<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
CITIZENS CORPORATION
(Name of Registrant as Specified In Its Charter)
CITIZENS CORPORATION
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[_] Fee paid previously by written materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
CITIZENS
CORPORATION
NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT
ANNUAL MEETING
OF SHAREHOLDERS
MAY 12, 1998
<PAGE>
CITIZENS CORPORATION
440 LINCOLN STREET
WORCESTER, MASSACHUSETTS
MARCH 31, 1998
TO OUR SHAREHOLDERS:
You are cordially invited to attend the Annual Meeting of Shareholders of
Citizens Corporation to be held on Tuesday, May 12, 1998, at 1:00 p.m. local
time, at Allmerica Financial Headquarters, 440 Lincoln Street, Worcester,
Massachusetts 01653.
The accompanying Notice and Proxy Statement describe in detail the matters
to be acted on at the meeting. At your earliest convenience, please sign and
return the enclosed proxy card in the envelope provided. Your cooperation will
assure that your shares are voted and will also greatly assist our officers in
preparing for the meeting.
Sincerely,
/s/ John F. O'Brien
John F. O'Brien
Chairman of the Board,
President and
Chief Executive Officer
[CITIZENS CORPORATION LOGO APPEARS HERE]
<PAGE>
CITIZENS CORPORATION
-------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1998
-------------------------------------
To the Shareholders of
CITIZENS CORPORATION:
The Annual Meeting of Shareholders of Citizens Corporation ("the Company")
will be held at Allmerica Financial Headquarters, Wright Room, 1st Floor, 440
Lincoln Street, Worcester, Massachusetts on Tuesday, May 12, 1998, at 1:00
p.m. local time, for the purpose of considering and voting on:
1. Election of a Board of Directors consisting of seven persons to serve
for a period of one year and until their respective successors shall be
elected and qualified;
2. Ratification of the appointment of Price Waterhouse LLP as the
independent public accountants of the Company for 1998;
3. One shareholder proposal described in the accompanying Proxy Statement;
and
4. Such other business as may properly come before the Annual Meeting or
any adjournment thereof.
The Board of Directors has fixed March 13, 1998 as the record date for
determining the shareholders of the Company entitled to notice of and to vote
at the Annual Meeting and any adjournment thereof.
By Order of the Board of Directors,
/s/ Richard J. Baker
Richard J. Baker
Vice President and Secretary
March 31, 1998
Worcester, Massachusetts
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN,
DATE AND MAIL PROMPTLY THE ENCLOSED PROXY. A RETURN ENVELOPE, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT PURPOSE. IF
YOU DO ATTEND THE ANNUAL MEETING AND DESIRE TO WITHDRAW YOUR PROXY AND VOTE IN
PERSON, YOU MAY DO SO.
<PAGE>
CITIZENS CORPORATION
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1998
INTRODUCTION
This Proxy Statement, with the accompanying proxy card, is being mailed to
shareholders on or about March 31, 1998 and is furnished in connection with
the solicitation of proxies by the Board of Directors of Citizens Corporation
("the Company") for use at the Annual Meeting of Shareholders of the Company
to be held on May 12, 1998 ("the Annual Meeting").
As of March 13, 1998, 35,275,100 shares of the Company's common stock, par
value $.01 per share (the "Common Stock"), were outstanding and entitled to be
voted. Each share of Common Stock entitles the holder to one vote. The record
date and hour for determining shareholders entitled to vote at the Annual
Meeting has been fixed at the close of business on March 13, 1998.
The shares of Common Stock represented by the enclosed proxy will be voted
as directed by the shareholder or, in the absence of such direction, in favor
of the election of the nominees for Director designated herein, in favor of
the ratification of Price Waterhouse LLP as the Company's independent public
accountants for 1998, and against the shareholder proposal. The enclosed proxy
confers discretionary authority with respect to any other proposals which may
properly be brought before the Annual Meeting. As of the date hereof,
management is not aware of any other matters to be presented for action at the
Annual Meeting. However, if any other matters properly come before the Annual
Meeting, the proxies solicited hereby will be voted in accordance with the
recommendation of the Board of Directors.
As long as a quorum (a majority of issued and outstanding shares of Common
Stock entitled to vote at the Annual Meeting) is present at the Annual Meeting
either in person or by proxy, the Directors shall be elected by a plurality of
the votes properly cast at the Annual Meeting. A majority of the votes
properly cast, either in person or by proxy, is required to ratify the
appointment of Price Waterhouse LLP as the Company's independent public
accountants for 1998 and to approve the shareholder proposal. Votes may be
cast in favor of the election of the nominees for Director or withheld; votes
that are withheld will have no effect on the outcome of the election of
Directors. Abstentions and broker non-votes will have no effect on the outcome
of the votes.
Insofar as management is advised, no executive officer, Director or Director
nominee of the Company, nor any person who has been an executive officer,
Director or Director nominee of the Company at any time since the beginning of
its last fiscal year, nor any associate of any such executive officer,
Director or Director nominee, has any substantial interest in the matters to
be acted upon at the Annual Meeting.
Any shareholder giving a proxy may revoke it at any time before it is
exercised by delivering written notice thereof to the Secretary. Any
shareholder attending the Annual Meeting may vote in person whether or not the
shareholder has previously filed a proxy. Presence at the Annual Meeting by a
shareholder who has signed a proxy, however, does not in itself revoke the
proxy.
