995 and Vice President of Allmerica FAFLIC: Director,
P&C and Citizens since March 1997. Mr. Vice President,
Anderson has been employed by FAFLIC Assistant Secretary
since 1967 and has been Vice President ALLMERICA P&C: Vice
of FAFLIC since October 1984. President
HANOVER: Director,
Assistant
Secretary,
Vice President
MICHAEL P. Director of AFC since February 1995 and AFC: Director
ANGELINI was a Director of FAFLIC from August
1984 to April 1996, and of Allmerica
P&C from August 1992 to July 1997. He
served as a Director of Hanover from
December 1991 through December 1992.
Mr. Angelini is a partner at the law
firm of Bowditch & Dewey, with which he
has been associated since 1968, and is
a Director of Flagship Bank & Trust
Company. Mr. Angelini is Chairman of
the Audit Committee of AFC's Board of
Directors.
ROBERT E. BRUCE Vice President of AFC since July 1997, AFC: Vice President
Vice President of FAFLIC since May FAFLIC: Director,
1995, Vice President of Citizens since Vice President
July 1997, and Vice President of HANOVER: Director,
Hanover since July 1997. He has been a Vice President
Director of Hanover since July 1997 and
a Director of FAFLIC and AFLIAC since
August 1997. He has been Chief
Information Officer for FAFLIC and
AFLIAC since February 1997. Prior to
joining FAFLIC, Mr. Bruce was employed
by the Digital Equipment Corporation
from May 1979 until March 1995.
A-1
<PAGE>
PRESENT PRINCIPAL OCCUPATION AND
NAME FIVE-YEAR EMPLOYMENT HISTORY COMPANY & POSITION
---- -------------------------------- ------------------
E. GORDON GEE Director of AFC since July 1998. AFC: Director
President of Brown University since
January 1998. President of The Ohio
State University from September 1990
until December 1997. President of the
University of Colorado from 1985 until
August 1990. President of West Virginia
University from 1981 to 1985. Director
of The Limited, Inc. since 1991,
Glimcher Realty Trust since 1994,
Intimate Brands Inc. since 1995, and
ASARCO Inc. since 1988.
SAMUEL J. GERSON Director of AFC since July 1998. AFC: Director
Chairman of the Board and Chief
Executive Officer of Filene's Basement,
Inc. since January 1984. Director of
Asahi America, Inc. since 1996, The Bon
Ton Stores, Inc. since 1996, and
Elizabeth Webbing Mills Co, Inc. since
1998.
GAIL L. HARRISON Director of AFC since February 1995 and AFC: Director
was a Director of FAFLIC from March
1986 to April 1996, of Allmerica P&C
from August 1992 to July 1997, and of
Hanover from December 1991 through
December 1992. Since February 1981, Ms.
Harrison has been affiliated with The
Wexler Group (formerly Wexler,
Reynolds, Harrison & Shule, Inc.), a
government relations consulting firm,
where she is a Founding Principal.
ROBERT P. Director of AFC since September 1996. AFC: Director
HENDERSON Mr. Henderson has been a general
partner of Greylock Management
Corporation, a venture capital firm,
since 1983, and served as its Chairman
until 1997. Mr. Henderson is also a
Director of Cabot Corporation and
Filenes Basement, Inc., a Trustee of
the Museum of Fine Arts in Boston,
Massachusetts, and an Overseer of the
Amos Tuck School of Dartmouth College.
Mr. Henderson is a former Chairman of
the Federal Reserve Bank of Boston.
M HOWARD Director of AFC since July 1997. He has AFC: Director
JACOBSON been a Senior Advisor of Bankers Trust,
The Private Bank, since 1991, and was a
Senior Advisor of Prudential-Bache
Capital Funding from 1989 to 1991. Mr.
Jacobson is also a Director of Boston
Chicken, Inc., Wyman-Gordon Company and
Stonyfield Farm, Inc., and was a
Director of Allmerica P&C from August
1992 to July 1997. Mr. Jacobson was
previously the President and Treasurer
and a Director of Idle Wild Foods,
Inc., where he was employed from 1957
to 1986.
A-2
<PAGE>
PRESENT PRINCIPAL OCCUPATION AND
NAME FIVE-YEAR EMPLOYMENT HISTORY COMPANY & POSITION
---- -------------------------------- ------------------
JOHN P. Vice President and Chief Investment AFC: Chief
KAVANAUGH Officer of AFC since September 1996, Investment
has been employed by FAFLIC since 1983, Officer,
and has been Vice President of FAFLIC Vice President
since December 1991 and Vice President FAFLIC: Director,
of AFLIAC since January 1992. Mr. Chief Investment
Kavanaugh has also served as Director Officer, Vice
and Chief Investment Officer of FAFLIC, President
Hanover, Citizens Insurance Company of ALLMERICA
America ("Citizens Insurance") and P&C: Chief
AFLIAC since August 1996, and Vice Investment
President and Chief Investment Officer Officer,
of Allmerica P&C and Citizens since Vice President
September 1996. Mr. Kavanaugh is also a HANOVER: Director,
director and/or executive officer at Chief Investment
various other non-public affiliates. Officer, Vice
President
JOHN F. KELLY Vice President, General Counsel and AFC: Vice
Assistant Secretary of AFC since President,
February 1995, has been employed by General Counsel,
FAFLIC since July 1968, and has been Assistant
Senior Vice President and General Secretary
Counsel of FAFLIC since February 1986. FAFLIC: Director,
In addition to his positions with AFC Senior Vice
and FAFLIC, Mr. Kelly has been Vice President,
President and General Counsel of Assistant
Allmerica P&C since August 1992, Secretary,
Assistant Secretary of Allmerica P&C General Counsel
since May 1995, Assistant Secretary of SMA: Director,
Citizens since December 1992, and Vice General Counsel,
President, General Counsel and Vice President
Assistant Secretary of Citizens since ALLMERICA
September 1993. Mr. Kelly was Secretary P&C: Director,
of Allmerica P&C from August 1992 to Assistant
May 1995. Mr. Kelly has been a director Secretary,
of AFLIAC since October 1982 and is a General Counsel,
director and/or executive officer at Vice President
various other non-public affiliates. HANOVER: Director,
Vice President,
General Counsel
PURCHASER:
Director,
Vice President
J. BARRY MAY Vice President of AFC since February AFC: Vice
1997, Vice President of Allmerica P&C President
and President of Hanover since FAFLIC: Director
September 1996 and Vice President of ALLMERICA
Citizens since March 1997. He has been P&C: Vice
a Director of Hanover and Citizens President
Insurance since September 1996. Mr. May HANOVER: Director,
served as Vice President of Hanover President
from May 1995 to September 1996, as
Regional Vice President from February
1993 to May 1995 and as a General
Manager of Hanover from June 1989 to
May 1995. Mr. May has been employed by
Hanover since 1985.
A-3
<PAGE>
PRESENT PRINCIPAL OCCUPATION AND
NAME FIVE-YEAR EMPLOYMENT HISTORY COMPANY & POSITION
---- -------------------------------- ------------------
JAMES R. Vice President of AFC from February AFC: Vice
MCAULIFFE 1995 through December 1995 and since President
February 1997, Vice President of FAFLIC: Director
Allmerica P&C since August 1992, a ALLMERICA
Director of Allmerica P&C from August P&C: Vice
1992 through December 1994, a Director President
and Vice President of Citizens since HANOVER: Director,
December 1992, and a Director of AFLIAC Vice President
from April 1987 through May 1995 and
since May 1996. Mr. McAuliffe has been
President of Citizens Insurance since
December 1994. Mr. McAuliffe has been
employed by FAFLIC since 1968, and
served as Vice President and Chief
Investment Officer of FAFLIC from
November 1986 through December 1994.
Mr. McAuliffe has served as Vice
President and Chief Investment Officer
of Allmerica P&C from August 1992
through December 1994, and Vice
President and Chief Investment Officer
of AFLIAC from December 1986 through
May 1995. Additionally, Mr. McAuliffe
is a director and/or executive officer
at various other non-public affiliates.
ROBERT J. Director of AFC since May 1996. He has AFC: Director
MURRAY been Chairman, President and Chief
Executive Officer of New England
Business Service, Inc. ("NEBS"), a
supplier of business forms, since
December 1995 and has served on the
Board of Directors of NEBS since 1991.
Prior to joining NEBS, Mr. Murray was
employed by The Gillette Company, Inc.
("Gillette"), a manufacturing company,
beginning in 1961. He served as a
Corporate Vice President of Gillette
beginning in 1987 and as the Executive
Vice President of Gillette's North
Atlantic Group from January 1991 to
December 1995. Mr. Murray is also a
Director of Hannaford Bros. Co., LoJack
Corporation and Fleet National Bank, as
well as a Trustee of Boston College.
J. TERRENCE Director of AFC since February 1995 and AFC: Director
MURRAY of FAFLIC from January 1992 to April
1996. Mr. Murray is the Chairman and
Chief Executive Officer of Fleet
Financial Group, Inc., a bank holding
company, where he has been employed
since July 1962. Mr. Murray is also a
Director of A.T. Cross Co., a writing
instrument company, and CVS
Corporation, a drugstore chain.
A-4
<PAGE>
PRESENT PRINCIPAL OCCUPATION AND
NAME FIVE-YEAR EMPLOYMENT HISTORY COMPANY & POSITION
---- -------------------------------- ------------------
JOHN F. O'BRIEN Director, Chief Executive Officer and AFC: Director,
President of AFC since February 1995. Chief Executive
He has also served as a Director, Chief Officer,
Executive Officer and President of President
FAFLIC since August 1989. In addition FAFLIC: Director,
to his positions with AFC and FAFLIC, Chief Executive
Mr. O'Brien has served as a Director, Officer,
President and Chief Executive Officer President
of Allmerica P&C since August 1992, and SMA: Director,
has been a Director of Hanover since Chief Executive
September 1989, of Citizens Insurance Officer,
since March 1992 and Citizens, for Chairman of the
which he also serves as Chief Executive Board, President
Officer, since December 1992. Citizens ALLMERICA
is a majority-owned, publicly traded P&C: Director,
subsidiary of Hanover, and Citizens Chairman of the
Insurance is a wholly-owned subsidiary Board
of Citizens. Mr. O'Brien is also a HANOVER: Director,
trustee or director and executive Chairman of the
officer of Allmerica Investment Trust, Board
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
Steering Committee on Financial
Services of The American Council of
Life Insurance and 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 a
director and/or an executive officer at
various other of FMR Corp.'s
affiliates.
A-5
<PAGE>
PRESENT PRINCIPAL OCCUPATION AND
NAME FIVE-YEAR EMPLOYMENT HISTORY COMPANY & POSITION
---- -------------------------------- ------------------
EDWARD J. PARRY Chief Financial Officer of AFC since AFC: Vice
III December 1996. He has also been Vice President, Chief
President and Treasurer of AFC since Financial
February 1995. He has served as Chief Officer,
Financial Officer of FAFLIC, AFLIAC, Treasurer
Allmerica P&C, Hanover, Citizens and FAFLIC: Director,
Citizens Insurance since December 1996 Chief Financial
and as Vice President and Treasurer of Officer,
FAFLIC, AFLIAC, Allmerica P&C and Treasurer, Vice
Hanover since February 1993 and of President
Citizens since September 1993 and SMA: Director,
December 1992, respectively. Mr. Parry Chief Financial
is also a director and/or executive Officer,
officer at various other non-public Treasurer,
affiliates. Prior to joining FAFLIC in Vice President
July 1992, Mr. Parry was employed by ALLMERICA P&C:
the accounting firm of Price Waterhouse Director, Chief
from July 1987 through July 1992. Financial
Officer,
Treasurer,
Vice President
HANOVER: Vice
President, Chief
Financial
Officer,
Treasurer,
Director
PURCHASER:
Director,
President,
Treasurer
RICHARD M. Vice President of AFC and FAFLIC since AFC: Vice
REILLY February 1997 and November 1990, President
respectively, and Vice President of FAFLIC: Director,
Allmerica P&C and Citizens since March Vice President
1997. He has also been a Director and ALLMERICA
Vice President of AFLIAC since November P&C: Vice
1990 and President and Chief Executive President
Officer of AFLIAC since August 1995. HANOVER: Director
Mr. Reilly was Vice President of AFC
from February 1995 through December
1995. Additionally, Mr. Reilly has been
the President of Allmerica Investment
Trust, Allmerica Funds, and Allmerica
Securities Trust, each a registered
investment company, since February
1991, April 1991 and February 1991,
respectively. Mr. Reilly is also a
director and/or holds an executive
office at various other non-public
affiliates. Prior to his affiliation
with FAFLIC, he was an executive
officer of Fidelity Management and
Research Company from 1969 to 1987 and
Oppenheimer Capital from 1987 to 1990.
ROBERT P. Vice President of AFC since May 1998. AFC: Vice
RESTREPO, JR. President and Chief Executive Officer President
of Allmerica P&C since May 1998. Prior FAFLIC: Director,
to joining AFC, Mr. Restrepo served as Vice President
Chief Executive Officer of Personal ALLMERICA P&C:
Lines for Travelers Property & Casualty Director, Chief
Company from 1996 until May 1998 and Executive
worked for Aetna Life & Casualty Officer,
Company from 1972 until 1996. President
HANOVER: Director
A-6
<PAGE>
PRESENT PRINCIPAL OCCUPATION AND
NAME FIVE-YEAR EMPLOYMENT HISTORY COMPANY & POSITION
---- -------------------------------- ------------------
ERIC A. Vice President of AFC since February AFC: Vice
SIMONSEN 1995. He has been a Director and Vice President
President of Allmerica P&C since August FAFLIC: Director,
1992, of Citizens since December 1992 Vice President
and of AFLIAC since September 1990. He ALLMERICA
has served as Vice President and as a P&C: Vice
Director of FAFLIC since September 1990 President
and April 1996, respectively. Mr. HANOVER: Director,
Simonsen has been President of Vice President
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 Allmerica P&C from August 1992
to December 1996 and of Citizens from
December 1992 to December 1996. Mr.
