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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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CITIZENS CORPORATION
(NAME OF SUBJECT COMPANY)
CITIZENS CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
01-174533 10 9
(CUSIP NUMBER OF CLASS OF SECURITIES)
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JAMES A. COTTER, JR.
CHAIRMAN OF THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS
CITIZENS CORPORATION
440 LINCOLN STREET
WORCESTER, MASSACHUSETTS 01653
(508) 855-1000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF THE PERSON(S) FILING STATEMENT)
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WITH A COPY TO:
DANIEL S. STERNBERG, ESQ.
CLEARY, GOTTLIEB, STEEN & HAMILTON
ONE LIBERTY PLAZA
NEW YORK, NEW YORK 10006
(212) 225-2000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company to which this Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") relates is Citizens
Corporation, a Delaware corporation (the "Company"), and the address of its
principal executive offices is 440 Lincoln Street, Worcester, Massachusetts
01653. The title of the class of equity securities to which this Schedule 14D-
9 relates is the Company's common stock, par value $0.01 per share (shares of
such common stock are referred to herein as the "Shares"). The Shares are
listed on the New York Stock Exchange under the symbol "CZC."
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule 14D-9 relates to a tender 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 not owned by AFC or its subsidiaries
(the "Public Shares"). The offer is being made at a price of $33.25 per Share,
net to the seller in cash, without interest (the "Revised Offer Price"), upon
the terms and subject to the conditions set forth in the Offer to Purchase,
dated November 2, 1998, as amended by a press release, dated November 16, 1998
(the "Offer to Purchase"), and the related Letter of Transmittal (which
together constitute the "Offer"). According to the Offer to Purchase,
immediately prior to making the Offer, AFC, through certain of its wholly
owned subsidiaries, owned approximately 83% of the outstanding Shares.
The Purchaser and AFC filed a Rule 13e-3 Transaction Statement and a related
Tender Offer Statement on Schedule 14D-1 on November 2, 1998. According to the
Offer to Purchase, the Purchaser is making the Offer for the purpose of
acquiring that number of Shares (the "Minimum Number") which, together with
the Shares already owned by AFC or its subsidiaries, would constitute at least
90% of the outstanding Shares. The consummation of the Offer is conditioned,
subject to waiver, on at least the Minimum Number of Shares being validly
tendered and not withdrawn in the Offer. Consummation of the Offer is not
conditioned on the approval or recommendation of the Offer by the Board of
Directors of the Company (the "Board of Directors") or the Special Committee
(as defined below).
The Offer to Purchase states that following acquisition of such number of
Shares pursuant to the Offer, the Purchaser and AFC plan to effect 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 without any action by the Board of Directors or its
stockholders (the "Merger," and together with the Offer, the "Transaction").
According to the Offer to Purchase, the Purchaser has approved the
consummation of the Merger subject to certain conditions, including the
acquisition of at least the Minimum Number of Shares. The Offer to Purchase
states that at the effective time of the Merger (the "Effective Time"), each
Share that is issued and outstanding immediately prior to the Effective Time
(other than Shares held in the treasury of the Company, by AFC or its
subsidiaries, or by stockholders who shall have demanded and perfected
appraisal rights under Section 262 of the DGCL) would be canceled and
converted automatically into the right to receive the Revised Offer Price in
cash, or any higher price paid per Share pursuant to the Offer, without
interest.
According to the Offer to Purchase, following consummation of the Merger,
the Purchaser would cease to exist and the Company would continue as the
surviving corporation (the "Surviving Corporation") and a wholly owned
subsidiary of AFC. The address of the principal executive offices of the
Purchaser and AFC, as set forth in the Offer to Purchase, is 440 Lincoln
Street, Worcester, Massachusetts 01653.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person filing
this Schedule 14D-9, are set forth in Item 1 above. Pursuant to resolutions of
the Board of Directors, dated October 27, 1998, a special committee of the
Board of Directors, consisting of James A. Cotter, Jr., Neal J. Curtin and
Dona Scott Laskey (the "Special Committee"), was established to review,
evaluate, and, if advisable, negotiate on behalf of the Company with respect
to, the Offer. The Board of Directors authorized the Special Committee to make
a
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recommendation with respect to the Offer and to file this Schedule 14D-9 on
behalf of the Company. The resolutions of the Board of Directors, dated
October 27, 1998, have been filed with the Securities and Exchange Commission
(the "Commission") as Exhibit 1 hereto.