1
<PAGE>
The enclosed proxy is being solicited by the Board of Directors of the
Company. The cost of soliciting proxies will be borne by the Company, and will
consist primarily of preparing and mailing the proxies and Proxy Statements.
The Company will also reimburse brokerage houses and other custodians,
nominees and fiduciaries for their expenses in sending proxy materials to the
beneficial owners.
The Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1997, including financial statements for the Company and its
subsidiaries and the report of Price Waterhouse LLP thereon, accompanies this
Proxy Statement. The Annual Report is neither a part of this Proxy Statement
nor incorporated herein by reference.
ITEM I
NOMINEES FOR ELECTION AS DIRECTORS
Seven Directors are to be elected at the Annual Meeting to constitute the
Board of Directors of the Company and to serve as Directors for a period of
one year following their election and until their respective successors are
elected and qualified. The Board of Directors has voted to increase the size
of the Board and has elected J. Barry May for a term to expire at the 1998
Annual Meeting of Shareholders. All of the nominees are currently Directors of
the Company.
The Board of Directors recommends a vote FOR all nominees. All nominees have
indicated their willingness to serve and, unless otherwise directed, it is
intended that proxies received in response to this solicitation will be voted
in favor of the election of the seven persons named below.
In the event that any of the nominees should be unavailable to serve as a
Director, it is intended that the proxies will be voted for the election of
such substitute nominees, if any, as shall be designated by the Board of
Directors. Management has no reason to believe that any nominee will be
unavailable to serve. Biographical information as to each nominee follows:
JAMES A. COTTER, JR., 58
Director since 1993
Audit Committee
Compensation Committee, Chair
Mr. Cotter has been a broker with the firm of H.C. Wainwright & Co. since
January 1994, and previously was a broker with the firm of Gruntal & Co. (June
1993--January 1994). He previously served as a Managing Director and Treasurer
of Schooner Trading Company. Mr. Cotter is also Chairman of Olde Port Bank and
Trust of Portsmouth, New Hampshire.
NEAL J. CURTIN, 53
Director since 1993
Audit Committee
Compensation Committee
Mr. Curtin has been a Partner in the law firm of Bingham Dana LLP, Boston,
Massachusetts, since 1975.
2
<PAGE>
DONA SCOTT LASKEY, 54
Director since 1993
Audit Committee, Chair
Ms. Laskey has been Managing Attorney in the law firm of Sullivan, Ward,
Bone, Tyler & Ashler, P.C., Traverse City, Michigan since 1996. From 1989
until December 1996 she practiced law with the firm of Tillman, McTier,
Coleman, Talley, Newbern & Kurrie, Valdosta, Georgia. She is also a Director
of FNB Bancorp, Inc.
J. BARRY MAY, 50
Director since 1997
Vice President of the Company
J. Barry May has been Executive Vice President and Director of the Company's
subsidiary, Citizens Insurance Company of America ("Citizens Insurance"),
since March 1997 and September 1996, respectively, and has served as President
and Director of The Hanover Insurance Company ("Hanover"), a wholly-owned
subsidiary of Allmerica Financial Corporation ("AFC"), since September 1996.
Mr. May has also been Vice President of Allmerica Property & Casualty
Companies, Inc. ("Allmerica P&C") since September 1996 and Vice President of
AFC since February 1997. Mr. May served as Vice President of Hanover 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.
JAMES R. MCAULIFFE, 53
Director since 1992
Vice President of the Company
Mr. McAuliffe has served as President of Citizens Insurance since December
1994. From 1986 until December 1994, Mr. McAuliffe was Vice President and
Chief Investment Officer of Allmerica Financial Life Insurance and Annuity
Company ("AFLIAC") and also First Allmerica Financial Life Insurance Company
("FAFLIC"), a wholly-owned subsidiary of AFC. Mr. McAuliffe has been Vice
President of AFC from February 1995 through December 1995 and since February
1997, Vice President of Allmerica P&C since August 1992, a Director of
Allmerica P&C from August 1992 to December 1994 and a Director of AFLIAC from
April 1987 through May 1995 and since May 1996.
JOHN F. O'BRIEN, 54
Director since 1992
Chairman of the Board, President and
Chief Executive Officer of the Company
Mr. O'Brien has been a Director, Chief Executive Officer and President of
AFC since February 1995. He has also served as a Director, Chief Executive
Officer and President of FAFLIC since August 1989. In addition to his
positions with AFC and FAFLIC, Mr. O'Brien has served as a Director, President
and Chief Executive Officer of Allmerica P&C since August 1992, and he has
been a Director of Hanover since September 1989, of Citizens Insurance since
March 1992 and the Company, for which he also serves as Chief Executive
Officer, since December 1992. Mr. O'Brien is also a Trustee or Director and
executive officer of Allmerica Investment Trust, Allmerica Securities Trust
and Allmerica Funds. Additionally, Mr. O'Brien is a Director and/or holds
offices at various other non-public FAFLIC affiliates including SMA Financial
Corp. and AFLIAC. Mr. O'Brien also currently serves as a Director of The TJX
Companies, Inc., an off-price family apparel retailer, ABIOMED, Inc., a
medical device company, Cabot Corporation, a diversified specialty chemicals
and materials and energy company, and The Life Insurance Association of
Massachusetts. He also currently serves as a member of the
3
<PAGE>
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 as a Director
and/or an executive officer at various other of FMR Corp.'s affiliates.