Simonsen is also a director and/or
executive officer at various other non-
public affiliates. From April 1987 to
September 1990, Mr. Simonsen served as
a Principal and Chief Financial Officer
of The Lincoln Group, Inc., a privately
owned group of manufacturing companies.
PHILLIP E. Vice President of AFC, Citizens and AFC: Vice
SOULE FAFLIC since February 1997, March 1997 President
and February 1987, respectively, and of FAFLIC: Director,
Allmerica P&C since September 1996. He Vice President
was a Vice President of AFC from ALLMERICA
February 1995 through December 1995. P&C: Vice
Mr. Soule has been employed by FAFLIC President
since 1972 in various capacities. HANOVER: Director,
Vice President
JOHN L. SPRAGUE Director of AFC since February 1995 and AFC: Director
was a Director of FAFLIC from September
1972 to April 1996. Mr. Sprague has
been President of John L. Sprague
Associates, Inc., a consulting company
for technology companies, since January
1988. He served as President and Chief
Executive Officer of Sprague Electric
Company, a semiconductor company, from
December 1980 to January 1988. Mr.
Sprague is also a Director of Aerovox
Corp., a manufacturing company, Sipex
Corporation and California MicroDevices
Corporation, an electronic components
manufacturer.
ROBERT G. Director of AFC since February 1995, AFC: Director
STACHLER and was a Director of FAFLIC from March
1978 to April 1996, of Allmerica P&C
from August 1992 to July 1997, and of
Hanover from April 1990 to December
1992. Mr. Stachler has been a partner
at the law firm of Taft, Stettinius &
Hollister since 1964.
A-7
<PAGE>
PRESENT PRINCIPAL OCCUPATION AND
NAME FIVE-YEAR EMPLOYMENT HISTORY COMPANY & POSITION
---- -------------------------------- ------------------
HERBERT M. Director of AFC since February 1995 and AFC: Director
VARNUM was a Director of FAFLIC from March
1979 to April 1996, of Allmerica P&C
from August 1992 to July 1997, and of
Hanover from December 1991 through
December 1992. Mr. Varnum was employed
by Quabaug Corporation, a manufacturing
company, beginning in 1960 and served
as President and Chief Executive
Officer from 1982 to 1989, and as
Chairman and Chief Executive Officer
from January 1990 until his retirement
in June 1995.
RICHARD MANNING Director of AFC since February 1995 and AFC: Director
WALL was a Director of FAFLIC from March
1986 to April 1996, of Allmerica P&C
from August 1992 to July 1997, and of
Hanover from December 1991 through
December 1992. Mr. Wall is a Senior
Vice President and, since November
1985, has been the General Counsel and
assistant to the Chairman and Chief
Executive Officer of FLEXcon Company,
Inc., a plastics manufacturing company.
A-8
<PAGE>
APPENDIX B
SECTION 262 OF THE DELAWARE GENERAL
CORPORATION LAW
APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to the provisions of subsection
(d) of this section with respect to such shares, who continuously holds such
shares through the effective date of the merger or consolidation, who has
otherwise complied with the provisions of subsection (d) of this Section and
who has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to Section 228 of this Chapter shall be entitled to
an appraisal by the Court of Chancery of the fair value of his shares of stock
under the circumstances described in subsections (b) and (c) of this Section.
As used in this Section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a non-stock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of
a non-stock corporation; and the words "depository receipt" mean a receipt of
other instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series
of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Sections 251 (other than a corporation which has in its
certificate of incorporation the provision required by subsection (g)(7)(i) of
Section 251 of this title), 252, 254, 257, 258, 263 or 264 of this Chapter.
(1) Provided, however, that no appraisal rights under this Section shall be
available for the shares of any class or series of stock which stock, or
depositary receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the stockholders of the surviving
corporation as provided in subsections (f) or (g) of Section 251 of this
Chapter.
(2) Notwithstanding the provisions of subsection (b)(1) of this Section,
appraisal rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation pursuant
to Sections 251, 252, 254, 257, 258, 263 and 264 of this Chapter to accept for
such stock anything except: (i) shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository receipts in respect
thereof; (ii) shares of stock of any other corporation, or depository receipts
in respect thereof, which at the effective date of the merger or consolidation
will be either listed on a national securities exchange or designated as a
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than 2,000
stockholders; (iii) cash in lieu of fractional shares or fractional depository
receipts described in the foregoing clauses (i) and (ii); or (iv) any
combination of the shares of stock, depository receipts and cash in lieu of
fractional shares, or fractional depository receipts described in the foregoing
clauses (i), (ii) and (iii) of this subsection.
B-1
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation party
to a merger effected under Section 253 of this Chapter is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this Section, including those set forth in
subsections (d) and (e), shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this Section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this Section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the corporation
of the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein provided.
Within 10 days after the effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each stockholder of each
constituent corporation who has complied with the provisions of this subsection
and has not voted in favor of or consented to the merger or consolidation of
the date that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or (S)253
of this title, each constituent corporation, either before the effective date
of the merger or consolidation or within ten days thereafter, shall notify each
of the holders of any class or series of stock of such constituent corporation
who are entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all shares of
such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such
notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within twenty days after the date
of mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holders' shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such second notice to all such holders on or
within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights
B-2
<PAGE>
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days after his written
request for such a statement is received by the surviving or resulting
corporation or, within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addressed therein stated. Such notice shall also be given by one or more
publications at least one week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with the provisions of this Section and who have
become entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings
B-3
<PAGE>
and may proceed to trial upon the appraisal prior to the final determination of
the stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to subsection
(f) of this Section and who has submitted his certificates of stock to the
Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to appraisal
rights under this Section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and in the case of holders
of shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any other state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all of the shares entitled
to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this Section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this Section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
B-4
<PAGE>
The Letter of Transmittal, certificates for Shares and any other required
documents should be sent or delivered by each stockholder of Citizens or his
broker, dealer, commercial bank or other nominee to the Depositary at one of
its addresses set forth below.
The Depository is:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
By Hand: By Overnight Courier: By Mail:
First Chicago Trust First Chicago Trust Company First Chicago Trust
Company of of New York Company
New York Tenders & Exchanges of New York
Tenders & Exchanges Suite 4680-CIT Tenders & Exchanges
c/o Securities Transfer 14 Wall Street, 8th Floor Suite 4660-CIT
and New York, NY 10005 P.O. Box 2569
Reporting Services Inc. Jersey City, NJ 07303-
100 William Street, 2569
Galleria
New York, NY 10038
(For Eligible Institutions Only)
By Facsimile:
(201) 222-4720
or
(201) 222-4721
Confirm Receipt of Notice of Guaranteed Delivery ONLY:
(201) 222-4707
Any questions or requests for assistance or additional copies of this Offer
to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery
may be directed to the Information Agent at its telephone numbers and location
listed below. You may also contact your broker, dealer, commercial bank or
trust company or nominee for assistance concerning the Offer.
The Information Agent for the Offer is:
[LOGO OF CORPORATE INVESTOR COMMUNICATIONS, INC. APPEARS HERE]
The Dealer Managers for the Offer are:
GOLDMAN, SACHS & CO.
85 Broad Street
New York, New York 10004
(212) 902-1000 (Call Collect)
(800) 323-5678 (Toll Free)
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
CITIZENS CORPORATION
AT
$29.00 NET PER SHARE
PURSUANT TO THE OFFER TO PURCHASE
DATED NOVEMBER 2, 1998
BY
CITIZENS ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
ALLMERICA FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, DECEMBER 2, 1998, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
The Letter of Transmittal, certificates for Shares (as defined below) and
any other required documents should be sent or delivered by each stockholder
of the Company or his broker, dealer, commercial bank or other nominee to the
Depositary at one of its addresses set forth below.
The Depositary for the Offer is:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
By Hand: By Overnight Courier: By Mail:
First Chicago Trust Company First Chicago Trust First Chicago Trust
of New York Company Company
Tenders & Exchanges of New York of New York
c/o Securities Transfer and Tenders & Exchanges Tenders & Exchanges
Reporting Services Inc. Suite 4680-CIT Suite 4660-CIT
100 William Street, 14 Wall Street, 8th P.O. Box 2569
Galleria Floor Jersey City, NJ 07303-
New York, NY 10038 New York, NY 10005 2569
----------------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by stockholders either if
certificates for Shares (as defined below) are to be forwarded herewith or if
delivery is to be made by book-entry transfer to the Depositary's account at
The Depository Trust Company ("DTC") (the "Book-Entry Transfer Facility"
pursuant to the procedures set forth in "Procedures for Tendering Shares") of
the Offer to Purchase (as defined below).
Stockholders whose certificates evidencing Shares ("Share Certificates") are
not immediately available or who cannot deliver their Share Certificates (as
defined below) and all other documents required hereby to the Depositary prior
to the Expiration Date (as defined in "Terms of the Offer" in the Offer to
Purchase) or who cannot comply with the book-entry transfer procedures on a
timely basis must tender their Shares according to the guaranteed delivery
procedure set forth in
<PAGE>
"Procedures for Tendering Shares" in the Offer to Purchase. See Instruction 2.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE
DELIVERY TO THE DEPOSITARY.
BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY
[_] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: ____________________________________________
Account Number: ___________________________________________________________
Transaction Code Number: __________________________________________________
[_] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY SENT TO THE DEPOSITARY PRIOR TO THE DATE HEREOF AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s): ___________________________________________
Window Ticket Number (if any): ____________________________________________
Date of Execution of Notice of Guaranteed Delivery: _______________________
Name of Institution that Guaranteed Delivery: _____________________________
Account Number (if delivered by Book-Entry Transfer): _____________________
Transaction Code Number: __________________________________________________
<PAGE>
List below the Share Certificates to which this Letter of Transmittal
relates. If the space provided below is inadequate, the certificate numbers
and/or the number of Shares tendered should be listed on a separate signed
schedule and attached hereto.
DESCRIPTION OF SHARES TENDERED
<TABLE>
<CAPTION>
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) SHARE CERTIFICATE(S) AND SHARE(S) TENDERED
ON SHARE CERTIFICATE(S) AND SHARE(S) TENDERED (ATTACH ADDITIONAL LIST IF NECESSARY)
- -------------------------------------------------------------------------------------------------------
TOTAL NUMBER
SHARE OF SHARES NUMBER
CERTIFICATE REPRESENTED OF SHARES
NUMBER(S)* BY CERTIFICATES* TENDERED**
-------------------------------------------------------------------
<S> <C> <C> <C>
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
Total Shares:
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by stockholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares
evidenced by each Share Certificate delivered to the Depositary are
being tendered hereby. See Instruction 4.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Citizens Acquisition Corporation, a
Delaware corporation (the "Purchaser") and a wholly owned subsidiary of
Allmerica Financial Corporation, a Delaware corporation ("AFC"), the above-
described shares of common stock, par value $0.01 per share (the "Shares"), of
Citizens Corporation, a Delaware corporation ("Citizens"), at a price of
$29.00 per Share, net to the seller in cash, without interest, upon the terms
and subject to the conditions set forth in the Offer to Purchase dated
November 2, 1998 (the "Offer to Purchase"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which, as amended or
supplemented from time to time, together with the Offer to Purchase constitute
the "Offer"). The undersigned understands that the Purchaser reserves the
right to transfer or assign, in whole or in part from time to time to AFC or
one or more direct or indirect wholly owned subsidiaries of AFC, the right to
purchase Shares tendered pursuant to the Offer.
Subject to and effective upon acceptance for payment of the Shares tendered
herewith in accordance with the terms and subject to the conditions of the
Offer, the undersigned hereby sells, assigns and transfers to, or upon the
order of, the Purchaser all right, title and interest in and to all of the
Shares that are being tendered hereby and all other Shares or other securities
or property, other than cash dividends, issued or issuable in respect thereof
on or after November 2, 1998 (such other Shares, securities or property other
than the Shares being referred to herein as the "Other Securities") and
irrevocably appoints the Depositary the true and lawful agent and attorney-in-
fact of the undersigned with respect to such Shares and all Other Securities
with full power of substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest), to (a) deliver Share Certificates
evidencing such Shares and all Other Securities, or transfer ownership of such
Shares and all Other Securities on the account books maintained by the Book-
Entry Transfer Facility, together, in either case, with all accompanying
evidences of transfer and authenticity, to or
<PAGE>
upon the order of the Purchaser, upon receipt by the Depositary, as the
undersigned's agent, of the purchase price (adjusted, if appropriate, as
provided in the Offer to Purchase), (b) present such Shares and all Other
Securities for transfer on the books of Citizens, and (c) receive all benefits
and otherwise exercise all rights of beneficial ownership of such Shares and
all Other Securities, all in accordance with the terms of the Offer.
The undersigned hereby irrevocably appoints AFC, the Purchaser, and each of
them or any other designees of AFC or the Purchaser, the attorneys and proxies
of the undersigned, each with full power of substitution, to the full extent
of the undersigned's rights, including to exercise such voting and other
rights as each such attorney and proxy or his (or her) substitute shall, in
his (or her) sole discretion, deem proper, and otherwise act (including
pursuant to written consent), with respect to all of the Shares tendered
hereby which have been accepted for payment by the Purchaser (and any and all
Other Securities issued or issuable in respect thereof on or after November 2,
1998), which the undersigned is entitled to vote at any meeting of
stockholders of Citizens (whether annual or special and whether or not an
adjourned meeting), or written consent in lieu of such meeting, or otherwise.