(b) Except as described or incorporated by reference in this Item 3(b), to
the knowledge of the Special Committee, as of the date hereof, there are no
material contracts, agreements, arrangements or understandings, or any actual
or potential conflicts of interest, between the Company or its affiliates and
(1) the Company or its executive officers, directors or affiliates, or (2) the
Purchaser, AFC or their executive officers, directors or affiliates.
Agreements and Arrangements with Executive Officers and
Directors. Information with respect to certain contracts, agreements,
arrangements or understandings between the Company and its affiliates, on the
one hand, and certain of the Company's directors and executive officers, on
the other hand, is set forth in the Company's Proxy Statement, dated March 31,
1998, for its Annual Meeting of Stockholders held on May 12, 1998 (the "Proxy
Statement"). The Proxy Statement has been filed with the Commission as Exhibit
2 hereto, and pages one through nine thereof are incorporated herein by
reference.
AFC's Control of the Company. The Company was formed in 1993 by AFC as a
holding company for Citizens Insurance Company of America ("Citizens
Insurance"), a Michigan insurance company. In March and April of 1993, the
Company issued an aggregate of 6,981,600 Shares in its initial public
offering, as a result of which, approximately 19% of the outstanding Shares
became publicly held. Since 1991, as described below, the management and
operations of the Company and other subsidiaries of AFC have been combined in
part. According to the Offer to Purchase, as a result of the repurchase of
Shares by the Company, AFC, through its wholly owned subsidiaries First
Allmerica Financial Life Insurance Company ("FAFLIC"), SMA Financial Corp.,
Allmerica Property & Casualty, Inc. and the Hanover Insurance Company, owned
approximately 83% of the outstanding Shares immediately prior to making the
Offer.
Contracts, Agreements and Arrangements between the Company and AFC. As a
subsidiary of AFC, the Company has entered into various contracts, agreements
and arrangements with AFC and its subsidiaries. The Special Committee has been
informed by AFC that certain employees of the Company have assisted AFC and
the Purchaser with respect to the Transaction, primarily by providing
information concerning the Company for the preparation of the Offer to
Purchase in compliance with the requirements of the Securities and Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
According to the Offer to Purchase, no employee of the Company has, or will,
receive any additional or separate compensation for such services.
The Company is a party to a Consolidated Service Agreement among AFC and its
subsidiaries under which FAFLIC and other AFC subsidiaries provide management,
technological, administrative and other services, as well as office space, to
the Company and its subsidiaries. The Company 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 this 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. Prior to 1998, services were charged to the Company under this
agreement based on either (1) the low end of market prices when reasonably
available, or (2) the "full cost" of providing those services plus 10%. "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 that were not specifically identifiable
and were not cost-effective to measure. Since January 1, 1998, services
provided under the Consolidated Service Agreement have been charged to the
Company based on "full cost," without surcharge. The Board of Directors has
approved the Consolidated Service Agreement and periodically reviews the
dollar amount of charges from other subsidiaries of AFC. The Consolidated
Service Agreement has been filed with the Commission as Exhibit 10 hereto.
Beginning in 1996, AFC and the Company's computer data centers were
consolidated under FAFLIC. This resulted in the increase in total intercompany
charges to the Company from 1995 to 1996. Beginning in 1997,
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certain other functions, such as accounting, internal audit, tax management,
cash management, human resource management and facilities management, which
had been performed independently by the Company, were consolidated and managed
by AFC. This resulted in the increase in total intercompany charges to the
Company from 1996 to 1997.