ERIC A. SIMONSEN, 52
Director since 1992
Vice President of the Company
Mr. Simonsen has served as Vice President of AFC and Allmerica P&C since
February 1995 and August 1992, respectively. Mr. Simonsen was a Director of
Allmerica P&C from August 1992 to July 1997. He has also served as Vice
President and Director of FAFLIC since September 1990 and April 1996,
respectively, and of AFLIAC since September 1990. Mr. Simonsen has been
President of Allmerica Services Corporation 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 the Company from December 1992 to
December 1996.
CERTAIN INFORMATION REGARDING DIRECTORS
In 1997 the Board of Directors held five regularly scheduled meetings. All
of the Directors, with the exception of Mr. Simonsen, attended at least 75% of
the Board and Committee meetings on which he or she served. The Board of
Directors has an Audit Committee and a Compensation Committee. The Board of
Directors does not have a standing nominating committee.
The Audit Committee of the Board of Directors is comprised of Ms. Laskey
(Chair), Mr. Cotter and Mr. Curtin. The committee met two times during 1997
and all committee members attended both meetings. The committee, among other
duties: (a) recommends the engagement of the independent accountants of the
Company and approves their fee and the scope and timing of their audit
services; (b) reviews with the independent accountants their report on
financial and accounting matters, their recommendations for improvements in
the internal controls of the Company, and the implementation of such
recommendations; and (c) reviews the Company's internal audit program. The
committee reports to the Board on its activities and findings.
The Compensation Committee of the Board of Directors is comprised of Mr.
Cotter (Chair) and Mr. Curtin. This committee has oversight responsibility
with respect to compensation matters involving Directors and officers of the
Company. The committee met once during 1997 and both committee members
attended the meeting.
Directors who are not officers or employees of the Company, Hanover,
Citizens Insurance or other affiliated companies receive $15,000 as an annual
retainer, $1,000 for each Board meeting attended and $1,000 for each Committee
meeting attended, in addition to reimbursable expenses for each meeting
attended. Directors who are salaried employees of FAFLIC or of any affiliate
or subsidiary receive no additional compensation for their services as
Directors of the Company.
4
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth the number of shares of Common Stock of AFC
and Citizens Corporation owned as of March 13, 1998 by (i) each Director of
the Company, (ii) the officers named in the Summary Compensation Table
appearing later in this Proxy Statement, and (iii) all Directors, nominees and
officers as a group. This information has been furnished by the persons listed
in the table.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
NAME OF OF COMMON STOCK OF COMMON STOCK
BENEFICIAL OWNER OF AFC* OF CITIZENS*
---------------- ---------------- ----------------
<S> <C> <C>
James A. Cotter, Jr........................... 702(1) 1,100(2)
Neal J. Curtin................................ -- 263
Dona Scott Laskey............................. 430 --
J. Barry May.................................. 8,930 --
James R. McAuliffe............................ 11,747(3) 10,300
John F. O'Brien............................... 71,193(4) 1,000
Eric A. Simonsen.............................. 38,229(5) 3,000(6)
Directors and executive officers
as a group (15 persons)...................... 242,188(7) 23,213
</TABLE>
- --------
* Each of the amounts represents less than 1% of the outstanding shares of
Common Stock as of March 13, 1998. As to shares beneficially owned, each
person has sole voting and investment power, except as indicated in other
footnotes to this table. Amounts include shares that each beneficial owner
named above has the right to acquire within 60 days of March 13, 1998, upon
exercise of outstanding stock options.
(1) Includes 41 shares owned by Mr. Cotter's spouse.
(2) Includes 100 shares owned by Mr. Cotter's spouse.
(3) Includes 5,086 shares held for the benefit of Mr. McAuliffe by the
trustees of the First Allmerica Financial Life Insurance Company's
Employees' 401(k) Matched Savings Plan (the "FAFLIC Plan").
(4) Includes 199 shares held for the benefit of Mr. O'Brien by the trustees of
the FAFLIC Plan.
(5) Includes 7,296 shares held for the benefit of Mr. Simonsen by the trustees
of the FAFLIC Plan, 4,281 shares held in trusts for the benefit of Mr.
Simonsen's immediate family, for which Mr. Simonsen acts as trustee, and
7,326 shares of restricted stock over which Mr. Simonsen has no investment
power.
(6) Includes an aggregate of 1,000 shares of Common Stock of Citizens held in
trusts for the benefit of Mr. Simonsen's children. Mr Simonsen is trustee
of the trusts and he disclaims beneficial ownership of the shares held in
the trusts.
(7) Includes 39,429 shares held by the trustees of the FAFLIC Plan. See notes
2-4 above.
Set forth below, as of March 13, 1998, is the name of the only person known
to the Company to be the beneficial owner of more than 5% of the outstanding
shares of Common Stock of the Company:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP OF CLASS
------------------- ----------------- --------
<S> <C> <C>
The Hanover Insurance Company........................ 29,093,500 82.5%
100 North Parkway
Worcester, MA 01653
</TABLE>
AFC, through its subsidiaries, owns all of Hanover's outstanding common
stock.