This proxy and power of attorney is coupled with an interest in the Shares
tendered hereby and is irrevocable and is granted in consideration of, and is
effective upon, the acceptance for payment of such Shares by the Purchaser in
accordance with the terms of the Offer. Such acceptance for payment shall,
without further action, revoke all prior proxies and consents granted by the
undersigned with respect to such Shares (and all Shares and other securities
issued in Other Securities in respect of such Shares), and no subsequent proxy
or power of attorney or written consent shall be given (and if given or
executed, shall be deemed not to be effective) with respect thereto by the
undersigned. The Purchaser reserves the right to require that, in order for
Shares to be deemed validly tendered, immediately upon the Purchaser's
acceptance for payment of such Shares, the Purchaser is able to exercise full
voting and other rights with respect to such Shares (including voting at any
meeting of stockholders then scheduled or acting by written consent without a
meeting).
By accepting the Offer through the tender of Shares pursuant to the Offer,
the undersigned hereby agrees to release, and hereby releases, all claims with
respect to and in respect of the Shares other than the right to receive
payment for such tendered shares and that, upon payment for the Shares, the
undersigned waives any right to attack, and will be barred from thereafter
attacking, in any legal proceeding the fairness of the consideration paid in
the Offer.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby and all Other Securities, and that when such Shares are accepted for
payment by the Purchaser, the Purchaser will acquire good, marketable and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances, and that none of such Shares and Other Securities will be
subject to any adverse claim. The undersigned, upon request, shall execute and
deliver any signature guarantees or additional documents deemed by the
Depositary or the Purchaser to be necessary or desirable to complete the sale,
assignment and transfer of the Shares tendered hereby and all Other
Securities. In addition, the undersigned shall promptly remit and transfer to
the Depositary for the account of the Purchaser all Other Securities in
respect of the Shares tendered hereby, accompanied by appropriate
documentation of transfer, and pending such remittance or appropriate
assurance thereof the Purchaser shall be entitled to all rights and privileges
as owner of such Other Securities and may withhold the entire purchase price
or deduct from the purchase price the amount or value thereof, as determined
by the Purchaser in its sole discretion.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned. Except as stated
in the Offer to Purchase, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in "Procedures for Tendering Shares" in the Offer to
Purchase and in the instructions
<PAGE>
hereto will constitute a binding agreement between the undersigned and the
Purchaser upon the terms and subject to the conditions of the Offer. The
undersigned recognizes that under certain circumstances set forth in the Offer
to Purchase, the Purchaser may not be required to accept for payment any of
the Shares tendered hereby.
Unless otherwise indicated herein under "Special Payment Instructions," the
Undersigned authorizes the issuer to issue the check for the purchase price
and/or return any Share Certificates evidencing Shares not tendered or not
accepted for payment in the name(s) of the registered holder(s) appearing
under "Description of Shares Tendered." Similarly, unless otherwise indicated
under "Special Delivery Instructions," the Undersigned authorizes the issuer
to mail the check for the purchase price and/or return any Share Certificates
evidencing Shares not tendered or accepted for payment (and accompanying
documents, as appropriate) to the address(es) of the registered holder(s)
appearing under "Description of Shares Tendered." In the event that both the
Special Delivery Instructions and the Special Payment Instructions are
completed, the Undersigned authorizes the issuer to issue the check for the
purchase price and/or return any Share Certificates evidencing Shares not
purchased (together with accompanying documents as appropriate) in the name(s)
of, and deliver said check and/or return such Share Certificates to, the
person or persons so indicated. The undersigned recognizes that the Purchaser
has no obligation pursuant to the Special Payment Instructions to transfer any
Shares from the name of the registered holder(s) thereof if the Purchaser does
not accept for payment any of the Shares so tendered.
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6, AND 7) (INSTRUCTIONS 5 AND 7)
To be completed ONLY if the To be completed ONLY if the
check for the purchase price of check for the purchase price of
Shares purchased or Share Shares purchased or Share
Certificates evidencing Shares Certificates evidencing Shares
not tendered or not purchased are not tendered or not purchased are
to be issued in the name of to be mailed to someone other
someone other than the than the undersigned, or to the
undersigned. undersigned at an address other
than that shown under
Issue "Description of Shares Tendered."
[_] Check and/or [_] Mail
Certificate(s)
[_] Check and/or [_]
Certificate(s)
To:
__________________________________ To:
NAME(S) (PLEASE PRINT
__________________________________ __________________________________
__________________________________ NAME(S) (PLEASE PRINT)
ADDRESS
__________________________________ __________________________________
(INCLUDE ZIP CODE)
__________________________________ __________________________________
(TAXPAYER IDENTIFICATION OR ADDRESS
SOCIAL SECURITY NO.)
(SEE SUBSTITUTE FORM W-9) __________________________________
(INCLUDE ZIP CODE)
<PAGE>
STOCKHOLDERS SIGN HERE
(ALSO COMPLETE SUBSTITUTE FORM W-9)
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
SIGNATURE(S) OF STOCKHOLDER(S)
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
share certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by trustee, executor, administrator,
guardian, attorney-in-fact, agent, officer of a corporation or any other
person acting in a fiduciary or representative capacity, please provide the
following information. See Instruction 5.)
PLEASE PRINT OR TYPE
Name(s) _____________________________________________________________________
-----------------------------------------------------------------------------
(PLEASE PRINT OR TYPE)
Capacity (Full Title) _______________________________________________________
Address _____________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and
Telephone Number (Home) _____________________________________________________
Area Code and
Telephone Number (Business) _________________________________________________
Tax Identification or
Social Security Number ______________________________________________________
(COMPLETE SUBSTITUTE FORM W-9 BELOW)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTIONS 1 AND 5)
Authorized Signature ________________________________________________________
Name ________________________________________________________________________
(PLEASE PRINT OR TYPE)
Full Title __________________________________________________________________
Name of Firm ________________________________________________________________
Address _____________________________________________________________________
ZIP CODE
Area Code and
Telephone Number ____________________________________________________________
Dated: ____________________________ , 1998
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. All signatures on this Letter of Transmittal
must be guaranteed by a participant in the Security Transfer Agents Medallion
Program or any other "eligible guarantor institution" as defined in Rule 17Ad-
15 under the Securities Exchange Act of 1934, as amended (each, an "Eligible
Institution"), unless (i) this Letter of Transmittal is signed by the
registered holder(s) of Shares (which term, for the purposes of this document,
shall include any participant in the Book-Entry Transfer Facility whose name
appears on a security position listing as the owner of Shares) tendered hereby
and such holder(s) has (have) not completed either the box entitled "Special
Delivery Instructions" or the box entitled "Special Payment Instructions" on
this Letter of Transmittal or (ii) such Shares are tendered for the account of
an Eligible Institution. See Instruction 5.
2. Delivery of Letter of Transmittal and Certificates; Guaranteed Delivery
Procedures. This Letter of Transmittal is to be completed by stockholders
either if Share Certificates are to be forwarded herewith or if a tender of
Shares is to be made pursuant to the procedures for delivery by book-entry
transfer set forth in "Procedures for Tendering Shares" in the Offer to
Purchase. Share Certificates evidencing all physically tendered Shares, or
confirmation ("Book-Entry Confirmation") of any book-entry transfer into the
Depositary's account at the Book-Entry Transfer Facility of Shares delivered
by book-entry transfer as well as a properly completed and duly executed
Letter of Transmittal, must be received by the Depositary, at one of the
addresses set forth herein prior to the Expiration Date (as defined in "Terms
of the Offer" of the Offer to Purchase). If Share Certificates are forwarded
to the Depositary in multiple deliveries, a properly completed and duly
executed Letter of Transmittal must accompany each such delivery. Stockholders
whose Share Certificates are not immediately available, who cannot deliver
their Share Certificates and all other required documents to the Depositary
prior to the Expiration Date or who cannot comply with the book-entry transfer
procedures on a timely basis may tender their Shares by properly completing
and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed
delivery procedure set forth in "Procedures for Tendering Shares" of the Offer
to Purchase. Pursuant to such procedure, (i) such tender must be made by or
through an Eligible Institution, (ii) a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form provided by the
Purchaser, must be received by the Depositary prior to the Expiration Date and
(iii) the Share Certificates evidencing all physically tendered Shares (or
Book-Entry Confirmation with respect to such Shares), as well as a properly
completed and duly executed Letter of Transmittal with any required signature
guarantees and any other documents required by this Letter of Transmittal,
must be received by the Depositary within three (3) New York Stock Exchange
trading days after the date of execution of such Notice of Guaranteed
Delivery, all as provided in "Procedures for Tendering Shares" in the Offer to
Purchase.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARES AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER
FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT SUCH CERTIFICATES AND DOCUMENTS BE
SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted. All
tendering stockholders, by execution of this Letter of Transmittal, waive any
right to receive any notice of the acceptance of their Shares for payment.
3. Inadequate Space. If the space provided herein under "Description of
Shares Tendered" is inadequate, the certificate numbers and/or the number of
Shares tendered should be listed on a separate signed schedule and attached
hereto.
<PAGE>
4. Partial Tenders. (Not applicable to stockholders who tender by book-entry
transfer.) If fewer than all the Shares evidenced by any Share Certificate
submitted are to be tendered, fill in the number of Shares which are to be
tendered in the box entitled "Number of Shares Tendered." In such case, new
Share Certificate(s) evidencing the remainder of the Shares that were
evidenced by the old Share Certificate(s) will be sent to the registered
holder, unless otherwise provided in the appropriate box on this Letter of
Transmittal, as soon as practicable after the Expiration Date. All Shares
represented by Share Certificates delivered to the Depositary will be deemed
to have been tendered unless otherwise indicated.
5. Signatures on Letter of Transmittal, Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond exactly with the name(s) as
written on the face of the Share Certificate(s) without alteration,
enlargement or any change whatsoever. If any of the Shares tendered hereby are
held of record by two or more persons, all such persons must sign this Letter
of Transmittal.
If any tendered Shares are registered in different names on several Share
Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of such
Shares.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares evidenced by Share Certificates listed and transmitted hereby, no
endorsements of Share Certificates or separate stock powers are required
unless payment is to be made to or Share Certificates evidencing Shares not
tendered or purchased are to be issued in the name of a person other than the
registered holder(s), in which case the Share Certificate(s) evidencing the
Shares tendered hereby must be endorsed or accompanied by appropriate stock
powers, in either case signed exactly as the name(s) of the registered
holder(s) appear(s) on such Share Certificate(s). Signatures on such
certificates and stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Share Certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name or names
of the registered holder or holders appear on the Share Certificate(s).
Signatures on such Share Certificate(s) or stock powers must be guaranteed by
an Eligible Institution.
If this Letter of Transmittal or any Share Certificates or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
agent, officer of a corporation or any person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to the Purchaser of such person's authority so to
act must be submitted.
6. Stock Transfer Taxes. Except as set forth in this Instruction 6, the
Purchaser will pay or cause to be paid any stock transfer taxes with respect
to the transfer and sale of Shares to it or its order pursuant to the Offer.
If, however, payment of the purchase price is to be made to, or if Share
Certificates evidencing Shares not tendered or purchased are to be registered
in the name of, any person other than the registered holder(s), or if Share
Certificates evidencing tendered Shares are registered in the name of any
person other than the person(s) signing this Letter of Transmittal, the amount
of any stock transfer taxes (whether imposed on the registered holder(s) or
such other person) payable on account of the transfer to such person will be
deducted from the purchase price unless satisfactory evidence of the payment
of such taxes or exemption therefrom is submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) LISTED IN THIS LETTER
OF TRANSMITTAL.
<PAGE>
7. Special Payment and Delivery Instructions. If a check for the purchase
price of any Shares tendered hereby is to be issued, or Share Certificate(s)
evidencing Shares not tendered or not purchased are to be issued, in the name
of a person other than the person(s) signing this Letter of Transmittal or if
such check or any such Share Certificate is to be sent and/or any Share
Certificates are to be returned to someone other than the signer above, or to
the signer above but at an address other than that shown in the box entitled
"Description of Shares Tendered" on the first page hereof, the appropriate
boxes on this Letter of Transmittal should be completed.
8. Request for Assistance or Additional Copies. Requests for assistance may
be directed to, or additional copies of the Offer to Purchase, this Letter of
Transmittal and the Notice of Guaranteed Delivery may be obtained from, the
Information Agent or the Dealer Managers at the telephone numbers and address
set forth below. Stockholders may also contact their broker, dealer,
commercial bank or trust company.
9. Waiver of Conditions. Except as otherwise provided in the Offer to
Purchase, the Purchaser reserves the right in its sole discretion to waive in
whole or in part at any time or from time to time any of the specified
conditions of the Offer or any defect or irregularity in tender with regard to
any Shares tendered.
10. Substitute Form W-9. The tendering stockholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN"),
generally the stockholder's Social Security Number or Employer Identification
Number, on Substitute Form W-9, which is provided under "Important Tax
Information" below, and to certify, under penalties of perjury, whether he or
she is subject to backup withholding of federal income tax. If a tendering
stockholder is subject to backup withholding, he or she must cross out item
(2) of the Certification Box on Substitute Form W-9. Failure to provide the
information on Substitute Form W-9 may subject the tendering stockholder to
31% federal income tax withholding on the payment of the purchase price. If
the tendering stockholder has not been issued a TIN and has applied for a
number or intends to apply for a number in the near future, he or she should
write "Applied For" in the space provided for the TIN in Part I, sign and date
the Substitute Form W-9 and sign and date the Certificate of Awaiting Taxpayer
Identification Number. If "Applied For" is written in Part I and the
Depositary is not provided with a TIN within 60 days, the Depositary will
withhold 31% of payments for surrendered Shares thereafter until a TIN is
provided to the Depositary.