On January 1, 1998, all employees of the Company became employees of FAFLIC
under a single employer arrangement for AFC and its subsidiaries. In
conjunction with this transition, AFC and the Company consolidated certain
additional functions which had been performed independently by the Company,
including technology, claims, customer service, premium billing, training,
printing and mail. Accordingly, these services are now charged to the Company
by FAFLIC in accordance with the Consolidated Service Agreement, resulting in
an increase in total charges from 1997 to 1998. However, under the single
employment arrangement, the costs related to the majority of former Company
employees are absorbed directly by the Company, and are not reflected in the
intercompany charges summarized above.
Additional Interests of Certain Directors and Executive Officers of the
Company. Certain members of the Board of Directors and certain senior
executive officers of the Company have certain additional interests which may
present them with actual or potential conflicts of interest in connection with
the Transaction. Four of the seven members of the Board of Directors, Messrs.
May, McAuliffe, O'Brien and Simonsen, are currently members of the Board of
Directors of AFC or are officers of AFC, and certain of the Company's senior
executive officers are also officers of AFC. Mr. O'Brien, Chairman of the
Board of Directors, President and Chief Executive Officer of the Company, is
Chief Executive Officer, President and a director of AFC. Such persons are
expected to retain their respective positions at AFC following consummation of
the Merger. For more information see pages one through four of the Proxy
Statement, which are incorporated herein by reference, and Appendix A to the
Offer to Purchase. The members of the Special Committee have no affiliation
with AFC, except as directors of the Company.
In addition, certain of the Company's directors and senior executive
officers own Shares and/or shares of AFC common stock. Information regarding
share ownership is set forth on page five of the Proxy Statement and is
incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A)-(B)(1) THE POSITION OF THE SPECIAL COMMITTEE.
The Special Committee has determined that, in light of the material
amendment to the offer price announced on the date of this Schedule 14D-9, it
is currently unable to take a position with respect to the Offer in this
Schedule 14D-9. However, as described below under "Background of the Special
Committee's Position," the Offer has been amended pursuant to an agreement
between the Special Committee and AFC and the Special Committee has agreed to
recommend the Offer as so amended to the Public Shareholders. The Special
Committee intends to communicate its recommendation, and the reasons therefor,
to the Public Shareholders as soon as possible but in no event later than
November 18, 1998.
(A)-(B)(2) BACKGROUND OF THE SPECIAL COMMITTEE'S POSITION.
AFC issued a press release regarding its intention to commence the Offer at
the original offer price of $29.00 per Public Share (the "Initial Offer
Price") on October 27, 1998.
On October 27, 1998, at a regularly scheduled meeting of the Board of
Directors, executive officers of AFC advised the Board of Directors that AFC
intended to commence the Offer. In contemplation of the Offer, the Board of
Directors established the Special Committee, consisting of independent
directors James A. Cotter, Jr., Neal J. Curtin and Dona Scott Laskey, to
review, evaluate, and, if advisable, negotiate on behalf of the Company with
respect to, the Offer. The Board of Directors also authorized the Special
Committee to make a
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recommendation with respect to the Offer and to file this Schedule 14D-9 on
behalf of the Company. Ms. Laskey and Messrs. Cotter and Curtin are the only
members of the Board of Directors who have not served as officers, directors
or employees of AFC or any of its subsidiaries other than the Company.
Following the October 27, 1998 meeting of the Board of Directors, the
Special Committee convened and elected Mr. Cotter as its Chairman. After
interviewing a number of law firms over several days, the Special Committee
unanimously decided to retain Cleary, Gottlieb, Steen & Hamilton as the legal
advisor to the Special Committee ("Cleary Gottlieb").
On November 2, 1998, AFC and Purchaser commenced the Offer at the Initial
Offer Price.
The Special Committee met on November 2, 1998 to discuss their duties under
applicable law with Cleary Gottlieb and to select an investment banking firm
to serve as financial advisor to the Special Committee. After interviewing
four investment banking firms, the Special Committee unanimously decided to
retain Merrill Lynch & Co. ("Merrill Lynch") to provide financial advice to
the Special Committee in connection with the Offer and render its opinion (the
"Opinion") as to whether or not the consideration to be received by the Public
Shareholders in the Offer is adequate or fair, as applicable, to the holders
of Public Shares (the "Public Shareholders") from a financial point of view.