5
<PAGE>
EXECUTIVE COMPENSATION
The Company does not pay any compensation to its executive officers
directly. All of the Company's executive officers are employees of FAFLIC,
with the exception of Mr. McAuliffe, who was an employee of Citizens Insurance
until January 1, 1998, when he became an employee of FAFLIC. Mr. McAuliffe's
compensation until January 1, 1998 was paid by Citizens Insurance. The
compensation of the Company's other executive officers during 1997 was paid by
FAFLIC for services provided to FAFLIC and its various subsidiaries, including
the Company and Citizens Insurance. The Company and Citizens Insurance then
reimbursed FAFLIC for their allocated portion of those salaries pursuant to
the terms of an intercompany service agreement. In 1997, no executive officer
other than Mr. McAuliffe received compensation in excess of $100,000 directly
or indirectly attributable to the Company or its subsidiaries.
The following table sets forth all compensation for services rendered in all
capacities to the Company or its subsidiaries for each of the fiscal years
ended December 31, 1997, 1996 and 1995 of: (i) the Chief Executive Officer of
the Company and (ii) the one executive officer who received total compensation
in excess of $100,000 directly or indirectly attributable to the Company or
its subsidiaries during 1997 (collectively, "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------- ----------------------------- ALL
OTHER RESTRICTED SECURITIES LTIP OTHER
ANNUAL STOCK UNDERLYING PAY- COMPEN-
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS OUTS SATION
PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3) ($)(4) (#)(5) ($)(6) ($)(7)
------------------ ---- ------- ------- ------------ ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John F. O'Brien(8)...... 1997 42,500 35,000 6,221 50,183 2,500 40,000 6,024
Chairman, President and 1996 42,500 90,800 5,471 -- -- 25,000 6,011
CEO of CZC 1995 131,750 131,750 18,602 -- -- 42,500 20,439
James R. McAuliffe...... 1997 359,096 108,737 4,800 -- 17,000 150,000 4,750
Vice President of CZC, 1996 355,000 157,975 98,831 -- 7,000 150,000 4,500
President and CEO of 1995 305,000 114,985 67,560 -- 14,000 190,000 4,500
Citizens Insurance
</TABLE>
- --------
(1) With the exception of Mr. O'Brien, amounts shown reflect annual salary
earned and received from Citizens Insurance. Mr. O'Brien receives
compensation from FAFLIC in his capacity as an employee and executive
officer of FAFLIC. Mr. O'Brien does not receive compensation directly from
the Company or any subsidiary of the Company. The amounts shown in the
table reflect the portions of Mr. O'Brien's compensation that have been
allocated as an expense to the Company and its subsidiaries. See footnote
8.
(2) The amount shown for 1996 for Mr. O'Brien includes $50,000, which
represents an allocated portion of a special bonus payment. Other amounts
shown with respect to Mr. O'Brien reflect allocated amounts paid to Mr.
O'Brien in connection with FAFLIC's annual incentive bonus plan.
(3) The amounts shown for Mr. O'Brien reflect the portions of amounts
reimbursed for the payment of taxes that have been allocated as an expense
to the Company and its subsidiaries. See footnote 8. The amounts reported
for Mr. McAuliffe include moving expenses paid by Citizens Insurance of
$47,491 in 1995 and $82,825 in 1996.
(4) The amount reflects the allocated market value on the grant date of
restricted shares issued under the Allmerica Financial Corporation Long-
Term Stock Incentive Plan. Mr. O'Brien's aggregate holdings and market
value of restricted stock as of December 31, 1997 allocated to the Company
are: 1,465 shares of AFC Common Stock, the receipt of which Mr. O'Brien
has deferred until retirement, and $73,168.
(5) The securities underlying the options shown are shares of the Allmerica
Financial Corporation Common Stock for 1997 and Citizens Corporation
Common Stock for 1996 and 1995.
6
<PAGE>
(6) Amounts shown for Mr. McAuliffe represent installment payments vesting and
received in the respective year pursuant to awards that were earned under
FAFLIC's Long-Term Performance Unit Plan (the "Long-Term Performance
Plan") in 1993, 1995 and 1996. No such cash amounts were earned in 1994 by
participants in respect of units granted under the Long-Term Performance
Plan with values determinable based on FAFLIC's surplus level at the end
of 1994. Amounts shown for Mr. O'Brien represent an allocated portion of
installment payments vested and received under the Long-Term Performance
Plan in 1993, 1995, 1996 and 1997.
(7) This column includes amounts earned in 1997 but deferred by each of the
Named Executive Officers (other than Mr. O'Brien) pursuant to the terms of
his respective employer's 401(k) Matched Savings Plan. The amount shown
with respect to Mr. O'Brien for fiscal year 1997 represents an allocated
portion of $4,750 earned under FAFLIC's Executive Non-Qualified Retirement
Plan and a $115,727 payment of a premium on a life insurance policy.
(8) Mr. O'Brien receives compensation from FAFLIC in his capacity as an
employee of FAFLIC. Mr. O'Brien does not receive compensation directly
from the Company or any subsidiary of the Company. Mr. O'Brien's 1997
compensation from FAFLIC included $850,000 in base salary, $700,000 in
annual incentive bonus, $4,750 earned under FAFLIC's Executive Non-
Qualified Retirement Plan, $115,727 for a life insurance premium paid by
FAFLIC, $109,422 in reimbursement for the payment of taxes in connection
therewith, restricted stock with a market value of $1,003,662 on the date
of grant, the receipt of which Mr. O'Brien has deferred until retirement,
options to purchase 50,000 shares of AFC Common Stock, $800,000 for
installment payments vested and received under the Long-Term Performance
Plan and $15,000 for interest paid on the installment payment. The amounts
shown in the table with respect to Mr. O'Brien for 1997 have been
allocated as an expense to the Company and its subsidiaries and equal 5%
of Mr. O'Brien's total compensation.