11. Mutilated, Lost, Stolen or Destroyed Certificates. Any holder of a Share
Certificate whose certificate(s) has been mutilated, lost, stolen or destroyed
should call the Transfer Agent at 1-800-317-4451.
IMPORTANT: THIS LETTER OF TRANSMITTAL PROPERLY COMPLETED AND DULY EXECUTED,
OR AN AGENT'S MESSAGE IN THE CASE OF A BOOK-ENTRY DELIVERY, TOGETHER WITH
CERTIFICATES (OR BOOK-ENTRY CONFIRMATION) AND ALL OTHER REQUIRED DOCUMENTS OR
A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE DEPOSITARY ON OR PRIOR TO THE EXPIRATION DATE.
<PAGE>
IMPORTANT TAX INFORMATION
Under federal tax law, a stockholder whose tendered Shares are accepted for
payment is required to provide the Depositary (as payor) with such
stockholder's correct TIN on Substitute Form W-9 below. If such stockholder is
an individual, the TIN is such stockholder's Social Security Number. If the
Depositary is not provided with the correct TIN or an adequate basis for
exemption, the stockholder may be subject to a $50 penalty imposed by the
Internal Revenue Service. In addition, payments that are made to such
stockholder with respect to Shares purchased pursuant to the Offer may be
subject to backup withholding in an amount equal to 31% of the gross proceeds
resulting from the Offer.
Certain stockholders (including, among others, certain corporations and
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, that stockholder must submit an IRS Form W-8, signed under
penalties of perjury, attesting to that individual's exempt status. Such
statements can be obtained from the Depositary. See the enclosed Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
If backup withholding applies, the Depositary is required to withhold 31% of
any payments made to the stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will
be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained from the Internal Revenue
Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to Shares purchased pursuant to the Offer, the stockholder is
required to notify the Depositary of his or her correct TIN by completing the
Substitute Form W-9 contained herein, certifying that the TIN provided on the
Substitute Form W-9 is correct (or that such stockholder is awaiting a TIN)
and that (1) the stockholder is exempt from backup withholding, (2) the
stockholder has not been notified by the Internal Revenue Service that he or
she is subject to backup withholding as a result of failure to report all
interest or dividends, or (3) the Internal Revenue Service has notified the
stockholder that he or she is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the Social Security
Number or Employer Identification Number of the record owner of the Shares. If
the Shares are in more than one name or are not in the name of the actual
owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidance on which
number to report. If the tendering stockholder has not been issued a TIN and
has applied for a number or intends to apply for a number in the near future,
he or she should write "Applied For" in the space provided for the TIN in Part
I, sign and date the Substitute Form W-9 and sign and date the Certificate of
Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I
and the Depositary is not provided with a TIN within 60 days, the Depositary
will withhold 31% of all payments of the purchase price until a TIN is
provided to the Depositary.
<PAGE>
PAYOR'S NAME: FIRST CHICAGO TRUST COMPANY OF NEW YORK, AS DEPOSITARY
PART I--PLEASE PROVIDE YOUR Social Security or
TIN IN THE BOX AT RIGHT AND Employee Identification
CERTIFY BY SIGNING AND Number
DATING BELOW.
SUBSTITUTE NAME (Please Print)
FORM W-9 ____________________________ (If awaiting TIN
----------------------
DEPARTMENT OF ADDRESS write "applied for")
THE TREASURY ____________________________
INTERNAL
REVENUE
SERVICE
CITY STATE ZIP CODE
--------------------------------------------------------
PAYOR'S REQUEST FOR PART II--For Payees NOT subject to backup
TAXPAYER withholding, see the enclosed Guidelines for
IDENTIFICATION Certification of Taxpayer Identification Number on
NUMBER (TIN) AND Substitute Form W-9 and complete as instructed
CERTIFICATION therein.
CERTIFICATION--UNDER PENALTIES OF PERJURY, I CERTIFY
THAT:
1. The number shown on this form is my correct
Taxpayer Identification Number (or I am waiting
for a number to be issued to me), and
2. I am not subject to backup withholding because
either (a) I am exempt from backup withholding,
(b) I have not been notified by the Internal
Revenue Service ("IRS") that I am subject to
backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to
backup withholding.
--------------------------------------------------------
CERTIFICATION INSTRUCTIONS--You must cross out item
(2) above if you have been notified by the IRS that
you are subject to backup withholding because of
underreporting interest or dividends on your tax
return. However, if after being notified by the IRS
that you were subject to backup withholding you
received another notification from the IRS that you
are no longer subject to backup withholding, do not
cross out item (2). (Also see instructions in the
enclosed Guidelines.)
- -------------------------------------------------------------------------------
Signature: ____________________________ Dated: ______________________, 1998
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU
MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN
PART I OF SUBSTITUTE FORM W-9.
<PAGE>
PAYOR'S NAME: FIRST CHICAGO TRUST COMPANY OF NEW YORK, AS DEPOSITARY
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within
sixty (60) days, 31% of all reportable payments made to me thereafter will
be withheld until I provide a number.
Signatures: ____________________________________ Dated: ___________________
<PAGE>
The Information Agent for the Offer is:
[LOGO OF CORPORATE INVESTOR COMMUNICATIONS, INC.]
The Dealer Managers for the Offer are:
GOLDMAN, SACHS & CO.
85 Broad Street
New York, New York 10004
(212) 902-1000 (Call Collect)
(800) 323-5678 (Toll Free)
<PAGE>
GOLDMAN, SACHS & CO.
85 BROAD STREET
NEW YORK, NEW YORK 10004
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
CITIZENS CORPORATION
BY
CITIZENS ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY
OF
ALLMERICA FINANCIAL CORPORATION
AT
$29.00 NET PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON WEDNESDAY, DECEMBER 2, 1998, UNLESS THE OFFER IS EXTENDED.
November 2, 1998
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by Citizens Acquisition Corporation, a Delaware
corporation (the "Purchaser") and a wholly owned subsidiary of Allmerica
Financial Corporation, a Delaware corporation ("AFC"), to act as Dealer
Managers in connection with the Purchaser's offer to purchase all of the
outstanding shares of common stock, par value $0.01 per share (the "Shares"),
of Citizens Corporation, a Delaware corporation ("Citizens"), that AFC and its
subsidiaries do not already own, at a price of $29.00 per Share, net to the
seller in cash, without interest, upon the terms and subject to the conditions
set forth in the Purchaser's Offer to Purchase dated November 2, 1998 (the
"Offer to Purchase") and in the related Letter of Transmittal (which, as
amended or supplemented from time to time, together constitute the "Offer"),
copies of which are enclosed herewith.
For your information and for forwarding to your clients for whose accounts
you hold Shares registered in your name or in the name of your nominee, we are
enclosing the following documents:
1. Offer to Purchase, dated November 2, 1998;
2. Letter of Transmittal for your use and for the information of your
clients, together with Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 providing information relating
to backup federal income tax withholding;
3. Notice of Guaranteed Delivery to be used to accept the Offer if the
Shares and all other required documents cannot be delivered to the
Depositary by the Expiration Date (as defined in the Offer to Purchase);
4. A printed form of letter which may be sent to your clients for whose
accounts you hold Shares registered in your name or in the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Offer; and
5. A return envelope addressed to First Chicago Trust Company of New
York, as the Depositary.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, DECEMBER 2, 1998, UNLESS THE OFFER
IS EXTENDED.
<PAGE>
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will be deemed to have accepted for payment, and
will pay for, all Shares validly tendered and not properly withdrawn prior to
the Expiration Date (as defined in the Offer to Purchase) if, as and when the
Purchaser gives oral or written notice to the Depositary of the Purchaser's
acceptance of the tenders of such Shares for payment pursuant to the Offer.
Payment for Shares purchased pursuant to the Offer will be made only after
timely receipt by the Depositary of (i) certificates evidencing such Shares or
timely confirmation of a book-entry transfer of such Shares into the
Depositary's account at the Book-Entry Transfer Facility (as defined in the
Offer to Purchase), (ii) a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) or, in the case of a book-entry transfer,
an Agent's Message (as defined in the Offer to Purchase) and (iii) any other
documents required by the Letter of Transmittal.
In order to tender Shares pursuant to the Offer, a properly completed and
duly executed Letter of Transmittal, with any required signature guarantees,
or an Agent's Message (in the case of any book-entry transfer), and any other
documents required by the Letter of Transmittal, should be sent to the
Depositary, and either certificates representing the tendered Shares should be
delivered or such Shares must be delivered to the Depositary pursuant to the
procedures for book-entry transfers, all in accordance with the instructions
set forth in the Letter of Transmittal and the Offer to Purchase.
If holders of Shares wish to tender their Shares, but it is impracticable
for them to deliver their certificates or other required documents to the
Depositary on or prior to the Expiration Date or to comply with the book-entry
transfer procedures on a timely basis, a tender may be effected by following
the guaranteed delivery procedures specified in "Procedures for Tendering
Shares" in the Offer to Purchase.
Neither AFC nor the Purchaser will pay any fees or commissions to any
broker, dealer or other person (other than the Dealer Managers, the
Information Agent and the Depositary as described in the Offer to Purchase) in
connection with the solicitation of tenders of Shares pursuant to the Offer.
The Purchaser will, however, upon request, reimburse brokers, dealers,
commercial banks and trust companies for reasonable expenses incurred by them
in forwarding materials to their customers. The Purchaser will pay all stock
transfer taxes applicable to its purchase of Shares pursuant to the Offer,
subject to Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Offer may be addressed to the
Information Agent or the undersigned at the addresses and telephone numbers
set forth on the back cover page of the Offer to Purchase. Requests for
additional copies of the enclosed materials may be directed to the Information
Agent or the Dealer Managers.
VERY TRULY YOURS,
GOLDMAN, SACHS & CO.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU OR
ANY PERSON AS AN AGENT OF THE PURCHASER, AFC, CITIZENS, THE DEALER MANAGERS,
THE INFORMATION AGENT OR THE DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER
PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN
CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE
STATEMENTS CONTAINED THEREIN.
2
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
CITIZENS CORPORATION
BY
CITIZENS ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY
OF
ALLMERICA FINANCIAL CORPORATION
AT
$29.00 NET PER SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON WEDNESDAY, DECEMBER 2, 1998, UNLESS THE OFFER IS EXTENDED.
November 2, 1998
To Our Clients:
Enclosed for your consideration are the Offer to Purchase dated November 2,
1998 (the "Offer to Purchase") and the related Letter of Transmittal (which,
as amended or supplemented from time to time, together constitute the "Offer")
and other materials relating to the Offer by Citizens Acquisition Corporation,
a Delaware corporation (the "Purchaser") and a wholly owned subsidiary of
Allmerica Financial Corporation, a Delaware corporation ("AFC"), to purchase
all of the outstanding shares of common stock, par value $0.01 per share
(collectively, the "Shares"), of Citizens Corporation, a Delaware corporation
("Citizens"), that AFC and its subsidiaries do not already own, at a price of
$29.00 per Share, net to the seller in cash, without interest, upon the terms
and subject to the conditions set forth in the Offer. This material is being
sent to you as the beneficial owner of Shares held by us for your account but
not registered in your name.
A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND
PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL ACCOMPANYING THIS
LETTER IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU
TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish to have us
tender any or all of the Shares held by us for your account, upon the terms
and subject to the conditions set forth in the Offer.
Your attention is directed to the following:
1. The tender offer price is $29.00 per Share, net to the seller in cash,
without interest, upon the terms and subject to the conditions of the
Offer.
2. The Offer and withdrawal rights will expire at 12:00 midnight, New
York City time, on Wednesday, December 2, 1998, unless the Offer is
extended.
3. Any stock transfer taxes applicable to the sale of Shares to the
Purchaser pursuant to the Offer will be paid by the Purchaser, except as
otherwise provided in Instruction 6 of the Letter of Transmittal.
4. The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date of the Offer, a
number of Shares which, together with any Shares currently beneficially
owned directly or indirectly by AFC will constitute at least 90% of the
total Shares outstanding as of the date the Shares are accepted for payment
pursuant to the Offer. The Offer is also subject to other terms and
conditions contained in the Offer to Purchase.
<PAGE>
In order to tender Shares pursuant to the Offer, a properly completed and
duly executed Letter of Transmittal, with any required signature guarantees,
or (in the case of any book-entry transfer) an Agent's Message (as defined in
the Offer to Purchase) and any other documents required by the Letter of
Transmittal, should be sent to First Chicago Trust Company of New York, the
Depositary, and either certificates representing the tendered Shares should be
delivered or such Shares must be delivered to the Depositary pursuant to the
procedures for book-entry transfers, all in accordance with the instructions
set forth in the Letter of Transmittal and the Offer to Purchase.
The Offer is being made to all holders of Shares. The Offer is not being
made to, nor will tenders be accepted from or on behalf of, holders of Shares
in any jurisdiction in which the making of the Offer or acceptance thereof
would not be in compliance with the laws of such jurisdiction. In any
jurisdiction where the securities, blue sky or other laws require the Offer to
be made by a licensed broker or dealer, the Offer shall be deemed to be made
on behalf of the Purchaser by Goldman, Sachs & Co. or one or more registered
brokers or dealers licensed under the laws of such jurisdictions.
If you wish to have us tender any or all of the Shares held by us for your
account, please so instruct us by completing, executing and returning to us
the instruction form set forth below. Please forward your instructions to us
in ample time to permit us to submit a tender on your behalf prior to the
expiration of the Offer. If you authorize the tender of your Shares, all such
Shares will be tendered unless otherwise specified on the instruction form set
forth below.