See Item 5 below for a description of the terms of Merrill Lynch's engagement.
During the week of November 2, 1998, Merrill Lynch conducted a due diligence
review with respect to the Company and the Offer.
On November 3, 1998, the Special Committee issued a press release urging
Public Shareholders to take no action with respect to the Offer. This press
release has been filed with the Commission as Exhibit 3 hereto.
On November 7, 1998, the Special Committee held a meeting attended by
representatives of Merrill Lynch and Cleary Gottlieb. At the meeting,
representatives of Merrill Lynch summarized the results of their due diligence
review and presented certain preliminary valuation and financial analyses they
had performed with respect to the Company and the Shares. The Merrill Lynch
representatives indicated that although they were not yet prepared to render a
formal opinion regarding the Initial Offer Price, and additional analyses
would be required before they were in a position to do so, they had reached a
preliminary conclusion, based on the valuation and financial analyses
performed to date, that the Initial Offer Price was inadequate from a
financial point of view. Representatives of Cleary Gottlieb then discussed the
duties of the Special Committee under applicable law in light of Merrill
Lynch's preliminary conclusion. Following further discussion of these matters,
the Special Committee came to a preliminary conclusion that the Initial Offer
Price was not fair to or in the best interests of the Public Shareholders and
requested that representatives of Merrill Lynch communicate the preliminary
conclusions of Merrill Lynch and the Special Committee to representatives of
AFC and Goldman, Sachs & Co. ("Goldman Sachs"), the financial advisor to AFC.
The Special Committee also requested that Merrill Lynch, on behalf of the
Special Committee, request that AFC consider increasing the Initial Offer
Price and amending the Offer so that AFC's ability to consummate the Offer
would be conditioned on the valid tender of a majority of the Public Shares
(the "Majority of Minority Condition").
On November 8, 1998, representatives of Merrill Lynch contacted a
representative of AFC. The AFC representative indicated that AFC was unlikely
to amend the Offer to include the Majority of Minority Condition.
Representatives of Merrill Lynch and AFC agreed to exchange certain of their
valuation analyses and supporting data and to hold additional discussions in
the coming days.
On November 9, November 10, and November 11, 1998, representatives of
Merrill Lynch and Goldman Sachs exchanged information and discussed the
methodologies and assumptions underlying certain of their valuation and
financial analyses. During these conversations no specific revised offer price
or range of revised offer prices were proposed. Representatives of Merrill
Lynch reviewed the results of these conversations with the members of the
Special Committee and representatives of Cleary Gottlieb in several
conversations on those dates.
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On November 11, 1998, the Special Committee held a meeting attended by
representatives of Merrill Lynch and Cleary Gottlieb. Representatives of
Merrill Lynch reviewed certain further preliminary valuation and financial
analyses they had performed taking into account certain information received
during conversations with AFC and Goldman Sachs. The Special Committee
requested that representatives of Merrill Lynch continue their discussions
with AFC and Goldman Sachs in order to communicate the results of these
additional analyses and to reiterate the request that AFC propose a higher
offer price.
On November 12, 1998, the Special Committee held a meeting attended by
representatives of Merrill Lynch and Cleary Gottlieb. Representatives of
Merrill Lynch stated that they had been informed by representatives of Goldman
Sachs on behalf of AFC that "AFC is considering increasing its offer to $30.25
per share subject to acceptance by the Special Committee as to the fairness of
the price offered to the unaffiliated stockholders." The Merrill Lynch
representatives indicated to the Special Committee that although they were not
yet prepared to render a formal opinion regarding a $30.25 price per Public
Share, it was their preliminary conclusion, based on the valuation and
financial analyses performed to date, that such a price, if offered, would be
inadequate from a financial point of view. After discussion, the Special
Committee concluded that a price of $30.25 per Public Share, if offered, would
not be fair to the Public Shareholders and asked that Merrill Lynch
communicate that view to Goldman Sachs.