OPTION GRANTS
The Company maintains a long-term stock incentive plan pursuant to which
stock options covering shares of the Company's Common Stock may be granted to
key employees. In 1997, the Company did not grant any options to the Named
Executive Officers.
The following table contains information concerning AFC stock options
granted to the Named Executive Officers in 1997. Neither the Company nor
FAFLIC has granted SARs.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE VALUE
---------------------------------------------- ----------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS AFC OR GRANT DATE
GRANTED EMPLOYEES BASE PRICE EXPIRATION PRESENT
NAME (#)(/1/) IN 1997 ($ PER SHARE) DATE VALUE ($) (2)
---- ---------- ---------- ------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
John F. O'Brien......... 50,000 5.9 35.375 05/20/07 767,250
James R. McAuliffe...... 17,000 2.0 35.375 05/20/07 260,865
</TABLE>
- --------
(1) The securities underlying the options granted were shares of AFC's Common
Stock. The options granted become exercisable in 20% increments on the
first, second, third, fourth and fifth anniversaries of the date of grant.
(2) In accordance with Securities and Exchange Commission rules, the Black-
Scholes option pricing model was chosen to estimate the grant date present
value of the options set forth in the table. The Company's use of the
model should not be construed as an endorsement of its accuracy at valuing
options. All stock option
7
<PAGE>
valuation models, including the Black-Scholes model, require a prediction
about the future movement of the stock price. The following assumptions
were made for purposes of calculating the Grant Date Present Value: options
exercised from 2.5 to 7 years, stock price volatility of 23.5%, dividend
yield of 0.5%, risk-free interest rates between 5.96% and 6.19%, and no
adjustment made for forfeitures or transferability. The real value of the
options depends upon the actual performance of AFC's Common Stock during
the applicable period.
YEAR-END 1997 OPTION VALUE TABLES
The following table sets forth information for the Named Executive Officers
regarding unexercised options to acquire shares of the Company's Common Stock
held as of December 31, 1997. Mr. McAuliffe did not exercise any options in
1997.
FISCAL YEAR-END CZC OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN- THE-
UNEXERCISED OPTIONS AT YEAR-END MONEY OPTIONS AT YEAR-END
1997 (#) 1997(1)($)
------------------------------- -----------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------------- -----------------------------
<S> <C> <C>
John F. O'Brien......... -- --
James R. McAuliffe...... 7,000/14,000 82,100/159,900
</TABLE>
- --------
(1) Calculated based on the difference between the option exercise price and
$28.75, the closing price per share of Citizens Corporation's Common Stock
on the New York Stock Exchange on December 31, 1997.
The following table sets forth information for the Named Executive Officers
regarding unexercised options to acquire shares of AFC's Common Stock held as
of December 31, 1997. No AFC options were exercisable by the Named Executive
Officers in 1997.
FISCAL YEAR-END AFC OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
OPTIONS AT YEAR-END YEAR-END
1997 (#) 1997 ($)(/1/)
---------------------- ------------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXECISABLE
- ---- ---------------------- ------------------------
<S> <C> <C>
John F. O'Brien................. 0/50,000 0/728,125
James R. McAuliffe.............. 0/17,000 0/247,563
</TABLE>
- --------
(1) Calculated based on the difference between the option exercise price and
$49.9375, the closing price per share of AFC's Common Stock on the New
York Stock Exchange Composite Tape on December 31, 1997.
LONG-TERM INCENTIVE AWARDS
No Long-Term Incentive Awards were granted to the Named Executive Officers
during 1997 under FAFLIC's Long-Term Performance Plan (the "Long-Term
Performance Plan").
PENSION BENEFITS
FAFLIC maintains a tax-qualified, non-contributory defined benefit
retirement plan ("Pension Plan") for the benefit of eligible employees of
FAFLIC and its subsidiaries.
8
<PAGE>
Until December 31, 1994, annual benefits under the Pension Plan were based
primarily upon each employee's years of credited service and eligible
compensation during the highest five consecutive plan years of employment or
the last 60 months, if greater. Such benefits under the Pension Plan were
frozen as of December 31, 1994 for most participants, with the exception of
certain grandfathered employees, including Mr. McAuliffe. These benefits will
be paid to participants as a monthly annuity at age 65. If a participant
terminates with 15 or more years of service, the monthly benefit may commence
any time after the participant's 55th birthday subject to possible reduction
for early commencement. Effective as of January 1, 1995, the Pension Plan was
converted into a cash balance plan, such that benefits are no longer
determined primarily by final average compensation and years of credited
service. Instead, annually each employee accrues a benefit that is equal to a
percentage of the employee's salary, similar to a defined contribution plan
arrangement. Amounts contributed by the employer to an employee are allocated
to a memorandum account, to which the employee is permitted to make investment
elections from among choices provided by the employer. Upon termination of
employment of a participant, the amount in the participant's memorandum
account as of such date, is eligible for distribution. Effective January 1,
1998, if the amount in the participant's memorandum account plus the present
value of the benefit frozen under the Pension Plan as of December 31, 1994 is
less than $5,000, all benefits are distributed immediately in a lump sum.