2
<PAGE>
INSTRUCTIONS WITH RESPECT TO
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
CITIZENS CORPORATION
BY
CITIZENS ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY
OF
ALLMERICA FINANCIAL CORPORATION
The undersigned acknowledge(s) receipt of your letter and the enclosed Offer
to Purchase dated November 2, 1998 (the "Offer to Purchase") and the related
Letter of Transmittal, in connection with the offer by Citizens Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of Allmerica
Financial Corporation ("AFC"), a Delaware corporation, to purchase for cash
all outstanding shares of common stock, par value $0.01 per share (the
"Shares"), of Citizens Corporation, a Delaware corporation, that AFC and its
subsidiaries do not already own.
This will instruct you to tender the number of Shares indicated below (or if
no number is indicated below, all Shares) that are held by you for the account
of the undersigned, upon the terms and subject to the conditions set forth in
the Offer to Purchase and the Letter of Transmittal.
DATED: , 1998
NUMBER OF SHARES TO BE TENDERED: SHARES*
------------------------------------------------------------------------
SIGNATURE(S)
------------------------------------------------------------------------
PLEASE PRINT NAME(S)
------------------------------------------------------------------------
PLEASE PRINT ADDRESS(ES)
------------------------------------------------------------------------
AREA CODE AND TELEPHONE NUMBER(S)
------------------------------------------------------------------------
TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S)
* I (We) understand that if I (we) sign this instruction form without
indicating a lesser number of Shares in the space above, all Shares held
by you for my (our) account will be tendered.
3
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF SHARES OF COMMON STOCK
OF
CITIZENS CORPORATION
TO
CITIZENS ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY
OF
ALLMERICA FINANCIAL CORPORATION
As set forth in "Procedures for Tendering Shares" in the Offer to Purchase
(as defined below), this form, or a form substantially equivalent to this
form, must be used to accept the Offer (as defined below) if the certificates
representing shares of common stock, par value $0.01 per share (the "Shares"),
of Citizens Corporation are not immediately available or time will not permit
all required documents to reach the Depositary prior to the Expiration Date
(as defined in the Offer to Purchase) or the procedures for book-entry
transfer cannot be completed on a timely basis. Such form may be delivered by
hand or transmitted by facsimile transmission or mail to the Depositary and
must include a guarantee by an Eligible Institution (as defined in the Offer
to Purchase). See "Procedures for Tendering Shares" in the Offer to Purchase.
The Depositary for the Offer is:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
By Hand:
By Overnight Courier:
By Mail:
First Chicago Trust First Chicago Trust First Chicago Trust
Company Company Company
of New York of New York of New York
Tenders & Exchanges Tenders & Exchanges Tenders & Exchanges
c/o Securities Transfer Suite 4680-CIT Suite 4660-CIT
and Reporting Services 14 Wall Street, 8th P.O. Box 2569
Inc. Floor Jersey City, NJ 07303-
100 William Street, New York, NY 10005 2569
Galleria
New York, NY 10038
(For Eligible Institutions Only)
By Facsimile:
(201) 222-4720
or
(201) 222-4721
Confirm Receipt of Notice of Guaranteed Delivery ONLY
(201) 222-4707
----------------
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER
THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
LADIES AND GENTLEMEN:
The undersigned hereby tenders to Citizens Acquisition Corporation, a
Delaware corporation and a wholly owned subsidiary of Allmerica Financial
Corporation, a Delaware corporation, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated November 2, 1998 (the
"Offer to Purchase") and the related Letter of Transmittal (which, as amended
or supplemented from time to time, together constitute the "Offer"), receipt
of which is hereby acknowledged, the number of Shares indicated below pursuant
to the guaranteed delivery procedure set forth in "Procedures for Tendering
Shares" in the Offer to Purchase.
Number of Shares: _________________
Name(s) of Record Holder(s):
___________________________________
Share Certificate Numbers (if
available):
___________________________________ ___________________________________
Please Type or Print
Address(es): ______________________
___________________________________
___________________________________
ZIP CODE
If Shares will be delivered by
book-entry transfer, check this Area Code and Telephone Number:
box: [_] ___________________________________
___________________________________
___________________________________
Account Number: ___________________
___________________________________
SIGNATURE(S)
Dated: ______________________, 1998
Dated:______________________ , 1998
2
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER -- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen: i.e. 00-0000000. The table below will help determine the
number to give the payer.
- -----------------------------------------------
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- -----------------------------------------------
1. An individual's account The individual
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, any one
of the
individuals(1)
3. Husband and wife (joint The actual owner
account) of the account
or, if joint
funds, either
person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if
account) the minor is the
only
contributor, the
minor(1)
6. Account in the name of The ward, minor,
guardian or committee or incompetent
for a designated ward, person(3)
minor, or incompetent
person
7. a. The usual revocable The grantor-
savings trust account trustee(1)
(grantor is also
trustee)
b. So-called trust The actual
account that is not owner(1)
legal orvalid trust
under State law
8. Sole proprietorship The owner(4)
account
- -----------------------------------------------
- -----------------------------------------------
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- -----------------------------------------------
9. A valid trust, estate, The legal entity
or pension trust (Do not furnish
the identifying
number of the
personal
representative
or trustee
unless the
entity itself is
not designated
in the account
title.)(5)
10. Corporate account The corporation
11. Religious, charitable, The organization
or educational
organization account
12. Partnership account The partnership
held in the name of the
business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or
nominee nominee
15. Account with the The public
Department of entity
Agriculture in the name
of a public entity
(such as a State or
local government,
school district, or
prison) that receives
agricultural program
payments
- -----------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form S-11, Application for a Social Security Number Card, or
Form S-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and apply
for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the investment Company Act of
1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt dividends under section
852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1993, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or im-
prisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares (as defined below). The Offer (as defined below) is made solely
by the Offer to Purchase dated November 2, 1998 and the related Letter of
Transmittal and is being made to all holders of Shares.
The Offer is not being made to (nor will Exh (d)(7) to 13E-3 tenders be accepted
from or on behalf of) holders of Shares in any jurisdiction in which the making
of the Offer or the acceptance thereof would not be in compliance with the laws
of such jurisdiction. In those jurisdictions where securities, blue sky or other
laws require the Offer to be made by a licensed broker or dealer, the Offer
shall be deemed to be made on behalf of the Purchaser (as defined below) by
Goldman, Sachs & Co., or one or more registered brokers or dealers licensed
under the laws of such jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
CITIZENS CORPORATION
BY
CITIZENS ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
ALLMERICA FINANCIAL CORPORATION
AT
$29.00 NET PER SHARE IN CASH
Citizens Acquisition Corporation, a Delaware corporation ("Purchaser") and
a wholly owned indirect subsidiary of Allmerica Financial Corporation, a
Delaware corporation ("Parent"), is offering to purchase all of the outstanding
shares of common stock, par value $.01 per share (the "Shares"), of Citizens
Corporation, a Delaware corporation (the "Company"), at a price of $29.00 per
Share, net to the seller in cash, without interest thereon, upon the terms and
subject to the conditions set forth in the Offer to Purchase dated November 2,
1998 (the "Offer to Purchase") and in the related Letter of Transmittal (which,
as amended or supplemented from time to time, together constitute the "Offer").
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, DECEMBER 2, 1998, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS NOT CONDITIONED UPON THE APPROVAL OF THE BOARD OF DIRECTORS OF THE
COMPANY OR ANY COMMITTEE THEREOF. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN
TERMS AND CONDITIONS AS SET FORTH IN THE OFFER TO PURCHASE.
The Offer is conditioned upon, among other things, there having been
validly tendered (and not properly withdrawn) prior to the Expiration Date (as
defined below) a number of Shares which, together with the Shares beneficially
owned directly or indirectly by Parent, will constitute at least 90 percent of
the total outstanding Shares as of the date the Shares are accepted for payment
pursuant to the Offer (the "Minimum Condition"). The Offer is subject to other
terms and conditions, including receipt of certain insurance regulatory
approvals, set forth in the Offer to Purchase. The Purchaser estimates that
approximately 2,394,260 Shares will need to be validly tendered (and not
<PAGE>
properly withdrawn) to satisfy the Minimum Condition. The Purchaser expressly
reserves the right to waive the Minimum Condition and to purchase any Shares
validly tendered (and not properly withdrawn) pursuant to the Offer.
The Purchaser is making the Offer for the purpose of acquiring more than 90
percent of the outstanding Shares and then consummating a "short-form merger"
under Section 253 of the General Corporation Law of the State of Delaware (the
"DGCL"), pursuant to which the Purchaser will be merged with and into the
Company (the "Merger" and, together with the Offer, the "Transaction"). The
Directors of the Purchaser have approved the consummation of the Merger for the
same price per Share as paid in the Offer, subject to certain conditions,
including ownership of 90 percent of the outstanding Shares. Once the Purchaser
acquires at least 90 percent of the Shares, the Purchaser intends to effect the
Merger, which will not require (i) any action by the Board of Directors of the
Company or (ii) the affirmative vote of any other stockholder as permitted by
Section 253 of the DGCL. As of October 1, 1998, the Purchaser owned no Shares
and Parent, through its subsidiaries, owned 29,093,500 Shares, or approximately
83% of Shares outstanding.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn if and when the Purchaser gives oral or written notice to First
Chicago Trust Company of New York, as depositary (the "Depositary"), of
Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon
the terms and subject to the conditions of the Offer, payment for Shares
accepted for payment pursuant to the Offer will be made by deposit of the
purchase price therefor with the Depositary, which shall act as agent for
tendering stockholders for the purpose of receiving payments from Purchaser and
transmitting such payments to tendering stockholders whose Shares have been
accepted for payment. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE
FOR THE SHARES BE PAID, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN
ACCEPTING FOR PAYMENT OR MAKING SUCH PAYMENT. In all cases, payment for Shares
tendered and accepted for payment pursuant to the Offer will be made only after
timely receipt by the Depositary of (i) the certificates evidencing such Shares
(the "Share Certificates") or timely confirmation (a "Book-Entry Confirmation")
of a book-entry transfer of such Shares into the Depositary's account at the
Book-Entry Transfer Facility (as defined in the Offer to Purchase) pursuant to
the procedures set forth in the Offer to Purchase, (ii) the Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed, with
any required signature guarantees or an Agent's Message (as defined in the Offer
to Purchase) in connection with a book-entry transfer and (iii) any other
documents required under the Letter of Transmittal.
The term "Expiration Date" means 12:00 Midnight, New York City time, on
Wednesday, December 2, 1998, unless and until the Purchaser, in its sole
discretion, shall have extended the period of time for which the Offer is open,
in which event the term "Expiration Date" shall mean the latest time and date at
which the Offer, as so extended by the Purchaser, shall expire. Purchaser
expressly reserves the right, at any time and from time to time, to extend the
period of time during which the Offer is open, including upon the occurrence of
any condition specified in the Offer to Purchase, by giving oral or written
notice of such extension to the Depositary. Any such extension will be followed
as promptly as practicable by public announcement thereof, such announcement to
be made not later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date of the Offer. During any such
extension, all Shares previously tendered and not withdrawn will remain subject
to the Offer and subject to the rights of a tendering stockholder to withdraw
such stockholder's Shares.
Tenders of Shares made pursuant to the Offer are irrevocable except that
such Shares may be withdrawn at any time prior to the Expiration Date (or the
latest time and date at which the Offer, if extended by Purchaser, shall expire)
and, unless theretofore accepted for payment by Purchaser pursuant to the Offer,
may also be withdrawn at any time after January 1, 1999. For the withdrawal to
be effective, a written or facsimile transmission notice of withdrawal must be
timely received by the Depositary at its address set forth on the back cover
page of the Offer to Purchase. Any such notice of withdrawal must specify the
name of the person who tendered the Shares to be withdrawn, the number of Shares
to be withdrawn and the name of the registered holder of such Shares, if
different from that of the person who tendered such Shares. If Share
Certificates evidencing Shares to be withdrawn have been delivered or otherwise
identified to the Depositary, then, prior to the physical release of such Share
Certificates, the
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<PAGE>
name of the registered holders and the serial numbers shown on such Share
Certificates must be submitted to the Depositary, and the signature(s) on the
notice of withdrawal must be guaranteed by an Eligible Institution (as defined
in the Offer to Purchase), unless such Shares have been tendered for the account
of an Eligible Institution. If Shares have been tendered pursuant to the
procedures for book-entry transfer as set forth in the Offer to Purchase, any
notice of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Shares and must
otherwise comply with such Book-Entry Transfer Facility's procedures for such
withdrawal. Withdrawals of tenders may not be rescinded, and any Share properly
withdrawn will thereafter be deemed not validly tendered for the purpose of the
Offer. However, withdrawn Shares may be retendered by again following one of the
procedures described in the Offer to Purchase at any time on or prior to the
Expiration Date. All questions as to the form and validity (including the time
of receipt) of any notice of withdrawal will be determined by Purchaser, in its
sole discretion, whose determination will be final and binding. None of the
Purchaser, Parent, the Dealer Managers, the Depositary, the Information Agent,
or any other person will be under any duty to give notification of any defects
or irregularities in any notice of withdrawal or incur any liability for a
failure to give such notification.
The information required to be disclosed by Rule 14d-6(e)(1) and Rule 13e-
3(e)(1) of the General Rules and Regulations under the Securities Exchange Act
of 1934, as amended, is contained in the Offer to Purchase and is incorporated
herein by reference.
The Company has provided the Company's stockholder list and security
position listings to the Purchaser for the purpose of disseminating the Offer to
holders of Shares. The Offer to Purchase and the related Letter of Transmittal
and, if required, other relevant materials will be mailed to record holders of
Shares and will be furnished to brokers, dealers, commercial banks, trust
companies and similar persons whose names, or the names of whose nominees,
appear on the stockholder list or, if applicable, who are listed as participants
in a clearing agency's security listing for subsequent transmittal to beneficial
owners of Shares.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Managers as set forth below and additional copies of the
Offer to Purchase and the related Letter of Transmittal and other tender offer
materials may be obtained from the Information Agent and will be furnished
promptly at Purchaser's expense. No fees or commissions will be paid to brokers,
dealers or other persons (other than the Information Agent and the Dealer
Managers) for soliciting tenders of Shares pursuant to the Offer.