On November 13, 1998, members of the Special Committee participated in a
teleconference with certain Public Shareholders who previously had requested
an opportunity to state their views regarding the Offer to the Special
Committee. In the course of the teleconference, several Public Shareholders
made statements to the effect that they did not believe that the Initial Offer
Price was fair to the Public Shareholders. The members of the Special
Committee did not make any statement during the teleconference.
On November 13, 1998, representatives of Merrill Lynch informed
representatives of Goldman Sachs that the Special Committee had concluded
that, if offered, a price of $30.25 per Public Share would not be fair to the
Public Shareholders.
On November 14, 1998, the Special Committee held a meeting attended by
representatives of Merrill Lynch and Cleary Gottlieb. Representatives of
Merrill Lynch stated that they had been informed by representatives of Goldman
Sachs on behalf of AFC that AFC may be prepared to increase the offer price to
$32.00 if the Special Committee would conclude that the Offer at such price
was fair to the Public Shareholders. The Merrill Lynch representatives
indicated to the Special Committee that although they were not yet prepared to
render a formal opinion regarding a $32.00 price, it was their preliminary
conclusion, based on the valuation and financial analyses performed to date,
that such a price, if offered, would be inadequate from a financial point of
view. After discussion, the Special Committee concluded that a price of $32.00
per Public Share, if offered, would be inadequate and asked that Merrill Lynch
communicate that view to Goldman Sachs.
Later on November 14, 1998, representatives of Merrill Lynch communicated
the views of the Special Committee and Merrill Lynch regarding a possible
increase in the offer price to $32.00 to representatives of Goldman Sachs.
During the course of the day on November 15 and continuing during November
16, 1998, representatives of Merrill Lynch and Cleary Gottlieb continued to
discuss the terms of the Offer with representatives of Goldman Sachs and Ropes
& Gray, counsel to AFC, and to review the substance of those discussions with
the Special Committee. Such discussions resulted, on the morning of November
16, 1998, in an agreement between the Special Committee and AFC that AFC would
amend the Offer to increase the price to be paid in the Offer to $33.25 per
Public Share and the Special Committee would recommend acceptance of the Offer
as so amended to the Public Shareholders. In connection with the Special
Committee arriving at its agreement with AFC, at a meeting held on November
16, 1998 attended by representatives of Merrill Lynch and Cleary Gottlieb,
Merrill Lynch presented its financial and valuation analyses, which had been
updated to take into account the completion of its due diligence investigation
of the Company and recent market conditions, and then rendered its oral
opinion to the effect that the Revised Offer Price of $33.25 per Public Share
was fair, from a financial point of view, to the Public Shareholders.
On November 16, 1998, AFC and the Special Committee on behalf of the Company
issued a joint press release announcing the amendment of the Offer and the
Special Committee's agreement to recommend the Offer as so amended to the
Public Shareholders.
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ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Letter Agreement with Merrill Lynch. Pursuant to a letter agreement, dated
October 27, 1998 (the "Letter Agreement"), the Special Committee, on behalf of
the Company, retained Merrill Lynch to provide financial advice to the Special
Committee in connection with the Offer and render the Opinion as to whether or
not the consideration to be received by the Public Shareholders in the Offer
was adequate or fair, as applicable, to the Public Shareholders from a
financial point of view.
The Special Committee retained Merrill Lynch based on its experience and
expertise. Merrill Lynch is an internationally recognized investment banking
and business and financial advisory services firm. Merrill Lynch, as part of
its investment banking business, is continuously engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for
corporate and other purposes. In the ordinary course of its business, Merrill
Lynch and its affiliates may at any time actively trade or hold the securities
of the Company or AFC for their own account or for the account of customers
and, accordingly, hold a long or short position in such securities. Merrill
Lynch has rendered significant investment banking and advisory services to the
Company and AFC in the past for which it has received customary compensation.
The Special Committee was made aware of such prior relationships before
retaining Merrill Lynch and Merrill Lynch informed the Special Committee that
it is not currently rendering any services to AFC.