The estimated annual benefits payable under the Pension Plan upon retirement
at normal retirement age for each of the Named Executive Officers is as
follows: Mr. O'Brien: $300,783; Mr. McAuliffe: $368,806. Such figures include
amounts that have accrued under the Pension Plan as in effect on December 31,
1994, with the exception of the figure for Mr. McAuliffe which includes a
grandfathered benefit projected to normal retirement age under the Pension
Plan formula in effect as of December 31, 1994 of $302,063. With respect to
benefits attributable to the cash balance component of the Pension Plan, it
was assumed that each individual's salary and bonus for the years until
retirement were as shown in the Summary Compensation Table; that employer
allocations were made to the Pension Plan at a rate of 7% of eligible
compensation (7% is the actual amount accrued in 1997, although the plan only
guarantees an accrual rate of 0.5%); and that investment earnings accrued to
each participant's memorandum account under the Pension Plan at a rate of 6%
per year.
The estimated annual benefits under the Pension Plan shown for each of the
Named Executive Officers are not reduced to reflect the limitations imposed by
Federal tax laws, which place upper limits on the benefits which may be
provided to any individual by tax-qualified pension plans. FAFLIC has adopted
an Excess Benefit Plan, an unfunded, non-qualified plan, which provides that
it will pay directly the difference between the retirement benefit normally
calculated under the Pension Plan and the maximum amount which may be paid
from the Pension Plan consistent with Federal tax law. In addition, effective
June 1, 1995, certain employees of FAFLIC and its subsidiaries may
participate, at the discretion of the Board of Directors, in either FAFLIC's
unfunded, Non-Qualified Executive Retirement Plan or its unfunded, Non-
Qualified Executive Deferred Compensation Plan. Under the Non-Qualified
Executive Retirement Plan, participating employees may (i) elect to defer
compensation in an amount not to exceed the annual dollar amount that can be
deferred under a tax qualified 401(k) plan for the year, (ii) elect to defer
additional compensation in an amount not to exceed 12.5% of the participant's
annual salary, (iii) receive and defer the amount, if any, that the
participant would have received as a matching employer's contribution under
his employer's 401(k) Matched Savings Plan, and (iv) receive and defer the
amount, if any, that the participant would have been credited under his
employer's Cash Balance and Excess Benefit Plans had the participant
participated in such plan during the year. Under the Non-Qualified Executive
Deferred Compensation Plan, certain other employees may elect to defer up to
12.5% of their annual salaries. In both cases, AFC shall from time to time
designate one or more investments in which each participant's accounts shall
be deemed to be invested for the purpose of determining the participant's
gains and income on such account. Participation in the Non-Qualified Executive
Retirement Plan is in lieu of participation in the corresponding Qualified
Retirement and/or Pension Plan of FAFLIC.
9
<PAGE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee ("Committee") of the Board of Directors is
comprised of the Directors whose names appear at the end of this report, none
of whom is an employee of the Company or of any affiliate or subsidiary of the
Company. Among other duties, the Committee has oversight responsibility with
respect to compensation matters involving Directors and executive officers of
the Company and its primary operating subsidiary, Citizens Insurance. As a
holding company, the Company has no employees of its own and does not pay any
compensation to its executive officers. From January 1, 1998, the Company's
executive officers are all employees of FAFLIC and will be compensated
directly by FAFLIC. In addition, the salaries and other compensation paid by
FAFLIC to executive officers who provide services to the Company and Citizens
Insurance will be allocated to such companies. Until January 1, 1998, when the
Company's employees were consolidated under FAFLIC, certain of the Company's
executive officers were employed by Citizens Insurance. This report reflects
the compensation philosophy of the Company and Citizens Insurance as endorsed
by the Committee. The report also reflects the Committee's review of the
actions taken by the Board of Directors of AFC with respect to the Chief
Executive Officer of the Company, and by the Board of Citizens Insurance with
respect to the Named Executive Officers, other than Mr. O'Brien, during 1997.
COMPENSATION PHILOSOPHY. The objectives of the executive compensation
program are to attract and retain individuals key to the future success of the
Company and its subsidiaries, to motivate executives to achieve the business
objectives of the Company, and to align the long-term interests of executives
with those of shareholders.
The principal components of the executive compensation program are base
salary, performance-based annual incentive compensation and long-term
incentive compensation. Annual base salaries of the Named Executive Officers
and other key executives are set at levels considered to be competitive with
amounts paid to executive officers with comparable qualifications, experience
and responsibilities at competing companies, based on published surveys and
proxy information. Annual incentive compensation for employees of FAFLIC is,
and was for Citizens Insurance until January 1998, tied to the achievement of
significant financial performance goals. FAFLIC maintains, and Citizens
Insurance maintained until January 1998, a consolidated incentive plan
providing supplementary cash compensation as an incentive to key employees
who, through exceptional performance, contribute materially to the success of
the companies. For 1997, the incentive plan had three components: (a) the
corporate return on equity; (b) the successful completion of individual
performance goals; and (c) corporate earnings per share. Grants under AFC's
Long-Term Stock Incentive Plan (the "Plan") are intended to promote superior
future performance. The Plan is intended to attract and retain executives and
to satisfy the objective of linking executives' long-term interests with those
of the shareholders. Factors considered in determining the grant of options
and other awards under the Plan include the contribution of each executive to
the long-term performance of the Company and the importance of such
executive's responsibilities within the organization.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. John F. O'Brien, President and
Chief Executive Officer of AFC, serves as Chairman of the Board, President and
Chief Executive Officer of the Company, and serves as Chairman of the Board of
Citizens Insurance. Mr. O'Brien's compensation is established and reviewed by
the Compensation Committee of the Board of Directors of AFC. He receives no
compensation directly from the Company or its subsidiaries, but for 1997 a
portion of his FAFLIC compensation was allocated and charged to Citizens
Insurance and the Company.