The Information Agent for the Offer is:
CORPORATE INVESTOR COMMUNICATIONS, INC.
111 Commerce Road
Carlstadt, New Jersey 07072-2586
Banks and Brokers call collect (201) 896-1900
All others call toll free (888) 296-3503
(888) 296-3503
The Dealer Managers for the Offer are:
GOLDMAN, SACHS & CO.
85 Broad Street
New York, New York 10004
(212) 902-1000 (Call Collect)
(800) 323-5678 (Toll Free)
November 2, 1998
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<PAGE>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- --------------------------------------------x
DAVID FINKELSTEIN, :
:
Plaintiff, :
:
- against - : Civil Action No. 16748NC
:
JOHN F. O'BRIEN, J. BARRY MAY, : CLASS ACTION
JAMES R. McAULIFFE, ERIC A SIMONSEN, : COMPLAINT
JAMES A. COTTER, JR., NEAL J. CURTIN, : ---------
DONNA SCOTT LASKEY, CITIZENS CORPORATION :
and ALLMERICA FINANCIAL CORPORATION, :
:
Defendants. :
- --------------------------------------------x
Plaintiff alleges upon information and belief, except for paragraph 1
hereof, which is alleged upon knowledge, as follows:
1. Plaintiff has been the owner of shares of the common stock of Citizens
Corporation ("Citizens" or the "Company") since prior to the transaction herein
complained of and continuously to date.
2. Citizens is a corporation duly organized and existing under the laws
of the State of Delaware. The Company is a holding company with subsidiaries
which underwrite property and casualty insurance products, including personal
automobile, homeowners, and workers compensation insurance. The Company
maintains it principal offices at 440 Lincoln Street, Worcester, Massachusetts.
<PAGE>
3. Allmerica Financial Corporation ("Allmerica") controls approximately
82.5% of the Company's outstanding common stock.
4. Defendant John F. O'Brien is Chairman, President, and Chief Executive
Officer of Citizens.
5. Defendants J. Barry May, James R. MacAuliffe, Eric A. Simonsen, Janmes
A. Cotter, Jr., Neal J. Curtin and Donna Scott Laskey are directors of Citizens.
The individual defendants are Allmerica's nominees on Citizens's Board of
Directors and are controlled by Allmerica.
6. The individual defendants stand in a fiduciary position relative to
the Company's public shareholders and owe the public shareholders of Citizens
the highest duties of good faith, fair dealing, due care, loyalty, and full and
candid disclosure.
CLASS ACTION ALLEGATIONS
------------------------
7. Plaintiff brings this action on his own behalf and as a class action,
pursuant to Rule 23 of the Rules of the court of Chancery, on behalf of all
security holders of the Company (except the defendants herein and any person,
firm, trust, corporation, or other entity related to or affiliated with any of
the defendants) and their successors in interest, who are or will be threatened
with injury arising from defendants' actions as more fully described herein.
8. This action is properly maintainable as a class action.
9. The class is so numerous that joinder of all members is impracticable.
There are approximately 35,282,100 shares of Citizens common stock outstanding,
of which approximately 17.5% of the common stock is owned by holders other than
defendant Allmerica and/or directors and officers of the Company.
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<PAGE>
10. There are questions of law and fact which are common to the class and
which predominate over questions affecting any individual class member. The
common questions include, inter alia, the following: (a) whether defendants have
----- ----
breached their fiduciary and other common law duties owed by them to plaintiff
and the members of the class; (b) whether defendants are pursuing a scheme and
course of business designed to eliminate the public securities holders of
Citizens in violation of the laws of the State of Delaware in order to enrich
Allmerica at the expense and to the detriment of the plaintiff and the other
public stockholders who are members of the class; (c) whether the said proposed
acquisition, hereinafter described, constitutes a breach of the duty of fair
dealing with respect to the plaintiff and the other members of the class; and
(d) whether the class is entitled to injunctive relief or damages as a result of
the wrongful conduct committed by defendants.
11. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of the
plaintiff are typical of the claims of other members of the class and plaintiff
are typical of the claims of other members of the class and plaintiff has the
same interests as the other members of the class. Plaintiff will fairly and
adequately represent the class.
12. Defendants have acted in a manner which affects plaintiff and all
members of the class, thereby making appropriate injunctive relief and/or
corresponding declaratory relief with respect to the class as a whole.
13. The prosecution of separate actions by individual members of the Class
would create a risk of inconsistent or varying adjudications with respect to
individual members of the Class, which would establish incompatible standards of
conduct for defendants, or adjudications
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<PAGE>
with respect to individual members of the Class which would, as a practical
matter, be dispositive of the interests of other members or substantially impair
or impede their ability to protect their interests.
SUBSTANTIVE ALLEGATIONS
-----------------------
14. On October 27, 1998, Allmerica announced that it had offered to
purchase the approximately 17.5% of Citizens common stock which it did not
already own for $29.00 per share in cash.
15. The price of $29.00 per share to be paid to the class members is
unfair and inadequate consideration because, among other things: (a) the
intrinsic value of the stock of Citizens is materially in excess of $29.00 per
share, giving due consideration to the prospects for growth and profitability of
Citizens in light of its business, earnings and earnings power, present and
future; (b) the $29.00 per share price is inadequate and offers only a minimal
premium to the public stockholders of Citizens in light of the fact that
Citizens's shares traded at a price of $29.00 three days before the proposed
transaction was announced, and (c) the $29.00 per share price is not the result
of arm's-length negotiations but was fixed arbitrarily by Allmerica to "cap" the
market price of Citizens' stock, as part of a plain for Allmerica to obtain
complete ownership of Citizens's assets and business at the lowest possible
price.
16. The proposed bid serves no legitimate business purpose of Citizens but
rather is an attempt b defendants to unfairly benefit Allmerica from the
transaction at the expense of Citizen's public stockholders. The proposed plan
will, for a grossly inadequate consideration, deny plaintiff and the other
members of the class their right to share proportionately in the future success
of
-4-
<PAGE>
Citizens and its valuable assets, while permitting Allmerica to reap huge
benefits from the transaction.
17. By reason of the foregoing acts, practices and course of conduct,
Allmerica has breached and continues to breach its duty as controlling
stockholder of Citizens and the individual defendants have breached and continue
to breach their duties as directors of Citizens, to the remaining stockholders
including plaintiff and the other members of the class herein and are engaging
in improper overreaching in attempting to carry out the proposed transaction.
18. Plaintiff and the class will suffer irreparable damage unless
defendants are enjoined from breaching their fiduciary duties and from carrying
out the aforesaid plain and scheme.
19. Plaintiff and the other members of the class have no adequate remedy
at law.
WHEREFORE, plaintiff demands judgement against the defendants jointly and
severally, as follows:
a. declaring this action to be a class action and certifying
plaintiff as class representative;
b. enjoining, preliminarily and permanently, the transaction
complained of herein;
c. to the extent, if any, that the transaction or transactions
complained of are consummated prior to the entry of this Court's final judgment,
rescinding such transaction or transactions, or granting, inter alia, rescissory
----- ----
damaged to the Class;
d. directing that defendants pay to plaintiff and the other members of
the Class all damages caused to them and account for all profits and any special
benefits obtained as a result of their unlawful conduct;
-5-
<PAGE>
e. awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for the fees and expenses of plaintiff's
attorneys and experts, and
f. granting plaintiff and the other members of the Class such other
and further relief as may be just and proper.
ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A.
By: /signature/
--------------------------------------
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, Delaware 19801
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
BERNSTEIN LIEBHARD & LIFSHITZ
274 Madison Avenue
New York, NY 10016
(212) 779-1414
-6-
<PAGE>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- ----------------------------------------------------X
:
HAYES MCKINNIE, :
:
Plaintiff, :
:
v. :C.A. No. 16749NC
:
JOHN F. O'BRIEN, ERIC A. SIMONSEN, :
JAMES R. MCAULIFFE, NEAL J. CURTIN, :
JAMES A. COTTER, JR., J. BARRY MAY, :
DONA SCOTT LASKEY, ALLMERICA :
FINANCIAL CORPORATION and :
CITIZENS CORPORATION, :
:
Defendants. :
- ----------------------------------------------------X
SHAREHOLDER'S CLASS ACTION COMPLAINT
------------------------------------
Plaintiff, by his attorneys, for his complaint against defendants, alleges
upon personal knowledge as to himself, and upon information and belief based,
inter alia, upon the investigation of counsel, as to all other allegations
- ----- ----
herein, as follows:
NATURE OF THE ACTION
--------------------
1. This is a stockholder's class action on behalf of the public
stockholders of Citizens Corporation ("Citizens" or the "Company"), against its
directors and the controlling shareholder of Citizens in connection with the
proposed acquisition of the publicly owned shares of Citizens common stock by
its controlling shareholder, defendant Allmerica Financial Corporation
("Allmerica").
<PAGE>
2. The consideration that Allmerica has offered to members of the Class
(as defined below) in the proposed transaction is unfair and inadequate because,
among other things, the intrinsic value of Citizens' common stock is materially
in excess of the amount offered, giving due consideration to the Company's
growth and anticipated operating results, net asset value and profitability.
THE PARTIES
-----------
3. Plaintiff is and at all relevant times has been the owner of shares of
Citizens common stock.
4. (a) Citizens is a Delaware corporation with its principal executive
offices at 440 Lincoln Street, Worcester, Massachusetts, 01653. Citizens
underwrites personal and commercial property and casualty insurance in Michigan.
(b) As of August 1, 1998, Citizens had approximately 35 million
shares of common stock outstanding, held by hundreds of shareholders of record.
Citizens common stock is listed and traded on the New York Stock Exchange.
5. (a) Defendant Allmerica is a Delaware corporation with its principal
executive offices located at 440 Lincoln Street, Worcester, Massachusetts,
01653. Allmerica, a holding company, markets insurance and retirement savings
products and services to individual and institutional clients.
(b) Allmerica holds approximately 82.5% of the outstanding common
stock of Citizens. As such, Allmerica and its representatives on the Citizens
board effectively control and dominate Citizens' affairs. Allmerica, therefore,
is a controlling shareholder and owes
-2-
<PAGE>
fiduciary obligations of good faith, candor, loyalty and fair dealing to the
public shareholders of Citizens.
6. (a) Defendants John F. O'Brien ("O'Brien"), Eric A. Simonsen, James R.
McAuliffe, Neal J. Curtin, James A. Cotter, Jr., J. Barry May and Dona Scott
Laskey constitute the Board of Directors of Citizens (collectively, the
"Individual Defendants").
(b) In addition, at all relevant times, defendant O'Brien served as
President, Chief Executive Officer and Chairman of the Board of the Company and
President and Chief Executive Officer of Allmerica. Defendant Simonsen also
serves as a Vice President of Allmerica.
7. Each Individual Defendant and Allmerica owed and owes Citizens and its
public stockholders fiduciary obligations and were and are required to: use
their ability to control and manage Citizens in a fair, just and equitable
manner; act in furtherance of the best interests of Citizens and its public
stockholders; refrain from abusing their positions of control; and not to favor
their own interests at the expense of its public stockholders.
CLASS ACTION ALLEGATIONS
------------------------
8. Plaintiff brings this action pursuant to Rule 23 of the Rules of the
Court, on behalf of himself and all other public shareholders of the Company
(except the defendants herein and any persons, firm, trust, corporation, or
other entity related to or affiliated with them) and their successors in
interest, who are or will be threatened with injury arising from defendants'
actions, as more fully described herein (the "Class").
9. This action is properly maintainable as a class action for the
following reasons:
-3-
<PAGE>
a. The Class is so numerous that joinder of all members is
impracticable. There are in excess of 35 million shares of Citizens common stock
which are outstanding, held by hundreds, if not thousands, of record and
beneficial stockholders.
b. There are questions of law and fact that are common to the Class
and that predominate over questions affecting any individual class member. The
common questions include, inter alia, the following:
----- ----
i) Whether the defendants have engaged in or are continuing to
engage in conduct which unfairly benefits Allmerica at the expense of the
members of the Class;
ii) Whether the Individual Defendants, as officers and/or directors
of the Company, and Allmerica, the controlling stockholder of Citizens are
violating their fiduciary duties to plaintiff and the other members of the
Class;
iii) Whether plaintiff and the other members of the Class would be
irreparably damaged were defendants not enjoined from the conduct described
herein;
iv) Whether defendants have initiated and timed their buy-out of
Citizens public shares to unfairly benefit Allmerica at the expense of Citizens'
public shareholders.
c. The claims of plaintiff are typical of the claims of the other
members of the Class in that all members of the Class will be damaged alike by
defendants' actions.
d. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. Accordingly,
plaintiff is an adequate representative of the Class.
-4-
<PAGE>
SUBSTANTIVE ALLEGATIONS
-----------------------
10. On or about April 30, 1998, Citizens announced strong earnings for the
first quarter of 1998. Net operating income for the 1998 first quarter
increased 36% to $21.2 million, or $0.60 per share, as compared to $15.6
million, or $0.44 per share, for the comparable quarter in 1997.
11. Thereafter, the Company reported disappointing earnings for the second
quarter. Commenting on these results, defendant O'Brien stated that they were
primarily due to record catastrophe losses. O'Brien stated, however, that "As
we go forward, we will continue to leverage our distribution strengths,
particularly in affinity marketing, and to pursue growth opportunities in
Indiana and Ohio that will deliver greater value to our shareholders."