Pursuant to the Letter Agreement, the Company agreed to pay the following
fees to Merrill Lynch: (i) a fee of $100,000, payable upon execution of the
Letter Agreement, and (ii) an additional fee of $1,000,000, payable either (x)
on the date Merrill Lynch renders the Opinion, or (y) if for any reason
Merrill Lynch is not requested to render the Opinion, the date that Merrill
Lynch determines, in its reasonable discretion, that it has completed the work
necessary to render the Opinion. In addition, the Company has agreed to
reimburse Merrill Lynch for its reasonable out-of-pocket expenses incurred in
connection with its activities pursuant to the Letter Agreement, including the
reasonable fees and disbursements of its counsel. The Company also agreed to
indemnify Merrill Lynch and its affiliates and their respective directors,
officers, employees, agents and controlling persons against certain
liabilities and expenses arising in connection with Merrill Lynch's activities
under the Letter Agreement.
To the knowledge of the Special Committee, neither the Company nor any
person acting on its behalf has employed, retained or compensated any other
person to make solicitations or recommendations to security holders of the
Company on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a)-(b) To the knowledge of the Special Committee, neither the Company, any
of its subsidiaries, nor any executive officer or director of any of the
foregoing has engaged in any transactions involving the Shares during the
period of 60 business days prior to the date hereof.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as described in Items 3 and 4 above and as otherwise described in
this Item 7, to the knowledge of the Special Committee no negotiation is being
undertaken or is under way by the Company in response to the Offer which
related to or would result in (i) an extraordinary transaction, such as a
merger or reorganization, involving the Company or any affiliate or subsidiary
of the Company, (ii) a purchase, sale or transfer of a material amount of
assets by the Company or any subsidiary of the Company, (iii) a tender offer
for or other acquisition of securities by or of the Company or (iv) any
material change in the present capitalization or dividend policy of the
Company. The Special Committee intends to seek to continue its discussions
with AFC with a view towards improving the terms of the Offer for the Public
Shareholders. However, there can be no assurance that any such discussions
will take place or that, if held, they will result in any amendment to the
Offer.
(b) Except as described in Items 3 and 4 above and as otherwise described in
this Item 7, there are no transactions, board resolutions, agreements in
principle or signed contracts in response to the Offer which relate to or
would result in one or more of the matters referred to in paragraph (a) of
this Item 7.
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ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Certain Litigation
Since the announcement by AFC of its intention to commence the Offer, six
lawsuits have been commenced by Public Shareholders 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;
McKinnie v. O'Brien, et al., Civil Action No. 16749; and Hunter v. O'Brien, et
al., Civil Action No. 16772. Each of the actions purports to be a class action
brought on behalf of the Public Shareholders and asserts claims against AFC,
the Company and the members of the Board of Directors (including the members
of the Special Committee). 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 Public Shareholders. The various complaints purport by their
terms to seek injunctive relief preventing consummation of the Offer and
Merger, or rescission if they are successfully consummated, and compensatory
damages. No motion for injunctive relief has been filed. The defendants
anticipate that the complaints will be consolidated into a single action. 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 4 through
9 hereto.
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
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Exhibit 1 --Resolutions of the Board of Directors of the Company, dated
October 27, 1998.
Exhibit 2 --Proxy Statement of the Company dated March 31, 1998, relating to
its Annual Meeting of Stockholders held on May 12, 1998.
Exhibit 3 --Press release issued by the Company on November 3, 1998.
Exhibit 4 --Complaint filed in Finkelstein v. O'Brien, et al.
(Civil Action No. 16748, Delaware Court of Chancery).
Exhibit 5 --Complaint filed in McKinnie v. O'Brien, et al.
(Civil Action No. 16749, Delaware Court of Chancery).
Exhibit 6 --Complaint filed in Specht v. O'Brien, et al.
(Civil Action No. 16746, Delaware Court of Chancery).
Exhibit 7 --Complaint filed in Steiner v. O'Brien, et al.
(Civil Action No. 16747, Delaware Court of Chancery).
Exhibit 8 --Complaint filed in Susser v. O'Brien, et al.
(Civil Action No. 6745, Delaware Court of Chancery).