In approving the 1997 compensation package for Mr. O'Brien, the AFC
Compensation Committee compared Mr. O'Brien's compensation against the
comparative base salaries, annual and long-term incentives and other
compensation of chief executives of a peer group of companies included in the
Standard & Poor's
10
<PAGE>
Property-Casualty Insurance Index and the Standard & Poor's Life Insurance
Index. The AFC Committee's review also included, but was not limited to, an
assessment of the performance of FAFLIC and its subsidiaries in terms of
profitability and growth in the various business lines, an evaluation of the
capital positions of the companies and the implementation of significant cost
controls and recent corporate restructurings. In comparison to the peer group
of companies, Mr. O'Brien's base salary was below the median and his potential
for incentive compensation as a percentage of base salary was within the
market range.
Mr. O'Brien's 1997 incentive compensation performance measures included a
corporate goal based upon return on equity, earnings per share, revenue, AFC's
stock price and individual performance goals, such as the achievement of
certain financial targets. Achievement of individual performance goals and
other initiatives undertaken by Mr. O'Brien in 1997 resulted in performance
that exceeded expectations.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER OF CITIZENS INSURANCE. James R.
McAuliffe has served as the President and Chief Executive Officer of Citizens
Insurance since December 1, 1994. In 1997, Mr. McAuliffe's compensation was
established by the Board of Directors of Citizens Corporation. In determining
Mr. McAuliffe's base salary for 1997, the Board of Citizens Corporation
reviewed compensation paid to executives in comparable positions. Mr.
McAuliffe also received incentive payments based on factors including
individual performance goals.
The Committee believes that the executive compensation policies of the Board
of Directors of AFC and Citizens Insurance are appropriate both to attract and
retain corporate officers and other key employees of outstanding abilities and
to motivate them to perform to the full extent of their abilities.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of the
Internal Revenue Code, enacted in 1993, generally disallows a tax deduction to
public companies for compensation over $1 million paid to the corporation's
Chief Executive Officer and its four other most highly compensated executive
officers. Qualifying performance-based compensation will not be subject to the
deduction limit if certain requirements are met. The Committee monitors the
impact of Section 162(m) in order to balance the benefits of favorable tax
treatment with a need to apply prudent judgment in carrying out the Company's
compensation philosophy, recognizing that under certain circumstances it may
be appropriate to exceed the deduction limit.
MEMBERS OF THE COMPENSATION COMMITTEE:
James A. Cotter, Jr., Chairman
Neal J. Curtin
11
<PAGE>
COMMON STOCK PERFORMANCE CHART
Set forth below is a line graph comparing the 45 month cumulative total
stockholder return of the Common Stock against the cumulative total return of
the S&P 500 Index and the S&P Property-Casualty Insurance Index.
The S&P Property-Casualty Insurance Index includes the following companies:
General Re Corp., The Chubb Corporation, The St. Paul Companies, Inc., Safeco
Corp., USF&G Corp., and Continental Corp.
[CITIZENS CORPORATION GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------------------------------------------
3/19/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
<S> <C> <C> <C> <C> <C> <C>
Citizens Corp CZC 100.0 77.49 68.08 75.43 92.07 118.53
S&P 500 100.0 107.70 109.12 150.13 184.60 246.19
S&P INSURANCE (PROPERTY-CASUALTY) 100.00 95.13 99.79 135.11 164.18 238.83
</TABLE>
* $100 INVESTED ON 3/19/93 IN STOCK OR ON
2/28/93 IN INDEX - INCLUDING REINVESTMENT OF
DIVIDENDS, FISCAL YEAR ENDING DECEMBER 31.
The Compensation Committee Report and the Stock Price Performance Graph
above shall not be deemed incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
12
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and Directors, and persons who beneficially own more than ten percent
(10%) of the Common Stock, to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC") and
the New York Stock Exchange. Such persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on a review of the copies of such forms furnished to the Company and
written representations from the executive officers and Directors, the Company
believes that during 1997 there was full compliance with all Section 16(a)
filing requirements.
ITEM II
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The firm of Price Waterhouse LLP has been selected by the Board of
Directors, subject to ratification by the shareholders, to be the Company's
independent public accountants for 1998. Representatives of Price Waterhouse
LLP will be present at the Annual Meeting, will have the opportunity to make a
statement if they desire to do so, and will be available to respond to
appropriate questions from shareholders.
The Board of Directors recommends that you vote FOR the proposal to ratify
the selection of the firm of Price Waterhouse LLP as independent public
accountants for the Company for 1998. If ratification is not obtained, the
Board of Directors will reconsider the appointment.
ITEM III
SHAREHOLDER PROPOSAL
The Company has received the following proposal from Mr. Daniel P. Dobbins,
23755 Goddard Road, Taylor, Michigan 48180. Mr. Dobbins beneficially owns 100
shares of Common Stock.
"Question:
"1. Should the Company commission a study which measures the participation of
poor, less educated, and urban consumers insured in the Company's group
automobile and homeowners insurance programs to see if unlawful discrimination
is being practiced?