12. On or about October 27, 1998, Allmerica announced that it, or one of
its wholly-owned subsidiaries, shortly will commence a cash tender offer to
acquire all of the outstanding shares of Citizen that it already does not own at
a price of $29.00 per share, for an aggregate of about $171 million (the
"Proposed Transaction"). Giving consideration to Citizens' historical financial
success and bright prospects, the Proposed Transaction represents an inadequate
premium over the market price of Citizens on October 26, 1998.
13. According to defendants, any shares not purchased in the tender offer
will be acquired for the same price in a second-step merger.
14. Any transaction to acquire the Company at the price being considered
does not represent the true value of the Company and is unfair and inadequate.
As recently as July 1998, the Company's shares traded at values far exceeding
the price offered in the Proposed Transaction.
-5-
<PAGE>
15. The price that Allmerica has offered has been dictated by Allmerica to
serve its own interests, and is being crammed down by Allmerica and its
representatives on Citizens' Board to force Citizens' public shareholders to
relinquish their Citizens shares at a grossly unfair price.
16. Allmerica, by reason of its approximate 82% ownership of Citizens'
outstanding shares, is in a position to ensure effectuation of the transaction
without regard to its fairness to Citizens' public shareholders.
17. Because Allmerica is in possession of proprietary corporate
information concerning Citizens' future financial prospects, the degree of
knowledge and economic power between Allmerica and the class members is unequal,
making it grossly and inherently unfair for Allmerica to obtain the remaining
Citizens' shares at the unfair and inadequate price that it has proposed.
18. By offering a grossly inadequate price for Citizens' shares and by
using its control as a means to force the consummation of the transaction.
Allmerica is violating its duties as a controlling shareholder.
19. Any purported review of the transaction by a special committee of
"independent directors" would be a sham given Allmerica's domination and control
of the Citizens Board.
20. Any buy-out of Citizens public shareholders by Allmerica on the terms
offered, will deny class members their right to share proportionately and
equitably in the true value of Citizens' valuable and profitable business, and
future growth in profits and earnings, at a time when the Company is posed to
increase its profitability.
-6-
<PAGE>
21. Because Allmerica is a controlling shareholder of Citizens and
dominates its Board, no auction or market check can be effected to establish
Citizens' worth through arm's-length bargaining. Thus, Allmerica has the power
and is exercising its power to acquire Citizens' shares and dictate terms which
are in Allmerica's best interest, without competing bids and regardless of
wishes or best interests of the class members or the intrinsic value of
Citizens' stock.
22. By reason of the foregoing, defendants have breached and will continue
to breach their duties to the public shareholders of Citizens and are engaging
in improper, unfair dealing and wrongful and coercive conduct.
23. Plaintiff and the Class will suffer irreparable harm unless defendants
are enjoined from breaching their fiduciary duties and from carrying out the
aforesaid plan and scheme.
24. Plaintiff and the other class members are immediately threatened by
the acts and transactions complained of herein, and lack an adequate remedy at
law.
WHEREFORE, plaintiff demands judgment and preliminary and permanent relief,
including injunctive relief, in his favor and in favor of the Class and against
defendants as follows:
A. Declaring that this action is properly maintainable as a class action
and certifying plaintiff as a class representative;
B. Enjoining the proposed transaction and, if the transaction is
consummated, rescinding the transaction;
-7-
<PAGE>
C. Awarding plaintiff and the Class compensatory damages and/or rescissory
damages;
D. Awarding plaintiff his costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorneys' and experts' fees;
and
E. Granting such other, and further relief as this Court may deem to be
just and proper.
ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
By: /signature/
------------------------------
Suite 1401 Mellon Bank Center
Post Office Box 1070
Wilmington, Delaware 19899
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
STULL STULL & BRODY
6 East 45th Street
New York, NY 10017
(212) 687-7230
-8-
<PAGE>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- ------------------------------------------
TOM SPECHT, )
Plaintiff, )
)
-against- )
)
JOHN F. O'BRIEN, ERIC A SIMONSEN, ) C.A. No. 16746NC
JAMES R. MCAULIFFE, NEAL J. CURTIN, )
JAMES A. COTTER, JR., J. BARRAY MAY )
DONA SCOTT LASKEY, ALLMERICA FINANCIAL )
CORPORATION AND CITIZENS CORPORATION, )
)
Defendants. )
)
- ------------------------------------------
SHAREHOLDER'S CLASS ACTION COMPLAINT
------------------------------------
Plaintiff, by his attorneys, for his complaint against defendants, alleges
upon personal knowledge as to himself, and upon information and belief based,
inter alia, upon the investigation of counsel, as to all other allegations
- ----------
herein, as follows:
NATURE OF THE ACTION
--------------------
1. This is a stockholder's class action on behalf of the public
stockholders of Citizens Corporation ("Citizens" or the "Company"), against its
directors and the controlling shareholder of Citizens in connection with the
proposed acquisition of the publicly owned shares of Citizens common stock by
its controlling shareholder, defendant Allmerica Financial Corporation
("Allmerica").
2. The consideration that Allmerica has offered to members of the Class
(as defined below) in the proposed transaction is unfair and inadequate because,
among other
<PAGE>
things, the intrinsic value of Citizens' common stock is materially in excess of
the amount offered, giving due consideration to the Company's growth and
anticipated operating results, net asset value and profitability.
THE PARTIES
-----------
3. Plaintiff is and at all relevant times has been the owner of shares of
Citizens common stock.
4. (a) Citizens is a Delaware corporation with its principal executive
officers at 440 Lincoln Street, Worcester, Massachusetts, 01653. Citizens
underwrites personal and commercial property and casualty insurance in Michigan.
(b) As of August 1, 1998, Citizens had approximately 35 million shares
of common stock outstanding, held by hundreds of shareholders of record.
Citizens common stock is listed and traded on the New York Stock Exchange.
5. (a) Defendant Allmerica is a Delaware corporation with its principal
executive offices located at 440 Lincoln Street, Worcester, Massachusetts,
01653. Allmerica, a holding company, markets insurance and retirement savings
products and services to individual and institutional clients.
(b) Allmerica holds approximately 82.5% of the outstanding common
stock of Citizens. As such, Allmerica and its representatives on the Citizens
board effectively control and dominate Citizens' affairs. Allmerica, therefore,
is a controlling shareholder and owes fiduciary obligations of good faith,
candor, loyalty, and fair dealing to the public shareholders of Citizens.
6. (a) Defendants John F. O'Brien ("O'Brien"), Eric A Simonsen, James R.
McAuliffe, Neal J. Curtin, James A. Cotter, Jr., J. Barry May and Dona Scott
Laskey
<PAGE>
constitute the Board of Directors of Citizens (collectively, the "Individual
Defendants").
(b) In addition, at all relevant times, defendant O'Brien served as
President, Chief Executive Officer and Chairman of the Board of the Company and
President and Chief Executive Officer of Allmerica. Defendant Simonsen also
serves as a Vice President of Allmerica.
7. Each Individual Defendant and Allmerica owed and owes Citizens and its
public stockholders fiduciary obligations and were and are required to: use
their ability to control and manage Citizens in a fair, just and equitable
manner; act in furtherance of the best interests of Citizens and its public
stockholders; refrain from abusing their position of control; and not to favor
their own interests at the expense of its public stockholders.
CLASS ACTION ALLEGATIONS
------------------------
8. Plaintiff brings this action pursuant to Rule 23 of the Rules of this
Court, on behalf of himself and all other public shareholders of the Company
(except the defendants herein and any persons, firm, trust, corporation, or
other entity related to or affiliated with them) and their successors in
interest, who are or will be threatened with injury arising from defendants'
actions, as more fully described herein (the "Class").
9. This action is properly maintainable as a class action for the
following reason:
a. The Class is so numerous that joinder of all members is
impracticable. There are in excess of 35 million shares of Citizens common stock
which are outstanding, held by hundreds, if not thousands, of record and
beneficial stockholder.
b. There are questions of law and fact that are common to the Class
and that predominate over questions affecting any individual class member. The
common questions include, inter alia, the following:
----------
<PAGE>
i) Whether defendants have engaged in and are continuing to engage
in conduct which unfairly benefits Allmerica at the expense of the members of
the Class:
ii) Whether the Individual Defendants, as officers and/or directors
of the Company, and Allmerica, the controlling stockholder of Citizens are
violating their fiduciary duties to plaintiff and the other members of the
Class;
iii) Whether plaintiff and the other members of the Class would be
irreparably damaged were defendants not enjoined from the conduct described
herein;
iv) Whether defendants have initiated and timed their buy-out of
Citizens public shares to unfairly benefit Allmerica at the expense of Citizens'
public shareholders.
c. The claims of plaintiff are typical of the claims of the other
members of the Class in that all members of the Class will be damaged alike by
defendants' actions.
d. Plaintiff is committed to prosecuting this action and has
retained competent counsel experience in litigation of this nature.
Accordingly, plaintiff is an adequate representative of the Class.
SUBSTANTIVE ALLEGATIONS
-----------------------
10. On or about April 30, 1998, Citizens announced strong earnings for the
first quarter of 1998. Net operating income for th we go forward, we will
continue to leverage our distribution strengths, particularly in affinity
marketing, and to pursue growth opportunities in Indiana and Ohio that will
deliver greater value to our shareholders."
11. Thereafter, the Company reported disappointing earnings for the second
quarter. Commenting on these results, defendant O'Brien stated, however, that
"As we go forward, we will continue to leverage our distribution strengths,
particulary in affinity marketing, and to
<PAGE>
pursue growth opportunities in Indiana and Ohio that will deliver greater value
to our shareholders."
12. On or about October 27, 1998, Allmerica announced that it, or one of
its wholly-owned subsidiaries, shortly will commence a cash tender offer to
acquire all of the outstanding shares of Citizen that it already does not own at
a price of $29.00 per share, for an aggregate of about $171 million (the
"Proposed Transaction"). Giving consideration to Citizens' historical financial
success and bright prospects, the Proposed Transaction represents an inadequate
premium over the market price of Citizens on October 26, 1998.
13. According to defendants, any shares not purchased in the tender offer
will be acquired for the same price in a second-step merger.
14. Any transaction to acquire the Company at the price being considered
does not represent the true value of the Company and is unfair and inadequate.
As recently as July 1998, the Company's shares traded at values far exceeding
the price offered in the Proposed Transaction.
15. The price that Allmerica has offered has been dictated by Allmerica to
serve its own interests, and is being crammed down by Allmerica and its
representatives of Citizens' Board to force Citizens' public shareholders to
relinquish their Citizens shares at a grossly unfair price.
16. Allmerica, by reason of its approximate 82% ownership of Citizens'
outstanding shares, is in a position to ensure effectuation of the transaction
without regard to its fairness to Citizens' public shareholders.
17. Because Allmerica is in possession of proprietary corporate
information concerning Citizens' future financial prospects, the degree of
knowledge and economic power
<PAGE>
between Allmerica and the class members is unequal, making it grossly and
inherently unfair for Allmerica to obtain the remaining Citizens' shares at the
unfair and inadequate price that it has proposed.
18. By offering a grossly inadequate price for Citizens' shares and by
using its control as a means to force the consummation of the transaction.
Allmerica is violating its duties as a controlling shareholder.
19. Any purported review of the transaction by a special committee of
"independent directors" would be a sham given Allmerica's domination and control
of the Citizens Board.
20. Any buy-out of Citizens public shareholders by Allmerica on the terms
offered, will deny class members their right to share proportionately and
equitably in the true value of Citizens' valuable and profitable business, and
future growth in profits and earning, at a time when the Company is poised to
increase its profitability.
21. Because Allmerica is a controlling shareholder of Citizens and
dominates its Board, no auction or market check can be effected to establish
Citizens' worth through arms-length bargaining. Thus, Allmerica has the power
and is exercising its power to acquire Citizens' shares and dictate terms which
are in Allmerica's best interest, without competing bids and regardless of the
wishes or best interests of the class members or the intrinsic value of
Citizens's stock.
22. By reason of the foregoing, defendants have breached and will continue
to breach their duties to the public shareholders of Citizens and are engaging
in improper, unfair dealing and wrongful and coercive conduct.
23. Plaintiff and the Class will suffer irreparable harm unless defendants
are enjoined from breaching their fiduciary duties and from carrying out the
aforesaid plan and scheme.
<PAGE>
24. Plaintiff and the other class members are immediately threatened by
the acts and transactions complained of herein, and lack an adequate remedy at
law.
WHEREFORE, plaintiff demands judgment and preliminary and permanent relief,
including injunctive relief, in his favor and in favor of the Class and against
defendants as follows:
A. Declaring that this action is properly maintainable as a class
action, and certifying plaintiff as a class representative
B. Enjoining the proposed transaction and, if the transaction is
consummated, rescinding the transaction;
C. Awarding plaintiff and the Class compensatory damages and/or
rescissory damages;
D. Awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorneys' and experts' fees;
and
E. Granting such other, and further relief as this Court may deem to
be just and proper.
ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
By: /signature/
-----------------------------------
Suite 1401 Mellon Bank Center
Post Office Box 1070
Wilmington, Delaware 19899
(302) 656-4433
Attorneys for Plaintiff
<PAGE>
OF COUNSEL:
Joseph H. Weiss
WEISS & YOURMAN
551 Fifth Avenue
Suite 1600
New York, NY 10176
Steven G., Schulman
U. Seth Ottensoser
MILBERG WEISS BERSHAD HYNES
& LERACH, LLP
One Pennsylvania Plaza
New York, NY 10119
(212) 594-5300
<PAGE>
IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- --------------------------------------x
:
KENNETH STEINER, on behalf of himself :
and all others similarly situated, : Civ. No. 16747NC
:
Plaintiff, :
:
- against - : CLASS ACTION COMPLAINT
: ----------------------
JOHN F. O'BRIEN, JAMES C. COTTER, JR.,:
NEAL J. CURTIN, DONA SCOTT LASKEY, J. :
BARRY MAY, JAMES R. McAULIFFE, ERIC :
A. SIMONSEN, ALLMERICA FINANCIAL :
CORPORATION and CITIZENS :
CORPORATION, :
:
Defendants. :
:
- --------------------------------------x
Plaintiff, by and through his attorneys, alleges the following upon
information and belief, except as to paragraph 1 which is alleged upon personal
knowledge:
THE PARTIES
-----------
1. Plaintiff is and has been at all relevant times the owner of shares of
the common stock of Citizens Corporation ("Citizens" or the "Company").