Exhibit 9 --Complaint filed in Hunter v. O'Brien, et al.
(Civil Action No. 16772, Delaware Court of Chancery).
Exhibit 10 --Consolidated Service Agreement, dated January 1, 1998
(incorporated by reference to Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).
</TABLE>
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SIGNATURES
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is
true, complete and correct.
Dated: November 16, 1998
CITIZENS CORPORATION
By the Special Committee of the
Board of Directors of Citizens
Corporation
/s/ James A. Cotter, Jr.
-------------------------------------
James A. Cotter, Jr.
/s/ Neal J. Curtin
-------------------------------------
Neal J. Curtin
/s/ Dona Scott Laskey
-------------------------------------
Dona Scott Laskey
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EXHIBIT INDEX
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Exhibit 1 --Resolutions of the Board of Directors of the Company, dated
October 27, 1998.
Exhibit 2 --Proxy Statement of the Company, dated March 31, 1998, relating to
its Annual Meeting of Stockholders held on May 12, 1998.
Exhibit 3 --Press release issued by the Company on November 3, 1998.
Exhibit 4 --Complaint filed in Finkelstein v. O'Brien, et al.
(Civil Action No. 16748, Delaware Court of Chancery).
Exhibit 5 --Complaint filed in McKinnie v. O'Brien, et al.
(Civil Action No. 16749, Delaware Court of Chancery).
Exhibit 6 --Complaint filed in Specht v. O'Brien, et al.
(Civil Action No. 16746, Delaware Court of Chancery).
Exhibit 7 --Complaint filed in Steiner v. O'Brien, et al.
(Civil Action No. 16747, Delaware Court of Chancery).
Exhibit 8 --Complaint filed in Susser v. O'Brien, et al.
(Civil Action No. 6745, Delaware Court of Chancery).
Exhibit 9 --Complaint filed in Hunter v. O'Brien, et al.
(Civil Action No. 16772, Delaware Court of Chancery).
Exhibit 10 --Consolidated Service Agreement, dated January 1, 1998
(incorporated by reference to Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).
</TABLE>
<PAGE>
EXHIBIT 1
CITIZENS CORPORATION
RESOLUTIONS OF THE BOARD OF DIRECTORS
October 27, 1998
----------------
RESOLVED: That pursuant to Section 141(c) of the Delaware General Corporation
- -------- Law and this Corporation's by-laws, a special committee of this Board
of Directors (the "Special Committee"), consisting of James A.
Cotter, Jr., Neal J. Curtin and Dona Scott Laskey, is hereby
established in connection with the announcement by Allmerica
Financial Corporation ("AFC") that AFC intends to commence, either
directly or through a wholly-owned subsidiary, a cash tender offer
(the "Tender Offer") to acquire all of the shares of common stock of
this Corporation that AFC's subsidiaries do not already own, followed
by a merger of this Corporation with a wholly owned subsidiary of AFC
pursuant to Section 253 of the DGCL (the "Merger" and together with
the Tender Offer, the "Transaction").
RESOLVED: That the Special Committee is hereby authorized, empowered and
- -------- directed to exercise all power and authority of this Board of
Directors that may be delegated by law to the Special Committee with
respect to the review, evaluation and, if advisable, negotiation of
the Transaction, such power and authority to include without
limitation, the power and authority to (i) review, evaluate and, if
advisable, negotiate the terms and conditions of the Transaction,
(ii) provide a recommendation to this Board of Directors regarding
the Transaction, determine whether this Corporation should recommend
that its shareholders accept the Tender Offer, and determine whether
the Transaction is fair to, and in the best interests of, the public
shareholders of this Corporation, (iii) select and retain, at the
expense of this Corporation, such experts and advisors, including an
independent investment banking firm and legal counsel, as the Special
Committee shall deem appropriate in order to assist it in discharging
its responsibilities and this Corporation shall pay the reasonable
fees, expenses and disbursements thereof, and (iv) take any such
other actions the Special Committee deems necessary or desirable to
accomplish the foregoing.