"Yes [_] No [_]"
SHAREHOLDER'S SUPPORTING STATEMENT
"In an era when consumers seek socially responsible management, the long
term profitability of the Company depends upon compliance with laws and
regulations about fair dealing in the business of insurance. One area in which
the Company may be subject to legal scrutiny over its marketing practices is
red-lining."
RECOMMENDATION OF THE BOARD OF DIRECTORS AGAINST THE PROPOSAL
The Company's insurance subsidiaries, Citizens Insurance Company of America,
Citizens Insurance Company of Ohio and Citizens Insurance Company of the
Midwest, like all insurance companies, are each
13
<PAGE>
subject to many state laws and regulations governing insurance activities. The
Company and its subsidiaries are committed to full compliance with these laws
and regulations, as well as applicable federal laws and regulations. In
addition to extensive oversight of insurance practices by state insurance
regulators, the Company's subsidiaries routinely conduct their own internal
review of their insurance activities.
The Company's policies and the policies of its subsidiaries, together with
laws and regulations regarding the sale of group insurance, are more than
sufficient to meet the concerns raised by this proposal. Accordingly, the
Board believes that it would serve no purpose for the Company to undertake the
proposed study. In addition, the preparation of the proposed study would not
enhance the Company's existing commitment to the worthy goal of fair dealing
in the business of insurance. Moreover, the Board of Directors believes that
requiring the preparation of a study on this matter would be an unnecessary
use of Company resources, and should not be approved by the Company's
shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
OTHER MATTERS
Management knows of no business which will be presented for consideration at
the Annual Meeting other than as stated in the Notice of Meeting. If, however,
other matters are properly brought before the Annual Meeting, it is the
intention of the proxyholders to vote the shares represented thereby on such
matters in accordance with the recommendation of the Board of Directors and
authority to do so is included in the proxy.
FORM 10-K
Shareholders may obtain without charge a copy of the Company's Annual Report
on Form 10-K, including financial statements and financial statement
schedules, required to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934 for the fiscal year ended
December 31, 1997, by calling (800)407-5222 or by writing to the Company at
440 Lincoln Street, Worcester, Massachusetts 01653 (attention: Secretary).
SHAREHOLDER PROPOSALS
Proposals submitted by shareholders of the Company must be received at
Citizens Corporation, 440 Lincoln Street, Worcester, Massachusetts 01653 on or
before November 30, 1998 in order to be considered for inclusion in the proxy
materials relating to the 1999 Annual Meeting of Shareholders.
DATED at Worcester, Massachusetts this 31st day of March 1998.
By Order of the Board of Directors,
/s/ Richard J. Baker
Richard J. Baker
Vice President and Secretary
14
<PAGE>
[CITIZENS CORPORATION LOGO APPEARS HERE]
271-5654 (Rev. 3/98)
<PAGE>
CITIZENS CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1998
The undersigned, having received the Notice of Annual Meeting of
Shareholders and the Board of Directors' Proxy Statement (the "Proxy
Statement"), hereby appoint(s) John F. O'Brien and John F. Kelly, and each of
them, Proxies of the undersigned (with full power of substitution) to attend the
Annual Meeting of Shareholders of Citizens Corporation to be held May 12, 1998,
and all adjournments thereof (the "Meeting"), and there to vote all shares of
Common Stock of Citizens Corporation that the undersigned would be entitled to
vote, if personally present, in regard to all matters which may come before the
Meeting.
The undersigned hereby confer(s) upon the Proxies, and each of them,
discretionary authority (i) to consider and act upon such business, matters or
proposals other than the business set forth below as may properly come before
the Meeting and (ii) with respect to the election of Directors in the event that
any of the nominees is unwilling to serve. THE PROXY WHEN PROPERLY EXECUTED
WILL BE VOTED IN THE MANNER SPECIFIED HEREIN. IF NO SPECIFICATION IS MADE, THE
PROXIES INTEND TO VOTE FOR ALL NOMINEES FOR DIRECTOR, FOR THE APPOINTMENT OF
PRICE WATERHOUSE LLP AS THE INDEPENDENT PUBLIC ACCOUNTANTS, AND AGAINST THE
SHAREHOLDER PROPOSAL.
Please mark vote as in this example. / X /
---
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS,
WHICH RECOMMENDS A VOTE FOR ITEMS I AND II
---
1. For the election of all nominees listed below (except as otherwise
indicated).
NOMINEES: James A. Cotter, Jr., Neal J. Curtin, Dona Scott Laskey, J.
Barry May, James R. McAuliffe, John F. O'Brien and Eric A.
Simonsen
/__/ FOR all nominees /__/ WITHHOLD from all nominees
___________________________________________________________________
FOR all nominees, except those listed on the line above
2. Ratification of the appointment of Price Waterhouse LLP as the independent
public accountants of Citizens Corporation.
/__/ FOR /__/ AGAINST /__/ ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEM III
-------
3. To approve the shareholder proposal with respect to commissioning a study,
as set forth in more detail in the Proxy Statement.
/__/ FOR /__/ AGAINST /__/ ABSTAIN
16
<PAGE>
(Form of Proxy continued)
Mark here for address change and note below. /__/
____________________ ______________
Signature Date
____________________ ______________
Signature Date
In signing, please write name(s) exactly as appearing in the imprint on this
card. For shares held jointly, each joint owner should sign. If signing as
executor, or in any other representative capacity, or as an officer of a
corporation, please indicate your full title as such.
[End of Proxy]
17