2. Defendant John F. O'Brien ("O'Brien") is and has been at all relevant
times Chairman, President and Chief Executive Officer of Citizen and also
President and Chief Executive Officer of Allmerica Financial Corporation
("Allmerica").
<PAGE>
3. Defendant J. Barry May ("May") is and has been at all relevant times
Vice President and a director of Citizens and Executive Vice President of
Citizens' wholly-owned subsidiary, Citizens Insurance Company of America
("Citizens Insurance"). May is also President and a director of The Hanover
Insurance Company, a wholly-owned subsidiary of Allmerica.
4. Defendant James R. McAuliffe ("McAuliffe") is and has been at all
relevant times Vice President and a director of Citizens and President of
Citizens Insurance. McAuliffe is also Vice President of Allmerica.
5. Defendant Eric A. Simonsen ("Simonsen") is and has been at all
relevant times Vice President and a director of Citizens and also Vice President
of Allmerica.
6. Defendants James a Cotter, Jr., Neal J. Curtin and Dona Scott Laskey
are and have been at all relevant times directors of Citizens.
7. The Individual Defendants are in a fiduciary relationship with
plaintiff and other public stockholders of Citizens and owe plaintiff and other
members of the Class (defined below) the highest obligations of good faith,
candor, loyalty and fair dealing.
8. Citizens is a Delaware corporation with principal executive offices
located at 440 Lincoln Street in Worcester, Massachusetts. Citizens underwrites
personal and commercial property and casualty insurance in Michigan. The
Company's insurance segments include personal automobile, homeowners, workers'
compensation commercial automobile and commercial multiple peril.
9. Defendant Allmerica is a Delaware corporation that shares its
headquarters with Citizens. Allmerica is a holding company that markets
insurance and retirement savings products and services to individual and
institutional clients. Allmerica also offers property and casualty
-2-
<PAGE>
products primarily through independent agents. Allmerica, directly and through
its wholly owned subsidiary, The Hanover Insurance Company, owns 29,093,500 or
82.5% of Citizen's outstanding common stock.
10. Allmerica is a controlling shareholder and owes fiduciary obligations
of good faith, candor, loyalty and fair dealing to the public shareholders of
Citizens.
CLASS ACTION ALLEGATIONS
------------------------
11. Plaintiff brings this action behalf of himself and as a class action,
pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all
public stockholders of Citizens, and their successors in interest, who are or
will be threatened with injury arising from defendants' actions as more fully
described herein (the "Class"). Excluded from the Class are defendants herein
and any person, firm, trust, corporation, or other entity related to or
affiliated with any of the defendants.
12. This action is properly maintainable as a class action because:
a. The Class is so numerous that joinder of all members is
impracticable. There are approximately 35.3 million shares of Citizens common
stock outstanding, approximately 6.2 million of which shares are publicly held
by hundreds of stockholders of record. Citizen's shares are actively traded on
the New York Stock Exchange. Members of the Class are scattered throughout the
United States;
b. There are questions of law and fact which are common to the Class
and which predominate over questions affecting any individual Class member;
-3-
<PAGE>
c. Defendants have acted and will continue to act on grounds
generally applicable to the Class, thereby making appropriate final injunctive
or corresponding declaratory relief with respect to the Class as a whole;
d. Plaintiff is committed to the prosecution of this action and has
retained competent counsel experienced in litigation of this nature.
Plaintiff's claims are typical of the claims of other members of the Class and
plaintiff has the same interests as the other members of the Class.
Accordingly, plaintiff is an adequate representative of the Class and will
fairly and adequately protect the interests of the Class.
BACKGROUND AND CLAIM FOR RELIEF
-------------------------------
13. Since July 31, 1998 Citizens' shares have fallen from $30 per share to
approximately $25 per share in the wake of unusually poor second and third
quarter financial results that reflected catastrophe losses caused by an
unusually active hurricane season spawned by El Nino.
14. On October 27, 1998, Allmerica announced that it had offered to buy
the remaining 17.5 percent of Citizens' outstanding shares it does not already
own for $29 per share.
15. Allmerica's offer of $29.00 per share for Citizens stock is grossly
inadequate in light of the recent trading price of Citizen's shares, which
reached a high of $34 15/16 on April 12, 1998.
16. As a result of its stock ownership, Allmerica's dominance of Citizens
is virtually complete. In addition to owning approximately 82.5% of Citizens'
outstanding common shares, Allmerica dominates and controls Citizens' board of
directors and effectively controls Citizens' business. By virtue of their duel
positions as directors and/or officers of Citizens and Allmerica,
-4-
<PAGE>
the majority of the Individual Defendants suffer from disabling conflicts of
interest in that Allmerica's desire to obtain 100% of Citizens as cheaply as
possible is in conflict with defendants' obligation to treat Citizens' minority
shareholders with entire fairness.
17. Because Allmerica controls approximately 82.% of Citizens, it can, as
a practical matter, effectively force the minority shareholders to accept its
grossly inadequate offer.
18. By virtue of the acts and conduct alleged herein, Allmerica and the
Individual Defendants are not complying with their fiduciary duties and are
carrying out a preconceived plan to protect and advance Allmerica's own
parochial interests at the expense of Citizens' public shareholders.
19. Allmerica, the controlling shareholder of Citizens, has breached its
fiduciary duties owed to Class members by seeking to acquire Class members'
shares for grossly inadequate consideration and in a procedurally unfair manner.
20. Unless enjoined by this Court, defendants will continue to breach
their fiduciary duties owed to plaintiff and the other members of the Class and
will benefit Allmerica to the irreparable harm of the Class.
21. Plaintiff and the other members of the Class have no adequate remedy
at law.
WHEREFOR, plaintiff demands judgment as follows:
A. declaring this to be a proper class action;
B. enjoining consummation of the Allmerica Offer, or, alternatively
awarding rescissory damages to the Class;
-5-
<PAGE>
C. ordering defendants, jointly and severally, to account to plaintiff
and the other members of the Class for all damages suffered and to be suffered
by them as a result of the acts and transactions alleged herein;
D. awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorney's fees and expert's
fees;
and
E. granting such other and further relief as this Court may deem to be
just and proper.
ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
By: /signature/
-------------------------------
1401 Mellon Bank Center
919 Market Street
Wilmington, DE 19801
(302) 656-4433
OF COUNSEL:
GOODKIND LABATION RUDOFF
& SUCHAROW LLP
Jonathan M. Plasse
Catherine A. Murphy
100 Park Avenue
New York, NY 10017
(212) 907-0700
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
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:
LESLIE SUSSER, : C.A. No. 16745
:
Plaintiff, :
:
v. : CLASS ACTION COMPLAINT
: ----------------------
JOHN F. O'BRIEN, BARRY MAY, :
JAMES MCAULIFFE, ERIC SIMONSEN, :
JAMES COTTER, NEAL CURTIN, DONNA :
SCOTT LASKEY, CITIZENS CORPORATION :
and ALLMERICA FINANCIAL :
CORPORATION, :
:
Defendants. :
:
:
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Plaintiff, by his attorneys, alleges upon information and belief, except as
to paragraph 1 which plaintiff alleges upon knowledge, as follows:
1. Plaintiff Leslie Susser is a stockholder of defendant Citizens
Corporation ("Citizens" or the "Company").
2. Citizens is a corporation duly organized and existing under the laws
of the State of Delaware, with its principal offices located at 440 Lincoln
Street, Worcester, Massachusetts. As of August 1, 1998, there were over 35
million shares of Citizens common stock outstanding.
3. Defendant Allmerica Financial Corporation ("Allmerica") is a
corporation duly organized and existing under the laws of the State of Delaware
with its principal offices located
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at 440 Lincoln Street, Worcester, Massachusetts. Allmerica is a holding company
with subsidiaries which underwrite property and casualty, surety, life insurance
and annuity product. Allmerica owns approximately 82.5% of Citizen's outstanding
stock.
4. Defendant John F. O'Brien is the Chairman of the Company's Board of
Directors.
5. Defendant Barry May is a Director of Citizens.
6. Defendant James McAuliffe is a Director of Citizens.
7. Defendant Eric Simonsen is a Director of Citizens.
8. Defendant James Cotter is a Director of Citizens.
9. Defendant Neal Curtin is a Director of Citizens.
10. Defendant Donna Scott Laskey is a Director of Citizens.
11. The Individual Defendants have a fiduciary relationship and
responsibility to plaintiff and the other common public stockholders of Citizens
and owe to plaintiff and the other class members the highest obligations of good
faith, loyalty, fair dealing, due care and candor.
CLASS ACTION ALLEGATIONS
------------------------
12. Plaintiff brings this action in his own behalf and as a class action,
pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all
common stockholders of Citizens, or their successors in interest, who are being
and will be harmed by defendants' actions described below (the "Class").
Excluded from the Class are defendant herein and any person, firm, trust,
corporation, or other entity related to or affiliated with any of defendants.
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13. This action is properly maintainable as a class action because:
a. The Class is so numerous that joinder of all members is
impracticable. There are hundreds of Citizens stockholders of record who are
located throughout the United States;
b. There are questions of law and fact which are common to the
Class, including: whether the defendants have engaged or are continuing to act
in a manner calculated to benefit themselves at the expense of Citizens
stockholders; and whether plaintiff and the other members of the Class would be
irreparably damaged if the defendants are not enjoined in the manner described
below;
c. The defendants have acted or refused to act on grounds generally
applicable to the Class, thereby making appropriate final injunctive relief with
respect to the Class as a whole; and
d. Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of plaintiff are typical of the claims of the other members of the Class and
plaintiff has the same interests as the other members of the Class.
Accordingly, plaintiff is an adequate representative of the Class and will
fairly and adequately protect the interests of the Class.
CLAIM FOR RELIEF
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14. On August 27, 1998, it was reported that Allmerica will being a cash
tender offer to acquire all Citizens' common shares that it does not already own
at $29 each.
15. Citizens has 8 board members whose loyalties are, at best, divided in
the instant transaction and cannot be expected to act in the best interest of
Citizens's stockholders.
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16. The purpose of the proposed acquisition is to enable Allmerica to
acquire the shares of Citizens it does not already own, as well as Citizens's
valuable assets, for Allmerica's own benefit at the expense of Citizens's public
stockholders.
17. The proposed acquisition comes at a time when Citizens has performed
well and Allmerica expects it will continue to perform well because it is
already well-positioned to do so.
18. Allmerica has timed this transaction to capture Citizens's future
potential and use it to its own ends without paying an adequate or fair price
for the Company's remaining shares.
19. Amidst this backdrop of positive and improving financial position and
increased prospects for growth, Allmerica has announced that it plans to make a
tender offer of $29 for each share of Citizens common stock. The offer made by
Allmerica represents a woefully inadequate premium over the current price of
Citizens common stock.
20. The Individual Defendants and Allmerica are in a position of control
and power over the Citizens's stockholders and have access to internal financial
information about Citizens, its true value, expected increase in true value and
the benefits to Allmerica of 100 percent ownership of Citizens to which
plaintiff and the Class members are not privy. Defendants are using their
positions of power and control to benefit Allmerica in this transaction, to the
detriment of the Citizens common stockholders.
21. Allmerica and the Individual Defendants have committed or threatened
to commit the following acts to the detriment and disadvantage of Citizens
public stockholders:
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a. They have undervalued the Citizens common stock by ignoring the
full value of its assets and future prospects. The proposed merger
consideration does not reflect the value of Citizens's valuable assets; and
b. They timed the announcement of the proposed buyout to place an
artificial lid on the market price of Citizens's common stock to justify an
exchange ratio which is unfair to Citizens's public stockholders.
22. The Individual Defendants have clear and material conflict of interest
and are acting to better the interests of Allmerica at the expense of Citizens's
public stockholders.
23. As a result of defendants' unlawful actions, plaintiff and the other
members of the Class will be irreparably harmed in that they will not receive
their fair portion of the value of Citizens's assets and business and will be
prevented from obtaining the real value of their equity ownership of the
Company.
24. Plaintiff and the other members of the Class have no adequate remedy
at law.
WHEREFORE, plaintiff prays for judgment and relief as follows:
A. Ordering that this action may be maintained as a class action and
certifying plaintiff as the Class representative;
B. Preliminarily and permanently enjoining the defendants and their
counsel, agents, employees and all persons acting under, in concert with, or for
them, from proceeding with, consummating or closing the proposed merger
transaction;
C. In the event the proposed merger is consummated, rescinding it and
setting it aside;
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D. Awarding compensatory damages against defendants individually and
severally in an amount to be determined at trial, together with prejudgment
interest at the maximum rate allowable by law;
E. Awarding plaintiff his costs and disbursements, including reasonable
counsel fees and experts' fees; and
F. Granting such other and further relief as to the Court may seem just
and proper.
ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
By: /signature/
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919 North Market Street
Suite 1401 Mellon Bank Center
Wilmington, Delaware 19801
(302) 656-4433
OF COUNSEL:
ABBEY, GARDY & SQUITIERI, LLP
212 East 39th Street
New York, New York 10016
FARUQI & FARUQI, L.L.P.
415 Madison Avenue
New York, New York 10017
(212) 986-1074
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