RESOLVED: That the Special Committee is authorized and directed in the name and
- -------- on the behalf of the Corporation to prepare, execute, and file with
the Securities and Exchange Commission and with any other regulatory
body or entity as may be required, a Schedule 14D-9 and any other
schedule, document, instrument or agreement required in connection
with the Transaction.
RESOLVED: That the Special Committee is authorized and directed in the name and
- -------- on the behalf of the Corporation to cause the Corporation to prepare,
execute, and file with the Securities and Exchange Commission any and
all
<PAGE>
amendments and supplements to any of the aforementioned and to
take any and all such further action in connection therewith as such
officers may deem necessary or desirable.
RESOLVED: That the Special Committee and each member of the Special Committee
- -------- be, and they hereby are, authorized and empowered to select from the
members of the Special Committee a Chairperson of the Special
Committee, which Chairperson shall be authorized to execute on behalf
of the Special Committee such consents, waivers and other documents
as the Chairperson deems necessary or appropriate in his or her
judgment to carry out the responsibilities of the Special Committee
contemplated by the foregoing resolutions.
2
<PAGE>
EXHIBIT 2
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>
EXHIBIT 3
CITIZENS CORPORATION SPECIAL COMMITTEE TO REVIEW ALLMERICA FINANCIAL TENDER
OFFER; ADVISES SHAREHOLDERS TO TAKE NO ACTION AT PRESENT TIME
November 3, 1998
WORCESTER, Mass., Nov. 3/PRNewswire/ -- Citizens Corporation CZC
---
announced today, in response to the tender offer for all outstanding shares of
Citizens commenced yesterday by its majority shareholder, Allmerica Financial
Corporation AFC, that the Company's board of directors had appointed a special
---
committee of directors not affiliated with Allmerica Financial to review and
evaluate and, if advisable, negotiate the terms of the offer on behalf of the
Company. The Special Committee has retained Merrill Lynch as its financial
advisor. The Special Committee will study the offer and make a recommendation
to shareholders on or before November 16, 1998. In the meantime, Citizens
Corporation urges its shareholders to take no action with respect to the
Allmerica Financial offer until the Special Committee has made its
recommendation. Allmerica Financial's tender offer is currently scheduled to
expire on December 2, 1998.
Citizens Corporation is the holding company for Citizens Insurance
Company of America, a leading underwriter of personal and commercial property
and casualty insurance in the Midwest. Citizens is a subsidiary of Allmerica
Financial Corporation, the holding company for a diversified group of insurance
and financial services companies based in Worcester, Mass.
<PAGE>
Exhibit 4
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.
-2-
<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
-3-
<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>
Exhibit 5
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>
Exhibit 6
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>
Exhibit 7
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
-6-
<PAGE>
Exhibit 8
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- -------------------------------------------X
:
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. :
:
:
- -------------------------------------------X
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
<PAGE>
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.
-2-
<PAGE>
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
----------------
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.
-3-
<PAGE>
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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<PAGE>
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;
-5-
<PAGE>
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/
---------------------------------
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
-6-
<PAGE>
EXHIBIT 9
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- -------------------------------------X
:
MARY HUNTER, :
:
Plaintiff, :
:
-against- :
: C.A. No. 16772
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 her attorneys, for her complaint against defendants,
alleges upon personal knowledge as to herself, 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 fiduciary obligations of good
faith, candor, loyalty and fair dealing to the public shareholders of Citizens.
2
<PAGE>
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
this Court, on behalf of herself 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 act is properly maintainable as a class action for the
following reasons:
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.
3
<PAGE>
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 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 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.
4
<PAGE>
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.
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.
5
<PAGE>
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 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 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
6
<PAGE>
and regardless of the 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;
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
7
<PAGE>
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:
Joseph H. Weiss
WEISS & YOURMAN
551 Fifth Avenue
Suite 1800
New York, NY 10178
(212) 682-3025
Steven G. Schulman
U. Seth Ottensoser
MILBERG WEISS BERSHAD HYNES
& LERACH LLP
One Pennsylvania Plaza
New York, NY 10119
(212) 594-5300
8
